CHOW SANG SANG SECURITIES LTD v. SHEN SHUAI

HCA 190/2021

[2023] HKCFI 453

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 190 OF 2021

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D E C I S I O N

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A.  INTRODUCTION

1.  By a notice of appeal of 5th May 2022 (“the Notice of Appeal”), the Defendant (“Ms Shen”) appeals against the decision of Master Phoebe Man of 22nd April 2022 ordering (inter alia) that final judgment be entered against Ms Shen for the total outstanding principal amount of $351,139,103.52, total outstanding interest in the amount of $123,601,317, and interest on the principal.

2.  As this is an appeal under RHC O.58 r.1, what is before me is a rehearing of the summons of 18th October 2021 issued by the Plaintiff (“CSSS”) seeking summary judgment.

B.    THE BACKGROUND

3.  The following is not disputed.

4.  CSSS is a securities firm.

5.  Ms Shen was introduced to CSSS through her friend Mr Yan Yude (“Mr Yan”), the chief executive officer of Virscend Education Company Limited, a company listed on the Stock Exchange of Hong Kong (“Virscend”).

6.  Ms Shen is the sole shareholder and director of Master Lead International Group Limited (“Master Lead”).  Master Lead opened an account for securities margin trading with CSSS in May 2017.  Ms Shen signed a letter of guarantee to guarantee the payment of all liabilities of Master Lead owed to CSSS (“ML Guarantee”);

7.  Ms Shen opened a personal account with CSSS in September 2018.

8.  On 27th March 2019, Ms Shen and a Mr Sun Tao (“Mr Sun”) each signed documents guaranteeing, as primary obligor, the margin trading liability of each other’s companies to SSSC.  Specifically, Ms Shen signed:

8.1  a Chinese letter entitled “担保承诺书”, agreeing to provide a guarantee for the margin accounts of Ocean Power Resources Limited (“Ocean Power”) and Fantastic World Investments Limited (“Fantastic World”), and to execute a letter of guarantee to undertake to pay all amounts owed under the accounts to CSSS (“the Chinese Guarantee Letter”);

8.2  a letter of guarantee, guaranteeing the payment of all liabilities of Ocean Power owed to CSSS;

8.3  a letter of guarantee, guaranteeing the payment of all liabilities of Fantastic World owed to CSSS (together with the letter of guarantee in respect of Ocean Power, “the Guarantees”);

8.4  a letter entitled “Confirmation for Audit Purposes” in English but otherwise in Chinese, addressed to CSSS’s auditors, confirming that Ms Shen had signed the Chinese Guarantee Letter and Guarantees as agreement with, and undertaking to, CSSS to provide a guarantee for Ocean Power’s and Fantastic World’s margin accounts (“the Chinese Audit Confirmation”).

9.  Mr Sun was the sole beneficial owner and director of Ocean Power and Fantastic World.  He similarly signed a Chinese guarantee letter and letter of guarantee in respect of Master Lead.

10.  On 18th March 2020, solicitors for CSSS (“DLA Piper”) issued final payment demand letters to Ocean Power and Fantastic World, demanding the payment of outstanding amounts and interest.

11.  On 25th March 2020, DLA Piper issued letters to Ms Shen, referring to the Chinese Guarantee Letter and Guarantees, setting out the liabilities of Ocean Power and Fantastic World, stating that Ms Shen was liable as guarantor and principal debtor to repay the amounts owed by Ocean Power and Fantastic World to CSSS, and that CSSS had exercised its lien over the funds and collateral opened in the accounts opened and controlled by Ms Shen in accordance with the terms of the Guarantees and other contract documents.

12.  On 11th May 2020, solicitors for Ms Shen (“Li & Partners”) replied, stating that CSSS was not entitled to rely on the Chinese Guarantee Letter or the Guarantees, as they were liable to be set aside as:

12.1  Mr Toby Lee (“Mr Lee”) of CSSS had falsely represented to Ms Shen that the Chinese Guarantee Letter and the Guarantees were the same as the documents that she had signed when she opened the account with CSSS (“the Representation”);

12.2  CSSS had breached its fiduciary duty as a trustee of Ms Shen and Master Lead by procuring them to create liabilities in favour of CSSS for liabilities owed by third parties, CSSS’ interest as creditor of OP and FW being in conflict with its obligations as trustee for Ms Shen and Master Lead;

12.3  CSSS had violated the restrictions of the Securities and Futures (Client Securities) Rules, Cap.571H, in purporting to create any form of security interest over the securities in the respective accounts of Ms Shen and Master Lead in favour of CSSS for liabilities owed by third parties;

12.4  CSSS had breached its duty of care in failing to inform Ms Shen of the risk of guaranteeing the liability of third parties who had no apparent connection with her, and in failing to ask her to seek independent advice before signing the Chinese Guarantee Letter and Guarantees; and

12.5  CSSS had breached its duties as a Licensed Person under the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

13.  DLA’s letter of 19th May 2020 denied these allegations.  It set out what CSSS said was the background leading to Ms Shen signing the Chinese Guarantee Letter and Guarantees.  CSSS’s case was that a Mr Chen Di (“Mr Chen”) introduced various customers, including Ms Shen and Mr Sun, to CSSS; in Ms Shen’s account opening documents she stated that she was a university graduate, operated a company engaged in the business of real estate and construction work, and had had several years’ experience of investing in derivatives; Ms Shen conducted transactions through her account and Master Lead’s account between 2018 to March 2019 with an aggregate value of some $50m; in March 2019, the value of collateral in the accounts of Ocean Power and Fantastic World was insufficient to cover the total loan facilities granted to those accounts and CSSS requested Mr Sun to provide further security or top up of the amounts in the accounts; on 26th March 2019 Mr Chen told CSSS that as an interim measure to deal with the situation, Mr Sun and Ms Shen would each provide personal guarantees for each other’s companies.  DLA said that Ms Shen was fully aware of the legal effect and nature of the documents that she signed.

14.  CSSS issued the writ in these proceedings on 1st February 2021.  It filed its statement of claim on 27th September 2021 and applied for summary judgment on 18th October 2021.

15.  Ms Shen filed an affirmation on 17th December 2021 to oppose the application for summary judgment (“Shen’s Affirmation”).  In it, Ms Shen claimed for the first time that the reason[1] why she came to sign the Chinese Guarantee Letter and the Guarantees was that in around March 2019, Mr Yan recommended to Ms Shen to enter into an arrangement (“the Shared Limits Arrangement”) whereby the loan limits in her margin accounts could be shared with the loan limits in the margin accounts of Mr Sun, who was a friend of Mr Yan.  Mr Yan told her that she and Mr Sun would have to sign some documents to give effect to the Shared Limits Arrangement.  Ms Shen thought that this would be an attractive opportunity to increase the potential loan limits available to her.  She trusted Mr Yan’s recommendation and did not consider it necessary to ask Mr Yan to provide details of Mr Sun’s accounts, expecting them to be healthy, and agreed to sign the relevant documentation even though she did not know Mr Sun.  She did not pay attention to the details of the documents she signed as (a) she thought that they were for the purpose of giving effect to the Shared Limits Arrangement and (b) she trusted Mr Lee of CSSS, the one handling her accounts, who made the Representation that the English documents (ie. the Guarantees) were the same as those she had previously signed.  However, it subsequently turned out that the documents were not for the purpose of giving effect to the Shared Limits Arrangement, and the Representation was false.  There was no reference in the signed documents to her entitlement to use the unused loan limits in the margin accounts controlled by Mr Sun, and unlike the ML Guarantee, the new documents purported to impose an obligation on her to guarantee all liabilities of third parties with whom she had no pre-existing relationship.

C.  THE APPLICABLE PRINCIPLES

16.  The principles on an application for summary judgment are well established.   See Hong Kong Civil Procedure 2023, notes 14/4/4, 14/4/9, 14/4/9A, 14/4/9B.

16.1  The defendant’s affidavit must condescend upon particulars; a mere general denial will not suffice.   The defendant must show that there is a triable issue or that he has a real or bona fide defence.   If he makes an allegation, it must be credible or believable in the light of the evidence placed before the court. The court will not just take the alleged defence at face value but consider it in the light of matters such as contemporaneous documents, consistency with the defence previously put forward, whether it has been raised only recently, inherent probability, and so on.

16.2  On the other hand, the court must not embark on a mini trial on affidavits.   The test is whether the defendant’s assertions are believable, not whether they are to be believed.  O.14 is for clear cases; unless it is obvious that the defence is frivolous and practically moonshine, O.14 ought not to be applied.  The defendant only needs to show that there is a triable issue or question or that for some other reason there ought to be a trial.

D.  MS SHEN’S DEFENCE

D1.    The defence

17.  Leading counsel for Ms Shen, Mr Victor Dawes SC, submitted that the summary judgement application should be dismissed for the following reasons:

17.1  the evidence from two crucial witnesses, Mr Lee and Mr Chen, is not before the court, resulting in a “significant evidential gap”, such that the court cannot grant judgement against Ms Shen;

17.2  the Chinese Guarantee Letter and the Guarantees are liable to be set aside by reason of CSSS’ breach of fiduciary duties.  CSSS failed to disclose that whilst Master Lead’s account was in credit in the sum of $60 million, Ocean Power’s and Fantastic World’s accounts were in debit in the sum of some $270 million.  CSSS stood to benefit from this manifestly one-sided transaction.

18.  At the hearing before me, Mr Dawes confirmed that before any triable issues could arise in respect of these two matters, the court would first have to be sufficiently satisfied that Ms Shen’s factual case as to the Shared Limits Arrangement was capable of belief, as the factual case underpinned the defences.  I turn to address the issue of credibility of Ms Shen’s factual case.

D2.    Credibility of the Shared Limits Arrangement

19.  I agree with the submissions of Mr Laurence Li SC, leading counsel for SCCC, that Ms Shen’s case as to the Shared Limits Arrangement is not capable of belief.

20.  The WeChat exchanges between Ms Shen and Mr Lee immediately prior to the signing of the documents on 27th March 2019 show that Ms Shen was aware that she was signing documents to guarantee the liabilities of Mr Sun’s companies and not to give effect to the Shared Limits Arrangement.

20.1  Mr Lee sent the Chinese Guarantee Letter and the Guarantees to Ms Shen on 26th March 2019 via WeChat.  The next day, Mr Lee also sent the documents which Mr Sun had signed to Ms Shen.  Shortly afterwards, Ms Shen sent a voice message to Mr Lee, asking about the letter of guarantee signed by Mr Sun.  She correctly identified it as a letter of guarantee, and raised a query about the fact that the witness had not provided a certain documentation number, and that the date of execution was missing.  In other words, she knew that what Mr Sun had signed was not a document for sharing margin account loan limits.  Furthermore, she had reviewed the document sufficiently to raise queries as to whether it had been duly executed, even though it was not a document presented for her signature.  It was not the case that she did not pay attention to the documents given to her.

20.2  Leaving aside the Guarantees which were in English, Ms Shen signed the Chinese Guarantee Letter and the Chinese Audit Confirmation.  From the face of these documents, it must have been clear that Ms Shen was being asked to provide a guarantee for the margin accounts of Ocean Power and Fantastic World.  They were in Chinese and one page long only, so Ms Shen cannot credibly (and does not) claim language or comprehension difficulties; and they were plainly not the same as the English ML Guarantee she signed when Master Lead’s account was opened, so Ms Shen cannot credibly say that she was misled into thinking that they were the same, whatever Mr Lee may have represented.

21.  The WeChat exchanges between Ms Shen and Mr Lee on 16th and 17th March 2020, some months after margin calls had been issued in respect of the accounts of Ocean Power and Fantastic World, also indicate that Ms Shen was well aware that she had entered into a guarantee for the companies’ liabilities.  It is not suggested that Ms Shen’s state of knowledge was any different at this point in time as compared with the time when she signed the Chinese Guarantee Letter and the Guarantees.  Furthermore, when Mr Lee informed Ms Shen that the accounts had become “insolvent” and that Ms Shen as guarantor bore a risk of liability, Ms Shen did not seem surprised, or upset; nor did she protest that she had all along thought that she had executed documents to entitle her to share margin account loan limits rather than to take on liabilities of third parties whom she did not know; instead, she acknowledged that she would be liable, and asked for information regarding Mr Sun’s financial position and details regarding the extent of her own liability.  She asked for time to work out a solution.  She also asked Mr Lee to withhold an amount which was about to be received into her account, clearly being aware that it would otherwise be used to settle Mr Sun’s liabilities.  Some of the key parts of the discussions were as follows.[2]

21.1  On 16th March 2020, Ms Shen sent a message to Mr Lee by WeChat, saying that “I made a mutual guarantee previously which I would like to be released, what should I do…”.  Some time later, Mr Lee replied “Hello Ms Shen, regarding cancelling the guarantee, I’ll have to wait for my boss to reply.”  He subsequently texted “Sorry, Ms Shen, regarding cancelling the guarantee, it’s a bit complicated, it cannot be immediately dealt with by completing a form.”  Ms Shen then asked whether “cancelling the guarantee” had to be done in person.  There is no dispute that the discussion related to Ocean Power and Fantastic World.

21.2  Later that afternoon, Mr Lee texted Ms Shen, saying that there was something urgent which he needed to speak to Ms Shen about.  About an hour later, Mr Lee texted further: “Ms Shen, there is something unexpected so I’ll need to notify you.  It’s because the corporate account in Sun Tao’s name for which you previously provided a guarantee, because the shares in the position have dropped significantly, it has already become insolvent! Sun Tao has been trying to find new assets to inject into the account to repay and increase the collaterals, but is still not successful as of today, because as the guarantor there would be risks of liability, and the assets in your account may be directly implicated.  As a matter of our company’s procedures, I have to notify you of the latest situation first.  Let me know when it would be a good time to call you to talk about [it].”

21.3  Shortly afterwards, Ms Shen texted Mr Lee, asking him to look out for an amount which was about to be credited into her account.  The next day, Mr Lee responded to Ms Shen, telling her that it should be possible to return the amount she had deposited.  Ms Shen expressed gratitude when it was credited back to her.

21.4  In the same text, Mr Lee also told Ms Shen that the matter had already been passed to lawyers to handle, and that her assets would likely be used as security for Mr Sun’s debt. His account position was “insolvent and in deficient of almost 500 million”.  Without expressing any surprise at this, Ms Shen asked for various items of information in texts that day, including:

21.4.1  “…can you give me a statement of his current book position?”;

21.4.2  “…at the time of our mutual guarantees, whether the key term was limited guarantee or unlimited guarantee”;

21.4.3  “If it is to use the funds in my account to repay, what are the procedures with the lawyers, I’d like to know;”

21.4.4  “…when is the earliest time of the mutual agreement with Sun Tao”;

21.4.5  “…can you also help send me details of the guarantee he provided for me?”

21.4.6  “…so let’s say the worst case scenario now, is it the case that Chow Sang Sang would dispose of my stocks to repay his debt”?

21.5  In the afternoon of 17th March 2020, in response to Mr Lee’s query as to whether there were any plans or arrangements with Mr Sun, Ms Shen texted that “I’m still trying to find a solution and I’m also consulting the lawyers.  If there is any plan or arrangement I’ll also let you know in advance.”  When chased by Mr Lee as to whether she had any “decision on the directions today, the company will commence legal proceedings in the next day or two”, Ms Shen still did not express any surprise, dismay or denial.  She responded that she was still trying to find a solution.  When Mr Lee asked whether she needed more time, Ms Shen said “There still isn’t any good solution yet as of now, it would be great if you could get a bit more time, in case the stocks bounce back up”.

22.  The contemporaneous WeChat exchanges may also be contrasted with Shen’s Affirmation, where[3] Ms Shen claims that the Chinese Guarantee Letter and the Guarantees were not, contrary to her understanding, for the purpose of giving effect to the Shared Limits Arrangement.  For example, Ms Shen said in her affirmation that “It turned out…” that the Chinese Guarantee Letter and the Guarantees attempted to impose a lien over her funds and securities, as if this was something which she was unaware of previously.  However, the WeChat exchanges showed that when Mr Lee warned Ms Shen that her assets would likely be used as security for Mr Sun’s liabilities, she expressed no surprise.

23.  This also deals with Mr Dawes’ submission that some of what was said by Ms Shen in the WeChat exchanges – her mention of a mutual guarantee, query as to whether the guarantee was limited or unlimited, and request for a statement of Mr Sun’s book position – were “not inconsistent” with the Shared Limits Arrangement.  The context of the conversation was all about Ms Shen being liable for Mr Sun’s debts, and Ms Shen was not surprised by it.  Nor was she making queries about the guarantees in the context of seeking to find out details of some mutually shared margin account limits arrangement. 

24.  Ms Shen’s evidence is self-contradictory.  If she really believed that the documents she signed were to give effect to the Shared Limits Arrangement, she could not at the same time have believed that the documents were the same as the documents she previously signed, since the documents she previously signed were not for any such arrangement.

25.  Ms Shen’s claim to have signed documents for the Shared Limits Arrangement without any awareness of the state of Mr Sun’s accounts is inherently incredible – on the one hand she says she thought it attractive to increase the potential loan limits available to her from others’ accounts, but on the other hand she says she made no enquiries as to the details of those accounts, such as the margin limits of the accounts or the unused margins on the accounts, so that she simply would not have known what “increase” she was getting, and consequently whether it was attractive or not.

26.  The Shared Limits Arrangement was not mentioned in Li & Partners’ letter of 11th May 2020, which sought to deny Ms Shen’s liability.  Whilst the letter claimed that the Chinese Guarantee Letter and the Guarantees should be rescinded, one of the reasons for this being Mr Lee’s false Representation (that the documents were the same as those previously signed), no mention was made of the complaint that the documents signed by Ms Shen failed to give effect to the Shared Limits Arrangement.  In fact, the Shared Limits Arrangement was not mentioned until Shen’s Affirmation of December 2021.  Mr Dawes submitted that the letter was not inconsistent with what Ms Shen said later.  I disagree.  Paragraph 5 of the letter, for example refers to the background to the signing of the documents in March 2019, and says that Ms Shen did not know Mr Sun and had no relationship with either him or his companies.  If there had been any arrangement to share margin limits, it is inconceivable that it would not also have been mentioned as part of the background, in the same way that it is referred to in paragraph 11 of Shen’s Affirmation as part of the explanation as to why Ms Shen signed the documents: “I do not know Sun Tao personally and have never met him.  Nevertheless, I trusted Mr Yan in his recommendations and believed that there was nothing wrong with the Shared Limits Arrangement he recommended to me…” It is also inconceivable that in complaining that the documents had been falsely represented as being the same as those previously signed, complaint was not also made at the same time that the documents failed to give effect to the Shared Limits Arrangement.

27.  Mr Dawes submitted that the absence of Mr Lee’s evidence prevented the court from reaching any conclusion as to liability, as Mr Lee was the only person from CSSS who dealt with Ms Shen, and Ms Shen was entitled to cross examine him.  He relied in particular on the fact that there were two phone calls on 26th March 2019 between Ms Shen and Mr Lee, and there was a conflict of evidence as to their contents.  Ms Shen says that Mr Lee never explained the nature of the Chinese Guarantee Letter and Guarantees to her.  CSSS’ evidence on this point was given by a deputy general manager, who said that she believed that Mr Lee would have asked Ms Shen whether she was aware of and agreed to the cross-guarantee arrangement.  (Mr Lee left the employment of CSSS in February 2021 and emigrated in August 2021.)  However, even if it were the case that Mr Lee never explained the documents to her, this would not detract from the points set out above as to why Ms Shen’s case is not credible.

28.  Furthermore, as Mr Li submitted, Ms Shen’s own evidence[4] is that she signed the Chinese Guarantee Letter and Guarantees in reliance on Mr Yan’s recommendations, and Mr Lee simply provided the documents for Ms Shen to sign.  The only reliance by Ms Shen on what Mr Lee said is his explanation that the Guarantees were the same as the documents that she had previously signed (in other words, the Representation).  There is no dispute by CSSS that Mr Lee did say this.  They say however that it is entirely correct, because the wording of the Guarantees was indeed the same as the ML Guarantee.

29.  Mr Dawes also submitted that the cross-guarantee arrangement made no commercial sense and therefore supported the credibility of Ms Shen’s case.  There was no urgency for Ms Shen to have signed the Guarantees; it was Mr Sun’s companies which needed additional funds, not hers.  However, her claim not to have known what she was doing is simply not credible in the light of the contemporaneous evidence.

30.  I therefore do not consider Ms Shen’s factual case as to the Shared Limits Arrangement is capable of belief.  This alone is sufficient to dispose of Ms Shen’s appeal. 

31.  For completeness, I go on to set out, briefly, my observations regarding the two defences relied on by Mr Dawes as justifying the dismissal of the application for summary judgment: (1) the absence of evidence from Mr Lee and Mr Chen, and (2) the alleged breach of fiduciary duties by CSSS.  I do not consider that either of these defences raises any triable issue, even if Ms Shen’s factual case could be said to be credible.

D3.    Absence of Mr Lee and Mr Chen

32.  Mr Dawes submitted that the absence of Mr Lee’s evidence is relevant to the issue of whether Ms Shen’s case is worthy of belief.  In particular, it was said that:[5]

32.1  Mr Lee was Ms Shen’s main point of contact at CSSS and conducted all the WeChat exchanges with Ms Shen, and was the one who asked her to sign the Chinese Guarantee Letter and the Guarantees (and the Chinese Audit Confirmation) in March 2019;

32.2  there is a conflict of evidence as to whether Mr Lee explained the Chinese Guarantee Document or the Guarantees to Ms Shen.

33.  I have addressed these points in the previous section.  First, the WeChat records speak for themselves.  Second, it was Mr Yan (rather than Mr Lee) who asked and convinced Ms Shen to sign the documents.  Third, even if Mr Lee had not explained the documents to her, this would make no difference to the credibility of Ms Shen’s case.

34.  It was also submitted that without Mr Lee, CSSS fails to establish that Ms Shen gave informed consent[6] to signing the Chinese Guarantee Letter and the Guarantees, and that there was such a requirement (of consent) as CSSS had fiduciary obligations to Ms Shen.  I do not agree that CSSS had any relevant fiduciary obligations to Ms Shen, as I explain further below.

35.  As to Mr Chen, it is said that it is CSSS’ evidence that he introduced various customers, including Ocean Power and Fantastic World, to CSSS; and that he participated in the negotiation of the cross-guarantee arrangement.  I do not agree that Mr Chen’s evidence is necessary in order for CSSS to prove its case.  CSSS’ case relies on the signed Guarantees, not on what Mr Chen may or may not have said.

D4.    Alleged of breach of fiduciary duties by CSSS

36.  It is said that CSSS owed fiduciary duties to Ms Shen by reason of (1) CSSS being a statutory trustee as regards its clients’ securities and monies; (2) case law recognising a stockbroker as a fiduciary vis-à-vis its clients; and (3) CSSS’ obligations as codified by the SFC’s code of conduct.

37.  In relation to the first point, reliance was placed on s.4(1) of the Securities and Futures (Client Money) Rules (Cap.571I), which provides that a licensed corporation that receives or holds client money has to establish a segregated account for client money, designated as a trust account or client account; and ss.5(1)(a) and 5(2)(a) of the Securities and Futures (Client Securities) Rules (Cap.571H), which provides that an intermediary which receives any client securities or securities collateral shall ensure that they are deposited in safe custody in a segregated account which is designated as a trust account or client account.

38.  However, even if CSSS held Ms Shen’s securities and monies on trust for Ms Shen, it does not follow that CSSS somehow owed fiduciary duties to Ms Shen in relation to the separate transaction of her signing the Chinese Guarantee Letter and the Guarantees.  See Forsta AP-Fonden v Bank of New York Mellon SA/NV and others [2013] EWHC 3127 (Comm) at [174] (Blair J):

“But a party such as a securities lending agent may be in a fiduciary position as regards part of its activities and not as regards other parts. The fact that BNYM may have been a fiduciary in some respects does not mean that it was a fiduciary in all respects. The court has to consider the particular duty alleged to be breached.”

39.  In the present case, it is not entirely clear what fiduciary duty is alleged to have been breached.  It is said that CSSS was in breach of its fiduciary duties in that it placed itself in a position where its interests as creditor vis-à-vis Ocean Power and Fantastic World were in conflict with its duty as trustee and fiduciary for Ms Shen.[7] However, there could not have been a duty on CSSS not to place itself in such a position, given the terms of the client agreement which each of Ms Shen and Master Lead entered into with CSSS, which provided that:

39.1  CSSS was entitled to decline to accept or execute any instruction of the client at its absolute discretion and without giving any reason (cl.5.9);

39.2  the client understood that CSSS might take an opposite position to any order whether it was on CSSS’s own account or on behalf of CSSS’ other clients (cl.6.4);

39.3  the client authorised CSSS to dispose of any of his securities for the purpose of settling any liability owed to CSSS (cl.11.1);

39.4  the client granted to CSS as a general lien over his monies, securities and other properties held by CSSS for the discharge of his obligations to CSSS arising from CSSS’ dealing in securities on his behalf (cl.15.3);

39.5  the client agreed that his assets held by CSSS stood charged as continuing security for the payment and discharge of any amounts due to CSSS (cl.15.4, Addendum A cl.6.1);

39.6  the client authorised CSSS to sell any of his assets at such price and in such manner at CSSS’ absolute discretion, and without giving prior notice, to discharge his indebtedness to CSSS (cl.15.5);

39.7  the client acknowledged that CSSS was under no obligation to provide any margin facility if CSSS in its absolute discretion considered it prudent or desirable for its protection not to do so (Addendum A cl.3.4);

39.8  the client was to make payments of deposits or margins on CSSS’ demand, in such amounts and within such time as specified by CSSS, and as CSSS at its absolute discretion determined necessary to provide adequate security in respect of the clients margin facility (Addendum A cll.4.1, 4.2);

39.9  CSSS was entitled to revise the margin requirements margin ratio and loan limits from time to time at its absolute discretion (Addendum A cl.4.3);

39.10   any amount due under the client’s margin facility was repayable on demand, and the margin facility could be varied or terminated in the absolute discretion of CSSS (cl.9.1).

40.  The extent and nature of the fiduciary duties owed in any particular case fall to be determined by reference to any underlying contractual relationship between the parties.  The contract can, and does, modify the extent and general nature of the general duty that would otherwise arise.  See Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439 at [141] (Stock JA).  There has been no explanation as to how the fiduciary duty contended for can arise in the face of the terms of the client agreement.

41.  In relation to the second point, reliance was placed on Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371, where at 377 Gibbs CJ said:

“Normally, the relation between a stockbroker and his client will be one of a fiduciary nature and such as to place on the broker and obligation to make to the client a full and accurate disclosure of the broker’s own interest in the transaction…”

42.  However, it is clear from the immediately preceding passage that this was said in the context of a case where the stockbroker had taken on the duty to give investment advice to the client:

“The firm, which held itself out as an adviser on matters of investment, undertook to advise Dr Daly, and Dr Daly relied on the advice which the firm gave him. In those circumstances the firm had a duty to disclose to Dr Daly the information in its possession which would have revealed that the transaction was likely to be a most disadvantageous one from his point of view.”

43.  In the present case, it is not Ms Shen’s case that SCCC took on any duty to advise her, or that she sought SCCC’s advice and relied on it.  On the contrary, her evidence is that her decision to sign the Chinese Guarantee Letter and the Guarantees based on Mr Yan’s recommendations.

44.  It was also said that there is a consistent line of authorities in England recognising the fiduciary nature of the relationship between a stockbroker and its client; I need not deal with these, as it was recognised that these were all in the context of secret commissions received by the stockbroker.[8]

45.  In relation to the third point, reliance was placed on certain provisions of the Code of Conduct for Persons Licensed by or Registered with the SFC.  It was said that these provisions are “the codification of fiduciary duties imposed by equity in general”.[9]  However, the Code cannot override express contractual provisions: Kwok Wai Hing Selina v HSBC Private Bank (Suisse) SA [2012] 4 HKC 260 at [135] (Reyes J).

E.  DISPOSITION

46.  For the above reasons, I dismiss Ms Shen’s appeal.

47.  The parties agreed that costs should follow the event, with certificate for two counsel, and that costs should be assessed summarily.  I therefore order that Ms Shen pays CSSS the costs of and occasioned by the Notice of Appeal, with certificate for two counsel, to be assessed summarily.  CSSS should lodge and serve its statement of costs within 7 days; Ms Shen should lodge and serve her list of objections within 7 days thereafter; CSSS should lodge and serve its reply, if any, within 4 days thereafter.  The costs will then be assessed summarily on the papers.