Singapore Court of Appeal rules on key principles of duty of care and investment advice
01 October 2013
The Court of Appeal held that the Unfair Contract Terms Act (UCTA) applies to “basis clauses” which are commonly found in customer documentation. The Court of Appeal also disagreed with the High Court’s exposition on the doctrine of contractual estoppel, but declined to set out its own analysis, leaving Singapore law unclear on this important doctrine.
The lawsuit originally arose from a claim by a bank to recover money from an investor who had sustained losses due to an investment in a financial product known as an accumulator. The investor then counterclaimed against the bank on the grounds of negligence, breach of fiduciary duty and misrepresentation. This was not a case concerning any mis-selling of a particular financial product. The investor’s case was that he “had not been given sound or appropriate strategic investment advice as to the management and structuring of his portfolio as a whole”.
Based on the facts, neither the High Court nor the Court of Appeal found any breach of fiduciary duty or misrepresentation. In addition, the Court of Appeal reversed the High Court’s ruling that the bank had been negligent. The Court of Appeal found that a bank owed no duty of care and went further to note that, even if such duty of care existed, it would not have been breached given the facts.
The mere fact that the investor was a novice will not in itself create a legal duty on the bank’s part to stop an investor from undertaking trades if the bank believed that he understood the potential risks and rewards.
The Court of Appeal after reviewing relevant case law and UCTA concluded that: (i) clauses which attempt to exclude or restrict an obligation or duty by reference to a contractual term or non-contractual notice will not be effective unless the reasonable test in UCTA is satisfied; and (ii) “non-reliance” and “non-representation” clauses which seek to define the basis of the relationship of the parties (so-called “basis clauses”) would be subject to the reasonableness test if they have the effect of excluding or restricting the imposition of a duty of care in law. However, these comments were in obiter.
The Court of Appeal’s ruling on “basis clauses” does appear to establish a divergence between Singapore law and English law (since the latter regards “basis clauses” as falling outside the scope of the UK’s UCTA).
In the High Court, the judge was reluctant to apply the doctrine of contractual estoppel developed by the English courts. The Court of Appeal doubted the correctness of the judge’s exposition on the law but declined to elaborate as it felt that such important questions should be dealt with on a future occasion when it was necessary to do so. This leaves the status of the doctrine of contractual estoppel unclear under Singapore law.