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Federal Court: Financial Institutions Do Not Owe Duty of Care To Non-Customers

posted 7 months ago


On 26.7.2023, the Federal Court in the case of RHB Investment Bank Bhd v Koperasi Sahabat Amanah Ikhtiar Bhd (Civil Appeal 02(f)-98-11/2022(W)) set aside the decision of the Court of Appeal (Koperasi Sahabat Amanah Ikhtiar Bhd v RHB Investment Bank Bhd [2022] 6 MLJ 722) which previously held that financial institutions owe a duty of care to non-customers.

The Federal Court held that it would be unjust, unfair and unreasonable to impose a duty of care owed by the financial institution to the non-customer in this case. The extension and imposition of such a duty would put financial institutions and all investment banks in a position of commercial inertia and indeterminate liability.


The key parties in this case are as follows:

Koperasi Sahabat Amanah Ikhtiar Bhd – Koperasi
RHB Investment Bank Bhd – RHB
Abhar Capital Holdings Sdn Bhd – Abhar
Lotfi bin Miskam – Lotfi

Lotfi is a fraudster and represented himself to Koperasi that he is an officer/ agent of RHB. However, Lotfi is in fact not an employee/ agent and not all related to RHB.

Lotfi proposed that Koperasi invest with RHB, the sum of RM10 million for a 3-year investment scheme with attractive returns annually. Lotfi issued a forged letter, purportedly from RHB, a well-known investment bank, to Koperasi with the details of the purported investment.

Koperasi then issued a cheque for the sum of RM10 million, payable to RHB. Lotfi deposited Koperasi’s RM10 million cheque into RHB’s pool account with Maybank.

Lotfi hands over the bank-in slip for the RM10 million cheque and instructs a remisier employed by RHB to transfer the RM10 million into Abhar’s trading account. Abhar was a company in which Lotfi’s sons were directors.

RHB approves the transaction and the RM10 million is transferred from the pool account to Abhar’s trading account.

Abhar bought shares using the monies in its trading account, siphoned Koperasi’s RM10 million and closed its trading account.

When Koperasi discovered that there was no such investment with RHB and this was a fraudulent scheme by Lotfi and Abhar, Koperasi sued RHB, Lotfi and Abhar.

High Court

Koperasi entered default judgments against Lotfi and Abhar.

The High Court dismissed Koperasi’s claim against RHB for negligence and held the following :

  • Since Koperasi was not a customer of RHB, there was no relationship legal or otherwise, from which there could arise a duty of care.
  • Koperasi did not have an account with RHB, and therefore cannot expect RHB to owe it a duty of care.
  • Further, there are hundreds of deposits everyday into the account of RHB and RHB would be burdened with an onerous duty to have to check whose deposit it is before dealing with it.
  • As there is no duty of care, the issues of breach of duty and causation are not relevant.

Court of Appeal

Dissatisfied with the decision of the High Court, Koperasi appealed to the Court of Appeal with RHB as the sole respondent.

The Court of Appeal set aside the High Court order and held as follows:

  • There existed a duty of care owed by RHB towards Koperasi when it received Koperasi’s RM10 million cheque.
  • There was a breach of duty when RHB:
    • did not verify the identity of the depositor, the purpose of the deposit and instructions with respect to the deposit of the substantial sum of RM10 million;
    • transferred Koperasi’s RM10 million into Abhar’s trading account without due care and regard for Koperasi’s instructions; and
    • RHB failed to comply with their own internal banking procedures
  • RHB’s breach of its duty of care undoubtedly caused Koperasi to suffer loss as, but for RHB’s breach, the RM10 million would not have been channelled to Abhar’s trading account which then enabled Abhar to siphon off the monies shortly thereafter.

The Court of Appeal ordered RHB to pay Koperasi RM10 million in damages.

Federal Court

RHB appealed against the decision of the Court of Appeal.

The following question of law posed before the Federal Court:

“Whether a financial institution owes a duty of care to third parties who are not its customers and to whom it had no assumed any responsibility in a case of pure economic loss”

The Federal Court answered the question of law in the negative.

The decision of the Court of Appeal was set aside and the decision of the High Court was reinstated.

The Federal Court held as follows:

  • A more restrictive approach is adopted when imposing a duty of care in a claim for pure economic loss.
  • Pure economic losses may only be recoverable under limited circumstances.
  • The threshold 3-fold test to ascertain the existence of duty of care must be satisfied: (1) reasonable foreseeability; (2) legal proximity; and (3) whether it is fair, just and reasonable.
  • Non-compliance with any standard operating procedure or not acting in accordance with good professional practice do not lead to existence of duty of case. It only relates to the standard of care.
  • There is no factual basis to make any inference or reasonable inference that RHB could reasonably foresee any loss to Koperasi.
  • There was no special relationship or sufficient proximity on the facts to give rise to a duty of care:
    • Koperasi was not a customer of RHB.
    • Koperasi did not have an account with RHB.
    • Koperasi had no prior dealings or relationship with RHB.
  • The only nexus was Koperasi’s cheque that was deposited into RHB’s pool account.
  • It would be unjust, unfair and unreasonable to impose a duty of care owed by RHB to Koperasi, a non-customer.


The Federal Court’s latest ruling is a departure from the Court of Appeal’s decision that extended and imposed a more onerous duty on financial institutions, which could have potentially opened up the floodgates to a barrage of claims from victims of fraudulent schemes and scams, against financial institutions.

With the advent of this recent decision, it is settled that financial institutions do not owe a duty of care to third parties who are not its customers.

Notwithstanding the above, it will still be prudent for financial institutions to ensure that they act in accordance with good professional practices, including compliance with their respective standard operating procedures and guidelines from the authorities.

About the author
Chew Jin Heng
Dispute Resolution
Halim Hong & Quek
[email protected]

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