Als Memasa and another v UBS AG [2012] SGCA 43

Financial institutions and various other commercial entities have long included clauses in their terms and conditions which purport to disown any reliance on the part of the customer (commonly known as “non-reliance clauses”). Hitherto, it had been thought that customers are bound to such terms by their signatures regardless of their understanding of the true legal effect.

In the recent case of Als Memasa and another v UBS AG [2012] SGCA 43, the Singapore Court of Appeal has commented that it may be desirable, notwithstanding such clauses, for the courts to reconsider whether financial institutions should be accorded full immunity from liability arising from investment losses of their customers, especially in the case of unsophisticated investors. The decision though was at an interlocutory stage of the proceedings and we will need to wait for the matter to proceed to trial to come to a settled view of where the law is.

Als Memasa case

The case involved customers of UBS who were said to be non-conversant in the English language. Various transactions and investments were carried out under their accounts, including the purchase of certain Russian bonds. In summary, the customers lost a large part of their investments and subsequently commenced proceedings against UBS for these losses, alleging that the investments were unauthorised and any subsequent affirmation was procured through misrepresentation.

The Court of Appeal noted the proliferation of non-reliance clauses in standard investment management documents and observed that the extent to which financial institutions can rely on such clauses to protect themselves from: (i) bad or negligent advice, or (ii) recommendations on financial products ill-suited to the risk profiles and financial needs of certain customers, needed to be reconsidered.

The protection of non-reliance clauses

To the extent that such non-reliance clauses in effect absolve the party relying on them from liability arising from misrepresentation, the Court of Appeal raised the issue of whether such clauses are to be subject to the Unfair Contract Terms Act (Cap 396) (UCTA).

Under section 4(1) of UCTA, a consumer cannot be made to indemnify another party from liability arising out of the other party’s own negligence or breach of contract unless it satisfies the requirements of reasonableness. The issue then is whether a non-reliance clause is in effect an exclusion of liability clause and therefore subject to the UCTA provisions.

The relevance of illiteracy

The further issue flagged by the Court of Appeal related to the established common law principle that a party is generally bound by his signature whether or not he is aware of the existence or effect of a particular contractual term.

In order to challenge such a presumption, the party must successfully raise the defence of non est factum which requires him to prove that the signed instrument is radically different from that which he intended to sign, whether through the fraud of another or through his own mental incapacity. The bar for such a defence is high and a claim of linguistic illiteracy will not normally suffice.

However, the Court of Appeal noted that there were numerous recent allegations against financial institutions for mis-selling financial products to “linguistically and financially illiterate and unwary” customers. The Court of Appeal consequently suggested that this may warrant the courts to have a re-look at whether financial institutions should have the full protection of non-reliance clauses when unsophisticated customers may have been persuaded to sign without truly understanding that these clauses might absolve the financial institution of any form of misconduct or negligence on the part of their officers in relation to the investment they recommended.

Implications

The Court of Appeal’s observations are indicative of its inclination towards reducing the level of immunity accorded to banks and financial institutions by virtue of non-reliance clauses embedded within their standard terms, especially where the customer is an unsophisticated individual.

In the aftermath of the events of September 2008, various customers of private banks had sought to make claims in respect of advice they had been given. Many of these claims had been given up or compromised on the basis that non-reliance clauses would defeat the claims. It may well be that the Court of Appeal’s decision, and the looming time bar (6 years) against claims, will cause customers to dust off their old files and re-engage their bankers.