In light of the increasing number of banker‐customer disputes regarding investments which have gone awry, the Singapore Court of Appeal’s decision in Go Dante Yap v Bank Austria Creditanstalt AG  SGCA 39 is timely. In this case, the Court of Appeal discussed the contractual and tortious duties which are owed by a bank to its customer and the interaction and distinction between the two duties. Significantly, in the determination of whether the bank owed the customer a tortious duty of care, the apex court in Singapore did not follow the analysis in recent English decisions (such as Springwell and Titan Steels), preferring instead to analyse the issue by reference to the two‐stage test set out in its earlier decision in Spandeck.
The case concerned a claim by a customer, the Appellant, against a private bank, the Respondent, for losses suffered in respect of certain investments made by the Appellant through the Respondent. In particular, the Appellant alleged that the Respondent owed him a duty, in contract and in tort, to advise him on his investments.
The Court found that the Respondent bank owed the Appellant customer a general duty, in contract and in tort, to take reasonable care in rendering services to the customer and following the customer’s instructions. The Respondent, however, did not owe the Appellant an express or implied contractual duty or a tortious duty to advise the Appellant on his investments.
On the facts, having regard to (a) the prevailing economic circumstances at the time of the investment and the danger of hindsight; (b) the experience and sophistication of the Appellant; and (c) the contractual framework, the Court held that the Respondent had not breached its duty of care, in either contract or tort, and was thus not liable for the Appellant’s investment losses.
The Appellant customer had two accounts with the Respondent bank. These accounts were governed by a number of agreements, including:
- The Discretionary Investment Management Agreement (“DIMA”), which allowed the Respondent to trade in securities on behalf of the Appellant without his specific authorisation; and
- The Investment Authority Instructions (“IAI”), which restricted the Respondent from making investments or selling securities without the Appellant’s instructions.
- From July to August 1997, the Respondent entered into 16 investments on behalf of the Appellant. The Appellant also had monthly meetings with Ms Ching, the vice‐president of the Respondent’s Hong Kong branch, where she would present the results of the investments and review their performance.
- As a result of the Asian Financial Crisis, the Appellant suffered significant losses on his investments. The Appellant commenced an action against the Respondent, alleging that the Respondent had breached its contractual and tortious duty to advise him on his investments.
- The High Court judge held that the Respondent did not owe any duty to the Appellant to provide investment advice. The Appellant appealed.
The Court of Appeal framed the issue in dispute as whether the Respondent bank owed the Appellant customer a broad duty, in contract and/or in tort, to take care in rendering services to the customer. The apex court rejected the Appellant’s and the High Court’s narrow formulation of the issue – which was – whether the Respondent owed and breach a duty, in contract and in tort, to advise the Appellant on his investments.
In its preliminary observations, the Court distinguished between contractual and tortious duties as follows:
- Contractual duties arise from express or implied agreements, and may thus be as narrow or specific as the parties desire.
- A tortious duty of care, on the other hand, is in general imposed by law, and is thus necessarily a broad duty to take such care as is reasonable in the circumstances. It is not correct to speak of a “tortious duty to advise” without more. If such a duty existed, there would be no logical limit to how far a duty of care in the tort of negligence could be subdivided.
- To frame a duty of care in the tort of negligence as narrowly as a specific contractual obligation (as in the case of a “tortious duty to advise”) would render the question of breach nugatory, for the tortfeasor would then be under a duty to do precisely that which he has been accused of not doing, and there would be no room for the court to inquire whether it was in fact reasonable for him not to have done it – an indispensable element of the tort of negligence.
- Where parties have expressly or impliedly negotiated an obligation on one of them to exercise care and skill in the exercise of his rights or duties under the contract, it is entirely possible that an identical duty of care would exist in the tort of negligence.
- That said, the contractual framework may be so structured as to demonstrate that the parties intended to exclude the imposition of a tortious duty of care.
Thus, the Court considered the following questions:
- Whether the Respondent owed the Appellant a contractual duty to advise;
- Whether the Respondent owed the Appellant a contractual duty of skill and care;
- Whether the Respondent owed the Appellant a tortious duty of care; and
- If there was any such duty, whether the duty had been breached.
Holding of the Court of Appeal
The Court of Appeal upheld the High Court’s finding that the Respondent did not owe the Appellant a duty to advise. However, the Court found that the Respondent owed the Appellant both a contractual duty and a tortious duty to take care in rendering services to the Appellant. Nonetheless, the Respondent had fulfilled its duties, and was thus not liable for the Appellant’s investment losses.
Contractual duty to advise
The Court held that the Respondent did not owe the Appellant a contractual duty to advise him on his investments as follows:
- The contractual documents did not contain any express terms providing for such a detailed duty.
- Neither was there was an implied duty; the specificity of the duty and the onerous obligations such a duty would have imposed made it highly implausible that this was the presumed intention of the parties or that such a term was necessary for business efficacy.
Contractual duty of care
It was, however, acknowledged that a contractual duty of care existed. In contracts where a professional agrees to render services to his client, there is an implied term in law that he will exercise reasonable skill and care in rendering those services.
In relation to banks, it is trite law that a bank in carrying out the instructions of its customer is under an implied contractual duty to exercise skill and care.
Tortious duty of care
The Court of Appeal disagreed with the High Court’s conclusion that no tortious duty of care had arisen and found that the Respondent owed the Appellant a duty to take reasonable care in rendering services to him. In determining whether the Respondent owed the Appellant a tortious duty of care, the Court of Appeal preferred to apply the test articulated in its decision in Spandeck Engineering (S) Pte Ltd v Defence Science & Technology Agency  4 SLR(R) 100 to the High Court’s approach which relied on a number of “lower level factors” articulated in Springwell. In Spandeck, the Court of Appeal laid down a single test to determine the imposition of a duty of care in all claims arising out of negligence in the context of pure economic loss:
- The threshold requirement is whether the loss suffered was foreseeable on the facts.
- There must be sufficient proximity between the parties to the effect that proximity might reflect an assumption of responsibility by one part to take care to avoid or prevent injury, loss or damage to the other person.
- The Court must then consider whether any policy considerations militate against the imposition of such a duty of care.
On the facts, the Court found that it was clearly foreseeable that, on the facts of the case, if the Respondent did not exercise due care in the discharge of its role, the Appellant would suffer loss.
There was also sufficient proximity between the parties.
- The implied contractual duty of skill and care owed by the Respondent to the Appellant under the account opening documents was sufficient to create the necessary proximity required by a tort of care in tort.
- Further, there was an unmistakable assumption of responsibility by the Respondent towards the Appellant. In offering private banking and wealth‐management facilities, the Respondent held itself out as possessing skill or expertise to manage investments. Further, the Appellant, as the Respondent knew, placed implicit reliance on that expertise.
- The account opening documents in the instant case was disorganized and somewhat inadequately drafted and did not unequivocally demonstrate an understanding between the parties that the Respondent was not prepared to be responsible or careful in the provision of any information, advice or service it furnished to the Appellant. The material terms of the contract governing the banking relationship in the instant case were unlike the terms in the English cases of Goldman Sachs, Springwell or Titan Steel, where the relevant terms made it abundantly clear that the banks were not accepting or assuming any responsibility to take care and/or that the client was not relying on such care being taken. In those cases, it was inevitable that no duty of care in tort was found to e owed by the banks.
The Court found that it had given consideration to the Springwell factors in so far as they affected the proximity between the parties for the purposes of the Spandeck test.
Finally, there were no policy considerations militating against the imposition of a duty of care. In fact, policy considerations would support such a duty, as it has been demonstrated that imprudent behaviour on the part of financial institutions can have disastrous consequences on customers and the economy as a whole.
Therefore, the Respondent owed the Appellant a duty of care both in contract and in tort.
Breach of duty
The Court held that the Respondent had not breached its duty of care.
The standard of care in the instant case was found to be relatively low, having regard to the following factors:
- The Court noted that the situation in 1997 was one of extreme economic and financial turbulence, and held that there should not be excessive demands of the level of care and competence to be expected from a private bank in the Respondent’s position under such circumstances. The Court was also mindful of the use of hindsight in assessing whether the Respondent was negligent. It observed that the chaotic events of 1997 should not be viewed dispassionately with 2011 spectacles, with the effect of imposing an artificially high standard of care in an area where risks and gambles were expected to be taken on a daily basis.
- The Appellant was also commercially savvy and understood the risk of his investments, allowing him to rely on his own judgment rather than Ms Ching’s
- Further, the fact that the parties had entered into the IAI suggested that they intended for the Appellant to maintain a significant degree of control over his accounts and investment portfolio.
Given the relatively low standard, the Court found that the Respondent had in fact discharged its duty of care, whether in contract or in tort. Ms Ching, in the course of her monthly meetings with the Appellant, consistently recommended suitable investments, advised him of the pros and cons of those investments, and reviewed the performance of existing investments. This was sufficient to fulfill the Respondent’s obligation to the Appellant.
Therefore, there was no breach of duty on the Respondent’s part. The Respondent had taken sufficient action to discharge the duty of care, and was thus not liable for the Appellant’s investment losses.
With regard to the question of whether and to what extent a bank owes a duty to give investment advice to its customer, the Court showed that it is unlikely that the law of tort would impose such a specific obligation. There may be a contractual duty to advise, but this depends on the express terms of the agreement between the parties, as the Court here opined that an implied contractual duty to advise is unlikely in light of the specificity and onerous requirements of the duty.
The terms of the contact governing the banker‐customer relationship go beyond defining the contractual duties of a bank; they could very well determine the existence of a tortious duty of care on the bank’s part.