Banking Law

Citation(2014) 15 SAL Ann Rev 73
Date01 December 2014
Published date01 December 2014
Bank And Customer
The bank's mandate

5.1 The bank's mandate is usually established at the start of the banker-customer relationship, when the customer signs one or more detailed account opening forms. The bank can only act in accordance with the customer's instructions, and a breach will amount to a breach of contract by the bank. A vital aspect of account opening is the determination of the person or persons with the authority to give instructions for the operation of the account, who will be the account signatory or signatories. This is usually a straightforward matter, but the High Court case of Telemedia Pacific Group Ltd v Crdit Agricole (Suisse) SA[2015] 1 SLR 338 (Telemedia Pacific Group) illustrates some of the issues that may arise. The plaintiff, Telemedia Pacific Group Ltd (Telemedia), opened an account with Crdit Agricole (Suisse) SA (Crdit Agricole) pursuant to a joint venture agreement it had with Yuanta Asset Management International Ltd (Yuanta). Telemedia's sole director and majority shareholder was Hardy Hartono (Hartono), and Yuanta was owned by the third party in the action, Jack Yeh (Yeh). The transaction in question arose because, pursuant to Yeh's instructions, Crdit Agricole transferred shares that were being held in Telemedia's account into an account maintained by a subsidiary of Yuanta. Telemedia alleged that Crdit Agricole acted in breach of mandate or negligently by doing this, as Hartanto was the only authorised signatory of Telemedia's account, and Yeh was not an authorised signatory. In defence, Crdit Agricole relied on the account-opening forms for Telemedia's account, which showed that both Hartanto and Yeh were singly authorised signatories of Telemedias account. However, Telemedia argued that when the account opening forms were first submitted to Crdit Agricole, they only bore the name of Hartanto as a signatory, and that Yeh's name was later inserted without Telemedia's knowledge or consent after the forms had been handed over to the bank's representative. Crdit Agricole denied this and asserted that the account-opening forms bore the names of both Hartanto and Yeh when they were submitted as was consistent with the understanding all along that both Hartanto and Yeh would be singly authorised to operate Telemedia's account. The case turned largely on its highly contentious facts. These were examined in detail by George Wei JC, who explained his findings clearly and comprehensively. Wei JC preferred Crdit Agricole's version of the facts. He found that Yeh was an authorised signatory of Telemedia's account and that his name was inserted on the account-opening forms with the knowledge and consent of Hartanto. The claim against the bank for breach of mandate, therefore, failed.

5.2 Whilst the question of which signatures appear on the account opening forms as authorised signatures is a fact that is easily ascertainable by referring to the forms, Telemedia Pacific Group shows the issues that might arise when the signed forms are allegedly altered after they have been handed over to the bank's representative. The decision of Wei JC in Telemedia Pacific Group did not find this to be so on the facts of that case. However, if there had been evidence of the forms having been tampered with, difficult questions could arise. Clearly, the customer cannot be bound by the alterations unless it authorised or knew about these. On the other hand, if the alterations had been made with the knowledge of, or due to the negligence of the bank's representative, the bank cannot be protected by relying on the altered forms. The most uphill task for both the customer and the bank would be to convince the court that their version of the facts is the correct one. One of the ways of doing this could be for the customer to sign in front of an independent witness or perhaps in keeping with the current culture of selfies and instant photographs taken on mobile devices, this could be done by taking a photograph of the customer with the signed document. Both of these suggestions are likely to be too cumbersome to incorporate into the standard operating procedures of banks. In Telemedia Pacific Group, Wei JC observed (at [266]) that a greater degree of care would have been advisable:

On the version of the facts that I have preferred, the account-opening forms were signed at different times, and never in front of Mr Goh, Ms Teo, or another Crdit Agricole bank officer. This, in my view, was unfortunate.

Wei JC added (at [268]):

I am of the view that if either Mr Goh or Ms Teo had witnessed the actual signing of the account-opening forms, the room for dispute as to whether Mr Yeh was a singly authorised signatory would have been reduced.

5.3 An alternative scenario in which disputes may arise as to whether the bank has breached its mandate is the one where a customer instruction is given to the bank over telephone. In this situation, a customer might deny that the instructions were given by him, and sue the bank for acting upon the unauthorised instruction. With the customer's word against that of the bank officer, the contest becomes one that is based primarily on facts, and the winner would be the one who convinces the court of its version of the events. This was precisely the situation in Lo Man Heng v UBS AG[2014] SGHC 134 (lo man heng). There, the account holder, Lo Man Heng (Lo), claimed that UBS AG (UBS) had acted improperly upon unauthorised telephone instructions received by Chua Hock Beng Dennis (Chua), the bank's relationship manager, to close Lo's accounts and transfer the moneys into the account of Yap Loo Mien (Yap), who was the wife of Lo's business partner, Michael Chia Tien Foh (Chia). Lo claimed that Chia made the phone calls giving the instructions, whilst the bank claimed that it was Lo who made those calls. The case turned on who had made the phone calls if it had been Chia, the bank could have breached its mandate in acting upon the instructions of an unauthorised person, whereas if it had been Lo, the bank would have been acting within its mandate. This factual determination would normally have been helped by the bank's standard practice to record all calls regarding payment instructions. However, the bank kept the recordings of the phone conversations only for two years, and more than two years had elapsed by the time Lo commenced the action. In this situation, the court could only rely on conflicting witness testimony and ambiguous documentary evidence to make its factual finding that it was Lo who had made the phone calls. This was a happy result for the bank, but it could have gone the other way. A general lesson to be learnt might be that if payment instructions are to be accepted by telephone, it would be prudent for the bank to keep the records of the telephone conversations for the full length of the limitation period during which the customer could bring an action.

Revocation of authority

5.4 A customer may wish to change its instructions to its bank at various points in the banker-customer relationship, including revoking the authority of one of the authorised signatories. Naturally, a bank should only act in accordance with such instructions when the person instructing the change has the authority to do so, and the proper procedure has been followed. In Telemedia Pacific Group, one of the arguments put forward by Telemedia was that even if Yeh had been an authorised signatory at the beginning, his authority had been revoked by a series of e-mails written by Hartanto to the bank before the instruction to transfer the shares had been given. Wei JC found on the facts that the e-mails did not amount to such revocation. He found further that even if the e-mails had purported to revoke Yeh's authority, they would not have been effective. One of the account-opening forms which constituted the mandate to Crdit Agricole was the Certified Extract of Board Resolution. Clause 2 named Hartono and Yeh as authorised signatories. Clause 12 stated:

[T]hese resolutions [shall] be communicated to the Bank and shall constitute the Company's mandate to the Bank and remain in force and effect until an amending resolution shall have been passed by the Directors, and a copy thereof certified by a Director or the Company Secretary, shall have been actually received by the Bank.

As no board resolution to remove Yeh had been passed, Wei JC found that the original mandate remained and Yeh's authority would had not have been successfully revoked at the time the shares were transferred.

Conclusive evidence clauses and estoppel

5.5 It has become standard for bank documentation in Singapore to include conclusive evidence clauses, also known as verification clauses. The leading case in this area is the Court of Appeal's decision of Pertamina Energy Trading Ltd v Credit Suisse[2006] 4 SLR(R) 273 (Pertamina Energy), where such clauses were held to be valid. V K Rajah J (as he then was) described these clauses (at [55]) to be those that:

place the onus on the bank's customers to verify their bank statements and to notify the bank if there is any discrepancy within a certain period of time. If the customer fails to do so, he is precluded from asserting that the statements do not represent the true state of his accounts with the bank. In other words, he may not make a claim against the bank for his loss.

5.6 The Court of Appeal's decision in Pertamina Energy confirmed the position taken by the High Court in three earlier cases, Consmat Singapore (Pte) Ltd v Bank of America National Trust & Savings Association[1992] 2 SLR(R) 195 (consmat), Stephan Machinery Singapore Pte Ltd v Oversea-Chinese Banking Corp Ltd[1999] 2 SLR(R) 518, and Tjoa Elis v United Overseas Bank[2003] 1 SLR(R) 747 (tjoa elis). The Court of Appeal highlighted (at [63]) that:

the relationship between a bank and its customer is governed by contract; and the parties are at liberty to expressly agree on any...

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