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Legal Remedies for Scams



The commercial crimes investigation department (CCID) of the Royal Malaysian Police (PDRM) reports that between 2020 and May 2022, a total of 71,833 scams totalling more than RM5.2 billion in losses were reported[1].


What are the legal remedies that the public can avail of?


Criminal Offences


1. Cheating


Scamming any person falls within the meaning of cheating under Section 415 of the Penal Code which essentially provides that cheating means deceiving, fraudulently or dishonestly inducing another person to deliver any property to any person, or to consent that any person shall retain any property.


In this regard, whether or not such deception was the sole or main inducement is not relevant in making out an offence. A dishonest concealment of facts is a deception within the meaning of this section. Besides, mere breach of contract is not of itself proof of an original fraudulent intent.


Whoever cheats shall be punished with imprisonment for a term which may extend to 5 years or with fine or with both pursuant to Section 417 of the Penal Code


2. Cheating and dishonestly inducing delivery of property


Section 420 of the Penal Code is a more specific section dealing with cheating and dishonestly inducing delivery of property. Anyone who is found guilty of the aforesaid Section shall be punished with imprisonment for a term which shall not be less than 1 year and not more than 10 years and with whipping, and shall also be liable to fine.


In Sawarn Singh Mehar Singh v. PP[2], In establishing a case for cheating under Section 420, it must be proven that there was a delivery of property to the scammer; the scammer induced the victim to deliver that property to him; the victim acted upon such inducement in consequence of the scammer’s deceit; the scammer acted dishonestly in so inducing the victim to part with the property; and the victim suffered damage or harm as a result of the deceit. In the same case, it was also held that the fact that the transaction involved is allegedly illegal or tainted with illegality does not ipso facto take it out of a cheating charge.


Civil Actions


1. Vitiating contract where consent is caused by fraud or misrepresentation


Obviously, if the victim enters into a contract due to suggestion of untrue fact, active concealment of a fact, promise made without intention of performing it, any other act fitted to deceive, or any such act as the law declares to be fraudulent, such a contract is voidable.

In other words, if the victim comes into an agreement with the scammer and accordingly pays the scammer, the victim may later vitiate such an agreement under section 14 of Contracts Act 1950.

After the victim rescinds the contract which becomes void, the scammer who has received any advantage, i.e. the scammed money, is bound to restore it to the victim, pursuant to section 66 of Contracts Act 1950.


In Kee Wah Soong v. Yap Boon Hwa and another case,[3] it was held that in dealing with damages for fraudulent misrepresentation, the courts normally will award a claimant full compensation for the loss they have suffered, but not to award compensation above and beyond that.


2. Claiming negligence against financial institution


In certain situations where a financial institution is negligent in preventing the scam, the victim of such scam may consider commencing an action against the financial institution, especially when the scammer has siphoned off the money through the bank.


In the Court of Appeal case of Koperasi Sahabat v RHB Investment Bank,[4] the Appellant is a cooperative organisation that manages large sum of money in investments for its members. RHB Investment bank is the 1st respondent (R1). By falsely representing itself as an agent of R1, the 2nd Respondent (R2) persuaded the Appellant to invest RM10 million in exchange for a 10.5% yearly profit/dividend.


The Appellant gave a cheque amounting to RM10 million to R2 who then brought the cheque to R1 and instructed R1’s staff to transfer the RM10 million to the 3rd Respondent (R3), which is the company belonging to R2’s sons. R3 had a share trading account with RHB. The RM10 million was put into RHB's pool account and then transferred to R3 later. The RM10 million was then stolen by R3. The Appellant, who was not R1’s customer, sued R1, R2, and R3 for negligence.


The Court of Appeal held that when money is deposited into a bank, the bank has a responsibility to determine who the owner of the funds is. The R1 had failed in its duty of care to the Appellant by failing to confirm the depositor's identity, the reason for the deposit, and whether the Appellant had given instructions for the RM10 million to be transferred to R3. R1 was eventually ordered to pay the Appellant RM 10 million in damages.


In the High Court in the case of Lee Cheong Chee v HSBC Bank Malaysia Bhd,[5] the Plaintiff authorised payments to various alleged foreign brokerage companies for alleged investments using the credit cards and telegraphic transfer service. After realising that he had been scammed by the aforesaid merchants, the Plaintiff claimed more than RM1 million against the Defendant.


The claim was made on the basis that the Plaintiff had allegedly suffered loss of RM1 million which the Plaintiff contended arose from the Defendant’s breach of the duty of care it owed the Plaintiff for failure to:-

1) inform the Plaintiff of the risks involved in transacting with the Merchants;

2) suspend any of the transactions made by the Plaintiff to investigate the accounts used by the Merchants; and

3) carry out any due diligence on the accounts used by the Merchants, etc.


The High Court allowed the Defendant’s application to strike out the claim on ground that the duty[6] which the Plaintiff seeks to impose on the Defendant would not be in line with the contractual terms and obligations that parties had agreed to.


As a bank’s relationship with its customers is primarily contractual, that must take precedence, especially if the said duty of care in tort seeks to impose on the bank a tortious duty that is wider than that which are provided in the contractual terms agreed upon between the bank and its customers.


In other words, a tortious duty cannot supersede the parties’ duty in contract. Further, some of the clauses of the Banking Contracts actually negate such a duty and further limit the liability of the Defendant in certain circumstances in particular in respect of the Plaintiff’s dealings with merchants in a credit card transaction.[7]


The aforesaid cases are instructive dealing with bank’s tortious and contractual duties. It appears that even a non-customer can hold a bank liable if the bank is negligent in its duty in verifying the instructions of the depositor.


In relation to the bank’s contractual duties, the court has taken the view that they shall not be wider than the tortious duty being sought to be imposed on the bank, particularly if the exclusion clauses negate or limit such liability. The exception is that such exclusion clauses impose an absolute restriction rather than mere limitations or restrictions.[8]


Conclusion


Victims of scam may seek legal remedy by commencing civil action or reporting to investigative authorities. Apart from lodging police report, victims of scam can also lodge a report to different authorities depending on the nature of scam. For instances, victims of cyber scams can report to the Malaysian Communications and Multimedia Commission (MCMC); victims of financial scams can report to Bank Negara; victims of consumer-related scams may report to Ministry of Domestic Trade and Consumer Affairs.


Regardless of the type of action taken, it is prudent that the victims must keep all records and documentations such as bank-in slips, agreements or correspondence. All of these documents would be useful for the civil or criminal proceedings that may be commenced. We highly advise the general public to be wary of their finances and not to divulge personal information unless strictly necessary and requested by the appropriate parties. The general public ought to know the specific reasons when dealing with any transactions in the future i.e. purpose of payment, purpose of transfer etc.


[1] M Balqish Salleh, ‘PDRM: Over RM5.2 billion lost to scams in two years’ (Kuala Lumpur 5 August 2022)<https://www.theedgemarkets.com/article/pdrm-over-rm52-billion-lost-scams-two-years> accessed 14 March 2023

[2] [2013] 1 LNS 35

[3] [2018] MLJU 1289

[4] [2022] 6 MLJ 722

[5] [2021] MLJU 574

[6] This duty is also known as the Quincecare Duty, a duty of care that arises from the decision in Barclays Bank plc v Quincecare Ltd. It imposes a duty on the bank that it would observe reasonable skill and care when executing the customer’s instructions.

[7] ibid

[8] In CIMB Bank Bhd v Anthony Lawrence Bourke & Anor [2019] 2 MLJ 1, the Federal Court held that an exclusion clause that absolutely restrains legal proceedings is void under section 29 of the Contracts Act 1950.


Authored by Tan Zu Hao


Kindly note that this legal article does not, and is not intended to, constitute formal legal advice by the Firm, instead all information, content and materials available on this site are for general informational purposes only. If readers require further clarification or legal advice, please email office@kevinwuassociates.com

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