Jurisdiction - Singapore
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Singapore – The Customer’s Mandate And A Conclusive Evidence Clause.

5 August, 2014

 


Central to the relationship between the bank and the customer is the customer’s mandate that the bank must adhere to. If the customer’s mandate identifies a particular person to operate and give instructions to the bank relating to the customer’s bank account, the bank can only act on the mandate of that authorized person and not otherwise.

 
In Lo Man Heng and another v UBS AG (Yap Loon Mien, third party) [2014] SGHC 134, the High Court rejected the customers’ claim that the bank had wrongfully paid the balances in their accounts to a third party, in breach of its mandate from the customers.

 
Facts

 
The plaintiffs used to be the customers of the defendant bank. The first plaintiff, a Malaysian businessman, undertook several business ventures with two other Malaysians, Mr Chia and Mr Chong. The second plaintiff was a company incorporated in the Business Virgin Islands, which the first plaintiff had set up for commercial purposes.

 
In 2006, the bank employed a client advisor (“the Advisor”) who had previously handled the accounts of the first plaintiff and Mr Chia. Subsequently, the plaintiffs and Mr Chia opened three accounts with the bank. The first two accounts (“the Accounts”) were material to the plaintiffs’ claim. The first account was in the first plaintiff’s name, whereas the second account was in the second plaintiff’s name. Only the first plaintiff was authorised to operate and give instructions to the bank regarding the Accounts.

 
In 2007, oral instructions were given to the Advisor to close the Accounts and transfer the balances therein to a third party. It was disputed as to who gave the instructions to close the Accounts. On 17 September 2007, the bank paid out a substantial sum to the third party from the Accounts, which included a sum of about USD 76k from the first account and a sum of about USD 1.7m from the second account.

 

 

On 4 November 2007, the first plaintiff signed two sets of written instructions to close the Accounts, which were backdated to 17 September 2007. However, there were conflicting versions of the circumstances in which the first plaintiff signed the written instructions.

 
In 2010, the first plaintiff instructed Singapore lawyers to pursue a claim against the bank for the paid sums. The plaintiffs claimed that the bank had:

 

  • paid the sums from the Accounts to the third party and closed the Accounts on the instructions of Mr Chia, who had no authority to give those instructions; and 
  • breached its duty to them by failing to verify the alleged verbal instructions given by the first plaintiff and by making the payments despite a lack of written confirmation from the first plaintiff.

 
The bank’s defence was that the first plaintiff had given oral instructions to the Advisor to close the Accounts and pay the balances in the Accounts to the third party. Alternatively, the bank argued that the plaintiffs were precluded under Clause 2.1 of its “Account Mandate” document from making the claims or were estopped from doing so because they had either acquiesced in the payments or represented by conduct that the payments were in fact authorised.

 
Decision

 
The High Court held that the bank did not act in breach of its mandate from the plaintiffs when it made the payments to the third party from the Accounts, based on its assessment of the credibility of the witnesses, the inconsistencies in the plaintiffs’ accounts and other documentary evidence. On the evidence, the High Court was satisfied that the instructions to close the Accounts and to pay to the third party the funds standing to the credit of the Accounts were given by the first plaintiff on 17 September 2007.

 
Nevertheless, on the assumption that there was a breach of the plaintiffs’ mandate, the High Court observed that the bank would have had a valid defence of estoppel and would have been able to claim against the third party for unjust enrichment. However, it was of the view that the bank could not have relied on Clause 2.1 of its “Account Mandate” document which read as follows:

 
“The Bank shall send the Client periodic confirmations or advices of all transactions carried out by the Client and/or the Authorised Representative and statements reflecting such transactions and balances in the Account. The Client undertakes to carefully check, examine and verify the correctness of each such confirmation or advice and each such statement of account. The Client agrees that reliance can only be placed upon original confirmations, advices and/or statements. The Client further undertakes to inform the Bank promptly and in any event, with regard to such confirmations or advices, within fourteen (14) days from the date of such confirmation or advices, and with regard to such statements, within ninety (90) days from the date of such statements, of any discrepancies, omissions, credits or debits wrongly made to or inaccuracies or incorrect entries in the Account or the contents of each confirmation, advice or statement or the execution or non-execution of any order, failing which, upon the expiry of the fourteen (14) days, the Bank may deem the Client to have approved the original confirmations or advices and upon the expiry of the ninety (90) days, the Bank may deem the Client to have approved the original statements as sent by the Bank to the Client, in which case they shall be conclusive and binding upon the Client without any further proof that the Account is and all entries therein and the execution of all transactions are correct, and the Bank shall be free from all claims in respect of the Account and all such transactions, save for unauthorised transactions which have resulted from the forgery, fraud or negligence of the Bank or any of its employees.“ [emphasis added]


The High Court observed that although the plaintiffs had failed to inform the bank of 

the unauthorised payments out of the Accounts promptly or within certain
prescribed time periods as required by Clause 2.1, the bank was not entitled to
deem the plaintiffs to have approved the confirmation and advices under the
“conclusive evidence” aspect of Clause 2.1. This was because the proviso in Clause
2.1 stated that it did not apply to “unauthorised transactions which have resulted
from the forgery, fraud or negligence of the Bank or any of its employees”. On the
facts, the High Court took the view that the Advisor had been negligent.

 
Comment

 
The High Court’s passing observation that Clause 2.1 of the bank’s Account Mandate document was not purely a “conclusive evidence” clause was premised on the fact that the proviso in Clause 2.1 effectively shifted the risk of unauthorised transactions resulting from the bank’s fraud or negligence back to the bank. Would the Court’s holding be any different if the proviso in Clause 2.1 had not expressly addressed the bank’s negligence? One school of thought may be that such “conclusive evidence” provision would lean in favour of the bank in this case.

 
On the other hand, the courts may take into account whether such a clause (with a proviso limited to the bank assuming the risks for forgery or fraud only) would be considered unreasonable under the Unfair Contract Terms Act and broader policy concerns such as the integrity of the banking system (see Jiang Ou v EFG Bank AG[2011] 4 SLR 246, where the High Court held that conclusive evidence clauses purporting to exclude liability for the fraud or wilful misconduct of banks’ employees were not enforceable based on these considerations).

 

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For further information, please contact:

 

Gerard Ng, Partner, RHTLaw Taylor Wessing
gerard.ng@rhtlawtaylorwessing.com

 
Tom Chou, RHTLaw Taylor Wessing
tom.chou@rhtlawtaylorwessing.com

 

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