Can a Bank Blindly Follow It’s Customer’s Instructions?

Noramin Petra examines the court of Appeal's decision in Bank Utama (Malaysia) Berhad v Insan Budi Sdn Bhd




The Defendant (the appellant) agreed to provide banking facilities to the Plaintiff (the respondent) for the import of 100,000 metric tons of raw sugar for onward supply to a local buyer.


The Plaintiff initially purchased the sugar from Meridian International Investment Incorporation ("Meridian"). Due to problems encountered by Meridian with its suppliers, the Plaintiff procured the supply of sugar from Arrow Agencies ("Arrow").


To cover payment for the first shipment of 12,500 metric tons of sugar by Arrow, the Plaintiff requested the Defendant to issue a cash backed SWIFT Wire Transfer for USD2.95 million in favour of Arrow.


Upon the Plaintiff's written instructions, the Defendant sent the SWIFT Wire Message to the Arrow’s bank, Nedbank, by facsimile. As this was the wrong procedure, Nedbank was unable to process the SWIFT Wire Transfer. As a result, Arrow was unable to send the first shipment of sugar and terminated its contract with the Plaintiff.


The local buyer terminated its contract with the Plaintiff and sought to recover their losses for the issuance of a letter of credit in favour of the Plaintiff.


The Plaintiff claimed damages against the Defendant for breach of contract and negligence by the Defendant as banker to fulfill their contractual obligation and duty of care to the Plaintiff.




The High Court trial judge held that:


(a) The Plaintiff was entitled to base its claim on contract and in tort;

(b) The Defendant, as a bank, owed a duty of care to the Plaintiff as its customer;

(c) The Defendant was negligent in sending the SWIFT Wire Transfer through the wrong procedure and in doing so had also breached its contractual duty to the Plaintiff.


The Defendant appealed against the decision of the trial judge to the Court of Appeal.




The Defendant advanced various grounds of appeal, including those discussed below.



Defendant's Liability

The Defendant disputed the trial judge's finding that the SWIFT Wire Transmission was the cause for the termination of the supply agreement by Arrow.


The Court of Appeal held that it was clear from the evidence that Nedbank could not process the payment of SWIFT Wire Transfer USD2.95 million as it had been sent by the wrong procedure and that as a result, Arrow did not ship the first shipment of sugar. The Court of Appeal was satisfied that the SWIFT Wire Transfer was the 'causa causans' (immediate or effective cause) of the termination of the contract by Arrow and rejected the Defendant's contention on this issue.



Concurrent Actions in Contract and in Tort

The Defendant contended that the sole duty owed to the Plaintiff as its customer is in contract and that the learned trial judge had erred in holding the Plaintiff liable both in contract and tort.


On this issue, the learned trial judge had arrived at the following conclusion after considering the cases from Commonwealth jurisdictions cited by both parties:


"Considering all these authorities I am of the view that the liabilities both in tort and contract can exist concurrently or alternatively.


In the present case, the Plaintiff is not relying on the tortuous liability to expand the liability of the defendant, but only in addition in the alternative to arrive at the same conclusion. I think that the Plaintiff is entitled to do it."


The Court of Appeal considered the authorities referred to in the trial judge's judgment including Lim Soh Wah & Anor v Wong Sin Chong & Anor & Another Appeal [2001] 2 CLJ 344 where Sri Ram JCA (as he then was) cited the following passage from Henderson & Ors v Merrett Syndicates Ltd & Ors [1994] 3 All ER 506, 530 (House of Lords) where Lord Goff cited with approval, the following passage from Le Dain J's judgment in the Canadian Supreme Court's decision in Central Trust Co v Rafuse [1986] 31 DLR (4th) 481:


"A concurrent or alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort. Subject to this qualification, where concurrent liability in tort and contract exists the plaintiff has the right to assert the cause of action that appears to be the most advantageous to him in respect of any particular legal consequence."


The Court then concluded that the trial judge had not erred on this point.



Duty to Advise

The Defendant also contended that the trial judge had erred in law by imposing on the Defendant an advisory obligation towards the Plaintiff in relation to the SWIFT Wire Transfer. The Defendant argued that its primary obligation was to comply with the plaintiff's instructions, which was to send the SWIFT Wire Transfer by facsimile.


The trial judge made a finding of fact that the bank officer who was carrying out a professional duty had a duty to inform the Plaintiff that SWIFT messages could not be sent by facsimile as the Plaintiff as a customer would not understand the detail working of a SWIFT Wire Transfer. As the Court of Appeal was unable to find any flaw in the judge's finding of fact, it rejected the Defendant's contention on this issue as being devoid of merit.


The Defendant's appeal was dismissed.




This case is noteworthy as it shows that a bank is not entitled to blindly rely on the instructions given by its customer as the Court may in appropriate circumstances hold that a bank is under a duty to advise its customer as to the manner in which a banking transaction is to be carried out.



NORAMIN PETRA ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )



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