Unfair Contract Terms Of A Bank Will Not Be Legally Binding On The Consumer

Source : The Straits Times, Oct 3, 2007

IN HIS letter, 'When a bank makes a mistake, how is the client protected?' (Online forum, Oct 1), Mr Chin Kee Thou raised the interesting issue of the extent of a bank's liability to its clients, notwithstanding the blatant negligence of the bank.
The DBS has this clause which reads: 'The Bank shall not be liable for any errors, negligence, defaults, acts of omissions, whether of itself or of its employees' and prima facie, this is a paper tiger.

The English Unfair Contract Terms Act 1977 ( UCTA 1977) in Part I s 1 clearly provides:

'For the purposes of this Part of this Act, 'negligence' means the breach -

a) of any obligation, arising from the express or implied terms of a contract, to take reasonable care or exercise reasonable skill in the performance of the contract;

b) of any common-law duty to take reasonable care or exercise reasonable skill (but not any stricter duty)."

In the case of losses suffered by a client, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness. Where a contract term or notice purports to exclude or restrict liability for negligence, a person's agreement to or awareness of it is not of itself to be taken as indicating his voluntary acceptance of any risk.

The UK Consumer Protection Act 1987 ( CPA 1987) protects consumers from unfair terms in pre-formulated contracts, that is, contracts already prepared, such as insurance policies and credit-card agreements. A contract term in a pre-formulated contract is unfair if it: -

a) causes a significant imbalance in the rights of the bank and consumer, to the detriment of the consumer;

b) could put the consumer at a disadvantage because he is not clear about its meaning.

If a contract term is unfair, the term will not be legally binding on the consumer and a bank cannot obtain a court order to enforce a demand for payment based on an unfair term. Under the CPA 1987 the following are examples of unfair terms:

a) 'Equipment is used entirely at the customers' own risk.'

b) 'Goods are sold as seen; we accept no liability for faults discovered after purchase.'

c) 'We at ABC Bridal Gown Pte Ltd accept no liability for your bridal gown if it is not completed by your wedding day.'

d) 'Management reserves the right to suspend services without liability.'

e) 'If goods are returned, customer must pay for delivery and packaging.'

It is clear that unfair contract terms are not enforceable against customers and consumers.

In the UK, if a business refuses to accept that a term is unfair the consumer can ask for the help of the Fair Trading Commission.

In Singapore the dissatisfied consumer can seek the help of the Consumers Association of Singapore.

The banks could also ensure that their terms are unambiguous, fair and reasonable and they should not take the liberty to ride roughshod over the legitimate concerns of their clients.

Heng Cho Choon