Deutsche Bank AG v Chang Tse Wen

• Jurisdiction: Singapore
• Judgment Date: 11 December 2012
• Date: 11 December 2012
• Docket Number: Suit No 731 of 2009
• Court: High Court (Singapore)

Deutsche Bank AG

Plaintiff

and

Chang Tse Wen

Defendant

[2012] SGHC 248

Philip Pillai J

Suit No 731 of 2009

High Court

Civil procedure—Damages—Interest—Customer claiming interest on damages—Whether simple interest available—Whether compound interest available—Civil Law Act (Cap 43, 1999 Rev Ed) s 12

Equity—Estoppel—Contractual estoppel—Customer signing agreement containing disclaimers—Whether contractual estoppel applied preventing customer from proving breach of duty of care

Equity—Estoppel—Evidential estoppel—Customer signing agreement containing disclaimers—Whether evidential estoppel applied preventing tortious duty of care from arising

Equity—Fiduciary relationships—When arising—Bank voluntarily approaching customer to open account—Bank representing to customer its experience and expertise in wealth management—Whether circumstances sufficiently exceptional to give rise to pre-contractual fiduciary duty

Tort—Misrepresentation—Bank making presentation to customer—Bank describing its wealth planning services for high net worth individuals and highlighting experience and expertise in private wealth management—Whether bank made false statements of present facts

Tort—Negligence—Breach of duty—Bank selling derivative products concentrated in same industry to customer within short period—Bank failing to provide financial risk management advice—Bank extending unsolicited margin trading facilities to customer unilaterally—Bank failing to notice sudden recorded changes to customer's risk profile—Whether duty of care owed by bank to customer breached

Tort—Negligence—Duty of care—Customer seeking advice to manage wealth—Bank voluntarily approaching customer to open account—Bank representing to customer its experience and expertise in wealth management—Whether pre-contractual duty of care arose

The plaintiff, Deutsche Bank AG (‘DB’), is the first defendant in the counterclaim. The defendant, Dr Chang Tse Wen (‘Dr Chang’), is the plaintiff in the counterclaim. In December 2006, Dr Chang met Wan Fan Ting, (‘Wan’) the second defendant in the counterclaim, fortuitously while Wan was still employed at Standard Chartered Bank, Hong Kong (‘SCB’). At the meeting, Wan learnt that Dr Chang was soon going to receive a substantial sum of money from the sale of his founder shares in a drug development company.

In F)ebruary 2007, Wan left SCB and joined DB as its relationship manager. Wan retained Dr Chang's contact information and used the information to set up a meeting with Dr Chang in Taipei on 15 March 2007. At that meeting, Dr Chang told Wan that he expected to receive about US$118 m from the sale of his founder shares and he was in need of advice to manage his new wealth. Wan gave a presentation which described DB's wealth planning services, which promised to provide ‘customised investments and estate and wealth planning solutions to high net worth individuals’, highlighting DB's experience and expertise in private wealth management.

In July 2007, Dr Chang received the proceeds from the sale of his founder shares, and on 1 August 2007 he opened an account with DB by signing an account opening form which referred to and incorporated terms contained in another document provided to him (‘the Service Agreement’). The Service Agreement contained disclaimers, including a ‘non-reliance’ clause which DB sought to rely on in this action. On 3 August 2007, Wan submitted to DB a Client Acceptance and Profile Report (‘CAPR’) for internal approval to open Dr Chang's account. The CAPR contained some false information about Dr Chang, although it accurately recorded Dr Chang's ‘low experience’ in structured products. Between 15 March 2007 and 1 August 2007, Wan did not revert to Dr Chang regarding which services DB proposed to provide him, within the range of DB's suite of advisory, fiduciary and other services.

Between 3 August 2007 and 19 November 2007, Wan continually sought to persuade Dr Chang to purchase a financial product known as a Discount Share Purchase Program (‘DSPP’) through a series of telephone calls and e-mails. On 19 November 2007, Dr Chang made his first DSPP purchase from Wan, and Wan completed a Margin Trading Checklist (‘MTC’) to obtain DB's approval to sell the DSPP to Dr Chang. The MTC contained false information about Dr Chang's investment experience. Unbeknownst to Dr Chang, DB had unilaterally approved an extended to him margin trading facility of US$ 10 m. On 28 November 2007, again without Dr Chang's consent or knowledge, the margin trading facility was increased to US$25 m although it was clear that Dr Chang was not in need of any financing.

Between 19 November 2007 and 12 December 2007, Dr Chang purchased 32 international bank share DSPPs from DB through Wan. Dr Chang purchased two further DSPPs in early February 2008. During this period, Dr Chang did not receive any information, advice or warning from DB about appropriate risk management processes or about his total liability or potential exposure as a result of his successive international bank share DSPP purchases.

On 18 December 2007, Dr Chang experienced an account margin shortfall of US$1.2 m, which he topped up. On 10 January 2008, Dr Chang's position deteriorated further and his account margin shortfall increased by US$8 m. On 24 January 2008, Dr Chang deposited US$5 m into his account, upon Wan's assurance that temporary adverse market conditions made this necessary. On 15 February 2008, Wan updated Dr Chang's CAPR to reflect Dr Chang's experience in derivative and leveraged products as ‘high’ and his risk profile to be ‘higher risk’ and ‘higher return’ in light of Dr Chang's DSPP purchases which were markedly different from his experience and risk profile recorded by Wan in the earlier CAPR dated 3 August 2007.

On 6 March 2008, Dr Chang received a call from Wan and his superior, informing him that he had a total exposure of about US$76 m. In November 2008, after issuing multiple margin calls to Dr Chang, DB exercised its contractual right under the Service Agreement and liquidated almost all of the remaining Citigroup shares in Dr Chang's account. After the sale of Dr Chang's shares, there was still a margin shortfall of US$1,788,855.41, which formed the subject matter of the original action of DB against Dr Chang. Dr Chang counterclaimed against DB and Wan for misrepresentation, breach of duty of care and breach of fiduciary duty, seeking damages of US$49,047,721.12 plus interest.

Held, dismissing the claim and allowing the counterclaim:

(1) For a statement to constitute an actionable misrepresentation, it had to be a statement of a present fact. This excluded statements as to future intention, predictions, statements of opinion or belief, sales puffs, exaggerations and statements of law: at [93].

(2) A statement by one party that he ‘would’ do something for the other party in the future was in essence a promise, which became actionable only if such promise was subsequently incorporated into the contract as a term. A statement as to a future fact could and often did carry with it a representation that the person making the statement had an honest belief or expectation, based on reasonable grounds, that events would turn out as stated or forecast, which made it a statement of present fact. Statements as to future facts might therefore be re-characterised as statements implying that the maker of the statement honestly believed that the event would happen in the future; or that the maker of the statement had reasonable grounds for making such an assertion: at [94] to [96].

(3) Dr Chang's pleaded case based on misrepresentation did not reveal any false statement of present facts, and accordingly, Dr Chang's claim based on misrepresentation failed: at [102].

(4) A fiduciary was someone who had undertaken to act for or on behalf of another in a particular matter in circumstances which gave rise to a relationship of trust and confidence. A principal was entitled to the single-minded loyalty of his fiduciary. A fiduciary relationship might arise in law when it fell within established categories of relationships; by contract; or on proof of exceptional circumstances: at [104] and [105].

(5) Ordinarily, the relationship between a bank and its customer was not considered as a fiduciary relationship. However, the relationship might be a fiduciary one if exceptional circumstances existed. Whether exceptional circumstances existed depended on whether or not the fiduciary had undertaken, expressly or impliedly, to act as a fiduciary vis-à-vis the principal: at [107] to [110].

(6) Given the extensive equitable remedies that flowed from a finding of breach of fiduciary duties, the court should, save in the most exceptional cases, be extremely slow to find that a fiduciary relationship had arisen outside of contract and outside the established categories of relationships. Proof of facts supporting a finding of an express or implied undertaking was necessary in every case and it was unacceptable for the court to ‘read equity backwards’ and impose fiduciary duties on an errant party whenever the court thought that it was fair, just and reasonable to do so: at [111].

(7) The concept of selflessness lay at the heart of the fiduciary relationship and a fiduciary was expected to promote his principal's interests above his own. Whilst DB's and Wan's conduct did not reflect best industry practice, it was insufficient to establish that they had exceptionally undertaken to promote Dr Chang's interests above their own. Accordingly, a fiduciary relationship did not arise between Dr Chang and DB or Wan: at [114].

(8) The existence of a duty of care was determined by a two-stage test comprising of proximity and policy considerations. While an incremental approach was to be applied, the absence of an analogous precedent case was not an absolute bar against a finding of a duty of care. The factual matrix had to be closely...