ZHANG HONG LI AND OTHERS v. DBS BANK (HONG KONG) LTD AND OTHERS

HCCL 2/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 2 OF 2011

______________________

______________________

_______________

J U D G M E N T

_______________

Index

1.  This is yet another action that has arisen from the global financial collapse of 2008.  It differs from the host of other claims that have made their way to our courts in that the claims in this action, brought by the 1^st plaintiff,  Zhang Hong Li, (“Zhang”), the 2^nd plaintiff,  Ji Zhengrong (“Ji”), the 3^rd plaintiffs, Bruno Arboit and Roderick John Sutton (“Arboit” and “Sutton” respectively), and the 4^th plaintiff, Wise Lords Limited (“Wise Lords”), are based, not on “mis-selling” of investment products, but primarily on alleged dishonest breach of trust by the 2^nd defendant, Nautilus Trustees Asia Limited formerly DBS Trustee H.K. (Jersey) Limited (in their capacity as the former Trustee of the Amsun Trust) (“the DBS Trustee”), and alleged dishonest breach of fiduciary duty by the 3^rd defendant, DBS Corporate Services (Hong Kong) Limited (“DBS Corporate”), and by the 4^th defendant, DHJ Management Limited (“DHJ Management”), that were allegedly committed with the knowing assistance of each of the 1^st defendant, DBS Bank (Hong Kong) Limited (“DBS Bank”), the 5^th defendant, Lee Kwok Tai Peter (“Peter Lee”), the 6^th defendant, Lim Leung Yau Edwin (“Edwin Lim”), and the 7^th defendant, Liu Hiu Hong Linda (“Linda Liu”)[1].

A.  The parties

2.  Zhang, Ji’s husband, is a senior banker with well over 20 years of experience in the banking and finance industry, having occupied senior positions at, amongst other financial institutions, Goldman Sachs (US) and Deutsche Bank.  He did not deal directly with any of the defendants.

3.  Ji is Zhang’s wife. She is a home maker based in Beijing where she lives with the couple’s two sons.  She had studied in China and has a Master’s degree in logistics from a university in Dalian.

4.  Wise Lords was incorporated by DBS Corporate in British Virgin Islands (“BVI”) on 20 February 2004[2].  Ji subsequently became the company’s first director and sole shareholder[3]. Wise Lords’ private banking account was opened with DBS Bank on 22 April 2004.  The Account Opening Form was signed by Ji as the sole director[4]. From April 2004 to early 2005, Ji, as director of Wise Lords, conducted a considerable number of investments through Wise Lords’ account[5]. 

5.  Arboit and Sutton are the current trustees of the Amsun Trust (“the Trust”), a Jersey family trust which was set up in 2005 for the benefit of Ji’s family, namely, Zhang, Ji and their 2 minor sons.  In December 2004, Ji submitted an application form to DBS Trustee for the setting up of a trust[6]. Upon the execution of various documents[7] and, ultimately, the Settlement Deed dated 4 January 2005 (the “Trust Deed”)[8], the Trust came into existence.  When the Trust was set up Wise Lords became the Private Investment Company (“PIC”) holding the assets of the Trust.

6.  DBS Bank is the Hong Kong subsidiary of DBS Bank Limited of Singapore.  DBS Bank is and was a licensed bank in Hong Kong and registered and licensed under the Securities and Futures Ordinance (Cap. 571)(“SFO”) to advise on, deal in and manage securities.  DBS Bank was the parent company of DBS Trustee, DBS Corporate and DHJ Management and the employer of Peter Lee, Edwin Lim and Linda Liu.

7.  DBS Trustee was a wholly-owned Jersey subsidiary of DBS Bank carrying on business as a professional trustee/trust management company.   DBS Corporate was DBS Bank’s Hong Kong corporate services and corporate nominee subsidiary.  DHJ Management was DBS Bank’s BVI corporate management/corporate services subsidiary.

8.  Peter Lee was head of DBS Bank’s Trust and Corporate Services division, executive head of DBS Corporate Services, and supervisor of DHJ Management. Edwin Lim was executive head of the Private Banking Division of DBS Bank (“DBS:PB”) and licensed under the SFO. Linda Liu was vice president of and a relationship manager in DBS:PB. She was also licensed under the SFO.

B.  The evidence

9.  In this action, the plaintiffs were represented by Mr Barrie Barlow SC leading Mr Chan Pat Lun, and the defendants were represented by Mr Ashley Burns SC leading Mr Abraham Chan and Ms Bonnie Cheng.

10.  I received a substantial amount of evidence over the course of the trial of this case which took 24 days, including 2 days for the plaintiffs’ opening submissions, over half a day for the defendants’ opening submissions, a day when I granted an application to adjourn[9], 2 days for final submissions, and 2 days to deal with an application to re-amend the Amended Statement of Claim, which I allowed in part[10].

11.  The documentary evidence was substantial and was contained in the following Bundles:

(a)  18,719 pages of documents were contained in 70 bundles: D1 – D70[11]. Section 1, comprising of documents referred to in the witness statements and in Schedule 6 of Arboit’s witness statement, were contained in 28 bundles: D1 - D28. Section 2, comprising of documents referred to in Schedules 2, 3, 4 and 5 of Arboit’s witness statement, were contained in 21 bundles: D29 - D49.  Section 3, comprising of documents relating to loan facilities were contained in 6 bundles: D50 - D56.  Section 4, comprising of documents not referred to in the witness statements, were contained in 14 Bundles: D57 to D70.  Section 5, comprised of electronic documents stored on 2 DVDs that were inserted in D70. Hard copies of relevant electronic documents were kept in a bundle marked EB. A Core Bundle of the documents in D1 to D70 was provided marked CB.  More helpful, however, have been 3 further core bundles, called Composite Core Bundles, containing the most relevant documents dating from 2003 to 2011, and marked CB1 - CB3.

(b)  The transcripts of the telephone recordings (mostly between Ji and Linda Liu) were contained in 22 bundles marked E1 –E22.  3 core bundles of these transcripts have been produced marked CTB1 to CTB3.

(c)  Finally, Bundle F contained some of the more relevant documents disclosed by the defendants on 16 June 2014, after 12 days of hearing had been completed[12]. These documents had been recently discovered in the course of a recent documents review exercise initiated for the purposes of DBS Bank’s reorganization[13].

A number of exhibits were also produced in the course of the trial[14]. The transcript of the proceedings is contained in the Transcript Bundles: T1- T5.  Since 1 September 2014, practitioners dealing with cases involving a substantial quantity of documents are able to benefit from the use of E-Discovery and E-Filing protocols[15].

12.  Arboit gave evidence on the 3^rd day of trial and adopted his witness statement and the schedules attached to that statement[16]. Mr Burns did not cross examine Arboit but reserved the question of the weight I should place on his evidence, submitting that no weight should be placed on those parts of the witness statement where he had expressed inadmissible expert opinion and where he spoke on matters that were either not within his personal knowledge or were not within the knowledge he had acquired from the documents he had identified in his witness statement[17]. I agree with those submissions[18] and place no weight on Arboit’s commentary that was based on his reading of the documents relating to matters of which he had no personal knowledge.  However, his schedules were extremely helpful to me and enabled me to identify various transactions that had been entered into and the documents that related to those transactions.  The main witness for the plaintiffs was Ji and she gave evidence from Day 3 to Day 7 of the trial[19].  She was followed by Zhang who gave evidence by videolink on Day 8 of the trial[20].  With that evidence, the plaintiffs closed their case so far as their factual evidence was concerned.

13.  Mr Frank Mayes (“Mayes”), a director of DBS Trustee and DHJ Management, was the first witness called by the defendants.  He gave evidence on Day 9 to Day 11 of the trial[21]. Linda Liu, vice president of and a relationship manager in DBS:PB,  gave evidence on Day 12, and Day 14 to Day 16 of the trial[22]. The next witness was Mr Kenneth Cheung Chun Kwok (“Kenneth Cheung”), vice-president of the investment advisory team of DBS:PB.  He gave evidence on Day 16[23] and adopted his amended Witness Statement[24] as his evidence.  Edwin Lim, executive head of DBS:PB, was the next witness on Day 17 of the trial[25].  Peter Lee, head of DBS Bank’s Trust and Corporate Services division, executive head of DBS Corporate Services, and supervisor of DHJ Management, was the last factual witness for the defendants.  He gave evidence on Day 18 to Day 20[26].  The first schedule to Arboit’s witness statement contains a helpful list of the DBS Group personnel giving evidence or mentioned in the evidence:

DBS Bank Limited (Singapore)

Koh Boon Hwee, Chairman

Miang Cze Koh

 

DBS Bank

Amy Yip, Director and Chief Executive Officer (“CEO”)

Edwin Lim, DBS:PB Head of Taiwan & Mainland China and (from 1 January 2008), Head of North Asia

Desmond Liu, DBS:PB Head for North Asia and Greater China

Law Shek Kit, DBS:PB Vice President of Business Management Support

Linda Liu, DBS:PB Vice President and Relationship Manager

Sera Luk, DBS:PB Business Management Support

Selina Chan, DBS:PB

Rachel Chen

Kenneth Cheung, DBS:PB Investment Advisor

Rocky Cheung, DBS:PB Investment Advisor

Frederick Ko, DBS Credit Department

Aimex Kwong

Eddie Lee, DBS:PB Investment Advisor

Kimber Ngo, DBS Credit Department

Arivazhagan V.

Wendy Yung, DBS:PB Investment Advisor

England Zai, DBS:PB Investment Advisor

 

DBS Corporate

Peter Lee, Head of Trust and Corporate Services

Dicky Fong, Senior Manager

Edna Chan

Sheran Chan

Adrienne Lam

Kathleen Chiu

Matthew Lam

 

DBS Trustee

DBS Bank’s Amy Yip, Director and authorised account signatory (until 1 October 2010)

DBS Corporate Services’ Peter Lee, Director and authorised account signatory

DBS:PB’s Edwin Lim, Director and authorised account signatory (from 1 October 2010)

NW Trustee (Jersey) Limited’s Frank Mayes, Director

NW Trustee(Jersey) Limited’s Colin Walker, Director

 

DBS Trustee’s agent: New World Trustees (Jersey) Limited

Frank Mayes, Director

Colin Walker

Timothy Pearson-Burton

Ben George

Kim Grover

Valerie Kearns

David Muir

14.  The parties were granted leave to adduce expert in the fields of derivative financial products and Jersey law[27]. Satyajit Das (“Das”) was the plaintiffs’ financial expert[28] and Pawan Malik (“Malik”) was the defendants’ financial expert[29]. They produced a Joint Report[30]. The experts on Jersey law were Jonathan Speck[31] (“Speck”) instructed by the plaintiffs and Professor Paul Matthews[32] (“Matthews”) instructed by the defendants.  They also produced a Joint Report[33].  All the reports were adduced into evidence without the need to call the experts to give oral evidence.

C.  My finding on the disputed facts

15.  The factual dispute between the parties was wide ranging and covered the following issues: the set up of the Trust; Ji’s appointment as Investment Advisor; the operational structure established by DBS Bank; the Trust’s objects and investment processes; the credit facility provided; the mutual fund transactions; the DEVA Note; foreign currency (“FX” or “forex”) trading and investments in currency linked notes producing enhanced returns called “Yield Enhanced Deposits” (“YEDs”); build up of exposure to Australian dollars (“AUD”) and purchase of Decumulators; proposed termination of the Trust and the request for distribution; DBS Trustee’s knowledge of the credit position of Wise Lords; the charges levied against the Trust; transfer to the new Trustees; and retention of US$1m.  Each of these broad issues covered a large number of sub-issues.  In making my findings of fact, I have considered all the relevant documentary and oral evidence including, in particular, the evidence identified by the parties in their Composite Table of Disputed Facts[34]. I do not apologise for the length of this judgment which is the product of the substantial dispute between the multiple parties over multiple issues, very many of which were of some complexity. The very many footnotes are testament to the substantial quantity of documentary evidence I have reviewed and referenced. Nevertheless, the delay in handing down this judgment is regretted.

D.  The set up of the Trust

(1)  Ji’s education and experience in investing

16.  I was impressed by Ji’s high level of sophistication and intelligence.  Although she was a housewife residing in Beijing with her 2 sons, she was well educated and quite well travelled, and travelled frequently to Hong Kong.  She had also lived in the United States for about 3 to 4 years where she had worked in the human resources department of a small company[35]. Ji was born on 16 October 1962[36]. She has a Bachelor’s Degree in Economics from the Liaoning Institute of Finance and Economics.  Ji also has a Master’s Degree in Economics from Northeast China University of Finance and Economics[37]. She majored in logistics, involving the management of goods and materials, in both her degrees[38]. She graduated in 1987 and started working in a minerals and metal company from October 1987.  In 1989, she married Zhang. She moved to live in the United States in 1993 or 1994. Their elder son was born in the United States on 8 February 1995 and their younger son was born in Canada on 30 October 2001[39]. The statement in Ji’s Curriculum Vitae of Investment Advisor that Ji had obtained a degree from USA is probably the result of a misunderstanding by the person[40] who completed this document that Ji had signed in blank.

17.  It was suggested on Ji’s behalf that her understanding and use of English only improved after taking a course after the commencement of these proceedings[41]. I find, however, that Ji was able to comprehend and converse in English and was reasonably proficient in English even before she took those lessons.  She had lived in the United States for about 3 to 4 years when her husband Zhang had been posted there.  In the DBS Private Banking Brochure, Ji jotted down her markings more against the English version than against the Chinese version[42]. Although the majority of the recorded telephone conversations with Linda Liu and other DBS Bank personnel were in Putonghua, Ji had many telephone conversations with them in English[43]. Email correspondence between Ji and DBS Bank personnel was also in English[44].

18.  Ji had worked in a minerals and metals company in China prior to her marriage to Zhang and also for 3 to 4 years in the United States.  The first major conflict of fact turned on the source of the information recorded in Ji’s Personal Profile[45], that she raised US$5m capital from the sale of her shares in her business, in which she had invested US$5m for a period of 5 years, and that she earned an annual income of US$50,000 as a consultant, and the information that was recorded in the Call Report of a meeting on 21 September 2004[46] stating:

“Ms. Ji has been working with her Taiwan business partners on trading of Agricultural products and Foods between China and other Asian Countries for over ten years. About one year ago, she sold off most of her stakes which is worth USD[47] 10 Mio to her partners. Since she wants to pay more attention to her kids, she is now working as a consultant of the company. This consultation job generates about USD50K/p.a. income for her.”

Ji denied ever telling Linda Liu about any such business connection and asserted that this was a fabrication by Linda Liu[48]. The figures of US$5m and US$10m in the 2 documents are clearly discrepant.  The Call Report, signed by Linda Liu and dated 22 September 2004, was created only 2 days after the Personal Profile, originally prepared in April 2004 when the account was opened, had been last modified on 20 September 2004.  Linda Liu was cross examined on these matters:

“Q: ... Ms Ji’s evidence was that this is not something she told you and it’s all untrue.

A: I disagee. All these were told by Ji to me. Because I had to have her reconfirmed about the source of her first bucket of gold. That’s the most basic requirement in our KYC[49] process.

Q: Well, if so, did you ask Ms Ji how it is that the business you reported her as selling in April of 2004 for US$5 million, in September 2004 became US$10 million? Did you ask her that?

A: She just gave a rough figure in April and, while I was confirming with her in September, I needed an exact figure from her.

Q: Did you ask Ms Ji how the five years of investment that you had recorded in April on page 94, in September had grown to ten years of investment?

A: I just came to know Ms Ji in March, while those rough figures were provided in April. In September I had to confirm with her as to the accurate figure for the number of years concerned.

Q: Ms Liu, the truth is you made up the fiction on page 94 about the US$5 million and the five years of investment; correct?

A: Disagree. Firstly, Ji had said it expressly that the sum, the initial sum to be deposited into DBS would be in the sum of US$5 million. Look at page 94. The source of capital originated from sale of a business. In fact, she sold her business for US$10 million, but her intention was to put in only US$5 million from that sale proceeds, to deposit into DBS.

Q: Ms Liu, the question was -- please answer “yes” or “no” -- the entries on page 94, the sale of a business of US$5 million, “Years of investment: 5 years”, were made up by you -- “yes” or “no”?

A: (Chinese spoken).

Q: I take that as a “no”?

A: No.

Q: On page 100, the paragraph in the middle of the page, US$10 million from the sale, 10 years investment, you doubled your fiction in September, five months later; “yes” or “no”?

A: Disagree.

Q: The reason why you did that was because you were working with the trust team to prepare the trust structure we looked at earlier and you wanted Ms Ji to be appointed as the investment adviser and, in order to justify that, you had to create a false biography for Ms Ji; “yes” or “no”?

A: Totally disagree.  Because one can be an investment adviser no matter which is US$5 million or US$10 million, or be it ten years or five years.”

I also asked Linda Liu these questions:

“HIS LORDSHIP: I just want to ask her two questions to clarify what she had said earlier in relation to an investment, the intended investment of US$5 million. I think the answer that is recorded in the transcript is this:

‘Firstly, Ji had said it expressly that the sum, the initial sum to be deposited into DBS would be in the sum of US$5 million. Look at page 94. The source of capital originated from sale of a business. In fact, she sold her business for US$10 million, but her intention was to put in only US$5 million ... into DBS.’

Do you remember that?

A: That’s right. Her initial investment with DBS had to be US$5 million.

HIS LORDSHIP: When you say “Look at page 94”, were you asking us to look at page 94 and the figure US$5 million next to “Size of Investment”?

A: Yes.

HIS LORDSHIP: But looking at the box as a whole, isn’t that a reference to the size of her investment in this business which she held for a total of five years, rather than the intended investment into DBS Bank? Because it’s consistent with the next line, “Estimated Capital Appreciation: $0”.

So she’s put in 5 million, she’s sold it and got $5 million back?

A: My Lord is right, I think, yes. I’m sorry I made a confusion.

HIS LORDSHIP: Where do you get the information or impression that she only wished to put in US$5 million into DBS?

A: She mentioned that her initial investment in Wise Lords’ account in the investment of mutual funds included Hong Kong dollars and US dollars in a total of around 5 million.

HIS LORDSHIP: Is that shown on page 92?

A: Part of it, yes. The liquid cash figures, 10,800,000 following, that would include her investment with Standard Chartered Bank and other banks.

HIS LORDSHIP: Yes. Can I ask you to look at page 100. The second row, “AUM”, what does that mean?

A: Asset under management. 10.8 million being asset under management.

HIS LORDSHIP: The reference to this asset under management, is this a reference to the asset to be under management of DBS Singapore Private Banking?

A: It should be no. It’s her liquid cash only, which included other banks, with DBS and other banks.

HIS LORDSHIP: This meeting took place on 21 September 2004.

A: Yes.

HIS LORDSHIP: If you go back to page 94, the middle of that page, in italics, this page was last modified by you the day before.

A: What is stated here, that’s the case.

HIS LORDSHIP: This was printed out on 30 December 2004, as we can see from the top. That suggests that there was no further modification after 20 September.

A: Yes.

HIS LORDSHIP: Given the vast discrepancy in the figures from page 100, which was produced the next day, why did you not change page 94?

A: This should have been modified to make it clearer, but I did not do so.”

19.  I am satisfied that Linda Liu would not have fabricated a story that Ji had earnings from a Taiwanese food and agricultural business.  I am satisfied that Ji must have had some connection with such a business and informed Linda Liu about it. But I am also satisfied that the figures of US$5m and US$10m and 5 years and 10 years are figures plucked out of the air by Linda Liu and inserted into the documents in order to “qualify” Jito become a customer of DBS:PB.  I am satisfied that Linda Liu’s evidence about these figures is untrue.

20.  Ji’s investment experience was limited to the purchase of bonds and mutual funds.  However, the suggestion that she had 10 years’ previous experience in investing in mutual funds[50] was an exaggeration.  It was common ground that she would not purchase shares.  Linda Liu explained that, as her husband was working at a bank, approval was needed from the bank for any purchase of shares[51].  Ji gave evidence that, in 2003, the joint family assets were about US$20m[52], of which some US$6.5m were invested in the mutual funds in her Standard Chartered Bank (“StanChart”) account that were detailed in her email to Peter Lee dated 23 March 2004, and some US$3m were invested in bonds[53].

21.  Linda Liu also gave evidence that Ji had told her that she also had experience in yen FX trading and with premium deposits[54] in her StanChart account[55].Although Ji denied this, after considering the following recorded telephone conversations, I accept Linda Liu’s evidence and find that Ji had some experience in yen FX trading and with premium deposits when she was banking with StanChart:

“Ji: Like Standard Chartered Bank, they have floating (prices). Er, long-time clients are treated better.

Linda: What floating (prices)?

Ji: That is to say this price is what you quoted, it is one price (the same price) on the market, right?

Linda: Yes.

Ji: If it (he) makes a call, will it (he) give you a different quote?

Linda: Yes. Are you talking about the Y – er, Premium deposit, or...

Ji: P—premium deposit.

Linda: That rate – are you talking about the rate or that...

Ji: You – you – you set this rate yourselves.

Linda: Uh?

Ji: You set the rate for premium deposit yourselves.

Linda: Our treasury sets it, right.”[56]

“Ji: It was like this back then. The reason why at the time I only did it once and not again because I thought your practice was different from that of Standard Chartered (Bank). (Standard) Chartered (Bank) does it based on the price written in the contract; but with you, for example, it is based on a rate below 0.7380. Ah, it’s different from the last time.

Linda: No, we are the same as them (Standard Chartered Bank). It is the same industry-wide, (when it comes to) premium deposit.”[57]

“Ji: There’s no need to place, no need to place. It doesn’t matter (Linda: You don’t want to place?) No need to place, no need to place. That...let me tell you, I’m thinking about that premium deposit.

Linda: Premium deposit?

Ji: Premium deposit, its current rate is very good.”[58]

“Ji: I think I want it over a longer period for HK dollar. If I don’t need to use it, and I don’t have much money then I would want to make it one month. It seems they have one for 28 days, Standard Chartered has...”[59]

“Ji: ... -- as for the premium deposit...send me some information. I may...

Linda: Right.

Ji: ...have some cash to do premium deposit, okay?”[60]

“Ji: Because I think it is too risky if I do premium deposit with Euro. I was thinking whether it is possible, say when the prices for New Zealand dollars or Australian dollars are lower...”[61]

(2) Initiation of the idea of a family trust 

22.  In around 2003 or 2004, one of Zhang and Ji’s friends passed away and the friend’s family experienced some issues with inheritance tax.  The incident caused Zhang to think about the need to do something about his family assets[62].  Ji had been referred to Charles Tsang of the Treasury Priority Banking division of DBS Bank in 2004 by one of his subordinates who had met Ji when he was working at StanChart.  The subordinate gave Ji’s contact details to Charles Tsang who then informed Linda Liu that Ji would like to get an understanding about trusts and that she was interested in setting up a trust to hold her family assets.  Linda Liu contacted Ji by phone and also provided Ji with DBS Bank’s private banking account opening forms and trust and corporate services booklet[63] by courier[64]. Linda Liu then arranged for Ji to meet with staff members of the Trust and Corporate Services Department[65]. The contemporaneous documents showed that Ji wished to obtain information about setting up a trust before the initial meeting between Ji and DBS Bank and that Linda Liu did not persuade Ji to set up a trust[66]:

(a)  Email from Linda Liu to Peter Lee dated 11 March 2004, in which Linda Liu wrote: “Ms. Ji who will visit our branch around 11:00am on 18/03 to request for trustee arrangement for her and her business partners. Our TPB colleague, Mr Gary Zheng (x4495) will lead her to meet you or Dicky to discuss with it.  Since I will be on Buz [sic] trip from 17-Mar to 21-Mar, please arrange the meeting with Mr Gary Zheng and Ms. Jia [sic] on 18-Mar”.

(b) Email from Linda Liu to Dicky Fong and Charles Tsang dated 16 March 2004, in which Linda Liu wrote: “There is new client, Ms. Ji, would like to set up both TPB a/c and PB a/c with our bank. She will deposit about HKD4Mio to TPB a/c by cheque from Standard Chartered Bank for mutual funds investment first. Her major banker now is Standard Chartered Bank with net asset value (“NAV”) about USD6Mio. In addition, Ms Ji would like to set up a trustee arrangement as well. From my understanding, she wants to bargain a lower annual fee on Trustee. Dicky, please help to liaison on this. ...”. 

23.  The Trust and Corporate Services booklet[67] contained the following statements:

(a)  The DBS Trust Section provides “tailor-made solutions that will satisfy the needs of high net-worth clients for the global protection of their families’ assets”[68];

(b) The Trust would be administered by DBS Trustee, a Jersey trust corporation with “expertise ... in the establishment and administration of Customized Trusts”[69];

(c)  “A Trust is a popular means of providing global asset protection to persons with confidentiality needs.  It is one of the most effective ways of protecting private wealth from unexpected worldwide economic and political developments ...”[70];

(d) “A Settlor will wish to have confidence in the person appointed as Trustee. Appointing DBS Trustee ... provides the assurance of the DBS name and reputation.”[71]

(e)  “3.     The Trustee

The Trustee is the person or entity into whose name ownership of the Settlor’s assets have been transferred.  The Trustee has an obligation to ensure that provisions of the Trust are executed and the Beneficiaries’ interests protected.  There are strict legal requirements governing the conduct of the Trustee.  The Trustee can be dismissed and replaced by a new Trustee in accordance with the terms of the Trust Deed or the governing laws of the Trust.  Trustees have a legal responsibility to protect the interests of the Beneficiaries, safeguard the Trust assets and comply with the provisions of the Trust Deed.”[72] (emphasis added)

(f)  “DBS Bank provides a wide range of fiduciary services including Trust and Corporate Services in different locations around the world.  Trusts established under DBS Trustee ... are principally structured to protect and enhance the wealth of our private clients under Jersey laws.”[73] (emphasis added);

(g)  “Jersey is a successful offshore international finance centre because of its: ...

• Established Legal System ... that meet International Standards ...

• High Standard of Investor Protection ... ”[74]

(h)  “Trust arrangements for our clients can always be made more effective by the use of a Private Investment Company (“PIC”) ... The benefits of using a PIC to hold your assets include: ... 2. Asset Protection ...”[75] (emphasis added);

(i)  The DBS Trust Section “provides for the establishment and administration of Trusts and company formation ... services to high networth clients.  Our services are distinguished by our commitment to quality, satisfying client needs and building up long term relationships”[76].

The booklet contained the following disclaimer in small print on the bottom of the last page[77]:

“The information contained in this brochure is of a general nature. It is not and should not be relied upon as legal advice or as a recommendation. It is not a substitute for professional advice, which we strongly recommend be obtained in all cases. No responsibility for any loss or other consequences arising as a result of any reliance on this brochure is accepted by member of DBS Group or their officers or staff.”

(3)  The interrelationships and responsibilities of the DBS Companies and Associates[78]; DBS Trustee’s Policies and Procedures Manual

24.  DBS Trustee is a company incorporated in Jersey.  It is (and was during the relevant period) regulated by the Jersey Financial Services Commission in the conduct of Trust Company Business, under the provisions of the Financial Services (Jersey) Law 1998.

25.  Mayes joined Legal Trustee (Jersey) Limited in 1995 and became a director of the company later that year, having previously been employed as a senior tax manager of PriceWaterhouse in the United Kingdom.  Legal Trustee (Jersey) Limited was acquired by New World Trustee (Jersey) Limited (“NWT”) in 2000.  Until March 2013, Mayes was also a director of NWT.  Mayes remained as a consultant with NWT until April 2013 when NWT was purchased by Nautilus Trustee (Jersey) Limited (“Nautilus Jersey”).  In May 2014, Mayes was employed Nautilus Fiduciary Asia Limited, which was majority owned by Nautilus Jersey[79]. Peter Lee was a director of DBS Trustee from 21 January 2008.  Edwin Lim was a director of DBS Trustee from 8 December 2010 to June 2011.

26.  DBS Trustee did not have any employees of its own during the relevant period.  By a Management Agreement dated 17 October 2001 between DBS Trustee (at the time Dao Heng Trustee (Jersey) Limited), DBS Bank (at the time Dao Heng Bank Limited), NWT and NWGH Limited[80],NWT was engaged to manage the business of DBS Trustee and to provide various management services specified in Schedule 1 to the agreement.  Mayes was one of the NWT employees assigned to manage the business of DBS Trustee.  When Nautilus Jersey took over NWT, it provided the management services to DBS Trustee that had been provided by NWT[81].  Different NWT employees were assigned to provide services to DBS Trustee from time to time, carrying out different functions, including but not limited to directors, administrators and officers.  When I refer below to any acts and/or omissions of DBS Trustee, I am referring to the acts and/or omissions of the personnel of NWT[82] performing work for DBS Trustee; and when I refer to, say, Mayes of DBS Trustee, I am referring to Mayes of NWT or Nautilus Jersey performing work for DBS Trustee.  I find that NWT acted throughout as the agent of DBS Trustee. Although the Management Agreement dated 17 October 2001 was governed by Jersey law[83], no evidence has been adduced before me to prove that the law in Jersey governing agents is different from Hong Kong law[84].

27.  Further, by a Delegation Agreement also dated 17 October 2001 executed amongst NWT, DBS Trustee (in its former name) and DBS Corporate (in its former name)[85], NWT delegated to DBS Corporate the management services specified in Schedule 1 to the Management Agreement dated 17 October 2001[86]. By an Agreement dated 30 August 2005 executed amongst DBS Trustee, NWT, NWGH Limited, DBS Bank and DBS Corporate[87], the Delegation Agreement was terminated and the Management Agreement was varied to provide, interalia, that NWT may delegate non-critical administrative and/or operational matters to suitably qualified entities (subject to the Trust business of DBS Trustee was to be managed and controlled from Jersey)[88], and that it was to assist in appointing DBS Corporate to provide corporation administration, investment advisory, investment management and custodial services in relation to companies owned by trusts administered by DBS Trustee[89].

28.  During the time Mayes was a director of DBS Trustee, its board of directors consisted of six directors most of the time, but there might have been five or seven directors during some interim periods.  Peter Lee was a director of DBS Trustee from 21 January 2008[90]. Edwin Lim was a director of DBS Trustee from 8 December 2010 to June 2011.  At all material times, DBS Trustee had three Jersey based directors, including Mayes. The Jersey based directors were responsible for the overall management of, and for making management decisions for, DBS Trustee in relation to its trusteeships. Administrative and daily operational functions were delegated to the trust administers and officers, who were supervised by the directors.  Their works included liaising with DBS Corporate, which was located in Hong Kong.

29.  The Jersey-based operated set up of DBS Trustee was adopted to avoid trusts administered by DBS Trustee from attracting unexpected tax liabilities as a result of uncertainty over the location of its management.  Although Peter Lee was a director of DBS Trustee from 21 January 2008, he did not exercise management power over DBS Trustee or make any management decisions for DBS Trustee in relation to its trusteeships owing to the intentional offshore setup of the Trust[91]. Although Edwin Lim was a director of DBS Trustee between 8 December 2010 and June 2011, by reason of the offshore set up of the Trust, the daily operation of DBS Trustee in relation to the Trust was conducted by directors of DBS Trustee in Jersey[92].

30.  The plaintiffs complained that they were not informed that DBS Trustee did not have any employee of its own during the relevant period and that they were also not informed of the arrangements between DBS Trustee and NWT. In this regard, I accept the unchallenged evidence of Matthews[93] that there is no duty on the trustee, under Jersey law, to disclose to settlers and beneficiaries that the trustee has entered into an arrangement with a third party whereby it delegated its trustee duties to the third party to discharge.  I find that there was no duty on the part of DBS Trustee to inform Ji and Zhang who, if anyone, DBS Trustee had engaged to manage its own business.

31.  DBS Corporate was the main point of contact of DBS Trustee in Hong Kong and the two companies worked closely together. DBS Corporate did not have any employees and the work of DBS Corporate was performed by the colleagues of Peter Lee at DBS Bank’s Trust and Corporate Services Department[94].  When I refer below to any acts and/or omissions of DBS Corporate, I am referring to the acts and/or omissions of the personnel of DBS Bank’s Trust and Corporate Services Department performing work for DBS Corporate; and when I refer to, say, Edna Chan of DBS Corporate, I am referring to Edna Chan of DBS Bank’s Trust and Corporate Services Department performing work for DBS Corporate. The work of DBS Corporate included:

(1)  Assisting customers in acquiring offshore (either BVI or Samoa) companies and providing post-incorporation company administration services if required (i.e. attending to the day to day administration of such companies, including secretarial and book-keeping services, pursuant to the relevant letter of authorisation/mandate in place with the customer). These offshore companies would fall into one of two categories – they would either be a self managed private investment company (i.e. where the customers would directly own and control the offshore company) or a trust underlying company (i.e. where the offshore company will be held under a trust);

(2)  assisting DBS Trustee and, as from 2009, DBS Trustee H.K. (New Zealand) Limited (both wholly owned subsidiaries of DBS Bank) to liaise with potential/existing clients in Asia to complete documentation required for setting up offshore trust structures as requested by such clients;

(3)  facilitating communication between parties involved in these companies and trust structures;

(4)  providing secretarial support and book-keeping services to these companies;

(5)  providing authorised signatory and correspondence address services to companies; and

(6)  providing nominee companies to act as directors of companies of its customers.

DBS Corporate and DBS Bank’s Trust and Corporate Services Department did not provide any legal and tax advice to clients[95].

32.  I accept the defendants’ case that, notwithstanding the said delegation, the services that DBS Trustee and NWT asked DBS Corporate to provide and that DBS Corporate provided were administration and operational services and secretarial support services, and at no time did DBS Corporate exercise any decision-making functions for DBS Trustee[96].  Mayes gave evidence that DBS Trustee was prohibited from delegating authority to DBS Corporate by the Jersey Financial Services Commission regulations[97].

33.  I find that DBS Corporate acted as a bridge of communication but did not possess or exercise any management functions over the trusts or their underlying companies.   The services which NWT and DBS Trustee requested DBS Corporate to provide were administration and operational services as well as secretarial support services which were much more cost effective to be carried out in Hong Kong.  DBS Corporate did not exercise any decision making functions for DBS Trustee. While some of the tasks required to be performed by DBS Corporate related to more substantive operational matters, such as completing Investment Advisor – Yearly Reviews, sending Investment Application forms to DBS Trustee for approval, sending notifications of activities form, sending applications to DBS Trustee to accept offers to increase credit facilities, keeping DBS Trustee informed regularly of the state of Wise Lords portfolio, posing detailed queries to DBS:PB on proposed investments, they were done to enable and facilitate DBS Trustee to perform its trustee functions. DBS Corporate did not carry out those functions or exercise any trustee powers itself. I find that there was no conflict between the role of DBS Corporate role and the role of DBS Trustee. In short, DBS Corporate acted throughout as the agent of NWT[98] and as agent of DBS Trustee, as Mayes himself acknowledged: 

“DBS Corporate as agent of DBS Trustee was ... equally entitled to charge its fees for any additional work done for the Trust/Wise Lords.[99]”

Although the Agreement dated 30 August 2005 was governed by Jersey law[100], no evidence has been adduced before me to prove that the law in Jersey governing agents was different from Hong Kong law[101]. In addition, on 13 September 2005, a Services Agreement, governed by Hong Kong law, was made between DBS Corporate, Wise Lords and DBS Trustee as trustee of the Trust, whereby DBS Corporate agreed to provide services including the incorporation of Wise Lords, the provision of a Nominee Director, Company Secretary services, the provision of a correspondence address and the provision of bank authorised signatories[102]. DBS Trustee was designated the “Principal” under this Services Agreement.  In its letter dated 11 March 2011 addressed to Arboit and the predecessor of Sutton terminating this Services Agreement, DBS Corporate stated[103]:

“DBS Corporate Services (Hong Kong) Limited did not provide any trust administration services to the Amsun Trust (“the Trust”) but only company administration and nominee services to the underlying BVI company, Wise Lords Limited (“Wise Lords”). The terms and conditions of such services are governed by a signed services agreement between DBS Trustee H.K. (Jersey) Limited as trustee of the Trust as the Principal and DBS Corporate Services (Hong Kong) Limited as the service provider.” [My emphasis]

34.  DHJ Management is a company incorporated in BVI and provided nominee director services to companies. It did not provide investment or portfolio management services. It had the duty to manage the underlying PIC of the trust on a day to day basis. 

35.  At all material times prior to 17 August 2005, DHJ Management was a wholly owned subsidiary of DBS Trustee. On 17 August 2005, it became a wholly owned subsidiary of DBS Corporate. The transfer of the management of DHJ Management to Jersey was also done to avoid attracting unexpected tax liabilities as a result of the former location of its management in Hong Kong.  In the vast majority of the trusts, DHJ Management was the director of the underlying company in the trust[104].

36.  On 13 December 2006, Mayes and Colin Walker of NWT (who were also two of the three Jersey based directors of DBS Trustee) were appointed as the only two individual directors of DHJ Management, following which they signed the board minutes of the underlying PIC, on behalf of DHJ Management, approving transactions[105]. Mayes was a director of DHJ Management between 13 December 2006 and 8 July 2008 and he continued working closely with DHJ Management until 13 March 2012, when the directors of DHJ Management were transferred to Geneva, Switzerland.  Colin Walker was a director of DHJ Managementfrom 13 December 2006 and continued to be a director based in Geneva from March 2012 onwards. Kingly Management Limited was the sole corporate director of DHJ Management before 13 December 2006 and remained one of the directors after that date.  Although Edwin Lim was a director of Kingly Management Limited between October 2010 and June 2011, by reason of the offshore set of the Trusts and their PICs, Edwin Lim was not involved in the daily operation of DHJ Management in relation to the PICs, which was conducted by directors of DHJ Management in Jersey and, later, in Geneva.

37.  On the other hand, DHJ Management, as the director of the underlying PIC of the trust, had the duty to manage the affairs of the PIC on a day to day basis.  DHJ Management did not have any employees and the work of DHJ Management in Hong Kong was performed by DBS Corporate, whose work was, in turn, performed by the colleagues of Peter Lee at DBS Bank’s Trust and Corporate Services Department[106]. Peter Lee was one of the authorised signatories of DHJ Management authorised to sign certain documents to facilitate these daily operations.  As the authorised signatory, Peter Lee did not possess any decision making or management power over DHJ Management.

38.  Although it never formed part of the plaintiffs’ pleaded case, a considerable amount of time was spent on the DBS Trustee’s Policies and Procedures Manual (“Procedures Manual”)[107].  Mayes accepted that a lot of the statements in the Procedures Manual were reproductions of statutory or regulatory positions[108].  Whilst he accepted that mistakes had been made in the past, he denied that the Procedures Manual was routinely and systematically ignored[109].  I accept that evidence and the further evidence of Mayes that §4.9 of the 2006 Procedures Manual, dealing with the appointment of investment manager[110], applied only to the situation where the trust assets were held directly by DBS Trustee in a trustee investment account rather than through a PIC[111]. Indeed, §4.9 of the Procedures Manual refers to the appointment of investment manager “for the trust”.   However, the fact that most trusts used a PIC to hold the assets of the trust suggests to me that the vehicle of a PIC was used to hold the assets of most trusts in order to avoid the cumbersome obligations imposed by §4.9 of the Procedures Manual.

39.  I accept the defendants’ submissions that the Procedures Manual did not create enforceable duties and obligations on DBS Trustee towards the beneficiaries of the Trust. The Procedures Manual did not alter or supersede the terms of the Trust Deed.  It was an internal document, as was made clear by the words on its front cover that it was “Restricted to Staff”[112].  Indeed, Mayes described it as their “internal standards procedures”[113].

(4) The meeting on 22 March 2004: Initial approval of Trust with Ji as investment advisor and Wise Lords as private investment company

40.  The first meeting between Ji and DBS Bank was arranged for 18 March 2004 but actually took place on 22 March 2004 when Ji, Charles Tsang, Dicky Fong[114], Katherine Yu (Linda Liu’s assistant) were present.  I do not accept Ji’s evidence[115] that Linda Liu was present at that meeting.  I also find that Peter Lee did not drop in at the conclusion of the meeting to make a courtesy call, as it was suggested on his behalf[116].  Having regard to the contents of Ji’s email of 23 March 2004 that was addressed to Peter Lee rather than Dicky Fong, I find that Peter Lee took a more active role at that first meeting.

41.  Following the sequence of the Checklist[117] prepared for the meeting on 22 March 2004:

(1)  Ji signed the Application for a Trust form in blank[118];

(2)  DBS Corporate provided a 1^st draft Trust Structure Chart[119] which contemplated the establishment of a Long Form Irrevocable Discretionary Trust with a BVI company,  Wise Lords, as the Trust’s PIC, and with the Settlors[120] as Investment Manager operating under a Limited Power of Attorney (“LPOA”), both of which were not later pursued.

(3)  DBS Corporate provided Ji with their 22 March 2004 Trust Quotation addressed to Ji and Zhang[121], for “setting up and implementation fees using standard irrevocable deed ... INCLUDING one free BVI,” and “including the first draft of letter of wishes”.  Ji signed the quotation which included “Appointment of Ms. Ji Zhengrong as investment advisor if required”.

(4)  A sample letter of wishes was probably provided but is not in evidence.

(5)  DBS Corporate provided Ji with their Invoice for these services which was signed by Peter Lee[122] plus a receipt, also signed by Peter Lee[123], for Ji’s set up payment which records the payment as including the provision of Wise Lords to the Trust.  At the back of the invoice Ji wrote “HSBC situation of banks; asset protection; reasonable tax avoidance”.  Ji explained that she jotted this down when told of the benefits of banking with DBS[124].

42.  On the same day, 22 March 2004, DBS Corporate’s Adrienne Lam emailed[125] the staff of NWT including Mayes, Peter Lee and Dicky Fong with their proposals for the setting up of the Trust. On 24 March 2004, NWT’s Gayle Blood replied to Adrienne Lam that NWT for DBS Trustee had no objection to the proposed trust structure and fee arrangement[126].

43.  Later, in mid-April 2004, DBS Corporate activated and provided Ji with Wise Lords’ incorporation documents[127] as part of the proposal to set up the Trust[128], together with a Wise Lords Director’s resolution of 16 April 2004 for the opening of its account with DBS[129].

44.  On 22 April 2004, Linda Liu’s Assistant, Katherine Yu of DBS:PB assisted Ji to open the Wise Lords’ bank account at DBS:PB[130]. The bank mandate made Ji, signing with the Wise Lords company chop, the sole signatory[131], but it also authorised Ji to operate the Wise Lords Account through the Remote Channel[132] by telephone or fax (with Ji’s designated telephone number and designated fax number recorded therein[133]). Under the terms of DBS’ then-prevailing Master Agreement (“Master Agreement”)[134] the Remote Channel Authority was revocable by notice in writing to DBS[135].  As can be seen from the top of the document, the Wise Lords’ bank mandate was held by DBS’ Account Processing Section which was responsible for checking that customer transactions were duly authorised by the customer’s authorised signatories[136].

45.  On the same day, 22 April 2004, DBS:PB opened an account for Ji to become a customer of DBS:PB by completing the DBS:PB Customer Profile[137] which was part of DBS’ KYC records.  It noted that the DBS Trust Section was setting up the Trust, the purposes of which were: asset protection; smooth family wealth succession; taxation savings and confidentiality[138], with Wise Lords as the PIC for investment and asset protection[139].

46.  Having considered the above documents and the evidence, I find that, on 22 March 2004, after receiving a general explanation of the different types of trust available, Ji quickly made the decision to use their most common trust structure and to become the investment advisor of the trust to be set up[140], Subsequently, she was made the sole shareholder and director the BVI company, Wise Lords, to be used as the PIC of the Trust.  I am satisfied from the documents identified above, many of which bore Peter Lee’s signature, that Peter Lee took a more active role than just a supervisory role in the set up of the trust and that he did give Ji general advice on the trust structure[141].  However, I am also satisfied from the emails of 24 and 25 March 2004[142] that he delegated the administrative work to Dicky Fong.  I also find that Linda Liu was not involved in the set up of the trust[143].

47.  It is convenient at this juncture to deal with the dispute raised by the plaintiffs about the propriety of an account in DBS Singapore of a company called Maxy Fortune Trading Ltd. 

48.  In a call report dated 22 September 2004[144], it was stated that:

“Ms. Ji ... intends to diversify her investment on mutual funds and bonds. Ms. Ji would like to set up a new BVI account named Maxy Fortune Trading Ltd. with our DBS Singapore. The shareholding this company is allocated as 50%/50% between Ms. Ji Zheng Rong and her husband, Mr. Zhang Hong Li. ...”.

49.  I accept as truthful the reasons given by Edna Chan in her email response made on 7 June 2006 to an enquiry from DBS Trustee about the use of this account[145]:

“We would advise that per confirmation with the RM, Mr. Zhang’s payroll a/c is at Standard Chartered Bank HK.

A common pattern for a lot of Hong Kong residents in the past is to donate funds outside of HK instead of Intra- HK a/c transfers.  This was due to the fact that in the days of HK estate duty (abolished in Feb 2006), HK onshore donation is subject to a 3 year claw back period for estate duty on death but not so for offshore donation. Thus for the above reason and also purpose of enhanced confidentiality, the funds is routed first to BVI company’s SG account (Maxy Fortune – which is owned by himself and wife) for onward transfer to Wise Lords Ltd (Trust’s underlying company).”

50.  The Compliance Department of DBS Singapore also raised queries about this account and the fund flow from this account to Wise Lords’ account in DBS:PB on 2 occasions in February 2005 and March 2008 which were answered satisfactorily[146].

(5) April 2004 to January 2005

51.  I have reviewed the documents relevant to this period.

52.  On 30 March 2004, there was an email from Dicky Fong to Ji[147], in which Dicky wrote: “Linda and I had a discussion this afternoon regarding your concerns. She told me that she would meet up with you very soon to clarify the outstanding issues before you would give us the greenlight signal to proceed with the set up of the family trust”.  Ji was trying to arrange for the family’s existing investments in mutual funds to be transferred to Wise Lords without incurring any redemption/subscription fees, as mentioned by her in her email of 23 March 2004[148].

53.  The DBS Trust Section prepared for a meeting to take place on 16 July 2004 at which it was contemplated that they would implement the establishment of the Trust. A Checklist for the meeting had been prepared[149] including a letter donating Wise Lords’ share into the Trust, an instrument of transfer of the share and letter of resignation by the director.  However, that meeting did not take place and the process did not resume until December 2004.

54.  On 21 September 2004, Linda Liu met Ji at DBS’ offices. A Call Record dated 22 September 2004[150] recorded that Linda Liu was working with the DBS’ Trust Section “to prepare the trust arrangement for Ms. Ji’s family”, with Peter Lee responsible for this and that the deadline for doing so was “by end of year 2004”[151].

55.  As accepted by Ji in her evidence[152], the delay was the need to transfer the mutual funds from StanChart without incurring any redemption/subscription fees and because it took some time to draft the Letter of Wishes.  I do not accept Ji’s evidence that the delay was also due to the trust deed not being provided to her.  This was a standard form document which was easily available.  Indeed the Checklist for the 16 July 2004 meeting mentioned a trust deed to be signed by the settler[153].  Given that the parties did not proceed with the trust application at the time, the sum of HK$23,836, being the balance of the fees originally received for setting up the trust, was returned to Wise Lords on 27 May 2004[154].

56.  From April 2004 to January 2005, while the Trust was being set up, Ji and Zhang injected some funds into Wise Lords account with DBS:PB and Wise Lords entered into some investment transactions, which included a variety of mutual funds and other investment products such as YEDs. The transactions from 22 April 2004 to 29 December 2004 are listed in Arboit’s 2^nd Schedule[155]. Linda Liu and Rocky Cheung[156] introduced investment products to Ji and Ji decided whether or not to acquire them.  As Ji acknowledged under cross examination:

“Q. It is correct, isn’t it, Ms Ji that Linda and Rocky introduced products to you, but that the decision-making was yours and yours alone.

A. Correct, yes. Yes, during that period from April 2004 to the end of the year, that’s the case.”[157]

Over the course of this period, Ji acquired some experience in investing in these products. The defendants’ submission, which I accept, that, “by the end of December 2014, Ji had demonstrated her acumen in managing Wise Lords’ portfolio by the investment successes achieved in the period from April 2004 to January 2005 before the establishment of the Trust”[158], supports my finding that the need for Ji to acquire some investment experience also contributed to the delay in setting up the Trust.

57.  There was a dispute about the custody of the Wise Lords company chop during this period of time.  Ji claimed[159] that she was not given the company chop for Wise Lords, as the company was always intended to be transferred to DBS Trustee.  However, Ji acknowledged receipt of Wise Lords’ company kit, including its company chop and common seal[160].  Given this acknowledgement, I find that she received the entire company kit, including the company chop.  Ji’s evidence was that the company chop was kept by Linda Liu together with the setting up documents because Linda Liu had told her that the preparation of the trust would be finished very soon[161].  That was hardly the case and there was no good reason why Linda Liu would keep the chop.  The company and the company kit had been provided by DBC Corporate and not by DBS:PB.

58.  In advance of a meeting on 29 December 2004, which Peter Lee had attended[162], the DBS Trust Section’s Stella M.H. Yeung prepared a meeting Checklist[163] which she later used to record, in her distinctive handwriting[164], 11 Checklist items[165], namely:

(1)  The Background (Appendix 10) form[166] dated 29 December 2004 setting out the details of the Settlors and Beneficiaries plus the intended Trust funds and the purposes of the Trust including “Confidentiality; Caring for Children; and Asset Protection”, which Stella Yeung recorded as being completed on “30/12/04”[167].  

(2)  The Trust Application Form[168], with the “Professional Advisors: ... Lawyers ... Accountants ...” section[169] crossed out by Ji[170], which was signed by Ji, Linda Liu and Peter Lee[171] on “29/12/04”[172].

(3)  The “BVI Co. Reservation” which Stella Yeung recorded as “Take over from Ms Ji 29/12/04”[173] and which the DBS Trust Section implemented through various documents executed by Ji and Peter Lee all dated 29 December 2004[174]. 

(4)  The Trust Structure[175] which Peter Lee reviewed and approved by his signature on 30 December 2004 – as Stella Yeung recorded[176].

(5)  The Fee Quotation[177] which Stella Yeung correctly recorded as being dated “29/12/04”[178].

(6)  The Letter of Wishes[179] which was later dated 1 March 2005, but which was provided to Ji at the 29 December 2004 meeting[180].  There is a dispute between the parties as to the proper construction of the Letter of Wishes.

(7) & (8B)  The Appointment of Investment Advisor document which Peter Lee dated 4 January 2005 and signed on behalf of DHJ Management[181] and The Investor Advisor Agreement[182] also dated 4 January 2005 which Peter Lee, together with a second signatory, signed on behalf of Wise Lords[183].

(8A)  The CV of Investment Advisor[184] which Ji signed on 29 December 2004 which described her “other relevant” experience as “investing for Wise Lords Ltd. (BVI under the trust) for the past year”.  The experience she acquired was a consequence of the delay in setting up the Trust.

(10)  The Trust Deed[185] dated 4 January 2005 which was passed to Ji at the 29 December 2004 meeting[186].

(11)  The “Transfer of BVI share to Trust Documents” dated 29 December 2004[187], including:  (a) the Wise Lords’ Sole Director’s resolution[188] signed by Peter Lee and a second signatory for DHJ Management and (b) the Wise Lords’ Sole Director’s resolution[189] signed by Peter Lee and a second signatory for DHJ Management rescinding “all signing instructions previously given”[190].

59.  The plaintiffs contend[191] that, noteably, Stella Yeung’s comprehensive Checklist made no mention of any document (such as an LPOA or any “Authorisation Letter”) whereby Ji was to be authorised to operate Wise Lords’ Account with DBS:PB.

60.  On 30 December 2004, the DBS Trust Section’s Stella Yeung emailed a copy of items:  (1) Background, (5) Fee Quotation, (4) Trust Structure, (9) Trust Deed (undated), and (6) Letter of Wishes (undated) of her Checklist to NWT’s Gayle Blood and Mayes[192] for their approval, which she received the same day[193].

61.  It was common ground that DBS Trustee signed the Trust Deed[194]. It was also common ground that Ji asked to take the Trust Deed back to Beijing for Zhang to sign as Zhang would not be coming to Hong Kong and that, on returning the Trust Deed, Ji told Liu that Zhang had signed the same and Liu then put down her signature as witness to Zhang’s signature although she did not actually witness him signing the document[195]. Nothing turns on the dispute whether or not Ji signed the Trust Deed in the presence of Linda Liu.  It has not been suggested that the Trust Deed was invalidated or ineffectual because Linda Liu did not actually witness Zhang, or did not witness Ji and Zhang, sign it.  It is also clear to me from this evidence that Linda Liu was willing to cut corners and signify that she witnessed parties signing documents when she had not done so.

62.  Although they were requested to do so[196], I find that Ji and Zhang did not seek any legal advice before agreeing to establish the Trust and that this was known to Peter Lee and his team.  The Trust Application dated 29 December 2004 and the Acceptance Form for DBS Trustee dated 30 December 2004 both stated “N/A” against that portion of these forms where details of the legal advisor were to be inserted[197].

63.  Upon the completion of these arrangements, the Trust was established and DBS Trustee owned the trust asset, which was the shareholding of Wise Lords.

64.  The relationship between DBS Corporate, Wise Lords and DBS Trustee was the subject of a Services Agreement dated 13 September 2005[198], by which DBS Corporate was to perform or appoint one or more persons/companies as nominees (collectively the “Nominees”, which expression was stated in the agreement to include DBS Corporate) to perform the services specified in Schedule II of the agreement in relation to Wise Lords. The services specified were the provision of nominee director, provision of registered office and onward transmission of correspondence, record keeping by company secretary and provision of bank signatories.  After Ji transferred the one share in Wise Lords to DBS Trustee for the set up of the Trust, DBS Trustee nominated DHJ Management, which, at that time, was a subsidiary of DBS Trustee, to act as director of Wise Lords. After DHJ Management became a subsidiary of DBS Corporate on 17 August 2005, DHJ Management continued to act as DBS Corporate’s nominated director of Wise Lords.

E.  Ji’s appointment as Investment Advisor

65.  The plaintiffs contended that the Trust Structure stated that the settlers, not just Ji, would be appointed as the investment managers of the Trust, that no details of Ji’s investment background were provided to Jersey and that Mayes approved the structure without DBS Trustee having conducted any due diligence as to Ji’s suitability to act as investment advisor or investment manager.  The defendants contended that Ji had made it clear from the outset that she would be the decision maker within whatever structure was eventually set up.  As one of the settlors/beneficiaries of the trust, wife of the other settlor/adult beneficiary and the mother of the remaining minor beneficiaries, Ji was well able to determine the risk appetite of Wise Lords having regard to the purposes of the trust.  At the time of setting up the trust, Ji signed the Curriculum Vitae and the same was received by DBS Corporate. DBS Corporate had a general understanding of the requirements which DBS Trustee would look for in an individual who was to be nominated as the investment advisor.  DBS Corporate knew Ji’s qualifications and had discussions with DBS Trustee on her qualification as Investment Advisor.  I now deal with these rival contentions.

(1)   The Curriculum Vitae of Investment Advisor

66.  I accept Ji’s evidence that she signed the Curriculum Vitae of Investment Advisor[199] on a date she cannot remember and that, when she signed it, only the typewritten information was on the form.  The handwritten part was filled in afterwards[200]. I accept Linda Liu’s evidence that the document was not prepared by her or her assistants and that she did not recognise the handwriting on the document[201].  I infer and find that the document was prepared by DBS Corporate, that it was signed by Ji sometime in December 2004, and that someone from DBS Corporate filled in the handwritten part.  I have already found[202] that the statement that she had a degree from USA was a mistake and that the statement that she had 10 years’ experience in private investments was an exaggeration.  DBS Trustee’s decision to approve the trust structure and Ji’s appointment as Investment Advisor was not influenced by the Curriculum Vitae of Investment Advisor, as this document had only been sent to DBS Trustee in December 2008[203].

(2)  The Investment Advisor Agreement[204]

67.  I have already found that, on 22 March 2004, after receiving a general explanation of the different types of trust available, Ji quickly made the decision to use their most common trust structure and to become the investment advisor of the trust to be set up[205]. The Investment Advisor Agreement was signed by Ji and by Peter Lee and another signatory on behalf of Wise Lords on or about 4 January 2005. By this agreement, Wise Lords appointed Ji to be its investment advisor.  Although DBS Trustee did not become aware of the Investment Advisor Agreement until February 2007, when a copy was sent to DBS Trustee and included in the records of the Trust[206], DBS Trustee was aware from the outset an investment advisor would be appointed[207].  The documents also showed that DBS Trustee knew Ji was the designated investment advisor before 23 February 2007[208].  Although Ji sought to resile from this, suggesting the investments were driven by Linda Liu[209], I find that she knew[210] that she had been appointed investment advisor to Wise Lords, as she had accepted in the course of her telephone conversations with Linda Liu and Peter Lee[211].

(3)  Due diligence as to Ji’s suitability

68.  It is a common arrangement for family trusts that settlers act as investment advisors.  In this case, Ji made the decision to be the investment advisor of the trust to be set up[212]. However, I am satisfied that any so-called due diligence on Ji’s suitability was cursory at best.  I have already found that, although the Curriculum Vitae of Investment Advisor contained inaccurate information on Ji’s qualifications and experience, the DBS Trustee’s decision to approve Ji’s appointment as Investment Advisor was not influenced by the Curriculum Vitae of Investment Advisor[213]. Any knowledge that that DBS Trustee had of Ji’s qualifications and qualifications was flawed if it was based on the Curriculum Vitae of the Investment Advisor.  Although Mayes gave evidence that he recalled having conversations with DBS Corporate in 2005 about Ji’s suitability and experience as an Investment Advisor[214], I find that any discussions DBS Corporate had with DBS Trustee on her qualifications as Investment Advisor were at best superficial.  Mayes did not provide particulars of these conversations.  At that time he had not seen the Curriculum Vitae of Investment Advisor, as this document had only been sent to DBS Trustee in December 2008[215].  Mayes’ witness statement contains[216] a post facto justification of Ji as Investment Advisor based on the Curriculum Vitae of Investment Advisor which Mayes had not seen at the relevant time.  The absence of written records in the hands of DBS Trustee in 2005 is also made apparent by the email from Tim Pearson-Burton of DBS Trustee to Adrienne Lam of DBS Corporate dated 22 December 2008[217] that was sent after the receipt of a letter of complaint from Ji’s and Zhang’s solicitors dated 11 December 2008.  This email asked for information on the ability of Ji to act as investment advisor.  The approval was given for Ji to act as Wise Lords’ investment advisor without any real scrutiny by DBS Trustee of her qualifications.

69.  However, I am satisfied that DBS Trustee was at least made aware of her experience in operating Wise Lords’ account from 22 April 2004 to 5 January 2005. During this time she purchased and redeemed a large variety of mutual funds and also acquired some YEDs with enhanced returns by reason of the fact that they were currency linked, some to Japanese Yen (“JPY”) and others to AUD.  Much of Arboit’s witness statement is a historical narrative, based on the primary documents, on which I place little weight.  My findings of fact have been made based on those primary documents and the evidence of witnesses who spoke with personal knowledge of the matters in dispute.  Nevertheless, I found the Schedules produced by Arboit to be of considerable assistance[218]. The 2^nd Schedule to his witness statement records every transaction carried out in Wise Lords’ account with DBS:PB and pp.1-5 thereof record the transactions from 22 April 2004 to 5 January 2005[219].  Further, as I have found below, Ji quickly became an astute and experienced investor.

(4)  The authorisation dated 5 January 2005[220] and cover letter dated 6 January 2005[221]

70.  The authorisation letter, executed by DHJ Management as sole director on behalf of Wise Lords entitled “Appointing Authorised Representatives” and addressed to DBS Bank, is Wise Lords’ grant of authority to Ji to issue instructions on behalf of Wise Lords to DBS Bank to sell or purchase securities and to enter into foreign exchange transactions.  The authorisation letter expressly excluded any authority to draw or transfer funds from Wise Lords’ bank accounts or to overdraw the bank account or to negotiate an overdraft facility for Wise Lords.  The cover letter (supposedly with various enclosures[222]) dated 6 January 2005 was from Peter Lee on behalf of DBS Corporate to Linda Liu. The plaintiffs submitted that the authorisation letter and cover letter were false in that they were produced by Peter Lee in 2010 or later, and backdated, in order to try to protect the defendants from liability.  I have already noted[223] the plaintiffs’ submissions that Stella Yeung’s comprehensive Checklist made no mention of any document (such as an LPOA or any “Authorisation Letter”) whereby Ji was to be authorised to operate Wise Lords’ Account with DBS:PB.  The plaintiffs submitted that there were also various other features of the purported authorisation which suggested that it was false, including:

(a)  It was inconsistent with clause 12 of the Investment Advisor Agreement executed by Peter Lee on 4 January 2005, which provided that Ji was empowered to advise the directors of Wise Lords, but was not entitled to engage in any business on behalf of Wise Lords without the consent of Wise Lords[224];

(b)  The other documents signed by Peter Lee on behalf of DHJ Management as sole director of Wise Lords on or around 5 January 2005 were all countersigned or initialled by a second signatory in addition to Peter Lee, whereas the authorisation was only signed by Peter Lee;

(c)  The purported authorisation was allegedly sent by Peter Lee only to Linda Liu under cover of a letter dated 6 January 2005 and there was no record of it ever having been sent to DBS:PB’s account administration staff who would have been the obvious recipients of such a document;

(d)  The letter to Linda Liu purportedly accompanying the authorisation referred to a board resolution of Wise Lords dated 6 January 2005 approving the authorisation which did not exist amongst Wise Lords’ records;

(e)  Peter Lee made no mention of the authorisation when he responded to DBS Trustee’s on 23 December 2008 request for provision of all records in relation to Ji’s appointment nor when reconciling the records held by DBS Trustee in relation to Ji’s appointment with those held by Corporate Services on 15 April 2010;

(f)  DBS Bank made no mention of the authorisation when responding to Richards Butler’s letter concerning the operation of the Trust on 11 February 2009, in which DBS Trustee explained the nature of Ji’s role as being to “recommend” investments;

(g)  The authorisation would have amounted to a power of attorney and would have constituted the appointment of an investment manager, and, therefore, would have contravened DBS Trustee’s procedures as set in the Procedures Manual.

71.  Shortly before the last Pre-Trial Review of this action on 20 May 2014, the plaintiffs had issued a summons for an extension of time to file an Order 27 rule 4(2) notice of non-admission in respect of the authorisation letter and the cover letter.  On the second day of trial, Mr Barlow made a substantive, positive allegation of forgery, alleging that there had been deliberate backdating[225]. Although unpleaded, I allowed Mr Barlow to put this case to the witnesses.

72.  Ji gave evidence that she did not become aware of the purported authorisation until after the commencement of proceedings[226]. Absent evidence of good record keeping by Ji, I cannot place any reliance on Ji’s recollection in 2014 that she had not seen this document in 2005.  She might have seen it and forgotten that she had seen it. If the letter had been signed in January 2005 and not back-dated as alleged, then, even if Ji had not been shown this document, the authorisation would still be effective, being a letter addressed to DBS:PB confirming that Wise Lords had authorised Ji to execute trades on its behalf.

73.  I accept the evidence of Mayes that the authorisation was not inconsistent with clause 12 of the Investment Advisor Agreement executed by Peter Lee on 4 January 2005, which provided that Ji was empowered to advise the directors of Wise Lords, but was not entitled to engage in any business on behalf of Wise Lords without the consent of Wise Lords[227]. Mayes was a very careful witness. His answers never strayed beyond the ambit of the question being posed.  He gave evidence on this matter on Day 11 of the trial as follows:

Mayes was referred to the rather inelegant wording of clause 3(a) of the Investment Advisor Agreement which stated that:

“3. During the term the Investment Advisor shall:-

(a) devote to the Company such of his time, attention and skill as is necessary for the efficient discharge of his duties hereunder and shall exercise such powers consistent with the office to which he is appointed as from time to time and assigned to or vested in him;”[228]

Mayes explained that the powers that were consistent with the office of investment advisor included an authorisation to execute transactions:

“A. There’s powers which were assigned to or vested in him. As I understand it, subsequent to this agreement, such powers were assigned and vested in that person[229].

...

HIS LORDSHIP: The powers that the person exercises is consistent with the office, and the office is that of adviser, not of a person who executes transaction.

A. It is very common for an investment adviser to have a power of attorney to execute transactions[230].

...

A. The document on page 174 of core bundle 1 gives her that power.[231]”

When questioned about clause 12 of the Investment Advisor Agreement which stated:

“12. The Investment Advisor shall be empowered to advise the directors of the Company in any matter relevant to the business of the Company as he considers appropriate, but shall not be empowered to engage nor represent himself as having authority to engage in any business without the consent of a majority of the board of the Company during the term.[232]”

Mayes said the following:

“A. No. As I read the sense of paragraph 12, in relation to the context of this agreement, that is a paragraph very similar to one that I would habitually see in documents of powers of attorney. Reference to any business of the company clearly implies to me that that person should not be given the powers of a director to carry out business on behalf of the company[233].

...

Q. The investment adviser is running the company, according to your evidence.

A. No, the investment adviser is -- has got operational powers over the investment account held by the company.

Q. That’s the only --

A. The directors of the company have control of the company.

...

Q. So if the investment adviser has full powers of execution, why does the investment adviser need to advise anyone?

A. The simple answer to that question is that the company requires investment advice, and that’s what she provided.

Q. If she has powers of execution, the company doesn’t require any advice whatsoever.

A. It does.”[234]

My construction of the clauses in question accords with Mayes’ reading of the Investment Advisor Agreement. Even if the “business” of the company included the purchase of investments, the authorisation letter, executed by the director of Wise Lords upon the resolution of the board, would supply the consent required under clause 12 of the Investment Advisor Agreement[235]. I accept Mayes’ evidence that it is common for the investment advisor to have a power of attorney to execute transactions.

74.  I find that there is no inconsistency between the authorisation letter and the trust and company management structures. I accept Mayes’ explanation that “[a] trustee owns the trust asset, which in this case is the shares of Wise Lords Limited.  It then has supervisory powers over the underlying investments carried out by their underlying company”[236] and Peter Lee’s evidence[237] that Ji’s power to direct investments “was subject to the power of the Trustee and Wise Lords to override Ji’s decisions or reverse the transactions she conducted for Wise Lords”, although he conceded he had not come across any instance of reversal by the trustee[238]. There was no conflict between Ji’s authorisation and the fact that the approvals for Wise Lords’ investment transactions had to be and were routinely sought from DBS Trustee through DBS Corporate.  Peter Lee gave evidence[239] which I accept that “[because] when Ms Ji placed the order, then it would be a matter concerning the bank and the account of Wise Lords.  What we were asking here in the email for prior notice, that is for us, within DBS Corporate Services, to do checking.”

75.  I do not accept the submission that Mayes acknowledged that he and DBS Trustee did not become aware of the purported authorisation until 2010 and that, accordingly, the authorisation did not play any role in DBS Trustee’s administration of the Trust.  I understood Mayes to be saying in his evidence that he knew that, subsequent to the Investment Advisor Agreement, such a power was vested in Ji[240].  He did not say when he became aware of the authorisation letter.  It was submitted that it was clear from the email of Peter Lee to Mayes and Tim Pearson-Burton dated 15 April 2010[241] and the response by Tim Pearson-Burton to that email[242], in connection with the change of trustees, that DBS Trustee did not have a copy of the authorisation letter.  However, the subject matter of these emails was the documents relating to Ji’s appointment as investment advisor and not her authority to give investment instructions.  Mayes explained that the statement in the email[243] to “any authorization record or minutes of the notification of the appointment of Ms Ji as the investment advisor for Wise Lords Limited” was “talking about minutes or some other form of approval by a company of a notification of the appointment of Ms Ji as investment advisor”[244].  That accords with my reading of the email and I find that it did not refer to the authorisation letter.

76.  It was submitted that the authorisation letter, which was only signed by Peter Lee, raised grave doubts as to its authenticity as other documents signed by Peter Lee on behalf of DHJ Management, as sole director of Wise Lords, were all countersigned or initialled by a second signatory in addition to Peter Lee.  The authorisation letter was not invalid because it was signed by only 1 person.  A single authorised signatory of DHJ Management could sign and execute, on his own, relevant documents as was apparent from the resolution of DHJ Management that was effective from 14 October 2004[245]. There were a number of documents that had been referred to[246] in which an initial appeared next to Peter Lee’s signature.  Peter Lee could not recognise the colleague of his who had placed the initial on those documents[247]. The initial, even if placed by an authorised signatory, might not even qualify as a “signature” within the meaning of the DHJ Management resolution.  However, it was not the invariable practice of DHJ Management to require more than a single signature on its documents.  For instance, the Financial Accounts of Wise Lords for the years ended 31 March 2006, 31 March 2007, and 31 March 2008[248], were all signed solely by Peter Lee on behalf of DHJ Management.

77.  The plaintiffs submitted that the authorisation letter was contrary to the Procedures Manual[249].  However, this only came into effect on 11 December 2006, after the setup of Trust and the date of the Authorisation Letter[250]. I accept Peter Lee’s evidence that the authorisation letter and a LPOA was the same thing[251]. I also accept Peter Lee’s distinction between a specific power of attorney (for a particular matter such as acquiring landed property) and an LPOA (for example, for operating a bank account)[252]. He pointed out that an LPOA was not in fact mentioned in the Procedures Manual, which only contained provisions dealing with “general” powers of attorney and “specific” powers of attorney[253]. Even if the Procedures Manual applied, I find that the authorisation letter was not in breach of it.

78.  The plaintiffs submitted that no mention was made of the authorisation letter in many documents and that cast doubt on the date when the authorisation lettercame into existence:

(a)  the Checklist for the 29 December 2004 meeting;

(b)  the Board resolution of Wise Lords dated 4 January 2005[254] ratifying and approving the Investment Advisor Agreement;

(c)  the Trustee Minutes dated 23 February 2007[255] resolving to add the Investment Advisor Agreement to the trustee’s own records;

(d)  the Investment Advisor – Yearly Reviews[256];

(e)  the Delegated Management Query Forms[257];

(f)  the letter dated 7 November 2008 from Law Shek Kit, Vice President of Business Management Support of DBS Private Banking[258] responding to Ji’s complaint letters in Chinese dated 6, 8 and 9 October 2008[259];

(g)  letters dated 11 February 2009[260] and 20 January 2010[261] from Mayes on behalf of DBS Trustee;

(h)  emails in April 2010 between Peter Lee on the one hand and Mayes and Tim Pearson-Burton of DBS Trustee on the other comparing records each had in anticipation of change of trustee; and

(i)  The lack of reference to Ji’s authorisation in the correspondence between Peter Lee and the Jersey trustees, by which he was checking whether the records in Hong Kong and Jersey “tallied”.

79.  I accept the evidence of Peter Lee that the Board resolution approving the Investor Advisor Agreement, the Yearly Reviews, the Delegated Management Query Forms were standard form documents[262].  I do not find it surprising that they made no mention of the authorisation letter.  I have already found that the subject matter of the emails of April 2010 was the documents relating to Ji’s appointment as investment advisor and not her authority to give investment instructions. I do not find it surprising that they make no mention of the authorisation letter.  I also accept the evidence of Peter Lee[263] that he did not pay particular attention to the lack of reference to Ji’s authorisation in the documents at the time of the “tallying exercise” as the authorisation letter was “standard for each client”.  The letters referred to in sub-paragraphs 78(f) and (g) above rightly make no mention of the authorisation letter as the authority of Ji to execute investment transactions on behalf of Wise Lords was not a subject of contention at the time. On the contrary, Ji clearly believed that she had the authority to execute orders on behalf of Wise Lords when she asserted in one of those letters that “I have the right to request DBS to cancel these three Notes and refund me the full amount of principal plus interests”[264].  When questioned why the Trustee Minutes resolving to add the Investment Advisor Agreement to the trustee’s own records did not mention the authorisation letter, Peter Lee said that he did not know[265] and Mayes said: “I do not know what particular aspects the trustee would or would not regard as requiring a minute, and I do not know as to what date the trust company became aware of that second document you’re referring to.”[266]  I am not prepared to infer that the authorisation letter and the cover letter were backdated just because the Trustee Minutes and the Checklist of Stella Yeung made no reference to the authorisation letter. I do not want to speculate but the reason for its omission from the Checklist might be because the authorisation letter was to be executed by DHJ Management, not by Ji, after the “Transfer of BVI share to Trust documents”, the last item on the Checklist, was completed.

80.  Although the board resolution of Wise Lords dated 6 January 2005 approving the authorisation has not been disclosed, I am unable to find that it never existed amongst Wise Lords’ records.   Further, although there was no disclosed record of the authorisation letter being sent to DBS:PB’s account administration staff who would require it to ensure that Ji’s orders to purchase investments on Wise Lords’ DBS:PB account were properly given, the absence of such disclosure does not lead me to infer that the authorisation letter had not been sent to DBS:PB’s account administration staff, particularly as the forgery point was taken very late in the day.

81.  The plaintiffs took issue with the absence of detail in the authorisation letter, such as the phone and fax numbers of Ji and her specimen signature, which the plaintiffs asserted[267] was unlike the Account Opening Form[268] of Wise Lords which dealt with “remote channel”. I accept the evidence of Peter Lee that the authorisation letter was a standard form of the Trust and Corporate services section.  I do not find it surprising that it was different from the standard account opening form of the private banking section. Indeed, DBS:PB already had Ji’s details as she had been operating the account of Wise Lords since April 2004.

82.  Peter Lee was far from being a good witness. The manner in which he answered questions during the course of his cross examination exasperated and annoyed me at times[269].  Nevertheless, I am able to accept much of his evidence as being true and correct.  I am unable to find that he backdated the authorisation letter and the cover letter.  I accept his evidence that the authorisation letter was a document that went in tandem with the Investment Advisor Agreement for every one of their clients[270].  I find that the authorisation letter and the cover letter were not backdated but were executed in January 2005.  Peter Lee knew that it was wrong to backdate any document and he said as much in his email dated 27 November 2008 refusing Linda Liu’s request for the trustees to sign a “back-dated” offer letter[271]. In May 2006, the letterhead of DBS Corporate Services had changed[272]. The cover letter dated 6 January 2005 bore the old letterhead of DBS Corporate Services.  The suggestion implicit in the plaintiffs’ case that Peter Lee or his staff created and backdated the cover letter in 2010, by locating and using letter paper bearing the old letterhead, is fanciful and one that I cannot accept.

(5)  The effect of the Investment Advisor arrangements

83.  By the authorisation letter, Ji was authorised to execute investment transactions on behalf of Wise Lords. Wise Lords is a BVI-incorporated company with its account with DBS:PB in Hong Kong. Although Wise Lords was governed by the laws of BVI, no evidence has been adduced before me to prove that the law in BVI governing the right of directors to delegate was different from Hong Kong law[273]. I find that DHJ Management, as director of Wise Lords, was entitled to delegate particular functions, and to trust the competence and integrity of the delegatee to a reasonable extent. I find that that DHJ Management, as director of Wise Lords, was entitled to delegate the exercise of its powers and functions to others and that it was entitled to authorise Ji to execute investment transactions on behalf of Wise Lords.  Ji’s power to direct investments was subject to the power of the DBS Trustee and DHJ Management to override Ji’s decisions or reverse the transactions she conducted for Wise Lords.  I do not find any conflict between Ji’s authorisation and the fact that approvals for Wise Lords’ investment transactions had to be and were routinely sought from DBS Trustee, through DBS Corporate.  DBS Trustee owned the trust asset, which was the shares of Wise Lords.  DBS Trustee was obliged to carry out the terms of the Trust and to administer the trust assets for the benefit of the beneficiaries pursuant to the terms of the Trust Deed and subject to the Trusts (Jersey) Law 1984 (“the 1984 Law”). DBS Trustee had to take a high level supervisory role.  The structure was deliberately designed to permit a measure of independence and flexibility on the part of Ji advising and executing investments, subject, however, to the Trustee’s overarching supervision, regular monitoring and responsibility to ensure that the value represented by the overall trust fund was subject to appropriate controls, reviews, investment expertise and management[274].

84.  The plaintiffs submitted that the authorisation letter had been rescinded by a resolution of Wise Lords on 11 May 2005, which was signed by Peter Lee on behalf of DHJ Management as sole director of the company[275].  The 11 May 2005 resolution dealt with the change of bank signatories.  It provided that: “...all signing instructions previously given in relation to all the Company’s account(s) maintained with DBS Bank (Hong Kong) Limited be rescinded with immediate effect and that henceforth the said account(s) be operated by the new authorised bank signatories of DBS Corporate Services (Hong Kong) Limited...” The reference to the previous signing instructions that were to be rescinded was a reference to a similar previous resolution on 29 December 2004 appointing authorised signatories of the company[276]. There is no substance to this point. The authorisation letter conferred Ji with the authority to give instructions via phone/fax to the DBS:PB regarding investment transactions to be executed between DBS:PB and Wise Lords.  The authorisation letter was not designed to make Ji an authorised signatory.  She did not need to be an authorised signatory in order provide instructions to DBS:PB to execute investment transactions on Wise Lords private banking account.  The 11 May 2005 resolution dealt with authorised signatories for Wise Lords’ bank account. Ji had no right to withdraw funds from the account or apply for credit facilities[277]. The two documents dealt with completely different matters.

(6)  The Securities and Futures Ordinance

85.  Ji’s appointment as Investment Advisor to Wise Lords required her to provide “investment advice” to Wise Lords in Hong Kong (as the address of Wise Lords, as stated in the Investment Advisor Agreement and DBS’ correspondence records was in Hong Kong, and all dealings and investments took place in Hong Kong). The plaintiffs submitted that Ji was not registered to provide advice on investments in Hong Kong under the SFO and, consequently, the appointment was illegal.

86.  S.114 of the SFO makes it an offence for a person, without reasonable excuse, to (1) carry on a business in a regulated activity or (2) perform any regulated function in relation to a regulated activity carried on as a business; or to hold himself out as doing (1) or (2).  Further, s.115 of the SFOprovides that “if (a) a person actively markets ... whether in Hong Kong or from a place outside Hong Kong, to the public any services that he provides; and (b) such services, if provided in Hong Kong, would constitute a regulated activity, ... the provision of such services so marketed shall be regarded ... as carrying on a business in that regulated activity”.

87.  There is no substance in this submission.  Although Ji was appointed the Investment Advisor of Wise Lords, she did not “carry on a business” when she advised Wise Lords to purchase or sell securities. Ji was, at all material times, resident in and operated from Beijing[278]. There is no evidence that she marketed any services, actively or otherwise, that she allegedly provided [279].

(7)  Periodical reviews of Ji’s performance

88.  Periodic reviews were conducted in relation to the performance of Ji as the Investment Advisor. The exercise entailed the completion of the form entitled the Investment Advisor – Yearly Review by DBS Corporate.  These documents described in a summary manner the nature of the investments which had been made on behalf of the Trust and described the performance of the account in percentage terms after setting out the account balance at the start of the period and comparing that with the account balance at the end of the period, after deducting any injection of funds into the account and after adding any distributions from the account.  The reviews for January 2005 to March 2006[280], March 2006 to March 2007[281] and March 2007 to March 2008[282] recorded net increases in the value of Wise Lords’ assets by 32.7%, 15% and 20.4% respectively, and it was recommended in those reviews that Ji should continue in her role.

89.  Wise Lords’ investment successes were also reflected in the Financial Accounts[283].  Zhang and Ji approved and signed the Accounts for years ended 31 March 2006[284] and 31 March 2007.  The overall gain achieved by Wise Lords can be seen from the following table:

Period	Performance of Portfolio	Trial Bundle reference
4 January 2005 to 31 March 2006	Unrealised profit = US$5.35m	[D3/186/3285] (From Financial Accounts of  Wise Lords for year ended 31 March 2006)
	Capital = US$16.34m	[D3/186/3280] (From Financial Accounts of Amsun Trust for year ended 31 March 2006)
	Profit percentage = 32.75%
1 April 2006 to 31 March 2007	Unrealised profit = US$4.45m	[D10/400/4956] (From Financial Accounts of Wise Lords for year ended 31 March 2007)
	Capital = US$24.35m	[D10/401/4962] (From Financial Accounts of Amsun Trust for year ended 31 March 2007)
	Profit percentage = 18.3%
1 April 2007 to 31 March 2008	Unrealised profit = US$8.53m	[D11/443/5139] (From Financial Accounts of Wise Lords for year ended 31 March 2008)
	Capital = US$32.02m	[D11/443/5135] (From Financial Accounts of Amsun Trust for year ended 31 March 2008)
	Profit percentage = 26.65%

90.  After these profit figures were put to Ji, I asked her, assuming that the figures were correct, whether she would be satisfied with those profits.  Ji answered: “Of course”[285].

91.  In the review for March 2008 to March 2009, a net reduction of 70% in Wise Lords’ NAV was recorded.  I shall address this matter when I deal with the events of this period.

92.  DBS Trustee obtained, via DBS:PB and DBS Corporate, regular updated valuations and periodic financial accounts of Wise Lords’ portfolio, including quarterly and annual reports and financial accounts and information related to specific transactions[286]. 

93.  File Review for a Trust Managed by DBS Trustee were completed by David Muir of DBS Trustee dated 27 September 2006[287], 1 March 2007[288] and by Ben George of DBS Trustee dated 12 October 2007[289]. These file reviews recorded the communications involving DBS Trustee on the management of the trust, such as:

“We have had lengthy discussions with DBS Corporate Services Limited as to the lack of diversity and sizeable investments in what may be risky investments, within the underlying portfolio and requested that in future we receive monthly portfolio valuations for underlying company so as [sic] it can be monitored more closely.”

“There has been ongoing correspondence with DBS as to the sizeable investments being made which may be of high risk. Concerns as well regarding the lack of diversity with the investments (predominantly in the Chinese Markets). However, we do now receive portfolio valuations for the underlying company which we requested after the last review in March.”

94.  Delegated Management Query Forms were completed by DBS Corporate / Trust and Corporate Services division dated 20 November 2006[290], 20 December 2007[291], 24 July 2008[292], 3 June 2009[293], 11 May 2010[294].  The references in all these Delegated Management Query Forms to “RM of Hong Kong on advisory role” in answer to the question “how are the investments managed” were incorrect as the relationship between DBS Bank and Wise Lords was defined by the contractual documents to be one of “transaction execution service”[295].

95.   In addition to the reviews, there were many instances when the trustees would actively ask for information and/or raise queries about a proposed transaction by Wise Lords. Such requests would be posed either directly by trustees or via DBS Corporate/Trust and Corporate Services division. Some examples are set out in the following table for the period up to end March 2007:

Communication	Summary of Content
Emails between Edna Chan and Linda Liu dated 5 January 2006 [D2/109/3039]	Linda Liu sought approval of subscription for two funds in emerging markets Edna Chan asked “Will it be a bit over-weighting in these two investments” Linda Liu replied “both the client and me think it is still a reasonable portion of it...client has already over 5 years experience on investing to emerging market funds”
Emails between Edna Chan and Sheran Chan dated 1 February 2006 [CB1/197]	Sheran Chan informed Edna Chan the total investments in emerging market fund in January 2006 was approximately USD1.5 million Edna Chan said “On weighing the total portfolio of USD15.7M, it may still be a bit risky for investment in same. Suggested to ask client to sign the attached letter” (which was a letter of recommendation)
Email from Edna Chan to Mayes and David Muir dated 5 December 2006 [D3/190/3361]	Informing the Jersey Trustees of Ji’s intention to subscribe for USD15 million of DBS China Advantage A Share fund and apply for temporary loan Setting out steps to taken, including inter alia to obtain detailed information on the fund and “alert client that the proposed investment would represent a substantial percentage of the entire portfolio of the company, i.e. approx 44% of the same (suggest a letter of undertaking to be signed by the Settlors...)”
Email from Edna Chan to Wendy Yung and Rocky Cheung dated 5 December 2006 [D3/191/3363]	“Per Jersey Trustee’s requirement, we are to obtain the details of the new launched DBS China A Share mutual fund such as size, launch date, settlement date, ratings, projected return etc. Pls provide”
Email from David  Muir to Edna Chan dated 6 December 2006 [D3/192/3364]	David Muir stated that the arrangement would “increase the overall trust investment portfolio to approximately US$38 million in value with 40% of the enlarged portfolio being held in this one stock. We would therefore require that you send us a report on the “risk profile” of the DBS China A Share mutual fund. Would you also be able to provide us with a prospectus for this investment, along with any Moody’s or Standard and Poors Ratings?” “If our understanding of this proposal is correct, and we receive the requested documentation confirming that the proposed investment has a satisfactory risk status, then the trustees should be able to give their approval to the proposal”
Email from Edna Chan to Wendy Yung and Rocky Cheung dated 6 December 2006 [D3/193/3365]	Relaying the request from the Jersey Trustees for a report on “risk profile”, prospectus and ratings for consideration of approval
Email from Edna Chan to David Muir dated 6 December 2006 [D3/198/3372]	Reporting that fund documentation had not been made available but requests already noted by manager and would revert when available
Email from Edna Chan to Aimex Kwong dated 7 December 2006 [D4/216/3408]	Requesting Aimex Kwong to arrange for completion and signatures for Declaration of Risk Awareness and Letters of Recommendation for investment in DBS China Advantage A Share Fund
Emails between Edna Chan, Mayes and David Muir dated 12 December 2006 [D5/230/3634]	Edna attached fund information, clients’ undertaking, RM’s declaration and source of fund declaration with regard to intended investment in DBS China Advantage A Share Fund II David Muir proposed to deliberate on the matter with his colleagues in Jersey
Email from Edna Chan to David Muir dated 15 December 2006 [D5/255/3747]	Responding to Jersey Trustee’s queries with explanations obtained from RM regarding proposed substantial investment to be made in DBS China Advantage A Share Fund II
Email from David Muir to Matthew Lam dated 15 December 2006 [D5/262/3767]	Seeking clarification on whether the settlor would consider buying the shares out with the trust and settling the shares into the accounts of Wise Lords
Email from Edna Chan to David Muir dated 18 December 2006 [D5/265/3773]	Answering to the Trustee’s request for clarification
Email from David Muir to Matthew Lam and Edna Chan dated 20 December 2006 [D5/267/3775+]	Enclosing Notification of Activities signed by DBS Trustee Enclosing Minutes for EGM of Wise Lords recording resolutions on acceptance of bank facilities up to HK$78M signed by DHJ Management and DBS Trustee
Email from David Muir to Matthew Lam dated 21 December 2006 [D5/270/3788]	Enclosing signed shareholders EGM, minutes of Wise Lords and register of mortgages and charges for Wise Lords Requesting a copy of the Facility Letter
Email from Matthew Lam to Michael Leung dated 22 December 2006 [D5/273/3812]	Conveying the Trustee’s request for copy of Facility Letter
Emails between Aimex Kwong and Edna Chan dated 12 January 2007 [D5/280/3827]	Edna asked for of investment like rating, return, liquidity etc. in response to Aimex’s request for approval of the DEVA Note which Wise Lords had purchased
Email from Aimex Kwong to Edna Chan dated 12 January 2007 [D5/281/3829]	Enclosing details of the DEVA Note
Email from Edna Chan to Linda Liu dated 24 January 2007 [D6/289/3973]	“Per policy & guidelines, the trust’s underlying company should involve in conservative investment with reasonable income return. The risk rating of the investments is one of trustee’s concern.” Noting that the risk rating of investment (USD3M into DEVA note) was 5 and represented 11% of total trust fund, Jersey trustee would require client to sign a Declaration of Risk Awareness
Email from Aimex Kwong to Edna Chan dated 24 January 2007 [D6/290/3976]	Reporting that a USD7.1 million loan was drawn in Wise Lords’ account to settle DBS China Advantage A Share Fund II (under the credit facility of US$10m granted on 12 December 2006 [CB1/260-264] and notified to DBS Trustee [D5/246/3731])
Email from Edna Chan to Linda Liu dated 16 February 2007 [D6/296/4063]	Stating that Jersey Trustee would definitely have concern over the substantial investment in the DBS Indochina Fund Asking for summary on rating, risk and return, liquidity etc. and Linda Liu’s recommendation/view on the investment Attaching Declaration of Risk Awareness for settlors to sign
Email from Edna Chan to Mayes and David Muir dated 21 February 2007 [D7/297/4065]	Reporting to the trustees that investment sum in the DBS Indochina fund represented 30% of net assets position Attaching the information on the fund supplied by Linda and the signed Declaration of Risk Awareness
Emails between David Muir and Edna Chan dated 21-22 February 2007 [D7/301/4274]	David Muir said the Trustees had the opportunity to review all the documentation supplied to them and raised various queries with regard to the proposed investment in DBS Indochina Fund Edna Chan replied to each of the queries
Email from David Muir to Edna Chan dated 22 February 2007 [CB2/320]	Requesting portfolio valuations every month and setting out comments of the Trustees, e.g.: Pointing to the limited diversity of portfolio in high risk areas such as emerging markets Stating that the Trustees had carried out a review of all documentation such as investment advisory credentials of Ji – on this basis able to give approval to USD8 million application for shares in DBS Indochina Fund
Email from Edna Chan to David Muir dated 23 February 2007 [CB2/325]	Setting out response to the Trustee’s comments
Email from David Muir to Edna Chan dated 23 February 2007 [D7/314/4311]	Raising further query on the outstanding loan (under the credit facility of US$10m granted on 12 December 2006 [CB1/260-264] and notified to DBS Trustee [D5/246/3731]) if the intended injection of HK$50 million was used to purchase DBS Indochina Fund
Email from Edna Chan to David Muir dated 26 February 2007 [D8/318/4321,4324,4325]	Responding with a breakdown of bank balance, planned injection and outstanding loan and Portfolio Summary as at 24 February 2007
Email from Edna Chan to Linda Liu and Aimex Kwong dated 28 March 2007 [D8/332/4514]	Requesting for information including Declaration of Risk Awareness and Letters of Recommendation etc. for Trustees to consider requested approval of a USD6M (of which USD5M was borrowings) investment in the Schroder A Share Fund
Email from Edna Chan to David Muir dated 30 March 2007 [D8/334/4521]	Edna Chan reported on how the subscription for USD8M of Schroder China Equity Fund was intended to be settled by client Attaching the Portfolio Summary as at 27 March 2007 showing a loan of US$7,178,925[296] for the Trustee’s review
Email from David to Edna dated 30 March 2007 [D8/335/4531]	-  Setting out the Trustee’s observations upon reviewing the documentation supplied to them regarding the USD6 million investment in the Schroder A Share Fund, e.g.: -  Asking for more advanced warning of proposed actions -  Making “our general point...that a discretionary trust is not the usual medium to hold investments with heavy exposure to specific investments or specific market place, especially ones in which the trustees themselves have little specific knowledge or expertise in” -  Drawing attention to the parts which were yet to be filled in on the Letter of Recommendation -  Asking for further information on what made the RM qualified to agree to the Investment Advisor’s recommendation -  Stating that the Trustees would be very reluctant to approve further loans until evidence had been provided that the settlor had repaid some of the loans drawn down -  Indicating the wish to review further documentation before formal approval could be given for further loans
Email from Peter Lee to David Muir dated 2 April 2007 [CB2/341]	Peter Lee wrote: “Actually we have raised exactly the same questions to the RM and warned her that a trust should not concentrate on just a few investments and that it will be very hard for the trustee to continuously approve extra loans Several actions we could do/ have done:- a.  we have escalated this to the PB Head in Hong Kong of the fact that the decisions / accession to the investment advisor was made without formally allowing time for consideration by us; b.  with the trustee’s authorisation (if so we need to be authorised) to inform the RM and the Bank’s credit department to stop approving temporary loans to Wise Lords; c.  with the trustee’s authorisation (if so we need to be authorised) to inform the RM that for any additional new investment, each investment in a specific fund may not exceed say X [percent] of the total trust portfolio; d.  we have also taken this opportunity to express that the flat fee of USD 5000- (forced upon us) is not a proper reflection of the degree of responsibility and attention called by this active account. As such we are striving to ask for at least double the fees – perhaps this should be paid out of the revenue of the RM’s account as she would have earned quite a bit form all these investments.”
Emails between Matthew Lam and David Muir dated 2-4 April 2007 [D8/339/4546]	David Muir asked for Letter of Recommendation (for the USD8M investment in Schroder China Equity Fund) with blanks filled in, “so as we know the rating of the fund and the risks involved” Matthew Lam replied and enclosed the completed Letter of Recommendation
Email from Edna Chan to Ben George dated 16 August 2007 [D9/357/4665]	Relaying client’s request for increase in credit limit from USD20 million to USD40 million “so that the Company may well manage the short term, mid term and long term investment strategy”[297]
Email from Ben George to Edna Chan dated 17 August 2007 [D9/358/4668]	Enclosing the signed Notification of Activities Approval form acknowledging receipt of the application for increase in credit limit[298]
Emails between Ben George and Matthew Lam dated 16 October 2007 [D9/375/4772]	Ben George asked Matthew Lam to advise on risk level associated with two investments (i.e. in First State China Growth Fund and DBS China Access Opportunity Fund – see D9/373/4770) so that the Trustees could consider the request Matthew replied that the risk level was 4
Email from Mayes to Peter Lee dated 16 October 2007 [D9/376/4773]	Mayes said “...if Matthew needs us to progress this approval application, we do need to know as to what DBS’s own internal view is as to more than 15% of the trust fund being invested in a risk rating 4 investment (and not knowing whether any of this trust’s existing investments are already in such category as well)”
Emails between Ben George and Matthew Lam dated 25-30 April 2008 [D12/464/5438] [D12/475/5469] [CB/603]	Ben George wanted to have a more detailed picture of where Wise Lords stood and asked for summary of current position as to the Amsun Trust’s invested assets and available liquidity “The trustees have noted they are approving numerous investment applications recently on behalf of The Amsun Trust, and it would be useful when considering future investments to have a more detailed picture of where the company stands” Matthew Lam set out brief portfolio summary of Wise Lords as of 31 March 2008 and 28 April 2008: (USD) (USD) (31 March 2008) (28 April 2008) Cash 15,687,209.45 8,553,278.32 Investment 42,420,770.36 93,032,260.20* Gross Assets 58,107,979.81 101,585,538.52 Less: Loan (7,735,427.35) (45,353,409.06)# NET POSITION 50,372,552.46 56,232,129.46 * USD2.181M and USD64M of which (ie. USD66.181M) are fixed income products and currency linked deposits. # Temporary facility granted to the company[299].
Email from Ben to Matthew dated 1 May 2008 [D13/478/5493]	- Enclosing signed acknowledgement of receipt of Notification of Activities form and signed director and shareholder resolutions in respect of application for increase in credit limit from USD40 million to USD50 million (HKD390 million)[300]

96.  By reviewing the portfolio summaries as and when they were received, DBS Trustee obtained an overview of the state of Wise Lords’ portfolio at particular points of time and Wise Lords’ performance over the years in question.  As Mayes explained in his evidence, up to April 2008, DBS Trustee were only getting quarterly summaries of the position of the Trust and, at that time, they wanted to receive summaries on a more regular basis than every quarter[301].

F.  THE TRUST’S OBJECTS AND INVESTMENT PROCESSES

(1)  The objects of the Trust

97.  The intention for setting up the Trust as reflected in the documents was for the purposes of confidentiality, caring for children, succession planning and avoidance of probate/estate duty and asset protection[302].  As can be seen from the Letter of Wishes, Zhang and Ji wanted the funds to be available for them and their children and remoter issue[303].

(2) The terms of the Trust Deed and the Trustee’s Duties

98.  The administration of Trust was at all material times governed by the terms of the Trust Deed dated 4 January 2005[304]. The relevant aspects of the structure of the Trust Deed[305] are apparent from its index[306] namely:-

(1)  Clauses 1 and 2 provide a definition of key terms and the declaration of the proper law governing the Trust;

(2)  Clauses 3 to 5 declare the trust over the Trust Fund which the trustee(s) is required to hold upon trusts over both the capital and the income “... for the benefit of ... the Beneficiaries ...” and which require the trustee to administer those trusts;

(3)  Clauses 6 and 9 to 11 confer trustee’s powers of appointment, advancement, addition and exclusion;

(4)  Clauses 12, 13, 15 to 17, 22 and the First Schedule confer various other specific trustee’s powers;

(5)  Clause 14 requires the trustee to exercise the trust powers “for the benefit of all or any one or more of the Beneficiaries”; and

(6)  Clauses 19 and 20 provide for the release of an outgoing trustee from liability, except for any liability in respect of:  (i) any breach of trust arising from fraud, wilful misconduct or gross negligence; or (ii) for any action to recover Trust property in the possession of the outgoing trustee; or (iii) any exercise of trustee’s powers not made in good faith.

99.  Pursuant to Clause 2 of the Trust Deed, the governing law of the Trust was Jersey Law.  With leave of court, both parties have filed their own expert reports (“the Speck Report” and “the Matthews Report”) addressing questions under Jersey law with regard to the Trust. The appointed experts, Speck for the plaintiffs and Matthews for the defendants, have also filed a Joint Report identifying their few points of disagreement[307].  Speck qualified in England and, over the last 25 years, has practiced in Jersey, being centrally involved in most of the high profile, high value and complex trust disputes in Jersey[308]. Matthews is a Professor of Law in the University of London and Visiting Professor of Trust Law at the Institute of Law in Jersey, and author of books on both English and Jersey trust law.  Although he has written extensively on Jersey trust law and acted as an expert witness there, he is not qualified to practice in Jersey[309].

100.  In the Matthews Report, the key point was made that the duties owed by the DBS Trustee as original trustee of the Trust from 2005 to 2011 were the statutory duties set out in the 1984 Law – save where modified or excluded by the express terms of the Trust Deed[310].  The key statutory duties under the 1984 Law included the following:

(a)  Subject to the 1984 Law, to “carry out and administer the trust in accordance with its terms” (Article 21(2)); this would include acting within the terms of the trust imposed or conferred by the 1984 Law itself;

(b)  “Subject to the terms of the trust”, and “so far as is reasonable”, to preserve and to enhance the value of the trust property (Article 21(3), amended in 1989);

(c)  Except with the Jersey Court’s approval or as permitted by the 1984 Law “or expressly provided by the terms of the trust”, not (i) directly or indirectly to profit from the trusteeship, (ii) to cause or permit any other person so to profit, or (iii) to enter any transaction with the trustees which might result in such profit (Article 21(4));

(d)  In the execution of its duties, and in the exercise of its powers, to act with due diligence, as would a prudent person, to the best of the trustee’s ability and skill, and to observe the utmost good faith (Article 21(1));

(e)  “Subject to the terms of the trust”, to be impartial and not execute the trust for the advantage of one beneficiary at the expense of another (Article 23, amended 1996);

(f)  To exercise the trustee’s powers only in the interests of the beneficiaries and in accordance with the terms of the trust (Article 24(2)).

101.  Paragraph 2 of the First Schedule of the Trust Deed (Powers of Investment) stated:

“(a)  The Trust Fund may be invested or laid out in the purchase of (or at interest upon the security of) such property whether involving liability or not and whether producing income or not or upon such personal credit with or without security as the Trustees shall in their absolute discretion think fit including the purchase erection and improvement of any property as a residence for any person and the purchase of chattels for the use of any person to the intent that the Trustees shall have the same full and unrestricted powers of investing and transposing investments and laying out moneys in all respects as if they were absolutely entitled thereto beneficially and without regard to the requirements of the Proper Law of this Settlement save to the extent that these are obligatory.

(b)  The acquisition of any investment of a speculative nature shall be deemed to be an authorised investment of the whole or any part of the Trust Fund.

(c)  The acquisition of any reversionary interest in property or any policy or securities or other investments not producing income or in respect of which no dividend interest or rent is payable shall be deemed to be an authorised investment of the whole or any part of the Trust Fund.

(d)  The acquisition of any limited interest in property or any annuity or policy or securities or other investments being of a wasting nature shall be deemed to be an authorised investment of the whole or any part of the Trust Fund.

(e)  The Trustees shall have power to make any such investment as is mentioned in paragraphs (c) and (d) of this Regulation notwithstanding that the making thereof may affect or alter inter se the interests of the persons respectively interested in the capital and income under this Settlement.

...

(g)  The Trustees shall be under no duty to diversify investments.

...

(j)  In the exercise of the powers herein contained the Trustees shall not be under any duty to see that the value of the Trust Fund or any part thereof is preserved or enhanced in any way nor shall they be liable for any failure in those respects whatsoever.”

102.  Matthews was of the opinion that Article 21(3) of the 1984 Law (duty to preserve and enhance trust assets) was negatived by clause 2(j) of the First Schedule to the Trust Deed; and clauses 2(b) (expressly permitting speculative investments) and 2(g) (negativing any duty to diversify investments) of that Schedule emphasised particular aspects of the general lack of a duty on the trustee to preserve or enhance the value of the trust property[311].

103.  Paragraph 4 of the First Schedule (Trustees Not Bound to Interfere in Business of Company in which Settlement is Interested) stated:

“(a)  The Trustees shall not be under any duty nor shall they be bound to interfere in the business of any company in which this Settlement is interested and in particular:-

(i) the Trustees shall not be under any duty to exercise any control the Trustees may have over or to interfere in or become involved in the administration management or conduct of the business or affairs of any company in which this Settlement is or may be interested whether or not this Settlement holds the whole or a substantial proportion of the shares carrying the control of the company and without prejudice to the generality of the foregoing the Trustees shall not be under any duty to exercise any voting powers or rights of representation or intervention conferred on the Trustees by any of the shares in respect of such company;

(ii) the Trustees shall leave the administration management and conduct of the business and affairs of such company to the directors officers and other persons authorised to take part in the administration management or conduct thereof and the Trustees shall not be under any duty to supervise such directors officers or other persons so long as the Trustees do not have actual knowledge of any dishonesty relating to such business and affairs on the part of any of them; and

(iii) the Trustees shall assume at all times that the administration management and conduct of the business and affairs of such company are being carried on competently honestly diligently and in the best interests of the Trustees in their capacity as shareholders or howsoever they are interested therein until such time as they shall have actual knowledge to the contrary and so that the Trustees shall not be under any duty at any time to take any steps at all to ascertain whether or not the assumptions contained in this sub-clause are correct.

(b)  Without prejudice to the generality of the foregoing, the Trustees shall be under no duty:-

(i) to exercise any rights or powers (whether available to them as shareholders debenture holders or otherwise) enabling them to appoint or elect or remove a director officer or other person authorised to take part in the administration management or conduct of the business or affairs of such company and in particular the Trustees shall not be under any duty to take any steps to see that any Trustee or any officer or nominee of the Trustees becomes a director or other officer of such company; or

(ii) to exercise any power to require the payment of a dividend or other distribution of profit and whether of an income or capital nature.

(c)  No Beneficiary shall be entitled in any way whatsoever to compel control or forbid the exercise in any particular manner of any powers discretions or privileges (including any voting rights) conferred on the Trustees by reason of any shares or other rights of whatsoever nature in or over such company.

(d)  The Trustees shall not be liable in any way whatsoever for any loss to such company or the Trust Fund or the income thereof arising from any act or omission of the directors officers or other persons taking part (whether or not authorised) in the administration management and conduct of the business or affairs of such company (whether or not any such act or omission by any such foregoing persons shall be dishonest fraudulent negligent or otherwise).

(e)  Without prejudice to the generality of the foregoing the Trustees shall not be rendered responsible in any way whatsoever for any default or other act or omission by the directors officers or other persons referred to in paragraph (d) above by any express notice or intimation of such default or other act or omission and the Trustees shall not be obliged or required to make and enforce any claim in respect of such a default or other act or omission and no person who is or may become entitled hereunder shall be entitled to compel the making of such a claim but the Trustees may be required to lend their names for the purpose of proceedings brought by a Beneficiary in respect of any such default act or omission upon being given a full and sufficient indemnity against all costs and expenses of such proceedings.”

Paragraph 5 of the First Schedule (Trustees Not Bound to Obtain Information Regarding Company in which Settlement is Interested) stated:

“(a)  The Trustees shall not be under any duty to obtain or to seek to obtain in any way whatsoever any information regarding the administration management or conduct of the business or affairs of any company in which this Settlement is or may be interested (although this Settlement holds the whole or a majority of the shares carrying the control of the company) from the persons involved in the administration management or conduct or from the shareholders or other persons interested therein or any other matter relating to such company.

(b)  The Trustees shall assume that such information as is supplied to them by any person relating to such company is accurate and truthful unless the Trustees have actual knowledge to the contrary and the Trustees shall not be under any duty at any time to take any steps at all to ascertain whether or not the information is accurate and truthful.”

104.  Matthews was of the opinion that the duty of a trustee to obtain information about the affairs of a company in which the trust was interested as shareholder so as to enable it to make an informed decision whether to take any action for the protection of trust property in this case was modified or excluded by clauses 4 and 5 of the First Schedule.  Clause 4 released the trustee from any obligation to interfere in the business of such a company, and clause 5 relieved it from any obligation to obtain information regarding such a company[312].

105.  Paragraph 11 of the First Schedule (Personal Interest of a Trustee) stated:

“Subject as herein otherwise expressly provided any of the Trustees may exercise or join or concur in exercising any or all of the powers and discretions hereby or by law given to the Trustees notwithstanding that such Trustees or any director officer shareholder or employee or associated company of a corporate Trustee may have a personal interest in the mode or result of exercising any such power or discretion but any of the Trustees may abstain from acting except as a merely formal party in any matter in which such Trustees may be personally interested as aforesaid and may allow his co-Trustees to exercise the powers and discretions aforesaid in relation to such matter”.

Paragraph 12 of the First Schedule (Power to Transact with Trustees of Other Trusts) stated:

“The Trustees may in execution of any of the trusts of this Settlement or in exercise of any of the powers hereby or by law given to them either directly or indirectly through a company controlled by the Trustees sell lend or buy any property or borrow property from or carry out any other transaction with the trustees of any other trust or the executors or administrators of any estate or any company controlled by such trustees executors or administrators notwithstanding that the Trustees or any of them are or is the same person as those trustees executors or administrators or any of them and where the Trustees are the same persons as those trustees executors or administrators the transaction (including without limitation any such transaction effected and evidenced only by an entry in the accounts of the Trustees) shall be binding on all persons then or thereafter interested hereunder”.

Paragraph 13 of the First Schedule (Contracts with Individual Trustees):

“Any of the Trustees or any director officer shareholder or employee of a corporate Trustee may contract with the Trustees as vendor or purchaser or otherwise in a matter in which he is personally interested provided that at least one of the Trustees has no personal interest in such contract”.

106.  Matthews was of the opinion that Article 21(4) (prohibition on profit from trusteeship) was derogated from by clauses 11 to 13 of the First Schedule, permitting a trustee to exercise a power whilst having a personal interest in its exercise, permitting a trustee to transact with the trustees of other trusts even though the trustee is one of those trustees, and permitting the trustee, in some circumstances, to contract with itself in a matter in which it was personally interested[313].

107.  Matthews was of the opinion that Article 23 (duty of impartiality and requirement not to advantage one beneficiary at the expense of another) was derogated from by various provisions, in particular, the powers of appointment contained in the Trust Deed, and by clauses 2(a), (c) to (e) of the First Schedule to the Trust Deed, which permitted the trustee to invest the trust property in ways which did not produce income or were wasting assets, even though they might in effect alter the interests of the beneficiaries under the Trust[314].

108.  Matthews was of the opinion that the provisions of the 1984 Law could, according to their own express words, be modified or negatived by the terms of the Trust Deed, and that the terms identified in this Trust Deed “were effective to modify or derogate from those statutory duties accordingly”[315].

109.  It is apparent from their Joint Report that there was very little difference between the opinions of Speck and Matthews. One difference of opinion was confined to the requirement to preserve and enhance the assets of the trust under Article 21(3) of the 1984 Law and the words “subject to the terms of the trust”:

“Mr Speck considers that it may be that, at least in some cases, those words can do only the former, ie modify but not exclude the statutory duty. Mr Speck draws a distinction between companies that simply hold assets as investments (so-called ‘money-box’ companies), and companies that carry on business (trading companies).”[316]

Speck was of the view that such a duty could not be excluded in relation to money-box companies, especially if the director and administrator of the company were subsidiaries of the corporate trustee itself, as was the case here[317].  He considered the duties to preserve and enhance the assets of the trust to be fundamental duties owed by the trustee and, despite the legislator’s use of the words, “subject to the terms of the trust”, could not be excluded by the terms of the trust as that would “fly in the face of the fundamental concept of the trust”.  In any event, he considered that no well-advised settlor would agree to terms doing so[318].

110.  I prefer the opinion of Matthews on this point.  Whilst he accepted that it was perhaps more likely that parties would be seeking to minimise or exclude the statutory duties in the case of a trading company, he could not see how the type of company that was involved could prevent the clear terms of the trust taking effect.  He did not see anything in statute or case law to support such a distinction[319].  Further, there was “no trace of such a characterisation of these duties as fundamental in the statute or case law (and in particular not in the leading (English) case of Armitage v Nurse [1998] Ch 241), and no authority suggesting that these duties cannot be excluded by appropriately drafted terms[320]”

111.  Speck’s own analysis of Armitage v Nurse [1998] Ch 241 is that the “irreducible core of obligations” to a trust beneficiary comprises of the duties of trustees “to perform their role honestly and in good faith for the benefit of the beneficiaries”[321]. It is common ground that these duties are the core trust duties.  However, these duties are very different from a specific duty to preserve or enhance trust assets, which is not a core trust duty.  It is possible to have a trust in respect of a speculative investment fund. In that situation, as with any trust arrangement, the true core components of the trust arrangement are the holding of assets by the trustee, with the trustee required to act at all times with honesty and good faith.

112.  I also accept the opinion of Matthews that one could not ignore the legislator’s deliberate use of the phrase “subject to the terms of the trust” in Article 21(3) of the 1984 Law, particularly when that phrase (or some similar phrase) had not been used elsewhere, for example in Article 21(1); and that many Jersey law trust instruments purported to exclude the duties to preserve and enhance the value of the trust property.

113.  Speck’s view rested on a distinction between modification and exclusion which appears to be difficult to put into practice.  Even if the distinction was practically sound, Speck has provided no legal authority for his distinction between “money-box” and trading companies.

114.  The plaintiffs’ complained that no attempt had been made to explain that the fundamental duties to preserve and enhance the assets of the trust had been excluded by the terms of the trust and they referred the English Court of Appeal’s decision in Bogg v. Raper [1998] EWCA Civ. 661 in which Millett, L.J., as he then was, said at §53:-

“In Scott “The law of Trusts” (4^th. ed)[322] pp. 393-5, it is made clear that the mere fact that the person named as a trustee was the draftsman of the trust instrument is not sufficient to make an exculpatory provision ineffective. It is, of course, otherwise if the draftsman inserted the provision without calling the settlor’s attention to it and knowing that the settlor did not realise its effect. It is hardly necessary to add that the same is true in our law.”

Further, in the decision in West v Lazard [1993] JLR 165, the Royal Court found that the 1^st plaintiff was not bound by the terms of the trust since, on the evidence, he had no knowledge of its exculpatory terms because the bank, which had set-up and sold the “off-the-shelf” trust to the 1^st plaintiff, as settlor, had made no attempt to fulfil its duty to explain them to him. The Royal Court found[323]:-

“... it is the fault of Lazard that it took down a shelf trust without attempting to give Mr. West an explanation of the terms of it and (as trustee) to ensure that it conformed with his wishes. What if Lazard had taken Mr. West through its standard trust and explained (as it was, in our view, bound to do) the full import of cl. 9(f)? It might well have been that he would have totally ignored the import and allowed it to continue. What is important is that he was never given the opportunity to make any decision. We do not hesitate to find that Lazard Trust failed in its duty in this regard.”

The defendant in Bogg v. Raper [1998] EWCA Civ. 661 had a duty to explain the terms in his capacity as solicitor as did the bank in West v Lazard 1993 JLR 165.  In the present case, the Trust Application dated 29 December 2004[324] contained the express note that client was advised to seek independent legal/tax advice and that DBS Trustee was not assuming any liabilities for any error or defects in the structure of the trust.  It was thereby made clear to the intended settlers that DBS Bank was not assuming any duty to advise the intended settlors of the terms of the trust deed and of their effect.

115.  Apart from the issue of preservation of assets, the only other area of disagreement identified in the Joint Jersey Report concerns the effect of Article 25(3) of the 1984 Law, which provided that:

“A trustee shall not be liable for any loss to the trust arising from a delegation or appointment under this Article who, in good faith and without neglect, makes such delegation or appointment or permits the continuation thereof.”

However, both parties were in agreement that the difference was not relevant to any issue before me and that I need not resolve it[325].

116.  I note that Speck did not disagree with Matthews’ view[326] that there was nothing in the 1984 Law or relevant case law to impose a duty to disclose to the settlors and beneficiaries that the original trustee had entered into an arrangement with a third party to delegate trustee duties to the third party.  Speck also did not disagree with Matthews’ reference[327] to the decision of the Jersey court that an outgoing trustee would normally be under a duty to hand over to an incoming trustee all documents and information which relate to the administration of the trust but that the court had a discretion to direct that documents or information are not to be supplied where the outgoing trustee can show why the normal rule should not be followed.  Matthews referred to the distinction approved in case law between records, books or other papers belonging to the trust (which are to be delivered up to the new trustee) and other papers in the old trustee’s hands not belonging to the trust but containing information relating to the trust, such as minutes of trustee meetings, internal memoranda of a corporate trustee, and correspondence files (which the new trustee is entitled to inspect and copy).

117.  I accept the defendants’ submissions that, under Jersey Law, there was no duty on the part of trustees in the position of DBS Trustee to pre-approve each investment made by its underlying company before it was made.  The 1984 Law and the Trust Deed do not contain any provision to such effect and Matthews and Speck did not suggest the existence of such a duty.

118.  It is common ground that the fundamental trust duties in this case comprised of the duties of honesty and good faith and the duty not to act in a grossly negligent manner.  The duties which could not be altered by the express terms of the Trust Deed included:

(a)  the unqualified requirement imposed by Article 21(2) of the 1984 Law[328] that:

“Subject to this Law, a trustee shall carry out and administer the trust in accordance with its terms”;

(b)  the unqualified obligation imposed by Article 24(2) of the 1984 Law[329] that:

“A trustee shall exercise the trustee’s powers only in the interests of the beneficiaries and in accordance with the terms of the trust”;

(c)  the unqualified requirements imposed by Article 21(1) of the 1984 Law[330] that:

“A trustee shall in the execution of his or her duties and in the exercise of his or her powers and discretions -

(a)  act -

(i) with due diligence,

(ii) as would a prudent person,

(iii) to the best of the trustee’s ability and skill; and

(b)  observe the utmost good faith”; and

(d)  the overriding Articles 30(10) prohibition that:

“Nothing in the terms of a trust shall relieve, release or exonerate a trustee from liability for breach of trust arising from the trustee’s own fraud, wilful misconduct or gross negligence”[331]

119.  Clause 19 of the Trust Deed mirrors Article 30(10) in stating that an outgoing trustee does not have any liability to any beneficiary or replacement trustee except insofar as such liability arises from the outgoing trustee’s fraud, wilful misconduct or gross negligence[332].The statutory position under Article 30(10) aligns with the English common law position under Armitage v Nurse[1998] Ch 241 referred to by both experts.  The “irreducible core” of trust obligations identified in Armitage v Nurse consist of the duties of good faith and honesty, which, of course, prohibit acts of fraud and wilful misconduct.

120.  I accept the analysis of Speck[333] that wilful misconduct requires an appreciation by the person guilty of the misconduct that what this person was doing was contrary to his duties as trustee, alternatively, recklessness consisting of this person’s shutting his eyes to the probability that his misconduct was in breach of his duty; and that while gross negligence does not itself “import any question of intentional or reckless fault”, it does mean “a serious or flagrant degree of negligence”, citing the judgment of the Jersey Court of Appeal in Midland Bank Trust Company (Jersey) Limited v Federated Pension Service [1995] JLR 352.  Matthews has not offered a different view on this matter.

(3)     Ji’s and Zhang’s Wishes

121.  I have already found that Ji was reasonably proficient in English[334]. At the relevant time, Zhang held a senior position in Deutsche Bank. He gave evidence in English via videolink.  He spoke excellent English.  Zhang said he did not read the terms of the Letter of Wishes before he signed it[335].  Had he read it, I have no doubt that he would have understood its terms. I also have no doubt that Ji read the Letter of Wishes before she signed it and that she understood the terms of the Letter of Wishes[336]. Ji had the habit of reading every document provided to her at length before signing it[337].

122.  Mention has been made of a draft Letter of Wishes in Chinese[338] but a copy of that document has never been disclosed. Whatever its contents might have been, it is the signed written Letter of Wishes in English which applies to the Trust and which we must look at. The Letter of Wishes clearly provided for the following three scenarios:

(1)  When both settlors were alive: “During our lifetime you should consult with either one of us on all matters in relation to the trust including any distributions of income or capital. Whilst Ji Zhengrong is alive, you should always consult her in the first place with regards to all matters and her recommendation should be final”;

(2)  “In the event that any one of the settlors passes away”; and

(3)  After both settlors die: “After our death, we would like you to deal with the funds as follows:-  1. We would like the trust asset to be used for the maintenance and education and general welfare of the children in the following manner ...  5. The trust fund should only engage in investment with low risk”.

The plainly expressed wish of the settlors for the trust fund to be invested in low risk investments only became relevant after the death of both settlors.  There was nothing unusual or irrational about this arrangement, as it gave the settlors flexibility during their lifetime to provide input with regard to the investments to be made.  

123.  References to “caring for children” or “asset protection” did not imply that there must have existed an imperative to engage only in low risk investments.  The motivation in setting up the Trust as a means of was caring for the children did not mean there was an intention to confine Wise Lords’ portfolio to low risk investments. Zhang and Ji were still in their prime, and Zhang would have had an expectation of a constant and long stream of income from a financially rewarding career.  Ji and Zhang were also motivated, at least in part, to set up a family trust by reason of the inheritance tax issues experienced by their friend’s family and, to that extent, the Trust protected its assets from potential tax liabilities.  The wish to protect assets also did not mean that the investments of the Trust must be confined to low risk investments.

124.  In any event, the Letter of Wishes did not affect the terms of the Trust Deed.  It was clear from the terms of the Trust Deed that the trust was allowed to engage in investments of a speculative nature.  The terms also provided that DBS Trustee was under no duty to diversify investments or to see that the value of the trust fund was preserved or enhanced in any way[339].

125.  Zhang admitted that he was not aware of the investments made by Wise Lords from April 2004 onwards[340]. When shares of Wise Lords were settled into the Trust, Wise Lords was already holding a medium risk level investment portfolio.  After the set up of the Trust, Ji was the Investment Advisor and authorised representative of Wise Lords with power to effect transactions for it.  All investment decisions were made by Ji.  The alleged low risk investment imperative was inconsistent with the risk level of the investments which Ji decided to make for Wise Lords, as evident from the numerous Declarations of Risk Awareness signed by Ji and Zhang[341]. 

126.  In the minutes of meeting dated 1 February 2006[342], held with Ji, Linda Liu, Matthew Lam and Edna Chan of DBS Corporate, Edna Chan isrecorded as stating that it was expressed in the Letter of Wishes that the trust fund should only engage in low risk investments. This was a misreading of the Letter of Wishes by Edna Chan. However, Ji responded at that meeting that she did not consider emerging markets and developing countries as high risk markets, as she had read thoroughly the market research available in books and newspapers, and that she was well aware of the emerging markets like Latin America and Eastern Europe. Ji also stated that the investments were long term.

(4) Dealings between Ji, Zhang and DBS Group[343]

127.  After the set up of the Trust, Ji was the Investment Advisor and authorised representative of Wise Lords with power to enter into transactions for Wise Lords.  In such capacities, she communicated with DBS:PB personnel regularly (often on a daily basis, and sometimes making multiple calls per day) to obtain market and investment product information, give instructions to them to enter into investment transactions for Wise Lords and obtain information in respect of Wise Lords’ account.  Linda Liu, who was the Relationship Manager of Wise Lords’ account, was Ji’s main point of contact at DBS:PB.

128.  Linda Liu (or her assistant if she was not around) would forward information related to Ji’s instructions for Wise Lords to staff members of the Trust and Corporate Services Department, who would, in turn, forward the same to DBS Trustee and DHJ Management personnel.  For matters related to the Trust, Ji liaised with staff members of DBS Corporate directly.

129.  The roles assumed by DBS Trustee and DHJ Management were high level supervisory ones and they retained the power to override Ji’s investment decisions or reverse transactions she conducted for Wise Lords.

130.  Linda Liu met Zhang on only 2 or 3 occasions, at his home in Beijing, and even then she did no more than introduce herself.  Ji had made it clear that Zhang was a very busy man and Linda Liu was not to disturb him.

131.  In the course of his evidence, Zhang sought to give protracted explanations why he had not read any of the banking and trust documents and why he had not made it his business to ascertain what they were before signing them[344]. A number of these documents bear Zhang’s signatures. Amongst them were:

(1)  The Trust Deed dated 4 January 2005[345]. Zhang claimed that, although he discussed this with his wife, he did not read through it carefully before signing the document[346];

(2)  The Letter of Wishes dated 1 March 2005[347].  Again, Zhang claimed that although he asked questions about this, he did not read it[348];

(3)  The various Letters of Recommendation or Declarations of Risk Awareness. Zhang claimed to have read none of them[349].

His explanations were that he trusted his wife, he was extremely busy, and that he was a “macro guy”. 

132.  Sometimes Ji said she wanted to consult with Zhang before making investment decisions. Telephone recordings between Ji and DBS Bank staff suggest that Zhang had some knowledge and awareness about the state of Wise Lords’ portfolio[350]. Zhang also signed the financial accounts of Wise Lords and the Trust before December 2008.  Notwithstanding these aspects of the case, and Zhang’s knowledge, as a senior banker, of banking, investment and trust matters, I find that Zhang deliberately distanced himself from matters concerning the Trust and from the investments in the Trust for the reason that he had great faith and confidence in his wife’s abilities to manage those investments. He was happy to “blindly” sign whatever document was placed before him in connection with the Trust and the investments of the Trust.

133.  The plaintiffs’ Statement of Claim originally contained allegations of forged signatures on two “Recommendation Letters” relating to banking facilities, at paragraph 4 of Appendix A, but those allegations were deleted from the Statement of Claim by way of amendment[351]. In Appendix D to the Amended Reply[352], the plaintiffs set out a list of documents the authenticity of which was challenged by them, but no allegation of forged signatures was specifically pleaded or raised in the plaintiffs’ written or oral opening.  In his witness statement, Zhang did not raise any allegations of forged signatures. At §14.3[353], he confirmed signing a facility letter dated 28 May 2008[354], which he later claimed to be unsure about when he gave evidence by videolink[355].

134.  It was only when Zhang gave evidence that he claimed that he was unsure if the signatures on three documents were his; and that he was certain that the signature on one particular document was not his. Those documents were:

(1) The Letter of Recommendation dated 13 December 2006[356];

(2) The Facility Letter dated 28 May 2008[357];

(3) The certified minutes of Wise Lords Limited[358];

(4) The Declaration of Risk Awareness dated 20 June 2007[359]. Zhang claimed to be “100 percent sure” that this was not his signature as he did not sign with “Hong Li”, his first name, at the front.

The allegation has not been pleaded and I can disregard it.  Even if the issue had been properly raised, in the absence of evidence from a handwriting expert, I am unable to find, simply from the expression of disquiet by Zhang, that the signatures on the first three documents he had identified were not his.  Further, I am satisfied from the following evidence that the signature on the fourth document Zhang had identified, and that he had disputed, had been “signed” by Ji:

(1) 3 documents in the trial bundles contain signatures of the same style as the one on the Declaration of Risk Awareness dated 20 June 2007, i.e. signature with “Hong Li” at the front. One of these documents was a Declaration of Risk Awareness dated 16 May 2008[360];

(2) In an email from Matthew Lam to Linda Liu dated 20 May 2008[361], Matthew Lam informed Linda Liu that Zhang’s signature on the Declaration of Risk Awareness dated 16 May 2008[362] was different from his specimen signature in the bank’s record.  Matthew Lam required both Zhang and Ji to sign the Declaration again;

(3) In a telephone conversation on 20 May 2008[363],  Linda Liu told Ji that she was informed that the signature of Zhang on a document related to an extension of credit limit did not match his usual signature and Linda Liu asked Ji to request her husband to sign again. Ji admitted that “it was signed by [her]” and “[a] lot of those were signed by [her]”. Linda Liu reminded Ji to ask her husband to sign again;

(4) In an email from Matthew Lam to Ben George of DBS Trustee dated 3 June 2008, various documents were attached thereto, including a Declaration of Risk Awareness dated 16 May 2008[364] containing a signature of Zhang which looked different from the Declaration of Risk Awareness of the same date[365] referred to in sub-paragraphs (1) and (2) above, i.e. not  having “Hong Li” at the front.

The legal issues arising in this case are unrelated to the Declaration of Risk Awareness dated 20 June 2007 that was “signed” by Ji.

(5) Initiation of Investments and Provision of Advice; Remuneration of DBS and its staff

135.  The Account Opening Form for Wise Lords[366], which was signed by Ji as the company’s sole director and dated 22 April 2004, provided that the DBS Private Banking Account Master Agreement[367], as might be varied from time to time, would govern the operation of the Wise Lords’ account with DBS:PB. The version current in April 2004 was Version 07/03. Subsequent versions included Version 09/05[368]. The provisions in the Mandate (which was within the Account Opening Form) and the Master Agreement governed and defined the general banking relationship between DBS:PB and Wise Lords. The relevant provisions in the Mandate and the Master Agreement[369] fell broadly into the following categories:

(a)  No Investment Advice Provisions: it was expressly agreed that DBS:PB only offered a transaction execution service, and was under no duty to provide any investment advice;

(b) Independent Judgment Provisions: Wise Lords agreed to exercise independent judgment in its investments notwithstanding that DBS:PB might make available investment materials and information to it;

(c)  Understanding and Acceptance of Risks Provisions: Wise Lords acknowledged that it had read and understood the risks associated with securities trading, margin, leverage, foreign markets, currency transactions and transactions in derivatives;

(d)  Repayment of Credit Provisions: any credit advanced by DBS Bank to Wise Lords was repayable on demand and margin calls must be met by Wise Lords immediately or within such time limit as may be specified by DBS Bank from time to time;

(e)  No Trust Obligation Provisions: DBS Bank and DBS:PB did not owe any trust or similar obligations to Wise Lords;

(f)  Limitation of Liability Provisions: Neither DBS Bank nor DBS:PB nor its officers shall have any liability or obligation to Wise Lords or any third party save only in cases of its gross negligence or wilful default. DBS Bank and DBS:PB shall not be liable for any loss suffered by Wise Lords as a result of anything outside the bank’s reasonable control or for any indirect or consequential loss;

(g)  Bank Charges Provisions: it was agreed that DBS Bank and DBS:PB may charge fees or commissions on transactions effected for Wise Lords, which may be deducted from the Account;

(h)  Conclusive Evidence Provisions: the combined advice or contract note delivered by DBS Bank and DBS:PB to Wise Lords shall be conclusive and deemed to be accepted if not objected to in writing within 90 days.

In short, it was expressly agreed, amongst other things, that DBS:PB only offered a transaction execution service, and was under no duty to provide any investment advice and that Wise Lords would exercise independent judgment in its investments notwithstanding DBS:PB might make available investment materials and information to it.  The Delegated Management Query Forms completed annually[370] and sent to DBS Trustee incorrectly stated that Wise Lords' portfolio was managed by “RM of Hong Kong on an advisory role”.  That was also Mayes’ evidence in court[371].  However, I do not understand him to be saying that DBS Trustee knew, at the relevant time, that the Delegated Management Query Forms had been completed incorrectly.  I find that DBS Trustee acted on the basis that the Delegated Management Query Forms contained accurate information and that DBS:PB had undertaken advisory duties to Wise Lords[372].

136.  The relationship between Linda Liu and Ji has to be understood in the context of these contractual provisions.  One could say that they were well matched for each other or even that, to put it colloquially, they were “made for each other”.

137.  I have already found that Linda Liu was willing to cut corners and signify that she had witnessed parties signing documents when she had not done so[373].

138.  The Wise Lords account was clearly a high revenue earner for DBS:PB. By January 2007, Wise Lords had become DBS:PB’s “biggest client, the very top one”[374].  Linda Liu, as the relationship manager, was paid commission and bonuses based, in part, on the amount of the transactions her clients entered into.  An email dated 30 June 2008 to Linda Liu showed that she was in the Top Tier Group of participants to increase clients’ investments in YEDs for the period July-Sept 2008 and eligible for a monthly prize of HK$20,000.  However, she would not readily acknowledge that the more financial products were sold the more income she could expect to receive, as demonstrated by the following exchange during her cross-examination[375] when she was shown an email from Peter Lee to David Muir, Edna Chan and Matthew Lam dated 2 April 2007[376]:

“Q. ...

“we have also taken this opportunity to express that the flat fee of USD5,000 (forced upon us) is not a proper reflection of the degree of responsibility and attention called by this active account. As such we are striving to ask for at least double the fees -- perhaps this should be paid out of the revenue of the relationship manager’s account as she would have earned quite a bit from all these investments.” What he’s suggesting is that, because they are doing a lot more work due to all of the investments that you have marketed to Wise Lords, perhaps some of your revenue should be provided to the trustee. You understand? And this shows that the more financial products you sell the more income you can expect to receive; is that correct?

A. First of all, Peter never directly mentioned about this email to me. Today is the very first time I saw this email. I guessed that Peter went to talk about this matter directly with the PB head himself.

Q. The only part we’re asking you about -- it’s not the office politics, it’s the reference to the revenue.

A. And thirdly ... The revenue here concerns the relationship manager’s performance in the MIS as that refers to how much the relationship manager contributes in terms of fees and revenue for the bank, and it related to the RM’s performance as reported in the MIS. To put it simply, the wording here, the RM’s account, is not referring to my personal pocket account, it refers to the account where how much revenue contributed by the RM to the bank is calculated.

HIS LORDSHIP: Ms Liu, do you agree that the last words would appear to refer to the income you earn? It says “she would have earned quite a bit from all these investments”, “she” being you.

A. I do not totally agree, because, mentioning the discretionary bonus again --

HIS LORDSHIP: You’re not being asked about the construction of this email, you’re being asked a very simple question. The more you sell, the more income you will receive. Do you agree or not? That was the question.

A. I would expect that to be the case, but I need to clarify. It is not that I would be selling a particular product on my own initiative. On many of those occasions it would be execution only. The client would be calling in, saying that they would be making the investment themselves. Therefore the word “sell” does not appear in the very last sentence of the email. It only mentions earned quite a bit from all these investments.”

She was evasive in the way she answered these questions and in the way she answered the following questions[377]:

“MR BARLOW: The revenue target that you told us about a moment ago was a target that DBS Bank set for its relationship managers’ sales of DBS financial products; correct?

A. It’s not entirely correct. I have just mentioned that the revenue target would include products issued by DBS and those not by DBS.

Q. But the revenue referred to, in your expression, “revenue target”, is revenue coming to DBS.

A. I would like to explain to you first what is meant by DBS product and non-DBS products. DBS products are those really issued by DBS itself, with DBS as the principal, and the credit rate would relate to DBS’s credit ratings. For non-DBS products, DBS Private Banking would be an agent. It can do sourcing outside.

HIS LORDSHIP: Agent for a third party issuer?

A. Yes.

HIS LORDSHIP: And DBS would earn revenue from both types of products?

A. Right.

HIS LORDSHIP: And DBS will earn more revenue from selling its own products?

A. I’m not clear about this.

HIS LORDSHIP: But when you talk about the revenue target, you mean revenue target from both types of products?

A. Right.”

Her refusal to acknowledge her own financial interest is also demonstrated in the following exchange[378]:

“Q. Yes. Could the witness please be shown bundle D19 at tab 810. Ms Liu, this is an email from Peter Lee to Frank Mayes in Bermuda[379] on 29 October 2008. In the second paragraph, he says: “Actually for the special FX deals, we have as usual prepared the ‘declarations’ for her to sign -- she was not responding but she continued to contact the relationship manager for transactions and the relationship manager (we suspect because of her interests in the deal commissions) was not assisting us to chase for the outstanding forms.” Here he’s referring to your financial interest and the deal commissions from the FX deals; do you agree or disagree, and we do not need a speech?

A.  I need to read this email, because it’s the first time I see it today.  Today is the first time I see this email. (Pause).  What is the question again?

Q.  The question is this: his reference to her interests in the deal commissions is a reference to your financial interest in the deal commissions produced to DBS from the FX deals; correct?

A.  I do not have a single clue about this matter.  Look at the date, 29 October 2008. On that day Peter did not mention anything about it to me.

HIS LORDSHIP:  The question was restricted to the words in that email used by Peter Lee, in brackets, that he or they suspect that you are not assisting them in chasing the forms because of your interest in the deal commissions, and the question is that’s a reference to your financial interest.  Do you agree or disagree?

A.  The bank income should be the FX spread.

Mr BARLOW:  Is this what he’s referring to as the deal commissions?

A.  As the FX spread, the difference is a transaction difference of 3 basis points.

Q.  If you don’t want to answer the question, Ms Liu, don’t worry, we’ve got lots of other questions for you.” 

139.  Linda Liu was very adept in her occupation as a relationship manager of a private banking account.  She quickly developed a close relationship with Ji, as demonstrated by the many and very friendly telephone conversations between them, at times on a daily basis.  She presented Ji with gifts on a number of occasions[380].  She would also flatter her[381].  Whilst she would not acknowledge it readily, Linda Liu was keen to increase the volume of transactions in Wise Lords’ account so as to enjoy bigger bonuses.  This is readily apparent from her candid conversation with Rocky Cheung on 9 August 2007[382] during which she used the memorable line: “Hello brother Rocky, get ready to go for happy hour!”, and gloated to her colleague about having managed to persuade her “Big Boss”, i.e. Ji[383], to consent to increasing Wise Lords’ credit facility to US$40m so that “we will both be rich.”  In her email of 31 July 2008 to Frederick Ko of the Credit Department and copied to Edwin Lim, she stated:

“It’s remarkable business to our PB when the captioned client fully utilized her credit facility in USD100mio for loan draw down to book YED/FX transactions under current circumstance. Thanks for your support!”[384]

140.  However, in many respects, Ji was an equal to Linda Liu. What she may have lacked initially in experience, she made up for quickly with her intelligence, keen interest and increasing acumen in financial products.

141.  A review of the voice recordings and contemporaneous correspondence show the kind of investor Ji was and became over the course of Wise Lords’ banking relationship with DBS:PB.

142.  From the start, Ji asserted her role and status as decision maker in respect of the investments. For instance, in the context of investing in mutual funds, she had said the following:

“Ji: I feel that Rocky does not view H shares accurately. (Linda: I am slightly more (unintelligible) than him, I am relatively more aggressive.) Because he does not understand the situation in China.

Linda: Last time I did not ask you to sell, I have to say this first.

Ji: Of course it was not you. You had some opposite opinion, it is also not related to him, he also wants to do the best for me, I can’t blame anyone for this matter, I was the final decision maker, right?

Linda: Yes.” [385]

...

“Linda: Er, you – you think that it should rebound, will go up some more, is that right? Since...

Ji: I predict.

Linda: Since we are now hearing a lot of outside comment (comments), which are continuing to rally around Eastern Europe and Emerging Europe.

Ji: Mm.

Linda: Last time it was because the fund manager (undertook) a large scale profit take, [Ji: Mm.] which resulted in some very serious oversold (overselling) of these Eastern Europe [Ji: Mm.] and Latin America.

Ji: Mm.

Linda: That is, after you sold it off, they continued to oversold (oversell) -- oversold (oversell).

Ji: Mm, mm.

Linda: Mm. It doesn’t mat – it doesn’t matter. You will decide? Mm.

Ji: Mm.

Linda: You can reflect on this opinion.

Ji: Mm, mm.” [386]

...

“Linda: Later when I come back at 2:30pm, I will take a look at how is their account coming along, and I will (talk) to Rocky. If unless he is very much not in favour, then I will talk to you, at about 2:45pm or 3pm.

Ji: If he is not in favour, he has to give me a reason.

Linda: Yes, yes, yes, Ok.

Ji: But it is my call whether to listen to it or not.

Linda: That’s right, that’s right.

Ji: So he has his reason, I will think about it. I want to buy, just that whether it is the right time or not.” [387]

...

“Linda: It is ABN Amro, the A-share funds (fund), the only one that does IPO in Hong Kong. It is especially exclusive for private bank customers. Normally you can’t get it from a retail bank.

Ji: When does it start?

Linda: It (starts in) September. I will ask her for some information.

...

Ji: After having a look, (you will) invest whatever the amount I decide to invest in.” [388]

“Ji: I told you to call me after 3pm.

Linda: Because I have asked Rocky today. We discussed that there’s nothing much to be done today.

Ji: That is my decision. It’s not up to you guys to decide.” [389]

143.  The voice recordings also show that, at all times, Ji was and insisted she should be in the driving seat as regards investment strategy and selection:

“Linda: [In Cantonese] Well, I quite like this client of mine. She said, “If I say I want it, I want it.” She is firm – very firm.

Wendy: [In Cantonese] But she – she does okay by herself.

Linda: [In Cantonese] Oh, yeah, she can accept her risks.

Wendy: [In Cantonese] And her predictions are (usually) accurate.” [390]

144.  The following are examples of Ji making investment decisions and demonstrating decisiveness.  For instance:

(1)  On emerging market funds:

“Ji: I only want to see HSBC.

Linda: That is fine. Dao Heng Hong Kong has been in the top 5 for a few years continuously, because it is for immigrant investors, and we are a selected fund, even the government approves that this is good. Alright, let me send (you) another benchmark for this period, they also recommend this Dao Heng’s Hong Kong Fund, and this is the independent opinion from a third party.

Ji: Good good good.

...

Linda: Then this Fidelity still has a China focus fund, with China constituting 74 percent. This is similar to that HSBC one, you can take it out to have a look later. I will now send you again the HSBC one ok?

Ji: Right, let me have a look.

Linda: HSBC should not have its own HSBC bank holding, and like I said, Deutsche Bank cannot buy its own Deutsche Bank shares, and HSBC also cannot buy its own shares, and DBS also cannot buy its own shares.

Ji: OK.

Linda: Actually last time I passed you a Merrill Lynch one, and I recommended the Global Finance one a few times, but you did not consider it. Actually that one...

Ji: I feel that the performance of that is only average.

...

Ji: Let me have a look at JF China.

Linda: Do you want to do a comparison?

Ji: How much is it now, I do not intend to make a comparison, I just want to know the price.” [391]

(2)  On investment in oil:

“Ji: How much is the oil price now?

Linda: The oil price was 53.31 dollars last night. You still want to buy oil? Don’t buy.

Ji: I will take a look at it later.

...

Ji: I was waiting for a call before that, and then I will make a decision, I might want to invest some today.

Linda: Whose call were you waiting for?

Ji: I am waiting for a call from another bank, their opinion.” [392]

...

“Ji: And how’s the oil prices looking?

Linda: Oil is rising. It’s currently at 59.09.

Ji: How much is Merrill Lynch?

Linda: Merrill Lynch’s world energy is at 22.16.

Ji: Hold on, sell a little bit of this one first.” [393]

(3)  On liquidating mutual funds:

“Ji: It’s okay, depends on the situation, I don’t want to make it like something before coming out. I do not want to sell a lot, in the past it seems that the prices immediately increased whenever I came out.

Linda: It’s not like that, you were very decisive with the ones you liquidated last time, very good.

Ji: That was quite okay.

Linda: Really very good, if you didn’t come out at that time, the profit now will...

Ji: Be gone, all gone.

Linda: Yes, so today we still keep praising you.

Ji: No, no, I just got lucky, I think that sometimes some profits needs to be realized, so must let some out, (it) is not a solution either to only holding (hold) for a long term; it is the feel for profit.” [394]

(4)  On investment in BRIC[395]:

“Ji: I am not anxious about the rest, to be honest, I can wait for a while. But I need to buy this BRIC, because the value is still increasing right?

Linda: Yes.

Ji: Is the rest ok? I did not make a good purchase for the rest.

Linda You want to buy more BRIC right?

Ji: Yes.

Linda: How much more do you want to buy?

Ji: One million.

Linda: What?

Ji: One million.

Linda: You want to buy a million more?

Ji: Yes” [396]

“Ji: For BRIC, Templeton’s BRIC, do redemption for the latter three sums of money and keep the topmost 300,000 sum, the one with only 10%, please keep that sum.

Linda: Right, right, okay. So we are not going [sic] take the sum with the highest value out, right?

Ji: Yes, yes, we will not deal with that first, so the total will be 1 million, which is easier to calculate. It is a 1.3 million package, right?

Linda: Yes, that’s right. A total of 70779.404 unit(s) will be redeem(ed).

Ji: You calculated the unit?

Linda: Yes, yes.

Ji: Have you calculated it?

Linda: Yes, I calculated it immediately.

Ji: And these are the results. Also, there is this, and the result is this. The rest will not be touched, the small quantity in oil will not be touched.

Linda: This will not be touched.

Ji: There is some in Baring which will not be touched, Baring and the Emerging Europe of Merrill Lynch will not be touched, (we are) waiting for the oil to rise.

Linda: Yes, since the oil is already rising, we should wait for it to go higher as it is on a rising curve.” [397]

(5)  On investment in GEM:

“Ji: I wanted to ask you something. How much is GEM ?

Linda: GEM is not that good now. It isn’t even 5 percent. The last one.

Ji: How much is it?

Linda: GM is now, HSBC GEM, 11.651, [on] 5 February.

Ji: Is this the price for the day before yesterday?

Linda: No, it is yesterday’s. $11.651.

Ji: What about the day before?

Linda: The day before...the day before was 11.63.651, 11.63.

Ji: What’s the situation like now?

Linda: The situation is quite good. The situation we see is not bad. The Japanese side is rising again, sell a little and see. As for GEM, Japan is down by 62.06 today...That GEM includes Japan, Korea, Australia, Brazil, and South Africa. For its own index, it rises though. Hello? Hello?

Ji: Go on.

Linda: Yes, if Japan gets better now, it increases to 62.06. [Since] that GEM includes Japan, Korea, Australia, Brazil, and South Africa, so it’s currently at 11.651. So for your last one, let me take a look, the last one for GEM has a 4 percent profit.

Ji: Then you do it this way, sell off my last two ones today.

Linda: You want to sell them today?

Ji: Um. Sell them today. Hold on to the $500,000 for now.

Linda: $500,000, yes, $500,000. I’ll place the order for you today. The total amount...

Ji: The previous two only. Please calculate.

Linda: 48236.477. Please hold on.

Ji: You can go ahead with it. Do that first and tell me about it later?

Linda: OK, OK, OK.

Ji: The previous two which are higher.

Linda: You mean the first two? The ones that are 10.31 and 10.403.

Ji: Yes, yes, yes.

Linda: OK, those two.”[398]

145.  Ji was not an investor who blindly followed any recommendations that were given to her.  She had clear views as to what directions and regions she did and did not favour as shown by these examples:

(1)  No wish to consider Taiwan:

“Linda: ... Actually the Taiwan stock market has been not bad recently, and is not performing too poorly.

Ji: I do not wish to consider Taiwan.

Linda: We Beijing people do not like Taiwan?

Ji: Haha, really?

Linda: Yes, because China is about to attack Taiwan.

Ji: I am not optimistic, because I think that these politics do not bear any hope.” [399]

(2)  Insistence on investing in oil:

“Ji: That’s fine, it’s not a problem. [Linda: Mm.] Go ahead and use 300,000, 300,000. If Rocky has any doubts, then come speak with me as there’s still time.

Linda: Okay, okay.

Ji: Then come speak with me, okay?

Linda: No, he doesn’t have any opinion, he doesn’t have any opinion ... he won’t be in favour of you buy (buying).

Ji: After all, it’s the stock market; no one can know for sure.

Linda: Uh-huh.

Ji: ...(inaudible) it doesn’t matter.

Linda: No, must -- must be responsible...

Ji: Then (let’s) go ahead and order.” [400]

(3)  No interest in the Man Funds:

“Rocky: Okay, okay. Also, also, er -- [Ji: mm.] er, Ms Ji, [Ji: Mm.] there’s a hedge fund that you -- you can think about, [Ji: Mm.] er, whether (you are interested), because it -- it is, er, unlike our investments. It is a, er, hedge fund called Man AHL. [Ji: Mm, mm.] It -- I’ve observed it for two years, and it increases 10 per cent, over 10 per cent annually. It always maintains this performance, regardless of whether the market is rising or falling.

Ji: (I’m) not interested. When I was at -- I bought -- bought this before at Standard Chartered Bank, [Rocky: I see.] mm.

Rocky: Okay, okay, okay, okay. [Ji: Mm.] Okay, well you two...

Ji: Because it’s too complicated. I don’t want -- don’t want to think about it.

Rocky: ... mm, okay, well then...

Ji: Thanks, ah.

Rocky: ... you’re welcome, you’re welcome, okay, mm, bye bye.

Ji: Bye-bye.

Linda: [In Cantonese] Okay, thanks, Rocky.

Ji: Thanks, mm.

Linda: Hello, hello, hello?

Ji: Right, I bought it for two -- two or three months and then sold it, because it’s too complicated. It’s such a hassle. (I) don’t want to think (about it).

Linda: I see, it’s too complicated.

Ji: Because at first they introduced me to several of them (hedge funds), one manager introduced several of them, and another -- I didn’t have any experience previously. They ended up introducing them to me, and finally said they were going to -- going to disperse them, disperse them for me. Afterwards I wasn’t able to handle them, and then voila! I only had a few left, so I, uh, er, carried out redemption for -- for all -- for all of them.” [401]

146.  Ji accepted in her evidence that that she was not prepared to blindly follow recommendations:

“Ji: Rocky was not able to force me to make any decision. I was insisting that it would be long term. That’s what I meant to say in [paragraph] 208. Because Rocky always suggested to me different products, which included those which are relatively more risky. Sometimes I would refuse when it involved risky products.” [402]

147.  Ji was in many respects a well-informed investor.  She was regularly supplied with printouts containing information about investments or potential investments[403].  There were also occasions when Ji asked for documents to be sent to her via email or fax[404].  Ji presented herself in the witness box as a cautious, meticulous and assertive person.  There were more than 10 occasions when she firmly asked for and took time to read the materials that were presented to her, or requested to read documents which she considered relevant, and she took time to digest them[405].

148.  As an investor,  Ji would:

(1)  Observe and monitor fund performance:

“Linda: Templeton’s Latin America one is number one.

Ji: Right

Linda: Performance.

Ji: This one is very good, I feel that it is rising continuously, and so I think that we must grab hold of it, because I have been observing all the time, and from my observation since July to now it has risen by 10%.”[406]

...

“Ji: I definitely need to take out Smaller, I’ll see whether we need to take out JF Japan.

Linda: Right. Right. From the cost (perspective), your cost is less expensive, 17735, and you should not suffer a loss based on the price, but you will definitely make a profit based on the exchange rate. Ok, I will give you an estimate in a while after I finish my calculations.

Ji: Then give this to me as soon as possible, I will handle it today, I’ve seen it over the weekend, I will know how much to subscribe, ok?

Linda: Ok, you are really diligent.

Ji: The market situation today.

Linda: Ok, I will send you those charts later before 11 o’clock.

Ji: OK. Good.” [407]

(2)  Request the provision to her of NAV diagrams for specific mutual funds[408];

(3)  Request term sheets of DBS China All Access Opportunity Fund[409];

(4)  Do research on market and funds[410];

(5)  Prescribe exactly what was to be included in daily portfolio summaries tailor-made for her, including profit or loss on the investment and mark to market[411] information:

“Ji: Hi [Linda: Hi.] about today’s er – er portfolio summary.

Linda: Hm.

Ji: Ah, it is basically very good. Please add one thing for me.

Linda: Um.

Ji: Add something.

Linda: No problem.

Ji: And I want (to know) the total cash value.

Linda: It is in there. Do you see the US$660,013.37 in US dollars?

Ji: I see. This is the cash value?

Linda: Yes.

Ji: Orr, okay, then you add this. And this, the total value of this security of mine.

Linda: Orr, in two lines?

Ji: Is that OK?

Linda: Yes ah, alright.

Ji: You add this up for me.

Linda: OK.

Ji: That is, you let me know about this...

Linda: I see.

Ji: This security...Could you tell me how much is it and how much cash (I have).

Linda: Alright.

Ji: Also the amount for under transaction (transactions), okay?

Linda: OK.

Ji: Ok, thanks.

Linda: So I only need to separate security and cash, right?

Ji: Yeah, yeah, yeah. I think the rest is just fine.[412]”

(6)  Meticulously go through portfolio summary and items thereon (e.g. “mark to market” and “P&L” portions) with Linda Liu[413].

149.  Ji was disinclined to make investments without the necessary information and knowledge.  She:

(1)  Demanded information on funds:

“Ji: Right, you need to have this, you need to find this, otherwise there is no way to buy this one. Are you just blindly allowing people to state any price they want right?

Linda: No, there is no such problem, for this bank.

Ji: That is not ok, how about this, I would not buy it if I know there is such problem, I cannot blindly buy something I do not know about, this is not my practice, you know right.[414]”

(2)  Gave instructions on the preparation of a chart by Linda Liu  showing information on funds:

“Linda: Ok, let me make a chart, when the time comes they can just print it out, you can press that Bloomberg and print it out.

Ji: Right, right, and I want to know its price, its changes and the correlation with those few mutual funds of mine. For example, oil price, how much is it over there, rise and fall, and then the price of my Investec Global Energy...(unintelligible) Ok? Make a column.

Linda: Ok, ok.

Ji: Ok, that’s it for now.

Linda: Ok, I will help you to do it.

Ji: I also want China’s H index, is Chinese Equity related to H index?

Linda: Yes.

Ji: Ok?

Linda: H index.

Ji: It would be clear for me like this, in the future, for example if the H index rises or changes, I might add a little for China, right? I will know of the changes.

Linda: Ok, ok.

Ji: So I won’t have to...(like) closing both eyes and feeling in the dark while placing an order, OK ?” [415]

150.  In the course of Ji’s dealing with the bank personnel, she would not hesitate to make it clear that she could and did resort to the services of other banks[416]. Ji threatened to go to ABN AMRO which had Qualified Foreign Institutional Investor scheme (“QFII”) allocation and China “A” shares[417].  She did not hesitate to use her connections with StanChart as a bargaining chip with DBS Bank:PB:

“Ji: Er -- er, my bonus, at this rate, I want to put, I want to put it here, because the chap in Standard Chartered Bank -- he’s switched to ABN AMRO Bank N.V.

Linda: Um.

Ji: (He) also does er -- er -- private banking.

Linda: Um.

Ji: He was a vice manager and he said he will give me a lot of privileges, but then I think, what can you offer me here?

Linda: Um, you need to think about what your requests are.” [418]

151.  Ji’s investment strategy can be characterised as generally bullish.  She was prepared to take risks.  There are numerous examples of conversations demonstrating this since the early stage of Wise Lords’ relationship with DBS:PB:

“Ji: However I think that its performance is better than Merrill Lynch right?

Linda: Templeton is the best within Latin America.

Ji: Right.

Linda: How about this, I will do my best to place the order for you today, and if we can’t place it then we will do it tomorrow.

Ji: You try to do it. Price...

Linda: 100,000, or?

Ji: 200,000 is not a problem either.

Linda: Don’t go for so much.

Ji: Long term, doesn’t matter.” [419]

...

“Ji: At that time see how much is this Investec, gamble a bit, it’s only 200,000.[420]”

...

“Ji: OK, today I want to buy some JF Hong Kong.

Linda: Ok, how much do you want to place for JF Hong Kong?

Ji: I am thinking 300,000.

Linda: You’re buying it on the first day that it falls.

Ji: It doesn’t matter.[421]”

...

“Linda: But will a large holding be invested all in one stock?

Ji: Not a problem; this is very balance(d) so it is ok. So you think about it, this thing of mine, I don’t want it to be very balance(d), I am just expecting this to do well, so I go for it. Those that are very balance(d) do not have high return.[422]”

...

“Linda: No, it’s you I should thank. So now, your existing BRIC holding is.

Ji: How much?

Linda: Add 366, so it’s 1926.

Ji: Yes, add another million, to three million.

Linda: 1.926 million.

Ji: Yes, it’s alright, it’s alright.

Linda: Ok, ok.

Ji: I am not looking to be too balance(d).[423]”

I do not accept Ji’s denial that she had uttered the words “gamble a bit” as recorded in two transcripts[424]. The Court Interpreter confirmed in her opinion dated 2 July 2014[425]that Ji was indeed saying “gamble” on both occasions.  Ji has also beenrecorded as saying “I don’t mind volatility”[426].

152.  The recorded conversations between the bank personnel demonstrated what type of investor Ji was in their eyes:

“Linda: Yes, Miss Ji wanted to place 300,000 USD on Baring Eastern Euro, 300,000 USD on Merrill Lynch Emerging Euro. Would you please make a call to confirm, not sure what views she has to talk to you about.

Rocky: Ok, 300,000 on...

Linda: Baring Eastern Euro USD, then Merrill Lynch Emerging Euro 300,000 USD. I can’t stop her. Because her buy price now for Baring Eastern Euro is even higher than her last sell price, I feel bad for her.

Rocky: Oh.

Linda: But she is a very bullish investor, what should we do? Would you please call her and tell her? If she has no objection, would you please confirm with her also? Thanks.”[427]

153.  The evidence also showed that Ji was at the time uninterested in investments with low risk and low return, such as:

(1)  An Australian bond:

“Ji: You mean look at the Australian bond that it mentioned?

Linda: Yes, yes.

Ji: Thank you, I feel that the benefit for that is not huge.

Linda: Why?

Ji: 101.5

Linda: That one can wait.

Ji: After that it would be too high, for this, if you subtract this, then right now it will be 6.9, or around 6.5, which is very similar to ours.

Linda: Um, ours is 5.18.5 points...

Ji: Our volatility for this is very high, so I feel that this is not worthwhile.

Linda: But what about that GM one? The one with 7-plus points? It has risks, because that is a low point.

Linda: Yes, yes, it has some.

Ji: Right, and then this is not good. Then, what is that, this is not good. I will not consider this for now, I feel that it is not worthwhile.” [428]

(2)  The Alpha Note:

“Rocky: Right. Yes. If you still have capital, we recently have a new product called Alpha Note. Sorry, there is one which is called Alpha Note. It is also using the US S&P as the reference. But it doesn’t buy shares.

Ji: Can you repeat it. What are you talking about?

Rocky: It’s called Alpha Note. It is outperformance, that is (when) compared to the S&P 500 Index, if it outperform(s)...

...

Ji: So, how is it when compared to funds?

Rocky: Yes. Frankly speaking, it is more stable than funds.

Ji: I see, after all, it is...(unintelligible: 00: 16: 01).

Rocky: Because it’s earnings is based on the fund itself and S&P’s performance. There won't be much difference. Also it will... because it is low-risk, hence it is amplified 330 times. Its expect(ed) growth is about 10 percent every year.

Ji: Then I’m not interested.

Rocky: Not very good?

Ji: Yes. Yes. Yes. I think this risk is a concept that is hard to understand. The annual return is so small, and it’s not that big...”[429]

(3)  Ji also stated that she disliked a 6.5% return for a fund as it was “low return”[430].

154.  I accept the evidence that the income structure of Linda Liu, Peter Lee and Edwin Lim was not commission-based, and that their bonus was of a discretionary nature, based on both financial and non-financial indicators, including the performance of DBS:PB, the performance of the operating unit to which the relevant individual belonged, and the general performance of the staff member concerned[431].  Nevertheless, I have no difficulty finding that Linda Liu and her team were very eager to increase the volume of transactions in the Wise Lords’ account so that they could enjoy higher bonuses.  However, whilst Linda Liu and her team were more than happy to recommend products to Ji, there was no question of them pushing Ji to conduct investment transactions that she herself did not wish to undertake or fully independently consider.  Of course, from the contractual standpoint, any such recommendations from Linda Liu and her team were not to be considered as investment advice from them.  I accept the evidence of Linda Liu given in the course of her cross-examination on Day 14 of the trial[432],  including in particular:

“Q. at paragraph 43 to 46, Mr Ji and Rocky are talking about the possibility of another war in Iraq, and at paragraph 49 and 50, Rocky’s telling her that the DEVA note actually survived the 9/11 incident in 2001.

Do you see all that?

A. Yes.

Q. And you agree with me this is an example of just how gullible Ms Ji was in January 2007?

A. I disagree, because the DEVA note being talked about here is a totally different product as opposed to the investment in funds by Ms Ji in the other topic. DEVA notes is talking about investment in VIX volatility options, so I don’t think you should just be referring to this example alone.

  And you can also see that Ji is very careful and cautious.  About the DEVA note, she not only asked about Godwin from the bond desk, she was also seeking a second opinion from Rocky.  So Ji is a very careful person.[433]”        

I also accept the evidence of Mayes and Kenneth Cheung to the effect that Ji made informed and strategic choices and did not accede to warnings given to her[434].

155.  It is appropriate that this juncture to make mention of the appointment of Wise Lords as a professional investor. Although she was not a director of Wise Lords, Ji was asked to sign, and she signed, on behalf of Wise Lords, Professional Investor Declarations dated 27 July 2006[435] and 6 August 2006[436], by which the company consented to being treated by DBS:PB as a professional investor.

156.  Written explanations as to the risks and consequences of being treated as a professional investor were set out in writing in a 2- page document dated 26 July 2006[437].  A breach of the requirement of the prevailing The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“SFC Code”)[438] would have occurred if the written explanation had not been faxed to Ji at the time when she was asked to sign the professional investor declaration.  Ji said she never received the written explanation[439]. Unlike the signed declarations, the copy of the 2-page explanatory document appearing in the Core Bundles does not containing any markings to suggest that it had been faxed. 

157.  During a telephone conversation on 26 July 2006 at 16:55[440], Linda Liu said to Ji that she needed to sign the professional investor declaration, explaining that, with this qualification, she would be given priority to subscribe for things like preferential shares.  At the time, something was wrong with Ji’s fax machine and Linda Liu told her that the declaration had been faxed to Ji’s clubhouse fax machine.  Linda Liu asked what time Ji would go to the clubhouse and remarked that “there’s only 1 page”.

158.  Shortly afterwards, at 18:49 on 26 July 2006, Linda Liu spoke to Ji again[441]:

“Linda: Hello?

Ji: Linda.

Linda: Hello, er, Ms Ji.

Ji: Has the fax been sent?

Linda: Can it be sent now?

Ji: Ah.

Linda: (To the) club house, right?

Ji: The club house -- right, that’s it. You send the fax and I’ll receive it now.

Linda: Orr, 3 pages.

Ji: And send it to me, and I’ll sign it and fax (them) back together right now, okay?

Linda: Okay, okay. You sign on -- it -- sign it, uh, on the first page and fax it back to me.

Ji: Okay, I know.

Linda: Okay, okay, (I’m sending) it over right now.

Ji: Er, thanks. Bye.

Linda:  Bye.”

159.  It would appear from the fax transmission data appearing at the top and bottom on the signed declaration in CB1/210that the declaration was faxed to Ji on 26 July 2006 at 7.09 pm and that the signed declaration was faxed by Ji to DBS:PB at 7.19 pm on the same evening.

160.  Linda Liu explained in her oral evidence that, while she was speaking on the phone, her assistant was faxing over the 3 page document[442]. Although Ji had no impression of the written explanation and although a copy with fax markings has not been produced, I find, on the evidence I have considered, that the 2 page written explanation had been faxed to Ji together with the one page declaration.  If I am wrong in making this finding, then a breach of the requirement of the prevailing SFC Code[443] would have occurred. However, any failure on the part of Linda Liu’s assistant to fax the 2 page written explanation to Ji would not impact on any of the issues I have to determine, given Linda Liu’s belief, as demonstrated by the telephone conversation set out above, that 3 pages, being the 2 page explanation and the 1 page declaration, were being faxed to Ji.

(6) The Investment Approval Process

161.  There was an approvals process in place by which all investments by Wise Lords were approved by or on behalf of DBS Trustee and DHJ Management.  After the settlement of the Trust, Ji was appointed the Investment Advisor and authorised representative of Wise Lords.  She had the power of entering into investment transactions for Wise Lords.  This was important as DBS Trustee and DHJ Management did not provide investment or portfolio management services[444]. Further, DBS Trustee and DHJ Management’s prior approval was not necessary and indeed, would have been difficult to procure in a timely manner, particularly with foreign exchange transactions, given the volatility of that market and DBS:PB’s requirement that the trade must be executed within 15 minutes of the order being placed[445]. It was denied by Mayes that the approvals for transaction already entered into had been backdated[446]. I accept Mayes’ evidence that there had been no backdating.   The approval that was given on 4 July 2008 in respect of 2 YED transactions entered into on 27 June 2008 was not backdated. It was dated 4 July 2008, which was the date of the approval[447]. However, the statement, in the same minutes containing the approval, that the trustees were requested to approve the listed investments “to be made”, was a misdescription.  Likewise, the resolution of DHJ Management that came into effect on 18 August 2008 authorising the sale of a decumulator was not back dated. However, the decumulator had been sold on 15 August 2008[448], so the resolutions for Wise Lords “to proceed with” the recommended transaction was inappropriate[449]. Likewise the resolution of DHJ Management, that came into effect on 1 September 2008, authorising the sale of a decumulator was not back dated.  The decumulator had been sold on 29 August 2008[450], so the resolution for Wise Lords “to proceed with” the recommended transaction was also inappropriate.  I do not accept Arboit’s description in his 2^nd Schedule that authorisations given after the transactions had taken place were “backdated” authorisations[451].

162.  Mayes suggested that the information that the decumulator transaction had taken place on 29 August 2008 had not been made available to the directors[452].  This is consistent with the practice laid down by Peter Lee that the application for approval should not state that the transaction had been done[453].  I do not accept Peter Lee’s “lengthy” explanation why Linda Liu had to be spoken to orally, and could not be told in “black and white” about this practice[454].  Edna Chan’s draft email to Linda Liu that was not sent to her[455] stated that, where prices fluctuate within a short period of time, trustee could allow notification within 24 hours of the transaction but that for such cases the application for approval should not use the wording the transaction was “done”.  I am able to infer from that draft email that the rationale for this practice was to avoid giving that impression that the trustee’s approval was a mere formality, which it was not.  I find that the Investment Application forms[456] in respect of these foreign exchange decumulator transactions[457] did not deliberately conceal the fact that the transaction had already taken place.  They were all dated on the date that the transactions had taken place.  Mayes had acknowledged in his evidence that it was impractical, in respect of foreign exchange transactions, for the trustee and the director to be notified prior to the transaction as to do so might cause a loss of opportunity in the market[458].  I also find that that DBS Trustee appreciated that these foreign exchange decumulator transactions had been entered into on the dates of the application.

163.  DBS Trustee and DHJ Management played a substantial, high-level supervisory role in respect of Wise Lords’ investments. The DBS Trustee was not involved in the day to day management of Wise Lords.  The structure permitted a measure of independence and flexibility subject, however, to DBS Trustee’s overarching supervision, regular monitoring and responsibility[459]. As Linda Liu explained to Ji during a telephone conversation on 4 April 2008, “typically speaking, trustee has the right to refuse to accept the investment advisers’ opinions if he thinks that the risk is too high or a loss will be caused to the trustee’s portfolio, or there is a very great risk.[460]” Information provided to DBS Trustee and DHJ Management enabled them to perform their supervisory functions. Matters considered by them were recorded in Minutes. Information related to investment transactions directed by Ji for Wise Lords was passed by DBS:PB personnel to DBS Trustee and DHJ Management through DBS Corporate. The information also enabled DBS Corporate to carry out their book-keeping function in relation to transactions conducted by Wise Lords[461].  DBS Corporate also assisted DBS Trustee and DHJ Management to gather information frequently requested by DBS Trustee and DHJ Management in advance to facilitate their review.  Although DBS Trustee and DHJ Management played a substantial, high-level supervisory role in respect of Wise Lords’ investments, it must, however, be noted that DBS Trustee had never reversed any of the 519 transactions  that had been entered into by Wise Lords[462].

164.  From January 2005 to 4 April 2006, the process involved Linda Liu sending an email to Peter Lee or other staff of DBS Corporate requesting approval for a transaction.  The staff would then send an email in response saying “on behalf of the Jersey trustee, please proceed”[463]. On 4 April 2006, this process was changed and the staff of DBS Corporate began responding with an email saying “noted”[464].

165.  From December 2006, as Wise Lords began borrowing money and investing increasing amounts in mutual funds focussed on China, the process sometimes varied.  In particular, when the staff of DBS Corporate perceived certain investments in mutual funds to be high risk, they would notify DBS Trustee and also requested:

(a)  A Letter of Recommendation to be signed by Ji;

(b)  A Declaration of Risk Awareness to be signed by Ji and Zhang; and

(c)  A Letter of Recommendation to be signed by Linda Liu and her supervisor.

166.  These documents were addressed to DBS Trustee.  The Letters of Recommendation and Declarations of Risk Awareness to be signed by Ji and Zhang became more sophisticated with the passage of time, as can be seen from the sequence of documents starting from D2-113 through to D3/190, D4/205, D4/204, D4/213, D4/215, D4/216, D5/230 and D5/241. 

167.  The information in the Letters of Recommendation signed by Ji came from DBS:PB[465]. Sometimes, Ji signed the Letters of Recommendation in blank and the information was added later by DBS:PB[466]. Peter Lee gave evidence that the Letters of Recommendation and Declarations of Risk Awareness to be signed by Ji and Zhang, as well as the Letters of Recommendation to be signed by Linda Liu and her supervisor, were standard form documents and that it was done this way for each and every client[467].

168.  D4/216/3412 contains a draft Letter of Recommendation to be signed by Linda Liu and her supervisor[468].  The signed version of this draft bearing the date 1 December 2006 appears in D5/230/3635[469].  It stated:

“To: DBS Trustee H.K. (Jersey) Limited/DBS Corporate Services (Hong Kong) Limited

From: Linda Liu/ Desmond Liu (Private Banking / DBS Bank (HK) Ltd.)

Date: 1 December, 2006

Dear Sirs,

Re: The Amsun Trust (“the Trust”)

Wise Lords Limited (“the Company”)

We understand that the investment manager of the above trust recommends to invest USD15 million in the proposed new launch DBS China A Share Mutual Fund (“the Fund”) for the Company.

As account manager to the Trust and the Company’s account with DBS, we:-

1 agree to such recommendation by the investment advisor Ms.Ji Zhengrong and

2 consider same to be a recommendable investment, in terms of the amount of investment (about USD15mn in the Fund) and the percentage of concentration of the Trust/ the Company’s portfolio (being about 40% of the total portfolio)

Our recommendation is based on the following reasons:-

• The ratings for the Fund:_______________________;

• Projected return of the Fund:_____________________;

• Risks and mitigation alternatives:

_____________________________________________

____________________________________________:

• Other Reasons to substantiate the proposed investment:

_____________________________________________

_____________________________________________

_____________________________________________

Recommended by	Concurred by
________________	____________________
Linda Liu	Desmond Liu
Relationship Manager	Head of Private Banking
Private Banking	North Asia & Greater China
DBS Bank (Hong Kong)	DBS Bank (Hong Kong)
Limited	Limited ”

Similarly worded Letters of Recommendation signed by Linda Liu and her supervisor appear at D9/341/4555,  D9/360/4701 and D10/380/4799.

169.  From 17 September 2007, the investment process was changed again, and an Investment Application form was introduced coupled with an express requirement that each investment be approved by DBS Trustee and DHJ Management by way of separate Trust and Board resolutions. Specifically, once Linda Liu sent an email to Peter Lee or other staff of DBS Corporate requesting approval for a transaction, they would complete an Investment Application form and send it to DBS Trustee.  The application form confirmed that the transaction was within the Trust guidelines and that the Relationship Manager considered the investment to be for the benefit of the Trust. When the Investment Application form was received by DBS Trustee, DBS Trustee would approve the transaction by way of board resolution and DHJ Management would also approve the transaction by way of resolution of DHJ Management.  The Investment Application form would then be signed on behalf of DBS Trustee and returned to Hong Kong.  Once it was received, DBS Corporate would send an email to Linda Liu saying “noted”[470].

170.  The defendants contend that the Letters of Recommendation signed by DBS:PB did not constitute investment advice.  It was submitted that they served as an administrative check on the reliability of the information provided by Ji to DBS Trustee and that they were also part of the procedure for informing and explaining to DBS Trustee of the nature of the products and the reason why Ji, as the Investment Advisor, saw fit to make those investments for Wise Lords.  It was submitted that they were reports to DBS Trustee concerning the investment decision made by Ji.

171.  I find that the effect of the Letters of Recommendation issued by DBS:PB was that DBS:PB was advising DBS Trustee that the investment transaction in question was a recommendable investment, in terms of the amount of investment and the percentage of concentration of the Trust, which, as account manager of Wise Lords’ account with DBS:PB, they could recommend to Wise Lords to enter into. Although the banking relationship between Wise Lords and DBS:PB was non-advisory and execution only[471], DBS Trustee understood from the incorrectly completed Delegated Management Query Form[472] that Wise Lords’ portfolio was managed by “RM of Hong Kong on advisory role”, i.e. that DBS:PB undertook advisory duties to Wise Lords.  

172.  I also find that the effect of the Investment Application forms signed by DBS Corporate was that DBS Corporate was advising DBS Trustee that the investment was within the Trust guidelines and that the DBS:PB Relationship Manager of Wise Lords’ account considered the investment to be for the benefit of the Trust.  The latter statement would have been understood by DBS Trustee to mean that DBS:PB, which had undertaken advisory duties to Wise Lords, considered the investment to be for the benefit of the Trust.

173.  I do not accept the evidence of Mayes[473] and Edwin Lim[474] to the effect that the Letters of Recommendation were simply for the purposes of ensuring that the reasons given by Ji in her Letter of Recommendation were consistent with those she gave to DBS:PB and that DBS:PB had not raised any objection.  This evidence is contradicted by the actual terms of the Letters and also by the fact that the information in the Letters signed by Ji was put there by DBS:PB.

G.      THE TRANSACTIONS AND CREDIT FACILITY

(1)     The Mutual Funds: the period from January 2005 to April 2008

174.  The initial period of investments between 4 January 2005 and April 2008 involved the Trust funds being principally invested in mutual funds. Wise Lords’ investments in mutual funds continued post-January 2005 in much the same way as they did in the earlier period.  From the outset, there was a pattern of Wise Lords subscribing for mutual funds, holding them for a short time and then quickly selling them.  In particular, between 22 April 2004 and 6 March 2008, Wise Lords entered into 344 mutual fund transactions, relating to 50 mutual funds (many of which were similar in nature) for a median holding period of just 161 days and an average holding period of just 184 days[475].

175.  As an investor, Ji displayed knowledge of the technical terms relating to mutual fund investments, and their operation:

(1) Ji had substantial information regarding various mutual funds, and knew clearly and precisely what she wanted[476];

(2) Ji was familiar with terms such as “NAV”[477] and “Mark to the Market”[478];

(3) Ji also displayed knowledge of the “H” index[479], and demonstrated both knowledge and interest in commodity and resource mutual funds.  For example, she was familiar with the oil price trend[480], and the gold and mining industries[481];

(4) Ji  kept an eye on the markets and the general market situation in different countries, such as India[482]; Russia[483]; Brazil[484]; Thailand[485]; and Vietnam (where Zhang had gone on a business trip)[486].

176.  Ji was active in identifying potential investments. DBS Bank provided Ji with information on investment opportunities and market updates, but Ji also actively identified and asked for information on potential mutual fund investments, an example being Ji’s request for funds on small and medium sized coal mining companies[487].

177.  Ji had a keen interest in emerging markets[488]. This was also recorded in the meeting minutes of DBS Corporate dated 1 February 2006[489], where it was stated that she was “well aware of the emerging markets like Latin America, Eastern Europe, oil funds”.  Ji was even more enthusiastic on investments in Mainland China. The recorded conversations below illustrate that Ji:

(1) Was bullish about the China market:

“Ji: As for this thing, I want, I don’t want to sell this -- these -- these now,...

Linda: OK.

Ji: ...because it’s China, where the policies and everything else are very good at the moment.

Linda: Alright, alright.

Ji: ...[inaudible] rectified as well.

Linda: But the red chip index (now) stands at 7,900, letting more...

Ji: (You’re) asking me to wait now? If we don’t get prepared now, by the time an opportunity presents itself, you won’t be able to seize it in time, will you?

Linda: Er, then, we’ve read the study, which said Momentum is performing relatively well, [Ji: Um.] and First State isn’t bad either. But [Ji: Uh.] when comparing these two (funds), uh, er, their composition is different.

Ji: Um.

Linda: (I’ve) read them all and have (relevant) information on hand.

Ji: Um, um.

Linda: Think about it. You said...

Ji: I don’t want to be too eager, ...

Linda: Okay.

Ji: ...but I’m bullish about this...[inaudible].

...

Linda: [In Cantonese] She’s focused on China fund(s).

Kenneth: [In Cantonese] Yes.

Linda: [In Cantonese] She’s asked (us) to analyse (and choose) a couple of good products for her. Then, when an opportunity presents itself, (she’ll) strike hard”[490]

(2) Had a professed understanding of China and the China market, boasting that she knew about the China market best, and had no wish to diversify her investments:

“Ji: I am worried about the drop, because everyone’s mood isn’t good, everyone is slowing down, China is slowing down. Today I read a report on why oil and commodity prices have been falling. The prices fall because of China’s oil import and export; they used to be 17-something percent per month, now it is 4.5, it’s such a big difference. Whenever China regulates its macroeconomic policies, it is powerful, policy-based and mandatory. US demand is also decreasing. Once these two demands decrease, it will also slow down, thus the price falls immediately, but it will rise after decreasing by a certain amount; I am not that worried about oil, so I have a premonition that it will fall for a period of time. I am thinking, if that’s the case, which means the demand from Latin America should also decrease, so to come out now is the right move, the Australian Dollar.”[491]

...

“Linda: I see, but it also takes -- takes some time to redeem the H (stocks), because...

Ji: It doesn’t matter, uh, since I don’t need money. It doesn’t matter to me.

Linda: ...yeah, yeah, (you) don’t need (money), right.

Ji: Right, right now I -- I’m thinking, I’m thinking that I may still want -- want (to invest) 15 million, right.

Linda: Look, you’re still too -- er, you -- you generally...

Ji: No, since I understand this market...

Linda: ...you understand China, right.

Ji: ...[inaudible], afterwards, right. [Linda: Mm.] -- I don’t want to...[inaudible].

Linda: You understand the state policies of the Hu-Wen Administration. [Ji: Right.] You understand them better than us.

Ji: Right, I understand, since there certainly isn’t going to be an issue in the long term with this, since at the time, I still didn’t have a solid grasp of these A shares, because (but) after you all discussed it, I felt pretty confident. And also, that is to say, er, because I don’t want any more -- want any other dispersed investment stuff. [Linda: Mm.] Right now I’m thinking, let me tell you what I’m thinking, that is, (we) need to (buy) more A shares, because I understand them, I will keep an eye on China. How do they (carry out) redemption? How long does it take to carry out redemption – does it take a year to do -- once a month, or what?”[492]

...

“Ji: ...you all haven’t come to understand anything about this -- this -- this market. So that’s why, that is, er... won’t venture to do this, ah. But I understand it the most, right? I – I understand my own stuff the best.

Linda: Um.

Ji: So when you report like this, you lose a lot of opportunities. So if you could release (the credit) a bit earlier, I -- I -- I, on some day in August... 8^th August, that is, you all spoke with what’s-his-name...talked with Desmond about this limit, credit limit, and said...[inaudible] hasn’t been released. If it could have been released, I would have at that time, when that First State fell, when it was low (inaudible) (I could have) invested several million in, right? It would have been -- it perhaps would have been even better, right? This was also an opportunity with A (shares), it was a rare opportunity as well, but it’s gone. We don’t dare buy in any more [Linda: Um.] since (it) is too high, um.”[493]

...

“Ji: Right, (unintelligible) but I feel that this one is very concentrate(d) in China, I feel that, in the foreign sector the US economy is doing very badly, in the situation where the global economy is not doing well, I feel that only the economy of Mainland China will be fine.

Rocky: Right.

Ji: If he can be more focus(ed) on this side, it should be fine.

Rocky: Yes

Ji: If it is fully diversify(ied), it will not be easy to handle.”[494]

...

“Ji: Sigh, it’s hard to predict, let me tell you, the market is hard to predict, it’s very hard to say.

Linda: Right, right, that’s true.

Ji: It’s very hard to say, but I think that this snowstorm won’t -- [Linda: Right.] it...

Linda: It will pass, right.

Ji: ...it will pass, because China still -- still has a wealth of financial resources, financially...

Linda: Certainly.

Ji: ...it’s different from the U.S.

Linda: It will pass.

Rocky: Um.

Ji: Right, but I -- I -- I -- I am deciding -- I think it is a policy issue. With other [Linda: Um.] policies, there are times when China suddenly tightens, it becomes too restrictive, and sometimes it relaxes and becomes overly lax, [Linda: Right.] sometimes it goes overboard. If it can manage an appropriate transition, the current Minister of Finance is being replaced.

Linda: Um.

Rocky: Um.

Ji: Right now the one in c--charge of finance and economics is the new, uh, WANG Qishan, [Rockly: Um.] a former mayor. Looking at the track record, this individual is extremely competent.

Linda: WANG Qishan is...[inaudible]

Ji: But (he) is just starting now, so (I) cannot -- cannot say -- that (he) will be able to handle everything well after having just taken office. [Linda: Mm.] Looking at (his) track record, this individual is very impressive.

Rocky: Um.

 

Linda:...um.
Ji: Yep.

Linda: But...

Ji: So, right, however, you -- you -- you wouldn’t say that he would be able to right now turn the whole situation round, as (he) just started -- just took office a f--few days ago. So I think, it’s difficult to say that, uh, these policies, so then --er, so (we’ll just have to) see.”[495]

(3) Was, as observed by Linda Liu and Wendy Yung at the time, unafraid of the size of Wise Lords’ investment and expressed continued optimism in China[496]:

(i)   Ji said she had “a lot of confidence in China”[497];

(ii)  Her appetite for China funds was so ferocious that she was considered “unstoppable” by the bank personnel:

“Linda: [In Cantonese] She’s focused on China fund(s).

Kenneth: [In Cantonese] Yes.

Linda: [In Cantonese] She’s asked (us) to analyse (and choose) a couple of good products for her. Then, when an opportunity presents itself, (she’ll) strike hard.

...

Linda: [In Cantonese]...unstoppable. I -- I think -- then I said no need to hurry like this, there’s no need to hurry like this. Do you know what she said?

Kenneth: [In Cantonese] Uh.

Linda: [In Cantonese] Huh, no need to hurry? [In Mandarin] (You want me to) wait till the Year of the Monkey? [In Cantonese] Well, oh my God, no, you know that was what I personally thought was the case.

Kenneth: [In Cantonese] OK, no problem.

Linda: [In Cantonese] Aiya, ...

Kenneth: [In Cantonese] Alright.

Linda: [In Cantonese] ... leave it. I can only try to get an additional 10 million quota next year. If she likes this, she can buy them all.

Kenneth: [In Cantonese] Ya.

Linda: [In Cantonese] seven thousand -- oh...

Kenneth: [In Cantonese] There’s no problem with that, is there?

Linda: [In Cantonese] Oh, (it’s) 7,900 points now and she still wants to buy. She said, “Ai, now is a good time (to buy), (because) mainland policies are good”.”[498]

178.  Ji had a huge appetite for China Funds and quotas from the QFII as well as other emerging market funds:

(1) The China “A” Funds:

(i) The first reference to China “A” Funds and the QFII was in May 2006. At the time, Ji expressed an interest and indicated that, after she had had a look at the fact sheets regarding the ABN AMRO “A” share funds, DBS:PB was to invest the amount she decided to invest in it [499];

(ii) The first reference to the DBS China Advantage A Share Funds was in July 2006. Ji expressed an interest before the official launch date on 28 July 2006.  At the time, US$2m had been reserved for Ji. Yet Ji wanted to have more (up to US$3m) and indicated that “the price isn’t a problem”[500];

(iii) Ji expressed further interest in the “A” funds in November 2006 and was told that another DBS product (DBS China Advantage A Share Fund II) was to be launched very soon[501];

(iv) A few days later, Ji confirmed that she was interested in making a substantial investment US$10m in DBS China Advantage A Share Fund II[502],  which was well in advance of its launch in January 2007.  Rocky Cheung offered to purchase US$10m of the Fund but Ji pressured the DBS:PB to get a greater allocation for her.  Ji wanted US$20m and Linda Liu offered to subscribe US$13m in the Fund:

“Ji: Then (you need to) come up with a way to get some more.

Rocky: Uh-huh, (I) will, I...

Ji: ...[inaudible] I’m saying, negotiate with them, er, to get some more, get...

Rocky: Right.

Ji: ...I -- you guys -- [Rocky: Er.] for ABN Amro, you have mainly been very -- mainly a lot of -- they’ve issued so many things (shares), and they should take care of other (our investment need), right?

Rocky: Yeah, yeah.

Ji: So, I told Linda that what I’m focused on today is buying more (shares in this area), since I feel that my... [inaudible]... are relatively few(.)

...

Ji: When...[inaudible], I think my policy is mainly to buy this kind.

Rocky: Yes, all right. [Ji: Uh-huh.] Actually, yesterday, I – I talked with, er, our, er, management, [Ji: Mm.] They will re – reserve around, er, 10 -- 10 million -- er, [Ji: Mm.] 10 million US (dollars) for you.

Ji: Right, right.

Rocky: Uh-huh, I will, er, take care of the rest.

Ji: Last time, I asked for 5 (million), well, but I only got 2 (million).

...

Ji: You have to f--fight for it.

...

Ji: If they’re not giving then we don’t ... because (we) need -- need -- need to put some pressure (on them), right?

Rocky: Right, right, right, right.

Ji: I’m just really dissatisfied, er.”[503]

...

“Linda: ... the bank is holding some support and we have given you all of it...we...

Ji: (Too) little.

Linda: ... the bank has... --that’s how much they sent to us, (we gave you) all of it back then.

Ji: ... [inaudible] it gave you so little (for) such a big bank.

Linda: No, QFII is very popular now. But only a few banks get -- can get these (QFII license). (Only) the best banks have been approved for QFII, Q-F-I-I.

...

Linda: I’ve put your order in the queue for 13 million. I’m afraid I might not be able to get all (13 million), a little... [inaudible]. But if they’ve already given it to me, basically it’s a promise that (you’ll) be able to get it...

Ji: Then ask for a bit more. Anyway, you all... [inaudible]...

Linda: Uh? Uh? Uh?

Ji: ...I will...

Linda: No, there’s no more. 13 (million) is (already) oversubscribe(d).

Ji: Um, then -- then...

Linda: (I) can’t help you get a--any more than this. (I) really can’t.

Ji: Then you have -- you have the capability to give me 13 (million).

...

Ji: You know what you should do. (You) better make it up (to me).

...

Linda: Last time, (we helped) you to get extras subsequently.

Ji: Right, you gave me additional ones. Can you still do that kind of thing now?

...

Ji: I want a lot. You can’t do 20 (million), right?

Linda: Right.

Ji: (If it’s for) the next quote...

Linda: But you (want) 20 (million). I--I haven’t got...

Ji: ... [inaudible] 20 (million).

Linda: No, it won’t work.

Ji: Right ah, you...[inaudible]

Linda: Ah, OK.

Ji: We--we... [inaudible] don’t need to, but ...[inaudible] 20 (million).

Linda: I know, (I) know.

Ji: ... [inaudible] pressure -- no pressure means no motivation.”[504]

(v)    On 1 December 2006, Linda Liu and Desmond Liu signed a Letter of Recommendation to invest, not US$13m, but US$15m in the fund. DBS Trustee noted this would amount to a purchase of 93.7% of the total fund, which had a total value of US$16m, and suggested that the settlors purchase the fund directly and inject it into the Trust, rather than the Trust buying it (so that DBS Trustee would not have to approve the investment).[505] In Peter Lee’s email of 7 December 2006 to Linda Liu and Desmond Liu[506], he noted that the investment would double the size of the fund and that the concentration of risk would arise and he required the settlers to sign Letters of Recommendation and Declarations of Risk Awareness, which they did.[507] However, DBS Trustee withheld their authorisation as the settlers had not given reasons to justify such a high concentration in the fund. This prompted Aimex Kwong, Linda Liu’s assistant to write a long email to Edna Chan stating, amongst other things, that Ji was familiar with all the political and economic policies in China and had great confidence in China’s economic growth in the coming years.

(vi)   Ji was subsequently informed that she had an allocation of US$6m for DBS Advantage A Share Fund II. This was the largest portion allocated to any individual. Ji reacted furiously to this allocation (which she claimed was far too little) and made complaints about it which are reflective of her personal investment confidence, her bullishness on China, and her sense of entitlement: “That’s too little”, “...how can that be? It’s too little”; “This is a real disappointment to me, Linda”; “It’s mainly because it’s too little. There’s really no way. First of all -- first of all Singapore got so much, it’s really too much ... (you were) saying that I would be the only one getting (the subscription). And then? I only got 6 million”; “But I feel that you all should continue to fight – you all (should) relay my comments ... and try to work it out with the boss, as I think this really is ... too unexpected, isn’t that right?”; “I ought to be the biggest”; “In addition, on this side, you’re not giving me all of it as promised, you’ve only given me such a small amount, er, I feel, ouch, it’s unacceptable”; “I can’t accept it in this case ... At the very least, that is to say--er, this is very disappointing to me”; “I don’t think this is fair, this really isn’t fair”; “I made a commit(ment) to you all for everything that I was able to do, right? The -- the, er, -- er, as for the amount of additional commission fee to be paid, I’ve paid it, right? I gave you all the support, and (yet) you all are treating such a client like this. I think that’s unreasonable”; “... I persuaded my husband to put all of my assets here with you”; “I’m really -- I’m really, honestly, I’m really disappointed”; “I feel like I cannot accept this (situation), really”; “This isn’t a realistic number”; “It comes as a huge surprise to me”; “not large enough”; “Rocky, this kind of outcome, honestly this kind of outcome makes me very sad”; “I hope there will be a better result when you come back.”[508]

(vii)  There were more complaints to follow from Ji and she actually threatened to “withdraw all the money.”[509]

(viii) When Linda Liu enquired with Ji as to her intention regarding her DBS China Advantage A Share Fund, part of which was maturing on 30 September 2007, Ji flatly refused to redeem Wise Lords holding:

“Linda: It needs to go to 2008. However, our asset management side has asked about your intention, as the first sum of your China Advantage A, DBS will mature on 30^th September. They enquired that time to see if clients have any desire for redemption. No?

Ji: Have I made a redemption?

Linda: Do you want to? Because some people may want to buy. It could match deal on 30^th September.

Ji: I don’t think it’s necessary. Why should I sell it when I still want to buy more?[510]

(2)  The DBS Indochina Fund:

(i) Ji also caused Wise Lords to invest US$8m in the DBS Indochina Fund in February 2007[511];

(ii) Zhang had injected HK$50m into the Trust specifically to enable the purchase to be made: see email dated 23 February 2007 from David Muir to Edna Chan[512].

(3)  Ji also had an interest in the First State China Growth Fund[513]:

“Ji: Do it this way. Put in everything that you can do today, then I think you should still pay attention to the limit.

Linda: Because Jersey doesn’t agree. He says that the trust thinks that doing this is too risky. They are more and more concern(ed), a little. If instead in August you ... when you go in again there’s no problem for doing it big. That is, if you (unintelligible) have more, I could do 20 M with no problem.

Ji: Because it’s like this, for this you better think of something else, think of a way to do them. Because this thing, what I understand about this thing, is that it’s really nothing. It’s that China has an economic system, and if you do something else, everything’s very risky. So this China thing doesn’t have a lot of risk.

Linda: But it’s credit control. They are very uncomfortable with doing this loan, so they are watching this very closely. And they feel that compared with others this is already flexible. They are already more flexible than other conservative banks. They have held several meetings with me and they are just afraid that, when you have a large turnover, your portfolio will have a sharp fall, and at that time it will be very hard to handle.

...

Ji: No, this is not as big a risk as they imagine.

Linda: Yes.

Ji: In fact, you see, from the overall picture, both my direction and portfolio are very good.”[514]

(4)  Ji demanded DBS Bank to “give [her] more million, and buy more” for the Schroder China Equity Fund; Ji also complained (yet again) about lost opportunities[515];

(5)  In October 2007, Ji requested DBS Bank to sell DBS China Advantage A Share Fund and switch to the DBS All Access Opportunity Fund. Linda Liu said that redemptions could only be made every three months and must wait until December 2007, upon which Ji gave instructions for a temporary loan to fund the subscription of the DBS All Access Opportunity Fund[516].

179.  Over the course of Wise Lords’ investments in the mutual funds, Rocky Cheung and Linda Liu had repeatedly cautioned Ji against over-exposure, but the warnings fell on deaf ears:

“Rocky: Er, I--I saw the -- your updated portfolio, [Ji: Mm.] er --er Linda mentioned to me as well that you are (interested) in the new, uh, A share, er, fund, and would like to invest, uh, 12 to 15 [Ji: Mm.] million yuan [Ji: Mm, mm.] I took a look at it – I recalculated the portfolio this morning. [Ji: Mm.] If you – if you invest, uh, t--twelve million, then your total single exposure in China will be 54.6. [Ji: Mm.] BRIC is included in this, since t--twenty to twenty-five per cent of BRIC in China, so it’s related.

...

Rocky: Er, also, that is, er, I -- because in terms of portfolio management, [Ji: Mm.] my suggestion is that, er, (the weight) for a single country, er, should not go over 50 (per cent), [Ji: Mm, mm, mm.] that is, I -- I’m optimistic about China, [Ji: Mm.] but I -- I would definitely, er, hold on to some, since there (may always be) some act by god (acts of God), [Ji: Mm.] that is...

Linda: ... [inaudible].

Rocky: ...things that are unknown. If one [Ji: Mm.] suddenly comes up, it may seriously affect the entire portfolio, which I don’t want to see (happen), [Ji: Mm.] ah. For this reason, if you -- if you personally decide to go with 12 million to 15 million, I’d rather you go with 12 million. [Ji: Mm, mm, mm.] Actually, if, er, you -- if you buy the 12 million, we basically won’t -- won’t have any reason to continue watching, uh, China-related, uh, funds next year.

Ji: Mm, mm, right, right, right.

Rocky: If you -- if you b--buy more, the entire portfolio, er, will no longer be a portfolio.

Ji: Right, it’s because buying IPO(s) should be better than (buying) others at that time, right?

Rocky: Er...

Ji: (If we speak) in terms of China, right?

Rocky: ...right, er, as far as -- as -- as China, there should be only be IPO. Now -- er, like the situation with your ABN AMRO (investment) last time [Ji: Mm.], basically, nobody has pulled out of it, [Ji: Mm.] and everybody is waiting. [Ji: Mm.] So all you -- you can buy are IPOs, [Ji: Mm, mm, mm.] ah, ah. Now it’s still -- still...

Ji: So--so, probably--probably this is an excellent opportunity, if (I) want to buy in China.”[517]

180.  Rocky Cheung later explained again the risks and his concerns to Ji: “If you (put in) some more, then the risk will really be a bit too high ... so even a small problem has the potential of bringing down the entire portfolio”;  “So when setting the portfolio, we can only -- cannot merely consider the good things, that is, right now I’m buying fifteen million... but, er, next month I’m going to buy more H shares... Well, 95 per cent of our portfolio would be in -- be in China, so -- so it ought to be more or less sufficient to buy one fund, ah.  (But) this wouldn’t be so good. That’s why the way I see it is that we have to be prepared for some, er, unexpected, uh, situations”[518]. However,  Ji did not “need to be educated”:

“Linda: ... in the Long (long) term, long term, a client (should) not -- shouldn’t take some (or) all of his ammunition and place them in -- place them in one or two funds at such a high volume. In the long term, it’s not a good idea from an investment standpoint, because it’s possible that...

Ji: I’m saying that you don’t need to educate me on this. I know my...

Linda: I understand.

Ji: ... I know what this is about [Linda: Um, um.] but I’m just saying what you all should do, you all should go educate other people, understand? I know better than them, right?”[519]

181.  Linda Liu nevertheless cautioned Ji again and recommended that she should wait for the market to stabilise before making further purchases[520].

182.  Indeed, Linda Liu relayed Rocky Cheung’s warning that the price was too high to buy “A” shares then, but Ji insisted that there was still room for growth, and gave instructions for further purchases[521].

183.  In January 2008, Rocky Cheung suggested that Ji could take profit if she felt uncomfortable with the market fluctuations, upon which Ji said: “I don’t feel uncomfortable, I’m focusing on the long term”[522].

184.  Ji also declined to redeem the Schroder China Equity Fund. When Linda Liu conveyed Rocky Cheung’s view that Ji should first secure her profits, Ji only said, “I can have a look”[523].

185.  Linda Liu gave evidence about the warnings they gave about the risk of investing only in Chinese funds:

“Linda:... You can see that on each day our IC, Rocky Cheung, and I, myself, we were updating the client every day about the market. We did that almost every day from the latter half of the year 2004 up until the end of the year 2006.

Secondly, Rocky and I myself told she [sic] in numerous dialogues about the risk of investment in Chinese funds. I remember that Rocky did remind Ji that if she was not diversifying her investments, then in her investment portfolio, there would only be Chinese funds, there would only be one single Chinese fund.”[524]

186.  I do not accept Ji’s evidence that she was “tricked” and “tempted” by Linda Liu into making these investments in mutual funds and that she only tooka passive part[525]. The contemporaneous evidence presents a very different picture and shows that Ji took a highly proactive role in steering the direction of the portfolio’s investments. The recommendations and information which DBS Bank provided to Ji were actively sought by her.  The evidence is also unequivocal that Ji made an informed decision and a strategic choice to accumulate China mutual funds. The point was aptly made in the following long exchange during Linda Liu’s cross examination:

“Q. Firstly, it’s a dangerous over concentration of risk; is that correct?

A. From our point of view, we consider that to be the case, but Ms Ji did not agree that that was a risk, because Ms Ji had said that she -- what she understood the most was the Chinese market. Ms Ji said that she had an understanding of the politics, economic situation, and the turnover of the political leaders in China, and so on. That’s why Ms Ji did not find that investment in China would carry big risk.

Q. Do you also agree with the suggestion from Edna on line 5 of page 279, that if one investor is holding 93.7 per cent of the total fund, that will be a very illiquid investment?

A. I agree to what Edna said, but Ms Ji had said that she was a long-term investor and that she would invest for five years to ten years.

Q. But by this stage, surely, it was clear to you that Ms Ji didn’t really know what she’s doing?

A. I disagree. Ms Ji was very clear about the situation in China. Let me give you an example.

She gave an example about Huang Qi Shan assessing the post in the Ministry of Finance saying that the Chinese economy would be prosperous in the future.

From those many dialogues that I have engaged with her, I found that Ji had a very good understanding about the politics, the economy, and the social situation in China. Even more well-versed than us Hong Kongers.

...

Q. But all of the investment ideas were being fed to her by you and your colleagues, were they not?

A. I disagree. We just provided Ms Ji with market updates every day, and what’s more, every day we had to fax some spreadsheets to Ms Ji. Those spreadsheets would include documents with the format designed by Ms Ji herself.

The market update spreadsheets would include the financial index of the different markets globally; the United States; Europe; eastern Europe; Latin America; and oil prices; gold prices; and FX -- all the index being shown in one single spreadsheet. All that data was downloaded from Bloomberg every day, and Ms Ji also wanted a portfolio update. For the fund’s prices, it would also be almost daily or weekly updates as required by her.

Q. Wasn’t the truth of the matter, Ms Liu, that you and your colleagues were suggesting investments to Ms Ji as part of your effort to continue to achieve above-average return on assets?

A. I disagree. Because the market update every day was requested by Ms Ji, because Ms Ji also said that she would be the decision-maker, having heard our views, and you can see in many dialogues that Ms Ji was disagreeing to our sayings.

Q. Yes, but the point I’m raising with you, Ms Liu, is that Ms Ji didn't know what she was doing, did she?

A. I disagree. Ms Ji was fully aware of her investment directions. She was very clear about it. She was the decision-maker.

I’ll give you a simple example. When Ji sold all her funds, her portfolio would record a growth by almost 100 per cent. I would like to ask you, Mr Barlow, how come somebody without any knowledge about investment is able to arrive at such a good performance?

...

Q. I suggest to you, Ms Liu, as this investment shows, Ms Ji was ignorant of financial matters, an unsophisticated investor who was gullible and who went along with proposals by you when all that you were interested in doing was marketing DBS financial products.

Do you agree or not?

A. Entirely disagree. It's just the opposite. For this DBS China Advantage A Share, it was Ms Ji who tried her best endeavour to get the maximum allocation, the biggest allocation to her.

Q. You took advantage of her gullibility and naivety, did you not, by playing on her emotions, for example, telling her she was the biggest client of DBS Private Banking?

A. I disagree. Just the opposite. Ms Ji is a very sophisticated and smart investor.”[526]

187.  From December 2006, Wise Lords’ portfolio of mutual funds became heavily concentrated on China and increasingly high risk, as Wise Lords began using leverage[527] and investing increasing amounts in DBS’ own mutual funds.  In response to the mutual fund transactions which were becoming more substantial in value, additional procedures were adopted by DBS Trustee, including Letters of Recommendation from Ji as the Investment Advisor, Declarations of Risk Awareness, and Letters of Recommendation from DBS:PB’s  Linda Liu and her superior Desmond Liu who was later replaced by Edwin Lim[528].

188.  The plaintiffs alleged that DBS:PB caused Wise Lords’ portfolio to be repeatedly reconstituted, which was “to the disadvantage of the Company (and the Trust) and for the sole purpose of generating the incidental, but unjustified additional fees and commissions for DBS and commensurate financial rewards for DBS’ Peter Lee, Edwin Lim and Linda Liu”[529]

189.  In his 4^th Schedule, Arboit focused on the losses incurred by the loss making mutual fund transactions, being some HK$13,810,068.95 and US$12,312,329.46[530].  Doing so does not help me.  One needs to look at the entire picture and this showed the following profits and losses in the following currencies, from all mutual fund transactions carried out:

+AUD305,847.16,

+EUR[531]1,820,933.71

+JPY711,696.50,

+USD16,291,260.08 and

- HKD13,810,068.95

which made up an overall profit of more than HK$132.6m or US$17m (adopting the exchange rates as of the date of the defendants’ closing submissions)[532].  The point is clearly made in the oral evidence of Linda Liu:

“A. First of all, looking from this spreadsheet prepared by you, Mr Barlow, the P&L from the first page to the last page, you see that some funds made gains and some funds made losses. Adding them in total, the gains were more than the losses. I hope that Mr Barlow would agree that, on average, the investments were making profit.”[533]

...

“Q. If you look further down on page 10, you’ll see, from a financial point of view, these investments were disastrous.

THE COURT: How is that shown on page 10, Mr Barlow?

MR BARLOW: Item 2, total loss in Hong Kong dollars and US dollars, my Lord.

A. Where is it?

MR BARLOW: Just have a look at item 2 in the summary, total loss making transactions, losses of 13.8 million in HK dollars and in US dollars 12.3.

THE COURT: This is only in relation to the funds that made losses. It doesn’t take into account funds that made profits.

MR BARLOW: My Lord, yes.

THE COURT: Yes, Madam Liu, do you see that?

A. Yes, it represents only funds that were making losses.”[534]

190.  These profits could not have been made without the increases in the credit facility provided to Wise Lords, which enabled to investments in mutual funds to grow from US$25.87m on 31 December 2006[535] to a height of US$106.37m on 31 October 2007[536], being 97.25% of the entire portfolio, before dropping to 91.32% in February 2008[537] and to 5.28% in May 2008[538], when the investments switched from mutual funds to AUDs and YEDs.

191.  There is no denying that Ji made frequent trades, a strategy which could be better classified as trading in mutual funds rather than investing in them:

“Q. Isn’t this an example of Wise Lords redeeming investment in one mutual fund and then, within a short period of time, purchasing investments in a very similar mutual fund?

A. Yes. This example shows that Ms Ji’s investment strategy was making some switching. She considered it suitable to switch from one mutual fund with not very much potential to another one in her eyes to be of a growing potential.”[539]

...

“THE COURT: You do not agree that what she was doing was churning, but looking at the way the funds were being bought and sold, was she actually not investing in the funds, but buying and selling them for a profit, almost like a trade?

A. Yes, I agree, because Ms Ji was very attentive to any chances of earning money in the market.”[540]

The reference to Ji “actively trading on mutual funds” also appears in emails from Linda Liu to Edna Chan dated 28 February 2006 and from Edna Chan to Mayes dated 3 March 2006[541].

192.  I do not accept Linda Liu’s evidence that Ji could be classified as a long term investor in mutual funds in that she had steered Wise Lords’ portfolio towards long-term concentration in a particular type of investment transactions (i.e. China-focused mutual funds)[542]. One could only be so classified when the funds were held for a long term.  In Ji’s case, she conducted repeated trades in those funds or switched amongst those funds in seeking to maximise Wise Lords’ investment gains, which she did with notable success.  Some funds were held for over a year but they had lock out periods[543]. Some funds were held for less than a month[544].

193.  Ji was clearly encouraged by Wise Lords’ investment successes in deciding to embark upon further transactions in mutual funds, having been regularly provided with tailor-made reports of Wise Lords’ portfolio as per her requests[545]. These transactions were carried out pursuant to Ji's express instructions. Ji knew the volume and the pattern of investments that she made in mutual funds.  She was the decision maker and she could have chosen not to conduct further trades had she been dissatisfied at any time with the constitution or turnover of Wise Lords’ existing portfolio.

194.  Of course, DBS:PB benefitted substantially from these frequent and substantial trades and Linda Liu and her team earned good bonuses as a result.  Wise Lords’ account was one of DBS’ highest revenue generating accounts. However, it was not necessary for Linda Liu and her team to aggressively promote investment in mutual funds as Ji was herself very aggressive in this market. Further, there was nothing “dishonest” or “fraudulent” about the charging of fees, all of which was done in accordance with what had been contractually agreed[546].  Ji was herself clearly aware of the charging of subscription fees:

“Q. Each subscription would involve the payment of a subscription fee; correct?

A. Yes.

Q. What was the amount usually for that fee?

Linda: The usual charge for funds was 5 to 5.2 per cent. Ms Ji would bargain for each fund she purchased for the subscription fee to range between 1.2 to 1.8 per cent, and Ji was aware of the -- of each of the subscription fees she paid.

What’s more, subscription fees at such a low rate had to be approved by the head of the private banking’s department.”[547]

On the subscription form for the DBS Indochina Fund[548], Ji manually inserted “1.8%” as the rate for the bank’s chargeable fee on the subscription and placed her initials next to her manuscript insertion.

195.  It was only towards March 2008 that Ji expressed regrets about not “getting out” of mutual fund investments earlier, back in October 2007, when profits were at their highest, and she indicated that she wanted to “get out quickly”[549]. Ji became concerned about the recession and said she would be happy if the money that she gained in the China market and the loss she incurred would even out[550]. In reality, Wise Lords had made an overall profit in its mutual fund investments. The overall gain achieved by Wise Lords can be seen from the table reproduced in §89 above. For the extended financial year from 5 January 2005 to 31 March 2006, the unrealised profits in the trust were US$5.35m, which represented a profit percentage of 32.75% of the capital funds in the trust of US$16.34m. For the financial year ended 31 March 2007, the unrealised profits in the trust were US$4.45m, which represented a profit percentage of 18.3% of the capital funds in the trust of US$24.35m. For the financial year ended 31 March 2008, the unrealised profits in the trust were US$8.53m, which represented a profit percentage of 26.65% of the capital funds in the trust of US$32.02m. As I noted in §90 above, after these profit figures were put to Ji, I had asked her, on the assumption that the figures were correct, whether she would be satisfied with those profits and Ji answered: “Of course”[551]. From the portfolio summaries, one can see that the value of the mutual funds acquired by Wise Lords was US$21.2m on 31 March 2006[552], US$34.6m on 31 March 2007[553], and US$89.9m on 31 January 2008[554], when she started redeeming them. The value of mutual funds in the portfolio did indeed fall from the height of US$106.3m on 31 October 2007[555] to US$89.9m on 31 January 2008. However, most investors know that it is only a handful of people who have the ability (or luck) to buy at or near the lowest historical price and sell at or near the highest historical price.

(2)  Redemption Restrictions

196.  Although the plaintiffs’ pleaded case was that it was misrepresented to Ji that the DBS mutual funds did not have lock up periods barring early redemption[556], it was clear that Ji did not deny knowing, from the outset, about the primary (one year) lock-up periods for the DBS mutual funds. It was also clear that the plaintiffs were advancing a claim based on misrepresentation in that Linda Liu misrepresented to Ji that there were no other redemption restrictions beyond the lock-up periods, when, in fact, there were further restrictions in terms of redemption windows (quarterly in the case of the DBS China Advantage A Share Funds; and monthly for the DBS Indochina Fund) and ceilings (not more than 10% of units in issue for each of the funds). It was contended on behalf of the plaintiffs that, in reliance on this representation that there were no other redemption restrictions beyond the lock-up periods, Ji requested that the DBS mutual funds be redeemed as soon as the lock-up periods expired, but it was then disclosed that redemption was subject to restrictions. The plaintiffs alleged that Wise Lords suffered losses of US$1,091,541.42 as a result of the delay in redemption in respect of 2 DBS China mutual funds, DBS China Advantage A Share Fund and DBS Indochina Fund.[557]

197.  The defendants’ case is that the representation, that there were no other redemption restrictions beyond the lock-up periods, if made, was negated by the terms of the following offering/information memoranda of each of the DBS mutual funds:

(i) in respect of the DBS China Advantage A Share Fund, the Private Offering Memorandum dated July 2006[558], in particular the section on “Realisation of Units”, which set out the restriction of quarterly redemption and realisation limit of 10% per Dealing Day[559];

(ii) in respect of the DBS China Advantage A Share Fund II, the Private Offering Memorandum dated January 2007[560], in particular the section on “Realisation of Units”, which set out the restriction of quarterly redemption and realisation limit of 10% per Dealing Day[561];

(iii) in respect of the DBS Indochina Fund, the Information Memorandum dated 1 February 2007[562], in particular section VII on “Risks” and section IX on information about “Realisation of Units”, which set out the restriction of monthly redemption and redemption limitation of 10% per Dealing day[563];

(iv) the Application Form for the DBS China Advantage A Share Fund[564], which was signed by Ji with a confirmation of her understanding of its contents, referred expressly to the Private Offering Memorandum dated July 2006;

(v) the Nominee Arrangement Letter in respect of the DBS China Advantage A Share Fund dated 11 August 2006[565], contained the following confirmations (at §§4 and 5):

“I/we* have read the Private Offering Memorandum and I/we* am/are* aware of the notice periods for ... redeeming the Units respectively ...

I/we* confirm that I/we* have sufficient knowledge and experience in financial, legal and tax matters to evaluate the merits and risks of an investment in the Fund. After reading the risk factors stated in the Private Offering Memorandum, I/we* have made my/our* own informed and independent investment decision with respect to the investment” ;

(vi) the Application Form for the DBS China Advantage A Share Fund II[566] was also signed by Ji and contained her confirmation of understanding of its contents. As with the Application Form for the earlier China fund, the document expressly referred back to the Private Offering Memorandum;

(vii) the Subscription/ Nominee Arrangement letter, signed by Ji on 15 January 2007[567] referred to the Private Offering Memorandum and contained the following express confirmation:

“I/We* confirm that I have been provided with and have read a copy of the Fund Documents (comprising the Private Offering Memorandum, the Application Form and the Trust Deed constituting the Trust), and confirm that:

(i) I/we* fully understand the terms and conditions upon which the subscription for Units will be made, and I/we* fully accept the terms and conditions thereof; ...” ;

(viii) and in respect of the DBS Indochina Fund, the Subscription / Nominee Arrangement Letter which was signed by Ji[568] confirmed provision and understanding of, amongst others, the Information Memorandum.

198.  I am satisfied on the evidence that was adduced that Ji was routinely provided with all marketing materials and subscription documents of relevant mutual funds for her consideration before she gave instructions to enter into transactions. The documents were either couriered to Ji if she was in Beijing, or collected by her from Linda Liu’s office if she was in Hong Kong. If the volume of documents was not substantial, Linda Liu would fax them to her[569].  I am also satisfied that Ji actively sought information and materials with regard to mutual funds and would ask for the relevant term sheets, which she would read. The defendants rely on the above evidence and on the terms of the documents identified above, which Ji signed confirming that she had read the offering/information memoranda of each of the DBS Mutual Funds, to infer that she had read and knew of the other redemption restrictions beyond the lock-up periods.

199.  I am unable to accept these submissions.  I find that Ji would herself have raised these other redemption restrictions, if she had known about them, to challenge any representation made to her that that there were no other redemption restrictions beyond the lock-up periods.  I find support for this conclusion from a telephone conversation on 25 July 2006[570], when Ji and Linda Liu had a discussion about redemption restrictions on China A share mutual funds. Linda Liu said they could not be bought and sold every day like other mutual funds. Linda Liu was then about to go to a presentation and she agreed to provide details and to send materials to Ji after she ascertained how the redemption procedure worked. Ji expressly stated that she was thinking about what kind of restrictions there were.

200.  Was a misrepresentation made to Ji that there were no other redemption restrictions beyond the lock-up periods for the DBS China Advantage A Share Fund and the DBS Indochina Fund? From February 2008, there was a downturn in the China market and Ji wanted to redeem her DBS China mutual funds.  Because of the other redemption restrictions, this could not be done. In a telephone conversation between Ji and Linda Liu on 19 February 2008[571], Linda Liu asserted that she was certain that Ji had been told about redemption restrictions in relation to the DBS China Advantage A Share Funds[572].  This is consistent with the conversation on 25 July 2006[573] about redemption restrictions being imposed on China A share mutual funds. In a conversation on 1 December 2006, Ji showed her knowledge of dealing and ceiling restrictions being imposed on China A share funds:

“Right now I’m thinking, let me tell you what I’m thinking, that is, (we) need to do (buy) more A shares, because I understand them, I will keep an eye on China. How do they (carry out) redemption? How long does it take to carry out redemption – does it take a year to do -- once a month, or what?”[574]

Further, on 15 October 2007, there was a conversation between Linda Liu and Ji during which Ji stated that China A share market has slowed down, that she had already earned quite a bit, and that she was thinking of selling Wise Lords’ holdings; and Linda Liu mentioned that there was a ceiling of 10% of the total holding that could be redeemed each time and that Rocky Cheung had spoken to her previously about this. Eddie joined in the conversation a little later and explained that the DBS China Advantage A Share Fund could only be sold every quarter up to a maximum of 10% of the total units issued.  There was no protest from Ji at this conversation about not having been told about the redemption restrictions earlier.[575]

201.  However, at the conversation on 19 February 2008, Linda Liu accepted that she and Rocky Cheung were not themselves aware of the redemption restrictions of the DBS Indochina Fund[576]. Linda Liu confirmed this to Edwin Lim in her email of 13 March 2008 wherein she stated that the redemption order for the DBS Indochina Fund had been “placed at 09-Feb-08 to our fund desk but the supplementary terms and conditions for the 10% cap was issued by email on 12-Feb-08”, the latter being a reference to the Supplemental Letter to the Information Memorandum for the DBS Indochina Fund dated 1 February 2007[577].At the time, Linda Liu was not aware, or had forgotten, that the Information Memorandum dated 1 February 2007[578] had set the restriction of monthly redemption and redemption limitation of 10% per dealing day.

202.  On 19 February 2008, Linda Liu emailed her colleague Arivazhagan V. and Wendy Yung to press them to accede to Ji’s request to sell out all units in DBS China Advantage A Share Fund, DBS China Advantage A Share Fund II, and DBS Indochina Fund; in respect of the latter Linda Liu asserted that Ji did not know of the 10% ceiling and that she and Rocky Cheung “just knew about this ... when we received Wendy’s email dated 31-Jan-08”[579].

203.  From this time onwards, a lot of pressure was exerted by Linda Liu to lift the ceiling restrictions.  On 5 March 2008, news arrived that the 10% redemption ceiling would be lifted on DBS China Advantage A Share Fund and DBS China Advantage A Share Fund II for the next dealing date on 31 March 2008[580].  On 31 March 2008, all units of these 2  funds were redeemed[581].

204.  However, the redemption ceiling on DBS Indochina Fund was not lifted, which prompted a number of complaint letters from Ji[582].On 17 March 2008, Edna Chan emailed Peter Lee summarizing a conference call with Linda Liu and Ji on 14 March 2008during which Ji claimed not to know of the redemption limit of 10% but Linda Liu said that the same was spelt out in the Information memorandum referred to in the Subscription/Nominee Arrangement Letter. The transcript of the telephone conversation bears this out[583] but does not support the erroneous statement in this email that Linda Liu said that “she had informed client about the redemption limit of 10%”.  Edna Chan ended the conversation by stating that she would check to see where the redemption restrictions were set out in the subscription documents[584] and, after she had hung up, Linda Liu accepted Ji’s statement that she did not know about the 10% ceiling, which would have a big impact on her decision making[585].

205.  There was a telephone conversation between Ji, Linda Liu and Rocky Cheung on 4 April 2008[586]:

“Rocky: Those fund managers, experience, and so on. So, the provisions there.

Ji: Such terms.

Rocky: I think -- no, no, I paid no special attention to it.

Ji: Right.

Rocky: That’s the reason why our loss is so serious this time, that ...

Ji: Losses.

Rocky: The major cause of the mistake.

Ji: Yes.

Rocky: So, for that matter -- we certainly need to, need to improve.

...

Ji: Yes, I think what Rocky said is more practical, more sincere, that’s how it happened actually. Linda is the same. So, Linda, when you introduced the fund to me, you didn’t know their terms and conditions. Right?

Linda: It’s because we -- like what Rocky said, for frontline staff like us ...

Ji: Yes.

Linda: We have to catch up with everything, deadlines and ... ... .

Ji: Yes.

Linda: Trading hours, so there is great limitation, that is there is no time to peruse certain provisions inside.

Ji: Yes.

...

Ji: Am I right? You therefore didn’t know either, Linda, did you? Otherwise you wouldn’t ...

Rocky: Yes.

Ji: You wouldn’t make the order for me. Rocky, you didn’t know either, did you?

Rocky: I didn’t, I didn’t review it page by page, so -- this can be said as, I -- I am the one who should be responsible for this.  That is, I cannot say I have no responsibility.  Absolutely I have responsibility for this.”

206.  All units of the DBS Indochina Fund were eventually sold on 30 April 2008 and 30 May 2008[587].

207.  In her witness statement[588] and affirmed in her evidence-in-chief Linda Liu stated:

“As far as I can recall, the redemption restriction was again highlighted by Desmond to Ji on 5 January 2007 when the three of us had drinks at the Grand Hyatt Hotel in Hong Kong... .It is surprising that Ji now claims that she did not know about the terms of the subscriptions, including the redemption restrictions ...

At that time, Rocky and I wanted to placate Ji for the sake of maintaining a good relationship with her. Hence, even though we did nothing wrong, we agreed to say sorry to Ji. Rocky and I therefore made a call to Ji on 4 April 2008 to let her vent her dissatisfaction.”

208.  I remind myself of the applicable legal principles that apply in relation to a claim for misrepresentation, a summary of which, in the context of investment claims, can be found in the judgment of Christopher Clarke J, as he then was, in Raiffeisen Zentralbank Osterreich AG v The Royal Bank of Scotland  [2011] 1 Lloyd’s Rep 123:

“[The claimant (advancing a claim for misrepresentation)] must show that [the defendant] made to it a statement which amounts to a representation, that is to say a statement of fact upon which [it] was entitled to rely... the characteristics of the representee is important[589].

“In the case of an express statement, “the court has to consider what a reasonable person would have understood from the words used in the context in which they were used”... The answer to that question may depend on the nature and content of the statement, and context in which it was made, the characteristics of the maker and of the person to whom it was made, and the relationship between them”[590].

“Silence by itself cannot found a claim in misrepresentation (fraudulent or otherwise). But an express statement may impliedly represent something. A possible implication of a statement may be that what has been expressly stated is complete, ie covers everything material or relevant on a particular matter such that something which has not been referred to does not exist. It is, however, necessary to distinguish between what a document does not say and what it impliedly represents”[591].

“The essential question is whether in all the circumstances it has been impliedly represented by the defendant that there exists some state of facts different from the truth. In evaluating the effect of what was said a helpful test is whether a reasonable representee would naturally assume that the true state of facts did not exist and that, had it existed, he would in all the circumstances necessarily have been informed of it.... it is necessary to heed the warning of Rix J that because of the broad measure of damages currently available... “where there is room for an exercise of judgment, a misrepresentation should not be too easily found”...”[592].

“It is also necessary for the statement relied on to have the character of a statement upon which the representee was intended, and was entitled, to rely. In some cases the statement in question may have been accompanied by other statements by way of qualification or explanation which would indicate to a reasonable person that the putative representor was not assuming a responsibility for the accuracy or completeness of the statement or was saying that no reliance can be placed upon it. Thus the representor may qualify what might otherwise have been an outright statement of fact by saying that it is only a statement of belief, that it may not be accurate, that he has not verified its accuracy or completeness, or that it is not to be relied on”[593].

“Lastly, the claimant must show that he in fact understood the statement in the sense (so far as material) which the court ascribes to it ... and that, having that understanding, he relied on it. This may be of particular significance in the case of implied statements”[594].

“The authorities establish ... [that] a claimant who seeks to claim damages for misrepresentation must show that the representation in question played a real and substantial part in inducing him to enter into the contract in question [but] it is not necessary for him to prove that the representation was the sole inducement to his decision or that it played a decisive part. It is not, however, sufficient for him to show merely that he was supported or encouraged in reaching his decision by the representation in question. ”[595].

“... the representation must play a causative part in inducing the contract and ... that involves ‘but for’ causation”[596].

“...‘But for’ causation means that unless the alleged cause (X) had come about the alleged result (Y) would not have occurred. In the present context that means showing that, unless the representee had had the representation made to him, he would not have contracted (or would not have done so on the same terms)”[597].

“... A misrepresentation is not an effective cause if the representee would have gone ahead even if it had not been made”[598].

209.  The defendants submitted, even assuming that alleged representations had been made, that, given Ji’s ferocious appetite for investments in the mutual funds, the overwhelming likelihood was that Ji would have caused Wise Lords to subscribe for the DBS mutual funds anyway even if it had been known to her from the start that she would not have the option of full redemption upon expiry of the lock-up periods. The alleged representation, therefore, was not the effective cause of Wise Lords’ alleged losses, causation being an essential ingredient before the claim for misrepresentation can be established.

210.  Having carefully considered the evidence, I am satisfied that Linda Liu did not misrepresent the redemption restrictions in respect of the DBS China Advantage A Share Fund. When challenged by Ji during the telephone conversation on 19 February 2008[599], she immediately denied making any misrepresentation in respect to this fund, although she confessed that she had done so for the DBS Indochina Fund, as she had not been aware of the ceiling restrictions at the time.  Ji was aware from the telephone conversation on 25 July 2006[600]and on 1 December 2006[601] that redemption restrictions were imposed on China A share mutual funds.  The earlier conversation was 3 days before she bought a substantial quantity of the DBS China Advantage A Share Fund on 28 July 2006. There was no protest from Ji, during the 1 December 2006 conversation nor during the telephone conversation on 15 October 2007, when the dealing and ceiling restrictions were mentioned, about not having been told about these redemption restrictions earlier.[602]I find that Ji acquired these funds for Wise Lords with knowledge that there were dealing and ceiling restrictions in place after the lock out period expired.

211.  If I am wrong to make this finding and if the alleged misrepresentation had been made to Ji that there were no redemption restrictions in respect of this fund other than the lock out period, I am satisfied, from the evidence set out in §§177(1), (2), (3), 178(1), 179-186 and, as I have already found in the preceding paragraph, that Ji would have insisted on Wise Lords purchasing the substantial quantity of units in the DBS China Advantage A Share Fund that Wise Lords actually acquired, even if she had known that she would not be able to redeem the entire holding upon expiry of the lock-up periods. I find that the misrepresentation would not have been the effective cause of these purchases.

212.  However, after having carefully considered the evidence, I am satisfied that Linda Liu misrepresented to Ji that the only redemption restriction in place for the DBS Indochina Fund was the lock out period.  Whilst Linda Liu understood that these restrictions were imposed on China A Share Funds, I find that she did not suspect that similar restrictions applied to the DBS Indochina Fund.  She confessed to Ji that she had not known about the dealing and ceiling restrictions and repeatedly apologized to Ji for not informing her about them.  After she learned about them, she pushed very hard to have the restrictions lifted. I do not accepther evidence and the defendants’ submissions that, during the telephone conversation on 4 April 2008, Linda Liu and Rocky Cheung wanted to placate Ji for the sake of maintaining a good relationship with her and, therefore, even though they did nothing wrong, they agreed to say sorry.

213.  Did Ji rely on and was she induced by the said misrepresentation to acquire a substantial quantity of units in the DBS Indochina Fund on 27 February 2007?  Did the misrepresentation play a causative part in inducing the purchase? Was this misrepresentation the effective cause of the purchases of the substantial quantity of units in the DBS Indochina Fund that Wise Lords acquired on 27 February 2007? I have already found that Ji acquired a substantial quantity of DBS China Advantage A Share Fund for Wise Lords with knowledge that there were dealing and ceiling restrictions in place after the lock out period expired.  Ji also bought in excess of US$8m worth of units in the DBS China Advantage A Share Fund II, with knowledge of these restrictions[603] and complained vehemently of not being allotted more units on this fund[604].  I have also carefully considered the evidence set out in §§178(2) above and referred to the communications regarding the DBS Indochina Fund mentioned on p. 75 above.  Again, I have come to the conclusion, having regard to this evidence and Ji’s resistance to advice to diversify and reduce the substantial amount of mutual funds kept in the portfolio, that the misrepresentation would not have been the effective cause of these purchases and that Ji would have insisted on Wise Lords purchasing the substantial quantity of units in the DBS Indochina that Wise Lords actually acquired, being US$8m worth of units in the fund[605], even if she had known that Wise Lords would not be able to redeem the entire holding upon expiry of the lock-up periods.

214.  If I had found that the claim for misrepresentation was established, I would have awarded damages in the sum of US$78,891.17being the loss caused by the misrepresentation:

Fund	Units Sold	Original Redemption Price (if representation was true)	Actual Redemption Price	Loss
DBS Indochina Fund sold 30 April 2008	37,060,77   [D13/477/5480-5492][D13/518/5635-5648]	US$85.07	US$83.904	US$43,212.86
DBS Indochina Fund sold 30 May 2008	1,959.27   [D13/512/5609-5611][D13/477/5480-5492]	US$85.07	US$66.86	US$35,678.31
TOTAL				US$78,891.17

(3)  The Credit Facility

215.  The first reference to a loan was made in the context of Ji seeking to get Wise Lords to subscribe for the DBS China Advantage A Share Fund II at its launch in the middle of January 2007, in circumstances where it was not expected that the money from Zhang’s payroll account would be available until February 2007. Ji, therefore, asked Linda Liu what sort of arrangement could be made given the time gap, in response to which Linda Liu suggested that Wise Lords could obtain a temporary loan, to which Ji agreed:

“Linda: Ah, DBS A Share [indistinct] (Ji: Ah?), China A Share [phone rings]

Ji: Ah, the name is the same with last time? Different?

Linda: Um, it should be the same, should be series 2, second series, second...

Ji: Ok, ok, uh-huh. And then..um, um..., ah, right, so when does it need money?

Linda: Probably January.

Ji: When? Which day in January?

Linda: January, middle of January, according to what’s out there now, about the middle of January, yeah.

Ji: The middle of January?

Linda: Uh-huh.

Ji: Needs money in mid-January? The last time it was after locked [indistince] or whenever that it needed money. Because, I, um, I need to link that (Linda: Uh-huh,) to my husband’s pay, pay roll.

...

Ji: You go look it up, we go look it up.

Linda: It’s not a big deal, I’ll ask them, ask them again when the time comes. It should be paid off in January, right.

Ji: It that right?

Linda: The launch, in January, because it...

Ji: Then what should we do if there’s a gap? If we say that it’s in January we won’t be worried, but if it’s in February...

Linda: Uh-huh.

Ji: What should we do about it?

Linda: I’m also trying to come up with a plan.

Ji: Eh?

Linda: Ha? (Ji: Right?) Um, if there’s a gap, if there’s a gap (we’ll) just do a temporary loan.

...

Linda: Ah, gap is easy, (Ji: [indistinct]), there will just be a temporary loan.

Ji: Right, it’s easy, right?

Linda: Yeah, I can do it easily, you have such a big portfolio, to do a loan, and we’ll give you the cheapest cost, right.

Ji: Ah, we just, it’s just that... you need to plan ahead of time, so it’ll save (us) the trouble later, right?

...

Linda: What date is his payroll usually?

Ji: I need to look it up, seems to be around the 22^nd.

Linda: Anyway, most banks pay before the end of February.

Ji: Uh-huh, (Linda: Yeah.) I’ll look it up, so we can, can make plans. Right?

Linda: Yeah, yeah, if by then it really... then, we’ll just do a temporary loan.

Ji: Yeah, yeah.

Linda: Get the lowest cost...

Ji: Yeah, yeah, uh-huh.”[606]

216.  Instead of a temporary loan, Wise Lords ended up applying for a credit facility of HK$78m in December 2006, as explained by Linda Liu:

“Q. Here at paragraph 57 and onwards, you’re discussing with Ms Ji a proposal that Wise Lords obtain from DBS a temporary loan; is that correct?

A. Yes.

Q. The background, correct me if I’m wrong, was that you and Ji had discussed Wise Lords subscribing for mutual fund investment, but there was to be a time delay before Mr Zhang’s bonus became available, and the investment was due to be subscribed before it would be available; is that right?

A. That’s right.

Q. So you suggested a temporary loan from DBS, and she agreed to that; is that right?

A. Yes.

Q. Subsequent to that telephone conversation, you arranged for the application for the $10 million credit facility. We saw the application form before lunch today; is that correct?

A. Let me add something. The original intention was to borrow a temporary loan, but later Ms Ji changed her stance, and we had also discussed with the credit department. The result was that, why not submitting a formal proposal for a credit facility of 10 million, doing it formally.”[607]

217.  As a result, a facility letter dated 12 December 2006[608] was issued by DBS:PB and accepted by Wise Lords, with Peter Lee and another officer of DBS Corporate signing as authorised signatories of Wise Lords. The application was acknowledged by Ji and Zhang, who signed the relevant Letter of Recommendation dated 13 December 2006[609].  DBS Trustee and DHJ Management were notified by DBS Corporate on 13 December 2006 and members’ and board resolutions were executed on behalf of Wise Lords in Jersey on 18 and 21 December 2006[610]. Ji also signed the Guarantee and Indemnity dated 21 December 2006[611].  A Certificate of Registration of Charge was issued by the Registrar of Corporate Affairs on 18 June 2007 to secure the credit granted[612]. Other relevant documents in connection with this credit facility are identified in Row No. 1 of Appendix V of the defendants’ closing submissions.

218.  This facility of US$10m was increased progressively to US$100m from 12 December 2006 to 21 July 2008 as follows:

1. 12 December 2006: Credit Facility granted for US$10m (HK$78m);

2. 26 January 2007: Temporary increase to US$12m (HK$93.6m);

3. 28 March 2007: Temporary increase to US$12.2m (HK$95.16m);

4. 29 March 2007: Temporary increase to US$14.1m (HK$110m);

5. 14 May 2007: Temporary increase to US$12.5m (HK$97.5m);

6. 23 May 2007: Credit Facility increased to US$15m (HK$117m);

7. 4 July 2007: Facility letter (HK$156m);

8. 16 July 2007: Application for temporary increase (HK$195m);

9. 26 July 2007: Application for temporary increase (HK$226.2m);

10. 29 August 2007: Facility letter (HK$250m);

11. 31 August 2007: Application for permanent increase (HK$390m)

(The form shows it was resubmitted in December);

12. 18 January 2008: Facility letter (HK$390m);

13. 29 April 2008: Temporary drawdown of US$31m (HK$241.8m) from DBS Bank’s “in transit account”;

14. 29 April 2008: Application for Credit Facility to be increased to US$200m (HK$1,560m) declined;

15. 25 May 2008: Credit Facility increased to US$58m (HK$450m);

16. 21 July 2008: Credit Facility increased to US$100m (HK$780m).

The relevant documents in connection with these transactions are identified in Row Nos. 1 – 16 of Appendix V of the defendants’ closing submissions.

219.  An accurate timeline of Wise Lords’ account is presented in Exhibit P1 which I have reproduced below. It has omitted one detail, namely, the date of the increase of the credit facility to US$100m, which was 21 July 2008:

220.  I shall deal with the increases of and drawdown on the credit facilities in tandem with the transactions entered into from January 2007 to December 2008.

(4) The DEVA Note

221.  Godwin Ip of DBS:PB first provided details of the DEVA Note to Ji orally[613].  Linda Liu told Ji that two types of DEVA notes were available for subscription, one with 80% principal protection with a risk rating of 3 (i.e. 3 from a range of 1 to 5); and the other, which was not principal protected but had a higher potential coupon return, with a risk rating of 5 (being 5 out of 5, the highest risk rating).  The marketing materials for the two notes were attached to an email from Godwin Ip to Aimex Kwong, which was in turn forwarded to Edna Chan and Linda Liu on 12 January 2007[614]. I accept he evidence of Linda Liu, based on her recollection of a Power Point presentation of the terms of the DEVA Note[615], that the materials were sent to Ji[616]. Ji preferredthe non-principal protected note over the principal protected one, which was consistent with her risk-taking approach to investments.  When Rocky Cheung discussed the product with Ji, he alerted her to the risks of the product, including the maximum risk that the principal could be wiped out if “very, very big” events occurred, such as a world war or a nuclear bomb going off in the US but that, in the absence of such very big events, the DEVA Note would make profits in the long term[617].  Ji had initially wanted to invest US$5m to $8m, but, in the course of her conversations with Rocky Cheung, she indicated that she would invest US$3m[618].  There is no dispute that Ji was told about the lock-up period of one year until 28 January 2008[619].  The correspondence between DBS:PB and DBS Corporate regarding the DEVA Note can be seen at p. 74 above in the Table under §95 above against the entries dated 12 to 24 January 2007.  A Declaration of Risk Awareness was signed by Ji[620].

222.  I accept Ji’s evidence that Linda Liu had represented to her that the expected returns from the note could be as high as 40% per annum.[621].  However, I also find that Ji would have read the materials sent to her and that she would have noticed the references to past returns and the warning that “[p]ast performance is not indicative of future performance”[622], a standard warning carried in marketing materials for investment products.

223.  I have considered the expert evidence on the DEVA Note. Both experts agreed that the purchase of the DEVA note involved the investor (i.e. the Trust / Wise Lords) taking a market risk in the form of difference between the implied volatility captured by the VIX index[623] and the realised volatility[624].  Both experts agreed that a buyer of the DEVA Note adopts the view that the market expectation of future volatility in the S&P index would exceed actual volatility[625].

224.  Das expressed the view, which I accept, that the DEVA note did not entail a low risk arbitrage but exposed the Trust / Wise Lords to a risky option trading strategy.  Malik did not express an opinion on this as he did not think this was a matter within the scope of his instructions.[626]

225.  Both experts agreed that the DEVA Note were illiquid and both agreed that, since the DEVA Note was fully funded (by the purchase price paid by the Trust / Wise Lords), the DEVA Note itself would not expose the investor to any contingent liquidity requirements (i.e. a margin call)[627] but Das, noted, and I accept, that the purchase of the DEVA Note was funded by borrowed USD and that created a possible ‘contingent liquidity’ risk[628]. 

226.  On the complexity and risk of the DEVA note, Das was of the view, which I accept, that the DEVA notes were complex and risky and only suitable for sophisticated investors. Malik did not express an opinion on this as he did not think this was a matter within the scope of his instructions[629]. Das maintained his opinion that there was inadequate disclosure of the risks on the DEVA Note, which I accept, and Malik did not express an opinion as he considered this matter was not within the scope of his instructions[630].

227.  Ji alleged that she had suggested redeeming the DEVA Note in early 2008, but was advised not to do so by Linda Liu and Rocky Cheung. Ji claimed that this resulted in the note being sold only in June 2008 at a 40% loss (as compared with a 24.4% or a 25% loss had redemption took place back in January or March respectively)[631].

228.  There are indications from Ji, in the telephone transcripts in June and July 2007, that she wanted to redeem the note after the lock-up period if the price was “ok”[632]. Linda Liu did not dissuade her from doing so during these conversations.

229.  On 23 January 2008, shortly before the lock-up period was expiring, Linda Liu told Ji that the latest price quotation for the DEVA Note was at 76 to 77% of its original value. Ji said the price was “too low”. Linda Liu then passed on the comments she had received from Godwin Ip, which was that “waiting for another 3 months to half a year would be good ... to slowly earn back the interest”.  Throughout the conversation, Ji did not intimate that she wanted to sell the note[633].

230.  From January to April 2008, Godwin Ip issued regular updates to DBS investment advisers including Rocky Cheung that the value of the note was declining but advising that the prospects in the medium term were good and recommending that DBS clients retain their DEVA Notes[634].

231.  On 22 May 2008, Ji asked about the performance of the DEVA Note. Linda Liu said the price was at about 70% of its original value.  Ji said that was “bad” price and “terrible” performance.  Linda Liu then said that the note “coincided with the financial crisis”, which “came as a surprise and so could not be avoided”. She further said that “everyone has to be patient, sit it out, wait for it torecover”.  Again Ji gave no indication at the time that she wanted to sell the note[635].

232.  By an email dated 15 June 2008[636], Ji stated for the first time that she wanted to sell the DEVA Note “ASAP”.  By an email dated 16 June 2006[637], Linda Liu told Ji of the then current price of the note (which was 60% of the original value), in response to which Ji said: “No. I can’t sell it at this price right now. What a shame! Your advisor keep telling us to holder [sic] on this fund from Jan./08. He made us lost so much money!”  However, although she was advised to hold on for 3 months to half a year, Ji was at liberty to sell the note anytime after the lock up period ended on 28 January 2008.  On 30 June 2008, Ji gave instructions to sell the DEVA Note at the market price, which was then 60% of its original value,[638]  the same price that she had been quoted on 16 June 2008. 

(5)     Further increases of credit facility in 2007 and 2008 (up to 30 April 2008)

233.  Between 13 December 2006 and 23 May 2007, there were 4 temporary increases of the credit facility to US$12m (HK$93.6m)[639], US$12.2m (HK$95.16m)[640], US$14.1m (HK$110m)[641], and US$12.5m (HK$97.5m)[642] respectively as evidenced by documents signed by Linda Liu, Desmond Liu, and by Andy Yeung and K H Leung of the Credit Department of DBS Bank. During this period, Ji was growing accustomed to drawing down on her loan facility to pay for purchases, notwithstanding that she knew there was an interest cost involved[643] and notwithstanding that she was told by Linda Liu that “the trust side’ did not agree to the loan exceeding one third of the value of Wise Lords’ portfolio and that it was safer if the loan did not exceed one third of the portfolio.  Over the course of time, Ji asked for more and more credit to be extended to Wise Lords and Linda Liu helped Ji by getting approvals from the credit department of DBS Bank for more and more credit to be extended to Wise Lords[644].  Notwithstanding Linda Liu’s advice, Wise Lords’ loans significantly exceeded 1/3 of the value of its portfolio for considerable periods of time[645], with Linda Liu’s full knowledge and assistance.

234.  During this period, the first tremors of the impending financial tsunami were registering on the financial equivalent of the Richter Scale.  On  5 March 2007, HSBC announced that one portfolio of purchased sub-prime mortgages evidenced much higher delinquency than had been built into the pricing of these products[646].

235.  On 23 May 2007, the credit facility was increased to US$15m (HK$117m).  Prior to that date, on 17 May 2007, Linda Liu had recommended the increase of the credit facility to this level.  Her recommendation had been counter-signed by Edwin Lim and Desmond Liu and approved by K H Leung of the Credit Department[647].  However, the supporting documentation did not match the documents I identified in §217 above in connection with the first facility granted on or about 13 December 2006. On this occasion, the facility letter dated 23 May 2007, issued by DBS Bank, was accepted by Ji signing as authorised signatory on behalf of Wise Lords, and whose signature was witnessed by Linda Liu[648]. Further, instead of members’ and board resolutions being executed on behalf of Wise Lords in Jersey, Ji executed written resolutions dated 5 June 2007 as sole shareholder and sole director of Wise Lords to accept the increased credit facility[649]. DBS Corporate became aware of this increase and Edna Chan stated in her email dated 11 July 2007 that they needed to notify DBS Trustee of the position[650]. However, no document has been produced suggesting that DBS Trustee was notified of this increase until 16 August 2007 when DBS Corporate notified DBS Trustee[651] of the temporary increase to HK$110m on 30 March 2007[652], the increase of the facility to HK$117m on 23 May 2007, and the temporary increase to HK$226.2m[653].

236.  The same occurred at the next increase of the facility to US$20m (HK$156m) on 4 July 2007. Prior to that date, on 21 June 2007, Linda Liu had recommended the increase of the credit facility to this level.  This was the day when Linda Liu and Ji had a conversation during which Linda Liu explained that if an investment had a high yield, one could use leverage as the high yield could offset fixed expenses[654], and promised to “fight” for Ji to increase the limit to US$20m[655] by offering the excuse that Ji would put in more cash in August 2007[656].  Her recommendation was again counter-signed by Edwin Lim and Desmond Liu and approved by K H Leung of the Credit Department[657]. Again, the facility letter dated 4 July 2007, issued by DBS Bank, was accepted by Ji signing as authorised signatory on behalf of Wise Lords, and whose signature was witnessed by Linda Liu[658]. Again, Ji executed written resolutions dated 16 July 2007 as sole shareholder and sole director of Wise Lords to accept the increased credit facility[659]. Further, no document has been produced suggesting that DBS Trustee was notified of this increase.

237.  During this time, on 22 June 2007, Bear Stearns allowed its first hedge fund to collapse[660].

238.  By 11 July 2007, Edna Chan of DBS Corporate became aware of the credit facility for HK$117m (US$15M) and wrote an email to Linda Liu that was copied to Peter Lee, Edwin Lim and Aimex Kwong[661], amongst others.  She wrote[662]:

“Revised revolving term loan for HKD117,000,000.

It comes to our attention that the Offer Letter (as attached) and probably the other relevant documents are signed by Ms. Ji (for and on behalf of Wise Lords Limited) – this is legally ineffective.

As you know, Ms Ji is only the Investment Advisor for Wise Lords and the said documents should be signed by the authorized signatory of DHJ Management Limited (director of Wise Lords).

Pls check and arrange for the remedial action. We need to notify Jersey Trustee of the position.

Regards,

Edna”

239.  On 23 July 2007 the DBS Corporate’s Matthew Lam emailed his colleague Edna Chan[663] as follows:-

“Just handed the filed charge docs (charge no. 2[664]) to Aimex. Told her to tell Credit that the recent facility letter signed/acknowledged by Ms Ji is not in order for we are the authorized signatories of the bank account. A revised set of docs should be passed to us for signing.

...”

240.  Notwithstanding that she was told point blank by Edna Chan that what she was doing was wrong, Linda Liu persisted by getting approvals from the credit department based on documents signed by Ji as shareholder and director of Wise Lords on 29 August 2007[665] and 18 January 2008.

241.  On 29 August 2007, the facility was increased to US$32m (HK$250m).  Prior to that date, on 15 August 2007, Linda Liu had recommended the increase of the credit facility to this level. Her recommendation was again counter-signed by Desmond Liu and this time it was approved by Hee Ang of the Credit Department[666]. Again, the facility letter dated 29 August 2007, issued by DBS Bank, was accepted by Ji signing as authorised signatory on behalf of Wise Lords, and whose signature was witnessed by Linda Liu[667]. Again, Ji executed written resolutions dated 4 September 2007 as sole shareholder and sole director of Wise Lords to accept the increased credit facility[668]. No document has been produced suggesting that DBS Trustee was notified of this increase.

242.  In the meantime, dark clouds continued to gather on the financial horizon[669].  On 9 August 2007, BNP Paribas halted redemptions on 3 of its money market funds that were exposed to sub-prime mortgages and the European Central Bank (“ECB”) injected 95 billion eurosinto European banks to improve their liquidity.  On 10 August 2007, Linda Liu and Rocky Cheung met Ji and explained the recent sub-prime issues to her. Ji said that she will avoid the volatile European and US markets but she was optimistic about the Chinese market[670]. On 14 to 19 September 2007, the U.K.’s Chancellor of the Exchequer made a series of public announcements concerning the U.K. Government’s bailout of Northern Rock.  On 12 December 2007, the U.S. Federal Reserve, the ECB and the Bank of England plus other central banks made a joint public announcement of measures they were taking in unison to relieve the pressures in the short-term funding markets, including the Federal Reserve’s establishment of a Term Auction Facility. On 10 January 2008, DBS:PB advised its customers holding DEVA Notes, including Wise Lords, that the “fall-out from the sub-prime crisis and the continuing drag from the housing market in the US may eventually hit the real economy in the US stocking recession fears[671]”. On 11 January 2008, Bank of America confirmed its purchase of the near-collapsed U.S. Countrywide Bank.  On 17 February 2008, the UK Government publicly announced its “temporary” nationalisation of Northern Rock.  On 16 March 2008, JP Morgan Chase agreed to buy Bear Stearns with the assistance of US$30b in non-recourse Federal Reserve funding[672].

243.  On 18 January 2008, the facility was increased to US$50m (HK$390m).  Prior to that date, on 31 August 2007, Linda Liu had recommended the increase of the credit facility to this level.  The approval by Monique Lau and Frederick Ko of the Credit Department came much later on 20 December 2007[673]. Again, the facility letter dated 18 January 2008, issued by DBS Bank, was accepted by Ji signing as authorised signatory on behalf of Wise Lords, and whose signature was witnessed by Linda Liu[674]. Again, Ji executed written resolutions, this time undated, as sole shareholder and sole director of Wise Lords to accept the increased credit facility[675]. This credit facility was subsequently accepted and ratified by DHJ Management and DBS Trustee on 30 April 2008 when signed written resolutions from them, as director and shareholder of Wise Lords respectively, were issued[676]. At about this time, the authorised signatories of Wise Lords signed another copy of the facility letter of 18 January 2008[677].

244.  When confronted during cross examination by Edna Chan’s email of 11 July 2007 and asked why she persisted in getting approvals from the Credit Department based on documents signed by Ji as shareholder and director of Wise Lords on 29 August 2007 and 18 January 2008, Linda Liu made the following responses:

“Q. What I want to ask you about is the document at page 354 and the document at page 356, because by 21 May 2007 were you well aware that Ms Ji was neither the shareholder nor the director of Wise Lords; correct?

A. Right. Clear.

Q. So why was she being asked to sign these documents?

A. I would like to explain it point by point. Starting from the first facility application of Ms Ji, the first one for HK$78 million, Ms Ji requested that I explain the whole banking facility document to her, including all the board resolutions as to how they were constructed, and as to why a personal guarantee had to be signed as well as the duties and obligations as a personal guarantor. I have to give an explanation on the whole set of the facility document and other documents right from the first credit facility application.

Ms Ji suggested going back and discussing with her husband about the terms of the facility we were doing at that time.

THE COURT: Madam, the question is not about the terms of the facility, it is about the two documents, which are the written resolution of the sole shareholder, and the question is: why did Ms Ji sign that when she’s neither the director nor the shareholder?

A. And then Ms Ji raised that point about the necessity of all documents having her acknowledged signatures; otherwise they could not be issued. Therefore, you can see in all the banking facility letters on which they were Ms Ji’s signatures. This was initiated by Ms Ji.

I also asked the trust department whether it could be done in that way. They agreed that she could sign to the effect of her acknowledgement, because, after all, Ms Ji was a personal guarantor, and she was one of the beneficial owners.

Then, the trust department would, on the basis of the facility letter acknowledged by Ji, go about their decision to approve or not.”[678]

...

“Q. I suggest to you, Ms Liu, the reason you prepared both the two sets of the resolutions we’re looked at and attached them to the loan applications, was because you wanted to circumvent the supervision of the trust department.

Do you agree or disagree?

A. Disagree, because I have already told you that for all these documents, the banking facilities, they exist in duplicate.”[679]

...

“THE COURT: So the question, Madam Liu, do you accept the suggestion of Mr Barlow that pages 354, 356, 364, 366, were resolutions prepared by you and not by the trust department?

A. Disagree. Because I have already said that it’s a complete set of documents, the board resolution together with the banking facilities.

THE COURT: So who prepared them?

A. In my recollection, that should be the credit and credit operation department.”[680]

...

“Q. She says, “We need to notify the Jersey trustee of the position”, because what you’ve done is obviously invalid, not legally effective.

A. Right. Agree. We had further discussions with Edna Chan in regard of this issue so as to seek the trustee’s approval on these facilities. So, within one month[681], this problem was rectified, because the trustee approved this credit facility.”[682]

...

“Q. So, despite being told by Edna Chan on 11 July that you were not to do this, you did it again, didn’t you, in August 2007?

A. Back to my explanation given previously regarding banking facilities, Ms Ji indicated that she had to acknowledge them, and she did sign on all of them. It’s because Ms Ji said that she would not recognise those credit facilities without her signing to acknowledge her knowledge of it.

So, after Ji had signed this copy, we would pass a copy to the trust department for the consideration of the trust department to approve this facility. The trust department concurred for Ji to do it this way.

So, what Ji signed was a reference document, other than her personal guarantee being an official credit facility.

Q. Ms Liu, I suggested to you that the evidence you’ve just given about the trust department is untrue.

A. Disagree.”[683]

...

“Q. So, again, despite being told by Edna Chan back in July the previous year, again, you’re putting forward the same kind of invalid application to increase the loan facilities without reference to the trust department; correct?

A. Disagree. I have already said previously, for all the banking facilities, Ms Ji had requested to sign to acknowledge. Ms Ji’s acknowledgment letter would be a reference document for the trust department to consider whether to approve the application. The ultimate authorisation of banking facilities signed by the trustee would be the final banking – official banking facilities document. Mr Barlow, you could refer to the banking facilities signed by the trustee.”[684]

...

“Q. But you remember, do you not, that this was the second occasion[685] that DBS Corporate Services had told you that Ms Ji is not the authorised signatory, they are?

A. Matthew said that to Aimex. Aimex had all along been chasing the trustee for the signed official bank facility documents. Aimex had all along been doing this.”[686]

245.  After a careful consideration of all the evidence relevant to this issue, I have come to the conclusion that Linda Liu has not been truthful in her evidence that Ji insisted on signing all the documents and the facility letters and that the “trust department”, i.e. DBS Corporate, agreed that she could do so.  I also reject Linda Liu’s evidence that the documents regarding the bank facilities existed in duplicate.  There were no duplicate documents properly signed by DBS Trustee, as shareholder, and by DHJ Management, as director, of Wise Lords. I find that the statements contained in Edna Chan’s email of 11 July 2007 and in the handwritten note on the email of 24 April 2008[687] were true.  Although Edna Chan pressed for properly executed documents for the facility granted on 23 May 2007 for US$15m (HK$117m), this was not done.  Further, DBS Corporate had no record of the facility letters dated 4 July 2007 and 29 August 2008.

246.  It was only on 16 August 2007 that DBS Corporate notified DBS Trustee[688] of the temporary increase to HK$110m on 30 March 2007[689], the increase of the facility to HK$117m on 23 May 2007, and the temporary increase to HK$226.2m on 26 July 2007[690].  There was no mention in this email of the temporary increase to US$25m (HK$195m) that was approved by the credit department of DBS:PB on 20 July 2007[691].  This could be the result of an omission on the part of DBS Corporate or its lack of knowledge of this particular increase.  This notification to DBS Trustee was made pursuant to a request by Linda Liu to Desmond Liu, copied to Peter Lee and Edna Chan on 9 August 2007:

“Ms. Ji would like to request us to increase her credit limit from USD20mio to USD40mio so that she may well manage her short term, mid term and long term investment strategy. Her collateral now can support max. to USD43.3mio.

She has planned to remit to us for USD5-8mio by this year and USD5-10mio earlier next year.[692]”

On 16 August 2007, Edna Chan wrote by email to Ben George, copied to Fran Mayes, Matthew Lam and Peter Lee, relaying the above request.[693]   On the same day, the above notification of past increases, signed by the authorised signatories of DBS Corporate, was sent by fax.[694]   DBS Trustee acknowledged receipt of the notification by email dated 17 August 2007 attaching a PDF file of the faxed notification which 2 Jersey directors of DBS Trustee had signed to acknowledge receipt[695]. The Minutes of DBS Trustee dated 16 August 2007 recorded the resolution to approve the increase of the credit facility from US$20m to US$40m[696]. However, the proposed increase of facility to US$40m was not processed any further. Instead, a facility of US$32m was granted on 29 August 2007[697] without the knowledge or approval of DBS Trustee.  In the File Review completed by Ben George dated 12 October 2007, there is a reference to the loan of HK$78m (US$10m) but no mention of any additional facilities granted to Wise Lords[698].

247.  I find that Linda Liu proceeded on the basis that she did and kept on doing so, notwithstanding the injunction contained in Edna Chan’s email of 11 July 2007, in order to circumvent the oversight of DBS Corporate, DBS Trustee and DHJ Management.  In his email to Edna Chan dated 30 March 2007[699], David Muir had stated that DBS Trustee would be very reluctant to approve further loans until evidence was provided that the settlor had repaid some of the loans drawn down.  In his reply email dated 2 April 2007[700] Peter Lee intimated that he would, with the trustee’s authorisation (if indeed such authorisation was needed), “inform the RM and the Bank’s credit department to stop approving temporary loans to Wise Lords”. Clearly, Linda Liu was not having any of this and was on a campaign of her own.

248.  DBS Corporate only notified DBS Trustee of the increase of facility on 4 July 2007, 29 August 2007 and 18 January 2008 by the email from Matthew Lam dated 30 April 2008[701] as follows:

“Dear Ben,

Please find below the brief portfolio summary of Wise Lords Ltd as of 31 March 2008 and 28 April 2008.

		(USD)	(USD)
		(31 March 2008)	(28 April 2008)
	Cash	15,687,209.45	8,553,278.32
	Investment	42,420,770.36	93,032,260.20*
	Gross Assets	58,107,979.81	101,585,538.52
Less:	Loan	(7,735,427.35)	(45,353,409.06)#
	NET  POSITION	50,372,552.46	56,232,129.46

* USD2.181M and USD64M of which (ie. USD66.181M) are fixed income products and currency linked deposits.

# Temporary facility granted to the company.

Please also note that our bank recently offered to the said company a new facility as per the enclosed letter dated 18 January 2008.  As it mentions in the letter that there were existing facilities referred in letters of 4 July and 29 August 2007 while we did not sign any of these letters, we checked with the RM and our bank’s Credit department and they replied that those ‘facilities’ were just proposals and no formal facility letters were actually issued.  In this regard, we may treat the new facility letter dated 18 January 2008 [as] a new offer and the Credit department confirmed yesterday that the offer is still valid regardless it was issued more than a month ago.

Please find enclosed the following for your attention:-

i) Notification of Activities signed by DBSCSL  <Please sign and return a copy to us>

ii) Facility Letter dated 18 Jan 2008 (FYI)

iii) Director’s Resolution;  <Please sign and return 2 sets of original to us>

iv) Shareholder’s Resolution.  <Please sign/certify and return 2 sets of original to us>

Regards,

Matthew”

249.  Matthew Lam in this email tried to “cover up” the failure of DBS Corporate to notify DBS Trustee on a timely basis of the increase of credit facilities by stating that “those “facilities” (of 4 July 2007, 29 August 2007 and 18 January 2008) were just proposals and no formal facility letters were actually issued.”  The description that the facility letters were mere proposals is an extreme euphemism for the grant and utilisation of credit facilities substantially in excess of the last notified increase of facility to US$29m (HK$226.2m) on 16 August 2008[702]. Mayes gave evidence that DBS Trustee had never seen resolutions signed by Ji as sole director and sole shareholder of Wise Lords[703].

250.  Consequently, the credit facility of US$50m (HK$390m) was accepted and ratified by DHJ Management and DBS Trustee on 30 April 2008 when signed written resolutions from them, as director and shareholder of Wise Lords respectively, were issued[704] and when, at about the same time, the authorised signatories of Wise Lords signed another copy of the facility letter of 18 January 2008[705]. The signed resolutions and a signed notification of activities form[706] was sent as a PDF attachment to an email dated 1 May 2008 from Ben George to Matthew Lam, and copied to the others involved[707]. The signed resolutions referred to the facility letters dated 23 May 2007, 4 July 2007, 29 August 2007 and 18 January 2008, collectively calling them “the Facility Letter”.  Both resolutions stated that “the Facility Letter be and is hereby approved and confirmed”, thereby ratifying the acceptance of increased credit facilities enjoyed by Wise Lords from 23 May 2007 up to 30 April 2008 and accepting future credit facilities from 30 April 2008 up to the limit of US$50m (HK$390m).  The Minutes of a meeting of DBS Trustee on 30 April 2008 contained a resolution accepting the increase of credit limit to US$50m (HK$390m)[708].

251.  On 31 January 2007, the net position of the portfolio, net of the loan drawdown of about US$11.1m, was slightly in excess of US$26.7m.  According to the email from Matthew Lam dated 30 April 2008, the net position on 28 April 2008 was US$56,232,129.46[709].  The Yearly Review dated 21 April 2008[710] showed a NAV of US$34.16m on 31 March 2007 and a NAV of US$50.37 on 31 March 2008.  Adding the injection of US$9.6m into the Wise Lords account to the sum of US$34.16m and deducting the distribution of US$1.93m from the said sum of US$34.16m, produces a sum of US$41.83m. This sum of US$41.83m had increased to US$50.37 on 31 March 2008, an increase of 20.4% in the course of 1 year.

252.  For sake of completeness,  I should mention that there was an approval granted for a temporary drawdown of US$31m (HK$241.8m) from DBS Bank’s “in-transit” account on 29 April 2008[711] but an application to increase the credit limit to US$200m (HK$1,560m) was turned down as being “too huge”[712]. I find that Linda Liu greatly exaggerated Ji’s and Zhang’s assets[713] (net worth of US$200m[714]) and annual income (of US$50m[715]) in support of the latter application. I have no hesitation in rejecting Edwin Lim’s weak attempt to support this gross exaggeration[716].

253.  An issue was raised about the validity of the guarantee signed by Ji. The plaintiffs alleged that Linda Liu “pressed and persuaded” Ji to provide a personal guarantee to DBS Bank of Wise Lords’ credit facility in circumstances where Ji did not understand the risk involved[717].  However, no proper legal basis has been raised to impugn the validity the Guarantee and Indemnity dated 21 December 2006[718].  Each page of the document was signed by Ji who also placed her signature on the Notice to Individual Third Party Security Provider[719], Security Provider and Solicitor’s Certificate[720] and Confirmation and Acknowledgement[721].  The last three documents were in English and Chinese.  The relevant documents were couriered to Ji for her perusal[722].  They clearly set out the risks and liabilities of personal guarantors. I find that Ji was bound by the terms of the said documents by signing them and that she cannot now seek to avoid their legal effect simply by asserting, after the event, that she did not read them carefully or did not understand their contents[723]. Indeed, the signature page for the Guarantee and Indemnity[724] contained the following warning:

“This Guarantee is an important legal document. Before signing, you should read it carefully and if necessary seek independent legal advice to make sure you understand your commitment and the full consequences of signing. If you sign this document, you will be liable together with or in place of the Principal for the Principal’s obligations to the Bank. You should only sign this document if you agree to be legally bound by its terms.”

I accept Linda Liu’s evidence that she explained the contents of the first facility letter and the duties and obligations of personal guarantors to Ji:

“A. ... Starting from the first facility application of Ms Ji, the first one for HK $78 million, Ms Ji requested that I explain the whole banking facility document to her, including all the board resolutions as to how they were constructed, and as to why a personal guarantee had to be signed as well as the duties and obligations as a personal guarantor. I have to give an explanation on the whole set of the facility document and other documents right from the first credit facility application.

Ms Ji suggested going back and discussing with her husband about the terms of the facility we were doing at that time.”[725]

Linda Liu’s account is consistent with Ji’s assertive and meticulous personality.

254.  Linda Liu was clearly driven by the wish to enjoy bigger and bigger bonuses.  I have already mentioned her candid conversation with Rocky Cheung on 9 August 2007[726] wherein she used the memorable line: “Hello brother Rocky, get ready to go for happy hour!”, and gloated to her colleague about having managed to persuade her “Big Boss”, i.e. Ji, to consent to increasing Wise Lords’ credit facility to US$40m so that “we will both be rich.”

255.  Ji was no less greedy.  The evidence shows clearly that Ji was demanding, proactively and oftentimes aggressively, larger and larger credit lines from DBS:PB.  Ji persisted with her requests for larger credit facilities, and admonished the bank for lost opportunities:

“Ji: ... [inaudible], give me more million, and buy more – more – some more, whatever they’re called.

Linda: What?

Ji: The Schroder one.

...

Ji: This means that a lot of opportunities have been lost, you know?

...

Linda: ...huh?

Ji: ...you all haven’t come to understand anything about this -- this -- this market. So that’s why, that is, er... won’t venture to do this, ah. But I understand it the most, right? I -- I understand my own stuff the best.

Linda: Um.

Ji: So when you report like this, you lose a lot of opportunities. So if you could release (the credit) a bit earlier, I -- I -- I, on some day in August...8^th August, that is, you all spoke with what’s-his-name... talked with Desmond about this limit, credit limit, and said...[inaudible] hasn’t been released. If it could have been released, I would have at that time, when that First State fell, when it was low (inaudible) (I could have) invested several million in, right? It would have been – it perhaps would have been even better, right? This was also an opportunity with A (shares), it was a rare opportunity as well, but it’s gone. We don’t dare buy in any more [Linda: Um.] since (it) is too high, um.”[727]

256.  Although the credit limit was raised to HK$390m (i.e. US$50m) in January 2008, Ji was still pressing for a further increase:

“Linda: Isn’t our quarter facility 50 million? Hang on, let me calculate it.

Ji: This is very easy; you should increase it for me.

Linda: Increase the limit?

Ji: Isn’t it so stable, is it?

Linda: Give me some time, ok. I will discuss it with him, give me some time, and I will (speak) to the Singapore credit officer tomorrow.

Ji: Right, report so that there will be some use first.

Linda: Ok, that is to say borrow more to do it, right? However, there is still risk.

Ji: I still haven’t sued you.

...

Linda: We will get it back for you, but sometimes there is risk involved, if it is not safer then let’s not do it, wait.

Ji: This one is still ok?

Linda: The risk for this one is actually quite small, you are right, but there is still some (risk). The main thing is that you do not put in such a big amount, the current one is enough.

Ji: No problem, I can see that there is no problem, there is no problem for this one, and you can just wait.

Linda: Right, I need to give you the risk disclosure now; don’t sue me in the future.”[728]

The last statement was prophetic.

257.  Not only did Ji complain about the size of the credit limit, but she also protested about the delay in approving an increase, and exerted considerable pressure on the bank to speed up the process. She also represented that further collateral would be coming in:

“Linda: Miss Ji, because your credit has not been approved, now it has reached more than 70 million.

Ji: Why do you guys take so long to approve it?

Linda: Because we are still waiting for Singapore and they haven’t approved it yet. Because the amount is too much, it’s too big.

Ji: Don’t I still have some money? Don’t I have some money coming in on 2nd?

Linda: That’s right. However, you’ve already exceeded its limit previously. We have to use those to repay those short term loans. How about this? We can wait till after the 5^th, we have waited so long ...

Ji: I don’t want to wait for the 5^th. The market will be different by then. Ask for it now.

Linda: Definitely not, because Singapore hasn’t been able to approve it yet.

Ji: Ask them.

Linda: The limit is still 50 million and now it’s been pushed to above 70. We can’t settle and it’s difficult to close it.

Ji: Why can’t we settle it?

Linda: Let’s put one (order) first, OK? Because right now there is concern with the trust, saying there is too much risk. We’ll see on Monday.

Ji: Is there a mistake? How is it too risky?

Linda: That’s right, they are very concerned because they feel that foreign currencies (transactions) are done with loans.

Ji: Isn’t all the money coming in here? Is that still considered risky?

Linda: Yes, because the transactions are all done with loans, not cash. How about changing it to just one or reducing it? We really have to wait for them with regard to anything new. Is that ok?

...

Linda: Yes, they want to urge you to (repaid the) short, because your limit hasn’t been approved. Because you have to first repay the short term loan, because you used the limit in the in-transit account and the bank’s amount has not been approved yet so you need to ...

Ji: How much more is needed? Give me a portfolio, I can’t see how much I’m lacking.

Linda: Um...

Ji: Isn’t it all back? Isn’t it?

Linda: No, there is still some in transit. Your original amount was 50 M and now it is past 70 M.

Ji: Didn’t I just borrow 50?

Linda: At the moment, they haven’t approved the highest limit. We are still discussing with them, and it has already reached head office.

Ji: Don’t I still have 2 million on hold in your hands? Have you returned it to me?

Linda: It’s been returned. Today is the last day but because your limit of 50 has been exceeded to more than 70, they need to...

Ji: I’d like to ask you, (Linda: Yes) Kenneth, that’s ok. Place that order for me first.

Kenneth: Shall we change it to 9230 first?

Ji: Yes, change that first.

Kenneth: Goodbye.

Linda: Ok, bye, Miss Ji, because our application to extend the limit is still...

Ji: That’s the way banks are. When it’s raining, they stop giving out umbrellas. This way, this method of doing things, I really can’t be lenient anymore, I’ve seen through you all. I find this very strange.

...

Ji: When I want it, the document is not ready and now when I don’t want it, it’s ready? When you have new ... (Linda: It doesn’t happen that way.) I’ve found it quite strange. How much can I receive in total at the maximum? When you have new funds out and you want me to buy, I can have all the credit limit I need and when I don’t need it... (Linda: That’s not it) I cannot get anything.

Linda: That’s not it. We have to apply for the credit limit each time. Because you are using the bank, you are making transactions by going to the bank and using their funds, so the bank needs to check their treasury to make sure they have enough funding, now...”[729]

258.  On 28 May 2008, Wise Lords’ credit limit was increased to US$58m (HK$450m)[730]. When Ji was told about the proposal to increase the limit to US$58m, she commented that US$58m was “too little” and “meaningless” to her. She complained again of the slowness in approving an increase, and said she did not understand why the bank was worried[731]. Ji even threatened to sue the bank if her demands for increased facilities were not met. She also said she was “fighting this thing”, i.e. the credit application[732]. Apart from applying pressure over the telephone, Ji also kept chasing Linda Liu for increases in the credit line by email:

(1)  Ji’s email dated 7 July 2008[733], where she wrote: “When can DBS increase my credit line?”;

(2)  Ji’s email dated 8 July 2008[734], where she wrote: “Yed’s rate is not attractive.  I’ll use the credit line to by [sic] AUD by limit orders. (so, I need you to work out bigger credit line.)”;

(3)  Ji’s email dated 18 July 2008[735], where she wrote: “... By the way, KEEP WORKING ON INCREASE MY CREDIT LIMIT.  I’ll need it very soon. (When AUD and Euro is dropping, I want to buy LARGE AMT. of it.)”

(6)  The “no call’ representation

259.  It is the plaintiffs’ case that in late August and early September 2007, Ji raised concerns about the possibility that the loan made to Wise Lords might be called.  In response to those concerns, Linda Liu confirmed over the telephone that DBS would not call the loan.  Linda Liu repeated this representation on a call in 14 May 2008[736]. In October 2008, DBS ignored these representations and issued margin calls on Wise Lords’ account.

260.  On 20 August 2007, Ji had expressed concerns about the loan. Linda Liu explained to her that there should not be a problem as the asset to loan ratio at the time was very healthy[737].  On 28 August 2007, Linda Liu discussed with Ji the difference between calling a loan and a margin call:

“Linda: Nothing, Rocky asked me to explain the loan to you. It is a revolving loan, but a collateral is required, that is, a collateral is required, which means that you need to use the collateral of your investment portfolio as a support to borrow. So, because the collateral that you currently have ...

Ji: Because he said that if the market goes down, he will also need something else. What is that thing called?

Linda: Call margin, is it?

Ji: Yes. They are two different things, right?

Linda: Well, it’s like this. Because the existing value of your collateral is approximately 42, so right now 70, you have 70 odd M available for investment at present. Your value is thereabouts, your collateral value multiply by 60 percent, can be collateralised; that is equivalent to approximately USD 46 million. It is not too much for me to apply for a limit of 40M. So, what he says is correct. For instance your market, if the value of your mutual fund plunges by 30%, for example, you have 78M that drops to 60M, this is an example only, that is a drop of 18M to 60M, and 60 percent is 36M, then this 36M collateral will be insufficient to support your loan of 40M. In this case, of course the bank will definitely not force you to redeem [the loan], but the bank will follow up and ask you if there is any way you can cover this shortfall.”[738]

Linda Liu also said that “In the event that your (asset’s) par value is lower than the loan, loan value, that is the worst-case scenario, you will have to think of a way to make up for the loan”[739].

261.  On 29 August 2007, Ji expressed concern about being locked into DBS products and about the fluctuation in prices, and requested Linda Liu to talk to the credit department with a view to giving comfort to her that the loan would not be called for a period of two years. Linda Liu said she would discuss the matter internally and talk to top management[740]. However, as the conversation progressed, clear representations were made by Linda Liu to Ji that loans up to US$20m used to purchase DBS mutual funds will not face margin calls for 2 years:

“Ji: I’m not saying that this needs to be the case, but I -- I want one, I feel that as far as I am concerned, I am still -- still in the middle of learning about, uh, loan management. I feel that this is the right way to go about it. That is to say, one, that is to say ... [inaudible] sooner or later I need to apply for two years.

Linda: I see, um, um.

Ji: Don’t call during these two years.

Linda: Certainly, certainly. The previous AE ...

Ji: Well this is definitely all verbal, but I need it on paper, ...”[741]

...

“Linda: I understand. So what you’re saying right now is that, well, for instance, I am -- now I’m finally able to increase it to 40 M (million) for you, so you are investing 20 M (million) of this into a DBS Share ...

Ji: Right, (I’ve) already invested it here.

Linda: ... right, (you’ve) already invested it. [Ji: Right.] This is long term, this 20... in addition...

Ji: Here do not, that is to say, call -- do not under any circumstances call for those within these two years.

Linda: ... okay, okay. So as for the other 20 M (million), that is, you yourself are flexible to [inaudible] ...

Ji: Right, it’s possible, that is, right.

Linda: ... that is, to repay or not ... [inaudible].

Ji: No, I’m thinking if it’s good that, [Linda: Okay.] you --that is to say, if (I) invest in your stuff, [Linda: Um.] then there will be an approximate, uh -- uh -- uh -- uh term of two years, do not -- do not call under any -- any circumstances whatsoever.

Linda: Sure, sure, definitely.

Ji: As for others, [Linda: Um.] if you, number 1, you all can follow the requirement, for instance, what kind of call, I -- I will know how to manage.

Linda: Um, um.

Ji: How’s that?

Linda: Okay, okay.

Ji: ... [inaudible], this kind, if there’s this kind...

Linda: This wouldn’t be a big deal.

Ji: Huh?

Linda: This wouldn’t be a big deal, because I -- I talked with Amy and she’s very support(ive). She’s aware that you really support us.”[742]

...

“Linda: ... I’ll discuss it with the top management, they shouldn’t present much of a problem.

Ji: I feel that this is very reasonable, and it’s also [Linda: Yep, yep.] we should ...

Linda: Because ... [inaudible].

Ji: ... an issue that (we) should ... [inaudible]. Otherwise it’ll be really chaotic.

Linda: Sure, sure.

Ji: Isn’t that right?

Linda: Because you have 27 M (million) invested with us, but you’re taking out a loan of 20 M (million) to invest in the 27. So as for this 20 M (million), I explained that it’s with you for around two years. Er, this loan, er, (is) a relatively long term loan, for the time being we will not touch it, that is, continue like this.

Ji: Right, so you all must not call at any time...

Linda: Right, won’t, won’t.

Ji: ... don’t call during this two-year term, but I would also pay it back early, [Linda: Okay.] I’ll pay you back early.

Linda: Sure, sure.”[743]

...

“Ji: That is to say, if (I) buy your DBS products, (I) should be given a, uh, term of at least two -- two years, [Linda: Um.] okay?

Linda: Okay, okay.

Ji: It’s relatively fair, and this (way) you all will be a bit more stable, otherwise everybody would take out all their money.

Linda: Absolutely.”[744]

262.  On 31 August 2007, Linda Liu confirmed Amy Yip’s agreement to this arrangement:

“Linda: There was a meeting this morning, there was a meeting.

Ji: Yeah. May I ask if there is any good news?

Linda: Good news? Er, just now (I) talked with our Amy about your portfolio. She said [Ji: Um.] ‘thank you for your support’, [Ji: Um.] and then (she) went -- she said, uh ... it should ... uh ... the issue with the loan isn’t a problem in principle.”[745]

On 7 September 2007, Linda Liu said the matter was orally agreed but dependent on the maximum amount of the anticipated draw downs to purchase DBS mutual funds[746].

263.  Linda Liu confirmed in her evidence that these conversations had occurred and further stated that it was mentioned in a call report at that time that application was intended to be made for a 2-year loan[747].

264.  I find that Linda Liu on behalf of DBS:PB clearly and unequivocally represented that a margin call would not be made for a period of 2 years from its drawdown in respect of the maximum drawdown of US$20m on the credit facility of US$20m that was granted on 4 July 2007 and on the increased credit facility of US$32m of 29 August 2007 and which was used to invest in DBS mutual funds. I also find that Ji relied upon this representation. However, the representation was not made in respect of any loan drawdown that was used to invest in other products[748].

265.  When DBS:PB made the margin call to Wise Lords on or about 10 October 2008, after Linda Liu received a margin call advice from the credit department on 9 October 2008[749], the portfolio of Wise Lords no longer included any DBS mutual funds purchased with the loan of US$20m, as can be seen from Arboit’s 4^th Schedule[750] and the portfolio summary of 30 September 2008[751].  Indeed, as at 30 September 2008, the portfolio did not include any DBS mutual funds[752]. Accordingly, the margin call of October 2008 did not fall within the scope of the representation made by Linda Liu, on behalf of DBS Bank, at the end of August and early September 2007. 

266.  I also find that Ji well understood that the “No Call” representation did not extend to loans used to purchase products other than the US$20m loan used to buy DBS mutual funds in July to October 2007.  On 22 January 2008, Ji was still asking Linda Liu if the bank would call back the loan and requested the bank’s commitment for the whole of the loan, not just the loan of US$20m used to buy DBS mutual funds in July to October 2007[753].  The call report for meetings in January 2008[754] records that:

“... Ms. Ji showed her concern on the margin call system by our bank”. ...

Since Ms. Ji would like to hold all the mutual fund investment for long term, she would like to seek for our management’s support if in case her investment portfolio would hit the margin level. I have expressed her concern to Edwin and Edwin agreed to help her on this issue if the shortfall occurs in the future.”  [my emphasis]

The call report listed DBS mutual funds in the portfolio with a value in excess of US$47m at that time.

267.  There was further discussion about margin which took place from about mid-2008[755].  On 15 August 2008, Ji was still seeking a commitment from the bank not to make a call on Wise Lords’ loan for one year, in response to which Linda Liu said she would discuss the matter with her superiors. Ji further expressed her “hope” that within a year DBS Bank would support her and would not have to call the loan[756]. On 27 August 2008, there was yet another appeal from Ji for a “commitment” from the bank[757].  On 3 September 2008, Ji was still questioning the extent to which DBS Bank might agree to “support” her[758].  On 8 September 2008, Ji was still posing her one-year request, which Linda Liu said she would convey to Edwin Lim[759].

268.  I find, based on these telephone transcripts, that Ji knew that there was a possibility that a margin call could properly be made by DBS Bank and that she was pleading with Linda Liu for a commitment from DBS Bank not to do so for a period of 1 year.

(7)   Ji’s concern about margin trading

269.  During her discussions with Linda Liu, Ji also expressed her concerns to Linda Liu about margin trading and said that she would not enter into those kinds of transactions.  However, as can be seen from the recorded telephone conversations set out in the preceding section, Linda Liu had clearly explained to Ji the difference between opening an FX margin account and using the assets of the portfolio as collateral to obtain a loan to invest in products, otherwise known as leveraging. She also explained the difference clearly in her evidence:

“Q. Did Ms Ji have some difficulty understanding the terminology?

A. No difficulty. I have said many times what leverage deposits and leverage loans were, and Ji knew what it is, an FX margin trade account.

Mr Barlow, I would like to tell you what really is an FX margin trade account. The margin is that you pay 10 per cent, but you can -- you’ll be able to do 100 per cent on FX investment. That would be managed by another independent account and independent department, the FX department. It would be marked to the market second by second. There would be around-the-clock 24-hour requirement.

If the customer has a shortfall today and then he has to -- he must come back before tomorrow with money to cover the shortfall and cover the margins.

That’s the operation for the pure margin FX account.

Q. I’m actually asking you about this conversation. At 257, Ms Ji says:

         “... the conditions under which you guys gave me a loan stated that it would never be call(ed)?”

And you say, “Right”.

A. I would like to explain that Ji had previously proposed for no call, but that only concerned mutual funds; however, by that day, 14 May 2008, she should have already redeemed the majority of her mutual funds.

There’s no need for Ji to mention about borrowing US$20 million for a two-year term loan on DBS-issued mutual funds.

Q. Ms Ji had a phobia of margin investing; is that correct?

A. She just said that she found it different for margin, as she said in counter 258.

Q. In 261, “So I will absolutely not touch that kind of thing”.

A. She would not be touching on margin FX trading.

Q. And so the investing that was being done using funds borrowed from DBS to invest in FX, you were describing as leveraged deposits; correct?

A. Leveraged deposit against leveraged loan.

Q. So long as you described it as a leveraged loan, Ms Ji was content to proceed, although there was no meaningful difference between that and margin investing; correct?

A. There is a difference, Mr Barlow. A bank facility limit is to be approved by the bank’s credit department. The credit department would consider the client’s current assets and also the liquid assets to be available before making a decision on approval.

On the contrary, if one wants to open an FX margin account, one can go to any bank and ask them to open one. I mean, most of the banks, including some retail banks, that can be done. You put in a margin sum as a deposit. Once that is done, trading can be done.”[760]

270.  Not only did Ji know that Wise Lords’ portfolio was leveraged, she dissatisfied with the bank management’s concern about the risks of Wise Lords’ leveraged portfolio:

“Linda: The other thing is that, I just had a meeting with our management, with your present situation, your credit limit is like this, because they are concern that, maybe affected by the volatility of the foreign exchange, your present 50 million facility plus your 40 million plus deposit, your maximum can fix up to over 90 million, US dollar booking.

Ji: Hmmn .. hmmn.

Linda: That is to say your transactions have reached 90 plus million ...

Ji: Hmmn.

Linda: They are kind of worry, that is to say, if somebody is going to borrow exactly 100 million US dollars, at such time if something really happen, how are they going to repay? That, we really did discuss for a long time.

Ji: So what could happen? Ah..ha?

Linda: Happen...say for example. Euro dollar drop tremendously... Australian.... (Talking at the same time.)

Ji: Drop to what extent? Those things are not likely to happen!

Linda: Right, yes, that’s why, because they said YED is a deposit. Traditionally means it’s not a leverage, but if they felt that you are thinking of acting aggressive, they suggested that you open a FX margin trade account, that is to say .... (Talking at the same time.)

Ji: I don’t want to do this.

Linda: 10 million you can trade up to 100 million, but you ....?

Ji: I don’t want to do this, I find that your such proposal is not responsible at all!

Linda: No, it’s not irresponsible. First, let me tell you, because you opened this ... if you really need a limit this big, you can open it first, but you don’t have to use that much, do you understand what I mean?

Ji: I don’t want to, don’t want to do that. That’s totally two different things, I don’t want to do that.

Linda: Because at the moment, if they ... if they are carrying such a big ... actually that’s just like ... (Talking at the same time.)

Ji: Didn’t you say that they are giving me 58 ... ?

Linda: Right, then I’ll go and ask them for it, that 8 ... , is that if you can get it you will take it?

Ji: Hmmn.

Linda: Okay, okay.

Ji: Will talk about that again, okay?

Linda: Right, because the second concern is to say, your loan level compared to what you have to repay, is ... is greater than the assets. That’s why with the entire world cutting down on lending, under the situation, they are very ... a bit worried. On top of that, trust, also wants me to explain whether a family trust will require such a big loan?

Ji: That you have to see what kind of products they are doing, is that right?

Linda: Right, of course I do my best to defend you, I mentioned that this level, the risk level is comparatively low. Then they were saying that, it is low, but it is being done with borrowed money, that’s why they find that working with borrowed money is still .... (Talking at the same time.)

Ji: What kind of things you can do without borrowed money? Can you make it big? What’s wrong with them, you not asking my money to just sit there doing nothing? And let you lend it to others as loans?

Linda: Right, right, that they have to ... from another aspect. (Talking at the same time.)

Ji: This is an explanation for kids!

Linda: No, on the other hand, they require me to explain the risk to the customer clearly, just like this, they wanted to, that is ... if not the customer will blame on me at that time. Why didn’t I explain clearly, how far does the risk extend to, etc.? They did like this ... like this, I’ll go and ask them for the 58 first, okay?

Ji: Hmmn .. hmmn.”[761]

(8)   Commencement of investments in FX and YEDs and increase of credit limit to US$58m (HK$450m)

271.  In 2008, Wise Lords began to invest more heavily in foreign exchange transactions, with a particular focus on AUDs and Euros, and YEDs.  YED was the official product name adopted by DBS Bank[762]. However, it was generally referred to as a premium deposit in the banking industry.  Ji had experience investing in premium deposits at SCB and was familiar with the term[763]. In 2004 and 2005, Ji had already conducted over 20 YED transactions for Wise Lords[764].

272.  Although called premium deposits, they were actually currency linked notes. There was no dispute between the experts on the key features of YEDs. In his report, Das stated:

“1) The investor deposits funds in a nominated currency (say USD) for a nominated period, usually between 1 week and say 6 month[s] based on maturity preference.

2) The investor receives a higher rate of interest than that available on a comparable normal bank or money market deposit for the relevant currency and tenor.

3) At the time of entry into the deposit arrangements, the investor agrees the following:

a) A second currency (in this case AUD, but could be any one of Hong Kong Dollars, Singapore Dollars, New Zealand Dollars, Euro, Pound Sterling, Canadian Dollars or Yen).

b) An exchange rate between the two currencies (which is referred to as Strike Price).

4) At maturity, the bank returns the deposit. The bank repays the deposit in either USD or AUD as follows:

a) If the exchange rate is above the Strike Price [then] the investor would receive the USD amount deposited plus the interest receivable in USD.

b) If the exchange rate is below the Strike Price [then] the investor would receive the AUD equivalent of the USD amount deposited plus the interest receivable converted [into AUD] at the Strike Price.

5) The exchange rate used to determine the repayment amount is the relevant rate on the fixing date (which is 2 business days before the maturity date in accordance with convention in the currency market) at a predetermined time, which in the Asian time zone is generally 1500 hours in Tokyo and 1400 hours in Hong Kong and Singapore.”[765]

273.  The experts agreed that the investor assumed a currency risk in return for receiving a higher rate of interest and did so by entering into a carry trade to benefit from higher (in this case) AUD interest rates, the underlying assumptions of the investor being that AUD would be stable and trade within a relatively narrow range[766].

274.  I was not impressed by Ji’s evidence that she did not understand what was meant by the strike price[767]. She was reminded by Linda Liu about the operations of YEDs on many occasions in 2004 and 2005.[768]

275.  Ji’s interest in foreign exchange was apparent well before 2008. Wise Lords had regularly carried out FX transactions in earlier periods[769]. Ji also frequently asked for market updates on foreign exchange:

“Ji: I would also like to know about foreign exchange, the current market status of foreign exchange?

Linda: See, I just sent you an E-mail, it is from Kenneth.

Ji: I haven’t seen it.

Linda: Hang on, I am taking a look for you now and report the price... Hello, Ms Ji, Euro is still quite high, 1.2962, 1.2985. Japanese yen is 05.37, 05.4. Australian dollars to Hong Kong dollars is 5.98109850. I have this idea, Ms. Ji don’t you have a lot of JF Japan? If you redeem them and then convert them to US dollars, that should still be profitable.”[770]

276.  On 22 November 2004, Ji told Linda Liu that she wanted to buy AUD. The exchange below shows that Ji was well versed in the mechanics of FX transactions and quick in placing orders:

“Ji: And I would like to buy some Australian Dollars first.

Linda: How much would you like to buy? Think about it.

Ji: 200 to 300 thousand US dollars.

Linda: Ok, you have spoken to him, did he give you a suggestion?

Ji: I have spoken to him, he said around 5.95 to 5.98.

Linda: Against Hong Kong dollars?

Ji: Right, I am using Hong Kong dollars, I can also use US dollars.

Linda: 5.95.

Ji: US dollar and Hong Kong dollar is the same if equivalent to that.

Linda: You would like to buy now or place on order?

Ji: Now.

Linda: Ok ok.

Ji: The price does not reach [5.95] yet, it would be ok when it reaches, if it has not reach yet, then wait a bit.

Linda: Ok, it has arrived yet?

Ji: Not yet, if so, it will inform me.

Linda: You wait a while, 5.95 how much?

Ji: Around 5.95, 5.95, 5.98, under 6.

Linda: Wait and let me have a look... Hello, Ms Ji, it has not reached [5.95 yet], [The current price is] 6.074, 6.092.

Ji: I want it such that if it is reached, I want to use this to buy Fidelity Australian Dollars.

Linda: Ok, now you are, we can help you place a limit order, shall we place it?

Ji: Then place it.

Linda: What level would you like to place it?

Ji: 5.95.

Linda: 5.95, that’s fine, good, then you are going for 300,000 or what?

Ji: 25 is enough, how much does it need at most?

Linda: 25.

Ji: Is it 25, then let’s place that, and also, I want today’s... oil price and Dow Jones.”[771]

277.  Ji was at the same time talking to StanChart about FX: “I heard from that side today, Standard Chartered Bank called me, he said it looks like that level was reached, take a look at the Australian dollars”[772]. Ji’s interest in buying AUD continued in 2005[773].  She knew it was a good time to sell AUD when commodity prices were dropping[774].

278.  Ji would reject quotations from DBS:PB and asked for or chose to wait for a better rate[775]. She had the ability to obtain advantageous terms (on interest rate for example)[776].

279.  During 2008 Ji became disenchanted with mutual funds, thinking that the US market was going to turn bad (in her words, a “deep recession”), which would affect the global economy and, in turn, adversely affect the mutual funds[777].

280.  By around May 2008, almost all mutual fund holdings of Wise Lords were redeemed pursuant to Ji’s instructions[778]. The proceeds from the redemption were partly used to repay loans taken out by Wise Lords pursuant to the credit facilities granted by DBS Bank, and partly used for the purchase of foreign currencies.

281.  In early 2008, Ji specifically indicated an interest for investments with high yield and high interest:

“Ji: Also, the fixed foreign currency, those foreign currency... say, I find Kenneth, my impression of this person... is very good... I find his advice... he just didn’t recommend this person... allow him to introduce to me...

Linda: I remember that , I remember that.

Ji: This thing... which later I understood, from someone else, is that the risk involved is very high!

Linda: Margin is very high (...)

Ji: The interest rate is high too! Right, That was why Kenneth said from the beginning, don’t.. there were other (reception unclear)... something else, that is why I find this person, he is rather... rather honest.

Linda: Um.

Ji: A very good impression, therefore I think you should talk to him, let him know my situation, I have to learn the experience slowly[779]. That’s why I want lower risk, if it’s good, I will add more. If it’s not good, I will test it, add a little or not at all. I must accumulate the experience slowly at the beginning, there are no other ways. So he should watch it closely for me, then communicate with me frequently, and then give me some suggestions.. actually... hello?

Linda: Yes, I understand, I understand...

Ji: So talk to him about my style, that is to say... you have to, that is I am relatively conservative, not so experienced with foreign currencies, so don’t offer...

Linda: Right... only if you are...

Ji: Ask him then... that is to say, I am asked to cooperate with him, but I know nothing at all. Therefore, I hope that, we could find some information regarding foreign exchange, and their changes... such things? I can take a look... read about it at home.

Linda: Um,um.. Sure, sure.

Ji: About the tread... and get some press releases on trade... can do that on-line...

Linda: We have that... I will send it to you. He sends that to us every day, that’s simple.

Ji: I don’t just want the quoting prices, I can check the quoting prices on my own.

Linda: No, no, there are support level(s).

Ji: Report(s), and also, he must have.. he also got this online, or from somewhere else. I have a website now for those things, let me see..

Linda: Oh, it’s not like this. DBS has their external, but in-house has their own house view. Each bank has its own view, and not necessarily the same as other banks. That is why every morning, I...

...

Ji: Therefore, in the long run for me, I still need to continue to convert Hong Kong dollars to Australian dollars. Euro is too high, (unclear reception), interest is too high... he said!

Linda: The interest rate for Euro may reduce, that’s why we read a lot of analysis yesterday.

Ji: Wait until when it really happens, we’ll do it then, okay? Now I tell you that, we have to co-ordinate... still have to do PD for this period of time... have to do (it)... (it) has very good (unable to hear), I don’t think it has dropped to the lowest...

Linda: Sure.

Ji: Then, I will mainly do currency.

Linda: Sure.

Ji: Alright?

Linda: Yes, alright.. then I..

Ji: When I return... the money, (I) need to earn money. I also have several tens of million(s) of US, so it is impossible for me to put it... (unclear reception) I have to.. have to (unclear reception) place it on (something with) high interest, right?”[780]

...

“Ji: My overall thinking is just to purchase a little more Australian and New Zealand (dollars) for the higher interest rate.”[781]

...

“Ji: Ok. My idea is to buy some currencies with high interest rates, place it there, for a little bit long term because I will have a big amount of US dollars, I would like to slowly convert and place it there, at least it is with high interest rate, and the value of which will rise.”[782]

282.  The evidence also demonstrates that the switch to foreign currencies, in particular AUD, was initiated by Ji:

“Ji: Get it out and repay a portion first, (Linda: right) in future I am thinking, if (I) borrow a loan again, I am thinking of this, if there is a need to take a loan I would suggest borrowing that Hong Kong dollar and repay in the Australian dollar.

Linda: Oh?

Ji: Change to Australian dollar.”[783]

...

“Ji: I want to put my, that is the money that will be coming in again, eh, that is if (I) put in again...

Linda: First, with it...

Ji: Australian dollar.

...

Ji: Can’t move. In my view, that is, switching to Australian dollar is the correct path, besides...”[784]

...

“Ji: Ah? Australian is the one which I want to do the most. The one I wanted to do most is Australian dollar...

Linda: Yes, except for the last time.

Ji: You need to do your best to find that one.

Linda: We have for the Australian Fund that we did previously. Do you remember it?

Ji: No, that one doesn’t matter to me, I need a better one.

Linda: Ok, I will search for it again.

Ji: Right.

Linda: For that Euro, there are relatively more for Euro, Euro, the Euro one.

Ji: Right, Australian dollar is better.

Linda: We are doing our best to find, because there are relatively less on the market, we will search for it again.

Ji: No it is not about finding the easy ones, but the most possible.

Linda: Ok, I will go... we will go... and search again.

Ji: Good. That Australian dollar one.

Linda: Oh. Ok, but I will fax the rest to you first, because you also need time to read through, ok?

Ji: I am very quick in reading through them, do your best to select those and find (them), because if they are on the market, that would make it easier, you need to search for that Australia Dollar, that one needs to be searched, that is the most important, that is why I have written it right in front of others.”[785]

...

“Ji: Ok. My idea is to buy some currencies with high interest rates, place it there, for a little bit long term because I will have a big amount of US dollars, I would like to slowly convert and place it there, at least it is with high interest rate, and the value of which will rise.

Kenneth: Right, but we should not rush into it.

...

Ji: Right, because most of what I will get now, get back from redemption[786], are US Dollars, so after getting them back I want to place some in Australian dollar and New Zealand Dollar, at a better level.

Kenneth: Ok, we will see if we can do it over these 2 days.

Ji: I do not want to buy funds for the time being, because I foresee it will fall even further.”[787]

283.  In February 2008, Ji was already suggesting that Wise Lords should borrow in a currency with low interest to buy AUD or New Zealand dollars:

“Ji: So think about it, what do you think -- what do you think -think about I, ah, I mean, as far as the New Zealand dollar is concerned, I -- I want -- I have -- for instance, there’s -- I have, er, a few, for instance, if I want to borrow, for instance, I want to borrow a ...

Linda: Currency to go (make a) deposit (in) a currency. Right.

Ji: And then, er, convert it into Australia(n) dollar(s) or New Zealand dollar(s), which one ... [inaudible]”[788]

284.  She did not like Japanese Yen because of its unstable stock market and considered borrowing in USD or Singapore dollars[789].  Ji was already aware that one could borrow in one currency with a lower interest rate to buy another currency to earn a higher interest rate when Linda Liu defined such a transaction as arbitrage[790], and suggested to Ji that she could use Wise Lords’ credit facility as an investment tool[791].

285.  Despite Ji’s having said earlier that that she would like to learn and accumulate experience in currency trades slowly, and that she would engage in low risk, conservative investments[792],  in fact, she had embarked on a project to accumulate a vast amount of AUD, in accordance with her views on the currency and despite warnings from DBS:PB.

286.  The recorded conversations show that Ji was of the firm view that AUD was strong and USD was weak. This drove Ji to accumulate a significant amount of AUD in Wise Lords’ portfolio. Ji’s outlook on the two currencies is apparent from her exchanges with DBS:PB personnel. Back in 2006, Ji already held the view that USD was weakening:

“Ji: I’ve thought about it for a long time -- US dollars-- [Linda: Mm, mm.] The US dollar is weakening. US --when that is converted into USD,...”[793]

...

“Ji: It’s relatively stable, right, because right now it’s, at this point in time, it is a strong currency, ah, [Linda: Right.] a relatively strong currency, and the U.S. dollar, uh, is a soft currency. So I’m thinking, right now at the present, that is to say, because this is a very turbulent time for the market right now, for one thing, if (I) buy, for instance, I’m -- I’m wanting to buy, that is, er, in t--the world mining category.”[794]

...

“Kenneth: 0.92, 0.920 something, I saw yesterday. Yours is against Hong Kong dollars, 7.1730, approximately 0.9210 or thereabouts. (Ji: Mm. Mm.) If sell it now, take back Hong Kong dollar, should do it at 7.2350. (Ji: Mm. Mm.) Leave it there first.

Ji: Leave it there first. I want, I want, because all that I am to receive will be US Dollar, so I want all to be put into Euro and Australian Dollar. I want to put it at a slightly lower level for Australian Dollar.

Kenneth: A bit lower, no problem.

Ji: Euro is a bit better because Euro we can use that to buy the mutual fund. (Kenneth: Oh, I understand) So I don’t want to keep US dollar.”[795]

287.  Ji had confidence in AUD and Euro in the long term[796] and did not want to keep any USD or Hong Kong Dollars[797].  On 15 April 2008, given Ji’s strong preference to hold AUD and not USD in the long run, Kenneth Cheung drew to her attention, through Linda Liu, to a USDAUD YED  and suggested that Ji utilise loans that were not yet due to invest in the YED[798]. According to Kenneth Cheung:[799]

“...The YED provided an opportunity for Wise Lords to purchase Australian dollars at a price lower than the spot price, and in any event, if the conversion was not possible (because the knock out price was reached), Wise Lords would still be able to earn a handsome interest which exceeded the interest return from ordinary deposits. Another reason why I thought YEDs would be attractive for Wise Lords was because of the loans it had taken out. At the time, the interest rate on US dollar loans was relatively low compared to other currencies such as Australian dollars and Renminbi. Many people took advantage of the low US dollar loan interest rate and used US dollar loans to invest in currencies or investment products offering higher interest returns to earn the interest difference. YEDs offered an opportunity for Wise Lords to, instead of repaying the loans, utilise the loans to make a small profit from the interest difference”.

288.  The above description of YEDs is singularly lacking in identifying the risk of loss to the investor if the AUD plunged in value such that the USD value of the returned AUD was less than the USD loan taken out to purchase the YED in the first place.  However, Ji was herself aware of the unpredictable nature of the currency market[800] and she knew that if, on maturity, the exchange rate was at or below the “strike” exchange rate, Wise Lords would receive AUD at that rate and would suffer a loss if the AUD had depreciated against the USD and went below the strike exchange rate.

289.  Ji stated that’s she was familiar with YEDs[801] and gave firm instructions to DBS:PB to invest in YEDs[802]:

“Kenneth: Buy more AUD?

Ji: Yes.

Kenneth: At 0.9350 for now. At this level.

Ji: Okay.

Linda: What about the amount? How much should the amount be? Ms Ji?

Ji: Three or five million, let’s say three million.

...

Kenneth: Yes, (if) you want your 9460 order...if you want... if you have to receive (the proceeds) at this level, then we will need to add five points of margin (to the selling order), which means we will place the order at 9465. Which method do you want to use?

Ji: No, no, (I) don’t mean that. You just deduct it from my (proceeds).

Kenneth: Oh, OK.

Linda: No, when it comes back -- (Cantonese) so it means to deduct five points, right?

Ji: (Mandarin) I don’t want my order executed at such high rate.

Kenneth: OK, it’s alright. We just want to make it clear.

Ji: So in future my order (orders) have to be executed at rates I’ve specified.

Kenneth: Okay.”[803]

...

“Ji: Mm, mm, mm. I want to place another (order) at low level.

Kenneth: 0.91. 0.91.

Linda: 0.91? Orr, (you) mean buy the Australian (AUD)? Buy the Australian (AUD) against the USD?

Ji: Where is the support level?

Kenneth: The first support level was 0.92200, which we saw this morning. As for the next, I think because, if the yen goes on (keeps) strengthening, you should place (an order) at a lower level, at about 0.9100.

Linda: 9100, mm.

Ji: 9100, mm.

Linda: Ms Ji, if you want to place your next order – what amount of Australian (AUD) against USD do you want to buy?

Ji: As for buying Australian (AUD), (I want to) buy 2 million – and – er--I want to place an order at 9200. Where do you think (I should) place (the order)?

Kenneth: Place (an order) at a lower level, can be placed lower.

Ji: I want to place another order of 2 million at an even lower level. Each order involves 2 million.

Linda: Okay.”[804]

290.  Moreover, Ji conducted her own research into AUD[805]:

“Kenneth: I don’t agree with you on this. Because this is three months, we, how shall I put this, I don’t really agree with you putting in a huge amount.

Ji: I am just afraid that I will forget.

Kenneth: Don’t do the very long-term ones.

Ji: Yes, especially because I am in America, so I have to spend time on events.

Kenneth: Do a smaller one, perhaps a million, because in this case, you can purchase it in different levels at different times. Even if you do not manage to purchase this, you can still collect an interest that is higher than the US dollar. For example, I think you can, I don’t agree with you doing one that is a large sum. Because you normally do...

Ji: I don’t normally diversify my investments.

Kenneth: Yes, so I agree that investing a million US dollar is more or less sufficient.

Ji: A million dollar is meaningless.

Kenneth: You, no, no... today’s level and yesterday’s may be.

Ji: Because I still have not researched this well. (Kenneth: Oh... You have not researched!) So I need some time to digest.

Kenneth: Ok, Ok, take a look, call us again after you have researched it.”[806]

291.  Ji demonstrated knowledge of market movements and familiarity with technical terms when it came to FX and YEDs.  Ji paid attention to movements of AUD exchange rate[807]. She also demonstrated familiarity with limit orders[808].

292.  In the light of my findings I have little difficulty rejecting Ji’s evidence that the switch of emphasis to FX and YEDs was Linda Liu’s “new plot” and “trap”[809].  Indeed, from an early stage, Kenneth Cheung advised caution against Wise Lords’ accumulation of AUD: “we should not rush into it”;  “I think after you finish buying these two there could be a short-term rebound, we can see whether there will be an opportunity, to buy in at a relatively lower level, and then take profit first before buying again.”[810]

293.  Kenneth Cheung also discussed a number of products other than YEDs with Ji on many occasions.  On 14 April 2008 he introduced a one year principal-protected linked note, and mentioned to Ji the need to diversify[811]. On 22 April 2008, he introduced a one month option structure to Ji[812]. On 13 May 2008, he introduced a three-month structured note to Ji to be purchased in USD and suggested that Ji should not invest a big sum into it, and that she could invest into other areas.[813]. Ji was not interested and preferred to focus on FX and YEDs.

294.  Linda Liu and Kenneth Cheung had also repeatedly issued warnings to Ji as to the risk of over-concentration in AUD, but Ji chose to maintain her views[814].  This took place in the context of a rising currency: from January 2008 to May 2008 AUD rose against the USD from a rate of USD0.875 to AUD1 to USD0.95 to AUD1[815].

“Linda: Right now we are most concerned if the market direction of US dollar changes, right now some people say it will, in the second half of the year. What do you think? Some others say it will be the second half of next year.

Ji: No. Talk about it next year. I do not feel it is possible this year. (Linda: oh, not possible?) because it wants others to depreciate.

...

Linda: I feel the main thing is to not to get the big direction wrong, (Ji: yes yes) in case the market direction of US dollar really changes.

Ji: How is change of market direction possible? I feel that it is not too possible. A strong US dollar is its strategy, it can’t be done.

Linda: I feel that because November is election in the US, right now it is a life and death fight between Hillary and Obama. There is concern that US dollar will be strengthened during this period, because during US elections, for many times, US dollar got stronger at the time. We have to pay more attention to this. But Kenneth has a lot of experience in this aspect, we discuss with him more often, (Ji: Um. Um.) I feel that I will be more worried about currency in October, November. Other times I...

Ji: The question is, my money will be back very soon, is that right?

Linda: Yes.

Ji: Having US dollar is not of much use, I do not want to get US dollar.

Linda: It’s ok, but we will have to pay more attention. If the market direction changes, should change back a little. Profit take a little.

Ji: Furthermore, we will change it when there is a need to invest in the stock market.”[816]

...

“Linda: But right now, need to be more careful, because many reports have indicated that the US dollar might have a small rebound in the second half of the year.

Ji: It will not happen, it doesn’t matter.

Linda: Really?

Ji: Yes, I do not believe.

Linda: Please help me take a look.

Ji: If it can’t be accepted, I will use that, since I am using this for investments, is that right?

Linda: Yes.

Ji: So I am not afraid.

Linda: Yes, there are many investments using the Euro.

Ji: Yes, I am not afraid, I estimate that the second half of the year and year end will not be too different, is that right? (Linda: Is that so?) As such, I also can do it, I am not afraid with regard to the two currencies.”[817]

...

“Linda: They are kind of worry, that is to say, if somebody is going to borrow exactly 100 million US dollars, at such time if something really happen, how are they going to repay? That, we really did discuss for a long time.

Ji: So what could happen? Ah..ha?

Linda: Happen ....say for example. Euro dollar drop tremendously ... Australian .... (Talking at the same time.)

Ji: Drop to what extent? Those things are not likely to happen!”[818]

...

“Ji: Yes, because the way I look at this, because Euro and that, but the prospects of Euro is not as bright as that. I am never afraid of Australian dollar. I am never afraid of Australian dollar. Right?

Linda: We are also still in the phase of finding our feet, because every day the fluctuation for these is very large.

Ji: You are looking at this when it was at the lowest point and then you look how much will be lost right now, you guys become afraid.

Linda: Oh, yes, but this is foreign exchange, the risk is a bit higher as compared to Equity.

Ji: Slightly lower than that Equity thing, so long as it is well managed...

Linda: Yes, it must be managed well, but we did the right thing for that, we have been relatively conservative these two months, but it is a bit safer.

Ji: You guys should not worry.”[819]

295.  Ji’s interest in AUD continued.  As at May and June 2008, Ji still wanted to buy AUD or to invest in USDAUD YEDs[820]. She considered AUD a “relatively safe bet”[821] and she still wanted to buy “a little” AUD despite its dropping[822].  Whilst Ji’s views on Euros had changed (as the performance of the Eurozone economy showed signs of decline in mid-2008), her confidence in AUD remained[823].

296.  Ji’s appetite for AUD was large. Wise Lords bought 3 million AUD in March 2008[824].  She expressed the wish to buy “a large batch” when the price was good[825], and expressed surprise that she had so little facility to do FX transactions[826].  Wise Lord’s portfolio summaries show a drastic increase in AUD holdings after February 2008.  At the end of March 2008, Wise Lords held AUD deposits valued in excess of US$15m against loans of US$7.74m[827]. At the end of April 2008, Wise Lords held AUD deposits valued in excess of US$8m and YEDs in excess of US$59m against loans of US$45.36m[828]. At the end of May 2008, Wise Lords did not hold any AUD deposit, just a USD deposit valued at US$4.7m and YEDs in excess of US$52m against loans of US$19.39m[829] .  At the end of June 2008, Wise Lords held a deposit of AUD43.48m and YEDs of almost US$8m in value against loans of US$17.41m[830].  At the end of July 2008, Wise Lords held deposits of almost AUD66m and YEDs of almost US$45m in value against loans of US$71.2m[831]. 

297.  In June 2008, Kenneth Cheung told Ji that AUD was at a record high level and noted that Ji had purchased a lot of AUD.  He asked Ji if she wanted to sell[832].  Kenneth Cheung also suggested that Ji could sell half of her 43 million AUD holding and take profit, and alerted Ji to the risk of a possible USD rebound and a fall of the AUD[833]. However, Ji said she would not do anything with the AUD[834].

298.  I now turn to deal with the financial experts’ evidence on YEDs.  In their joint report[835]:

(a)  both experts agreed that the currency risks were asymmetric “... that is the investor has limited potential gains and theoretically unlimited losses”[836] which reflected the fact that the investor’s maximum gain was limited to the premium received in the form of the higher interest rate whilst remaining exposed to potential decline in the value of AUD against USD. I agree with the view of Malik that, notwithstanding this loss exposure, in practice, given the short-term nature of YEDs, the potential losses were relatively contained as evidenced by the fact that in respect of 51 YEDs traded in 2008 with a notional amount of USD332.5m[837], the cumulative loss on 25 August 2008 (final date of YEDs) was approximately US$340,000, assuming that the non-USD currency (i.e. AUD or EUR) had been converted back into USD at the redemption FX rate[838];

(b)  they also agreed that the potential impact on a portfolio depended upon: (i) whether the investor could hold either of the currencies involved (USD/AUD) and (ii) whether the investor needed to convert the currency (i.e. as in this situation because of the huge USD term loans, the currency received might have to be converted back to USD resulting in a loss to the portfolio because it would always be delivered the weaker currency)[839]. Both experts agreed that the portfolio should be expressing its profit and loss in USD terms[840];

(c)  the effect of the investments was that that the portfolio was long AUD and short borrowed USD funds creating losses when AUD declined. A weaker AUD resulted in loss to the portfolio and increased exposure to AUD as the YEDs were redeemed in AUD, which would also lower the asset cover for the USD borrowings, an effect caused by Wise Lords borrowing in USD to invest in YEDs[841];

(d)  both experts agreed that the YED investments were illiquid but the risk was mitigated by their short term nature[842];

(e)  although both experts agreed that the market for spot AUDUSD and short dated AUDUSD forward options were generally liquid, I accept the opinion of Das that managing the currency risk would be difficult with a declining AUD. Selling AUD forward would expose the investor to option risks and would be difficult to manage as the investor could not be certain of receiving AUD on the redemption date[843];

(f)  both experts agreed that since the YEDs were fully funded (by the purchase price paid by the Trust/Wise Lords), the YEDs themselves would not expose the investor to any contingent liquidity requirements (i.e. a margin call) but Malik noted that the purchase of the YEDs was funded by borrowed USD and that created a possible ‘contingent liquidity’ risk[844];

(g)  although they agreed that YEDs were a popular product at the relevant time[845], Das took the view that the YEDs were complex investments and were highly concentrated in AUD, which created attendant risks when bearing in mind the exposure to USD term loans and that it was only suitable for sophisticated investors. Das was of the opinion that there was inadequate disclosure of the risks on the YEDs. Malik did not express any opinion as he considered the suitability of the YEDs fell outside the scope of his instructions[846].

299.  At trial, it was put to Linda Liu that she had referred to YEDs as low risk products and she explained that YEDs had a risk rating of 2 out of 5[847].  During a telephone conversation on 25 April 2008[848], Linda Liu exaggerated somewhat by describing YEDs as having “very low risk”. This took place in the course of a conversation when she said that she would try to raise the credit facility to US$150m-200m, an attempt which failed.I accept the evidence that the risk of YEDs was relatively low being 2 out of 5,  and I accept the evidence of Malik set out in §298(a) above.  As set out in §298(c) above, the risk created by Ji’s investment strategy, being long AUD and short borrowed USD funds, was that losses occurred when AUD declined: a weaker AUD resulted in loss to the portfolio and increased exposure to AUD as the YEDs were redeemed in AUD, which would also lower the asset cover for the USD borrowings, an effect caused by Wise Lords borrowing in USD to invest in YEDs. The risk could have been ameliorated if the redeemed AUD had been converted to USD, which would have limited losses that would otherwise increase by holding a declining currency. A more diversified portfolio would also have limited losses from AUD YEDs.

300.  The FX and YED transactions would be notified by DBS:PB to DBS Corporate for approval[849] and DBS Corporate would send Investment Applications to DBS Trustee for approval[850] which were granted[851].  Between mid April to the end of May 2008, DBS Trustee approved a number of YEDs without fully understanding how they operated and Ben George, by email to Matthew Lam on 28 May 2008, sought clarification of their exact nature[852].  On the same day, Matthew Lam provided an accurate description of their nature as a currency option and of the risks involved, namely, that losses might be caused on maturity by receiving a weakening currency[853].

301.  Although the attempt at the end of April 2008 to increase the credit facility to US$150m-200m failed, on 28 May 2008, the credit facility was increased from US$50m (HK$390m) to US$58m (HK$450m)[854]. The increase to US$58m (HK$450m) had been recommended by Linda Liu on 29 April 2008 and accepted by Frederick Ko and Monique Lau of DBS Bank on 23 May 2008[855]. Linda Liu again greatly exaggerated Ji’s and Zhang’s assets[856] (net worth of US$200m[857]) and annual income (of US$50m[858]) in support of the latter application.  A signed Notification of Activities form[859] was sent by DBS Corporate by fax on 3 June 2008.  An email dated 3 June 2008 was also sent by Matthew Lam to Ben George, and copied to the others involved[860] informing of the offer to increase the facility and requesting a director’s resolution to be issued.  A letter of recommendation was signed by Ji dated 16 May 2008 and a Declaration of Risk Awareness was signed Ji and Zhang on the same day[861].  Both letters stated that the increased facility was sought for “forthcoming investment opportunity especially in [YEDs]”. The increase was approved by DBS Trustee on 4 June 2008[862]. The increase was also accepted and ratified by DHJ Management on 4 June 2008 when a signed written resolution from them, as director of Wise Lords respectively, was issued[863] and when, at about the same time, the authorised signatories of Wise Lords signed a copy of the facility letter of 28 May 2008[864].

(9)  Investments in AUD and EUR only and increase of credit facility to US$100m (HK$780m)

302.  Since mid-2008, Ji preferred buy and sell FX directly rather than YEDs which Ji thought produced too little return:

“Ji: Because it’s like this right now, if (I) have Australian dollar, I prefer, that is, to do this Buy and Sell deal(s), I don’t want to do YED. If it’s US dollar, I’d want to do YED. I always think that its...

Kenneth: Um.

Ji: Right, I also think that’s too little.”[865]

I asked Linda Liu why Wise Lords held so much AUD and she explained:

“His Lordship: Can you explain to me why she had such a substantial amount of Australian dollars by the middle of 2008, if she was purchasing yield enhanced deposits or notes giving enhanced yield?

A. In June to July 2008, Ms Ji asked me to calculate her amount of returns in her YEDs. In my calculation, it would be somewhat over US$700,000. Ms Ji found that the returns were too slow. She wanted to do more direct trading on foreign exchange, Australian dollars against US dollars. In June and July, one can see that she both bought and sold Australian dollars to take profit. But, after that, she changed it altogether. She was in the United States. She said that she had seen that the US economy was very, very poor and found that the US economy would soon be game over and things wouldn't do there. On the basis of this situation, she wanted to sell short in US dollars and held long positions in Australian dollars and partly euros.

His Lordship: Is that the reason for the loan facilities, so as to be short in US dollars, rather than just convert the US dollar holding in the account to Australian dollars?

A. The original intention of the facility was for her to trade in YED and Forex, but ultimately it was her decision to sell short in USD only and to long-hold Australian dollars and partly euros. Her original intention was to long hold Australian dollars and euros for one to two years. In that case, it would be short in USD and long in Australian dollars. At the same time, she would be earning the interest spread between the Australian deposits and US dollar loans.”[866]

303.  The last AUDUSD YED was purchased on 22 July 2008 maturing on 25 August 2008. The last EURUSD YED was purchased on 24 July 2008 maturing on 5 August 2008[867].  The “carry trade” strategy of borrowing in USD to buy AUD or EUR to earn higher interest was successful when AUD and EUR appreciated against USD. Substantial losses would occur when these 2 currencies depreciated against the USD. At the end of July 2008, Wise Lords held deposits of almost AUD66m and YEDs of almost US$45m in value against loans of US$71.2m[868]. On 18 August 2008 the position was substantially different with the portfolio containing AUD deposits of almost AUD122.6m, YEDs of US$20m against loans of US$96.4m[869]. The increase of the credit limit to US$100m is dealt with below.

304.  This change in the holding of AUD, almost doubling from AUD66m to AUD122.6m, occurred against a backdrop of substantial market nervousness created by the sub-prime crisis:

“21 Apr. 08	Bank of England launches its Special Liquidity Scheme (SIS) to allow banks to swap temporarily their high-quality mortgage-backed and other securities for UK Treasury bills.
22 Apr. 08	RBS[870] announces £12 billion rights issue.
29 Apr. 08	HBOS[871] announces £4 billion rights issue.
...
16 June 08	Lehman Brothers confirms a net loss of US$2.8 billion in Q2.
18 June 08	Morgan Stanley reports losses from mortgage proprietary trading and bad loans.
25 June 08	Barclays announces plans to raise £4.5 billion in a share issue.
11 July 08	Closure of US mortgage lender IndyMac.
13 July 08	US Treasury announces a rescue plan for Fannie Mae and Freddie Mac.
15 July 08	US Securities and Exchange Commission (SEC) issues an emergency order to enhance investor protection against ‘naked short-selling’.
30 July08	Federal Reserve announces the introduction of an 84-day TAF in addition to its existing 28-day loans.  The ECB[872] and SNB[873] announce they will provide 84-day US dollar liquidity in addition to their existing operations with a maturity of 28 days.”

305.  I have already referred[874] to Ji’s email dated 18 July 2008[875], where she wrote: “... By the way, KEEP WORKING ON INCREASE MY CREDIT LIMIT.  I’ll need it very soon. (When AUD and Euro is dropping, I want to buy LARGE AMT. of it.)”  Instead of dissuading Ji from further AUD carry trades, Linda Liu arranged for Wise Lords credit facility to be increased from USD58m to a whopping USD100m to fund further purchases of AUD at a time when severe jitters were felt all around the financial world.

306.  The attempt to increase the credit facility to US$100m (HK$780m) had been made on 15 July 2008 when Linda Liu recommended the increase and which was approved by Frederick Ko and Monique Lau of DBS Bank on 17 July 2008[876]. Linda Liu again greatly exaggerated Ji’s and Zhang’s assets[877] (net worth of US$200m[878]) and annual income (of US$50m[879]) in support of this application[880]. On 18 July 2008,  Linda Liu wrote an email to Edna Chan of DBS Corporate informing her that “[as] per Ms Ji’s request, we have proceeded to apply for her to increase her credit limit ... to HKD780mio from our credit department already. After discussion with Credit, they agree to approve this increment as the client will invest to YED and FX only subject to their sufficient collateral.”[881]

307.  The facility offer letter was issued dated 21 July 2008[882] and, ignoring the advice of Edna Chan given a year ago[883], that such a document should be signed by the director of Wise Lords, and not by Ji, the offer letter was dispatched to Ji for her signature and was signed by Ji sometime later as the original letter had been misdelivered[884].  A Notice to Guarantor of Amendment of Credit Facilities was also signed by Ji[885]. A Letter of Recommendation dated 11 July 2008 was signed by Ji and a Declaration of Risk Awareness also dated 11 July 2008 was signed Ji and Zhang[886]. Both letters wrongly stated that the increased facility was sought for “forthcoming investment opportunity especially in [YEDs]”. By then, Ji had already intimated that she wished to purchase AUD directly.

308.  By a Letter of Recommendation dated 11 July 2008 addressed to DBS Trustee and DBS Corporate and signed by Linda Liu and Edwin Lim, the signatories, as Relationship Manager and Managing Director of DBS:PB respectively, and “[as] account manager to the Trust and the Company’s account with [DBS:PB]” recommended that Wise Lords’ credit facility be increased to US$100m for “forthcoming investment opportunity especially in [YEDs]” and that the increase is recommendable “in view of the projected prospect in YED with yield at 5-10% p.a.”[887]. Edwin Lim was not very forthcoming about the part he played in obtaining the increased facility:

“HIS LORDSHIP: Mr Lim, we already know the historical transactions in this account. The question was actually a very simple one, that the final increase of the loan to $780 million came about with your assistance, and you said you cannot agree with that. Would you agree that you did endorse the application?

A. I did endorse the credit application.

HIS LORDSHIP: So, to that extent, you would agree that you assisted with the application?

A. If speaking from the point of view of provision of a platform, then the answer would be yes.”[888]

309.  Even before the ink was dry, even before the offer was accepted by a director of Wise Lords, and even before approval was given by DBS Trustee[889], the additional credit facility, which almost doubled the existing facility of US$58m to US$100m, was utilised to purchase AUDs from 24 July to 5 August 2008.  During that period of  13 days, US$96m was sold to buy AUD[890]. The following chain of emails will cause many eyebrows to be raised, and, certainly, judicial ones:

30 July 2008:  Linda Liu to Frederick Ko and others: owing to misdelivery of offer letter and new credit limit of US$100m not updated yet, request temporary excess facility of HK$330m (HK$780m – HK$450m) to enable drawdown of US$18m on 31 July 2008 and US$10m on 1 August 2008.

30 July 2008:  Fred Ko to Linda Liu and others: approved subject to signed offer letter within 1 month and no other deviations/exceptions.

31 July 2008:  Aimex Kwong to Carmen Keung  and others: notice of drawdown of US$18m.

31 July 2008:  Maria Chan GCC-Credit Control to Carmen Keung, Aimex Kwong and others: approval pending notice of amendment of facility signed by Ji as guarantor.

31 July 2008:  Linda Liu to Frederick Ko and others: request to defer signed notice of amendment of facility by 1 month.

31 July 2008:  Frederick Ko to Linda Liu and others: approved “on the understanding that the said guarantor is the beneficial owner and director of the borrower”[891].

310.  Instead of correcting his error and informing Frederick Ko that the borrower was the PIC of the Trust and that Ji was only the Investment Adviser, Linda Liu wrote an email on 31 July 2008 to Frederick Ko and Edwin Lim as follows:

“It’s remarkable business to our PB when the captioned client [WiseLords] fully utilized her credit facility in USD100mio[892] for loan draw down to book YED/FX transactions

under current circumstance.

Thanks for your support!”[893]

311.  I reject Linda Liu’s explanation that by “under current circumstance” she meant that shares were not doing well[894]. I find that she was referring to the events highlighted in §304 above: Lehman Bros had announced quarterly net losses of US$2.8b on 16 June 2008; the U.S. Treasury had publicly announced rescue plans for Fannie Mae and Freddy Mac on 13 July 2008; the U.S. Federal Reserve banned naked short-selling on 15 July 2008; and just the day before the World’s Central Banks had publicly announced further bank liquidity enhancing measures.  In that email, Linda Liu was gloating that even in those troubled financial times they were still enjoying a very “happy hour” moment.

312.  I also reject the rather smart sounding so-called “explanation” given by Linda Liu in the following exchange:

“HIS LORDSHIP: But isn’t it a historical fact also that in times of crisis people tend to flock to US dollars and drop other currencies?

A. Not entirely this case, because the Lehman case had a deleveraging effect. To avoid risk, people can switch to gold and oil and to other foreign currencies as well. Australian dollar is a commodity currency and by itself in nature it is somewhat similar to gold. In the situation at that time, not only Ji was holding a lot of Australian dollars; many other customers were purchasing Australian dollars and long-holding it.”[895]

The explanation is laughable. I accept the opinion of the defendants’ own expert, Malik, who stated[896]:

“3.2.13. ... [In mid July 2008] AUDUSD rose to a then record high of AUDUSD 0.9849.[897] From the third week of July 2008, WL switched to becoming long AUD again. Subsequently, the AUDUSD fell causing significant losses to WL.

3.2.14. The decline in AUDUSD from end-July 2008 to August 2008 has been ascribed to the so-called “flight to quality”[898] coupled with domestic concerns about the Australian economy[899].”

AUD is not similar to gold. If the economy contracts after a financial crisis, commodity prices will fall, as will AUD which falls in tandem with commodities, as Ji well knew.[900]

313.  Exhibit D3 shows that the amount of AUD held in the portfolio surged by over USD100m in that 13 day period between 24 July and 5 August 2008 which coincided with the approval of the US$100m credit facility and its utilisation.  From 21 July 2008[901] to 1 August 2008, AUD dropped against the USD from a rate above USD0.9750 to AUD1 to below USD0.93 to AUD1[902].  In his witness statement, Edwin Lim said that, as the financial crisis continued to worsen throughout 2008, the exchange rate of the AUD to the USD began to decline sharply in around mid-July 2008 and that, at that time, the market was in a state of panic[903].  I remarked in the course of counsel’s final submissions: “If the bank is cautioning her about the accumulation why is the bank giving her money to get more?[904]” On 1 August 2008, England Zai, Investment Adviser of DBS:PB responsible for FX trading, wrote by email to Linda Liu  stating ‘[we] care about Ms Ji’s position in FX and YED.  Please see ‘Exit’ strategies listed below for your reference.”  Linda Liu simply forwarded the mail to Ji with the covering words “[for] your kind reference”[905].  An earlier email from England Zai, also dated 1 August 2008, which was forwarded by Linda to Ji, cautioned that customers with long positions in AUD should be well prepared for exit strategy, citing an article which appeared in the Daily Telegraph that day[906]. England Zai again expressed about long positions in AUD and offered strategies for unloading long AUD positions in her email dated 4 August 2008 which was forwarded to Ji[907].

314.  Instead of dissuading Ji from further AUD purchases, an additional US$63m of AUD was purchased from 30 July 2008 to 4 August 2008. The position on 7 August 2008 is shown clearly from Linda Liu’s email to Eric Lim, England Zai and Aimex Kwong of the same date[908]. I have added the last 2 columns showing transaction dates and cross referencing Arboit’s 2^nd Schedule:

315.  Although I am unable to find documents evidencing Wise Lords’ resolutions and Trustee’s approvals and Minutes in respect of the transactions numbered (3) and (4) in the above Table, I am able to infer from the other documents identified in the preceding paragraph and from the portfolio statements of 18 August 2008[922], showing that the amount of AUD purchased in these 2 transactions remained in Wise Lords’ account, that proper approval was obtained for the transactions in question.  The documents identified on Appendix C[923] of the defendants’ “Note on Queries Raised by the Court” dated 6 November 2014, but not produced in court, namely, an email from DBS Corporate to DBS Trustee attaching 2 Investment Applications, may well have been in respect of this transaction.  Items (1) to (11) in the table above are also listed in Appendix D of the defendants’ “Note on Queries Raised by the Court” dated 6 November 2014 totalling AUD100,913,483.05.  Items (12) and (13) are listed in the said Appendix D as YED conversions. 2 further YED conversions that occurred on 22 August 2008 and 25 August 2008 are also listed in the Appendix D. The 4 conversions totalled AUD37,035,234.68. The total purchases and accumulations of AUD from end July 2008 to end August 2008 totalled AUD137,948,717.73.

316.  What I find extremely surprising, from my review of the relevant documents, is the absence of any query by DBS Trustee why Wise Lords was acquiring so much AUD and how it was paying for them. In case the documentation produced in court during this period of time was incomplete, I asked the defendants for a summary of the correspondence involving DBS Trustee in 2008.  This has been produced in the form of Appendix C of the defendants’ “Note on Queries Raised by the Court” dated 6 November 2014 which confirms that there was no query raised by DBS Trustee why Wise Lords was acquiring so much AUD and how it was paying for them.

317.  Although the increased facility had been utilized up to US$96.37m by 18 August 2008[924], a signed Notification of Activities form was only sent, much later, by DBS Corporate by fax on 26 August 2008 stating that the proposed date of the increased facility was 25 August 2008.  The following email exchange[925] is quite extraordinary:

Email from Sheran Chan to Ben George and others dated 26 August 2008:

“Dear Ben,

The Settlor of the Trust has recommended the Company to accept the renewal of the existing credit facility from HKD450mio to HKD780mio offered by our Bank as per the enclosed letter 25 August 2008. In this regard, we attach the following docs for your attentions:-

i) Notification of Activities signed by DBSCSL[926]; <Please sign and return a copy to us>

*Since Peter is on leave this week, we will arrange his signature on the notification form when he returns and send you a copy for your record.

ii) Facility Letter dated 25 August 2008[927];

iii) Investment Advisor’s Recommendation[928];

iv) Declaration of Risk Awareness by the settlors of the Trust[929]; and

v) Director’s Resolution[930]. <Please date, sign and return 2 sets of original to us>

Thank you for your arrangement.

Regards,

Adrienne / Sheran”

Email from Tim Pearson-Burton to Sheran Chan and others dated 26 August 2008:

“Dear Sheran

Please can you explain why having used only half of the existing credit facility the beneficiary wants to increase the facility amount?

Is the investment advisor looking to invest significantly in Yield Enhanced Deposits with the increased facility?

Regards

Tim”

Email from Sheran Chan to Tim Pearson-Burton and others dated 26 August 2008:

“Dear Tim,

As mentioned in the recommendation, the increased facility is especially for investment in Yield Enhanced Deposits, with projected return of 5-10% p.a.

Hope to have answered you well.

Regards,

Adrienne / Sheran”

Email from Tim Pearson-Burton to Sheran Chan and others dated 26 August 2008:

“Dear Sheran

Thanks for your speedy reply.

Having looked through the attachments, USD27 million of the existing facility has been used which is half of the existing facility, can you be more specific as to why the facility needs to be increased by 75% when there is still approx USD30 million left in the existing facility?

Regards

Tim”

Email from Sheran Chan to Tim Pearson-Burton and others dated 27 August 2008:

“Dear Tim,

The increase in the facility to HKD780mio is for standby purpose to provide funds for future investment opportunities, such as investment in FX and Yield Enhanced Deposits.

Hope to have answered you well.

Regards,

Adrienne / Sheran”

318.  The result of this exchange was that the increase of the credit facility was approved[931].  What is extraordinary about the exchange is that DBS Trustee only had a portfolio statement showing loans of US$27m which would have been the position at the end of June 2008[932].  I accept that the extent of the loans obtained by Wise Lords is accurately shown on Appendix 3 of the the defendants’ “Note on the Queries raised by the Court” dated 6 November 2014. The outstanding loans of US$27m at the end of June 2008 were reduced to US$15m on 1 July 2008, before rising and hovering between US$20m to US$36m in the month of July 2008.  Between 30 July 2008 and 7 August 2008, loans to the extent of US$94.5m were drawn by Wise Lords[933]. DBS Corporate did not see fit to inform DBS Trustee on 26 August 2008 that the increased facility, which had been made available from 21 July 2008, had already been utilized to the extent of US$94.5m by 7 August 2008 and which utilization stayed at or above this level up to the end of August 2008[934]. As can be seen from the portfolio statement of 18 August 2008[935], the portfolio was highly leveraged, the loan of UD$96.37 as that date constituting about 73% of the total portfolio value of US$131.8m[936]. As stated above, from 24 July to 5 August 2008 US$116m was sold to buy AUDs.  The statement in the last email quoted above that “the facility [of] HKD780mio is for standby purpose to provide funds for future investment opportunities, such as investment in FX and Yield Enhanced Deposits” was false.  The grant of and the drawdown on the increased facility was already a fait accompli. From 1 August 2008 to 26 August 2008,  AUD dropped against the USD from a rate below USD0.93 to AUD1 to a rate below USD0.85 to AUD1[937].  It was not only a fait accompli but a fait accompli that was incurring substantial losses.  It would appear from the email of Tim Pearson-Burton to Adrienne Lam of DBS Corporate and others dated 28 November 2008 that the drawdown of the US$100m facility was still not known to DBS Trustee as at that date. The email reads[938]:

“I am in the process of reviewing the bank facility entered into in August 2008, please could you advise me whether the facility had been used and if there is any intention to use it in the future?”

DBS Trustee did not give proper consideration to the increase of the credit facility to US$100m and, indeed, were prevented from doing so by DBS Corporate who omitted critical information from and gave untruthful information to DBS Trustee.  I do not accept the evidence of Mayes insofar as he was suggesting otherwise in his witness statement[939].  I also do not accept the defendants’ submissions in this regard in the defendants’ “Note on Queries Raised by the Court” dated 6 November 2014[940], including the submission that ‘it was, in the circumstances, not unreasonable at the time to expect some recovery [in AUD] to take place”.  I cannot find in these submissions any support for the decision on the part of DBS Trustee to approve the purchases of AUD100m that took place between 24 July and 5 August 2008[941].  I have set out the circumstances prevailing at that time in §§304 and 311-313 above.

319.  In approving the purchase of over AUD100m from 24 July and 5 August 2008, and in approving the increased credit facility at the end of August 2008, DBS Trustee failed to discharge its high level supervisory duty over the investments made by Wise Lords and DHJ Management failed to discharge its duty as director of Wise Lords.

320.  There is no difference of opinion between Das and Malik on the losses caused by the depreciating AUD.  In his report Das stated[942]:

“I.43 .... as at 18 August 2008, the Plaintiffs’ investment portfolio[943] was as follows:

Item	Amount
Cash	USD160.92
Fixed Deposits (US Dollars)	USD84,980.65
Fixed Deposits (Australian Dollars)	AUD122,586,213.18
Fixed Deposits (Euros)	EUR3,188,861.44
YED in US Dollars, linked to Australian Dollars	USD15,000,000
YED in US Dollars, linked to Euros	USD5,000,000
Total Assets	USD131,800,188.34
Borrowing	USD96,367,192.31
Net Assets	USD35,432,996.04

The exchange rates used for conversions by the Defendants are as follows:

AUD1.00 = USD 0.8730

Euro1.00 = USD1.4749

I.44 I would comment on the portfolio as follows:

1) The portfolio has leverage of around 272% (USD96,367,192.31 divided by USD35,432,996.04).

2) The portfolio has high currency risk (excluding the effect of the YED):

a) Australian dollars constitute around 81% of the total investment portfolio (AUD122,586,213.18 converted at .8730 divided by USD131,800,188.35) and around 302% of net assets (AUD122,586,213.18 converted at .8730 divided by USD35,432,996.04).

b) Euros constitute 4% of the total investment portfolio (EUR3,188,861.44 converted at 1.4749 divided by USD131,800,188.35) and 13% of net assets (EUR3,188,861.44 converted at 1.4749 divided by USD35,432,996.04).

c) In effect, foreign currency exposure constitutes 85% of the total investment portfolio and 315% of net assets.

d) There is a significant mismatch between the currency of asset and liabilities. Including the YEDs, the portfolio has USD asset of USD20,085,141.57 (USD160.92 plus USD84,980.65 plus USD15,000,000 plus USD5,000,000) against USD borrowings of USD96,367,192.3. This means there is a USD shortfall of USD76,282,050.74.

3) If the YEDs linked to AUD convert (as the exchange rate is below the Strike rate), the effect on the portfolio (all other things remaining unchanged) is as follows:

a) Australian dollars would constitute 92% of the total portfolio and 340% of net assets.

b) The foreign currency exposure would constitute 353% of net assets.

c) The USD shortfall would increase to USD91,282,050.74 (an increase of 20%).

I.45  In my opinion, the portfolio is significantly leveraged and has high currency risk.  It also has high concentration risk in AUD.  Given the structure of the portfolio, the YEDs increase the exposure of the portfolio to currency risk and increase leverage to currency movements significantly.

l.46  Where the AUD depreciates, the effect on the portfolio (all other things remaining unchanged) is as follows:

1) The AUD deposits will depreciate in USD terms reducing net assets and increasing leverage.

2) The YEDs linked to AUD will be redeemed in AUD, incurring losses.

...”

321.  In his report, Malik stated[944]:

“3.1.12. For illustrative purposes, the table [below] shows WL’s AUD fixed deposits at month-end from January to December 2008 monthly statements. The table also shows the P&L in USD terms and is calculated as the difference between the initial AUD deposit and the AUD deposit plus interest, expressed in USD at the prevailing FX rate.

3.1.13. For example, on 29 January 2008 WL deposited AUD 5,983,270 with a maturity of 5 February 2008 paying 6.5400% p.a. On 29 January 2008 the FX rate was AUDUSD 0.8899 and the initial AUD deposit was worth USD 5,324,512 (AUD 5,983,270 x AUDUSD 0.8899). Interest is calculated as AUD 5,983,270 x 6.5400% x 7 days / 360 days in a year = AUD 7,609.

3.1.14. Hence, at maturity the AUD deposit was worth AUD 5,990,878 (AUD 5,893,270 deposit + AUD 7,609 interest). The FX rate at maturity was AUDUSD 0.9044, so the AUD deposit plus interest was worth USD 5,418,150 (AUD 5,990,878 x AUDUSD 0.9044). The profit on this deposit was therefore USD 93,639 (USD 5,418,150 - USD 5,324,512).

322.  As can be seen from the above table, the cumulative losses that occurred as AUD declined in value against the USD were very substantial.  On one view of the matter, it may be said that the portfolio did not suffer loss as the total amount of AUD remained in the portfolio and was not lost.  However, I accept the evidence of the experts that the portfolio should be expressing its profit and loss in USD terms[945].  The loss to the portfolio measured in US dollars was substantial.

323.  Instead of taking stock of the unfurling sub-prime mortgage crisis, and responding to those signals appropriately, the combined unbridled greed of the main players of this drama led to a course of action that drove them to the eye of the perfect financial storm.

(10)   The Decumulators

324.  An email dated 8 August 2008 forwarded by Linda to Ji which contained a message from England Zai and a presentation[946] which set out the latest market information and analysis on AUD, gave a warning to be cautious on AUD long positions, and suggested putting a stop loss order on all positions at a level of around 0.9000 to limit exposure to further declines in the value of AUD[947].

325.  The above email was followed by a call from England Zai and Linda Liu to Ji repeating the caution of remaining long in AUD. However, Ji remained bullish and resisted the idea of closing out Wise Lords’ positions:

“England: So Ms Ji, right now the situation is, the most important is this Australian dollar, that is, it dropped through the important support points, because you hold quite a bit of this Australian dollar, this position, we are quite concerned also.

Ji: Um.

England: Yes, if you, um, see if (you) need to place a limit order, to, if other important support points are hit, (you) should consider taking a portion of this position, and close it out. Because this has been a few days, this foreign exchange...

Ji: Why close out (the positions)?

England: Ah?

Ji: You guys ...

Linda: No...

Ji: Are you guys, you guys going to force me to close it out, or...

Linda: No, it’s not to close out, no, it’s a suggestion.

England: No, it was just suggestion, just a suggestion.

Linda: No, it isn’t margin. Right.

England: We -- have do this for each client, reminding them to -- because in the past several days, there have been really big fluctuations in the foreign exchange market. If you’re saying you want to, historically, in (20)03, (20)04 you saw this New Zealand dollar and Australian dollar drop all of a sudden, more than a thousand points, yeah. So the situation now, now it dropped roughly from its high, about eight hundred points, but it’s still something we’re concerned about. I want to remind, for every client I will -- we all will remind them. The point is, if you, you think or still think, this -- this -- this, our thoughts on the Australian dollar are agreeable, then you can consider doing it.

Linda: Um, no, Ms Ji...

Ji: Aren’t all the articles you provided all very ... [inaudible] this Australian dollar? I saw in your articles that early on it was very...

Linda: Right, right, it was, it was. It’s just because in these two days it broke through its resistance levels, so it turned relatively bearish. Lots of big banks had always looked favourably on it. The problem now isn’t -- really England wants to hear your opinion, how do you see the Australian dollar? Because the Australian dollar has always been number one, we, it didn’t cut interest rates, at the last meeting. America didn’t raise interest rates either. The interest rate differential, the interest rate differential issue didn’t change, for now. But this short-term fluctuation, this fluctuation is really big, because it was said to have, from its Australian central bank, have intentions to cut interest rates, which -- set off a big [inaudible]... selling.

...

Linda: Um, no, right now I want to hear Ms Ji’s thoughts. You think you are still relatively bullish about Australia. Um, then you can continue holding it, continue to receive interest. It’s necessary to take that portion...

Ji: I was thinking, since the US, it has some new policies, but, but the US economy, I am in the US so I know, it’s very bad. And after a period of time ...

Linda: Right, currently in the US, in California.

Ji: Right, its things, credit cards and automotive loan(s), problems will arise in a lot of areas. I think that this is not something that policy changes alone can solve, but currently they are all very consistent. The Federal Reserve and what not, the Americans still are very patriotic.

Linda: Right.

Ji: So always together, (they) are doing this very consistently in stride together. In addition, the oil price has dropped.

England: Um.

Ji: So currency -- over the earlier period of time currency has been relatively high, and has been pulled down. But in terms of being pulled down, I think of all these currencies, the Australian dollar is still relatively, the fundamentals, are still relatively better. Because it has its resources. In addition, it’s not as severe, its -- this unemployment rate in the last two days, this report, wasn’t it pretty good? Right?

Linda: Um.

Ji: Um. Better than expected ...

England: But, but Ms Ji, you will speak in opposition ...

Ji: The key is to say -- can you let me finish?

Linda: Wait.

England: Go ahead, go ahead, go ahead.

Ji: Oh. The key is, right, the key is the price of the other goods within the commodities are dropping, this is a problem of inflation, and oil prices are also dropping. But these things will arrive at a certain level, rebounds must occur at extremes, and it will once again, rise again.

England: Um.

Ji: Because after all, these are all not -- these, these are delays to -- meaning that the actual economy will delay in development, but that’s not to say it will not develop. It will still ultimately requires those, um... these commodity (commodities) and these, and [inaudible] oil, these Energy things.

England: Um.

Ji: So for China it is to say that it -- China, India and so on -- these two big countries, it will only say there is a dip in demand, rather than no demand, so that, in August, when Australia(’s) exports are the highest, I think it will adjust back. That’s not to say it will come back all in a single step, that one of mine right now isn’t very high, nine-eight, nine-seven, most are -- that Linda calculated for me ninety four points...

Linda: Nine four, nine five. Right, right.

England: Um.

Ji: And as for...

Linda: Clarity.

Ji: For these, all of these I think currently speaking, Australian interest rates will continue to be much higher than for the US dollar...

England: Right, currently it is 7.3. Our deposit(s) are all there.

Ji: Right. I think that currently speaking, right, 7.3 just adjusted five percent -- drop, dropped five percent. I don’t think it will drop to, all of a sudden drop to 0.75 percent.

Linda: Um.

Ji: If that’s the case, then 0.5 percent then, dropping 0.5 percent, it is still much higher than other currencies.

England: Um, um.

Ji: It’s just to say sometimes there are some people -- some do that, for example doing...

England: Speculation. Right.

Ji: Yes. And some have your margin, wanting to do it all in a whirl. But these things I think in and of themselves, economic development, actual economic development needs these commodity (commodities). Its energy is possessed by a very small number of countries. And that is to say in the past while I remember, those European centr -- Australian central banks, its speeches also made people thought that it was not strong enough.

England: Um.

Linda: Um.

Ji: Right. For those. But I think this is already unreasonable, too over-the-top. Everything rebounds once it reaches an extreme. It is relatively high... [inaudible], when it is too high then you need to be careful to get out, and when it’s too low, I think it will get to that... [inaudible].

Linda: Rebound.

Ji: That is to say I think, if -- I know I remember those loan(s) did not have term(s), right? It wasn’t to say it had to be a certain way...

Linda: No. It wasn’t, wasn’t that there was no...

Ji: This I understand.

Linda: The Australian dollar can drop to 0.5, 0.6 before there is danger of a margin call. No, right now there isn’t, it’s very -- relatively safe. Hello?

England: Um.

Linda: Right.

Ji: Right. So I’m saying you, if that’s what you’re saying, I don’t want to do it.

...

Ji: The Australian dollar, I, simply want to wait for when it rebounds and simply get out, enough to repay you. Right?

England: Okay.

Ji: So I myself still have my own money, so I don’t need to worry. I, I have, my own plans...”[948]

326.  I accept Linda Liu’s evidence that, despite the worrying AUD situation and the repeated warnings issued to Ji, she was unwilling to unload Wise Lords’ positions at anything less than breakeven point[949]. Linda Liu then introduced decumulators to Ji as an AUD exit strategy[950].

327.  There was no difference between the experts on the structure of a decumulator and how they operated.  Das gave a clear exposition of decumulators in his first report[951]:

“J.9 The Decumulator Notes structure is a variant on a product known as an Equity Accumulator (referred to by traders as ‘I-Will-Kill-You-Later’), which were common in Asia prior to 2007/2008[952].

J.10 The key features of the Decumulators were as follows:

1) An investment in either the form of a deposit or purchase of a bond, note or security in a nominated currency (say AUD).

2) An agreed term, say 1 year.

3) The investment may or may not pay any interest (depending on the economics of the transaction as discussed below).

4) At commencement of the transaction, the parties agreed the following:

a) A fixed amount of the investment (“Instalment Amount”) that will mature periodically at regular intervals over the term of the investment (“Instalment Dates”).

b) An exchange rate between the currency of the deposit and a second currency (say USD) (the “Strike Rate”), which is usually set above the market rate at the date the transaction is entered into.

c) A second exchange rate which was lower than the market rate (known as the “Knock Out Rate”).

5) On each Instalment Date and at Maturity of the investment, the investment would be redeemed as follows:

a) If the AUD/ USD exchange rate remained above the Knock Out Rate, then the investor received an USD amount equivalent to the Instalment Amount converted at the Strike Rate.

b) If the AUD/ USD exchange rate was below the Knock Out Rate, then the investor received the Instalment Amount, unconverted in the original currency (AUD).

6) A Knock Out event occurred where the exchange rate is lower than or equal to the Knock-out Rate at any time, which may be a period initially between the start date and the first Instalment Date and subsequently between the previous Instalment Date and the next Instalment Date or final maturity. The exchange rate used is the market rate as determined by the calculation agent in a commercially reasonable manner.

7) The investment cannot be redeemed early, that is before the schedule[d] Instalment Dates or before the scheduled final maturity.

...

J.16 An actual transaction (the Decumulator entered into by the Plaintiffs and confirmed by the Defendants on 15 August 2008) can be used to illustrate the operation of the structure:

1) Wise Lords invested an amount of AUD20,800,000, purchasing the Decumulator Note issued by DBS Bank Limited for an agreed term of 1 year.

2) The investment does not pay any interest.

3) At commencement of the transaction, the parties agreed the following:

a) The investment amortises at the rate of AUD400,000 (Instalment Amount) each week for 52 weeks (Instalment Date).

b) The Strike Rate is set at AUD1.00 = USD0.9650 which is above the market spot rate of AUD1.00 = USD0.8622. ....

c) The Knock Out Rate is set at AUD1.00 = USD0.8275, below the Spot Rate.

4) On each Instalment Date and at Maturity of the investment, the investment would be redeemed as follows:

a) If the AUD/ USD exchange rate remains above AUD1.00 = USD0.8275, then the investor received USD386,000 equivalent to the Instalment Amount (AUD400,000) converted at the Strike Rate (AUD1.00 = USD0.9650).

b) If the AUD/ USD exchange rate is below AUD1.00 = USD0.8275, then the investor received AUD400,000.”

328.  Both experts also broadly agreed on the payoffs of the Decumulator Notes and that they entailed the investor assuming currency risk, and in this case, specifically exposure to depreciation of the AUD against the USD. In return for the opportunity to sell AUD for USD at a higher than market rate, the investor bore the risk of the exchange rate falling below the knock out rate. In this case, the investor also gave up the interest that could be earned on the AUD deposit in order to obtain a higher strike rate[953].

329.  I accept Malik’s opinion that the intentions behind the trade and whether the Decumulator Notes fulfilled them are matters of fact. However, if I were to find that the Decumulator Notes were entered into as a mechanism for liquidating the investor’s exposure to AUD and for realigning the currency mismatch, then the opinion of Das on the issue will become relevant. I accept his opinion that the Decumulator Notes were not designed to and could not function as a hedge against the investor’s AUD exposure for the reason that they were conditional: if the AUD declined, the knock out event would deactivate the hedge leaving the investor’s AUD holdings exposed to depreciation.  The experts also agreed that the currency risks were asymmetric, “that is the investor has limited potential gains[954] and theoretical unlimited losses”[955]. If the AUD depreciated below the knock out rate and continued to depreciate throughout the course of the 1 year deposit period, the investor would not be able to access the AUD committed to the Decumulator Notes: the investor would only receive the weekly instalment payment in AUD of 1/52 of the total AUD deposit, which the investor could convert at current market rate but the balance of the AUD deposit would be locked up and could not be sold. In effect, the ability to sell AUD was de-activated when the AUD declined sharply, when protection was most needed. Instead of being an effective hedge, the instrument exacerbated the currency risks in the portfolio[956].

330.  The experts were agreed that the decrease in the value of the Decumulator Notes would lower the value of the asset cover for the USD borrowings used to enter into the investments[957].  I accept Malik’s opinion that this was not a characteristic of the Decumulator Notes itself but a consequence of borrowing USD.

331.  Both experts agreed that the investor would benefit from entering into AUDUSD Decumulator Notes where the rate was relatively stable and traded between the Strike Rate and the Knock Out Rate[958].

332.  Both experts agreed that the Decumulator Notes were illiquid and that the most likely means of terminating the Decumulator Notes would be to unwind the transaction with the issuer, which would incur breakage costs.  Indeed, breakage costs of about AUD400,000 and AUD1.1m were paid on the 2 AUDUSD Decumulator Notes unwound in November 2008[959].  I accept the opinion of Das that there was a significant risk that the Decumulator Notes would need to be terminated before maturity if the AUD depreciated sharply: given the significant leverage and currency mismatch, the investor would need to realise assets to repay borrowings or meet margin calls[960].

333.  Since the Decumulator Notes were fully funded (by the purchase price paid by Wise Lords), they did not expose the investor to any contingent liquidity requirements (i.e. a margin call).  However, I accept Malik’s opinion that the purchase of the Decumulator Notes was funded by borrowed USD and that created a possible “contingent liquidity” risk[961]

334.  Das maintained his opinion that there was inadequate disclosure of the risks on the Decumulator Notes.  Malik did not express an opinion on this issue[962].

335.  The introduction of decumulators to Ji and her response to them occurred in the following manner:

(1)  By an email dated 8 August 2008, Linda sent to Ji, for her to consider, information in respect of a decumulator note issued by HSBC[963];

(2)  By an email reply dated 9 August 2008 (Saturday), Ji expressed an interest in the note and asked Linda to provide more information on it[964];

(3)  By an email dated 12 August 2008, Linda sent to Ji,  for her to consider, further information in respect of another decumulator note to be issued by the Royal Bank of Scotland (“RBS”)[965];

(4)  The email was followed by a telephone conversation between Ji and Kenneth Cheung on 15 August 2008 (10:25)[966], by which:

(i) Kenneth Cheung provided Ji with an update on the forex market[967];

(ii) He told Ji that DBS Bank was working to come up with different structures to enable clients to sell their AUD at a better price[968];

(iii) He explained the structure of a decumulator and how it worked, and mentioned that DBS Bank was working on a decumulator comparable to the HSBC/RBS decumulators[969];

(iv) He emphasised that it would be dangerous to do nothing at all and that Ji should use different methods to unload at least part of the position in AUD[970];

(v) Throughout the conversation, Ji found the structure difficult to understand and asked intelligent questions in order to understand the structure and operation of a decumulator[971];

(vi) Towards the end of the conversation, Kenneth Cheung suggested that Ji should take a look at the product information first[972].

336.  Further conversations took place on 15 August 2008 at 11:03[973], 17:41[974], 17:59[975], 18:23[976] involving Linda Liu and Kenneth Cheung concerning the possible investment in an AUD to USD decumulator.[977]  During those conversations, the structure and mechanics of a decumulator were further discussed. Ji said “we will try to understand this slowly...will learn this one slowly”[978] and Linda Liu responded “...[for] risk control, this type ... this one is not bad, there is not much risk with this one, that is, there is no major risk” and that “this...can hedge your risk”[979].  Under cross examination, Linda Liu explained that the decumulator had a risk rating of 3 out of 5 as it had no margin element[980].  I place no weight on DBS:PB’s risk rating nor on Linda Liu’s understanding of the risk. In the light of my findings based on the expert evidence I have reviewed above, I find that the risk of being locked into a product of one year duration with the currency depreciating well below the knock out rate was substantial and was a risk that Linda Liu and Kenneth Cheung well understood. In the email dated 15 August 2008[981] from Kenneth Cheung to Linda Liu, the worst case scenario was spelt out:

“Worst scenario

Aud/Usd trades below KO level after trade till final fixing of structure, there will be NO conversion of 52 settlements”

On the same day, 15 August 2008, at 17:54, Linda Liu forwarded the above email from Kenneth Cheung to Ji giving her details of the AUD decumulator[982].

337.  Ji would have understood from the above email and telephone conversations that:

(1)  The 1^st Decumulator[983] was a contract for a 52 week term[984];

(2)  The contract would only expire at the end of the term[985], i.e. there was no provision for early redemption, unlike the HSBC or RBS decumulator notes[986];

(3)  During each week of the term there was a possibility of conversion of 1/52 of the total funds into USD, but that was not guaranteed and there was a risk that Wise Lords might not be able to get any USD at all;

(4)  The redemption of the note was over the period of 52 weeks, 1/52 of the total being redeemable, either in USD or AUD depending on whether the knock out price was reached:

“Kenneth: Right, that is, one year is divided into 52 weeks, each week you will have a fixing day.

Linda: The fixed price is?

Kenneth: Fix price, check price are at the same time. Say for example, today, today is Friday, possibly they will check price every Friday, unless it is a holiday in Hong Kong. When it is a holiday, they will move that forward. As for that note, it will be completely come to an end after one year. That is, each week you will sell Australian dollars at 0.9650.

Ji: Hmmn.

Kenneth: But under what situation you cannot sell? That is, if that week, say for example, today is Friday, at 2 o’clock in the afternoon, this week you sold at 0.9650.

Ji: Hmmn.

Kenneth: Then from today up to next Friday, on one of these days the Australian dollar dropped to 0.8280.

Ji: Hmmn.

Kenneth: Then on your next Friday, there wouldn’t be... that is you cannot sell.

Ji: Hmmn.

Kenneth: Then...

Ji: That is it hits 0.8280, is that right?

Kenneth: It will be that week you cannot sell.

Linda: Right, right, look at it each week.

Kenneth: Then, next week it goes back above 8280, within that week if it did not hit that position again, then you in that week can sell at 0.9650 again, like that.

Ji: Hmmn..hmmn，okay.

Kenneth: This one, there is no giving.

Ji: But how much will be sold, that will have to reach that quantity, divide that by 52?

Kenneth: Yes, yes!

Linda: Right.

Kenneth: Right, exactly. Say for example, you sell 100,000 each week, times that by 52, that is 5.2 million Australian dollars for this note, like that.

Linda: Right, right.

Kenneth: Is that okay?

Ji: Understood... understood!

Linda: That is the risk, it will be this risk.

Kenneth: The biggest, biggest, the worst situation would be you do this today, and after that it drops below 0.820 forever, within that one year.

Linda: It will not bounce back.

Kenneth: It will not bounce back, then you will have no chance of selling.

Linda: No chance of selling.

Kenneth: You are still getting back that portion of Australian dollars each week.

Ji: Hmmn, hmmn. Understood.

...

Ji: Hmmm, my loss will be interest, right?

Kenneth: Yes , interest for one year.”[987]

338.  Ji clearly understood all of the above and asked for better terms (such as a knock out price at a lower level), and suggested on her own volition to put in a larger quantity (US$30m) in exchange for more favourable terms[988]. The worst scenario was not at the forefront of her concerns.  She was keen to secure a lower knock out rate but not so willing to have the strike rate lowered.

339.  After checking with the treasury department, Kenneth Cheung and Linda Liu called Ji again on the same day[989]:

(1)  Kenneth Cheung informed Ji that he had been able to obtain a quotation with the knock out price Ji requested of 0.8125. However, as he had previously advised Ji, the strike price was also correspondingly lower at 0.9380[990] ;

(2)  Ji dismissed the price quotation as the strike price quoted was lower than the price at which Wise Lords previously bought AUD, meaning that even if the strike price could be attained Wise Lords would have suffered a loss[991];

(3)  Kenneth Cheung suggested that Ji could consider investing a smaller sum of around AUD10m (as opposed to US$30m which Ji had suggested in an earlier conversation) and with a term shorter than 1 year, which would allow a small profit to be made and at the same time reduce Wise Lords’ AUD exposure[992] ;

(4)  Kenneth Cheung explained that the reason he suggested that Ji should purchase the decumulator in small increments was because Wise Lords’ funds would be locked in the decumulator for a year, and the structure could not be terminated earlier. It might not be advantageous for Wise Lords to have too much funds locked into the decumulators for that period of time[993] ;

(5)  Kenneth Cheung further suggested (as he had done before) that Ji should adopt multiple investment strategies to help control and minimise Wise Lords’ exposure to currency fluctuations. Also, whilst Ji could invest a small amount (relative to Wise Lords’ total AUD holding) in the decumulator to serve as a relatively long term investment strategy to help solve Wise Lords’ liquidity problem, Wise Lords could also hold onto its remaining AUD reserve to invest in other short term or even long term structures should an opportunity come along[994].

340.  Ji was not impressed by these suggestions.  She maintained the view that investing a small amount such as US$10m into the decumulator was insufficient to solve Wise Lords’ liquidity problem[995]. Ji instructed Kenneth Cheung to set the strike price at 0.9650 and try to obtain the best knock out price possible[996]. Ji also insisted on investing US$20m instead of US$10m as Kenneth Cheung had suggested[997].

341.  Wise Lords eventually placed an order for a one year AUD/USD decumulator to be issued by DBS Bank, in the amount of AUD20.8m with the strike price at USD 0.9650/AUD and knock out price at USD 0.8275/AUD (“1^st Decumulator”)[998].

342.  On 18 August 2008 at 16:59, Linda Liu sent Ji an email attaching a copy of the Final Termsheet of the 1^st Decumulator[999]. The email contained the product description, worst scenario and risk level (3 out of 5) about the 1^st Decumulator.

343.  In a telephone conversation starting on 18 August 2008 at 16:40, Linda Liu said that she had sent the aforesaid email to Ji.  During the same conversation Ji said she had opened the email and could see it:

“Ji: Do you have anything to fax to me? It is better for you to just email me.

Linda: I email(ed) you the confirmation that we did the other time, the confirmation about the 20.8 million deal.

Ji: Ok.

Linda: Every time it is 400,000 Australian dollar, ever week will do, there are 52 weeks.

Ji: Ok.

Linda: Your window watching at the lower end is 0.8245.

Ji: I have not looked at it today. I haven’t got time to look at it...

Linda: Because it is more stable today. It is now 0.8701,8705. New Zealand is doing better, New Zealand is around 7085, 7090. Kenneth anticipates that this wave the Australian dollar will rebound to the level of 88 or 89. But at this level, we can do another one of this, these note(s), just a bit higher, place it higher. We are slowly coming out now, we have to do it slow, we can’t play it fast right now.

Ji: What slow?

Linda: We have to play it slow, we can’t do it fast now.

Ji: Oh slow, ok right, right, right

Linda: That is, go fast, we can’t do things too fast, we are not able to settle it quickly, so we have to play it slow.

Ji: We have no choice, it’s very comfortable working with you, with Kenneth.

Linda: Yes, because at the very least, we are able to profit take, profit take a little at a time is just as good, right.

Ji: Yes.

Linda: A small sum becomes significant in the long run, it’s ok, it’s always like this.

Ji: Yes.

Linda: Then let me email it to you, go open your email.

Ji: Ok, sure.

Linda: If you are not able to open it at home, go over to the clubhouse to open it.

Ji: What are you talking about? Fax?

Linda: Yes, the confirmation

Ji: I have opened it already.

Linda: That’s great.

Ji: No problem, I can see it now.

Linda: That’s good, yes. So today for now the fluctuations aren’t very significant, the whole world is watching the Olympics so...

Ji: It’s awesome to be able to be back to watch it.”[1000]

344.  Ji made no complaints about not being able to open the email attachment then or subsequently.  In fact, during the conversation, it was Ji herself who expressly requested Linda Liu to email (rather than fax) documents over to her.  It was only after the commencement of these proceedings that Ji claimed she was unable to open the Final Termsheets of all the decumulators purchased which were attached to Linda Liu’s emails to her.  Ji said she only received them in September 2008 when Linda Liu sent them over to her by DHL[1001].

345.  In support of her case, Ji relied[1002] on two emails dated 7 July 2008[1003] and 5 November 2008[1004]respectively.  In the first email in respect of the sale of the DEVA Note, Linda Liu said: “I understand you might not open the attachment.  Please kindly give me your fax number if you have so that I may send it to you”.  In the second email Ji herself said in reply to Linda Liu’s email that: “I can’t open your attachment. pls send me by fax”.  The attachment in question was the “updated MTM value of 3 De-cumulator NOTE as at 04 November 2008”[1005].

346.  The 2 emails do not support Ji’s case.  They show that Ji would make known to Linda Liu that she could not open an attachment rather than just stay silent. I find that Ji would have asked Linda Liu to send the decumulator termsheets by fax if she could not open the email attachments in the same way as she had asked her, in her email of 5 November 2008, to fax over the update to the 3^rd Decumulator[1006].

347.  I do not accept Ji’s contentions. She clearly said in her telephone conversation on 18 August 2008 that she had opened the attachment in respect of the 1^st Decumulator and she also gave instructions for the 2^nd and 3^rd Decumulators[1007] to be purchased shortly afterwards. It is unlikely that she would have done so had she not been provided with the termsheet for the 1^st Decumulator.

348.  After the purchase of the 1^st Decumulator, Kenneth Cheung  gave Ji updates regarding its performance[1008].

349.  At the request of Ji, Kenneth Cheung also provided Ji with information on a Euro/USD decumulator for her consideration, and answered Ji’s questions on the mechanics of the product. Ji said she would be interested in it if the price could be better, and asked Kenneth Cheung to look for better terms[1009].

350.  Ji was once again warned about the risks of decumulators, including the risks of market downturn[1010], and of being locked in for the whole term of the decumulator, getting back only the depreciating currency:

“Kenneth: If it doesn’t hit 1.4190, then each week you will take 123,000 Euros at the 1.5680 level, exchange to US dollars remitted to your account.

Ji: Right.

Kenneth: If you hit, then your 123,000 Euros cannot be converted to US dollars, but will be converted into Euro dollars deposited to your account, would that be okay?

Ji: Right.

Kenneth: This note once purchased cannot be paused in the middle and have to see it through for one year.

Ji: I know, one year.

Kenneth: But one other point, a risk that I have to tell you.

Ji: Hmmn.

Kenneth: If, this Euro dollar, once you proceed today and if you are so unfortunate that it keeps going down, there’s a chance that you cannot change that to US dollars in those 52 weeks.

Ji: That would be getting Euro dollars back.

Kenneth: Have to get Euro dollars back each week.

Ji: Okay, ... okay, no problem.

Kenneth: One more thing ... one more thing is that if this Euro dollar is really so unfortunate and keeps going down, because you are only getting it back bit by bit each week, those that haven’t yet matured cannot be sold in the market, do you understand?

Ji: Ah..ha.

Kenneth: This you have to assess your own risk, because you still have a chance of changing back to ....

Ji: That it is being lock (locked)!

Kenneth: Yes, lock (Locked), you have to be careful of this risk. Yes, is that alright?

Ji: No problem, good, okay.

Kenneth: So I will do for you 1.23 million Euros, that’s one week ... for one week.”[1011]

351.  In the email from Kenneth Cheung to Linda Liu dated 27 August 2008 at 14:55[1012], he wrote: “Having told [Ji] the structure is NO early redemption feature (Hold at maturity) and reinforce the downside. Risk of unsettled notional, client replied she did recognize and agreed to buy this NOTE”.

352.  On 27 August 2008, Ji placed an order for a one year Euro/USD decumulator in the amount of Euro 6,396,000 with strike price at USD 1.568/Euro and knock out price at USD 1.419/Euro (“2^nd Decumulator”).

353.  Linda Liu sent Ji the termsheet of the 2^nd Decumulator under the cover of her email dated 27 August 2008 at 17:05[1013]. The body of the email contained the product description, important notes, risk level (3 out of 5), and worst case scenario: “if a Knock-out Event occurs in every Monitoring Period, the Noteholder will receive AUD Instalment Amounts throughout the tenor of the Notes and may incur substantial cost in converting such AUD Instalment Amounts into USD”.

354.  Although Ji claimed that she could not open the attachment to the said email, the issue was never raised by Ji at the time when she confirmed receipt of the email.

“Ji: Haven’t you done the Euro already?

Linda: Done, ... it’s confirmation ... the detailed one.

Ji: Haven’t you given me that Euro and the Australian already? Already e-mail(ed) to me?

Linda: Yes, have you received them?

Ji: I have received the e-mail.

Linda: That e-mail would be better, print it out when you want to read it, then I don’t have to fax it.

Ji: Right, right, right.

Linda: Good, good, good, very clever! Now you actually read them every day, I thought you didn’t receive it.

Ji: No, only read it yesterday.”[1014]

355.  Immediately after Ji placed an order for the 2^nd Decumulator, she asked Kenneth, in the same conversation, to study a further AUD/USD decumulator for her.

356.  Further discussions ensued between Ji, Kenneth and Linda on the AUD/USD decumulator.[1015] Prices were quoted to Ji but she rejected them and asked for better terms based on her own views about AUD and interest rate[1016] : “The amount can be increased, but that one, this one is not good, I don’t want to do it.  And there’s no meaning doing it like that”[1017]; “Because Australia is about to increase the interest rate, that’s not very good.  These few days won’t make any difference to me”[1018];  “... that Australia dollar, I want that to be even better”[1019];  “I don’t want to do this; I feel that it is not meaningful.  Also, are  there no better ones?  10% - the previous kind is fine; I don’t feel like doing this one”[1020];  (“... you ask first, negotiate and see if we can add a little bit more...”)[1021];  “I think one year, a year and two weeks is fine, for 58 weeks would be too long, the interest isn’t possible to calculate for that”[1022].

357.  Finally, Ji decided to place an order for a 58-week AUD/USD decumulator in the amount of AUD 56,260,000 with strike price at USD 0.9520/AUD and knock out price at USD 0.8310/AUD (“3^rd Decumulator”).

358.  The termsheet of the 3^rd Decumulator was sent to Ji under the cover of an email dated 29 August 2008 which was copied to her[1023]. The body of the email contained the product description, important notice, risk level (3 out of 5), and worst scenario: “If a Knock-out Event occurs in every Monitoring Period, the Noteholder will receive AUD Instalment Amounts throughout the tenor of the Notes and may incur substantial cost in converting such AUD Instalment Amounts into USD”.

359.  I find that Ji was sufficiently informed of the operation and risk features of the product through her many discussions with Kenneth Cheung and Linda Liu and from the above mentioned termsheets.  Indeed, Ji was sufficiently knowledgeable about decumulators to be in a position to negotiate better terms each time before Wise Lords made a purchase.

360.  Ji herself accepted that she was told at the time about the risk of being locked up in a currency for the term of the decumulator:

“Q. ...So you knew, didn’t you, that there was a potential for you to be locked in to Australian dollars for a period of 52 weeks, only be able to unload a portion each week?

A. Yes, I was told that at that time. But as to the risk that I would not be able to get back the principal, I was not aware of that at that time. This is the highest risk involved, but I was not told about it at all.

Had he told me about such risk, I would never have agreed.”[1024]

361.  Ji’s complaint about “the lack of principal protection” is misconceived so far as the decumulators were concerned. Ji knew that Wise Lords could potentially be locked into the significant amount of AUD it had invested into the decumulators for the entire duration of their terms if no conversion was to take place.  However, Wise Lords would not lose any of its principal since it would get back, albeit by instalments, the AUD which it put into the decumulators. This aspect of the operation of decumulators was explained in detail by Kenneth Cheung in his evidence and well understood by Ji:

“A. Generally speaking, for decumulators, when the knock-out price is touched, the structure will terminate, the principal will be returned to the client, the client can gain interest rate freshly --

HIS LORDSHIP: Because the principal is returned to her?

A. Yes. For this decumulator sold by DBS to Ms Ji, when the knock-out price was touched, the particular payment would not be exercised, and the particular redemption amount will be returned to the client. But the balance of the structure would go on operating. If the market rebounds, the client can continue unloading her holding.

The advantage of this is that if there is a prospect for the market to rebound, the client need not enter into a new structure, because with a new structure to be made, we cannot promise that the same parameters could be done.

HIS LORDSHIP: But the disadvantage, if it doesn’t rebound?

A. The client will get back the particular principal at a particular time.

HIS LORDSHIP: So if the knock-out price is reached, instead of -- what the client gets is the Australian dollar back, the principal element of it, without any interest?

A. Right.”[1025]

I understand from her evidence that what she was complaining of was the failure to get back the US Dollar cost of the AUDs Wise Lords had purchased. By loss of principal, Ji meant the loss of the US Dollars that had been expended.

362.  Whilst the lock up period of the AUD deposit and the loss of interest during the lock up period was well understood by Ji, it was the depreciation of the value of Wise Lords’ AUD and EUR holdings during the lock up period, when they could not be accessed, which was the substantial cause of loss, a risk which was not brought out so explicitly.  In the conversation on 15 August 2008, set out in §337(4) above, Kenneth could have brought out more clearly the risk of being locked into a depreciating currency:

“Kenneth: The biggest, biggest, the worst situation would be you do this today, and after that it drops below 0.820 forever, within that one year.

Linda: It will not bounce back.

Kenneth: It will not bounce back, then you will have no chance of selling.

Linda: No chance of selling.

Kenneth: You are still getting back that portion of Australian dollars each week.

Ji: Hmmn, hmmn. Understood.

...

Ji: Hmmm, my loss will be interest, right?

Kenneth: Yes , interest for one year.”[1026]

As Das explained[1027], the suggestion that the risk of the decumulator was merely non-conversion is incomplete. Indeed, it was that fact that the non-accessible AUD EUR holdings would remain exposed to currency risk, that ought to have been highlighted, particularly when the currency was at a serious risk of depreciation. However, the risk was identified on the last page of the termsheets: “If a Knock-out Event occurs in every Monitoring Period, the Noteholder will receive AUD Instalment Amounts throughout the tenor of the Notes and may incur substantial cost in converting such AUD Instalment Amounts into USD”. Even that could have been made clearer with a statement that each successive AUD instalment would be worth less in USD terms if AUD continued to depreciate. Nevertheless, it must be said that Ji knew about the lock out period and, being as astute as she was, she must have realized that the locked up AUD would continue to depreciate in value if AUD continued to depreciate against the US Dollar. Indeed, to be fair to Kenneth Cheung, the risk of the non-accessible deposit depreciating throughout the 1 year lock out period was mentioned during the conversation on 27 August 2008 set out in §350 above. Why then did she cause Wise Lords to purchase these decumulators? She wanted to sell Wise Lords’ substantial holdings of AUD at the rate that she wanted and she was willing to take a substantial risk to do so. By peddling these very risky decumulators, very risky because of the high strike rate Ji wanted and the lengthy lock out period, Linda Liu and Kenneth Cheung of DBS:PB put Wise Lords in a worse position than it would have been had it simply continued to hold the AUD deposits in the depreciating currency.

363.  At the trial, I explored with Kenneth Cheung whether Ji could have been provided with decumulator notes of a shorter term so that Wise Lords’ AUD deposits did not have to be locked up for so long.  Indeed, initially Ji was introduced to the HSBC and RBS notes, both of which allowed for early redemption when the “knock out” level was triggered. Ji, however, did not choose to invest in either of these notes:

“HIS LORDSHIP: ... Another risk factor I want to raise with you was the fact that accumulators and decumulators can be for a longer and shorter period. Why was it necessary to lock it up for 12 months instead of a shorter period?

A. That would depend on the strike price and the knock-out price decided by Ms Ji herself. The higher the strike price, the lower the knock-out price, the more lengthy would be the period required; that would be the usual cases. And the closer the strike price and the knock-out price to the spot price, the shorter the time could be.

So the difference between those prices, the bigger the difference between those prices, the shorter the time would be.

HIS LORDSHIP: I understand. So if she chose a price that was closer to the spot price, then there was no need for such a long term?

A. Yes, that would usually be the case, but the ultimate decision would rest with the FX trader, if it involves two option prices. Of course, the option price would have to include the market volatility, the time value, and the intrinsic interest differential.”[1028]

...

“HIS LORDSHIP: ... Mr Barlow, before you continue, I want to clarify one point, in relation to the evidence Mr Cheung gave before lunch. He said it was possible to -- Mr Cheung, you said it was possible to have an accumulator structure which would result in the whole principal being returned when the knock-out price was reached, and the contract would then come to an end.

A. Yes.

HIS LORDSHIP: Was it possible to have such a structure for Madam Ji at the price she wanted to convert the Australian dollars into US dollars?

A. That could not be done, given the market situation at that time.

HIS LORDSHIP: Why not?

A. Ms Ji was asking for a very high conversion rate, in other words, it would be above her average cost, and thus she would not be losing any money when doing the conversion. Therefore, at that time, the structure that we could do was only that for Ms Ji to choose.

HIS LORDSHIP: It was possible to do it, but the conversion rate would not be so attractive?

A. Right, that’s correct.”[1029]

...

“MR BARLOW: In paragraphs 32 and 40 of your witness statement -- let’s take paragraph 32. At the foot of page 11, five lines up:

 “Ji said she preferred a product with a shorter tenor, and I told her we were also trying to look for products which had a shorter term (i.e. 6 months).”

 You remember his Lordship asked you about this, and you told him that although theoretically you could have a six-month decumulator, it wasn't achievable for the pricing that Ms Ji was expecting; is that right?

A. Right.”[1030]

364.  The main question I asked Linda Liu in this regard was why AUD decumulators were purchased instead of selling AUD outright:

“HIS LORDSHIP: When the decision was made to purchase accumulators [sic], was consideration given to the fact to just outright sell the US dollars in a dropping market, instead of buying a product like an accumulator [sic]?

Sorry, sell the Australian dollars in a dropping market.

A. In August and September, DBS FX advisor, England, did call Ms Ji, asking her to cut loss first, given that the Australian dollars had dropped below the level of 0.9. Ms Ji considered that in the long term the Australian dollar would be doing very good and that she would not cut loss at the level of 0.9 or below. Therefore, one can see that in the decumulators that Ms Ji purchased eventually, all of them she was able to sell the Australian dollars at the average cost.

HIS LORDSHIP: But that assumes that the strike price was not reached, the knock-out price.

A. Right. She would be able to sell her Australian dollars at a level above her cost price and at a situation in which she would not be making a loss. If she's not able to sell the Australian dollars, she can get back the Australian dollars, and that would tally with Ms Ji’s intention of holding the Australian dollars for a long term.

In simple terms, Ms Ji’s purchasing the decumulator in such a way, she would be able to either convert her Australian dollars into US dollars without losing any money or she could go on holding her Australian dollars.”[1031]

...

“A. May I explain the features for that decumulator?

HIS LORDSHIP: Please do.

A. Generally speaking, for decumulators, when the knock-out price is touched, the structure will terminate, the principal will be returned to the client, the client can gain interest rate freshly --

HIS LORDSHIP: Because the principal is returned to her?

A. Yes. For this decumulator sold by DBS to Ms Ji, when the knock-out price was touched, the particular payment would not be exercised, and the particular redemption amount will be returned to the client. But the balance of the structure would go on operating. If the market rebounds, the client can continue unloading her holding. The advantage of this is that if there is a prospect for the market to rebound, the client need not enter into a new structure, because with a new structure to be made, we cannot promise that the same parameters could be done.

HIS LORDSHIP: But the disadvantage, if it doesn’t rebound?

A. The client will get back the particular principal at a particular time.

HIS LORDSHIP: So if the knock-out price is reached, instead of -- what the client gets is the Australian dollar back, the principal element of it, without any interest?

A. Right.”[1032]

...

“A. ... For decumulators, there is a premise. One has to have underlying assets before one is able to decumulate. One cannot decumulate something that one doesn’t have.

At that time, the client was purchasing the decumulators, because the client had to sell what the client had in his hand, the AUD, slowly, at a price higher than the market price.

...

A. The design of the decumulator at that time or the reason for which decumulators were used in the market at the time were mainly due to the reason that we wanted to help the client to reduce their position which was already held in their account. Given the rapid changes in the market situation at that time, most of the clients at that time, including Ms Ji, the investment position in their accounts were all in a losing condition. So the banks, inclusive of DBS Bank and other banks, were making use of decumulators to help the client to reduce their exposure in the account.”[1033]

365.  In her email to Edwin Lim dated 15 August 2008, Linda Liu stated[1034]:

“Since the client has hold approx. AUD144mio deposit + EUR3.2mio deposit against USD96mio loan, the client would like to sell AUD / buy USD by this AUD decumulator note in order to reduce her loan amount gradually.”

366.  The defendants submitted that the purchase of decumulators made rational sense at the time given that Wise Lords held AUD 144m plus Euro 3.2m against a loan of USD 96m and that the decumulators allowed for an opportunity for Wise Lords to sell AUD or Euro and buy USD at no further leverage.

367.  I find that the decumulators were being purchased partly as a hedge against the AUD and EUR holdings, as confirmed by the evidence of Edwin Lim and the above email of 15 August 2008. An email from Linda Liu to Ji dated 12 August 2008 also stated that the AUD Decumulator was for clients who wanted to exit their long AUD positions[1035]. During her conversation with Ji on 15 August 2008, Linda Liu said that “this [i.e. a decumulator] can hedge your risk”[1036]. Later on that day, she again said “... we ... tailor make something special for you, that is to help you lower your position ... actually this is hedging to help you ...[1037]” I find that the main purpose of the purchase of the decumulators was to enable Wise Lords to sell its AUDs at the rate that Ji wanted. However, the likelihood of achieving that purpose, viewed objectively in the circumstances that prevailed, was slim.

368.  I totally disagree with the submission that the purchase of decumulators made rational sense.  I accept the expert opinion of Das that “hedge” meant the elimination or minimization of an exposure, in this case changes in the AUD/USD exchange rate and that the decumulators were not designed to act and could not function as a hedge of Wise Lords’ AUD exposures because they were conditional: if the AUD declined then the knock out event would deactivate the hedge leaving the AUD holdings exposed to depreciation of the currency[1038]. Wise Lords could only have hedged against changes in the AUDUSD exchange rate by[1039]:

(1)  Selling AUD for USD for value spot where AUD cash was available or for value to a forward date to match the expected availability of the AUD.  This would guarantee the AUD/USD conversion rate eliminating exposure to currency fluctuations;

(2)  Payment of a fee to purchase an AUD Put[1040]/USD Call[1041] option to match the availability of AUD cash. This would protect Wise Lords from declines in the AUD below the agreed strike price but allow it to benefit if the AUD appreciated.

However, as I have found above, Ji was not prepared to sell the AUD she had acquired for Wise Lords below cost price and, given the continual depreciation of AUD, these alternative strategies were not acceptable to her. During the conversation on 15 August 2008, the following exchange took place:

“Ji: Is there any other option? Just one?

Kenneth: Other options? But cannot do that at the highest at the moment.

Linda: This one is the best.”[1042]

369.  From 15 August 2008 to 14 November 2008, AUD dropped against the USD from a rate of USD0.8676 to AUD1 to USD0.6627 to AUD1[1043].  From 15 August 2008 to 14 November 2008, EUR dropped against the USD from a rate EUR1 to USD1.4695 to a rate of EUR1 to USD1.2731[1044]. As matters transpired, in addition to termination costs of AUD400,000 and AUD1.1m[1045] on the AUDUSD decumulators, Wise Lords lost about US$15m on the AUDUSD decumulators and also lost about US$1.2m on the EURUSD decumulators as at 14 November 2008 (the unwind date of the AUDUSD decumulators)[1046].

370.  Linda Liu emailed DBS Corporate on 18 August 2008 seeking approval for the 1^st Decumulator transaction[1047] and, on the same day, Sheran Chan sent DBS Trustee  an Investment Application form dated 15 August 2008[1048] which was the date of the transaction. DBS Trustee signed the form, signifying that they had considered and approved the application, and returned the Investment Application form by fax on the same day[1049]. The Minutes of DBS Trustee resolving to approve the investment was also signed and dated on 18 August 2008[1050]. Following upon the trustee’s approval, Wise Lords’ resolution was also signed and dated on 18 August 2008[1051].

371.  On 27 August 2008, Linda Liu emailed DBS Corporate seeking approval for the purchase of the 2^nd Decumulator[1052], which was the EUR Decumulator.  On the same day, Sheran Chan emailed Ben George of DBS Trustee and sent to him the Investment Application form dated 27 August 2008, the date of the transaction, explaining that, as Peter Lee was on leave, they would arrange for him to sign the form when he returned[1053]. On the same day, Frank Mayes emailed Sheran Chan questioning whether the transaction was a sale of an existing investment[1054]:

“Can you identify for us as to when this investment being sold, was originally acquired?  We can’t immediately “spot” it.

Or is it a “forward sale”, or some such like?”

372.  On 28 August 2008, Sheran Chan replied stating[1055]:

“The client is actually buying a decumulator note which sells EUR on hand. The redemption of the note is by weekly instalments to convert the existing EUR holding to USD.”

373.  On 29 August 2008, Tim Pearson-Burton of DBS Trustee returned the Investment Application form for the EUR Decumulator, signed by DBS Trustee, signifying that they had considered and approved the application ^[1056].  The Minutes of DBS Trustee resolving to approve the investment were also signed and dated on 28 August 2008[1057]. Following upon the trustee’s approval, Wise Lords’ resolution was also signed and dated on 28 August 2008[1058].

374.  At 6:58 pm on 29 August 2008, Linda Liu emailed Sheran Chan seeking approval for the 3^rd Decumulator[1059].  Later that evening, Linda Liu emailed Sheran Chan attaching the final termsheet for the 3^rd Decumulator[1060]. Linda Liu also notified Edwin Lim about the transaction[1061].

375.  On Monday 1 September 2008, Sheran Chan emailed Tim Pearson-Burton of DBS Trustee and sent an Investment Application for the 3^rd Decumulator for approval dated 29 August 2008, the date of the transaction, stating[1062]:

“The client has recommended to buy a decumulator note with the sole purpose of selling out the existing holding of AUD in exchange for USD. Please find attached an investment approval form for your consideration and approval ...”.

376.  After DBS Trustee had already approved the 1^st Decumulator and the 2^nd Decumulator, on 1 September 2008, in response to her request regarding the 3^rd Decumulator, Tim Pearson-Burton emailed Sheran Chan and, for the first time, sought an explanation of what a decumulator was[1063]:-

“The directors would appreciate a brief description of how a decumulator note works and why you would chose to buy one.”

377.  On 2 September 2008,  Sheran Chan replied[1064]:-

“Under a weekly decumulator dual currency note, the specified currency (AUD in this case) is converted to the alternate currency (USD) on each instalment date if no “Knock-outEvent” has occurred.  A Knock-out Event occurs when the spot USD per AUD rate is, at any time during a monitoring period, lower than or equal to the Knock-out rate. The monitoring period and Knock-out rate are specified in the contract and different among notes.

As mentioned in our email below, the main reason the Settlor recommended to buy a decumulator note is to sell out the existing holding of AUD in exchange for USD.

Hope to have answered you well.”

378.  On the same day, Tim Pearson-Burton replied to Sheran Chan and sent her the Investment Application form for the 3^rd Decumulator duly signed by DBS Trustee, signifying that they had considered and approved the application ^[1065] :

“Thanks for your explanation of a decumulator note; please find attached the Investment Application Form for the above mentioned trust.”

379.  The Minutes of DBS Trustee resolving to approve the investment was also signed and dated on 1 September 2008[1066]. Following upon the trustee’s approval, Wise Lords’ resolution was also signed and dated on 1 September 2008[1067].

380.  Mayes gave evidence that a decumulator was an investment product that he was not aware of[1068].

381.  I find that DBS Trustee did not give proper consideration to investment applications to purchase the decumulators before approving them.  DBS Trustee was unable to give proper consideration as they had no knowledge about this investment product and the risks inherent in them.  Even when the product was explained to them by Sheran Chan of DBS Corporate, critical information regarding the substantial risk of being locked in for the entire term with a depreciating currency was omitted.  I repeat the circumstances prevailing at that time that I have set out in §§304 and §§311-313 above. The likelihood of being able to sell AUD, at the high strike rate that Ji wanted for a substantial period of the term, viewed objectively in the circumstances that prevailed, was slim.  Even if Ji was unwilling to sell the AUD at the spot rate, or to sell forward at a better than the spot rate but less than the rate she wanted, it was better for Wise Lords to hold on to its depreciating AUD than to purchase these very risky decumulators.  In approving the purchase of 3 Decumulators, DBS Trustee failed to discharge it high level supervisory duty over the investments made by Wise Lords and DHJ Management failed to discharge its duty as director of Wise Lords.

H.  The Events from September 2008 Onwards

(1)  The Meeting of 1 September 2008 and the Events thereafter

382.  On 1 September 2008, Ji met with Linda Liu and Edna Chan and Adrienne Lam of DBS Corporate.  Ji voiced a number of complaints. About six weeks after the meeting took place, DBS Corporate prepared a meeting note that was signed by Peter Lee[1069].  The note recorded that they discussed about the Trust’s aim to make conservative and long-term investments and that future riskier investments should be undertaken through a new BVI company (which DBS Corporate would provide to Ji).  This proposal was abandoned soon afterwards. At this meeting, Ji was reminded to sign and the draft Declarations of Risk Awareness for the sale of the DEVA Note and the purchase of the Decumulators[1070] but she did not do so. She also did not sign a revised Fee Quotation letter.

383.  AUD continued to decline sharply after the 2 AUD/USD Decumulators were executed and the relationship between Ji and DBS:PB became more acrimonious.  From a rate of 0.8563 on 29 August 2008[1071], it soon fell below the knock out rate under the 2 AUD Decumulators (0.8275 and 0.8310 respectively).  As a result, there was only 1 instalment of USD received under the 1^st Decumulator but none under the 3^rd Decumulator, which raised the possibility of a margin call on Wise Lords[1072].  To avoid margin calls, Ji had no alternative but to place orders, which she did on 11 September 2008, to sell over AUD60m of Wise Lords’ AUD cash holdings at rates ranging from 0.8147 to 0.7970[1073].  By the end of September 2008, AUD deposits of less than AUD3m remained in Wise Lords’ account [1074].

384.  The global financial storm was at its apex in September 2008 when many financial institutions collapsed[1075]:

“7 Sep. 08	Fannie Mae and Freddie Mac taken into conservatorship.
15 Sep. 08	Lehman Brothers files for bankruptcy. Bank of America announces purchase of Merrill Lynch.
16 Sep. 08	US Government provides emergency loan to AIG of US$85 billion in exchange for a 79.9% stake and right to veto dividend payments.
17 Sep. 08	Bank of England extends drawdown period for SLS.
18 Sep. 08	Lloyds TSB/HBOS merger announced.
18 Sep. 08	Announcement of co-ordinated central bank measures to deal with continued elevated pressures in US dollar short-term funding markets. Bank of England concludes a reciprocal swap agreement with the Federal Reserve.
18 Sep. 08	Financial Services Authority (FSA) announces regulations prohibiting short-selling of financial shares.
19 Sep. 08	US Treasury announces temporary guarantee program for the US money market mutual funds (MMMFs). The Federal Reserve Board announces it will extend non-recourse loans to banks to finance purchases of asset-backed commercial paper from MMMFs.
19 Sep. 08	SEC[1076] prohibits short-selling in financial companies. Bans follow from a number of European regulators.
20 Sep. 08	US Treasury announces draft proposals to purchase up to US$700 billion of ‘troubled assets’, later to become the Troubled Asset Relief Program (TARP).
21 Sep. 08	The Federal Reserve approves transformation of Goldman Sachs and Morgan Stanley into bank holding companies.
23 Sep. 08	Announcement that Berkshire Hathaway is to invest US$5 billion in Goldman Sachs.
...
25 Sep. 08	JPMorgan Chase & Co. buys the deposits, assets and certain liabilities of Washington Mutual bank.
29 Sep. 08	Bradford & Bingley is nationalised by UK Government. Abbey buys its branches and retail deposit book.
...
29 Sep. 08	Federal Reserve increases swap lines to foreign central banks.
29 Sep. 08	Announcement of Citi’s intention to acquire the banking operations of Wachovia[1077] in a transaction facilitated by the Federal Deposit Insurance Corporation (FDIC), protecting all depositors (under the systemic risk exception of the FDIC Improvement Act of 1991).”

385.  As the AUD continued to deteriorate in September and October 2008 DBS:PB issued a “Top Up” margin call on 9 October 2008 and a “Sell Out” margin call to Wise Lords on 9 and 13 October 2008 respectively[1078].  Again, Ji had no alternative but, in October 2008, to cause Wise Lords to borrow AUDs and EURs from DBS Bank in order to sell them[1079] and use the USD proceeds to reduce the USD loans, thereby converting the USD loan portfolio to an AUD and EUR loan portfolio, and which was repaid by the weekly return of AUDs and EURs from the 3 decumulators[1080]. Doing so also avoided the currency mismatch. As mentioned above, on 14 November 2008, the 2 AUD decumulators were unwound, leaving only the EUR decumulator[1081].

(2)  Proposed termination of the Trust, the request for distribution and Ji’s complaints

386.  From September 2008 onwards, the parties adopted a combative stance, Ji writing many letters of complaints[1082] and refusing to terminate the Trust[1083], whilst, on the bank’s side, refusing Ji’s request to distribute HK$7m to pay Zhang’s tax[1084] unless Ji and Zhang signed the Declarations of Risk Awareness in respect of the sale of the DEVA Note, the 3 decumulators, the sale of AUD in October 2008, and Awareness letters of the decrease in NAV of the portfolio at end August 2008[1085] and end September 2008[1086]. DBS:PB attempted to refute Ji’s complaints by its letter dated 7 November 2008[1087].  DBS:PB also relayed the response of DBS Trustee to Ji’s complaints by its letter dated 9 December 2008[1088].  Many of these complaints are the subject matter of these proceedings.  I need not address and resolve those complaints which are not the subject matter of these proceedings.  However, I note the email from Adrienne Lam to Peter Lee dated 26 November 2008[1089] complaining about the pressure put on her by Linda Liu to get DBS Trustee to sign a back dated increased facility offer letter of 21 July 2008[1090] to replace their approval given much later on 25 August 2008 and Peter Lee’s response that: “the Jersey directors will not back date any document, this is their golden rule”[1091].

387.  The dispute escalated when Ji and Zhang engaged solicitors who wrote to DBS Trustee on 11 December 2008[1092] setting various complaints and claiming US$50m as losses caused by breaches of duty by DBS Trustee and DBS:PB.  DBS Trustee responded to the various complaints by letter dated 11 February 2009[1093] and concluded by suggesting that if Ji and Zhang wished to commence legal proceedings then the current trustees would need to resign and a replacement trustee appointed in their stead.

(3)  Charges levied to the Trust

388.  The plaintiffs complain that the agreed arrangements were that no additional charges beyond the fixed annual fee would be charged to the Trust and paid by Wise Lords without Ji’s knowledge and approval but that, from the beginning of 2009, DBS Corporate and DBS Trustee secretly withdrew large sums of money from Wise Lords’ account without disclosing this to Ji and Zhang and that this continued even after the new trustees were formally appointed and DBS Corporate had terminated its Services Agreement with Wise Lords.

389.  The claims for repayment of amounts overcharged to the Trust are set out in Appendix B of the RASOC[1094]. I have reproduced below, the more relevant particulars from this appendix and have separated the claims for repayment of wrongful charges that were made in USD and in Pounds Sterling (“GBP”):

No.	Date	Invoice No.	Amount
1	6 January 2009	Corporate Services Invoice P09001 Paid 6/6/2009	US$5,200
2	6 January 2009	Corporate Services Invoice P09002 Paid 6/6/2009	US$750
3	6 January 2009	Corporate Services Invoice P09004 Paid 6/6/2009	US$15,925
4	4 September 2009	Corporate Services Invoice P09043 Paid 7/9/2009	US$8,600
5	15 December 2009	Corporate Services Invoice P09063	US$5,000
6	21 January 2010	Corporate Services Invoice P10010	US$8,000
7	19 March 2010	Corporate Services Invoice 70210	US$2,200
8	15 July 2010	Corporate Services Invoice 70522 Paid 6/8/2010	US$8,000
9	17 September 2010	Corporate Services Invoice 70615 Paid 7/10/2010	US$15,000
10	3 December 2010	Corporate Services Invoice P10068 Paid 10/1/2011	US$16,500
11	8 April 2011	Corporate Services Invoice P11050  Paid 11/4/2011	US$7,500
12	6 May 2011	Corporate Services Invoice P11054	US$7,500
		Total:	US$100,175[1095]

No.	Date	Invoice No.	Amount
A	19 March 2009	Ogier Invoice 90020093 Paid 19/3/2009	GB£4,356
B	19 March 2009	New World Trustees (Jersey) Limited Invoice 9THEIF60/6074 Paid 19/3/2009	GB£9,005.00
C	6 May 2009	Ogier Invoice 90022096 Paid 6/5/2009	GB£463.50
D	22 February 2010	Invoice# A2DEQZWW/6074 (A49-32)	GB£6,043.75
		TOTAL	GB£19,868.25[1096]

390.  Whilst it was common ground that the annual fee that was agreed was US$5,000, the fee quotation dated 29 December 2004 signed by Ji[1097], made it clear:

(1)  In clause 2b that the annual fee included:

(a)  book-keeping for the trust;

(b)  collection of bank deposit interests, private company dividends, dividends via bank investment accounts for listed shares, receipt of rental income into specified bank accounts;

(c)  acting as shareholder and director of the underlying, offshore company;

(d)  drafting and updating letter of wishes;

(e)  signing and execution of documents in connection with intra company movement of investments and or bank balances;

(f)  standard regular monthly payment to beneficiaries from the from the trust income, if any, during the life time of the settlor; and

(g)  other administration reasonably incurred in the operation of the trust except for items excluded herebelow.

Annual Fees excludes:-

(i) BVI government and local registered agents’ annual fees (currently USD 650-) per underlying company;

(ii) All out-of-pocket and third party expenses;

(iii) Bank T/T and regular transaction charges.

(2)  But stated in clause 5 that “All charges payable to third parties including but not limited to government fees, legal and professional fees, bank charges, share transfer commissions, stamp duty etc. are NOT INCLUDED in this quotation and will be paid directly out of the trust”;

(3)  In clause 6 that distribution fees were additional; and

(4)  In clause 7 that “All other services not listed above are subject to separate quotation or chargeable on a time spent basis.

In addition, paragraph 7 of First Schedule to the Trust Deed[1098], provided that:

“The Trustees shall have power instead of acting personally to employ and pay at the expense of the income or capital of the Trust Fund any agent in any jurisdiction whether advocates attorneys solicitors legal counsel accountants brokers banks trust companies or other professional agents whether associated or connected in any way with the Trustees or not without being responsible for the default of any agent to transact any business or do any act required to be transacted or done in the execution of the trusts hereof including the receipt and payment of moneys and the execution of documents”.

I accept the evidence of Mayes[1099] that DBS Corporate, as agent of DBS Trustee, was entitled to charge for services for any additional work done for the Trust or Wise Lords that was not listed under sub-paragraph (1) above.

391.  Having considered the invoices in question, my findings are as follows:

I deal first with the invoices issued in respect of legal advice obtained.

No.	Date of Invoice	Invoice No.	Amount
A	30/01/ 2009	Ogier Invoice 90020093 [D21/899/7616-7618] Paid 19/3/2009	GBP4,356	It is clear to me from the narrative provided in the invoice that these charges were mostly incurred in responding to the allegations made by Ji’s and Zhang’s solicitors and were costs incurred in anticipation of litigation. However, I would allow GBP500 as validly claimed in respect of advice regarding resignation of trustee.
B	18/03/ 2009	New World Trustees (Jersey) Limited Invoice 9THEIF60/6074 [D21/903/7650] Paid 19/3/2009	GBP9,005	I disallow this invoice in its entirety. It is clear to me from the narrative provided in the invoice that these charges were incurred in responding to the allegations made by Ji’s and Zhang’s solicitors and were costs incurred in anticipation of litigation.
C	30/04/ 2009	Ogier Invoice 90022096   [D22/916/7706-7708] Paid 6/5/2009	GBP463.50	The invoice does not specify whether this was legal advice given in respect to the request to change trustee or whether it was legal advice given in anticipation of litigation. As it was issued about 6 weeks after the previous invoice, I infer that this charge was incurred in anticipation of litigation and I disallow this invoice for that reason.
D	26/01/ 2010	NW Trustees Invoice# A2DEQZWW/6074 [D26/958/8691]	GBP6,043.75	I allow this invoice in its entirety. It is clear to me from the narrative provided in the invoice that these charges were incurred in relation to the arrangements for the retirement of the trustees.
		TOTAL	GBP19,868.25	I find that DBS Trustee overcharged the Trust to the extent of GBP13,325.

I now deal with the charges levied by DBS Corporate:

No.	Date of Invoice	Invoice No.	Amount	My findings
1	6/01/ 2009	Corporate Services’ Invoice P09001 Paid 6/6/2009 [D21/884/7563]	US$200[1100]	I see no reason to disallow this charge of US$200 for a disbursement which would fall outside clause 2b of the quotation. If the disbursement was challenged, particulars of the disbursement could have been sought but were not.
2	6/01/ 2009	Corporate Services’ Invoice P09002 Paid 6/6/2009 [D21/885/7564]	US$750	I see no reason to disallow this charge for annual BVI licence and agent’s fees and handling charges which fall outside clause 2b of the quotation.
3	6/01/ 2009	Corporate Services’ Invoice P09004 Paid 6/6/2009 [D21/886/7551-7552]	US$15,925	I disallow most of these charges. This work was done in anticipation of litigation upon receipt of Ji’s complaints and in consequence of the bank’s side adopting a combative stance. The amounts claimed for book-keeping work and fax, phone and courier expenses fall within clause 2b of the quotation. The other work done, such as meeting Ji, unwinding the 3 decumulators, falls within clause 2b of the quotation as being administration reasonably incurred in the operation of the trust. However, I am prepared to allow the charges for work done in connection with the appointment of new trustees. Even so, the charge of US$2,000 appears to me to be excessive. I allow US$1,000. I also allow the claim for work done in relation to the distribution request. From the total claim made in the sum of US$10,875 for various works done, I allow a charge of US$1,500 for work done in relation to the distribution request.
4	4/09/  2009	Corporate Services Invoice P09043. Paid 7/9/2009 [D22/925/7733-7734]	US$8,600	Save that I would allow a charge for US$500 in respect of discussion on the phone in connection with the appointment of new trustees, I disallow the rest of these charges as they were incurred in anticipation of litigation. The claims for long distance calls and printing fees fall within clause 2b of the quotation.
5	15/12/ 2009	Corporate Services Invoice P09063 [D22/943/7844-7846]	US$5,000	The charge of US$2,900 for work done in respect of transfer to new trustees is excessive and I only allow a charge of US$1,450. The charge of US$1,900 for work done in respect of the distribution request is excessive and I only allow a charge of US$950. The claims for long distance calls, courier charges and printing fees fall within clause 2b of the quotation.
6	21/01/ 2010	Corporate Services Invoice P10010 [D26/957/8686-8689]	US$8,000	The charge of US$4,500 for work done in respect of transfer to new trustees is excessive and I only allow a charge of US$1,500. The charge of US$3,000 for work done in respect of the distribution request is excessive and I only allow a charge of US$1,000. The claims for long distance calls, courier charges and printing fees fall within clause 2b of the quotation.
7	19/03/ 2010	Corporate Services Invoice 70210 [D26/962/8709-8710]	US$2,200	The charge of US$1,000 for work done in respect of transfer to new trustees is excessive and I only allow a charge of US$500. The charge of US$1,000 for work done in respect of extension of credit facility falls within clause 2b of the quotation as being administration reasonably incurred in the operation of the trust. The claims for long distance calls, courier charges and printing fees fall within clause 2b of the quotation.
8	15/07/ 2010	Corporate Services’ Invoice 70522 Paid 6/8/2010 [D26/981/8814-8817]	US$8,000	Having already allowed US$4,950 in respect of the work done in respect of transfer to new trustees, I find that the amount of US$7,500 claimed to be excessive and I only allow the amount of US$2,500 in respect of this invoice. The claims for long distance calls, courier charges and printing fees fall within clause 2b of the quotation.
9	17/09/ 2010	Corporate Services Invoice 70615 [Electronic Bundle: D/Section5/ Item2/ Defendants’ 2nd Supplemental List 31/10/13/351-353] Paid 7/10/ 2010 [D27/992/8868]	US$15,000	Having already allowed US$7,450 in respect of the work done in respect of transfer to new trustees, I find that the amount of US$15,000 claimed to be excessive and I only allow the amount of US$5,000 in respect of this invoice. The claims for long distance calls, courier charges and printing fees fall within clause 2b of the quotation.
10	3/12/ 2010	Corporate Services’ Invoice P10068 Paid 10/1/2011 [D27/998/8894]	US$16,500	Having already allowed US$12,450 in respect of the work done in respect of transfer to new trustees, I find that the amount of US$16,400 claimed to be excessive and I only allow the amount of US$5,500 in respect of this invoice.  The claims for phone, printing and courier expenses fall within clause 2b of the quotation.
11	8/04/  2011	Corporate Services Invoice P11050 Paid 11/4/ 2011 [D27/1025/9048]	US$7,500	The transfer to the new trustees already took place on 31/01/2011 and I only allow the charge of US$2,000 in respect of the work done in respect of transfer to new trustees. The claims for phone printing and courier expenses fall within clause 2b of the quotation.
12	6/05/ 2011	Corporate Services Invoice P11054. [D27/1032/9059]	US$7,500	The transfer to the new trustees already took place on 31/01/2011 and I only allow the charge of US$2,000 in respect of the work done in respect of transfer to new trustees. The claims for phone, printing and courier expenses fall within clause 2b of the quotation.
		Total:	US$95,175[1101]	I find that DBS Trustee overcharged the Trust to the extent of US$68,825.

392.  I find that DBS Trustee overcharged the Trust to the extent of GBP13,325 and DBS Corporate overcharged the Trust to the extent of US$68,825.

(4)  Transfer to New Trustee and Transfer of the Trust Funds

393.  There was protracted and heated correspondence and a substantial delay of over 2 years before DBS Trustee retired and the new trustees were appointed by deed dated 31 January 2011[1102].  Instead of transferring the funds in Wise Lords’ DBS:PB account, documents to transfer the share in Wise Lords and in respect of the resignation of directors in Wise Lords were executed and sent to the new trustees in mid-May 2011. Allegations and cross allegations have been made about the causes of the delay and ulterior motives have been assigned for them. I need not address and resolve them. Doing so does not assist me to resolve the many disputes between the parties which are the subject matter of these proceedings.

(5)  Retention of US$1m as Indemnity for Tax Purposes

394.  The dispute over the retention of US$1m as indemnity for tax purposes falls within a narrow compass.  There is no dispute that the retention of US$1m by DBS Trustee was pursuant to clause 7 of the Deed of Appointment Retirement and Indemnity[1103].  That was a clause that had been agreed. Ji’s and Zhang’s solicitors had written on 10 March 2010 that:

“We have taken instructions and the terms of the draft Deed of Resignation and Appointment are acceptable to our client. The incoming trustee has also advised that it is prepared to accept appointment on those terms”[1104].

395.  Clause 7 provided that to enable the retained funds to be released, written confirmation had to be provided

“from either the Chinese and Hong Kong revenue authorities or a partner on behalf of a Chinese and or Hong Kong law or accountancy firm of size and standing acceptable to [DBS Trustee] ... that there are no fiscal or tax liabilities outstanding of the Settlors and or each or all of the beneficiaries having received distributions from the trust or which will be payable in respect of the [Trust] for the period during which [DBS Trustee] was trustee[1105]”.

396.  I construe the above clause to mean that written confirmation had to be provided that that there were no fiscal or tax liabilities outstanding of:

(a) the Settlors and/or

(b) each of the beneficiaries

having received distributions from the trust,

and which will be payable for the period during which DBS Trustee was trustee.

397.  The plaintiffs’ case is that on 18 November 2011[1106], DBS Trustee was provided with written confirmations that there were no fiscal or tax liabilities outstanding and, therefore, DBS Trustee was obliged to return the retained funds of USD1m but wrongly refused to do so.  The only issue for my determination is whether the two declarations issued by CCIF CPA Limited[1107] satisfied the requirements of Clause 7 and were sufficient for the release of the retained sum.

398.  In its letter addressed to DBS Trustee in respect of Zhang dated 25 October 2011, CCIF CPA Limited stated:

“Re: Mr. Zhang Hong Li (holder of Hong Kong Identity Card No. XXXXXXX(X))

In accordance with the letter issued by the Hong Kong Inland Revenue Department on 4 August 2011 and the letter from the Chinese Tax Bureau dated 16 May 2011 as regards the tax payment status of Mr. Zhang Hong Li, we are of the opinion that Mr. Zhang Hong Li has no outstanding fiscal or tax liabilities in Hong Kong and China for the years of assessment 1994/95 to 2010/2011 and from 1996 to 2011 respectively.

In giving our opinion above, we have not audited or otherwise attempted to verify the accuracy, truthfulness or completeness of the tax returns, statements and information previously submitted by Mr. Zhang Hong Li to the aforesaid tax authorities and accordingly express no opinion thereon. In addition, our opinion is not binding on any tax authorities or courts in Hong Kong and China.

CCIF CPA Limited is a corporate practice registered under section 28E of the Professional Accountants Ordinance (Cap. 50). The position of director of a corporate practice is equivalent to that of a partner of a partnership.

This opinion is being furnished to, and is solely for the benefit of DBS Trustee H.K. (Jersey) Limited (“DBS Trustee”) pursuant to Clause 7 of the Deed of Appointment Retirement and Indemnity supplemental to the Amsun Trust dated 31 January 2011 and except with our express prior written consent, neither it nor its contents are to be used, circulated, quoted, published or otherwise referred to disseminated or disclosed for any other purpose or relied upon by any person or entity other than DBS Trustee at the date of this opinion.”

399.  In its letter addressed to DBS Trustee in respect of Ji also dated 25 October 2011, CCIF CPA Limited stated:

“Re: Ms. Ji Zhengrong (holder of Hong Kong Identity Card No. XXXXXXX(X))

We note the declaration made by Ms. Ji Zhengrong on 18 October 2011 confirming that (amongst other things) she has been a housewife since January 1999 and did not earn any income in the form of salaries, commission, bonus, allowance, gratuity, perquisite, royalty, licence fee, interest other than from bank deposits, rental from leasing properties, investment income, capital gains whatsoever, nor has carried on a trade, profession or business in the Hong Kong SAR or the People’s Republic of China or elsewhere during the period from 4 January 2005 to 31 January 2011. We also note the letters as regards her tax payment status issued by the Hong Kong Inland Revenue Department on 7 September 2011 and 4 October 2011.  On the basis of the declaration and the letters, we are of the opinion that Ms. Ji Zhengrong has no outstanding fiscal or tax liabilities in Hong Kong and China for the period from 4 January 2005 to 31 January 2011.”

This letter also repeated the same last 3 paragraphs contained in their letter sent in respect of Zhang which I have quoted above.

400.  I am satisfied that CCIF CPA Limited was an accountancy firm of size and standing that ought to have been acceptable to DBS Trustee.  Indeed, in their response[1108] denying the validity of the 2 written confirmations, DBS Trustee did not suggest that CCIF CPA Limited was an accountancy firm of insufficient size or standing.  Their expressed reasons were these:

“... In particular there is no mention in the letters of the fiscal positions as to distributions received by the beneficiaries of the trust, or of the position in relation to the Settlement thereto, if any.

We also need to understand as to how CCIF can provide an opinion on the tax positions of Mr Zhang Hong Li and Ms Ji Zhengrong without having attempted to verify the accuracy of tax returns, statements and information previously submitted to the relevant tax authorities by those persons.

Clause 7 requires confirmation that there are no liabilities outstanding, not an opinion that there are not, and which is why it was envisaged that this confirmation might have to come from the Revenue Authorities themselves.  Consequently, we request that you provide certified copies of the letters received from the Hong Kong Inland Revenue Department and the Chinese Tax Bureau, (with translations into English, if relevant) and which letters refer to the distributions received (if such distributions are liable to tax in either of those jurisdictions). ...”

401.  Clearly DBS Trustee had adopted a combative mode and were playing “hardball”.  I can find no justification in their reasons for denying payment of the retained sums. Written confirmation was required from either the Chinese and Hong Kong revenue authorities or a partner on behalf of a Chinese and or Hong Kong law or accountancy firm of size and standing acceptable to [DBS Trustee] [my emphasis]. This requirement was satisfied.  The requirement for written confirmation to be provided that:

“there were no fiscal or tax liabilities outstanding of

(a) the Settlors and/or

(b) each of the beneficiaries

having received distributions from the trust,

and which will be payable for the period during which DBS Trustee was trustee[1109]”

was also satisfied by the written opinions provided by CCIF CPA Limited that I have set out above.  The fact that that the letters did not specify what distributions had been received from the Trust and the fact that CCIF CPA Limited had not audited or otherwise attempted to verify the accuracy, truthfulness or completeness of the tax returns, statements and information previously submitted by Zhang to the aforesaid tax authorities, nor of the declaration of Ji, and, accordingly, expressed no opinion thereon, did not prevent their written opinions from satisfying the requirements of Clause 7.

(6)  Commencement of Legal Proceedings

402.  Legal proceedings were commenced on 28 February 2011 by the issue of the Writ of Summons in the Commercial List of the High Court.

I.  The Legal Consequences

(1)  The Claims against DBS Trustee

403.  Clause 19 of the Trust Deed exempted liability on the part of DBS Trustee, as outgoing trustee, except, amongst others:

“any liability in respect of actions to recover from such Trustee (and in the case of a corporate Trustee any of its officers or employees) trust property or the proceeds of trust property in the possession of such Trustee or its officers or employees.[1110]”

404.  For the reasons set out in the preceding paragraphs, I order DBS Trustee to repay to the Trust the sums of US$68,825 and GBP13,325 being amounts wrongfully paid out from the Trust for charges which were unrelated to the administration of the Trust.  I also order DBS Trustee to pay interest on the said sums of US$68,825 and GBP13,325 from the dates that these amounts were paid out from the Trust to the date hereof at the per annum rate of 1% over HSBC US$ Prime and 1% over HSBC GBP Prime respectively during this period of time.

405.  For the reasons set out in the preceding paragraphs I order DBS Trustee to repay to the Trust US$1m and to pay interest on the said sum of US$1m from 19 November 2011 to the date hereof at the per annum rate of 1% over HSBC US$ Prime during this period of time.

406.  I refer to my findings on the duties of DBS Trustee set out in Section F (2) above and, in particular, in §§118-120 above.  DBS Trustee had to act honestly and in good faith, with due diligence, as would a prudent person, to the best of their ability and skill, only in the interests of the beneficiaries, and in accordance with the terms of the trust, and not in a grossly negligent manner.  By gross negligence is meant a serious or flagrant degree of negligence.

407.  I refer to my findings in Section G (9) above and, in particular, to §§303-305 and 309-319 above.  In approving the purchase of a very substantial quantity of AUD from 24 July to 5 August 2008, DBS Trustee failed to discharge their high level supervisory duty over the investments made by Wise Lords.  I refer to §§314-315 above.  Whilst I am prepared to accept that DBS Trustee did not fail to discharge their high level supervisory duty over the investments made by Wise Lords in respect of the first 2 purchases, set out in the Table in §314 above, in the sums of US$13m, I find that they ought to have queried and not given approval for the further purchases of US$83m worth of AUD, set out in the Table in §314 above, from 24 July 2008 to 5 August 2008, and that DBS Trustee failed to discharge their high level supervisory duty over the investments made by Wise Lords in respect of these purchases. Their failure constituted a breach of their duty to act with due diligence, to act as would a prudent person, to act to the best of his ability and skill, and to act only in the interests of the beneficiaries. Approving the further purchases of US$83m worth of AUD from 24 July 2008 to 5 August 2008, is not something which a trustee, complying with the duty to act prudently, could reasonably have done. I find, for the reasons set out in the afore-mentioned paragraphs of my judgment, that, in approving the further purchases of US$83m worth of AUD from 24 July 2008 to 5 August 2008, DBS Trustee acted in a negligent manner and that their degree of negligence was a serious or flagrant degree of negligence.

408.  I refer to my findings in Section G (9) above and, in particular, to §§303-315 and 317-319 above.  In approving the increased credit facility at the end of August 2008, DBS Trustee failed to discharge their high level supervisory duty over the investments made by Wise Lords.  Their failure constituted a breach of their duty to act with due diligence, to act as would a prudent person, to act to the best of his ability and skill, and to act only in the interests of the beneficiaries.  Approving the increased credit facility at the end of August 2008 is not something which a trustee, complying with the duty to act prudently, could reasonably have done. I find, for the reasons set out in the afore-mentioned paragraphs of my judgment, that, in approving the increased credit facility at the end of August 2008, DBS Trustee acted in a negligent manner and that their degree of negligence was a serious or flagrant degree of negligence.

409.  I refer to my findings in Section G (10) above and, in particular, to §§324, 362-381 above.  In approving the purchase of 3 Decumulators, DBS Trustee failed to discharge their high level supervisory duty over the investments made by Wise Lords.  Their failure constituted a breach of their duty to act with due diligence, to act as a prudent person, to act to the best of his ability and skill, and to act only in the interests of the beneficiaries.  Approving the purchase of 3 Decumulators is not something which a trustee, complying with the duty to act prudently, could reasonably have done. I find, for the reasons set out in the afore-mentioned paragraphs of my judgment, that, in approving the purchase of 3 Decumulators, DBS Trustee acted in a negligent manner and that their degree of negligence was a serious or flagrant degree of negligence.

410.  Insofar as the aforementioned breaches of duty were caused or partly caused by the acts and omissions of DBS Corporate set out in Sections G(9) and (10), and in particular, in those paragraphs of my judgment mentioned in the preceding paragraphs, including the failure to inform DBS Trustee in a timely fashion of the offer of increased credit facility and,  misinforming DBS Trustee about the purpose of increasing the credit facility, DBS Trustee are liable for those acts and omissions of DBS Corporate who was their agent and/or sub-agent (being the agent of NWT)[1111]. I do not accept the defendants’ submissions that DBS Corporate was not an agent but merely “an administrative conduit”[1112] or that, if DBS Trustee had not been informed by DBS Corporate of the increases in Wise Lords’ credit facilities, then there could be no basis to accuse them of breach of trust by failing to intervene[1113].

411.  Insofar as the aforementioned breaches of duty were caused or partly caused by the acts and omissions of DBS Corporate referred to in the preceding paragraphs, I find that the said acts and omissions of DBS Corporate amounted either to wilful misconduct[1114] on the part of DBS Corporate or that, by such acts and omissions, DBS Corporate acted in a negligent manner and that their degree of negligence was a serious or flagrant degree of negligence.  If I am wrong to find that any of DBS Corporate’s acts and omissions, referred to in the preceding paragraphs, amounted to wilful misconduct, I would find, nevertheless, that the same conduct amounted to DBS Corporate acting in a negligent manner and that their degree of negligence was a serious or flagrant degree of negligence.

412.  The defendants have relied on Clause 15 of the Trust Deed as exempting DBS Trustee from liability for any wrong committed by DBS Corporate[1115].  However, Clause 15 must be construed together with Clause 19 of the Trust Deed.  Clauses 15 and 19 of the Trust Deed provided[1116]:

“15. Delegation of Powers

The Trustees shall have power by deed irrevocable or revocable during the Trust Period to delegate to any person at any time for any period and in any manner (including without prejudice to the generality of the foregoing by power of attorney) and upon any terms whatsoever all or any of the powers or discretions whether dispositive administrative or otherwise imposed on or given to the Trustees by this Settlement or by law or otherwise (including the management and administration of this Settlement) without being liable for any loss to the Trust Fund arising from the acts or defaults of any such person.

...

19. Liability of Outgoing Trustees

If a Trustee ceases to be a Trustee hereof for any reason whatsoever such Trustee (and in the case of a corporate Trustee all of its officers or employees) shall be released from liability to any Beneficiary Trustee or other person interested under this Settlement for any act or omission in relation to the Trust Fund or his duty as a Trustee except:-

(a)  any liability in respect of any breach of trust arising from fraud wilful misconduct or gross negligence on the part of such Trustee (and in the case of a corporate Trustee any of its officers or employees);

(b)  ...”

I construe these clauses as exempting DBS Trustee from liability from the acts of DBS Corporate except those acts of DBS Corporate which amounted to wilful misconduct or gross negligence on the part of DBS Corporate.  I do so by applying Jersey law as set out in §§118-120 above.

413.  I am satisfied that Arboit and Sutton have established their claims against DBS Trustee as pleaded in §§44(4), §§72-74, §§75-81, §§104(3), (4) and (8), §106(3) of the RASOC and are entitled to the reliefs claimed against DBS Trustee under sub-paragraph (3) of the RASOC for equitable restitution to the Trust for breach of trust in order to reconstitute the assets of the Trust so as to place the Trust in the position it would have occupied but for the said breaches; and for payment of the sums wrongly charged to the Trust in the sum of US$68,825 and GBP13,325 and of the retained sum of US$1m.

414.  By its counterclaim[1117],  DBS Trustee, relying on Clause 5 of the Deed of Appointment Retirement and Indemnity[1118], sought an indemnity from Arboit and Sutton against the claims made by them. Clause 5 provided:

“The New Trustees for themselves and their respective heirs personal representatives and estates hereby jointly and severally covenant with the Retiring Trustee for itself and for each of the Indemnified Persons[1119] as trustee of this covenant for their benefit that the New Trustees will at all times hereafter fully and effectually indemnify and keep indemnified and hold harmless the Indemnified Persons and each of them against Liabilities...”

415.  “Liabilities” was defined in Clause 1(c) of the said Deed[1120] as all actions, proceedings, accounts, claims and demands of any kind (and all costs and expenses incurred in connection therewith) which were brought or made or might be brought or made or threatened to be brought or made by any beneficiary under the Trust or any person (whether in existence or not and whether actually or prospectively interested under the Trust Deed) in connection with the trusts of the Trust Deed or in any way relating thereto or to the capital or income of the Trust Fund from time to time whether the same should be enforceable in law or not and whether or not in respect of a period or event falling wholly or partly after or prior to the date thereof.

416.  However, the proviso under Clause 5 limited the indemnity in these terms:

“PROVIDED THAT:

(a) there shall be excluded from such indemnity Liabilities of any of the Indemnified Persons in respect of which such Indemnified Person would not have been entitled to reimbursement out of the Trust Fund if the Retiring Trustee had remained trustee of the Settlement on its present terms ...; [my emphasis]”

417.  I refer to Clause 19 of the Trust Deed[1121] which I have set out in §§403 and 412 above and to my findings as to the liability of DBS Trustee. I find that the proviso under the said Clause 5 applies to the liability that has been established against DBS Trustee, being a liability in respect of which DBS Trustee would not have been entitled to reimbursement out of the trust fund if DBS Trustee had remained trustee.  Accordingly, DBS Trustee cannot claim an indemnity from Arboit and Sutton, or from any other party, against the said liability.

418.  I am not satisfied that the plaintiffs, or any of them, have any valid claims against DBS Trustee, other the claims of Arboit and Sutton in respect of the matters set out in the preceding paragraphs.

419.  I refer to my findings in Section E (3) and Section G (1) above in respect of Ji’s suitability as Investment Advisor, the investments in mutual funds, and the allegation of churning of investments.  In the light of these findings, the claims against DBS Trustee for approving Ji as Investment Advisor and for approving the many and frequent investments in mutual funds must fail.

420.  I refer to my findings in Section G (4) above in respect of the DEVA Note.  Despite my finding the DEVA Note was complex and exposed Wise Lords to a risky option trading strategy, I am satisfied that, in approving this investment in the sum of US$3m, DBS Trustee was not in breach of its duty as trustee.  Prior to the purchase of the DEVA Note, Wise Lords’ portfolio was invested in mutual funds to the extent of over US$21m and had fixed deposits of almost US$5m. The net position was just short of US$26m[1122].  After the purchase of the DEVA Note, the net position was US$26.7m[1123].  The investment in the DEVA Note represented less than 11.5% of the total portfolio.  Even though the DEVA Note was complex and exposed Wise Lords to a risky option trading strategy, DBS Trustee cannot be faulted for approving a risky investment that formed a small part of the entire portfolio. If I am wrong to make these findings, I would find, nevertheless, that the degree of negligence in granting the approval to purchase the DEVA Note did not amount to a serious or flagrant degree of negligence.

421.  I refer to my findings in Sections G (5) (7) and (8) above in respect of the investments in FX and YEDs and the increases in credit facilities up to US$58m (HK$450m).  DBS Trustee did not act in breach of its duty as trustee when, on 30 April 2008, it ratified the acceptance of increased credit facilities enjoyed by Wise Lords from 23 May 2007 up to 30 April 2008 and accepted future credit facilities from 30 April 2008 up to the limit of US$50m (HK$390m). As I have noted in §195 above, for the financial year from 1 April 2007 to March 2008, the unrealised profits in the trust were US$8.53m, which represented a profit percentage of 26.65% of the capital funds in the trust of US$32.02m[1124]. From February 2008, Ji switched from mutual funds to FX and YEDs.  The increased holdings in AUD deposits and YEDs in Wise Lords’ portfolio has been set out in §296 above. During this period from February to May 2008, Wise Lords was enjoying profits from this investment strategy. The AUD rate had gone up from USD0.9035 to AUD1 from 1 February 2008, to USD0.9419 to AUD1 on 30 April 2008, and to USD0.9604 to AUD1 on 4 June 2008[1125].  Malik’s calculations showed cumulative profits from AUD deposits of US$78,083 as at 13 May 2008[1126] and cumulative profits from YEDs of US$463,133 as at end May 2008[1127].  Having regard to the rising profits in the portfolio, DBS Trustee cannot be faulted for approving the investments in FX and YEDs and ratifying the past increased facilities that had been offered and utilised and accepting new facilities from 30 April 2008 up to the limit of US$50m (HK$390m).  Although DBS Trustee did not, at an initial stage,  fully understand YEDs, they had been provided with a satisfactory explanation by 28 May 2008[1128]. Nor did DBS Trustee act in breach of its duty as trustee when, on 4 June 2008, it approved the increase of the credit facility from US$50m (HK$390m) to US$58m (HK$450m)[1129]. If I am wrong to make these findings, I would find, nevertheless, that the degree of negligence in granting these approvals did not amount to a serious or flagrant degree of negligence.

422.  I refer to §135 above and to my findings that, notwithstanding that the relationship between DBS:PB was transaction execution only, DBS Corporate misinformed DBS Trustee when it stated in the Delegated Management Query Forms that Wise Lords' portfolio was managed by “RM of Hong Kong on an advisory role”; and that DBS Trustee acted on the basis that the Delegated Management Query Forms contained accurate information that DBS:PB had undertaken advisory duties to Wise Lords.  Many Letters of Recommendation addressed to DBS Trustee had been signed by Linda Liu and Edwin Lim of DBS:PB recommending that DBS Trustee grant approval for the application in question[1130].  As I have found in §171 above, the effect of the Letters of Recommendation issued by DBS:PB was that DBS:PB was advising DBS Trustee that the investment transaction in question was a recommendable investment which, as account manager of Wise Lords’ account with DBS:PB, they could recommend to Wise Lords to enter into.  DBS Trustee relied on these Letters of Recommendation in granting approval and did so on the basis that DBS:PB was discharging its advisory duty to Wise Lords in making these recommendations.  I find that, by misinforming DBS Trustee that Wise Lords’ portfolio was managed by “RM of Hong Kong on an advisory role”, DBS Corporate was in breach of its duty to provide correct information to DBS Trustee. However, I also find that the degree of negligence on the part of DBS Corporate in misinforming DBS Trustee as aforesaid did not amount to a serious or flagrant degree of negligence.  Accordingly, I do not find DBS Trustee liable to Arboit and Sutton for breach of trust on this ground.

423.  I summarised the law of equitable restitution or equitable compensation in my judgment in Akai Holdings Ltd. (In Compulsory Liquidation) v. Everwin Dynasty Ltd. & Ors (No. 2) [2016] 3 HKC 307 at §§464-475 as follows:

“R. Equitable Compensation

464. ...

465. The relevantprinciples thatapplywhereatrusteeorother fiduciaryhas misappliedtrustpropertyaresummarisedinSnell’sEquity(33^rd ed,2014) at §20-034 to §20-036 asfollows:

“In other circumstances compensation or equitable compensation is calculated as an equivalent to an asset which, if it were available, the defendant would be obliged to deal with in a particular way. Substitutive compensation is measured by the asset’s objective value or the objective value of some deterioration or diminution. The effect of the award is to compel the defendant to perform his duty in respect of the asset substitutively, by paying an equivalent amount of money instead.

For instance, where a custodial fiduciary has misplaced assets, on the taking of their account they may be charged with the value of the asset. Their personal liability to pay this amount, conventionally labelled compensation, involves an obligation to perform their duties in respect of the asset substitutively.  The same concept applies where upon the specific performance of a contract, a vendor is obliged to pay compensation for defects in the asset, and also where upon rescission a party cannot return an asset in specie or cannot return it in the same condition.

In cases such as these, the only relevant “loss” is the literal loss or partial loss of the asset that occurred when it passed out of the defendant’s hands or deteriorated in some way.  Causation, remoteness and mitigation of loss are not apposite concepts.  The term “loss” is better avoided altogether in this connection.” [Emphasis added].

466. The legal principles set out below have been addressed and confirmed in the unanimous decision of the Court of Final Appeal in Libertarian Investments Limited v Thomas Alexej Hall (2013) 16 HKCFAR 681 in which the Court of Final Appeal undertook a detailed review of the applicable equitable principles.

467. The starting point is that the relationship between a director and company is fiduciary in nature (at §53)[1131].

468. Secondly, there is a fundamental distinction between fiduciary obligations and obligations under the tort of negligence and contract, as explained by Ribeiro PJ (at §72) citing McLachlin J in her “dissenting but influential judgment” in Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534 at §61:

“The basis of the fiduciary obligation and the rationale for equitable compensation are distinct from the tort of negligence and contract. In negligence and contract the parties are taken to be independent and equal actors, concerned primarily with their own self-interest. Consequently the law seeks a balance between enforcing obligations by awarding compensation and preserving optimum freedom for those involved in the relationship in question, communal or otherwise. The essence of a fiduciary relationship, by contrast, is that one party pledges herself to act in the best interest of the other. The fiduciary relationship has trust, not self-interest, at its core, and when breach occurs, the balance favours the person wronged. The freedom of the fiduciary is diminished by the nature of the obligation he or she has undertaken – an obligation which ‘betokens loyalty, good faith and avoidance of a conflict of duty and self-interest’: Canadian Aero Service Ltd v O’Malley, [1974] S.C.R. 592 at 606, 40 DLR (3d) 371, 11 CPR (2d) 206. In short, equity is concerned, not only to compensate the plaintiff, but to enforce the trust which is at its heart.” (emphasis added)

469. Thirdly, the “basic obligation” of a fiduciary is to act in the interests of another (per Riberio PJ at §74):

“74.     ... [and] may find expression in various ways, depending on the circumstances: He may be said to be under a duty to act in good faith; not to make a profit out of his trust; not to place himself in a position where his duty and his interest may conflict; or not to act for his own benefit or the benefit of a third person without the informed consent of his principal.”

470. Fourthly, adopting the analysis of Tipping J in BNZ v NZ Guardian Trust Co Ltd [1999] 1 NZLR 664 , there are three categories of breaches of fiduciary duties and strict rules on causation apply in respect of the first two categories of breaches, mirroring those developed in relation to traditional trusts, such that the common law rules as to foreseeability and remoteness are inapplicable. The current case, involving misapplied assets, falls into the first category[1132]. As Ribeiro PJ stated at §§75 – 79:

“75. Where a fiduciary has committed a breach of some such fiduciary duty, it may be important to ascertain what impact that breach has had on any relevant trust property. As Tipping J pointed out, it is possible to distinguish three categories of breach with particular reference to their impact on the trust estate:

“Breaches of duty by trustees and other fiduciaries may broadly be of three different kinds. First, there are breaches leading directly to damage to or loss of the trust property; second, there are breaches involving an element of infidelity or disloyalty which engage the conscience of the fiduciary; third, there are breaches involving a lack of appropriate skill or care. It is implicit in this analysis that breaches of the second kind do not involve loss or damage to the trust property, and breaches of the third kind involve neither loss to the trust property, nor infidelity or disloyalty.”

76. It is of course true that in every case, there must be shown to be “some causal connection between the breach of trust and the loss to the trust estate for which compensation is recoverable, viz the fact that the loss would not have occurred but for the breach...” However, the authorities show that the rules on causation are of varying strictness depending on the type of duty and breach in question.

77. Tipping J’s third category of breaches involving a lack of appropriate skill or care is not relevant on the facts of the present case. However, it may be noted that the fiduciary relationship in such cases merely provides a setting for a duty which is indistinguishable from a common law duty of care. Albeit arising in a fiduciary context, the common law rules as to causation, foreseeability and remoteness generally apply to such claims.

78. On the other hand, in cases within Tipping J’s first category, involving loss caused by the fiduciary to trust property, strict rules on causation apply. These are rules borrowed from those developed in relation to traditional trusts, requiring the trustee to restore to the trust fund what he has caused it to lose as a result of his breach of trust. In Target Holdings Ltd v Redferns, Lord Browne-Wilkinson explained the traditional rule as follows:

“In such a case the basic rule is that a trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation for such loss. ... If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed. ... Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred ...Thus the common law rules of remoteness of damage and causation do not apply.”

79. Tipping J held that a breach of fiduciary duty in his first category is to be equated with such a breach of trust and treated with equal strictness. Causation is established on a “but for” basis without the constraints of the common law causation rules on remoteness and foreseeability:

“In the first kind of case the allegation is that a breach of duty by a trustee has directly caused loss of or damage to the trust property. The relief sought by the beneficiary is usually in such circumstances of a restitutionary kind. The trustee is asked to restore the trust estate, either in specie or by value. The policy of the law in these circumstances is generally to hold the trustee responsible if, but for the breach, the loss or damage would not have occurred. This approach is designed to encourage trustees to observe to the full their duties in relation to the trust property by imposing upon them a stringent concept of causation. Questions of foreseeability and remoteness do not come into such an assessment.”;

471. The Court of Final Appeal also set out in detail the principles relating to the remedy of equitable compensation and a fiduciary’s entitlement to an account. Moreover, Lord Millett NPJ carefully explained in his short but cogent judgment why it is incorrect to assert that account and equitable compensation are alternative remedies:

“167. It is often said that the primary remedy for breach of trust or fiduciary duty is an order for an account, but this is an abbreviated and potentially misleading statement of the true position. In the first place an account is not a remedy for wrong. Trustees and most fiduciaries are accounting parties, and their beneficiaries or principals do not have to prove that there has been a breach of trust or fiduciary duty in order to obtain an order for account. Once the trust or fiduciary relationship is established or conceded the beneficiary or principal is entitled to an account as of right. Although like all equitable remedies an order for an account is discretionary, in making the order the court is not granting a remedy for wrong but enforcing performance of an obligation.

168. In the second place an order for an account does not in itself provide the plaintiff with a remedy; it is merely the first step in a process which enables him to identify and quantify any deficit in the trust fund and seek the appropriate means by which it may be made good. Once the plaintiff has been provided with an account he can falsify and surcharge it. If the account discloses an unauthorised disbursement the plaintiff may falsify it, that is to say ask for the disbursement to be disallowed. This will produce a deficit which the defendant must make good, either in specie or in money. Where the defendant is ordered to make good the deficit by the payment of money, the award is sometimes described as the payment of equitable compensation; but it is not compensation for loss but restitutionary or restorative. The amount of the award is measured by the objective value of the property lost determined at the date when the account is taken and with the full benefit of hindsight.

169. But the plaintiff is not bound to ask for the disbursement to be disallowed. He is entitled to ask for an inquiry to discover what the defendant did with the trust money which he misappropriated and whether he dissipated it or invested it, and if he invested it whether he did so at a profit or a loss. If he dissipated it or invested it at a loss, the plaintiff will naturally have the disbursement disallowed and disclaim any interest in the property in which it was invested by treating it as bought with the defendant’s own money. If, however, the defendant invested the money at a profit, the plaintiff is not bound to ask for the disbursement to be disallowed. He can treat it as an authorised disbursement, treat the property in which it has been invested as acquired with trust money, and follow or trace the property and demand that it or its traceable proceeds be restored to the trust in specie.

170. If on the other hand the account is shown to be defective because it does not include property which the defendant in breach of his duty failed to obtain for the benefit of the trust, the plaintiff can surcharge the account by asking for it to be taken on the basis of “wilful default”, that is to say on the basis that the property should be treated as if the defendant had performed his duty and obtained it for the benefit of the trust. Since ex hypothesi the property has not been acquired, the defendant will be ordered to make good the deficiency by the payment of money, and in this case the payment of “equitable compensation” is akin to the payment of damages as compensation for loss.

171. In an appropriate case the defendant will be charged, not merely with the value of the property at the date when it ought to have been acquired or at the date when the account is taken, but at its highest intermediate value. This is on the footing either that the defendant was a trustee with power to sell the property or that he was a fiduciary who ought to have kept his principal informed and sought his instructions.

172. At every stage the plaintiff can elect whether or not to seek a further account or inquiry. The amount of any unauthorised disbursement is often established by evidence at the trial, so that the plaintiff does not need an account but can ask for an award of the appropriate amount of compensation. Or he may be content with a monetary award rather than attempt to follow or trace the money, in which case he will not ask for an inquiry as to what has become of the trust property. In short, he may elect not to call for an account or further inquiry if it is unnecessary or unlikely to be fruitful, though the court will always have the last word.”

472.  The following principles are of particular relevance to the present case:

(1)  The underlying premise of equitable compensation is that a fiduciary who has misappropriated assets has a duty to restore the lost property (per Ribeiro PJ at §87:)

“87. Equitable compensation rests on the premise that the basic duty of a trustee or fiduciary who has misappropriated assets or otherwise caused loss or damage to the trust estate in breach of his duty is to restore the lost property to the trust (together with an account of profits if applicable). Where restoration in specie is not possible, the Court may order equitable compensation in place of restoration.” (footnotes omitted)

Accordingly, equitable compensation “is not compensation for loss but restitutionary or restorative” (per Lord Millett NPJ at §168).

(2)  The effect of the inapplicability of common law rules of foreseeability and remoteness is that equitable compensation is assessed at the time of judgment with the full benefit of hindsight, see per Ribeiro PJ at §§90-91:

“90.  As we have seen, in pursuing the restorative objective of equitable compensation, the common law rules requiring the loss to be foreseeable and not too remote do not apply.  The Court is therefore entitled to assess compensation “with the full benefit of hindsight”.

91.  Consequently, the loss is assessed at the time of judgment and the Court is entitled to take into account any post-breach changes affecting the value of the lost trust property. McLachlin J, following Wilson J, cited with approval the following passage from the judgment of Street J in Re Dawson: Union Fidelity Trustee Co v Perpetual Trustee Co:

“... in a claim against a defaulting trustee ... his obligation has always been regarded as tantamount to an obligation to effect restitution in specie; such an obligation must necessarily be measured in the light of market fluctuations since the breach of trust; and in my view it must also necessarily be affected, where relevant, by currency fluctuations since the breach.”” (emphasis added, footnotes omitted)

(3) The burden is on a defaulting fiduciary to disprove the apparent causal connection between the breach of duty and the loss arising therefrom. As Ribeiro PJ held (at §§93-95):

“93. Where the plaintiff provides evidence of loss flowing from the relevant breach of duty, the onus lies on a defaulting fiduciary to disprove the apparent causal connection between the breach of duty and the loss (or particular aspects of the loss) apparently flowing therefrom.

94. Tipping J so held in BNZ v NZ Guardian Trust Co Ltd. Similarly, when in Maruha Corporation and Muruha (NZ) Ltd v Amaltal Corporation Ltd, a defaulting fiduciary sought an offset against the compensation payable for its default, the Court required it to show that the proposed offset “was an incontrovertible benefit to the person to whom the fiduciary duty was owed” emphasising “that it is for the defaulting fiduciary to establish that such a benefit has been gained.”

95. Another instance is found in the judgment of Mason J in Hospital Products, when dealing with a defaulting fiduciary who has “so mixed an indeterminate profit with his own property as to render the identification of the gain impossible”. In such a situation, “... the whole will be treated as trust property, except so far as he may be able to distinguish what is his own”. His Honour also suggested that in a case where a fraudulent fiduciary acquired a profit through a combination of trust property and his own property or efforts, “It may well be that equity in such circumstances will not seek to apportion the gain”.” (emphasis added, footnotes omitted)

473. The Supreme Court of New Zealand (Elias CJ, Blanchard, Tipping, McGrath and Anderson JJ) in Maruha Corporation and Muruha (NZ) Ltd v Amaltal Corporation Ltd [2007] NZSC 40 cited, by Ribeiro PJ (at §94), confirmed that a defaulting fiduciary is not entitled to any deduction or offset against the quantum of compensation for which it is liable unless the offset is in respect of a clear and manifest benefit conferred by the fiduciary. Moreover, the onus is on the errant fiduciary to establish any such benefit. As Blanchard J stated (at §§29 – 30):

“We accept the submissions of [Counsel for the plaintiff appellants] that where a defaulting fiduciary seeks an offset against the compensation payable for its default, it must show that what is to be offset was an incontrovertible benefit to the person to whom the fiduciary duty was owed; and that it is for the defaulting fiduciary to establish that such a benefit has been gained. Counsel derived the first of these propositions from the law of restitution. Mr Miles cited to us from the judgment of McLachlin J for the Supreme Court of Canada in Peel (Regional Municipality) v Canada:

An “incontrovertible benefit” is an unquestionable benefit, a benefit which is demonstrably apparent and not subject to debate and conjecture. Where the benefit is not clear and manifest, it would be wrong to make the defendant pay, since he or she might well have preferred to decline the benefit if given the choice.

In a context like the present it would be wrong to make the party which has suffered from a fiduciary breach allow the errant fiduciary a deduction unless it is for a clear and manifest benefit conferred by the fiduciary. And when the fiduciary alleges that it has conferred such a countervailing benefit, it should be for the fiduciary to establish that this is so. The correct approach is that suggested in Bank of New Zealand v New Zealand Guardian Trust Co Ltd. Tipping J said in his concurring judgment that where a trustee or fiduciary has committed a breach of duty which involves an element of infidelity or disloyalty engaging the fiduciary’s conscience:

[O]nce the plaintiff has shown a loss arising out of a transaction to which the breach was material, the plaintiff is entitled to recover unless the defendant fiduciary, upon whom is the onus, shows that the loss or damage would have occurred in any event, ie without any breach on the fiduciary’s part. ... Policy dictates that fiduciaries be allowed only a narrow escape route from liability based on proof that the loss or damage would have occurred even if there had been no breach.

[The defendant] has not discharged this onus. It needed to show that in 1991, in order to take its share of the quota, [the plaintiff] must have paid the tax if [the defendant] had not itself done so (out of the overpayments). It called no evidence to support its assertion. Such evidence as exists is in fact to the contrary. [The defendant] has therefore failed to show that [the plaintiff] received an incontrovertible benefit of $1.2 million. It is not entitled to a deduction in that amount.” (emphasis added)

474. The principles relating to equitable compensation are well summarised by McLachlin J in Canson at 556, as cited by Ribeiro PJ at §96:

“In summary, compensation is an equitable monetary remedy which is available when the equitable remedies of restitution and account are not appropriate. By analogy with restitution, it attempts to restore to the plaintiff what has been lost as a result of the breach, i.e., the plaintiff's lost opportunity. The plaintiff’s actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing compensation, but it is essential that the losses made good are only those which, on a common sense view of causation, were caused by the breach. The plaintiff will not be required to mitigate, as the term is used in law, but losses resulting from clearly unreasonable behaviour on the part of the plaintiff will be adjudged to flow from that behaviour, and not from the breach. Where the trustee's breach permits the wrongful or negligent acts of third parties, thus establishing a direct link between the breach and the loss, the resulting loss will be recoverable. Where there is no such link, the loss must be recovered from the third parties.” (footnotes omitted)

475. A robust approach is to be adopted. In measuring the amount of equitable compensation, the Court’s approach “reflects the stern view taken of defaulting fiduciaries”. In this regard, “a fiduciary is precluded from setting up a case inconsistent with the obligations of his fiduciary position” (per Ribeiro PJ at §123). Both Ribeiro PJ and Lord Millett NPJ emphasized that where uncertainties existed due to a lack of documentary evidence, as a consequence of the fiduciary’s wrongdoing, the uncertainty would be construed against the defaulting fiduciary. In particular:

(1) Ribiero PJ stated (at §138):

“The evidential difficulties now faced by the Court form part of the consequences flowing from the defendant’s original wrongdoing as a defaulting fiduciary. In such circumstances, the Court adopts a robust approach. This was explained by Handley JA in the New South Wales Court of Appeal in Houghton v Immer, where equitable compensation was awarded in a case involving equitable fraud (but not a breach of fiduciary duty), as follows:

“The defendants are entitled to a set-off for the actual cost of the improvements, but there was no evidence of this cost. The accounting issue would normally be referred to a Master but the trial was not conducted on this basis. The defendants would have great difficulty in such an enquiry, since no attempt appears to have been made to keep separate records of the cost of constructing the improvements on the common property. ...

At this stage the Court should only remit the matter to a Master as a last resort, if no other course is fairly open. The defendants, having improved common property without lawful authority, and attempted to effect a fraud on the minority, are wrongdoers, and their failure to keep and produce proper accounts of their actual expenditure on the common property has made it difficult to assess the compensation due to the plaintiff. Compare Armory v Delamirie (1722) 1 Stra 505. ... In my judgment the Court should assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party ‘whose actions have made an accurate determination so problematic’. See WP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1990) 24 NSWLR 499 at 508.” (emphasis added, footnotes omitted)

(2) Lord Millett NPJ stated at (§174):

“Where the absence of evidence is the consequence of the fiduciary’s own breach of duty the court is not without resource, for it can have resort to three principles. First, it may be able to take the fiduciary at his own word and use his falsehoods to establish the facts as if they were true even though they are known to be untrue. Secondly the court is entitled to make every assumption against the party whose conduct has deprived it of necessary evidence. And thirdly the court is entitled to be robust and do rough and ready justice without having to justify the amount of its award with any degree of precision.” (emphasis added) ”

424.  These principles apply to the present claim. It is not in dispute that DBS Trustee was under a fiduciary duty to the Trust.  I am satisfied that the breaches of duty by DBS Trustee, that I have found to have been established, have directly caused loss of the assets of the Trust in that they have directly led to diminution of the value of the assets held in Wise Lords’ portfolio.  Our case also falls into the first category identified by Ribeiro PJ above[1133], being a case where the breaches of duty by DBS Trustee have led directly to losses being suffered by Wise Lords’ portfolio, i.e. a case where “there are breaches leading directly to damage to or loss of the trust property”.

425.  This is a case where it is appropriate to award equitable compensation against DBS Trustee in favour of Arboit and Sutton, that is to say, not compensation for loss but compensation that is restitutionary or restorative.  I do not find any assistance from the plaintiffs’ submissions on the basis upon which I should award equitable compensation[1134]. It is not necessary to order an account as the assets in Wise Lords’ portfolio are well documented. I intend to adopt a robust approach to assess the equitable compensation by, firstly, attempting to determine the value of the assets in Wise Lords’ portfolio on the date of the issue of the Writ in these proceedings on 28 February 2011; and, secondly, by attempting to assess what that value might have been on 11 February 2011 if Wise Lords had not acquired US$83m worth of AUD from 24 July to 5 August 2008 and had not purchased the 3 Decumulators but had carried out the other transactions listed in Arboit’s 2^nd Schedule that were unrelated to the purchases of US$83m worth of AUD from 24 July to 5 August 2008 and unrelated to the purchases of the 3 Decumulators[1135]; and, thirdly, by awarding the difference between the 2 values to Arboit and Sutton, being the trustees of the Trust, as equitable compensation.  I need further assistance from the financial experts, Das and Malik, to enable me to do so and I give further directions below for a further joint report to be obtained from them.

(2) The Claims against the Other Parties

426.  By reason of the findings I have made in Sections D to G above, I dismiss the claims of the other plaintiffs against the defendants other than the claims of Wise Lords against DHJ Management.

(a)     The claims against DBS Bank/DBS:PB

427.  The plaintiffs advanced many allegations against DBS Bank and its Private Banking Division, DBS:PB, in respect of investment transactions made in the course of the banking relationship and the credit facilities that were provided for those transactions.  Although DBS:PB, being a division of DBS Bank was not a separate legal entity, I prefer to make a distinction between DBS:PB and DBS Bank as they were engaged in different activities.  DBS:PB provided private banking services to Wise Lords and DBS Bank provided credit facilities to Wise Lords.

428.  It was claimed that DBS:PB (along with Linda Liu, Peter Lee and Edwin Lim) “assumed a statutory or common law duty of care” to Zhang and Ji[1136]:

(1) to act honestly and fairly in their dealings with the plaintiffs; and

(2) to exercise reasonable skill and care when providing investment advice or investment management advice or recommendations to the plaintiffs and in particular to ensure compliance with the so-called “Investment Risk Imperative”.

429.  It was also claimed that DBS Bank and DBS:PB “took on contractual, equitable and statutory duties” to Wise Lords and/or the Trust (as beneficial owner of Wise Lords)[1137]:

(1) To act honestly and fairly in their dealings with Wise Lords;

(2) Not to induce Wise Lords to deal in securities through the disclosure of false or misleading information (within the meaning of s.277 of the SFO);

(3) Not to induce Wise Lords to acquire or dispose of securities through any fraudulent or reckless or negligent misrepresentation (within the meaning of s.108 of the SFO);

(4) In its dealings with Wise Lords to comply with the requirements of the SFC Code, which requires DBS Bank and DBS:PB: (i) to act honestly and fairly in the best interests of Wise Lords;  (ii) to avoid conflicts of interest with Wise Lords;  (iii) to make full and accurate disclosure; (iv) to act responsibly, diligently and carefully in providing advice or recommendations to Wise Lords; and

(5) To exercise reasonable skill and care when advising Wise Lords, with particular responsibility to ensure compliance with the “Investments Risk Imperative”.

It was alleged that DBS Bank and DBS:PB breached the above duties and caused loss and damage to the plaintiffs.

430.  I find that DBS Bank, DBS:PB,  Linda Liu, Peter Lee and Edwin Lim did not owe any statutory or common law duties of care to Zhang and Ji. The banking relationship between the bank and its customer was exclusively governed by contract. In this case, the only contract was between DBS Bank, DBS:PB and Wise Lords. I also find that DBS Bank and DBS:PB did not owe any contractual or statutory duties to the Trust. The fact that the single share in Wise Lords formed the asset of the Trust did not make the Trust a party to the banking contract.

431.  It was common ground that DBS Bank and DBS:PB owed to Wise Lords, the duties to act honestly and fairly and to act with reasonable skill and care, being implied duties arising from the banking relationship between DBS Bank, DBS:PB and Wise Lords. Apart from the exaggeration of Ji’s abilities and exaggerations by Linda Liu of Ji’s and Zhang’s assets to support the increased credit facilities, no breach of any such duty occurred such as, for example, a failure to execute a trade accurately and without delay.  The exaggeration of Ji’s abilities did not cause any loss and damage as Ji quickly became an astute and experienced investor[1138]. The exaggerations by Linda Liu of Ji’s and Zhang’s assets to support the increased credit facilities[1139] was a wrong done by Linda Liu to DBS Bank who granted the facilities and did not create a cause of action in favour of any of the plaintiffs.  If I am wrong to make these findings, I would find, nevertheless, that the exaggerations by Linda Liu of Ji’s abilities and Ji’s and Zhang’s assets to support the increased credit facilities did not cause any loss or damage to any party, such that any breach of contractual duty by DBS:PB to Wise Lords would only attract an award of nominal damages.  Wise Lords did not suffer any loss or damage from the grant of the credit facilities or the increased credit facilities: they were suffered from the substantial purchase of AUDs from 24 July 2008 to 5 August 2008 and the purchase of the 3 decumulators.

432.  On my construction of the express contractual arrangements between the parties, the relationship between Wise Lords and DBS Bank, and DBS:PB was not advisory but transaction execution only.  DBS Bank and DBS:PB did not assume either contractual or common law duties of care to advise and/or ensure the suitability of investments for Wise Lords. Given that the relationship between Wise Lords and DBS:PB was not advisory but transaction execution only, the complaints by Das of inadequate disclosure did not amount to a breach of any express contractual duty.  I also find, given that the relationship was transaction execution only and given the extent of the disclosure that had been made, that the complaints by Das of inadequate disclosure did not amount to a breach of the implied the duties to act honestly and fairly and to act with reasonable skill and care.

433.  Although sections 108 and 277 of the SFO have been referred to in sub-paragraphs (2) and (3) of §429 above, no case has been pleaded or advanced based on section 277 of the SFO or in respect of any alleged misrepresentation within the meaning of section 108 of the SFO.

434.  Although the SFC Code was relied upon, how SFC Code was incorporated into the contract between the parties was not pleaded. I find that the SFC Code was not incorporated into the contract between DBS Bank, DBS:PB and Wise Lords.

  It has been stated in Snell’s Equity(33^rd ed.) at 7-005:

“The reason fiduciary duties do not commonly arise in commercial settings outside the settled categories of fiduciary relationships is that it is normally inappropriate to expect a commercial party to subordinate its own interests to those of another commercial party.”

In DBS Bank (HK) Ltd. v San-Hot HK Industrial Co. Ltd. [2013] 4 HKC 1, the defendants abandoned their claim at trial that fiduciary duties were owed by the bank towards them and Deputy High Court Judge Pow commended them for doing so[1140]:

“It can be seen from Deutsche Bank AG v Chang Tse Wen[1141] that the establishment of a fiduciary relationship in relatively similar commercial settings requires ‘exceptional circumstances’.”

I can find no “exceptional circumstances” in the present case which would have required DBS Bank or DBS:PB to subordinate its interests to those of Wise Lords, or which would have justified the parties in believing that this would have been necessary or appropriate. The relationship which arose between the bank and Wise Lords was a banker-customer relationship governed by express contractual documents.

436.  For the reasons set out in Section G (2), the plaintiffs’ claims for damages for misrepresentation in respect of redemption restrictions are dismissed.

(b)  The claims against DBS Corporate

437.  On 13 September 2005, a Services Agreement, governed by Hong Kong law, was made between DBS Corporate, Wise Lords and DBS Trustee as trustee of the Trust, whereby DBS Corporate agreed to provide services specified in Schedule II of the agreement in relation to Wise Lords, including the incorporation of Wise Lords, the provision of a Nominee Director, Company Secretary services, the provision of a correspondence address and the provision of bank authorised signatories[1142]. The relationship between DBS Corporate, Wise Lords and DBS Trustee was the subject of this agreement by which DBS Corporate was to perform or appoint one or more persons/companies as nominees (collectively the “Nominees”, which expression was stated in the agreement to include DBS Corporate) to perform the services. The services specified were in the nature of record keeping, signatory, correspondence and provision of nominee director. The role played by DBS Corporate in relation to Wise Lords after the Trust was set up in January 2005 and prior to the Services Agreement was essentially the same and the Services Agreement served to formalise the arrangement[1143].

438.  After Ji transferred her one share in Wise Lords to DBS Trustee in the course of the setup of the Trust, DBS Trustee nominated DHJ Management (at the time still a subsidiary of DBS Trustee) to act as director of Wise Lords. After DHJ Management became a subsidiary of DBS Corporate on 17 August 2005, DHJ Management continued to act as DBS Corporate’s nominated director of Wise Lords[1144].

439.  Clause 3 of the Services Agreement provided inter alia that:

(1)  None of the Nominees was to be liable to DBS Trustee as trustee of the Trust or Wise Lords except in the case of bad faith or negligence of the Nominees;

(2)  Except when caused solely by the actions (including inaction) of the Nominees done in bad faith or in the case of gross negligence of the Nominees, DBS Trustee and/or Wise Lords were to indemnify and keep indemnified each of the Nominees and their agents on demand against all costs, expenses and liabilities for which any of them might become liable or which might arise or occur and against all actions, claims, demands and proceedings which might be taken or made against any of them directly or indirectly in connection with the services or by reason of anything done or omitted to be done in relation to the services.

440.  I reject outright the plaintiffs contention that the Services Agreement was “a sham purported contract”[1145]. The services which DBS Corporate contracted to provide under the Services Agreement were indeed provided by it.

441.  The plaintiffs contend that DBS Corporate and DHJ Management each took on the following fiduciary duties to Wise Lords by accepting their respective appointments:

(1)  the duty to act honestly and loyally in the best interests of Wise Lords;

(2)  the duty to avoid actual or potential conflicts of interest;

(3)  the duty to exercise reasonable skill and care in the management of Wise Lords and in particular to ensure compliance with the Investment Risk Imperative[1146]; and that

(4)  the breaches allegedly committed by DBS Corporate and DHJ management are, by and large, the ones alleged with regard to DBS Trustee.

Applying the principles set out in §435 above, I find that the relationship between Wise Lords and DBS Corporate did not give rise to any fiduciary duties. Whether before or after the execution of the Services Agreement, there was nothing “exceptional” in the relationship (one of corporate services provision) that warranted the designation of DBS Corporate as a fiduciary of the company.

442.  The acts and omissions of DBS Corporate mentioned in §§410-411 above were committed as the agent of DBS Trustee in respect of which I have already found DBS Trustee liable. DBS Corporate was not in breach of its Services Agreement with Wise Lords.

(c)      The claims against DHJ Management

443.  DHJ Management, on the other hand, as director of Wise Lords owed the duties of a director to Wise Lords. Even though it was providing directorship services pursuant to the Services Agreement, it was subject to, and had to properly discharge, the duties of a director.  These duties included the duty to Wise Lord to act bona fide in the best interests of the company; and to exercise reasonable care, skill and diligence in the performance of their functions and their management of the company’s affairs.

444.  As explained by Mayes, during the time that he and Colin Walker served as directors of DHJ Management from 13 December 2006 (until 8 July 2008 for Mayes), they acted in two capacities in relation to the Trust – both as directors of the trustee and as directors of the underlying company’s corporate director:

“During my time as DHJ Management’s director between December 2006 and July 2008, [the] portfolio summaries and other information regarding Wise Lords’ investments were also considered by me and Colin Walker or our respective alternate directors, in our capacity as DHJ Management’s directors, for the purpose of discharging DHJ Management’s duties as the director of Wise Lords[1147].

...

“...both Colin and I were on the board of directors of both DBS Trustee and DHJ Management at the time. Hence, if an investment was reviewed by Colin and me, we would have attended to the matter at the same time in both capacities. If the investment was reviewed by either one of us and the third Jersey based director of DBS Trustee at the Trustee level, Colin or I would also have attended to the matter in the capacity as the director of DHJ Management at the same time. The investment would then have been further reviewed by Colin or I (whoever not yet involved in the review) or our respective alternate directors in our capacity as the director of DHJ Management. After due consideration, we would have informed DBS Corporate of DBS Trustee (the Trustee) and DHJ Management (the Director)’s views on these investment transactions. If considered necessary, further information and clarification would have been sought. I wish to point out that detailed terms of the proposed investment were not always the main concern of the Trustee and the Directors as they should have been considered by the Investment Advisor before initiating the transaction[1148]”.

445.  I have already found that DHJ Management was entitled to authorise Ji to execute investment transactions on behalf of Wise Lords and that Ji’s power to direct investments was subject to the power of the DBS Trustee and DHJ Management to override Ji’s decisions or reverse the transactions she conducted for Wise Lords[1149].

446.  The duties of a company director who has delegated particular functions have been summarised by Morritt L.J. in Re Barings plc (No. 5) [2000] 1 BCLC 523 (C.A.) per at 535i - 536c, §36:

“In section IIIB Jonathan Parker J considered the duties of directors by reference to the authorities he cited. For our purposes it is sufficient to cite from his summary in para B7 (at 489) with which we agree. The judge said:

‘(i)     Directors have, both collectively and individually, a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company’s business to enable them properly to discharge their duties as directors.

(ii)    Whilst directors are entitled (subject to the articles of association of the company) to delegate particular functions to those below them in the management chain, and to trust their competence and integrity to a reasonable extent, the exercise of the power of delegation does not absolve a director from the duty to supervise the discharge of the delegated functions.

(iii)   No rule of universal application can be formulated as to the duty referred to in (ii) above. The extent of the duty, and the question whether it has been discharged, must depend on the facts of each particular case, including the director’s role in the management of the company.”

447.  I refer to §§31, 33, 35 and 37 above. On 17 August 2005, DHJ Management became a wholly owned subsidiary of DBS Corporate. DHJ Management did not have any employees and the work of DHJ Management in Hong Kong was performed by DBS Corporate, whose work was, in turn, performed by the colleagues of Peter Lee at DBS Bank’s Trust and Corporate Services Department. The operational duties performed by DBS Corporate for DBS Trustee set out in §33 above, such as sending Investment Application forms to DBS Trustee for approval, sending Notifications of Activities forms, sending applications to DBS Trustee to accept offers to increase credit facilities, keeping DBS Trustee informed regularly of the state of Wise Lords portfolio, posing detailed queries to DBS:PB on proposed investments, that were done to enable and facilitate DBS Trustee to perform its trustee functions, were also done to enable and facilitate DHJ Management to perform and discharge its duty as director of Wise Lords.  Just as DBS Corporate acted as agent of DBS Trustee in respect of the above operational matters so it also acted as agent of DHJ Management in respect of the same operational matters which were done to enable and facilitate DHJ Management to perform and discharge its duty as director of Wise Lords.

448.  I refer to my findings in §407 above.  For the same reasons as set out therein, I find that, in approving the further purchases of US$83m worth of AUD from 24 July 2008 to 5 August 2008, DHJ Management failed to discharge their duties as a director of Wise Lords to act in the best interests of the company and to exercise reasonable care, skill and diligence in the performance of their functions and their management of the company’s affairs.  For the same reasons as set out therein, I find that DHJ Management acted in a negligent manner and that their degree of negligence was a serious or flagrant degree of negligence.

449.  I refer to my findings in §408 above.  For the same reasons as set out therein, I find that, in approving the increased credit facility at the end of August 2008, DHJ Management failed to discharge their duties as a director of Wise Lords to act in the best interests of the company and to exercise reasonable care, skill and diligence in the performance of their functions and their management of the company’s affairs.  For the same reasons as set out therein, I find that DHJ Management acted in a negligent manner and that their degree of negligence was a serious or flagrant degree of negligence.

450.  I refer to my findings in §409 above.  For the same reasons as set out therein, I find that, in approving the purchase of the 3 decumulators, DHJ Management failed to discharge their duties as a director of Wise Lords to act in the best interests of the company and to exercise reasonable care, skill and diligence in the performance of their functions and their management of the company’s affairs.  For the same reasons as set out therein, I find that DHJ Management acted in a negligent manner and that their degree of negligence was a serious or flagrant degree of negligence.

451.  I refer to my findings in §§410-411 above. For the same reasons as set out therein, I find that DHJ Management are liable for those acts and omissions of DBS Corporate who was their agent. I also repeat my findings in §411 above.

452.  The defendants have relied on Clause 3(a) of the Services Agreement as exempting DHJ Management from liability.  By reason of my findings above, Clause 3(a), which exempts liability on the part of DHJ Management “except in the case of bad faith or negligence of the Nominees [including DHJ Management]” does not apply to the present case.  The defendants also counterclaim for an indemnity in reliance on Clause 3(b) and Clause 7 of the Services Agreement. Clause 7 must be construed together with Clause 3(b) which requires Wise Lords to indemnify DHJ Management except “in the case of gross negligence of the Nominees [including DHJ Management]”. Again, by reason of my findings above that this was a case of gross negligence on the part of DHJ Management and their agent, DBS Corporate, the counterclaim fails and is dismissed.

453.  I now consider whether the relief of equitable compensation is available against DHJ Management. This turns on whether or not the duties breached by DHJ Management were fiduciary duties. Ribeiro PJ dealt with this question in Libertarian Investments Limited v Thomas Alexej Hall (2013) 16 HKCFAR 681 in the following manner at pp.703-706:

“F.1 Fiduciary relationships

53. Certain relationships have traditionally been accepted as fiduciary in nature, namely, the relationships between trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and between partners.[1150]

54. However, even within such a relationship, the specific obligation breached may not be fiduciary in nature. As Brennan CJ put it in Breen v Williams:[1151]

‘It is erroneous to regard the duty owed by a fiduciary to his beneficiary as attaching to every aspect of the fiduciary's conduct, however irrelevant that conduct may be to the agency or relationship that is the source of fiduciary duty.’

55. And in Bristol and West Building Society v Mothew,[1152] Millett LJ (as Lord Millett then was) endorsed the following comment of Ipp J:

‘It is essential to bear in mind that the existence of a fiduciary relationship does not mean that every duty owed by a fiduciary to the beneficiary is a fiduciary duty. In particular, a trustee's duty to exercise reasonable care, though equitable, is not specifically a fiduciary duty...’[1153]

56. The converse is also true. Although the parties’ relationship may be generally non-fiduciary, particular obligations may import fiduciary duties and equitable remedies.

57. Thus, in the Hospital Products Ltd v United States Surgical Corp, Mason J noted that in cases where a comprehensive fiduciary relationship does not exist:

‘ ... it does not exclude the existence of a more limited fiduciary relationship for it is well settled that a person may be a fiduciary in some activities but not in others.’[1154]

58. Similarly, Blanchard J, in the New Zealand Supreme Court stated:

‘It is well settled that, even in a commercial relationship of a generally non-fiduciary kind, there may be aspects which engage fiduciary obligations of loyalty. That is because in the nature of that particular aspect of the relationship one party is entitled to rely upon the other, not just for adherence to contractual arrangements between them, but also for loyal performance of some function which the latter has either agreed to perform for the other or for both or has, perhaps less formally, even by conduct, assumed.’[1155]

59. Hence, as Tipping J pointed out in Bank of New Zealand v New Zealand Guardian Trust Co Ltd,[1156] the important focus is on the nature of the obligation in question:

‘Historically the law has tended to place emphasis on the classification of the relationship giving rise to the obligation. But more recently, for certain purposes at least, there has been a shift of emphasis from the classification to the nature of the obligation, or duty, as it is usually called. Thus the nature of the duty which has been breached can often be more important, when considering issues of causation and remoteness, than the particular classification or historical source of that duty.’

F.2 Obligations importing fiduciary duties

60. The authorities show that a person attracts fiduciary duties where he undertakes an obligation to act in the interests of another. As Mason J expressed it in Hospital Products Ltd v United States Surgical Corp:

‘[An] entitlement to act in one’s own interests is not an answer to the existence of a fiduciary relationship, if there be an obligation to act in the interests of another. It is that obligation which is the foundation of the fiduciary relationship, even if it be subject to qualifications including the qualification that in some respects the fiduciary is entitled to act by reference to his own interests.’[1157]

61. Similarly, in Breen v Williams,[1158] Gummow J stated:

‘Fiduciary obligations arise (albeit perhaps not exclusively) in various situations where it may be seen that one person is under an obligation to act in the interests of another.’”

Applying these principles, I conclude that the duty of DHJ Management to act bona fide in the best interests of Wise Lords is a fiducial obligation, the breach of which entitles Wise Lords to claim the relief of equitable compensation against DHJ Management.

454.  I refer to §423 above. These principles apply to the present claim. I am satisfied that the breaches of duty by DHJ Management, that I have found to have been established, have directly caused loss of the assets of Wise Lords in that they have directly led to diminution of the value of the assets held in Wise Lords’ portfolio.  The present claim also falls into the first category identified by Ribeiro PJ above[1159], being a case where the breaches of duty by DHJ Management have led directly to losses being suffered by Wise Lords’ portfolio, i.e. a case where “there are breaches leading directly to damage to or loss of the trust property”.

455.  This is a case where it is appropriate to award equitable compensation against DHJ Management in favour of Wise Lords, that is to say, not compensation for loss but compensation that is restitutionary or restorative.  As I stated in §423 above, it is not necessary to order an account as the assets in Wise Lords’ portfolio are well documented. I intend to adopt the same robust approach to assess the equitable compensation by the same exercise as set out in §425 above.

456.  I am satisfied that Wise Lords have established their claims against DHJ Management as pleaded in §§44(4), §§72-74, §§75-81, §§105(3) and (4), and §106(4) of the RASOC and are entitled to the reliefs claimed against DHJ Management under sub-paragraph (5) of the RASOC for equitable restitution to Wise Lords for breach of fiducial obligations in order to reconstitute the assets of Wise Lords so as to place Wise Lords in the position it would have occupied but for the said breaches.

457.  I have made a similar finding in favour of Arboit and Sutton against DBS Trustee. As the Trust owns the entire shareholding of Wise Lords it owns, via its shareholding, the assets Wise Lords.  The law does not permit double recovery. If Arboit and Sutton obtain complete satisfaction from DBS Trustee, then Wise Lords cannot seek equitable compensation from DHJ Management and vice versa.  If Arboit and Sutton obtain partial satisfaction from DBS Trustee, then Wise Lords can seek equitable compensation from DHJ Management for the balance and vice versa. 

458.  I am not satisfied that the plaintiffs, or any of them, have any valid claims against DHJ Management, other the claims of Wise Lords in respect of the matters set out in the preceding paragraphs. For the reasons set out in §§419 to 421, I find that DHJ Management were not in breach of its duty as director of Wise Lords in respect of the matters set out therein.

(d)     The claims against Linda Liu, Peter Lee and Edwin Lim

459.  The plaintiffs’ pleaded case against the individual defendants is that Peter Lee, Edwin Lim and Linda Liu all assumed statutory or common law duties of care to Zhang and Ji[1160], which they had breached by the conduct alleged in §102 of RASOC[1161]. The alleged conduct related to advocating the trust and company management structures, pressing Ji to provide a personal guarantee, advising Wise Lords to concentrate on China-focused mutual funds and trading on margin, making the “No Call Representation”, and generating “false”, “forged”, “misleading” and/or “disingenuous” documents.

460.  It was asserted that Peter Lee and Linda Liu are liable in damages to Zhang and Ji for these breaches[1162], and that Peter Lee, Edwin Lim and Linda Liu are also liable to pay damages or equitable compensation either to the Trust or to Wise Lords for his or her knowing assistance in fraudulent or dishonest wilful breaches of trust by DBS Trustee and dishonest breaches of fiduciary duty by each of DBS Corporate and DHJ Management[1163].

461.  I refer to my finding in §430 above. These claims against the individual defendants fail. I can see no basis to find that the individual defendants assumed statutory or common law duties of care to Zhang and Ji. The customer of the bank was Wise Lords (not Zhang or Ji) and its relationship with DBS Bank and DBS:PB (and individual bank officers) was one defined and governed by contract. Whilst Ji was the person who had dealings and interactions with the bank personnel, she did so for and on behalf of Wise Lords (first as the company’s sole director and subsequently as its Investment Advisor).

462.  In addition, the high-level, supervisory positions which Peter Lee and Edwin Lim occupied within DBS Bank and DBS:PB is another factor that strongly militates against the assumption of personal duties by them towards Zhang and Ji.

463.  My factual findings on the conduct of Linda Liu, Peter Lee and Edwin Lim appear in Sections D to G above.

(e)   The claims of knowing assistance

464.  I now deal with claims of “knowing assistance” that were advanced against DBS Bank, DBS:PB and the individual defendants with regard to the various alleged breaches of trust or fiduciary duties by DBS Trustee, DBS Corporate and/or DHJ Management.  I note that the only reference to “knowing assistance” is in §106(5) of the RASOC[1164] which pleaded the entitlement to a remedy.

465.  For a claim of knowing assistance to be established:

(1)  I would have to be satisfied that the alleged primary breaches by DBS Trustee, DBS Corporate and/or DHJ Management have been proved. Apart from the breaches of duty by DBS Trustee and DHJ Management which I have found to have been established, the plaintiff has failed to establish any other breaches of primary duty;

(2)  The plaintiffs also need to demonstrate not just knowledge but dishonesty on the part of the individual defendants: see Lewin on Trusts (19^th ed.) at 40-14 and 40-35.  On the findings that I have made, the plaintiffs have failed to establish the element of dishonesty.

466.  Further, Linda Liu did not occupy any positions within DBS Trustee, DBS Corporate or DHJ Management.  I have also found that she did not have any substantive involvement in the matters of the Trust.  Although I have faulted her conduct as Relationship Manager of DBS:PB, I find that she did not act dishonestly.

467.  Edwin Lim:

(1)  only became a director of DHJ Management on 1 October 2010, and a director of DBS Trustee on 8 December 2010[1165]; and

(2)  no evidence has been adduced to show that he had any participation in matters concerning the trust[1166].

468.  Peter Lee:

(1)  was appointed a director of DBS Corporate on 25 September 2007, and a director of DBS Trustee on 21 January 2008[1167]. Peter Lee was one of the authorised signatories of DHJ Management authorised to sign certain documents to facilitate daily operations.  As the authorised signatory, Peter Lee did not possess any decision making or management power over DHJ Management[1168];

(2)  at all material times, he was concerned solely with the provision of corporate services as an intermediary between DBS Trustee and DBS Bank and DBS:PB. I find that he did not engage in any dishonest assistance to any breach of trust.  The allegations of forgery made against Peter Lee have not been established.

469.  The claims of knowing assistance by DBS Bank, DBS:PB, Linda Liu, Peter Lee and Edwin Lim have not been established to my satisfaction.

470.  On 26 September 2014, I had ordered that:

“2.    the Plaintiffs’ application to re-amend the Amended Statement of Claim by inserting the word “knowing” in paragraph 44 of the draft Re-Amended Statement of Claim annexed to the Summons filed on 30 July 2014 be adjourned for argument in conjunction with the trial closing submissions fixed on 29 October 2014 at 10:00am;”

471.  In the transcript of that hearing I am recorded to have said that:

“COURT: ... I will adjourn the application of knowing assistance to final submissions and if I’m satisfied that [a] case of knowing assistance was originally made, then I will allow it. If I agree with you, Mr Burns, having seen the final submissions, that you are right, then I will not allow it. Right, shall we leave it on that basis? So I’m not allowing knowing assistance at this point in time, I’m adjourning that to the final submissions.[1169]”

472.  Even if a claim for knowing assistance by DBS Bank, DBS:PB, or by Linda Liu, Peter Lee and Edwin Lim, had been originally made, the claims have not been established to my satisfaction and I need not make any further order in respect of the proposed amendment to §44 of the RASOC.

(f)  Other than the claims of Arboit and Sutton against DBS Trustee and Wise Lords against DHJ Management, the claims against the defendants are dismissed

473.  The claims for breaches of duty on the part of DBS Bank, DBS:PB, Peter Lee, Linda Liu have not been established to my satisfaction.

474.  The claims against DBS Corporate have not been established to my satisfaction.

475.  The claims against DHJ Management have not been established to my satisfaction, other than the breaches of duty that I have found above to have been established.

476.  The claims knowing assistance have not been established to my satisfaction.

477.  Consequently, I dismiss the following claims made by the plaintiffs:

(1)  as against DBS Bank, DBS:PB, Peter Lee and/or Linda Liu, damages for alleged breaches of duty, pleaded in §102 of the RASOC[1170], in respect of (a) the structure adopted for the Trust (RASOC §42[1171]), (b) Ji’s guarantee of Wise Lords’ credit facilities (RASOC §52[1172]), (c) the alleged “No Call Representation” (RASOC §50[1173]), (d) the purchase of Mutual Funds focused on Mainland China (RASOC §51[1174]), and (e) the alleged false and/or forged and/or disingenuous documents (RASOC §§95 and 96[1175]);

(2)  As against DBS Bank and DBS:PB an account (and/or equitable restitution) in respect of its alleged breaches pleaded in §103 of the RASOC[1176], concerning the alleged churning of investments; the DEVA Note, the foreign exchange transactions (including the YED products), the decumulators and the margin investing;

(3)  as against DBS Trustee, an account (and/or equitable restitution) for the alleged breaches pleaded in §104 of the RASOC[1177]other than the breaches of duty that I have found above to have been established;

(4)  As against DBS Corporate an account (and/or equitable restitution) in respect of much the same matters as sought against DBS Bank and DBS:PB;

(5)  As against DHJ Management, an account (and/or equitable restitution) in respect of much the same matters as sought against DBS Bank and DBS:PB, other than the breaches of duty that I have found above to have been established;

(6)  As against DBS Bank, DBS:PB, Peter Lee, Edwin Lim and/or Linda Liu, damages or equitable compensation for alleged knowing assistance in the alleged breaches of duty on the part of DBS Trustee, DBS Corporate and DHJ Management.

478.  This type of “carpet bombing” litigation is to be frowned upon.  Raising multiple and serious allegations, some spurious, against every individual and entity involved with the Trust has resulted in this complex, costly and prolonged litigation.

(3)  Further Conduct of the Proceedings

479.  I refer to §§425, 455 and 457 above.  Unless the parties or any of them apply within 28 days to me to vary this direction, I direct that the solicitors for Arboit and Sutton and Wise Lords and the solicitors for DBS Trustee and DHJ Management jointly appoint and instruct Das and Malik to prepare an expert report within 42 days setting out the value of the assets in Wise Lords’ portfolio as at the date of the issue of the Writ in these proceedings on 11 February 2011; and, secondly, setting out their opinion on what that value might have been on 11 February 2011 if Wise Lords had not acquired US$83m worth of AUD from 24 July to 5 August 2008 and had not purchased the 3 decumulators but had carried out the other transactions listed in Arboit’s 2^nd Schedule that were unrelated to the purchases of US$83m worth of AUD from 24 July to 5 August 2008 and unrelated to the purchases of the 3 decumulators. The report should be filed in court when it is produced.

480.  Within 28 days of the said joint expert report being filed in court, the parties are to exchange and file written legal submissions[1178]; and within 14 days thereafter, the parties are to exchange and file written legal submissions in reply[1179].  These submissions should deal with the quantum of the award of equitable compensation that I should make against DBS Trustee and DHJ Management; interest; and costs of the proceedings.  I may give further directions for an oral hearing after I have received these submissions.  I also grant liberty to apply.

481.  I cannot conclude this judgment without expressing my gratitude to counsel for the assistance they have rendered to me.