Legal Update December 2013
CLAIMS FOR INVESTMENT LOSSES
Generally, claims bought by customers against banks for investment losses have not met with great success. However, two recent cases appear to offer some hope for the customer.
Deutsche Bank AG v Chang Tse Wen  SGHC 248
The case began when Deutsche Bank (“DB”) commenced action against Dr. Chang for repayment of the sum outstanding from his private wealth management account. Dr. Chang then counterclaimed for damages arising from misrepresentation, breach of fiduciary duty and breach of duty of care in tort against DB and DB’s relationship manager (“the RM”) as they had allegedly failed to advise him to manage his wealth and later sold him 34 derivative products in about 3 weeks which caused him to lose about US$49 million.
At first instance, the Singapore High Court held that legal duties may be imposed on private banks even before it had undertaken to be bound by any express contractual terms. Looking at the facts in their entirety, the court found that there was an assumption of a pre-contractual duty of care by DB and the RM to advise its customer on managing his wealth and ordered DB to pay about US$49 million in damages to Dr. Chang.
Deutsche Bank AG v Chang Tse Wen and another appeal  SGCA 49
However, the matter went on appeal and the Singapore Court of Appeal reversed the decision of the High Court. The Court of Appeal held that circumstances of the case plainly failed to establish an advisory relationship between the customer and the bank.
Nonetheless, the Court of Appeal expressed sympathy for the losses suffered by the customer and cautioned that banks “would do well to recall that the services they do hold themselves as capable of providing may not always be accepted by the client. Cleaning up the paperwork and communicating in clear terms with customers after the initial discussions to identify with precision just what is and is not being provided might well be a worthwhile exercise for banks to undertake. This could perhaps have obviated this present litigation”.
Teo Wai Cheong v Crédit Industriel et Commercial and another appeal  SGCA 33
In this case,the dispute centred on the issue of whether the former private banking customer (“Teo”) of the bank was provided with the necessary information and so authorised the relationship manager (“Ng”) to enter certain share accumulator transactions. Teo failed to pay for the shares that were delivered and the bank liquidated Teo’s assets and set-off monies in his account to effect partial payment.
The bank sued Teo for the balance and Teo counterclaimed that the transactions were not authorised. The bank bore the burden of proof to satisfy the court that the accumulator transactions were duly authorised. The failure to provide timely advice to Teo coupled with the contravention of the bank’s internal policy and the concoction of falsehoods by Ng to mislead the bank’s credit department pointed towards the accumulator transactions not being authorised by Teo. The bank was therefore ordered to compensate Teo for the wrongful liquidation of his assets and monies set-off, together with interest.
While these cases turn on their specific facts, it is submitted that the nature and scope of a bank’s relationship with its customer will be subject to more searching scrutiny and relief will be granted to the customer in appropriate circumstances.
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This update is for general information only and is it not intended to constitute legal advice. JTJB has made all reasonable efforts to ensure the information provided is accurate.