On 6 February 2023, the Court of Final Appeal (the “CFA“) handed down its judgment on the long running dispute between Citibank N.A. (“Citibank“) and its corporate customer, PT Asuransi Tugu Pratama Indonesia TBK (“Tugu“), in PT Asuransi Tugu Pratama Indonesia Tbk v Citibank N.A.  HKCFA 3 concerning “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 dispute concerned 26 dishonestly authorised transfers made out of Tugu’s bank account with Citibank by Tugu’s authorised signatories between 1994 and 1998. After all funds in the account were paid out, Citibank closed the account as instructed by Tugu’s authorised signatories in 1998. Tugu demanded payment from Citibank in 2006 and subsequently commenced Court proceedings in 2007.
The CFA allowed Tugu’s appeal. It held that Tugu’s claim in debt was not time-barred as the debt, undiminished by the unauthorised withdrawals, still subsisted in 2006 when Tugu demanded payment from Citibank, and time did not begin to run for limitation purposes until then. On the face of the information in Citibank’s hands by 1998, the whole operation of the account was unauthorised, including its closure. The CFA provided guidance in its judgment (with Lord Sumption giving the leading judgment) on what constitutes notice so as to require a bank to make inquiries before paying out in accordance with its mandate.
The CFA decision reminds banks of their duty to customers and provides guidance on when it puts them “on inquiry” before debiting customers’ accounts. Although there is no general obligation to inquire into the authority of their customers’ agents, in order to allow banks to comply with their mandate with customers, they should be vigilant in assessing whether the information in hand calls for inquiry. As such, banks should put in place policies and systems enabling them to flag impropriety and potential fraudulent transactions.
Victims who are out of pocket should consider the availability of a straightforward debt claim against the relevant bank. The CFA has clarified that time to bring a debt claim does not begin to run for limitation purposes until a demand for the balance in the account has been made. For such debt claims, the banks cannot run a defence of contributory negligence.
For a more detailed summary of the CFA judgment, please refer to our article