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Dbs Bank (Hong Kong) Ltd v San Hot Hk Industrial Co Ltd And Another

Judgment Cited authorities 23 Cited in Precedent Map Related
Vincent
Judgment Date12 March 2013
Year2013
Judgement NumberHCA2279/2008
Subject MatterCivil Action
CourtHigh Court (Hong Kong)
HCA2279A/2008 DBS BANK (HONG KONG) LTD v. SAN HOT HK INDUSTRIAL CO LTD AND ANOTHER

HC A 2279/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2279 OF 2008

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BETWEEN
DBS BANK (HONG KONG) LIMITED Plaintiff

and
SAN-HOT HK INDUSTRIAL COMPANY LIMITED 1st Defendant
HAO TING (郝婷) 2nd Defendant

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Before : Deputy High Court Judge Pow, SC in Court
Date of Hearing : 7, 8, 9, 10, 11, 14, 15, 16 May and 25 June 2012
Date of Judgment : 12 March 2013

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JUDGMENT

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Index


Section

Paragraph
A. INTRODUCTION
1 – 7
B. THE DEFENCE AND COUNTERCLAIM
8 – 25
C. REPLY AND DEFENCE TO COUNTERCLAIM
26 – 36
D. THE ISSUES
37
E. THE CONTRACT OF BANKING SERVICES
(I) The protagonists
38 – 41
(II) Dealings at Citibank
42 – 57
(III) The 11 July 2007 meeting
58
- Plaintiff's Evidence
59
- Defendants' Evidence
60
- Discussions on Evidence
61 – 77
(IV) Meeting on 3 August 2007

- Defendants' Evidence
78 – 80
- Plaintiff's Evidence
81
- Discussions on Evidence
82 – 100
(V) Discussions on what were the contractual terms and conditions governing the banking services agreement concluded between DBS and San-Hot BVI
101 – 109
F. EVENTS AFTER THE OPENING OF THE ACCOUNT
(I) Meeting of 17 September 2007

- Defendants' Evidence
110 – 119
- Plaintiff's Evidence
120 – 124
- Discussions on Evidence
125 – 139
- Conclusion and findings
140
(II) Execution of further banking documents on 28 September 2007
141 – 154
(III) Execution of the 3rd to 7th KODA up to 24 October 2007
155 – 164
(IV) Meeting on 26 October 2007
165 – 169
(V) The 8th to 17th KODAs and the 4 APFCs
170 – 190
(VI) Findings in relation to the KODAs and APFCs
191
G. CONTRACTUAL ESTOPPEL
192 – 193
(I) The Legal Principles of contractual estoppel
194 – 206
(II) Conclusive evidence clauses
207 – 211
H. THE MISREPRESENTATION DEFENCE AND THE CLAIM UNDER S. 108 SFO
212
I. BREACH OF PROFESSIONAL DUTIES
(I) Duties implied to the banking services agreement?
213 – 215
(II) Duties by express incorporation into the banking services agreement?
216 – 219
(III) Duties in Tort?
220 – 225
(IV) The "Interfoto" argument
226 – 231
(V) Control of Exemption Clauses Ordinance
232 – 237
(VI) Breach of Professional Duties
238 – 252
J. FINAL CONCLUSION
253
Appendix 1
Appendix 2
Appendix 3

A. INTRODUCTION

1. The plaintiff (“DBS”) is a licensed bank carrying on business in Hong Kong under the Banking Ordinance, Cap. 155. It is also registered with the Securities and Futures Commission under section 119 of the Securities and Futures Ordinance, Cap. 571(“SFO”) as a Registered Institution to carry out Regulated Activities as defined in SFO, namely, dealing in securities, advising on securities and advising on corporate finance and asset management.

2. The 2nd defendant (“Madam Hao”) is a PRC citizen resident in Beijing. She is one of the two shareholders of a Hong Kong incorporated company named San-Hot Industrial Company Limited (“San-Hot HK”). San-Hot HK was established in 2003 and has been engaged in the trading of petroleum and petrochemical products and equipment. The experience of Madam Hao in the business world; her wealth; her experience in dealing with banks; and her general knowledge about banking activities are matters in dispute. A detail analysis of her background will be dealt with later in this Judgment.

3. The 1st defendant (“San-Hot BVI”) is a company incorporated in the British Virgin Islands. Madam Hao is the sole shareholder and director. San-Hot BVI was established in 2007 as a corporate vehicle of Madam Hao at the suggestion and with the assistance of DBS.

4. Although Madam Hao, San-Hot HK and San-Hot BVI all opened private banking accounts with DBS, it is the banking account relating to San-Hot BVI that has become the subject matter of this action. DBS claims against San-Hot BVI for money due and owing from San-Hot BVI (with contractual interests) arising out of activities and transactions undertaken in San-Hot BVI’s private banking account with DBS. Madam Hao is sued as a guarantor of the liabilities of San-Hot BVI towards DBS.

5. It is not in dispute that a banker-customer relationship between DBS and San-Hot BVI was established on 28 August 2007 when DBS accepted San-Hot BVI’s previously submitted written application for bank account opening by establishing a bank account for the use of San-Hot BVI. Between September and November 2007, San-Hot BVI traded in a number of “Knock-out Discount Accumulator Contracts” (“Equity KODAs”) and “Accumulating Par Forward Contracts” (“APFCs”). Equity KODAs were contracts commonly known as “accumulators” relating to listed shares. APFCs were also accumulator contracts but they relate to foreign currencies. An accumulator contract has the following main features:-

(1) a customer who enters into such a contract has the right and obligation to purchase a set volume of listed shares (or foreign currencies) at a price (the “Strike Price”) lower than the prevailing market price at the time when the contract was entered into ( the “Initial Price”);

(2) the difference between the Strike Price and the Initial Price, when expressed in terms of a percentage of the Initial Price, is normally described as the “Discount”;

(3) if the price of the underlying listed shares (or foreign currencies) has arisen to or above a certain pre-agreed price (the “Knock-out Price”) at the close of a trading day, then the contract will automatically be determined, i.e. “knock-out”. In that case, the customer will get a guaranteed amount of the shares purchased at the Strike Price;

(4) unless the contract is knock-out, i.e. the price of shares (or foreign currencies) fluctuates below the Knock-out Price, the customer’s right and obligation to purchase the fixed volume of listed shares (or foreign currencies) per trading day will continue until the expiry of the entire term of the contract (1 year in the present case). In other words, the customer will be accumulating the said listed shares (or foreign currencies). This is however a slight misnomer because the customer can always choose to sell the listed shares (or foreign currencies) back into the market at any time he sees fit. He may do so when there is a profit arising or he may do so to limit loss and to keep his cash-flow healthy;

(5) a contract may simply require a customer to purchase a fixed volume of listed shares (or foreign currencies) when the closing price for any trading day falls below the Strike Price. In that case, the contract is described as a “1X contract”. A contract will be described as a “2X contract” if it requires a customer to purchase twice the fixed volume of listed shares (or foreign currencies) under the same circumstances. For the same listed share (or foreign currency), a “2X contract” will customarily offer a higher Discount as compared to a “1X contract”;

(6) an accumulator contract may be a product structured and devised by a bank and offered to its own customers. It may also be a product structured and devised by a third party issuer and marketed by a bank to its customers.

6. After the establishment of the bank account of San-Hot BVI, Madam Hao caused various amounts of cash, mutual funds and listed shares to be transferred to the account[1]. On or about 27September 2007, credit facilities were granted by DBS to San-Hot BVI. The cash, mutual funds and listed shares transferred to San-Hot BVI’s bank account became collaterals for the said credit facilities. Since then, transactions conducted in San-Hot BVI’s bank account were effected by drawing upon the said credit facilities[2].

7. Between 20 September 2007 and 15 November 2007, San-Hot BVI entered into a total of 21 accumulator contracts (17 Equity KODAs and 4 APFCs). At the initial stage, most of the contracts were quickly knock-out and San-Hot BVI obtained considerable profits. Later, the tide turned against San-Hot BVI and huge loss was sustained resulting in huge liabilities owing to DBS after DBS unwound the outstanding accumulator contracts, realized and appropriated all collaterals. DBS claims against San-Hot BVI for the net sums due and owing of HK$92,648,489.83 and JPY23,545,784.77 with contractual interests. DBS claims against Madam Hao for the same sums in her capacity as a guarantor for San-Hot BVI’s liabilities.

B. THE DEFENCE AND COUNTERCLAIM

8. With respect to the pleader for the defendants, the Defence and Counterclaim[3] was rather confusing. Furthermore, issues had arisen on whether the defendants should be allowed to run defences or arguments not pleaded. I have thus decided to devote one section of this Judgment on analyzing the Defence and Counterclaim.

9. San-Hot BVI first raised what I would describe as a “Misrepresentation Defence” bearing the following essential allegations :-

(1) At a meeting on 11 July 2007 and on diver occasions including those in early September 2007 prior to the first Equity KODA transaction on or about 20 September 2007, Mr Santos Wong (“Santos”) who was an employee of DBS made certain representations (“the Wong’s Representations”) to Madam Hao.

(2) The Wong’s Representations were pleaded[4] as follows:-

(i) that Equity KODAs enabled DBS’s clients to acquire shares at a discount to the market price, and this discount was something which was not available to anyone...

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