11 June, 2015
Introduction
What is the scope and extent of duty owed by a financial institution (“FI”) to respond to queries made by the Monetary Authority of Singapore (“MAS”) and reference check requests made by other FIs in relation to its ex-financial adviser, against the backdrop of the financial services industry standardized reference check system and the Representative Notification Framework?
This is the central issue raised in the case of Ramesh s/o Krishnan v AXA Life Insurance Singapore Pte Ltd [2015] SGHC 125, which falls for consideration by the Singapore courts for the first time since the implementation of the said financial services industry standardized reference check system with effect from 2 October 2006 (“Industry Reference Check System”) and the Representative Notification Framework on 26 November 2010 (“RNF”). The Industry Reference Check System was introduced in September 2006 as a standardized reference check system across the different financial industry sectors in Singapore to facilitate FIs’ compliance with MAS’ issued Guidelines on Fit and Proper Criteria (“Fit and Proper Guidelines”). Under this initiative led by the Life Insurance Association (“LIA”) and supported by the MAS, prospective FI employers are able to conduct consistent reference checks on persons applying for jobs to conduct regulated activities, to ensure that these persons appointed by the FIs satisfy the fit and proper criteria set out in the Fit and Proper Guidelines.
The Defendant (“AXA”) had responded to reference check requests made by 2 other FIs on the Plaintiff, an ex-financial services director with AXA, as well as MAS’ queries pertaining to the Plaintiff pursuant to the Industry Reference Check System. The Plaintiff subsequently alleged that AXA’s reference check responses had caused him not to be employed by the 2 FIs, and also prevented him from being employable in the insurance industry generally. Ultimately, the Court found that AXA could successfully rely on the defence of justification and defence of qualified privilege such that the Plaintiff’s claims of alleged defamation, malicious falsehood and breach of duty of care failed in their entirety.
Notably, the Court held that the defence of consent succeeded only partially, and made pertinent observations on the issue of consent in the context of the Industry Reference Check System, and also suggested that the insurance industry should look into the scope of the written authorisation that is presently contained in the standard reference check form, to match the information requested with the information actually provided by the ex-employer. Significantly, the Court also held that a FI owed a prima facie duty to take reasonable care in the provision of reference check responses.
Brief Facts
The Plaintiff’s case against AXA for alleged defamation, malicious falsehood and breach of duty of care centres around 2 statements touching on the persistency ratios of his Organisation in AXA (“Persistency Statements”), and on investigations conducted by AXA on him and certain advisers in his Organisation (“Compliance Statements”). Persistency ratios are essentially a measure used to track the number of insurance policies sold by advisers that are still in force over a certain period of time. There is no common industry standard on persistency ratios, with different insurance companies employing differing methodologies and different time periods (for example, a 13-month period, or a longer period of 19 months) in calculating persistency ratios, and this may involve either single premium, or regular premium policies.
According to the Plaintiff, the natural and ordinary meaning of the Persistency Statements and Compliance Statements are that he was incompetent in his work, not fit and proper to be appointed as a FI representative to conduct regulated activities in the financial industry, not a person of credit and integrity, and that he was an incompetent and unprofessional manger and supervisor, and hence the Statements were defamatory of him. The Plaintiff further alleges that AXA was motivated by malice in making the said Statements, and that AXA was negligent in its provision of the Statements to the requesting FIs, being Prudential Assurance Company Singapore Pte Ltd (“Prudential”) and Tokio Marine Life Insurance Singapore Limited (“Tokio Marine”), as well as to MAS.
In response, AXA’s position is that the Statements do not bear the defamatory meaning as alleged by the Plaintiff. AXA further relies on the defences of consent, justification and qualified privilege:
(i) On the defence of consent, AXA relies on the Plaintiff’s written authorisations enclosed in the reference check requests for Prudential and Tokio Marine to perform reference checks on him, and for all persons or entities with such information to disclose the same, and specifically to release them from any liability on account of such disclosure (“Written Authorisations”).
(ii) In respect of the defence of justification, AXA’s position is that the Statements, read together with certain subsequent email communications between AXA to MAS, Prudential and Tokio Marine respectively, are true and not misleading.
(iii) As for the defence of qualified privilege, AXA’s position is that the Statements were made without malice in discharge of its legal, social and moral duty, and pursuant to common or mutual interest.
On the Plaintiff’s claim of malicious falsehood, AXA takes the similar position that the Statements are true, and not actuated by malice. Finally, on the claim of negligence, AXA’s position is that a duty of care does not arise in light of policy considerations such as the Plaintiff’s Written Authorisations (vis-à-vis Prudential and Tokio Marine), and the objectives of the RNF and the Industry Reference Check System (vis-à-vis MAS). Further, even if a duty of care were to exist, AXA had not breached its duty to the Plaintiff given AXA’s abovestated positions on the defences of justification and qualified privilege, and the absence of malice on the part of AXA.
The High Court’s Holding
The High Court dismissed the Plaintiff’s claims in their entirety on the following grounds:
(i) The Persistency Statements were not defamatory in their ordinary and natural meaning as an ordinary, reasonable person would not appreciate the persistency ratio figures given as implying incompetence on the part of the Plaintiff. However, the Compliance Statements would be defamatory in their ordinary and natural meaning as a reasonable reader would likely have understood the words to mean that the Plaintiff had been investigated in respect of a complaint in his work and profession, and that he was an incompetent manager and supervisor.
(ii) The defence of justification would have fully succeeded in relation to both the Persistency Statements (even if they may bear a defamatory meaning, which is not the case here, as the persistency figures stated were true and correct), as well as the Compliance Statements (as it was indeed true that 14 advisers in the Plaintiff’s Organisation had been investigated, with disciplinary actions taken against 5 advisers and 3 cases referred to the police for further investigations).
(iii) The defence of qualified privilege applies in relation to AXA’s communication of the Persistency Statements and Compliance Statements to Prudential, Tokio Marine, and MAS:
a. In the case of communication to Prudential and Tokio Marine, the defence of qualified privilege applies in the traditionally accepted context of employment references, to enable the ex-employer to answer queries to the best of its belief with a view to giving afull and frank assessment of the employment history of the employee in question. AXA also shares a common interest with both Prudential and Tokio Marine under the Industry Reference Check System and the RNF in its communication of the persistency ratios and compliance records for the Plaintiff’s Organisation to them;
b. As for communication to MAS, the defence of qualified privilege applies in light of AXA’s duty to report to the regulator as expressly set out in MAS Notice 306;
c. AXA’s actions were not actuated by malice to defeat the defence of qualified privilege as AXA had a genuine and honest belief in the truth of the Persistency Statements and Compliance Statements and AXA, being bound by the financial industry rules and guidelines, had to inform both MAS and the prospective employers of the Plaintiff’s employment history, and it had therefore acted in accordance with a sense of duty and in bona fide protection of its own legitimate interests.
(iv) The defence of consent successfully operates as a complete defence in relation to the Persistency Statements made to both Prudential and Tokio Marine (even if they were found defamatory in the first place, which is not the case here), and the Compliance Statements made to Tokio Marine, but fails in relation to the Compliance Statements made to Prudential as they were not specifically requested by Prudential in its reference check form (unlike in the case of Tokio Marine), and therefore not relevant to Prudential’s reference check request. Hence, its publication to Prudential was not covered by the Plaintiff’s Written Authorisation.
(v) The Plaintiff had failed to prove the falsity of the Persistency Statements and Compliance Statements, and AXA had not acted with malice. The Plaintiff’s cause of action in malicious falsehood therefore failed.
(vi) AXA owes a duty of care to the Plaintiff to take reasonable care in providing information to other organisations in respect of the Plaintiff’s employment history, but AXA did not breach the standard of care required of it. Further, even if AXA can be said to have been negligent in communicating the Statements to Prudential and/or Tokio Marine, there is a break in the chain of causation – Prudential had gone ahead to apply for the Plaintiff to be its representative under the RNF even after receiving the Statements from AXA Life, but for reasons known only to Prudential, it subsequently decided against hiring the Plaintiff. As for Tokio Marine, it took into account many factors in deciding not to hire the Plaintiff, and the Statements was only 1 factor.
The Plaintiff has filed an appeal against the High Court’s decision, and the case is pending appeal.
Scope of Consent In The Industry Reference Check Form And Duty Of Care
In considering the defence of consent, the High Court had specifically noted the evidence given by the executive director of LIA, Ms Pauline Keng, as to the original intended purpose of the written authorisation in the standard industry reference check form (i.e. to prevent information provided by exprincipals in compliance with the Industry Reference Check System from being used as the subject matter of civil claims in respect of reference checks). However, the Court found that 2 requirements had to be satisfied in order for such a defence to apply:
(i) that the information provided had to be honestly and properly kept; and
(ii) that the information provided were relevant to the reference check requests made.
With regard to the second requirement, the Court further held that the scope of the written authorisation should be more circumscribed, to match the information requested in the reference check form, and the information actually provided by the ex-employer, and suggested that this should be something that the insurance industry should specifically look into.
Finally, the Court also held that a FI owed a prima facie duty to take reasonable care in the provision of reference check responses. In particular, the Court rejected the argument that the written authorisation contained in the standard reference check form negated any finding of duty, whether at the first stage of proximity, or at the second stage of policy considerations in the two-stage Spandeck test.
Concluding Words
The High Court’s decision in this case is of particular significance to the entire financial services industry given that this is the first time that the written authorisation in the standard reference check form, which is used consistently by all prospective FI employers obligated to conduct reference checks under the Industry Reference Check System on persons applying for jobs to conduct regulated activities, has come under scrutiny and is considered by the Singapore courts in detail. This is also the first time that it has been established that a FI owed a prima facie duty to take reasonable care in the provision of reference check responses.
Following this decision, it is now imperative for FIs responding to the standard reference check form requests to ensure that the information provided by them properly matches the information requested for, and are not superfluous or irrelevant to the request. It would also be good practice for the requesting FIs to specify the type of information requested for and to be provided under Section B (Optional Information) of the standard reference check form, instead of leaving Section B blank, as was usually done by requesting FIs in the past. All these would go towards ensuring that an FI may properly avail itself of the defence of consent extended through the written authorisation presently contained in the standard reference check form, and properly discharge its duty to take reasonable care in the provision of reference check responses.
For further information, please contact:
Pillai K. Muralidharan, Partner, Rajah & Tann
k.murali@rajahtann.com
Qinghui Luo, Partner, Rajah & Tann
qing.hui.luo@rajahtann.com
Huang Jieyang, Rajah & Tann
jieyang.huang@rajahtann.com
