In the recent case of Elis Tjoa v United Overseas Bank(1) an opportunity arose to revisit the principles governing verification clauses in banker-customer contracts. The Singapore High Court addressed a number of issues relating to the extent to which customers are bound by clauses purporting to place them under a duty to check and verify statements of account.
The basic principle, enunciated in such cases as Lloyds Bank Ltd v The Hon Cecily K Brooks(2) and Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd,(3) that bank customers are prima facie under no duty to peruse and verify entries in their statements of account, and are not bound by errors disclosed in bank statements, has been seriously eroded by the practice of including standard verification clauses in contracts between banks and customers.
Verification clauses seek to impose on the customer a duty to examine the entries in each statement of account, and to notify the bank in writing within a stipulated period of time of any debit wrongly made or made without authority. If the bank does not receive such a notification within the stipulated period of time, the account is to be conclusive evidence that it is correct and the customer bound by it.
The validity of such verification clauses was recognized in Singapore for the first time by Justice LP Thean in the 1992 case of Consmat Singapore Pte Ltd v Bank of America.(4) In the decade between Consmat and Elis Tjoa, the risk of wrongful payments, which Lord Scarman in Tai Hing had held was borne by the banks, shifted considerably to the customer.
In the Elis Tjoa Case the plaintiff disputed the authenticity of two instructions to transfer considerable sums from her current account with the defendant bank to the current account of her sister. Although the court found that the plaintiff had collaborated with her sister in procuring the impugned transfers and dismissed her claim, it went on to comment on the verification clause.
The court examined the clause to determine whether it was fair and reasonable for the purposes of the Unfair Contract Terms Act, and found that the verification clause in question was not unreasonable. The court opined that it was not unreasonable to oblige a customer to check his statement when it is sent to his designated address and to notify the bank promptly of any unauthorized transaction reflected on his statement (since that was the reason for sending the statement to the customer in the first place).
It is clear from that case that the onus has shifted from one which placed the burden of guarding against the risk of fraud on banks, to one which requires diligence and care on the part of the customer. This decision will be commended as making commercial sense since, as the judge pointed out in Consmat, forgeries are extremely difficult for a bank to detect. In most cases customers are in a better position to detect any such fraud.
In the case at hand the plaintiff had also sought to avoid the operation of the verification clause by alleging negligence on the defendant bank's part. The court held, in no uncertain terms, that contractual exemptions and limitations could not be circumvented by bringing an action in tort instead of contract, approving the position taken by Justice GP Selvam in Management Corporation Strata Title Plan No 1166 v Chubb Singapore Pte Ltd.(5)
For further information on this topic please contact Edwina Taylor at WongPartnership by telephone (+65 6416 8000) or by fax (+65 6532 5722) or by email ([email protected]).
Endnotes
(2) (1950) 6 Legal Decisions Affecting Bankers 161.