DBS BANK (HONG KONG) LTD v. SIT PAN JIT

HCA 382/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 382 OF 2009

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J U D G M E N T
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I.  INTRODUCTION

1.  The plaintiff (“DBS”) was/is a licensed bank in Hong Kong.  The defendant (“Sit”) was/is a businessman/investor and former customer of DBS.  The present action concerned alleged “mis-selling” of financial products.  DBS claimed Sit sustained losses caused by adverse market conditions in 2008, but wrongfully failed/refused to meet margin calls for losses he sustained.  But Sit claimed DBS committed wrongs against him, including inter alia misrepresentation, breach of duties in tort (common law and statutory) and contract, and breach of fiduciary duties, in respect of ten equity-linked notes (“10 ELNs”). 

2.  In April 2004 Sit opened a private banking account with DBS (“Sit’s Account”), and between April 2004 and March 2008 he signed various banking documents, including (a) “Account Opening Form – Individual Account” dated 20 April 2004 (“Account Opening Form”), (b) facilities letter dated 28 April 2004 (“1^st Facilities Letter”), (c) “Charge on Cash Deposit(s) to Secure Liabilities of the Depositor(s)” dated 3 May 2004 (“Charge”), (d) “Mortgage over Stocks, Shares and Other Securities to Secure Liabilities of the Depositor” dated 3 May 2004 (“Mortgage”), (e) “General Commercial Agreement” dated 3 May 2004 (“General Agreement”), (f) facilities letter dated 27 July 2004 (“2^nd Facilities Letter”), (g) facilities letter dated 26 May 2006 (“3^rd Facilities Letter”) with “Terms and Conditions Governing Banking Facilities and Services” attached (“T&C”), (h) facilities letter dated 18 June 2007 (“4^th Facilities Letter”) with the T&C attached, (i) “ISDA Master Agreement for DBS Bank (Hong Kong) Limited” dated 3 March 2008 (“ISDA Agreement”).  Such banking documents together with the pre-July 2007 DBS Private Banking Account Master Agreement as varied from time to time (“Master Agreement”), which variation included amendments in July 2007, are referred to as the “Banking Documents” and the 1^st to 4^th Facilities Letters are referred to as the “Facilities Letters” in this Judgment.

3.  Some express terms/conditions of the Banking Documents are set out in Schedule A to this Judgment (“Schedule A”).  Except for certain clauses on “remote channel” and KODA accumulators, the terms/conditions of the Private Banking Agreement in DBS Bank (Hong Kong) Limited v San-Hot HK Industrial Company Limited & anor (“San‑Hot”)[1] were the same as or similar to those in Part B of Schedule A.  Mr Wong SC (and Mr Dawes with him), counsel for DBS, collated various provisions of the Banking Documents under different categories.  For convenience, I adopt their categorisation in Schedule B to this Judgment (“Schedule B”), and such provisions are referred herein as set out in the first column in Schedule B. 

4.  Between June 2004 and March 2008, Sit utilised credit facilities granted by DBS to purchase inter alia 69 equity-linked notes (“ELNs”) via Sit’s Account, and the ELNs were mortgaged/pledged to DBS as securities.  Particulars of the 10 ELNs are set out in Schedule C to this Judgment, and are referred individually as the “1^st to 10^th ELNs”.  The workings of the ELNs were explained in the reports by DBS’ expert Pawan Malik (“Malik”) and Sit’s expert Ronald Chung (“Chung”). 

5.  Basically, an ELN is a structured product with the final payout based on the return of the underlying equity (single stock or basket of stocks).  A “basket” ELN pays an attractive coupon provided the price of the equity stocks does not fall dramatically during its life, and the investor will benefit if the referenced basket of equity stocks stays above a pre-designed threshold level.  But if one of them falls below the pre-designed threshold level, the investor will receive reduced coupon or be exposed up to 100% loss of principal.  The 2^nd to 10^th ELNs were callable bull notes (“CB Notes”), and the 1^st ELN was a target accrual range note (“TARN”). 

6. For the CB Notes, each had a maturity of two years and its performance was linked to a basket of three locally listed equity stocks.  They had the following structural similarities: (a) the investor would earn an attractive coupon if all stocks in the basket stayed above a pre‑designed threshold level, (b) the ELN would redeem early at par if all stocks in the basket were above an agreed trigger threshold, and (c) if at final maturity all stocks were above an agreed knock-in threshold, the investor would receive par, otherwise he would receive shares of the worst performing stock.  In short, the CB Notes would pay an attractive contingent coupon and subject the investor to risk of reduced coupon and principal loss based on the performance of the underlying stocks measured by the relative difference between the price of each stock on the trade date and its current price.

7. The performance of the TARN was linked to the performance of a basket of six Japanese equity stocks with a guaranteed first coupon of 16% and a cap of 18% on the maximum coupon.  The investor needed to earn a further 2% coupon to reach the cap before the TARN structure would terminate early.  If the TARN was not terminated early, and one/more of the equity stocks fell considerably, the investor would be exposed to the possibility of loss of principal on the investment.

II.  PARTIES’ RESPECTIVE CASE

(a) DBS’ claim

8. DBS claimed that on 20 April 2004 Sit opened Sit’s Account which Sit agreed would be governed by the Master Agreement.  Between 2004 and 2008, he executed the Banking Documents, which constituted the contract between the parties (“Contract”), and DBS granted credit facilities to him pursuant to the Contract.  From February 2007 to January 2008 (ie when the 3^rd and 4^th Facilities Letters were in force), at Sit’s requests, DBS bought various investment products (including inter alia the 10 ELNs) for and on behalf of Sit.  Due to adverse market changes following the collapse of Lehman Brothers in 2008, there was significant drop in the mark-to-market value (“MTM Value”)[2] of Sit’s investments resulting in material depreciation of the securities held by DBS. 

9. As a result, DBS by letter dated 28 October 2008 demanded Sit to either furnish additional security to the value of HK$50,995,851.00 to cover the margin shortfall or pay such sum to reduce the indebtedness under his then outstanding credit facilities by the following day (“28/10/08 Letter”), but in breach of the Contract Sit failed to satisfy such demands.  On 25 November 2008, DBS exercised their right to sell a number of notes/shares held in Sit’s Account, and applied the total net proceeds towards reduction of Sit’s indebtedness.  By letter dated 18 December 2008, DBS demanded Sit to settle the sum of US$3,426,724.41 being the remaining shortfall/indebtedness under Sit’s Account (“18/12/08 Letter”), but Sit failed and still fails to do so.  On 13 February 2009, DBS commenced the present action to recover the sum of US$3,429,724.27 with interest and costs.

(b) Sit’s defence and counterclaim

10. Sit claimed there was an oral contract between the parties (whereby he agreed to engage the services of DBS in making investments for him and DBS agreed to so serve him) that contained the express terms as set out in paragraph 12(a) below (“Oral Contract”). Sit disagreed that the terms/provisions in the Banking Documents DBS relied on had been incorporated into any contract between him and DBS, and he further claimed the customer declarations therein had not been brought to his attention or explained to him, so such terms/provisions and declarations were not binding on him. 

11. However, Sit also contended that the Oral Contract with DBS was invalid and void for uncertainty and/or was unenforceable due to illegality by reason of breach of the Securities and Futures Ordinance Cap 571 (“SFO”) and the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“SFC”) in April 2003/May 2006 (“Code”).  It was Sit’s case that there was an implied condition of the Oral Contract and/or representation and/or warranty made on the part of DBS that they would comply with the provisions of the SFO and its subsidiary legislation and all relevant codes, guidelines, rules and regulations issued by the SFC, including the Code.

12. Sit claimed that DBS’ relationship manager (“RM”) Kong Tak-lap Dicky (“Kong”) made a series of misrepresentations to induce him to sign and enter into the Banking Documents and to make investment decisions that turned out to be inappropriate and unsuccessful:

(a) Kong made representations to Sit in April 2004 that (i) DBS would give Sit credit facilities for investment purpose, (ii) return from investments made by DBS for Sit would be more than the interest earned from cash deposits, (iii) Kong would be personally responsible for looking after Sit’s investments, and (iv) when Sit expressed he wanted investments that were “principal protected” “in the sense that at worst he would not be able to earn interest or yield from his investment only, but that he would not lose his entire principal sum for such investment”, Kong said DBS would not take up risky investments for him as they would be mortgaged to DBS as securities (“1^st Representations”);

(b) before the 2^nd Facilities Letter was signed by Sit, Kong made representations to Sit that DBS would like to increase his credit facilities from HK$100 million to HK$200 million, and there was no harm in accepting the same because (i) it would give Sit the flexibility of using further bank finances if necessary, (ii) it would be up to Sit to decide whether to make investments exceeding the amount of security of HK$90 million as deposited by him with DBS, and (iii) in any event Kong would not make investments for Sit which would exceed the security in the amount of HK$90 million (“2^nd Representations”);

(c) before the 3^rd Facilities Letter was signed by Sit, Kong made representations to Sit that (i) DBS would like to extend their services to Sit by allowing him to do investment by margin financing and to trade in forward forex contract and currency option, and (ii) in response to Sit’s suggestion that he was not interested in such extended services because they were risky and not consistent with his prudent investment policy, Kong said there was no harm to accept such extended services as they would give Sit flexibility in case he changed his mind and decided to so some margin investment, forward forex contract and currency option, and no interest would be charged if the additional services were not used (“3^rd Representations”);

(d) before the 4^th Facilities Letter was signed by Sit, Kong made representations to Sit that (i) DBS would like to extend their services to Sit by allowing him to do investment in forward forex par contract, accumulating par forward contract and/or knock out accumulator, and (ii) in response to Sit’s suggestion that he was not interested in such extended services as they were risky and not consistent with his prudent investment policy, Kong said there was no harm to accept such extended services as it would give him flexibility in case he changed his mind and decided to make the investment, and no interest would be charged if the additional services were not used (“4^th Representations”);

(e) Kong represented to Sit that (i) investing in notes, including ELNs, being merely interest-generating products, was safe, conservative and traditional (and this was reinforced by his use of phrases such as “insurance line” or “protection”), (ii) investing in ELNs was less risky than investing in products in the nature of mutual funds, and (iii) the ELNs were “structured” or tailor-made by Kong for Sit (“6^th Representations”).

(f) Sit invested in the 10 ELNs because Kong invariably assured him there was no problem and the investments would yield positive return at the end of the investments (“5^th Representations”).

Sit claimed he was induced by the 1^st to 6^th Representations (collectively, “Representations”) to deposit about HK$90 million with DBS and to use the investment services of DBS as proposed by Kong to purchase investment products, including the 10 ELNs.  Sit claimed the Representations, which were made recklessly or negligently, were false and made without reasonable grounds in support, and DBS was in breach of section 108 of the SFO (“Section 108”).  In particular, the 6^th Representations were false and (as DBS knew or ought to have known) made without reasonable grounds in support in that (1) the true nature, mechanism and risks of investing in ELNs were not adequately stated, (2) mutual funds were less risky as compared with ELNs, (3) the ELNs were not “structured” or tailor-made by Kong for Sit, and (4) the ELNs were intended to be investment products for professional investors in general and were not designed for Sit.

13. Sit claimed that DBS as salesperson and investment advisor owed to Sit various duties in contract and/or in tort and also fiduciary duties of care, which duties included the following:

(a) duty to act with due skill, care and diligence in the provision of services to Sit;

(b) duty to properly and accurately know and/or understand Sit’s financial objectives;

(c) duty to only recommend or propose to Sit investment products which were suitable for him, and if DBS were to recommend or propose to Sit an investment product which was of high risk and/or with exotic features, DBS would specifically and sufficiently point out these matters to Sit;

(d) a duty to competently, fully and accurately explain the nature, mechanism and risk of the investment products recommended or proposed to Sit;

(e) a duty to comply with the provisions of the SFO and its subsidiary legislation, and all relevant codes, guidelines, rules and regulations issued by the SFC, including the Code;

(f) a duty to disclose to Sit all relevant information governing the Oral Contract, act in the best interests of Sit, and not to put themselves in a position of conflict of interest or to earn benefit at the expense of Sit without his consent and knowledge.

Sit also claimed that section 5 of the Supply of Services (Implied Terms) Ordinance Cap 457 (“SSITO”) applied to the Oral Contract in that DBS must carry out their services to Sit with reasonable care and skill.

14. Sit claimed that if the contractual relationship between DBS and Sit was governed by the terms/provisions in the Banking Documents and by the disclaimers in the trade confirmations for the 10 ELNs (“Confirmations”) that purported to exclude or restrict DBS’ liability to Sit, such terms/provisions and/or disclaimers would be subject to the limits imposed by the Control of Exemption Clauses Ordinance Cap 71 (“CECO”) and the Misrepresentation Ordinance Cap 284 (“MO”), and DBS could not exclude or restrict their liability for breach of obligations arising in contract, in tort or under statute since the contractual terms relied by DBS (including the aforesaid terms/provisions and/or disclaimers) did not satisfy the requirement of reasonableness.

15. Sit contended there was breach of section 114 of the SFO by DBS in that Kong was not registered with the Hong Kong Monetary Authority (“HKMA”) to conduct Types 1, 4 and 9 activities until 28 June 2004 (but Sit’s Account was opened on 20 April 2004).  Sit claimed Kong was not qualified/competent to advise on securities and asset management and/or to advise on the opening of securities account for that purpose.

16. Sit complained that DBS (a) failed to make proper enquiry as to his risk tolerance in investments, (b) (well knowing he relied on them for advice) failed to provide sound and reasonable advice in relation to the Oral Contract, (c) failed to follow his instructions to invest in products that were “principal protected”, and (d) failed to warn him that investing in the 10 ELNs might not be “principal protected”.  Sit further complained that DBS by Kong and Kim-chuan Tew (“Tew”) made false declaration in the Account Opening Form, and Kong did not (i) explain the nature, terms and contents of the Banking Documents to him, (ii) provide him with the Risk Disclosure Statement and/or drew his attention to or explain to him or ask him to read Section K of the Master Agreement being a purported risk disclosure statement, (iii) inform/advise him (1) as to the “approved unsecured credit limit” and alleged applicable “Lending Ratio” in clause 4(i) of Section F of the Master Agreement, (2) as to the existence or relevance of the “current financing ratio” for determining the drawing limit in the 1^st and 2^nd Facilities Letters, (3) as to the “Loan-to-Value Ratio” (“LTV Ratio”) or “security coverage ratio(s)” in the 3^rd and 4^th Facilities Letters, and (4) to take independent legal advice before he signed the Banking Documents.

17. Sit averred he never agreed with DBS to invest by margin financing, and no margin “client agreement” had been signed by him.  He claimed DBS failed to inform him he had been trading on margin.  There was also breach of paragraphs 6 and 10 of Schedule 5 of the Code since (a) none of the Banking Documents specified that Sit’s Account was a margin account, (b) Kong was not a senior officer or committee independent of the sales or trade function, and (c) DBS had no or no adequate margin lending policy to avoid building up excessive exposure to individual margin clients or an individual item of securities deposited as collateral.  Sit averred he was never informed or advised of the margin ratio or margin value of his investments done via Sit’s Account, and the portfolio summaries Kong gave him did not show the margin ratio, margin value, margin excess and/or margin shortfall.  Further, since Sit was never classified as a professional investor, DBS was required to send to him daily statements showing the aforesaid matters as required by rule 6 of the Securities and Futures (Contract Notes, Statement of Account and Receipt) Rules Cap 571Q (“SFR”) for non‑professional investors.

18. In respect of the 10 ELNs, Sit alleged he entrusted Kong to tailor-make the investment products for him in accordance with his investment objective, but DBS failed to properly advise him in that Kong did not give adequate explanation and/or failed to ask him to confirm his understanding as to the nature, mechanism and risks of investing in ELNs, including inter alia that (a) ELNs were generally used as an insurance strategy for the issuer against a fall in value of the underlying shares and conversely the purchaser of ELNs would act as an insurance provider, (b) the more shares in the share basket of an ELN the higher the risk, (c) the exposure to risks of the underlying shares, (d) ELNs had high liquidity risks as they had little or no secondary market, (e) the 10 ELNs were “novel, complex and high risk products” and the risks of investing in ELNs would be hugely increased when they were purchased with margin financing or credit facilities, (f) such leverage risks would be increased if ELNs with over six months of remaining life were used as collaterals, and (g) such leverage risks would be further increased with the purchase of each additional ELN.

19. Sit further disputed the quantum of outstanding indebtedness as claimed by DBS, and put DBS to strict proof of the alleged margin shortfall.  In particular, Sit averred that (a) the amount claimed was erroneous since DBS assessed the MTM Value after applying the LTV Ratio to the 10 ELNs’ value at cost which meant the MTM Value was double-discounted and/or was unrealistically low, (b) the total sale proceeds upon the sale of the ELNs were in fact more than the estimated market price, and (c) DBS had not informed Sit of their calculations of the alleged indebtedness. 

20. In respect of his non-payment of the alleged outstanding indebtedness, Sit denied the 3^rd and 4^th Facilities Letters had come into operation because the relevant conditions precedent had not been fulfilled and the 10 ELNs had not been pledged to DBS.  Sit averred the contractual terms that gave DBS discretion to demand further collaterals and unilateral right to determine/calculate interest were not binding, and he denied the “top up” conditions in the Facilities Letters had occurred.  Further, Sit claimed no proper demand for payment had been made as required under the Charge and Mortgage or otherwise for enforcement of the securities, and the 28/10/08 Letter was in breach of an “implied term (implied by business efficacy and/or operation of law) or legal requirement” that he should be given sufficient time to enable him to effect repayment, and the time stated in the 28/10/08 Letter was insufficient for such purpose.

21. Sit claimed that at his meeting with Alison Lau (“Lau”) and Kong of DBS in early November 2008, they failed to give proper explanation to him.  Sit agreed to (and he eventually did on 27 November 2008) transfer away a fixed income product by paying up JP¥384 million to DBS to reduce the outstanding amount of the loan, and DBS was not entitled to and should not have sold his ELNs and other assets without his consent after being told of such transfer as the amount of indebtedness would be substantially reduced very soon. 

22. Sit therefore contended he was not liable because of (a) DBS’ breach of (i) the Oral Contract, (ii) DBS’ “compliance representation and warranty”, (iii) DBS’ duties and/or (iv) the Representations by recommending, soliciting and arranging Sit to purchase the 10 ELNs which were investment products of high risk against Sit’s express instructions and which in any event were not suitable for Sit, (b) DBS’ breach of clause 5, schedules 1 and 5 and other provisions of the Code, (c) DBS’ failure to implement any internal system of control to ensure suitability of investment products for their customers and/or any investment advice proffered to any customer would be done with due skill and care, (d) DBS’ failure to adequately disclose the nature, mechanism and risks of the investment products to Sit, to ensure that Kong and DBS’ staff as well as Sit understood them and/or to correct Sit’s misunderstanding, and (e) DBS’ failure to disclose their own material interest in the transactions.

23. Based on the matters raised in his defence, Sit counterclaimed for various declarations and damages together with interest and costs:

(a) a declaration that the Oral Contract was void for uncertainty or there was no contract between the parties because there was no agreement on the terms;

(b) further or alternatively, a declaration that DBS could not enforce the Oral Contract as it was “illegal”;

(c) still further or alternatively, a declaration that DBS had breached and repudiated the Oral Contract;

(d) damages for breach of duty, warranty and terms of the Oral Contract and/or wrongful termination of the Oral Contract;

(e) damages for misrepresentation.

(c) DBS’ reply and defence to counterclaim

24. DBS joined issue with Sit and denied liability in respect of Sit’s counterclaim.  In brief summary (without attempting to set out the fullness of DBS’ case), DBS’ response was as follows:

(a) Sit had been regularly involved in equity or bond trading which involved risk of losing principal.

(b) DBS was not Sit’s investment advisor as the services offered were “execution only”, so no reliance could be placed on information provided by DBS, and DBS took no responsibility for investments made by Sit.

(c) The Confirmations for the 10 ELNs provided that DBS was acting as principal, and stated inter alia that DBS might (i) have positions and other interests in and might effect transactions in the underlying products, and (ii) take positions opposite to the opinion expressed in the Confirmations (if any) and have alliances/agreements with providers of the underlying products to market/sell their products for which DBS might receive a fee.

(d) The contents of the Banking Documents Sit signed were duly explained to him by Kong and/or read by him.  Sit was contractually estopped from arguing that (i) he could ignore the No Investment Advice, No Trust Obligations, Independent Judgment, No Liability and Understanding of Risks Clauses (collectively, “Group Clauses”) and the customer declarations he made in respect of the Banking Documents (“Customer Declarations”) upon which DBS carried out the relevant trades for him and/or (ii) he could purportly rely on the Representations made by Kong.

(e) The Master Agreement contained provisions that governed trading by margin.  The portfolio summaries prepared by Kong for Sit’s reference were agreed and/or understood to be unofficial or for reference only.

(f) Since DBS was registered with the SFC to conduct Type 1 regulated activities and they were an authorised financial institution, their provision of financial accommodation to Sit would not amount to securities margin trading for the purpose of the SFO.  Further, DBS denied they were in breach of the SFO or the Code or they owed a duty to Sit to comply with the SFR.  Further, Kong was not assigned the responsibility of effecting margin lending to Sit.  DBS’ provision of financial accommodation to Sit was based on the terms of the Facilities Letters (and any T&C attached thereto) whilst Kong was responsible for taking instructions and executing transactions that utilised such financial accommodation. 

(g) In respect of Sit’s investments in the 10 ELNs, the features of the products were explained to him by Kong, and it was for Sit to exercise his independent judgment in deciding whether to purchase a particular investment.  Moreover, Sit had already purchased a substantial number of ELNs prior to the 10 ELNs, and there was no scope for him to suggest he was unaware of the features and risks of such products and/or that he might have to take the underlying shares upon maturity of the ELNs.

(h) DBS was entitled to (and did) demand for margin cover and to liquidate the securities to reduce Sit’s outstanding indebtedness. The margin shortfall was computed with reference to inter alia the MTM Value of the securities pledged with DBS.

(i) Insofar as it would be necessary, DBS contended the relevant contractual terms relied upon were reasonable for the purpose of the CECO and MO.

(j) Unbeknownst to DBS, Sit privately paid substantial monies to Kong so as to enable Kong to act as his agent, and in such circumstances, the acts (or omissions) complained of were done (or not done) in Kong’s capacity as agent of Sit and not within his course of employment.

III.  ISSUES

25. This was a heavily lawyered case, and the industry of Sit’s legal team left almost no factual, legal or evidential stone unturned.  To list out the disputed issues would be tantamount to paraphrasing Sit’s contentions summarised in Part II(b) above, so I simply set out five broad issues as a lighthouse beacon to shine across the rolling sea of allegations and counter-allegations:

(a) whether there was any misrepresentation by DBS, and if so, what was the effect;

(b) what was the contract that governed the relationship between DBS and Sit;

(c) in light of the contact terms, whether DBS owed Sit duties in tort (common law and statutory) and in contract and/or fiduciary duties, and if so, whether there had been breach of such duties;

(d) if Sit is liable, what is the amount of his indebtedness due and payable to DBS;

(e) if Sit is not liable, whether he has proved his counterclaim for declarations and damages.

26. The written submissions of Mr Lee SC (and Mr Lee and Mr Chau with him), counsel for Sit, ran to 219 pages with 808 footnotes and 60 authorities.  Mr Wong SC’s written submissions were more restrained at 154 pages with 110 footnotes and 39 authorities.  I have carefully considered the evidence/submissions, but in this Judgment I shall merely sketch the parties’ respective contentions and focus on my findings and decision.

IV.  WITNESSES

27. There were two factual witnesses: Leung Wai-kay Vicky (“Leung”) for DBS, and Sit himself.  Malik and Chung also gave oral evidence at trial.  In assessing the credibility of factual witnesses, I bear in mind not only their demeanour in court but also the intrinsic value of their evidence upon considering the totality of their evidence against the chronology of events, the documentary evidence and the inferences based on inherent probabilities and/or undisputed facts.[3]

(a) Leung

28. In late November 2012, Leung joined business management support (“BMS”) of DBS’ private banking as senior vice president to replace Yim Kit-yee Katherine (“Yim”) who had left DBS.  Yim used to be DBS’ witness and was replaced by Law Shek Kit (“Law”) until he resigned, and Leung replaced him and adopted Yim’s witness statement.  BMS was not a client-facing unit,[4] and Leung had never worked in any client-facing position.[5] In early 2014, she also took up responsibility for office administration, “know your client” and sales support. 

29. Leung could not give direct/personal evidence on the factual disputes since she did not work for DBS during 2004-2008.  Many bank staff had left when she joined DBS, and although she did speak with some RMs in the course of her work she did not enquire about historical policies/procedures going back to 2004-2008, which in my view was unsurprising given the significant post-2008 changes to the regulatory landscape with consequent revision of bank policies/practices to meet new statutory, SFC and HKMA requirements/guidelines. 

30. I am impressed by Leung as witness.  Her evidence, although mainly gathered from DBS’ available documents/records, was balanced and straightforward.  She was meticulous in making sure she understood the sense of the questions that were put to her, and gave careful and thoughtful answers that were focused on the specific issues about which she was being questioned. Leung was conscious about the limits of her knowledge and experience, and adopted a responsible approach to giving answers which she could honestly support.  Where she had relevant knowledge, she was able to answer questions put to her by Mr Lee SC in a frank, forthright and helpful manner.  There were few differences between her oral evidence and her statement evidence, and such differences as there were were largely attributable to details given in response to Mr Lee SC’s cross-examination, but none of them gave rise to any concern over her trustworthiness and reliability as witness.  She was not shaken at all under cross-examination. 

31. Although Mr Lee SC did not make any outright suggestion that Leung’s testimony was not credible, his written submissions insinuated doubt over her reserve in addressing product-related matters and DBS’ past procedures/practices.  But Leung was not and did not hold herself out to be a “product expert”.  Her earlier compliance experience mainly concerned account-opening processes, and compliance sample auditing did not require in-depth understanding of the many different products on the market.  In any event, she gave evidence in a straightforward and articulate manner, and I find her helpful on matters within her knowledge.  In all, she was a truthful and on the whole reliable witness.  But her evidence is of limited significance in relation to some issues since she was not with DBS at the material time. 

(b) Kong

32. Kong was the RM who served Sit and handled trades for Sit’s Account, but DBS did not call him as their witness.  Mr Lee SC suggested adverse inferences ought to be drawn by reason of such failure.  But Mr Wong SC disagreed because as against the background explained below it was understandable why Kong was not called to testify for DBS.

33. Legal principles In Tullett v Tokyo International Securities Ltd v APC Securities Co Ltd,[6] the Court of Appeal applied the maxim omnia praesumuntur contra spoliatorem.  Le Pichon JA cited excerpts from Wigmore on Evidence (Chadbourn Revision)[7] in support of such maxim.  Brooke LJ in Wisniewski v Central Manchester Health Authority summarised the relevant principles as follows:[8]

“(1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.

(2) If a court is willing to draw such inferences they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.

(3) There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue.

(4) If the reason for the witness’s absence or silence satisfies the court, then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.” (my emphasis)

As to point (4) above, Sir Thomas Morison in R (on the application of Stapleton) v Revenue and Customs Prosecution Office stated that:[9]

“I am instinctively opposed to the notion that evidential matters, and the weight to be given to evidence, should be hedged around by ‘principles’. Whether it is appropriate to draw adverse inferences from a failure by a party to call a witness depends entirely, as I see it, on all the relevant circumstances in each case ……”

34. In Ip Man Shan, Henry v Ching Hing Construction Co Ltd,[10] Lam J (as he then was) put the relevant principles as follows:

“(a) if a prima facie case is made out, and if there are evidence available to the party against whom the case is established which could displace the prima facie case, and he omits to call such evidence, an inference could be drawn;

(b) however, the inference could be rebutted by a plausible explanation by the party who elected not to call the evidence;

(c) if an inference is to be drawn, it would be an inference that such available evidence, even if adduced, would not displace the prima facie case;

(d) it is also open to a tribunal of fact, upon the drawing of such an inference, to take it into account in respect of a matter with respect to which the person not called as a witness could have spoken,

i. in deciding whether to accept any particular evidence, which has in fact been given, either for or against that party;

ii. in deciding whether to draw inferences of fact, which are open to them upon evidence which has been given.” (my emphasis)

Lam J (as he then was) further explained in Natuzzi Spa v De Coro Ltd[11] that a prima facie case had to be made out by the other evidence before one talked about tipping the balance of probability by the omission to call available evidence.  “The court should not make a finding on the basis that one guess is more probable than another.” In Kao Lee & Yip v Koo Hoi Yan & ors,[12] where none of the defendants gave evidence, Ma J (as he then was) said that “…… adverse inferences may be more easily drawn against them and correspondingly, any inferences favourable to KLY can more confidently be drawn as well …… providing that the rest of the evidence allows such inferences to be drawn and that such evidence is credible in the first place” (my emphasis).  Likewise, To J in Gleneagle Holdings Ltd v Tse Yue Fong & Ors,[13] observed that:

“…… If the opponent’s assertion is credible, the inference would add weight to that assertion. It would be reasonable to draw the adverse inference. If the assertion is just moonshine or incredible, the inference could not even be raised at all. It would be unreasonable to draw an adverse inference against a party to give support to an assertion which cannot even stand on its own. The maxim does not require a party to call each and everyone mentioned in the assertion to rebut that assertion. Whether the adverse inference is to be drawn is a matter of common sense…” (my emphasis)

35. Mr Wong SC referred me to Jones v Dunkel & anor[14] cited by Ma J (as he then was) in Kao Lee & Yip, and by the Family Court of Australia in Lowe v Harrington.  In the latter case, it was said that:[15]

“70. In Ghazal v GIO (NSW) (1992) 29 NSWLR 336 Kirby P, with whom Mahoney and Clarke JJA agreed, explained (at 343) the rule in Jones v Dunkel thus:

‘The rule in Jones v Dunkel is one of commonsense reasoning. It provides that an unexplained failure of by (sic) a party to call a witness may, in appropriate circumstances, lead to an inference that the uncalled evidence would not have assisted the case of the party who might be expected to call the witness. It is important to note that this is a facility. It is not an obligation in the reasoning of the decision-maker … The rule has no application if the failure to call the witness is satisfactorily explained or readily understood. The usual explanations are the absence of a witness from court and a reasonable explanation for not compelling the witness’ attendance by subpoena. But failure by a party to call a witness likely to be friendly to the interests of the other party has been held sufficient to entitle a court not to draw an adverse inference from such failure …’

……

71. In my opinion, in the circumstances of this case, no such inference can or should be drawn by reason of the applicant’s failure to call her former solicitor. First, because there are significant areas of the evidence in which the former was involved, and upon which the applicant strongly relies, which seem established by the objective evidence and could not be altered by the former solicitor’s evidence. ……

……

73. Second, there are considerations which make it readily understood why the applicant would not wish to call the witness, unless she could not avoid doing so. ……Thus the solicitor must be aware of the allegations made concerning her. If she were called she would, in effect, be asked to give evidence very much against her own interests, and against those of the relevant insurers. Understandably, in my view, she may be embarrassed at being placed in such a situation, and be reluctant to confer with counsel for the applicant before giving her evidence. ……

……

75. For these reasons I do not think I could and, in any event, would not be prepared to, draw the inference against the applicant sought by the respondent.” (my emphasis)

36. Background  In November 2008, when DBS demanded Sit to “top up” his margin shortfall, Sit disclosed to DBS that “in the past, due to good performance and yield, on various occasions, [he] had paid a total sum of HK$1,300,000.00 to [Kong] as a gift to him for his managing [Sit’s] investment”.  DBS reported to the HKMA Sit’s alleged bonus payment to Kong, and then at HKMA’s request they made report to the ICAC.

37. In/about April 2010, Sit was charged with the offence of offering an advantage to an agent[16] in DCCC525/2010.  Sit testified he had asked Kong to make investment decisions for him, which arrangement would be like Kong was working for him as a part-time employee, and he paid money to Kong when the results of his investments were good.  Sit was convicted of the offence in November 2010.

38. Kong left DBS’ employ in December 2008.  Yim telephoned Kong on 21 February 2011 with a view to ascertain his willingness to be a witness for DBS, but no one answered her call.  On 9 March 2011, Yim telephoned to invite Kong to give evidence for DBS, but he said he did not want to be involved in this case and refused to assist. On 26 April 2012, Kong was convicted after trial in DCCC1038/2011 of three counts of accepting advantage from Sit without lawful authority or reasonable excuse as inducement/reward for doing or having done any act in relation to the affairs or business of DBS as his principal.[17] On 11 May 2012, DDJ To sentenced Kong to imprisonment for 26 months, and he was also ordered to pay DBS HK$1.15 million being part of the advantage received by him. 

39. Discussion  Mr Lee SC criticised DBS’ failure to approach Kong after 9 March 2011 to persuade him to give evidence, but Leung  thought Kong was still imprisoned given the length of his sentence.  Mr Lee SC suggested Kong would have been released in/about October 2013 due to ⅓ remission of sentence for good behaviour.  But without evidence as to whether (and if so when) Kong was released or whether he was on good behaviour during imprisonment, his alleged availability as a freed person to give evidence was mere surmise.  There was no basis for me to doubt (and on balance I find) Yim did approach Kong who indicated unwillingness to give evidence for DBS.  In all, there was little evidence that Kong was willing and able to give evidence at the time of the trial.

40. Moreover, it was the very conflict between Kong’s employment with DBS and his relationship with Sit that eventually resulted in Sit’s and Kong’s convictions.  It was DBS who investigated Kong’s receipt of favours from Sit, who made Kong repay a sum of HK$150,000.00 that he received from Sit, who reported the matter to the HKMA, who at HKMA’s behest made a report to the ICAC, and who fired Kong in December 2008.  Such contextual background provided fertile fodder for fostering hostility towards DBS.  Mr Wong SC went further to say there were good reasons to think Kong was likely to be friendly to Sit, but Mr Lee SC reminded that Sit testified against Kong in DCCC1038/2011.  Be that as it may, there could not be any dispute Kong and Sit had been receiving/paying advantages from 2006 to 2008.  In my view, it was understandable why DBS (which also fielded quite a few prosecution witnesses against Kong in DCCC1038/2011 from amongst their own staff) made no further attempt to secure Kong as their witness, especially during the sensitive period from the time he was charged up to the conclusion of his criminal trial.  Likewise, Kong’s subsequent conviction, incarceration and requirement to reimburse DBS after a defended trial would not have eased (and indeed might have heightened) any likely hostility. 

41. I agree with Mr Wong SC that in such context it was readily understood why DBS did not call Kong as witness.  Anyway, DBS’ case was largely based on objective evidence, eg the Banking Documents which Sit admittedly signed, and the contemporaneous audio-recordings of telephone conversations between various DBS’ staff and Kong (“T/C Recordings”) in respect of which there was no dispute as to authenticity.  Further, in all the circumstances, it is inappropriate to conclude that Sit’s evidence ought to be accepted simply because Kong was not called and/or Leung was not in a position to contradict him.  As analysed below, I have serious reservations about Sit’s veracity on a number of core matters by reason of their inherent implausibility and when viewed against the objective facts.

(c) Other bank staff

42. Leung never knew Lau, Woo Chi-leung William (“Woo”), Ng Sheung-yan Anthony (“Ng”), Yam Lui Ming (“Yam”) and/or Tew, all of whom had left DBS.  Mr Lee SC complained against DBS’ failure to call as witness (a) any of the aforesaid former bank staff, (b) someone close to Kong, (c) persons named in the T/C Recordings and/or (d) someone who compiled the Schedules of Indebtedness and Adjustments referred to in Part XXVI below. 

43. I will deal with category (d) in Part XXVI below.  Category (b) was plainly irrelevant.  Category (a) was irrelevant too because Sit claimed he only dealt with Kong in respect of the 10 ELNs and no other person was said to be present when the Representations were made.  The fact some of them were witnesses in Sit’s and/or Kong’s criminal trials would not ipso facto mean they would be relevant witnesses here.  It was said Lau/Ng would be able to give evidence on matters in their statements to the ICAC, but there was no essential dispute about those matters,[18] and most of what Mr Lee SC alluded to were not evidentially significant.  Another complaint was DBS should have called Yam to speak to the Private Banking Account Profile for Sit compiled by DBS (“Account Profile”), but in fact the material parts were compiled/ modified by Kong.[19] Even Yam’s statement to the ICAC acknowledged that Kong personally dealt with Sit and/or handled Sit’s Account. 

44. Further, there was no need to call any bank staff (including Tew) to produce the Banking Documents (which Sit admitted were signed by him) and/or other bank documents/records[20] when there was no objection as to authenticity.  I am also unimpressed by Mr Lee SC’s complaint against DBS’ failure to call Woo to give evidence about the bank’s ex post facto investigations into Kong’s receipt of monies from Sit and another customer.  Although Woo in his statement to the ICAC said DBS audited Kong’s emails (but did not unearth anything suspicious) as part of such ex post facto investigations, there was nothing to hint that those emails involved Sit or were relevant to the disputed issues.

45. Mr Lee SC next complained no attempt was made to ascertain Tew’s availability to give evidence.  But Sit admittedly signed the Account Opening Form and received the Master Agreement (whether at the same time or shortly thereafter), and it was Sit’s case that he dealt with Kong alone in opening Sit’s Account.  He claimed the 1^st Representations and Oral Contract were made on a separate occasion prior to his signing the Account Opening Form.  DBS’ case that Sit was bound by the terms/conditions in the Account Opening Form and Master Agreement rested on Sit’s admitted execution of the Account Opening Form and the legal principles of Ming Shiu Cheung & ors v Ming Shiu Sum & ors[21]and contractual estoppel.  Taking into account these matters and my view in paragraph 188 below, and bearing in mind that following Tew’s departure from the bank DBS frankly acknowledged in their pleadings their inability to positively challenge Sit’s case that he had never met Tew, any failure to call Tew was not evidentially significant.

46. Mr Lee SC next argued DBS should have called a bank officer to give evidence on banking practice in 2004-2008 as Leung had no “real knowledge” of these matters.  But other than the account opening process discussed in the above paragraph, DBS’ case ultimately would turn on the legal consequences of Sit having signed the Banking Documents rather than on any general banking practice.  Mr Wong SC noted both parties had already adduced expert evidence on the relevant financial products being the 10 ELNs, and he reminded that factual witnesses (in contra-distinction to banking experts) could not give evidence on general banking practice.  Moreover, as regards the operation of Sit’s Account, the focus must be on what actually happened (eg whether the alleged Representations were made, what happened when the 10 ELNs were purchased, etc) rather than on general banking practice.  I also reiterate mutatis mutandis what I said in paragraph 41 above on the assessment of Sit’s evidence. 

(d) Sit

47. Sit advanced a case on oral contract, misrepresentation and absence of knowledge/explanation that is, to say the least, contentious.  Whether the Representations were in fact made would be a matter of Sit’s credibility as witness. Mr Lee SC submitted Sit’s evidence was supported by contemporaneous documents and T/C Recordings bolstered by adverse inferences from DBS’ failure to call relevant witnesses (which contention I have rejected) and Mr Wong SC’s failure to challenge certain parts of Sit’s evidence (which I will deal with in Part XX below, but suffice to state here I am unconvinced by such argument).  Further, it is open to interpretation whether the contemporaneous documents and T/C Recordings were actually supportive of Sit’s case.  But more of that below.

48. Although DBS was unable to use Kong’s evidence to contradict Sit’s, cross-examination of Sit was a revealing process, particularly when it required him to face intensive questioning over various topics/documents.  In my view, despite Sit’s assertions otherwise, he did not present himself as he alleged: a humble man with a timid outlook on investments, a trusting “fool” who would sign documents without reading them or at least appreciating their contractual significance and/or a forgiving optimist who forayed into the financial market on Kong’s leash.  I give Sit full allowance for the fact that giving evidence might be a stressful experience, but it was plain he had little difficulty in understanding the questions put to him by Mr Wong SC, and his testimony gave a strong impression of an intelligent and astute witness who parried and fenced with Mr Wong SC with wary caution. 

49. Sit was/is a highly successful and very wealthy businessman who has made a very substantial fortune as a result of his entrepreneurial skills.  Critical events over the years became understandable upon proper appreciation of Sit’s personality, and it did not reflect well on the credibility of his testimony.  Sit’s evidence showed him to be keenly aware of his own worth, wealth and business stature, and (as Mr Wong SC submitted) used to calling the shots.  His poor attempt to portray himself as an uninformed and inexperienced investor failed to hide a shrewd mind and a dominating personality honed by years of entrepreneurial success.  Sit’s evidence and the T/C Recordings revealed he was not one who would docilely follow recommendations made by Kong with whom he would at times argue and disagree. 

50. I reject any notion that Sit merely rubber-stamped Kong’s investment recommendations; instead, Sit was a bullish investor prepared to take risks with a view to earn attractive returns in a buoyant market.  Even though he had no enthusiasm for in-depth understanding of the fine details of the investment products he purchased, the T/C Recordings and transcripts in respect of some of such recordings (“Transcripts”) showed he had keen appreciation of their commercial terms and potential, and was aware of their risks/returns and the cost/impact of utilising margin financing (even though he would not label it as such).  I do not believe these matters in the T/C Recordings and Transcripts (collectively, “Recordings/Transcripts”) could be so easily brushed aside, as Mr Lee SC would have me do, as Sit’s impatience and his speaking at cross‑purposes with Kong.

51. Upon analysing the evidence, I find Sit to be an unimpressive and inherently unreliable witness who at times was (a) prepared to craft his evidence to suit his purpose and (b) not above making his evidence up as he went along in response to perceived difficulty in answering questions in a manner consistent with his case.  His attempts to deviate from certain aspects of his pleadings and witness statements which he had verified by statements of truth were unconvincing, and his explanations over certain material matters were improbable and/or embroidered.  I am not persuaded the inconsistencies/ lapses in his evidence were due to faded memory.  Sit’s testimony under cross-examination vividly demonstrated he had not been truthful over important matters.  His overall evidence was unsatisfactory, and except for the matters I accept in the discussion below, on balance I reject his evidence on the core matters. 

(e) Malik and Chung

52. By the end of the trial, it became quite clear that the expert evidence from Malik and Chung had limited significance.  Mr Lee SC agreed Malik was honest and reliable, and Sit was content to mainly rely on a few short points drawn from Malik’s evidence (which largely went to the issue of the alleged falsity of the Representations).[22] So even though I have carefully considered the experts’ reports/testimony, I shall focus on those matters raised by Mr Lee SC.  Consequently, there is no need to canvass here the evidence of Chung or to adjudicate on the hot debate as to whether or not Chung had misunderstood his duties as expert by travelling beyond the identified expert issues in order to support Sit’s position.  Much effort was made by Mr Wong SC and Mr Lee SC to attack and defend the integrity of Chung as expert, but given the above considerations, I do not propose to deal with such matters which had no material bearing on my findings and conclusions.

(f) T/C Recordings

53. Although not strictly about witnesses, I propose to dispose of this complaint by Mr Lee SC here.  At the trial, DBS discovered/ disclosed (a) the Recordings/Transcripts in relation to the 10 ELNs and some other transactions,[23] and (b) T/C Recordings of over 100 telephone conversations between DBS’ staff and Sit[24] with Transcripts for 12 of them.  Mr Lee SC noted there were (i) gaps in the T/C Recordings and (ii) non-recorded conversations between Sit and Kong made during face-to-face meetings and over mobile telephones, and he suggested the available Recordings/Transcripts should be approached with caution as DBS failed to disclose all Recordings/Transcripts.

54. In my view, Sit had not even begun to show DBS had “failed” to disclose all T/C Recordings.  In November 2011, Sit applied for discovery of all Recordings/Transcripts of telephone conversations between Kong and Sit on all product transactions made via Sit’s Account.  Yim confirmed on affirmation DBS had disclosed the T/C Recordings they were able to retrieve, and on 23 April 2012 Sit’s application was dismissed.  Sit had not shown at trial how DBS’ discovery was inadequate.  But Mr Lee SC asked me to recognise the reality that the Recordings/Transcripts DBS relied on were incomplete with consequent lack of context.  But those audio-recordings were undoubtedly contemporaneous records, and it did not necessarily follow that their evidential value would be diminished merely because (a) DBS could not retrieve the audio-recordings of every single conversation relating to Sit’s Account since 2004 and/or (b) neither party at trial chose to refer to the available T/C Recordings that had not been transcribed. 

55. It would not be (and neither party suggested it would be) practical for me to consider each and every T/C Recording irrespective whether they concerned the 10 ELNs.  But it is still incumbent on the court to assess the relevant Recordings/Transcripts relied on by the parties in light of the evidence to form a view as to their conclusiveness and weight.  Sit as customer was a participant in the T/C Recordings, so it was open to him, had he wished, to explain the context of the Recordings/Transcripts by oral testimony, by statement evidence or even by reference to other available T/C Recordings that had not been transcribed (but Sit did not refer to such recordings). 

V.  SIT’s BACKGROUND

(a) Personal and business background

56. Sit, who is 67 years old, came to Hong Kong in 1962 to complete his education up to Form 3.  He studied in Japan for a year, and returned to work in Hong Kong in 1965 as a tourist guide.  In 1972-1973, he was employed by a Japanese company as their Hong Kong manager.  In 1978-1979, he went into partnership with a Japanese party.  In 1979, he set up Sun Cupid Industries Limited (“Sun Cupid”) that manufactured/exported small electronic appliances.  Sit’s business grew until he became the owner of Sun Cupid, “Foshan” and “Shantung Sun Cupid” (until it was sold) with two PRC factories that employed 3,000-5,000 workers.  He was also 70% owner of “Fourace Industrial” that specialised in manufacturing electric irons. 

57. According to the “Financial Position” section of DBS’ Private Banking “Full Personal Profile” for Sit (“Personal Profile”) as at 21 April 2004, (a) estimated annual sales volume of Sit’s businesses was US$100 million and (b) estimated annual net income was US$6 million.  Sit said that in 2004 he had about HK$100 million in cash, and his (and his family’s) net worth was about HK$1 billion.[25] Sit was/is a very wealthy man.

(b) Ability to understand English

58. Sit had decades of experience in dealing with customers in Europe and the United States.  He could read, understand and handle ordinary and business English without difficulty, and when he could not understand he would ask for clarification.  He claimed to understand 50‑70% of Leung’s oral testimony in English.  He was able to read passages in various English documents, including his own witness statements and the English transcripts of the trial proceedings (“Trial Transcripts”), without the aid of translation.  The Recordings/ Transcripts revealed he used English during his telephone conversations with Kong.  Indeed, DDJ Yim in her Reasons for Verdict in DCCC525/2010 (“Reasons for Verdict”) said: “注意被告表示懂英文，亦喜歡說話時夾雜英文單字”.

59. Mr Lee SC claimed the “song and dance” in relation to Sit’s English ability was a red herring as Sit never pretended he could not read or understand English, but this did not mean he would be able to read and understand the entire contents of the Banking Documents in the limited time he had when he was asked to sign them (even assuming he was provided with the Master Agreement when he signed the Account Opening Form) when even Leung would not profess to understand all the contents of the Master Agreement.

60. I find on balance Sit clearly had no difficulty in understanding ordinary and/or business English, but he did try to downplay his ability to understand English used in business contracts despite his extensive experience in the trade.  This did not sit well with Sit’s witness statements because notwithstanding the many matters canvassed therein, some of which were not that simple, he was still able to verify their contents without the aid of translation, and he even went so far as to say he would ask his solicitors for clarification if there was anything he did not understand.  When pressed, he claimed this was an exception to his usual practice of signing documents without taking any real look, but it transpired the documents he signed without reading were internal company documents prepared by company accountants and/or formal agreements for property transactions prepared by external solicitors.  When pressed further, Sit agreed he would at least make sure the key/major terms of written agreements and purchase orders were as had been agreed (even though he might gloss over details in fine print). 

61. In my view, Sit’s evidence that he relied on others and would not read/understand contractual documents was an unconvincing attempt to distance himself from the suggestion that he read the Banking Documents and/or appreciated their contractual nature/significance.  On balance and in light of his overall lack of credibility, I reject his testimony that his usual practice was to sign documents, including contractual documents, without reading them at all and/or (at the very least) without understanding their nature and effect.

62. I will canvass Sit’s execution of various Banking Documents in greater detail below.  Suffice to state here that even though there was no direct evidence Kong had drawn Sit’s attention to each and every provision in the Master Agreement and/or other Banking Documents or had explained each and every such provision to Sit, I find on balance Sit (given his English ability) had no difficulty in understanding the contents of the Customer Declarations (which were in ordinary and not technical English) referred to in paragraphs 83, 90, 91, 94, 97 and 100 below. Further, as an experienced businessman who admittedly would assure himself of the key/major terms in written contracts with counterparties and who admittedly would seek clarification on matters he did not understand, I do not believe Sit when he said he had not read the Customer Declarations or (even if they were somehow unclear to him, which I disagree) had not found out about them.  Given Sit’s personality/background discussed in Part IV(d) above and Part V herein, Sit’s contention otherwise was inherently hollow and improbable.

(c) Dealing with contractual documents

63. I have touched on this briefly in Part V(b) above.  Sit claimed he was too busy (and it was not his practice) to rely on or read documents when doing business.  He entrusted his staff to deal with documents/contracts and preferred oral presentations.  He claimed to rely on mutual trust in maintaining his business relationships and on general law for upholding business contracts. He even said his business did not involve written contracts (save for one Japanese customer) because the commercial process merely involved negotiating the deal, developing/manufacturing the product and agreeing on the delivery date, but it transpired the customers would place written purchase orders and he was constrained to agree that when signed they were binding contracts.  But fortunately he never had to resolve disputes with customers by litigation.

64. Despite Sit’s efforts to downplay his involvement with business contracts, I find on balance that in reality and to his knowledge the purchase orders were written contracts between his businesses and their customers.  The fortuity of being able to resolve disputes amicably and the mutual trust bred out of long-term business relationships would not alter the contractual nature of the express terms of sale and purchase found in the purchase orders.  Sit’s suggestion that written business contracts were not required was nothing but a poor attempt to distance himself from the signed Banking Documents.

(d) Investment background – 1993-1994

65. In 1993, Sit had HK$100 million to spare, and he employed a personal assistant to help manage his assets as he claimed he did not have sufficient knowledge/expertise in investment matters.  He employed Kong for that position because (a) he understood Kong had worked in the banking sector and he was satisfied with Kong’s qualification/credentials, (b) he came to know Kong’s wife who worked for the investment house Jardine Fleming which he thought would be “quite convenient”, and (c) there were not many applicants.  Sit therefore decided “to give it a try”, but he would keep an eye over this as he did not know whether Kong was truly experienced in investments in financial products.  Kong was paid HK$30,000.00-HK$50,000.00 a month, which was quite handsome in 1993.

66. Sit opened an investment account with Jardine Fleming and purchased financial products via such account.  According to Sit, at that time “[he] would regard stocks and shares investment is quite risky, ups and downs”.[26] He testified he learned about funds from Kong’s wife, and after discussing with Kong and his wife, a decision was made to invest in funds as being safe investments.  But if that were the case, Sit could not satisfactorily explain why his witness statement[27] stated Kong’s duties were to give him “up to date information, analysis and advice in investment in stocks and bonds” (my emphasis).  Investments in stocks and funds were quite different in nature, and when pressed Sit gave the strained explanation that it was after analysing the information Kong provided that they both decided the final move was to invest in funds but such final decision did not fall within Kong’s duties of providing him information and assistance.  But if that were the case, it did not explain why his then investment in funds was not mentioned at all prior to the 7^th day of the trial.  In my view, this is a clear example of Sit trying to distance himself from what might be perceived as “risky” investments, but when the evidence presented problems he simply embroidered and supplemented his witness statement in a poor attempt to dovetail it with his oral testimony.

67. Sit recalled he himself placed the investment orders, but later said he must have authorised Kong to do so on his behalf because he noticed an entry for purchase of warrants (which he regarded as risky and contrary to his conservative/prudent investment policy) that he did not authorise in one of the monthly statements.  Sit explained he “loosened” control over Kong as he was fully occupied in his businesses, but he was scared and/or terrified by Kong’s venture into risky investments, which he said was a major factor why he eventually terminated Kong’s employment. 

68. But interestingly Sit did not fire Kong immediately.  At/about the end of 1993, Sit gave Kong a handsome bonus of HK$1 million because he was pleased by the very good return of about HK$10‑HK$20 million for his investments.  But Sit claimed to be disappointed when Kong spent his bonus on aggressive speculation which Sit did not regard as a good investment attitude.  In 1994, when the financial market crashed, Sit instructed Kong to liquidate all his investments, but Kong failed to follow his instructions to leave the “stock market” immediately.  Sit claimed he lost trust in Kong, and fired him for his unauthorised purchase of warrants, his aggressive speculation with his bonus and his failure to immediately liquidate Sit’s investment portfolio as instructed.  Sit alleged that notwithstanding the financial crisis, he still made a profit by the time Kong left.

69. Sit tried to explain away his instructions to leave the “stock market” by saying “funds is stock and stock is funds”, but when pressed he acknowledged that mutual funds were not the same as individual stocks/shares, and the former represented safer investments than the latter.  In my view, Sit was economical with the truth.  I do not believe him when he said he merely or mainly invested in funds at that time.  I find on balance he invested in stocks/shares, which he knew would be risky with price fluctuations up and down, but he made seriously profitable returns in a buoyant market that pleased him so much he gave a large bonus to Kong.  I further find on balance that Sit knew and endorsed such investment decisions because (a) he must have discussed this with Kong and his wife, (b) he kept an eye over Kong’s work since Kong was the first investment manager he employed, and (c) he checked the monthly statements for the investment transactions made via his account.  In my view, Sit liquidated his investments (including stocks/shares) largely because of the market downturn.  After all, Sit only fired Kong after he decided to realise his investment portfolio and not when Kong allegedly defied his express instructions to adhere to a conservative/ prudent approach to investments.

(e) Investment background – 1999-2001

70. Sit continued to invest in the stock market after he terminated Kong’s employment.  It transpired he maintained a portfolio of stocks/shares in his account with Overseas Trust Bank (“OTB Account”), and he managed such investments himself without the assistance of any investment manager.  He claimed that as an amateur investor he would only invest in blue-chip stocks/shares (which he considered to be safe) via the OTB Account.

71. Sit at first claimed he never changed his prudent/ conservative investment policy initially established in 1993 of not favouring stocks/shares (which were considered risky) following advice received from Kong’s wife that it would be safer to invest in funds.  But I have found on balance that Sit did invest in stocks/shares.  Even on his own case, he must have changed his mind because by 1999‑2001 he was already investing in stocks/shares via the OTB Account and DBS Account.[28] Sit tried to explain this away by saying he was only interested in long-term investments in blue-chip stocks/shares to earn stable interest/dividends, but he would not engage in short-term share speculation. 

72. In 1999, Sit employed an investment manager (“IM”) to manage his personal investments because, according to him, he was not experienced in such matters.  The IM, who used to work in an investment house with expertise in dealing with stocks/shares, worked full-time for Sit and was paid HK$50,000.00 a month.  Sit claimed he authorised the IM to place orders for buying and selling stocks/shares on his behalf, and instructed him to adopt a conservative approach as he did not want to take too much risk.  But it was not easy to understand the need to employ an experienced IM if Sit’s intention was merely to shift his long-term investments from mutual funds to blue-chip stocks/shares (especially when he had been handling the OTB Account on his own all along), so Sit was constrained to say by 2000 (ie the dot-com bubble) he wanted to see how a professional investment manager could assist him and he was prepared to try out new investment strategy.

73. In 2000, Sit opened a securities account with DBS (“DBS Account”) and bought/sold listed stocks/shares via such account.  DBS prepared a schedule of locally listed stocks/shares bought and sold via such account (“Equities Schedule”).  I find on balance that (a) Sit’s portfolio of stocks/shares in the OTB Account was transferred to the DBS Account,[29] and (b) the Equities Schedule was an accurate record of all sale and purchase transactions done via the DBS Account.[30] In fact, Sit never doubted the authenticity/accuracy of the Equities Schedule until he was confronted with and had to explain the discrepancies therein.[31]

74. But despite Sit’s assertions that he regarded investment in stocks/shares to be risky at the time when he employed Kong in 1993‑1994, and that he later became interested in long-term investments that would give rise to stable interest/dividends, such alleged investment attitude did not stop him from engaging in short-term share trading.  But when this was pointed out to Sit,[32] all he could say was that “[even] investment in stocks and shares could be conservative”.[33]

75. Such assertions also could not explain the Hisense Kelon Sale (see footnote 30 above) as recorded in the Equities Schedule.  Sit claimed he would not have purchased shares of Hisense Kelon Electrical Holdings Co Ltd because it would not be in line with his conservative/ prudent investment policy.  But he must have acquired those shares (probably through the OTB Account since they were not purchased via the DBS Account) which were then deposited in the DBS Account to enable the Hisense Kelon Sale to be effected via such account.  Sit tried to shy away from such shares by saying they were likely to have been purchased by his IM, but such assertion did not sit well with the fact that no such purchase was shown in the Equities Schedule and that he himself managed the OTB Account.

76. But even if it were Sit’s IM who purchased such shares in the first place (which I disagree), the Hisense Kelon Sale would have been recorded in the monthly statement for June or July 2000. Since Sit agreed he would read the monthly statements of the DBS Account, he would have had prompt notice that his IM had deviated from his conservative/prudent investment policy.  Sit tried to shy away from this by saying he did not concentrate on these matters in the first few months (and only focused on the total figures), and it only became clear to him as time went by, so he discontinued the arrangements after three months. 

77. But Sit’s case was that he employed his IM (whom he had never worked with before) “to give it a try and see how he would run my investments, and in view of his experience, I would be willing to give it a try.  I authorised him to have an account, investment account, opened under my name.  I authorised him to make investments on my behalf, and try to see what sort of result would that be”.[34] If that were the case, it is hard to believe (especially in view of his previous unsatisfactory experience with Kong who defied his instructions) that in the initial few months he would let his IM have free rein over his investments without at least checking the monthly statements to assure himself that his IM adhered to his alleged conservative/prudent investment philosophy. 

78. Although Sit in his supplemental witness statement already admitted he knew “trading in listed shares carried a certain risk of losing capital in a fluctuating market”, he testified that investing in stocks/shares could also be conservative and “principal protection” could be achieved if nothing untoward happened.  But he eventually accepted his investments in stocks/shares for the half year period in 2000-2001 were not “principal protected” and he suffered loss of principal through share trading.[35] Sit then tried to explain this away by saying it was his impression that he did not suffer any substantial overall loss, and it was important to take a global view of the whole stock/share portfolio and not focus on any particular stock/share, so 40% or even 80% loss of principal for any particular stock/share had little meaning.  In my view, this plainly ran counter to Sit’s alleged “principal protected” approach to investments, and clearly showed Sit to be quite prepared to put his money in share trading at risk of loss of principal with a view to achieve overall potential returns/gains in a buoyant market. 

79. Sit tried to explain away the transactions in footnotes 32 and 35 above by saying they were made by his IM who might have misunderstood his conservative/prudent investment policy of holding shares on a long-term basis, and who probably wanted to make more profits to impress him, but when he found out after a three-month trial period that his IM’s investment decisions and share speculation were inconsistent with his investment policy he decided to discontinue the arrangements and sell his share investments.  Sit explained that his IM helped him realise/sell his stock/share portfolio in about three months.[36] On such basis, Sit suggested the share transactions in the DBS Account in 2000 did not reflect his true investment policy, but the investments prior to 2000 and after 2001 did.

80. In my view and as explained in paragraph 77 above, even on Sit’s case, it is hard to believe he would simply give his IM free rein over his investments when the IM had not yet proved his mettle as an investment manager and/or demonstrated his adherence to Sit’s alleged investment policy (which must be a matter of concern after Sit’s experience with Kong), and when Sit would read the monthly statements and would keep an eye over his IM.  After all, Sit himself managed his share investments in the OTB Account, and share trading in the OTB and DBS Accounts was already a shift from his alleged initial position that investment in stocks/shares was considered risky.  In my view, Sit’s evidence was nothing more than a poor attempt to distance himself away from investments that might be perceived as risky, speculative and not “principal protected”. 

81. On balance, I find the suggestion that Sit was only interested in “principal protected” investments to be far from the truth.  He clearly knew investments in stocks/shares would not be “principal protected”, and there was a real risk such investments could result in loss of principal within a relatively short period of time.  In the second half of 2000, the stock market fluctuated heavily following the burst of the dot-com bubble, and Sit sustained loss when he realised most of his share investments during that period.  On balance, I do not accept Sit all along adopted a conservative/prudent approach to investments or he was unaware of short-term share trading in the DBS Account.  On the contrary, I find on balance he was quite prepared to take risks in the stock market for potential returns, and he only left the stock market upon market downturn following the burst of the dot-com bubble. 

82. Indeed, this was the second time this had happened.  Sit had forayed into the stock market in 1993 only to leave it when the market crashed in 1994.  A few years later, when the stock market recovered he went right back in through share trading via the OTB and DBS Accounts.  Plainly, Sit was a bullish investor in buoyant markets with a matching risk appetite as evidenced by his dabbling in short-term equities trading and willingness to take risks of principal loss and stock market crash for profit gains.  But his realisation that the stock market could crash, which in turn could result in loss of principal by a substantial percentage, did not deter him from re-entering the financial market with some gusto in the heady period in 2004-2008 before the downfall of Lehman Brothers.

VI.  1^ST REPRESENTATIONS, ORAL CONTRACT AND ACCOUNT OPENING

(a) Undisputed facts

83. On 20 April 2004, Sit opened Sit’s Account with DBS by signing the Account Opening Form which contained three client declarations, ie “Client Declaration – Securities Account”, “Client Account – Master Account” and another one on personal data.  Sit signed such form right beneath the bilingual Customer Declaration of “下列人士簽署及確認以上一切” and “Sign and Confirm all the above by”.

84. According to the express terms of such form, the operation of Sit’s Account would be governed by the Master Agreement.[37] The form also contained an acknowledgment that the customer had received, read and fully understood the Master Agreement, had read the Risk Disclosure Statement in section K of the Master Agreement, and had been invited to ask questions and to take independent professional advice if he wished.  There was also a declaration by DBS employee that the Risk Disclosure Statement had been provided to the customer in a language that he understood, and the customer had been asked to read the same, to ask questions and to take independent professional advice if he wished (“Bank Staff Declaration”).  Sit did not sign the Master Agreement because the Account Opening Form (which he signed) contained a declaration that he had received the Master Agreement.  The Account Opening Form and Master Agreement were bilingual (English/Chinese) documents.  The major/key terms of the Master Agreement set out in paragraphs B6-29 of Schedule A were the same as or similar to those of the Private Banking Agreement signed by the customer in San-Hot. 

(b) Sit’s case

85. By April 2004, Sit recovered from the stock market crash in 2000 and had around HK$100 million in cash.  Sit claimed he had no time to take care of his investments, and he placed his assets with banks in the form of fixed deposits, blue-chip shares and other interest-earning products.  On 13 April 2004, Kong was employed by DBS as a RM.  Sit claimed he had no contact with Kong for about ten years until Kong approached him in April 2004 shortly before he signed the Account Opening Form on 20 April 2004.  Kong visited Sit at his office at Sun Cupid (“Sit’s Office”) to introduce DBS’ private banking services to him.  Sit claimed Kong on that occasion tried to convince him to open a private banking account with DBS by saying if Sit opened such account private banking services together with a credit line would be provided to him against his cash deposit as security, and thereafter DBS would assign a designated RM to look after his account and make recommendations for investments to be made. 

86. Sit testified that he told Kong he had never in the past borrowed money for investment purpose, and he was content to earn a yield of 10% pa from his investments.  He also told Kong he did not want to take any risk, he wanted his investments to be safe and “principal protected”, and at worst he would forego earning interest or yield on his investments but “did not want to lose [his] entire principal sum for investment”.  Sit claimed Kong then made the 1^st Representations to him.  According to Sit’s witness statement, he “reposed absolute trust” in Kong in April 2004, and relying on the 1^st Representations he agreed to deposit about HK$90 million with DBS and to use DBS’ private banking investment service as Kong proposed, which amounted to an Oral Contract between him and DBS.

87. Sit claimed that on 20 April 2004, Kong went to Sit’s Office and told Sit it was DBS’ requirement that he should open a private banking account, and Sit was handed the Account Opening Form with his details already filled in save for his name which he filled in as Kong directed.  He was then directed to the signing page, and Kong pointed to where he was to sign his name. He claimed he did not read/spot the bilingual Customer Declaration referred to in paragraph 83 above placed right above his signature.  He said “[he] didn’t read it; [he] didn’t get it”.

88. Sit claimed Kong did not explain the contents of the Account Opening Form and/or Master Agreement to him (save to say the form was for opening various accounts with DBS and to assure him it was in order) or tell him the Account Opening Form constituted a contract.  He thought the form was merely for opening Sit’s Account in order to proceed with the Oral Contract.  Since Kong (on whom he “reposed absolute trust”) was to provide personal service to him on behalf of DBS and Sit thought DBS as a reputable bank “would not cheat on him”, Sit relied on the 1^st Representations and signed the Account Opening Form as Kong directed without reading it.  On that occasion, Sit got the message (although he could not remember the exact words) that once he signed the Account Opening Form Sit’s Account would be operational and (a) what Kong verbally promised him would be implemented and (b) he would have to place deposits with DBS for investments to be made for him via Sit’s Account. 

89. Sit claimed Kong did not give a copy of the Account Opening Form to him, and Kong never drew his attention to the Master Agreement (including the Risk Disclosure Statement in section K therein), never asked him to read or ask questions about it and/or never asked him to seek independent legal advice on it.  Sit did not dispute he was given a copy of the Master Agreement even though he could not remember whether it was given to him at the time when he signed the Account Opening Form or whether it was mailed to him afterwards.  He claimed he did not like to read documents, and as he trusted DBS there was no need for him to read documents from the bank.  He did not read or keep the Master Agreement.

VII.  1^ST FACILITIES LETTER, CHARGE, MORTGAGE AND GENERAL AGREEMENT

(a) Undisputed facts

90. The 1^st Facilities Letter dated 28 April 2004 and signed by Sit provided inter alia that DBS agreed to make available to Sit a “Multi‑currency Revolving Term Loan – up to HK$100,000,000.-” which could be drawn down in various currencies.  The maximum advance limit shall be the lower of HK$100 million or the aggregate amount calculated by reference to (a) the current financing ratio determined by DBS from time to time on acceptable and pledged Hong Kong quoted shares, overseas quoted shares, bonds, preferred securities and ELNs, and (b) the current financing ratio on acceptable and pledged Hong Kong dollar fixed deposits, foreign currency fixed deposits and yield enhanced deposits as provided in the 1^st Facilities Letter.  The 1^st Facilities Letter also provided that the availability of the facility was conditional upon completion and delivery of inter alia DBS’ standard form General Agreement, Charge and Mortgage duly executed by Sit.  The other major/key provision of the 1^st Facilities Letter is set out in paragraph C30 of Schedule A.  The 1^st Facilities Letter ended with the following Customer Declaration:

“I have read and understood the terms set out above (in English) and hereby agree to be bound by them and I confirm I do not require a Chinese translation.

本人巳閱讀及完全明白本函所載之條款(英文版)，並同意接受其約束，本人不需要中文譯本。

I agree to the terms of this Letter.

[signed]

_________________

Sit Pan Jit”

91. Sit also executed the Charge, Mortgage and General Agreement all dated 3 May 2004.  Their major/key terms and conditions are set out in paragraphs D31-33, E34-38 and F39-43 of Schedule A, and Sit signed his name right beneath the following Customer Declaration in bold type:

“This [Charge/Deed/Agreement] 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. You should only sign this document if you agree to be legally bound by its terms.”

92. Thereafter, Sit placed deposits in the total sum of about HK$90 million with DBS.  Sit had available to him the credit facilities under the 1^st Facilities Letter (backed by his deposits and the financial products he would purchase) granted by DBS for investment purpose, but he could decide whether and if so when to use such credit facilities.

(b) Sit’s case

93. Sit claimed that on/about 28 April 2004 Kong brought along the 1^st Facilities Letter to Sit’s Office, and told him it was a banking facilities letter by which DBS offered him a loan up to a maximum of HK$100 million for the purpose of investment.  Sit claimed that pursuant to and in reliance of the 1^st Representations and Oral Contract, Kong told him DBS offered such loan to him to be “secured by [his] deposit and/or [his] investment to DBS”.  He signed on the 1^st Facilities Letter as instructed by Kong to accept such credit facilities.  Sit could not remember whether a copy of the 1^st Facilities Letter was given to him by Kong or by post, but afterwards he had not read and did not have “the opportunity to read” such document so he was not aware of the full details contained therein.  In respect of the Customer Declaration in the General Agreement, he said as follows:[38]

“HER LADYSHIP: And when you signed, did you see the words that were above that? Did you or did you not?

A: I signed and that’s all. I didn’t care, right.

HER LADYSHIP: That’s not my question. I am just asking whether you see it or not.

A: I didn’t read all of it. I just read what was printed there.

HER LADYSHIP: So you know that the words are there but you did not read it; is that what you are saying?

A: Right, I didn’t read it.  I’m sorry.”

VIII.  2^ND FACILITIES LETTER AND 2^ND REPRESENTATIONS

(a) Undisputed facts

94. In/about July 2004, the amount of assets in Sit’s Account had increased, so it was possible for the credit limit of the banking facilities extended by DBS to be increased.  DBS claimed (but Sit disagreed) Sit applied for an increase of the credit limit.  The 2^nd Facilities Letter dated 27 July 2004 and signed by Sit expressly provided inter alia that DBS agreed to make available to Sit a “Multi‑currency Revolving Term Loan – up to HK$200,000,000.-” which could be drawn down in various currencies. The maximum advance limit shall be the lower of HK$200 million or the aggregate amount calculated by reference to (a) the current financing ratio determined by DBS from time to time on acceptable and pledged Hong Kong quoted shares, overseas quoted shares, bonds, preferred securities, ELNs and discount purchase note, and (b) the current financing ratio on acceptable and pledged Hong Kong dollar fixed deposits, foreign currency fixed deposits and yield enhanced deposits as provided in the 2^nd Facilities Letter.  The other major/key provision of the 2^nd Facilities Letter is set out in paragraph G44 of Schedule A.  The 2^nd Facilities Letter ended with the following Customer Declaration:

“I have read and understood the terms set out above (in English) and hereby agree to be bound by them and I confirm I do not require a Chinese translation.

本人巳閱讀及完全明白本函所載之條款(英文版)，並同意接受其約束，本人不需要中文譯本。

I agree to the terms of this Letter.

[signed]

_________________

Sit Pan Jit”

(b) Sit’s case

95. Sit claimed that on/about 27 July 2004, Kong came to Sit’s Office and told him DBS would like to increase his credit facilities to HK$200 million, and he produced the 2^nd Facilities Letter for Sit to sign.  Sit was flattered by the offer, but told Kong he had no intention to have more credit facilities because he knew he would have to put up securities of greater value than the loan as collaterals, and it was not his plan to increase his investments to HK$200 million.  But Kong said such good offer was hard to come by, and he persuaded Sit to accept it by making the 2^nd Representations.  Sit claimed Kong did not explain the contents of the 2^nd Facilities Letter to him.  He was reluctant to sign the 2^nd Facilities Letter, but eventually did so upon the 2^nd Representations.  Sit could not remember whether a copy of such letter was given to him by Kong or by post, but afterwards he had not read and did not have “the opportunity to read” it, so he was not aware of the full details therein. 

IX.  3^RD FACILITIES LETTER AND 3^RD REPRESENTATIONS

(a) Undisputed facts

96. DBS claimed (but Sit disagreed) that in/about May 2006 Sit applied for the terms of the credit facilities to be modified to include the possibility of obtaining facilities for trading in forward foreign exchange contracts and currency options, which facilities would enable Sit to trade in these products at short notice.

97. The 3^rd Facilities Letter dated 26 May 2006 and signed by Sit expressly provided inter alia that DBS agreed to make available to Sit credit facilities subject to the provisions therein and in the T&C, ie (a) “Revolving Term Loan” with a facility limit of HK$200 million, (b) “Leveraged Deposits Revolving Term Loan” with a facility limit of US$2 million, and (c) “Treasury Facilities – Forward Foreign Exchange Contract and/or Sell Currency Options” with a facility limit of HK$15.6 million.  The credit facilities in (b)-(c) above were newly added.  The other major/key terms and conditions in the 3^rd Facilities Letter and in the T&C are set out in paragraphs H45-48 and I49-53 of Schedule A.  The 3^rd Facilities Letter expressly provided for interest to be charged on the Revolving Term Loan,[39] and expressly specified that the LTV Ratio[40]  would be determined by DBS from time to time.[41] The 3^rd Facilities Letter ended with the following Customer Declaration:

“I have read and understood the terms set in this letter and in the attached [T&C] and hereby agree to be bound by them.

本人巳閱讀及完全明白本函及在附件“銀行授信及服務適用條款”之內所載的條件及條款，並同意接受其約束。

[signed]

_________________

Name of Borrower: Sit Pan Jit

……”

(b) Sit’s case

98. Sit claimed that on/about 26 May 2006 Kong came to Sit’s Office to inter alia offer services for Sit to invest by “margin financing” and by trading in forward forex contracts and currency options.  He told Kong he was content with 10% pa yield and did not want to take any risk, and he had no need and was not interested in the extended services offered as they were risky and not consistent with his conservative/ prudent investment policy.  Sit claimed he signed the 3^rd Facilities Letter as Kong requested by relying on the 3^rd Representations made by Kong but without any intention to use the extended services.  He complained that Kong did not (a) read out or explain the contents of the 3^rd Facilities Letter to him and/or (b) tell him of the risk of accepting the extended services.  Sit further claimed Kong did not give him a copy of the 3^rd Facilities Letter, and he signed it without knowledge of its terms (including the existence of the LTV Ratio mentioned therein) and the terms in the T&C annexed thereto.  Sit claimed that afterwards he did not have the opportunity to read the 3^rd Facilities Letter, but he had no intention of using and had never used the extended services.  He claimed he ought not to be and was not bound by the terms and conditions in the 3^rd Facilities Letter and in the T&C. 

X.  4^TH FACILITIES LETTER AND 4^TH REPRESENTATIONS

(a) Undisputed facts

99. DBS claimed (but Sit disagreed) that in/about June 2007 Sit applied for the terms of the credit facilities to be modified to include the possibility of obtaining facilities for trading in forward foreign exchange contracts (ratio par contract), accumulating par forward contract and knock out discount accumulator, which facilities would enable Sit to trade in these products at short notice.

100. The 4^th Facilities Letter dated 18 June 2007 and signed by Sit expressly provided inter alia that DBS agreed to make available or continue to make available to Sit the existing credit facilities and an additional type of credit facilities known as “Treasury Facilities – Forward Foreign Exchange Contract (Ratio Par Contract) and/or Accumulating Par Forward Contract and/or Knock Out Discount Accumulator” with a facility limit of HK$23.4 million subject to the provisions therein and in the attached T&C.  The major/key terms and conditions of the 4^th Facilities Letter and the T&C are set out in paragraphs J54-57 and I49-53 of Schedule A.  The 4^th Facilities Letter ended with the following Customer Declaration:

“I have read and understood the terms set in this letter and in the attached [T&C] and hereby agree to be bound by them.

本人巳閱讀及完全明白本函及在附件“銀行授信及服務適用條款”之內所載的條件及條款，並同意接受其約束。

[signed]

_________________

Name of Borrower: Sit Pan Jit

……”

(b) Sit’s case

101. Sit claimed that on/about 18 June 2007 Kong came to Sit’s Office to tell him DBS offered to extend their services by allowing him to invest in forward forex contract and sell currency option, forward forex contract (ratio par contract), accumulating par forward contract and/or knock out discount accumulator.  Sit told Kong he was not interested as he had no knowledge about these investment products, which he considered risky and inconsistent with his conservative/prudent investment policy.  But Kong sought to convince him by making the 4^th Representations.

102. Sit claimed that by relying on the 4^th Representations and without intending to buy the aforesaid investment products, he signed the 4^th Facilities Letter.  He complained that Kong did not (a) read out or explain the contents of the 4^th Facilities Letter to him or (b) tell him of the risk of accepting the extended services.  He did say under cross‑examination that when he signed the 4^th Facilities Letter he could see the words of the Customer Declaration above his signature,[42] but he “had been made to ignore those words” or “was caused to ignore them”.  Sit further claimed Kong did not give him a copy of the 4^th Facilities Letter, and he signed it without knowledge of its terms (including the existence of the LTV Ratio mentioned therein) and the terms of the T&C annexed thereto.  Sit also claimed that afterwards he did not have the opportunity to read the 4^th Facilities Letter.  He claimed he ought not to be and was not bound by the terms and conditions in the 4^th Facilities Letter and in the T&C. 

XI.  ISDA AGREEMENT

103. For completeness’ sake, I should mention that Sit also signed the ISDA Agreement on 3 March 2008, but since it was after the purchase of the 10 ELNs I am not really concerned with such agreement.

XII.  SIT’s ACCOUNT, ELNs and 5^TH/6^TH REPRESENTATIONS

(a) Investment history

104. From 2004 to 2008, Sit invested in various types of financial products via Sit’s Account as evidenced by the buy/sell transaction schedules prepared by DBS (“Transaction Schedules”)[43] and the monthly Consolidated Statements for Sit’s Account that DBS sent to Sit (“Consolidated Statements”).  Sit purchased 69 ELNs via Sit’s Account, and 39 of those were bought during the period from 15 June 2004 and 1 February 2007 before the purchase of the 10 ELNs. 

105. The Hang Seng Index (“HSI”) in 2004 was around 12,000+ to 13,000+. As at the end of July 2004, Sit’s investment portfolio of about US$12.6 million was roughly 47.49% fixed deposits, 47.41% fixed income products and 5.10% ELNs.  The term loan as utilised was about US$5 million, and his net assets were about US$7.6 million. 

106. In 2005, the HSI was around 14,000+ to 15,000+, and Sit’s net investments grew steadily.  In 2006, the HSI rose from 15,000+ in January to 20,000+ in December.  As at the end of April 2006, Sit’s investment portfolio of about US$21.5 million was roughly 40% long term investments and 60% ELNs.  The term loan as utilised was about US$11.3 million, and his net assets were about US$10.2 million.  The records further showed the notional amount of ELNs bought in 2006 was about HK$16 million, US$19 million and JP¥200 million. 

107. In 2007, the HSI rose from 20,000+ in January to 27,000+ in December.  During this year, more ELNs were purchased.  In January 2008, the HSI rose to 27,000+.  On 12 December 2007 and 10 January 2008, a few more ELNs were purchased.  The HSI dropped from 27,000+ in January to 22,000+ by the end of March. 

(b) Sit’s case

108. Sit claimed he had no expertise in investments, so he entrusted them to banks and instructed them to buy “principal protected products or low risk products with steady earnings”.  He said he was not a speculator and “did not want to take any risk of losing his capital”.  He allegedly “placed absolute reliance on [Kong] and DBS” and repeatedly told Kong his investment must be safe and he “did not want to lose [his] asset (which included the loan)”.  Sit claimed DBS through Kong offered him one-to-one private banking service, and relying on the 1^st to 4^th Representations he entrusted Kong to select investment products for him in accordance with his conservative/prudent investment policy, and Kong took the initiative to recommend various investment products to him. 

109. Sit claimed that on Kong’s recommendation he borrowed under the term loan facility to purchase long-term fixed income coupons and coupons linked with blue-chip stocks.  Sit knew interest for fixed income coupons was calculated pursuant to a structured formula, but Kong assured him the 10% pa interest yield would be higher than the rate for fixed deposits.  Kong informed Sit (and Sit believed) fixed income bonds and yield enhanced deposits were relatively safe investment products, and interest earned thereon would more than cover interest payable on the loan.  He believed Kong purchased JP¥ currency options for him because he took advantage of the low interest rate to borrow JP¥ under the term loan facility. 

110. Shortly after opening Sit’s Account, Sit began to purchase ELNs.  Sit claimed he did not have much experience/knowledge in relation to ELNs, so he entrusted Kong (who appeared familiar with the ELN market) to “select” ELNs[44] for him and he relied on Kong’s recommendations.  From time to time, Kong (a) provided Sit with investment advice which he expected Sit to follow and to rely on (and which Sit did), (b) told Sit he had studied the market and analysed the financial information, and (c) told Sit he had “structured” or tailor-made products for him.[45] On one occasion, he even referred to ELNs as more “traditional”, which led Sit to believe investing in ELNs were less risky than investing in mutual funds.  He also told Sit certain “insurance line” or “protection” was embedded within some ELNs.  These representations were pleaded as the 6th Representations made by Kong.  Sit claimed he “reposed absolute trust and reliance on [Kong]”, who took care of Sit’s Account and reminded Sit of the amount of usable credit facilities for purchasing investment products, so Sit did not verify the 6th Representations when he purchased various investment products recommended by Kong.  As a result of and relying upon the 6th Representations, Sit believed ELNs “were merely or in fact similar to other interest generating products and was safe, conservative and traditional”. 

111. Sit claimed Kong initially recommended (and he purchased on such recommendation) one-year maturity ELNs “linked to one blue chip [share] only” or “notes linked to one or two stocks”.  Sit’s then understanding was that unless the issuers (eg large conglomerates or banks) went bankrupt or the purchase of ELNs were financed by margin financing, the risk of principal loss was slim.  But gradually and unknowingly the ELN investments deviated from Sit’s conservative/prudent investment policy.  Sit claimed that in 2007 Kong recommended him to purchase two-year maturity ELNs linked to three or more underlying stocks/shares.  In paragraph 57 of his witness statement, Sit stated as follows:

“Since July 2007, to the best of [Sit’s] recollection, [Kong] only told [Sit] over phoneand recommended [him] to purchase the ELNs. [Sit] did query as to the possible risk of the investments, but [Kong] invariably assured [Sit] that there was no problem and the investment would yield positive return at the end of investment (ie “the 5^th Representations”). Save one ELN was bought in July 2007, the other 9 ELNs in issue in this proceeding were all bought in 4 months from October 2007 to January 2008.” (my emphasis)

Sit said Kong assured him over the telephone the ELNs were linked to blue-chip shares and were approved by DBS.  Sit claimed Kong told him the market trend did not anticipate a fall below 20%, which would be extremely rare, and it was worthwhile to purchase the ELNs he recommended in order to obtain a higher return.  Relying upon Kong’s assurance, Sit allowed Kong to purchase the “basket” ELNs that he recommended.

112. Sit said his investments in ELNs in the bullish market of 2004-2006 were fine: he would earn an attractive initial/guaranteed coupon, and from time to time the ELNs got knocked-out with the principal returned to him, and Kong would encourage him to purchase further investments (including ELNs) with the returned money.  Sit claimed that with some of the ELNs knocked-out, Sit’s Account would not have very many open positions at a time, but he agreed his ELN investments were quite substantial.

113. Sit claimed Kong would inform him by telephone he had “structured” or tailor-made certain ELNs to persuade him to buy them.  Sit admitted that Kong would tell him the return, “the stocks that the notes were linked to, the strike price, the lock-out price, the interest rate and the maturity date”, and Kong would remind him that if the stocks fell below the strike price he would have to take the underlying stocks upon maturity and the principal would not be returned to him.  Kong would put up some justification (eg market condition and/or stock performance) to persuade Sit to purchase the ELNs that he recommended, and Sit would let Kong make the investments.  But Sit claimed Kong said nothing about the risks, particularly the impact of using credit facilities to finance the purchase of the ELNs.  Sit claimed he never invested with margin financing, and had only taken shares in lieu of principal upon maturity for 3-4 ELNs.  He claimed he was completely ignorant about the LTV Ratio and/or “top up” requirements, and thought the ELNs he purchased were safe investments because they were mortgaged to DBS and DBS would not accept risky investments as securities. 

114. Sit did not read the Banking Documents Kong gave him or sent to him by post.  Sit used to meet Kong once a month, and Kong would give him a monthly Consolidated Statement which he did not keep.  From time to time Kong also provided Sit with portfolio summaries (that Kong prepared but Sit did not keep)[46] to show the asset/loan portfolios of Sit’s Account, and his loan portfolio was always around US$10 million to US$11 million.  Usually Sit would just take a look at the net position and compare this with that of the preceding month, and as there was always progressive growth with assets exceeding loans he did not raise query with Kong.  His trust in Kong grew as time went by, but he never authorised Kong/DBS to make investments that would result in loss of principal.  Since Kong was DBS’ designated RM to serve Sit, DBS/Kong must have known or expected Sit to rely on Kong’s portfolio summaries to check the general status of Sit’s Account, and yet they did not show any margin ratio, margin value, margin excess and margin shortfall in respect of his investments.

XIII.  MISCELLANEOUS POINTS

(a) Additional facilities under the 3rd and 4th Facilities Letters

115. Sit strongly complained against the additional treasury and leveraged facilities in the 3^rd and 4^th Facilities Letters, and said he should not be “forced” to accept the derivative investment tools referred therein which should be handled by professional investors.  But Sit agreed that the loan portfolios in the Consolidated Statements from May 2006 to December 2008 showed he only utilised overdraft and term loan facilities for his investments and not any “Leveraged Loans”[47] or “Other Loans”.[48] Hence, the treasury and leveraged credit facilities were never used for making investments (including the 10 ELNs) via Sit’s Account.

(b) Conditions precedent

116. Sit claimed the conditions precedent for the 3^rd and 4^th Facilities Letters had not been satisfied in that he did not execute a new set of the Charge, Mortgage and General Agreement, so DBS could not enforce the 3^rd and/or 4^th Facilities Letters.  But there was no express requirement for a new set to be freshly signed. It was simply provided that “[the] Facilities will be made available or continue to be made available to the Borrower provided that the Bank has received each of the following, in a form and substance satisfactory to the Bank ……” (my emphasis).  DBS was quite entitled to grant the credit facilities in the 3^rd and 4^th Facilities Letters if satisfied with the form and substance of the Charge, Mortgage and General Agreement that Sit had signed.  There is no merit to this argument.

(c) Kong not registered until 28 June 2008

117. Kong was employed by DBS as a RM (temporary staff) from 13 April to 27 June 2004.  He was not registered with the HKMA to conduct Types 1, 4 and 9 regulated activities until 28 June 2004 (when he became DBS’ permanent staff).  Sit claimed to be surprised that DBS had allowed Kong to handle the account opening process and Sit’s Account prior to that date. 

118. Leung did not know why Kong was initially employed as temporary staff.  By the time she joined DBS in 2012 all RMs were employed as permanent staff, but she confirmed RMs (whether temporary or permanent staff) would be designated as such upon employment.  Leung confirmed there was no SFC/HKMA regulation prohibiting a non-registered person from opening a private banking account for a customer since it was not a regulated activity, and she could not see any difference between a permanent staff or a temporary staff for such purpose.  So pending registration a RM could still be a RM but would not be able to transact certain types of business for the customer.

119. Mr Lee SC submitted that since Kong was not qualified to conduct regulated activities but DBS allowed him to serve Sit, it would have led Kong to believe DBS wanted him to generate as much business as possible from Sit’s Account, and with DBS thinking they would be protected by the Group Clauses, it was entirely probable that Kong would have made the 1^st Representations.  I am unable to follow the leap of faith in such submissions.  Whilst DBS/Kong had a legitimate commercial interest to earn commission income, I am unable to accept that a non-registered person handling non-regulated activity equated to a propensity/likelihood to make misrepresentations, including the 1^st Representations.  Since the relevant activity was non-regulated, one cannot presume the performance of such activity by a non-registered RM would necessarily be worse as compared with the performance by a registered RM.  Even on Sit’s own case, Kong was experienced in the banking industry, which was why Sit employed him even in 1993. 

120. On balance, I am unable to draw any sinister inference from the fact that Kong was not registered with the HKMA from 13 April to 27 June 2004.  Except for regulated activities, he was entitled to act as RM for Sit, to open Sit’s Account and to handle the account-opening process, none of which was a regulated activity, and I am unable to conclude that Kong’s performance of such non-regulated activities would therefore be incompetent or below standard.  The first transactions made via Sit’s Account as shown in the Consolidated Statements and Transactions Schedules were the purchase of bonds/notes issued by Federal Home Loan Mortgage Corp (“Freddic Mac Bond”) and by CDC IXIS Capital Markets (“CDC Note”) on 26 and 30 April 2004 respectively.  Although Kong was involved as Sit’s RM, it was DBS’ Amy Poon (“Poon”) who explained the product features to Sit and took his orders. 

XIV.  SECTION 108

121. For the Representations, Sit relied on a statutory misrepresentation claim under Section 108 in addition to a conventional claim based on common law misrepresentation and the MO.  Mr Lee SC urged this court to analyse the statutory duty under Section 108 first so as not to “[increase] the risk of error”.[49] Section 107 of the SFO (“Section 107”) and Section 108 provided as follows:

“107. Offence of fraudulently or recklessly induce others to invest money

(1) A person commits an offence if he makes any fraudulent misrepresentation or reckless misrepresentation for the purpose of inducing another person-

(a) to enter into or offer to enter into –

(i) an agreement to acquire, dispose of, subscribe for or underwrite securities; or

(ii) a regulated investment agreement or an agreement to acquire, dispose of, subscribe for or underwrite any other structured product; or

(b)  to acquire an interest in or participate in, or offer to acquire an interest in or participate in, a collective investment scheme.”

“108. Civil liability for inducing others to invest money in certain cases

(1) Where a person makes any fraudulent misrepresentation, reckless misrepresentation or negligent misrepresentation by which another person is induced –

(a) to enter into or offer to enter into –

(i) an agreement to acquire, dispose of, subscribe for or underwrite securities; or

(ii) a regulated investment agreement or an agreement to acquire, dispose of, subscribe for or underwrite any other structured product; or

(b) to acquire an interest in or participate in, or offer to acquire an interest in or participate in, a collective investment scheme,

the first-mentioned person shall, whether or not he also incurs any other liability (whether under this Part or otherwise), be liable to pay compensation by way of damages to the other person for any pecuniary loss that the other person has sustained as a result of the reliance by the other person on the misrepresentation. ……

(6) Nothing in this section affects, limits or diminishes any rights conferred on a person, or any liabilities a person may incur, under the common law or any other enactment.”

Section 108(7) contained definitions for fraudulent, reckless and negligent misrepresentations, and Section 107(3) contained similar definitions for fraudulent and reckless misrepresentations.

(a) Parties’ respective stance

122. Sit claimed that under Section 108 DBS would be liable to pay damages to Sit if it was shown inter alia that (a) DBS made any reckless or negligent misrepresentation defined under Section 108(7), and (b) Sit was induced to acquire the 10 ELNs by one or more such misrepresentations.  It was argued that by adopting a purposive approach to interpreting Section 108[50] and having regard to its legislative intent, there were three material differences between misrepresentation under Section 108 and under common law:

(a) DBS could not rely on the doctrine of contractual estoppel[51] (even assuming it was applicable under common law) to circumvent their statutory liability, and such doctrine had no application to Sit’s claim under Section 108;

(b) the types of actionable misrepresentations defined under Section 108(7) were different from (and for the present purpose, wider than) those prescribed under common law;[52]

(c) by virtue of section 169(4) and/or section 399(6) of the SFO, regardless of whether the provisions of the Code were otherwise incorporated into any contract between DBS and Sit, such provisions were relevant in determining whether Section 108 had been breached.

Mr Lee SC also acknowledged the differences referred to in the paragraph below.

123. Mr Wong SC contended that contractual estoppel applied to a misrepresentation claim under Section 108 as much as it applied to one under common law and the MO because Section 108(6) specifically preserved DBS’ right to rely on such doctrine.  He referred to San-Hot in which DHCJ Pow SC dismissed the defence under Section 108 on the basis that the defendant could not establish any misrepresentation but went on to conclude there were only two differences between these two claims:

“16. ……. the only differences between relying on [Section 108] as opposed to a conventional claim based on common law misrepresentation or the [MO] are:-

(1) the definition of “representation” under [Section 108] includes “forecasts” which are not representation of facts that could give rise to remedies under common law misrepresentation or the [MO]; and

(2) a claim under [Section 108] is confined to compensatory damages.  There is no relief for rescission; damages in lieu of rescission; or restitution.”

124. Thus, the real debate was whether or not contractual estoppel would be applicable to a claim under Section 108.  I will discuss Mr Lee SC’s challenge to such doctrine in Part XXII below, but suffice to state here I accept the existence of a separate doctrine of contractual estoppel applicable to Hong Kong and to the Contract between DBS and Sit.

(b) Legislative history

125. Mr Lee SC traced the legislative history of Sections 107‑108 by referring to their predecessor provisions, ie sections 3 and 8 of the repealed Protection of Investors Ordinance Cap 335 (“PIO”).  Section 3 of the PIO[53] was based on section 12 of the Prevention of Fraud (Investments) Act 1939.[54] Section 8 of the PIO provided inter alia that:

“(1) Any person who, by any fraudulent, reckless, or negligent misrepresentation, induces another person –

(a) to enter into any agreement –

(i) for or with a view to acquiring, disposing of, subscribing for, or underwriting securities; or

(ii) the purpose or effect, or pretended purpose or effect, of which is to secure to any of the parties to the agreement a profit from the yield or securities or by reference to fluctuations in the value of the securities or property other than securities; or

(b) to take part in any investment, arrangements in respect of property other than securities,

shall be liable to pay compensation to that other person for any pecuniary loss that he has sustained by reason of his reliance on the misrepresentation.

……

(4) Nothing in this section limits or diminishes any liability which any person may incur under the common law.”

126. Mr Lee SC submitted (and Mr Wong SC also agreed) that a purpose of the PIO/SFO was to protect the investing public, which purpose was borne out by the speech of the then Financial Secretary on 12 December 1973 in moving the second reading of the Protection of Investors Bill 1973 (“PIB”) in Hansard.[55] But such broad description of the legislative purpose was insufficient to identify the specific scope/limit of Section 108, and it would be necessary to turn to the language of the statute, including the statutory provision in question.

127. Neither party referred to the speech of the then Secretary for Financial Services in moving the second reading of the Securities and Futures Bill (“SFB”) in the Legislative Council on 29 November 2000:

“The purpose of the [SFB] is to consolidate and modernise the above legislation relating to financial and investment products, regulation of the securities and futures market, and the protection of investors.

The main objective of the [SFB] is to set up an effective regulatory regime for the development of a fair, orderly and transparent market to promote market confidence, secure appropriate investor protection, reduce market malpractice and financial crimes, and facilitate innovation and competition.

In finalizing the relevant proposals and drafting the provisions, we have followed the following principles:

First, the new regime should be on par with international standards and compatible with international practices, with necessary adjustments to address local characteristics;

Second, a reasonable balance should be struck between protecting investors and facilitating market development; ……

Fourth, the exercise of regulatory powers should be subject to adequate checks and balances;

Lastly, there should be a smooth transition from the existing to the new regulatory framework.” (my emphasis)

I mention this for completeness (although I do not need to rely on this) since it is directly relevant to the statute under consideration.

(c) Section 108(6)

128. Mr Lee SC submitted that by adopting a purposive and contextual approach and having regard to the legislative intent of protecting victims against being induced by, say,reckless/negligent misrepresentations to act to their detriment, Section 108(6) necessarily meant “[nothing] in this section affects, limits or diminishes any rights conferred on [the victim], or any liabilities [the wrongdoer] may incur, under the common law or any other enactment”.  Upon such construction, Section 108 would confer on the victim a “right” to claim damages against the wrongdoer additional to his common law or statutory rights preserved under Section 108(6).  Conversely, Section 108 imposed an additional “liability” on the wrongdoer since only their common law and statutory liabilities but not rights would be preserved.  Hence, it was said, an investor enjoyed more protection under Section 108 than under common law except innocent misrepresentation would not be actionable under Section 108.

129. Although Mr Lee SC agreed the phrase “a person” in Section 108(6) could literally refer to both the wrongdoer and victim, he argued it would be “monstrous” and contrary to the legislative intent for the wrongdoer to rely on contractual estoppel to circumvent and frustrate the statutory protection afforded to the investing public through such phrase.[56] Mr Lee SC raised the spectre that to accept DBS’ argument would effectively mean that by relying on contractual estoppel banks providing banking services to investors in Hong Kong would be encouraged through their agents or RMs to induce their customers to buy securities/products by all forms of misrepresentations with impunity, and such banks and their agents would never be caught by Section 108 at all.

130. But Mr Wong SC reminded San-Hot identified only two differences between a misrepresentation claim under Section 108 and one under common law and the MO, the first being an expansion under Section 108 to cover opinion/forecast which were not regarded as statements of fact actionable under common law,[57] and the second being a narrower approach to remedies under Section 108 by excluding rescission, damages in lieu of rescission or restitution.  Mr Wong SC submitted that DHCJ Pow SC plainly did not think Section 108 would exclude contractual estoppel. 

131. Mr Wong SC submitted the language of Section 108 only admitted the meaning DBS contended, ie the phrase “any rights conferred on a person ……” (my emphasis) applied to both the misrepresentor and misrepresentee. He reminded it was a principle of statutory construction that the legislature must be taken to have intended what it had plainly expressed and whatever it had in clear terms enacted must be enforced.  But even if the wording of Section 108 were ambiguous, Mr Wong SC argued the “Hansard materials” DBS submitted clearly indicated that except for the two differences discussed above Section 108 was intended to follow the common law. 

132. In my view, a proper understanding of the meaning and intent of Section 108(6) must start with the changes made by the legislature when section 8(4) of the PIO was repealed and replaced.  The predecessor subsection provided that nothing in section 8 of the PIO would limit or diminish “any liability which any person may incur” under common law, but it was re-written as Section 108(6) which provided that nothing in Section 108 would affect, limit or diminish “any rights conferred on a person” or “any liabilities a person may incur” under the common law “or any other enactment”.  In my view, the inclusion of “any rights conferred on a person” plainly reflected legislative intent to preserve common law “rights” conferred on “a person” for determining civil liability under Section 108, a matter not previously catered for in section 8(4) of the PIO.  I agree with Mr Wong SC that in preserving both “rights” and “liabilities” Section 108 was not intended to disturb the checks and balances available under the common law.

133. In my view, Mr Lee SC’s suggestion that the phrase “a person” when used for the first time in Section 108(6) was restricted to the misrepresentee (and no other) whereas the phrase “a person” used for a second time in Section 108(6) was restricted to the misrepresentor (and no other) distorted the plain wording/meaning of the provision by watering down the unqualified width of such expression so as to preserve the common law rights of some particular type of person and the common law liabilities of another type of person.  Had the legislature intended to merely preserve the rights of the misrepresentee but not those of the misrepresentor, it would have no difficulty in saying say so clearly in Section 108(6) instead of adopting an all-embracing preservation of “any rights conferred on a person” under common law.  I note the legislature easily distinguished between the misrepresentor and misrepresentee in Section 108(1) by referring to them respectively as (a) “a person [who] makes any …… misrepresentation” or “the first-mentioned person” and (b) “another person [who] is induced” or “the other person”, and easily identified the misrepresentee as “the maker” in the definitions for fraudulent, reckless and negligent misrepresentations in Section 108(7). 

134. Mr Lee SC submitted that contractual estoppel could not be described as “rights conferred on a person under the common law” (my emphasis) under Section 108(6).  But as explained in Part XXII below, contractual estoppel was grounded on the representor’s right to rely on the contract he made with the representee to prevent the latter from asserting he was induced by the former’s representation, and unconscionability did not come into the picture.  It was plainly a right conferred on a person under common law.  Since Section 108(6) expressly preserved common law rights for determining civil liability under Section 108, such rights should not be abolished without specific provision.  The wording of the legislation is unambiguous, and I agree with Mr Wong SC’s construction. There is no reason to limit the reading of Section 108(6) as suggested by Mr Lee SC.

135. In coming to this view, I have borne in mind the purposive and contextual approach to statutory interpretation.  Mr Lee SC said the mischief Section 108 was designed to address was to protect the investing public being the weaker party (who would therefore be unable to contract with equal bargaining power) from being induced by fraudulent, reckless or negligent misrepresentations by persons (including salespersons and bank staff) offering investment opportunities to buy securities and thereby suffer pecuniary loss, and hence the situation could not be left to private contractual regulation. 

136. However, I agree with Mr Wong SC that under the broad umbrella of protection of investors, the purpose of Section 108 was to provide a convenient point where people could avail themselves of a clear and simple cause of action based on the criteria set out in the statute, and the mischief (as amply made clear in Section 108(6)) was not directed at anything under the common law.  As I will explain in Part XXII below, the doctrine of contractual estoppel had been upheld locally and in other jurisdictions, and could hardly be said to be a perceived “mischief or defect in the pre-existing legislation” to be remedied by Section 108(6).

137. At the second reading of the PIB, the then Financial Secretary attached importance to the dissemination of in-depth and objective analytical studies, commentaries and forecasts, which had been lacking in the past.  Mr Lee SC submitted that any suggestion that Section 108 was a hindrance to the free flow of financial information was unfounded since such provision merely prevented financial institutions and their agents from inducing their customers to acquire securities by fraudulent, reckless or negligent (but not innocent) misrepresentations, but it would not prevent financial institutions from otherwise providing legitimate analysis or forecasts to their customers. 

138. In my view, there is undoubtedly a policy interest in the free flow of investment information to foster market development and transparency.  Under the doctrine of contractual estoppel (founded on freedom of contract and agreed contractual rights and obligations), investors and financial institutions could validly contract for an “execution only” service and for giving/receiving house view or trade opinion on a “no recourse” basis.  The language of Section 108 which aimed to preserve common law rights and liabilities would not deprive parties of the liberty to agree with each other to exchange views or to give/receive information on such basis.  If contractual estoppel were excluded from Section 108, the free flow of information and hence market development might be hindered in that provision of investment services might be rendered more expensive or restrictive.  Although I need not rely on this, I note the above conclusion accorded with the explanation by the then Secretary for Financial Services that an underlying principle of the SFB was to strike a reasonable balance between protecting investors and facilitating market development.

139. Since I have concluded that the wording/meaning of Section 108 is unambiguous, there is no need for me to refer to the “Hansard materials” DBS submitted in relation to certain meeting, paper and report of the SFB Committee, or to consider Mr Lee SC’s criticisms about them.  But even if there were any ambiguity (which I disagree), having carefully considered DBS’ materials, I incline to the view that they were statements by the executive as to the meaning/effect of proposed legislation rather than ministerial statements of the mischief(s) against which Section 108 was aimed.  In the circumstances, I am not prepared to refer to those materials. 

140. All in all (and also bearing in mind the discussion in Part XIV(d)-(f) below), there was simply no support for (and I reject) Sit’s contention that contractual estoppel was excluded from Section 108.  The legislature plainly intended common law principles to be applied, and left it to the courts to develop the jurisprudence under common law and Section 108.  In my view, upon proper construction of Section 108 and in appropriate contractual circumstances, a misrepresentee would be contractually estopped from alleging inducement by and/or reliance on the misrepresentation.

(d) Section 107

141. Mr Lee SC submitted that such interpretation would create an anomaly when Section 108 was read together with Section 107 being its “criminal equivalent”, and the legislature could not have intended such anomaly.  Mr Lee SC reminded Hansard in respect of the PIB[58] explained that the conduct of inducing investors by fraudulent or reckless means to buy and sell securities was per se sufficiently serious to justify criminal sanction, so the legislative intent of both Sections 107 and 108 must have been to punish the culprit with criminal and civil sanctions.  Mr Lee SC said given that Section 107 did not have the equivalent “defence” under Section 108(6), DBS’ construction would lead to the absurd meaning that a person who made any fraudulent or reckless misrepresentation should be punishable by criminal sanction under Section 107 but could resort to contractual estoppel to escape civil liability under Section 108.  It was said that Sit’s interpretation of Section 108(6) provided the only sensible and just result.

142. In my view, Sections 107 and 108 were two very differently phrased sections. Section 108 (which provided for civil liability) specifically preserved the rights and liabilities under common law and was therefore cast within its own framework of common law checks and balances, but not so under Section 107.  Significantly, whilst negligent misrepresentation and the presumption under Section 108(2) did not come within Section 107, they fell within the wider net cast by Section 108 which was counterbalanced by Section 108(6) that expressly preserved common law rights and liabilities.  The very existence of Section 108(6) not found in Section 107 made clear it should be given its intended effect of preserving the common law position.

(e) Setting up an estoppel in face of a statute

143. Mr Lee SC also relied on the principle against setting up an estoppel in face of a statute set out in Kok Hoong v Leong Cheong Kweng Mines Ltd[59] based on public policy considerations, ie the need to give effect to “social policy” in the interests of the public irrespective of what the parties might have created by their conduct or otherwise.  Even so, it appeared that “before a court so holds, it will consider whether the public policy embodied in the statute outweighs the demands of justice in the particular case, requiring for its furtherance that the unfairness that is the foundation of the estoppel should go unremedied”.[60] Mr Lee SC argued that because the PIO/SFO (and hence Section 108) represented a social policy which the court must give effect in the interests of the public generally or some section of the public being the investing public, no estoppel could be set up against Sit’s reliance on Section 108 since it rendered him a “protected person” for this purpose.

144. Mr Wong SC submitted that p 1015 of the decision of Kok Hoong made clear that as a starting point “statutes do not necessarily preclude estoppels”.  In Yaxley v Gotts & anor,[61] Lord Beldam LJ at p 191 said: “[the] general principle that a party cannot rely on an estoppel in the face of a statute depends upon the nature of the enactment, the purpose of the provision and the social policy behind it”.  Similarly, Clarke LJ at p 182 said: “[it] seems to me that in considering whether a particular estoppel relied upon would offend the public policy behind a statute it is necessary to consider the mischief at which the statute is directed”.  This required the court to take into account the purpose of the enactment and the mischief at which it sought to remedy, which matters I have already discussed in Part XIV(c)-(d) above.  In construing Section 108, it must be a matter of significance that rights under the common law were specifically preserved, and in my view, there was no scope to suggest the provision necessarily precluded the operation of contractual estoppel.

(f) Contracting out

145. Mr Lee SC argued that the construction of Section 108(6) must be informed by the principle against allowing a statutory provision enacted for protection of a public interest to be contracted out as explained in Johnson v Moreton[62] and Keen v Holland.[63] In Johnson, the House of Lords held that although there was no specific provision against contracting out in section 24 of the Agricultural Holdings Act 1948 (as there was in relation to certain other sections), a contract by an agricultural tenant not to serve a counter notice under section 24(1) was void as being, by necessary implication, prohibited by the Act of 1948 as this would undermine the overall purpose of the Act in promoting efficient farming in the national interest.  In Keen, the English Court of Appeal followed Johnson and held that once there was an actual tenancy to which the Act of 1948 applied, the parties could not oust the protective provisions of such Act by agreeing they shall be treated as inapplicable.  On such basis, Mr Lee SC suggested that since Sections 107 and 108 (and their predecessors) were designed to remedy the mischief as he perceived in paragraphs 128-129 above, it was a necessary implication that Section 108 shall not be contacted out, and this court should be slow to consider otherwise even if the literal meaning of the words permitted such an interpretation.

146. However, in my view, contractual estoppel is part of the common law checks and balances expressly preserved by Section 108(6), so there is no question of “contracting out” of Section 108 at all.  Given the clear and express wording of Section 108(6), the observations on contracting out of a statutory right/remedy in Johnsonand Keen had no place as they dealt with quite different statutory provision (with no equivalent provision as Section 108(6) that preserved common law rights).

147. I therefore conclude that the doctrine of contractual estoppel is applicable to a claim under Section 108.  However, given my conclusions in Parts XVII, XIX and XX below that Sit failed to establish any misrepresentation based on the Representations, Sit’s claim under Section 108 also fails.  I also find in Part XXII below that DBS successfully invoked the doctrine contractual estoppel.

XV.  MISREPRESENTATION – OVERVIEW

148. It was Sit’s case that the Representations (particularly the 1^st, 5^th and 6^th Representations) were made recklessly or alternatively negligently.  Christopher Clarke J in Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland Plc summarised the law on misrepresentation in the context of investment claims as follows:[64]

“81. [The representee] must show that the [representor] made to it a statement which amounts to a representation, that is to say a statement of fact upon which it is entitled to rely.  Whether any and if so what representation was made has to be “judged objectively according to the impact that whatever is said may be expected to have on a reasonable representee in the position and with the known characteristics of the actual representee.  ……The reference to the characteristic of the representee is important.  ……

82. 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, the 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.  ……

84. …… 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.

85. The essential question is whether in all the circumstances it has been impliedly represented by the representor 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.  …… Further, if a claim is made under section 2(1) of the Misrepresentation Act 1967, it is also necessary to pay 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” ……

86. 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.  ……

87. 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.”

149. Sit did not seek any remedy of rescission for the 10 ELNs.  Instead, his misrepresentation complaint was in the nature of a counterclaim for damages, which if successful, could amount to a defence of set-off.  The following observations by Christopher Clarke J at pp 152-156 are pertinent:

“153. The authorities establish the following:

(a) 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.

(b) 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. ……

162. In this context it is, in my judgment, necessary to remember, …… that the representation must play a causative part in inducing the contract and that involves “but for” causation.

170. Mr Zacaroli submitted that, whilst there may be more than one “but for” cause, in order to establish that any particular representation was a real and substantial cause it is necessary to show that but for such misrepresentation the claimant would not have entered into the contract on the terms on which he did, even though there were other matters but for which he would not have done so either.

171. …… I accept that submission. The authorities show that inducement is, in essence, a question of causation and that the misrepresentation must be an effective cause of the representee entering into the contract in the “but for” sense. “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)…….

173. …… it cannot be the case that the representation does not have to be a cause at all. It need not be the sole effective cause but it must be an effective cause. Amisrepresentation is not an effective cause if the representee would have gone ahead even if it had not been made.” (my emphasis)

150. Whether the Representations were made is a matter of fact.  Mr Wong SC submitted that the misrepresentation claim could not be sustained given the quality of the evidence, and I now turn to the relevant analysis.

XVI.  SIT’s ANCHOR ARGUMENTS

151. It is a running theme in Sit’s case that (a) ever since April 2004 he “reposed absolute trust” in Kong and was thereby induced to rely on the Representations and to enter into the Oral Contract, and (b) he was only interested in products that were “principal protected” and Kong assured him his investments would be safe on such basis.  For (b) above, Sit also alleged he never authorised Kong/DBS to make investments that would result in loss of principal.  These two matters were crucial to Sit’s credibility, and any failure to establish either matter would seriously undermine his testimony.

(a) Trust in Kong

152. Mr Lee SC submitted Sit must have a certain level of trust in Kong in April 2004 because Sit did open Sit’s Account through Kong, and thereafter Kong was the only RM designated by DBS and accepted by Sit to deal with Sit’s Account.  But that was not how Sit put it in his pleadings and witness statements which emphasised that ever since April 2004 he “reposed absolute trust” in Kong such that he did not trouble himself to read the Banking Documents before signing them.

153. It was also Sit’s case that he fired Kong in 1993 because of his unauthorised investment in warrants, his “gambling” attitude towards investments, and his disobedience of instructions to promptly leave the “stock market”.  Sit also claimed they had no further contact until Kong suddenly turned up ten years later in April 2004.  Against such background, it is hard to believe Sit would immediately “repose absolute trust” in Kong.  Given Sit’s unhappy experience with Kong (who defied his express instructions) ten years ago, it also appeared strange for him to say Kong’s offer to personally serve him was another attraction. 

154. Interestingly, the Reasons for Verdict recorded that after Sit fired Kong in 1994 “…… 二人仍保持聯絡”, “[Kong]加入[DBS]後,便聯絡[Sit]找他開私人銀行户口，作投資用途” and “[Sit]作證直至2006年初，[Sit]對[Kong]恢復信心，便對[Kong]說因他自己愈來愈忙也不想麻煩，授權[Kong]去的投資，他confirm就可以，要[Kong]幫他做投資……” Sit acknowledged this was quite different from his witness statements, and he could not explain this material discrepancy.  Mr Lee SC tried to suggest it must have been faulty recollection because Sit had no motive to lie about whether or not he had contact with Kong from 1994 to 2004.  But there was a more significant discrepancy between (a) Sit now saying he reposed absolute trust in Kong ever since April 2004 which he put forward as a significant reason to justify his alleged reliance on the 1^st Representations and his allegation of not reading the Account Opening Form, Master Agreement, 1^st Facilities Letter, Charge, Mortgage and General Agreement, and (b) Sit testifying earlier that he only regained confidence in Kong in 2006 by which time the 1^st and 2^nd Representations (and possibly even the 3^rd Representations) had been allegedly made and relied upon.  In my view, there was incentive for Sit to lie in order to bolster his misrepresentation claim, and on balance I find he did not tell the truth when he said he reposed absolute trust in Kong since April 2004.

155. Sit next tried to explain why he reposed absolute trust in Kong in April 2004 by saying (a) Kong looked sincere and they chatted away like old friends, (b) he had almost forgotten what happened in the past, and (c) he did not think Kong would be the same man after ten years.  But other than a bare assertion that he always took an optimistic view of human nature, Sit failed to identify any cogent reason that led him to think Kong had turned over a new leaf so completely he could and did immediately “repose absolute trust” in Kong. 

156. The Recording/Transcript of the telephone conversation between Sit and Kong on 23 April 2004, ie a few days after Sit’s Account was opened, was telling.[65] During that conversation, Kong said he had faxed to Sit (who was then in Mainland China) a term sheet that set out the price and yield of an investment product.  Sit wanted to study the fax first before he would make any decision, which did not sit well with his alleged dislike of reading documents and preference for oral presentations, and his alleged trust in Kong that caused him not to read the Banking Documents presented to him.  Sit tried to explain this away by saying:[66]

“It’s pretty usual for me to have requested for having a look at the relevant documents first before I made the decision concerned, because after all it’s a transaction, it’s trading in certain financial products. I would like to ascertain whether it was $1 or $10. So it’s pretty usual for me to do it like this. May I further elaborate on my explanation to this? Say, for example, in respect of PO, no matter whether it was a PO sent by me to the other party or the other way around, it was very important for me to look into the description printed on the PO, to see the key information. For example, the price and the delivery date, et cetera. But as for the small-print characters printed on the back of the document, I seldom read it.” (my emphasis)

When pressed, Sit disagreed it was his practice to read documents first before he made decisions on them for it all depended on the nature of the documents.  He also tried to shy away from his insistence on reading the fax first before making any investment decision in the above example by saying Kong told him to read it (but there was no such demand in the Recording/Transcript). 

157. The Recording/Transcript further revealed Sit talked about the importance of the price, and he requested Kong for information on the historical performance of the investment product, so Sit was constrained to agree it was not as if he had so much trust in Kong that he would just listen to what Kong said and decide to purchase without his own consideration.  In the Recording/Transcript, Sit went on to talk about product yield and risk, and he wanted to get (and Kong said he would try to get for Sit) information on historical price fluctuations to enable him to assess the risk, and he even talked about consulting a Mr Cheuk of DBS, who was then known to Sit as having more expert knowledge on the product.  In the end, Sit was constrained to agree it was not as if he “reposed absolute trust” in Kong in April 2004.

158. Such Recording/Transcript blew part Sit’s assertions and demonstrated his allegation of “reposing absolute trust” in Kong as early as in April 2004 to be implausible and unconvincing.  Sit in cross‑examination sought to back-paddle by acknowledging it would be quite exaggerating to say (as he did in his witness statements) that he reposed “absolute” trust in Kong in April 2004, and he tried to retract the word “absolute” by saying at that time he merely trusted Kong enough to agree to open a private banking account with DBS, to take up the offer of credit facilities, to have Kong personally serve him, and to rely on the 1^st Representations, but his trust in Kong grew only as time went by.

159. Sit then tried to say Kong came to see him as DBS’ representative and he placed trust in DBS as a reputable bank, so it was more accurate to say he had dealings with and trusted DBS.  Again, this was not how Sit put it in his pleadings and witness statements, and in my view this was nothing more than another tailoring of his evidence to suit his purpose.

160. Ultimately, Sit admitted under cross-examination that “[to] be more accurate, it should have been stated that I trusted the bank. That’s why I had dealings with the bank.  Before any decision was made or any move was made, there must have been my own understanding of the relevant products before everything could proceed.  So you are right, I have got my own judgment, and there is decision on my part”.  He acknowledged to be true that he made his own judgment as to whether or not to make investment and would not just rely on Kong’s recommendation, but Sit claimed that was just for the year 2004 and not 2005-2007 by which time Kong understood Sit’s investment policy and managed to convince Sit to follow his advice even though they sometimes had arguments.  In my view, Sit’s confession undermined his case as to the 1^st Representations and Oral Contract, and directly contradicted his witness statements that stated he “reposed absolute trust” in Kong ever since April 2004. 

161. But there is more.  I will return below to discuss Sit’s investment decisions in 2005-2008, but suffice to state here that Sit confirmed time and again under cross-examination[67] he made his own investment decisions for Sit’s Account (which was a non-discretionary account) without authorising DBS or Kong to make investments on his behalf, and there were times when he would override Kong’s recommendations and argue with Kong. 

162. Mr Lee SC submitted that the question before the court was not whether he should have trusted Kong but whether he did.  But even on the latter question, the above analysis showed Sit tailored his evidence and was untrustworthy.  Even if Kong had made the Representations (which issue I shall discuss below), I do not believe Sit when he claimed that ever since April 2004 he “reposed absolute trust” or such trust in Kong that he was induced by and relied on the Representations to sign the Banking Documents and/or to make investment decisions merely as Kong recommended.  I find on balance Sit became DBS’ private banking customer upon Kong’s invitation as a result of mutual commercial considerations with Sit wishing to use DBS’ private banking service to make investments in financial products in order to earn yield/return from such investments.  This goes a long way to demonstrate the unreliability of Sit’s evidence and his preparedness to say whatever suited his purpose. 

(b) “Principal protection”

163. First, I have found that Sit’s investment history both in 1993-1994 and 1999-2001 showed he was aware of and had engaged in investments that were not “principal protected”, and he actually suffered loss of principal from investments in the latter period.  Apart from such investment history, Sit also admitted in his supplemental witness statement that he knew every investment carried some risk.  He plainly knew ELN investments (even those with one underlying share/stock) were not “principal protected”, eg he explained in his witness statement that if the blue-chip underlying stock fell below the fixed price he would incur loss being the difference between the price of the blue-chip stock and his principal, and he also recognised that if the issuer went bankrupt or the ELNs were purchased by margin financing there would be non‑minimal risk of loss of principal.  This understanding was eventually reinforced through the ELN transactions made via Sit’s Account because there were 3-4 occasions in which he was unable to get back his principal and had to take the underlying shares upon maturity of the ELNs.  On balance, I reject Sit’s testimony that he told Kong in April 2004 or at any time thereafter he wanted his investments to be “principal protected”.

164. It is useful at this juncture to refer to the Recordings/ Transcripts in respect of three telephone conversations among Poon, Kong and Sit on 29, 29 and 30 April 2004 respectively (ie very shortly after Sit opened Sit’s Account) in relation to the CDC Note.  In the Recording/Transcript of the telephone conversation on 29 April 2004, Poon explained to Sit the settlement date and interest calculation as written on the term sheet.  She explained the issuer might call back the CDC Note, and Sit confirmed he was very clear about the concept of calling back.[68] Mr Lee SC pointed out that when Poon explained to Sit there was risk in relation to the swap rate that might result in “即係你會係，係零息既囉” to which Sit replied “我本金唔蝕就得囉”.[69]  However, in subsequent telephone conversations made on 29 and 30 April 2004 after Sit had read the term sheet, it was made known to him that the CDC Note was a high-risk product that was plainly not “principal protected”.

165. In the Recording/Transcript of the subsequent telephone conversation on 29 April 2004, Sit was expressly told the CDC Note was a high-risk product.[70] In the Recording/Transcript of the telephone conversation on 30 April 2004,[71] Poon explained the features of the CDC Note to Sit including the possibility that the issuer might call back the CDC Note, and reminded Sit he was purchasing a high-risk product and would have to understand the risk disclosure, including the illiquidity of the secondary market, the possibility of large fluctuations such that it would be better for him to hold the product, and the credit risk of the principal not being returned if the issuer (despite its AAA rating) closed down.  The Recording/Transcript went on to record the following:[72]

“P: 咁呃，另外都係講，都係最後都係關於話你要了解嗰個產品咁樣 …哈。

D: 係。

P: 就係一個你自己個決定係買呢個 …

D: OK，我明白，咁我依家要confirm妳我想買一百萬美金吖。”

Sit was constrained to agree that Poon had explained (and he had no difficulty in understanding) the aforesaid risks, and he himself made the decision to invest in the CDC Note. 

166. Although Sit tried (in my view unsuccessfully) to downplay the effect of these telephone conversations by saying the risk was small and the CDC Note could almost be regarded as “principal protected”, I have no doubt that Sit made a conscious and informed decision to invest in a high risk financial product that was obviously not “principal protected”.  These telephone conversations took place shortly after Sit’s Account was opened, so he knowingly purchased high risk and non‑principal-protected investments from the beginning.  Significantly, he told Poon he had been purchasing these kind of products previously (presumably before he opened Sit’s Account with DBS):[73]

“P: 呃，呀薜生你即係聽，聽落你係買過呢D產品架啦?

D: 我我我我時時買個D產品。

P: 哦，你時時買個D產品。”

This really blew apart Sit’s contention that he was only interested in products that were “principal protected”, which led to his strained/ unconvincing explanation below as to what he meant by “principal protection”. 

167. In his supplemental witness statement filed on 17 May 2012,[74] Sit described his investment policy was (a) “the investment must be safe in the sense that [he] did not want to lose [his] entire principal sum” (my emphasis) and (b) “at worst, [he] would not be able to earn interest or yield from the investment”.  But it was quite unconvincing for Sit to say so given the above analysis and his experience back in 2000-2001 of having suffered loss of principal in respect of his investment in stocks/shares.  More significantly, Sit conceded under cross-examination that (a) and (b) above were inconsistent and the word “entire” was misleading.  He claimed there was a “technical mistake” as he never mentioned the word “entire” to Kong, and he only told Kong he wanted his investments to be “principal protected interest generated” (保本生息).  But he was quite unable to explain (and claimed to have no idea) why the word “entire” was deliberately added to his pleadings by amendment and why he verified such amendment by statement of truth, especially when he knew and understood there was a difference between the inclusion and exclusion of such word.  Indeed, the word “entire” was not removed from Sit’s pleadings despite subsequent amendments on 13 September 2012 and just before trial on 7 February 2014.  When asked as to whether he meant he did not want “to lose any part of [his] principal, or is it [he didn’t want] to lose may be part of it”, his answer was “[in] fact, it’s about any part of the principal”.  In my view, Sit’s suggested investment philosophy of not wanting to lose any part of the principal was plainly contradicted by the above analysis, and was nothing but a poor attempt to distance himself from the investments traded via Sit’s Account that were plainly not “principal protected”.

168. Sit’s case evolved even further when he said whilst he would strive towards his subjective target/aim of “principal protection”, he recognised it could not be achieved in reality because inevitably there would be some loss of principal unless he purchased treasury bonds or placed cash deposits to earn interest.  In the end, Sit agreed (a) all investments carried risk, (b) the higher the potential return the higher the risk, and (c) trading in stocks/shares could result in loss of principal.

169. In my view, the metamorphosis of Sit’s evidence as to what he meant by “principal protection” and the objective evidence that contradicted his alleged conservative/prudent and “principal protected” investment policy spoke ill of Sit’s credibility and reliability as witness.  On balance, I reject his allegation that he was only interested in “principal protected” investments and/or he told Kong about it.  Since “principal protection” was a constant theme that underlied Sit’s allegations in respect of all the Representations and Oral Contract, this severely undermined Sit’s case.

XVII.  1^ST REPRESENTATIONS

170. For the 1^st Representations, Sit claimed Kong represented to him DBS would provide him with credit facilities, the return from investments made for him would be more than interest earned from cash deposits, Kong would be personally responsible for his investments, and DBS would not take up risky investments for him as they would be mortgaged to DBS as securities. 

171. First, I accept Kong did represent to Sit that credit facilities would be provided to him, but DBS did actually provide the credit facilities under the Facilities Letters.  Secondly, even if Kong represented to Sit the return from investments made would be more than interest earned from cash deposits (which I doubt given the overall unreliability of Sit’s evidence), Sit agreed that between 2004 and 2007 his investments yielded around 10% return pa, which was plainly better than interest earned from cash deposits.  Thirdly, I accept Kong would have told Sit he would be his RM, and Kong was indeed DBS’ designated RM who provided Sit with personal service, eg taking care of Sit’s Account, providing investment information and introducing investment opportunities which might be of interest to Sit.[75] Even though the Contract was “execution only” pursuant to the Group Clauses, it did not mean Sit would not get “personal service”.  In my view, the above representations were, as Mr Wong SC submitted, inconsequential and certainly not false, misleading or deceptive.  But given that Sit’s Account was non-discretionary, Kong himself was new to DBS at that time, Kong was dismissed by Sit in 1994, and Sit’s overall lack of credibility, I am not persuaded that when they met up again in April 2004[76] Kong would immediately seek to persuade Sit to accept DBS’ private banking service and credit line by representing he would be responsible for Sit’s investments.

172. So the real point was whether Kong represented to Sit DBS would not take up risky investments for him as they would be mortgaged to DBS.  Mr Lee SC submitted Kong would have made such representations because Lau’s evidence on RMs’ expected duties recorded in the Reasons for Verdict were consistent with the 1^st Representations, eg to look for customers to open private banking accounts and to recommend products in line with the customers’ investment objectives, and the more business transacted the more commission DBS would receive.  But I cannot see how  RMs’ usual duties would make it more probable that RMs (of which Kong was one) would assure customers their principals (ie the banks) would not take up risky investments for them.  The fact RMs were responsible for opening accounts for private banking customers and for introducing investment opportunities that might be of interest to them (which RMs might do even under “execution only” service on a “no recourse” basis) would not mean they were therefore likely to make misrepresentations.  As explained in paragraph 119 above, even a commercial interest to earn/increase commission income, a common and understandable attitude in the business world, would not equate to likelihood or propensity for making misrepresentations. 

173. It must be remembered that Sit’s pleaded case was that Kong’s representation to him that DBS would not take up risky investments for him was made in response to Sit’s statement to Kong that he wanted investments that were “principal protected” “in the sense that at worst he would not be able to earn interest or yield from his investment only, but that he would not lose his entire principal sum for such investment”.  However, I have in Part XVI(b) above rejected Sit’s allegation that he was only interested in “principal protected” investments and/or he told Kong about it, so it followed Kong would not have responded as alleged.  On the whole, I reject Sit’s evidence (and I find it has not been proved on balance) that Kong made such representation to him.

174. But even if Kong did make the 1^st Representations in April 2004, by the time Sit purchased the 10 ELNs three years later Sit’s experience in ELNs had increased and he knew ELN investments would not be “principal protected”, so there could not have been any reliance on the 1^st Representations for the purchase of the 10 ELNs.[77] I agree with Mr Wong SC that it was not easy to see how the 1^st Representations had anything to do with the 10 ELNs in 2007-2008.

175. On balance, apart from telling Sit that credit facilities would be provided to him and that he would act as Sit’s designated RM, I do not believe Kong made the 1^st Representations at all.  In coming to this view, I have borne in mind the discussion and conclusion in Part XVIII below because Sit’s allegations as to the 1^st Representations were closely linked to his assertions as to the alleged Oral Contract and account opening process for Sit’s Account.  In my view, Sit failed to establish any misrepresentation and/or breach of Section 108 in respect of the alleged 1^st Representations.

XVIII.  CONTRACT vs ORAL CONTRACT

(a) Findings of fact

176. Sit claimed the Oral Contract was reached a few days before he signed the Account Opening Form (which form he claimed was not a contract but a step in the implementation of the Oral Contract).  Mr Lee SC submitted the fact Sit might have previous experience of signing business contracts did not per se mean he could not have reasonably believed an Oral Contract had been reached with DBS. 

177. In my view, to suggest that Sit and/or DBS would have been prepared to deal with each other on the basis Sit would place substantial deposits (of about HK$90 million) with the bank and DBS would grant substantial credit facilities for Sit (up to a credit limit of HK$100 million) to make high value investments without reducing the terms and conditions of their banking relationship into writing defied commercial/ common sense, and did not sit well with Sit’s commercial experience that notwithstanding mutual trust between commercial parties they also operated on written contracts (eg purchase orders placed with his businesses by even long-term customers). 

178. Indeed, Sit gave evidence that he expected DBS would require him to sign some documents to affirm the banking relationship between them, and he even suggested he expected to sign banking documents that would incorporate the terms of the Oral Contract.  So even on Sit’s own case he expected the banker-customer contract to be placed in writing.  But apart from saying he did not regard the Account Opening Form as such contract, he never identified which of the signed Banking Documents he thought constituted such contract in writing (irrespective of whether or not it faithfully reflected the terms of the Oral Contract).  It was Sit’s case that he never (a) asked DBS for reduction of the Oral Contract into writing or for provision of a written confirmation of the Oral Contract, (b) enquired with Kong’s supervisor at DBS to confirm the terms of the Oral Contract, and/or (c) bothered to read the Banking Documents he signed to check whether they contained the terms of the Oral Contract.  In my view, Sit’s assertion of an Oral Contract was an unconvincing and poor attempt to wriggle out of the obvious conclusions evidenced by the Banking Documents that bore his signatures.  This is especially so as I do not accept Sit made the 1^st Representations, and it necessarily followed from such finding there was no room for Sit’s assertion of any Oral Contract.

179. Instead of being a step in the implementation of the Oral Contract, the bilingual Account Opening Form was plainly an offer by the customer (ie Sit in this case) to DBS that when the relevant accounts were opened they would be governed by the Master Agreement, the current version of which was provided to the customer:

“Please open the following accounts (“the Accounts”) in my/our name

HKD Current Account  Time Deposit Account

Multi-currency Savings Account  Securities Account

RMB Savings Account  Others________

DBS Private Banking Account Master Agreement (“the Master Agreement”) governs the operation of the Account(s) selected.  A copy of the current version of the Master Agreement is attached.”

Such offer, when accepted by DBS, would constitute a formal contract for banking services as explained by DHCJ Pow SC in paragraph 44 in San-Hot:

“……An account-opening application form signed by a prospective customer is, as a matter of law, an offer made by the prospective customer to the bank. Although the terms on which the bank is willing to provide its services are invariably drafted, dictated and printed by the bank and are incorporated by reference in the application form, they nonetheless constitute integral parts of the offer made by the prospective customer to the bank. In a nutshell, the prospective customer is applying for the bank’s services. By signing and submitting the application form, the prospective customer is offering to the bank that he is willing to be bound by those terms in relation to the services that the bank would be providing. The bank will then process the application. It may or may not accept the application. In the event that the application is accepted, this will be signified by the opening of an account for that customer. Thereupon, a formal contract for banking services would have been concluded.”

180. However, Mr Lee SC submitted it was logical, credible and/or reasonable, having regard to (a) the title of the Account Opening Form, (b) Kong’s representations that it was for opening Sit’s Account, and (c) Sit’s belief that private banking services could be provided only after the opening of Sit’s Account, for Sit not to regard the Account Opening Form as a contract.  It was also suggested it would have been reasonable in 2004 for Sit to think that DBS as a reputable bank would conduct its business on the basis of trust and not sneak in onerous terms into complicated contractual documents which were inconsistent with the Oral Contract.

181. I find the suggested divorce between account opening and banking contract unreal.  Of course, private banking services could only have been provided to Sit and investment trading could only have been carried out after Sit’s Account was opened, but this would not have precluded (and in fact it made sense for) confirmation of contractual terms that set out how DBS and Sit stood with each other in relation to the operation of Sit’s Account to be made at the very time when such account was opened.  In my view, Sit (a seasoned businessman with a great deal of commercial experience) would not have been so naïve to think that DBS would open Sit’s Account for him to carry out high value investment activities using substantial credit facilities to be granted by DBS without clearly spelling out in writing the basis of their banking relationship.  On balance, I do not believe Sit’s allegation that he thought the Account Opening Form was for account opening only and/or that Kong assured him all was in order on that basis.

182. Sit did not dispute he was given a copy of the Master Agreement but could not remember when this happened.  Plainly, the opening of a private banking account pursuant to the Account Opening Form and the expressly incorporated Master Agreement (both of which included a host of provisions that enabled DBS and the customer to know where they contractually stood with each other) went hand in hand.  It was inherently more probable (and on balance I so find) the Master Agreement was given to Sit as part of the usual account opening process, which must have been standard practice, and on the evidence before me there was no particular reason why it would have been mailed to him later.  Therefore, during the account opening process, Sit must have known there was far more than just giving his personal particulars for account opening.  On balance, I agree with Mr Wong SC that Sit would not have been unaware he was signing contractual documents when he signed the Account Opening Form. 

183. Sit further claimed he signed the Account Opening Form without reading it because he (a) did not like reading documents, (b) did not have a chance to read and had not read them then or later, (c) reposed absolute trust in Kong and trusted DBS’ integrity, and (d) relied on the 1^st Representations.  On such basis, Sit argued he was not contractually bound by the terms and conditions of the Account Opening Form and Master Agreement (as well as other Banking Documents such as the 1^st Facilities Letter, Charge, Mortgage and General Agreement).  Sit claimed Kong talked a lot when he signed the Banking Documents, but all Kong said was to ask him to sign and he was “a fool” to have done so.

184. For reasons already explained, I rejected the contentions in (c)-(d) in the above paragraph, which would destroy the very basis of Sit’s allegation of the Oral Contract.  Further, with Sit’s English ability and commercial experience in dealing with business contracts (purchase orders or otherwise), on balance I do not believe him when he said he signed the Account Opening Form without at least understanding its true nature as a contract, or he did not read/spot the bilingual Customer Declaration in paragraph 83 above (that was apparent to the eye and in words Sit could readily understand) right above his signature merely because “[he] didn’t read it; [he] didn’t get it”.  I find Sit’s evidence evasive and strained, and it was plain he was trying to avoid the consequences of having signed the Account Opening Form that DBS relied on.  I find on balance he knew and understood the Account Opening Form and Master Agreement contained contractual terms that would govern Sit’s Account when it was opened, and he did not sign merely because he reposed absolute trust in Kong.

185. Sit next complained that DBS/Kong had not explained to him all the terms/conditions or at least all the material provisions of the Master Agreement when he signed the Account Opening Form. 

186. Yim’s witness statement as adopted by Leung claimed it had been the established practice for RMs of DBS’ private banking to at least explain the nature of the banking documents to the customers before the documents were signed, to ask the customers to read the documents, and to ask them if they had any questions on the same, and only if the customers confirmed or indicated they had no questions on the documents would the RMs proceed to ask them to sign on the documents. 

187. Although Leung had no reason to doubt Yim’s knowledge, she did not know whether Kong actually followed such practice.  She fairly agreed it would not be easy for a RM to explain the terms/ conditions of the Master Agreement to the customer, but a RM could seek advice from DBS’ in-house lawyers if there was anything he could not understand or if the customer had questions he could not answer.  The customer could also take away the Master Agreement to seek professional advice, and did not have to sign the Account Opening Form on the spot.  Leung also expected the customer to ask questions, and if the customer got no questions the Account Opening Form could be signed.  Upon the customer so signing and declaring he understood, Leung would consider the Account Opening Form constituted the contract that incorporated the Master Agreement even if the customer was not interested in reading those documents.

188. Since Leung’s evidence only described the general practice rather than what actually happened between Kong and Sit, there was no positive evidence before me that detailed explanation of the specific terms in the Account Opening Form and Master Agreement had been given as per the Bank Staff Declaration even though (as I have found) Sit must have understood the contractual nature of the documents and their relationship to Sit’s Account to be opened.  In the circumstances, I do not propose to rely on the Bank Staff Declaration, but this does not put any sinister colour on DBS’ case,[78] and it also does not mean I reject Leung’s evidence on the usual practice.  There was also insufficient evidence for me draw any conclusion as to why Tew signed the form, but it would not have mattered as I do not rely on the Bank Staff Declaration.

189. Further, Sit never raised any question with Kong/DBS about the terms and conditions contained in the Account Opening Form and/or Master Agreement then or afterwards.  Even after opening Sit’s Account, if Sit had cared to read the Master Agreement and discovered any term unacceptable to him, he was at liberty not to use Sit’s Account at all, and no interest would have been charged on unused credit facilities.  Indeed, as explained in paragraph 156 above, three days after he signed the Account Opening Form (ie on 23 April 2004) Sit insisted on studying a term sheet before making any investment decision.  Further, as explained in Part XVIII(b)-(c) below, the fact Sit chose not to read or keep the Master Agreement was neither here nor there.  I find on balance that when Sit signed the Account Opening Form he knew such form and the Master Agreement contained contractual terms and conditions that would govern his banking relationship with DBS and the operation of Sit’s Account even though (subject to my discussion and conclusion in Part XVIII(b) below) he might not have been fully explained and/or might not have cared to read in detail the Master Agreement before appending his signature.

190. On balance, I also find Sit signed the 1^st Facilities Letter well knowing it contained contractual terms/conditions that governed the granting and use of the term loan facility.  He admitted Kong told him the 1^st Facilities Letter concerned such credit facilities to be “secured by [his] deposit and/or [his] investment to DBS”.[79] He must have known that by signing the 1^st Facilities Letter he would accept such credit facilities by DBS and their terms.  As for the Charge, Mortgage and General Agreement, they were all signed by Sit, and I find on balance he knew they contained contractual terms/conditions that governed the operation of Sit’s Account and the credit facilities granted by DBS, including mortgaging/pledging his investments as securities therefor.  On balance and taking into account the matters discussed in Part XVIII(b)-(d) below, I reject Sit’s allegation of the existence of the Oral Contract.

(b) Customer Declarations

191. Sit signed his name in the Account Opening Form, Facilities Letters, Charge, Mortgage and General Agreement right beneath the Customer Declarations (some of which were in bilingual format and/or in bold type) that acknowledged he had read/understood the terms and conditions of the relevant Banking Documents and confirmed his commitment thereto.  Using the Customer Declaration in the 4^th Facilities Letter as an example, Sit admitted that if he had read it, he would have understood it.  He saw the words there but claimed because Kong talked a lot he was “made to” or “caused to” ignore those words.  In relation to the Customer Declaration in the 1^st Facilities Letter, he said he did not like to read documents.  Further, in relation to the Customer Declaration in the General Agreement, he claimed he “didn’t care” and he “didn’t read it”. 

192. But on balance I do not believe Sit.  In my view, given Sit’s English ability and irrespective whether Kong talked a lot, and bearing in mind the Customer Declarations that were placed right above his signatures were apparent to the eye and in English/Chinese words he could readily understand, I find it unbelievable Sit missed each and every Customer Declaration.  I find on balance he did read and understand the Customer Declarations, and knew the Banking Documents were binding contractual documents that governed his banker-customer relationship with DBS, the operation of Sit’s Account and the use of the credit facilities granted by DBS (irrespective whether he might or might not have read in detail and/or asked questions about and/or been explained each and every provision therein).  There was no reason why the Customer Declarations should not be given effect.

(c) Effect of signing Banking Documents

193. Like the Customer Declarations, even if Sit did not care to read the contents of the Banking Documents, he would still be bound by their contents unless there were specific vitiating factors such as non est factum, undue influence or misrepresentation.  Ming Shiu Cheung & ors explained as follows:[80]

“84. …… It is in law highly immaterial to ask how or why the father nevertheless signed the documents. Reliance is universally placed on signatures appended to documents by persons of full age and understanding as signifying the signatory’s assent or adherence to what that document states. Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed. It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the document signed. But they are held to the documents which they have chosen to sign unless there is shown to be a recognized legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.

……

87.  The vitiating factors at common law include fraud, mistake, misrepresentation, non est factum, duress, undue influence and lack of mental capacity: ……”

194. Based on my findings of fact and applying the above legal principles, I reject Sit’s allegation as to the existence of the Oral Contract, and hold that as at 20 April 2004 (when the banking services Contract was concluded between DBS and Sit) the contractual terms and conditions governing the operation of Sit’s Account to be opened were contained in the Account Opening Form and Master Agreement (the latter was contractually incorporated by virtue of the provisions in the former).  As time went by, further contractual documents were signed by Sit, eg the Charge, Mortgage, General Agreement and 1^st and 2^nd Facilities Letters, and later the 3^rd and 4^th Facilities Letter that incorporated the T&C.  There was no Oral Contract, and the written terms and conditions in the Banking Documents (ie the Contract) formed the banking services agreement between DBS and Sit.  But such conclusion is subject to the discussion below in respect of Sit’s allegations as to the 2^nd, 3^rd and 4^th Representations and Mr Lee SC’s arguments based on the Interfoto principle. 

195. Mr Lee SC tried to persuade this court to accept the existence of the Oral Contract by saying it did not matter whether in a separate and distinct contract there were terms, such as the No Investment Advice Clauses, since the Oral Contract was specifically enforceable.[81] This argument, which I reject, did not sit well with Sit’s own case that the only banker-customer contract was the Oral Contract and that the terms of the Master Agreement were not contractually binding on him.  In any event, as Sundaresh Menon CJ said in Deutsche Bank AG v Chang Tse Wen & another appeal,[82] a case where the investor claimed damages for negligent advice in investment and misrepresentation:

“…… as a matter of evidence, it would have been highly unusual to find two quite separate types of relationship between the same parties where one, an execution-only contractual relationship, was meticulously recorded in written agreements while the other, a general undertaking to provide investment and wealth management advice, was not only not so recorded but was not even hinted at anywhere in the evidence at all.”

(d) Entire Agreement Clause

196. On the basis that the Banking Documents constituted the written banker-customer Contract between DBS and Sit, Mr Wong SC argued the alleged oral conversations between Kong and Sit in April 2004 prior to Sit signing the Account Opening Form that allegedly gave rise to the Oral Contract, even if proven, could not possibly have survived the Entire Agreement Clause[83] that was expressly incorporated into the Contract by the Account Opening Form.[84] As held by Lightman J in Inntrepreneur Pub Co (GL) v East Crown Ltd:[85]

“The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to explain) on which to found a claim such as the present to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search and the peril to the contracting parties posed by the need which may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that accordingly any promises or assurances made in the course of the negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save insofar as they are reflected and given effect in that document. The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence …… it is to denude what would otherwise constitute a collateral warranty of legal effect.” (my emphasis)

197. In my view, the Entire Agreement Clause plainly constituted a binding agreement between DBS and Sit that the full contractual terms were to be found in the written Contract and not elsewhere.  Although the Entire Agreement Clause would not have precluded a claim in misrepresentation, there was no room for Sit to assert that the Oral Contract could form part of the agreement between the parties.  Since I have rejected Sit’s allegations as to the Oral Contract, there is no need for me to go further to consider the alleged breaches based on such oral agreement.  In the circumstances, I am not persuaded Sit placed HK$90 million cash deposit with DBS pursuant to the Oral Contract or because he relied on the 1^st Representations or because he reposed absolute trust in Kong.  I find on balance Sit did so for the purpose of obtaining the term loan facility by DBS in order to make investments by utilising such facilities.

XIX.  2^ND, 3^RD AND 4^TH REPRESENTATIONS

198. There was no dispute Sit was told the 2^nd, 3^rd and 4^th Facilities Letters concerned increase in the credit limit of the term loan facility and the provision of additional types of credit facilities, and despite his alleged reluctance he signed to accept such credit facilities.  In my view, when Sit signed such Facilities Letters, he knew and/or understood they were contractual documents that governed the grant/use of such credit facilities.  Although DBS had not been able to adduce positive evidence that every clause/provision contained therein had been explained to Sit, I have in paragraph 192 above found he did read and understand the Customer Declarations that were apparent to the eye and in English/Chinese words that he could readily understand.  Like the 1^st Facilities Letter, Sit was bound by the 2^nd, 3^rd and 4^th Facilities Letters that he signed (unless there were specific vitiating factors) even if he did not care to read their contents in detail.  So subject to Sit’s misrepresentation claim and Mr Lee SC’s argument on the Interfoto principle, which I will turn to below, there was no reason why such Customer Declarations and the 2^nd, 3^rd and 4^th Facilities Letters should not be given effect. 

199. In my view, there was no basis to say the statements that (a) the increased/additional credit facilities in the 2^nd, 3^rd and 4^th Facilities Letters would give Sit flexibility in using them and (b) it would be up to Sit to decide whether or not to drawdown on them for investment purpose (if made) were false, misleading or deceptive.  DBS did grant those increased/additional credit facilities, and there was no suggestion that DBS charged any fee or interest for unused credit facilities.  It was Sit’s case that all investment transactions were authorised by him, so it was up to him to decide whether and how to use the increased/additional credit facilities for purchasing investments.  As it were, the additional facilities in the 3^rd and 4^th Facilities Letters were not utilised at all.  I am unable to see how the representations in (a)-(b) above (if made) could give rise to any viable misrepresentation under common law and the MO and/or under Section 108.

200. In the end, Mr Lee SC agreed that the heart of Sit’s complaints in respect of the 2^nd, 3^rd and 4^th Representations boiled down to this: Sit was never told his investments were purchased by means of margin financing even though he knew they were financed by loans from the term loan facility and they would be mortgaged to DBS as securities.  Mr Lee SC submitted Sit had a different understanding of the actual meaning/nature of margin financing, and since paragraph 6 of Schedule 5 of the Code attached importance to the labelling of the margin account as such, it was not enough for DBS to merely show Sit was aware he was making use of credit facilities to make investments which in turn were used as collaterals.  He submitted DBS had to go on and show Sit was actually dealing with something called and labelled as margin account and margin financing. 

201. I propose to deal with this complaint first before returning to the 2^nd, 3^rd and 4^th Representations.  I will consider the applicability and effect of the Code in Part XXIII(d) below, but suffice to state here the Code did not have the force of law and was not relevant to a civil claim. 

(a) Margin financing

202. Margin financing is essentially a practical way to obtain funds in order to make investments by using the borrowed money to buy financial products which are then mortgaged/pledged back to the lender as collateral/securities.  I do not agree that for the purpose of determining whether there was any misrepresentation by way of the 2^nd, 3^rd and 4^th Representations, it was the label of margin account and/or margin financing that mattered, and I prefer Mr Wong SC’s proposition that the true concern must be whether margin finance was actually utilised and whether Sit was aware and understood the process.  As Mr Wong SC said, “[if Sit] was actually using margin financing and he knew what he was doing, it simply did not matter how he understood (or misunderstood) – or chose to understand (or misunderstand) – the term”.  Ultimately, whether this court accepts Sit’s allegations is a credibility issue, but this necessarily impacts on the veracity of his allegations as to the 2^nd, 3^rd and 4^th Representations.

203. There was no dispute that Sit only borrowed monies under DBS’ term loan facility to make investments, and Sit admittedly knew the investment products so purchased were mortgaged to DBS as securities.[86] Although Sit claimed he never asked for or made investments with margin financing, he clearly knew what margin financing was all about:[87]

“Q. And you want to buy $100 worth of shares. Okay? You go to the bank and obtain the bank’s agreement to lend you $50, on the condition that the shares that you purchased would have to be pledged or mortgaged to the bank. So you use your $50, which is your own money, together with the $50 advanced or financed by the bank, to buy $100 of shares. That’s margin financing, isn’t it? 50 per cent margin, which is financed by the bank.

A. All right.

Q. You agree?

A.  Of course, the example just now, given by you just now, is one of the margin financing, ……”

Yet Sit tried to shy away from such knowledge/understanding by saying he put up cash deposits as collaterals for the term loan facility, and he left it to Kong to work out for him how much he had borrowed and how much he could still borrow for making investments.  Sit claimed this was borne out by the Recordings/Transcripts, but in fact they belied his assertions.

204. First, the Recording/Transcript of the telephone conversation over the Freddic Mac Bond between Poon and Sit on 26 April 2006 (ie less than a week after Sit’s Account was opened and before the 1^st Facilities Letter was signed) recorded as follows:[88]

“D: ……就係我先買嗰個一百萬呀 …

P: 哦。

D: 咁呀，suppose啦，我就…呀…依家開始，我仲有一D問你地公司借錢再買返maximum我要買九倍依家…依家既數量既。

P: 吓，九倍?

D: 九倍。

P: 呃… 你你你繼續講呀。

D: 即係話呢我依家先買一百萬呢用我嘅錢買…

P: 係。

D: 以後我仲要maximum有可能買九百萬既。

P: 哦… 你係咪個意思，你買咗個D債券，當做呢個債券當做一個抵押…咁你係上面呢…

D: Right…

P: 有個Facility俾你…

D: 係…

P: 你可以再買第二D，你咪?

D: 係。

P: 你係咪咁既意思?

D: 係。

……

D: 你應該呢，就係比如一個禮拜鬆D呀，或者佢跌得緊要或者升得緊要個震時inform我…

P: 哦…

D: 我就幾時上去買D。

P: 好哇好哇。

D: 個震呢，係借你地既錢既。

P: 唔…

D: 咁借你地既錢個震時呢，個震時…呃呃…借，借貸既息呢，目前嚟講一點二五五…加幾多架?

P: 哦…

D: 到時個方面係咪我同你directly deal架?

P: 呃… 唔係啦… 你要同呀 … [Kong]講…

…… ” (my emphasis)

Sit understandably intended to use his own money to purchase the initial Freddie Mac Bond before DBS granted the term loan facility in the 1^st Facilities Letter, but in the conversation he was clearly asking DBS for margin financing as he understood it (see the above paragraph) with interest payable at 1.25% pa over the bank’s costs of funds.  A few days later on 28 April 2004, DBS issued (and Sit signed/accepted) the 1^st Facilities Letter which allowed margin financing in the manner as he understood it.  First, the maximum advance limit of the term loan facility was the lower of HK$100 million or the aggregate amount calculated by reference tothe current financing ratio determined by DBS from time to time on inter alia acceptable and pledged investment products.  Secondly, the 1^st Facilities Letter contained provisions for interest payable on each advance at 1.25% pa over DBS’ cost of funds and for top-up requirement as shown in paragraph C30 of the Schedule A.  This was further bolstered by the Mortgage signed by Sit in early May 2004 that detailed the terms/conditions for mortgaging/pledging the purchased investments to secure Sit’s liabilities under the credit facilities granted by DBS.

205. Sit’s testimony that he intended to use his own monies rather than margin finance to make the “nine times” purchase flied in the face of his agreement with Poon’s clarification that he wanted to “…… 買咗個D債券，當做呢個債券當做一個抵押 …… 咁你係上面呢 …… 有個Facility俾你 …… 你可以再買第二D”.  In my view, Sit’s intention to make the “nine times” purchase by using credit facilities backed by mortgaged/pledged investments showed he knew/understood the process of margin financing, which he also knew to be quite “dangerous”.  I find his alleged ignorance of margin financing for Sit’s Account specious and unconvincing. 

206. Sit’s knowledge/understanding of margin financing was abundantly demonstrated by his evidence in relation to the 2^nd Facilities Letter.[89] Sit did not put up additional cash deposit for doubling the credit limit of the term loan facility to HK$200 million.  Even on his own case, he knew the increased term loan facility could only be utilised if it were collateralised and supported by mortgaging/pledging increased investments in excess of the amount of the loan to be drawndown.  This showed that Sit was well aware of the correlation between the drawdown limit of the loan and the value of the investment products which by their nature would fluctuate in the market.  This, in my view, explained why in the Recordings/Transcripts he frequently asked for and Kong frequently told him how much he could still borrow to make investments.  In my view, Sit knew the available balance of usable credit facilities at any given time was a factor to be taken into account when determining the size or value of the investment transaction to be made.  I reject Sit’s allegation that he simply left it to Kong to work out the amount of his credit line.  In my view, Sit plainly knew what margin financing was all about even in April 2004, and it was therefore quite implausible for Kong to offer private banking service to Sit by allowing him to do investment by margin financing only in May 2006 by way of the 3^rd Representations.

207. Secondly, the Recording/Transcript of Sit’s telephone conversation with Kong on 27 April 2005 recorded:[90]

“K: 就… 我地上一次就做咗十球。

D: 唔係呀，我地既本錢呢?

K: 哦，本做呢係… 呢個呢係… 借，可以借八成既。

D: 我知道。

K: 咁所以話你姐係用兩球就可以做十球既嘢。

D: 咁呀，即係話呢，本來2 million…

K: 係喇。

D: 即係呢，loan呢，就係eight million。

K: 係喇。……”

At first Sit denied this was margin financing, but when pressed he was constrained to acknowledge it was although he blamed Kong for making him do something that he did not understand.  In my view, the concept of putting up US$2 million and borrowing US$8 million for investment purpose against the security of investments purchased to the value of US$10 million was plainly margin financing.

208. Thirdly, the Recording/Transcript of another telephone conversation among Kong, another DBS staff and Sit on the same day revealed that Sit queried whether he had money to buy an ELN.  Kong said “OK借一百萬佢可以借五成，咁即係你用五十萬之嘛” to which Sit responded “我用五十萬買一百萬嘅貨 ……”[91] Sit testified that Kong interrupted his reply as he was about to question Kong, that he was not the kind of person who would think of using US$500,000.00 to buy financial products worth US$1 million, and that he usually left Kong to work out the net position of his loan portfolio and the remaining availability of his usable credit line.  However, Kong was plainly referring to margin financing, and given their previous communications, such subject would not be foreign to Sit.

209. In the same telephone conversation, in response to Kong’s reference to “買一百萬野咁你咪收一百四十五萬囉”, Sit said “咁呀……咁呀如果你gearing既話呢” “你做gearing就攞四十五個percentＤ拉喎”.[92] Sit claimed 45% was the profit ratio, but it is still worthwhile to note it was Sit who mentioned “gearing” (and he testified he understood “50% gearing” to mean putting up 50 cents to buy a $1 investment product).  Sit plainly knew he was engaged in “gearing” backed by his purchased investments as securities:[93]

“D: 你而家係… 我… 我而家係擁五蚊去買十蚊既野呀嘛…

……

D: 咁er… 金額你要做幾多丫?

Rm: errr你上次講話一百萬。

D: 一百萬啦係我自己一百萬呀一係加埋借錢?

RM: errrr加埋借錢

D: 加埋借錢係咪?

Rm: 即係個total sum係一百萬。

D: ok… 你而家落?”

210. Fourthly, the Recording/Transcript of another telephone conversation between Kong and Sit on 27 April 2005 also touched on the topic of “gearing” and “top up”.[94] During such conversation, Kong reminded Sit of the “gearing” and the need to control his exposure because there was a chance he would have to “top up” to which Sit replied “係囉”.  Sit testified he did not care what “top up” meant.  At one point he said it meant “I had $10 million and then I borrowed $8 million”, but later claimed he had no understanding of the reference to “top up”.  I reject such evidence.  Much as Mr Lee SC tried to salvage this by saying the “top up” part was not the focus of the conversation, it was plain that Sit in replying “係囉” recognised there was “a chance” he would have to “top up”, which could only refer to the volatility risk of fluctuation in value of the pledged securities that might cause DBS to demand Sit to “top up” any excess of the loan advance above the drawing limit calculated on the basis of inter alia the value of the pledged investments.

211. Mr Lee SC submitted that Sit’s explanation of “I had $10 million and then I borrowed $8 million” was consistent with the 1^st Facilities Letter which provided that the drawing limit was calculated by reference to inter alia the current financing ratio of 80% on yield enhanced deposits.  But such provision still concerned margin financing because under the 1^st Facilities Letter the drawing limit of the term loan facility was calculated upon the “current financing ratio” of the value of Sit’s assets charged/pledged to DBS (eg 80% for yield enhanced deposits after a “haircut” of 20%) with provision for “top up” if changes in the value of the charged/pledged product would cause such drawing limit to be exceeded.

212. Fifthly, in the Recording/Transcript of a telephone conversation on 11 June 2007 Kong and Sit discussed the availability of margins and the use of monies borrowed from DBS.  Kong explained to Sit inter alia “咁上一次呢你就做左100萬，咁呢即係100萬呢即係等於扣左50萬啦 ……” to which Sit replied “… 我而家available既係300萬係我自己既野，乘返二既話呢係600萬啦話，600萬你減左130萬呀嘛 ……” After Kong clarified the reduction should be “82萬” only and “你available既係320萬”, Sit concluded “320…320乘2咪640…640囉” and “……我而家available係640啦嘛”, and he then decided to place an order for “買200萬啦”.[95]

213. Sit claimed he did not understand what Kong meant by “咁呢即係100萬呢即係等於扣左50萬啦”, and suggested Kong was trying to confuse him.  But that did not explain his own calculation based on “乘返二”, and he was constrained to admit it meant “my own money would be put up as the security for a loan, and the maximum amount that could be borrowed would be double.  So, in short, it would be multiplying two”.  This was in line with his understanding of margin financing in paragraph 203 above, but Sit denied this reflected the “gearing ratio” and suggested he was merely trying to find out from Kong “whether it was multiplying two or not”.  In my view, Sit alleged ignorance did not sit well with the Recording/Transcript which clearly demonstrated he understood the calculation of how much he could borrow which led to his decision to purchase an ELN for $2 million on 11 June 2007.  I find Sit well knew about gearing ratio and margin financing.

214. Sixthly, the Recording/Transcript of the telephone conversation between Kong and Sit on 10 January 2008 (ie the day when Sit purchased the 9^th and 10^th ELNs) showed that upon Sit’s enquiry Kong said “…… 如果買到行晒就9.6 [million] …… 係嘞，US dollar，即係當係兩倍計啦”.  Although Sit testified he had no idea what Kong was talking about, he merely replied “哦” to Kong’s explanation without asking any question.  On balance I find Sit did not raise question because he knew what margin financing was all about.

215. The Recording/Transcript showed Kong did not want Sit to utilise all available credit funds for the investment, and he expected Sit to spend at most US$3 million in order to reserve some buffer of “三百起碼，三四三四百啦” for possible movement of Japanese yen.  When Sit questioned why it had to be so much, Kong further explained “因為yen如果郁嘅話佢，嗱你六百萬，六百萬”, “如果佢再跌嘅咁，佢又需要多d margin吖嘛，咁變左你嘅available amount就會少，少左嘅，譬如少左一百萬，就等如唔見左兩百萬嘅額架勒嘛”.  Sit at first claimed he was not concerned with the “buffer” because it was DBS who should work out his drawing limit.  But it was later elicited from him under cross-examination that he borrowed JP¥ at low interest rate by mortgaging/pledging to DBS the structured notes he purchased in order to buy higher interest currencies such as NZ$.  Plainly, Kong was advising Sit to keep some “buffer” when buying higher-interest foreign currency with his loan that was drawndown in lower-interest currency to cover risk of exchange rate fluctuation, and Sit eventually acknowledged in evidence he knew at that time Kong was warning him that a loss of US$1 million as a result of movement of Japanese yen against him could translate into a reduction of his drawing limit by US$2 million.  Plainly, under margin financing, such volatility risk of fluctuation in value of the pledged investments could lead to double reduction of the drawing limit, and hence requirement for “top up”.

216. In my view, the above Recordings/Transcripts clearly showed that soon after Sit’s Account was opened Sit already requested for margin financing, and he knew margin financing was utilised for making investments via Sit’s Account.  He also knew the concepts of “gearing ratio” and “top up”, ie the drawing limit of his borrowings from DBS depended on the value of the mortgaged/pledged securities, and this was also borne out by the provisions in the Facilities Letters and Mortgage.  Sit clearly knew the volatility risk associated with margin financing, and the correlation among fluctuation in value of the mortgaged/pledged securities, how much he could actually borrow, and whether he would have to “top up”.  Sit admitted under cross‑examination that if the mortgaged/pledged securities became valueless it would seriously affect the amount of borrowings he could obtain from DBS, and that even before he accepted private banking service from DBS he already knew margin financing was “very dangerous” because margins involved ups and downs and the borrower would be subject to such volatility risk.[96] I also refer to the discussion on the Recording/Transcript of the telephone conversation between Kong and Sit on 3 March 2008 in paragraphs 259-266 below.  I reject Mr Lee SC’s suggestion the Recordings/Transcripts merely showed Sit solely relied on Kong to tell him how much loan money was available for further investments.  I find on balance Sit all along knew about and was in fact utilising margin financing, which also reflected his risk appetite from the beginning.

217. Mr Lee SC raised a number of miscellaneous points.  First, he said “securities margin financing” had a wide meaning under Part 2 of Schedule 5 of the SFO, but in my view this would add weight to the above conclusion that what was discussed in the Recordings/Transcripts was plainly margin financing.  Secondly, Mr Lee SC argued that Kong, whom DBS authorised to perform the functions of sales and trading, was assigned the responsibility for and was engaged in providing margin lending on behalf of DBS to Sit in clear breach of paragraphs 6 and 10 of Schedule 5 of the Code.  I disagree.  The fact that Kong as DBS’ designated RM provided personal private banking services to Sit did not mean he was responsible for and/or was engaged in margin lending.  Rather, I find on balance that Sit in signing the Facilities Letters knew the credit facilities granted by DBS were based on the terms/conditions contained therein.  Any excess financial accommodation would and did require approval by DBS’ credit department.  Thirdly, Mr Lee SC suggested the fact Kong was not registered with the HKMA until 28 June 2004 illustrated that DBS had no or no adequate margin financing policy to avoid building up excessive exposure for individual customers or for individual items of securities deposited as collateral.  I cannot see the logic of this argument.

(b) 2^nd, 3^rd and 4^th Representations made?

218. However, whether Kong made the 2^nd, 3^rd and 4^th Representations was a different question from whether Sit traded via Sit’s Account by utilising margin financing although my aforesaid findings on the latter question would impact adversely against Sit on the former question.  On balance, I conclude that Sit signed the 2^nd, 3^rd and 4^th Facilities Letters (and the 3^rd and 4^th Facilities Letters contractually incorporated the T&C) well knowing they were binding contractual documents that set out the terms/conditions for use of the credit facilities specified therein.  Whilst it was not implausible that Kong might have told Sit the increased/additional credit facilities would give Sit flexibility in using further bank finances if necessary and/or it would be up to Sit to decide whether to make investments using those facilities, I reject Sit’s evidence as to all other aspects of the 2^nd, 3^rd and 4^th Representations,[97] and he therefore failed to prove Kong made the 2^nd, 3^rd and 4^th Representations as alleged.  The discussion and conclusions in Part XVIII(b)-(c) above also apply to the 2^nd, 3^rd and 4^th Facilities Letters.  Thus, Sit’s misrepresentation claim under common law and the MO and/or under Section 108 in respect of the 2^nd, 3^rd and 4^th Representations fails.

XX.  5^TH AND 6^TH REPRESENTATIONS

(a) Parties’ respective stance

219. Sit claimed Kong recommended investment products to him and he relied on Kong’s expertise/recommendations in making investments. On the other hand, whilst DBS did not dispute the Recordings/Transcripts showed Kong did use “砌咗一隻” or similar words (collectively, “Words”),[98] they did not accept Kong made the other statements that formed the 6^th Representations, ie the ELNs were “safe, conservative and traditional” and “less risky than mutual funds”, or the 5^th Representations, ie Kong invariably assured Sit there was no problem and the investments would yield positive return at the end of the investments.  The onus was on Sit to establish such representations were in fact made. 

220. DBS did not dispute RMs would communicate with customers with regard to investment information and investment opportunities that they might be interested in,[99] but whether the information passed on was described as advice, opinion, recommendation, house view or trade opinion, it was DBS’ case that the customers were bound by the Group Clauses in their contracts with the bank, and the effect of the communications should be considered accordingly.  DBS claimed that pursuant to such contractual provisions they only agreed to provide “execution only” service to Sit, so whatever information Kong might have given to Sit was on “no recourse” basis, and Sit would have to form his own independent judgment and seek his own independent advice in making his own investment decisions.  Mr Wong SC submitted Sit was contractually estopped from claiming he relied on Kong’s advice, opinion, recommendation and/or representation, and such provision of free information to customers would not turn DBS into their investment advisor or place the bank under some obligation beyond what was originally agreed.  He argued this had been upheld in numerous cases such as Springwell Navigation Corp v JP Morgan Chase Bank & ors (“Springwell (HC)”),[100]Kwok Wai Hing Selina v HSBC Private Bank (Suisse) SA (formerly known as HSBC Republic Bank (Suisse) SA)[101] and Wilson & anor v MF Global Fund UK Limited & anor.[102] It was further suggested that in any event the evidence showed Sit was aware of the main features/downsides of ELNs when the 10 ELNs were purchased, and he understood and took control of his own investments.

221. Mr Lee SC submitted it was no answer for DBS to say Sit should have exercised his own judgment to purchase ELNs after having heard, was induced by and relied upon the 5^th/6^th Representations.  Since Sit exercised judgment that was influenced by Kong’s misrepresentations, his investment decisions merely showed Kong’s misrepresentations worked.  Mr Lee SC also submitted that whether or not Sit blindly followed Kong’s recommendations was irrelevant as there was no plea of contributory negligence, and the wrongdoer could not be heard to say his representations should not be followed.[103] But Mr Wong SC disagreed, and argued the key issue of reliance had been addressed by the “execution only” nature of the Contract, so Sit was bound by the investment decisions he made no matter whether they were recommended by Kong or not.

222. I will deal with the issue of contractual estoppel in Part XXII below, and will now focus on the 5^th/6^th Representations.  Since Mr Lee SC submitted that the combined effect of the Call Report dated 27 April 2007 (“27/4/07 Call Report”) and the Recordings/Transcripts strongly supported Sit’s case on the 5^th/6^th Representations, I shall turn to such matters as well. 

(b) 5^th Representations – 27/4/07 Call Report

223. Leung explained that RMs were required to document material and/or important conversations made during face-to-face meetings with their customers by call reports which were DBS’ internal documents.  The 27/4/07 Call Report prepared/signed by Kong concerned his lunch meeting with Sit on 19 April 2007 between the trade dates of the 1^st and 2^nd ELNs (“19/4/07 Meeting”):

“AUM [asset under management]:

HKD328 million-

……

Result of call R Objectives met £ Objectives not met

……

- Mr Sit discussed with the RM on the recent surge in HK Market and he is concerned that the market is due for correction and he asked the RM for opinion.

- The RM explained to him since we are only looking for a interest income, we don’t need to care too much about short term movement and that we will reserve interest as long as the price remains in the designated range.

- Mr Sit again is satisfied and but 2 CAN not [callable accrual notes] for USD2 million and Yen for Yen 226 Million.

- Mr Sit also reviewed his portion and available loan line. In this respect the RM has shown him the latest calculation and figures.” (my emphasis)

224. Sit testified he understood ELNs were “very dangerous” because the volatility of share price fluctuation in respect of an ELN linked to one underlying stock/share would be magnified for an ELN with three underlying stocks/shares, which danger he said was obvious to him given his substantial investments in ELNs over the years.  So at the 19/4/07 Meeting Sit queried the economic/market outlook, and Kong managed to convince him he should not worry about short-term fluctuation that would not affect his investments because (a) ELNs were bought for their interest coupons so market fluctuations would not affect their performance, and (b) even if he had to take up the worst performing share upon maturity of the ELNs it would be 1½ to 2 years later.  Sit claimed such representations were false because the financial crisis in 2008 led to forced sale of his investment assets.

225. Mr Lee SC submitted that in making the 27/4/07 Call Report Kong must have regarded the conversation with Sit on 19 April 2007 to be material/important.  Mr Lee SC argued the 27/4/07 Call Report was conclusive proof that (a) DBS had given advice/opinion to Sit, (b) Sit was “again” satisfied and relied on Kong’s advice, and (c) such advice was made recklessly/negligently and was wrong.  Mr Lee SC claimed DBS did not challenge (a)-(b) above during Sit’s cross-examination even though they disagreed with (c) above, so the 27/4/07 Call Report clearly documented an occasion of reliance.  Mr Lee SC went on to say the 27/4/07 Call Report actually documented the 5^th Representations as well as Kong’s motive in making such misrepresentation, ie to persuade Sit to buy more ELNs, which provided strong support for Sit’s case that he relied on Kong’s advice and representations generally and that he had been induced by the 5^th Representations to purchase the 2^nd to 10^th ELNs despite his concern over market rationalisation.  Further, since the 24/7/04 Call Report recorded that Sit was “again” satisfied, Mr Lee SC suggested it would not have been the first time Sit was persuaded to purchase ELNs, so it was inherently probable/reasonable to infer there would have been similar conversations between Kong and Sit and/or similar representations by Kong on other earlier occasions not recorded in either the call reports or Recordings/Transcripts, so Sit must have been induced by the 5^th Representations to purchase the 1^st ELN too. 

226. I agree with Mr Wong SC that the starting point would be Sit’s own pleadings (and evidence) in respect of the 5^th Representations.  Paragraph 25(f) of the Re-Re-Amended Defence and Counterclaim pleaded that:

“[On] the [10 ELNs], to the best of the recollection of [Sit], [Kong] had in the phone told him about the proposed investments and on being queried by [Sit] as to the possible risk of the investments [Kong] invariably orally assured [Sit] that there was no problem and the investment would yield positive return at the end of the investment (“the [5^th Representations]).” (my emphasis)

Sit clearly pleaded that the 5^th Representations were made by Kong during telephone conversations with him and such representations specifically addressed the “proposed investments” being the 10 ELNs.  This was reiterated in Sit’s witness statement that stated “[since] July 2007, to the best of [his] recollection, [Kong] only told [him] over phone and recommended [him] to purchase the ELNs ……”, and when Sit queried about possible risks of the investments Kong made the 5^th Representations.[104]

227. But the 27/4/07 Call Report noted a conversation between Sit and Kong at the face-to-face 19/4/07 Meeting, which could not have been any record of the 5^th Representations made by telephone in the circumstances as pleaded.  More importantly, although Sit’s witness statement was mistaken as to the trade dates of the 1^st to 3^rd ELNs,[105] it clearly stated Kong made the 5^th Representations “[since] July 2007” “over phone”, which probably explained why the 27/4/07 Call Report (which pre-dated the 5^th Representations allegedly made since July 2007 by more than two months) was not featured in Sit’s pleadings and/or witness statements “as grounding any of the alleged misrepresentations (including in particular the 5^th and 6^th Representations) relied upon by Sit in the present action”.  Moreover, the 5^th Representations, which concerned alleged “invariable” assurance that the 10 ELNs would yield positive return at the end of the investments, were quite different from what Kong mentioned at the 19/4/07 Meeting about short-term market fluctuations as noted in the 27/4/07 Call Report.

228. Mr Wong SC submitted (and I agree) Mr Lee SC’s contentions in relation to the 27/4/07 Call Report was not Sit’s pleaded case that DBS was called upon to meet at trial, and what happened at the 19/4/07 Meeting was simply not in issue as regards the 5^th Representations.  Taking into account the above matters, including the fact that the 19/4/07 Meeting and 27/4/07 Call Report never featured in Sit’s pleadings and witness statements at all, I agree with Mr Wong SC that Sit’s arguments in this respect were recent opportunistic contentions made to embroider his case.  On such basis, I also agree nothing turned on whether Mr Wong SC did or did not cross-examine Sit in respect of those matters, and Sit’s reliance on the rule in Browne v Dunn (see paragraphs 238-240 below) was therefore misplaced.

229. Although the 27/4/07 Report showed Kong as RM did give his house view or trade opinion as to how one might look at the market, which was not uncommon even when the service provided was “execution only”, Mr Wong SC submitted any such view/opinion would be on “no recourse” basis,[106] so they would not demonstrate Kong made the 5^th Representations in respect of the 10 ELNs or (if made) Sit relied on them.  As said, I shall deal with the doctrine of contractual estoppel in Part XXII below, but suffice to state here that I accept the Contract was on “execution only” basis and the doctrine of contractual estoppel was applicable.

230. But even if one considered Kong’s view as recorded in the 27/4/07 Call Report, Mr Wong SC submitted it appeared to be an expression of opinion that there was no reason to worry about short-term fluctuations because the ELNs would earn interest income in the long‑term “as long as the price remains in the designated range” (which proviso was obviously a product feature of ELNs).  Mr Wong SC said it was not a promise or a statement of fact or even a forecast that was actionable under Section 108 or under common law, and for the purpose of Section 108 there was no evidence to show at that time Kong’s opinion was not justified and thereby constituted a misrepresentation, or it was made recklessly or negligently.[107]

231. On the other hand, Mr Lee SC argued Kong’s explanation that “we don’t need to care too much about short term movement” as recorded in the 27/4/07 Call Report constituted reckless or negligent misrepresentation.[108] Mr Lee SC explained this was because the use of the word “and” between “we don’t need to care too much about short term movement” and “we will reserve interest as long as the price remains in the designated range” showed the former was not qualified by the proviso “as long as the price remains in the designated range”. 

232. But in my view, when Kong’s view was read in the context of the 27/4/07 Call Report as a whole, he must have been saying the interest/coupon return from ELNs would be preserved “as long as the price remains in designated range” despite any short-term share price movements.  It was not a statement of fact, promise or forecast.  More importantly, it was nothing at all like the alleged invariable oral assurance given by Kong by way of the 5^th Representations that “there was no problem and the investment would yield positive return at the end of the investment” without any mention of the share price remaining within the designated range.  The 27/4/07 Call Report could not have documented or recorded the 5^th Representations.

233. Mr Lee SC argued that nevertheless the 27/4/07 Call Report was a powerful contemporaneous record that showed DBS had previously given advice/opinion to Sit, and Sit was “again” satisfied and relied on Kong’s advice.  But in my view, this was of no assistance in establishing the 5^th Representations that were allegedly made since July 2007. 

234. Mr Wong SC also submitted there was no evidence of any causal link between the alleged misrepresentation by Sit at the face‑to‑face 19/4/07 Meeting recorded in the 27/4/07 Call Report and whatever loss Sit allegedly suffered.  I agree that to establish misrepresentation it had to be shown it played a real or substantial part in the misrepresentee’s decision to enter into the contract.[109] Cartwright, Misrepresentation, Mistake and Non-disclosure said it also had to cause loss:[110]

“Whichever remedy is sought for misrepresentation, it will be necessary to establish an adequate link between the statement and the consequence from which the representee claims to be relieved. If the claim is for damages, the question is whether the statement caused the loss. …… it is an issue of the claimant’s reliance on the statement, and whether the statement caused the harm in issue. A false statement, even one made fraudulently, will not be actionable as a misrepresentation by the person to whom it was addressed if it had no impact on his actions, nor otherwise caused him loss.” (my emphasis)

Mr Wong SC submitted there was no evidence to show Sit relied on Kong’s explanation at the 19/4/07 Meeting to invest in the 10 ELNs.  Mr Lee SC relied on paragraph 12 of Sit’s supplemental witness statement which stated as follows:

“In furtherance of paragraphs 49 to 51 of my First Statement, I would like to elaborate that [DBS] through [Kong] was offering a one-to-one private banking service to me. From time to time, [Kong] provided investment advice to me. He expected me to follow his advice and he knew that I would be (as I in fact was) fully relying on his advice. He from time to time mentioned to me that he had studied the market and analyzed the then financial information. [Sit went on to describe the 6^th Representations.] As a result of and in reliance upon these representations, I believed that [ELNs] were merely or in fact similar to other interest generating products and was safe, conservative and traditional. ……”

But paragraphs 49-51 of Sit’s witness statement made clear Sit was talking about what Kong used to tell him “on phone”, which had nothing to do with the 5^th Representations set out in paragraph 57 of Sit’s witness statement.  Further, paragraph 12 of Sit’s supplemental witness statement was focused on the alleged 6^th Representations and no mention was made of Kong’s view as recorded in the 27/4/07 Call Report.  Plainly, Sit’s witness statements were not concerned with the 19/4/07 Meeting and 27/4/07 Call Report, and there was no oral testimony from Sit to show any causal link between those matters and his purchase of the 10 ELNs and/or the loss he allegedly suffered. Further, although Sit pondered about possible market correction, he maintained an overall bullish outlook even up to March 2008 when he overrode Kong’s admonitions for prudence and purchased three accumulator contracts for HK$12 million (see paragraphs 259-266 below).

235. Taking into account the above matters, I have no hesitation in concluding that Sit’s arguments in this respect were recent opportunistic contentions made to embellish his case.  I find on balance that notwithstanding any house view or trade opinion given by Kong, Sit exercised his own judgment in making investment decisions and he was not influenced by Kong’s explanation made at the 19/4/07 Meeting which by reason of the above analysis did not support Sit’s case on the 5^th Representations. 

236. Further, the Recordings/Transcripts showed that from time to time Kong reminded Sit of the risk of exposure and “top up”, so it was not the case that in respect of the 10 ELNs Kong “invariably orally assured [Sit] that there was no problem and the investment would yield positive return at the end of the investment”.  Indeed, Sit well knew ELNs were not “principal protected” and he himself had experience of receiving the underlying shares instead of the principal upon maturity of 3-4 ELNs.  Time and again Kong explained to Sit the strike price and the consequence of “接貨”.  Against such background and bearing in mind Sit’s overall lack of credibility as witness, I do not believe Kong made the 5^th Representations as alleged.

(c) 6^th Representations – the Words and rule in Browne v Dunn

237. Again, the starting point must be Sit’s pleadings.  According to paragraph 25(ba) of Sit’s Re-Re-Amended Defence and Counterclaim, the 6^th Representations were allegedly made by Kong during telephone conversations when he informed Sit about “the product he intended to purchase for [Sit]” (see paragraph 25(b) of such pleading). 

238. It is true that in the Recordings/Transcripts Kong did from time to time use the Words.  Mr Wong SC submitted the Words coined by Kong in their proper context simply meant the ELNs were hand‑picked or specially selected for Sit, and not (as Sit contended) they were “structured” or tailor-made for him.  But Mr Lee SC argued that since Mr Wong SC failed to expressly challenge Sit’s contention during cross‑examination this court should accept that (a) such representation was indeed made, (b) the Words meant as Sit understood them, (c) such representation was false, and (d) Sit was induced by such representation to enter into the 10 ELNs. 

239. Mr Lee SC accepted there was no need to cross-examine Sit if on a contextual basis the Words were incapable of bearing the meaning Sit suggested.  But he argued DBS’ interpretation was not the most natural or common sense meaning, and since the Words could mean the ELNs were “structured” or tailor-made for Sit, this was a classic case where the rule in Browne v Dunn[111] would apply, and DBS must put the alternative meaning to Sit for him to give his explanation.

240. However, the rule in Browne v Dunn is not an inflexible one, and there is no requirement in law that the tribunal of fact must accept that evidence.  As Lam VP in Pacific Electric Wire & Cable Company Limited v Gold Global Limited & ors explained:[112]

“124. The rule in Browne v Dunn …… is not an inflexible one. It is not broken even if a material matter is not put to a witness, if the witness can fairly and objectively be said to be on notice of it or where the point is so apparent …… It is pertinent to have regard to the full written opening of PEWC so Willi must be on notice of the allegations that would be made against him.

125.  Nor does the principle in Browne v Dunn inflexibly require every point which might be used against a witness to be put to him.  In essence, the principle is breached if in all the circumstances an omission to cross-examine on a specific point is unfair to a witness ……”

Recently in LWYA v KYW and LLP (intervenor),[113] the father relied on the failure by the husband’s counsel to suggest in cross-examination that the father or the wife was not telling the truth, but the first instance judge did not think it was necessary to put to the father or the wife they were lying because everybody knew where they stood in this regard and the issue was well and truly joined.  Kwan JA said at paragraph 91 as follows:

“I agree with the judge. I am satisfied there was no procedural unfairness. The parties knew their respective positions regarding the issue plainly in contest. The father and the wife knew the imputation intended to be made against them and had the opportunity to make any explanation open to them. There was no need to put to them what was obvious.”

241. As a starting point, it must be remembered that interpretation of the meaning of words said to constitute representation is objective, so the court is not concerned with Sit’s subjective interpretation and on such basis whether Sit thought the Words used by Kong meant the 10 ELNs were created or tailor-made for him was beside the point.  The court had to consider what a reasonable person would have understood from the Words used in the context and circumstances in which they were used, and this might depend on the nature/content of the statement, the context in which it was made, the characteristics of the representor and representee, and the relationship between them.[114] Since how Sit subjectively understood or chose to understand the Words was irrelevant, I agree with Mr Wong SC the rule in Browne v Dunn was of no material assistance in this respect.

242. Mr Lee SC suggested DBS’ interpretation of the Words was inherently improbable “in the proper context” as it was inconsistent with how Kong used those Words from time to time (eg “咁呢就我砌咗一隻叫做China Resources …… 呢個Shanghai Industry …… 同埋呢個China Shipping ……咁我仲有一個保險呢就65%, 咁我專登砌低咗個保險……” for the 3^rd ELN,[115] and “…… 咁所以呢我哋就擺到嗰啲strike呀保險呀全部擺得好低嘅 ……” for the 4^th ELN)[116] and Kong’s explanation of what “砌” meant (ie “點樣砌法呀? er…我要揀一D股票我估…em…佢即係唔會話…er…冧咗落去,咁仲有有D prospect, 咁呢就又要揀呢…佢又要俾到個更高嘅yield俾我，咁呢又要做到一Ｄ適當嘅protection，等我呢我又唔會坐艇,即係去盡量啦唔會坐艇啦咁樣” for the 5^th ELN).[117] It was suggested that Kong was obviously referring to how to create a particular ELN for Sit. 

243. On the other hand, Mr Wong SC submitted Kong was merely a RM/employee of DBS and not an issuer of any ELN, so no reasonable person would have understood that Kong, a mere RM/employee, would have the ability to create special ELNs only for Sit and not for other investors, and hence no reasonable person in the position of Sit (being a seasoned businessman and investor) would have understood the Words to mean and/or would be so naïve to think the Words meant Kong created the ELNs only for his customer Sit (and not for other investors) to invest in as opposed to selecting them for introduction to his customer Sit.  Thus, it was said, the natural and reasonable interpretation of the Words in the relevant context in which they were used must be that Kong had hand-picked or specially selected the ELNs to introduce to Sit.  Mr Wong SC submitted the strange meaning Sit ascribed to the Words was another opportunistic allegation with a view to avoid liability. 

244. I find on balance Sit knew that neither Kong nor DBS were the issuers of the ELNs he purchased, which meant Kong could not have created the ELN products for him.  Sit tried to overcome this by saying he only knew of this subsequently, but at the material time he believed Kong’s representation that the ELNs were tailor-made for him.  But on balance I do not believe him.  Sit plainly knew DBS was selling the ELN products for third party issuers.  I note that even before opening Sit’s Account with DBS, Sit already had experience with single-stock ELNs.  For the purchase of the CDC Note (albeit not an ELN), Poon informed Sit the issuer was CDC which had AAA rating.  For every ELN purchased via Sit’s Account, the issuer was stated in the Consolidated Statements sent to Sit.  The Confirmations with attached term sheets made clear the products were sold by third party issuers, and the terms were general terms offered to investors.  According to Sit’s witness statement, his understanding of ELNs included the feature that “[unless] the issuer was bankrupted ……, the risk of losing my principal was minimal”, which meant Sit all along knew ELNs were marketed by third party issuers.  Still further, it was Sit’s testimony that he made his own judgment as to investments at least for the year 2004 by “understanding …… the relevant products before everything could proceed”.[118] In my view, no reasonable private banking customer in the position of Sit would have understood the Words to mean the ELNs were specifically created, “structured” or tailor-made by Kong for him.  I find on balance that in all the circumstances the only objective and reasonable interpretation of the Words in the context they were used and bearing in mind the characteristics of and the relationship between Sit and Kong must be that Kong hand-picked and selected for introduction to Sit the ELNs (with particular features that Kong believed Sit might be interested in), and the Words used in such context were not false, misleading or deceptive.

245. In any event, it is doubtful whether Sit could rely on inferences based on the rule in Browne v Dunn when in the context of the available evidence the suggestion that Sit thought/believed Kong would be able to and did create, “structure” or tailor-make ELNs specifically for him was shown to be quite implausible.  But even if such rule were applicable, it was not inflexible.  Having regard to DBS’ pleadings and the full opening by Mr Wong SC that put Sit on notice that DBS disputed the Representations, I am not persuaded that every point had to be put to him provided that the omission was not unfair.  In the present case, both Sit and DBS well knew where they stood as regards this matter, and the issue was well and truly joined in that Sit relied on but DBS denied the 6^th Representations.  In the circumstances, I do not accept Kong represented to Sit the ELNs were “structured” or tailor-made for him, and there was no misrepresentation by use of the Words.

246. I now turn to Sit’s allegations that Kong represented to him (a) investing in notes, including ELNs, being merely interest‑generating products, was safe, conservative and traditional (as reinforced by his use of phrases such as “insurance line” or “protection”), and (b) investing in ELNs was less risky than investing in products in the nature of mutual funds.

(d) Other 6^th Representations made?

247. Mr Lee SC submitted that provision of information per se by Kong upon Sit’s enquiries did not mean Sit had understanding of ELNs.  In the Recordings/Transcripts, Sit repeatedly asked for explanation of basic terms of ELNs that showed ignorance of their meaning.  But Mr Wong SC urged me to look at the totality of the evidence (including the number of ELN transactions Sit entered into, the relatively long period of time from 2004 to 2008 that he made investments in ELNs, and the contents of the Recordings/Transcripts) which he said clearly reflected Sit’s understanding of the ELNs and his control over his own investments. 

248. In my view, the question of whether as a matter of fact Sit understood the nature of ELNs and/or was in control of his own investments is a somewhat different question from whether Kong made the 6^th Representations.  However, the answer to the former question might lend some colour to the plausibility or otherwise of the latter proposition. 

249. Prior to banking with DBS, Sit already had experience in investing in “stocks, bonds and notes including ELN linked to one blue chip only”.  Sit’s witness statement demonstrated he was aware of the key features/risks and mechanism of “basket” ELNs, including (a) the issuer would pay interest/coupon at a fixed interest rate higher than interest payable on fixed deposits, (b) if the performance of the linked stocks/shares was good he would receive interest and his principal upon maturity, but if the performance of the linked stocks/shares was poor with the price falling below the pre-designed level he would have to take delivery of the worst performing stock/share in lieu of the principal upon maturity,[119] and (c) if the price of the stocks/shares increased above the knock-in price the ELN would terminate and the issuer would refund the principal with interest to him.  Sit testified he knew the criteria for the pre-designed price range was set by the issuer, and he had actual experience of ELNs being knocked out.  He was also aware the ELNs “were linked to, the strike price, the lock-out price, the interest rate and the maturity date”,[120] and he had experience of taking shares instead of return of principal upon maturity for 3-4 ELN transactions. 

250. As regards the Recordings/Transcripts, it was obvious Sit knew ELNs were not “principal protected” and Kong did explain to him the consequence of taking the underlying shares (the price of which could fall and in turn could decrease the usable credit facilities available to Sit) upon maturity.  The Recordings/Transcripts also revealed that from time to time the features/mechanism of ELNs had been explained to Sit, and he asked pertinent questions, including the strike price, the circumstances when he would have to take the underlying shares, when interest/coupon would be payable, etc. 

251. Mr Lee SC set out in Appendix 1 to his written closing submissions extracts from the Transcripts of what Kong said during telephone conversations with Sit which Sit regarded as unsatisfactory.  I do not propose to set out the fullness of those extracts, but having carefully read them in the context of the corresponding telephone conversations and Sit’s evidence as a whole, I am not persuaded they take Sit’s case any further.  I shall just highlight a few examples.

252. In the telephone conversation between Sit and Kong on 27 April 2005 (ie long before the purchase of the 10 ELNs) about an ELN linked to three underlying stocks/shares,[121] Sit had no difficulty in understanding Kong’s explanation as to the interest/coupon payment structure as he was able to articulate the coupon rate in his own words.  Kong explained the concept of strike and delivery of the worst performing share should the share price fell below the initial price.  As explained in paragraphs 207-211 above, the conversations on 27 April 2005 also covered the topic of margin financing. 

253. At first Sit claimed he was merely asking Kong questions and did not fully understand Kong’s explanation at the time or even at trial, but when he read through the relevant Transcript he was constrained to acknowledge that at that time he had no difficulty in understanding and he understood the strike price and the risk of taking delivery of shares instead of receiving the principal at maturity.  After all, he was able to describe the relevant features and their effect in his own words. 

254. Another example was the Recording/Transcript of the telephone conversation on 5 February 2007 (ie the day when Kong purchased the 1^st ELN).[122] Sit asked what “knock out” meant, and Kong carefully explained the concepts such as guaranteed coupon (and upon Sit’s inquiry Kong confirmed it was an absolute or not annualised 16% rate of return to be paid in six months’ time), knock-out (with explanation as to when it would take place) and strike (with explanation that Sit would have to take the worst performing share at maturity if the share price fell below the strike price), and Kong canvassed with Sit each of the six underlying shares and from time to time Sit asked relevant questions about them.[123] After listening to the information given, Sit formed a judgment that Daimaru was the most dangerous of the six underlying shares.  At trial, Sit was constrained to agree Kong did explain to him the features of the 1^st ELN. 

255. It was next suggested that the Recording/Transcript of a telephone conversation on 11 June 2007 showed Sit did not understand the meaning of “call” and “strike”.  That telephone conversation was interrupted twice, but it was clear Kong explained the concepts to Sit who asked relevant questions.  It was only after such explanations were given and after they discussed the amount of usable credit facilities that Sit decided to buy an ELN of US$2 million.[124]

256. Mr Lee SC suggested the Transcript of the telephone conversation on 18 October 2007 in respect of the 5^th ELN[125] showed Sit did not understand the meaning of “insurance” despite Kong’s explanation.  It was said Sit did not know purchasers of ELNs acted as insurers to protect the issuers as explained by Malik and Chung, but in fact Kong was not referring to this at all. According to Kong’s explanation, the “50% insurance feature” meant that if the worst performing share fell below the knock-in barrier price of 50% at the time of maturity, Sit would have to take the shares at the reference price of 65%, but if the feature of knock-in barrier price was absent the interest/coupon rate could be higher by 2% but Sit would have to take the worst performing share if its value fell below the reference price of 65%.  Sit replied “好呀”.[126] This was also made clear in the telephone conversation a day before on 17 October 2007 in respect of the 4^th ELN in which Kong said “…… 即係接貨價係65%，即係跌35%你都重OK嘅，咁另外我再加多個保險線跌50%，即係話個市跌50%，如果向呢個maturity嗰日呢，如果個市跌到49%都好啦，都唔駛收貨嘅”.[127] The insurance line/feature was in fact the knock-in barrier, and I am not persuaded Sit did not understand such product feature as explained by Kong.

257. It was also suggested that in the Transcript of the telephone conversation in respect of the 10^th ELN on 10 January 2008[128] Sit did not understand what “insurance” and “down and in” meant. Mr Lee SC noted the phrase “down and in” was mentioned in the Recording/Transcript of a telephone conversation on 1June 2007 in relation to a JP¥ option,[129] but Sit still asked about “down and in” on 10 January 2007.  I disagree.  In that conversation, Kong did not just coin the phrase “down and in”; he explained the whole concept to Sit, ie notwithstanding the strike price of 75%, it was only when the price of the worst performing underlying share upon maturity fell below the knock‑in barrier price of 65% that Sit would be required to take such shares at the strike price of 75%, so there was an “insurance line” at 65% to which Sit replied “唔, ok”.  The fact Kong had to explain such feature did not mean Sit failed to understand his explanation.  After all, the knock-in price (ie the “insurance line”) and strike price respectively at 68% and 85% for the JP¥ option were different from those of the 10^th ELN discussed above.

258. Other evidence also showed Sit took charge of his investments rather than just following Kong’s recommendations.  As explained in paragraph 215 above, he discussed with Kong the pros/cons of borrowing JP¥ for his investments and he was well aware of the risks involved.  As discussed in paragraphs 156-157 above, he asked for information about the financial product in question, including its historical performance, before making his own investment decision.  Sit was therefore constrained to admit it was not as if he was placing absolute trust in Kong at that time.

259. The T/C Recording of the telephone conversation between Kong and Sit on 3 March 2008 was the only one that was played at trial.[130]  The conversation concerned an investment in certain accumulator product, and Kong explained “拿咁呢就係匯豐既1倍，1 倍既意思接貨都係接1倍……”  Sit asked about the “downside” and Kong explained “Downside 就係呀，當個股票個價值呢一路跌緊既時侯，咁佢呢就嗱initial佢會charge 7個per cent margin …… 咁呢你就要一路接貨，接到 …… 接到完為止”.  Sit in his reply recognised that if the price fell by $1 he would have to “接貨”, and he clearly recognised “即係downside呢你就要 …… 要一路接貨” and “upside呢就closing再高冇得買呢你都無得買”. 

260. When Sit asked Kong what “一倍兩倍” meant, Kong explained “兩倍即係你個contract一百萬，但如果佢個股價跌低過strike price呢，你就要入兩倍你應該買入個價值咁解” to which Sit replied “痴線，邊個要咁買架”.  Kong then said “係呀但而家我quote呢個一倍架姐”, ie if the price fell below the strike price Sit would have to “一路接貨” at “一倍” until “接到完為止”.  Upon such explanation, Sit decided to buy three contracts of HK$4 million each, but when Kong tried to impress upon him of the risks involved if he were to purchase as many as three contracts, Sit overrode his advice and asked him to just follow instructions:

“D: 一個月買一次囉，好少錢咋嘛，不過你有日enter個contract要deposit要幾多呢?你講個margin呀嘛係咪?

RM: 係啦無錯。

D:咁咪係佢要幾多percent吖?

RM: 暫時enter既就係7個percent但之後都當個價錢一路跌既時候呢…

D:咁咪7個percent囉，forget about the… the … 跌… 唔…跌啦…

RM: 佢跌佢會再加架喎… 加得好勁架喎…

D: 咁就梗係啦!你都傻既!嗰d唔需要講架啦嘛，咁… 銀行梗係要保障架啦… 你而家係seven percent咋嘛，我而家買一千萬我話你俾70萬咋嘛… 啱唔啱先?

RM: 係。

D: 咁咪得囉。

RM: 係… 但係佢之後佢加呢，因為…

D: 我知道架啦，如果加減架話呢… 佢… 梗係啦，你跌破左70, 80 percent先出聲啦 ….

(寧靜)

D: anything else?

RM: 有… ER… 我我… 即係我睇下你… 你…

D: Just follow my instructions!

RM: 好，ok，ok。”

261. Sit alleged under cross-examination that he could not figure out why Kong said “兩倍” and that it was probably because Kong was thinking of “margin” whilst he was thinking of making use of available “funds” to make investments.  But plainly at that stage Kong was not talking about either available margin or funds at all.  He was talking about a product feature, ie if the price of the shares fell below a pre‑designed level the investor would have to “兩倍你應該買入個價值咁解”.  Sit obviously understood what Kong was talking about for he said it was a silly idea, “邊個要咁買架”. 

262. Sit then testified that although it appeared Kong did warn him of the risks and urged him to be more prudent when he purchased the HSBC accumulator (which Sit claimed had less risk than an ELN), he now realised with hindsight Kong had a hidden agenda to dissuade him from buying accumulators and to talk him into purchasing further ELNs which Kong wanted him to invest in.  Sit blamed Kong for “deceiving” him and never giving him any warning advice, eg telling him “actually I’ve only got $12, say for example, and I should only make investment that’s worth $12”.[131]

263. Mr Lee SC sought to play down the effect of such conversation by saying it merely showed Sit was adamant on purchasing the accumulator merely because of his subjective belief a HSBC accumulator was safer than an ELN, which understanding, Mr Lee SC said, was consistent with Sit’s investment policy based on long-term investments, eg the CDC Note with maturity in 2016. 

264. In my view, it was plain that throughout the conversation Sit explained the upside and downside considerations of the financial product to Sit and tried to impress upon him of the risks involved in making such a large investment, the consequences should the price of the underlying share fell below the strike price, and the effect of margin call.  Not only did Sit fail to listen to Kong’s warning, he insisted on making his own investment decision to purchase the accumulator.  On balance I do not believe Kong was attempting to “deceive him” and trying him persuade him to buy more ELNs.  First, it was plain that Sit made the investment because he was attracted by the low initial entry for the product at 7%, ie “你而家係seven percent咋嘛，我而家買一千萬我話你俾70 萬咋嘛… 啱唔啱先? ……咁咪得囉”, and in response to Kong’s warning that “佢跌佢會再加架喎… 加得好勁架喎…”, Sit was unconcerned/unimpressed and said “我知道架啦，如果加減架話呢… 佢… 梗係啦，你跌破左70, 80 percent先出聲啦”.  Secondly, there was no mention of ELNs at all in the conversation on 3 March 2008.  Thirdly, although Sit thought (a) a HSBC accumulator was a safe investment because HSBC was a note-issuing bank and (b) such accumulator was merely an entire sum of money paid by fixed sum instalments every month or so, he never testified he purchased such product for making long-term investments, and I have already rejected Sit’s assertion that he was only interested in long-term investments.  Anyway, he knew the CDC Note was a high risk product that was not “principal protected” (see paragraphs 165-166 above). 

265. Even though Sit did purchase another ELN on 28 March 2008 after the accumulator was knocked out, on balance I do not accept Kong suggested the accumulator for the purpose of “deceiving” Sit into buying more ELNs.  I note Kong arranged for Sit to sign the ISDA Agreement on the very day Sit bought the accumulator.  Anyway, DBS merely earned “per transaction” commission, and there was no suggestion of any material difference in commission income for DBS in effecting ELN and accumulator transactions.  If DBS’ commission income was calculated on the transaction value of the investment product, three accumulator contracts purchased for HK$12 million would generate more income for DBS than the last ELN purchased for US$1 million.

266. Further, even though the Recording/Transcript of the telephone conversation on 3 March 2008 was made after the purchase of the 10 ELNs, it revealed that even up to 2008 Kong did warn Sit of potential risks, which did not sit well with the tenor of the 5^th Representations that suggested Kong “invariably orally assured” Sit there was no problem and his investments would yield positive returns and/or with the tenor of the 6^th Representations that Kong represented the proposed investments were safe, conservative, traditional and not risky.

267. Ultimately, Sit’s complaints boiled down to this: Kong only verbally gave Sit bits and pieces of information which confused Sit when in fact (a) Kong should have told him (as Poon did in April 2004 with the CDC Note that was not an ELN) of the high risk factors, eg the investor was acting as the insurer of the issuer, the secondary market for ELNs was illiquid such that the investor “could not get out” of the ELNs (and even if the investor could get out he would suffer substantial capital losses), the MTM Value of the ELNs were solely determined by the issuers, “the gains are very limited but the losses are unlimited when purchased through leveraging”, the adverse impact on the investor’s overall financial position in the event of a general downturn of the market in light of the credit facilities granted by DBS (eg a drop in the MTM Value could lead to margin call at short notice with adverse effect on the investor’s portfolio), leverage risk would increase if the ELNs had a remaining life of more than six months (as they would have a lower LTV Ratio), and asked him to acknowledge he understood those risks, and (b) Kong should have given him the term sheet for the relevant products before he purchased the 10 ELNs.  Mr Lee SC submitted these omissions amounted to material non-disclosure in breach of Sit’s duty to advise him in contract/tort and under statute, and they would naturally lead Sit into believing there would be no problem for him to invest in ELNs by using the credit facilities granted by DBS. 

268. In respect of (a) above, Mr Wong SC submitted that Sit had substantial experience in ELN investments and had no complaints about not understanding their features and risks/returns when he was making substantial profits.  Sit only challenged the 10 ELNs when he lost money.  Mr Wong SC suggested that Sit’s alleged ignorance of the risks associated with ELNs was contrived and unreal. 

269. I will deal with the question whether DBS owed the alleged duties to Sit (and if so, whether there had been breach of such duties) in Part XXIII below, but suffice to state here I am not persuaded that under the Contract which provided for “execution only” and not investment advisory service DBS owed such duties to Sit.  More importantly, at this stage I am concerned with the somewhat different question of whether Kong made the 6^th Representations, and this must be firmly kept in mind when assessing the evidence, including the extracts from the Transcripts which Mr Lee SC submitted were illustrations of the 6^th Representations.  Further, such extracts must be considered in the context of the corresponding Recordings/Transcripts and Sit’s evidence as a whole, and it would not be appropriate to adopt a blinkered approach.

270. First, in respect of the 1^st ELN, Kong said “咁我就 …… 呢個都 …… 風險不大嘅……博個return又幾好。我諗住就同你提吓你會唔會做張啫” (my emphasis).[132] However, such observation was made at the tail-end of a lengthy conversation in which Kong explained the product features and discussed all six underlying Japanese stocks/shares, and Sit asked pertinent questions, and was well aware Daimaru was the weakest of the referenced basket of underlying stocks/shares and its price might not increase enough for knock-out to occur. 

271. Secondly, in respect of the 4^th ELN, Kong said “呢張一百萬呢就啱啱番嚟嘅callable accrue note，knock out咗，咁呢理論上你就做番一張呢就冇問題嘅，……” (my emphasis).[133] During such telephone conversation, Kong explained the product features to Sit, and asked Sit whether he wished to buy such ELN with the returned principal.  When Sit wanted to know the usable credit line he still had for investment purpose and queried “我哋依家淨係100萬咋咩”, Kong recommended moderation: “…… 唔係，我成日都留番少少buffer旣 ……” and “…… 唔係好太多架喇 ……”, and he went on to remind Sit he had previously  “…… 接咗一次貨啦，接咗一次貨，咁接咗一手中國人壽 ……” I am not persuaded Kong made an outright suggestion there was no risk/problem and the investments would yield positive return upon maturity, or ELNs were safe, conservative and traditional and even less risky than mutual funds.

272. Thirdly, Mr Lee SC tried to rely on the following conversation on 18 October 2007 in respect of the 5^th ELN to suggest Kong told Sit ELNs were more “traditional”: [134]

“RM: 淨返100萬，再睇吓。仲有呢我 …em…我想幫你買50萬基金呀?

D: 咩基金呀?

RM: 呀… China Focus Fidelity

……

RM: 你夠唔夠膽博呀？係如果唔夠膽博，唔好做呢樣嘢啦。我哋都係傳統d啦咁就。

D: 你宜家你宜家嘅睇家本領就係全部都係保守。保守。收息咋嗎。

RM: 好啦，咁我哋唔玩呢Ｄ”

But it was immediately obvious that this discussion did not concern the 5^th ELN but rather it was about a “China Focus Fidelity” fund (and there was no evidence at all before me this was a conservative mutual fund that invested in blue-chip equity for long-term investment) that was eventually not purchased.  The fund was discussed for its short term return dependent upon “夠膽搏” that the market would “升到3萬5度” by the end of the year.  It was the comparison with such bold expectation that underlied such fund that Kong said “我哋都係傳統d啦咁就”.  Plainly, he was not saying ELNs of themselves were traditional financial products. 

273. In my view, the mechanism of ELNs was not difficult to understand, and their essential features and financial exposure were not difficult to appreciate.  Sit knew that if the issuer went bankrupt or if investments were made with margin financing, the risk of loss of principal would be non-minimal.  I have found Sit knew he was utilising margin financing from DBS to buy ELNs, and he also knew the risk of principal loss and “top up”.  He enquired with Kong about usable credit facilities because at times there was returned principal from ELNs that were knocked out and further because the drawdown limit for the term loan facility depended on the value of the mortgaged/pledged securities which might fluctuate.

274. Further, the Recordings/Transcripts and Sit’s evidence showed quite clearly that irrespective of whether the investor was acting as an insurer for the issuer Kong did explain to Sit from time to time the essential features of ELNs, eg the commitment for two years, the knock-in barrier price, strike price, the possibility of not getting back the principal at maturity.  I do not see how losses would be unlimited, and Sit well understood the dangers of margin financing.  Notwithstanding any illiquidity of the secondary market, at the time of purchase of the 10 ELNs Sit knew he was committed for two years and could not get out whenever he wished.  In my view, Sit was aware of the nature/features of the ELN investments he was making, and he knew such investments were subject to risk/exposure (eg the issuer might become bankrupt, he might have to take the underlying shares, and the ELNs were not “principal protected”) and margin financing was “dangerous”. 

275. As explained above, at this stage I am concerned with whether Kong made the 6^th Representations. Even if (as Sit alleged) Kong did not tell him that the investor was acting as an insurer of the issuer or the secondary market was illiquid, the Recordings/Transcripts clearly showed Kong time and again explained the features/risks of the 10 ELNs, including volatility of share price fluctuations that might be amplified by margin financing with risk of margin call and/or risk of loss of principal by having to take the worst-performing share upon maturity.  On such basis and given Sit’s experience with ELNs before his purchase of the 10 ELNs, Kong would not have told (and on balance I find he did not tell) Sit ELNs were merely interest‑generating products that were safe, conservative and traditional.  I have explained that Kong’s use of phrases such as “insurance line” or “protection” was merely to explain the product features and not to suggest that ELNs were risk-free.  I also find on balance that Sit did not say ELNs were less risky than mutual funds, especially in light of Sit’s experience with ELNs prior to the 10 ELNs (including his experience in taking up shares upon their maturity) as known to Kong and Kong’s explanations as to the product features. 

276. In respect of paragraph 267(b) above, Sit was provided with term sheets attached to the Confirmations after he made the purchases.  Although final term sheets were attached to the Confirmations for the CB Notes, Sit complained DBS only attached an indicative term sheet for the TARN and stated the “Global Note” would be available for Sit’s perusal on request.  Although it was the current-day practice to send an indicative term sheet to the customer before he made the purchase and to send the final term sheet after the purchase order was made, there was no evidence this was already the practice in 2004-2008.  In any event, even now the customer would not have to sign either the indicative or final term sheet. 

277. Leung gave evidence that an indicative term sheet was preliminary in the sense the actual price was not fixed as yet but it would still set out the features/terms of the ELN.  The issuer would fix the price when the order was placed, and the terms would then become final (and the price as fixed would be recorded in the Confirmation).  I am not persuaded the indicative term sheet read together with the Confirmation for the TARN was any way unclear or misleading, and DBS was prepared to provide the “Global Note” on request.  Further, in respect of Sit’s case on misrepresentation, Sit’s complaint about the term sheets was not understood since he claimed he would not read documents given to him by DBS, and he did not read the Confirmations and attached term sheets.  Had he done so, he would have been aware of the detailed risk disclosure therein, and the general risk factors for ELNs such as credit risk, liquidity risk and market risk and the suggestion he should seek professional advice. 

278. In coming to the above conclusions, I also take into account Sit’s poor credibility.  In the circumstances, apart from having mentioned the Words (which I have found did not reasonably bear the meaning Sit contended and were therefore inconsequential), on balance I do not believe Kong made the 6^th Representations at all. Instead, I find on balance that Sit knew and understood the essential features of the ELNs from the explanations given to him.  He knew that after entering into the ELN transactions, the principal would be held up until maturity unless the ELN was knocked out.  He was also aware that the ELN transactions were conducted upon credit facilities granted by DBS, and he knew he was utilising margin financing and understood the attendant risks.  The available usable balance of the term loan facility at any given time was a factor he enquired and took into account when determining the investment amount for the ELN transactions.  He was aware of his credit line and financial exposure.  I also find he exercised his personal judgment and made independent decisions.  He knew higher returns came with higher risks, and contrary to his allegations, he was prepared to take risks to seek attractive returns from his substantial investments in the then bullish market such that at times he ignored and/or overrode Kong’s cautionary words.

279. In the circumstances, Sit’s claim for damages for misrepresentation under common law and the MO as well as under Section 108 fails.  But even if I am wrong, under the applicable doctrine of contractual estoppel as discussed in Part XXII below, DBS offered an “execution only” service and Sit should have exercised his own independent judgment in deciding whether to purchase the 10 ELNs irrespective of any house view or trade opinion given by Kong.  That being the case (and Sit was aware of and understood the features of ELNs), whether or not Kong made the Representations was not significant. 

(e) 6^th Representations - inducement/reliance?

280. Mr Lee SC submitted that Kong would not have made the 6^th Representations repeatedly and lied about how to “structure” the ELNs when asked by Sit[135] unless he knew Sit would believe what he said (which in fact caused Sit to buy ELNs time and again), so the natural inference (as bolstered by the rule in Browne v Dunn) must be that Sit was in fact so induced.  Mr Lee SC said this must also be considered in light of Kong’s other misrepresentations that ELNs were less risky and more traditional than mutual funds, which were demonstrated to be false by the evidence of Leung and Malik.  It was therefore not open for DBS to say Sit had not been induced by the 6^th Representations in deciding to purchase the ELNs.

281. On the other hand, Mr Wong SC argued there was no evidence to show any causative link between the alleged representation that Kong “structured” or tailor-made the ELNs for Sit and Sit’s loss for it did not follow Sit was thereby induced to purchase the ELNs merely because they were tailor-made.  Mr Wong SC submitted there was no evidence to show what real or substantial part such alleged misrepresentation played in relation to Sit’s loss.  After all, Sit did not adduce any evidence to show whether the ELNs were also available for other investors would make any difference at all.  Mr Wong SC submitted that in such circumstances the rule in Browne v Dunn was not applicable, and it was not for DBS to put such a case to Sit.  As for the other representations, Mr Wong SC submitted Sit understood the features/ risks of the ELNs and exercised his independent judgment in deciding whether to purchase his investments.

282. Mr Lee SC retorted that although Sit made the ultimate investment decisions based on his own judgment, his judgment and decisions were built on and influenced by information, recommendation and assurance given to him negligently or recklessly by Kong/DBS, which would have supported a claim under Section 108.  Mr Lee SC submitted that since DBS did not advance any positive case to contradict Sit’s evidence or suggest other concurrent inducing causes this court should not speculate what other matters might have caused Sit to purchase the 10 ELNs.[136] Mr Lee argued DBS had no answer to Sit’s powerful point (supported by undisputed evidence) on reliance and inducement based on the rule in Browne v Dunn.

283. Given my conclusion in Parts XX(b)-(d) above, there is no need to deal with this issue at all.  But in case I am wrong, I will deal with four matters briefly. 

284. First, Mr Lee SC submitted that in case of fraud (which also covered recklessness) the misrepresentor was not permitted to argue it was unforeseeable that the misrepresentee would be influenced by the lie.[137] Mr Lee SC, relying on Cartwright, Misrepresentation, Mistake and Non-Disclosure, agued it was sufficient to merely show the representation was in fact present in Sit’s mind when he made the decision to purchase the ELNs,[138] and it was not necessary to show Sit would not have purchased the ELNs “but for” the 6^th Representations. 

285. But even Cartwright recognised Raiffeisen Zentralbank Osterreich AG advocated the “but for” test of causation, [139] and indeed long before then Mance J in Bankers Trust International plc v PT Dharmala Sakto Sejahtera & related action dismissed the misrepresentation claim on the basis that the claimant had failed to establish the relevant representation “did actually make any difference to its decision to enter into” the relevant transaction:[140]

“In conclusion DSS has failed to establish that any misrepresentations contained in the letter and oral presentation did actually make any difference to its decision to enter into swap 2. …… The presentation certain fell below the best standards, although this was because of lack of sufficient thought and over-enthusiastic salesmanship rather than deliberate misrepresentation or misconduct. But DSS was by and large capable of evaluating and looking after its own position, and in my judgment and contrary to its own case, did so. ……”

Further, Chitty on Contracts said that “[it] seems to be the normal rule that, where a party has entered into a contract after a misrepresentation has been made to him, he will not have a remedy unless he would not have entered the contract (or at least not on the same terms) but for the misrepresentation.  Certainly this is the case when the misrepresentee claims damages in tort for negligent misrepresentation; and it seems also to be required if damages are claimed for fraud.  ……” (my emphasis)[141]

286. I prefer the “but for” test of causation.  In any event, even though Cartwright did not prefer such test at least for fraudulent misrepresentation, even his proposition did not merely require the representation to be present in the claimant’s mind when he took the decision to enter into the contract, and the learned author accepted it was necessary to show “it did in fact contribute to his decision to contract”.  Hence, the learned author emphasised that “[whichever] remedy is sought for misrepresentation, it will be necessary to establish an adequate link between the statement and the consequence from which the representee claims to be relieved.  If the claim is for damages, the question is whether the statement caused the loss.  …… it is an issue of the claimant’s reliance on the statement, and whether the statement caused the harm in issue.”[142] Lam JA (as he then was) in Master Yield Ltd v Ho Foon Yung Anesis & anor[143] also said “[the] ultimate question is whether a representee was induced by the representation and it is a question of fact to be asked in respect of this particular representee (as opposed to an objective reasonable bystander).  The effect of a representation on an objective reasonable bystander is only relevant in terms of onus of proof”.

287. Secondly, Sit’s supplemental witness statement stated (and as he also confirmed in re-examination) “[Kong] expected [Sit] to follow his advice and he knew well that [Sit] would be (as [Sit] in fact was) fully relying on his advice”, and Sit relied on the 6^th Representations because “…… [Kong] knew [Sit’s] character and [Kong] certainly knew that [Sit] reposed absolute trust and reliance on him”.  But I have rejected Sit’s allegation that he “reposed absolute trust” in Kong.

288. Thirdly, the burden was on Sit to establish the causal link between the alleged misrepresentations and his alleged loss, and it was not for DBS as the alleged misrepresentor to adduce a positive case on Sit’s subjective motive/reason for purchasing the 10 ELNs.  In any event, this is a different matter from the proper evaluation of Sit’s evidence to ascertain whether his allegations as to inducement by and reliance on the alleged misrepresentations to purchase the 10 ELNs was truthful or credible.  In respect of the latter exercise, having rejected Sit’s arguments in respect of the rule in Browne v Dunn in relation to the 27/4/07 Call Report and the Words, the court should take into consideration all relevant circumstances, including the fact that Sit had purchased 39 ELNs via Sit’s Account prior to his acquisition of the 10 ELNs, Sit’s understanding of ELNs as found by the court, and the explanations given to him by Kong.  Given my findings that (a) Sit knew and/or was explained the key features/risks of the ELNs, and (b) he knew the dangers of margin financing and ELNs being not “principal protected”, and further given (c) my rejection of his allegation that he reposed absolute trust in Kong, and (d) his preparedness to argue with Kong and ignore/override Kong’s cautionary words, I come to the view (quite apart from the doctrine of contractual estoppel) the alleged 6^th Representations could not have played any real or substantial or any effective part in inducing Sit into investing in the 10 ELNs.

289. Fourthly, when Sit was asked whether any representations Kong made to him was false, either during telephone conversations or on other occasions, he said “[in] a conversation, no”.  When pressed further as to whether “in this case” he had any complaint that Kong had ever misrepresented or told him anything that was false (whether in any telephone conversation or not), Sit did not refer to the Representations and came up with a new complaint not grounded in his pleadings and/or witness statements:[144]

“HER LADYSHIP: I think it would be simpler if I put it this way, and see if I can elicit that. Whatever he has actually said to you, Mr Kong, whatever he has actually said to you, is any part of what he actually said false? That is different from what he has omitted to say. I am talking not about omitted to say, but what he has actually told you -- has anything that he has told you, you say is false?

A. In a conversation, no.

MR WONG: Are you able to -- do you have any complaint in this case that Mr Kong had ever misrepresented or told you anything which was false?

HER LADYSHIP: Whether telephone conversation or not.

MR WONG: Whether telephone conversations or not.

A. Well, I remember that somewhere in the audio recording, which I’m not sure where, he had once told me that he had traded -- he had purchased forex option, 5 million pounds and 5 million euro. However, I had never given him any instruction to purchase those two currencies. That’s why I pursued him. At least I had not given him such orders or instructions, but anyway he told me in the end that he had already placed the order. You can find such part of the information from the audio recording.

Q. I’m not sure I know what you are talking about. Certainly it is not an issue pleaded by you in this case, to allege that there had been unauthorised trading by Mr Kong.” (my emphasis)

290. Mr Wong SC fairly accepted cross-examination was not a memory test, but argued that Sit’s answer on such a fundamental matter (bearing in mind the Representations were all alleged to have been made by Kong in conversations with Sit) demonstrated there was no reliance on his part and also spoke ill of Sit’s reliability as witness.  Mr Wong SC submitted that Sit’s testimony showed quite clearly even on Sit’s own understanding of his “complaint in this case” at trial, he was not really saying Kong had ever made any positive representation to him that involved a false statement.  Mr Wong SC questioned how could there possibly be reliance on the 5^th and 6^th Representations.

291. Mr Lee SC submitted there was no need to prove Sit as misrepresentee knew the Representations were false, and given Sit’s evidence as to his reliance on such representations and objective evidence as to the falsity of the Representations, the state of Sit’s subsequent knowledge was irrelevant.  He argued Sit should not be criticised for not remembering everything said in his witness statements (adopted as his evidence-in-chief), and his evidence did not demonstrate there was no inducement. 

292. As explained in the paragraph below, in light of my findings in Part XX(b)-(d) above, there is no need for me to consider the falsity of the 6^th Representations.  I agree with Mr Wong SC that irrespective whether Sit knew of the falsity of the Representations at the time when they were made, Sit’s understanding at trial as to his “complaint in this case” was strange in that he did not regard the representations made by Kong in conversations with him to be false, which ran counter to the case of misrepresentation that he put forward.  On such a fundamental issue, I am not persuaded it was a mere matter of forgetfulness.  In my view, at the very least, this served to undermine Sit’s credibility in his assertions as to inducement/reliance.

(f) Falsity of the representations

293. Mr Lee SC noted that (a) Leung acknowledged mutual funds were less risky and said the portfolio for customers graded as “low risk” would comprise “cash, fixed deposit and certain bonds or mutual funds”,[145] (b) Malik agreed that an average ELN would provide higher risk and higher return than a traditional mutual fund that invested in blue chip equity, and an average mutual fund in general would be “more liquid” than an average ELN, [146] and (c) Malik also would not use the term “traditional” to describe ELNs.[147] On such basis, Mr Lee SC submitted that the 6^th Representations were false, misleading or deceptive.  However, given my findings in Part XX(b)-(e) above, it is unnecessary for me to deal with this issue.

XXI.  CRIMINAL PROCEEDINGS

294. DBS argued that even if Kong made the Representations to Sit, Kong did not do so as agent/employee of DBS because Sit paid Kong (but not DBS) to serve him.  The Reasons for Verdict recorded Sit’s evidence that (a) in 2006 he authorised Kong to make investment decisions for him, (b) Kong initially refused and said this was not permitted by DBS but he asked Kong to do so as though Kong was doing a part-time job for him, (c) Kong was prepared to take up the offer because Sit paid him, and (d) Sit therefore paid Kong a total of HK$1.3 million as remuneration for his work or as bonuses.  In short, Sit suggested Kong was moonlighting for him and getting paid for making investment decisions for him in order to justify the payments he made to Kong.

295. However, in the present action Sit suggested the effect of his evidence in the criminal trial was that he paid money to Kong because Kong had been taking care of his investment portfolio and from time to time Kong prepared and handed to him portfolio summaries of his investments.  Sit tried to explain that in his mind he was not giving bribes but gifts to Kong for personally attending to Sit’s Account, and he blamed Kong for not telling him he could not accept gifts from Sit without DBS’ consent.  When asked as to why he would give bonus/ reward to Kong when (on his case) he already had an Oral Contact with DBS for provision of investment advisory service to him, he claimed it was a bad habit and he just liked to reward Kong for the good investment results. 

296. The above matters raised two issues.  First, there was a substantive issue as to whether Kong made the alleged Representations as agent for DBS or as agent for Sit.  Secondly, there was a credibility issue given the two versions in paragraphs 294-295 above put forward by Sit.

297. On the first issue, Mr Lee SC submitted DBS’ attempt to “disown” Sit was curious because on one hand DBS urged the court to uphold the contractual terms in the Banking Documents which Sit signed at the instigation of Kong as RM, and on the other hand (if the court held Kong made any of the misrepresentations to Sit) DBS contended Kong did not do so as their agent/employee. Mr Lee SC reminded it was an essential ingredient of the offence under section 9 of the Prevention of Bribery Ordinance Cap 201 (“PBO”) (of which Sit was convicted) that Kong was an agent/employee of DBS at the material time and he received bribes in that capacity. 

298. Mr Wong SC submitted that the fact Kong was DBS’ agent for the purpose of the PBO did not mean Kong was not Sit’s agent after Kong had been paid by Sit to “work” for him.  Sit’s case at DCCC525/2010 was that he paid Kong HK$1.3 million behind DBS’ back to do what was not authorised by DBS, so when such payment was made Kong was plainly DBS’ agent/employee (which was why he was charged and convicted for taking bribes while he was agent of DBS), but Kong’s moonlighting services as Sit’s part-time investment advisor (which DBS did not authorise as they only provided an “execution only” service for Sit) after he was recruited and paid by Sit must have been unauthorised from DBS’ point of view, hence Sit would have to be responsible for the investment decisions made by Kong as Sit’s own agent.

299. Mr Lee SC submitted there was no evidence to show DBS did not authorise Kong to give investment advice to Sit when (a) Ng’s statement to the ICAC suggested Kong as RM was to provide investment advice (or opinion) to customers, (b) DBS’ reliance of the Group Clauses must have contemplated that advice would be given, and (c) Kong reported his “opinion” to his superior in the 27/4/07 Call Report.  Mr Lee SC reminded it was legally possible for RMs to act simultaneously as dual agents for both DBS and Sit,[148] and he did not understand why the agency was restricted to the time of payment in light of DDJ Yim’s findings that such “payments” were made in three tranches on 22 December 2006, 8 January 2008 and 12 February 2008.

300. In light of my findings that there was no misrepresentation, there is no need for me to deal with the issue whether Kong made the Representations on behalf of DBS or Sit.  However, I can see the force of Mr Wong SC’s arguments.  I refer to Parts XXII and XXIII below in which I find and accept that the Contract between Sit and DBS was “execution only” (and the Group Clauses were binding on both Sit and DBS). DBS had no duty to provide any investment advice, but the Contract did not preclude and in fact it contemplated that DBS and/or their RMs might contact their customers with regard to investment opportunities which might be of interest to them on a “no recourse” basis, so Sit was not entitled to place any reliance on such communications and should exercise his own independent judgment to make his own investment decision.[149] Hence, Mr Lee SC’s reference to the matters in paragraph 299(a)-(c) above[150] would not take the matter any further. I find on balance that DBS would not have and did not authorise Kong to give investment advice to Sit, and Kong’s part-time investment advisory moonlighting service was done for Sit rather than on behalf of DBS. 

301. On the second issue, Mr Wong SC suggested that quite irrespective of the findings in the Reasons for Verdict the two versions given by Sit in DCCC525/2010 and at this trial were quite different even though Sit tried to explain away such apparent inconsistency by saying Kong “…… made decisions on how to structure [Sit’s] products and he decided on the picking up of certain financial products for [Sit], before he made further recommendation to [Sit], so that’s also a kind of decision‑making.  …… and it’s really a formality for [Sit] to confirm with [Kong] the final decision to be made.  On the face of it, of course it would be regarded as [Sit’s] own decision, but in the actual sense, it’s [Kong] decision made for [Sit] ……” Mr Wong SC suggested that Sit shifted his case to accommodate the inconsistencies, and this vividly showed he was quite prepared to say whatever that suited his purpose. 

302. In my view, there was plainly a shift in Sit’s stance.  In DCCC525/2010 he was trying hard to portray Kong as “moonlighting” and working for him as his part-time investment advisor, ie Sit authorised Kong to make investment decisions for him, and remunerated Kong for such work as if Kong was his part-time employee (in contra-distinction to Kong’s usual duties as RM for handling Sit’s Account).[151] But here Sit claimed that under the Oral Contract Kong as DBS’ RM would be personally responsible for looking after Sit’s investments, that DBS would not take up risky investments for him, and that it was Kong who gave him investment advice and he merely rubber-stamped Kong’s recommendations.  Gone was the contention that Kong provided moonlighting service for Sit for which he was remunerated by Sit.  In my view, such evolution of Sit’s testimony highlighted its unreliability, and demonstrated his preparedness to say whatever suited his purpose.  This would adversely affect Sit’s case on the 5^th and 6^th Representations.

303. Finally, Mr Lee SC suggested that DBS would charge for such advisory activities which were not for free as alleged by Mr Wong SC.  I disagree.  Leung clearly confirmed that DBS charged commission on “per transaction” basis and not on the basis of any advisory service.  This was also confirmed by Lau’s evidence as recorded in the Reasons for Verdict: “注意[Lau]證供指[Kong]的職責其一是推介銀行產品予客戶,將產品的資料提供給客人,客人經[DBS]做買賣收取費用,此與[Sit]會面期間所說的一致” (my emphasis).  I cannot see how it would aid Sit’s case, and it is perhaps appropriate to now turn to the doctrine of contractual estoppel.

XXII.  CONTRACTUAL ESTOPPEL

(a) “Execution only” service

304. Sit claimed that although he ultimately made the investment decisions, Kong/DBS took care of his investments and gave him advice, recommendation, information and assurance, which influenced and caused him to follow them in making investment decisions.  On the other hand, Leung confirmed DBS only provided “execution only” service and was under no duty to give investment advice to Sit even though Kong had given house view or trade opinion on products in his conversations with Sit. 

305. An “execution only” service was to be distinguished from a discretionary account where investment decisions were made by the bank for the customer.  Under an “execution only” service, the bank had no duty to give any investment advice, and if any view, recommendation and/or information was given by the bank, the customer was not entitled to place any reliance on any of them and should exercise his own independent judgment to make his own investment decision, to seek independent advice for any investment decision to be made, and to undertake the risks involved. 

306. DBS claimed that by virtue of the Group Clauses, which set out the basis by which they dealt with Sit, a contractual estoppel arose to prevent Sit from asserting he relied on any information, advice, forecast or recommendation provided to him (even if they were incorrect) or had been induced by them to make his investments in various financial products, including the 10 ELNs.  By the Understanding of Risks Clauses, Sit also acknowledged he understood the risks involved in any transaction or investment he made through using DBS’ “execution only” service. Reference was also made to the disclaimers printed on the term sheets attached to Confirmations for the 10 ELNs, and to the No Liability Clauses that provided DBS would not be liable for Sit’s loss as a result of fall in value of the 10 ELNs. 

307. Mr Lee SC submitted that the doctrine of contractual estoppel was redundant because (i) the parties in Springwell (HC) and Peekay Intermark Ltd & anor v Australia and New Zealand Group Ltd (“Peekay”)[152] were experienced commercial parties with equal bargaining power, and (ii) the same result could be achieved by applying some/all of the classic and uncontroversial principles as summarised below without resorting to the doctrine of contractual estoppel:

(a) the essence of the Springwell principle, which sought to overrule Lowe v Lombank Ltd,[153] was that there was nothing wrong for such parties to adopt whatever terms they saw fit even if such terms involved an assumption of a state of affairs that bore, and were known to the parties to bear, no resemblance with reality;

(b) since those terms were the result of a fair process of bargaining by such parties, they were, or must be, deemed to be reasonable under the classic test of reasonableness under the CECO and MO;

(c) under the Interfoto principle, due to the experience and sophistication of the parties involved, and their ability to have independent legal and/or financial advice including, if necessary, having such terms to be drafted by lawyers, very little, if at all, needed be done to bring such terms to the attention of each other, and the mere tendering of the contractual documents would be sufficient.

308. Mr Lee SC submitted the development of the doctrine of contractual estoppel by Springwell (HC), Springwell Navigation Corp v JP Morgan Chase Bank & ors (“Springwell (CA)”)[154] and Peekay beyond the above context was not supported by any rational or juridical basis and went against the modern trend of consumer protection.  He complained there was no justification for DBS on the one hand to extend the doctrine to parties of unequal bargaining power (as in the present case), and on the other hand to limit the utility of the other well‑established contract principles discussed above.  Mr Lee SC submitted this unduly disturbed the well-established principles of contract law and well-recognised categories of estoppel in the absence of any logical basis.  On such basis, it was said DBS failed to bring themselves within a recognised legal “pigeonhole” and contractual estoppel was therefore inapplicable. 

309. It was alternatively argued that even if the doctrine of contractual estoppel did exist, DBS had to demonstrate it would be unconscionable for Sit to resile from the conventional state of affairs the parties had assumed or that they would suffer detrimental reliance.  Further alternatively, Mr Lee SC submitted that even if such doctrine was established in the United Kingdom, it was not applicable to parties with unequal bargaining power and/or not applicable to Hong Kong given the local circumstances and statutory context.

310. On the other hand, Mr Wong SC submitted the suggestion that there was no doctrine of contractual estoppel flied in the face of the many authorities that confirmed its existence, including inter alia first instance decisions in multiple jurisdictions and by the English Court of Appeal.  Mr Wong SC submitted the doctrine of contractual estoppel was well-established under common law for centuries, and he disagreed that the doctrine only existed between sophisticated parties.

311. However, in light of my findings in Parts XVII, XVIII, XIX and XX above and Part XXIII below, it is unnecessary for DBS to rely on the Group Clauses to argue that Sit was estopped from asserting he was induced by and/or relied on the Representations, that he did not exercise independent decision and/or own judgment before entering into each of his investment decisions (including the purchase of the 10 ELNs), that he did not understand the nature/features/risks of ELNs (including the 10 ELNs), and that he did not agree/understand the provisions for margin requirements and/or that he was engaged in margin trading, to defeat Sit’s defence allegations to the contrary.  But in case I am wrong, I shall consider the parties’ respective arguments.

(b) Authorities

312. In Peekay, the first instance court found the bank’s representative had made some misrepresentation to the customer regarding the nature of the product that was recommended, but the trial judge’s finding that the customer was induced by misrepresentation into executing the transaction was reversed on appeal.  But the English Court of Appeal allowed the bank to go on and argue the customer was estopped by contract from asserting it had been induced to purchase the relevant product by misrepresentation of the bank’s representative.  Because of this it had been suggested that the observations by Moore-Bick LJ on contractual estoppel were obiter, but subsequent authorities treated such observations as the ratio.  The relevant observations by Moore-Bick LJ had been set out in paragraph 194 in San-Hot, and I do not propose to repeat them here save for the following:

“56. There is no reason in principle why parties to a contract should not agree that a certain state of affairs should form the basis for the transaction, whether it be the case or not. …… Where parties express an agreement of that kind in a contractual document neither can subsequently deny the existence of the facts and matters upon which they have agreed, at least so far as concerns those aspects of their relationship to which the agreement was directed. The contract itself gives rise to an estoppel ……

57. …… I can see no reason in principle why it should not be possible for parties to an agreement to give up any right to assert that they were induced to enter into it by misrepresentation, provided that they make their intention clear, or why a clause of that kind, if properly drafted, should not give rise to a contractual estoppel ……”[155]

313. In Springwell (CA), Aikens LJ (with whom Rix and Rimer LJJ agreed) approved and followed Peekay.  But it is perhaps more appropriate to start with the first instance decision by Gloster J in Springwell (HC).  Both Springwell (HC)/(CA) were helpfully summarised in paragraphs 195-198 in San-Hot, and I bear in mind DHCJ Pow SC’s reminder (which I respectfully agree) that there were striking similarities between the contractual provisions under consideration in Springwell (HC)/(CA) and those relied on by DBS in San-Hot (and therefore also those relied on by DBS in the present case). 

314. In Springwell (HC), it was argued that the statements in the contractual provisions were as a matter of fact false and as such they could not operate either as an estoppel by representation or (where such fact was expressed as a contract) a contractual estoppel.  It was said that because a statement of past fact (when expressed as a contract) could not amount to a contractual obligation, as a matter of substance it was no different from a representation and must therefore satisfy the conventional requirement of estoppel by representation (including reliance to someone’s prejudice) before it would have precluding effect.  It was argued that these propositions were supported by Lowe which case was not cited to the court in Peekay, so Peekay must have been obiter insofar as it proposed that contractual estoppel did not have to satisfy the conventional requirement of estoppel by representation, and Moore-Bick LJ must have been speaking in terms of estoppel by convention which could only apply to parties adopting a convention going forward.  It was further argued that Lowe prevented parties from agreeing to characterise something of the past or a subsisting relationship as something it was not.

315. Gloster J in paragraphs 557-562 in Springwell (HC) rejected such submissions.  First, she noted all three judges in Peekay agreed the contractual provisions gave rise to a contractual estoppel additional to and distinct from any estoppel by representation:

“558. ……Their reasoning was firmly rooted in, and consistent with, the importance of freedom of contract and contractual certainty. The particular clauses in that case concerned the question of understanding as to the nature of the instrument. That has direct relevance to certain of the allegations made by Springwell in the context of its misrepresentation claim. But the principle extends more broadly and, in my judgment, applies to any other form of contractual statement, for instance as to sophistication or non-reliance on advice generally. In each case, the parties are contractually free to determine the factual basis upon which they conduct business.

559. It is clear, …… that the decision on contractual estoppel was indeed part of the ratio of Peekay: Thus, although Moore-Bick LJ did say that it was unnecessary to decide the question, he went on to do so, and then expressly stated that he allowed the appeal “… for these reasons too”. Moreover, Chadwick LJ’s decision on contractual estoppel was one of the three reasons he gave for concluding that the judge was wrong.

560.  …… Indeed, subsequent authorities show that Peekay has been taken to represent the law on contractual estoppel.”

Gloster J further held there was no inconsistency between Peekay and the line of authorities from Lowe to Watford Electronics Ltd v Sanderson CFL Limited,[156] and there was no question of Peekay being decided per incuriam or without knowledge of previous case law because Lowe was cited by Chadwick LJ when he gave the leading judgments in E A Grimstead & Sons Ltd v Francis Patrick McCarrigan[157]and Watford Electronics Ltd,and E A Grimstead & Sons Ltd was cited by Moore-Bick LJ.

316. Secondly, Gloster J held that the estoppel argument in Peekay was not inconsistent with the analysis of estoppel by representation.  As recognised by Moore-Bick LJ, they were two different forms of estoppel with different jurisprudential bases.  Thirdly, Gloster J disagreed there was any inconsistency with either the decision or reasoning in Lowe. 

317. Before I deal with Gloster J’s reasoning, it is necessary to take a quick look at Lowe.  In that case, the hirer agreed to buy a car on hire-purchase and had made known to the hire-purchase company the purpose for which she required the car, ie “driving about”.  By clause 9(ii) of the hire-purchase agreement, the hirer expressly acknowledged/represented that she had not made known by implication the car was required for a particular purpose, and also agreed she had not made that purpose known to the hire-purchase company.  The English Court of Appeal held that the hire-purchase company was not entitled to rely on such clause since it and its effect were not made known to the hirer.[158] Diplock J at p 204 dealt with clause 9(ii) as follows:

“…… To call it an agreement as well as an acknowledgement by the plaintiff cannot convert a statement as to past facts, known by both parties to be untrue, into a contractual obligation, which is essentially a promise by the promisor to the promisee that acts will be done in the future or that facts exist at the date of the promise or will exist in the future.  To say that the hirer “agrees” that he has not done something in the past means no more than that the hirer, at the request of the owner, represents that he has not done that thing in the past.  If intended by the hirer to be acted upon by the person to whom the representation is made, believed to be true by such person and acted upon by such person to his detriment, it can give rise to an estoppel: it cannot give rise to any positive contractual obligations.  Although contained in the same document as the contract, it is not a contractual promise.”

318. Gloster J said Lowe had to be viewed in its relevant statutory and factual context, and its ratio did not support the far-reaching proposition that there could never be an agreement in a contract that the parties were conducting their dealings on the basis that a past event had not occurred, or that a particular fact was the case, although both parties knew that, in reality, that past event had, or might have, occurred, or that the particular fact was not, or might not have been the case.[159] Gloster J noted Diplock J himself drew a distinction between a statement of past facts and a promise by the promisor to the promissee that acts would be done in the future or the facts existed at the time of the promise or will exist in the future, and Peekay was consistent with this analysis.  Yet Gloster J considered an agreement “that a certain state of affairs should form the basis for the transaction” was capable of amounting to a contractual promise because “parties must always be able to determine the basis upon which they conduct business”, and a contractual estoppel could arise from an agreement or a representation about past facts. She upheld the precluding effect of the relevant contractual provisions.

319. The appeal against Gloster J’s decision was dismissed in Springwell (CA).  The English Court of Appeal expressed full agreement with this part of Gloster J’s judgment.  Aikens J at pp 748-749 said the following as a matter of principle:

“143. Before I examine Lowe v Lombank and subsequent cases on this issue, I will try and analyse the matter from principle. If A and B enter into a contract then, unless there is some principle of law or statute to the contrary, they are entitled to agree what they like…

144.  So, in principle and always depending on the precise construction of the contractual wording, I would say that A and B can agree that A had made no pre-contract representations to B about the quality or nature of a financial instrument that A is selling to B.  …… Apart from the remarks of Diplock J in Lowe v Lombank, Mr Brindle did not show us any case that might support the proposition that parties cannot agree that X is the case even if both know that that is not so.  I am unaware of any legal principle to that effect.  …… Like Moore-Bick LJ in Peekay I see commercial utility in such clauses being enforceable, so that parties know precisely the basis on which they are entering into their contractual relationship.”

320. Aikens LJ carefully studied the facts of Lowe and concluded that “the statements of Moore-Bick LJ are consistent with principle and authority”.[160] He noted that Lowe was decided on the basis of section 8(2)-(3) of the Hire-Purchase Act 1938, so Diplock J’s observations were not necessary for the decision in that case and “not binding in the present context”.  Aikens LJ also referred to EA Grimstead & Sons Ltd in which Chadwick LJ stated that an acknowledgment of “non-reliance” by parties to a contract was capable of operating as an evidential estoppel if the legal requirements of an estoppel were fulfilled, but in that case he held they were not.  In EA Grimstead & Sons Ltd Chadwick LJ also pointed out the commercial utility of enforcing such estoppels when the parties to a contract were of equal bargaining power, and in Watford Electronics Ltd he referred to his analysis in E A Grimstead & Sons Ltdand also to Lowe.  But in neither case did Chadwick LJ analyse Diplock J’s observations in Lowe.  Aikens LJ concluded that such observations “are not binding authority for the far-reaching proposition that there can never be an agreement in a contract that the parties are conducting their dealings on the basis that a past event had not occurred or that a particular fact was the case, even if it was not the case and both the parties knew it was not”.

321. After considering Burrough’s Adding Machine, Limited v Aspinall,[161] Colchester Borough Council v Smith & ors[162] and Spencer Bower and Turner, Estoppel by Representation,[163] Aikens J concluded that the principles in Peekay were good law:[164]

“170. ……Springwell signed the terms and conditions more than once. In law it is to be taken as having read and understood them. Therefore the terms are part of the contract for the sale of the GKO LNs and Springwell is bound by them. Springwell and Chase contract for the purchase of the GKO LNs on the basis that Springwell is bound contractually to its statement, or acknowledgement, that no representation or warranty has been made by Chase. Moreover, Springwell must be bound by the terms of Section 5(e), which means that it accepts that CMSCI has not made any representations or warranties of the kind set out there.”

322. Aikens LJ further held that unconscionability was irrelevant in the application of contractual estoppel, and the parties were bound by a contractual estoppel simply because they have agreed to it, which was the very basis for distinguishing contractual estoppel from estoppel by convention:

“177.  …… To my mind, once it is accepted that there is a separate doctrine of “contractual estoppel” then there is no room for a requirement that the party which wishes to rely on that estoppel must demonstrate that it would be unconscionable for the other party to resile from the conventional state of affairs that the parties have assumed.  The reason why that is a requirement in the case of “estoppel by convention” is precisely because there is no contract between the parties.  Therefore some other mechanism has to come into play to make the non-contractual “convention” enforceable.

“178. …… Therefore, before an estoppel by convention canbe enforced it is necessary to demonstrate that it would be unjust or unconscionablefor one of the parties (against whom it is sought to enforce the convention) to resilefrom it.  …… But, in my view, it is irrelevant to the doctrine of ‘contractual estoppel’ for the reasons that I have given.” (my emphasis)

323. Gloster J in paragraph 561 in Springwell (HC) noted Peekay had been followed in Bottin International Investments Ltd v Venson Group plc & ors[165] and Donegal International v Republiuc of Zambia & anor[166] and by the Singaporean Court of Appeal in Orient Centre Investments Ltd v Société Générale.[167] In the United Kingdom, the principles of contractual estoppel had been applied in Titan Steel Wheels Ltd v Royal Bank of Scotland plc,[168] and Bank Leumi (UK) plc v Wachner.[169] Springwell (CA)  was applied in Camerata Property Inc v Credit Suisse Securities (Europe) Ltd,[170] Cassa di Risparmio della Repubblica di San Marino SpA v Barclays Bank Ltd,[171] and Matchbet Limited v Openbet Retail Limited.[172]  It was also followed in the recent Scottish case of Grant Estates Limited (in liquidation) & ors v The Royal Bank of Scotland plc & anor.[173] Similarly, the Kuala Lumpur High Court in Malaysia approved Peekay in Dato’ Ariff Wan Hamzah & ors v HwangDBS Investment Bank Bhd & anor.[174] Further, the Irish High Court in Gerard McCaughey v Anglo Irish Bank Corporation Ltd & anor cited Peekay and Springwell (CA),and “…… concluded that the effect of the provisions of the Commitment Agreement is that the Plaintiff is precluded from pursuing claims other than those based on fraud.  ……”[175]

324. In Orient Centre Investments Ltd, which dealt with a pleading point in a striking out application, Chan CJ at p 583 referred to EA Grimstead & Sons Ltd where Chadwick LJ observed that clauses to the effect that a party did not rely on the representation of another party or would not be influenced by it were capable of giving rise to an evidential estoppel provided that (a) the statements in those clauses were clear and unequivocal, (b) the representor had intended that the representee should act on those statements, and (c) the representee had believed the statements to be true and had acted upon them.  Chadwick LJ then discussed whether the representor would have been precluded from relying on the representation by reason of the English equivalent of the CECO and MO and concluded that:

“There are, as it seems to me, at least two good reasons why the courts should not refuse to give effect to an acknowledgment of non-reliance in a commercial contract between experienced parties of equal bargaining power – a fortiori, where those parties have the benefit of professional advice. First, it is reasonable to assume that the parties desire commercial certainty. They want to order their affairs on the basis that the bargain between them can be found within the document which they have signed. They want to avoid the uncertainty of litigation based on allegations as to the content of oral discussions at pre-contractual meetings. Second, it is reasonable to assume that the price to be paid reflects the commercial risk which each party – or, more usually, the purchaser – is willing to accept. The risk is determined, in part at least, by the warranties which the vendor is prepared to give. The tighter the warranties, the lesser the risk and (in principle, at least) the greater the price which the vendor will require and which the purchaser will be prepared to pay. It is legitimate, and commercially desirable, that both parties should be able to measure the risk, and agree the price, on the basis of warranties which have been given and accepted.” (my emphasis)

This underlined the value of these clauses in promoting commercial certainty and defining the basis of the dealings between the parties that Aikens LJ talked about in Springwell (CA). 

325. The doctrine of contractual estoppel was applied in Hong Kong in San-Hot.  After analysing the above line of authorities, DHCJ Pow SC in paragraph 203 held he was “satisfied that the principle of “contractual estoppel” was a common law principle firmly established and settled after [Springwell (CA)]” and he could see “no reason for not applying this principle in Hong Kong”.  Although San-Hot is not binding on this court, Mr Wong SC reminded that the contractual clauses in question here were the same as or closely similar to those considered in San-Hot, and hence the learned judge’s considerations would be highly relevant.

326. In coming to the above conclusion, DHCJ Pow SC also considered an article by Professor McMeel titled “Documentary Fundamentalism in the Senior Courts: The Myth of Contractual Estoppel” (“Lloyd’s Article”) where the learned author cast doubt on Peekay and Springwell (CA) by saying they represented the judiciary’s “policy choice” built upon a weak juridical basis.[176] After a thorough analysis of Professor McMeel’s propositions in relation to Burrough’s Adding Machine, Limited and Colchester Borough Council, and his criticisms of Peekay, DHCJ Pow SC disagreed with Professor McMeel’s opinion.  The learned judge also did not accept the submission that contractual estoppel should be confined to sophisticated parties, and saw no rational or juridical basis for such limitation.[177]

327. This conveniently brings me to Mr Lee SC’s argument that it is evident from Chadwick LJ’s observations in the passage quoted from E A Grimstead & Sons Ltd in paragraph 324 above that the focus of the court should be on (a) commercial contract between (b) experienced parties of (c) equal bargaining power. 

(c) Equal bargaining power

328. Mr Lee SC argued it was on the presumption that the parties were commercial, experienced and had equal bargaining power that the doctrine of contractual estoppel was to apply at all for these were the parties who would be the best judges of their own interests, and should therefore be free to decide on whatever terms they saw fit, even if such terms did not represent the reality, and neither party should thereafter be allowed to get out of the bargain they specially made (usually after protracted negotiations with the benefit of independent legal advice).[178] On this basis, it was suggested that DHCJ Pow SC fell into error in saying there was no rational or juridical basis for such limitation, which error was compounded by his reference to the sophistication of the parties when the focus should be on their bargaining power.  Mr Lee SC submitted there was no reason to extend the doctrine to parties not of equal bargaining power. 

329. In support of his argument, Mr Lee SC prayed in aid the observations by Christopher Clarke J at p 177 in Raiffeison Zentralbank  Osterreich AG:

“314. In this respect the key question, as it seems to me, is whether the clause attempts to rewrite history or parts company with reality [as in Lowe when the agreement was as to “past facts, known by both parties to be untrue”]. If sophiscated commercial parties agree, in terms of which they are both aware, to regulate their future relationship by prescribing the basis on which they will be dealing with reach other and what representations they are or are not making, a suitably drafted clause may properly be regarded as establishing that no representations (or none other than honest belief) are being made or are intended to be relied. Such parties are capable of distinguishing between statements which are to be treated as representations on which the recipient is entitled to rely, and the statements which do not have that character, and should be allowed to agree among themselves into which category any given statement may fall.

315.  Per contra, to tell the man in the street that the car you are selling him is perfect and then agree that the basis of your contract is that no representation have been made or relief on, may be nothing more than an attempt retrospectively to alter the character and effect of what has gone before, and in substance an attempt to exclude or restrict liability.” (my emphasis)

330. However, as Mr Lee SC accepted, both San-Hot and Grant Estates Limited (in liquidation) & anor applied the doctrine of contractual estoppel to parties with unequal bargaining power, but he argued both authorities failed to address the key questions that he raised.  In the circumstances, it is therefore necessary to set out Lord Hodge’s rationale for concluding that contractual estoppel also applied to parties of unequal bargaining power in Grant Estates Limited (in liquidation) & anor:

“[73] In my view the following five propositions in relation to a delictual or tortious duty of care can be derived from those authorities:

……

(4) The contractual delineation of responsibility and allocation of risk may preclude a party from founding on the actual reality which eventuates if he has contracted to accept a particular state of affairs as true. Thus if A and B agree that B will not advise A and A will not rely on any statement by B as advice, the contract will bar A from asserting the giving of that advice and his reliance on it. …… English law treats the matter as a species of estoppel in which issues of unconscionability do not arise, namely contractual estoppel. ……

(5) The approach in (4) above extends to a retrospective agreement in relation to past events. A and B may agree that their relationship will be on the basis of a certain state of affairs in the past which they know not to be the case, such as that B had not made any representations, and A will thereafter be obliged to act on the basis of that acknowledgement. ……

[75] …… In this context I refer in particular to RBS’s statements in (i) para 3.2 that it would provide dealing services on an execution‑only basis, (ii) para 3.3 that it would not provide advice on the merits of a particular transaction and that the customer should obtain independent advice, (iii) para 4.6 that it made no representation or warranty and that it would give no investment advice and (iv) para 10 that it undertook no duty of best execution.

[76] …… If, as averred, GEL relied on their statements as investment advice, that reliance was not reasonable in the face of the contractual arrangements into which the parties had entered. The answer to GEL’s case in negligence is pithily stated by Hamblen J in Standard Chartered Bank (at para 544):

‘The point and effect of the Non-Reliance Statements is to require the parties to accept a particular state of affairs as true, even if the actual reality was different. One cannot, merely by referring to what is asserted to be the underlying reality, avoid the effect of those provisions.’

In this case the parties have allocated their respective roles and responsibilities in the agreed terms of business. Thus if RBS’s employees provided information and opinions which might fairly be described as advice, the contractual provisions catered for that situation: ……

[77] In reaching this view I have borne in mind that, in contrast with some of the cases which were cited, the parties in this case were of unequal bargaining power. GEL was a small property company and its directors did not have experience of investing in complex financial instruments. Parliament has addressed certain ill consequences which are the result of unequal bargaining power in the 1977 Act. It has also enacted a regulatory regime which the contractual provisions do not supersede and which may provide statutory remedies if GEL can establish breach of that regime. But unless there is a remedy in the 1977 Act, I see no basis for overriding the contractual allocation of responsibility in the context of a common law claim. In the relevant paragraphs of the terms of business RBS made it clear that it was willing to enter into the IRSA with GEL only on the basis that GEL should take independent advice and that it should understand the risks which the transaction involved. I consider that the principle which Moore-Bick LJ stated inPeekay (at para 43) is both relevant and salutary in the interest of certainty in commercial dealings:

‘A person who signs a document knowing that it is intended to have legal effect is generally bound by its terms, whether he has actually read them or not.’” (my emphasis)

331. In San-Hot, DHCJ Pow SC in discussing Colchester Borough Council in paragraph 201 of the judgment explained that:

“…… Contracts, albeit concluded on one party’s standard form, would nonetheless involve pre-contractual negotiations although their contents and duration or the relative bargaining position of the parties may differ widely. Once it is concluded that agreement has been reached between the parties, the next question would be on what terms. And once it is concluded that a particular term forms part of the agreement, there is no logical basis to distinguish between its binding operation whether it originated from “specific negotiations” or “standard form”. ……” (my emphasis)

332. In my view, the ultimate rationale for contractual estoppel is freedom of contract.  Contractual estoppel arises from the contract between the parties.  Since the parties had agreed a state of affairs to be the case, a party who denied such state of affairs was the case was in breach of contract, and the court would not permit a party to benefit from his own wrong.  The basis for upholding or striking down a contractual provision was not so much whether the parties were commercial or non‑commercial, sophisticated or unsophisticated, of equal or unequal bargaining power, but rather that the provision was one which both parties were aware of and freely agreed to.  This was the very basis that underlied the presumptions noted by Chadwick LJ in E A Grimstead & Sons Ltd and endorsed by Chan CJ in Orient Centre Investments Ltd that commercial parties desire commercial certainty to order their affairs on the basis of the written bargain struck between them, and that “the price to be paid reflects the commercial risk which each party – or, more usually, the purchaser – is willing to accept” (my emphasis).  This was also the rationale put forward by Gloster J in Springwell (HC) (who referred to the commercial utility in such clauses being enforceable), upheld by Aikens LJ in Springwell (CA), and re-affirmed in Grant Estates Limited (in liquidation) & anor.  In the last of that trilogy of cases, Lord Hodge pointed out the benefit of commercial certainty that parties be bound to their contract, saying there was no basis to override the contractual allocation of responsibility in a contractual claim by an investigation into the parties’ respective bargaining power. 

333. Although the doctrine might be applied more easily and powerfully to sophisticated parties or those of equal bargaining power, I agree with DHCJ Pow SC and Lord Hodge there was no juridical basis for the limitation suggested by Mr Lee SC.  Mr Wong SC added (and I agree) that it would introduce uncertainty into the law if the common law doctrine of contractual estoppel was subject to considerations such as how equal were the parties’ bargaining power, how much resources they respectively had, how eager they might want to do business and on what terms, what alternatives they might have and/or what sources of advice were available to them. 

334. With respect, Mr Lee SC’s arguments when pared down to the core essentials amounted to a contention that whilst it was permissible for parties with equal bargaining power to agree to a state of affairs to be treated as true when the reality might be different, there would be great anxiety if this was applied to parties with unequal bargaining powers. But, as Mr Wong SC submitted, at the very least such anxiety was misplaced in the present case because DBS and Sit did not agree to retrospectively treat certain matters as true when they were in fact not true or, as Christopher Clarke J put it in Raiffeison Zentralbank Osterreich AG, to “rewrite history”.  The Banking Documents were signed at the beginning of the banker-customer relationship, and the 10 ELNs were purchased years later, so there was no question of the Group Clauses giving rise to a retrospective alteration of reality.  Rather, the Contract concerned the parties’ agreement on how they wished to conduct their prospective banker-customer relationship that would constitute the basis of their future dealings.  The present situation did not come within the concerns expressed in Lowe in respect of statements of affairs as to past events (see paragraphs 314-320 above), but with facts that existed at the time of the promise or will exist in the future and/or acts that will be done in the future.

335. Although Mr Lee SC emphasised that on the facts Sit was in no position to renegotiate any of DBS’ standard terms no matter how onerous or unreasonable they were (and it was DBS’ case that most banks had similar standard form clauses), there was no suggestion in the authorities discussed above that the doctrine was only applicable if the standard terms of business could be modified or renegotiated.  Indeed, DHCJ Pow SC’s observations on Colchester Borough Council in paragraph 331 above were to the contrary.  Also, Chadwick LJ acknowledged that “more usually” it was the purchaser who would bear the price for the commercial risk he was willing to accept, which reflected the parties might not be of equal bargaining power.[179]

336. For all the above reasons, I conclude that the doctrine of contractual estoppel would apply irrespective whether the parties are of equal or unequal bargaining power.  That being the case, there is no need for me to deal with Sit’s personal circumstances.  But in case I am wrong, I shall say a few words on this matter. 

337. Mr Lee SC suggested the bargaining power of the parties here could not be said to be equal as Sit clearly had no say on and had no power to change the terms of the Banking Documents, and there was no real alternative because according to DBS other banks would have similar terms in their contracts.  Since Sit had no choice on the terms of the contract, the fact such clauses were used “across the trade” pointed to oppressiveness and unreasonableness.  Mr Lee SC also submitted the so‑called opportunity to seek professional advice regarding the terms of the Banking Documents was fanciful in the relevant context; so it would be unreasonable to expect a customer to engage lawyers when signing an account opening form, particularly when the bank did not specifically ask the customer to do so.

338. In my view, even though Sit was not classified by DBS as a professional investor, he plainly had substantial experience in commercial or business dealings.  He was not an ordinary man in the street or an unsophisticated/ordinary investor.  Instead, he was a seasoned and successful businessman with considerable wealth who could have access to all independent legal, investment or other professional advice he might desire regarding the terms of the Contract or his investments.  I have rejected Sit’s claim of misrepresentation, and have found that Sit knew the Banking Documents defined the banking relationship between him and DBS, and had he wished he could have found out the effect of the relevant clauses before he signed.  After all, Sit had previously engaged Kong and later IM (persons he believed to have expertise and experience in banking and investment matters) as his personal assistant and/or investment manager to help him handle his investment dealings with banks/investment houses and to carry out his investment strategy. 

339. As Gloster J observed in paragraph 605 in Springwell (HC)[180] and as DHCJ Pow SC also observed in paragraph 236 in San-Hot in respect of the customers in the cases before them, there was nothing (whether economically or otherwise) to compel Sit to deal or contract with DBS.  If Sit found DBS’ terms/conditions unacceptable, Sit was at liberty to go to other private banks or financial/investment houses and to negotiate whatever terms that were acceptable to him.  Even though the clauses DBS relied on were standard commercial terms commonly adopted across the industry in this type of banking relationship,[181] it did not mean they were non-negotiable, and there was no evidence that other financial institutions would not be willing to do business with Sit on different terms given his substantial wealth/resources and the significant value/volume of trades he might bring to such institutions.  Mr Lee SC submitted the lack of evidence was against DBS, but I do not agree.  After all, unlike DBS, there were other financial institutions that offered discretionary account or investment advisory services rather than just “execution only” service,[182] and it was open to Sit to opt for such services (presumably on fee-paying basis) that would require such financial institutions to be responsible for such services.  On balance, I am not persuaded Sit was in a “weak” bargaining position.

340. Therefore, even in the circumstances of the present case, there was no basis to qualify the applicability of the doctrine of contractual estoppel with the caveat suggested by Mr Lee SC.

(c) No separate doctrine?

341. Mr Lee SC submitted that the doctrine of contractual estoppel had been applied in a piecemeal manner by the courts in the United Kingdom without critical analysis of how the principle should be developed in relation to other well developed principles of contract law, eg the Interfoto principle and the test of reasonableness under the CECO and MO.  In the circumstances, Mr Lee SC made a more fundamental challenge by suggesting that (a) the doctrine of contractual estoppel lacked proper foundation as it fell short of the well-established estoppel by convention, and (b) DBS had to demonstrate either detrimental reliance or it was unconscionable for Sit to resile from the conventional state of affairs that the parties had assumed in order to succeed (because contractual estoppel (if valid) was still a type of estoppel).

342. In respect of (a) above, Mr Lee SC referred to the elements of estoppel by convention summarised in Unruh v Seeberger,[183] and revisited the authorities analysed by Aikens LJ in Springwell (CA), including Lowe, Burrough’s Adding Machine, Limited, Colchester Borough Council and Peekay[184]  to conclude that these cases merely reflected various types of estoppel by convention (either contractual or non-contractual) which required proof of inter alia detrimental reliance on the part of the party asserting the estoppel, but they did not support the far-reaching “doctrine” of contractual estoppel as propounded by Aikens LJ.  It was suggested that the sole basis Aikens LJ relied on for the statement of law he laid down[185] (which Mr Lee SC said was wrong in principle and unsupported by authority) was a short passage in Spencer Bower and Turner, The Law Relating to Estoppel by Representation[186] that was cited with approval by Ferris J in Colchester Borough Council[187] (but which was not expressly considered by the English Court of Appeal).  Mr Lee SC then traced the learned authors’ treatment of the relevant passage through the 2^nd edition, [188] 3^rd edition[189] and 4^th edition[190] of the learned text, which he claimed showed that the learned authors were diffident about the vitality of the doctrine of contractual estoppel.  Even in the 4^th and latest edition of the work, it was said:

“A convention of the parties, which binds them to adhere to an assumed state of facts or law, will amount to an express contract if made with the necessary contractual intention [citing Burrough’s Adding Machine, Limited and Colchester Borough Council]. Such contractual estoppels are to be found frequently in the charter-party cases. Although the term ‘estoppel’ is used because the parties are prevented from departing from the convention they have agreed, the use of the term is confusing, as the parties are bound by contract rather than under the doctrine that is the subject of this work. It is submitted below [see para VII.13.1] that an estoppel by deed, properly analysed, is simply a contractual provision by which the parties and their successors are bound.” (my emphasis)

343. As Aikens LJ noted at p 753 in Springwell (CA), the earlier edition of the above passage was extracted from a chapter titled “Estoppel by Convention: Estoppel by Deed”, so I see nothing sinister in the learned authors’ reluctance to discuss contractual estoppel in any detail in that chapter.  Rather the learned authors cited Burrough’s Adding Machine, Limited and Colchester Borough Council to draw a distinction between contractual estoppel that arose from the operative terms of the contract and estoppel by convention that arose from a conventional state of affairs that had less than contractual force (which was the type of convention under discussion in that chapter).  This would not diminish the vitality of the doctrine of contractual estoppel which the learned authors recognised and commented by way of interest and introduction. 

344. Mr Lee SC next complained the authorities cited in the learned text were either one of estoppel by convention[191] or so-called “contractual estoppel” in charter-party cases that concerned conclusive evidence clauses,[192] and he submitted they did not support the creation of any novel doctrine of contractual estoppel, hence Peekay, Springwell (HC), Springwell (CA) and San-Hot represented an “unjustifiable detour in the proper development or application of contract law or the law on estoppel”, which was “redundant for it adds nothing to the existing law”.  But even if, as Aikens LJ held, contractual estoppel was recognised as a separate doctrine (which Mr Lee SC disagreed), it was said that further rationale would be required to justify its extended application, which could only come in the shape of the usual elements of an estoppel, eg detrimental reliance that was essential and indispensable for “estoppel by conduct” in general.[193]

345. In my view, Mr Lee SC’s contentions faced serious difficulties, not just because the doctrine of contractual estoppel as explained by Aikens LJ in Springwell (CA) has been upheld in subsequent English decisions as well as in Scotland, Hong Kong, Malaysia and Ireland[194] with no dissenting voice from the appellate courts, but also because of their analysis of the relevant authorities (eg Burrough’s Adding Machine, Limited and Colchester Borough Council) and the detailed reasoning given in Peekay, Springwell (HC) and Springwell (CA).  In addition, both Gloster J and Aikens LJ made careful study of the line of authorities starting with Lowe and explained why they did not detract from the doctrine of contractual estoppel.  I find myself in agreement with their reasoning and analysis of the authorities, and accept the conclusions reached in Peekay, Springwell (HC) and Springwell (CA) on contractual estoppel are good law. 

346. I note that similar attack on Burrough’s Adding Machine, Limited and Colchester Borough Council was raised by Professor McMeel in the Lloyd’s Article that also complained the decisions in Peekay and Springwell (CA) represented radical/unjustified extension of what had been decided in the earlier cases.  Mr Lee SC urged me to give weight to such academic opinion.  But these arguments were rejected by DHCJ Pow SC in San-Hot, and I respectfully agree with his reasoning as set out in paragraphs 201-203 of the judgment, especially as to why Burrough’s Adding Machine, Limited was not distinguishable and why the rationale in Colchester Borough Council was applicable.  Since I am in entire agreement with the learned judge, I do not propose to repeat his detailed analysis save to say that essentially once the agreement was concluded an estoppel arose from the terms in the contract (whether directly or by incorporation) whereby the contracting parties agreed to mutually treat a certain state of affairs or certain fact to be true, conclusive or binding.

347. Mr Lee SC suggested contractual estoppel was a new judicial invention which did not fit within the available common law “pigeonholes”.  But Mr Wong SC argued there was full juridical basis for the doctrine, and he referred to the decision of the Supreme Court of Canada in The Manitoba Assurance Company v Whitla & anor[195] which explained that contractual estoppel had been well settled for at least 150 years.  In The Manitoba Assurance Company, Sedgewick J reviewed a number of old authorities and at pp 206-207 said as follows:

“  Before discussing the further facts in this case let me call attention to two principles of law which I think may be found to determine the controversy here.  “There is nothing,” says a learned text writer,

in the law to prevent parties, if they so think fit, from agreeing that, as between them a certain fact, or state of facts, shall, for the purposes of a particular transaction, which it is competent for them to enter into, and into which they propose to enter, be taken to be true, whether it be in fact true or not, or although they know, or either of them knows, it to be untrue.

  That is called estoppel by contract.

  The meaning of estoppel, says Martin B. is this: that the parties agree for the purpose of a particular transaction to state certain facts as true; and that so far as regards that transaction there shall be no question about them.

  In Ashpitel v. Bryan, Pollock C.B. says:

  For the purpose of the transaction in question the parties agreed that certain facts should be admitted to be facts, as the basis on which they would contract, and they cannot recede from that ...  We all agree with the court below that there may arise an estoppel by agreement, and that such an estoppel arises here.

  And in McCance v. London & North Western Railway Co., Williams J. in delivering the judgment of the Exchequer Chamber says:

  Here it appears in evidence that the contract declared on was to be regulated and governed by a state of facts understood by the parties ...  It is laid down in my brother Blackburn’s Treatise on the Contract of Sale, p.  163, that ‘when parties have agreed to act upon an assumed state of facts, their rights between themselves are justly made to depend on the conventional state of facts, and not on the truth.’ Applying that rule to the present case, we think that both parties are bound by the conventional state of facts agreed upon between them.” (my emphasis)

Although Mr Lee SC submitted that Ashpitel and McCance were cases of estoppel by convention, it was plain that what was being discussed in those cases and in The Manitoba Assurance Company were precisely the concept of contractual estoppel canvassed in Peekay, Springwell (HC) and Springwell (CA).  I disagree contractual estoppel was a new concept.

348. In respect of paragraph 341(b) above, Mr Lee SC in his opening submissions argued that contractual estoppel was somehow not applicable because it was not an equitable doctrine, but he also argued that if it did exist DBS would have to demonstrate detrimental reliance or unconscionability.  Mr Wong SC’s short answer (which I accept) was that equitable considerations had no part to play in respect of contractual estoppel.  This was accepted by the English Court of Appeal as explained by Aikens LJ in paragraphs 177-178 in Springwell (CA).[196] There is no merit to such argument.

(d) Doctrine applicable to local context?

349. Mr Lee SC submitted that the doctrine of contractual estoppel was inapt in the local context.  It was suggested that because there was no equivalent to Section 108 in the United Kingdom, this court should guard against following English law in the different social/legal context of Hong Kong.  Mr Lee SC said the legislative debates as regards Sections 107-108 showed that protection for the investing public was of utmost importance, and financial institutions should be held responsible for misconduct impugned by those sections.  Mr Lee SC claimed that introducing the doctrine of contractual estoppel to Hong Kong would be contrary to the policy objectives of the legislature. 

350. Mr Lee SC submitted that the so-called doctrine was unsettled in the United Kingdom, and he referred to Proactive Sports Management Limited v Wayne Rooney & ors[197] (which was not discussed in San-Hot) in which Judge Hegarty QC dealt with an argument that a party was contractually estopped by virtue of a contractual provision (by which the party confirmed he had taken legal advice and the terms in the agreement were reasonable) from contending that any restraints imposed by the agreement were unreasonable.  After referring to Peekay (which Judge Hegarty QC accepted was binding on him) and Springwell (HC), the learned judge rejected an argument that the party concerned was bound by the contractual provision when he in fact had not taken independent legal advice:

“670. …… The reason why such a device would not, in my judgment, be effective is because restraint of trade is a matter of public policy out of which the parties cannot contract. ……

671. Accordingly, even if, for some purposes, I might be compelled to assume, contrary to the fact, that WR and his mother had sought, taken and understood independent legal advice, I do not regard myself as constrained to hold that the doctrine of restraint of trade cannot apply to the Agreement simply by reason of the declaration at clause 24. Indeed, even if I had been so constrained, I do not consider that the supposed fact that they had taken such advice would in any way have affected my conclusion that the Agreement was in restraint of trade having regard to the other features of the Agreement to which I have already made reference, and in particular, its length. Nor do I consider that the confirmation that the terms and conditions of the Agreement were “reasonable” can prevent the Court from determining whether Proactive has, in fact, discharged the burden of showing that the restraints were reasonable. It might be contended, I suppose, that, at least between the parties such a declaration might eliminate the need for justification of the restraints by reference to the interests of the parties themselves. But even that step in the process is ultimately founded on public policy. Indeed, the very fact that such a provision was included in the draft Agreement serves to emphasise the doubts which had been expressed to Proactive as to the enforceability of the Agreement and to demonstrate the artificiality of any attempt to rely on such a provision to eliminate that risk. Accordingly, I reject Mr Mill’s argument that clause 24 suffices to exclude the Image Rights Representation Agreement from the scope of the restraint of trade doctrine.”

351. Judge Hegarty QC appeared to be the lone voice amongst the authorities after Peekay and/or Springwell (HC), but he did not have the benefit of the illuminating discussion of the doctrine of contractual estoppel on both principle and authorities by Aikens LJ in Springwell (CA) that was handed down a few months after his judgment.  Nevertheless, it is of note that Judge Hegarty QC confessed at paragraph 669 that “the point was not argued in depth before [him]” although he assumed Peekay was binding on him.  Plainly, his observations were directed at restraint of trade which had little relevance or application to investment cases like the present one.  This much was evident from his view that the doctrine of restraint of trade would apply irrespective whether legal advice was actually taken or not.  In the end, when the matter was taken on appeal,[198] the contractual estoppel argument did not feature in the judgments of the English Court of Appeal although Springwell (HC) and Springwell (CA) were included in the skeleton arguments.  I am unable to accept this represented a marked development from the clear line of authorities on contractual estoppel discussed above that offered rationalised basis for the doctrine.  I am not persuaded Proactive Sports Management Limited which concerned clauses that attempted to rewrite history/reality is of any direct assistance, and even if I am wrong and it contradicts the principles in Peekay, Springwell (HC) and Springwell (CA), I respectfully decline to follow it.

352. In the circumstances, I hold that the doctrine of contractual estoppel applies to Hong Kong and to the Contract between Sit and DBS.  The contractual estoppel that arose from the clauses in Schedules A and B, especially the Group Clauses, was apt to defeat Sit’s allegations that he was induced by and/or relied on the Representations, that he did not exercise independent judgment and/or make his own decision before entering into investment transactions (including the 10 ELNs), that he did not invest by margin financing, that he did not understand/agree the provisions as to margin requirement and/or that he did not understand the nature/features/risks involved in ELNs (including the 10 ELNs).  I find on balance that the agreed contractual basis between Sit and DBS was that DBS only provided “execution only service” and any view, recommendation and/or information given by DBS to Sit was on “no recourse” basis.

XXIII.  BREACH OF DUTIES

(a) Duties in tort?

353. It was said that DBS as banker and investment advisor owed to Sit a common law duty of care that DBS must act with due care, skill and diligence in providing private banking service to him.  Although Sit admitted he rather than DBS/Kong would be (and eventually was) the one who made the ultimate investment decisions for Sit’s Account, he claimed that under the Oral Contract DBS would be his investment advisor and DBS through Kong would provide investment advisory service to him.  Sit said Kong did give him investment advice, and it was common for banks to provide investment advisory service to customers holding investment accounts, and even if such investment advisory service was free (which Sit disagreed) DBS did charge him “per transaction” commission.

354. Mr Lee SC submitted that a person assuming the responsibility of an investment advisor or even a salesperson owed wide-ranging tortious duties at law to an investor.[199] But in my view the prior question was whether DBS assumed such duties in the first place.  To answer this question, it would be important to focus on what service DBS had agreed to provide pursuant to the Contract. 

355. On the basis of the service agreed to be provided by DBS under the Contract, Mr Wong SC had no difficulty in accepting DBS owed the usual duties of reasonable care and skill towards Sit.  Mr Wong SC further accepted what would be reasonable in the particular context would depend on the circumstances, including the service agreed to be provided and the terms on which it was to be provided.  As explained by DHCJ Pow SC in paragraph 213 of San-Hot, DBS would also be under a duty to act fairly and honestly.  These duties could easily be implied into the Contract between the parties.

356. But Mr Lee SC went further.  He claimed that if Kong acted as an investment advisor, he owed Sit the duties to (a) properly and accurately know and/or understand Sit’s financial objectives and (b) only recommend or propose to Sit investment products which were suitable for him, and even if Kong merely acted as a salesman, he owed duties to (c) specifically/sufficiently point out the high risks and/or exotic features if he were to recommend such product to Sit, and (d) competently, fully and accurately explain each time the nature, mechanism, features and risk of the investment product recommended or proposed for Sit.[200] It was argued there was assumption of responsibility on the part of DBS (eg by giving explanation, tendering advice, encouraging Sit to act on the basis that the information/advice given was correct) and reasonable reliance by Sit, and although DBS alleged the services provided to Sit were on “execution only” basis, the reality was the “salespersons” (eg Kong) actually/frequently gave investment “advice”.  Mr Lee SC claimed this was evident from observations by Gloster J in Springwell (HC)[201] and by HH Judge Havelock-Allan QC in Rubenstein v HSBC Bank plc.[202]

357. The starting point is that a duty of care to advise should not be readily inferred in a commercial relationship.[203] Here, I have rejected Sit’s claim of the Oral Contract and have found the parties had contracted on the basis that DBS would only provide an “execution only” service.  I note on such basis there was no plea or complaint by Sit that DBS had breached any duty of care to exercise reasonable care and skill in relation to executing Sit’s investment orders. On such basis, Sit’s defence allegations that rested on section 5 of the SSITO would also fail.

358. Turning now to consider the contractual relationship between the parties in order to ascertain whether DBS owed Sit the duties suggested by Mr Lee SC, the starting point is the Contract.  In Wennetka Trading Corporation v Julius Baer International Ltd & anor,[204] the customer argued the bank owed them a duty of care pursuant to UK regulatory rules.  This was not a case where the mandate provided for “execution only” service.  But Roth J in paragraph 92 confirmed the starting point was the contract and regarded it significant there was no duty to warn in either the Banking Mandate or in the Investment Mandate as regards investments selected by the client.

359. In Gerard McCaughey, Birmingham J confirmed the co‑extensive nature of duties in contract and in tort as follows:[205]

“…… In so far as the Plaintiff has formulated a claim in tort, …… it must be recognised that this is a case where the parties have ordered their relationship on the basis of detailed, precise and elaborate contractual provisions. The effect of this is that the Defendant’s obligations in tort cannot be more extensive than what the parties have by contract determined should be the position. This much is clear from the judgment of the Supreme Court in Kennedy v AIB [1998] 2 IR 48.

There, Hamilton CJ referred with approval to the Court of Appeal in the case of National Bank of Greece SA v. Pinios Shipping Company, (No 3) [1998] 2 Lloyds Rep 126. ……

With reference to that case Hamilton CJ observed that it clearly established that when parties are in a contractual relationship, their mutual obligations arise from their contract and are to be found expressly or by necessary implication in the terms thereof and that obligations in tort which may arise from such contractual relationships cannot be greater than those to be found expressly or by necessary implication in their contract.” (my emphasis)

360. On the basis that the starting point was the Contract, the No Investment Advice Clauses which provided for “execution only” services plainly featured large on the contextual scene.  In Titan Steel Wheels Ltd, David Steel J discussed Peekay, Springwell (HC) and Springwell (CA) in relation to contractual estoppel and at p 110 went on to say as follows:

“89. …… In the alternative the contractual provisions provide an evidential basis negating the coming into existence of a duty of care. I conclude that where, as here, the parties have purported to allocate by contract their respective roles and the risks involved in their relationship this will in the normal run preclude any wider obligation arising from a common law duty of care: Henderson v Merrett [1995] 2 AC 145.

90. This conclusion is fortified by IFE Fund v Goldman Sachs International [2007] 2 Lloyd’s Rep 449 where an issue arose as to the materiality of a provision in an information memorandum which contained a clause to the effect that the defendant accepted no responsibility for it:

28. …… First it seems to me that the argument that there was some free standing duty of care owed by GSI to IFE in this case is in the light of the terms of the Important Notice hopeless. …… The foundation for liability for negligent misstatements demonstrates that where the terms on which someone is prepared to give advice or make a statement negatives any assumption of responsibility, no duty of care will be owed. ……

91. It is no answer, as it was suggested, that whilst the terms made it clear that the bank was not obliged to give “advice” the bank was not protected if it did in fact advise. There are a number of difficulties with this submission:

(i) The terms go much further than relieve the bank from any obligation to give advice; they provide that any statements are not to be treated as advice nor can they be relied upon by Titan.

(ii) It is commercially unreal to separate banking activity into a silent execution service on the one hand and an advisory role on the other.

(iii) The impact of the terms is that whether or not Ms Plested proffered opinions, suggestions or even advice during the telephone conversations is irrelevant: the parties have agreed that if the bank does give advice it is not to be treated as accepting any responsibility.

92. In other words, if the bank’s activities were to extend beyond mere execution, the contractual terms cater for that situation. There is no question of going beyond or outside those provisions.” (my emphasis)

361. In Bank Leumi (UK) plc, Flaux J at p 512 said as follows:

“189. ….. the contractual relationships here present an insurmountable obstacle to the existence of a duty of care …… This is because …… under the terms of business in the contract between BLUSA and Ms Wachner the relationship is expressly a non-advisory one leaving no room for the imposition of a duty to advise on BLUSA. ……” (my emphasis)

Bank Leumi (UK) plc was considered in some detail by DHCJ Pow SC in paragraphs 222-224 in San-Hot, and he said as follows:

“223. …… a fortiori to the facts in Bank Leumi case, the contract between DBS and San-Hot (BVI) expressly described DBS’s service as “transaction execution service only”. There were also clear references to “no investment advice offered” and repeated disclaimers of responsibility. Hence, when one objectively analyze the things said and done by DBS’s staff to Madam Hao throughout their dealings, one has to firmly bear in mind the contractual context under which such things were said and done. That was an important, if not the most important, contextual scene. The proper question was: whether such things were said and done within the framework contemplated by the terms and scope of the banking services agreement as oppose to DBS assuming responsibilities over and above their contractual obligations stipulated in the express terms of the banking services agreement.”

As recognised in Titan Steel Wheels Ltd, DHCJ Pow SC accepted that DBS’ staff did from time to time provide materials and information about investment products to the customer and there were also discussions on the investment portfolio.  They also provided her with their opinions/ suggestions that could loosely be described as “advice”.  But the No Investment Advice Clauses in the Private Banking Agreement (ie the Master Agreement) made clear DBS was not providing investment advice, was not obliged to do so, and was not assuming any responsibility. 

362. In Wilson & anor, Eady J expressed similar views on the significance of an “execution only” contract:

“79.  It is fundamentally important in relation to all of these accounts to have in mind those clauses which made clear, in each case, that the parties had entered into an “execution only” arrangement and that the Defendants were under no duty to give advice to Mr Wilson or Donwin.  Because, however, there would inevitably be communications between a client and one or more members of the Defendants’ staff, it was important to make clear the basis upon which such communications would take place.

80.  …… there were hundreds of telephone conversations between Mr Wilson and Mr Gainsley during the relevant period in which views were exchanged.  The terms of business emphasised, therefore, that the Defendants were fully entitled to provide market information, advice and recommendations, but they were not deemed to give advice on the merits of particular transactions.  Any such advice was to be regarded as “incidental” to the dealing relationship.  No such communications would in any way undermine the basic nature of the relationship, which was “execution only” and non-advisory. ……” (my emphasis)

363. In Kwok Wai Hing Selina, the plaintiff opened an “execution only” account with the bank, and she was given an account opening booklet that included a risk disclosure statement which made clear the account being opened was an “execution only” account in the sense that the bank was not to be regarded as offering investment advice of any nature in connection with the account.  Reyes J at p 281 said as follows:

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

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

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

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

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

DHCJ Pow SC in paragraph 224 in San-Hot agreed with the approach and analysis of Reyes J.

364. Mr Lee SC referred in some detail to Gloster J’s findings in Springwell (HC) that JA, a salesman employed by Chase to buy and sell products to Chase’s customers, gave personal recommendations and investment advice to the customers.  But Gloster J held this did not per se lead to the imposition of advisory duties, and indeed the learned judge rejected any free-standing obligation to give general investment advice or provide “wealth management” services to Springwell:

“450. But the fact that JA, a salesman employed by Chase to buy and sell emerging market debt securities to Chase customers, was, in that capacity, giving such advice and making recommendations, and that the customer was taking the salesman’s advice and recommendations into account, in making his decision whether to buy, sell or retain, and, in that sense, relying upon them, does not in my judgment predicate that a duty of care arises on the part of the salesman. Reliance on its own, even if established, does not necessarily give rise to an advisory relationship, with consequential duties of care. Nor does the fact that JA was, no doubt, extremely keen to make profits for Chase and may have been influencing his enthusiasm to recommend Russian products, predicate that a duty of care arises. All salesmen, from the local butcher to the vendors at a designer dress shop, share that quality. ……

453. In my judgment, the advice given by JA over the entire period did not impose upon him, or on his employer, CIBL or CMIL, the duties of care or obligations of an investment advisor or asset manager, as Springwell contended. There is, in my view, a real distinction, …… between the investment advisor, properly so-called, who is retained to advise a client, usually backed by considerable research, in relation (for example) to the investments which a client should make, the structure of the investment portfolio, asset allocation and diversification, and the advice or recommendations given by a bonds salesperson such as JA, as part of the selling process, who was actually trading and:

“ … dealing with markets in a volatile environment that requires that they make decisions based on prices on screens many times a day.”

454. …… I cannot accept the suggestion that AP ever understood JA to be Springwell's investment advisor. …… The reality was that they would communicate with each other when Springwell needed to buy or sell something, or when investments were maturing and needed re-investment, or when JA wanted to sell something to Springwell. It was in that context that JA would advise AP. ……

455. I am not saying that in no circumstances can a duty of care and obligations to advise arise where a salesman in his capacity as such makes recommendations. My conclusion is simply that, in the circumstances of this case, the fact that JA, in his capacity as a salesman, may have been giving advice or expressing his views as to particular strategy or diversification within Springwell’s emerging markets portfolio, or even making general comments as to the desirability of diversification of the portfolio outside that asset class (as exemplified in some of the passages quoted above), upon which Springwell relied in reaching its decisions, does not amount to an assumption of responsibility on the part of CIBL or CMIL, so as to bring into play the full range of obligations of an investment advisor, as contended for by Springwell. The function of a salesman giving advice, recommendations and information, and, in that sense, in providing a value-added service to clients, who will then make their own decisions as to whether and what to buy or sell, is entirely consistent with the role not only of an emerging markets bond salesman in the financial world, but, indeed, with that of any salesman in ordinary life. ……

456. …… Springwell’s case was that AP was an unsophisticated and conservative investor, who was not, himself, in a position to evaluate the appropriateness of any investment, but who relied entirely on JA, without himself subjecting anything to critical scrutiny, to advise him what was appropriate; and further that JA, and others at Chase, were fully aware of this dependence. I reject this argument. I have already expressed my conclusions above as to the nature and extent of AP's reliance on JA’s advice. I have also already expressed my conclusions above as to the sophistication of Springwell, as an investor. In my judgment, none of the alleged, or established, personal attributes of Springwell, or AP, as an investor, or the fact that Chase were making substantial profits out of Springwell’s dealings with CMB and the Investment Bank would begin to justify a displacement of the capacity in which JA acted, so as to give rise to the alleged extensive duties of care, or, indeed, any more limited duty.” (my emphasis)

365. In my view, Mr Lee SC’s reliance on NMFM Property Pty Ltd & ors v Citibank Ltd (No 10)[206] and Rubenstein did not take the matter further since the relationships between the parties in those cases were far different from the banker-customer relationship between DBS and Sit in that the clauses set out in Schedules A and B did not exist in those cases. 

366. It was evident from the Recordings/Transcripts that from time to time Kong gave house view or trade opinion to Sit on investment products and the market generally and/or expressed views on investment opportunities (including the 10 ELNs).  Notwithstanding the Group Clauses and the “execution only” nature of the Contract, the Contract expressly envisaged that DBS and/or their RMs might contact their customers with regard to investment information and/or opportunities which might be of interest to them on a “no recourse” basis.[207] In the circumstances, the duties set out in paragraphs 267 and 356 above or in paragraphs 13, 16-18 and 22 above were repugnant to the “execution only” nature of the Contract and also to the Group Clauses.  In my view, DBS did not assume responsibility for such duties, and was not an investment advisor.  In any event, based on my findings of fact and the doctrine of contractual estoppel that arose from the Group Clauses, no “reliance” was established and Sit was estopped from disagreeing that he exercised his own independent judgment and made his own investment decisions (including those for the 10 ELNs).  I refer to my findings of fact. None of the personal attributes of Sit as customer/investor or DBS’ legitimate commercial interest to earn commission would lead to the conclusion that DBS assumed responsibility for the duties alleged by Sit.  As noted by DHCJ Pow SC in paragraph 225 in San-Hot, “[similar] contractual terms had been held in Springwell and Titan Steel as giving rise to contractual estoppel negating the existence of a tortious duty of care to render advice”. 

367. In light of the above conclusion, there is no need for me to further consider the discussion on the standard of care and the alleged breach of duty in paragraphs 340-360 of Mr Lee SC’s written closing submissions.

(b) Duties in contract?

368. Sit’s claim for breach of contractual duties was premised on the Oral Contract.  Since I did not accept there was such Oral Contract, this head of claim falls away.  However, in case it was argued the suggested contractual duties (which according to Sit were coterminous with his aforesaid tortious duties) were implied into the Contract, I shall deal with this point shortly.  It is an elementary principle of contract law that one cannot imply obligations which are repugnant or contrary to the express terms, hence it would be impermissible for the alleged contractual duties to be implied into the Contract in face of the Group Clauses.[208] Accordingly, I refuse to imply such contractual duties into the Contract between DBS and Sit.

(c) Fiduciary duties?

369. Mr Lee SC referred to Commonwealth Bank of Australia & anor v Smith & anor[209] and Libertarian Investments Ltd v Thomas Alexj Hall[210] and submitted that the present case was one where, on the facts, a fiduciary relationship arose between DBS and Sit.  Mr Lee SC submitted that DBS as a fiduciary had to act in the best interests of Sit, so DBS owed a more extensive duty of disclosure than under those tortious duties mentioned above.  Sit claimed DBS owed a fiduciary duty to disclose all relevant information governing the Contract to him, act in his best interest, and not to put themselves in a position of conflict of interest or to earn benefit at his expense and without his consent/knowledge.

370. But since I have found DBS had no duty to advise, it is difficult to see any basis to support the allegation that DBS had assumed a fiduciary relationship towards Sit other than the obligation to take good care of the securities placed with them.  The facts in Commonwealth Bank of Australia & anor showed the local branch manager of the bank acted as banker and financial adviser to the respondents for many years, and acted as the advisor in a property transaction.  The facts in that case were far different and not of assistance in the present context.  Further, Gloster J in Springwell (HC) said as follows:

“574. …… In the absence of any contractual agreement for Chase to provide investment advisory services to Springwell, or any common law acceptance of an obligation to do so (as I have found the position to be), I do not see how what was essentially a commercial banking relationship between Chase and Springwell could give rise to the extensive fiduciary obligations on the part of Chase contended for by Springwell. In effect, Springwell relied on the same facts to support its case that Chase owed investment advisory obligations as it did to support the existence of a fiduciary relationship. Chase may, in its capacity as custodian of securities held for Springwell’s account, have had certain limited fiduciary obligations, but this is a far cry from the wide-ranging fiduciary relationship which Springwell asserted. AP was well aware that certain Chase entities were counterparties to the transactions in which Springwell was involved, and had its own commercial interest in such transactions. …… AP certainly relied upon, or “trusted” JA’s views, recommendations and advice. He may have trusted EM, FS and others at Chase. But the mere fact that one party to a commercial relationship “trusts” the other does not predicate a fiduciary relationship. ……

Springwell no doubt “trusted” Chase to conduct itself in a commercially appropriate manner. But I do not consider that Springwell had any legitimate expectation that, in its commercial dealings with Springwell, Chase would subordinate its interests to those of Springwell. Nor do I consider EM’s assessment of his role as “essentially a fiduciary one” as any assistance in this context. The correct characterisation of the relationship is a matter of law.

575. In conclusion, I do not consider that there is anything in Springwell’s relationship with Chase that imposed the alleged extensive fiduciary obligations on either the Investment Bank or the Private Bank as Springwell’s commercial counterparties.” (my emphasis)

In my view, Gloster J’s views would apply with equal force to the present case, and were a complete answer to Sit’s claim for breach of fiduciary duties. I find there was no fiduciary relationship in the “execution only” arrangement between Sit and DBS. 

(d) Code

371. Sit contended the Oral Contract with DBS was unenforceable due to illegality by reason of breach of the Code.  It was also Sit’s case that it was an implied condition of the Oral Contract and/or representation and/or warranty made on the part of DBS that DBS would comply with inter alia the Code, and that DBS owed him a duty to comply with inter alia the Code.  Mr Lee SC submitted the Code imposed duties on DBS in relation to “know your client” under paragraphs 5.1-5.5, the risk disclosure statements under Schedule 1, and the requirements for licensed persons providing margin lending under Schedule 5.

372. I will first consider whether DBS was under a free-standing duty to comply with the Code.  Sections 169(1) and 399(1) of the SFO provided inter alia that the SFC:

“may publish, in the Gazette and in any other manner it considers appropriate, codes of conduct for the purpose of giving guidance relating to the practices and standards with which intermediaries and their representatives are ordinarily expected to comply in carrying on the regulated activities for which the intermediaries are licensed or registered” (section 169(1))

“may publish, in the Gazette and in any other manner it considers appropriate, such codes and guidelines as it considers appropriate for providing guidance – (a) for the furtherance of any of its regulatory objectives; (b) in relation to any matter relating to any of the functions of the [SFC] under any of the relevant provisions; (c) in relation to the operation of any provision of [the SFO]”. (section 399(1))

373. Mr Lee SC accepted the Code had no force of law per se.  This was evident from the express provisions in sections 169(4) and 399(6) of the SFO, and the effect of such provisions were summarised in paragraph 1.5 of the Code:

“A failure by any person to comply with any provision of the Code that applies to it –

(a) shall not by itself render it liable to any judicial or other proceedings, but in any proceedings under the SFO before any court the Code should be admissible in evidence, and if any provision set out in the Code appears to the court to be relevant to any question arising in the proceedings it shall be taken into account in determining the question ......

(b) the Commission shall consider whether such failure tends to reflect adversely on the person’s fitness and properness.” 

374. As explained by DHCJ Pow SC in paragraph 217 in San-Hot, “the Code was primarily promulgated for the purpose of determining whether a person is fit and proper person to be or to remain as a licensed or registered person under SFO.  Section 399(6) does not make the Code admissible in all proceedings.  Only in proceedings under SFO is the Code admissible.  And in such proceedings, the Code may become relevant to certain issues arising therein.” Since the Code was only admissible in proceedings under the SFO for the purpose specified in the SFO, and there was nothing to suggest the Code, which did not have the force of law, would be admissible in any civil proceedings, I find the Code to be of no relevance at all to the question of civil liability in the present action.

375. As regards the question of whether there was an implied duty on the part of DBS to comply with the Code (which did not have the force of law) by incorporation into the Contract, in face of the written Contract between the parties that comprehensively set out the basis of their dealings (which included the Group Clauses) and in the absence of a duty to advise, it is hard to see how there would be an implied duty to comply with the Code, which would be repugnant to the contractual terms.  I reject the notion of any such implied duty.

376. I should perhaps quickly deal with Sit’s argument that DBS was in breach of rule 6 of the SFR in failing to send him (as a non‑professional investor) daily statements.  But there was no breach of such rule if a contract note was sent to the customer pursuant to rule 5 of the SFR, and DBS did send the Confirmations in respect of the 10 ELNs to Sit.  There is no merit to this argument.

(e) Interfoto principle

377. Mr Lee SC submitted that the Interfoto principle[211] was a well known principle to the effect that where clauses incorporated into a contract contained a particularly onerous or unusual condition, the party seeking to endorse that condition had to show it had been brought fairly and reasonably to the attention of the other party.[212] In his oral closing submissions, Mr Lee SC’s learned junior Mr Chau rationalised the application of the Interfoto principle to signed contracts on the basis that onerous and/or unusual terms would be excluded from the signed contract (ie the principle would be deployed as a shield to emasculate the signed contract by ridding it of the impugned terms, but not used as a sword to vitiate the signed contract as a whole).

378. Mr Lee SC suggested that on the authorities it had yet to be determined whether the Interfoto principle was applicable to signed contracts, so DHCJ Pow SC’s decision in San-Hot to go “one step further” in rejecting its applicability to signed contracts should not be followed.  Given such fundamental challenge, it is therefore necessary to turn to the relevant authorities.

379. Mr Wong SC accepted there were obiter statements in some English cases of a possibility that the Interfoto principle could conceivably apply to signed contract in an extreme case.  I will return to this below, but I should start with Rix J’s observations in HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co & ors.[213]

380. One of the issues in HIH Casualty and General Insurance Ltd was whether a term in an original insurance policy had been incorporated by reference pursuant to a clause contained in the re‑insurance contract.  The underwriter argued the term in the original insurance policy was not brought to its attention.  Although Rix J left open the question whether the Interfoto test was applicable at all, he was doubtful of its application to the case before him.  He said at p 199 as follows:

“209. …… I am nevertheless doubtful of the application of this principle as a means of resolving the present problem, especially at this stage of the proceedings. In the first place, Interfoto v Stiletto was not concerned with the effectiveness of an incorporation clause in a signed contract, which is essentially a question of construction, but rather with a question of notice: the question of whether sufficient notice has been given to a person by means of a document which has not been signed so as to render that person contractually bound by the term or terms set out in that document.

……

211.  Seventhly, I am not persuaded that the Interfoto test applies to a term that is merely unusual, at any rate in the context of a binding incorporation clause.  …… Interfoto v Stiletto itself was concerned with a term which was not merely unusual, but very onerous, unreasonable and extortionate.  …… The experts were not asked to opine on such a question ……”

381. In Springwell (HC), the Interfoto principle was extensively considered by Gloster J who faced a similar argument.  After referring to HIH Casualty and General Insurance Ltd, Gloster J said:

“584.  However, the point whether the principle could ever conceivably apply to signed contracts has not been conclusively determined.  In Amiri Flight Authority v BAE Systems, Mance LJ left open the possibility that there might be some unusual types of contract to which the principle might apply, and referred to “… a provision of an extraneous or wholly unusual nature”; but these are very far removed from the present case.  Equally, in Ocean Chemical Transport Inc v Exnor Craggs, Waller LJ seemed prepared to assume (although it did not matter for his judgment) that the principle might apply to a signed contract in “an extreme case”.  I also refer to Lacey’s Footwear v Bowler. 

585.  Whatever the precise scope of the principle, I conclude that it must, on any basis, have a very limited application to signed contracts between commercial parties operating in the financial markets.  I certainly do not consider that it applies in the circumstances of the present case, even though, as I have found, many, if not most, of the Relevant Provisions were not expressly drawn to Springwell’s attention.  In my judgment, none of the Relevant Provisions in any of the contractual documentation here could be characterised as “particularly onerous or unusual”, let alone “unreasonable” or “extortionate”.  Certainly Springwell had not adduced any market or expert evidence to support such a characterisation. 

586.  What the Relevant Provisions did was to confirm, in various ways, that Chase was not providing investment advice to Springwell in its decision to purchase emerging markets investments, and was not assuming any liability for any advice which it did provide.  Nor were the Relevant Provisions unusual.  They were routine, standard form and normal provisions in contractual documents of this kind.  Indeed, many of the terms were contained in very similar contracts provided by other banks, which Springwell or the Polemises happily signed.  ……

……

588.  …… In my judgment, Chase did enough to bring home to Springwell the overall thrust of the contractual documents by repeatedly requiring signatures from Springwell.  Ultimately, the responsibility for Springwell’s choice not to bother to read, or to read with sufficient attention, the Relevant Provisions (if indeed it did not do so) must be its own.” (my emphasis)

382. This point was not pursued when Springwell (HC) went on appeal.  Mr Wong SC submitted Gloster J’s decision in Springwell (HC) was therefore weighty authority against the Interfoto arguments on signed documents.  This was reaffirmed in San-Hot where DHCJ Pow SC agreed with the observations of Gloster J, and went one step further as follows:

“231. …… In my view, I cannot see how the so-called Interfoto principle could apply to a contracting party who had signed and executed documents he knew to have contained contractual terms though he did not bother to read them before appending his signature signifying his agreement and acceptance. To do so would infringe the Court of Final Appeal’s decision in Ming Shiu Cheung by which I am obviously bound. The situation would be wholly different if a party signed on documents not knowing that they contained contractual terms. If he was misled into signing them, he would have relief basing on the law of misrepresentation. If he was wholly mistaken as to the nature of the document he signed, he might have remedies under the law of mistake. ……”

383. With respect, it is difficult to see how Mr Lee SC could describe DHCJ Pow SC’s reasoning and conclusion as amounted to no more than “a mere assertion and begs the question”.  The learned judge referred specifically to (and cited at length from) Ming Shiu Cheung & ors in paragraph 102 of his judgment,[214] and noted it was binding on him.  Ming Shiu Cheung & ors made clear that in respect of signed contracts parties were held to such contracts which they had chosen to sign unless there was shown to be a recognised legal basis for vitiating the contract, eg misrepresentation, mistake or non est factum, and it was never enough to simply show he signed it without knowing its contents.  After all, “[it] is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the document signed”. 

384. Plainly, there was cogent basis for DHCJ Pow SC to come to his view as he did. Mr Lee SC submitted Ming Shiu Cheung & ors was concerned with using ignorance of the terms (because a party was not explained such terms) as a sword to vitiate the agreement, and not whether such ignorance could be used as a shield to escape or limit liability.  I see no merit to this argument.  I am also unable to read down and confine the general guidance by Ribeiro PJ merely to cases where a party was seeking to rescind or set aside a contract.  I note the observations in Ming Shiu Cheung & ors were in line with those by Moore-Bick LJ at paragraph 43 on p 598 in Peekay approved in p 755 of Springwell (CA)[215] and in paragraph 77 in Grant Estates Limited (in liquidation) & anor.[216] Indeed, in Amiri Flight Authority v BAE Systems plc & anor,[217] a case which Mr Lee SC relied on as supporting Sit’s propositions, Mance J specifically referred to the principles enunciated in Ming Shiu Cheung & ors:

“[16] Normally, in the absence of any misrepresentation, the signature of a contractual document must operate as an incorporation and acceptance of all its terms. Here, we are concerned with a written contract which Amiri had the opportunity to read and consider overnight before signing. In the absence of any suggestion that BAE in any way misrepresented the nature or effect of cl A.10 of App C, I find it difficult to see the relevance of the principle in the Interfoto Picture Library case in the present case. ……” (my emphasis)

385. Mr Wong SC reminded that Sit’s argument also ran counter to the well-established principle that in the absence of a duty to advise and as a matter of law, DBS did not owe Sit (ie DBS’ customer) any duty to explain to him the contents/terms of the documents that he was required to sign, whether in any language or at all, before DBS would do business with him.[218] Mr Wong SC submitted it would be absurd to suggest that a person could unilaterally relieve himself from liability under documents he had chosen to sign simply by not reading (or claiming to have not read) its contents. 

386. Mr Lee SC argued these cases were irrelevant and dealt with analytically different issues.  Sit never claimed DBS’ failure to draw onerous terms to his attention was per se a breach that justified his claim for damages etc; rather his argument was that DBS could not escape from liability of misrepresentation and/or negligence by reason of some onerous hidden clauses which had not been drawn to his attention. 

387. In fairness, Mr Wong SC did not rely on the principle set out in the paragraph 385 above to address any claim for material non‑disclosure.  Rather, Mr Wong SC was underlining the significance of Sit having signed (and hence he was contractually bound by) the Banking Documents that expressly incorporated the Master Agreement and T/C irrespective whether he chose to read, was explained or understood the relevant terms/conditions, and this was bolstered by the principle that in the absence of a duty to advise the bank generally had no duty to explain the terms/conditions of the contractual banking documents which the customer signed (and generally the duty fell on the customer to make all necessary enquiries).

388. Mr Lee SC then suggested DHCJ Pow SC failed to examine the two cases mentioned by Gloster J.  In Amiri Flight Authority, Mance J (with whom Rix and Potter LJJ agreed) said as follows:

“[15] …… It is unnecessary in this case to consider whether there may be contracts in writing to which such reasoning would also apply: cf Rix LJ's doubt in HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co ……One could take the case of a car owner entering a car-park and being asked to sign a ticket handed to him by a car-parking attendant, or that of the holidaymaker required to sign a long small-print document in order to hire a family car at an airport, if, in either case, the relevant document proved on close reading to contain a provision of an extraneous or wholly unusual nature. It is possible that other arguments could then also exist, eg that the nature or effect of the document had been impliedly misrepresented.”

Plainly, as Gloster J explained, Mance LJ left open the possibility there might be some unusual types of signed contract to which the Interfoto principle might apply.  But although Mance LJ referred to “a long small print document ......  [that contains] a provision of an extraneous or wholly unusual nature”, he also referred to possible need to resort to other vitiating factors (eg misrepresentation) to deal with such matter, and also referred to the principle that “[normally], in the absence of any misrepresentation, the signature of a contractual document must operate as an incorporation and acceptance of all its terms”, which matters caused him difficulty in seeing the relevance of the Interfoto principle to the written contract in the case before him.  In my view, Mance LJ’s observations, which echoed the principles in Ming Shiu Cheung & ors, could not be regarded as unequivocal support for the application of the Interfoto principle to signed contracts.

389. In Ocean Chemical Transport Inc & anor v Exmor Craggs Ltd,[219]  Evans LJ said as follows:

“48. Mr Charkham submits that the Interfoto test, as he called it, has to be applied, even in a case where the other party has signed an acknowledgement of the terms and conditions and their incorporation. It seems to me that Mr Charkham could be right in what might be regarded as an extreme case, where a signature was obtained under pressure of time or other circumstances, and where it was possible to satisfy the Interfoto test; that is to say, that the clause was one which was particularly onerous or unusual for incorporation in the contract in question. I would prefer to put the matter more broadly and to say that the question is whether the defendants have discharged the duty which lies upon them of bringing the existence of the clause upon which they rely (and, if Mr Charkham is right, of the effect of that particular clause) to the notice of the other party in the circumstances of the particular case.

49. As I have indicated, in some extreme circumstances, even a signature might not be enough. On the other hand, in the present case there was an express acknowledgement. It seems to me that, given the nature of this term and condition and its effect, as relied upon by the respondents, it cannot be said that the respondents failed in their duty to bring the existence of that term to the notice of the buyers, through, of course, their agents, to whom the term had been long available for their perusal. Mr Charkham does not hesitate to submit that the clause in question should have had, as he puts it, the red hand approach. I would doubt very much whether that is practical in the context of a commercial contract such as this. In my view, the respondents did, in this particular case, where there was an express acknowledgement of the existence of the terms, certainly discharge their duty of bringing it sufficiently to the notice of the buyers for the clause to form part of the contract. That makes it unnecessary to make any explicit findings, as the learned judge did, as to whether this clause was properly to be regarded as onerous or unusual; but, as I have already indicated, I have taken account of the effect of this clause in reaching the conclusion which I have already stated. It seems to me that there is in fact no evidence which supports the proposition that this clause is in any way extreme or totally unexpected to be found in a contract such as this.” (my emphasis)

As Gloster J explained, it was obvious that Evans LJ (with whom Henry and Waller LJJ agreed) seemed prepared to assume (although it did not matter for his judgment) that the Interfoto principle might apply to a signed contract in “an extreme case”, which suggested at best the principle had a restrictive approach.  More importantly, such observations by Evans LJ were obiter and he did not appear to have considered the principles canvassed in Ming Shiu Cheung & ors, which principles were also canvassed in other English authorities.  I am not persuaded Ocean Chemical Transport Inc & anor detracted from the conclusion reached by DHCJ Pow SC. 

390. As regards Mr Chau’s rationale for applying the Interfoto principle to signed contracts, Mr Wong SC submitted that such ingenuity was unsupported by authority, and the sword-shield distinction when applied to signed contracts would produce absurd consequences that would endanger the certainty of commercial dealings, which was emphasised in Peekay and Springwell (CA).  I note the courts have repeatedly stated the undesirability of intervening in commercial transactions, and in a commercial context courts are reluctant to re-write agreements so as to undermine reasonable commercial expectations.  On such basis, I agree with Mr Wong SC’s answer to Mr Chau’s argument as set out in his written reply to Mr Lee SC’s speaking notes:

“25.  …… This argument is without any legal basis (no authority has been cited in support) and simply cannot work.  Provisions in contracts are often mutual in regulating the rights and obligations of the parties.  Excising what might be considered to be terms that are unfavourable to one party is to rewrite, in effect, the contract altogether; resulting in a product that is wholly different from what was originally contemplated or agreed.  For example, if it is considered that the basis clauses (e.g. the clause providing for execution-only-service) in the present case are “onerous” to Sit, and that they are to be excised from the contract leaving the rest of the contract alive, what then is to constitute the basis of dealings between the parties?  Is the Court to rewrite the contract so that DBS would be under an obligation to provide advisory service to Sit? If so, is it fair and what are the boundaries of the Court’s creativity?  If not, what is the point of excising the agreed basis for dealings – merely because it is considered not favourable to Sit?  This sword-and-shield argument, we submit, simply does not make sense.  If accepted, it would wreak havoc to the interest of commercial certainty in business/financial contracts.”

391. I find DHCJ Pow SC’s conclusion that the Interfoto principle does not apply to signed contracts compelling, and I respectfully agree.  But even if I am wrong and the point was left open as to whether the Interfoto principle was applicable to signed contracts, the dicta discussed above all emphasised that such point was left open only in extreme cases where the terms were extraordinarily onerous and unusual. 

392. Mr Lee SC submitted it was still incumbent upon DBS to draw Sit’s attention at least to the nature of the clauses in the Master Agreement (which was not signed but was said to be incorporated only through express incorporation), particularly those with the effect of altering/defining the nature of the relationship. 

393. But other than such broad assertion, Sit did not identify which of the clause(s) in the Master Agreement engaged the Interfoto principle.  As Gloster J pointed out in paragraph 579 of Springwell (HA), “this is more than a mere technical point, as the relevant principle necessitates a consideration of whether any relevant clause is “particularly onerous or unusual”.  Strictly speaking, that is a matter which would have to have been considered, if applicable, on the evidence, and if necessary by expert evidence”.  I agree, but for present purpose I shall assume that the challenged provisions were the Group Clauses.

394. Sit signed the Account Opening Form that expressly incorporated all the terms of the Master Agreement.  As pointed out by Rix J in HIH Casualty and General Insurance Ltd,the Interfoto principle was not concerned with the effectiveness of an incorporation clause in a signed contract, which was essentially a question of construction, but rather with the question of whether sufficient notice had been given to a person by means of a document which had not been signed so as to render that person contractually bound by the term or terms set out in that document.  I am not persuaded the express incorporation of the Master Agreement would alter the above discussion, especially when I have found that Sit knew the contractual nature of the Account Opening Form and Master Agreement, and he read/understood the Customer Declaration in the Account Opening Form and was given a copy of the Master Agreement to keep.

395. In any event, I am not persuaded the Group Clauses were so extraordinarily onerous and unusual that the present case was an extreme one.  Gloster J in paragraph 585 held that the basis clauses in Springwell (HC) could not be characterised as “particularly onerous or unusual” and certainly not “unreasonable” or “extortionate”; rather many of them were “routine, standard form and normal” in those kind of contractual documents and were common in similar contracts provided by other banks; and there was no expert evidence to suggest otherwise.  Likewise, the Group Clauses were common in the trade, and there was no basis and/or no expert evidence to suggest they were extreme or onerous.  As Gloster J concluded in Springwell (HC), the Interfoto principle must, on any basis, have a very limited application to signed contracts between commercial parties operating in the financial markets.  I therefore reject Mr Lee SC’s submissions based on the Interfoto principle.

(f) Breach of professional duties

396. Sit claimed that DBS owed duties to (a) properly and accurately know and/or understand his financial objectives and (b) only recommend or propose to him investment products which were suitable for him.  He further claimed DBS was in breach of such duties by failing to make proper enquiry as to his risk tolerance in investments, failing to implement any internal system of control to ensure suitability of investment products for their customers, and recommending the 10 ELNs that were unsuitable for him, whether by reason of the market situation in 2007-2008 or by the fact they were products incompatible with his investment objectives.  He further claimed the Account Profile contained inconsistent information and was wrong in classifying him as a “very sophisicated (sic) investor”. 

397. The Investment Objectives Section of the Account Profile was modified by Kong on 21 April 2004 when Sit’s Account was opened:

(a) on “time horizon / financial security”, Sit’s investment horizon was stated to be “3 Months to 1 Year”;

(b) on “risk tolerance / holding power”, it was stated inter alia Sit was willing to tolerate “high risk” in order to achieve his investment objective;

(c) on “return expectations”, it was stated Sit looked for “high return” from his investments, and his motivation was “[speculation] for high gains”;

(d) on “experience/knowledge”, it was stated Sit had experience with advisory services for currencies, bonds, equities and derivatives and with discretionary portfolio for equities with “HSBC, Nomura, JP”, and Sit’s investment knowledge in currencies, bonds, equities and derivatives was rated as “General” and in other products (eg commodities) as “Little”.

It was summarised in the “Investment Objectives Setting Summary” that “time horizon” was low-medium, “financial security, risk tolerance, holding power and return expectations” were high, and “experience and knowledge” was medium-high.

398. By 9 December 2005, it was stated in the Annual Revision of the Account Profile inter alia that at the last meeting with Sit on 31 October 2005 details of structured products purchased were explained and potential new business was discussed. It was also recorded that “Existing investment risk tolerance: High” and “No change in investment risk tolerance”.

399. By 30 May 2007, the “KYC Review Profile” in the Account Profile updated by Kong stated:

“……

Past investment experience: Equity for 20 years, CAN for 10 years and Bond for 10 years. He is a very sophisicated investor with experience in higher risk products such as CAN, Currency options, Dual Range Fixed Income Note, Spot FX and YED, stock investments.

……

…… [Sit] is a wealthy local industrialist with substantial personal wealth and great sustaining power. ……” (my emphasis)

400. Sit was classified as a non-professional investor.  Leung’s personal understanding of a sophisticated customer by current-day standard was one who had previous experience in specific investments and who had the financial net worth to sustain certain losses, but she said how people/bank would look at client sophistication would be different at different times.  Leung was unable to comment on the classifications in the Account Profile as she was not privy to discussions between Kong and Sit.  Upon careful consideration, I am unable to place weight on this aspect of Leung’s evidence.  She never held any client-facing position, but as explained by DHCJ Pow SC in paragraph 245 in San-Hot, assessments in the account profile inevitably involved estimates, impression and judgment as a result of knowledge gathering from discussions between RM and the customer.  Given the imperfect nature of such assessment, I find it unsafe and do not propose to extrapolate or infer any assessment criteria applicable in 2004-2008 from the current-day standard based on Leung’s personal understanding (as Mr Lee SC would have me do).

401. Sit denied he was an experienced/sophisticated investor, and said he did not know he was classified as such.  However, there was no doubt that in 2004 Sit was a customer of significant worth and some investment experience.  He had considerable resources at his disposal; indeed he confessed his (and his family’s) net worth was about HK$1 billion in 2004.  Even before DBS introduced private banking services to Sit, he already had experience in equity trading (including short term share trading) and/or bond trading which involved risk of principal loss.  He even had experience in investment products similar to the CDC Note (which was a high risk product that was not “principal protected”) purchased in April 2004.[220] Sit’s previous investment history showed he was willing to take risks in search of attractive gains in a buoyant market.  A few days after opening Sit’s Account, Sit (well knowing the dangers) already asked for margin financing to buy “nine times” the Freddie Mac Bond.[221] The Recordings/Transcripts showed Sit made investments in substantial sums well knowing they were margin financed and not “principal protected”.  I do not find the estimation in 2004 in the Account Profile to be materially inaccurate. 

402. Since 2004, Sit’s investment knowledge and experience had moved on to match his risk tolerance.  Although Sit’s knowledge was described as general in 2004, even on his own case he had “understanding [of] …… the relevant products before everything could proceed” at least for that year.  The Recordings/Transcripts showed Sit was prepared to use the considerable resources at his disposal (ie his own monies and loan monies) in volatile investment activities.  In the heady and buoyant market before the collapse of Lehman Brothers, Sit was willing to take risks and at times even ignored/overrode Kong’s cautionary words.  He was a bold investor and his tolerance of risk remained high.  By 2007, having purchased over 40 ELNs as well as a range of other investment products, it was not incorrect to describe Sit as a very sophisticated investor.  By March 2008 he ventured to buy the HSBC accumulator and threw Kong’s exhortation for prudence to the wind.  I do not find the classification in respect of Sit’s financial security, risk tolerance, holding power and return expectation as “high” was materially inaccurate.  All in all, DBS had not failed to make reasonable effort to consider Sit’s financial situation, needs, experience and objective, especially when I have rejected Sit’s allegation that he adopted a conservative/prudent and “principal protected” investment policy. 

403. Obviously, for customers graded with high risk tolerance, it would not be surprising to find in their investment portfolio a higher proportion of products such as ELNs.  The risk to any given customer depended on, say, (a) his financial resources, cash flow condition and holding power, (b) the number/value of open contracts and the terms of the investment products (eg the strike price at which a customer is required to take up the worst-performing underlying share in any given ELN transaction, and the knock-in price in which any given contract will terminate early), and (c) the market condition and economic environment.  In my view, it is not possible to say Kong’s introduction of ELNs as investment products that might be of interest to Sit was unreasonable in all the circumstances. 

404. I am also not persuaded that ELNs as investment products were not suitable for Sit.  ELNs were not difficult to understand, particularly to persons like Sit with his extensive business/investment experience and keen commercial sense.  I have also found he understood the features and downsides of the ELNs as explained by Kong.  Sit utilised margin financing to buy ELNs (including the 10 ELNs) which were not “principal protected”, and he knew his investments were mortgaged/pledged to DBS for such purpose. The Recordings/Transcripts showed he made bold investment decisions (sometimes contrary to Kong’s cautionary words) and had an appetite for risk in order to chase for attractive returns.  I reiterate my earlier findings of fact.

405. With Sit’s very substantial financial resources at the material time, if he invested in moderation with sensible number/value of open positions at any given time and not pursued gains by over-confident utilisation of margin financing in a bullish market, he could have maintained considerable holding power and perhaps contained his losses to tolerable limits even in face of the unexpected collapse of Lehman Brothers.  I have rejected any duty on the part of DBS to give advice, and certainly there was no duty on their part to ensure Sit invested with moderation and, as DHCJ Pow SC said, not to over-stretch his financial capability.  In my view, Sit failed because of his own imprudence in investments, and could not put the blame on ELNs as wrong investment products for him. 

406. In the absence of any duty to advise, I am not persuaded DBS owed any of the alleged duties set out in paragraph 396 above.  But even if such alleged duties did exist, there was no breach.  In my view, the 10 ELNs were not incompatible with Sit’s willingness to put his principal at risk to achieve the investment objective of looking for handsome gains in a bullish market. 

XXIV.  CECO AND MO

(a) Exclusion/exemption of liability?

407. Mr Lee SC submitted that in order to defeat Sit’s claim by the application of various contractual provisions through the doctrine of contractual estoppel, DBS had to show (a) the statutory protection afforded to Sit under sections 7 and 8 of the CECO and section 4 of the MO was somehow inapplicable, or (b) the terms which sought to restrict DBS’ liabilities satisfied the statutory test of reasonableness.  In this respect, Sit claimed the Group Clauses and Conclusive Evidence Clauses were exclusion clauses that failed to satisfy the requirement of reasonableness. 

408. Aikens LJ in paragraph 180 in Springwell (CA) said the English equivalent of the MO did not affect the prior question of whether, given the terms of overall basis clauses, an investor in Springwell’s position would have understood Chase to be making representations at all, or indeed, what those might be.[222] It was only after dealing with this prior question that the court had to turn to the two relevant questions, ie whether or not the subject clauses exclude or restrict any liability to which Chase was subject by reason of any misrepresentation made by it or any remedy available to Springwell by reason of such misrepresentation, and assuming they did, whether or not Chase had established the particular provisions satisfied the requirements of reasonableness. 

409. In addressing whether the contractual terms were unenforceable because of the English equivalents of the CECO and MO, Gloster J in Springwell (HC) focused on the prior question and said as follows:

“601. …… there is a clear distinction between clauses which exclude liability and clauses which define the terms upon which the parties are conducting their business; in other words, clauses which prevent an obligation from arising in the first place ……

602. Thus terms which simply define the basis upon which services will be rendered and confirm the basis upon which parties are transacting business are not subject to [the English equivalent of the CECO]. Otherwise, every contract which contains contractual terms defining the extent of each party’s obligations would have to satisfy the requirement of reasonableness. ……

603. The legislation is, in practice, of very limited application in the case of commercial contracts between commercial counterparties. ……

604. The reluctance of the Court of interfere in contracts concluded between commercial parties in relation to substantial transactions reflects the strong business need for commercial certainty, as emphasised by Chadwick LJ in EA Grimstead & Son Ltd v McCarrigan.”

410. Mr Wong SC submitted the clear effect of the Group Clauses was that DBS merely provided an “execution only” (and not investment advisory) service, and it was the customer’s responsibility to ensure he understood and accepted the features/risks of the investments and exercised his own judgment in entering into such transactions.  Mr Wong SC further submitted the purpose and wording of these clauses made clear (a) they were basis clauses that stated the factual basis upon which the parties contracted/defined their relationship, and (b) DBS was not making representations to Sit as to the merits/risks of investments.[223] Therefore, they were not true “exemption” or “exclusion” clauses that purported to restrict, transfer or negate rights and liabilities of contracting parties. 

411. In San-Hot, DHCJ Pow SC had to consider the clauses under challenge (including some of the Group Clauses that I am concerned with in the present case).  He concluded all save one were not true exclusion clauses:

“234. Upon a similar analysis, Clause I and Clause I21(i) of the Private Banking Agreement [ie the Master Agreement] were, in my judgment terms defining the nature and scope of the services which DBS contracted to provide. They were not exclusion clauses subject to Cap. 71. Although Clause I33(ii) of the Private Banking Agreement was couched in terms of “DBS assumes no responsibility”, it has to be read in conjunction with sub-clause (i) which again stressed the limited nature and scope of the services which DBS contracted to provide. In short, it merely emphasized that DBS was not assuming responsibility for services it did not contract to provide. In my view, Clause 29 of the Private Banking Agreement was not different in nature. It stressed the role of DBS as an agent of the customer in the operation of the account. This flew from the fact that the only type of service that DBS contracted to offer was “execution-only”. Accordingly, Clause 29 stressed that the risk of the transaction was on the customer (except when DBS acted as principal). Clause 5.3 of the Account-opening Form was couched in terms of “DBS shall have no liability for any advice given or views expressed…”. Again, it has to be read in the context of the entire clause as well as other clauses in the Private Banking Agreement. Clause 5 was expressing an agreement and declaration of the customer. It began with confirming that the customer had read and understood the Risk Disclosure Statement (Section K of the Private Banking Agreement) and Section I of the Private Banking Agreement. Clause I, I21(i) and I33(ii) analyzed above were thus very much in the picture. In particular, Clause I21 contemplated that in the course of providing “execution-only services”, staff of DBS might engage in conversations with and provide materials and information to the customer which might be interpreted or categorize as “advice” (in the broad sense of the word). It then stressed that such activities were not within the services that DBS contracted to provide for which DBS would not assume any liability. The customer was invited to take independent professional advice and to exercise its own judgment. In my view, Clause 5 (in particular 5.3) was doing no more than setting out the parameters of DBS’s services. I do not regard it as an exemption clause.

235.  In the end, only Clause 23 of the Facilities Terms and Conditions was a true exemption clause.  With respect, I cannot see how it could be suggested that Clause 23 was unreasonable.  Under this clause, DBS would not escape liability if its actions fall within the descriptions of “negligence” or “wilful misconduct”.  DBS was not seeking to avoid liabilities altogether.”

In that case, clause 23 of the Facilities Terms and Conditions provided that “[the] Bank, its agent and correspondent shall not be liable to the Borrower for any action taken or not taken by them unless directly caused by their negligence or wilful misconduct”.  Mr Wong SC reminded me that San-Hot was the only authority in this jurisdiction based on clauses which were the same or closely similar to those in the present case and which supported the proposition advocated by DBS.  San-Hot was decided after Springwell (HC) and Springwell (CA), and DHCJ Pow SC fully embraced Gloster J’s judgment including the distinction drawn by Gloster J between scope of service clauses and restriction of liability clauses.

412. Mr Lee SC submitted that the judgment of Gloster J was wrong on this issue in that (a) it was contrary to well-established authorities, (b) it put emphasis on form rather than substance, (c) the distinction was difficult to apply in practice, and (d) it was contrary to the wording of the CECO and MO which would apply whenever a party sought to “exclude or restrict” his liability.[224] Mr Lee SC argued there was no bar under the CECO or MO that a term which defined the relationship of the parties could not, as a matter of law, be at the same time a term that restricted the liability of a party. 

413. Mr Lee SC drew my attention two pre-Springwell cases and six post-Springwell cases (including Springwell (CA)).  Mr Lee SC quoted from those authorities in length in paragraphs 286-303 of his written closing submissions.  Although I do not propose to repeat the same exercise in this Judgment, I have carefully considered Mr Lee SC’s submissions.  For the present purpose, I shall focus on setting out my reasons for coming to my views. 

414. In Phillips Products Ltd v Hyland & anor,[225] clause 8 of the contract provided that drivers “supplied by the [plant owner] …… shall for all purposes in connection with their employment in the working of the plant be regarded as servants or agents of the hirer [ie the plaintiff] who alone shall be responsible for all claims arising arising in connection with the operation of the pant by …… the drivers”.  The driver negligently drove the excavator into and damaged the plaintiff’s building.  Slade J at pp 663 found the appeal gave rise to three issues, ie (a) whether on the admitted facts there was negligence within the meaning of the English equivalent of the CECO, (b) if so, whether clause 8 was a contract term which, apart from the effect of the statute, could properly be said to exclude or restrict the plant owner’s liability for negligence within the meaning of those words in the statute, and (c) if so, whether clause 8 satisfied the requirement of reasonableness.

415. Obviously, the second issue rather than the first and third issues would be of interest here.  However, Mr Lee SC directed my attention to Slade J’s discussions on the first issue, ie whether there was negligence on the admitted facts.  There the plant owner argued “there can be no breach of a common law duty to take reasonable care, within the meaning of section 1(1)(b), by a party to a contract which contains a condition which purported to absolve him from liability for negligence”.[226] Slade J rejected such argument and held that in considering whether there had been a breach of any obligation or any duty of the nature referred to in the statute, the court had to leave out of account at this stage the contract term which was relied on by the defence as defeating the plaintiff’s claim for breach of such obligation or duty, and the statute should be construed accordingly, and support could be found in the concluding words of the statutory provision that was the equivalent to section 5(1) of the CECO.  But as Mr Wong SC rightly pointed out, such discussion on the considerations for determining whether there had been a breach of obligation or duty was irrelevant.

416. Turning to the second issue, Slade J found clause 8 to fall within the scope of the English equivalent of the CECO.  At pp 665-666 he said that “…… [a] transfer of liability from A to B necessarily and inevitably involves the exclusion of liability so far as A is concerned ……” Plainly, Slade J found clause 8 in substance purported to transfer liability from the plant owner (as employer of the negligent excavator operator) to the plaintiff which was the same as to exclude the plant owner’s responsibility for negligence.  It was on those “particular facts” (ie the plant owner contracted to hire the services of its employee being the operator of the excavator to the plaintiff, and such employee/operator was found to have acted negligently in his work) that the clause fell foul of the statutory regime. 

417. In Smith v Eric S Bush,[227] the building society engaged a firm of surveyors and valuers to carry out an inspection of a house. The firm’s valuer was negligent in carrying out the valuation and preparing the report.  The mortgage application form and valuation report contained a disclaimer of liability for the accuracy of the report covering both the building society and the valuer.  In short, the disclaimer sought to exclude liability on the quality of the obligation agreed to be taken up by the building society and the valuer.  Lord Templeman at p 848 referred to Harris v Wyre Forest District Council[228] in which the English Court of Appeal accepted the argument that an express disclaimer that the valuer would not be under any obligation to the plaintiffs to take reasonable care or exercise reasonable skill did not exclude liability for negligence but merely excluded negligence.  Lord Templeman said such construction, which “would provide no control over standard form exclusion clauses which individual members of the public are obliged to accept, would emasculate the statutory regime”. At pp 848-850 he went on to say that:

“…… [the] valuer owed a duty of exercise reasonable skill and care in his inspection and valuation. If he had been careful in his work, he would not have made a negligent misstatement. ……In my opinion, …… [the English equivalent of the CECO] requires that all exclusion notices which would in common law provide a defence to an action for negligence must satisfy the requirement of reasonableness.” (my emphasis)

418. Mr Lee SC submitted this case was not concerned with the quality of service; either there was a duty of care or there was none. He also quoted a passage from the judgment of Lord Griffiths at p 857A‑H.[229] But it was obvious Lord Griffiths was dealing with the first issue in Phillips Products Ltdwhich was why he found support from the judgment of Slade J.  As explained above, this was irrelevant to the second issue which was the matter presently under consideration.

419. I agree with Mr Wong SC that it was understandable why the court in Smith held the disclaimer in question to be an exemption clause because it purported to exempt liability for negligence for the valuation service which the building society and valuer had undertaken to provide to the plaintiff.  That was why Lord Templeman noted the valuer owed a duty to exercise reasonable skill and care in his inspection and valuation.

420. Mr Lee SC criticised Springwell (HC) because it appeared neither Phillips Products Ltd nor Smith was brought to the attention of Gloster J.  I am not persuaded it would have mattered because these two cases were dealing with an entirely different scenario where the relevant party had undertaken to provide a service covered by the exemption clause, but sought to exclude/limit liability for providing negligent service.  But in Springwell (HC) the disputed clauses merely defined the scope of service, ie the relevant party had not agreed to provide investment advisory service at all.  In my view, it is difficult to see how such clauses could be characterised, whether in substance or in form, as excluding or exempting liability.

421. Such distinction was further explained in Titan Steel Wheels Ltd where the claimant sought damages for negligent advice but the bank relied on the contractual terms that stated no advice was given.  The court, citing Springwell (HC), accepted the bank’s proposition.  David Steel J at p 113 explained Smith as follows:

“104.  The focus of course was the issue of liability for poor service rather than the scope of service to be provided.  Further the decision may have been somewhat overtaken by later decisions in regard to the assumption of responsibility and the move away from any “but for” test in regard to the existence and extent of any duty.” (my emphasis)

Both Gloster J and David Steel J referred to the case of IFE Fund SA v Goldman Sachs International in which Toulson J said as follows:[230]

“70. In the present case Goldman Sachs supplied information obtained by it from other sources. The statements made by it in the SIM regarding its non-verification of the accuracy or completeness of that information, and its non-acceptance of any responsibility for reviewing the information, went to the scope of the representations being made and cannot properly be characterised for the purposes of either Act [ie English equivalents of the CECO and MO] as attempts to exclude liability for misrepresentation. ……

71. As to IFE’s alternative formulation of a duty of care in negligence, based not on negligent misstatement but on a duty of care to provide information to it, the same reasoning applies. …… The relevant paragraphs of the SIM are not in my view to be characterised in substance as a notice excluding or restricting a liability for negligence, but more fundamentally as going to the issue whether there was a relationship between the parties (amounting to or equivalent to that of professional adviser and advisee) such as to make it just and reasonable to impose the alleged duty of care.” (my emphasis)

This case was decided before Springwell (HC), and it was not correct to say that Springwell (HC) ignored earlier authorities and traipsed down the wrong path.

422. In Raiffeisen Zentralbank Ossterreich AG, the claimant sued for the return of a loan on the ground of misrepresentation. The bank argued the English equivalent of the MO was not applicable, and it did not appear that the English equivalent of the CECO was raised.  The matter turned on (amongst other matters) whether or not a number of basis clauses were exclusion clauses.  I have referred to Christopher Clarke J’s approach to the basis clauses in paragraph 329 above, and as will be seen in greater detail below, he concluded that such basis clauses (which did not even provide for “execution only” service) were not exclusion clauses as to fall within the English equivalent of the MO. 

423. As a starting point, Christopher Clarke J at p 176 accepted that any clause must depend on its wording which could take various forms, including “X agrees with Y that Y is not acting as an adviser or assuming any responsibility”.  He also recognised that contractual basis clauses were increasingly common and they were not restricted to financial instruments, eg they “may also be found in everyday contracts made with consumers or between businesses great and small”, so any interpretation had to accommodate that.[231]

424. Christopher Clarke J cited the example adopted by Toulson J in paragraph 68 in IFE Fund SA of a purchaser who bought a car by relying on a dealer’s negligent representation that he had serviced the car since it was new, that there was only one owner, and that the clock reading was accurate, which statement turned out to be untrue.  Plainly, the English equivalent of the MO would be applicable to “[such] statement of fact, on a matter said to be within the representor’s knowledge, which was in fact intended to induce the contract, upon which the purchaser in fact relied, which is false”.  “The clause seeks to avoid liability for what, absent the clause, would be a clear liability in misrepresentation”.[232] Christopher Clarke J at pp 176-177 said everything depended on the facts and he went on to discuss the clauses in that case as follows:

“316. …… On the contrary, they contain, as it seems to me, the agreement of the parties as to the basis upon which the Confidential Information was to be given, namely that it was not to be regarded as a representation of fact on which RBS intended that RZB should rely or upon which it was entitled to rely; and that any statements made in, for instance, the IM were not to be regarded as complete. The provisions in the IM and the Confidentiality Agreement were there at the start of, and defined, the relationship between the parties and the character of what was to be said.

317. …… I do not see why the court should not give effect to their agreement (as representing the true nature of their relationship) in deciding whether any actionable representation has been made. …… the parties are in effect saying that the contents of the IM are believed to be true but that no warranty or representation is given as to the accuracy or completeness of the contents (or the reasonableness of that belief). In the result the arranger will be liable if the author does not in fact believe the contents to be true; but not otherwise.” (my emphasis)

425. It was plain that Christopher Clarke J considered the key question was whether the clause attempted to rewrite history or parts company with reality (as in Lowe when the agreement was as to “past facts, known by both parties to be untrue”) in contra-distinction to a clause that would regulate future relationship by prescribing the basis on which the parties would deal with each other.  An illustration of the former was the example given by Toulson J of the representation given by the car dealer which clearly was “an attempt to alter the character and effect of what has gone before, and in substance an attempt to exclude or restrict liability”.  Christopher Clarke J found that the basis clauses in that case fell into the latter category. 

426. In the present case, the challenged clauses were clear and unambiguous.  From the beginning in April 2004, Sit’s dealings with DBS were premised on the contractual terms in the Account Opening Form and Master Agreement, and the 1^st Facilities Letter, Charge, Mortgage and General Agreement were executed shortly thereafter in April/May 2004.  In my view, there was no question of rewriting history/reality.  “Execution only” service and not investment advisory service was a term of business evident from the Master Agreement (expressly incorporated by the Account Opening Form which Sit signed) between Sit and DBS.  That was the scope of service DBS offered and Sit accepted by signing the Account Opening Form. 

427. Turning to Springwell (CA), Aikens LJ noted Gloster J held that “the bulk of the terms … were not exclusion clauses but merely clauses which defined the nature of the services which Chase was rendering to Springwell and which confirmed the basis on which the parties were transacting business”.  The English Court of Appeal held that such finding failed to identify precisely which provisions did fall within statutory control.  First, Aikens LJ at p 759 found “the remainder of the terms of paragraph 4 of the DDCS letters, other than the penultimate and last sentence” to be terms on which Chase agreed to contract with Springwell and thus they fell outside the scope of the English equivalent of section 4 of the MO.  Secondly, Gloster J had already found the penultimate and last sentences of paragraph 4 of the DDCS Letter to be an exemption clause, but it satisfied the requirement of reasonableness.  Springwell was therefore precluded from bringing any claim under the English equivalent of section 3 of the MO and for claims based on negligent misstatement.[233] Thirdly, Aikens LJ turned to “[the] statement in the middle of the very long sentence that makes up clause 6” which he found to be more difficult to classify:

“181. …… This states: “…no representation or warranty, express or implied, is or will be made ….” However, as Christopher Clarke J trenchantly put the point in the Raiffiesen case, “…to tell the man in the street that the car you are selling him is perfect and then agree that the basis of your contract is that no representations have been made or relied on, may be nothing more than an attempt retrospectively to alter the character and effect of what has gone before and in substance be an attempt to exclude or restrict liability”. I would therefore be inclined to regard that part of clause 6 of the DCSS letters as falling within [the English equivalent of section 4 of the MO] and therefore subject to the [regime under equivalent to CECO].”

It was only to this extent in respect of the classification of part of clause 6 that Aikens LJ disagreed with Gloster J and did not embrace her decision on this point.  The English Court of Appeal did not reject or otherwise criticise Gloster J’s reasoning.  Nevertheless, Aikens LJ agreed with Gloster J that the clause was reasonable and Chase could rely on it to exclude or restrict liability for any misrepresentations given by them.[234]

428. Mr Lee SC suggested that the above showed Springwell (CA) approved the approach by Christopher Clarke J and not that of Gloster J, and such approach extended to representation that “is or will be made”.  On such basis, it was suggested that the distinction drawn by Mr Wong SC in this regard was unsustainable.  I disagree.  First, Aikens LJ was diffident in his departure from Gloster J in her classification of part of clause 6.  He said that statement was “more difficult to classify”, and he was only “inclined to regard” that statement as subject to the statutory regime.  Secondly, the sole reason Aikens LJ put forward for his departure from Gloster J’s classification was Christopher Clarke J’s “trenchant” point that the provision might be “an attempt to retrospectively to alter the character and effect of what had gone before and in substance be an attempt to exclude or restrict liability”.  Plainly, irrespective whether the statement in clause 6 might touch on prospective matters or not, Aikens LJ was concerned it might also have the effect of rewriting history/reality, and that was why he was “inclined to regard” that statement as subject to the statutory regime.  Thirdly, Springwell (CA) approved the approach adopted by Christopher Clarke J which meant the English Court of Appeal must have agreed with the learned judge’s analysis that provisions agreed at the start that merely defined the prospective relationship between the parties were not exemption or exclusion clauses caught by the English equivalent of the MO. 

429. In Camerata Property Inc, the claimant claimed damages for negligent investment advice under the English equivalent of section 7 of the CECO.  Andrew Smith J at p 682 acknowledged that:

“[the] first question turns upon whether the provisions are properly to be classified as specifying the basis of the contractual relationship for the provision of advisory services or whether …… they amount in reality and in substance to terms which purport to permit CSSE to provide no performance in respect of contractual obligations or at least to provide performance substantially different from what was expected of them.” (my emphasis)

The learned judge found the distinction between these two types of terms “is clear in principle”.  In my view, the clauses in  Phillips Products Ltd and Smith fell within the latter category as they concerned exclusion of liability for negligent service in respect of “contractual obligations” that were “expected of them”.  The pre-Springwell cases relied on by Mr Lee SC were therefore of no relevance to the present situation when nowhere in the Banking Documents it was suggested DBS would provide investment advisory service to Sit (or any other service as alleged by Sit).  There would simply have been no breach of any obligation in the first place.

430. Turning back to Camerata Property Inc, Andrew Smith J at p 683 went on to say that:

“…… Although the distinction is clear in principle, it seems to me that in application the question whether, as a matter of substance rather than form, a particular provision should be regarded as defining the terms upon which business was conducted or as purporting to allow a party by his standard terms to render a performance substantially different from that which was reasonably to be expected of him can be a fine one, and ultimately, I think, can be a matter of impression rather than analysis.”

In that case, the learned judge found the contractual terms in question were properly to be regarded as defining the parties’ respective roles and ambit of responsibilities with regard to investments, and so were not governed by the English equivalent of the CECO.

431. Mr Wong SC submitted that the finding in Avrora Fine Arts Investment Ltd v Christie, Manson & Woods Ltd[235] that the clauses were exclusionary was not surprising as they purported to exclude the liability of the defendant auction house for its negligence in attributing a painting as one painted by a famous painter when in fact it was not.  Newey J held that the defendant auction house “had taken responsibility for the attribution of [the painting] to [the famous painter].  It stated that that was its opinion; it gave [the plaintiff] a warranty to that effect; it indicated that its views reflected research ……; and it was intending to charge the buyer a substantial premium”.[236] In short, the defendant auction house was under an obligation to take reasonable care in making the attribution, and the relevant clauses purported to exempt its liability for breach of that very obligation.  In these circumstances, it was understandable that Newey J held the clauses in question to be exclusionary clauses.  There was no contractual provision in that case that would have enabled the defendant auction house to contend it was merely providing for, say, an “execution only” service.  Mr Lee SC referred to the following passage from the judgment at p 744:

“144. Aikens LJ’s focus was on [the English equivalent of section 4 of the MO] rather than [the English equivalent of section 7 of the CECO] and on whether representations had been made rather than on whether there had been an assumption of responsibility. Nonetheless, it seems to me that the passages from his judgment and that of Christopher Clarke J cast light on circumstances in which a provision seeking to deny an assumption of responsibility will come within [the English equivalent of section 7 of the CECO]. Whether or not [the English equivalent of the CECO] applies more widely (as Smith v Eric S Bush suggests), a provision which purports to prevent an assumption of responsibility will, in my judgment, be subject to [the English equivalent to CECO] if it attempts “retrospectively to alter the character of what has gone before” or “to rewrite history or parts company with reality”.” (my emphasis)

In my view, this was consistent with the line of authorities discussed above, and I am unable to see how it took Sit’s case further.

432. In Deutsche Bank AG, the investor claimed damages for negligent advice in investment and misrepresentation.  After considering Springwell (HC) and Smith, Sundaresh Menon CJ said as follows:

“50. First, each of the agreements … simply do not refer to any obligation on, or assumption of responsibility by DB to provide investment advice to Dr Chang on his portfolio or on the management of his wealth ……

51. Second, as a matter of evidence, it would have been highly unusual to find two quite separate types of relationship between the same parties where one, an execution-only contractual relationship, was meticulously recorded in written agreements while the other, a general undertaking to provide investment and wealth management advice, was not only not so recorded but was not even hinted at anywhere in the evidence at all. ……

……

55 Finally, no investment advisory agreement was ever signed between DB and Dr Chang. In the absence of other relevant circumstances, this is a significant pointer against the existence of an advisory obligation (Springwell (HC) at [435] at [441]).

56 All these facts show that an investment advisory relationship, along with its consequential duties of care, did not arise here……” (my emphasis)

433. For all the above reasons, the Singapore Court of Appeal held in paragraph 60 that “[this] is sufficient for the purposes of dealing with DB’s appeal”, but Sundaresh Menon CJ went on to state their “tentative views” on whether contractual provisions which have the effect of restricting or excluding a tortious duty were subject to the test of reasonableness under the Singaporean equivalent of the CECO:

“63. In our view, this issue invites further clarification and analysis. The argument is that clauses which define the scope or nature of the relationship between the parties are different in kind from those which exclude liability for breach of an existing duty. But this seems to place undue emphasis on the form of the language used rather than on its substantive effect. [The Singaporean equivalent of section 5(1) of CECO] prevents a party from excluding or restricting liability by reference to a contractual term or non-contractual notice which excludes or restricts the relevant obligation or duty. This seems to preclude any material distinction being drawn between clauses which exclude liability and those which restrict the scope of the duty or the obligation.

[The Court then considered Phillips Products Ltdand Smith.]

68. This seems to us at present to be correct because the mere fact that a clause is labelled a basis clause should not be determinative as to its true effect. The term “basis clause” appears to have developed in contradistinction to the term “exclusion clause” and to this extent it might be an unfortunate misnomer. The UCTA does not in fact contain any reference to “exclusion clauses”. Rather, the UCTA simply addresses itself to clauses which “exclude or restrict” a liability, obligation or duty. The legislative eye is firmly set on the substantive effect of a term or notice, rather than on its form or identification. Seen in this light, the only question which arises for a court is whether a term or notice has the effect of excluding or restricting the imposition of a duty of care in law. If so, it will have to satisfy the requirement of reasonableness. It has not been necessary for us to address either of these questions in this case because, on the view that we have formed from all the other surrounding circumstances, there was no duty to begin with.” (my emphasis)

434. A clause was an exemption or exclusion clause only if it had the effect of excluding or restricting liability for obligations that had been undertaken or which would otherwise have arisen.  In my view, there clearly was a difference between the case of a party who had contracted to undertake an obligation and then sought to limit or exclude his liability for breach of that obligation, and a party who had not undertaken the obligation at all.  But each case turned on the reality and substance of its own facts. 

435. Here, as in Deutsche Bank AG, DBS undertook to provide an “execution only” service, and they had not by the Banking Documents or otherwise undertaken to provide investment advisory service, and Sit accepted this to be the scope of the service undertaken by DBS by signing the Banking Documents.  That was why the Singaporean Court of Appeal similarly found they did not have to deal with the issue, ie “on the view that we have formed from all the other surrounding circumstances, there was no duty to begin with”.  Their “tentative” observations dealt with the general law surrounding the imposition of a tortious duty of care “where the giving of investment advice is concerned”.[237] Such views were irrelevant where there was no duty of care or where a party did not undertake to provide service to another.

436. In my view, the No Investment Advice, Independent Judgment and Understanding of Risks Clauses plainly defined the nature, scope and parameters of the services which DBS contracted to provide to Sit, and they did not exempt, limit or exclude liability such as to come within the statutory control under the CECO or MO.  Irrespective of their wordings, these clauses in substance emphasised that DBS contracted to offer “execution only” service and was not assuming responsibility for services they did not contract to provide.  Even though the relevant clauses might be couched in wording that said “[DBS] assumes no responsibility”[238] or “[DBS] shall have no liability …… for any advice given”,[239] when such clauses were read as a whole, they served to stress the limited scope of the services offered by DBS.  Likewise, clauses that specified DBS would not assume liability when bank staff provided information and materials to the customer (which might otherwise be generally regarded as “advice”) again stressed these activities were not within the services DBS contracted to provide.[240] The Independent Judgment and Understanding of Risks Clauses also flew from the fact that the contracted for service was “execution only”.  Thus, in both effect and substance, the No Investment Advice, Independent Judgment and Understanding of Risks Clauses agreed at the beginning of the banking relationship between Sit and DBS, were “scope of service” or basis clauses and not subject to the CECO or MO.  They applied prospectively to contractual dealings between DBS and Sit and were agreed upon long before the 10 ELNs in question were purchased, so there was no question of any retrospective attempt to rewrite history and exclude liability.

437. But as regards the No Liability Clauses, I find they were true exemption clauses.  However, in the No Liability Clause in, say, paragraph 29(ii) and (iii) of the Master Agreement,[241] DBS would not escape liability for matters within DBS’ reasonable control or for negligence, wilful default or fraud.  Further, as regards the Conclusive Evidence Clauses, they were either conclusive evidence clauses or combined verification and conclusive evidence clauses.  Although not expressly excluding liability for breach of contract or negligence, their practical effect did just that, so I am inclined to consider them as exclusion or exemption clauses within statutory control.

(b) Reasonableness

438. Section 3(2) of the CECO provided that in determining whether a contract term satisfies the requirement of reasonableness, the court shall have regard to the matters specified in Schedule 2, including:

“(a) the strength of the bargaining positions of the parties relative to each other, taking into account (among other things) alternative means by which the customer’s requirements could have been met;

(b) whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term; and

(c) whether the customer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties); ……”

Mr Lee SC submitted that under section 3(6) of the CECO the burden was on DBS to prove that the clauses under challenge satisfied the test of reasonableness. 

439. In case I am wrong and the No Investment Advice, Independent Judgment and Understanding of Risks Clauses fell within the statutory regime under the CECO and MO, I shall proceed to consider whether these terms/conditions as well as the No Liability and Conclusive Evidence Clauses satisfied the test of reasonableness.

440. On the matter of reasonableness of the “true” exclusion clauses in that case, Gloster J in Springwell (HC) found the parties were of equal bargaining power, there were many banks Springwell could have traded with, none of the terms were unduly harsh or unreasonable, and many of the documents were standard documents, and she concluded that the subject clauses were reasonable:

“605. In my judgment, even to the extent that the Relevant Provisions in the contractual documentation fall within the scope of the legislation, such terms cannot, in the context of the dealings between Chase and Springwell, be characterized as unreasonable. On the contrary, they were reasonable. In coming to this conclusion I take into account:

i) These were substantial contracts between commercial counterparties of equal bargaining power. As I have already held, Springwell had absolutely no need to continue to trade with Chase. It did not need to trade in the emerging markets at all but, if it wished to do so, it could trade with other competitor banks (and, indeed, did so, with ML).

ii) None of the terms of the contractual documentation was intrinsically unfair or unreasonable. They merely defined and delineated the terms upon which the parties were prepared to do business and in fact did business. None of the exclusions of liability (including the exclusion clause in the DDCS Letters) could be characterized, in context, as unduly harsh or unreasonable.

iii) Many of the documents were standard documents (whether standard within Chase or standard within the market) and, indeed, many of the terms were contained in other contracts signed by Springwell. The expert evidence supported the proposition that these were standard market terms.

606.  The thust of Springwell’s case was not that any of the contractual terms were inherently unreasonable, but rather, …… that it was unreasonable for Chase to seek to contract on such terms, given the allegedly existing advisory relationship, without a full explanation.  In other words, the complaint was not really as to the alleged unreasonableness of the terms of the Relevant Provisions, but, rather, as to the circumstances in which Springwell came to sign up to them.  I have rejected Springwell’s allegation that Chase assumed obligations to give investment advice from the date of Springwell’s initial introduction to JA.  I do not consider that the fact, per se, that JA continued to provide information and gave recommendations, advice and opinions to AP, in the way which I have described, meant that it was unreasonable for Chase to have included the Relevant Provisions or to rely upon them.  ……”

Gloster J after considering whether Chase had assumed obligations to give investment advice to Springwell concluded it did not mean it was unreasonable for Chase to have included the relevant provisions or relied on them.  Hence, parties could reasonably contract on the basis that no liability was to be assumed for any recommendations made, and then proceed to provide recommendations on a “no recourse” basis. 

441. When Springwell (HC) went on appeal, the English Court of Appeal in Springwell (CA) upheld Gloster J’s findings that the relevant clauses in the banking contract said to be exclusion clauses, ie the no reliance, independent judgment and no advice clauses, were reasonable.  Clause 6(c) was also held to be reasonable for the same reasons given by Gloster J.  Similar decisions on reasonableness of exclusion clauses could be seen in Titan Steel Wheels Ltd[242]and Orient Centre Investments Ltd & anor where Chan CJ at pp 583-583 cited Chadwick LJ in EA Grimstead & Son Ltd.[243]

442. In San-Hot, DHCJ Pow SC held that the clauses under challenge in that case (including some terms similar to the No Investment Advice, Independent Judgment and Understanding of Risks Clauses) were not true exclusion clauses but in any event they were reasonable.  I draw support from the learned judge’s findings as follows:

“236. Even if I were wrong to classify Clause 5 of the Account-opening Form and Clauses I, I21(i), I33(ii) and I29 not as exclusion clauses, I am of the view that they all satisfy the test of reasonableness. …… Mr Jat made further submissions as follow:-

(1) It is clear that parties can reasonably contract on the basis that no liability is to be assumed for any communications or recommendations made, and then proceed to provide recommendations on a “no recourse” basis;

(2) The parties’ bargaining positions were equal. Clearly, there were many private banks in Hong Kong to whom Ms Hao could have gone. Indeed she had discussed with BOC in respect of the Xinxin IPO private placement, and had used that as leverage to get a better bargain from DBS;

(3) It is reasonable for DBS to contract on the basis that it was only providing an “execution only” service, given that the Bank only charged on a “per transaction” basis, and no fee was charged on the provision of advice;

(4) Ms Hao had had the opportunity, and as stated in, say, clause I21(i) of the Private Banking Agreement and clause 5.1 of the Mandate, to obtain legal or other professional advice regarding the terms of the contract or her investments;

(5) Further, these terms are standard across the trade. This was one of the reasons why Gloster J held (and the English Court of Appeal agreed) that the clauses in Springwell were reasonable. The same was the case in Titan Steel.

237.  I agree with Mr Jat’s submissions.  I find that none of the above clauses can be said to be unreasonable.”

443. Mr Lee SC referred me to Motours Ltd v Euroball (West Kent) Ltd[244] which concerned a small travel agency dealing with a large telephone company for the installation and supply of a telephone system.[245] What happened was that the large telephone company negligently linked up only two of six telephone lines with the result that the performance of the telephone system was significantly impaired.  The issue was whether the provision in the contract for limiting the large telephone company’s liability for negligence was reasonable under the statutory control.  HH Judge Bowers said as follows:

“38. I have been shown contracts of certain other providers. …… The fact that exclusion clauses are common, means that the claimant would have little choice in fact when the only customer guarantee scheme is from BT.

39. The fact that the claimant has little choice and the fact that these are common clauses does not necessarily mean that they are fair and reasonable. There was clearly no discussion or negotiation about the conditions of the contract, …… Mr Read, for the defendants, indicated that they might in some individual cases have negotiated liquidated damages or made some ex gratia payments in some cases, but he could not give an example of that. My impression was that such a situation is probably as rare as “hen's teeth”. ……

40. …… In fact, the claimant is not arguing that there should be unlimited liability for all consequential loss; what the claimant says is this, this clause excludes liability for all consequential loss including from the defendants’ own negligence; a limitation or restriction or exclusion clause could have been drafted which would have allowed for that and still have excluded unlimited liability. As I say, there was no discussion or negotiation about the terms of the contract, none was expected or encouraged, the clauses were not read or drawn to the claimant's attention, and I do not think they were expected or encouraged to be read either because, as I say, the contract is very difficult to read. Seeing it and reading it is very difficult and certainly very uninviting; the terminology is such that I should think that most businessmen would have difficulty understanding much of it. ……

42. The claimant was, on any view, a small customer being attracted away from its present provider, BT. It seems to me that the rental involved was a modest sum, I think the sum of £17,000 per annum is mentioned somewhere. On any view it was in the defendants’ scale of things, the sort of sum which the defendants could effectively say, if they wanted, “take it or leave it”. In my judgment, the claimant had virtually no bargaining position except to walk away and say “no”. I do not believe he had any strength to change the defendants’ terms of business, and it is most unlikely the defendants would have negotiated with the claimant being the size it was for a change in the liquidated damages terms. I do not accept, therefore, the first contention of Mr Irvin that these were parties of equal strength of bargaining positions. It seems to me that the strength was with the defendants and that the claimant’s position was simply to accept it on the financial terms offered and the written terms offered or leave it, with no negotiation really that was likely to be acceptable.” (my emphasis)

444. Mr Lee SC submitted that parity of bargaining power was the paramount reason for enacting the CECO and it was insufficient to show a clause was a standard form exclusion commonly used between other parties in similar contracts because a clause found to be reasonable in another contract between different parties in different circumstances would not preclude a finding of unreasonableness in the present context.  [246] Mr Lee SC further submitted that DHCJ Pow SC erred in relying on Springwell (HC)/(CA) for they concerned parties with equal bargaining power, ie with the power to change the terms of the banking contract, and he suggested the learned judge’s reasoning was not well‑thought through and wrong.  Mr Lee SC submitted it was circular to use the doctrine of contractual estoppel to justify reasonableness under the CECO and urged this court to adopt the reasoning by HH Judge Bowers in Motours Ltd which supported Sit’s case.

445. In my view, even if the No Investment Advice, Independent Judgment and Understanding of Risks Clauses challenged by Sit were subject to statutory control, they were reasonable.  In paragraphs 337‑339 above, I have discussed and concluded that DBS and Sit were not of unequal bargaining power, and I am not persuaded Mr Lee SC’s arguments in the above paragraph would alter the position.  In my view, on the facts of the present case, the fact that the terms were common terms used in the trade went a long way to show they were reasonable, which was also one of the reasons why Gloster J held (and the English Court of Appeal agreed) the clauses in Springwell (HC)/(CA) were reasonable.  It was also a ground relied on by DHCJ Pow SC in San-Hot [247] when dealing with the same or closely similar provisions as the No Investment Advice, Independent Judgment and Understanding of Risks Clauses.

446. I am unable to draw much assistance from Motours Ltd which dealt with a wholly distinct scenario and was not concerned with mis-selling of financial products.  That case concerned a small travel agency dealing with a large telephone company for the installation and supply of a telephone system.  As known to the large telephone company, the small travel agency’s business was very dependent on a properly working telephone system (and hence the large telephone company’s service) and had no choice in dealings with them.  It was therefore unsurprising for the court to find the exemption clause that purported to limit liability for negligent performance of service which the large telephone company had undertaken to be unreasonable.  As Mr Wong SC submitted, this case raised no question of principle, and the existence of similar clauses in the trade and/or discouragement by the other contracting party to bargain over the terms would not necessarily preclude a finding that the exemption clause was reasonable in another appropriate case.  In Motours Ltd, the telephone system was critical to the travel agency’s business and the lack of choice in the trade was significant.  Moreover, it was a case of excluding liability for negligent/poor service that the large telephone company had undertaken, which was a far cry from the present case where DBS did not seek to limit/exclude liability for work undertaken.  I am unable to draw assistance from the case-specific conclusions of Motours Ltd.

447. Mr Lee SC suggested that Lau’s evidence as recorded in the Reasons for Verdict noted that RM’s responsibilities included assisting the customers to conduct investment activities via their accounts, and DBS would charge for such activities to make profits.  As explained in paragraph 303 above, commission was charged on “per transaction” basis and there was no separate fee for advisory services.  Even so, Mr Lee SC submitted there would be incentive for DBS to render free advisory services to induce more business to earn more commission income, and he argued the 27/4/07 Call Report illustrated such incentive.  I disagree and Gloster J’s observations in paragraphs 450 and 455-456 of Springwell (HC) provided the complete answer.[248] In my view, it was reasonable for DBS to contract on “execution only” basis given that no fee was charged for the provision of “advice”.  Under a non-advisory and “execution only” service, DBS could (but was not obliged to) provide free materials, market information and views/recommendations for financial products or investment opportunities to their customers, and the customers were not precluded from receiving the same, but these activities would not turn DBS into an investment advisor or place it under some obligations beyond what the parties had originally agreed.[249]

448. As for the No Liability Clauses, DBS would not escape liability matters within DBS’ reasonable control or for direct loss under paragraph I29(iii) of the Master Agreement.[250] The customer’s indemnity in paragraph I29(ii) of the Master Agreement did not exclude negligence, wilful default or fraud.[251] As DHCJ Pow SC said in paragraph 235 in San-Hot, I cannot see how it could be suggested that such terms/conditions were unreasonable since DBS was not seeking to avoid liabilities altogether.

449. As for the Conclusive Evidence Clauses, paragraph A4 of the Master Agreement allowed the customer to notify errors or discrepancies within 90 days before the statement became conclusive and binding.  Paragraph A46 of the Master Agreement, clause 2.3 of the Charge, clause 2.3 of the Mortgage and paragraph 22 of the T/C did not preclude manifest error (ie obvious error).  I would expect a customer to review the Consolidated Statements and keep track of his loan portfolio and the financial products he purchased.  The customer was also free to ask his RM for information as to the utilisation of his credit facilities and the securities he pledged with the bank.  Further, conclusive evidence clauses were also common across the trade.  In my view, the Conclusive Evidence Clauses were reasonable provisions for the purpose of the CECO.

450. The main reason advanced by Sit for contending that the challenged provisions were not reasonable was that DBS had undertaken to guide/advise him but failed to do so.  But I have found there was no such undertaking.  Courts have repeatedly emphasised the undesirability of intervening in commercial transactions.  What Sit sought to do now was to re-write his contract with DBS under the guise of the CECO, which would undermine reasonable commercial expectations that flowed from the contractual basis agreed between them at the beginning of their contractual relationship.  Such approach is not acceptable, and I hold the No Investment Advice, Independent Judgment, Understanding of Risks, No Liability and Conclusive Evidence Clauses were reasonable for the purpose of the CECO (and if necessary at all, the MO).

XXV.  MARKET COLLAPSE

451. The Lehman Brothers collapse occurred in late October 2008, and the HSI dropped sharply to 11,000+ on 27 October 2008.  On/about 28 October 2008, Kong telephoned to tell Sit that valuation of his securities held with DBS had dropped significantly, and asked him to put up a sum of HK$50,995,851.00to cover the margin shortfall in Sit’s Account or DBS would sell his assets in such account.  Sit refused to cover the margin shortfall.  DBS sent the 28/10/08 Letter to Sit, but he still failed to furnish DBS with additional security to cover the margin shortfall or to make payment to reduce his indebtedness. 

452. Sometime in early November 2008, Sit went to see Kong/ Lau at DBS’ office and asked for a breakdown of the margin shortfall, but Lau/Kong could not give a satisfactory answer save to say it was due to the sharp fall of the HSI and the drop in value of the securities linked to the ELNs.  Sit blamed DBS/Kong for messing up his investments, but agreed to redeem a fixed income note for JP¥384 million. 

453. On 25 November 2008, DBS sold a number of notes/shares in Sit’s Account and applied the total net proceeds towards reduction of the Sit’s indebtedness to DBS, which partially reduced the margin shortfall.  The fixed income note was redeemed on 27 November 2008.  In late November 2008, DBS sold the 10 ELNs.  By the 18/12/08 Letter, DBS informed Sit that as of 16 December 2008 he was still indebted to DBS for US$3,426,724.41under Sit’s Account, and they demanded settlement of the same.  Sit failed/fails to comply with such demand.

454. Sit averred the contractual terms that gave DBS discretion to demand further collaterals and unilateral right to determine/calculate interest were not binding.  This argument must be rejected in light of my findings in relation to the Contract constituted by the Banking Documents, and reference was made to the Repayment, Enforcement, Interest, and Conclusive Evidence Clauses thereunder.

455. Sit considered DBS’ demand for “top up” unreasonable and invalid because:

(a) the alleged margin shortfall of HK$50,995,851.00 was not proved;

(b) no proper demand for payment as required under the Charge and Mortgage or otherwise for enforcement of the securities by selling Sit’s assets had been made;

(c) the 28/10/08 Letter was in breach of an “implied term (implied by business efficacy and/or operation of law) or legal requirement” that he should be given sufficient time to consider his position, take legal advice and/or enable him to effect repayment, and the time stated in the 28/10/08 Letter was grossly insufficient for such purpose.

456. I will deal with the quantum of DBS’ loss in Part XXVI below.  On the basis of a margin shortfall of HK$50,995,851.00, the Repayment and Enforcement Clauses clearly entitled DBS to demand for immediate “top up” and/or repayment when the value of securities pledged by Sit (ie the security margin) fell.  Sit suggested DBS ought to have demanded for repayment of the entire indebtedness since their right to realise the securities was only exercisable after Sit failed to repay the entire indebtedness in full, and DBS was not entitled to rely on the “top up” provisions to exercise the power of sale because the terms and conditions of the Mortgage and Charge should prevail over the Facilities Letters.  There is nothing to this point. By the 28/10/08 Letter DBS did demand Sit to furnish additional security for value of HK$50,995,851.00 to cover the entire margin shortfall or pay DBS such sum to reduce the indebtedness, and it was only after Sit failed to comply that DBS exercised their right to sell Sit’s securities in late November 2008 and applied the proceeds to reduce such indebtedness.  I am unable to see how the terms/conditions of the Mortgage and Charge conflict with those in the Facilities Letters.

457. I also disagree with Sit’s suggestion that a term be implied into the Contract that he be allowed sufficient time to effect repayment as it contradicted the express terms of the Repayment and Enforcement Clauses which entitled DBS to require “immediate payment of all principal, interest, fees and other amounts outstanding” under the Facilities Letters (my emphasis) and/or cash collateralisation in respect of the liabilities due to DBS.  I disagree with Sit’s assertion that DBS was not entitled to sell the ELNs to cover the margin shortfall.  In this respect, I also refer to the Repayment and Enforcement Clauses as well as paragraph I30(i)(d) and (i), (ii) and (iii) of the Master Agreement.

458. I also reject Sit’s suggestion that the contractual terms that gave DBS the unilateral right to determine/calculate interest was invalid.  In this regard, I refer to the Interest Clauses and Appendix B to Mr Wong SC’s written closing submissions that summarised the clauses on default interest in the Banking Documents. For the contractual interest rate, DBS claimed 3.32% pa (ie 2% above the agreed rate)[252] and the agreed rate according to the 4^th Facilities Letter was “the Bank Costs of Funds plus 1% per annum”.  As a matter of law, it is acceptable for a contract to have machinery whereby it expressly leaves matters open for one party to decide. Chitty on Contracts said as follows:[253]

“An agreement is not incomplete where it provides machinery for resolving matters originally left open.  Perhaps the striking illustration of this possibility is provided by cases in which such matters are to be resolved by the decision of one party: for example a term, by which interest rates are expressed to be variable on notification by the creditor, is in principle valid, though the creditor’s power to set interest rates under such a contract is limited by an implied term that he must not exercise it “dishonestly, for an improper purpose, capriciously or arbitrarily”.  …….”

Sit did not allege the interest charged by DBS was determined/calculated “dishonestly, for an improper purpose, capriciously or arbitrarily”.  There is no reason why the agreed contractual provisions (including the provisions on default interest) should not be upheld. 

XXVI.  QUANTUM OF DBS’ CLAIM

459. Sit took issue with the margin shortfall of HK$50,995,851.00 set out in the 28/11/08 Letter.  Sit complained DBS never explained the LTV Ratio and MTM Value of the 10 ELNs, their significance and how they were determined, why the 10 ELNs were all purportedly sold to their issuers, how the sale prices were determined and whether they were reasonable or not.  He also claimed that since the MTM Value of the 10 ELNs was applied after deduction of the LTV Ratio, the alleged shortfall was double-counted and not accurate. 

460. DBS prepared two schedules to show the margin shortfall being the Schedule of Indebtedness[254]and Schedule of Adjustments,[255] which are annexed to this Judgment as Schedules D and E.  Sit complained that explanation about these schedules was only given in Leung’s witness statement.  Be that as it may, Sit knew about such explanation long before trial, and yet he still disputed the veracity and accuracy of the schedules.I will return to the Conclusive Evidence Clause below.

461. For the Schedule of Indebtedness, rows 1-20 set out Sit’s investments then maintained with DBS (rows 3-12 were the 10 ELNs) with total net margin value[256] of HK$95,297,193.90, and rows 21-24 set out Sit’s total exposure that was greater than the total net margin value by HK$50,995,851.00 (ie margin shortfall), so DBS was entitled to make a margin call. 

462. The net margin value of each of the 10 ELNs was listed in the column with the heading “Margin Value in Reference Currency”, and in the case of, say, the 1^st ELN (row 3) it was HK$8,526,100.00 being HK$15,502,000.00 (“Amount in HK$ equivalent”) x 55% (LTV Ratio).  The total “Margin Value in Reference Currency” for the 10 ELNs was HK$58,132,500.00.  Leung explained the LTV Ratio (which would vary with different types of collateralised assets and change at the discretion of the bank) was commonly used by lenders to express the ratio of a loan to the value of a purchased asset for working out the drawing limit and indebtedness.  In collateralised portfolio lending, banks would not lend money up to 100% value of the pledged assets unless they were cash deposits in the same currency of the loan.  Instead the bank would make a “haircut” and, say, lend $80 against a mortgaged/pledged yield enhanced deposit of $100 so the customer would have to pay $20 on his own in order to purchase such product.  This would lead to a need for “top up” if market fell and the value of the collateralised asset decreased.  Leung explained that the current-day practice was for DBS’ credit department to work out the LTV Ratio according to their internal credit policy, and the customer could ask his RM for the LTV Ratio.  She was unsure about past practice, but she did confirm with DBS’ credit department that the LTV Ratio in the Schedule of Indebtedness was correct. 

463. Leung explained the total “Margin Value in Reference Currency” for the 10 ELNs in the sum of HK$58,132,500.00 was subject to an adjustment entry described as “ML_0169” (which took into account the MTM Value of the 10 ELNs provided by the issuers/counterparties with no input from DBS) in the sum of HK$43,478,110.61 (row 21).  The calculation of this adjustment entry was set out in the Schedule of Adjustments.  Column (A) was the “Amount in Reference Currency (i.e.  HKD)”.  The figures in column (C) “AFTER_FQ_ELN_MTM” were calculated by multiplying the “Amount in Reference Currency” (column (A)) by the respective LTV Ratio (resulting in the “Margin Value in Reference Currency” (column (B)) and by the respective MTM Value.  The figures for the “Miscellaneous Liabilities” in column (D) (which were also the adjustment entry “ML_0169” in the Schedule of Indebtedness) represented the adjustments to the value of the 10 ELNs calculated by subtracting the figures in column (C) from those in column (B), ie Miscellaneous Liabilities = Margin Value in Reference Currency - AFTER_FQ_ELN_MTM.  So if the total amount in column (C) was lower than the total amount in column (B), DBS would be entitled to demand and Sit was obliged to cover the margin shortfall.

464. Leung explained that the MTM Value was taken into account to reflect the market situation and real value of an underlying security at a particular time.  The MTM Value of a security usually surged when the market went up and fell when the market went down.  Leung agreed that DBS’ credit department would ask issuers for the MTM Value to assess the value of the securities in order to prepare the monthly statements, but the issuers might not provide them as it was not the then market practice to provide the MTM Value.[257] Leung had not seen any MTM Value previously supplied by issuers of the 10 ELNs, but she confirmed the MTM Value in the Schedule of Adjustments came from email confirmations by issuers of the 10 ELNs pursuant to requests by DBS’ credit department.

465. DBS claimed that as at 12 February 2009 (ie the day before the commencement of the present action) Sit was indebted to DBS in the sum of US$3,429,724.27 together with further intereston the principal sum of US$3,411,296.99 at the rate of 3.32% pa from 13 February 2009 until payment in full.  The breakdown of such sum was as follows:[258]

(a)  As at 28 November 2008, the outstanding balance in Sit’s Account was HK$24,565,530.58 and JP¥360,760,739.00 after (as Sit agreed) applying the redemption money of the fixed income note in JP¥.

(b) Certain notes/shares in Sit’s Account were sold on 25 November 2008.  On 28 November 2008, part of the sale proceeds in the sum of US$716,900.00 were received,[259] converted to HK$5,557,552.18 and applied to reduce Sit’s HK$ indebtedness to HK$24,565,530.58 – HK$5,557,552.18 = HK$19,007,978.40, but Sit’s JP¥ indebtedness remained unchanged.

(c) On 1 December 2008, part of the sale proceeds in the sum of US$1,065,500.00 were received[260] andconverted to HK$8,258,477.40 to reduce Sit’s HK$ indebtedness to HK$19,007,978.40 + HK$2,812.14 (interest accrued from 28 November 2008 to 30 November 2008) – HK$8,258,477.40 = HK$10,752,313.14 while his JP¥ indebtedness remained.

(d) On 3 December 2008, part of the sale proceeds in the sum of US$1,693,800.00 were received[261] andconverted to HK$10,753,270.62to repay Sit’s HK$ indebtedness in full but his JP¥ indebtedness remained unchanged, and there was a balance of sale proceeds of US$306,549.71.

(e) On 9 December 2008, the JP¥ indebtedness of JP¥360,760,739.00 was converted into US$3,870,823.38 and the balance of sale proceeds of US$306,549.71 and the credit balance of US$133,633.12 in another US$ account of Sit were applied to reduce the US$ indebtedness, leaving an outstanding sum of US$3,430,640.55. 

(f) On 11 December 2008, a sum of US$5,200.96 was applied to partially satisfy the US$ indebtedness.  From 9 December 2008 to 16 December 2008, interest accrued in the sum of US$1,284.82.  So as at 16 December 2008 the outstanding US$ indebtedness was US$3,426,724.41 (US$3,430,640.55 – US$5,200.96 + US$1,284.82).

466. The total sale proceeds of the 10 ELNs were in fact more than the value of the 10 ELNs assessed and accepted by DBS at the time of the margin call.  Leung explained that the LTV Ratio and MTM Value applied by DBS at the time of the margin call only reflected the market situation at that particular time, and the market went up since the time of the margin call.  Had the market continued to fall after the time of margin call, the total sale proceeds of the 10 ELNs would have been even lower than the value assessed and accepted by DBS.

467. Mr Lee SC complained that the amount of US$3,426,724.41 claimed in the 18/12/08 Letter was different from the sum of US$3,429,724.27 with interest claimed in the Statement of Claim.  There is no merit to this argument since (a) there was no dispute Sit did not make any repayment and (b) interest would have accrued between 18 December 2008 (US$3,426,724.41) and 12 February 2009 (US$3,429,724.27). 

468. Mr Lee SC expressed doubt as to DBS’ reliance on the hearsay evidence in the Schedules of Indebtedness and Adjustments prepared by unidentified persons in the absence of the makers and the underlying documents, and suggested the two schedules and Leung’s explanation were of no evidential value.  He urged the court to draw adverse inference against DBS for not producing direct evidence on quantum despite Sit’s repeated demands for a breakdown, for DBS’ non‑disclosure of the emails on the MTM Value from the issuers, for lack of proof that the Schedule of Indebtedness adopted the LTV Ratio at the material times, and for Leung’s lack of relevant experience in dealing with calculations of “top up” and indebtedness.  Mr Lee SC asked the court to be cautious with the two schedules since there were some discrepancies in the Transaction Schedules[262] and Yim erroneously stated in her witness statement that Sit bought 40 ELNs (when it should be 39 ELNs) via Sit’s Account prior to the 1^st ELN. 

469. I see nothing in Mr Lee SC’s arguments that would cause me any concern as to DBS’ evidence as to quantum including the two schedules and Leung’s explanations.  The Facilities Letters provided for the credit limit and the lending ratio for the credit facilities, and it was specified that the lending ratio was at the discretion of DBS and it would fluctuate from time to time depending on inter alia market conditions.  The Facilities Letters also entitled DBS to determine the margin deposits and to call for additional margin deposits.  Leung gave detailed explanation with the aid of the Schedules of Indebtedness and Adjustments as to how the quantum was arrived at.  Nothing raised by Sit suggested that DBS’ quantum calculations were wrong in any way, and Sit had not shown why there was any double-counting in applying the LTV Ratio and MTM Value (given their different nature and purpose as explained by Leung) in calculating the outstanding indebtedness. Leung was not cross-examined as to her explanations and calculations of the indebtedness (although Mr Lee SC explored with her generally on the concepts of LTV Ratio and MTM Value).  Indeed, Mr Wong SC prayed in aid the rule in Browne v Dunn which Mr Lee SC so heavily relied on to attack other aspects of DBS’ evidence as an answer to whatever challenge Sit wanted to make regarding quantum calculation. 

470. On balance, I accept Leung’s evidence as to quantum, including her explanations and the Schedules of Indebtedness and Adjustments.  I now turn to the Conclusive Evidence Clauses.  Mr Lee SC submitted that since the two schedules were not “monthly statement” (結單) of DBS,[263] “books and records of the Bank” (帳簿及記錄) “signed by any officer of the Bank”,[264] “statement of account of the Depositor or certificate issued by the Bank”[265] or “statement issued by the Bank as to the amount at any time owing by the Borrower to the Bank”,[266] such clauses would not assist. 

471. DHCJ Pow SC in San-Hot explained the effect of verification and conclusive evidence clauses as follows:

“207. …… that in principle, such clause could have the desired effect if the term brings home to the customer the intended importance of inspection of the statement; expressly or impliedly invites the customer to make such inspection; and is intended to have conclusive effect if no query is raised at all or within certain time limit. The validity of such clauses had also been upheld in numerous commonwealth authorities …… In Hong Kong, the effectiveness of such clauses was confirmed in Sun Hung Kai Forex & Buillion Co. Ltd. v. Yick Ming Kit (unreported, HCA 8589/1992).

208. In the present case, Clause A(4) of the Private Bank Agreement relates to the conclusive nature of the monthly bank statement supplied by DBS to San-Hot (BVI). The clause expressly stated that the customer “shall examine” each statement; “shall notify DBS of any error or discrepancy within 90 days”; and that otherwise the statement “shall be conclusive and binding upon the Customer”. I find that all requisite ingredients prescribed in Lord Scarman’s dictum in Tai Hing Cotton Mill Ltd. were squarely brought home to San-Hot (BVI).”

472. The starting point is not the Schedules of Indebtedness and Adjustment but the Consolidated Statement of December 2008 (printed on 2 January 2009).  Such Consolidated Statement was plainly a monthly statement or a statement of account or statement issued by the Bank within the meaning of the Conclusive Evidence Clauses, and it specified that the outstanding amount under the term loan facility was US$3,428,600.00.  Since there was no dispute Sit did not make any repayment in/after December 2008, such sum together with interest accrued thereon must remain outstanding. Although the outstanding amount of US$3,428,600.00 was different from the outstanding sums as at 16 December 2008 and 12 February 2009, the differences were due to the accrual of interest as time progressed.  There was no evidence that Sit had ever notified DBS of any error or discrepancy in respect of the figure of US$3,428,600.00 (as different from a denial of liability to make payment or an assertion of putting DBS to proof), whether within 90 days of receipt of the Consolidated Statement or at all.  Mr Wong SC went further.  He argued that the Conclusive Evidence Clauses were clearly relevant as DBS’ written demands being the 28/10/08 and 18/12/08 Letters formed part of their “records” and as such the amount of Sit’s indebtedness as at the relevant dates specified therein came within the Conclusive Evidence Clauses save for manifest error.  No obvious error had been demonstrated despite Mr Lee SC’s submissions to ask this court to place no weight on DBS’ evidence as to quantum.  I find Sit to be bound by the Conclusive Evidence Clauses, and there was no basis to doubt the accuracy of the calculations in the two schedules.

XXVII.  CONCLUSION

473. For the above reasons, I find for DBS and reject all the defences and counterclaim by Sit.  I grant judgment in favour of DBS against Sit in the sum of US$3,429,724.27 and interest on the principal sum of US$3,411,296.99 at the rate of 3.32% pa from 13 February 2009 until payment in full.  I also dismiss Sit’s counterclaim. 

474. There is no reason why costs should not follow event.  The Contract contained provisions for indemnity costs as set out in Appendix C to Mr Wong SC’s written closing submissions.  There is no reason not to give effect to such provisions.  In the circumstances, I grant a costs order nisi that Sit do pay costs of the action and of the counterclaim on indemnity basis (including all costs reserved, if any) to be taxed if not agreed with certificate for two counsel.  I thank counsel for their assistance.

Schedule A

(unless otherwise stated, bold in original)

A.    Account Opening Form (bilingual)

1.  Clause 1, Client Declaration – Securities Account

“I … have read and understood the Risk Disclosure Statement set out in Section K of the Master Agreement and the Trading Agreement related Terms and Conditions in Section I of the Master Agreement that apply to Securities Accounts.  I … have been invited to ask questions on the Risk Disclosure Statements and take independent professional advice if I … wish.”

2.  Clause 2, Client Declaration – Securities Account

“I… declare that as an investor, I… am … familiar with and/or have knowledge in trading securities and other investments and in foreign exchange transaction, and acknowledge that in entering into any Transaction, I… have decided to do so based on my/our personal judgment and independent of any advice or recommendation of the Bank, I… hereby accept that the risks involved in my… underlying obligations under any Transaction.  The Bank shall have no liability to me… for any advice given or views expressed to me… regardless of whether such an advice is given or views are expressed at my… request.”

3.  Clause 3, Client Declaration – Securities Account

“I… further undertake that prior to instructing the Bank to enter into any derivative instruments and/or warrants and/or other Transaction, I… have read and fully understood:

(i) Any term sheets and all annexures and supplements pertaining to the Transaction;

(ii) The nature of the Transaction and the terms and conditions governing the said Transaction; and

(iii) The Bank’s margin/overdraft requirements, if applicable.”

4.  Clause 1, Client Declaration – Master Agreement

“I/We acknowledge that I/We have received, read and fully understood the attached Master Agreement which comprises:

(i) [A]  General Terms and Conditions applicable to Account

  ……

[F]  Loan Services

  ……

[I]  Trading Agreement related Terms and Conditions

  ……

[K]   Risk Disclosure Statement

(ii)  confirm that I/we have read the Risk Disclosure Statement, have been invited to ask questions, and take independent professional advice if I/we wish.”

5.  Clause 2, Client Declaration – Master Agreement

“I/We agree that the operation of the Accounts (and any additional account(s) I/we may from time to time open) will be governed by the Master Agreement, as may be varied from time to time.”

B.    Master Agreement (bilingual)

6.  Paragraph A4, Account Statement

“(i)   A monthly statement for all the Customers’ Account will be sent to the customer by the Bank unless otherwise requested.

(ii)  The Customer shall examine each statement received and notify the Bank …… of any error or discrepancy within 90 days of delivery …… Unless any errors or discrepancies are so notified, the statement shall be conclusive and binding upon the Customer.”

7.  Paragraph A18(iv), Overdrawn Accounts

“The Customer shall repay the Bank upon demand any overdraft on any Account and all advances, loans, or other financial accommodation, together with interest and charges thereon in accordance with the Bank Charges Schedule.”

8.  Paragraph A46, Bank’s Records Conclusive, etc

“The books and records of the Bank signed by any officer of the Bank shall (in the absence of manifest error) be final and conclusive concerning the amount due from the Customer to the Bank ……”

9.  Paragraph F1, Interest Calculation and Payment Method

“The Bank will calculate interest based on the outstanding amount of the Facilities and the basis of calculation is at the Bank’s discretion.  ……”

10.  Paragraph F3, Security

“(i) The Facilities will be available for drawing, subject to delivery of a duly executed security document (“the Security Document”) over such assets (“the Secured Assets”) as the Bank may agree, in a form acceptable to the Bank, as follows:

(a)  for own cash deposits, securities and other securities – c “Charge over cash deposits and shares and other securities (own debt)”;

(b)  ……

(c)  for Mortgage – “Charge on Property (Mortgage Deed)”;

(d)  others – such form of charge as the Bank may require.

(ii) The Customer understands that if he/she does not comply with these Terms and Conditions, the Secured Assets are then at risk and the Bank may take possession and/or realize the Secured Assets.”

11.  Paragraph F4(i), Overdraft Limit

“The total Facilities outstanding must not exceed the approved unsecured credit limit or the current market value of the Secured Assets multiplied by the applicable Lending Ratio from time to time.  Whenever this requirement is not satisfied, the Bank may require: (a) the Facilities to be reduced; and/or (b) that additional securities or funds be immediately deposited into the Accounts and charged pursuant to the Security Document, so that such requirement is met; (c) failing which the Bank may demand immediate repayment.”

12.  Paragraph F6, Effect on Guaranteed Returns/Other Product Benefits

“Where the Secured Assets include any benefit or guaranteed return that is conditional (e.g. a condition that the Secured Assets are held until maturity), the Customer understands and accepts that by charging the Secured Assets, the charger will no longer have control over the Secured Assets and following a default the Bank is fully entitled to realize the Secured Assets at any time, without prior notice and so any such benefit or guaranteed return may not be realized.”

13.  Paragraph I, Trading Agreement Related Terms and Conditions

“Each holder of a Securities Account shall be bound by this Master Agreement, as amended from time to time.

……

The Securities Account is provided only as a transaction execution service.  No investment advice is offered to Customers. The price of Securities can and does fluctuate.  Any individual Security may experience downward movement and may under some circumstances even become valueless.  There is an inherent risk that losses may be incurred rather than profit made as a result of buying and selling Securities.  This is a risk which the Customer is prepared and able to accept.”

14.  Paragraph I4(ii), Other Services

“Except where otherwise notified to the customer from time to time, the Bank, its nominee, and its custodian shall act as an agent of the Customer and not as a principal or as trustee and neither the Bank, its nominee, nor its custodian shall have trust or similar obligations in respect of the Securities or Other Investments.”

15.  Paragraph I18, Derivatives Position

“If the Customer instructs the Bank to effect transactions in derivatives, the Customer understands and acknowledges that the exchange or market (if any) on which the transaction is effected, the clearing house or the relevant counterparty will from time to time call to put up initial or supplementary margin or collateral to cover liabilities which have been incurred or may be incurred.  To meet a call the Bank is authorized to deduct from the Customer Account any money and/or to sell any Securities or other investments (including collateral) held in the Customer Account and put up the proceeds thereof or to put up any such Securities or other investments and/or require the Customer to put up margin or collateral in the form of cash or, with the agreement with the Bank, Securities or other investments, and if the Customer fails to meet the call then the Bank may close out any open derivatives position of the Customer and charge all expenses in so doing to the Customer or at the Customer’s risk leave the position open.  ……”

16.  Paragraph I21, Investment Information

“(i)  Any information provided is for reference only and no reliance should be placed on any conversations that take place with the Bank’s personnel.  Customers should seek their own investment advice from a suitably qualified adviser.  No investment advice is offered to Customers.

(ii)  …… The Bank may …… make available to the Customer …… materials and information in respect of the Securities and/or Other Investments. The Customer fully understands and agrees:

  ……

(a) if the Bank so acts, that the Bank is not providing such materials, information or suggestion as a required service to the Customer;

(b) that the investment is made safely upon the Customer’s judgment and at the Customer’s discretion ……;

(c) that the Bank assumes no responsibility for the accuracy and completeness of any such materials or information provided by the Bank; and

(d) that the Bank assumes no responsibility for the performance or outcome of any investment made by the Customer after receipt of such materials or information any risk associated with any losses suffered as a result of the Customer entering to any investment are for the account to the Customer……

……

(v) The Customer acknowledges and agrees that the Customer will make an independent analysis and decision with respect of all dealings in the Trading or in other investments.”

17.  Paragraph I24, Margin

“(i) Margin in a form of Securities or other property (other than margin in cash in Hong Kong dollars or a prescribed foreign currency) will only be accepted entirely at the discretion of the Bank ……

(ii) Any credit advance made to the Customer pursuant to this Paragraph I24 is repayable on demand.  The Customer shall pay the Bank on demand interest on the principal amount of any credit advance outstanding from the Bank commencing from the date of the advance until and including the date of final repayment at the rate per annum specified by the Bank from time to time and notified to the Customer (so that not less than five (5) business days notice shall be given to the Customer for any change in the applicable interest rate).

(iii) The margin required by the Bank may exceed any margin requirements prescribed by any exchange or clearing house and may be changed by the Bank from time to time without prior consultation with the Customer.  The Bank may demand from the Customer from time to time such additional margin as the Bank may consider fit.

(iv) Margin calls must be met immediately or within such time limit as may be specified by the Bank from time to time.  If the Customer shall fail to comply with any margin call by the end of a business day on which such demand is due, the Bank may effect any Transaction at the Customer’s expense without notice or reference to the Customer for the purpose of protecting the Bank’s position (including closing out any short sold position of the Customer) and may take such other action pursuant to this Paragraph I24 and/or Paragraph I30 and I31 as the Bank in its absolute discretion may determine.  Any sums due to the Bank as a result of closing out any short sold position of the Customer will be payable by the Customer to the Bank on demand ……”

18.  Paragraph I26(i), Payments

“The Customer shall pay the Bank forthwith upon demand at any time the full amount of commissions, fees, interests, expenses (including legal costs on a full indemnity basis) and all losses and debit balances and deficiencies resulting from any Transactions, Foreign Exchange Contract, or from the operation of the Account …… To the extent permitted by law, any overdue payment hereunder shall bear interest, payable on demand, at the rate mentioned in Paragraph I26(vi) below or at such other rate determined by the Bank from the date such payment was due until it is paid.” 

19.  Paragraph I29, Liability of The Bank

“(i)  All actions which the Bank may take or cause or omit to take or cause in connection with the Account, and the services under this Agreement are solely at the Customer’s account and risk (excepting, for the avoidance of doubt, Transactions or Foreign exchange Contracts to the extent the Bank is acting as principal).

(ii) Except to the extent of negligence, wilful default or fraud of the Bank, its affiliates, employees or Agents, the Customer shall indemnify the Bank, its affiliates employees and Agents on demand against all actions, claims, losses, demands, expenses, and proceedings of whatever nature which may be taken against or incurred by the Bank, its affiliates, employees of Agents pursuant to and in connection with this Agreement and/or the performance of services pursuant to this Agreement or as a result of any indemnity given in the performance of any service under this Agreement.

(iii) The Bank shall not be liable for any loss suffered by the Customer as a result of anything outside the Bank’s reasonable control or for any indirect or consequential loss.”

20.  Paragraph I32(i)(d), Representations and Warranties

“The Customer represents and warrants to the Bank as of the date hereof and at all times during the term of this Agreement that: the Customer has read the terms of this Agreement, the Risk Disclosure Statement and other Conditions Precedent Documents (or the contents of this Agreement and the Conditions Precedent Documents have been fully explained in a language which the Customer understands) and the Customer accepts these Terms that it has adequate financial expertise and resources to comply with its terms.”

21.  Paragraph I33, Customer Acknowledgments

“The Customer understands and acknowledges that although the Bank may contact the Customer with regard to investment opportunities which may be of interest to the Customer:

(i) the Bank is not required to render any advice to the Customer for the Customer’s trading or investment decisions;

(ii) the Customer will not rely on any advice given by the Bank and will solely on its own judgment in making investment and/or trading decisions and the Bank assumes no responsibility for the performance or outcome of any investments made by the Customer, relying on the financial, investment information, suggestions or recommendations communicated by the Bank, its affiliates or representatives;

(iii) any advice, recommendations or information communicated to the Customer by the Bank, although based upon information obtained from sources believed by the Bank to be reliable, may be incomplete, may be inaccurate, may not have been verified and may be changed without notice to the Customer;

(iv) the Customer has read (or had been explained to) the Risk Disclosure Statement and is aware of the risks of trading Securities and Other Investments and in foreign exchange transactions and is financially able to bear any risks associated therewith…”

22.  Paragraph I34(iii), Exercise of Remedies

“……The Customer agrees to pay on demand all costs and expenses (including but not limited to interest, charges and legal fees as between solicitor and client) incurred by the Bank in enforcing or attempting to enforce, or preserving or attempting to preserve, its rights under the Agreement.”

23.  Paragraph I41(i), Entire Agreement and Amendments

“This Agreement and those Condition Precedent Documents stated to be incorporated into this Agreement sets out the whole agreement between the Bank and the Customer and it is expressly declared that no amendment or variation shall be effective unless made in writing and signed by the parties or made pursuant to Clauses I36, I41(ii) and I41(iii).”

24.  Paragraph K, Risk Disclosure Statement

“Please read this risk disclosure statement carefully.  This statement forms a part of the terms and conditions governing your account.  By executing the Account Opening Document you, the Customer, acknowledge that you have read this risk disclosure statement and understand the risks applicable to the Bank’s various services and products.

This statement should be read in conjunction with the Trading Agreement Related Terms and Conditions.  ……

To each Customer intending to engage in treasury, securities, foreign exchange and/or financial derivatives transactions (“Transactions”) with the Bank:-“

25.  Paragraph K1, Risks of Securities Trading

“The price of Securities and Other Investments can and does fluctuate and any individual Security or Other Investments may experience downward movements and may become valueless.  There is an inherent risk that losses may be incurred rather than profits made as a result of Transactions.  You carry the burden of all risks involved in Transactions and the bank is not responsible for any losses whatsoever and howsoever arising from such Transactions.”

26.  Paragraph K3, Margin/Overdraft

“The risk of loss in financing a transaction by deposit of collateral is significant.  You may sustain losses in excess of cash and any other assets deposited as collateral with the Bank …… You should fully understand the terms and conditions in the Agreement that are applicable to any Transaction to be effected on margin or overdraft or which involves a contingent liability (set out in Paragraphs I23 and I24).  In particular, you should be aware that:

(i) the Bank may call upon you at short notice to provide additional margin as determined by the Bank in its sole discretion.  This amount may be substantial and may exceed the amount originally committed as initial margin.

(ii) if the required margin deposits or interest payments are not made within the prescribed time, the bank may realize such part or all of the margin as the Bank deems necessary to satisfy your liabilities without notice to or consent from you (or other party providing collateral) and/or

(iii) the Bank may close out, liquidate, set off, realize or otherwise deal with any or all outstanding Transactions (notwithstanding that any of the same has not yet matured), (whether or not any additional loss may thereby arise).  In the event a Transaction is liquidated at a loss and the loss exceeds the aggregate margin deposited, you will remain liable for any resulting deficit in your account and interest charged on your account. 

You should therefore carefully consider whether such a financing arrangement is suitable in light of your financial position and investment objectives.”

27.  Paragraph K4, Leverage

“Leverage may be by way of overdraft or loans, trading on margin or embedded within an instrument such as a structured note.  A high degree of leverage or gearing for example, resulting from a relatively small margin requirement, can work against you as well as in your favour.  The use of leverage may result in large losses as well as gains.  It also means that relatively small market movements will have a proportionately larger impact in the value of your investment: this may work against you as well as in your favour.”

28.  Paragraph K16, Transactions in Derivatives

“This brief statement does not disclose all of the risks and other significant aspects of trading in derivatives.  In light of the risks, you should undertake such transactions only if you understand the nature of the contracts (and contractual relationships) into which you are entering and the extent of your exposure to risk.  Trading in derivatives is not suitable for many members of the public.  You should carefully consider whether reading is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances.

(i) The risk of loss in trading derivatives is substantial.  In some circumstances you may sustain losses in excess of your initial margin funds…… You may be called upon at short notice to deposit additional margin funds.  If the required funds are not provided within the prescribed time, you position may be liquidated.  You will remain liable for any resulting deficit in your account.  You should therefore carefully study and understand derivatives before you trade and carefully consider whether such trading is suitable in light of your own financial position and investment objectives.

……

(iii) Whilst derivative instruments can be utilized for the management of investment risk, some instruments are unsuitable for any investors.  Different instruments involve different levels of exposure to risk, and in deciding whether to trade in such instruments you should be aware of the following points.

……”

29.  Paragraph K21, Equity Linked Instruments (“ELI”)

“You should understand that the outcome of an ELI investment depends upon market conditions during the investment period.  The price of the Linked Instrument may go up or down during such period and this will affect the amount of the proceeds and whether the proceeds will be in the form of cash of the Linked Instrument.  You should prepare to risk the money to invest in an ELI being returned in the form of the Linked Instrument or proceeds which may be less than the invested amount.  You should seek independent professional advice if you are uncertain about the risk of ELI or any other matter.”

C.  1^st Facility Letter

30.  Top-up requirement

“Top-up

If at any time, the amount of advance drawn exceeds the drawing limit, the Borrower must provide additional security acceptable to the Bank with adequate cover to the allowed ratio.  Failing which, the Bank is authorised to uplift, realise, collect or sell as the Bank may think fit and without being liable to the Borrower for any loss, all or any part of the pledged Securities and/or Cash Deposits without any notice to the Borrower, and to apply the proceeds in satisfaction of the Borrower’s indebtedness crediting the Borrower’s account with the excess balance, if any.”

D.  Charge

31.  Clause 2.1, Payment

“The Depositor undertakes to pay to the Bank the Liabilities on demand or, if specifically provided for in any agreement evidencing or government payment of the same, in accordance with the provisions of such agreement.”

32.  Clause 2.3, Bank’s statements conclusive

“Any statement of demand of the Depositor or certificate issued by the Bank shall, save for manifest error, be conclusive evidence as against the Depositor of any Liabilities.”

33.  Clause 6, Security Enforcement

“6.1 Enforcement: Without prejudice to any other rights of the Bank under the Charge or otherwise, (a) the Bank makes demand for payment of any Liabilities or any Liabilities are otherwise not paid when due, (b) the Depositor or any other person fails to perform any of its obligations under or breaches any of the representations in this Charge or any other documentation evidencing or securing Liabilities; …… then at any time and from time to time thereafter the Bank may, without further notice, apply all or any part of the Deposit in or towards settlement, discharge or reduction of the Liabilities or any part thereof.

6.2 No liability on Bank: The Depositor shall not have any claim against the Bank and the Bank shall not have any liability of any nature whatsoever to the Depositor or any other person in respect of any loss arising out of exercise of any rights under this Charge or any part thereof, howsoever such loss may have been causes or arisen.”

E.  Mortgage

34.  Clause 2, Payment Undertaking

“2.1  Payment: The Depositor undertakes to pay to the Bank the Liabilities on demand or, if specifically provided for in any agreement evidencing or governing payment of the same, in accordance with the provisions of such agreement.

……

2.3  Bank’s statements conclusive: Any statement of account of the Depositor or certificate issued by the Bank shall, save for manifest error, be conclusive evidence as against the Depositor of any Liabilities and/or the Value of any Securities.”

35.  Clause 3.1, Mortgage

“The Depositor, as beneficial owner hereby mortgage by way of first fixed mortgage and agrees to mortgage to the Bank all Securities as a continuing security to secure the sue and punctual payment or discharge of the Liabilities.”

36.  Clause 6.1, Dealing with Securities

“The Bank and its nominee(s) are entitled (but shall not be obliged), at the cost and expense of the Depositor, to deal with all or any of the Securities in any way as the Bank may in its absolute discretion think fit including, without limitation:- ……”

37.  Clause 8.1, Security “Top-up”

“The Depositor hereby undertakes that if at any time the Value of Securities together with the value, as determined by the Bank, of any other property provided to the Bank by the Depositor as security for the Liabilities falls below a specific level (which may be calculated as a percentage of the Liabilities) designated from time to time by the Bank (such level, the “Security Cover”), the Depositor will, on demand, at the option of the Bank either:-

(a)  deposit with or transfer to the Bank… additional securities or property approved by the Bank as security for the Liabilities; or

(b)  pay to the Bank a sum of money in part settlement of the Liabilities,

so that the Value of the Securities (together with the value of any such additional securities or property) exceeds the Security Cover.”

38.  Clause 9, Security Enforcement

“9.1  Enforcement: if (a) the Bank makes demand for payment of any Liabilities or any Liabilities not paid when due; (b) the Depositor or any other person fails to perform any of the obligations under this Deed or in any other documentation evidencing or securing Liabilities …… the Bank may, without further notice,

(i)  take possession, collect in, realise, dispose of, sell or otherwise deal with the Securities or any part thereof, at any time, in any way and at any price which the Bank may deem fit, free and discharged absolutely from all trusts, interest, rights of redemption and equities whatsoever which the Depositor may have and apply the net proceeds thereof in or towards the settlement, discharge or reduction of the Liabilities or any part thereof;

(ii)  apply any dividends, interest or other payments which may be received or receivable by the Bank or its nominee(s) or agent(s) in respect of all or any of the Securities as though they are proceeds of sale of such Securities.

9.2  No liability on Bank: The Depositor shall not have any claim against the Bank and the Bank shall not have any liability of any nature whatsoever to any other person in respect of any loss arising out of any disposal, realisation or sale of the Securities or the disposal or exercise of any other rights under this Deed or any part thereof, howsoever such loss may have been caused or arisen, and whether or not a better price could or might have been obtained on such disposal, realisation or sale of the Securities (or any part thereof), by either deferring or advancing the date of such disposal, realisation or sale or otherwise howsoever.

......

9.4  Indemnity: The Depositor undertakes, as a separate and independent obligation, to indemnify the Bank against all claims and demands made by the Depositor or any third party against the Bank and all liabilities incurred by the Bank in connection with the sale, disposal and/or realisation of the Securities.”

F.  General Agreement

39.  Clause 1(a), Advance

“I/we shall pay to the Bank on demand or, as the case may be, on their respective due dates all sums from time to time paid or advanced by the Bank to or for my/our account or for the account of any other person at my/our request and all other sums of whatever nature for which I/we may be indebted or liable to the Bank on any account or in any manner whatever, whether actually or contingently and whether alone or jointly with any other person from time to time…… (all such sums collectively “Liabilities”).”

40.  Clause 11(iv), Acceleration

“All Liabilities shall become immediately due and payable, and I/we shall immediately provide cash cover to the Bank in respect of any outstanding future or contingent liabilities, upon demand by the Bank or in accordance with any other agreement relating to the Liabilities or any part thereof.  Without limiting the Bank’s right (if so agreed) to make a demand at any time I/we acknowledge that the Bank may also do so if any of the following … (iv) any security provided by me/us to the Bank ceases to be in full force and effect or there is in the Bank’s opinion any material depreciation in the value thereof whether actual or reasonably anticipated…”

41.  Clause 12, Power of sale

“The Bank may sell or otherwise dispose of all or any Secured items in such manner and for such consideration (which expression shall include both nature and amount) as the Bank may in its absolute discretion think fit, if the Bank makes demand for payment of Liabilities as provided under Clause 11 or at any other time if the Bank considers it desirable to do so having regard to the then realizable value of the Secured Items, whether or not any contingent or other liability owing by me/us to the Bank shall have actually matured ……  The net proceeds of any sale by the Bank or in connection with any such sale or disposal, after payment of all expenses and other disbursements in connection therewith and any prior claims, shall be applied towards payment of Liabilities then owing or to become owing by me/us to the Bank in such manner as the Bank may see fit ……”

42.  Clause 13, Interest

“All Liabilities shall include interest payable thereon.  I/We shall pay interest on such moneys at such rate or rates as shall from time to time be agreed with the Bank or, in the absence of such agreement, specified by the Bank, and I/we agree to pay interest at the rate or rates so specified as if expressly agreed by me/us ……”

43.  Clause 18(b) and (g), Security/Protective Clauses

“(b) I/We shall immediately upon demand by the Bank and at my/our own expense make, execute, do and perform all such further assurances, instruments, acts or things as the Bank shall from time to time require to perfect this Agreement and the Bank’s title to the security constituted or intended to be constituted ……

(g) Nothing herein shall impose any obligation on the Bank to provide or continue any banking facilities or other accommodation or services to me/us and this Agreement may be terminated or discontinued forthwith by the Bank at its absolute discretion by reasonable notice to me/us.”

G.    2^nd Facility Letter

44.  Top-up requirement

“Top-up

If at any time, the amount of advance drawn exceeds the drawing limit, the Borrower must provide additional security acceptable to the Bank with adequate cover to the allowed ratio.  Failing which, the Bank is authorised to uplift, realise, collect or sell as the Bank may think fit and without being liable to the Borrower for any loss, all or any part of the pledged Securities and/or Cash Deposits without any notice to the Borrower, and to apply the proceeds in satisfaction of the Borrower’s indebtedness crediting the Borrower’s account with the excess balance, if any.” (bold in original)

H.  3^rd Facility Letter

45. Paragraph C, Pricing and Conditions

“Unless otherwise provided herein, interest and commission(s) on the Facilities will be charged at the Bank’s standard rate that may be varied from time to time at the Bank’s discretion.

Revolving Term Loan

…… Interest: Interest will be charged at the following interest rate (as calculated by the Bank), on the outstanding amount from drawdown until repayment in full, as conclusively calculated by the Bank, payable at the maturity of each advance. For loan outstanding below HKD100,000,000.-: Bank’s Cost of Funds plus 1% per annum. For loan outstanding exceeds HKD100,000,000.-: Bank’s costs of Funds plus 0.6% per annum. ……”

46.  Paragraph D, Security and Conditions Precedent

“The Facilities will be made available or continue to be made available to the Borrower provided that the Bank has received each of the following, in a form and substance satisfactory to the Bank:

1. This letter duly executed by the Borrower.

2. [General Agreement] duly executed by the Borrower.

3. All monies Charge on Cash Deposit(s) and all monies Mortgage over Stocks. Shares and Other Securities duly executed by the Borrower in respect of Cash Deposits and/or Securities as defined below and such other investment assets or products as may be acceptable to the Bank from time to time The value of the securities charged, which the Bank has the absolute right to determine, must at all times be maintained at an amount acceptable to the Bank.  ……

……

47.  Paragraph E, Facility Adjustment and Top-up Requirement

“The facility limit of Revolving Term Loan Facility may be reduced from time to time at the discretion of the Bank to such extent that the Loan to Value Ratio calculated by the Bank at its absolute discretion (“LTV Ratio”) shall not exceed the maximum figure determined by the Bank ……

……

If the sum of the Margin Deposits and the Leveraged Deposits (in USD terms) pledged falls below 103% of the total value of the loans drawn (in USD terms), the Bank may take any action(s) deemed appropriate at its entire discretion, to liquidate all or part of the Margin Deposits and/or the Leveraged Deposits and/or loans by way of, including but not limited to, purchase or sale of currencies, contracting forward exchange rate(s), repayment of loan(s) or uplifting of deposit(s), or any combination of the above.  Any such action(s) shall be on a “reasonable-efforts” basis on the part of the Bank without liability on its part and will not necessarily limit the loss of the Borrower to such 103% amount or any other level because of changing market and trading conditions.

Without prejudice to our rights mentioned above, the Borrower shall comply with (and procure any security provider to comply with) at all times the security coverage ratio(s) specified in this letter or as may be determined by the Bank from time to time.  If any of the security coverage ratio(s) shall at any time fall below the level required by the Bank, the Borrower shall provide additional security acceptable to the Bank and/or reduce the outstanding of the Facilities designed by the Bank …… from time to time.  Without prejudice to the rights of the Bank under this letter, the Bank is authorized, from time to time, to uplift, realize, collect or sell as the Bank may think fit and without being liable for any loss to the Borrower or any security provider, if applicable, all or any part of the securities pledged to the Bank without any prior notice to the Borrower or any security provider, if applicable, and to apply the proceeds in or towards satisfaction of the Borrower’s indebtedness owing to the Bank.”

48.  Paragraph G, Other Terms and Conditions

“The Facilities are available at the sole discretion of the Bank and are in all respects uncommitted.  ……

Notwithstanding any provisions stated in this letter, the Facilities are repayable on demand by the Bank.  The Bank has the overriding right at any time to require immediate payment of all principal, interest, fees and other amounts outstanding under this letter or any part thereof and/or to require cash collateralisation of all or any sums actually or contingently owing to it under the Facilities.

The [T&C] attached and/or referred to in this letter form an integral part of this letter and the Borrower agrees to observe and be bound by them.  On the event of any conflict or inconsistency between such Terms and Conditions and the provisions of this letter, the latter shall prevail.

The Bank will from time to time issue confirmation(s) in relation to the Facilities and statement(s) as to the amount at any time owing by the Borrower to the Bank.  The Borrower has the obligation to examine the confirmation(s) and statement(s) at once and report any unauthorised transactions in the statement(s) within 90 days.  The Bank reserves the right to regard the statement(s) as conclusive if no unauthorised transaction is reported within the specified period except in respect of any unauthorised transaction arising from forgery, fraud, default or negligence on the part of the Bank or any of its employees, agents or servants.  ……”

I.  T&C

49.  Paragraph 9, Treasury Facilities

“……

9.2  The terms included or referred to in the relevant confirmation issued by the Bank shall apply to all treasury related transactions between the Borrower and the Bank ……

9.6  The Bank has the right to close out and/or terminate any or all outstanding treasury related contracts of the Borrower if:

a)   the Borrower fails to perform any terms of the Agreement, including its default in payment;

b)  the outstanding contracts amounts exceed the facility limit(s) (if any) or the Bank’s risk exposure limit(s);

……

(d)  any circumstances have arisen or continued which, in the Bank’s opinion, might adversely affect the Bank’s position under the relevant contracts.

Upon closing-out or termination of the treasury related contracts, the Borrower shall pay to the Bank any loss incurred under those contracts.  Such loss shall be determined by the Bank (acting in good faith) based on the replacement market value of the contracts so closed-out or terminated, which determination shall be binding and conclusive on the Borrower.”

50.  Paragraph 10, Application of Proceeds

“10.1 The Bank may apply the net proceeds of any sale, disposition or dealing of the security of the Borrower towards the discharge of the Borrower’s obligations to the Bank in whatever priority that the Bank may determine.

10.2  The Borrower shall, upon demand by the Bank:

a)  provide such further security in form and value as may be required in the opinion of the Bank sufficient to secure any of the Borrower’s obligations to the Bank; and

b)  execute and deliver to the Bank any documents in form and substance satisfactory to the Bank over any of the Borrower’s assets as the Bank specifies in any such demand.

10.3  Save for negligence or wilful default, the Bank shall not be liable for any loss or damages or depreciation in value of any security granted in favour of the Bank due to the Bank’s exercise of any of its rights over any security.”

51.  Paragraph 11.1, Interest

“The Bank shall charge interest on any sum(s) outstanding or owing by the Borrower from time to time.  Unless otherwise specified, interest will accrue on a daily basis and shall be calculated, compounded and payable on such basis and in such manner as the Bank may determine in its absolute discretion.”

52.  Paragraph 21, Enforcement

“The Bank may take such action as it thinks fit to enforce the Agreement including without limitation including employing any third party agent to collect any sum owing to the Bank.  The Borrower is liable to indemnify the Bank for all reasonable costs and expenses (including the charges of any third party agent) which are reasonably incurred by the Bank in respect of such enforcement action.”

53.  Paragraph 22, Statement by the Bank

“A statement issued by the Bank as to the amount at any time owing by the Borrower to the Bank, save for manifest error, shall be conclusive for all purposes.  The Bank will from time to time issue confirmation(s) in relation to the Facilities, and the Borrower has the obligation to examine the confirmation(s) at once.  If no error is reported within 48 hours, the confirmation will be considered as correct.”

J.  4^th Facility Letter

54.  Paragraph C, Pricing and Conditions

[same as paragraph 57 above]

55.  Paragraph D, Security and Conditions Precedent

[same as paragraph 46 above]

56.  Paragraph E, Facility Adjustment and Top-up Requirement

[same as paragraph 47 above]

57.  Paragraph G, Other Terms and Conditions

[same as paragraph 48 above]

 

Schedule B

(unless otherwise stated, clauses in third column

refer to those set out in Schedule A)

Schedule C

Schedule D

Schedule E