“Mis-selling” Claims Update

Mike Allan, Registered Foreign Lawyer, Smyth & Co in association with RPC

Thus far, there has not been a tsunami of “mis-selling” claims that have gone to trial in Hong Kong since the 2008 financial crisis. Those that have gone to trial have involved investments in equity linked notes or forward accumulators and the like. Anecdotal evidence suggests that in the recent bull markets (at the time of writing) many investors are piling into such investments again.

To date, the main “mis-selling” cases against the banks in Hong Kong have been: Kwok v HSBC Private Bank (Suisse) SA [2012] 4 HKC 260; DBS Bank (Hong Kong) Ltd v San-Hot HK Industrial Co. Ltd [2013] 4 HKC 1; and DBS Bank (Hong Kong) Ltd v Sit Pan Jit, HCA No. 382 of 2009, 2 April 2015 (to be reported).

In each of these cases, the claimant investor has lost at trial (whether on the main claim or the defence and counterclaim). At the time of writing, judgment in Zhang Hong Li & Ors v DBS Bank (Hong Kong) Ltd & Ors, HCCL 2/2011 (trial in May 2014) is awaited.

While each case turns on its facts, a few themes emerge:

  • the banks have been successful in relying on their client agreements and standard terms of business in order to assert that they were acting on an execution only basis and not advising;
  • for now, in the event that the banks may have departed from an execution only role, the principle of contractual estoppel appears to be alive and well in the first instance courts of Hong Kong, in order to uphold the primacy of the banks’ terms and conditions and to prevent a claimant from relying on any alleged misrepresentations or setting-up an advisory duty. The absence of appeals in these cases confirms the hurdles the investors have faced and/or an unwillingness to provide security for costs of an appeal;
  • the banks have also gained some traction in arguing that standard terms that properly set out their execution only role and the parameters of the services provided do not fall to be considered under the Control of Exemption Clauses Ordinance (Cap.71) or the Misrepresentation Ordinance (Cap.284).

Claimant investors looking for better luck going forwards will need to try to align themselves more with the tag of a less savvy investor and hope for some empathy of the sort shown in (for example) Field v Barber Asia Ltd [2004] 3 HKLRD 871.

In the meantime, while investors should not get too excited, they could usefully follow the outcome of the SFC’s further consultation on client agreement requirements and the proposal for the adoption of a “reasonably suitable” term in intermediaries’ client agreements.