KUALA LUMPUR (Aug 26) : The High Court on Wednesday has ruled that banks have a duty of care in transferring their customers’ funds, even if the customer provided a wrong account number, as the bank has a safety system in place to make sure the account and the name of the account holder of the recipient are correct.

In this case, although the customer failed to provide the correct account number, the customer had provided the right recipient in the online information. Despite this, the bank made the transfer in 2022, resulting in the customer failing to recoup a huge portion of the sum.

Based on this, Judicial Commissioner Moh Kok Wai ordered Alliance Bank Malaysia Bhd and its subsidiary, Alliance Islamic Bank Bhd, to pay a sum of RM1.163 million to auto parts company Yatt Fatt Auto Supplies Sdn Bhd. The JC also ordered for the inclusion of interest at the rate of 5% per annum from the date of judgement (Wednesday) until the final realisation of payment of damages.

“The central lesson of this case is not that banks must guarantee their customers against every human mistake. It is a more modest but important proposition.

“A bank which chooses to require particular information as part of its payment architecture must take reasonable care to ensure that the information it requires performs a meaningful function. Automation may replace the human hand, but it does not replace the laws insistent upon reasonable care.

“I further find that the defendants failed to exercise the reasonable care and skill expected of a prudent banker, and that their breach materially contributed to the plaintiff's loss,” the JC added in his oral decision on Wednesday.

Besides this, Moh also ordered the defendants to pay RM50,000 in costs to Yatt Fatt Auto.

In arriving at the court’s decision, Moh said the evidence establishes that the bank’s information technology platform, called Bizsmart, requires both the beneficiary’s name and account number as mandatory fields.

Yet the evidence of the bank’s witness, the JC said, was not equivocal when she testified that the system did not know whether the account number was right or wrong, and would process the payment according to the information supplied.

That, he added, is the difficulty.

“The defendants required two identifiers, but their system did not compare them. It contained no mechanism to alert the customer where those identifiers pointed to different recipients. The system therefore required information which, in operational terms, is simply ignored.

“This is not to impose upon banks the duty to investigate every electronic payment manually, nor to demand technological perfection. The question is a narrower one: whether a reasonable, prudent banker, having deliberately required two mandatory beneficiary identifiers, should have equipped its own system with at least a basic safeguard capable of identifying an obvious contradiction between them.

“In my judgement, the answer is clearly Yes. The defendant's own evidence concerning conventional banking practices reinforces that conclusion. They accepted that obvious inconsistencies in payment particulars are ordinarily a reason to stop and seek clarification. The fact that the transaction is performed digitally cannot, in my judgement, justify a lower standard of reasonable care [on the bank],” the court added.

The auto parts company had filed the suit on June 10, 2024, and filed an amended suit on March 7 last year, where it had named the banks as defendants after the bank had failed to recover the sum for Yatt Fatt Auto to recoup its losses.

The auto parts company claimed that it had been subscribed to the bank’s online system since 2017, and sometime in May 2022, it had made three transfer payments to Perodua Sales Sdn Bhd to the sum of:

·       RM400,000 on May 24, 2022;
·       RM400,000 on May 27, 2022; and
·       RM433,224.53 on May 30, 2022.

On May 31, 2022, Perodua informed the company that they had yet to receive the transfer of funds for the said instruction, and the auto parts company informed the bank. The bank allegedly replied that the payment had been paid to a third party without providing any details. 

Yatt Fatt Auto’s managing director, Datuk Too Peng Huat, subsequently lodged a police report regarding the incident, and a year after lodging the police report on June 9, 2023, it was discovered that the bank had transferred the funds to Banarsi Das Trade’s Maybank account.

Following that, the auto parts company filed legal action and Maybank Islamic managed to return a sum of RM69,303.53 of the total sum as directed by the police.

Yatt Fatt Auto claimed it does not know Banarsi or have any business relationship with that entity. Following that, it filed legal action to recoup the sum and secured judgement in default for the non-payment on Jan 13, 2023.

The auto company applied for a garnishee order against Banarsi, but Banarsi failed to settle the sum, resulting in Yatt Fatt Auto filing the suit against the bank.

Yatt Fatt Auto claims that the banks have a duty of care to do its banking duties and has the responsibility to ensure that its payment system has the necessary safeguards to follow the company’s instruction resulting in the non-compatibility of the identity of the recipient and its account number, and that the bank has a duty to review and verify this in its system.

Hence, the company had sought the sum of RM1,163,921 in special damages being the balance of the sum, another sum RM51,766.20 being the interest for the overdraft facility, and another RM102,330 in special damages for costs in appointing lawyers to take action on Banarsi.

The bank in its defence said the transaction had been approved and authorised by the rightful authoriser of the plaintiff based on its user ID and password, as the company managed to log into the system using the correct username and password to make those transactions.

“There was no deficiency or abnormalities with the BizSmart system, and there were no signs that it had been compromised. The defendants had taken steps to recover the said sums for the plaintiff upon being informed on May 31, 2022.”

The bank claimed that it had fulfilled its obligations and safeguard as a banker as required.

Yatt Fatt Auto was represented by Sangeet Kaur Deo and Harkiranjit Kaur of Messrs Karpal Singh & Co, while Benjamin Chwee and Lean Jie from Messrs Azhar & Goh appeared for the financial institutions.