Banking Law

Published date01 December 2007
Citation(2007) 8 SAL Ann Rev 56
Date01 December 2007
AuthorPOH Chu Chai LLB (University of Singapore), LLM, LLD (London); Advocate and Solicitor (Singapore); Associate Professor, Faculty of Law, National University of Singapore.
Banker and customer
Financial services

4.1 Under s 26 of the Financial Advisers Act (Cap 110, 2007 Rev Ed), a financial adviser is to refrain from making any false or misleading statement with intent to deceive. Such statements may cover the amount payable under an investment product and the effect of the contract terms. An omission to disclose any matter material to the statement may be construed as misleading. However, no civil remedies are specifically provided for an aggrieved consumer under s 26. Similarly, under s 27, a financial adviser is not to make any recommendations where he has no reasonable basis for so doing. Under s 27, a financial adviser is liable for a resulting loss if he makes a recommendation without any reasonable basis. The adviser is liable to a consumer in damages. At common law, a financial adviser has to exercise reasonable care in providing advice. Even though the Financial Advisers Act does not expressly provide for any civil liabilities against an errant financial adviser under s 26, the Act might indirectly assist an aggrieved investor in his common law action by setting the standard of care the adviser is required to observe. This will free an aggrieved client from having to establish the required standard of care when he brings an action against an adviser for breaching his common law duty of care. However, in practice, in spite of the Financial Advisers Act, financial advisers might seek to escape from their common liability by expressly throwing the responsibility of due diligence on their customer through the incorporation of non-reliance clause in their contracts with the customer. In Orient Centre Investments v Societe Generale[2007] 3 SLR 566, the Singapore Court of Appeal decided that a customer”s agreement with a bank incorporating a non-reliance clause was sufficient to preclude the customer from suing the bank for breach of representations, fiduciary and contractual duties and negligence of its employee. Orient Centre Investments Ltd (‘Orient’) opened an investment account with Société Générale (‘SG’) on 18 May 1998 to invest in certain structured financial products including equities and warrants, options, foreign exchange transactions and derivatives. Orient

claimed that it invested US$9.6m and suffered losses in excess of US$1m. It claimed damages from SG for breach of representations, breach of fiduciary and other duties and for negligence in relation to the investments. Orient alleged that Kenneth Goh Tzu Seoh (‘Goh’), SG”s assistant vice-president and client relationship manager, had represented that investments were capital preserved and income guaranteed to the extent of 10% per annum. SG relied on its agreement with Orient stipulating that:

The Depositor hereby represents and warrants for the benefit of SG, that: — it has concluded the present transaction after having carried out its analysis of the transaction, particularly in the light of its financial capacity and its objectives; — it is fully aware that the Deposit Final Value may be less than the Outstanding Deposit Amount; — it has examined and is familiar with the content of this Agreement and that it agrees and accepts its terms, and that it has examined and is familiar with the terms of the Prospectuses of the Funds.

4.2 The court decided that the non-reliance clause was sufficient to relieve the bank from the alleged breach of duties. Chan Sek Keong CJ said (at [50]):

In our view, the combined effect of the express general and specific terms and conditions applicable to the structured products provides an insuperable obstacle to any claim by the appellants against SG based on the alleged breach of representations or duties, fiduciary or contractual or on negligence on the part of Goh. In the face of Orient”s own representations and warranties with respect to each of the structured products, it is not possible for the appellants to argue that Orient had relied on any alleged representation on the part of Goh that he would ensure that the appellants” capital would be preserved and that it would earn a return of 10% per annum on each deposit. It was therefore unnecessary for the Judge to determine the factual merits of the appellants” allegations before determining the legal merits of SG”s defence.

Presumption of advancement

4.3 The issue as to whether a beneficiary is obliged to show that he is in financial need before a presumption of advancement would arise in his favour has finally been settled by the Singapore Court of Appeal. The controversy arose from two High Court judgments holding opposing views. In Low Geok Khim v Low Geok Bian[2006] 2 SLR 444, Kan Ting Chiu J decided that a presumption of advancement was not dependent on a beneficiary being in financial need provided the donor intended to benefit him. The court disagreed with the views expressed by Judith Prakash J in Ang Toon Teck v Ang Poon Sin[1998] SGHC 67 that for a presumption of advancement to arise, the beneficiary must be in financial need. However, in Shih Shin Wang-Liu v Tsai Pei Lun Betty

[2006] SGHC 196, Judith Prakash J again decided that a presumption of advancement arose when a donor was under a legal or equitable obligation to maintain a beneficiary. It would not arise when a beneficiary was not financially dependent on a donor. The Singapore Court of Appeal, hearing an appeal from Low Geok Khim v Low Geok Bian, affirmed in Low Gim Siah v Low Geok Khim[2007] 1 SLR 795 that a presumption of advancement involving a husband and wife, parent and child, remained relevant to modern day Singapore. In addition, the presumption of advancement arose from the relationship of the parties. The court while agreeing with Kan Ting Chiu J that the presumption of advancement applied in the joint account holder”s favour, however, found that there was sufficient evidence to...

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