Execution Only

Allegations of “mis-selling” have been a familiar theme in the handful of investor disputes that have gone to trial in Hong Kong since the financial crisis*. In legal jargon these allegations centre on alleged misrepresentations by bank representatives giving rise to claims at common law, under the Misrepresentation Ordinance (Cap. 284) and/or under s. 108 of the Securities and Futures Ordinance (Cap. 571) (“Civil liability for inducing others to invest money in certain cases”).

Generally, the claimant investors have failed to establish a misrepresentation and, if they have, the banks have been able to raise a contractual estoppel as a defence based on the standard terms of business governing the banking relationship with their customers. In essence, the banks have been able to argue that they are providing “execution-only” services to their customers with respect to investments entered into with third party issuers. To date, contractual estoppel in these circumstances has been alive and well in Hong Kong; despite evidence in some cases suggesting that a bank’s representative did give investment advice.

In the latest case to be reported, the claimant investor’s appeal was unsuccessful following the dismissal of his claims for misrepresentation (and in contract and tort) against the bank at trial: DBS Bank (Hong Kong) Ltd v Sit Pan Jit [2016] HKEC 1307, CACV 91/2015.

Given that in Sit Pan Jit the Court of Appeal refused to disturb the judge’s findings of primary fact, it refrained from ruling on the issue of contractual estoppel (which the trial judge had approved of in principle). However, on a fair reading of the Court of Appeal’s judgment it can be argued that the juridical basis for a contractual estoppel in these sorts of mis-selling cases should not be taken for granted (for example, see para. 132 of the appeal judgment).

Claimant investors should not feel too disheartened. Change is on the horizon. The SFC has mandated that as from 9 June 2017 a financial intermediary should not include in a client agreement (or in any other document signed by a client): “any clause, provision or term by which a client purports to acknowledge that no reliance is placed on any recommendation made or advice given by the licensed or registered person” (see new para. 6.5 of the SFC’s Code of Conduct and the SFC’s Circular dated 21 March 2016).

It is, perhaps, no coincidence that the banks are (among other things) reviewing the training given to their “relationship managers” and insisting on more frequent customer risk profiles.

* Editorial Note: See related Industry Insights in – March 2016 (“Investors’ Claims Update”), June 2015 (“Mis-selling Claims Update”), May 2015 (“Financial Disputes Resolution”) and March 2013 (“Banking & Finance”).


Senior Consultant, RPC