Jiang Ou v EFG Bank AG

• Jurisdiction: Singapore
• Judgment Date: 09 June 2011
• Date: 09 June 2011
• Docket Number: Suit No 1055 of 2009
• Court: High Court (Singapore)

Jiang Ou

Plaintiff

and

EFG Bank AG

Defendant

[2011] SGHC 149

Steven Chong J

Suit No 1055 of 2009

High Court

Banking—Statement of account—Verification clauses or conclusive evidence clauses—Defendant bank's employee executing unauthorised transactions on plaintiff's account—Plaintiff claiming losses occasioned by unauthorised transactions—Defendant bank relying on conclusive evidence clauses to preclude plaintiff's recovery—Whether defendant bank had discharged burden of proof of posting transaction documents to plaintiff—Whether conclusive evidence clauses in defendant bank's documentation covered unauthorised transactions carried out by defendant bank's own employee

In June 2008, the plaintiff, Jiang Ou (‘Mdm Jiang’) opened a non-discretionary account with the defendant, EFG Bank AG (‘EFG Bank’) in support of her application for permanent residence under the Monetary Authority of Singapore Financial Investor Scheme. The plaintiff deposited a total of US$4,999,957.50 into her account. Between August 2008 and April 2009, in the absence of any instructions, written or verbal, Mr Ng Ton Yee (‘Mr Ng’) , an employee of EFG Bank as well as Mdm Jiang's client relationship officer, executed a series of 160 high-volume and/or high risk leveraged foreign exchange and securities transactions purportedly on behalf of Mdm Jiang. As a result of the transactions executed by Mr Ng in the absence of any instructions, Mdm Jiang's account suffered a loss of US$2,338,278.68. Mdm Jiang claimed that prior to April 2009 she did not receive any of the 160 transaction confirmation slips or bank statements (‘transaction documents’) from EFG Bank save for the 18 documents she had received from 29 July 2008 to 5 January 2009. EFG bank denied liability for the loss on the premise that Mdm Jiang was precluded from challenging the correctness of the transaction documents by reason of the conclusive evidence clauses in the bank's documentation.

Held, allowing the claim:

(1) Upon discharge of the burden of proof of posting, cl 4 of the General Conditions of the account opening documents gave rise to a presumption of delivery of the transaction documents to Mdm Jiang: at [27].

(2) EFG Bank failed to discharge its burden of proof on a balance of probabilities that the transaction documents were sent by ordinary mail to Mdm Jiang. Therefore, the presumption of delivery as provided for in cl 4 of the General Conditions did not arise. EFG Bank's substantive defence, premised on the legal effect of the conclusive evidence clauses, was entirely dependent on successfully establishing proof of posting under cl 4: at [56] and [57].

(3) Conclusive evidence clauses, such as cll 3.1 and 3.2, imposed two concurrent duties on customers of banks. First, it placed the onus on the customers to verify their bank statements and second, it required the customers to notify the bank if there was any discrepancy. If the customer failed to do so within the stipulated time, he or she would be precluded from challenging the correctness of the statement: at [60].

(4) It was critical to stress that a defence under conclusive evidence clauses such as cll 3.1 and 3.2 was a contractual defence which was separate and distinct from estoppel: at [61].

(5) Whether a particular risk of loss due to error, discrepancy, forgery or just plain unauthorised transaction was shifted onto the customer was a question of construction of the relevant clause. If a bank sought to contractually allocate the burden and responsibility of the duty to inform of any forgery or unauthorised drawing or instruction on the customer, no less than clear and unambiguous reference would suffice. Sufficiently wide language ascertainable by a reasonable person to include the specific liability borne by the customer would also, in theory, suffice: at [92] and [93].

(6) By express reference to ‘instructions’, specific to cll 3.1, 3.2 and 3.3, it was clear that the Agreement did not intend for unauthorised transactions executed in the absence of any instructions from the customer to be included within the ambit of the clauses. Instead, in the court's view, cll 3.1 and 3.2 would only protect EFG Bank from liability against ‘discrepancies’ and/or ‘omissions’ in the execution of the customer's instructions: at [102].

(7) The authorities put forth by the parties involving banks honouring cheques which were subsequently established to bear the forged signatures of the drawers were distinguished on the basis that in those cases, the banks believed in good faith that in honouring the cheques, they were acting on the customers' mandate or instructions unlike the present case where EFG Bank in executing the transactions knew through Mr Ng that it had no mandate or instructions to do so: at [103] and [104].

[Observation: Conclusive evidence clauses which purported to exclude liability for the fraud of banks' employees would, in the court's judgment, stand contrary to public policy considerations and would run foul of the reasonableness test under s 11 of the Unfair Contract Terms Act (Cap 396, 1994 Rev Ed) : at [108].]

Arrow Transfer Co Ltd v Royal Bank of Canada (1972) 27 DLR (3 d) 81 (distd)

Bache & Co (London) Ltd v Banque Vernes et Commerciale de Paris SA [1973] 2 Lloyd's Rep 437 (refd)

Banque National de Paris v Tan Nancy [2001] SGCA 76 (distd)

Big Dutchman (South Africa) (Pty) Ltd v Barclays National Bank Ltd 1979 (3) SA 267 (W) (refd)

Canadian Pacific Hotels Ltd v Bank of Montreal (1987) 40 DLR (4 th) 385 (refd)

Canara Bank v Canara Sales Corp (1987) 2 SCC 666; AIR 1987 SC 1603 (refd)

Consmat Singapore (Pte) Ltd v Bank of America National Trust & Savings Association [1992] 2 SLR (R) 195; [1992] 2 SLR 828 (distd)

Fried v National Australia Bank Ltd (2001) 111 FCR 322 (refd)

HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 1 All ER (Comm) 349 (refd)

Holzman v Standard Bank Ltd 1985 (1) SA 360 (W) (refd)

Kepitigalla Rubber Estates Ltd, The v The National Bank of India Ltd [1909] 2 KB 1010 (refd)

Lazarus Estates Ltd v Beasley [1956] 1 QB 702 (refd)

National Australia Bank Ltd v Hokit Pty Ltd (1996) 39 NSWLR 377 (refd)

National Bank of New Zealand Ltd v Walpole and Patterson Ltd [1975] 2 NZLR 7 (refd)

Pertamina Energy Trading Ltd v Credit Suisse [2006] 4 SLR (R) 273; [2006] 4 SLR 273 (refd)

Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 (refd)

RBS Coutts Bank Ltd v Shishir Tarachand Kothari [2009] SGHC 273 (distd)

Ri Jong Son v Development Bank of Singapore Ltd [1998] 1 SLR (R) 824; [1998] 3 SLR 64 (folld)

Stephan Machinery Singapore Pte Ltd v Oversea-Chinese Banking Corp Ltd [1999] 2 SLR (R) 518; [2000] 2 SLR 191 (distd)

Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80 (folld)

Tjoa Elis v United Overseas Bank Ltd [2003] 1 SLR (R) 747; [2003] 1 SLR 747 (refd)

United Asian Bank Bhd v Tai Soon Heng Construction Sdn Bhd [1993] 1 MLJ 182 (refd)

Bills of Exchange Act (Cap 23, 2004 Rev Ed) s 24

Civil Law Act (Cap 43, 1988 Rev Ed) s 5

Unfair Contract Terms Act (Cap 396, 1994 Rev Ed) ss 3, 11, 11 (1) , 11 (5) , Second Schedule

Unfair Contract Terms Act 1977 (c 50) (UK)

Uniform Commercial Code (US) § 4-406 (c) , § 4-406 (d) - (e)

Lawrence Quahe, Chenthil Kumarasingam and Kenneth Lim (Lawrence Quahe & Woo LLC) for the plaintiff

Siraj Omar (Premier Law LLC) for the defendant.

Judgment reserved.

Steven Chong J

Introduction

1 Conclusive evidence or verification clauses, commonly found in banking documentation, have consistently been upheld by the courts, inter alia, on the premise that banks who insert them ‘are known to be honest and reliable men of business who are most unlikely to make a mistake’ (per Lord Denning MR in Bache & Co (London) Ltd v Banque Vernes et Commerciale de Paris SA [1973] 2 Lloyd's Rep 437 at 440) . Such clauses have been upheld to exonerate banks from liability in honouring cheques that were subsequently established to bear the forged signatures of their customers. From my survey of the case law, there has been no occasion where the courts have had to pronounce on the validity of such a clause when invoked to exculpate a bank from liability of the fraud of its own employees engaging in unauthorised trades. If such clauses were to be upheld in relation to such unauthorised trades, the risk of fraud of the bank's employee, entirely within the sphere of control of the bank, would be shifted to the customer. Are such clauses, even if worded broadly enough to encompass the fraud of the bank's employee, enforceable? Is the lack of case authority explained by banks' intuitive recognition that such liability cannot be validly excluded or perhaps by reason of other commercial considerations? This is precisely the principal issue that presented itself before me for determination in the instant case.

Material facts

Parties to the dispute

2 The plaintiff, Jiang Ou (‘Mdm Jiang’) is a citizen of the People's Republic of China (‘China’) and a permanent resident of Singapore. At all material times, Mdm Jiang was a substantial shareholder, the General Manager and Managing Director of Liaoning New Wentai Paper Industries Co Ltd, a company engaged in the business of manufacturing of paper and paper products.

3 The defendant, EFG Bank AG (‘EFG Bank’) is a bank incorporated in Switzerland, licensed to operate as a bank in Singapore.

Background to the dispute

4 In 2008, Mdm Jiang and her husband applied for permanent residence under the Monetary Authority of Singapore (‘MAS’) Financial Investor Scheme (‘FIS’) . Under this scheme, an individual can apply for permanent residence in Singapore by depositing a sum of at least S$5 m with an approved bank regulated by the MAS, for a continuous period of five years.

5 In support of her application for permanent residence under the FIS, Mdm Jiang opened a non-discretionaryaccount (account no [xxx] ) (‘the FIS...