By K.C. Vijayan, Law Correspondent

THE president of the Law Society has pointed to a disparity between the law and how banks treat cases of forged cheques.

Under the Bills of Exchange Act, a forged signature is not considered to be a legitimate approval by a customer allowing the bank to debit his account.

But most banks have an exclusion clause which states they will not be liable if their customer suffers a loss as a result of forgery, said Senior Counsel Michael Hwang, in the latest issue of the Law Gazette.

The issue of who should pay comes in the wake of rogue lawyer Zulkifli Amin fleeing with $6 million of clients' funds, having encashed cheques forged with his law firm partners' signatures. 'It left (the partners) with heavy liabilities to their clients,' said Mr Hwang, as the bank is disputing its liability for the forged cheques.

He cited another instance: in 2007, when a local charity found that one of its staff signed dozens of forged cheques and left them with multi-million dollar losses, it was likely the bank would have got away with an exclusion clause.

'The risk is real,' he warned, pointing out that major banks here have the same exclusion clause in their terms in dealing with customers and it falls foul of the Act.

'They did not highlight to their customers that over time they had excluded liability under (the Act), so hardly any customers in Singapore know that the risk of loss for forged cheques would be placed on them.'

The senior counsel added that such clauses, while widely used here, are not generally used in Malaysia or Hong Kong, 'even by the same banks that use them here, because the market in those countries will not take it'.

A test case has yet to surface in the courts to clear the issue and determine if such clauses should be set aside.

Mr Hwang has raised the issue with 'everyone (he) could think of', including The Association of Banks in Singapore (ABS), the Consumers Association of Singapore, The Straits Times and a Cabinet Minister and is still persevering.

'This is a winnable war,' he added but said public apathy was the reason it had not happened. 'So long as a large segment of the public protests long and loudly enough, like the DBS High Notes holders did, the banks will come to their senses and settle on their own or be forced by (the) Government to settle.'

The ABS, responding to ST queries, said it was only fair that customers should bear some measure of responsibility for their own chequebooks. It said: 'In practice, banks will accept liabilities for forged cheques provided the bank is the sole negligent party resulting in a forged cheque being honoured.'

But, it added: 'To absolve customers from all liabilities and responsibilities and leaving the onus solely to the banks to detect forgery?is neither prudent practice nor advisable.'

The ABS said it was not a solution for banks to take out insurance against forgery which only raises costs for everyone when it is just a few who are lax.

This article was first published in The Straits Times.