Introduction

Conclusive evidence clauses (“CECs”), often found in banking documents, are essentially clauses providing that a determination of liability (which tends to involve the issuance of a certificate) shall be a conclusive determination of both the liability of a debtor and the amount payable by such debtor. An illustrative example is as follows: when a CEC is incorporated into the terms and conditions governing a bank account, the bank will be legally entitled to consider the bank statements as conclusive evidence of all that is presented within the bank statements of the account holder – this includes particulars of all transactions within. The incorporation of a CEC into an agreement imposes a duty on bank customers to verify their own bank statements, and notify the bank of any discrepancies within a certain period of time. If bank customers do not do so, they will be precluded from challenging their liability and amount payable on their part.

An example of such a clause provides as follows:

A certificate signed by any officer or solicitor of the Bank as to any amount due at any time from the Customer [ie, the borrower] and/or the Guarantor [ie, the defendant] to the bank in respect of the Guarantee (including the calculation of any amount of any interest payable) shall, in any legal proceedings against the Guarantor, be conclusive evidence of the indebtedness at such date of the Customer and/or the Guarantor to the Bank and shall be binding on the Guarantor.

But are these clauses really conclusive, as the plain wording may suggest?

Background

CECs were originally constructed for purposes of facilitating greater convenience when proving any outstanding sums owed and facilitating efficient repayment of the loan monies. This would save time and expense relating to arguments on issues of liability, as well as the amount owed by the debtor. Having been recognized in England as well as in Australia, these clauses are commonly used in various types of documentation by all kinds of businesses in common law jurisdictions. An example where CECs tend to be used would be in contracts between bankers and corporate customers, to afford a practical and reasonable management of risk allocation Alternatively, CECs could also be found in certificates of engineers and architects, present in construction contracts.

When dealing with CECs, it is imperative to bear in mind one of the underlying bases for the judicial acceptance of such clauses. In Bache, Lord Denning MR observed that the incorporation of such clauses was judicially accepted on the basis that the parties inserting them are known to be honest and reliable persons of standing, such that they are unlikely to make a mistake. In endorsing this view, Yong Pung How J (as he then was) noted in Bangkok Bank Ltd v Cheng Lip Kwong that the prevalent use of conclusive evidence clauses among banks rests on the assumption that money institutions are entirely honest and reliable.

Additionally, another rationale for such clauses is that of contract, in that an agreement between parties regarding the manner in which the matter is to be determined should be upheld, unless there are any relevant public policy considerations.

The legal position

Whether the court will give effect to a conclusive evidence clause

There is a rebuttable presumption in commercial documents that a party has not agreed to confer on the other party an exclusive right to determine conclusively all issues relating to an adversarial claim. As such, the court will generally not permit a party to solely rely on a CEC to succeed in such a claim.

I. Interpretation of the Clause

Much of whether a CEC will be deemed valid in the eyes of the Court, is largely dependent on the interpretation of the clause. A court may give effect to a clause that is well-drafted and unequivocally confers to one party the right to determine issues impacting on the other, in the absence of fraud or obvious error on the face of it. This is provided that the party making the determination fulfils his duty to act fairly in doing so. In the case of Pertamina Energy Trading Limited v Credit Suisse [2006] 4 SLR(R), the Singapore Court of Appeal adopted a robust approach on CECs, where all matters included within the wording of the clause could deem it to be conclusive. However, it is also dependent on context.

However, V K Rajah J (as he then was) in the Singapore High Court case of Standard Chartered Bank v Neocorp International Ltd [2005] 2 SLR(R) 345 stated that conclusive evidence clauses might not always preclude challenges to the legal propriety of the demand. In fact, the courts are reluctant to interpret a CEC such that it precludes a review of the legal basis of a claim. This is consistent with the stance that common law courts have taken—in The Glacier Bay, Neill LJ stated that the Court will generally retain control over questions of law, and will not allow extra-curial tribunals to be the final arbiter where such issues are concerned.

II. Are CECs necessarily one-sided?

It may appear to some that conclusive evidence clauses are one-sided in favour of the lender. Even if so, the law is not blind to the interests of the other party as an agreement that is one-sided or onerous will be construed strictly against the party seeking to rely on it. Also, CECs that purport to exclude liability for the fraudulent conduct of bank employees would run afoul the reasonableness test under Section 11 of the Unfair Contract Terms Act (UCTA). That said, Courts usually void such conclusive clauses through the UCTA or on public policy grounds.

III. Misconduct

As for whether conclusive evidence clauses can relieve a lender from liability for its misconduct, there must be clear and unambiguous language to that effect. Courts have upheld such clauses to exonerate banks from having to bear liability of honouring forged cheques.

The distinction between liability and debt amount

Even if the courts give effect to the incorporation of a conclusive evidence clause, the distinction between liability and the debt amount should be considered. For instance, it must be examined whether the ambit of the conclusive evidence clause used is sufficiently wide to preclude a party from challenging the liability and/or amount of a debt.

Conclusion

To conclude, the effect of a conclusive evidence clause will depend on the exact words used in the case at hand, and in substance, what these words would be interpreted to mean. The significance of this matter is highlighted by the viewpoints of certain scholars who contend that the worth inherent in a conclusive evidence clause is centred around the verification duty. This duty, which is both reasonable and enforceable under common law, has been a subject of debate. Within the context of a conclusive evidence clause, a bank maintains its liability for unauthorised transactions if the customer adheres to the verification duty. Nonetheless, the unyielding efficiency of this clause and its lack of consideration for individual case circumstances have led it to be regarded as an exclusion clause. In cases where unauthorised transactions are deceitfully initiated by an employee of the bank, it’s not surprising that a court might deem such occurrences as unreasonable and against public policy. Even in such circumstances, a bank should still have the authority to impose a verification duty based on established common law contractual principles.

Banks should also contemplate strategies for upholding their right to customer verification under such situations. One viable approach involves the formulation of terms and conditions wherein the verification duty is distinctly separated from the conclusive consequences of a breach, thereby avoiding negative associations. Most importantly, a legislative intervention that takes a balanced approach, considering breaches by both parties and all relevant circumstances, might represent the most optimal solution.

Finally, given that the primary value of a verification duty lies in its fulfilment, banks should direct their efforts toward achieving higher levels of compliance. This entails investing in customer education and striving for enhanced transparency throughout the contractual process. Customers should receive adequate information regarding the verification duty and its significance at the point of contract initiation (account opening). Subsequently, customers should receive periodic reminders of their responsibility to verify and promptly report.
As long as the provided statement accurately represents the unauthorised transaction, this approach will ultimately bolster the reasonableness of the verification duty. With time, customer behaviours can indeed be guided toward more extensive verification—a practice that banks should assume responsibility for cultivating.

The firm is grateful to our trainee Mr Justin Foo, and to our interns Mr Shawn Yep and Ms Valerie Ng for their contributions to this article.

1 ABN AMRO Clearing Bank NV v 1050 Capital Pte Ltd [2015] SGHC 271 (“ABN AMRO”) at [33].
2 Pertamina Energy Trading Limited v Credit Suisse [2006] 4 SLR(R) (“Pertamina”) at [68]
3 Booysen, Sandra A, “RECENT DEVELOPMENTS Verification Duties, Conclusive Evidence Clauses, and Fraud by Bank Employees”, Banking & Finance Law Review (“Booysen”) p 687.
4 Standard Chartered Bank v Neocorp International Ltd [2005] 2 SLR(R) 345 at [19].
5 Standard Chartered Bank v Neocorp International Ltd [2005] 2 SLR(R) 345 at [17].
6 Bache & Co (London) Ltd v Banque Vernes et Commerciale de Paris SA [1973] 2 Lloyd’s Rep 437.
7 Dobbs v The National Bank of Australasia Limited (1935) 53 CLR 643.
8 Pertamina at [60].
9 ibid at [63].
10 Bache & Co (London) Ltd v Banque Vernes et Commerciale de Paris SA [1973] 2 Lloyd’s Rep 437 at 440.
11 Bangkok Bank Ltd v Cheng Lip Kwong [1989] 2 SLR(R) 660 at [18]–[19].
12 Standard Chartered Bank v Neocorp International Ltd [2005] 2 SLR(R) 345 at [19].
13 Standard Chartered Bank v Neocorp International Ltd [2005] 2 SLR(R) 345 at [23].
14 Bache & Co (London) Ltd v Banque Vernes et Commerciale de Paris SA [1973] 2 Lloyd’s Rep 437 at 440; ; Bangkok Bank Ltd v Cheng Lip Kwong [1989] SLR 1154 at [18]–[19].
15 See The Glacier Bay [1996] 1 Lloyd’s Rep 370.
16 Booysen at p 693.
17 Jiang Ou v EFG Bank AG [2011] 4 SLR where the Court did not uphold the exclusion of employee fraud.
18 Standard Chartered Bank v Neocorp International Ltd [2005] 2 SLR(R) 345 at [23].
19 Standard Chartered Bank v Neocorp International Ltd [2005] 2 SLR(R) 345 at [21].
20 The Glacier Bay [1996] 1 Lloyd’s Rep 370 at 377.
21 Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029 at [131], endorsing Gerard McMeel, The Construction of Contracts: Interpretation, Implication, and Rectification (Oxford University Press, 2007).
22 Booysen at p 694.
23 ABN AMRO at [51].
24 Jiang Ou v EFG Bank AG [2011] 4 SLR at [116]
25 ABN AMRO at [58].
26 Verification Duties, Conclusive Evidence Clauses, and Fraud by Bank Employees [2012] Banking & Finance Law Review at [709-710].