Banking Law

• Published date: 01 December 2015
• Citation: (2015) 16 SAL Ann Rev 124
• Date: 01 December 2015
• Author: Dora NEO MA (Oxford), LLM (Harvard); Barrister (Gray's Inn), Advocate and Solicitor (Singapore); Associate Professor and Director, Centre for Banking & Finance Law, Faculty of Law, National University of Singapore.

Bank and customer

Repayment of bank deposit

5.1 Where a debtor fails to repay a debt that is due, the creditor can sue the debtor for payment. In order to succeed in the action, the creditor must prove that the money was lent. The debtor has a defence to the creditor's claim if he can show that the debt has been repaid. In the context of banking, when a customer deposits money in a bank, the bank becomes the customer's debtor (Foley v Hill(1848) 2 HLC 28) and has to return the money according to the terms of the deposit. The customer will fail in a claim against the bank for the return of the money in the bank account if he has already withdrawn the money, as this would mean that the debt had been repaid. In Chua Kok Tee David v DBS Bank Ltd[2015] 5 SLR 231 (‘Chua v DBS’), the plaintiff (Chua) produced a fixed deposit receipt showing that he had deposited a sum of $135,954.43 with the defendant bank (DBS) in March 1983 (the ‘9246 Account’). This receipt, bearing the notation ‘automatic renewal’, was kept in Chua's safe deposit box from 1983 until 2012. The terms ‘automatic renewal’ meant that the bank was authorised, until further notice, to place the principal and all accrued interest in the 9246 Account on a new one-month fixed deposit on the 13th of every month at the bank's prevailing interest rate. In 2012, Chua asked DBS to confirm the balance due to him under the fixed deposit. DBS was unable to find any trace of the 9246 Account in its records. When sued by Chua for repayment of the money, DBS claimed that the account had been closed in or before 1985. The judge, Vinodh Coomaraswamy J, was of the view that the bank bore the burden of proving that the account had been closed, so that the bank no longer owed Chua a debt arising from the account. As there was no direct evidence of the closure of the account, the case turned on circumstantial evidence. The first matter raised by DBS in its defence was that there was no trace of the 9246 Account in its records from February 1984 to the present day. DBS was able to convince the judge, on a balance of probabilities, that its systems and procedures for keeping records of accounts were sufficiently rigorous and robust such that the only explanation for the absence of any trace of the 9246 Account was that the account had been closed. The second matter relied upon by DBS in its defence was Chua's own conduct over the years, which did not appear to indicate any belief on his part that the bank was indebted to him on the 9246 Account. For instance, Chua stated that he had not received any fixed deposit receipts for the 9246 Account apart from the one issued when the account was opened in 1983. Yet, he never queried why this was so, despite the fact that he had been receiving account statements for his other accounts with the bank, in particular another fixed deposit that he opened with the bank about two months after the one in question (the ‘9756 Account’) at the same branch and subject to the same terms and conditions. Although Chua's behaviour may have been curious, the judge did not think that this, of itself, established that Chua had closed the 9246 Account in or before 1985. The judge also rejected the bank's argument that a presumption of payment arises when a customer of a bank fails to make a claim for repayment of a debt owed by the bank after a long lapse of time, and found that no such presumption existed (Chua v DBS at [102] and [107]).

5.2 The main principles of substantive banking law that were applicable in Chua v DBS were clear, and the case turned mainly on issues of evidence. That a bank may be able to get out of repaying a customer's deposit by claiming that the account had been closed although it was unable to show evidence of such closure on its records will be discomfiting for bank customers. This puts the bank in a superior position, as such an assertion can be made in relation to any customer account, and the customer can do nothing about it. However, too much should not be made of this danger, as any bank making this assertion will have to prove its case. In Chua v DBS, the judge went through a detailed examination of the bank's systems and record keeping procedures before reaching the conclusion that the only possible explanation for there not being any record of the 9246 Account was because it had been closed. With respect, this author, a sceptic about the bank's seemingly audacious assertion at the start of reading the case, finally came to the same conclusion as the judge, so extenuating was the bank's evidence of painstaking procedures and counterchecks. As the judge stated (at [35]), ‘Circumstantial evidence is not inevitably inferior to direct evidence. It can be every bit as probative as direct evidence if the circumstances or the inferential chain are obvious and compelling.’

5.3 DBS raised two legal defences which were dealt with only briefly by the court, given the finding already made in favour of the bank. The first defence was that Chua was estopped from bringing the present claim as his failure to inform the bank that he had stopped receiving any correspondence in relation to the 9246 Account had led the bank to destroy the records it would otherwise have to bolster its case. This was rejected by the judge as he was of the view that the records relating to the 9246 Account were destroyed by DBS in accordance with its own document retention policy and not in reliance on the plaintiff's silence (Chua v DBS at [110]–[111]). DBS also raised a second defence of limitation and laches, and argued that the six-year limitation period prescribed under s 6(1)(a) of the Limitation Act (Cap 163, 1996 Rev Ed) for a claim in debt or a claim for an account runs from the date that the account was closed, rather than from the date on which Chua demanded payment of the debt. This argument was also rejected by the judge.

Liquidation of customer's securities

5.4 In ABN AMRO Clearing Bank NV v 1050 Capital Pte Ltd[2016] 1 SLR 186 (‘ABN AMRO v 1050 Capital’), the plaintiff agreed to provide financial services to the defendant, including direct market access (‘DMA’) to various stock exchanges and a credit facility for funding the defendant's trades through its client account. The defendant's portfolio with the plaintiff comprised of trades in futures and options in the Nikkei 225 Index. Due to movements in the Nikkei 225 Index, the net liquidation value of the plaintiff's account had fallen below the risk amount and the defendant was requested to top up its client account to meet the risk amount. The defendant was unable to do so, and the plaintiff sent a notification to inform the defendant that it was exercising its right to liquidate the defendant's portfolio. The plaintiff proceeded to liquidate the defendant's entire portfolio by way of auction and sold it to the highest of three bidders for a price that fell within the indicative price range provided by an independent valuation. The plaintiff later sued the defendant for the net liabilities that were owing under its client account as well as several months of outstanding DMA charges, and applied for summary judgment under O 14 of the Rules of Court (Cap 322, R 5, 2006 Rev Ed). The assistant registrar entered final judgment for the amounts owing in respect of the DMA charges but granted unconditional leave to defend the claim for the amount owed under the client account. On appeal, the High Court (George Wei J) affirmed the assistant registrar's decision on the DMA charges (which was not substantively addressed by the defendant in the appeal), and reversed the assistant registrar's decision regarding the defendant's liability under the client account. The plaintiff was therefore granted final judgement in respect of the entire amount of its claim.

5.5 Two questions raised in the case warrant further analysis. The first concerns the standard which has to be met by a bank in exercising its discretion to liquidate its client's portfolio, a matter that will be of great interest to banks. Where there is contractual provision on this matter, the requisite standard will depend on a construction of the contract. Clause 15 of the Standard Client Agreement (‘Agreement’) in ABN AMRO v 1050 Capital provided that in the event of the defendant's default, the plaintiff was entitled ‘at its reasonable discretion without prior consultation’ to take such actions that the plaintiff considered reasonable to realise any asset or to discharge any liability in the client portfolio. Wei J held that the word ‘reasonable’ in a clause conferring a contractual discretion did not necessarily mean that an objective standard of reasonableness was to be applied. This would depend on the clause as a whole, interpreted in relation to the contract as a whole: at [80]. He construed cl 15 to focus on the plaintiff's subjective state of mind, ie, whether it considered the actions reasonable, and the court would not intervene in the plaintiff's actions ‘in the absence of arbitrariness, capriciousness, perversity and irrationality’: at [85]. Based on the facts, the court found that the plaintiff's liquidation actions did not fall into this high threshold of bad behaviour. Whilst the judge's specific finding in ABN AMRO v 1050 Capital is based on a construction of cl 15, the principles that he applied can be applied widely to other cases giving one person a reasonable discretion to take reasonable steps: a person needs only to do what he or she thinks is reasonable. It is likely even if a clause does not provide expressly for an action to be taken reasonably, that such a standard would in any case be implied.

5.6 Another important question is whether a conclusive evidence clause can excuse a bank from liability for its own misconduct by estopping its client from challenging the bank's actions? The answer based on the clauses in ABN AMRO v 1050 Capital was ‘no’, but it can arguably be extrapolated from the court's...