In the recent decision of Lam Chi Kin David v Deutsche Bank AG  SGCA 42 (“Deutsche Bank”), the Court of Appeal held that the bank’s promise of a grace period to its customer constituted a binding undertaking which varied the relevant terms of the bank’s agreement with its customer. The doctrine of promissory estoppel applied and the bank was prevented from reneging on its promise to allow its customer a grace period to respond to its margin call.
The facts and lower court decision
In Deutsche Bank, Mr David Lam (“Appellant”) opened two accounts with Deutsche Bank AG (“Bank”) to carry out forex trades. Under the standard term contracts entered into between the parties, the Appellant was entitled to one business day to respond to any margin call by the Bank. Further, the Bank had promised the Appellant a 48-hour grace period (“Grace Period”) to respond to such margin calls.
In early October 2008, the foreign exchange market became very volatile and the Bank sent the Appellant letters to inform him that one of his accounts had moved into shortfall. The Bank informed the Appellant that he was required to provide additional security and to take immediate steps to restore the shortfall. Later on the same day, the Bank executed the margin call and called for payment of the outstanding amounts owing to the Bank.
The Appellant subsequently commenced proceedings against the Bank for wrongful closure of his accounts and argued that he was contractually entitled to one business day and/or to the Grace Period to respond to the Bank’s margin call.
The High Court decided in favour of the Bank but was subsequently overruled by the Court of Appeal. The Court of Appeal held that the Bank’s promise of the Grace Period constituted a binding undertaking and varied the contractual relationship between the parties. It held that pursuant to the doctrine of promissory estoppel, it was inequitable for the Bank to renege on its verbal promise of the Grace Period.
The doctrine of promissory estoppel is applied when it is inequitable for a promisor to resile from his promise and enforce his strict legal rights where the promisee had acted in detrimental reliance of the promise.
For promissory estoppel to apply, this reliance has to be linked to the ‘detriment’ suffered. The High Court held that there was an obvious disconnect between the reliance and alleged detriment. The Court of Appeal, however, disagreed and overruled the High Court decision on appeal. The Court of Appeal explained that given the volatile nature of the foreign exchange market, the Grace Period would have afforded the Appellant more time to decide on a course of action when a margin call was made, and the Appellant was found to have acted in detriment in his reliance of the promise.
Notably, the Court of Appeal went on to hold that even if no detriment was to be found on the facts of the case, the doctrine of promissory estoppel would still apply as there was a benefit given to the Bank and, as such, it would be inequitable for the Bank to resile on its promise of a Grace Period.
Finding of ‘detriment’
The definition of ‘detriment’ in the application of the doctrine of promissory estoppel has been a source of confusion due to the divergence of judicial and academic opinion about the establishment of a detriment. Many elements have been proposed to constitute ‘detriment’; some examples include (1) the expenditure of money and time; (2) incurrence of liability; (3) a change of position, and (4) deprivation of a benefit. The first two elements comprise a narrow interpretation of ‘detriment’. The last two elements are from a broader interpretation of ‘detriment’, which is that the promisee would only suffer the ‘detriment’ if the promisor was permitted to renege on his promise.
In W J Alan & Co Ltd v El Nasr Export & Import Co  2 QB 189, the court held that promissory estoppel can be asserted in situations where the party who acts on the belief suffers no detriment. Lord Denning held that detriment is not essential and that the doctrine will apply where “he has conducted his affairs on the basis that he has that benefit and it would not be equitable now to deprive him of it.”.
Grimberg JC in Fu Loong Lithographer Pte Ltd v Mun Hean Realty Pte Ltd  1 SLR(R) 194 supported this broad interpretation and held that detriment can mean an injustice to the promisee which would result if the promisor were allowed to recede from his promise.
Abdul Jalil bin Ahmad bin Talib v A Formation Construction Pte Ltd  4 SLR(R) 778 cited with approval Chitty on Contracts Vol 1 (30th Ed, 2008) and held that it would be sufficient for the plaintiff to prove that it would be inequitable to allow the defendant to act in a manner inconsistent with the promise.
The Court of Appeal in Deutsche Bank similarly applied a generous interpretation of the doctrine. It held that even if no detriment was to be found on the facts of the case, where the promisor has obtained an advantage from giving a promise to the promisee, the promisor should not be allowed to resile from that promise.
The Court of Appeal explained that this is especially pertinent in the context of promises made by bank officers when soliciting private banking clients. The Appellant, as a private banking client, was a desirable source of revenue to the Bank. The Bank would have benefited considerably from the Appellant’s trade activities conducted through the Bank. The promise of the Grace Period would be very valuable to a “knowledgeable and sophisticated currency arbitrageur” like the Appellant and was held to be an inducement to the Appellant to engage in forex trading with the Bank. Even in the absence of any detriment suffered, the court held that the doctrine of promissory estoppel applied and that the Bank’s “word should be its bond” in the context of this case.
A similar decision was made in Royal Bank of Scotland v Luwum  EWCA Civ 648 (“Royal Bank”). There, the bank had promised to withhold enforcement proceedings made orally via the telephone by one of the bank’s employees. As a result, the bank was estopped from later issuing proceedings to enforce its security within the relevant grace period as the customer had changed his position in reliance upon that representation. The difference between Royal Bank and Deutsche Bank is that, in the former, there was disagreement as to whether the bank had actually promised such a grace period. The judge in Royal Bank, nevertheless, held that the bank was “most likely to have agreed ‘in not so many words’ to giving of a grace period” and thus held that it was inequitable for the bank to renege on its promise.
The Court of Appeal, in Deutsche Bank, rationalised that if “banks and financial intermediaries engaged in the business of wealth management could not be trusted with their word, they should not be allowed to be in this business”.
A possible distinguishing factor from Deutsche Bank would be that not many individuals can be similarly described as a “knowledgeable and sophisticated currency arbitrageur”. However, the case is of pertinent interest as it indicates the position of the Singapore courts towards banks and their relationships with their clients. The position may seem harsh but it shows the caution expected of banks when dealing with their customers.
As with all conversations with customers, banks and financial institutions should be mindful about what they promise customers and take careful notes of what is said and agreed. Banks should exercise due care and caution when dealing with their customers and take care not to enter into any verbal arrangements with their customers that may vary or negate their existing contractual rights.