Liability to Investors

In Chang Pui Yin & Ors v Bank of Singapore Ltd [2016] HKEC 1721, the latest investor claim against a bank in Hong Kong, the claimant investors succeeded in establishing that (as a matter of contractual interpretation) the bank owed them an advisory duty; in particular, a duty to act with reasonable care and skill in recommending investment products for their investment portfolio held with the bank. Based on the evidence at trial (on the issue of liability, with quantum and loss to be assessed) the investors also succeeded in establishing the bank breached that duty.

Examples of an aggrieved investor establishing an advisory duty against a bank in Hong Kong are rare (“Industry Insights”, June 2015 – “Mis-selling Claims Update”). A previous example is Li Kwok Heem [2016] HKEC 7, although on the facts the claimant was unable to establish that the bank breached its duty (Industry Insights, March 2016 – Investors’ Claims Update). The two cases are different. Chang Pui Yin is primarily a case about a duty to act with reasonable care and skill (implied by law); Li Kwok Heem is about (among other things) misrepresentation and what is sometimes colloquially referred to as “mis-selling”.

A number of observations may be made about the disputes that have gone to trial involving investors and financial intermediaries since the global financial crisis in 2008.

  • Generally the banks have been able to rely on “boilerplate” type clauses to preclude an advisory duty arising, even if advice was given by a bank representative (for example, a customer relationship manager). The banks have (in the main) been successful in arguing that they act on an execution-only basis. Issues of contractual interpretation decided in favour of claimants (such as in Chang Pui Yin) are fact specific; indeed, in Chang Pui Yin those issues could give rise to appeal points with a reasonable prospect of success.
  • Where the banks’ and financial intermediaries’ terms and conditions specify that they act on an execution-only basis, the principle of contractual estoppel (for now) appears to be alive and well in the first instance courts of Hong Kong, so as to preclude claimant investors from setting-up an advisory duty or relying on an alleged misrepresentation. However, the legal basis for such a contractual estoppel is open to challenge but will require appellate court consideration (Chang Pui Yin ,para. 155; Yang Dandan v Hong Kong Resort Co. Ltd [2016] HKEC 1722, para. 81; DBS Bank (Hong Kong) Ltd v Sit Pan Jit [2016] HKEC 1307, para. 132).
  • There is a marked difference between experienced investors who chase a high yield or who trade their investments through the services of a bank or financial intermediary and unsophisticated investors who place trust in or rely on the advice of an investment adviser. For examples of the latter, see – Chang Pui YinField v Barber Asia Ltd [2004] 3 HKLRD 871.
  • Readers who are interested should watch out for implementation of the SFC’s “suitability clause” for financial intermediaries’ client agreements, together with related amendments to para. 6 of the SFC’s Code of Conduct, as from 9 June 2017.