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CACV 194/2016
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO 194 OF 2016
(ON APPEAL FROM HCCL NO 12 OF 2013)
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BETWEEN
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CHANG PUI YIN |
1st Plaintiff |
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CHANG CHEN THERESA LINDA |
2nd Plaintiff |
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NEXTDAY INTERNATIONAL LIMITED |
3rd Plaintiff |
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and |
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BANK OF SINGAPORE LIMITED |
Defendant |
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| Before: Hon Lam VP, Cheung and Kwan JJA in Court |
| Date of Hearing: 6 June 2017 |
| Date of Judgment: 20 July 2017 |
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JUDGMENT
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Hon Lam VP (giving the Judgment of the Court):
1. The 1st and 2nd Plaintiffs [Mr and Mrs Chang respectively] are a couple, with Mr Chang born in 1924 and Mrs Chang born in 1934. They were married in 1975 and led humble lives in the United States. In the judgment below, they were described as “a simple couple who led uncomplicated lives”[1] until Mr Chang’s windfall in 1997. Due to his family connection, Mr Chang received approximately $120 million from a wealthy relative and he shared part of it with Mrs Chang. They retired back to Hong Kong and they were introduced to Mrs Li, who was then a relationship manager of the Standard Chartered Bank to assist them in their wealth management.
2. In 2004, Mrs Li changed her employment to work for ING Bank [“the Bank”], as the Defendant formerly was known. Mr and Mrs Chang opened private banking accounts with the Bank and were continuously served by Mrs Li.
3. The 3rd Plaintiff [“Nextday”] was solely owned by Mrs Chang as she was its sole shareholder and director. It was only a corporate vehicle of Mrs Chang in her investment.
4. The Plaintiffs suffered substantial losses in their investments conducted through the Bank. By this action, they claimed against the Bank for negligent advice, misrepresentation and breach of contract.
5. The action was tried before Bharwaney J in February and July 2014. At the pre-trial review on 15 January 2014, the learned judge directed that the trial would be split into two parts and the first part of the trial would not deal with issues on proof of damage, proof of causation of damages which were reserved to the Judge in charge of the Commercial List in the second part of the trial.
6. On 8 August 2016, the judge handed down the judgment in respect of the first part of the trial. He found for the Plaintiffs in establishing that the Bank was liable to them for breach of duties. He entered interlocutory judgment for damages to be assessed against the Bank with costs.
7. This is the Bank’s appeal against that judgment.
Findings by the judge and the conclusions in the judgment
8. After adverting to the background of the Plaintiffs and the genesis of their wealth, the judge considered the investment knowledge and appetite of the Plaintiffs. He found that they had limited investment knowledge[2], rudimentary understanding about the investments they made through the Bank and the risks associated with them[3], and their investment objective had always been to preserve their capital and achieve a return slightly better than bank deposits, belonging to the category of medium-risk investors[4].
9. Notwithstanding her knowledge of the profiles and investment objectives of the Plaintiffs, after the switch of their accounts to the Bank, Mrs Li recommended high risk products to them. Upon being alerted to the mismatch, Mrs Li promised Mrs Chang and Mr Chang that she would re-adjust their portfolio back to medium risk level. Despite such promise, the risk profiles of Mr Chang and Nextday maintained by the Bank internally were changed, without their knowledge, to high risk on 25 September 2007 instead. After September 2007, more than US$14 million worth of high risk products were sold to Mr Chang and Nextday[5].
10. The judge further found that the Plaintiffs relied heavily on Mrs Li and Mrs Li was aware of that, so much so that the judge described Mrs Li as the person in control of the Plaintiffs’ accounts[6]. Significantly, Mrs Li never told the Plaintiffs that she was merely acting as a salesperson in making recommendations to them[7]. The judge was not impressed by the evidence of Mrs Li and found that she had not properly explained the risks of the investments to the Plaintiffs[8].
11. In August 2008, the son of Mrs Chang confronted Mrs Li with the unsuitability of the investments in the Plaintiffs’ accounts. After that there were complaints raised by the Plaintiffs at meetings in September and October 2008. By then substantial losses had been incurred in the Plaintiffs’ accounts. The Bank denied liability on the basis that the accounts were “advisory accounts” and they were only operated on the Plaintiffs’ instructions[9].
12. Against such factual findings, the judge examined the Plaintiffs’ claims against the Bank. The Bank relied on provisions in the documents executed by the Plaintiffs when the accounts were opened. They were set out by the judge at [121] to [122] of the judgment:
“ 121. The contractual provisions defined the relationship between the Bank and the Changs and Nextday and set out the role and responsibilities of the respective parties. The following terms and conditions from the Services Agreement (Version 09/02) are material to the present case:
“A. GENERAL TERMS & CONDITIONS APPLICABLE TO ALL SERVICES
These general terms and conditions, together with the specific terms applicable to particular services included in this booklet and any other terms and conditions with respect to particular accounts, facilities or services provided by the Bank (collectively, the Services), constitute your agreement (the Services Agreement) with the Bank. The terms in the Services Agreement, together with the terms in the Account Opening Form (which are incorporated by reference herein), will apply to and govern your relationship with the Bank. All terms and references used in the Account Opening Form which are not defined therein shall have the same meaning and construction in the Services Agreement unless the context requires otherwise.
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(17) Risk Disclosure Statement
PLEASE READ THE RISK DISCLOSURE STATEMENT IN ANNEX A CAREFULLY
The intention of the Risk Disclosure Statement is to inform you that the risk of loss in any trading or investments in Securities, foreign currencies, derivative products or a combination of any of them can be substantial. You should therefore carefully consider whether such transactions are suitable for you in light of your financial condition and your understanding of the nature of the transactions and the extent of your exposure to loss.
In respect of all transactions entered into by you or by the Bank on your Instructions or on your behalf, you understand and agree that:
(i) you make your own judgment in relation to investment or trading transactions;
(ii) the Bank assumes no duty to give advice or make recommendations;
(iii) if the Bank makes any such suggestions, it assumes no responsibility for your portfolio or for any investments or transactions made;
(iv) any risk associated with and any losses suffered as a result of the Bank entering into any transactions or investments on your behalf are for your account; and
(v) subject to the provisions of Clause C(4), in respect of all trades you may effect, you are deemed to have obtained independent advice from your legal, financial and investment advisers. The Bank does not hold itself or any of its directors, employees or agents out as acting in an advisory capacity to you in relation to any such trades. None of the Bank’s directors, employees or agents are authorised to give such advice.
The Risk Disclosure Statement cannot disclose all the risks of investing or trading in Securities, foreign currencies, derivative products or a combination of any of them. The Bank may from time to time send you descriptions of some products that the Bank may trade with or for you and the risks generally associated with these products, and further supplements on other products and risk descriptions which you are strongly recommended to read. Before you trade in any product or enter into any transaction, you should ensure that you understand the detailed terms and effects of such product or transaction and its suitability for you. You should read through these carefully and study the market before you trade or invest.
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C. INVESTMENT SERVICES–TERMS AND CONDITIONS APPLICABLE TO INVESTMENT AND TRADING SERVICES
(1) Permissible Investments
If you request investment Services, the Bank will purchase, sell and hold investments for your Account(s) and provide other Services incidental to this activity as set forth in this Agreement. Investments will be as directed by you in the case of custody Accounts (Custody Accounts) and Accounts which are established on an advisory basis only (Non-Discretionary Accounts). In the case of Accounts established on a discretionary basis (Discretionary Account(s)), investments will be as determined by the Bank in accordance with considerations of availability and applicable fiduciary standards. Investments (Investments) which may be made for a Client’s account include stocks, bonds, warrants, options, forwards, futures, bonds, debentures, notes, unit trusts, currencies, precious metals and other financial investments and commodities, bank deposits, tenancy bills, commercial paper, mortgages, debt and equity securities of public and private sector issuers located in developing countries, sub-underwriting, and all other securities, money market investments, obligations and derivatives of every description in which the Bank may legally invest for the Client’s account,...
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