Deutsche Bank AG v Chang Tse Wen

Judgment Date19 September 2013
Date19 September 2013
Docket NumberCivil Appeals Nos 164 of 2012 and 2 of 2013
CourtCourt of Appeal (Singapore)
Deutsche Bank AG
Plaintiff
and
Chang Tse Wen and another appeal
Defendant

Sundaresh Menon CJ

,

Andrew Phang Boon Leong JA

and

V K Rajah JA

Civil Appeals Nos 164 of 2012 and 2 of 2013

Court of Appeal

Tort—Misrepresentation—Whether statements of future intention representations of fact—Whether statements held with honest belief

Tort—Misrepresentation—Whether statements sales puff or representations of fact

Tort—Negligence—Duty of care—Factual foreseeability and legal proximity—Whether facts gave rise to advisory relationship with its accompanying duty of care—Whether totality of circumstances established requisite legal proximity as would give rise to duty of care

The appellant in Civil Appeal No 164 of 2012 and the respondent in Civil Appeal No 2 of 2013 was Deutsche Bank AG (‘DB’). The respondent in CA 164/2012 and the appellant in CA 2/2013 was Dr Chang Tse Wen (‘Dr Chang’).

In December 2006, Dr Chang and his fiancée, Prof Carmay Lim (‘Prof Lim’), met Mr Wan Fan Ting (‘Mr Wan’), a priority banking manager in the employment of Standard Chartered Bank, Hong Kong (‘Standard Chartered Bank’). Mr Wan learnt from this meeting that Dr Chang would soon come into considerable wealth from the sale of his shares in Tanox Inc.

Subsequently in February 2007, Mr Wan left Standard Chartered Bank to join DB as a relationship manager, in which capacity he arranged his second meeting with Dr Chang and Prof Lim. At this meeting on 15 March 2007, Mr Wan presented Dr Chang and Prof Lim with a brochure detailing DB's services (‘the Brochure’). Also, during the meeting Prof Lim signed an account application form while Dr Chang told Mr Wan that he would sign a similar form after receiving the proceeds from the sale of his Tanox Inc shares.

A few months later, Dr Chang opened an account with DB by signing an account application form dated 1 August 2007. By 31 August 2007, Dr Chang had deposited a total of around US$26 m into his new DB account.

Between 19 November and 12 December 2007, Dr Chang purchased 32 Discounted Share Purchase Programs (‘DSPPs’) (or share accumulator contracts) using his DB account. Two more DSPPs were subsequently purchased in February 2008. In total, Dr Chang used his DB account to purchase 34 DSPPs for shares in Citigroup Inc (‘Citigroup’), UBS AG, Société Générale SA and Washington Mutual Inc.

Dr Chang also had other trading accounts apart from his DB account. He used these other accounts to purchase 672,000 Citigroup shares in November 2007 for around US$21 m. Then, between January and May 2008, Dr Chang used a trading account opened with Citigroup Smith Barney to purchase a total of 32 DSPPs for shares in UBS AG, Société Générale SA and Cheung Kong (Holdings) Limited.

On 6 March 2008, Dr Chang was informed by DB that his total exposure under the DSPPs booked in his DB account was around US$76 m. On 21 and 24 November 2008, DB exercised their contractual termination and security rights and sold the shares which had accumulated in Dr Chang's DB account. After the sale of all the shares, Dr Chang still owed DB US$1,788,855.41 (‘the Contract Sum’) which formed the basis of DB's original claim. Dr Chang brought a counterclaim in negligence, misrepresentation and breach of fiduciary duty.

The trial judge (‘the Judge’) dismissed DB's original claim for the Contract Sum, but allowed Dr Chang's counterclaim in negligence and awarded him a sum of US$49,047,721.12 in damages. Dissatisfied, DB filed CA 164/2012 against the Judge's decision dismissing its claim and allowing Dr Chang's counterclaim in negligence, while Dr Chang brought a cross-appeal, viz, CA 2/2013, against the Judge's dismissal of his counterclaim in misrepresentation.

Held, allowing the appeal in Civil Appeal No 164 of 2012 and dismissing the appeal in Civil Appeal No 2 of 2013:

(1) The question, whether a duty of care had arisen, had to be assessed by reference to the sequence of relevant facts and events up to the time the alleged duty was said to have been breached. The Judge's finding that a duty of care came into existence on and from 15 March 2007 based on unusual facts occurring after 15 March 2007 seemed internally inconsistent in the sense that the duty could not logically have arisen on a particular date by reason only of facts that came into being after that date. In any case, it was not apparent why the facts relied on by the Judge were ‘unusual’. These facts seemed to revolve around a commonplace instance of a bank employee soliciting a high net worth individual to open an investment account with the bank: at [22] , [26] and [27] .

(2) To answer the question of whether it was factually foreseeable that a failure by DB to exercise reasonable care would harm Dr Chang, it was necessary first to establish just what DB undertook to do, and that which, it was contended, DB was required to do with reasonable care. Beginning with the date of the meeting between Dr Chang and Mr Wan on 15 March 2007, it was impossible on the facts to see that DB had in fact undertaken to do anything, at least at that time. No agreement was reached at that meeting as to any services that would be carried out by DB for Dr Chang. On the contrary, prior to August 2007 when the DB account was opened: (a) DB had not undertaken to do anything; (b) Dr Chang had no expectation that DB would do anything; (c) consistent with this, DB had no duty to do anything; and (d) DB in fact did nothing on its own initiative for Dr Chang. In the circumstances, prior to August 2007 even the inquiry of factual foreseeability could not be resolved in Dr Chang's favour: at [30] , [31] and [33] .

(3) Where a person had voluntarily assumed a responsibility to give (and did give) financial or investment advice to another who then relied upon that advice, it might ordinarily be concluded that an advisory relationship had arisen between them. The existence of such a relationship would in turn give rise to the accompanying duty of care in tort. However, the non-existence of an advisory relationship on the facts would not by itself mean that the requisite legal proximity as would give rise to a duty of care was absent. The court would ultimately have regard to all the circumstances of the case: at [38] .

(4) The circumstances prevailing from late July to November 2007 plainly failed to establish an advisory relationship between DB and Dr Chang. The facts did not bear out any suggestion: (a) that DB or Mr Wan had assumed any responsibility to render investment or wealth management advice to Dr Chang; or (b) that Dr Chang was relying on DB to provide such advice, and that DB knew this and went along with it. Indeed, the totality of the circumstances simply did not lead to the conclusion that the requisite legal proximity had been established such as would give rise to a duty of care on DB's part: at [49] and [56] .

(5) Even if DB had been found to owe a duty to Dr Chang to take reasonable care in advising him on the management of his wealth, Dr Chang would not have succeeded on the facts in showing that such a duty had been breached. He was aware and was in fact warned of the overconcentration risk. He was or ought to have been aware of the scale of his total exposure. And he knew he was trading on margin and fully intended to exploit the full extent of his leverage: at [78] .

(6) As to the merits of Dr Chang's appeal on the misrepresentation issue, first, the content of the material that was handed over as well as what was said to have been conveyed at the 15 March 2007 meeting was essentially standard promotional fare. A disclaimer on the last page of the Brochure was plainly intended to prevent anyone reading the material handed over from thinking that it was meant to be relied upon, and to qualify any representations which might have been made in the course of the client presentation. Second, the evidence did not establish that, to the extent DB's alleged representations were statements of future intention, DB or Mr Wan lacked an honest belief in their truth, and therefore Dr Chang's claim failed on this ground also: at [84] and [85] .

(7) However, the representation, that the services provided by Deutsche Bank Private Wealth Management were amongst the best when compared to other international banks, seemed to be one of fact. It was not obviously untrue. Moreover, this representation was made in the course of a presentation to a potential client. Such a statement would not have been viewed as hyperbole in Dr Chang's eyes; rather, it could well have been material in convincing him to open an account with DB. In the light of all this, DB could not argue that the representation was mere puff that was not actionable. The real difficulty with Dr Chang's claim, however, was that he did not show on the evidence that the representation was false: at [89] .

(8) The order for damages made by the Judge in favour of Dr Chang was set aside. DB's contentions that the quantum of damages was wrongly calculated did not need to be dealt with: at [90] .

(9) Dr Chang did not dispute that the Contract Sum was payable to DB. In fact, Dr Chang conceded that the Contract Sum would have to be set off against any damages he received from his counterclaim. Since liability for this contractual amount was not denied, Dr Chang was obliged to pay the Contract Sum to DB: at [91] .

[Observation: It was argued that clauses which defined the scope or nature of the relationship between the parties were different in kind from those which excluded liability for breach of an existing duty. But at least on a tentative view, this seemed to place undue emphasis on the form of the language used rather than on its substantive effect. Section 13 (1) of the Unfair Contract Terms Act (Cap 396, 1994 Rev Ed) (‘UCTA’) prevented a party from excluding or restricting its liability by reference to a contractual term or non-contractual notice which excluded or...

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