Over a year ago, the Singapore High Court1 created a stir when Taiwanese scientist Chang Tse Wen succeeded in a staggering US$49m claim against Deutsche Bank (“DB”) in respect of losses through investing in products known as accumulators. The decision attracted much attention because of the claim amount and because it was rare for an investor to claim successfully against a bank for investment losses. In an equally stunning move, in September 2013, the Court of Appeal2 (“CA”) overturned the decision of the High Court (“HC”).
This turnaround leaves lay observers, the banking community and lawyers perplexed. For one thing, the outcomes of the HC and CA are polar-opposite although the relative blameworthiness of the parties is far from straightforward. For another, the case traverses several important areas – negligence, fiduciary duty, misrepresentation and estoppel.
Facts
Chang lost a vast amount of money investing in accumulators through DB’s relationship manager (“RM”) Johnny Wan. The facts are best seen in three phases: events prior to purchase of accumulators, the first purchase period and the period of further purchases and margin calls which culminated in the closing out of the investments.
Events Leading Up to Purchase
On 28 December 2006, Chang went with his fiancé Lim to the StanChart office in Hong Kong to enquire whether her account had been credited with the proceeds of her father’s gift of shares. They met Wan, the manager, who learnt at the meeting that Chang was soon to receive a substantial sum of money.
In February 2007, Wan left StanChart to join DB as an RM. He then arranged to meet Lim and Chang. On 15 March 2007, over lunch, Chang informed Wan that he expected to receive US$118m from the sale of his founder shares and was in need of advice to manage his new wealth. Wan gave a presentation of DB and its wealth management services. Lim filled in a Service Agreement while Chang said he would do so at a later date. When Lim asked Wan whether she had sold her father’s shares too early, Wan introduced her to the Discounted Share Purchase Program (“DSPP”).
On 7 June 2007, Lim informed Wan that Chang would act on her behalf. Sometime in July 2007, Chang asked for and signed the account application form. As part of the KYC (know your client) due diligence, Chang submitted a Client Acceptance and Profile Report, where several details were fabricated by Wan. From August to November, Wan regularly tried to persuade Chang to purchase accumulators.
First Purchase Period
On 19 November 2007, there was telephone communication between Chang and Wan which began with Lim’s interest in buying a DSPP and ended with Chang himself purchasing one. At the time, Chang had not signed the requisite Derivative Agreement; the agreement was signed a few days later. Wan also sent Chang an email outlining the benefit of purchasing a DSPP.
Wan also unilaterally applied for Chang a margin facility of US$10m, which was subsequently approved. In filling in the Margin Trading Checklist, Wan entered Wan Chang’s experience and risk appetite at levels higher than in the earlier form. The trial Judge found that neither Wan nor DB explained to Chang the leverage implications of margin trading or the need for prudent risk management.4 The margin facility of US$10m was increased to US$25m on 28 November.
From 19 November to 12 December, Chang purchased 32 DSPPs. The trial Judge observed5 that during this time, Wan and DB were “completely oblivious of their undertakings at the first meeting … that they would advise [Chang] to manage his new wealth”. He also found6 no corroborative evidence that Wan had pointed out the danger of purchasing so many DSPPs on margin in a volatile market. Chang received his first summary report on 3 December but this report did not show his outstanding total exposure.
In a nutshell, the trial Judge found7 that an RM sought out his potential client whom he knew to be financially inexperienced, undertook to give him advice on managing his new found wealth but instead led him to an extremely risky form of investment without warning him of the dangers.
Further Purchases, Margin Calls, Closing Out
By 12 December, 17 of the DSPPs were “knocked out” while 15 DSPPs remained open (thus obliging Chang to continue accumulating Citigroup shares). On 18 December, there was a margin shortfall of US$1.2m, which Chang topped up.
As things worsened, Wan introduced Chang to a Premium Share Sale Program (“PSPP”), which is essentially the reverse of a DSPP. On 10 January 2008, Chang sold two PSPPs. There was also a margin call on 22 January after which Chang deposited US$5m into his account upon Wan’s assurance that this was necessary because of temporary adverse market conditions. Thereafter (and until October 2008), Chang sold a few PSPPs and also bought more DSPPs, but on a much smaller scale than in the first period.
On 6 March, Chang received calls informing him of a total exposure of US$76m. There followed another six margin calls, the last being on 20 November 2008, after which DB liquidated the remaining shares in Chang’s account, leading to a shortfall of almost US$1.8m.
In the High Court, DB sued for this shortfall whilst Chang counterclaimed for US$49m, being the investment losses sustained.
Issues Before HC
In his counterclaim, Chang mounted three arguments:
1. DB had through Wan misrepresented that they would provide him with advice to manage his new wealth, act in his best interests, understand his investment objectives and provide suitable products and advice;
2. DB owed him a fiduciary obligation and this was breached; and
3. DB owed him a duty of care and was in breach of this duty.
DB challenged these assertions and also argued that Chang was estopped by virtue of the disclaimers in the documents.
Decision, Reasons
The High Court dismissed the bank’s claim and allowed Chang’s counterclaim for US$49m. Justice Pillai decided that DB had a duty of care towards Chang and that the duty was breached. He also held that the disclaimers did not estop Chang’s counterclaim. However, he dismissed the arguments based on misrepresentation and fiduciary duty.
The misrepresentation argument failed because the relevant statements, such as that DB would provide him with advice to manage his wealth, were statements of intention and Justice Pillai found no evidence that DB or Wan did not have an honest belief in the statements of intention.8
The fiduciary argument failed as his Honour did not think the circumstances of the case were sufficiently exceptional. Pillai J thought there had not been an undertaking by DB to put Chang’s interest ahead of his own, commenting that:9
The starting point of a self-interested RM and DB has not on these facts been displaced by exceptional circumstances warranting an assumption of fiduciary obligation to Dr Chang.
Chang’s case, however, succeeded on the ground of negligence. Justice Pillai began by laying down the Spandeck10 approach of ascertaining duty of care by reference to threshold test of “factual” foreseeability, the first stage of “legal” proximity based on voluntary assumption of responsibility and reliance, and the second stage of policy. He then referred to the principles laid down by Gloster J in JP Morgan Chase v Springwell11 for ascertaining duty as between a bank and its client and agreed that “the mere giving of advice, even specific investment advice, is without more insufficient to establish a duty of care”. On the following “unusual” facts of the case, Justice Pillai concluded that Wan and DB had crossed the line and assumed a duty of care towards Chang:
1. Wan had sought out Chang and knew he was looking for advice to manage his new wealth;
2. Wan undertook at the 15 March 2007 presentation to provide that advice;
3. Chang sought and obtained advice in relation to his founder shares in August 2007; and
4. Chang lacked investment sophistication and, to Wan’s knowledge, looked to Wan to advise him.
His honour made passing mention of the permissibility of a concurrent tortious duty co-existing alongside contractual duties.12 He also noted the “complete asymmetry of commercial sophistication and experience”13 between Chang on the one hand and Wan and DB on the other. He also remarked that the duty was not negated by contract and that, in any event, Chang was relying on a “pre-contractual duty”.14
He then addressed the issue of estoppel. The bank had contended that Chang was estopped from alleging negligence by the clauses in the documents, including the following clauses in the Service Agreement:15
1. We and our affiliates are not acting as your fiduciary or adviser in respect of any services provided to you … unless expressly agreed in writing …; and
2. We may (but need not) give advice or make recommendations. If we do so, such advice or recommendations are given and [sic] on the basis you will make your own assessment and rely on your own judgment.
Justice Pillai held that neither evidential estoppel (better known as estoppel by representation) nor contractual estoppel assisted the bank. Estoppel by representation did not avail DB as the second requirement16 – that the representor (Chang) intended the representee (DB) to act on the statement – was not satisfied. As for contractual estoppel, he felt the CA decision in Orient Centre Investments v Societe Generale17 could be distinguished as Wan and DB:
1. knew Chang to be financially inexperienced;
2. had financial expertise; and
3. undertook “pre-contractually” to advise him.
He was also mindful of CJ Chan’s intimation in Als Memasa v UBS18 to reconsider whether financial institutions may rely on disclaimers and non-reliance clauses “which unsophisticated customers might have been induced or persuaded to sign without truly understanding their potential legal effect”.
Further, he thought19 contractual estoppel did not assist as “the precondition to its operation, viz, the clear intention for it to operate” had not been established by the evidence.
DB, therefore, owed Chang a duty of care and estoppel did not apply. As regards the content of this duty, Justice Pillai was of the view20 that the bank owed Chang a duty to advise him on:
1. preserving, growing and investing his US$118m;
2. appropriate asset allocation and investment strategies; and
3. the risks of the products.
He held21 that DB breached its duty when it:
1. sold DSPPs without advising Chang the implications of the DSPPs’ steep discount;
2. failed to provide risk management advice;
3. extended unsolicited margin trading facilities; and
4. failed to notice recorded changes in his risk profile.
Comments on the HC Decision
The High Court’s decision was significant at two levels.
First, the outcome was stunning as this was a rare occasion where an investor with substantial financial means triumphed over a bank in an investment loss suit. The fairness of the outcome depends largely on the perception of fault and responsibility. The HC portrayed Wan and DB as miscreants and Chang as an innocent victim. As this writer has remarked elsewhere:22
One wonders if and the extent to which there had been greed and/or complicity on Chang’s part, either initially or as events unfolded. If so, then there are difficult questions of causation, consent and contributory negligence and their impact on Chang’s claim, either wholly or partly.
The second relates to the important and/or novel legal principles emanating from the decision, the foremost of which are:
1. While the mere giving of advice is insufficient to establish a duty of care between a bank and its customer, factors such as customer’s financial sophistication, holding out by the bank, role of the RM and contractual terms should be considered to determine if the bank had ‘crossed the line’ and assumed a duty;
2. Principles of estoppel are relevant to a negligence plea just as they are relevant to a misrepresentation plea;
3. Contractual estoppel, according to Pillai J, has a precondition of an intention for the estoppel to operate; and
4. A fiduciary relationship is not easily found between a bank and its customer.
The stage was thus set for the Court of Appeal to deliberate on the merits of the outcome and to expound on the legal principles.
Arguments on Appeal, Outcome
DB appealed against the High Court’s decision whilst Chang cross-appealed against the Court’s dismissal of his counterclaim in misrepresentation.
The main issues before the Court were:
1. Did DB assume a tortious duty to take reasonable care in advising Chang on the management of the proceeds from the sale of his founder shares?
2. Was there a breach of the duty?
3. Was misrepresentation established?
The Court of Appeal, comprising Sundaresh Menon CJ, Andrew Phang JA and VK Rajah JA, allowed DB’s appeal, holding that DB did not owe Chang a duty of care and, even if a duty was owed, there was no breach. The Court dismissed Chang’s cross-appeal, agreeing with the High Court that there was no operative misrepresentation. As result, instead of DB having to pay Chang US$49m, Chang had to pay DB the balance of close to US$1.8m, together with interest and costs.
Reasons for the Opposite Outcome
The observer is probably puzzled by the about-turn and his attempt to fathom the change in outcome is beset with difficulties. It should be realised that the polar opposite result was brought about by a combination of three factors:
1. A different interpretation or emphasis of the facts;
2. A change in Chang’s counsel’s line of argument in the CA; and
3. A different legal conclusion as the CA applied the law to the perceived material facts.
Different Factual Interpretation
DB had contended that its case did not depend on a materially different view of the facts from that taken by Justice Pillai. But, as we shall see, the CA’s decision actually proceeded upon a different view or emphasis of some of the key facts.
The following additional facts (gleaned from the notes of evidence) surfaced in the CA judgment:
1. Even before Chang purchased accumulators through DB, between 14 November 2007 to 29 November 2007, he bought a total of 672,000 Citigroup shares through Fidelity Investments and Citigroup Smith Barney (CSB);23
2. On several occasions in December 2007, Wan warned Chang of the overconcentration risk of his investments;24
3. Between 4 December 2007 to 12 December 2007, Chang bought another 14 DSPPs;25
4.In January and February of 2008, Chang bought 27 DSPPs through CSB;26
5. On 5 February 2008, a CSB RM warned Chang of overconcentration risk but Chang’s reply showed he understood what he was doing and was determined to stay the course;27 and
6. From February to May 2008, Chang bought more DSPPs through CSB.28
Also, according to the CA,29 Chang:
1. knew and understood how DSPPs worked and appreciated the risks involved;30
2. could well have worked out his exposure;
3. was capable of understanding the various agreements;
4. could have taken advice or asked questions but never did so; and
5. never asked Wan or DB for investment advice on his portfolio or on the management of his wealth.31
Some comments are in order here.
First, it is surprising that the HC judgment made no mention of the 672,000 Citigroup shares that Chang started buying even before purchasing the DSPPs from DB and the fact that Chang also bought DSPPs through CSB. If the trial Judge thought these facts did not affect his decision, he should have explained why this was so.
Second, the CA’s finding that Wan had warned Chang on four occasions in December 2007 stands in sharp contrast to the trial Judge’s remark32 that there was no corroborating evidence of Wan’s assertions that he had given these warnings and the Judge’s conclusion that “[n]either the RM nor DB had drawn Dr Chang’s attention to his fast escalating risks over this short period [of 3 weeks]”.33 Note that the trial Judge found Wan to be an “evasive and unreliable” witness who prevaricated on several occasions in Court.34
Third, the CA found that Chang understood the risks of his investments. The HC made a specific holding that DB had breached its duty to advise him on the risks of the recommended products and it is implicit from the decision that the breach caused the loss. If Chang had understood the risks, and thus would have proceeded anyway, then there would have not been causation and Chang’s claim would have faltered. Thus, the CA’s finding as to Chang’s understanding is at odds with the HC judgment.
Finally whilst the HC found that DB had promised to give advice but failed to do so, the CA’s perception was that the advisory services offered by DB were not accepted by Chang.
These facts, on which the HC and the CA are at variance, are all germane to the final outcome of the dispute.
Change in Argument
The Chief Justice also highlighted a “critical point” – that Chang’s counsel clarified35 at the CA hearing that:
… Dr Chang’s case was not that he did not know of or understand the risks inherent in investing in DSPPs. Rather, his case was that he had not been given sound or appropriate strategic investment advice as to the management and structuring of his portfolio as a whole.
This change is significant for two reasons.
First, as mentioned above, the trial Judge found that DB had a duty to advise Chang on three aspects: preservation and growth of wealth, allocation and investment strategies, and risks of products. It seems that in the course of the CA hearing, Chang’s counsel had abandoned the third aspect – warning as to risks – which had succeeded in the HC. This is a surprising move.
Second, it would also appear that Chang’s counsel in effect conceded that Chang knew and understood the risks of investing in DSPPs. Such a concession is also fatal because it allows two arguments to be made. The first is that duty of care requires proximity, and proximity requires voluntary assumption of responsibility coupled with reliance; if Chang understood the risks, then he did not rely on the bank to advise him of the risks and hence there is no proximity and thus no duty. The second is that since Chang knew of the risks, and would have proceeded anyway, there was also no causation.
CA’s Reasoning – Duty of Care
On the negligence front, Menon CJ did not agree that the facts were sufficient to establish a duty of care.
In his view, foreseeability was certainly not satisfied during the period prior to August 2007 because, in effect, DB (through Wan) had offered advisory (or higher) services but Chang had not taken up the offer. In the Judge’s words:36
… what is material is that if Dr Chang genuinely believed that he was to receive a formal proposal to this effect, he undoubtedly knew that he never got it, and he never pressed for it.
The CJ thought the earliest point foreseeability could have been satisfied was in late July 2007 when Chang contacted Wan with a view to opening an account with DB. Thus, his honour found the trial Judge’s reasoning that DB owed Chang a “pre-contractual” duty “somewhat unclear”.37
The more serious objection was that proximity was not established. Menon CJ referred to Spandeck for authority that proximity is concerned with the closeness and directness of the relationship between the parties and that the twin criteria of voluntary assumption of responsibility and reliance may be used to demonstrate proximity. Applying the principle to financial advice, the Chief Justice said:38
Where a person has voluntarily assumed a responsibility to give (and does give) financial or investment advice to another who relies upon that advice, it may ordinarily be concluded that an advisory relationship has arisen between them.
He then noted39 that the Service Agreement did not refer to any obligation on the part of DB to provide strategic advice on Chang’s investment portfolio, and that the parties intended to and did enter into an arrangement for an execution-only account. In the circumstances, DB had not assumed any responsibility to provide Chang advisory services.
Menon CJ observed that whilst Wan had between September and October 2007 emailed Chang introducing possible investments, these were just “solicitations and sales pitches” and at no time did Wan offer or attempt to offer advice on structuring Chang’s overall portfolio. Citing Springwell v JP Morgan Chase40 as authority, his honour remarked:41
The introduction of products and the giving of recommendations form part of the normal role of a salesperson in the private banking context, and … is not sufficient by itself to give rise to an advisory relationship, with its accompanying tortious duty of care …
Menon CJ observed42 that the trades were entered only at Chang’s direction and that nothing in the contractual arrangements hinted at any obligation to advise Chang on his investment portfolio or on the management of his wealth – an arrangement which would involve a “different set of documents” specifying rate of return, time horizon, a different fee structure and so on, and would have been a “wholly different universe” to what was reflected in the documents that Chang signed.
The Chief Justice also held43 that DB did not have a positive duty to stop him from or warn him against entering into the number of DSPPs that he did; after all, Chang has considerable means and an “evident understanding” of what he was doing. He also noted that Chang did not, at any time, ask for advice on his portfolio and or sign any investment advisory agreement. The onus, it appears, was on Chang to expressly ask for the type of service that he desired.44
For all the above reasons, there was no assumption of responsibility by DB and no reliance by Chang, and hence no duty to give Chang investment advice or on the management of his portfolio.
CA’s Reasoning – Breach
At the CA, Chang’s counsel’s original submissions were that DB was in breach of duty because it:
1. failed to warn Chang of overconcentration risk;
2. failed to warn Chang of his maximum exposure; and
3. unilaterally extended margin facilities without warning him of the risks.
Strictly speaking, it was unnecessary for Menon CJ to address these points since he had found no duty of care and also since Chang’s case, as clarified at the CA hearing, was not run on the premise that DB should have warned him of the “potential toxicity” of DSPPs.45 Nonetheless, he proceeded to deal with the submissions.
As regards overconcentration risk, he found that Wan had in fact warned Chang on four occasions in December 2007. He also noted46 that, in relation to DSPPs which he bought through CSB, he received a warning from CSB’s RM on 4 February 2008 and his response clearly showed an understanding of the risks and he made a “demonstrably independent decision” to enter into such contracts. All this led the CJ to conclude that “the warnings [Chang] did get never deterred his resolve”.
As regards the failure to warn Chang of the amount of his exposure, Menon CJ pointed out47 that Chang could easily have calculated the amount. As for the dangers of margin trading, his honour found48 that Chang knew he was trading on margin and “fully intended to exploit the full extent of his leverage”.
It is observed that although the Chief Justice had approached these matters from the breach perspective, perhaps they are better analysed under causation – that even if there had been these breaches, there was no causation because Chang would still have proceeded as he intended. As Menon CJ had observed,49 Chang had “taken a view of the market”.
In a nutshell, the CA arrived at the conclusion that the claim against DB in negligence failed because:
1. Chang’s case in the CA was run on the premise that DB had a duty to give Chang strategic investment advice as to the management and structuring of his portfolio and not a duty to advise him so that he understood the risks of investing in DSPPs;
2. the CA, in contrast to the HC, found no evidence that DB had assumed responsibility to give Chang such strategic investment advice or that Chang had relied on DB to do so. Hence, there was no proximity and no duty of care;
3. the mere giving of advice in an execution-only relationship did not give rise to an advisory relationship;
4. even if there had been a duty to warn of overconcentration risks, the evidence showed that Wan had warned Chang in December 2007 and thus, there was no breach; and
5. in any case, Chang understood the risks of DSPPs and margin financing and would have gone ahead with his plan (so that, in effect, there was no causation).
CA’s Reasoning – Other Aspects
Apart from duty of care and breach, the CA judgment touched (briefly) on the effect of contractual clauses on duty, contractual estoppel, and misrepresentation.
On contractual clauses, Menon CJ commented that such clauses must satisfy the reasonableness test of the Unfair Contract Terms Act if they have the effect of restricting or excluding a tortious duty. He was unimpressed by the distinction often sought to be made between a clause which defines the scope or nature of the parties’ relationship and one which excludes liability for the breach of an existing duty, and reminded that “[t]he legislative eye is firmly set on the substantive effect … rather than its form or identification”.50
As regards contractual estoppel, he said51 it was unnecessary to rule on this and doubted the correctness of the trial Judge’s exposition of the law.
On misrepresentation, the CA agreed52 that the representation that DB would provide Chang with customised wealth management service was a statement of intention and there was no evidence that DB or Wan did not have an honest belief. But the CA disagreed53 with the trial Judge that the statements, such as that the services provided by DB were amongst the best when compared to other international banks, were mere sales puffs; the CA thought they were statements of fact, but there was no evidence that these statements were false.
Reflection and Comment
The final outcome of the case is reasonably justifiable but is not ideal. It is justifiable because the CA decision was reached based on the facts, the pleadings and the relevant law as applied to the facts, as explained above.
However, the outcome is not ideal for two reasons.
The first is that Wan and DB were guilty of reprehensible conduct, of which the more salient aspects are as follows. Wan trailed Chang, represented that DB could provide strategic advice and continually sought to persuade Chang to buy DSPPs. Wan fabricated details on the CAPR, and the first DSPP purchase was allowed to be made even before the Derivative Agreement was signed. DB unilaterally extended margin financing without warning of the risks. Wan made several product recommendations to Chang.54 Finally, Chang was induced to top up his account with US$5m by Wan’s assurance.
But neither was Chang without blame. He could have asked questions but did not do so, had considerable financial means and could easily have secured advice. He understood the nature and risks of his investments. He made independent decisions and was undeterred by warnings given to him. He had bought a substantial amount of Citigroup shares and later DSPPs through CSB.
But what is the correct picture of the comparative blameworthiness of DB and of Chang? The CA found that Chang knew what he was doing. That is probably a true and fair assessment at the time he started buying DSPPs through CSB in January 2008. But whether it is true when Chang first began buying DSPPs through DB in November 2007 is highly debatable. It is likely that Chang began with little understanding of the commitment and risks of purchasing DSPPs, let alone the full implications of trading on margin. But at some time during the first purchase period, he must have come to a realisation of the full extent of the investment paradigm that he had been drawn into. Chang started out as largely innocent but become more aware and complicit and, at some point, became fully aware of and responsible for what he was doing.
The issue of warnings of overconcentration risks is illustrative of the problem. Accepting the CA’s finding that the warnings in December were actually made, one still faces the question of the significant number of DSPPs that had been purchased before these warnings. Needless to say, the warning given by the CSB RM in February 2008 is even less probative or relevant to this question.
There is a need, then, to scrutinise,55 particularly in the first purchase period, two aspects:
1. The details of the DSPP purchases and the resulting share purchases, and the consequential losses; and
2. The degree to which Chang knew and understood the implications of the investment paradigm.
This scrutiny is important to the legal consideration of when and the extent to which Chang was contributorily negligent and even fully volens, arguments which, regrettably, were not raised or considered in both the HC and the CA. It is indeed remarkable that these two ready and established doctrines were not put to use.
The second relates to the legal principle which found favour in both Courts – that the giving of advice in an execution-only relationship does not give rise to a duty of care on the part of the bank – and for which Springwell was cited as authority. But Springwell is authority for another principle, namely that suggested by Gloster J in the lower Court56 and approved by Aikens LJ in the English Court of Appeal:57
It may well be that, theoretically, in such circumstances, a low level duty of care would arise on the part of the salesman not to make any negligent misstatements, or even to use reasonable care not to recommend a highly risky investment without pointing out that it was such….
An alternative analysis is to say there is a duty but its scope (or content) is limited, an approach taken recently by the English Court of Appeal in Rubenstein v HSBC.58
The principle of a low-level duty is desirable for several reasons. First, the imposition of this duty is not a hardship to banks and is easily complied with. After all, it is confined to not making negligent misstatements and not to recommend a highly risky investment without pointing out that it is such. Further, a negligence claim is not made out if there is no causation. So, even if there is a duty and a breach of the low-level duty, the bank would not be liable if notwithstanding the breach the client is aware of the risks of the investment and would still have proceeded, as the CA found in the Deutsche Bank case. Further, the defences of contributory negligence and consent may avail.
The term “advisory relationship” is one cause of the confusion. It could mean either a “duty of care” relationship or a relationship where the bank has assumed a duty to provide advisory services in the spectrum of execution, advisory and discretionary services. It does not follow that just because the relationship is an executionary one there is no duty at all on the part of the bank (which the CA appears to suggest); there should be a duty although its content or scope is more limited.
Also, the position having some liability for giving advice in the context of an execution account is consonant with the regulatory expectation59 spelt out by the Monetary Authority of Singapore in the Guidelines on Fair Dealing:60
A financial institution that provides “execution only” services must put in place appropriate systems, procedures and training to ensure that it does not provide advice to customers. If advice is in fact given to a customer notwithstanding the “execution only” model …, it will be deemed to be providing advice and will be subject to the provisions under the Financial Advisers Act. (emphasis added)
The Guidelines on Fair Dealing are but a piece of the whole mosaic of the enhanced framework61 of conduct of business regulation to provide greater protection for investors post-Lehman. The CA decision appears not to flow with the regulatory tide.
On both blameworthiness and legal liability, there is a common thread – in controversial scenarios, the correct outcome need not be binary: that the claimant receives all or nothing. Instead, the fair outcome probably lies somewhere in between.
Concluding Remarks
The Deutsche Bank-Chang dispute has drawn much attention and debate. On a more basic level, it illustrates the vagaries and hazards of litigation, with all the challenges of evidence and fact-finding and the procedural intricacies. One may continue to wonder at the dramatic change in the factual perception as the case moved from the trial Court to the appellate Court and the abandoning of a ground which succeeded at trial.
As for the jurisprudence, the Deutsche Bank decision does not augur well for investors. The CA appears to endorse a principle – a controversial one – that a bank which provides execution-only service attracts no tortious liability even if the bank officer had indeed given advice. The writer suggests that the Springwell low-level duty concept provides a better alternative position.
The observer cannot help wondering, both in relation to the merits of the Deutsche Bank case and as a general principle, whether the binary approach should not give way to a more intermediate and calibrated one, so that a more realistic and fact-sensitive outcome can be achieved.
In the meantime, the complications and uncertainties surrounding the issues of misrepresentation, non-reliance clauses and estoppel await consideration by Singapore’s apex Court.