FORMOSA TAFFETA CO LTD v. BANQUE INDOSUEZ

HCA 5165/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 5165 OF 1997

----------------------

----------------------

----------------------

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 1^st 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 2^nd 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 knew, or ought to have known, that the financial position of One Holding was far from healthy; in fact, in the 3^rd quarter of 1996 it transpires that One Holding had made a loss.

27. Accordingly, he concluded, the defendant’s negligence had caused the plaintiff’s loss in the amount of approximately US$10 million, that is, the sum of US$5 million for each set of bills.

28. For its part the defendant strongly disputes liability – upon whatever basis is asserted by the plaintiff – arising from the communications between Ms Wu and Mr Teng.

29. Mr Jat has made it clear that the primary position of the bank is that Formosa has failed to discharge its burden of showing that Ms Wu in fact said that which she is alleged to have said – which amounted to an assertion that the One Holding bills of exchange were ‘risk free’ – or any comparable words of persuasion or inducement to buy the bills.

30. It is further maintained that the bank did not owe the plaintiff any duty of care qua adviser because Ms Wu, who purely functioned as a salesperson, did not advise and had no advisory role, that by 1997 it is plain that Formosa was an experienced investor in emerging market paper at higher yields than could be obtained on the money markets, and that in any event Formosa, via its officers Mr Teng and Mr Lai, clearly had made their own independent risk assessments on any particular deal, including the ones now under scrutiny.

31. Following on from this, Mr Jat also maintains that if, which is denied, Ms Wu said anything which could be construed as ‘advice’, she did not do so negligently, and that in any event Formosa did not reasonably rely upon such advice. 

32. Nor, he maintained, was there any basis to support a claim of conflict of interest, which is a matter which also is raised on the pleadings – and this notwithstanding the undisputed evidence that shortly after the 2^nd contract for the sale to the plaintiff of the second tranche of bills of exchange, the Bank had bought for its own account further bills of One Holding in the sum of US$5 million, and had retained them to default, unwisely (as events transpired) having declined to sell these bills prior to such default to another customer which had wished to purchase this paper.

The evidence

33. The court cannot begin to grapple with the divers principles of law which have developed in the numerous ‘banking advice’ cases to which reference has been made without first looking hard at the evidence and making some significant findings of fact.  As Lord Goff observed in the Privy Council The Royal Bank Trust Co (Trinidad) Ltd v Joseph Norbert Pampellonne and another, [1987] 1 Lloyd’s LR 218, at 225:

“…the question whether the furnishing of information is in any particular case to be treated as the equivalent to advice must depend on the facts of the case, and in particular upon the precise circumstances in which the relevant information has been given…”

34. For the plaintiff two witnesses of fact were called, namely Mr Teng Li-Fu and his superior, Mr Lai Wu-Lang, both officers within Formosa, and for the defendant two factual witnesses also were called, namely Ms Pamela Wu and Monsieur Didier Odin, at the material time both officers within the defendant bank; I set out below a brief summary of their evidence.

35. As earlier noted, however, it is the telephone exchanges between Mr Teng of the plaintiff and Ms Wu of the defendant which lie at the heart of this case.

Mr Teng Li-Fu

36. At the time of the events in question, Mr Teng was a ‘specialist’ within the plaintiff’s Finance Division, to which position he had been promoted in 1990; he gave evidence to this court over the course of two days, the vast bulk of which was taken up with cross-examination.

37. Mr Teng has a Bachelor of Business Administration from the University of Taiwan, and, whilst he gave evidence in Putonghua, he clearly has adequate grasp of English.

38. Mr Teng explained that the plaintiff did not engage in investment as a business it itself, and had limited resources to invest; in fact, his main responsibility was to manage the plaintiff’s foreign exchange risks.

39. He also said that the plaintiff had had a “cautious” approach to investing; on occasion it invested in well-known Taiwanese stocks, but also it invested in commercial debt instruments, including bills of exchange, according to certain criteria.

40. In general, he said, the plaintiff would purchase only bills of exchange issued or guaranteed by a reputable third party bank or finance house, a criterion, he maintained, which was known to the defendant bank.  In this connection he pointed to the fact that of the 55 transactions thus conducted with the defendant, and excluding the two purchases of the One Holding bills upon which there was default, the other 53 such transactions had thus been guaranteed.

41. In addition, of the 29 transactions of similar nature as had been conducted with other banks, these were for commercial instruments either issued by banks, finance houses or government, or were guaranteed by the same.

42. Mr Teng also said that in instances in which the plaintiff was considering the purchase of instruments of a previously unknown issuer, the plaintiff habitually would ask other banks with which it dealt whether such issuer was considered reputable, although with regard to Thai companies, he had relied exclusively on the defendant bank for such information.

43. Prior to the purchase of the two tranches of bills of exchange from One Holding, Mr Teng recounted that some months earlier, in October 1996, the plaintiff also had purchased bills issued by Securities One – which, like One Holdings, was a member of the ‘One Group’, and a subsidiary of the holding company of that group, Finance One Public Holding Co Ltd.

44. With regard to this latter purchase, Mr Teng said that it had come about because Ms Wu had called him to recommend these Securities One bills; she had said that Securities One was the largest securities company in Thailand, was a member of the One Group, and was financially sound, and had faxed him a research report on Finance One, the holding company, authored by W I Carr, then a subsidiary of the defendant bank.

45. He said that sometime prior to the purchases of One Holding bills, the sale transactions the subject of this claim – which respectively took place on 8 and 28 January 1997 – Ms Wu of the defendant had faxed the plaintiff an introduction to One Holding, together with an extract of its 1^st quarter 1996 accounts, information which had been filed by the plaintiff.

46. Thereafter, he said, Ms Wu had called him to suggest that the plaintiff should invest in some One Holding bills, and that during further telephone conversations he asserted that Ms Wu had advised him that One Holding enjoyed a sound financial standing given that it was a company within the same group as Securities One, that this was a group which was financially strong, that there would be no problems with such a big company, that it did not matter if there was a bank guarantee in place or not, and that the defendant bank itself had underwritten and had participated in a syndicated Floating Rate Note issue by One Holding.

47. Mr Teng also said that when he had requested up-to-date accounts for One Holding, Ms Wu had said that she did not have any, but that when she was able to locate updated information, she would provide it to the plaintiff.

48. Mr Teng said that he had relayed this information to his boss, Mr Lai, and that, in reliance upon Ms Wu’s advice, he had proposed, and Mr Lai then had approved, purchase of the first set of bills on 8 January 1997.

49. As to the second purchase of One Holding bills, which it is common ground took place on 28 January 1997, it was Mr Teng’s evidence that shortly before that date Ms Wu had telephoned him to recommend the purchase of another US$5 million tranche of such bills, and that she had repeated her earlier advice that One Holding was financially sound and that there would be no problems.  Ms Wu once again had said that she did not have available up-to-date accounts for One Holding, and again promised to provide such updated information when she had it.

50. As earlier, Mr Teng had relayed this advice to his superior, Mr Lai, and once again Mr Lai had approved the purchase of the second set of bills.

51. The fact that subsequently One Holding had defaulted was a matter of history, and Mr Teng, and thus the plaintiff, now complained that, absent Ms Wu’s ‘advice’, these transactions would not have been entered into, and that the plaintiff thus would have avoided the complete loss of the plaintiff’s approximately US$10 million investment.

52. One factual matter – not rehearsed within the plaintiff’s witness statements – was Mr Teng’s revelation in cross-examination that, in buying commercial paper which attracted a higher yield than was available in the money markets, the plaintiff frequently had borrowed the money to be thus invested at a lower rate than was to be gained in the instrument that was to be purchased with such borrowed funds, thus ‘arbitraging’ the interest rate differentials to the profit of the plaintiff.

Mr Lai Wu-Lang

53. Mr Lai was the second of the plaintiff’s witnesses of fact; he too gave his evidence in Putonghua.  At the material time he was the manager of the plaintiff’s Finance Division, and effectively was Mr Teng’s boss.

54. However, Mr Lai had had no direct contact with Ms Wu of the defendant bank, and it was only through oral reports said to have been received from Mr Teng that Mr Lai affected to have contemporaneous knowledge of the dealings which had ensued between them.

55. In circumstances wherein at no stage did Mr Lai have contact with Ms Wu, there is no necessity focus at great length upon his evidence. 

56. His case ultimately appeared to be that whilst his subordinate, Mr Teng, was responsible for negotiating a transaction, that he was the person who was required to approve the terms as thus negotiated prior to that transaction being entered into by the defendant; thus, based on the information which he said had been relayed to him by Mr Teng, he had approved the purchase of the two sets of One Holding bills of exchange which subsequently were dishonoured, thereby causing his employer loss – a loss which, he said, had resulted in hard questions consequently being asked by senior management of the plaintiff, and also at the plaintiff’s AGM, where shareholders had been told that litigation was on foot to recover the monies thus lost as the result of these unfortunate purchases.

57. Mr Lai made it very plain to the court that in his mind it was the defendant’s fault for negligently advising the plaintiff to purchase these bills; he said that the plaintiff had asked for more up-to-date information, which had not been forthcoming, and he strongly asserted that the plaintiff should not have acted in the way that it did.

Ms Pamela Wu Su Chiu

58. The leading witness for the defendant was Ms Pamela Wu, who at the material time was an Assistant Vice-President of Banque Indosuez; currently she is Treasurer of a banking institution in Taipei, having left the defendant bank for personal reasons in May 1998.

59. During the period from March 1996 to May 1998 she had worked in the capacity of Sales Manager in the Asian Fixed Income Department within the Hong Kong branch of Indosuez; she said that in this position she was remunerated by fixed monthly salary and received no commission on the sale of investment products to customers of the bank, although she did receive an annual bonus.  It appears to be common ground that the plaintiff’s dealings with Ms Wu did not fall within what is termed as a ‘private banking relationship’, with all that this variously may import.

60. Ms Wu recounted the history, as she understood it, of the plaintiff’s trading relationship with the defendant, which relationship had commenced in about 1993-1994, and until 1996 the plaintiff had been dealing with a Mr Tsai, who worked in the Singapore branch of the bank; in fact, in the course of her duties with the bank Ms Wu had met Mr Lai Wu-Lang on several earlier occasions, and she said she had resumed prior professional contact with Mr Teng after she had joined the Asian Fixed Income Department of the defendant.  Her understanding and experience was that the plaintiff had been a “sophisticated institutional investor” in emerging market paper since 1994.

61. By “emerging market paper” she said that she intended to connote investment products like securities, debentures and fixed income notes issued by companies in less developed countries such as Thailand, Korea, Eastern Europe and Latin America, products which generally had a fixed yield, less liquidity, a wide bid/offer spread, and no ‘guaranteed buy-back’.  Ms Wu produced copies of the plaintiff’s trading records with the defendant for the period from 1994 to early 1997, and on this basis suggested that the plaintiff had been a regular purchaser of such ‘higher risk’ commercial paper from these markets.

62. Ms Wu’s firm stance was that never at any stage had she ‘advised’ Mr Teng of the plaintiff upon the credit-standing of the issuers of various instruments or of the credit risk involved, and that she always regarded the plaintiff as a sophisticated investor with expertise in this type of trade; nor did she regard herself, in the position she then had held, of having had any duty to provide any financial or investment advice to the plaintiff.

63. As to the specific ‘One Holding transactions’ the subject of this litigation, Ms Wu said that the name of One Holding as a commercial paper-issuing institution had been included on the defendant’s ‘quotation sheets’ which routinely had been sent out to the defendant’s clients, and she recalled that in the period September to December 1996, during one of her casual telephone conversations with Mr Teng of the plaintiff, she had learnt from him that the plaintiff had wished to diversify its portfolio and was looking for some new issuers in which to invest.  At that time she had mentioned One Holding Ltd to him as a possibility, and she had explained that it had a strong link with One Finance Group, one of the largest finance companies in Thailand.

64. Nothing had come of this early conversation, but subsequently she had mentioned to Mr Teng that, together with three Taiwanese banks, the defendant bank had underwritten a US dollar-denominated syndication issue for One Holding, and at that stage Mr Teng had requested some information on that company, which she then had provided with material which at that time she had to-hand: this background information included some research in the form of a five page document on One Holding – a ‘fact sheet’ – provided by the defendant’s Bangkok branch, and an extract from the Floating Rate Note Prospectus as was issued in August 1996.  Ms Wu recalled that Mr Teng had said that the plaintiff had felt comfortable that three Taiwanese banks with good research teams also had invested in One Holding.  Ms Wu also said that Mr Teng had asked for information on Finance One, so she had consulted a booklet on ‘Asian Corporates’ published by WI Carr which was available in her office, and in which she had found two pages on Finance One.

65. Still later at the plaintiff’s request, she thought had had sent some further relevant information about the company, but her firm position was that she never had advised as to its credit standing, nor did she recommend purchasing the paper of One Holding.

66. This, therefore, was the background to the purchases by the plaintiff from the defendant of the two tranches of bills of exchange on 8^th and 28^th January 1997.

67. On 8^th January 1997 Ms Wu had faxed to her clients, including the plaintiff, her portfolio list which detailed the various investment products which the defendant currently had available, Mr Teng then had called her and had requested an improvement on the offer yield, and thereafter he had ordered the first tranche of One Holding bills.

68. A like scenario had occurred on 28^th January 1997 when Mr Teng, having received the relevant quotation sheets, had ordered the second tranche of One Holding bills.  In the event, both tranches which the plaintiff had purchased were retained by the defendant bank qua custodian.

Monsieur Didier Odin

69. Monsieur Odin was in no way involved in the particular transactions the subject of this dispute, and thus much of his evidence is confined to his perception of the factual background as he understood it; as such his evidence is not directly relevant to the resolution of this case.

70. At the time of the matters in question, he was a senior executive within the defendant bank; since 1993 he had been in Asia in charge of the Regional Management of Risk audit, and in 1998 until his retirement in November 2005 he was in charge of the Distressed Assets Group of the defendant bank.

71. He gave evidence as to the internal structure and business lines of the bank at the relevant time, and noted that the Floating Rate Note arrangement in respect of One Holding Ltd had been engineered and signed-off in Bangkok by the bank’s Bangkok Capital Markets team.

72. He also pointed out that the defendant bank itself had become an unsecured creditor of One Holding when this instruction had been placed into liquidation because of its capital markets activities – the defendant having been left holding One Holding bills of exchange, together with One Holding Floating Rate Notes which had remained on the bank’s books – and not as a consequence of commercial lending.

73. He stated that he had been informed of the One Holding default in payment of its bills of exchange on 18^th March 1997, the date of default, and he then was asked to participate, together with other senior bank officers, in the oversight/management of the One Holding file.

74. Whilst his review of the sale of the One Holding bills to the plaintiff had been obtained from his perusal of bank documents, of the content of which he had no direct knowledge, he was able to assist the court with his account of the extensive nature of the discovery exercise with which he had been involved on behalf of the defendant bank, and in particular he told how he had been opening boxes of documents in a storeroom when he had come across one of the documents upon which the plaintiff has placed considerable reliance in this trial – an extract from an internal draft aide-memoire/discussion paper neither formalized nor distributed as an operational paper within the bank – which made passing reference, within the context of and under the heading of ‘Private Banking’, to the possibility that “selling often includes some kind of advisory”.  He had discovered this document, Mr Odin said, because he had understood that it ought to be so discovered, but he maintained that it had no relevance to the activities which he understood had precipitated the present case, namely the retail sale to the plaintiff of the subsequently-dishonoured One Holding bills of exchange.

75. Monsieur Odin also gave evidence as to the broad structure of the defendant bank, which was a single entity operating through branches, with certain areas (including private banking, stock-broking and asset management) being operated as subsidiaries.  He said that the stockbroker WI Carr was an equity subsidiary of the bank, but there was a “strong Chinese wall” in place in the sense that the activities, premises and staff were completely separate, and that there were no links between the two, and at the time of relevant events he had not been aware (as Ms Wu also similarly had said she was unaware) of that broker’s publication ‘Thailand Weekly’.

76. This gentleman also gave evidence as to the circumstances in which the defendant bank had given discovery of the Q2 1996 unaudited accounts of One Holding, and explained that these were found in an unmarked box during a lengthy search for relevant documents in the bank’s Bangkok office; the document as found had been a copy of a fax apparently sent twice, but it was unclear who was the recipient, there was no first page, and from this document it was impossible to tell whether the bank had received the document on 5 November 1996, or subsequently had received a fax copy from the initial recipient.  As to this, however, Monsieur Odin took the view that it would have been unusual for the bank to have received unaudited accounts directly from One Holding since the bank normally would check with the Stock Exchange of Thailand for the published financial information of listed companies.

77. Monsieur Odin was but briefly cross-examined, and so far as it goes I unhesitatingly accept his evidence; I mean no disrespect when I say that as such his evidence did not substantially assist in the resolution of this case.

Expert evidence

78. In addition to the factual witnesses, I should record that, at the instigation of the plaintiff, the parties had produced reports from banking experts on various aspects of this case.

79. Leave had been given so to do on the basis, I am told, that the trial forum – which as matters transpired turned out to be the Commercial Court – would rule on the admissibility of such evidence.

80. Some inkling of the potential problems in this regard briefly had been adverted to Mr Jat SC in a pre-trial review which this court specifically requested, this not having been a case within the Commercial Court list – wherein, as generally is known, application for the admission of expert evidence is strictly monitored at the interlocutory stage.

81. In the event, after perusing the expert reports on both sides, and having considered the very extensive amendments as were proposed by Mr Smith SC to the existing plaintiff’s expert report, and further having heard argument, I declined to permit any expert evidence whatever to be adduced.

82. A formal ruling delivered in this regard is recorded within the trial transcript; suffice it to say, yet again within the judgments of this court, that an expert’s function is to educate and not to advocate, far less to purport to determine the ultimate question at issue in the case, which must be a matter for the court and the court alone.

Credibility and Findings of fact

(i)  Credibility generally

83. Unsurprisingly given the factual circumstances, each side strongly canvassed the overall credibility of their prime witness: for the plaintiff Mr Teng, and for the defendant, Ms Wu.

84. Mr Jat SC observed that the attempt by Mr Teng to maintain that Formosa was inexperienced as an investor simply was “not credible”, and that the same could be said of Mr Lai’s insistence that Formosa’s many trades in emerging market commercial paper were at “minimum risk”; moreover he said that the plaintiff’s purported distinction between ‘sovereign risk’ and ‘country risk’ was no more than a semantic contrivance, and did not alter the fact that in 1997 the plaintiff was an experienced investor which at all times carefully evaluated its investments and was willing to assume a degree of calculated risk so as to obtain a higher return thus otherwise would be available in the markets.

85. Mr Jat submitted that when taken overall Ms Wu’s evidence was clearly to be preferred, and he asked the court to accept her evidence in cross-examination that while Formosa undoubtedly preferred investments guaranteed by third party institutions, this neither was an inflexible rule nor its sole criterion for making an investment.

86. He also spotlighted the apparently differing evidence given by Mr Lai, Mr Teng’s immediate boss, in terms of which of them had made the final decision to make any particular investment; this was a reference to the obvious change in Mr Lai’s evidence on the point between what was said in chief and in cross-examination, before his reversion to the original account in re-examination, which would appear to suggest that it was Mr Lai who had the final say on any particular investment.  Whilst it does not greatly matter, I am now inclined to the view, and so find, that this latter version probably represented the practical reality.

87. As to Ms Wu, Mr Jat suggested that her evidence on her dealings with Mr Teng was “plainly to be preferred”.

88. For his part, Mr Smith SC and his team submitted strongly to be contrary, and suggested that it was the evidence of Mr Teng and of Mr Lai which should be accepted.

89. He argued that Mr Teng had given a clear and consistent account of events, both in chief and under cross-examination, and that his explanation of the plaintiff’s “cautious” investment approach was borne out by the available records.  Moreover, Mr Teng’s description of the circumstances leading to the earlier purchase of bills issued by Securities One – another part of the Thai One Group – could be seen to accord with the plaintiff’s avowed investment approach.

90. It is also said that in cross-examination Mr Teng frankly had admitted what he did not know, and readily had conceded that he fully understood the maxim “the greater the risk, the greater the yield”, and that he understood why debt instruments bearing the sovereign risks of developing countries gave greater return by reason of the investor bearing those risks.

91. Mr Smith submitted that Mr Teng had demonstrated that he was very clear as to why the defendant had been at fault in negligently advising the plaintiff to purchase the One Holding bills – the plaintiff had asked for, and the defendant in fact had had more up-to-date but unfavourable information about the financial situation of One Holding which was not made available to the plaintiff, and that the defendant, in the person of Ms Wu, thus should not have advised in the manner that it did.

92. As for Mr Lai, said Mr Smith, he likewise was very clear in his own mind as to the fault of the defendant, namely in not producing updated (and unfavourable) financial information relating to One Holding, and thereupon should not have advised as it did.

Conclusion on credibility

93. It must be borne firmly in mind that any discussion as to overall ‘credibility’ – or indeed upon the specific findings of fact which follow – must be made against the hard fact that the structure of the plaintiff’s entire case is premised upon the recollection of respective staff members of the plaintiff client and the defendant bank as to that which passed between them in separate and wholly undocumented telephone conversations which took place well over a decade ago, in January 1997.

94. This feature of the case strikes me as highly significant, if not faintly absurd; given the literally thousands of telephone conversations which these two protagonists would have made in the course of their employment, both then and subsequently, any re-creation as to what in fact had been said in these particular calls can only, in truth, represent a re-creation in the respective minds of the protagonists as to that which must have been said – a scenario wherein frequently ‘the wish is father to the thought’. 

95. This intrusive element of ‘that which must have been said’ also must be viewed through the prism of this extremely hard-fought adversarial litigation, wherein the plaintiff client seeks to hold the defendant bank responsible (and effectively to obtain an indemnity), well over a decade later, for the significant loss accruing to the plaintiff (and, it should not be forgotten, also suffered by the bank itself) by reason of the unanticipated demise of One Holding, and the consequent dishonour of its financial instruments.

96. Against this unpromising backdrop, clearly the main ‘credibility issue’ as has arisen lies in the evaluation of the evidence of the two main witnesses in this case, Mr Teng of the plaintiff and Ms Wu of the defendant.

97. Having had the opportunity to observe each give their version of events, and having now had the further opportunity to peruse the transcript of their evidence, I confirm the view – which initially I had formed at the trial – that in this regard the evidence of Ms Wu is to be preferred against that of Mr Teng, by whose evidence in material part I was not convinced.

98. In my view Ms Wu gave her evidence strongly, clearly and honestly.  She is no longer employed by the defendant bank, and in fact made two visits to this jurisdiction during this trial in order first, to hear Mr Teng’s evidence, and subsequently, herself to proffer her own account of events from the witness box. 

99. She evinced what I perceived to be an understandable irritation that her integrity should have been impugned, and that, some ten years later, she should be said to have done something that she felt strongly that clearly she had not done, namely, specifically to advise the defendant upon a positive course of action as opposed merely to transmitting to Mr Teng certain objective factual information – which was available in the public domain – about the perceived corporate situation One Holding.

100. In the circumstances I accept her evidence about the conversations she had had with Mr Teng, and her assertion that she had not advised or persuaded him to purchase One Holding bills absent a third party guarantee – a feature which she accepted, I think, that the plaintiff often had sought in the investments that hitherto it had made in emerging market commercial paper.

101. The following exchange between Mr Smith and Ms Wu at the end of Ms Wu’s cross-examination neatly encapsulates the opposing positions, and I specifically accept Ms Wu’s responses as representing the truth [vide Transcript, Day 5, page 159-160]:

“Q. The gist of the case is, based on what is Mr Teng’s own account of the way in which the two sets of bills of exchange came to be purchased, that they were recommended by you, that the plaintiff had always asked for and transacted on the basis of there being guarantees, which were not available in this case for One Holding, but you reassured the plaintiff that they were unnecessary, because One Holding was a strong company in a sound financial condition at the time.  That’s the gist of the plaintiff’s case.  It was on the basis of that recommendation and information and advice that they decided to purchase these two sets of bills.  Do you disagree with that?

A.   I disagree.  From my perspective, I just gave all the informations that I know to the customers, so it’s up to them to judge whether they want to buy or not.  I didn’t give them any pressure.

Q.  I’m not suggesting you gave them any pressure but I’m suggesting you gave them certain information and advice on the basis of which they acted.

A.    I disagree.  I didn’t give them any advice.

Q. You told them that the information which you had given them, in the form of the FRN prospectus, was the latest information that was available and I suggest to you that there would have been later information available to you had there been proper approaches made to the right people and had they acted correctly in looking for the information that was in fact available.  Do you disagree with that?

A.  I disagree, because I had tried my best and I didn’t know that WI Carr had updated information, because I didn’t know that there’s the existence of Thailand Weekly and I didn’t have any contact with WI Carr.  WI Carr was not our in-house analyst…”

102. Accordingly, I accept Ms Wu’s evidence not only on the main issue, but on all significant issues I prefer her evidence to that of Mr Teng, whom I thought had a fixed and wholly unrelenting mind-set in terms of his apparent ‘recollection’ in his conversations with Ms Wu.  I also accept and give weight to Mr Jat’s submission that it was noteworthy that when questioned about the clear representations alleged by Mr Teng in his witness statement to have been made by Mr Wu, Mr Teng became noticeably more tentative in cross-examination; he then referred to Mr Wu having given an “assurance” that the bank would have a prudent attitude in selecting and recommending investments, and tellingly chose to emphasise the failure of Mr Wu to provide information as opposed to any firm reiteration of his witness statement to the effect that Mr Wu had said that the investment was ‘risk free’. 

103. I also was relatively unimpressed with Mr Lai’s efforts in the witness box.

104. Much of that which he had to say was of course received from that which Mr Teng had told him, since he had had no direct dealings with Ms Wu, and whilst I do not wish to be unkind, I formed the impression that Mr Lai, together with his subordinate, Mr Teng, both had come to court with a clear and united agenda, which was by means of this litigation to attempt to rectify and to vindicate the sole investment default that had occurred on their ‘watch’ when they were in charge of investing in commercial paper on behalf of the plaintiff – a default which, as earlier noted, Mr Lai told the court had caused difficulties within the plaintiff and had incited questions at the plaintiff’s AGM when the loss was revealed in the company balance sheet.

105. That this was the sole default suffered by the plaintiff is, I gather, not in dispute, nor are the plaintiff’s broad investment statistics: of the some 89 transactions (including the two purchases the subject of this case) in which the plaintiff had entered into in emerging market paper during the period from 1993 to 1997, 55 such trades were executed through the defendant bank and the balance through Citibank, Bankers Trust, Banque Paribas and ABN Amro, with the plaintiff having ‘arbitraged’ in more than 50% of the some 89 transactions.

106. Accordingly, given that this litigation clearly was viewed by Mr Teng and Mr Lai as potentially exculpatory for this not inconsiderable loss to the plaintiff company, I do not find it surprising that these officers clearly had formed adverse (and no doubt deeply-felt) views regarding the defendant, and had convinced themselves that fault, if fault there had been, did not lie with themselves for entering into the fated trades absent being in possession of the fullest and latest available information about One Holding, but instead with Ms Wu and the defendant bank in allegedly ‘advising’ them so to do.

Findings of fact

107. When the position is analysed, there is relatively little difference between much of the evidence led for the plaintiff and the defendant, and there is not a great deal of fundamental importance that is in dispute.

108. I now turn, however, to those factual findings which in my view it is essential for this court to make in order for the proper application of established legal principle which has arisen in the multitude of cases – many with widely differing fact situations – which have developed in the area of ‘negligent advice’ on the part of banks.

109. Accordingly, I set out these specific findings in numbered form below. Such findings do not purport to cover every factual issue, but are confined to those matters which in my view are crucial to a determination of liability in this case.

110. On this basis I so find:

(i)    That, contrary to its protestations – which became increasingly faint as the case wore on and as the plaintiff’s investment pattern/modus operandi was explored and elaborated under cross-examination – that in no sense could the plaintiff be characterized as an investment ingénue.  To the contrary.  This office of ‘risk management’ within the plaintiff’s organization, in which were employed Mr Lai and Mr Teng as its key operational personnel, clearly had become increasingly adept at sniffing out investments in emerging market commercial paper offering attractive returns, the purchase of which often was facilitated by means of borrowing at a lower interest rate than the investment itself returned, thereby accruing a profit on this interest differential, which appears generally to have been in or around the region of 100 basis points.  This therefore most definitely was not a ‘widows and orphans’ situation, nor anything remotely analogous; in short, in my view the plaintiff well knew the particular investment game it was playing, and the defendant bank – and indeed other banks – were prepared to service these needs of the plaintiff at arm’s length in normal commercial course;

(ii)  That very frequently, but not invariably, the plaintiff sought, and obtained, third party guarantors for its investments in commercial paper, and I further find that these two purchases of One Holding bills were transactions in which such third party protection was not insisted upon by Mr Teng or by his superior, Mr Lai;

(iii)    That Ms Wu’s dealings with the plaintiff, in the person of Mr Teng, were done solely in her capacity as Sales Manager of the Asian Fixed Income Department of the defendant, and that there was no element of ‘private banking’ involved;

(iv)    That Ms Wu specifically had drawn the existence of One Holding, and its availability as a potential investment, to Mr Teng’s attention some months prior to the actual decision by the plaintiff to invest in that company’s paper; further that it was at this earlier stage that Ms Wu had sent to Mr Teng relevant information about One Holding, in particular the extract from the FRN Prospectus, which ‘floating rate note’ issue the defendant had been involved in underwriting, and certain research material which had been prepared by the defendant’s Bangkok research department at or about the time of this FRN issue;

(v)  That as a salesperson Ms Wu was in the habit of faxing to the plaintiff/Mr Teng the daily ‘quotation sheets’ of the defendant, upon which the quotation appeared for the One Holding bills, and that on 8^th January 1997 Mr Teng had responded to the defendant’s daily portfolio list;

(vi)    That it was Mr Teng who had made the initial call to Ms Wu on 8^th January 1997, and on that day had made the order to purchase the first tranche of US$5 million of such One Holding bills;

(vii)  That in that telephone exchange resulting in that first order from the plaintiff the structural and financial situation of One Holding had been discussed, but that in providing the opportunity so to purchase Ms Wu did not purport to ‘advise’ the plaintiff to buy this initial tranche of First Holding paper, and this decision solely was that of the plaintiff based upon the factual data relating to One Holding as then was communicated by Ms Wu;

(viii)    That on the probabilities – although perhaps it does not greatly matter – the purchase by the plaintiff of the second US$5 million tranche of One Holding paper was initiated by a telephone call from Ms Wu to Mr Teng of the plaintiff, and that this call was prompted by further One Holding paper becoming available in the market, and Ms Wu’s knowledge that the plaintiff earlier had been a purchaser of this particular investment product;

(ix)    That during this telephone call Ms Wu directly had asked Mr Teng if the plaintiff would be interested in purchasing a further tranche of One Holding bills of exchange, and that after consulting Mr Lai on the issue Mr Teng had called Ms Wu and asked her if updated financial information was available on the company, and that Ms Wu had said words to the effect that currently such information was not with her, but that she would try and obtain updated accounts over and above the unaudited accounts for 1996.  I further find that during this (or indeed the earlier) telephone call Ms Wu did not attempt to persuade or otherwise to ‘rush’ Mr Teng to purchase this second set of bills of exchange, and I do not find that Ms Wu persuaded Mr Teng to buy by saying that if the plaintiff did not do so it would “lose a good opportunity” or words to the effect that “there was no need to worry” about the financial strength of this company;

(x)  That as a consequence of that conversation Mr Teng consulted Mr Lai, and thereafter again he had telephoned Ms Wu and ordered this second tranche of One Holding bills, and that this order was executed by Ms Wu on behalf of the defendant on the basis of the quotation in the defendant’s quotation sheet, and on the basis of the duration, interest rate and maturity date of the bills as then advertised therein;

(xi)    That Ms Wu subsequently attempted to, and did exercise her best efforts to find, additional and updated material about the financial situation of One Holding to supplement that which the plaintiff already had been given, and that in this regard she had telephoned her Bangkok office, but that she was unsuccessful;

(xii)  That as at the date of the sale to the plaintiff of the second tranche of One Holding bills Ms Wu had had in her possession no additional information about the updated financial situation of One Holding, that she already had given all the information as then had been available to her to Mr Teng, and that she did not know, and had no reason to believe that, the financial performance of One Holding then was deteriorating, nor that there would be any difficulty in One Holding honouring its obligations in relation to the outstanding bills of exchange upon their maturity date.

Relevant principles: duty of care and/or assumption of responsibility

111. Having thus attempted to come to grips with the principal factual differences between these parties, I turn now to a brief consideration of the law as it has developed in this area.

112. A substantial number of decisions in the area of ‘bank negligence’ have been cited during the course of final submissions, and I mean no disrespect to leading counsel when I say that not all of these decisions have been of direct assistance in the resolution of this case.  This is unsurprising, since legal submission obviously attempts to cover all potential factual bases, and to anticipate findings of fact which ultimately may, or may not, be made by the tribunal seized with hearing the case.

113. In terms of applicable principle, I would single out two specific areas which in practice tend to be interlinked: first, the concept of the relevant duty of care, which was much discussed in argument, and second, that of the ‘assumption of responsibility’.

114. If I may say so, it is of no assistance whatever to invoke the legal mantra to the effect that the defendant bank, in the person of Ms Wu, ‘owed a duty of care to the plaintiff purchaser’, in the person of Mr Teng, and through him, Mr Lai.  This is because such invocation begs the fundamental question as to what in fact Ms Wu was doing, or purporting to do, in terms of her relationship with the plaintiff which had resulted in the purchase of the two sets of One Holding bills of exchange.

115. Prima facie, the defendant bank cannot be said to be in breach of the duty of care properly to advise the plaintiff if and in so far (as now has been found to be the situation) as her role as effected was not that of ‘adviser’, but was that of ‘salesman/woman’.

116. Accordingly, any ‘duty of care’ upon Ms Wu/Indosuez is co-extensive with the particular role she played in these purchases; thus, in selling these products, Mr Wu had a duty of care qua seller to ensure that, for example, she did not knowingly purvey false or inaccurate information to the plaintiff in relation to the products in question in a situation in which the plaintiff was unaware of any such falsity or inaccuracy.  But if she did not ‘advise’ – in the sense, for example, that ‘this was a must-buy’ situation, or that this was ‘a fail safe purchase even without a guarantor’ or that it was ‘no risk’ (and it now has been found that she did not) – it follows that she cannot be affixed with the duties that are co-extensive with any such alternative ‘advisory’ role.

117. This appears to be that which Lord Bingham had in mind in Commissioners of Customs & Excise v Barclays Bank [2007] 1 AC 181, at 192E-F, when he observed:

“…it seems to me that the outcomes (or majority of outcomes) of the leading cases …are in every or in almost every instance sensible and just, irrespective of the test applied to achieve that outcome.  This is not to disparage the value of and need for a test of liability in tortuous negligence, which any law of tort must propound if it is not to become a morass of single instances.  But it does in my opinion concentrate attention on the detailed circumstances of the particular case and the particular relationship between the parties in the context of their legal and factual situation as a whole…”(emphasis added)

118. Hence the signal importance of considering the entirety of circumstances of the case and necessity for specific findings of fact, which is the purview of the ‘seeing and hearing’ tribunal which, at trial, is in the position to evaluate the information therein propounded against the inherent probabilities, not merely in terms of the immediate dispute, but also in light of other relevant circumstances; I bear in mind, for example, the manner in which the formulation of this particular claim has developed, in that the plea of negligent advice on the part of Ms Wu first saw the light of day no less than two years after the plaintiff’s institution of these proceedings against the defendant bank.

119. Given that liability in this case is dependent upon the specific telephonic exchanges between Mr Teng and Ms Wu in relation to the purchases of the two sets of One Holding bills, equally of cardinal import is the characterization of the verbal exchanges that took place between them. 

120. As Lord Steyn expressed this aspect in Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830, at 835F:

“The touchstone of liability is not the state of mind of the Defendant.  An objective test means that the primary focus must be on things said and done by the Defendant or on his behalf in dealings with the Plaintiff.  Obviously, the impact of what a Defendant says or does must be judged in the light of the relevant contextual scene.  Subject to this qualification the primary focus must be on the exchanges (in which terms I include statements or conduct) which cross the line between the Defendant and the Plaintiff…” (emphasis added)

121. It is in this context that the concept of ‘assumption of responsibility’ intrudes into the characterization of the relevant duty of care; clearly if there is established to be a clear ‘assumption’ of the effective role of financial adviser, different considerations are in play.  Thus, notwithstanding that, in normal course, the duty of care is simply to provide information, and not to advise, at what point in the eyes of the law does the ‘mere data-provider’ become, or is to be equated with, an ‘adviser’, with all the obligations concomitant thereto?

122. Or, to put the matter another way, what is the correct approach in principle towards the determination of whether a particular ‘duty of care’ exists, or whether a party has ‘assumed responsibility’ either for the information imparted, or for the particular use to which it is put?  And is such relevant evaluation objective or subjective?

123. Lord Hoffmann addressed these particular questions in his seminal speech in Customs and Excise Commissioners v Barclays Bank plc, op cit., wherein he observed (at 198-199):

“35. There is a tendency, which has been remarked upon by many judges, for phrases like ‘proximate’, ‘fair, just and reasonable’ and ‘assumption of responsibility’ to be used as slogans rather than practical guides to whether a duty should exist or not.  These phrases are often illuminating but discrimination is needed to identify the factual situations in which they provide useful guidance.  For example, in a case in which A provides information to C which he knows will be relied upon by D, it is useful to ask whether A assumed responsibility to D: Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465; Smith v Eric S Bush [1990] 1 AC 831.  Likewise, in a case in which A provides information on behalf of B to C for the purpose of being relied upon by C, it is useful to ask whether A assumed responsibility to C for the information or was only discharging his duty to B: Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830.  Or in a case in which A provided information to B for the purpose of enabling him to make one kind of decision, it may be useful to ask whether he assumed responsibility for its use for a different kind of decision: Caparo Industries plc v Dickman [1990] 2 AC 605.  In these cases in which the loss has been caused by the claimant’s reliance on information provided by the defendant, it is critical to decide whether the defendant (rather than someone else) assumed responsibility for the accuracy of the information to the Claimant (rather than to someone else) or for its use by the Claimant for one purpose (rather than another).  The answer does not depend upon what the Defendant intended but, as in the case of contractual liability, upon what would reasonably be inferred from his conduct against the background of all the circumstances of the case.  The purpose of the inquiry is to establish whether there was, in relation to the loss in question, the necessary relationship (or ‘proximity’) between the parties and, as Lord Goff of Chieveley pointed out in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 181, the existence of that relationship and the foreseeability of economic loss will make it unnecessary to undertake any further inquiry into whether it would be fair, just and reasonable to impose liability.  In truth, the case is one in which, but for the alleged absence of the necessary relationship, there would be no dispute that a duty to take care existed and the relationship is what makes it fair, just and reasonable to impose the duty.

36.  It is equally true to say that a sufficient relationship will be held to exist when it is fair, just and reasonable to do so.  Because the question of whether a defendant has assumed responsibility is a legal inference to be drawn from his conduct against the background of all the circumstances of the case, it is by no means a simple question of fact.  Questions of fairness and policy will enter into the decision and it may be more useful to try to identify these questions than simply to bandy terms like ‘assumption of responsibility’ and ‘fair, just and reasonable’.  In Morgan Crucible Co plc v Hill Samuel & Co Ltd [1991] Ch 295, 300-303 I tried to identify some of these considerations in order to encourage the evolution of lower-level principles which could be more useful than the high abstractions commonly used in such debates.”  (emphasis added)

124. I respectfully agree with and adopt these views.

125. In this context I should say, also, that I reject the plaintiff’s strong contention to the effect that “no distinction realistically can be made” between the provision of data, qua information provider, and advising thereon, qua financial adviser, and that for all practical purposes it is extremely difficult if not impossible to separate these two functions.

126. The plaintiff sought to justify this contention on the basis of certain authorities.  See, for example, Shaddock (L) & Associates Pty Ltd v Parramatta City Council (1981) 36 ALR 385, wherein Gibbs CJ said (at 390-391):

“…the duty [of care], in my opinion, can exist in relation to the giving of information as well as advice.  This was the view of Barwick CJ in Mutual Life & Citizens’ Assurance Co Ltd v Evatt (122 CLR at 572) who pointed out that in many instances the distinction between the two is very slight and that on occasion information becomes inextricable from advice…”

and also the speech of Ackner J (as he then was) in The Zographia [1976] 1 Lloyd’s LR 382, at 393, where the learned judge observed:

“It cannot be disputed, nor is it, that the bank owed the owners a duty to exercise reasonable care in the information which it gave to them and that on September 3 it gave inaccurate information…the bank’s system, which I have described, was admitted by them not to be foolproof, but they did not enter any form of caveat when giving the information to Mr Perisanoglou.  The bank knew that the information which they gave was being relied on by the owners for taking the very serious step of notifying the charterers that the vessel was withdrawn…”

127. However, it seems to me, with respect, that in this regard the plaintiff overstates its case.  The situation plainly is not that no distinction “realistically can be made” between the provision of information and the tendering of advice, but that, as the foregoing authorities recognize, on occasion there is an effective elision between the two concepts such that it is not possible adequately to distinguish between the two – and as such, therefore, the relevant analysis necessarily is wholly ‘fact-sensitive’ in any given case.

128. More recent reported authorities further address this point, and provide a degree of assistance.

129. In Bankers Trust International Plc v PT Dharmala Sakti Sejahtera [1995] 4 Bank LR 381, for example, Mance J (as he then was) was faced with a case in which the plaintiff bank, which was suing for monies due and owing from the defendant, had marketed and sold to the Indonesian defendant company certain highly complex derivative products devised by the plaintiff.  In its Defence the defendant complained, inter alia, that in its presentations to the defendant the plaintiff had breached a duty to explain the meaning and effect of the transactions with reasonable care, and to advise with reasonable care on the risks and financial consequences for the defendant.  Mance J rejected this element of the defence, holding that in so far as the plaintiff had made any representations to the defendant regarding the nature and risks of the transaction, it was under a duty not carelessly to misstate facts, and that any proposal should be presented in a balanced fashion, and should be full and fair.  He said (op cit., at 394):

“In short, a bank negotiating and contracting with another party owes in the first instance no duty to explain the nature or effect of the proposed arrangement to that other party.  However, if the bank does give an explanation or tender advice, then it owes a duty to give that explanation or tender that advice fully, accurately and properly.  How far that duty goes must once again depend on the precise nature of the circumstances and of the explanation or advice which is tendered.”  (emphasis added)

130. However, the learned judge further held (op cit., at 419) that on the facts before him the parties relationship essentially was commercial, and that the defendant knew that the plaintiff was soliciting custom for its products, and that “the courts should not be too ready to read duties of an advisory nature into this type of relationship” in a situation wherein the defendant’s officers were experienced in financial matters, and during pre-contractual meetings had shown every sign of being able to look after the defendant’s interests, and to ask for information when needed; accordingly, Mance J concluded, in this instance there was no broad duty of care of the advisory type for which the defendant contended, in this context observing:

“…before recognizing any such duty the court must consider the well-recognized, overlapping criteria of (a) foreseeability (b) proximity and (c) fairness, justice and reasonableness in the context of the particular relationship and situation and in light of the type of harm (here financial loss) against which protection is sought.  The ultimate decision whether to recognize a duty of care, and if so of what scope, is pragmatic…”  (emphasis added)

131. Similarly, in the earlier case of The Royal Bank Trust Co (Trinidad) Ltd v Pampellone, op cit., an appeal to the Privy Council from the Court of Appeal of Trinidad and Tobago – wherein the Privy Council by a majority overturned the Trinidad Court of Appeal on the basis that it ought not to have interfered with the factual findings of Roopnarine J, the trial judge – Lord Goff (whose dictum is quoted herein at paragraph 32) had emphasized the significance of the facts of the case as providing the essential dividing line between the provision of information and the giving of advice; in that case the Privy Council upheld the judge’s decision at first instance dismissing the plaintiff’s action against the bank for losses suffered on two investments on the basis that the bank simply had provided information rather than giving advice.

132. Equally, in the far more recent decision of Gloster J in JP Morgan Chase Bank & ors v Springwell Navigation Corporation [2008] EWHC 1186 (Comm.), judgment dated 27 May 2008, her Ladyship was dealing with a lengthy and highly complex commercial trial involving a claim by a family’s investment vehicle against a banking group for investment losses suffered on Russian debt instruments, which losses had arisen during the Russian debt crisis of 1998.  In an exhaustive judgment of some 742 paragraphs, in which reference is made to the leading authorities in this area, her Ladyship conducted an in-depth analysis of the history of the relationship between the parties, and concluded that the plaintiff owed the defendant no general duty to advise in the terms pleaded by the defendant, which essentially related to what investments were appropriate for the defendant, and as to the balance and prudence of the defendant’s investment portfolio as a whole.  The learned judge concluded (op cit., at paras 467-468) that after a full analysis of the evidence, there was nothing within the communications between the parties that could be characterized as an ‘assumption’ by the private bank defendant of the responsibility to give the plaintiff, Springwell, wide-ranging investment advice as to the structure of its portfolio, the need for diversification or asset allocation.  She continued (at para 468):

“Nor, in my judgment, does the evidence show that AP [Adamandios Polemis, a member of the family which beneficially owned the investing family companies] thought, or had any reasonable basis to believe, that he could rely or was entitled to be relying, upon the Private Bank to be giving him wide ranging investment advice, let alone that he was in fact placing any such reliance on the Private Bank.  The reality was that Springwell had, of its own volition, with AP’s increasing appetite for the substantial returns that investing in emerging markets afforded, adopted a strategy of concentration in emerging markets, and, in particular, in Russian debt instruments…”  (emphasis added)

133. In addition to the distinct factual echo in that case of the present plaintiff’s “increasing appetite” for the higher yield to be obtained in emerging market paper, an interesting factual footnote to the JP Morgan v Springwell decision is that the Russian debt instruments with which Springwell there was concerned – the “GKO-Linked Notes” – appear also to have been among the emerging market paper which Formosa had purchased during the course of its investment activities in this area, although happily there is no evidence that in so doing it had suffered any consequential loss.

134. I also record that the court has been addressed in final submission upon a number of other legal principles, for example, whether the ‘adviser’ has a financial interest in the transaction to which his advice relates, or whether, in the sale as took place, there was a conflict of interest between the defendant bank, which itself held to maturity dishonoured One Holding bills, or whether the plaintiff in this instance was other than a sophisticated investor in this type of product.

135. For my part on this evidence I do not consider that these principles are directly in play in this case, although for the avoidance of doubt, if and in so far as I be wrong in this conclusion, in any event I should have concluded that the correct answer to these further questions was ‘No’.

Decision

136. With the foregoing principles in mind, I have reflected at some length upon whether there was any duty of care qua adviser or any ‘assumption of risk’ by the defendant bank arising by reason of the verbal exchanges on the telephone which passed between Mr Teng and Ms Wu with regard to the sales of the two lots of One Holding bills.

137. However, on the evidence before me, and on the findings of fact I have made, I do not consider that the plaintiff successfully has established its case.  In my judgment there is resonance in Mr Jat’s opening salvo to the effect that Formosa is unable to discharge its burden of proof; in my view this is correct – the plaintiff indeed has failed to prove its case.

138. Factually this case most certainly is not the type of situation as occurred in NMFM Property v Citibank (No 10), (2002) 186 ALR 442 – a decision upon which in final submission leading counsel for the plaintiff also placed strong reliance – wherein the Federal Court of Australia dealt with a case in which investors in a negative gearing package (via the acquisition of units in a property trust) had borrowed 100% of the monies to so invest, and thereafter had got into difficulty in servicing the mortgage facility, and had obtained compensation from the advisers, the agents of the main lender, who had placed them into this product, the nature of which had been misrepresented by these advisers.  This situation thereafter resulted in the main lender, National Mutual, which had lent 80% of the funds, pursuing Citibank, which had lent the balance of 20% of the monies so invested under a mortgage product secured on the investor’s/borrowers’ home, for contribution toward the damages so awarded on the basis that this ‘negative gearing package’ had been promoted through agents acting for both lenders. 

139. Upon this application for contribution the Court held, inter alia, that as the advisers were aware of the investor’s relative inexperience and ought reasonably to have known that the investors were relying on them and might suffer loss if the information and advice provided were inaccurate or unsound, that the advisers owed a duty of care to them, and that the advisers had breached their duty of care by representing that the package was ‘risk free’ and by failing to give warnings, but that on the particular facts Citibank did not owe the investors a duty of care because the investors did not reasonably rely on Citibank to protect them from the risk of loss, that Citibank did not assume a responsibility to protect them from that risk, and that Citibank had not held out to prospective borrowers that the advisers were its agents or representatives with authority to act for it in the mortgage transaction – hence the contribution claim in this segment of this extended litigation was dismissed.  Nevertheless, in his submission Mr Smith SC strongly relied on a passage in the judgment of the judge hearing the application, Lindgren J, who, in considering the submission by Citibank that the advisers had been acting as ‘salesmen’, and thus that they were not liable in negligence for ‘sales representations’ as distinct from advice, observed as follows (op cit., at para 400-401):

“While the advisers were not qualified financial planners, they knew that the investors were making important investment decisions . In most cases these decisions were made on the recommendation of the adviser alone…the presentation involved the adviser obtaining detailed financial information from an investor and showing how the package would work for him or her.  In those circumstances, I think the advisers held themselves out as having sufficient understanding and experience to be able to advise whether the package was suitable according to the investor’s circumstances.

In sum, although the presentation was in part a ‘sales pitch’, it went beyond that: it was in the nature of serious financial, taxation and investment planning and advice; the advisers intended the investors to receive and understand it in that way; and it was obvious they were going to do so…”  (emphasis added)

140. Whilst I can appreciate Mr Smith’s enthusiasm for this dictum, with which intrinsically it is difficult to disagree, in my view the situation in that case is light years away from the factual matrix in this case, and does not begin to persuade me on the instant facts that the actions of Ms Wu, in interacting with Mr Teng, sufficed to justify the conclusion that by her actions she had become ‘transmuted’ from ‘salesperson’ to ‘adviser’. 

141. Even if this conclusion were incorrect (and I do not consider that it is), I would also have found it difficult to accept that that in placing the orders which were placed that there was ‘reliance’ in the true sense by Mr Teng and/or Mr Lai of the plaintiff, whom on the evidence in this case carefully marshalled and considered the objective data in their possession as had been passed to them by Ms Wu, and thereafter independently had made the decisions to enter into the two contracts on the basis of the documentary material as then was available to them. 

142. As to such material, it is Ms Wu’s unchallenged evidence, which I accept, was that at the time her only sources of information about One Holding were the Asian Fixed Income hub in Hong Kong, and her AFI contact in the bank’s Bangkok office, that she had had no more financial information other that which she already had sent to Mr Teng, and that when she had sought more up-to-date financial information as had been requested by Mr Teng, she had been told by her AFI contact in Bangkok that the unaudited Q1 1996 figures were the latest ones available because listed companies in Thailand published their audited financial statements one year late, and that she had had no idea whether Thai public companies were required to report to the Stock Exchange of Thailand unaudited quarterly results.

143. It is also Ms Wu’s evidence, which once again I accept and have no reason to doubt, that to the best of her recollection in terms of the documentary material which she had been able to send to Mr Teng, she merely had translated and discussed with him the descriptional portions thereof, and in no sense had performed any numerical analysis; indeed, Mr Teng did not suggest that she had done otherwise.

144. In terms of the plaintiff’s purchase of the One Holding bills, I bear in mind the additional fact, which again is undisputed, that earlier in 1996 the plaintiff also had invested in, and thereafter successfully had redeemed, bills of exchange issued by Securities One, then the largest securities company in Thailand, and a sister company of One Holding within the One Group, Ms Wu stating in her evidence – which also was uncontradicted – that Formosa had made this purchase without seeking any information from her in relation to Securities One or its Group.

145. Of the myriad of evidential ‘tails’ in this case, perhaps the one aspect which has caused some degree of reflection in terms of the overall resolution of this dispute is that Ms Wu has accepted that, when asked so to do by Mr Teng, ultimately she was unable to furnish to the plaintiff up-to-date financial information on the situation of One Holding, which, as part of the One Group was by common consent at that time a significant group in Thaicommerce, and which prior to its demise I find was regarded within the market as a strong and reputable institution possessing that which the market then perceived to be a firm and credit-worthy financial base.

146. It seems to me that this element must be of potential significance as much in a purely ‘selling’ situation as it obviously is in a purely ‘advisory’ context, and I have pondered on Ms Wu’s evidence that, in response to Mr Teng’s queries – which appear to have emanated from Mr Lai primarily at the juncture when the plaintiff was considering the further US$5 million purchase of the One Holding bills – that despite her efforts in this regard Ms Wu had been unable to come up with any additional or more updated documentation to supplement the One Holding materiel already in possession of both parties.

147. I have in mind particularly in this context the principle pressed on the Court by Mr Smith to the effect that the duty to ascertain and consider relevant information extends into a duty to supply relevant information when asked: see, for example, dicta of Cooke J in Capital Motors Ltd v Beecham [1975] 1 NZLR 576, to which counsel also has drawn my attention, wherein the court held that the salesmen in that case had undertaken a duty of care to confirm certain information as to the use of a motor car, but had failed to do so.  In this context, the case of Richardson v Norris Smith Real Estates Ltd [1977] 1 NZLR 152 also was cited, wherein reliance was placed on the dictum of Beattie J (op cit, at 158) that:

“In Capital Motors Ltd v Beecham [1975] 1 NZLR 576 … the comment was made that although the plaintiff could have obtained the information for himself without much trouble, the judge in the circumstances of the case, where a positive answer was given, did not find that fatal to the plaintiff’s claim.  Nor do I in this case bar the plaintiff’s claim because the search note and further inquiries could have revealed the true position as to the boundaries.  The reason why the Richardsons did not make inquiries is, as I have found, that they got a positive response from Mr Smith.”  (emphasis added)

148. However, these cases are not factually analogous, given that it is common ground that although Ms Wu had not yet made her inquiries as to prospective updated information on One Holding’s finance, Formosa nevertheless decided to proceed with its purchase of the second tranche of bills without waiting for such further information, and that it is established on the evidence, and indeed I have so found, that Ms Wu did her best to address locating further information/updated accounts, but in fact was unable to do so.  I also have rejected the plaintiff’s case that in the telephone conversations with Mr Teng prior to the execution of the second contract Ms Wu had advised that in making this purchase the plaintiff “did not need to worry”.

149. Accordingly, had it been the case – which I have held that it was not – that Ms Wu in fact did not make best efforts to obtain additional data, I fail to see how any such failure to obtain such further information can be regarded as in any way causative of the plaintiff’s loss, given that it is not in dispute that Messrs Teng and Lai decided to proceed irrespective of such further inquiries, and that Mr Teng executed the order for the second tranche of One Holding bills (and indeed the first tranche also, in that he apparently had some unanswered queries at the time of the initial sale) without waiting for the results of Ms Wu’s search for updated information, and since at the relevant times both parties fully were aware that entry into these contracts (and the 2^nd contract in particular) had taken place on the basis of information which at that time was recognized by both as not to be up-to-date.  In short, the plaintiff, in the persons of Mr Lai and Mr Teng, had been prepared to take the risk in their desire to obtain a higher yield.

150. Mr Teng has made very clear in his evidence that since he and Mr Lai had believed Ms Wu would supply such further (and necessarily updated) information as soon as possible, the plaintiff had agreed to execute the buy order immediately on 8^th January 1997, but no case has been made nor formally advanced by the plaintiff that if such additional information indeed had been obtained, and if such had not been to the plaintiff’s satisfaction, that as a consequence the bank then would have agreed to repurchase the bills at the plaintiff’s behest; perhaps the reason is that on the evidence adduced before this court any such conclusion would have been no more than mere speculation.  In fact, in cross-examination Mr Lai was unable to give a satisfactory explanation of the decision to proceed with the purchases irrespective of the admitted lack of updated information; when asked what difference it would have made had more information been provided after his 8^th January 1997 sale was concluded, his answer was inconclusive and unconvincing; for example [vide Transcript, Day 3, page 84]:

“Q.  You then said that you nevertheless decided to proceed with the purchase and then wait for this information in the meantime.  What, if after you bought these bill of exchange, two weeks later, more up-to-date information comes and it shows a disastrous picture, what then?

A.    I don’t know, because the other party did not provide me with any information – no information was indeed to me …”

151. On the plaintiff’s case, therefore, this significant problem of causation could only be circumvented if I had accepted the plaintiff’s evidence, which I have not, to the effect that, although Ms Wu did not have available updated information, nevertheless that specifically she had advised or warranted to Mr Teng that, as he put it, “One Holding was in a big group of companies and that the plaintiff did not need to worry”.

152. Since I have found that Ms Wu made no such assurance or warranty and gave no such ‘advice’, and that, as she herself said in evidence, she believed that she had confined her comments to asserting (as then was objectively known) that there was “a strong linkage” of One Holding with Finance One and Securities One, that the major management levels were almost the same, and that she had heard no negative news about One Holding at the time, if indeed Mr Teng had raised the financial soundness of One Holding, as was accepted by her that he might have done – “he might have asked me” – Ms Wu’s position was that she would have said that as far as she was concerned these factors represented the position of One Holding; I also bear in mind her evidence in her witness statement to the effect that she would have said: “I also told Mr Teng that Securities One and Finance One are financially strong according to the information shown to me”.

153. It is true that in cross-examination [Transcript, Day 5, page 127] Mr Smith SC strongly taxed Ms Wu for, he asserted, falsely adding the words “according to the information shown to me”, and suggesting that these words in fact had not been said – “they have an unnatural sound to them” – but Ms Wu remained adamant that she had said words like “On the information shown to me it looks like it’s financially strong” – “financially sound”, and in this I am prepared to accept her evidence, since I also accept without hesitation that she was not purveying information that at the time she knew or thought to be wrong or suspected to be in any way incorrect, not least since it is agreed that this conversation was taking place against the backdrop of the parties’ mutual awareness that updated financial information on One Holding was not then available.  Moreover, if I be wrong in this conclusion, and if Ms Wu did not add these words, as the plaintiff’s counsel has suggested, it seems to me that in any event this would be the necessary and obvious implication from what she had said about the circumstances of One Holding to Mr Teng, given that there is no question of Ms Wu having concealed any relevant information from the plaintiff.  It is also worth bearing in mind that it was never suggested by Formosa that One Holding did not look financially strong on the information available to Ms Wu and provided to Mr Teng, that is, information up to and including Q1 1996; this, no doubt, is because if this information had not looked strong, this then would have been apparent to both Mr Teng and Ms Lai.

154. It follows, therefore, that hard though Mr Smith SC may wish to bang this particular drum, I am unable to see how this aspect of the case suffices to get the plaintiff home – in which connection I repeat the observation that it strikes me as ambitious to run a case entirely on the basis of words which may or may not have been used in undocumented telephone conversations of over a decade ago, and that for all practical purposes the best that fairly can be achieved is to make a determination on the available evidence of the probable gist of what was said in the relevant context at the relevant time.  In this context I also respectfully agree with the sage observation of Mance J (quoted herein at paragraph 124) that the courts should not be “too ready” to read duties of an advisory nature into this type of relationship, a dictum which in my view serves to emphasise the forensic necessity in such cases for clear and cogent evidence to demonstrate and to establish the vital transition from mere ‘sales pitch’ to that of ‘advice/advisory guidance’.

155. Accordingly, at the end of the day I have taken the view, and specifically so find, that in her telephone exchanges with Mr Teng that Ms Wu, in her capacity as a salesperson within the Asian Fixed Income division of the defendant bank, neither acted nor purported to act as ‘adviser’ to the plaintiff, and that in substance she did no more than to reiterate certain objectively available information then in the marketplace relating to the perceived financial soundness of One Holding – a perception which, as earlier pointed out, apparently was then shared by the defendant bank itself, which after the sale of the second set of bills to the plaintiff itself had purchased a further US$5 million of this commercial paper for its proprietary account, upon the demise of One Holding itself suffering corresponding economic loss.

156. Looking at this case in the round, it strikes me as odd that there could be thought to be liability for negligence when in fact the bank employee in this case did no more than provide to the purchaser, in the person of Mr Teng and at his request, such available public information as was known to her at the time regarding a listed company on the Thai stock market.  At bottom, that which it seems to me the plaintiff is endeavouring to achieve in this case is to transform the position of the defendant bank from mere retail seller of Thai commercial paper in normal commercial course – in this instance the One Holding bills – to the wholly unanticipated status of guarantor and/or indemnifier against potential default by One Holding, which is a role the defendant bank neither undertook nor conceived of when these bills of exchange were subject to normal commercial transactions effected between the plaintiff and the defendant on the 8^th and 28^th January 1997.

157. I am also inclined to the view that this litigation has the pronounced ‘feel’ of litigation advanced as much to vindicate the actions of the then ‘risk management team’ of the plaintiff’s investment arm – in the persons of Mr Teng and Mr Lai – as to obtain financial redress for the loss that the plaintiff, together no doubt with countless other investors in this market, suffered upon One Holding’s commercial default.

158. In my judgment, and on the findings of that made by this court, I can see no analytical basis for attributing liability to the defendant in this action, which accordingly must fail, and I so order.

159. Finally, and for the avoidance of doubt, I reiterate that I have declined to entertain, and certainly I have not purported to judge, any case against the defendant bank which allegedly arose other than through its vicarious liability consequent upon the alleged actions of Ms Wu. 

160. Thus, for example, so far as I am concerned there is no question of any liability of the defendant being said to arise, for example, through the alleged deficiency of the bank in allegedly failing at the time to have within its possession updated information upon the financial status and/or updated unaudited accounts of One Holding for the 2^nd and 3^rd quarters of 1996, which is an issue upon which the plaintiff trailed its coat at this trial and as to which allegation the defendant vigorously, and successfully, has objected

161. To the contrary, nor is there any question of liability in this case being said to arise by the bank having in its possession, but then that to remit to the defendant, relevant updated financial information relating to One Holding.  Speculation apart, there is no evidence whatever – and I so find – that in January 1997 that either Ms Wu or the bank in fact had possession of the One Holding Q2 financial statement, or the Q3 unaudited statement, audited or unaudited, or for that matter that Ms Wu, or any other bank employee, knew or ought to have known of the existence of such documents.

Order

162. It follows from the foregoing, therefore, that consequent upon the trial of this action the Order of this court is as follows:

(i)  The plaintiff’s action against the defendant is dismissed;

(ii)  There is to be a costs’ order nisi that the costs of this action are to be paid by the plaintiff to the defendant, such costs to be taxed if not agreed, and that the costs’ order herein will become absolute unless within 21 days from the date of the judgment herein application is made to vary such order.