High court awards Taiwan investor US$49m in damages

SINGAPORE - In what could be one of the biggest legal victories to date in Singapore for the financially inexperienced investor, the High Court awarded Taiwanese scientist Chang Tse Wen US$49 million (S$59 million) in damages plus interest and full legal costs for losses he suffered as a result of Deutsche Bank's negligent advice.

In a 71-page judgment released yesterday, High Court Justice Philip Pillai found that the bank and Dr Chang's former relationship manager, Johnny Wan Fan Ting, had assumed a duty of care to Dr Chang, but that both "failed to take reasonable care in advising Dr Chang on managing his new wealth".

Significantly, Justice Pillai found that the duty of care to Dr Chang arose pre-contractually before he signed the service agreement and derivative agreement with the bank, and that "all the losses that (he) suffered were caused in fact and in law by (Mr Wan) and (Deutsche Bank's) breach of duty of care".

"It is my finding that the derivative agreement does not affect (Deutsche Bank's) liability for any assumption of a duty of care which had arisen previously," Justice Pillai wrote.

The High Court awarded Dr Chang US$49 million in damages plus simple interest starting from Nov 21, 2008 until the date of full payment by the bank.

Furthermore, in light of the bank's liability for damages for breach of duty of care to Dr Chang, Justice Pillai also ruled that he need not pay US$1.8 million sought by the bank in a lawsuit against him.

That amount represents the shortfall in his bank account after he suffered losses from so-called Discounted Share Purchase Programmes (DSPPs), or high-risk derivative investments known as accumulators.

Deutsche Bank said in a statement yesterday that it will appeal the court's decision and believes it "has strong grounds to do so".

Dr Chang, who lost nearly half of a US$118 million windfall from his lifetime's work on the asthma drug Xolair, accused the bank of breaching its duty of care to him when it failed to warn him of substantial risks involved in high-risk derivative products, such as DSPPs, and risks involved in margin financing in relation to these products.

Specifically, Mr Wan failed to tell Dr Chang "the potential loss or liability" that he might incur under a DSPP if the underlying share price fell below "strike price" over the life of the contract was "unlimited", or that "as a counterparty to a DSPP transaction, Deutsche Bank would stand to profit at (his) expense".

Justice Pillai also found Mr Wan to be an "evasive and unreliable witness" who had "materially fabricated" the bank's Client Acceptance and Profile Report (CAPR) on Aug 3, 2007 to obtain its internal approval to open an account for Dr Chang.

He found that Dr Chang was "not asked nor was he advised of the multiplication risks of margin financing, even though both (Mr Wan) and Dr Chang knew that he had recently received US$118 million and that he was financially inexperienced".

"The margin facility was triggered automatically without his concurrent knowledge when he made his first purchase of a Citigroup DSPP on 19 November 2007.

The evidence reveals that this was made prior to his signing and prior to (Deutsche Bank's) execution and despatch of the derivative agreement and necessarily prior to the bank sending him the margin trading facility letter which informed him of its availability," Justice Pillai wrote.

At one point, Dr Chang's potential exposure was as high as US$99 million because he first entered into 32 DSPP contracts between Nov 19 and Dec 12, 2007, just as major US banks including Citigroup and Washington Mutual were getting roiled by the turmoil in the mortgage and credit markets.

"The sudden recorded changes in Dr Chang's risk profile between the CAPR 3 August 2007 and margin trading checklist dated 19 November 2007 appears not to have been noticed or, if noticed, did not result in any enquiry," Justice Pillai noted.

"As Dr Chang proceeded to purchase 32 international bank share DSPPs in quick succession within a short period of about three weeks, (Mr Wan) and (Deutsche) failed to alert him to his accumulating, concentrated and multiplying risks. They did not inform him of his total accumulating exposure and they failed to provide him with any risk management advice," he wrote.

Ultimately, 16 of the 34 DSPPs were unwound in March, July and October 2008 at substantial losses and by November 2008, his entire US$49 million investment was wiped out by the unwinding, and the continued purchase of shares through DSPP contracts that were not knocked out.

Dr Chang was represented by K Muralidharan Pillai and Sim Wei Na of Rajah & Tann LLP, while Deutsche Bank and Mr Wan were represented by Senior Counsel Ang Cheng Hock and Tan Xeauwei of Allen & Gledhill LLP.