In the recent case of Deutsche Bank AG v Chang Tse Wen and another appeal  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.
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:-
- DB had not assumed any responsibility to provide advisory services to the Customer under the contractual arrangement between them.
- 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.
- 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.
- 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.
- 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.
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.