Banking Law

• Date: 01 December 2012
• Author: POH Chu Chai LLB (Singapore), LLM, LLD (London); Advocate and Solicitor (Singapore).
• Published date: 01 December 2012

Banking

Financial advisers

5.1 The conduct of financial advisers employed by banks is now governed by the Financial Advisers Act (Cap 110, 2007 Rev Ed) (‘FAA’). Financial advisers transacting with an ordinary bank customer have to comply with the standards required of financial advisers as set out in ss 25, 26 and 27 of the FAA. These cover the provision of information about an investment product, representations and recommendations in respect of the product. In providing information about an investment product to a client, a financial adviser has to disclose all material information about the product. Such information would include the terms and conditions, benefits, risks and costs of the product. In addition, 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 the investment product and the effect of the contract terms. An omission to disclose any matter material to the statement may be construed as misleading. Similarly, a financial adviser is not to make any recommendations where he has no reasonable basis for so doing.

Private banking

5.2 A bank, however, may apply to the Monetary Authority of Singapore (‘MAS’) under s 100 of the FAA for exemption from the provisions of the FAA when it transacts with a high net worth individual in a private banking situation. A high net worth individual is defined by MAS as an individual who has a minimum of $1m of assets, or the equivalent in foreign currencies or in bank deposits, including structured deposits. It also includes a person whose total net personal assets exceed $2m in value or the equivalent in foreign currencies or whose annual income is not less than $300,000 or the equivalent in foreign currencies. MAS may grant exemption to a bank from ss 25, 27, 28 and 36 of the FAA as well as from certain written directions issued pursuant to s 58 of the FAA in respect of any financial advisory service provided to high net worth individuals.

Non-reliance clause

5.3 In practice, in spite of the FAA, financial advisers dealing with high net worth individuals might in addition seek to disclaim their common law liability by expressly throwing the responsibility of due diligence on their customer through the incorporation of a non-reliance clause in their contracts with the customers. In Orient Centre Investments Ltd v Société Générale[2007] 3 SLR(R) 566 (‘Orient Centre Investments’), the 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 the negligence of its employee.

5.4 A similar non-reliance clause was also incorporated in Crédit Industriel et Commercial v Teo Wai Cheong[2012] 3 SLR 287. The defendant, Teo Wai Cheong, was a private banking client of the plaintiff, Crédit Industriel et Commercial (‘CIC’). The bank agreement with the customer provided that ‘These private banking services have been designed for sophisticated and experienced investors (“High Net Worth Individuals” as defined in the Guidelines issued by the Monetary Authority of Singapore) who have the expertise, the understanding of financial product, as well as the desire and financial capacity to invest in domestic and international markets.’ It also stipulated that ‘The Bank highly recommends that you consult your lawyers, accountants, tax advisors, brokers and other professional advisers before making such investment. Accordingly, if you enter into transactions with the Bank, the Bank will assume that you understand and accept the characteristics and risks associated with such transactions.’ The dispute between the parties turned upon whether or not the defendant purchased certain accumulators. Accumulators were complex over-the-counter structured equity products. The bank claimed payment of $2,782,803.66 from the defendant for China Energy (‘CE’) shares delivered under the terms of five disputed accumulator agreements and another sum of $3,625,393.11 for the closing out cost for the disputed CE accumulators. The High Court considered the legal relationship between private bankers and their sophisticated clients. Philip Pillai JC (as he then was) decided that the bank was not acting as a trusted adviser of its client since its account opening form and risk disclosure statement highlighted to the client that he was responsible for the risks in the transactions.

5.5 The defendant appealed against the High Court decision and an order was made by the Court of Appeal directing CIC to produce certain previously undisclosed documents (‘Newly Disclosed Materials’). In the subsequent hearing, Chan Seng Onn J decided that based on the evidence before the court, Teo must have given the bank the requisite instructions to enter into the disputed accumulator transactions. Chan J said (at [118]):

I will also state that even without the admission of the evidence of Ng under s 33 of the EA, I would still have given judgment for CIC because on the totality of the other evidence before me, much of it being circumstantial in nature, I do find that they lead me to the irresistible conclusion that Teo must have given Ng the requisite instructions on 2 October 2007 and 3 October 2007 to enter into the Disputed Accumulator transactions.

5.6 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, the Court of Appeal decided that a bank customer was bound by the terms of his agreement with the bank and the agreement was not void for uncertainty as contended by the customer. The court added a reminder to members of the public that they were generally bound by the terms of a contract they had signed.

5.7 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. 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. Financial advisers dealing with high net worth individuals might seek to disclaim their common law liability by expressly throwing the responsibility of due diligence on their customers through the incorporation of a non-reliance clause in their contracts with the customers. In Go Dante Yap v Bank Austria Creditanstalt AG[2011] 4 SLR 559, the Court of Appeal agreed with the High Court that the contractual terms between the bank and its customer 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 the customer, there was still room for the bank's common law duty that it would exercise reasonable care and skill in advising the customer to operate when it actually advised the customer.

5.8 The Court of Appeal has now expressed the view that the courts should reconsider whether banks should be accorded full protection under non-reliance clauses in bank agreements when investment products are sold to unwary customers who are unsophisticated or linguistically and financially illiterate. In Als Memasa v UBS AG[2012] 4 SLR 992 (‘Als Memasa’), the second plaintiff, Tjo Bun Khai (‘Tjo’), was a wealthy retired Indonesian businessman who was 95 years old and neither spoke nor wrote English. The first plaintiff, Als Memasa (‘AM’), was Tjo's daughter who worked in a company in the family business. She was in her 60s and was unfamiliar with the English language. The plaintiffs had been...