Court weighs employer responsibility in multi-million investment loss case
The General Division of Singapore's High Court recently dealt with a case where a worker claimed his employer should be responsible for investment losses that occurred after he followed his direct supervisor's recommendation.
The worker argued that his employer had engineered a system where he was encouraged to put his trust in the supervisor, which allowed the employer to attract more investments and fees.
When one of these investments emerged to be fraudulent, he believed the employer should take responsibility for the supervisor's conduct.
The case questioned whether employers should bear responsibility when their employees recommend investments that result in losses, particularly when the employer benefited from their customers' trust in these employees.
The dispute began in 2012 when a relationship manager moved from JP Morgan to another bank and invited his client to follow.
The client was a former head of non-Yen bond trading at Credit Suisse First Boston, Tokyo, who had co-founded one of the world's largest brokers of exchange-traded interest rate options. Between 2012 and 2016, he invested approximately £15.6 million with the bank.
In September 2016, the client subscribed to the bank's Active Portfolio Advisory Service, paying 1.6% of his portfolio value annually. This premium service promised direct access to an investment specialist for advice and monitoring services.
In August 2017, the relationship manager sent an email from his official bank address about the Direct Lending Income Fund, explicitly stating: "This is not a [bank] recommendation." The client later testified he hadn't read this email due to receiving "between 250 to 300 emails a day."
The relationship manager left the bank in June 2018. By March 2019, the US Securities and Exchange Commission filed a complaint against Direct Lending Investments LLC, the fund's investment manager.
The fund's receiver later found that investments were "generally poorly underwritten, inadequately documented, often without proper credit agreements and security interests, and inconsistently administered."
The client argued that his trust had been betrayed, particularly since the relationship manager had used the bank's email system and acted as his main point of contact.
The bank maintained that the relationship manager wasn't authorised to recommend investments outside their product universe.
The court found that "the mere fact that [the relationship manager] is [the bank's] relationship manager for [the client] and a senior employee of [the bank] is not determinative of his ostensible authority."
The court examined whether the bank should be held vicariously liable for the relationship manager's actions. It determined that just because someone holds a senior position doesn't automatically mean they can act for their employer in all situations.
The decision noted a disconnect between service promises and legal obligations: "[The client's] not unreasonable expectation was that he would be given the personalised service that [the bank's] motherhood statements had promised. However, as I have found in this decision, there is a clear disconnect between [the bank's] aspirational statements for its customers, and the cold legal reality of its contractual terms."
The court ultimately decided against imposing vicarious liability on the bank, stating that "no encouragement should be provided to parties who contractually agree to do certain things, fail to do them, and then seek the assistance of the law to make up for those shortcomings."
