Banker’s Duty vis-à-vis architect’s certificates

A case commentary on Cheah Swee Fah v Bank Bumiputra Malaysia Bhd by Harold Tan



The Court of Appeal in the case of Cheah Swee Fah v Bank Bumiputra Malaysia Bhd & Anor [2008] 3 CLJ 132 held that as a general rule, a bank is not under any duty to ascertain the veracity of an architect’s certificate or to ascertain that works had been completed before making payment.




The Appellant (“Purchaser”) purchased a property from a housing developer and obtained a loan from the 1st Respondent bank (“Bank”) to finance her investment. The 2nd Respondent (“Architect”) was the architect in charge of the housing project. Under the loan agreement, the Bank was to make progressive payments to the developer at various stages of construction in accordance with the certificates issued by the Architect.


The Bank made 8 progressive payments to the developer before the project was abandoned in January 1983. With the help of the Ministry of Housing, works recommenced in 1985 and the project was finally completed in 1988.


In response to the Bank’s efforts to recover the loan, the Purchaser brought an action against the Bank to challenge the validity of the 8th progressive payment to the developer on the ground that the payment was not due when it was made by the Bank. The Purchaser argued that although the certificate issued by the Architect for the purpose of the said payment showed that the roads and drains fronting the houses have been completed, no such roads and drains were in fact completed as the housing project had already been abandoned at that stage.


The Purchaser claimed inter alia that the 8th progressive payment by the Bank was wrongful and was made in breach of the Bank’s contractual duty of care owed to the Purchaser as a customer under the loan agreement.


The Bank on the other hand contended that there was no breach of contract on its part as it was mandated to release payment to the developer against the Architect’s certificate.


The High Court after a full trial gave judgment in favour of the Bank. The Purchaser appealed.




The Court of Appeal by a unanimous decision upheld the judgment of the High Court in full and dismissed the appeal.


In arriving at its decision, the Court of Appeal held that the case was to be determined on the proper construction of the contract between the parties. It was found to be an express term of the loan agreement between the Purchaser and the Bank that funds were to be released to the developer’s account against the Architect’s certificate.


The Court of Appeal further found that the Bank was not obligated under the terms of the loan agreement to go behind the Architect’s certificate, nor was the Bank competent to do so. The Supreme Court case of BBMB v MAE Perkayuan Sdn Bhd [1993] SCR 385 relied on by the Purchaser was distinguished on the ground that in the MAE Perkayuan case, the bank was under an express contractual duty to conduct periodical survey of the housing project, whereas no similar duty was imposed on the Bank in the present case.


The Court of Appeal agreed with the findings of the High Court that it would be too onerous to impose on the Bank an implied duty to ascertain the actual situation at the site or to make inquiries prior to making payment to the developer, unless there is clear evidence that the Bank was aware that something was amiss when it made payment. On the facts of the case, the Court of Appeal found that there was no irregularity in the Architect’s certificate and, as such the Bank was not in breach of any of its duties, express or implied.


The common law principle that a paying banker owes his customer a contractual duty of care in carrying out payment instructions was held to be inapplicable to the present case. To illustrate this point, the Court of Appeal referred to the English case of Hilton v Westminster Bank Ltd [1926] 123 LT 358 where the bank was sued for negligence in paying a cheque of the customer upon presentation after having received a notice of countermand, or alternatively having received instructions from the customer which should have put the bank on inquiry as to the exact meaning of the instructions. The English court held that the bank owed a duty to the customer to exercise reasonable care and skill in dealing with communications which the customer sends to the bank in relation to his banking business.


The Court of Appeal held that this common law principle is restricted to cases dealing with communications sent by the customer to the bank, and does not extend to communications sent by a third party, such as the Architect’s certificate in the case at hand.




This case is noteworthy as it emphasises the following points:-


(1) The rights and obligations of a bank and its customer are governed primarily by the express provisions of the contract entered into between the parties;

(2) In the absence of clear evidence that the bank is aware of something amiss that would negate its obligation to make payment on an architect’s certificate, the bank is not under any implied duty to ascertain the veracity of the architect’s certificate or ascertain that works have been done before making payment; and

(3) The common law principle that a paying banker owes a contractual duty of care to his customers in carrying out payment instructions is only applicable to cases dealing with communications sent by the customer, and does not extend to communications sent by a third party.



HAROLD TAN KOK LENG ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )



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