Singapore decision on a bank's alleged mis-selling of investment products

Singapore High Court case on alleged mis-selling of investment products discusses important concepts such as actionable misrepresentations, contractual estoppel and when a duty of care is owed to investors.

This latest Singapore case (Tradewaves v Standard Chartered Bank [2017] SGHC 93) deals with contractual estoppel and banking documents with respect to a bank’s selling of investment products. The bank successfully resisted the investors’ claims of misrepresentation and breaches of duty of care, which arose out of losses from funds invested into a feeder fund which channelled those funds into what turned out to be a Ponzi scheme perpetrated by Bernard Madoff.

The judgment itself is 123 pages long and we do not intend to provide an exhaustive summary. The key practical and legal points of interest are as follows:

  1. The sophistication of the investor and prior history in investing in complex products is a major consideration in a claim that the investor makes for mis-selling. In Singapore, the accredited investor (AI) regime has been revised and any AI who opts into the regime is unlikely to be treated too sympathetically by the courts if the AI then tries to plead ignorance and lack of sophistication. 
  2. The Singapore courts are cognizant of developments in other jurisdictions, in particular the UK and HK). 
  3. The Court found that the claim in misrepresentation failed at the outset as none of the alleged representations were actionable misrepresentations even if they had been made. In a mis-selling/misrepresentation claim, the court will enter into a fairly detailed examination of what the representation was supposed to have been understood by the plaintiffs to mean and whether it actually induced the plaintiffs to purchase the investment product. This approach is particularly helpful for careful banks and relationship managers. 
  4. A bank may owe a duty of care to its customer in deciding whether to recommend an investment unless the duty of care is negated by the contractual terms. In this respect, the bank relied on 2 different types of negation terms:
    1. an exclusion term (a term which states that the customer agrees that the bank owes no duty of care to the customer or the bank is under no liability to the customer for any act or omission or step taken), and 
    2. a non-reliance term (to say that the bank has not made any representation or recommendation and/or the customer does not rely on any such representation or recommendation and relies solely on his own judgment). It is the non-reliance term which gives rise to contractual estoppel whereby a customer may be estopped from raising true facts contrary to the contractual term. In this respect, the Singapore High Court reaffirmed the position that contractual estoppel remains the law in Singapore. Interestingly, the High Court also thought that contractual estoppel would apply even if the investor were unsophisticated. 
  5. Notwithstanding the above, the High Court went ahead to engage with the investors’ case as to what standard of due diligence is required of a bank with respect to a proposed investment/fund which it subsequently recommends to its customers. The court held that the standard of care owed by the bank to the plaintiffs in performing due diligence is determined by reference to the steps a reasonable and competent private bank ought to have taken. This is “a common sense inquiry” and a bank’s obligations must necessarily be informed by the circumstances and prevailing industry standards at the material time. 
  6. The High Court accepted, and this is a novel point of Singapore law, that a person may generally rely on a third-party to discharge his due diligence obligations or otherwise insulate himself from negligence liability. However, he must have assessed the identity, capacity, and credibility of the third-party relied on, and satisfied himself as to its experience and competence. 
  7. While the judgment considers that there is no industry standard for due diligence, it goes into some detail as to the due diligence process, both initial and on-going, including the appropriateness of relying on third parties’ due diligence on the investment fund.

This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document. Simmons & Simmons JWS Pte. Ltd. is registered and incorporated in Singapore as a Joint Law Venture under the Companies Act of Singapore. We are licensed to practise Singapore law in the permitted areas of legal practice according to section 130A(1) of the Legal Profession Act of Singapore. The permitted areas of legal practice excludes (according to Rule 3(1) of the Legal Profession (International Services) Rules 2008 of Singapore) areas such as constitutional and administrative law; conveyancing; criminal law; family law; succession law; trust law; and appearing or pleading in court.