Banking Law

• Author: POH Chu Chai LLB (Singapore), LLM, LLD (London); Advocate and Solicitor (Singapore).
• Date: 01 December 2011
• Published date: 01 December 2011

Banking

Banker and customer

5.1 In carrying out a customer's instructions, a banker acts under the customer's mandate. Inherent in the mandate is a banker's duty to exercise care in carrying out a customer's instructions. A banker who fails to exercise care in carrying out a customer's mandate is liable to the customer for breach of contract. In recent years, banks in Singapore have taken on the role of marketing investments and insurance products in addition to the normal customer banking services. Arising from the new business undertaken by the banks, the need to regulate the activities has become imperative. This has led to the enactment of the Financial Advisers Act (Cap 110, 2007 Rev Ed). Apart from the Financial Advisers Act, there is little doubt that a financial adviser also owes a duty of care at common law in rendering advice to a client. An adviser could become liable to a client if the advice is given negligently. Banks which act as financial advisers and have been granted exemption by the Monetary Authority of Singapore (MAS) in their dealings with high net worth individuals very often incorporate a disclaimer of liability in their agreements with these customers. In practice, in spite of the Financial Advisers Act, financial advisers dealing with high net worth individuals might seek to disclaim their common law liability by expressly throwing the responsibility for due diligence on to their customers through the incorporation of a non-reliance clause in their contracts with their customers. However, arising out of the banker and customer relationship, does the banker owe a duty to the customer to exercise reasonable care and skill when he carries out the customer's instructions or when he advises the customer? In Go Dante Yap v Bank Austria Creditanstalt AG[2011] 4 SLR 559 (Go Dante), the respondent bank, incorporated in Austria, operated branches in Hong Kong and Singapore. In 1997, the appellant, a businessman from the Philippines, met up in Hong Kong with one Winnifred Natasha Tong Ching Laude (Ms Ching), a vice-president of the bank's Hong Kong branch to open an account with the bank. The appellant subsequently opened two accounts with the bank through Ms Ching, a savings account with the Hong Kong branch (Hong Kong account) and an investment account with the Singapore branch (Singapore account). The appellant executed three sets of account-opening documents (Account-opening opening and custodian agreement for the Singapore account; the Discretionary Investment Management Agreement (DIMA) for the Singapore account and the Investment Authority Instructions (IAI) for the Singapore account. The DIMA granted the bank the power and discretion to trade in securities on behalf of the appellant using his account, without the need for his specific authorisation. The appellant, however, sought to limit the bank's authority by executing the IAI, whereby the bank was not authorised to make any investment or sell any securities for the Singapore account or Hong Kong account without the appellant's instructions. The bank also extended a loan of US$5m to the appellant under a loan facility letter and the proceeds of the loan were remitted to the Singapore account. The appellant's dispute with the bank involved losses arising from 16 investments, comprising, mainly, emerging market debt instruments, entered into by Ms Ching under the appellant's Singapore account. In the course of making these 16 investments, the appellant and Ms Ching would hold monthly meetings, where Ms Ching would show the appellant the portfolio, currency and money market analyses from the previous month's transactions. During the meetings, the appellant would go through and discuss these documents with Ms Ching, in order to review the performance of the appellant's investments, which included examining the projected returns from these investments. The appellant raised two main contentions in his claim against the bank. First, the investments were not authorised by him (authorisation claim) and secondly, that the bank owed him a contractual and tortious duty to advise him over the investments (advisory claim). The Court of Appeal agreed with the High Court that the contractual terms between the parties did not expressly provide for an advisory relationship between the parties. The Court of Appeal, however, went on to decide that, even though a bank's written agreement might not have expressly or impliedly imposed a contractual duty on the bank to advise a customer, there was still room for the bank's common law duty that it should exercise reasonable care and skill in advising the customer to operate when it advised the customer. Andrew Phang Boon Leong JA said (Go Dante at [24] and [25]):

The absence of an express or implied contractual duty to advise the Appellant did not mean, however, that the Respondent did not owe a contractual duty of skill and care to the Appellant under the Account-opening Documents. In contracts under which a skilled or professional person agrees to render certain services to his client in return for a specified or reasonable fee, there is at common law an implied term in law that he will exercise reasonable skill and care in rendering those services Consequently, we considered that there was ample authority from which to conclude that the Respondent owed the Appellant an implied contractual duty of care in carrying out his instructions under the Account opening.

5.2 The parties to a contract are normally bound by the terms of the contract and the principle is equally applicable to a contract entered into between a bank and its customer in the sale of investment products to the customer. In Soon Kok Tiang v DBS Bank Ltd[2012] 1 SLR 397 (Soon Kok Tiang), the appellants (Appellants) were a group of 21 investors who had invested in derivative credit-linked notes called DBS High Notes 5 (HN5) issued by the respondent, DBS Bank Ltd (Respondent). The Appellants brought proceedings through an originating summons against the Respondent, on behalf of themselves as well as 192 other plaintiffs for the refund of the entire capital sum which they had lost in investing in the HN5 consequent upon the bankruptcy on 15 September 2008 of Lehman Brothers Holdings Inc (Lehman), one of the reference entities to which the HN5 were linked. The Respondent's offer of the HN5 was expressed to be made on the basis of the information contained in a 93-page pricing statement dated 29 March 2007 and a 168-page base prospectus dated 22 December 2005 as amended by a supplementary base prospectus dated 5 April 2006. The Appellants' claims were dismissed by the Court of Appeal on the grounds that the Appellants were bound by the terms of their agreements with the Respondent and the agreements were not void of uncertainty as contended by the Appellants. Bank customers who had invested in...