In the recent case of Deutsche Bank AG v Chang Tse Wen and another appeal [2013] SGCA 49, the Court of Appeal addressed the issue of whether  a bank owes a tortious duty of care to advise a customer on his portfolio and  management of his wealth when such advice does not fall within the scope  of their contract.

Facts

The case concerned a customer (Customer) who was about to come into a  considerable amount of money from a sale of shares. A relationship  manager (RM) from Deutsche Bank (DB) initiated a meeting (Meeting)  where the Customer was informed of private wealth management services  offered by DB. For the next four months, the Customer did not seek any  investment advice from the RM except for some advice on the share sale.

The Customer subsequently opened an account with DB. The account  opening documents included a service agreement and he subsequently  signed a second agreement relating to foreign exchange trading and  derivatives. Through his DB account, the Customer purchased a large  quantity of structured equity products known as accumulators within a short  period of time. At the same time, the Customer was also trading through at  least three other trading accounts with other financial institutions which DB  was unaware of. His investments included a large amount of shares and  accumulators.

Some months later, DB informed the Customer of the total exposure under  his DB account and issued several margin call letters to him. DB  subsequently exercised their contractual termination and security rights. The  Customer lost all the money in his DB account and further owed DB  approximately US$1.8 million.

The litigation began when DB sued for the outstanding sum owing and the  Customer counterclaimed for losses sustained due to DB’s alleged  negligence, breach of fiduciary duty and misrepresentation. In the High  Court, the Customer succeeded on his counterclaim of negligence and was  awarded damages in the region of US$49 million. The High Court found that  DB had assumed a pre-contractual duty to advise the Customer on the  management of his new wealth. DB appealed.

At the outset, the Court of Appeal noted that the Customer had appreciated  the risks inherent in investing in accumulators and that he was capable of  understanding the terms of the agreements he signed. This case was not  about the mis-selling of a financial product. The issue before the court was,  instead, whether DB had assumed a tortious duty of care in advising the  Customer on the management of his wealth.

No duty to provide advisory services prior to contract   

Although the High Court had found that the pre-contractual duty of care  came into existence at the Meeting, during which the RM touted the private 

banking services offered by DB, the Court of Appeal disagreed. The Meeting  was “a salesperson’s pitch, more akin to an invitation to treat” and there was  no agreement reached at the Meeting regarding the services that DB would  provide to the Customer.   

Furthermore, in the four months preceding the opening of the DB account,  DB had not undertaken to provide any services and the Customer had no  expectation of DB providing any services. If the Customer had genuinely  expected to receive a formal proposal from DB on the advisory services that  they would provide to the Customer, he would have pressed for it. The Court  of Appeal concluded that DB had not assumed any responsibility to provide  any advisory services to the Customer prior to the opening of the  Customer’s DB account.   

No duty to provide advisory services under or outside of contract   

The two agreements which were entered into by the Customer in connection  with his DB account contained no obligation on DB’s part to provide advisory  services. In fact, the Court of Appeal noted that the account was an  execution-only account and DB had no discretion to enter into transactions  other than at the Customer’s direction. The Court of Appeal noted that the  parties could have structured an arrangement in which DB undertook  obligations to advise the Customer on his investment portfolio or wealth  management. However, such an arrangement would “in all likelihood have  given rise to a different set of documents specifying things such as [the  Customer]’s expected rate of return, the limits on the type of transactions he  was or was not comfortable dealing with, the anticipated investment time  horizon, DB’s fee structure for such services and so on”, which were not  reflected in the contractual arrangement between the Customer and DB.   

Emails from the RM introducing various financial products to the Customer  were construed by the Court of Appeal as “solicitations and sales pitches”.  The Court of Appeal, after examining the contents of the emails, highlighted  that the RM had not offered or attempted to offer advice on the structuring of  the Customer’s overall portfolio and these communications could not lead to  an assumption of responsibility on DB’s part to provide advisory services.   

No advisory relationship   

Thus the Court of Appeal concluded that the circumstances failed to  establish an advisory relationship between DB and the Customer for the  following reasons:-

  1. DB had not assumed any responsibility to provide advisory services to  the Customer under the contractual arrangement between them.
  2. The judge at first instance did not explain how any pre-contractual  duty to provide advisory services, if it existed, survived the parties’  entry into the formal agreements on terms that did not include or  contemplate such a duty.
  3. The fact that DB may have told the Customer that it was able to  provide investment and wealth management advice did not amount to  an undertaking to place that capability at the Customer’s service. 
  4. Even if DB was aware that the Customer was a novice, DB was under  no legal duty to stop the Customer from undertaking trades as it  believed that he understood the potential risks and rewards.
  5. The Customer himself did not view the relationship between DB and  himself as an advisory relationship. He did not press DB for advice  and was trading large amounts in other accounts with other financial  institutions which DB was unaware of. It was unreasonable for the  Customer to think that DB had undertaken a responsibility to advise  him on his overall portfolio when DB did not know about his other  accounts.   

​Conclusion   

This case reaffirms the general approach in Singapore that the obligations  owed by a bank to its customer are based in contract and a non-contractual  duty of care will not be readily implied or assumed. Importantly, to avoid  assuming such non-contractual duty of care, the bank and its officers must  ensure that they do not represent to the customer any obligations beyond  what has been contractually agreed. The Court of Appeal remarked that the  litigation in this case may have been avoided if banks cleaned up their  paperwork and communicated in clear terms with their customers precisely  what services were being provided and, crucially, what services were not.  Bank officers should also think twice before they respond to a customer’s  request for advice and refrain from giving such advice if the contract  between the parties does not provide for advisory services. Although the  onus is on the customer to voice out when the customer does not  understand or appreciate the nature and risks of a transaction or to actively  seek investment advice, as a matter of good business practice, it is also  advisable for banks to clearly explain or indicate on their documents the  scope of their duties to their customers. An example drawn from this case  would be the difference between merely identifying products and investment  opportunities for the customer’s consideration, and actually giving advice on  the product. Banks should tread carefully to avoid creating any expectation  on the customer’s part of services which go beyond the scope of the  contractual arrangements between the parties.