Ramesh s/o Krishnan v AXA Life Insurance Singapore Pte Ltd

• Judge: Sundaresh Menon CJ
• Judgment Date: 27 July 2016
• Neutral Citation: [2016] SGCA 47
• Subject Matter: Negligence,Tort,Causation,Breach of duty
• Hearing Date: 25 November 2015
• Docket Number: Civil Appeal No 112 of 2015
• Published date: 29 July 2016
• Defendant Counsel: Pillai K Muralidharan, Luo Qinghui, Mark Foo and Andrea Tan (Rajah & Tann Singapore LLP)
• Court: Court of Three Judges (Singapore)
• Plaintiff Counsel: Eugene Singarajah Thuraisingam, Cheong Jun Ming Mervyn and Suang Wijaya (Eugene Thuraisingam LLP)

Sundaresh Menon CJ (delivering the judgment of the court): Introduction

Employers often require potential hirees to provide references from their former employers. Such references may serve as a basis for the prospective employer to assess the applicant’s character and abilities, and will likely have at least some, if not significant, bearing on the applicant’s chances of obtaining employment. For this and other reasons, which we will elaborate upon in the course of this judgment, it is important that employers prepare such references, when called upon to do so, in a fair and accurate manner to avoid unjustifiably prejudicing the former employee’s prospects of obtaining fresh employment. Before us, it was accepted that an employer has a duty of care when preparing such a reference. The dispute turned on whether that duty had been breached, which in turn depended on the standard of care that must be exercised by an employer in the preparation of such references. This issue has not hitherto been considered by this court.

The appellant, Mr Ramesh s/o Krishnan (“the Appellant”), argues that the respondent, his former principal, AXA Life Insurance Singapore Pte Ltd (“the Respondent”), breached the duty of care which it owed him in the preparation of references that had been requested by his prospective employers, Prudential Assurance Company Singapore Pte Ltd (“Prudential”) and Tokio Marine Life Insurance Singapore Limited (“Tokio Marine”). He contends that as a result of this, he was not employed by either of them. In his decision reported as Ramesh s/o Krishnan v AXA Life Insurance Singapore Pte Ltd [2015] 4 SLR 1 (“the Judgment”), the High Court judge (“the Judge”) dismissed the Appellant’s claim on the basis that the Respondent had not breached its duty of care.

Two questions arise in this appeal: (a) whether the Respondent breached its duty of care to the Appellant in the preparation of the references; and (b) if the Respondent did indeed breach its duty, whether this breach caused the Appellant not to be employed by the two prospective employers. Having considered the matter, we answer both questions affirmatively in respect of the claim concerning the Appellant’s application to join Prudential (but not the claim concerning his application to join Tokio Marine – see [108] below), and allow the appeal to that extent. We now explain our decision in detail, but preface our analysis with an overview of the regulatory framework of the financial advisory and insurance industry and a summary of the material facts.

Regulatory framework of the financial advisory and insurance industry

As the references in question were provided pursuant to regulations that are specific to the financial advisory and insurance industry, a brief understanding of the regulatory framework of the industry is necessary in order to understand what actually transpired.

The Monetary Authority of Singapore (“MAS”) has in place a framework to ensure that financial advisers and other persons who carry out regulated activities under the Financial Advisers Act (Cap 110, 2007 Rev Ed) (“the FAA”) and the Securities and Futures Act (Cap 289, 2006 Rev Ed) are fit and proper persons who will perform such activities (“Regulated Activities”) efficiently, honestly, fairly and in the best interests of consumers. In this context, one of the measures taken by MAS was the establishment of the “Representative Notification Framework” (“RNF”) in November 2010. Under the RNF, financial institutions that are regulated by MAS are required to notify and to obtain a licence (“RNF licence”) from MAS before they may appoint a representative to carry out any Regulated Activities. They are also required to conduct due diligence checks into the background of the proposed representative. This includes conducting reference checks with the proposed representative’s former employer or principal in order to establish that the proposed representative does meet the standards prescribed in the FAA as well as under a set of guidelines issued by MAS (namely, the Guidelines on Fit and Proper Criteria (Guideline No FSG-G01)). In particular, financial institutions are required to inquire from the proposed representative’s former employer or principal whether he has any adverse record (such as warnings, reprimands or other disciplinary action for misconduct), or whether he has ever been dismissed or asked to resign.

Apart from requiring financial institutions to perform reference checks with the proposed representative’s former employer or principal, MAS also requires them to obtain a declaration from the proposed representative that he does satisfy MAS’s Guidelines on Fit and Proper Criteria. Where a proposed representative has indicated any adverse information in the self-declaration, the financial institution must obtain details from him and then assess whether he may nonetheless be considered fit and proper to be appointed, and if so, explain why.

The RNF is supplemented by a scheme known as the “Industry Reference Check System”, which predates the RNF but was improved thereafter. The Industry Reference Check System is an industry-led initiative started in October 2006 by various trade and professional associations in Singapore, including the Life Insurance Association of Singapore (“LIA”), which is an association of life insurance providers based in Singapore and licensed by MAS. The Respondent, Tokio Marine and Prudential are all members of the LIA. The Industry Reference Check System serves as a standardised reference checking system across the different sectors of the financial advisory and insurance industry. It was launched to facilitate the efforts of financial institutions to comply with MAS’s guidelines and to allow them to better assess persons applying for jobs that involve Regulated Activities. This initiative is endorsed by MAS. Financial institutions that are regulated by MAS and are members of the LIA have the following two obligations under the Industry Reference Check System: Before they appoint a representative, they are required to conduct reference checks with the applicant’s former employer or principal through the use of a standardised form known as the “Industry Reference Check Form” (“Reference Check Form”). Correspondingly, when they are approached by another institution operating under the system for reference checks on their former employee or agent, they are required to respond in a timely and forthcoming manner. The usual timeline for the return of a Reference Check Form is seven working days.

The Reference Check Form plays an important role under both the RNF and the Industry Reference Check System, and is pertinent to the present appeal because it was the format in which the main references in question were provided. There is strong encouragement for financial institutions to use the Reference Check Form, even though they are not legally obliged to do so. The form, as revised by the LIA in August 2011, consists of two sections: Section A, titled “Minimum Information (compulsory)”, in which the former employer or principal is obliged to furnish basic information such as the applicant’s period of employment, the reason for his departure, whether he has ever been reported to MAS for any misconduct under the relevant legislation, the last position which he held with the former employer or principal and the contact details of a person in the former employer or principal who may be approached for further information or clarification; and Section B, titled “Optional Information”, an open-ended section in which the former employer or principal may provide any other information that it deems relevant. The guidelines on the use of the Reference Check Form state that the prospective employer may request more information under Section B, such as information on the applicant’s “Production in the last 12 months” and his “Persistency Ratio in the last calendar year”.

It is apposite here to explain the concept of “persistency ratios” (also known as “persistency rates”), which, as will become apparent, feature significantly in the present appeal. Persistency ratios track the number of insurance policies sold by an adviser that are still in force over a period of time (for example, a financial institution may track a 13-month period, a 19-month period or a 24-month period). There are a number of different formulae for calculating persistency ratios, and these may take into account not only the number of policies that have lapsed over a given period, but also the amount of premiums lost on account of the lapsing of policies and the amount of premiums gained by the addition of new policies. Some of the possible differences between the various methods of calculation and between the ratios that are derived by using particular methods are discussed at [116] below. Persistency ratios are almost always sought and included in reference checks. These ratios help to shed light on the quality of an adviser’s sales: a high ratio indicates that many of the adviser’s clients have continued to maintain their policies during the relevant period of time and suggests that the adviser’s sales are of a good quality.

For completeness, we should mention that the Reference Check Form has two other parts: (a) a part where the applicant is to give his written authority for his prospective employer to make inquiries into his previous employment; and (b) a set of guidelines on the use of the form.

Against that backdrop, we turn to the factual narrative.

The material facts The Appellant’s relationship with the Respondent

The Appellant was engaged by the Respondent as an adviser and financial services associate manager on 26 July 2005. Prior to that, he worked as an insurance agent at John Hancock Financial (which later merged with Manulife Financial) and thereafter at Philips Securities. In the...