IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 5165 OF 1997
||FORMOSA TAFFETA COMPANY LIMITED
(now known as CALYON)
Before : Hon Stone J in Court (Open to public)
Dates of Hearing: 19, 20, 24, 25, 26, 28 November, 3 December 2008
Date of Judgment: 14 January 2009
J U D G M E N T
The nature of the case
1. This is a claim for negligent advice. It arises in the context of the sale of Thai commercial paper by the defendant bank to the plaintiff, its retail customer, and more particularly focuses upon the often fine distinction between the provision of financial information, and the provision of financial advice.
2. The plaintiff, Formosa Taffeta (‘Formosa’), is a Taiwanese company which is part of the Formosa Plastics Group, one of the largest, if not the largest, of the Taiwanese conglomerates.
3. The defendant, Banque Indosuez (‘Indosuez’), now under different post-merger ownership, and since renamed ‘Calyon’, was at the times material to this case a French bank with branches in the Far East, including Taiwan, Hong Kong and Singapore.
4. The subject matter of this litigation, which is of some age, and which throughout has been conducted not in the Commercial Court but in the High Court General List, focuses upon certain failed investments – specifically 10 bills of exchange drawn on a Thai publicly listed company, One Holding Public Company Limited (‘One Holding’) – which were purchased by Formosa from the bank on two occasions in January 1997.
5. These bills were issued by One Holding to a cumulative value of US$10 million, which sum, together with interest, now is claimed by Formosa from Indosuez as representing the value of its consequential loss upon the dishonour by One Holding of these bills.
6. It remains unclear why this dispute has taken so long to come to court, and each side appears to lay responsibility for the delay upon the other, with considerable time apparently having been spent upon various interlocutory matters.
7. What is ironic, however, is that just as new crop of commercial litigation arising from the current worldwide financial contagion is beginning to seep into the Hong Kong judicial system, this case probably represents the last of those cases which originated during the period leading up to the Asian Financial Crisis of 1997-1998.
8. In substance, the facts are not complex; there is much that is undisputed, and at bottom the outcome of this case solely is dependent upon that which is found to have been said on the telephone between two people, a Miss Pamela Wu of Indosuez, the seller, and a Mr Teng Li-Fu of Formosa, the dissatisfied buyer.
9. This however is to get ahead of the story, and at the outset it may be useful to sketch in a little of the relevant background.
The contracts of sale
10. The two relevant contracts of sale between Indosuez and Formosa are as follows:
first, a contract dated 8 January 1997 for the sale by the bank to Formosa of 5 One Holding bills of exchange with an aggregate face value of US$5 million, for the price of US$4,909,932.74, payable on 10 January 1997, and with a maturity date of 9 April 1997 (‘the 1st contract’); and
second, a contract dated 28 January 1997 for the sale by the bank to Formosa of 5 bills with an aggregate value of US$5 million, for the price of US$4,928,407.22 payable on 30 January 1997, and a maturity date of 10 April 1997 (‘the 2nd contract’).
11. It is common ground that the bills of exchange under each contract were sold by Indosuez to Formosa pursuant to the contracts, that Formosa paid the contract prices stipulated therein, that pursuant to the contracts that Indosuez obtained from One Holding the 10 bills drawn by One Holding on itself, each in the amount of US$1 million and payable to Indosuez Singapore Nominees Pte Ltd – a nominee company of the bank acting as custodian of the bills – with the maturity dates as specified in the contracts, and that the bills eventually were dishonoured upon maturity by One Holding.
12. It also is not in contention that the dealing resulting in these contracts for the sale of these bills of exchange took place between the aforesaid Ms Wu and Mr Teng, and that, save for a number of relatively minor matters, the court principally is required factually to determine what was, or was not, said in the telephone conversations between these two persons which led to the formation of these two contracts.
13. These contractual dealings between Mr Teng and Ms Wu took place against a backdrop in which the plaintiff had been trading with the defendant bank since 1991, initially in respect of loans and foreign exchange dealing, albeit in 1993 the defendant had began to invest in debt instruments – bills of exchange, promissory notes and certificates of deposit – through the medium of the bank; in fact, up until early 1997 these parties had participated in some 55 such transactions.
14. Initially the contact person in the bank was a Mr Tsai, who was in the branch of the defendant in Singapore. However, since 1996 Ms Pamela Wu had taken over from Mr Tsai in handling the plaintiff’s account; Ms Wu then was an Assistant Vice President within the Asian Fixed Income Department of the defendant based in a branch of Indosuez in Taipei.
15. No doubt this was viewed as logical, given that the plaintiff’s trading in fixed income paper was conducted by Mr Teng, himself based in the plaintiff’s office in Taipei.
The progress of this action
16. Formosa commenced this action by writ on 15 May 1997.
17. The claim as originally pleaded was on the basis of breach of contract, although this no longer features in the manner in which the case has been conducted before this court.
18. The present cause of action, namely Formosa’s claim against the bank for the giving of negligent advice, was introduced by amendment to the claim filed on 27 September 1999, well over two years after the issuance of proceedings.
19. Mr Jat SC, who appeared together with Mr Stock on behalf of the bank in this case, complained at the outset of this trial that, in terms of Formosa’s claim, the goal posts appeared to have shifted yet again, because in the plaintiff’s opening argument, submitted nine days prior to the trial, there had been, in Mr Jat’s terms, “a wholesale rewriting” of the plaintiff’s case, and that the focus now appeared to have shifted to a complaint of negligence on the part of the bank in terms of the failure to provide Formosa with appropriate information, as opposed to the giving of advice – an alternative case which, he said, remained entirely unpleaded, and which represented a case the bank was wholly unprepared to meet some 12 years after the events in question. This, opined Mr Jat, was the latest in the long history of the plaintiff’s attempts to re-formulate its complaint against the bank, and constituted an issue which the court should not entertain.
20. I agreed with, and accepted, this contention.
21. When Mr Smith SC, appearing for Formosa together with his team of juniors, Mr William Wong and Mr Laurence Li, was taxed with this complaint at the beginning of this case, he confirmed to the court that the crux of the case that he wished to present on behalf of his client focused upon the allegedly negligent advice which had been allegedly tendered by Ms Wu of the bank to Mr Teng of Formosa, and thus that the liability of the bank, were such were to be established, would be grounded upon the vicarious liability of itself, qua employer, as a result of the negligence of its employee, Ms Wu.
22. It is probably correct to say that the alleged liability of the bank arising independently of the actions of Ms Wu has had a tendency to creep back into the frame within parts of the bank’s written closing address, and I reiterate the view expressed by this court at trial to the effect that this case has been conducted, and indeed now has been judged, solely on the basis of the alleged negligent advice on the part of Ms Wu in her telephone conversations with Mr Teng.
The respective cases
23. In the plaintiff’s comprehensive and detailed closing written submission it is noted that there is only one “real issue” in this case, and that is whether the defendant bank, in the person of Ms Wu, gave negligent advice to the plaintiff, in the person of Mr Teng, and thus caused the plaintiff’s loss arising from its purchase of the two sets of bills as issued by One Holding.
24. In this connection, leading counsel has referred the court to paragraphs 18 and 19 of the Amended Statement of Claim, dated 27 September 1999, which read thus:
“18. The Plaintiff entered into the first and/or second contracts in reliance upon advice given by Ms Pamela Wu of the Defendant…to the effect that the purchase of the bills of exchange was a sound investment.”
19. Such advice was given negligently in that the Defendant knew or ought to have known that the financial position of One Holding was far from healthy.”
25. Following on from this, Mr Smith asserted that the defendant owed the plaintiff a duty of care under Hedley Byrne principles, taking into account the following factors:
i. the parties’ past dealings;
ii. the parties’ disparity of knowledge and resources;
iii. the defendant’s awareness of the plaintiff’s reliance upon it for advice and information;
iv. the defendant’s willingness to provide the same.
26. He said that Ms Wu, acting for the defendant, had given negligent advice in connection with the purchases of the two sets of bills issued by One Holding, and that the advice was negligent in that the defendant...