CIMB Bank Berhad v Lee Kim Kee & Another Appeal [2018] 3 MLJ 72

CIMB Bank Berhad v Lee Kim Kee & Another Appeal [2018] 3 MLJ 72

Court of Appeal (Putrajaya)

The Liability of the Firm for Its Partner’s Fraudulent Action

Facts 1.    In 1992, an 88-year-old woman named Lee Kim Kee (“the Respondent”) received RM560,512.50 (“the compensation money”) from the land office as compensation for her land.

2.    The Respondent and her son engaged the services of Messrs Chen, Leong & Co, a law firm in Bukit Mertajam (“the Firm”) to carry out the legal process in respect of the release of the compensation money.

3.    The Firm undertook the compensation money on the Respondent’s behalf but did not update nor reply her despite her sending two written inquiries dated 12 March 2000 and 5 August 2000.

4.    On 14 September 2000, the Respondent found out from a newspaper that one of the Firm’s partners, Leong Sing Cheong (“Leong”) had absconded.

5.    In August 2002, the Respondent discovered that Leong had used fake documents to deposit the compensation money into a fixed deposit account opened under the Respondent’s name without the Respondent’s knowledge.

6.    The Respondent was also informed by the bank that the said fixed deposit account had been uplifted and the whole sum together with its interest had been transferred into the client’s account of the Firm, in which the compensation money eventually disappeared.

7.    The Respondent reported Leong to the police and hired new lawyers to sue in the High Court to recover the compensation money and interest.  One of the lawsuits was against Leong and his partner, Chen Thim Wai.

8.    The Respondent accused CIMB Bank Berhad (“the Appellant”) of negligence, fraud, conspiracy, and fraudulent collusion in handling her compensation money, alleging that Leong’s use of fake documents within the Appellant could only have happened due to the Appellant’s gross negligence.

9.    The Appellant argued that the Respondent’s claims were time-barred under the Limitation Act 1953 and also denied negligence, claiming they had followed instructions from a forged letter of authorization supposedly given by Lee (which was determined to be forged by Leong).

10. The High Court ruled in favor of the Respondent, finding the Appellant wholly liable for negligence, breaching their duty of care and established banking practices.

11. However, in this case review, we will focus on examining the Firm’s liability for Leong’s fraudulent actions.

Issue 1.    Whether fraudulent acts of partner of legal firm in siphoning off client’s monies make his innocent partner or the firm liable?
Ratios 1.    Section 7 of Partnership Act 1961 (“Act 361”) read as follows:

“7. Power of partner to bind firm

Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom he is dealing either knows that he has no authority or does not know or believe him to be a partner.”

[Emphasis Added]

2.    Applying the above provision, the Court of Appeal found that Leong’s actions, which involved opening a fixed deposit account under a fictitious name and instructing the Appellant to transfer the principal sum and accrued interest to a third party’s account, were not part of the Firm’s ordinary course of business.

3.    The Court of Appeal finally held that a partnership does not ipso facto become liable for all of the liabilities of its partner.  This is because Leong’s actions clearly fell outside the partnership’s normal activities and thus the Firm cannot be held accountable for that fraudulent transaction.

Decision 1.    The fraudulent acts of partner of the Firm in siphoning off client’s monies did not make his innocent partner or the Firm liable.
Key Take Away 1.    A legal firm cannot be held responsible for its partner’s fraudulent actions because the partner’s actions were for his personal gain and were completely outside the firm’s ordinary course of business.

 

 

 

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