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A Modern Answer to An Age-Old Problem: A Bank’s liability for acting on an authorised signatory’s wrongful payment instructions

8 Feb 2023


In the landmark judgment in PT Asuransi Tugu v Citibank NA [2023] HKCFA 3, the Court of Final Appeal addressed “one of the oldest and most litigated questions in commercial law, namely the rights of a corporate customer against a banker who has paid money out of its account on the dishonest instructions of an authorised signatory”.

The facts

The case of the Plaintiff (“Tugu”) was this:-

(a) Tugu was an Indonesian company carrying on business as an insurer.  Mr. Hasan, Mr. Harsono and Mr. Sunjaya (“Delinquent Officers”) were Tugu’s former commissioner or directors.  Under Indonesian law, they owed fiduciary-like duties to Tugu.

(b) Tugu was a customer of the Defendant (the “Bank”).  Tugu maintained a USD account (“Account”) with the Bank.

(c) Between 1994 and 1998, Mr. Harsono and Mr. Sunjaya, purportedly on behalf of Tugu and in breach of their duties, gave instructions to the Bank to make 26 payments totalling US$51,638,964.73 from the Account (most of which were paid to the personal accounts of the Delinquent Officers).

(d) The Bank was in possession of sufficient information to enable it to appreciate or suspect that the instructions were given by Mr. Harsono and Mr. Sunjaya fraudulently, without authority and in breach of their duties to Tugu. It was therefore put on inquiry to ascertain whether there was an innocent explanation for those instructions.  The Bank acted on the payment instructions without making inquiries.

(e) Tugu therefore demanded repayment in 2006, and claimed against the Bank in 2007.  Specifically, Tugu advanced two claims, one in debt on the basis that the unauthorised debits were a nullity, and an alternative claim for breach of contract or negligence, relying on breach of what is known as the “Quincecare” duty.

There was however a twist: the Account had been closed on the instruction of the Delinquent Officers in 1998.  The Bank therefore argued that any claim against it had become time-barred.

Following trial, Anthony Chan J found and held that:-

(a) The Bank had acted in breach of its Quincecare duty (at §89) in relation to the 3rd and subsequent payment instructions (at §82), and that the Bank was put on inquiry by the time it received the payment instruction for the 3rd payment and consequent debit, sometime at the end of November 1994 (at §84).

(b) The trial judge however held that the claim was time-barred.

(c) Under the heading “Reconstitution of the Account” and in response to Tugu’s argument that “the unauthorised Disputed Payments and the unauthorised closure of the Account were of no effect” (§93), the trial judge agreed “with the Defendant that the fragility of the Plaintiff’s argument lies in the closure of the Account in July 1998” (§96).

(d) In any event, contributory negligence was an available defence, and Tugu was 50% responsible.

The case in the Court of Appeal

Tugu, appealed to the Court of Appeal where it argued that:-

(a) The trial judge had erred in holding that time began to run in 1998, when the Account was purportedly closed.  The “closing” was unauthorised and was ineffective.

(b) It followed that the trial judge should have applied the principle that time only begins to run when the Bank receives a demand from its customer, and he should have held that the Bank’s debt to Tugu remained unpaid

(c) It also followed that contributory negligence was not a defence, as Tugu was simply seeking repayment of the money which ought to be sitting in its Account.

To a very large extent the Court of Appeal agreed with Tugu.

(a) The Court of Appeal upheld the trial judge’s finding that the Bank was put on inquiry about the propriety of the 3rd and subsequent payment instructions, and that the trial judge “rightly reminded himself that the threshold which triggers the banker’s duty to make inquiry is high” (at §§39, 53).

(b) They agreed with Tugu that “limitation period does not run on dormant accounts”, and that “As long as the customer’s claim is properly made for a debt … the cause of action accrues when demand for payment was made” (at §§123, 128).

(c) The Court of Appeal agreed with Tugu that “it would be “irrational” for the defendant to rely on the apparent authority of the Delinquent Officers’ instructions by letter to drain and close the account”, and therefore the purported “closure” of the Account in 1998 was unauthorised and could not make time run (§§137-138).

(d) The Court of Appeal however relied on a separate principle of law, namely that “on the termination of a banker and customer relationship, any balance belonging to the customer becomes payable to the customer and the customer’s cause of action then accrues” (§123).

(e) The Court of Appeal then asserted that the banker-customer relationship between Tugu and the Bank was terminated in July 1998, when “the Account was closed” (at §135).

(f) The Court of Appeal dismissed Tugu’s appeal on the ground of time bar.

The Court of Final Appeal upheld Tugu’s appeal

Before the Court of Final Appeal, Tugu focused on its claim in debt.  The logic of Tugu’s argument was this: the Bank was indebted to Tugu, and could not discharge its debt to Tugu by acting on the impugned payment instructions, as it had no authority to do so.  The “closing” was likewise unauthorised and of no legal effect.  In other words, nothing legally significant had occurred capable of diminishing Tugu’s credit balance, or of causing time to run for the purpose of limitation.  On this analysis, the Bank was still indebted to Tugu in 2006, when Tugu first made a demand for payment.  Accordingly, Tugu’s action in 2007 was brought within time.

In a landmark decision, Lord Sumption NPJ (with whom Cheung CJ, Ribeiro, Fok and Lam PJJ agreed) upheld Tugu’s appeal and accepted its arguments.

No authority to debit or close the Account

Lord Sumption first dealt with the issue of whether the Bank had the authority to debit the Account.  He held:-

(a) There are two juridical sources for a bank’s duties in making payments out of an account: (1) a banker’s duty is to make such payments only with the authority of the customer, that means in accordance with the customer’s mandate.  (2) The bank also owes a duty as the customer’s agent (§13)

(b) The duties however are not absolute, and “the standard of duty is the same under either head, because the duty of care is a duty in the performance of the mandate” (§14).

(c)The critical issue, “whether one looks at a bank’s duty of care or at the law relating to ostensible authority, is what constitutes sufficient notice of a want of actual authority, so as to require a bank to make inquiries before paying out in accordance with its mandate” (§16).

(d) Lord Sumption answered this question in this way:-

“There is no general obligation spontaneously to inquire into an agent’s authority and no rule that fixes the third party with notice of what might be discovered upon such an inquiry. The starting point is what is actually known to the third party without inquiry (or would actually be known to him if he appreciated the meaning of the information in his hands). The question is whether the information which he actually has calls for inquiry. If, even without inquiry, the transaction is not apparently improper, then there is no justification for requiring the third party to make inquiries. But if there are features of the transaction apparent to a bank that indicate wrongdoing unless there is some special explanation, then an explanation must be sought before it can be assumed that all is well. In other words, if a bank actually knows of facts which to their face indicate a want of actual authority, it is not entitled to proceed regardless without inquiry.” (§17)

On the facts, Lord Sumption found (at §21) that “It was therefore open to the Court of Appeal to find that on the face of the information in the Bank’s hands by 1998 the whole operation of the account was unauthorised”.

As the debt was still owed by the Bank, the Account could not be closed

Having held that there was no authority to debit the Account, Lord Sumption then dealt with the implication, if any, of the purported closure.  This issue arose because while the starting point is that a customer’s claim for repayment only accrues upon demand, the Bank argued that time should begin to run from the “closing” of the Account in 1998.

Lord Sumption rejected this argument:-

(a) Lord Sumption held that the “closing” was unauthorised, as found by the Court of Appeal.

(b) Accordingly, the purported “closing” amounted to a repudiatory breach on the part of the Bank.  But Lord Sumption found that Tugu did not accept the repudiation.

(c) Lord Sumption rejected the Bank’s argument that it could unilaterally terminate the banker-customer relationship by the repudiation “… as long as the debt remained outstanding the relationship of banker and customer subsisted.” (§26)

(d) Moreover, “there is no principle of law which entitles a bank unilaterally to abrogate its outstanding liabilities or to discharge a debt without paying it. To effectually terminate the relationship, it must pay (or at least tender) the outstanding reconstituted balance. The Bank has not done that” (§28).

Remedial consequences

Accordingly, and in layman’s terms, “the money and the account are still there”.  Lord Sumption concluded (at §28) that the Bank:-

“… should have done nothing without a properly authorised instruction, and then (subject to that instruction) paid the full credit balance undiminished by the prior unauthorised transfers out of the account. The reconstituted debt was created by the successive deposits to the credit of the account while the contract was on any view subsisting. On the footing that the debt has not been discharged, it must still exist on the terms on which those deposits were made. It follows that the debt, undiminished by the unauthorised withdrawals, still subsisted in 2006 when it was demanded, and time did not begin to run for limitation purposes until then. These proceedings having been begun in the following year are not statute-barred.”

This led to the conclusion that contributory negligence was not a defence: Tugu was simply seeking repayment of the money in the Account.

“A claim in debt is not a claim in respect of “damage” for the purpose of section 21(1) of [LARCO] … a liability for debt is absolute and not dependent on proof of negligence.  The Bank’s case is that it is to be regarded as a claim based on negligence since the debt arises only because of the Bank’s failure to make the inquiries that a reasonable and prudent bank would have made.  This appears to me to be unarguable.  In the first place, it does not make a claim for a debt into a claim for “damage”.  Secondly, in claiming the debt Tugu is not claiming any relief on account of the “fault” of the Bank in failing to make relevant inquiries.  The debt arises from the deposits made into the account … The Bank’s failure to make relevant inquiries is merely the reason why the debt was never effectually discharged.” (§31)


Banks (and other financial intermediaries such as brokers) are natural targets for companies defrauded of their monies.  Modern financial and anti-money laundering regulations entail that banks play a certain “gate-keeping” role, and it is now fashionable for customers to rely on the “Quincecare duty” to claim damages from banks.

What Tugu shows is that there is an alternative (and perhaps more attractive) way of formulating a claim, as knowledge of facts suggesting impropriety could very well impact on the banks’ authority to debit its customer’s account.

A claim similar to the one advanced by Tugu has many advantages: it is not subject to the defence of contributory negligence, and usually would not accrue unless and until the customer demands repayment of the monies which should be standing to its credit in its bank account.  In layman’s terms, “the money is still there”.


Charles Sussex SC leading Tom Ng acted for Tugu.  Jat Sew-tong SC leading John Hui acted for the Bank.