In its 2014 Payments Fraud and Control Survey, the Association for Financial Professionals notes that cheques continue to be the dominant payment form targeted by fraudsters. Cheque fraud still has the potential to saddle banks with substantial losses because, as the Privy Council said in Tai Hing Cotton Mill v Liu Chong Hing Bank, it is a fundamental premise that if a bank pays out on the basis of a forged signature on a cheque, it does so without its customer’s mandate and is generally required to make good any loss that the payment causes to the customer.
The Tai Hing decision reinforced a dual message. First, the common law would not impose a direct duty on customers to check their bank statements for discrepancies, as a means of relieving banks from their liabilities arising from payment fraud. This message resonated throughout the Commonwealth; see: Fried v National Australia Bank (Australia), National Bank of New Zealand v Walpole and Patterson (New Zealand), Canadian Pacific Hotels v Bank of Montreal (Canada), Big Dutchman v Barclays National Bank (South Africa), United Asian Bank v Tai Soon Heng (Malaysia) and Pertamina Energy Trading Ltd v Credit Suisse (Singapore). Second, if banks wanted to shift the risk of losses arising from payment fraud back to their customers, a solution existed in contract and the courts were prepared to uphold the legitimacy of properly drafted conclusive evidence clauses having this effect.
In the retail and private banking context, conclusive evidence clauses generally impose a duty upon the customer to examine their bank statements and notify the bank of any error or discrepancy within a set period, otherwise the statement and the transactions listed in it will be conclusive and binding upon the customer.
Judicial consumerism
In Pertamina Energy Trading v Credit Suisse (2006), Singapore's Court of Appeal considered a conclusive evidence clause in the terms and conditions of the bank's contract with a corporate customer. Though it upheld the efficacy of the clause in that case, the Court of Appeal questioned (but did not answer) whether a conclusive evidence clause in the retail banking context could satisfy the requirement of reasonableness in Singapore's Unfair Contract Terms Act 1994. The issue came up for consideration (but not a decision) in the retail banking context in Jiang Ou v EFG Bank (2011), where Singapore's High Court said:
"...it appears to me that it is plainly unreasonable that a bank should be able to shift the risk of unauthorised transactions by a fraudulent employee (within its own sphere of control) to an innocent customer by way of a conclusive evidence clause."
Singapore's High Court recently revisited this issue in AmFraser Securities v Goh Chengyu (2014), this time in a securities trading context. AmFraser involved a remisier, a licensed intermediary common to Singapore and Malaysia, who receives commission from trades executed on the Singapore Exchange, but who is the agent of the customer, not an employee of the securities brokerage, for the purposes of trading. AmFraser invoked a conclusive evidence clause in its trading account contract with Mr Goh, who was suing for losses incurred through the remisier's fraud. The High Court not only endorsed what it had said in EFG Bank in the retail banking context but was also, in principle, prepared to extend the proposition to the retail securities trading industry.
Comment
Whilst EFG Bank and AmFraser are evidence of an emerging trend of judicial consumerism in Singapore, particularly in the financial services arena, the implications are geographically broader. In Public Investment Bank v Yap Chee Hean (2014), the Malaysian Court of Appeal recently considered a conclusive evidence clause on facts which are similar to AmFraser. Although the Court of Appeal found no difficulty in upholding the efficacy of the conclusive evidence clause, it did not have to consider whether that clause satisfied the requirement of reasonableness, which sections 24A to 24J of Malaysia's Consumer Protection Act apply to consumer contracts entered into on or after 1 February 2011. Whether or not conclusive evidence clauses in standard form retail financial services contracts satisfy the requirement of reasonableness is likely to come back to the Malaysian courts. When that happens, it is certainly possible that they will follow AmFraser.
Those who insure Asian financial institutions under Bankers Blanket Bonds or Commercial Crime policies have justifiable reason to think that their fraud exposures are likely to increase considerably as a result of their insureds being unable to rely upon conclusive evidence clauses.
