Jurisdiction - Singapore
Singapore – Bank’s Duty Of Care To Invest.

13 January, 2013


Legal News & Analysis – Asia Pacific – Singapore – Dispute Resolution


Deutsche Bank AG v Chang Tse Wen [2012] SGHC 248


It has now been several years since the notorious financial derivative called the accumulator has become generally known as “kill you later”. The High Court of Singapore has recently awarded damages of approximately US$49 million representing the entire loss suffered by the individual investor plaintiff from the purchase of 32 such accumulators, against his private bank. This case is of particular interest where a bank is dealing with an unsophisticated investor.




The investor in this case was a Taiwanese research scientist (Dr Chang) who came into considerable new wealth from the sale of his shares in a NASDAQ traded drug development company which he co-founded.


An authorized representative of the bank met up with Dr Chang to give a presentation on its wealth planning services. It was found by the High Court that the bank representative knew from this meeting that Dr Chang was looking for advice to manage his new wealth, and that Dr Chang had informed the bank representative that he had limited investment experience and would not have time to manage his wealth himself.


Dr Chang subsequently signed several agreements with the bank, including a service agreement, as well as a derivative agreement, both of which contained disclaimers in favour of the bank.


During the course of the relationship, Dr Chang bought a total of 32 accumulators on margin. The price of the underlying shares fell and the bank issued several margin calls, eventually culminating in it liquidating almost all of the shares in his account. Dr Chang sued the bank for the losses that he suffered.


Causes of action


Although 3 causes of action were raised by Dr Chang against the bank (being misrepresentation, breach of fiduciary duty, and breach of duty), Dr Chang ultimately succeeded only in establishing that the bank breached its duty of care owed to him.


Dr Chang had firstly alleged that there was actionable misrepresentation because the bank represented to him that it would provide him with advice on managing his new wealth. However, the High Court held that the alleged representations were at best statements of future intention by the bank, and Dr Chang had failed to prove that the bank lacked honest belief in the statements.


The High Court also held that there was no fiduciary relationship owed by the bank to Dr Chang because (1) banks do not ordinarily fall into an established category of fiduciary relationships, and (2) there were no exceptional circumstances justifying the finding of such a fiduciary relationship. While the bank’s conduct did not reflect best industry practice, its conduct was not sufficient to establish that the bank had exceptionally undertaken to promote Dr Chang’s interest above its own.


Breach of duty of care


At the outset, the High Court held that the mere giving of advice, without more, is insufficient to establish a duty of care. However, it also recognised that while the categories whereby duty was owed must be extended incrementally, the absence of analogous precedent was not an absolute bar.


On the particular facts, the High Court found that the bank representative had sought out Dr Chang and arranged for a meeting where he recorded Dr Chang’s financial inexperience. The bank representative then undertook to Dr Chang that the bank was able to and would advise him in managing his new wealth.


The Court found that on these particular facts, the bank had assumed a duty of care towards Dr Chang in advising him on managing his new wealth. The Court further held that the bank breached its duty of care by, inter alia, failing to inform Dr Chang of the risks he was facing in the purchase of the products, and failing to provide him with any risk management advice.


The Court also found that the bank applied for and extended unsolicited and unilateral margin trading facilities to Dr Chang, which he did not ask for, and for which he received no advice from the bank on the multiplication risks of margin financing even though the bank knew that Dr Chang was financially inexperienced.


Effect of disclaimers on an unsophisticated investor


The High Court also held that the disclaimers in the various agreements that Dr Chang signed with the bank were of no application either as evidential or contractual estoppel.


The disclaimers did not operate as an evidential estoppel (which prevents a party who has given an acknowledgement from later asserting that the acknowledgement was not true) because the bank had failed to establish one of its elements – that the representee (the bank) had intended the representor (Dr Chang) to act on the statements. The High Court further noted that there was no evidence to suggest that the disclaimers had even been brought to Dr Chang’s attention.


The High Court also held that the disclaimers should not protect the bank as a matter of contractual estoppel. In coming to this view, the High Court gave consideration to the fact that Dr Chang was a financially unsophisticated investor, and to the Court of Appeal’s decision in Als Memasa and anor v UBS AG [2012] SGCA 43 where the Court of Appeal indicated that it may be desirable to reconsider whether financial institutions should be accorded the full immunity of non-reliance clauses for their misconduct, especially vis-a-vis unsophisticated investors.


The High Court however observed that as regards evidential estoppel at least, the case might be have been different had Dr Chang been told by the bank that he could not rely on the bank to exercise reasonable care in advising him on managing his new wealth, but that he should retain his own independent professional or legal advisors.




This case is the first of the recent Singapore lawsuits filed against financial institutions for mis-selling complex financial products where the investor has succeeded in his claim, and obtained such a substantial sum in damages.


While this case turned largely on the facts, it is indicative of the Singapore court’s approach towards unsophisticated investors who have suffered losses due to such mis-selling.


The bank has indicated that it will appeal the High Court’s decision. Pending the outcome of this appeal, it is pertinent for financial institutions to be aware of the possible existence of such a duty of care to their investors and and to conduct themselves accordingly.



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