The Singapore High Court (“Court”) considered whether a bank owed any investment advisory duty to its customer in either contract or tort, and found on the facts of this case that no such duty arose. The Court also alluded to key factors it would consider to determine whether a duty of care arises beyond the contractual duties owed by a bank to its customer.

BACKGROUND

The Plaintiff had made substantial investments through the Bank via company

The company account with the Bank was funded by a credit facility.  Drew down on this facility, partly in Japanese Yen (“JYP”), and invested in dual currency investment products (“DCI”) and knock-out discount accumulators (“KODA”).

When the financial crisis in 2008 unfolded, the Australian dollar (“AUD”) rapidly depreciated against the JYP. As such, Plaintiff was affected by both the fall in the value of his investments (which were in AUD), and the drawdown on his credit facilities (which were in JYP). This caused a collateral shortfall, which prompted the Bank to give Plaintiff a close out notice to top up his collateral in four hours. Plaintiff did not do so, and the Bank closed out all of company open positions, causing Plaintiff to lose about US$26 million. Plaintiff and company sued the Bank for an alleged and tort. With regard to the scope of both the duties allegedly owed in contract and tort, Plaintiff pleaded that the Bank owed him several subduties:

(a) To take reasonable care when giving advice and provide Plaintiff with information that met with his investment objectives;

(b) To monitor and manage the investments in company account, as well as the account’s risk exposure; and

(c) With respect to the scope of the Bank’s contractual duties, to provide a reasonable period for the provision of collateral top-ups.

THE HIGH COURT DECISION

The Court found that the Bank did not owe any of the alleged duties in either contract or tort, and even if these duties arose, the Bank had not breached them.

Duties not owed in contract

In relation to the Bank’s alleged duty to provide advice that met with Plaintiff investment objectives, and to monitor company account, the Court found that the contractual arrangement between the parties did not point to any advisory or management relationship. Plaintiff had accepted under the account documents that he was responsible for managing the account, and the

Bank had expressly disclaimed any responsibility for Plaintiff investment decisions. Further, the account was a non-discretionary account, meaning the Bank was to manage assets only in accordance with Plaintiff instructions.

In relation to the Bank’s alleged duty to provide a reasonable period for the provision of collateral top-ups, the Court rejected Plaintiff attempt to imply an obligation on the Bank’s part to this effect. This was because there was no gap in the contract between parties permitting the implication of this term. In particular, Clause 8 of the credit facility application form expressly reserved the Bank’s right to determine the length of time to be given where a collateral top-up was sought.

 

Duties not owed in tort

The Court referred to the Court of Appeal decision proposition that a bank’s tortious duties to its customer would not normally extend beyond its contractual duties, unless the bank’s conduct had deviated from its contractually defined role. Given that the Bank owed Plaintiff none of the pleaded obligations by way of contract, the Court held that it would require cogent evidence to establish that the Bank had assumed these responsibilities through its representations and conduct. The Court concluded that there was no such evidence. In this regard, the Court found that the Bank did not make any representation to advise Plaintiff on his portfolio, nor did it manage the account on his behalf. The Court also found that contrary to Plaintiff contentions, the Bank’s internal documents did not create any obligations between the Bank and Plaintiff, and could not serve as representations to Plaintiff since they were not even shown to Plaintiff. Further, the Court found that Plaintiff was very active in managing the account, and stuck to his investment strategies even against the Bank’s recommendations. As such, it held that the Bank did not come under a duty to manage the account or advise Plaintiff on his portfolio.

On the Bank’s alleged duty to advise Plaintiff, the

Court drew a distinction between the giving of advice, and the provision of information and held that the Bank only provided Plaintiff with information, and gave no advice amounting to a representation.

 

Bank would not have breached its duty of care to Plaintiff

The Court held that the Bank did not breach its duty to advise Plaintiff on products that suited his investment objectives. The Court found that the Bank’s recommendations of the KODAs and DCIs cohered with Plaintiff investment objective. The Court further held that any duty of care owed by the Bank would generally be limited to bringing the risks of the relevant investment strategies to Plaintiff attention, unless Plaintiff could point to some vulnerability on his part. In this regard, the Court found that Plaintiff was not vulnerable, as he had previously held a senior position at a top stockbroking house in Malaysia. As such, the Bank had discharged its duty by explaining the features and risks associated with KODAs and DCIs during calls with Plaintiff.

The Court held that the Bank did not breach its duty to advise Plaintiff on the risk exposure of his credit facility, or to monitor this risk. Plaintiff had applied for the credit facility of his own accord, and gave instructions to draw down on the facility. The resulting increase in collateral shortfall risk was therefore of Plaintiff doing. The Bank had brought the collateral limit to Plaintiff attention, and in any event, Plaintiff was familiar with how these limits worked. The Bank had also raised to Plaintiff warning signs as the financial crisis developed, but Plaintiff remained steadfast in his investment strategy. The Court further held that the Bank did not breach its duty in failing to notify Plaintiff of the collateral shortfall in the account at an earlier date, because the credit facility application forms clearly spelt out the need to maintain collateral value in the account and the Bank’s right to impose a close out.

Therefore, Plaintiff had assumed the risk of a close out. The Court acknowledged the force of Plaintiff argument that the Bank had given an unreasonably short time to furnish additional collateral, but found that this was justified given the Bank’s legitimate concerns in clamping down on Plaintiff aggressive investment strategy in the unfolding financial crisis.