Banking Law

• Citation: (2003) 4 SAL Ann Rev 61
• Author: POH CHU CHAI LLB (Singapore), LLM, LLD (London), Advocate and Solicitor (Singapore), Associate Professor, Faculty of Law, National University of Singapore.
• Published date: 01 December 2003
• Date: 01 December 2003

Introduction

4.1 The review of cases in this area covers decisions which have an impact on banking law. Cases with incidental reference to banking law are omitted from consideration as they would be considered elsewhere in this Review.

Banker and customer

4.2 The courts are generally reluctant to imply a term into a banker and customer contract to require the customer to take precautions to prevent the forgery of his signature. This is to ensure that losses arising from the forgery of a customer”s signature are not unfairly shifted to the customer. Banks on the other hand have tried relentlessly to shift losses resulting from forgery and other forms of fraud to the customers. One method frequently employed is through the use of bank statements. It is often contended that a customer owes a duty to a bank to scrutinise his bank statements. In line with this duty, a customer is to report to the bank any discrepancies he finds in the bank statements. A discrepancy usually appears in a bank statement when a customer”s signature is forged by a third party or his cheques are unlawfully altered. If a customer fails to check his bank statements and consequently does not detect the discrepancy, he is in breach of his duty of care and is not entitled to assert that his bank account has been wrongfully debited by the bank. Such attempts by banks to create the duty have never succeeded with the courts. In recent years, however, banks in Singapore have resorted to the use of what is commonly referred to as a verification agreement or variants of the agreement to impose the duty on their customers. Such a term is now commonplace even though its validity is still open to challenge.

4.3 In Elis Tjoa v United Overseas Bank[2003] 1 SLR 747, Woo Bih Li JC (as he then was) decided, inter alia, that a term requiring a customer to examine his bank statement and to report any discrepancies to the bank was not an unreasonable term. The plaintiff, Elis Tjoa (‘Elis’), was an Indonesian Chinese businesswoman who resided in Indonesia. She was introduced to the defendant bank, United Overseas Bank Limited (‘UOB’), MacPherson Road branch, by her sister Tjoa Siu Ngo (‘Ngo’). The plaintiff opened an interest bearing current account with the bank. On 29 October 1999, the plaintiff

decided to transfer $300,000 from the current account to a time deposit. She also gave instructions to the bank to link the two accounts. Ngo later informed the bank that the plaintiff had agreed to help her pay for the purchase of shares using funds from the plaintiff”s bank account. The bank prepared a fax for Ngo to obtain the authorisation of the plaintiff. The fax was returned to the bank with the plaintiff”s authorisation. Two similar transactions were carried out by the bank involving a sum of $270,000. The plaintiffs claimed that her signatures on the instructions for the last two transactions were forgeries. The bank contended that the plaintiff was precluded from raising the forgeries as she had failed to notify the bank about the unauthorised withdrawals from her bank account. In particular, the bank relied on its agreement with the customer. Clause 13 of the agreement provided, inter alia, as follows:

(b) The Account Holder is under a duty to:

(i) monitor the balance of the Account at all times;

(ii) examine all entries in the Statement of Account;

(iii) within fourteen (14) days of the date of the Statement of Account notify the Bank in writing of any omission from or debits/credits wrongly made or made without authority or inaccurate entries in such Statement of Account; …

(c) If the Bank does not receive any written notification pursuant to Clause 4(b)(iii) within 21 days from the date of the Statement of Account, then, at the end of the said 21 days, the Account as kept by the Bank shall be conclusive evidence, without any further proof, that, except as to any alleged errors so notified, the Accounts contains all credits that should be contained therein and no debits that should not be contained therein and all the entries therein are correct and further the Account Holder shall be bound by such entries in the Account and the Bank shall be free from all claims in respect of the Account.

4.4 The court decided that the transactions were duly authorised by the plaintiff. Even if the transactions were not authorised, cl 13 was binding on the plaintiff as it was not an unreasonable term. Woo JC said at [64] and [95]:

I find that even if the signatures on the disputed instructions were not Elis”, the signatures were appended to those instructions with her authority either before each instruction was sent or thereafter.

I would add that even if most or every other bank would insist on having a similar provision, the restriction or absence of choice for the customer does not make the provision unreasonable. Fraud and forgery are, unfortunately, not rare occurrences. In addition, the wrongful act is often facilitated by the misplaced trust or negligence of the customer himself. I do not consider it unreasonable therefore that a customer should be required to check his statement when it is sent to his designated address and to notify the bank promptly of any unauthorised transaction reflected on his statement. After all, that is one of...