KWOK WAI HING SELINA v. HSBC PRIVATE BANK (SUISSE) SA

HCCL 7/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST NO. 7 OF 2010

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J U D G M E N T

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I. INTRODUCTION

1. In a Forward Accumulator (FA) contract an investor agrees to buy a fixed number of shares on every trading day over a period of one year.  The shares are purchased at a “strike price” which is set at a discount to the market price prevailing when the investor enters into the FA.

2. If, during the year covered by the FA, the market price of the shares hits a “knock-out price,” the FA comes to an end. The FA’s issuer is relieved from the obligation to deliver further shares to the investor and the investor is released from the obligation to buy shares daily from the issuer.

3. But there is a sting in the tail and that is the reason why FAs have earned the epithet “I kill you later”.  The sting lies in what happens if the market price falls below the strike price.  The investor in a typical FA then becomes obliged to “double up”.  Not only must the investor still acquire shares at the strike price (despite the market price now being lower), but on any given trading day the investor must also buy twice the number of shares which one contracted to buy.  One has to continue buying a double number of shares until the market price resumes a level above the strike price.

4. FAs are consequently not for everyone.  They are undoubtedly risky.

5. They are fine when market sentiment is bullish (as it was between 2003 and 2007) and share prices rise almost daily.  One then stands to realise significant profits by immediately selling one’s shares as and when acquired on a settlement day.  At least until the knock-out price is hit, one would be gaining the difference between the market and strike prices multiplied by the number of shares acquired and immediately sold.

6. But if the market suddenly drops (as it did in late 2007) and falls steadily thereafter, an FA investor suffers the agony of having to buy double the number of shares daily at the fixed strike price. Further, in contrast to the upside situation, when the market falls there is no knock-out price which can bring an early end to the investor’s woes.

7. HSBC provides private banking services to clients.  It began marketing FAs to its clients in 2003.  On a scale of 1 to 5 (with 5 corresponding to the highest level of risk), HSBC sold FAs as a structured product with a rating of 5.

8. Ms. Selina Kwok, a wealthy housewife, opened a private banking account with HSBC in January 2003.  Having inherited a considerable fortune from her stockbroker father, Ms. Kwok was primarily interested in preserving capital and obtaining a modest return from her assets.

9. When she opened her account with HSBC, she was assessed as having a “medium” risk tolerance.  Her Client Profile (prepared by her Relationship Manager Ms. Tracy Chau) frankly described her as “not financially sophisticated”.  Ms. Kwok also told HSBC at the time that, as she had more than enough money of her own, she was not interested in borrowing.

10. By these proceedings, Ms. Kwok complains that, despite her medium risk tolerance and her lack of financial sophistication, between January 2003 and December 2007, HSBC induced her to enter into some 350 FAs as well as other high-risk structured products.  Ms. Kwok further criticises HSBC for charging her assets as margin or security to cover her commitments for the structured products which she was buying.

11. Ms. Kwok says that she was shocked to discover in late November 2007 just how exposed she was to any downturn in the financial market.  She says that she realised at that point that her financial exposure in relation to FAs far exceeded her available assets and there was the possibility of her becoming bankrupt.

12. Consequently, according to Ms. Kwok, she had little alternative but to protect her position by unwinding her outstanding FA transactions.  Ms. Kwok says that she had to pay around US$10.4 million to buy out her FA obligations and cover her borrowings from HSBC.  She claims that sum as the cost of mitigating the potential losses which she was facing by reason of HSBC’s alleged breaches of obligations owed to her.

13. I have to determine whether, in facilitating her purchase of a large number of FAs, HSBC breached any contractual or other obligation owed to Ms. Kwok.  HSBC denies that it breached any of its obligations.

14. Even if there were any breach, HSBC says that it is entitled to exclude or limit liability by reference to provisions forming part of the standard account opening forms which Ms. Kwok signed.

15. HSBC also says that, if found liable, in assessing damages, account should be taken of the profits which Ms. Kwok made on many of the FAs and other structured products purchased by her from HSBC.

II.  BACKGROUND

16. Ms. Chau first met Ms. Kwok at a lunch at Baci Restaurant arranged by Ms. Koo (then Ms. Chau’s superior) on 13 January 2003. The purpose of the lunch was to introduce HSBC’s services to Ms.Kwok.

17. Ms. Chau brought a range of HSBC materials (including sample term sheets for certain structured products) to the lunch. In the course of the meal, Ms. Chau sold an Equity Linked Note (ELN) for $1 million to Ms. Kwok even though the latter had yet to open an account with HSBC.

18. An ELN is also a structured product.  It is a Note which an investor purchases at a discount to par value.  The Note is linked to a company’s shares.  The ELN which Ms. Kwok bought on 13 January 2003 was linked to HSBC shares.  Upon maturity, the Note is redeemed by its issuer. The investor receives 100% of par in cash if the underlying shares close above a strike price.  But, if the linked shares close below that strike price, the investor must take delivery of those shares in lieu of cash.

19. An ELN may come with a variable (as opposed to a fixed) coupon.  In that case, HSBC markets the ELN as a “Callable Daily Accrual” Note or CDA.  Between 2003 and 2007, Ms. Kwok bought numerous ELNs and CDAs from HSBC.  An ELN has a risk rating of 4, while a CDA has a risk rating of 5. For the purposes of this case, however, it is unnecessary to distinguish between ELNs and CDAs.  Consequently, I shall refer to both types of Notes as ELNs.

20. There is one other structured product mentioned in the evidence.  From time to time between 2003 and 2007, Ms. Kwok entered into Faber contracts.  A Faber is similar to an FA.  The main difference is that with a Faber an investor agrees to purchase foreign currency (rather than shares) over a period of time at a strike price.

21. At the Baci lunch, Ms. Chau gave Ms. Kwok an envelope containing an Account Opening Booklet.  The forms in the Booklet were for opening an execution-only account, that is, for mandating HSBC (among other things) to buy and sell financial products in accordance with Ms. Kwok’s instructions.  Ms. Kwok signed and returned the Booklet on 15 January 2003.

22. The Booklet included a Risk Disclosure Statement.  That pointed out (among other matters) that: “The risk of loss in Trading Assets ... can be substantial.”

23. The Statement advised that a potential customer should “carefully consider whether ... trading or investment ... directly by you ... is suitable for you in light of your financial condition, your tolerance to risks and your investment experience”.  It pointed out that HSBC “do not offer investment ... advice of any nature and whilst we may provide information or express opinions from time to time, such information or opinions are not offered as investment or tax advice”.

24. The Statement urged the customer, if “in any doubt about the risks involved in any trading or investment arrangements,” if “uncertain,” or if any aspect of the Risk Disclosure Statement was “not understood,” to seek “independent professional advice”.

25. The Statement concluded by observing that it “cannot, of course, disclose all risks and other significant aspects of the securities, foreign exchange, commodity or debt instrument markets, or of other markets in which you may elect to trade”.  It cautioned that the customer “should therefore carefully study securities, foreign exchange, commodity and/or other relevant trading arrangements before you trade”.

26. Ms. Kwok has denied that the Statement formed part of the Account Opening Booklet which she received at Baci.  But, the signed original of the Booklet was produced in Court at trial.

27. The Booklet is (as its name implies) in the form of a pamphlet.  The Statement is among the pages of the pamphlet and must have formed an integral part of the Booklet when Ms. Kwok signed the same.  There can accordingly be no doubt that the Statement was among the materials provided to Ms. Kwok on 13 January 2003.

28. Ms. Kwok was given the Booklet to read.  She was asked to return a signed copy to HSBC.  Had Ms. Kwok read the Booklet as she was supposed to do before signing, Ms. Kwok would certainly have seen the Statement.

29. On 14 January 2003 Ms. Chau followed up with a telephone call to Ms. Kwok.  Ms. Chau told Ms. Kwok that HSBC needed a signed copy of the Booklet in order to open an account for her.  Monies could then be transferred from Ms. Kwok’s existing HSBC Premier account to the new account to pay for the ELN which Ms. Kwok had already purchased.

30. On 15 January 2003, before she returned the Booklet to HSBC, Ms. Kwok telephoned Ms. Chau to ask which HSBC products and services mentioned in the Booklet she should tick off as being of interest to her.  Ms. Chau suggested that Ms. Kwok should tick off as many products or services as possible.  This was because (Ms. Chau explained), if a particular product or service was not ticked off and Ms. Kwok later thought that it would be nice to have that product or service, HSBC would not be able to provide the same.

31. Ms. Kwok has asserted that, by her suggestion on what to tick, Ms. Chau was implying that completion of the Booklet was a “mere formality” and the terms and conditions mentioned in the Booklet would not be binding on Ms. Kwok.  I am unable to construe Ms. Chau’s suggestion as having any such implication.

32. Ms. Chau was giving common sense advice.  It would be better (Ms. Chau was saying) to err on the side of ticking off more than less.  If one failed to tick off an item, one might be inconvenienced later if one should suddenly want to use that item.  On the other hand, the fact that one ticked off an item did not mean that one ever had to make use of that product or service.

33. Ms. Kwok made much at trial of the terms of the Statement never having been orally explained to her by Ms. Chau.  But I do not think that there is much in that point.

34. At the time of the Baci lunch, Ms. Kwok may have been (and may still be) financially unsophisticated. But she is an adult, not a child.  She had a secondary school education in England and studied Mathematics for two years at University College, London. At the end of her second year at university, she left without receiving a degree in order to be married.

35. As an adult, Ms. Kwok is (and was) perfectly capable of understanding the key terms of the Statement which I have summarised.  Ms. Chau asked her to read the Booklet.  If there was anything there which she did not understand, Ms. Kwok could have asked HSBC.  Apart from asking which products or services to tick off, she does not appear to have asked Ms. Chau to explain anything else of significance before signing.

36. An elementary principle of contract law is that an adult is bound by one’s signature on an agreement (such as the Booklet). There is nothing here to displace that principle.  HSBC was entitled in the absence of any outward indication to the contrary to assume that, as an adult, Ms. Kwok had read and understood the terms of the Booklet (including the Statement).

37. At one time, Mr. Daniel Fung SC (representing Ms. Kwok) seemed to be running an argument that Ms. Kwok was acting under Ms. Chau’s undue influence.  Undue influence would mean that Ms. Kwok’s mind was so overborne by Ms. Chau that Ms. Kwok cannot be regarded as having acted of her own free will.  But, in the course of closing submission, Mr. Fung disavowed that Ms. Kwok was advancing any case of undue influence.

38. Following the Baci lunch and the opening of Ms. Kwok’s account, Ms. Chau wrote up a Client Profile of Ms. Kwok for HSBC’s internal records.  In the Profile, Ms. Chau assessed Ms. Kwok’s risk tolerance as “Medium”; her investment objectives as “Capital Preservation & Growth”; and her leverage level as “Medium”.

39. Ms. Chau wrote in the Profile:-

“Ms. Selina Kwok is not financially sophisticated and she has placed most of her funds in time deposits which makes nominal returns. We will provide guidance on key decisions. She looks for convenient and efficient service, and we will need to have the patience to explain products and associated risks to her and gradually gain her confidence as a whole.”

40. Ms. Chau estimated Ms. Kowk’s net worth to be US$12 million, with an annual income of US$400,000.

41. As to Ms. Kwok’s “Source of Wealth,” Ms. Chau put down:-

“Selina has inherited money with the past five years from her family. Her late father is Mr. Mok Yung Kie who is the founder of the Mok Yung Kie Securities. She is one of the beneficiaries of a Trust account established by her mother and the Trust is managed by HKIT. The BVI is in the name of Victoria Investment Holdings which has maintained an AUM [Assets Under Management] of USD1.0 Million. We understand this BVI company also maintained account with J. P. Morgan & Chase, as well as Coutts. She seeks investments that provide steady returns and ensure the lifestyle for herself and her family.”

42. On 17 August 2004 Ms. Kwok and Ms. Chau met for tea at Mezz in Prince’s Building.  At the time, Ms. Chau brought 5 documents for Ms. Kwok to sign.  Those documents included a standard letter whereby Ms. Kwok agreed to be classified as a “professional investor” for the purposes of the Securities and Futures (Professional Investor) Rules (the SFPI Rules); a standard form whereby Ms. Kwok requested that credit services be provided; and a standard Memorandum of Charge whereby Ms. Kwok charged her assets as security for credit facilities granted by HSBC.

43. The SFPI Rules define an individual with an investment portfolio of more than $8 million as a “professional investor”. Under the SFPI Rules, HSBC need not send contract notes, statement of accounts and receipts in respect of each transaction executed on behalf of a “professional investor”.

44. By the standard letter which Ms. Chau brought for Ms. Kwok’s signature, Ms. Kwok agreed to be classified as a “professional investor”.  The letter, however, noted that Ms. Kwok had “the right to withdraw from being treated as a ‘professional investor’ ... by giving 30 days’ prior written notice”.

45. Ms. Kwok signed all of the documents which Ms. Chau brought.  Ms. Kwok says that she did so because she was under the impression that signing them was a “mere formality”.

46. However, at the very least, Ms. Chau explained the credit facilities as being made available in case Ms. Kwok should be short of ready cash on any settlement day for any shares or other products purchased by Ms. Kwok.  Ms. Chau said that, instead of obtaining cash by liquidating investments before their maturity date, Ms. Kwok might prefer to use the credit facilities provided by HSBC for the purposes of short term bridging finance.

47. On 30 August 2004 HSBC wrote to Ms. Kwok informing her that a credit facility of US$3 million had been approved for her use.  The facility consisted of a Multi-Currency Revolving Credit Facility, a Standby Letter of Credit/ Bank Guarantee Facility, a Foreign Exchange Margin Trading Line, a Currency Option Margin Trading Line, and a Foreign Exchange Trading Line.

48. Note that later, on 9 May 2005, the credit facility was revised to enable borrowing of up to US$4 million.  HSBC’s letter informing Ms. Kwok of the extended facilities included an Appendix setting out the bank’s “Margin Requirements”.

49. On 26 January 2006 the credit facility was further upgraded to include an “Investment Trading Line” (ITL) for trading in derivatives and structured products.  The HSBC letter so informing Ms. Kwok stated that the facility was secured by the Memorandum of Charge which Ms. Kwok executed on 17 August 2004.

50. On 18 August 2004 Ms. Chau completed a Product Suitability Check (PSC) in relation to Ms. Kwok for HSBC’s internal purposes. The PSC confirmed that a range of products (including ELNs, but not FAs) had been explained to Ms. Kwok.  Curiously, Ms. Chau stated in the PSC that Ms. Kwok had 20 years’ experience trading in such products.

51. Ms. Chau explained at trial that she wrote 20 years because, in light of Ms. Kwok’s age then (around 55 years), she thought that Ms. Kwok would have had a bank account and would have been buying or selling shares for at least 20 years.

52. Ms. Chau accepted that Ms. Kwok could not have had 20 years’ experience trading in structured products such as ELNs.  But she contended that, because structured products like ELNs were linked to shares, for the purposes of the PSC she could treat Ms. Kwok’s putative experience in buying or selling shares as equivalent to trading in structured products like ELNs.

53. Ms. Chau filled out 4 other PSCs in respect of Ms, Kwok.  They are not consistent with each other and, in terms of the client trading experience recorded by Ms. Chau, difficult to reconcile.

54. For instance, in a PSC dated 6 October 2005 concerning shares sold as part of IPOs, Ms. Chau wrote that Ms. Kwok had 15 years’ experience trading in shares.  In a PSC dated 9 February 2006 concerning gold and Faber contracts, Ms. Chau put down that Ms. Kwok had 5 years’ experience trading experience.  In a PSC dated 10 March 2006 relating to equity options, Ms. Chau stated that Ms. Kwok had 10 years’ trading experience.  In a PSC dated 12 February 2007, Ms. Chau suggested that Ms. Kwok had 5 years’ experience trading in bullion forwards.

55. One is left with the impression that in the PSCs Ms. Chau put down arbitrary figures in relation to Ms. Kwok’s trading experience.  The trading experience figures bear little relation with reality, except possibly in some strained and roundabout manner (such as Ms. Chau’s explanation for the figure of 20 years mentioned above).  In all probability, Ms. Chau put down whatever figure was necessary in order to ensure that HSBC could provide whatever services Ms. Kwok might desire.

56. In coming to that conclusion, I should not be taken to be attributing some sinister ulterior motive to Ms. Chau.  In all likelihood, she was merely trying to facilitate matters for Ms. Kwok to ensure that HSBC would allow her to trade in particular financial products (such as FAs or ELNs).

57. In an update to Ms. Kwok’s Client Profile made on 27 August 2004, Ms. Chau wrote: “We have gradually educated her to invest into structured products such as Alpha Plus deposits, ELN linked to HK blue chips and OTC options linked to shares.”  Ms. Chau also noted that Ms. Kwok “understands the associated risk involved and is willing to take calculated risks”.

58. Ms. Kwok entered into her first FA on 8 September 2004.  She entered into another in December 2004.  In 2005, she executed 1 FA in April, 1 in June, 3 in July, 2 in August, 5 in October and 13 in November.  In 2006, she went into 4 FAs in January, 8 in February, 13 in March, 6 in April, 5 in May, 4 in August, 11 in September, 11 in October, 16 in November, and 10 in December.  In 2007, she went into 17 FAs in January, 13 in February, 11 in March, 15 in April, 19 in May, 16 in June, 22 in July, 12 in August, 35 in September, 67 in October and 10 in November.

59. On 19 August 2005 Ms. Jacqueline Lee of HSBC’s Credit Department wrote to Ms. Chau:-

“Reference to the annual review of the captioned client.

It is noted that the maximum undeliverable amount (based on leverage) under the API [that is, FA] contracts reached about 61% of client’s estimated net worth, no further API is allowed till the outstanding API exposure be brought with the guideline and please ensure that client has sufficient collateral to settle the APIs.”

60. On 10 January 2006 Ms. Chau and Ms. Kwok met to review the performance of Ms. Kwok’s portfolio in 2005.  At around that time, Ms. Chau estimated Ms. Kwok’s global net worth as US$15 million and her liquid net worth as US$13 million.

61. On 13 January 2006 Ms. Chau again updated Ms. Kwok’s Client Profile.  Ms. Kwok’s investment philosophy continued to be described as “balanced” and her risk tolerance as “medium”.  Ms. Chau wrote:-

“We have been providing guidance on key decisions.... we have the patience to explain products and associated risks to her and has gradually gained her confidence as a whole. Since the account was opened two years ago, she has transferred about US9.00 Million to us as a result of our efficient and good investment ideas and products.”

62. On 17 January 2006 Ms. Teresa Lau of HSBC’s Credit Department sent an email to Ms. Chau requesting clarification in relation to Ms. Kwok.

63. Ms. Lau wrote:-

“Based on the aggregated maximum option exposure + client’s net worth information, it appears that client’s trading is on the aggressive side. Please clarify product/ trading suitability for client whose risk appetite was assessed as medium.”

64. Ms. Lau also directed:-

“As client’s current option exposure has well exceeded the internal guideline that aggregated maximum option exposure not to exceeded 50% of client’s estimated net worth, no further option trade allowed till client’s liquidity + suitability be cleared and internal guideline on option exposure be complied with.”

65. Ms. Chau replied that afternoon.  She summarised Ms. Kwok’s current trading position.  She noted that, to her understanding, Ms. Kwok had deposits of at least US$5 million in other bank accounts.  She stated that Ms. Kwok had “advised that she can inject assets from these accounts to us in case of top-up”.

66. Ms. Chau continued:-

“The proposed [higher credit] limit is for entering into API contracts, as client fully understands the kinds of risks associated with the transactions and her exposure under this facilities. We believe client is of good integrity and reputation and can be expected to honour all her obligations.

We have worked very hard to win her business from intensive competitions with UBS, Standard Bank Asia Ltd etc. The client has placed her trust in us due to our efficient services and comprehensive product range. She has transferred over USD5 Million financial assets from other bankers to us in November & December 2005.

The previous year income was USD31,500 with AUM of USD$3.4 Million, compared to the total income for the year 2005 is USD180K with AUM of USD13 Million, the increment is 5.7x and 4.1x.

To enhance the relationship, your kind approval is much appreciated.”

67. Mr. Randy Chu (Ms. Chau’s new superior at HSBC) also replied to Ms. Lau.  He repeated that Ms. Kwok had US$5 million with other banks which she could inject into HSBC if necessary for top up purposes.  He thought on the basis of Ms. Kwok’s file that Ms. Kwok “understands the risk of a down market and ready to either top up or sell when condition turns against her”.

68. Mr. Chu concluded:-

“Since this is a growing relationship as proven by the assets injected into the account, this credit approval is essential in growing the relationship. It is of course the RM responsibility to manage client’s risk exposure at the same time work hand in hand with established credit policy. Looking at the various transactions, client is using the correct strategy to profit at the same time minimizing risks. As for the medium risk appetite, I agree that Tracy needs to sit down with client to re-do the KYC [Know Your Client Form] again.”

69. On the next day, Ms. Lau followed up with an email to Mr. Chu asking that Ms. Kwok’s client profile be updated to enable “an informed decision making”.  This was because “the bank needs to ensure of client’s liquidity and suitability to enter into the type/amount of the transaction entered.”

70. Ms. Lau also requested Ms. Chau to provide an updated Estimated Net Worth Statement along with the Client Profile.

71. On 24 January 2006 Ms. Chau updated Ms. Kwok’s Client Profile.  Ms. Kwok’s investment strategy was changed from “balanced” to “aggressive”. Her investment philosophy was revised to: “Aggressive: Seeks aggressive growth in investments.  Has willingness and capacity to assume a high level of risk principal”.  Risk tolerance became “high” (as opposed to only “medium” previously).

72. Ms. Chau did not consult Ms. Kwok about the changes to her Client Profile.  Nor did Ms. Chau inform Ms. Kwok of the changes.  Asked at trial for the basis of the revision, Ms. Chau referred to Ms. Kwok having asked her about opening a discretionary account and the potential of making 18%-20% annual profit returns with such an account.  Ms. Chau had responded to Ms. Kwok at the time that 18%-20% returns would be considered “aggressive”.  On that basis, Ms. Chau testified that she had concluded Ms. Kwok’s risk appetite had evolved from “medium” to “aggressive”.

73. Ms. Chau’s explanation in Court is difficult to accept.

74. It is true that Ms. Kwok asked her about discretionary accounts.  That is because a friend of Ms. Kwok had such an account and that friend had told Ms. Kwok that the friend’s discretionary account had attained an annual return of 18%-20%.  When Ms. Chau asked what sort of return Ms. Kwok was seeking from a discretionary account, Ms. Kwok merely repeated the percentages that her friend had told her.

75. That was all.  Such conversation could hardly be taken to mean that Ms. Kwok’s risk appetite had changed from “medium” to “high”.

76. It seems that Ms. Chau simply updated the Client Profile in order to enable Ms. Kwok’s account to obtain a higher credit limit. Under HSBC’s internal guidelines a client with a “medium” appetite is only allowed credit of up to 50% of net worth.  In contrast, a client with an “aggressive” appetite is allowed credit of up to 100% of net worth.  By unilaterally raising Ms. Kwok’s appetite level to “aggressive,” Ms. Chau was facilitating Ms. Kwok’s ability to trade in a large number of FAs and similar structured products.

77. In November 2007, following significant drops in financial markets around the world, Ms. Kwok insisted on seeing Mr. Chu instead of Mr. Chau to discuss her account.

78. According to Ms. Kwok, it was not until a meeting with Mr. Chu on 26 November 2007 that she came to appreciate the extent of her exposure to falls in the market.  At the time, Ms. Kwok’s total exposure in respect of foreign shares was about US$24 million, while her total exposure in respect of Hong Kong shares was about US$66 million.

79. On 21 December 2007 Ms. Kwok decided to unwind all her outstanding FA transactions.  She also liquidated her outstanding ELNs in order to obtain funds with which to buy out her FA contracts and cover any borrowings on her HSBC credit facilities.

III.  DISCUSSION

A.  Key witnesses

80. The 2 main witnesses were Ms. Kwok and Ms. Chau.

81. Ms. Kwok was not an impressive witness.

82. It seemed plain (despite her denials) that she had no precise recollection of events beyond what was recorded in contemporaneous documents (including transcripts of her telephone conversations with Ms. Chau and Ms. Doris Lam (Ms. Chau’s assistant)).

83. Thus, for instance, in her Supplemental Witness Statement, Ms. Kwok claimed not to have received the Risk Disclosure Statement when the Account Opening Booklet was provided to her.  This was because (according to her) she had no recollection of the Statement.  She suggested that “[h]ad [she] been made aware of the document, just by reading [the] words on top, would have sent [her] running away with alarm from opening the Account”.

84. But, pressed in cross-examination, Ms. Kwok clarified that she simply could not remember whether the Statement did or did not form part of the Booklet.  When the original Booklet was produced, it became clear beyond doubt that, physically, the Statement must have always formed part of the Booklet and there was never any basis for Ms. Kwok’s denial of the Statement being provided to her.

85. In the course of her cross-examination by Mr. Jat Sew Tong SC (representing HSBC), Ms. Kwok struck me as evasive.  She often did not answer Mr. Jat’s questions.  Instead she took every opportunity to advocate her case (as opposed to give frank evidence).  Thus, Ms. Kwok was prone to repeat in answer to many questions that she was merely an unsophisticated housewife who (despite having studied Mathematics at London University) had no head for even simple financial calculations and so had to rely on Ms. Chau for everything.

86. She was over the top (and thus not credible) in her assertions.  For instance, she told the Court that in her investments she simply followed what Ms. Chau told her.  Apart from that, she claimed to have had no independent views of her own about shares.  She went so far as to say that Ms. Chau frequently decided whether or not to sell particular shares in her portfolio without reference to her.

87. That assertion is just not supported by the documents.  So, for example, the telephone recordings of her conversations with Ms. Chau amply demonstrate that she fully understood the mechanics of FAs (including the relevance of the strike and knock-out prices and the obligation, in the event that the market price fell below the strike price, to double up).

88. Ms. Kwok comes across in her telephone conversations as very much reaching her own decisions on whether to buy or sell FAs or shares at given prices, having heard and taken account of Ms. Chau’s recommendations and views.  Sometimes she would accept those views; other times she would not.

89. She was certainly aware of the need to pay for FAs, shares or other products which she purchased and, having obtained Ms. Chau’s thoughts, she would decide on her own out of which available monies (including foreign exchange holdings and credit facilities) such products should be paid. That is evident from a perusal of telephone call transcripts of Ms. Kwok’s conversations with HSBC.

90. I therefore approach Ms. Kwok’s oral evidence with great circumspection.  Unless backed up by contemporaneous documents, I would not regard her evidence as reliable.

91. Ms. Chau, on the other hand, was more frank. She was prepared to admit many matters against her interest.

92. But, at some points of her evidence, Ms. Chau struck me as being overly defensive to the point of being evasive.  Sometimes, as in her explanations for changing Ms. Kwok’s risk appetite to “aggressive” or for suggesting in PSCs that Ms. Kwok had substantial trading experience, Ms. Chau struck me as not credible.

93. I must therefore also treat Ms. Chau’s evidence with caution, unless backed up by a contemporaneous document.

94. The trial bundle contains a number of Call Reports.  These purport to be near contemporaneous records of meetings between Ms. Chau and Ms. Kwok or between Mr. Chu and Ms. Kwok.  They are near-contemporaneous in the sense that they were written up a few days (occasionally, weeks) after a meeting.

95. Ms. Kwok has queried a number of Call Reports of meetings between her and Ms. Chau.  For instance, consider a Call Report of a meeting on 2 November 2007 (but (as Ms. Kwok herself pointed out in Court) only written up on 10 December 2007).  According to the Report, at about the same time when Ms. Kwok was expressing concern about the possible exposure of her account to a market downturn, Ms. Kwok nonetheless remained “bullish” about China shares.  Ms. Kwok denies having any “bullish” sentiment independently of what she had been told by Ms. Chau.  She queried why she should be “bullish” about anything, if she were worried about her financial exposure.

96. Given that the Call Reports are not quite contemporaneous, I hesitate to take them at face-value as evidence of what they state.  It is conceivable that, by the time a Call Report was being created, there would be a temptation (even if only sub-conscious) to give a spin to a meeting so as to cast subsequent events in more favourable light.  I do not say that such actually happened.  But I think that one should proceed with caution as far as Call Reports are concerned.

B.  Alleged core duties owed by HSBC

97. HSBC accepts that it owed a number of duties to Ms. Kwok as its client.  Those duties were: to act with due care and skill; to ensure that any representation made or advice given to Ms. Kwok was accurate and not misleading; to act diligently when providing information to Ms. Kwok; and to notify her properly and seek her consent before charging any assets in her account.

98. But Mr. Fung submits that HSBC’s duties went further.  In particular, he suggests that HSBC owed the following additional duties:-

(1)  to advise Ms. Kwok;

(2)  to manage Ms. Kwok’s account with due care and skill;

(3)  to provide fair and accurate information in relation to her account;

(4)  to inform and warn her of risks in relation to her account;

(5)  to know Ms. Kwok as a client; and,

(6)  not to sell financial products to Ms. Kwok that were unsuitable for her known risk appetite, investment objective, or net worth.

99. Mr. Fung refers to these additional obligations as “core duties”.  He argues that they arose by reason of the following:-

(1)  Mr. Chu stated in his email to Ms. Lau (quoted above) that it was a Relationship Manager’s duty “to manage client’s risk exposure”.

(2)  The duties arise by implication of law.

(3)  HSBC (through Ms. Chau) voluntarily assumed responsibility for the core duties.

100. I am unable to agree with Mr. Fung.

101. First, I do not see how, as a matter of law, what Mr. Chu wrote in an internal email to Ms. Lau many years after Ms. Kwok opened her HSBC account can define the obligations which HSBC undertook in relation to Ms. Kwok as a result of the opening of her account.  It is an elementary principle of contract law that one cannot use the subsequent conduct of one or other party to an agreement to construe the terms of their contract.

102. The Account Opening Booklet made it clear by the Risk Disclosure Statement that the account being opened by Ms. Kwok was an execution-only account.  It was an execution-only account in the sense that HSBC was not to be regarded as offering investment advice of any nature in connection with the account.

103. While HSBC might make recommendations from time to time, it was ultimately (the Statement stressed) for a client to assess whether a particular transaction was suitable in light of that client’s financial condition, risk tolerance and investment experience.  The Statement expressly warned that the investment risks associated with a financial product might be substantial and, if in any doubt about whether a product was suitable, the client should seek independent third party advice.

104. The Statement could not be clearer.  In that light, I am unable to see how Mr. Chu’s personal views as to the extent of a Relationship Manager’s duties (views which were not expressed to Ms. Kwok at the material time) can be regarded as somehow modifying the plain meaning of the Statement.

105. Second, it is also an elementary principle of contract law that one cannot imply obligations which are contrary to the express terms of an agreement.

106. Thus, the alleged duty to advise would be contrary to what the Risk Disclosure Statement expressly says.  HSBC might state a house view on a proposed investment from time to time, but the client should not regard that as advice.  The client must make up his or her own mind in light of his or her own personal circumstances.

107. The account being execution-only (that is, authorising HSBC to act in accordance with Ms. Kwok’s instructions in relation to financial transactions), HSBC cannot be taken as having impliedly accepted a core duty to manage Ms. Kwok’s account.  To the contrary, HSBC was only undertaking to execute Ms. Kwok’s instructions promptly with due care and skill.

108. Ms. Kwok was not opening a discretionary account.  She must have realised that, because later on she asked about the possibility of opening (and did open) a discretionary account.

109. As for risks, the Statement disclosed the risks involved in various financial transactions in some detail and urged Ms. Kwok to seek independent advice if she was in any way uncertain of her position or what to do.

110. Further, the evidence suggests that Ms. Chau did explain the terms of ELN, FAs and Fabers to Ms. Kwok.  This is apparent from transcripts of Ms. Kwok’s telephone conversations with Ms. Chau where Ms. Kwok demonstrates a comfortable familiarity with the mechanisms of FAs, including strike price, knock-out price and double up.

111. As Mr. Jat notes, it being apparent that Ms. Kwok was familiar with the mechanisms of FAs, there is little room for suggesting that she was not aware of the risks involved or her potential exposure.

112. Thus, it is difficult to believe that, had she applied her mind to the matter, Ms. Kwok could not have calculated her maximum (worst possible scenario) exposure on an FA.  That would be the situation where the market price went down to 0 immediately after an FA was executed.  In that case, the exposure would be 2 x the daily number of shares which she was obliged to buy x the strike price x the number of trading days in a year (roughly 250).

113. Mr. Fung made great play in Court about Ms. Kwok not having a computer.  But an ordinary calculator or pen and paper should have sufficed.

114. In any event, in respect of each transaction which she entered into, HSBC sent Ms. Kwok term sheets and other documents setting out (among other information) the risk level involved.  Term sheets in relation to FAs executed by Ms. Kwok, for instance, expressly stated that the products had a risk level of 5.

115. Ms. Kwok says that she was too unsophisticated, too busy, or too occupied by other matters, to look at the many papers being sent to her.  Therefore, she did not bother to read or understand them.  In such circumstances, it seems to me that Ms. Kwok only has herself to blame.  By the Account Opening Booklet and Statement, HSBC expressly stated that it was for a client to assess a financial product’s suitability for the client’s circumstances.

116. That notwithstanding, in response to Ms. Kwok’s complaints that she was receiving too much documentary information in relation to her transactions, HSBC tried to accommodate Ms. Kwok by providing her with simplified portfolio summaries.  Even then, Ms. Kwok now complains that the portfolio summaries were misleading, apparently because they did not state how much Ms. Kwok stood to lose if the market went against her for the duration of a given FA.

117. I disagree that the position summaries were misleading.  They typically capture in graphical format (pie and bar charts) the net asset value of Ms. Kwok’s portfolio on a given month.  They do not purport to do anything else.

118. I am therefore unable to imply a duty that it was for HSBC to monitor Ms. Kwok’s account and warn her that she was over-extending herself in relation to her net worth.  Nor am I able to infer from HSBC having tried to help Ms. Kwok by providing position summaries that HSBC undertook greater duties than those stated in the Account Opening booklet.

119. By the same token, I am unable to imply a negative duty on the part of HSBC “not to over-sell products”.  Again, in respect of a given transaction, it was for Ms. Kwok to decide whether or not to enter into the same.  It was for her (with or without recourse to independent advice) to monitor her financial exposure in the event of an adverse market.

120. It is the case that Ms. Lau monitored Ms. Kwok’s exposure and then warned Ms. Chau and Mr. Chu that Ms. Kwok had exceeded HSBC’s credit guidelines.  But (as Mr. Jat points out) Ms. Lau’s concerns appear to have been more from the point-of-view of HSBC as lender.

121. The tenor of Ms. Lau’s emails is that Ms. Kwok might prove to be a credit risk.  She was afraid that Ms. Kwok might not be good for the money in the event of a market downturn.

122. Mr. Chu and Ms. Chau responded to that concern in their emails, Ms. Chau in particular stressing that Ms. Kwok was of “good reputation and integrity” and had access to liquid assets of US$5 million with banks other than HSBC.  On that basis, both Mr. Chu and Ms. Chau argued for extending credit to Ms. Kwok, despite her having exceeded the 50% lending guideline for clients with only a “moderate” risk appetite.

123. I am unable to regard the email exchanges among Ms. Lau, Mr. Chu and Ms. Chau as an attempt on the part of Ms. Chau to circumvent HSBC’s internal guidelines.

124. Insofar as filling out a KYC form was concerned, Ms. Lau asked Ms. Chau to perform a KYC exercise and to update Ms. Kwok’s Client Profile, especially as to net worth and risk appetite, for HSBC’s protection, namely, to ensure that Ms. Kwok was not a credit risk.  Ms. Chau did not carry out a KYC exercise.

125. Mr. Fung criticises this.  He suggests that there was a paramount duty on HSBC to fill out the KYC form for Ms. Kwok’s protection, so that the bank would better know Ms. Kwok and so be able properly to discharge its alleged core duties.

126. It was unfortunate that Ms. Chau did not do a KYC and instead unilaterally updated Ms. Kwok’s Client Profile in January 2006.  Ms. Chau ought, for instance, to have consulted Ms. Kwok before revising her risk appetite to “aggressive”.  Frankly, however, in actuality, Ms. Kwok’s risk appetite had changed.  Her appetite whetted by the considerable profits she was making on FAs, she willingly and knowingly embarked on more and more such transactions.  One need only read through the transcripts of her telephone conversations with Ms. Chau and Ms. Lam to see that was the case.  She was very much deciding herself what to do or not to do, having obtained information from Ms. Chau or Ms. Lam as to what was available on the market at what price and having solicited their view as to whether what was available was or was not a good prospect.  I do not have the impression that she was the “helpless housewife” which she attempted to portray in Court.

127. Nonetheless, whatever the position in relation to Ms. Kwok’s appetite, in light of the Risk Disclosure Statement, I am unable to find that HSBC owed a contractual duty to Ms. Kwok to perform regular KYC updates.  The Risk Disclosure Statement placed the burden of assessing whether financial products was suitable for one’s risk tolerance squarely on Ms. Kwok, not HSBC.

128. I do not think then that I can imply a core duty to “know one’s client” in the circumstances of this case.  Obviously, if HSBC was to provide effective services to Ms. Kwok and keep her custom, they would have had to know her.  But that would be more of a commercial, as opposed to a legal, imperative.

129. Third, Mr. Fung submitted that on numerous occasions Ms. Kwok asked Ms. Chau “to take care of her account” and Ms. Chau agreed to do so.  But in fact the only reliable evidence of Ms. Kwok and Ms. Chau having actually discussed something to that effect is a single telephone conversation on 8 September 2004 in relation to an FA.

130. The conversation proceeded as follows according to the transcript (in translation):-

“Ms. Kwok: Do you really think it is worth doing?

Ms. Chau: I think it is worth doing.

Ms. Kwok: Worth doing, is it?

Ms. Chau: Yep, yep.

Ms. Kwok: Okay, good, good, okay.

Ms. Chau: So you can -- no, you can try once.

Ms. Kwok: Okay, good, good.

Ms. Chau: Yep, yep, you may buy -- do two hundred shares as start.

Ms. Kwok: So you -- you keep an eye on it for me as it goes (laugh).

Ms. Chau: Oh, sure, sure.

Ms. Kwok: Yep, yep, yep, yep.

Ms. Chau: Because every -- because usually it is like this, every time we settle, I will inform you, ‘Ah, we now have settlement of HSBC’...

Ms. Kwok: Right.

Ms. Chau: ... that is if the -- the best scenario is the market price is above one one three eight zero, then you may -- I -- I er don’t have to -- er may immediately sell in the market.

Ms. Kwok: Mm, mm, mm.

Ms. Chau: Yep, so --

Ms. Kwok: That’s right, so I need you to keep an eye on it for me.

Ms. Chau: Yes.

Ms. Kwok: On my own I mean I am not -- not -- able to do that on my own.

Ms. Chau: That is you -- you don’t have to...

Ms. Kwok: Yep, yes.

Ms. Chau: ... follow it all the time, we will remind you.

Ms. Kwok: Okay, that’s it.

  Ms. Chau:  Right.”

131. I am unable to regard the above exchange as constituting an assumption by HSBC of any of the alleged core duties contrary to the express terms of the Account Opening Booklet (including Risk Disclosure Statement).

132. All that Ms. Chau was undertaking to do was to remind Ms. Kwok of any looming settlement dates in relation to FAs.  Ms. Chau regularly did that. Ms. Kwok could then decide whether she wished immediately to sell any underlying shares which she acquired.

133. Mr. Fung sought to bolster his case that HSBC had assumed core duties towards Ms. Kwok by reference to regulatory standards in the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.  However, I am unable to derive much assistance from the Code for the purposes of this case.

134. As Mr. Jat submits, the Code sets out “high level” general principles without distinction as to the near infinite variety of relationships which might exist between bankers and customers.  The Code expressly states that it is not to be treated as law, although it is admissible as evidence of the content of a duty.

135. The Code cannot override express contractual provisions.  It cannot impose a contractual duty which, by the clear terms of the Account Opening Booklet and Risk Disclosure Statement, HSBC has not undertaken.

136. Mr. Fung also refers to duties of care at common law.  But that does not really assist.

137. It is possible to claim pure economic loss under the law of tort when a defendant has breached a duty of care arising by reason of a special relationship between plaintiff and defendant.  There is here a special relationship between Ms. Kwok and HSBC.

138. However, that special relationship is defined by the contract between Ms. Kwok and HSBC contained in and evidenced by the Account Opening Booklet and Risk Disclosure Statement.  It follows that recourse to the law of tort cannot add significantly to an analysis based upon the law of contract.

139. In summary, to succeed in the present case, Mr. Fung has to persuade the Court that HSBC owed one or more of the core duties identified by him.  But Mr. Fung has not satisfied the Court that any of the alleged core duties arise in the present instance.  On the contrary, the existence of the core duties is negated by the express terms of the Account Opening Booklet and Risk Disclosure Statement.  Nor does the Court accept that in the course of their relationship, HSBC voluntarily undertook any of the alleged core obligations towards Ms. Kwok.

C.  Alleged breaches of core duties by HSBC

140. In light of my conclusion that HSBC did not owe Ms. Kwok any of the alleged cored duties, it is strictly unnecessary to consider whether those duties were breached.  For the sake of completeness, however, I shall briefly comment on some of the breaches claimed by Ms. Kwok.

141. Mr. Kwok says that HSBC breached its duties by granting her credit facilities that she never wanted.  Ms. Kwok then, unwittingly (Mr. Fung submits) because not properly informed by HSBC, made use of those credit facilities in support of the numerous FAs which she was purchasing.

142. It is hard to see how granting credit facilities (even if undesired) can constitute a breach of duty in the present circumstances.  The existence of a facility merely means that one can borrow money if there is need to do so.  But one does not have to use the available facility if one does not want to do so.

143. Here, we have already seen how Ms. Kwok was informed by letter from HSBC of her credit facilities.  Thus, for example, by letter dated 26 January 2006 HSBC told her that her credit limit had been increased to US$6 million.  She countersigned the letter, having earlier on 2 February 2006 told Ms. Chau that she would sign the letter after receiving and reading it.

144. In light of that, I do not see how Ms. Kwok can say that she was unaware that credit facilities had been extended to her by HSBC.

145. Further, there is evidence that Ms. Kwok knowingly and willingly drew upon her credit lines at HSBC.

146. On 4 April 2007, for example, Ms. Chau suggested that she could borrow SFr 60,000+ to settle a Union Bank of Switzerland (UBS) FA.  Ms. Kwok agreed. Ms. Chau joked in response that Ms. Kwok was not used to drawing loans. Ms. Kwok replied that she had thought that settlement was to have been in US dollars.

147. On 5 July 2007 Ms. Lam told Ms. Kwok that “before today we had drawn a Hong Kong dollar loan of around five hundred thirty thousand”.  Ms. Kwok replied: “Yes, yes.”  Ms. Lam continued that they would now need to draw a loan of around $225,000 to settle an account.  That would mean (Ms. Lam summarised) that the total outstanding loan due from Ms. Kwok would be around $2.25 million.  Ms. Kwok answered: “Okay, sure”.  They then discussed the interest rate on call loans denominated in Hong Kong dollars.

148. I conclude therefore that not only was Ms. Kwok aware that she had credit facilities at HSBC, but she was also knowingly making active use of those facilities.

149. Ms. Kwok says that she was unaware that her assets were charged as security for her loans or financial exposure under FAs. HSBC is thus said to have breached an obligation to explain the terms of its Memorandum of Charge to her.

150. Ms. Chau is not a lawyer.  Her evidence (which I accept) is that she explained the gist of the Memorandum of Charge to Ms. Kwok before Ms. Kwok signed, although Ms. Chau did not take Ms. Kwok through the Memorandum line by line.

151. Nonetheless, Ms. Kwok signed the Memorandum of Charge.  She is bound by her signature in accordance with normal contract law principle.  If she did not understand the document, then in the absence of some vitiating factor such as undue influence or duress, it was for Ms. Kwok to ask questions of Ms. Chau.  If Ms. Kwok was dissatisfied with any answers, then she ought not to have signed the document.

152. Ms. Chau accepted in Court that Ms. Kwok’s portfolio as it stood in 2007 could not be described as “diversified” in any common sense understanding of that term.  Mr. Fung argues from this that, as a result, there were breaches of core duties by HSBC in allowing Ms. Kwok to put together an unbalanced portfolio contrary to her avowed “moderate” risk appetite.

153. But again, under the Account Opening Booklet (including Risk Disclosure Statement), it was for Ms. Kwok to decide whether her investments were or were not suitable for her circumstances.  It was not for HSBC to monitor her account or advise her on the constitution of her portfolio.

154. Mr. Fung submits that HSBC failed to advise Ms. Kwok that she had over-extended herself by buying so many FAs.  HSBC (it is said) ought to have warned Ms. Kwok that her potential exposure exceeded her available assets.  But, while it is correct that in November 2007 Ms. Kwok’s exposure to FAs exceeded her available assets, under the terms of the Account Opening Booklet it was for Ms. Kwok to monitor her own financial exposure.

D.  Exclusion or limitation of liability clauses

155. In light of my conclusions in Sections III.B and III.C, it is not strictly necessary to deal with this matter.

156. The alleged core duties were not owed by HSBC to Ms. Kwok.  There is therefore no issue as to whether HSBC can exclude or limit its liability to Ms. Kwok in respect of the breach of any core duty by reference to any exclusion or limitation clause in the Account Opening Booklet or Risk Disclosure Statement.

157. Mr. Fung referred me to the Control of Exemption Clauses Ordinance (Cap.71) (CECO).  That deals with whether it is reasonable for a defendant to exclude or limit liability for an obligation undertaken to a plaintiff in the position of a consumer.  However, the operation of the CECO assumes that the defendant has breached duties undertaken towards the plaintiff.  Those duties may be ones undertaken by agreement or imposed by statute.  Here I have found that, in relation to Ms. Kwok, HSBC did not undertake any of the core duties suggested by Mr. Fung.  It follows that the CECO has no bearing on the present discussion.

158. Mr. Fung has also sought to rely on the Supply of Services (Implied Terms) Ordinance (Cap.457) (SSO).  That imposes a duty on a supplier to carry out a relevant service with reasonable care and skill.  It is not possible to contract out of that obligation when one supplies services to a consumer.  However, here, HSBC accepts that it was obliged to discharge such services as it actually undertook to provide to Ms. Kwok, with reasonable care and skill.  The question is just what duties HSBC undertook to provide. Mr. Fung having failed to persuade me that HSBC accepted the core duties, there can be no issue as to whether HSBC failed to execute any of its core duties with reasonable care and skill.  The SSO is therefore not relevant.

159. Finally, Mr. Fung cited the Unconscionable Contracts Ordinance (Cap.459) (UCO).  Where the Court finds that a contract for the supply of services is unconscionable in relation to a consumer, the Court may disregard, revise, or refuse to enforce the unconscionable part.  But here I am unable to find that the terms of the Account Opening Booklet (including the Statement) were unconscionable in any respect.  The UCO is inapplicable.

E.  Quantum

160. Ms. Kwok claims US$10,418,296.05 ($80,960,578.73) as the cost of unwinding her outstanding FAs in December 2007 and January 2008.  That amount includes losses of US$2,888,234.46 ($22,444,470.06) incurred on ELNs.  Ms. Kwok says that she had to liquidate her outstanding ELNs to obtain cash with which to buy out her FA positions. The balance of US$7,530,061.59 ($58,516,108.67) represents the cost of unwinding Ms. Kwok’s outstanding FAs.

161. HSBC estimates that Ms. Kwok made a profit of US$1,540,659 from her disposal of the shares underlying the FAs which she transacted.  HSBC suggests that she paid US$7,520,658 to unwind her outstanding FAs in December 2007 and January 2008.  If one adds the 2 figures together, one obtains a net loss of US$5,979,999 in respect of all Ms. Kwok’s FA transactions from 2003 onwards.

162. In relation to ELNs, HSBC calculates that Ms. Kwok made an overall profit on all ELNs traded by her from 2003 onwards of US$660,304.

163. HSBC thus argues that Ms. Kwok’s total loss should be US$5,319,695 (that is, a net loss of US$5,979,999 on FAs plus a net profit of US$660,304 on ELNs).

164. In light of my conclusions on Mr. Fung’s core duties, it is unnecessary for me to deal with the question of damages.  In my view, however, even if Ms. Kwok had succeeded on liability, the measure of her damages should take into account the profits and losses which she made on the totality of FAs and ELNs traded by her from 2003 onwards.  Thus, the correct figure for her damages should be around US$5.3 million as submitted by HSBC.

165. If the totality of FA and ELN transactions were not taken into account, Ms. Kwok would essentially be enjoying a free ride.  She would be obtaining the upside benefits of the FAs and ELNs in which she traded without being subject to the risk of loss in the event of a significant market downturn.  All such risk would in effect be underwritten and absorbed by HSBC through the payment of the mitigation damages claimed by Ms. Kwok.

166. That cannot be right.

167. Ms. Kwok does not complain about being introduced to FAs and ELNs.  Mr. Fung accepted in closing submission that even a person with medium risk appetite might wish to spice up a portfolio with some higher risk products (including products with a rating of 5).  Provided that FAs and ELNs in such portfolio are not overly numerous, the end result might still reasonably be described as balanced.

168. Thus, even on her own case, Ms. Kwok accepted a degree of risk.  She would have known that even the modest returns which she claims she was after could never be risk free.

169. Another way of putting things would be this: Ms. Kwok claims that she would not have done what she did, if she had truly appreciated the “toxicity” of FAs.  In that case, she must take the rough with the smooth.  She would not have faced the losses which she did.  But equally, if she had not entered into FAs in any significant way, she would not have made the profits that she did.  On that basis, account should be taken of both her profits and losses (including mitigation costs).

170. Accordingly, in quantifying damages, Ms. Kwok should (I think) give credit for profits which she obtained in respect of her FA and ELN transactions. I appreciate that HSBC’s methodology for calculating damages is only rough and ready.  The assessment of damages in this case cannot be rocket science.  Nevertheless, in my view, HSBC’s figure is a more accurate reflection of Ms. Kwok’s putative loss (inclusive of the costs of mitigating her FA position in late 2007).

IV.  CONCLUSION

171. Ms. Kwok’s claim fails and is dismissed.

172. There will be an Order Nisi in relation to costs as follows:-

(1)  The costs of and occasioned by HSBC’s application to amend the Defence and to adduce Ms. Chau’s Supplementary Witness Statement are to be to Ms. Kwok, to be taxed if not agreed.

(2)  The costs of the action are to be to HSBC, to be taxed if not agreed, with certificate for 2 counsel.