1. What is the test on forgery in Malaysia?

The General Position when it comes to the civil standard of proof for fraud in Malaysia is on
the balance of probabilities. This principle was propounded and made clear by the Federal
Court in the case of Sinnaiyah & Sons v Damai Setia Sdn Bhd [2015] 5 MLJ 1 held that,

“[49] With respect, we are inclined to agree with learned counsel for the plaintiff
that the correct principle to apply is as explained in In re B (Children). It is this: that
at law there are only two standards of proof, namely, beyond reasonable doubt for
criminal cases while it is on the balance of probabilities for civil cases. As such even if
fraud is the subject in a civil claim the standard of proof is on the balance of
probabilities. There is no third standard. And ‘(N)either the seriousness of the
allegation nor the seriousness of the consequences should make any difference to
the standard of proof to be applied in determining the facts.”

Specifically on the issue of forgery, this position was adopted in the Federal Court case of
Letchumanan Chettiar Alagappan @ L Allagappan (as executor to SL Alameloo Achi alias
Sona Lena Alamelo Acho, deceased) & Anor v Secure Plantation Sdn Bhd [2017] 4 MLJ 697 .
The Federal overturned the decision of the trial court who applied the standard of beyond
reasonable doubt to prove forgery. The FC enunciated that,

“The courts below applied the standard of beyond reasonable doubt when it was on
a balance of probabilities. Proof of forgery was on the standard of balance of
probabilities even before Sinnaiyah & Sons Sdn Bhd v Damai Setia Sdn Bhd. Arising
from the Sinnaiyah decision, the distinction between forgery and fraud is for all
purposes eliminated in civil proceedings for purposes of the standard of proof. In any
event, it was established by the Federal Court in Yong Tim v Hoo Kok Chong & Anor
that the standard of proof of forgery in a civil proceeding is on a balance of
probabilities. It was wrong to require proof of forgery on the standard of beyond
reasonable doubt. Sinnaiyah’s case affirmed that the standard of proof of forgery
is on a balance of probabilities.”

Therefore, the current test for forgery in Malaysia is on the balance of probabilities.

2. Forgery in Bills of Exchange Act (BEA)

Specific provisions on forgery has been provided in the BEA, namely Section 24 and Section
73A of the BEA.

Forged or unauthorized signature Knowingly or negligently facilitating forgery

24. Subject to the provisions of this Act,
where a signature on a bill is forged or
placed thereon without the authority of the
person whose signature it purports to be,
the forged or unauthorized signature is
73A. Notwithstanding section 24, where a
signature on a cheque is forged or placed
thereon without the authority of the person
whose signature it purports to be, and that
person whose signature it purports to be
wholly inoperative, and no right to retain the
bill or to give a discharge therefor or to
enforce payment thereof against any party
thereto can be acquired through or under
that signature, unless the party against
whom it is sought to retain or enforce
payment of the bill is precluded from setting
up the forgery or want of authority:
Provided that nothing in this section shall
affect the ratification of an unauthorized
signature not amounting to a forgery.
knowingly or negligently contributes to the
forgery or the making of the unauthorized
signature, the signature shall operate and
shall be deemed to be the signature of the
person it purports to be in favour of any
person who in good faith pays the cheque or
takes the cheque for value.

The Courts have succinctly discussed how forgery under Section 24 and the Defence of
Section 73A operates within the ambit of BEA.

Any payment made in breach of section 24 of the BEA cannot form a valid payment. Case
authorities are clear on this subject. In all cases the bank is responsible for making payment
under a forged cheque as decided in United Asian Bank Bhd v. Tai Soon Heng Construction
Sdn Bhd [1993] 2 CLJ 31; [1993] 1 MLJ 182, Prima Nova Sdn Bhd v. Affin Bank Bhd [2014] 9
CLJ 442, Bumiputra-Commerce Bank Ltd v. Globelink Container Line Sdn Bhd [2014] 1 LNS
1462, CIMB Bank Bhd v. Panaron Control Sdn Bhd [2015] 1 CLJ 1056, Public Bank Bhd v.
Tetuan Kumar Jaspal Quah & Aishah [2016] 3 CLJ 548. With the insertion of section 73A into
the BEA, which took effect on 19.03.1998, the strict liability of a bank had been moderated.
A forged signature is deemed to be that of the person it purports to be if that person had
knowingly or negligently contributed to the forgery.

Whether a Document is forged?

The issue of whether a document is forged is question of facts. This has been established in
Asian Bank Bhd v. Tai Soon Heng Construction Sdn Bhd [1993] 1 MLJ 182,

“The issue whether a signature on a document has been forged is a question of

fact. It is eminently a matter for the trial court to determine after considering the
credibility of the witnesses it has seen and heard and taking into account any
expert evidence on the point. Of course, a trial judge is not entitled to abdicate his
function by allowing the expert to determine the question.”

Construction of S.24 and S.73A together

In Public Bank Bhd v. Tetuan Kumar Jaspal Quah & Aishah [2016] 3 CLJ 548, held that

“The general tenor of s. 24 as we understand it, primarily renders a forged or

unauthorised signature on a bill wholly inoperative and as such no right to, among
others, enforce payment on the bill against any party thereto can be acquired or
more specifically, in the instant appeal, the appellant had no mandate to pay on the
cheques. However the law does not accord this protection if the party against whom
it is sought to retain or enforce payment of the bill is precluded from setting up the
forgery or want of authority. Accordingly, although under s. 24 the respondent, in
connection with this present case, is afforded the statutory protection, the words
"subject to the provisions of this Act" appearing therein show that the section is
intended to be subservient to and shall be read with other provisions of Act 204, in
particular s. 73A, so that where the respondent is found to have facilitated the
alleged act of forgery by their own negligence, it may be precluded from setting up
such claim. It is in our view the correct construction of both provisions that the words
"Notwithstanding" appearing in s. 73A and the words "Subject to" used in s. 24 when
read together would plainly indicate that the former provisions prevail over the
latter provisions so that when both sections are construed in this manner, s. 73A in
reality provides an instance within the contemplation of s. 24 where any
circumstance which gives rise to the application of s. 73A would also come within the
exception provided for in s. 24.

[32] Thus, in tandem with s. 24 and by virtue of s. 73A, should the respondent be
found to have contributed negligently to or facilitated the act of forgery, the
signatures on the cheques shall operate in favour of the appellant which had paid
out the sums in good faith.”

On the construction of S. 73A, the Court of Appeal in Prima Nova Sdn Bhd v. Affin
Bank Bhd [2014] 9 CLJ 442 purports that for the s.73A to be raised, the Bank has
cleared all cheques in good faith and held,

“22. At the outset we wish to highlight that under the 'Macmillan ' rule, the
customer is only required to exercise care with the way he draws a cheque. In our
judgment, the words "negligently contributes to the forgery or the making of the
unauthorised signature" in section 73A whether construed literally or by way of
purposive construction, can only have one meaning. That is this. So long as the
forgery or the incorporation of the unauthorised signature of the mandatory
signatories was caused by the negligence of the authorised signatories, then, the
bank is protected provided the payment of the cheque was effected "in good faith".
By reason of the absence of any qualifying words in Section 73A, whichever
construction is adopted, in our respectful view, there is no basis to limit the
protection enjoyed by the bank under section 73A to negligence in the drawing of
the cheque only. In our opinion if it was the intention of the legislature to limit the
protection afforded by this section to the 'Macmillan duty', nothing would have been
easier than to qualify the word "negligence" with the words "in the drawing of the
cheque". In this respect, our opinion to this effect is reinforced by the statements
made by the Deputy Finance Minister when introducing this amendment in
Parliament.

23. Accordingly, in our judgment, the effect of section 73A is to afford protection to
a bank paying "in good faith" in all cases in which there was negligence on the
part of the drawer and which negligence afforded the opportunity for the forgery
or fraud in circumstances that were the immediate cause of the payment by the
 banker. Failure to report the stolen cheques in a timely manner and thereby causing
the bank to honour the cheques could amount to fraud within section 73A in cases
where the forgery was an 'inside job' but would in any event amount to a breach of
the 'Greenwood duty'. In other words, the effect of the amendment is that our courts
should no longer determine the liability of a bank on a claim on forged cheques
based on whether the customer observed the 'Macmillan ' and 'Greenwood ' duties
approved by the Supreme Court in United Asian Bank Bhd v. Tai Soon Heng
Construction Sdn Bhd (supra ) but the wider duty of care considered but rejected by
the Privy Council in Tai Hing Cotton Mill Ltd v. Liu Chong Hing Bank Ltd & Ors
(supra ).”

Estoppel under S.24

In Leolaris (M) Sdn Bhd v Bumiputra Commerce Bank Bhd [2013] 7 MLJ 25, the High Court
set out the duties of the customer to prevent the Bank in succeeding in a S73A defence,
“(h) Section 73A directly and/or indirectly has brought in a wider concept of duty requiring a
customer to take reasonable precautions in the management of his business to prevent
forgery and also a duty to check periodical bank statements and alert the bank to arrest
forgery at the earliest opportunity failing which the bank may succeed by raising the s 73A
defence…”

3. If there was forgery, what happens to the innocent party?

If forgery occurred, the Court would commit to a finding of whether the defendant can raise
an estoppel under Section 24, if he fails to prove an estoppel then there was in fact forgery.
However the innocent party is still subject to Section 73A, if the innocent party has
negligently allowed the forgery, the transaction would be in favour of the Bank.
4. The Position In Majuikan Sdn Bhd v Barclays Bank Plc [2015] 1 MLJ 171
In Court of Appeal discussed the construction of Section 24 and Section 73A and held on the
doctrine of estoppel, (wilful blindness)

“[58] If a man knows that his signature has been forged and by his actions or his
silence willingly leads others to believe that the forgery is his genuine signature he
cannot later plead that his signature was forged. In short, he will be estopped from
denying the signature to be his... (at pp 116–117).
[63] Majuikan had chosen to be 'willfully blind' to the forgery in its relationship with
HSBC and Barclays, and therefore must be held to be precluded from setting up the
forgery against them. It is no answer to simply assert that Bank Negara or Maybank
should have informed these parties. This kind of argument is nothing short of an
attempt to shift the blame.
[64] In these circumstances, Majuikan should in fairness be held accountable, even
though there was forgery of the mentioned documents. Majuikan has no one else to
blame except itself….”
In essence, the customer is estopped from imposing liability on the Bank if he will-
fully blinds himself from the forgery even with knowledge of it and leads the Bank
to believe that the forgery is genuine. “
Similarly in Public Bank Bhd v. Tetuan Kumar Jaspal Quah & Aishah [2016] 3 CLJ 548, the
court extended the duties of the customer beyond the McMillan and Greenwood principle,

“Failure to report the stolen cheques in a timely manner and thereby causing the
bank to honour the cheques could amount to fraud within section 73A in cases
where the forgery was an 'inside job' but would in any event amount to a breach
of the 'Greenwood duty'. In other words, the effect of the amendment is that our
courts should no longer determine the liability of a bank on a claim on forged
cheques based on whether the customer observed the 'Macmillan ' and
'Greenwood ' duties approved by the Supreme Court in United Asian Bank Bhd v.
Tai Soon Heng Construction Sdn Bhd (supra ) but the wider duty of care considered
but rejected by the Privy Council in Tai Hing Cotton Mill Ltd v. Liu Chong Hing Bank
Ltd & Ors (supra )”

In United Asian Bank Bhd v. Tai Soon Heng Construction Sdn Bhd [1993] 1 MLJ 182, the Court
setforth an example where silence amounts to representation as the customer had the duty
to speak therefore is estopped from denying the signature to be his.

“Section 24 protects a banker by recourse to the doctrine of estoppel. A customer

cannot recover if he has represented to his banker that the forged signature is
effective and that the instrument is accordingly good for payment. There are several
decisions illustrating the circumstances in which a banker is protected but for the
purposes of this appeal it is sufficient to refer to just two of these.

In Brown v Westminster Bank Ltd 5, the plaintiff's signature had been forged by a
Mrs Carless, her husband and her daughter on some 329 cheques that had been
stolen from the plaintiff. One hundred of these cheques had been forged between
February 1959 and April 1961. The remainder were forged between April 1961 and
October 1961. Evidence was led to show that the bank's branch manager had, in
October 1960, drawn the plaintiff's attention to a number of cheques that had been
apparently made payable to Mr Carless. At an interview which the branch manager
had with the plaintiff, the former was given the impression by the latter that the
cheques were genuine. At a second interview, the plaintiff had been specifically
asked by the branch manager to check her statements of account. The plaintiff failed
in her action to recover the moneys paid out on the forgeries. It was held that there
was an estoppel in favour of the bank in that by failing to respond to the inquiries
made by the bank's branch manager, the plaintiff by her silence had represented
the cheques to be genuine and was therefore precluded from contending
otherwise. On the facts of that case, the plaintiff was plainly under a duty to speak
and her silence therefore amounted to an estoppel.”

In Kerajaan Malaysia v RHB Insurance Bhd [2014] 11 MLJ 541, the Court recognised that
silence can be a form of representation, i.e knowing silence meaning silence in the face of
knowledge.
 “[44] With respect to the plaintiff contention that estoppel lies against the
defendant is, with respect, misconceived. The defendant, silence as it were is entirely
due to the fact that it had no knowledge of the fraud at the material time. It is only
silence in the face of knowledge of a wrongful act on the part of its employees or
any act or representation to the effect that the document was a genuine document
that would preclude the defendant from relying on the forgery to meet the
plaintiffs claim…”

Conclusion: Therefore, where a customer is in the knowledge that the document is forged
but chooses to be silent in the face of such knowledge and affirms to the Bank that such
document is genuine, the customer is estopped from denying the signature to be his.