1. This is another one of those claims arising from the collapse of financial markets that occurred in 2008. Having suffered substantial losses in their private banking accounts, the plaintiffs brought a number of claims against the defendant bank, formerly ING (‘the Bank”), for negligent advice, misrepresentation and breach of contract. This was a trial on liability only. I had directed on 15 January 2014 that the issues of proof of damage, proof of causation of damage, and mitigation of damage be dealt with at the assessment of damages, if any, by the Judge in charge of the Commercial List.

2. The mis-selling claims against the Bank were brought by the 1^st plaintiff (“Mr Chang), the 2^nd plaintiff (“Mrs Chang”) (collectively “the Changs”) and Mrs Chang’s company, the 3^rdplaintiff (“Nextday”), in which she was the sole director and shareholder. Mr Charles Manzoni SC led Messrs Jose Maurellet and Wilson Leung for the Changs and Nextday and Mr Ambrose Ho SC appeared with Mr Simon Chan for the Bank. Over the course of a trial lasting 8 days[1], a number of witnesses[2] gave evidence and a substantial quantity of documents were produced, including:

Bundle Contents Page No.

Bundle C1-C9 Telephone Recordings[3] 1 – 2202

Bundle D1-D9 Documents (Paper Bundle) 1 – 2319

Bundle E Appendices to Expert Reports (E-Bundle Only) 1 – 1469

Bundle F Exhibits to Witness Statement of Chau Kwan Siu Yvetti (E-Bundle Only) 1 – 1232

Bundle G Documents (E-Bundle Only) 1 – 5143

Bundle A was the Bundle of Pleadings and Bundles B1 and B2 contained the witness statements and the expert reports of Mr Solomon Green, instructed by the plaintiffs, and Dr Tom Vinaimont, instructed by the Bank. The expert reports were adduced without calling their makers, as there was a large measure of agreement between them[4] on the issue of the nature and risk of the products sold to the Changs and Nextday that were set out in Schedule 1 of the Amended Statement of Claim[5].

Mr Chang’s windfall in 1997

3. The Changs were a simple elderly couple doing their level best to present their recollections to the court. They answered counsel’s questions directly and spontaneously and gave their evidence in a straightforward manner. I have little difficulty in accepting their evidence.

4. Until Mr Chang’s windfall, Mr and Mrs Chang were a simple couple who led uncomplicated lives. Mr Chang was about 90 years old[6] at the time of trial and Mrs Chang was 80[7]. From 1975 to 1998, they lived in San Francisco. Mr Chang has been a janitor, an assistant cook, a manager, a messenger, a sandwich maker and a factory foreman during his life. Mrs Chang, a university graduate with a degree in education, had been a primary school teacher in the United States in the 1960s before she moved to Taiwan where she met Mr Chang. Sometime after their marriage[8], they moved to live in San Francisco in 1975. She did not resume work as a teacher there but worked in a number of different jobs, in the post office, as a movie theatre ticket vendor, a receptionist, and she was the cashier at a sandwich shop where Mr Chang made sandwiches. She worked two jobs at a time in order to pay for her son and the living expenses of the family. That was their lives until Mr Chang was 73, and Mrs Chang was 63.

5. At that time, in 1997, Mr Chang received a huge windfall through his family connection to Mr Pong of the Shiu Wing Group. Mr Pong gave Mr Chang, his relative, just under 1 percent of the shareholding of Shiu Wing Steel Ltd. It appears that he had a soft spot for Mr Chang’s family because Mr Pong had been assisted by Mr Chang’s father in the early days of his life. Also in 1997, the Shiu Wing Group sold a large portion of land in Rennie’s Mill and decided to pay a portion of the purchase price that it had received to its shareholders. Mr Chang received approximately HK$120 million.

6. Mr Chang gave away most of the money, including US$1 million to Mrs Chang. He kept less than half for himself. Shortly afterwards, they retired back to Hong Kong, and Mrs Chang became part of the entourage of the family matriarch, Mrs Pong, and, through her, she became acquainted with Ms Yvetti Chau of the Standard Chartered Bank (“SCB”). Ms Chau was known to her customers and acquaintances as Mrs Li (“Mrs Li”). Mrs Li was the customer relationship manager to some of the Pong family, and Mrs Chang, as part of that entourage, used to run errands for Mrs Pong at SCB. Mrs Li and Mrs Chang became good friends.

7. Prior to receiving money from Mr Chang, Mrs Chang had little by way of savings and her Hong Kong account at SCB, which she had kept and maintained even while they lived in San Francisco, showed assets in the region of only HK$450,000. Mrs Li handled Mrs Chang’s account at SCB and they were well acquainted with each other during the period of some 6 to 7 years from 1997 to March 2004, at which point of time Mrs Li moved to the Bank. During this period, Mrs Chang maintained some foreign currency-linked deposits in her SCB account and invested in some funds. Mrs Chang’s account in SCB was not a private banking account. Her investments were not leveraged and there was no margin trading and no options trading. When Mrs Li moved to the Bank, Mrs Chang did so as well and she opened a private banking account at the Bank with Mrs Li as her relationship manager. Being a private banking account, Mrs Chang was offered, and bought from, a wider choice of products. Some months later, Mr Chang also opened a private banking account at the Bank with Mrs Li as his relationship manager. Nextday was the investment vehicle for Mrs Chang and its account was opened in 2006[9]. Mrs Chang also persuaded David Peter Chang to invest some his money through Nextday’s account. It was only in August 2008, when David Peter Chang saw Nextday’s bank statements, that alarm bells starting ringing.

8. Were the Changs experienced investors? Did they become experienced investors during the course of 4 years or so from March 2004 until the second half of 2008? These are some of the issues for my determination.

Plaintiffs’ investment experience

9. I have looked at three distinct periods in the lives of Mr and Mrs Chang to determine their investment experience:

(1) Pre-1997: Before the Changs received their windfall from the Shiu Wing Group;

(2) 1997-2004: After receiving the windfall and while chiefly banking at SCB; and

(3) 2004-2008: when they had private banking accounts at the Bank.

10. Pre-1997, the Changs’ investment experience was minimal. Prior to receiving the huge windfall from Shiu Wing Steel Ltd., they had modest earnings and savings[10]. They had purchased small quantities of shares listed on the Hong Kong Stock exchange[11]. Such shares had been purchased by following the recommendations of friends,[12] and not because Mr and Mrs Chang had any investment knowledge. Mrs Chang had also purchased a small quantity of US Treasury bonds as part of an employee programme when she worked at the US Post Office.[13] I do not accept Mrs Li’s evidence in her witness statement that:

“As for Mrs. Chang, she is an experienced investor with over 30 years of experience trading in listed securities in Hong Kong [i.e. dating back to 1982]”[14]

11. From 1997-2004, the Changs made only low to medium-risk investments at SCB. Mr Chang’s accounts[15]show that his investments at SCB were limited to time deposits, foreign currency (including ‘currency-linked’ deposits), and mutual funds. Mr Chang had not invested in any derivatives or other complex investments.[16] Similarly, it can be seen from the statements for Mrs Chang’s account[17] that her investments were also limited to low to medium-risk investments: time deposits; foreign currency (including currency-linked deposits); mutual funds; and insurance. Like Mr Chang, Mrs Chang had not invested in any derivatives or other complex investments.

12. Mrs Li gave evidence that, during this period, SCB did not offer any complicated investment products to their clients;[18] that Mrs Chang never invested in structured notes, currency options, or geared trading;[19] and that Mr Chang only invested in simple, non-leveraged investment products.[20]

13. Mrs Chang’s risk profile at SCB can be seen from a document she signed when she bought a fund called AHL Diversified Futures Fund on 13 May 2003[21] which described her attitude to risk as:

“I want to preserve my capital but I am willing to accept small price fluctuation to enhance the potential return of my investment for a rate that is slightly better than the bank deposits.[22]”

Mrs Li accepted that this indicated that Mrs Chang had a low to medium risk appetite[23].

14. In the same form, boxes had been ticked indicating that Mrs Chang had experience in time deposits, guaranteed funds, foreign exchange and equities. Another box had been ticked indicating that she expected an investment return of “4-9% better than Savings Rate”[24]. This might seem to be a high rate of return at the present time but Mrs Li explained that, at that time, the savings rate for US dollars was either 3-4% or 4-5%[25]. Mrs Li, who handled her account at SCB, was the one who took her order[26] and filled in the form[27], which expressly stated that Mrs Chang did not have any experience in bonds, margin trading, non-guaranteed investments funds or derivatives.^{^[28]}

15. Mrs Chang’s age group was stated on the form to be “61-70 years old” (the second-highest group), an age group which is associated with a low to medium-risk appetite rather than a high-risk appetite. I have great difficulty accepting Mrs Li’s assertion that persons within the latter part of this age group are still in the ‘wealth creation’ phase of life[29].

16. The Bank’s biodata form on Mrs Chang dated 24 June 2004[30] stated that the client had experience with the following products: time deposits, high yields, mutual funds, foreign exchange margin trading[31]; and equity but no experience of structured notes, futures and options and of precious metals. Under §6B of the form, a vast range of products were ticked as “potential” products Mrs Chang might acquire[32]. Under §6C, dealing with client’s investment objectives, the following description was ticked[33]:

“To achieve income and capital growth over a business cycle, and the client understands that the returns on, as well as the value of his/her investment will fluctuate during that time.”

Under §7A[34], Mrs Li described the Changs as follows:

“Mrs. Chang Chen Theresa Linda whom I have been well acquainted for the past years. Her husband, Mr. Chang Pui Yin is the cousin of the famous steel company in Hong Kong, the Pong’s family. Mr. Chang is also one of the directors of Shiu Wing Steel Ltd. Mrs. Chang Chen Theresa Linda was first introduced to me by Mrs. Pong Hong Siu Chu, chairman of Shiu Wing Steel Ltd. Since then, the said Mrs. Chang started to trade with my previous bank, from initially AUM of USD120,000.- until to year 1999 and raised to the amount of USD1.00Million. It was also then I have gradually gained her trust, I began to convince her to invest in FX, Unit Trust, Insurance Products and Bonds. On & On, these sort of activities and banking relationship last until I left my previous bank.”

Mrs. Chang Chen Theresa Linda is only a common housewife[35], all her wealth and money for the investment are only part of her husband’s property, and also profits accumulated during those years when I served her. [My emphasis]”

17. In July 2005, Mrs Chang wanted to hold her assets under a BVI company and a private banking account was opened at the Bank in the name of Nextday, her investment vehicle. The biodata form for Nextday[36] described Nextday’s risk appetite as “medium risk” and its investment objective as “to achieve income and capital growth over a business cycle”. Nextday’s biodata form also contained a statement from Mrs Li as follows:

“Mrs. Chang is keen in investment in Hong Kong stocks and shares and has more than 30 years experience in the stock market[37]. Mrs. Chang has stayed with us for 1 year with present AUM USD2 Million and credit facility amounting for USD1 Million. The account has been conducted in a satisfactory manner. During the last year, she began to be familiar with High Yield Bonds, ELN, Currency Options etc. Nextday International Ltd, is fully owned by Mrs. Chang. She would transfer her wealth into Nextday International Limited and together with another USD2M from her son’s OCBC Bank account maintained in Singapore.”

18. Mr Chang’s biodata form with the Bank dated 29 October 2004[38] also showed that he selected the same investment objective as Mrs Chang. Mrs Li described him as follows:

“Mr. Chang Pui Yin, one of the directors of Shiu Wing Steel Ltd., a cousin of Mrs. Pong Hong Siu Chu. Mr. Chang is one of the pioneers of the famous Shiu Wing Steel Ltd. and worked together with Mr. Pong Ding Yuan, founder of the steel company for years[39]. R.M. Yvetti Chau knew Mr. Chang while still working with the Standard Chartered Bank where Yvetti was first introduced to him by his wife and meantime highly recommended as helpful, reliable and trustworthy by Mrs. Chang. The wealth of Mr. Chang is mainly accumulated from his earnings and profit from the steel company for the past years[40]. But a huge amount say around Hong Kong One Hundred Million Dollars were from his shares obtained by the selling of the mill at Junk Bay in 1997. Since then Mr. Chang involved more activity in investment like FX, shares and property sales. Yvetti is positive sure by now Mr. Chang’s wealth is a lot greater than before.”

19. These biodata forms indicated clearly that the plaintiffs were medium risk investors.

20. It became clear to me, during the course of her cross-examination, that Mrs Chang was not a knowledgeable investor during this period of time from 1997 to 2004[41]. Her investments in currency-linked deposits, currency switching contracts, and mutual funds were nothing like the complicated, high-risk products which she later purchased at the Bank. During this period, Mrs Chang did not engage in leveraging or carry trades, both of which increase risk substantially.

21. It was suggested that the “AHL Diversified Futures Fund”, a mutual fund Mrs Chang had purchased at SCB during this period, was a high risk fund.[42] However, there was little evidence of the risk inherent in this fund[43]. The risk level of the fund was not stated anywhere on the application form – the form had a space entitled “Risk Category” but that was left blank[44]. However, it appears clear from its name that the fund dealt with future contracts and, hence, were riskier than the other funds that Mrs Chang had purchased[45]. Even so, this single purchase[46] does not make me classify Mrs Chang as other than a medium risk investor during this period of time. I accept the evidence of Mrs Chang that Mrs Li did not explain to her what “futures” were[47].

22. Mrs Chang and her son, David Peter Chang, also maintained a bank account at Paine Webber[48] in San Francisco. There was a small amount of money in this account^{^[49]}. The Paine Webber/UBS bank statements from August 1997 to June 2013did not show any purchases of any complicated or high-risk investments[50]. The investment return objective was stated to be “current income & capital appreciation” and the primary risk profile was stated to be “moderate”^{^[51]}. The Paine Webber/UBS bank statements support my finding that Mrs Chang’s risk appetite was, at most, medium during this period of time.

23. When the Changs opened their accounts with the Bank in 2004, they had no prior experience in high-risk, complicated investments. It was only after they opened their accounts with the Bank that the Changs started purchasing large amounts of high-risk investments in the 3^rdperiod from 2004 to 2008.

Plaintiffs’ investment knowledge

24. I find from the evidence of the witnesses and from the documentary evidence that the plaintiffs’ investment knowledge was limited.

25. Their past experiences had not given them any real knowledge of investments. Mr Chang never graduated from university and did not learn to speak English[52]. I do not accept Mrs Li’s evidence that the Mr Chang was a “successful and sophisticated businessman”[53]. Mr Chang worked as a manager of plimsoll factories for 20 years[54] and then at a variety of modest jobs (such as janitor, assistant cook, and messenger) for 22 years.[55] Although Mr Chang was a non-executive director on the board of Shiu Wing Steel Ltd., such appointment was made in accordance with family tradition. Mr Chang never participated in Shiu Wing Steel Ltd.’s management or financial affairs.[56] Mrs Chang had obtained a bachelor’s degree in the United States and was fluent in English.[57] Her employment history consisted of 6 years as a primary school teacher[58] and then 23 years working in a variety of modest jobs.[59] Prior to Mr Chang’s windfall in 1997, they did not have the opportunity to make sophisticated investments.

26. It was clear to me from the evidence I received that Mr and Mrs Chang had very little real understanding about the investments they had made through the Bank.

27. Mrs Chang did not have any real understanding of how “currency-linked deposits” operated. She did not understand when she would receive Hong Kong dollars instead of the foreign currency:

“Q: Do you know that at the due date, the expiry of the contract, you may not in fact receive the same currency that you first deposited?

A: I did not know.

Q: But you certainly have been explained, for example, the three contracts, two in Hong Kong dollars, one in US?

A: Yes.

Q: It is always linked between two different currencies.

A: I did not know. At that time, I only knew that it’s called “linked” by the product name. But I did not know I might be receiving Australian dollars or Hong Kong dollars. I did not know.

Q: You knew about the contracted conversion rate.

A: I did not know. I did not know what that was.

Q: For example, in the three contracts that we looked at, going back to the G8 bundle. For example, page 3424-25, there is conversion rate 4.168. Page 3426, that’s Australian to US, 0.5345. Mrs Li had explained those to you, hadn’t she?

A: I’d like to tell you this, but I don't know if he would believe it or not.

Q: Sorry, I don’t understand.

A: He asked me why I signed these documents. At that time, Mrs Li told me that they were linked, and I did not understand the explanation.

THE INTERPRETER: The witness is pointing at the conversion rate on page 3424.

A: I thought this was the interest rate.”

She did not understand why currency-linked deposits provided a higher interest than ordinary bank deposits. Of course, she understood that a profit could be earned on these deposits:

“HIS LORDSHIP: Madam Chang, can I ask you to look at page 3424, the first of these three documents we have looked at. See, above the conversion rate, just two lines above, you see it says ‘Total interest rate’. And I’m sure the Chinese character is ‘Lai sic’, is it?

A: Yes.

HIS LORDSHIP: And it says 8.40 per cent.

A: That is the interest per annum, right? Yes, yes.

HIS LORDSHIP: So is this higher than the normal bank interest that you would get, by linking the currency?

A: I felt that’s the case.

HIS LORDSHIP: Did you understand why linking the currency would get you a higher interest rate?

A: I did not understand. Because she told me that I would be able to get a higher interest rate by doing this, and therefore I did it.” [60]

28. Mrs Chang gave evidence that she did not understand how equity linked notes worked and did not understand the meaning of “strike price”[61]:

“Q: Leave the point about whether you followed the recommendation. I just want to ask you, you did realise the operation of the investment, the linkage to the price of the stock.

A: But she did not explain to me about the operation.

Q: I just put it to you. Perhaps I won’t engage in a further debate. I just put it to you understood. It doesn’t show here that you have any problem understanding it.

A: The counsel thought I had an understanding in it, but I do not think I did.

HIS LORDSHIP: From what Mrs Li told you, can you tell us what you understood about how these equity linked notes worked?

A: I did not have a good understanding.

HIS LORDSHIP: Did you understand the term, for example, “strike price”?

A: No, I did not know what is meant by “strike price”.

HIS LORDSHIP: Did you understand that you would get interest for as long as the price -- does price not fall below the strike price? Even I'm having difficulties to remember how it works.

MR HO: No. If it falls below the strike price, they do have to receive the shares, collect the shares.

HIS LORDSHIP: Yes, exactly. So you understood that the note will give you interest so long as the price of the share was above the strike price?

A: No, I did not know.

MR HO: Well, you realised that there was a possibility of you receiving the shares, the underlying -- the linked entity, the linked stock.

A: No.

Q: Entry 178. Mrs Li was saying:

‘So if you sometimes have chosen a good stock, and if [you] would not mind if you really received the shares, then do those ...

TC[62]: That's right, that’s right.’

A: Anyway, whatever she did, I said yes.”

Later on, the following exchange took place during Mrs Chang’s cross examination:

“Q: ... This is bundle C2, page 410. We have looked at that before. At entries 177 and 178 – we have looked at this before. It is a transaction that is linked with HSBC.

A: Yes.

Q: If you have to receive the shares, it depends whether those shares were good quality shares or not; isn’t that right? That is something you would consider; isn’t that right?

A: Correct.

Q: If it is a good stock, then you would be comfortable to receive the stock if you had to.

A: Yes.

Q: Of course, if the stock, after you receive them, rose in price, then you could actually sell them off at a profit.

A: Correct.

Q: Of course, if unfortunately it dropped in price, then you would have to decide whether to hold on to them or sell them at a loss.

A: Correct.

Q: You understood this operation all along.

A: She told me and therefore I understood.

Q: The important thing for you is what price was it being bought – sorry. The price at which that contract was set, like the strike price, and how much money would that involve, and is that a good stock; is that right?

A: That was said by Mrs. Li.

Q: Yes, but she told you.

A: Yes, I trusted her. Whatever she said, I just believed her.

Q: Yes, but she told you, for example, like we saw, the price, the strike price of a particular contract?

A: She said that, and I believed that’s a correct one.”

I find that Mrs Chang knew that she might receive shares, instead of the money she had used to purchase the equity linked note, if the share price went below the strike price; but I also find she did not understand why that was so. The important thing was for her to know what the stock was, what the current price was, and what the strike price was, so as to be able to evaluate the underlying risk of the equity linked note. Whether Mrs Chang knew these matters is the subject of my determination below.

29. She did not understand what currency switching contracts[63] were. She did not understand the nature of the mutual funds that she had bought at SCB, although she understood that, just like stocks, she could make a profit from these funds if they rose in value and a loss if they fell in value.[64] Mr Chang also did not have an understanding of these funds, which were “recommended by someone and I was told that they were safe.”[65] They had even less understanding of the more complicated products like knock out daily accumulators, other than knowing that they would be buying a certain number of shares every day[66].

30. The Changs did not have more than a very basic understanding of the products they were purchasing. They relied on Mrs Li to make good returns. The following evidence of Mrs Chang aptly sums up their dealings with Mrs Li[67]:

“25.  To be honest, I did not really understand much about the investments which I was making through Mrs Li at Standard Chartered. For example, although I knew that I was making “currency-linked deposits”, and that these somehow involved linking two foreign currencies (e.g. AUD and USD), I did not really understand how they worked or when I would make a profit. I just knew from Mrs Li that I would receive a higher interest rate than ordinary deposits. Similarly, although I knew that I was buying mutual funds, I did not understand what kind of funds these were or what companies they invested in. I simply followed Mrs Li’s recommendations.

26.  The most important thing in my mind was whether, by following Mrs Li’s recommendations, I would be able to make satisfactory returns. Because Mrs Li’s recommendations did help me to do this – which I knew because I saw the total funds in my account increase over time – I continued to follow her advice, and my trust in Mrs Li became increasingly stronger.

...

68.  Basically, I trusted Mrs Li completely and relied on her recommendations. In short, Mrs Li took charge of both my money and my Husband’s money, and we were quite happy for her to do so. This was because of my long-standing relationship with her and the fact that she had delivered satisfactory returns to me throughout the years (a fact which Mrs Li reminded me of from time to time). Even when I suffered a loss, Mrs Li would reassure me that she would keep an eye on the market and recover my loss, and I would believe in her reassurance.”

I do not accept the Bank’s submissions that the Changs exaggerated their ignorance[68].

31. Mr and Mrs Chang understood certain rudimentary precepts of investment, such as “investment involves risk”[69]; “the price of investments can rise or fall”, that, if a fund is not principal protected one may suffer a loss of capital [70]; and that, generally, “the higher the risk, the greater the reward”[71]:

“Q: By indicating that you wanted 4 to 9 per cent return above saving rate -- that means you wanted something like 5-6 per cent to 10-11 per cent return -- did you realise that you would be assuming also risk in the investment?

A: I do not wish to take high risk.

Q: But you knew there were risks involved.

A: Yes, correct.

Q: The higher the risk, the greater the return, or the other way around: the greater the return, the higher the risks.

A: That's why I do not wish to take very high risk.

Q. Does that mean you agree with me? You realised the higher the return you wanted, the higher the risk that you need to assume?

A: Yes.”

Mrs Chang was aware of different risk levels and she knew that her appetite for risk was higher than for some other people:

“Q: ... May I just go straight to (entry) 97 and 99. At 97, you said: “That’s right. So I said, so we bickered” – meaning you and your husband: see, “the scared ones, like ‘Ah Lin’ and the two daughters[72] would not do it, I said tens of times, I said ‘Ah Lin’ wouldn’t do it, my two daughters cannot do it, isn’t it right?” Then you said again: “So those people are playing safe, are they not.” So you knew that you were taking higher risks than some of the other people.

A: Correct, but they did not know Mrs. Li, but I did. I believed Mrs. Li was a smart person. She’s a good manager in managing assets and so I trusted her.”[73]

Mrs Chang tried to persuade Mrs Li to accept an investment from Mrs Chang’s daughter to enable her to get a higher return but the Bank’s minimum investment requirement could not be met. The following evidence from Mrs Chang’s cross-examination is telling[74]:

“MR HO: All the time you were asking Mrs Li to do the investments, in this case for the daughter, to achieve higher returns.

A: Agreed.

Q: Even though you knew that for people like the daughter, she had very little money and she had a conservative appetite for risk.

A: I was only asking Mrs Li to see if it’s possible for her to do it. But eventually she did not do it. Because at that time I was lucky to have met Mrs Li, who was smart and helped me to earn some money. So I would like to see if she could also earn some money for my relatives and friends.

Q: Yes. You don’t really care about risk at all, Mrs Chang.

A: It was not that I did not care about risk. It’s because Mrs Li did not tell me how risky those investments could be. She did not tell me I might suffer great loss and I might not be able to stop it.”

Mrs Chang clearly wished to obtain a higher return but she was not reckless about the risks that she was willing to take to obtain such returns.

32. There is no denying the fact that Mrs Chang wanted good returns on her investments. During her cross-examination, Recording No. 38[75] was played in Court before the following exchange took place[76]:

“MR HO: Thank you. In that conversation, Mrs Chang, you were very concerned about your rate of return.

A: Correct.

Q: It sounds like you weren’t happy with just 8.85 per cent return for that year.

A: But I laughed and Mrs Li laughed as well. She said there were still two months to go, and so I was not that unhappy.

Q: Well, you were asking about last year, and she told you it’s about 18.8 to nearly 19 per cent.

A: Correct.

Q: And you compare that figure with this year, only 8.85 per cent, and at entry 46, you asked:

‘... how [do we] catch up in these two months?’

A: Yes.

Q: So you wanted Mrs Li to try and catch up for you in the November and December months to some higher level than 8.85 per cent?

A: Of course I wanted that to happen. I wanted that because I believed she's smart.

Q: It’s not that you wanted that to happen, you asked her to.

A: No, I did not.

Q: Well, in the last conversation, we heard you imploring with her to ‘jui fan’, recover, catch up the loss.

A: In the last conversation, I pleaded to her. I asked her to try to recover it because I was afraid I might suffer a loss. But here, in this conversation, I was making a profit, so it didn't matter whether I earned a lot or earned a little.

Q: You must have realised, did you not, that in order for her to try to bring the profit of the investments up from 8.85 per cent to anywhere near last year’s 18 per cent, it would involve a jump of the profit return of some 10 per cent?

A: At that time, I had no idea what she had to do. Actually, I just allowed her to do whatever she wanted.

Q: Yes, but you gave her a goal to try and match last year; isn’t that right?

A: I did not set a goal for her. I was only asking her about it. I asked her about last year, the year before, and the two years before. And, actually, she was not doing that good last year if compared with the year before.”

However, this was not a case where Mrs Chang was reckless or turned a blind eye to the risks involved. It is very telling that during Mrs Li’s re-examination[77], Mr Ho retracted the question he had first formulated:

“Q: Did you at any time form any view that Mrs Chang did not understand that she was taking substantial risk? Sorry, I should rephrase the question: that she was taking risk in her investment.

A: She knew she was taking risks.

Q: Is there any time that you think that she did not realise what sort of risk she was taking?

A: She knew she was taking risks.”

Yes, Mrs Chang knew she was taking risks but did she know how very substantial were the risks that were being taken? Mr Chang’s concerns that Mrs Chang trusted Mrs Li too much, that Mrs Chang might have done something that was beyond her ability, and that Mrs Chang might have been exposed to too much risk[78], which subsequent events proved to be justified, does not lead me to draw the inference that Mrs Chang was reckless about the risks she was taking.

33. During a telephone conversation with Mrs Li in October 2007 regarding idle money in Mrs Chang’s bank account, Mrs Chang asked: “so does the money with you get interest like at a bank?”[79] Had Mrs Chang been a knowledgeable investor, she would not have asked such a question; instead, she would have known (after more than 3 years into her private banking relationship with the Bank) that her idle money did earn interest. Her lack of knowledge is well demonstrated by the following recording:

“Recording No. 24, Utterances 186-206, 2 Oct 2007, C2/245-250:

TC[80]: Our things (neh), because my husband asked you to find out, our money placed with you besides what you had done, how much profit was made, so that is, the account, eh, does it, if, so does it have idle money?

YC[81]: Has idle money.

TC: That is, that is, is there...is there? That is, for example if we have stocks here, they sometimes have money in a cash fund.

YC: There is.

TC: Is there?

YC: There is.

TC: So does the money with you get interest like at a bank?

YC: Yes, even higher than theirs, the interest.

TC: Oh? Does that mean, does that mean, like what you said before it is higher, higher than Standard Chartered by half a percent?

YC: That is right.

TC: Those idle money.

YC: The idle money is collecting interest. At the same time you have fixed deposits.

TC: Have fixed deposit also? But how do you take out the money from fixed deposits?

YC: How do I take out the money? That is why I am scheduling the dates for you, am I not? For example, {when I} have bought things for you, when is the settlement, payment, I schedule the dates for you when to do what don’t I? I will monitor for you when payment is due. I have scheduled the dates already. If nothing was done for you, the money would be put into fixed deposit, like that.

TC: Yes so, you do that everyday, how could there be a fixed deposit? How can there be a fixed deposit? You fixed deposit... a fixed deposit takes quite a long time.

YC: Look, because, look, when I do fixed deposit (neh), we have to see whether it is for long or short term. So often I would do two weeks for you. Right, so we do... we for example let’s say Mrs Chang bought something today. But to buy today, does not mean pay today, payment occurs two weeks afterward.

TC: Orr.

YC: So, it turns out sometimes, there is some spare money, I would put it in fixed deposit for you.

TC: So, you mean, that is, two weeks fixed deposit is still better than ordinary interest.

YC: Right. That’s right.

TC: Orr”

It was clear to me, from the fact that Mrs Chang asked such questions some 3 years after she had opened her private banking account, that she did not acquire any significant investment knowledge from the operation of the account over the course of the previous 3 years.

34. I find from Mrs Chang’s evidence[82] and the tape recordings[83] that she naively and genuinely believed the advice she had been given that she would be able to borrow[84] at 2% and could make a return of 8%. She mentioned this when she complained to Mrs Li on 8 August 2008 about the losses in her account after she had been alerted by David Peter Chang[85]:

“TC[86]: Because he took one look and knew that I basically don’t understand ... To tell the truth I don’t! I was wrong! I did not know what you were doing, but you ... you ... you still ... you said you really should not have done ... done this kind of thing for elderly people like us.

YC[87]: Hm.

TC: Isn’t it right?

YC: Hm.

TC: Well we are so ... so old, how could you ... possibly ... possibly do such risky things (neh)? But you ... at that time, you told me, at that time, I was very happy! Because you said eh, borrow at 2 per cent interest, and then ... and then the interest we receive is several per cent, did you not say it like that? You said can make 10 something per cent perhaps 10, 8.

YC: Hm, right, yes.

TC: Well, you ... how could you ... possibly think would ... would ... would lose money ...? You tell me, under such circumstances, how could one possibly think one would lose money?

YC: Nobody could have imagined, because the general trend changed, nobody could know that the change would be so fast.

TC: ... It is not possible that you people did not think of it! You people ... you people who are in the financial business. It is not possible that you are like this. But I am stupid and foolish. Besides you ... do you remember I told you, look, at that time when you were eh, making so much money, it was roaring so happy. Well I ... I ... I immediately ... I told you, I said, look, if you start to lose my capital, then you must stop immediately and you said okay! You promised me! How is it possible that you have lost so much and you still ... you still did not know ...?

YC: But that is, when it was time to do something about it, it was already too late, That is to do something at that time really ... hm ...I don’t know how to say it.”

Mrs Li did not deny during that conversation that she had previously advised Mrs Chang that she could borrow at 2% and make a return of 8%. Indeed, she accepted that she had given such advice[88].

35. Of course, Mrs Chang rightly accepted that investments could end up with a loss, that the Bank did not give a guarantee about her profit, and neither was she expecting a guarantee:

“Q: If you were to borrow money at 2 per cent and if you put the money into an investment, you knew that the investment can produce a profit or may end up in a loss; correct?

A: But if she made good investments, since ING offered lots of investment products, if she made good investments, then there would not be any loss.

Q: Yes. But by the very nature, you must understand that investment may end up in a loss.

A: Correct.

Q: So if you borrow money and put the money in an investment, you could possibly end up in a loss.

A: Correct.”[89]

...

“Q: All you could say is that you had wanted the value of your investment to rise, without any guarantee that it would.

A: I did not ask her to guarantee that.

Q: I see. And you know that she could not guarantee that.

A: And she would not guarantee that either.

...

Q: ... Equally, she did not say that your capital would be guaranteed; correct?

A: But when she said that to me, what did she mean? She said “you have nothing to worry about”. She said she would guard my position for me. She would look after me.”[90]

She trusted Mrs Li and believed that Mrs Li would safeguard her from loss. She did not expect that she could lose all her capital. Mrs Li did not explain that to her[91]:

“Q: Also you were happy to borrow funds, because for example if you want to invest in a product of a particular currency and if you don’t have that currency at hand, you could borrow that currency to do the investment.

A: I had no idea which currency I had to borrow at that time. It’s not that I did not realise there is a possibility of suffering a loss, but I did not expect to lose all my capital.

Q: But just coming back to the borrowing of currency. At the time after you had obtained the facilities, the credit facilities from the bank, you realised that you would be able to borrow a certain currency in order to make investment; correct?

A: That’s not what I said. It’s what Mrs Li said.

Q: Yes, she told you so, and you accepted that.

A: But she did not tell me that I might suffer a loss, I might suffer a loss which I could not stop, which I could not cut it, and she did not tell me that after I had lost all my assets or capital, I would still be owing the bank some money. She did not mention these things.”

36. I do not accept the submission that David Peter Chang’s investment knowledge could be attributed to Nextday after his appointment on 27 January 2006 as an authorised person to manage Nextday’s account.[92] Although David Peter Chang had worked in a number of investment management firms, he worked exclusively in back office roles, with no involvement in analysing or selecting investments.[93] He had not held an investment portfolio in his life other than a “401(k)” retirement account.[94] I find that he was neither a knowledgeable nor a sophisticated investor. I also find that David Peter Chang never assisted Mrs Chang in choosing investments and that he did not sign any documents relating to the investments in Nextday’s account.[95]

Plaintiffs’ investment objectives and risk appetite

37. I accept the evidence of the Changs[96] that their investment objective has always been to preserve their capital and achieve a return that was slightly better than bank deposits. At no time did the Changs ever tell Mrs Li (or anyone else at the Bank) that they wanted a “higher return” or that they were “growth-oriented” investors. Mrs Chang, in particular, expressly reminded Mrs Li that if there was ever a risk of losing capital, Mrs Li must stop the investments for her.

38. When the Changs opened their accounts with the Bank (in 2004), Mr Chang was 80 years old (or 76 years old according to his Hong Kong identity card)[97] and Mrs Chang was almost 70 years old.[98] They enjoyed a modest lifestyle and lived in a mortgage-free flat owned by them.[99] Their age corroborates my finding that their investment objective in 2004 was moderate.

39. My finding that the Changs’ investment objective was moderate up to 2004 is also corroborated by the biodata forms I have referred to above. It is notable that in Mrs Chang’s bio-data dated June 2004, which was filled in by Mrs Li[100], the option:

“To achieve high level of returns and capital growth for the long term, and the client understands that his/her investment will be subject to a high degree of volatility over the short term and the possible loss of his/her principal investment in order to accomplish this”

was not ticked. Similarly, in Mr Chang’s bio-data form dated October 2004, also filled in by Mrs Li[101], the same option was not ticked.

40. When the Nextday account was opened in July 2005 to replace Mrs Chang’s personal account, a similar bio-data form was created for Nextday. That bio-data form explicitly described Nextday’s risk appetite as “Medium”and its investment objective as “To achieve income and capital growth over a business cycle ...”[102] Mrs Li admitted during cross-examination that Nextday’s investment objectives were those of a medium risk investor[103], which was consistent with Mrs Chang’s risk profile, as was also accepted by Mrs Li.[104]

41. Mrs Li accepted that, at the time when the plaintiffs opened their respective accounts with the Bank in 2004 and 2005, they were classified as medium-risk investors.[105]

42. I now turn to consider the Bank’s ‘visitation reports’ starting with the one dated 19 October 2006 in respect of Mr Chang[106] and 20 October 2006 in respect of Mrs Chang[107]. Both of these visitation reportsexpressly stated as follows:

“4. Is there any change to the clients’ investment objectives and risk appetite? NO.”

Mrs Li admitted that this was an accurate statement.[108] A further visitation report dated 16 July 2007 for Mr Chang[109]also gave no indication that Mr Chang’s risk appetite had changed, as Mrs Li accepted[110].

43. On 13 August 2007, the Bank’s compliance department sent an email to Mrs Li[111], which correctly identified that Mr Chang and Nextday had a “medium” risk profile but which noted, however, that the value-at-risk (“VaR”) of Mr Chang’s and Nextday’s portfolios was in the high risk zone. Given this mismatch, the compliance department requested Mrs Li to review the portfolios, and to either change the clients’ risk profile or re-balance the portfolio to conform to the existing risk profile.

44. As a result of that email, Mrs Li had a telephone conversation with Mr and Mrs Chang on 24 September 2007[112]. Mrs Li began by telling Mrs Chang that the Bank had always categorised Mrs Chang as a medium risk investor in the past but that the investments which Mrs Chang had purchased over the past year would put her in the high-risk category:[113]

“YC[114]:... In the past (neh), we know, we have always categorized you as medium risk, er, as a medium risk client. But since we have done some equities, some FX’s options, so it has now changed, if at present time, we would categorize you as high risk.”[115]

Mrs Li further explained, with regard to the investments which had been purchased over the past year:

“YC: We have done stocks, have over done it”[116]

As I had noted[117], this was an understatement of what had been done with Mrs Chang’s portfolio: Mrs Chang’s account contained the most volatile and high risk investments, which I have set out below, and not merely “stocks”.

45. Mrs Li then promised Mrs Chang that she would re-adjust Mrs Chang’s portfolio back to the medium risk level. She did not say that she would change his risk profile:

“YC: Uh, uh, uh, right, right. That’s why we have to gradually start to have some adjustment. If the, the bond market improves (neh), I will adjust for you. As soon as there is money, would transfer to invest in bonds. ... Right, that’s why we have to do something more balanced, will gradually adjust for you.” [118]

“YC:... But we have done a lot of foreign exchange, and we will slowly re-adjust...Slowly re-adjust.” [119]

“YC: We will re-adjust {the asset allocation} slowly.”[120]

Mrs Chang’s reaction is strong evidence of her lack of financial knowledge and of her reliance on Mrs Li. Mrs Chang appears, from this conversation, to have little idea about what was going on, and simply trusted Mrs Li to do the right thing. Mrs Li, meanwhile, was trying to downplay the fact that Mrs Chang’s portfolio had become a high risk one[121]:

“TC[122]: Why is that?^{^[123]}

YC: Ah, because of investment in those, those products. But you have done it for so long, do you feel anything peculiar? You don’t, do you? It is just the same, it does not affect you whatsoever, but the bank would categorize this way.

TC: I wouldn’t know, that’s what you say.

YC: (Laughing sound)

TC: What do I know?

YC: (Laughing sound)

TC: But in the United States, I don’t know how you would do it. In the States, old folks like us, so called “antiques” they would not do high risk.”

And a little later[124]:

“TC: If you say ok, then it is ok for me, as long as you don’t make it to very bad, then it is alright.”

46. Mrs Li then had a similar conversation with Mr Chang[125]. Mrs Li promised Mr Chang that she would re-adjust his portfolio down to the medium risk level. She did not say that she would change his risk profile:

“YC: Orr, ok. It’s nothing, Mr Chang, I want to tell you first, because since the beginning of this year until now, we have done stocks, done more of those foreign exchange things, in the past, we also did stocks, foreign exchange and added some bonds, so that means, at that time, the risk level in investment was medium. Then this year, we bought less bonds, therefore changed, became heavier weighting in stocks and foreign exchange, therefore (neh), the bank (neh) had categorized {you} in what we call high risk. But not to worry, we can gradually re-adjust, this is just to let Mr Chang know.

CPY[126]: Yes.

YC: Is that alright?

CPY: I, is it alright to wait until I am back?

YC: Orr, alright, alright, but I still anyhow, I have to let you know.

CPY: Yes yes.”

47. However, instead of re-adjusting their portfolios back down to medium risk, the risk profile of Mr Chang’s and Nextday’s account was changed to “high risk” on the very next day, 25 September 2007, as can be seen from the bank’s internal document of the same date[127].

48. Indeed, after September 2007, more than US$14 million worth of high risk products were sold to Mr Chang and Nextday[128]. An example of a high risk investment product sold to the Changs after September 2007 was a bond issued by Russian Standard Bank with a yield of 8.625% that Mrs Chang purchased in May 2008. It was clear from the high yield that this was a non-investment grade bond. The following extracts show how this came to be purchased[129]:

“YC[130]: It is this eh previously spoken to you about, that Russian Standard Bank.

TC[131]: Wouldn’t owe money, would it?

YC: It wouldn’t, this is good. The interest of this has eight point six two five, matures in year 2011.”

...

“TC: Bonds don’t have risk then?

YC: With bonds (neh), just sit still and collect the money...

TC: I remember my husband in the past, that, that, that, Standard Chartered that manager bought for him. As soon as he bought it, it fell ... on the following day fell by one hundred thousand!

YC: Hm, well it could happen to anything ... well ...

TC: Then you are taking big risks!

YC: But this one, this one is a eh Russian bond is...that is, a bond by a very big bank in Russia, we had bought it before, it is good stuff.”

49. The risk appetite of Mr Chang and of Nextday was described in the Bank’s bio-data form in respect of Mr Chang[132] (printed out on 10 December 2010 but last modified on 22 April 2008), and in the Bank’s bio-data form in respect of Nextday[133] (printed out on 7 December 2010 but last modified on 17 April 2008), as “Aggressive Investor”. It is the Bank’s case that the nature of their portfolios were such that the Changs and Nextday were, and had been, in the high risk category for a substantial period of time, notwithstanding the statements in the earlier biodata forms I have reviewed above. Mrs Li’s evidence was that they became high risk investors by reason of the great amount of investment products they had purchased.[134] However, this evidence was inconsistent with Mrs Li’s evidence that Mrs Chang always had a medium risk appetite.[135]

50. I defer my determination of the proper classification of their portfolios from 2004 to 2008 until after I have conducted a detailed review of their portfolios and the interaction between Mrs Li and the Changs over this period of time. Clearly the fact that they were motivated by the prospect of earnings profits[136] does not assist me on this issue. Every investor is motivated by profits. The proper question to ask is whether or not they made informed choices to invest in riskier products for higher profits.

Investments were high risk

51. I have no difficulty concluding that the investments products sold by the Bank to the Changs and Nextday, were, with minor exceptions, high risk products. They are listed in the Schedule to the Amended Statement of Claim[137] and included a large number of:

(1) Equity linked notes (including ‘bull’ notes, ‘quanto range accrual’ notes, ‘wedding cake’ notes, notes with multiple underlying stocks, ‘renewable opportunity certificate with accrual’ and ‘benchmark index participation security’)[138]

(2) Foreign currency options and accumulative forwards (including ‘vanilla’, ‘knock-out’, and ‘knock-in-knock-out’ varieties)[139]

(3) Knock out daily accumulators[140]

(4) Foreign currency loans[141]

(5) High yield bonds (also known as non-investment grade bonds)[142]

(6) Equity options[143]

52. In the Bank’s own product risk rating table (issued in June 2012 to its clients)[144]: The following products, amongst others, were rated as “Very high downside risk” (the highest category):

(1) Bonds rated below B+;

(2) Foreign exchange margin trading;

(3) Non-principal protected notes (with underlying rated 5 ormultiple underlying reference assets or embedded leverage);

(4) Non-principal protected notes with tenor greater than 2 years irrespective of underlying;

(5) Exotic options and non principal protected notes/options with multiple reference assets, with kick-in level equal to or greater than 80% (buy and sell);

(6) Plain vanilla options (sell);

(7) Covered call options (sell) on non-blue chip equities; and

(8) Exotic options (including accumulators/decumulators).

The following products, amongst others, were rated as “High downside risk” (the second highest category):

(1) Dual currency investments;

(2) Non principal protected Notes (underlying rated 4 or below and tenor less than 2 years);

(3) Exotic options and non principal protected notes/options with multiple reference assets, with kick-in level less than 80% (buy and sell);

(4) Bonds rated BB+ to B+[145];

(5) Plain vanilla options (buy); and

(6) Covered call options (sell) on blue chip equities.

53. Similarly, in the Bank’s bio-data for Mrs Chang (which was printed out on 10 December 2010 and last modified on 2 June 2007)[146], the following were all listed as high risk products:

“Bonds – High Yield

Leveraged Derivatives/Structured Products

Commodities

Securities Margin Trading

FX Margin Trading

Futures/Options Trading”

In a letter dated 9 December 2008 responding to Mrs Chang’s complaints, the Bank explicitly characterised the investments made by Mrs Chang during her time at the Bank as “high-risk investments”[147]. It was clear from the Bank’s own materials that the vast majority of the investment products being sold to the Changs and Nextday by the Bank were high risk products.

54. My conclusion is supported by the expert opinion of Mr Green, who has analysed the risks contained in each category of investment product and, based on that analysis, assigned a risk rating to each category (with 7 or above being ‘high risk’ or higher)[148]. In Mr Green’s view, which I accept as fair and balanced:

(1) Equity linked notes in general have a risk rating of between 6 and 10 (depending on the contract duration; creditworthiness of the issuer; riskiness of the underlying security; and the exact structure of the note).[149]

(2) Foreign exchange options have a risk rating of 5.[150]

(3) Foreign exchange forwards and swaps have a risk rating of 6 to 7.[151]

(4) Accumulators have a risk rating of 9 to 10.[152]

High risk portfolios

55. The chief reason why I directed that the experts to provide the Further Joint Statement was to give Dr Vinaimont an opportunity to comment on the risk of the plaintiffs’ portfolios as a whole (as opposed to the risk of the individual investment products)[153]. However, although Dr Vinaimont has apparently conducted a month-to-month analysis of returns generated from the Changs’ and Nextday’s portfolios, that analysis did not contain any opinion on the risk contained in the plaintiffs’ portfolios. Instead, it simply calculated the monthly investment returns on the plaintiffs’ portfolios[154] which I find to be little assistance to me.

56. Mr Green, the plaintiffs’ expert, has impressive theoretical knowledge about finance and investments as well as extensive practical experience in investments. He is a Fellow of the Institute of Actuaries[155]. He has founded and ran, for 22 years, a boutique investment management firm that managed more than £500 million (equivalent to £1 billion in today’s money). During this time, he was actively involved, on a daily basis, with asset allocation and investment selection for the firm’s clients which included pension funds, charities, insurance companies, and high net worth individuals[156]. He has managed major pension funds in the UK for 10 years;[157]has lectured and published articles on various aspects of investment (including measurement of portfolio performance; passive investment; investing in global securities; and investment alternative);[158] has acted as a director of a life assurance company, two investment trusts, and several mutual funds;[159] was chairman of the Portfolio Performance working party of the actuarial profession; as well as founder and convenor of the Joint Bond-Rating Working Party of the Society of Investment Analysts and the Institute of Actuaries;[160] and has acted as expert witness in about 400 court cases.[161]

57. By contrast, the activities of Dr Vinaimont, the Bank’s expert, have been wholly academic, apart from the one year that he worked as a portfolio manager at the beginning of his career[162]. He has also acted as an expert witness. However, he did not specify the number of court cases in which he had been involved. Whilst I take full notice of Dr Vinaimont’s academic achievements and give him credit for them, I have some difficulty understanding his reluctance to assign any risk rating to the Changs’ and Nextday’s portfolios at the Bank. Dr Vinaimont accepts that VaR[163] is a measure commonly used in financial institutions[164] but then goes on to say that it is “impossible to rank investments qualitatively from low to high”[165]. I have noted Dr Vinaimont’s explanation as to why it is “impossible” to rank investments from high to low[166] but I prefer the approach of Mr Green, an experienced investment manager, who understands that although ‘risk rating’ is not an exact science, one can get a fairly good sense of whether a particular investment product or portfolio carries low, medium, or high risk.[167]

58. I also find it surprising that Dr Vinaimont holds the view that the risks involved in buying an accumulator “are aligned with....buying stocks outright”[168] and that “the loss, in dollar terms, from the [accumulator] should not be instrumentally different from that of buying the stock”[169]. He appears to be saying that accumulators are no riskier than equities. Dr Vinaimont’s view is based on “comparing investments in a number of stocks with an equivalent (maximum) number of stocks in the [accumulator]”[170]. In practice, however, an investor is unlikely to be choosing between buying a certain number of shares in a company, and buying an accumulator where the maximum number of shares that he has to take is the exact same number of shares. I find that Dr Vinaimont’s view to be of little relevance in the real world.

59. I prefer Mr Green’s expert evidence over that of Dr Vinaimont where the two hold conflicting opinions. I readily accept that the assessment of the risk level of investments contains an element of subjectivity and is an inexact exercise but I cannot accept Dr Vinaimont’s opinion that it is impossible to rank investments from high-risk to low-risk. Reasonable people may differ as to whether accumulators should be rated as “9” or “10” on the risk rating scale, but no one would find it difficult to rank accumulators as being more risky than bonds. Indeed, Dr Vinaimont’s statement is contradicted by the Bank’s own materials which give different risk ratings to various investment products. In any event, Dr Vinaimont himself agrees that the investment strategy contained in the plaintiffs’ portfolios contained substantial risks. As he stated in the Joint Statement[171]:

“The strategy followed aimed for potential higher returns and contained substantial risks.”

60. Not only were the vast majority of the investment sold by the Bank high risk, but the investment portfolios of the Changs and Nextday became high risk as well. If the majority of investments products in a portfolio are high risk, then it is almost certain that the portfolio will itself become high risk. I accept Mr Green’s opinion[172] that most investment advisers would consider a portfolio with more than 1/3 of its assets invested in high risk securities to be a high risk portfolio.

61. However, the portfolios in question were even riskier than the sum of their individual investment products as the risks contained in the products were substantially compounded by the effects of gearing/leveraging; and currency carry trade[173].

62. As explained by Mr Green in relation to gearing[174]:

“... Not only were the assets of the portfolios invested in risky holdings but these same holdings were used as collateral to borrow funds so that even more risky holdings could be acquired. While such leveraging would multiply any profits by the degree of gearing, the same would happen for any loss. Hence even a relatively low risk holding would become high risk if gearing was used to increase the investment.”

And in relation to carry trade[175]:

“A strategy in which an investor borrows in a currency with a relatively low interest rate and uses the funds to make deposits in a different currency yielding a higher interest rate, is called currency carry trade. ... The major risk is Exchange Rate Risk: the strategy will not work if the borrowed currency (with the low interest rate) appreciates against the invested currency ...

In this case, the borrowed currencies (CHF, JPY) were converted into USD, which was invariably used to invest in investments (currency options, ELNs etc.) in the same currency (USD).

This significantly compounded the risk of losing money if that currency (USD) depreciated.

Another risk is Interest Rate Risk: When deposits did not match the loans there was a risk of refinancing at different interest rates, so that the rate payable on the loan exceeded that received on the deposit.

Lastly, where (as in the present case – for example [Mr Chang’s] portfolio in February 2008) the currency carry trade is leveraged, in other words where the sums borrowed and lent exceed the net asset value of the portfolio, the risk is further exacerbated.”

63. Dr Vinaimont expressly agreed that leveraging increases risk[176] and did dispute that carry trade also does the same.[177]

64. It is noteworthy that, upon opening their accounts with the Bank, the portfolios became very risky at an astonishing speed. This was highlighted by the fact that when Mrs Chang opened her account at the Bank, in late June 2004, she deposited cash of around USD 930,000. Within just 3 months of the account opening, Mrs Chang had taken out 6 different loans and purchased 7 different structured notes, turning her portfolio into one with nearly USD 760,000 in structured notes and over USD 750,000 in borrowings[178].

65. Mr Green has explained the specific features which made the plaintiffs’ portfolios extremely risky. His views, which I accept, were summarised[179] as follows:

(1) The portfolios contained too high a proportion of structured and other derivative products.Thepotential profits from these products were quite limited but the potential losses were massive. Further, these products were illiquid, and hence it was difficult to undo these bargains even if there was a change in circumstances.

(2) The portfolios were too heavily involved in cross currency trading, particularly in the use of foreign currency options. This exposed the plaintiffs to currency risk. Notably, the options were not used to hedge risks but were basically wagers on currencymovements.

(3) The portfolios were over-geared. When the market was rising, the gearing risk did not cause a problem. However, when the markets began falling, the gearing risk manifested itself and caused significant losses.

(4) The portfolios were too heavily committed to trades which would not take place for a long time. Because so many of the structured products were long-dated, it was easy for small movements in the market to result in huge losses at the end of the contract. By being invested in these long-term products, the plaintiffs were obliged to hold on to investments that were loss-making without the option to cut losses.

(5) The portfolios were insufficiently diversified. The vast majority of the assets were invested in high risk products.

66. Mr Green has also conducted a month-by-month analysis of the risk level of the plaintiffs’ portfolios from the time that they respectively opened their accounts with the Bank to the time that they respectively liquidated their accounts. His risk ratings, which I accept, are summarised in his report[180] and range from ultra low risk, very low risk, low risk, low-moderate risk, moderate risk, moderate-high risk, high risk and higher. He has defined “high risk and higher” as follows:

“7 - High risk: such as share and commodity futures, B-rated bonds.

8 - Higher risk: such as long-dated derivative-based structured products, junk bonds, sub-prime mortgages.

9 - Ultra high risk: such as similar products to 8 but based in emerging markets.

10 - Beyond high risk: where the odds are more suited to the numbers on a roulette wheel. This risk is usually the result of leveraging an already high risk portfolio, but can arise even when leveraging a moderate risk portfolio if the gearing is high enough.”

For almost the entirety of the time that the plaintiffs maintained accounts with the Bank, their portfolios were high risk or above, being at Risk Level 7 and higher[181] from as early as 31 December 2004. Mr Green has set out his reasons for these classifications, which I accept, in Appendices 3, 4 and 5 in the Further Joint Statement[182].

67. Mr Green’s calculations[183] also show that the portfolios were highly leveraged. The gearing ratio for Mr Chang’s portfolio averaged an astonishing 117%. Mrs Chang’s portfolio was geared on average as to 46%. The gearing ratio of Nextday’s portfolio averaged 65% over the whole period but an astounding 147% over the year 2008.[184]

68. The investments made in the 3 portfolios are listed in the Schedule to the Amended Statement of Claim[185]. Mr Chang’s accounts show foreign currency loans of US$13,537,713.02 from March 2005 to January 2008. Mrs Chang’s and Nextday’s accounts show foreign currency loans of US$8,514,630.07 from March 2005 to January 2008. Mr Chang’s accounts show investments in fixed income securities of US$3,032,923.93 from December 2004 to May 2008. Mrs Chang’s accounts show investments in fixed income securities of US$2,729,831.81 from November 2004 to August 2006. Nextday’s accounts show investments in fixed income securities of US$305,858.62 from September 2004 to May 2008. Mr Chang’s accounts show investments in structured notes of US$18,536,579.00 from November 2004 to January 2008. Mrs Chang’s accounts show investments in structured notes of US$6,293,767.84 from November 2004 to August 2006. Nextday’s accounts show investments in structured notes of US$19,337,888.98 from March 2006 to January 2008. Mr Chang’s accounts show investments in knock out daily accumulators of the maximum contract value of US$7,905,881.19 from January 2005 to November 2007. Mrs Chang’s accounts show investments in knock out daily accumulators of the maximum contract value of US$467,687.81 from January 2005 to May 2006. Nextday’s accounts show investments in knock out daily accumulators of the maximum contract value of US$8,406,127.84 from October 2006 to November 2007. The values of the derivative currency options/accumulative forwards contracts that the Changs and Nextday invested in can be seen from the Schedule to the Amended Statement of Claim[186].

69. The movements in the 3 portfolios from the opening of the accounts until 31 December 2008 were summarised in Mr Green’s expert report at §§4.9 to 4.11[187]. I accept the opinion of Mr Green expressed in the following paragraphs of his report:

“4.9.8 In total Mrs. Chang invested approximately USD 1,495,760 and the net asset value of the portfolio as at 31 July 2006, before it was transferred, amounted to USD 1,956,929.

4.9.9 Allowing for contribution flows but ignoring bank charges, the portfolio showed a return of 35.9%, as compared with an equivalent return on the Hang Seng Index of 51.5%. The underperformance shown by the [Mrs Chang’s] portfolio would be considered significant. It might not, however have been noticed since the portfolio returned at an annual rate of 16.6% p.a. over the two year period. But as compared to the annual return of 23.1% that could have been expected from an investment tracking the Hang Seng index, the underperformance of 6.5% was very poor.

...

4.10.16 In total a net USD 3,232,404.02 in cash and other assets was transferred into the Nextday International portfolio. After allowing for contribution flows but ignoring bank charges, the portfolio showed a return of 36.8%, as compared with an equivalent return on Hang Seng Index of 86.6. Over the two years and nine months to 31 December 2008 the portfolio declined at the rate of 16.5% p.a. The equivalent had the portfolio been invested in a portfolio that tracked the Hang Seng index would have been a decline at the rate of 5.1% p.a. Thus the portfolio was failing to match what was probably the most comparable index by 11.4% p.a. This underperformance shown by [Nextday’s] portfolio would be considered highly significant by any reasonably competent investment performance measurer.

4.10.17 Another way of looking at the performance is to compare the total net amount invested USD 3,232,404.02 with the value of the portfolio as at 31 December 2008 which is shown as USD 1,061,302.10. Thus, in the two years and nine months since its inception the portfolio lost USD 2,171,101.92, while the capital value of the market, as measured by the Hang Seng index, fell by 16.6% during this period. No reasonably competent investment adviser could have lost so much money is so short a time. ...

4.10.18 In my opinion, [Nextday’s] portfolio was not only very high risk but also so badly constructed that it would have been unsuitable even for a professional gambler. This was not evident at first because stock markets were rising but as soon as the markets ceased to rise the risks began to appear and should have been observed even by the most incompetent adviser.

...

4.11.18 After allowing for contributions and withdrawals a total of USD 1,556,189.08 was transferred into [Mr Chang’s] portfolio. After allowing for the timing of the contribution flows but ignoring bank charges, the portfolio showed a return of -75.4%. The equivalent, had the portfolio been invested in a portfolio that tracked the Hang Seng index, would have been an appreciation 5.8%. Had the portfolio tracked the Hang Seng index it would have increased at the rate of 1.8% p.a., instead it declined at the rate of -37.3% p.a. A relative loss of this size against the market is an indication of the extreme degree of risk that had been injected into the portfolio. The underperformance shown by [Mr Chang’s] portfolio would be considered highly significant by any reasonably competent investment adviser monitoring the portfolio.

4.11.19 Another way of looking at the performance is to compare the total net amount invested USD 1,556,189.08 with the value of the portfolio as at 31 December 2008 which is shown as USD 260,265.84. Thus, in the three years and two months since its inception the portfolio lost USD 1,295,123.24. No reasonably competent investment adviser could have lost so much money [in] so short a time. ...

4.11.20 In my opinion, [Mr Chang’s] portfolio was not only very high risk but also so badly constructed that it would have been unsuitable even for a professional gambler. This was not evident at first because stock markets were rising but as soon as the markets ceased to rise the risks began to appear and should have been observed even by the most incompetent adviser.”

In the course of the plaintiffs’ opening on the first day of trial I had remarked that[188]:

“The products were all high risk. There wasn’t a balance between less speculative products and the more speculative ones, a sort of 80/20 mix that a conservative investor might have, or a 60/40 medium risk. This is what, 100 per cent all in the very high risk, less than triple B plus rating by Moody's and then that was set on fire by foreign exchange carry trades and leveraging.”

Having reviewed all the evidence after the conclusion of the trial I see no reason to amend my initial observations.

The Changs trusted and relied on Mrs Li

70. I accept the evidence of Mr and Mrs Chang that they had complete trust in Mrs Li and relied entirely on her to tell them how to conduct their investments[189]. Mrs Chang, in particular, looked up to Mrs Li as someone with expertise in investments:

“So at that time, I believed my money was being looked after by someone who is smart, and so I thought it is good”.[190]

71. Mrs Li was well aware of Mrs Chang’s regard for her and introduced and explained investment products with conviction and confidence, as demonstrated by the recordings, set out in Appendix 1 to this judgment, which span from 1 August 2007 to 9 May 2008. A telling example is as follows:

“Recording No. 8, Utterances 48-58, 1 August 2007, C/57-60:

YC[191]: Listen, tell you some news, see if you would or would not, today Hong Kong stock market fell 767 points.

TC[192]: Orr, how come?

YC: Er, ah, well you know, it previously had gone up so much recently, of course it is bound to, bound to, whatever. Sometimes there are, some rumours are out, it is said that some stocks are being changed into A shares, some rumours say something else, well even though we are holding so many things {investment products}, but our, our strike is all very, very deep, therefore you need not worry.

TC: Hm, hm.

YC: Right, Well then, right, that’s it. I, on the other hand, have now another thing I want you to invest in, there is a fund on ecology, a fund, there is a ...

TC: Don’t funds take a long time?

YC: Yes, they do take longer. Well it is slower, slower, that is it is a bit slower. But it means you can diversify so not everything is put into the one thing, So do {invest in} one over in Europe, but do {invest} in US dollars, this one is, eh eh, eh, energy, ecology, I have reviewed it, it is quite good, so you can do {invest} a little.

TC: Can you do {invest in} forest?

YC: Yes. No. It is energy, it is a glob.. global ecology fund, it is, which means it is very diversified, which means it has electricity, wind power, water, well agriculture, well everything is very diversified, which means it is investing in many different countries, it is not like it would be concentrated in America, or Hong Kong. It has {invested in} America, England, Germany, er, and also in many northern European countries, also in Japan. I know you have {money}, so I am thinking of doing {investing} 200,000 US dollars for you, is it alright? I will place 200,000 US dollars for you then.

TC: Alright.

YC: Fine, that’s it for now. OK. Bye bye.”

72. Mrs Li never said to the Changs that she was a mere salesperson with no particular expertise, or that her recommendations were not to be taken as advice[193]. There is certainly no instance in the tape recordings of Mrs Li doing so. Mrs Chang not only regarded Mrs Li as an investment expert, but also saw Mrs Li as a friend[194]. It was usual for Mrs Li and Mrs Chang to chat about personal topics, such as families and relatives[195]. Their relationship was sufficiently close that Mrs Li was invited to attend David Peter Chang’s wedding[196]; that Mrs Chang asked Mrs Li to assist David Peter Chang in his job search[197]; that Mrs Li was sometimes invited to lunch gatherings with the Changs[198]. Indeed, Mrs Chang trusted Mrs Li so much that she asked her son, David Peter Chang, to transfer his money over to Nextday’s account so that he could also benefit from Mrs Li’s investment expertise[199].

73. Under cross-examination, Mrs Li admitted that she had indeed managed to gain Mrs Chang’s trust during the period of time when she banked with SCB, and that she then began introducing more and more investment products to Mrs Chang[200]. Notwithstanding that Mrs Li qualified her answer by saying that “trust is a broad concept”[201] and that Mrs Chang’s trust in her was merely “a one-way trust”[202], I find that the Changs trusted Mrs Li in the colloquial sense of that word. This was also reflected in the Bank’s “client bio-data” form, that Mrs Li filled out[203] in June 2004 in respect of Mrs Chang, which stated as follows[204]:

“Mrs Chang Chen Theresa Linda whom I have been well acquainted for the past years...It was also then [during the Standard Chartered period] I have gradually gained her trust. I began to convince her to invest in FX, Unit Trust, Insurance Products and Bonds. On and On, theses [sic] sort of activities and banking relationship last until I left my previous bank.”

During cross-examination, Mrs Li accepted that the bio-data form was an accurate description of her relationship with Mrs Chang; as recorded in the bio-data form, Mrs Li had indeed managed to persuade Mrs Chang to invest in more and more investment products; and the reason why Mrs Li was able to so persuade Mrs Chang was because Mrs Chang trusted and relied upon her.[205]

74. Indeed Mrs Li had already been entrusted with the decision making power over what investments to purchase for Mrs Chang when she banked at SCB. I accept the evidence of Mrs Chang, in relation to the purchase of mutual funds at SCB, that:

“...when Mrs Li talked to me about that, she did not say ‘do you want to buy it?’. She would say “Mrs Chang I bought this for you.””[206]

75. As for Mr Chang, it was also admitted by Mrs Li that, when he was still with SCB and before he opened his account with the Bank, Mr Chang trusted and relied upon her to select investment products which were suitable for him.[207]

76. It was because of their conviction that Mrs Li could continue helping them to make profitable investments that Mrs Chang (and a short while later, Mr Chang) followed Mrs Li over to the Bank when she left SCB in 2004.[208]

77. Mr and Mrs Chang trusted Mrs Li to make their investment decisions for them. Although Mrs Li formally sought the Changs’ approval for the decisions, often after the event[209], the Changs invariably agreed to her suggestions and purchased whatever investment Mrs Li was recommending, often investing significant sums, sometimes US$300,000, sometimes even more, after a conversation lasting less than 1 minute. It was only towards the end of the relationship that there were a couple of occasions when the plaintiffs did not follow the Bank’s suggestions; this was because they had, by then, incurred significant losses and did not wish to sustain further losses[210]. It was suggested to Mr Chang in cross examination[211] that he thought that the US dollar might rise and rebound and, therefore, he did not agree with Mr Chow’s recommendation, made at a lunch meeting in April 2008, to purchase a put option for US dollars and a call option on CHF/JPY to cover their positions should the US Dollar drop further[212]. Mr Chang’s answer was that he did not recall. I do not accept this suggestion, nor Mr Chow’s evidence and Mrs Li evidence[213] that Mr Chang thought that the US Dollar might rise and that Mr Chang appeared to understand the rationale behind his proposals. I find Mr Chang’s evidence on these matters to be truthful[214]. Mr Chang’s understanding of these investment products was even less than that of Mrs Chang. Mr Chang did not even look at his bank statements and had entrusted them to his niece:

“HIS LORDSHIP: Mr. Chang, your evidence was that you opened the account with ING Bank because you believed your wife that Mrs. Li would make good recommendations to help you make a profit.

A: That’s correct.

HIS LORDSHIP: So why didn’t you follow up to see that you were actually making a profit in your account?

A: Because those things were kept by my niece, and for a period of time I was away from Hong Kong.

HIS LORDSHIP: What about before you entrusted it to your niece; before that, did you take a look at these accounts?

A: ‘Look at’? What do you mean by that?

HIS LORDSHIP: Sorry, look at your bank statements from ING, before you entrusted that matter to your niece.

A: I do not recall, do not recall what happened.”[215]

I do not conclude from this evidence that Mr Chang disregarded his investments but, rather, that he had little understanding about them.

78. Notwithstanding the denial of Mrs Li[216], in reality, Mrs Li was in control of the plaintiffs’ accounts. That Mrs Li was effectively in control of the plaintiffs’ investments and that the Changs invariably agreed with Mrs Li’s recommendations was evident from the telephone recordings set out in Appendix 1 of this judgment, one example of which is as follows:

“Recording No.97, Utterances 1-31, 12 Mar 2008, C5/1057-1062:

‘TC[217]: Good morning!

YC[218]: Good morning, Mrs Chang.

TC: Yes.

YC: Mrs Li here. Yes, How are you! Eh, the Hong Kong stock market is better again today.

TC: That means, so... that means... then what does that mean?

YC: Look, then have to look for something to do {invest in}!

TC: (Sigh), do again? I am very scared!

YC: Uh, must do something.

TC: (sigh)

YC: Must make up, you see.

TC: Then you...

YC: Look, hear me out first, uh.

TC: Hm hm.

YC: Look, we are currently holding (neh) a, one of those, um... China Life Insurance {shares}, received every month.

TC: Hm.

YC: Receive them every month. Well if they are sold now (neh), for sure there will be a loss, not... not make economic sense.

TC: Huh?

YC: If they are sold now, for sure there will be a loss.

TC: Yes.

YC: Does not make economic sense.

TC: Hm...

YC: SO we (neh) want to place an order for you (neh). So if today that... that stock goes up to 30 dollars 45 cents (neh), will do for you a...er... er... er... we are holding now (neh), you have 27,600 China Life Insurance shares.

TC: Hm.

YC: Right. Then if, eh, it goes up to 30 dollars and 45 cents today (neh), I will place an order for you, we call it cover call, that is to say (neh), er... in a month and a half from now, the share goes up to 35 dollars, only then we will sell them.

TC: Hm.

YC: If the share {price} doesn’t go up to 35 dollars (neh), then we will not sell them. Then in the meantime, this month and a half (neh), it will give you interest, there is as much as 10,000 dollars in interest. So if, for example, you actually get the 10,000 dollars in interest, and also actually sell the shares at 35 dollars (neh), we can still... that is, can, that... that is break even, so is it alright to do this one for you?

TC: I don’t know anymore! You have to fix it yourself now. I don’t understand.

YC: No, well I still... I... that is, I think that is if we do this one (neh), we still... still... eh, okay, can still... can do this one. So that means besides sitting and waiting, you still get some interest while you wait, is that alright?

TC: (Mumbling) Alright.

YC: Fine. So I will {do it} for you... look, don’t know whether it can be done, that is, I just place an order, that’s all.

TC: Um um.’ [My emphasis]”

79. Mrs Li’s effective control is also demonstrated by the transaction involving Peabody shares:

“Recording No. 8, Utterances 34-43, 1 August 2007, C1/54-56:

YC: So sometimes, right, right, I just want to inform you, yesterday (neh) we received shares from one linked to Peabody. So receiving shares (neh) you might think, aiya, does that mean it is not good? It is not so, because recently, this one, this one, is an American coal company. But because the weather in Australia and America hasn’t been good, which caused the production to, eh, that is, the transportation is delayed, therefore, the share price had fallen.

TC: What? What production?

YC: Coal.

TC: Orr, coal!

YC: The kind of coal for burning, the company is called Peabody.

TC: Orr.

YC: It specializes in coal production in America. But, we think (neh) this stock, is quite good in the long term.

TC: Hm.

YC: Right, it is just that we have received the shares, well now that the shares are received, I will see, set them aside first, well I will sell them for you only at a good price, so you don’t have to worry, yes, like that.

TC: OK.”

I do not accept the Bank’s submission that, when Mrs Chang received some Peabody shares that were linked to an equity linked note, Mrs Chang told Mrs Li only to sell the shares when the price reached a certain level[219]. It was the other way around: it was Mrs Li who said to Mrs Chang not to worry because she will sell them at “a good price”.

80. The Bank’s position that:

“At all material times, [Mrs Li] only introduced the investment products to the Plaintiffs for their consideration. She did not give any investment advice to the Plaintiffs as alleged or at all”[220]

is not tenable and ignores the reality of the relationship between Mrs Li and the Changs. Not only did Mrs Li give investment advice to the Changs and Nextday, she also managed their investment portfolios for them. The Changs’ total reliance was aptly encapsulated in this exclamation by Mrs Chang:

“Up to you, hey! You are in charge!”[221]

Mrs Li failed to give any proper explanation of risks and disadvantages of the investment products

81. I accept the evidence of the Changs that:

(1) Mrs Li never said anything about risk^{^[222]};

(2) Mrs Li never explained the features of the investment products, or their disadvantages and possible alternatives^{^[223]};

(3) Mrs Li never explained why the recommended investments were suitable for the Changs. There was never any discussion about the Changs’ age, financial circumstances, investment goals, and investment experience[224];

(4) Mrs Li never suggested to the Changs that they should first think over the investments being recommended. It was always the case that Mrs Li would recommend a particular investment, and then ask the Changs immediately to confirm that they would follow that recommendation[225];

(5) Mrs Li continually assured Mrs Chang that there was nothing to worry about, because she (Mrs Li) would help safeguard the position^{^[226]}.

When the portfolios started suffering losses, Mrs Li reassured the Changs that she would recover the losses for them^{^[227]}. The position was neatly summarised by Mrs Chang at trial as follows:

“But [Mrs Li] did not tell me that I might suffer a loss, I might suffer a loss which I could not stop, which I could not cut it, and she did not tell me that after I had lost all my assets or capital, I would still be owing the bank some money. She did not mention these things.”[228]

“But [Mrs Li] did not tell me anything about risk. She did not say to me that I had to assume great risk in order to earn a profit.”[229]

82. The Bank has not adduced any document or telephone recording to support its case that the risks of the investment products were adequately explained to Mr or Mrs Chang. What the Bank adduced was a set of product brochures dated 9 February 2007[230]. However, the brochures gave no indication as to the degree of risk involved in each product (whether high, medium, or low), as opposed to the type of risks which may be involved. Mr and Mrs Chang did not recall receiving the brochures[231]. Even if they had seen and read them, it is most unlikely that they would have understood the highly complex explanations given in the brochures, as I had pointed out[232] in the course of Mrs Chang’s cross-examination. The contract notes that were sent to the Changs were highly technical.[233]

83. Mrs Li was the Bank’s key factual witness. Of the Bank’s witnesses, it was only Mrs Li who had any real interaction with the Changs over the years.[234] Mrs Li’s evidence was that she thoroughly explained the nature, terms, and risks of each investment product to the Changs in the early period of the plaintiffs’ relationship with the Bank but none of the tape recordings for that period have been retained by the Bank.[235]

84. I was far from impressed by the evidence she gave; indeed, not only was I not impressed, at times I even became exasperated. During her cross-examination, Mrs Li was asked about the application form for the mutual fund called AHL Diversified Futures Fund[236], which Mrs Chang had purchased while she banked with SCB. Mrs Li first claimed that this fund was categorised as a high risk fund at the time. When it was pointed out to her that there was no entry in the space marked “Risk Category” on the form (which Mrs Li admitted she had filled out for Mrs Chang at the time), Mrs Li then claimed to recollect that SCB only offered this fund to aggressive investors. However, when it was further pointed out that Mrs Chang’s risk appetite was described as moderate on the form[237], Mrs Li contended that one also had to look at the other questions on the form. It was then pointed out to Mrs Li that one of the other questions related to Mrs Chang’s age[238]; that Mrs Chang was already 69 years old at the time; and that Mrs Chang ought to have been in the ‘wealth preservation’ phase of life. I was astonished to hear Mrs Li’s response that a person would only enter the wealth preservation phase at age 70. My exasperation prompted me to remark:

“Sorry, Mrs Li, I don’t understand your evidence. The question was general, and surely most people who retire would retire before 70, and at least by the time they retire they should be talking about wealth preservation. On what basis do you say 70?”

Mrs Li then gave an even more preposterous answer:

“Because many people retired at the age of almost 70.” [239]

85. On the same topic, it was pointed out to Mrs Li that her allegation that the AHL Diversified Futures Fund was a high risk fund was inconsistent with the application form clearly describing Mrs Chang as having a medium risk appetite (which Mrs Li conceded[240]), as Mrs Li not having ticked the box on the form that pertained to a situation where the client’s risk appetite diverged from the risk level of the fund. At first, Mrs Li tried to deny any inconsistency. On being pressed, Mrs Li then claimed, for the first time, to recollect that she would have had to make an application to her supervisor if the client’s risk appetite diverged from the fund’s risk level, and that no such application was made in respect of Mrs Chang at the time. The following exchange then occurred – which clearly demonstrated to me that Mrs Li was making up her evidence on the spot:

“MR MANZONI: I suggest to you that the reason that you didn't have to [make an application to your supervisor] is because this fund was not classified as a highly aggressive fund in the way that you are now suggesting.

A: I disagree.

HIS LORDSHIP: Again, I’m having difficulty understanding your evidence, Mrs Li. If this fund is aggressive and she’s classified as low to medium, why would you not have to make application to your supervisor?

A: Just now, I’ve already said that when we were doing this risk analysis for her, she’s classified as an aggressive investor.

HIS LORDSHIP: And why do you say that she was so classified? Which part of the form shows that?

A: That's not shown on this form.

HIS LORDSHIP: I'm lost. Carry on, Mr Manzoni.” [241]

86. Mrs Li gave inconsistent evidence on many other matters.

87. Mrs Li was referred to the client bio-data form dated October 2004 which she had filled out in respect of Mr Chang at the Bank[242] and it was pointed out to her that Mr Chang’s investment objective was described on the form as “To achieve income and capital growth over a business cycle”, which Mrs Li admitted was not a description of a high-risk investor. Counsel also pointed out that, by then, Mr Chang was 80 years old (which Mrs Li had conceded was the ‘wealth preservation’ phase of life). Despite that, Mrs Li refused to accept that Mr Chang’s risk appetite was low.[243]

88. When questioned about the Bank’s Services Agreement, Mrs Li admitted that she did not know any of the details of the agreement and had never read any of its clauses. However, when counsel put to her that, therefore, she must have conducted her relationship with Mrs Chang without reference to the detailed terms of the contract, Mrs Li steadfastly disagreed.[244]

89. When confronted with a particular telephone recording, Mrs Li had to concede that, when offering structured notes to the Changs, she sometimes did not inform them about the current share price and the note issuer. However, Mrs Li still insisted, without giving any explanation, that it would have been possible for the Changs to assess the risk of the structured note. I find this difficult to accept. Without knowing the current share price and the note issuer, the Changs, even if they had the requisite investment knowledge, which they did not, would not have been able to assess whether the price was likely to rise or fall and the likelihood of the note issuer going into default.[245]

90. In October 2007, Mrs Li persuaded Mrs Chang to purchase an equity linked note for a US company called Garmin by giving the following explanation about the company:

“ ... {It} does those, eh, computer internet, eh, eh, that kind of technology...Computer internet that kind.” [246]

During her cross-examination, it was pointed out to Mrs Li that Garmin was in fact a manufacturer of global navigational equipment rather than “computer internet...that kind of technology”. When Mrs Li was asked how she had expected Mrs Chang to make a decision on whether to purchase the equity linked note, Mrs Li’s answer, given after a long pause, was absurd:

“Every year, Mrs Chang stayed in the States for several months. I would think maybe she’s quite familiar with the companies in the States. Maybe that’s the case.”[247]

91. Mrs Li had no hesitation in giving answers which were manifestly untrue.

92. When cross-examined about her conversation with the Changs on 24 September 2007[248], Mrs Li claimed that during that conversation she had told the Changs that she would “re-adjust them to aggressive investors”.[249] This echoed what she said in her witness statement:

“[Mrs Chang] did accept the change in the end as she decided not to re-balance her portfolio but instead continued to trade in high risk products...Similarly... Mr Chang did not give much of a response then but thereafter chose not to re-balance his portfolio and instead continued to trade in high risk products”.[250]

However, as the telephone recordings makes clear, what Mrs Li told Mr and Mrs Chang was that she would re-adjust their portfolios back to medium risk. Indeed, I had noted that Mrs Li’s allegation was inconsistent with the context of the recording which spoke of the adjustment of the portfolio over a period of time to medium risk[251].

93. When asked during cross-examination to confirm that the Changs had never invested in complex investment products while at SCB, she refused to do so, for the stated reason that Mrs Chang’s currency-linked deposits at SCB were actually “something similar to those equity-linked products” and “a kind of currency option.” It was only when counsel pointed out that Mrs Chang’s bio-data form, which had been filled out by Mrs Li in June 2004 when Mrs Chang first moved over to the Bank, stated that Mrs Chang had no prior experience in futures and options, that Mrs Li conceded that Mrs Chang had never invested in currency options before opening her account at the Bank.[252]

94. When cross-examined about a particular tape recording[253], from which it appeared that Mrs Li sold certain shares held by Mrs Chang and only informed Mrs Chang about it afterwards, Mrs Li claimed that there had been an earlier conversation during which Mrs Chang had instructed her to sell the shares when they reached a certain price. Although she was shown the transcript of the earlier conversation which showed that it was Mrs Li who had told Mrs Chang that she would sell the shares for Mrs Chang when it reached a good price, Mrs Li still refused to concede the inaccuracy of her statement.[254]

95. When asked, in respect of currency-linked deposits, whether the client would suffer a currency loss if the foreign currency went below the reference rate, Mrs Li denied that any currency loss would be suffered since the client would be earning interest. This was, quite clearly, an inaccurate answer because a currency loss couldbe suffered, depending on the extent of the exchange rate movement[255] and led me to observe that:

“[Mrs Li] was trying to show off the benefits without exposing the other side of the coin.”[256]

Another instance of Mrs Li “showing off the benefits without exposing the other side of the coin” was when I asked her whether a client who received shares under an equity linked note, which would only happen if the share price fell below the strike price, was in a loss recovery situation. Rather than accepting this, Mrs Li insisted that the client would not only earn interest but would also be able to hold on to the shares[257].

96. When Mrs Li was asked whether a gearing ratio of 150% in an investment portfolio would be tantamount to gambling, Mrs Li disagreed and used the analogy of the purchase of a flat with a 70% mortgage to support her point of view. This comparison was quite inappropriate: not only is a flat a far more stable form of asset than the type of financial investments Mrs Li sold to the Changs, but, as I had pointed out, the question was about a gearing ratio of 150%, not 70%[258].

97. When asked about the degree of risk involved in bull equity linked notes, Mrs Li’s answer was that they contained “balanced risk”.[259] That answer was simply wrong and also contradicted by the Bank’s own materials, which rated equity linked notes and other structured products as high risk[260].

98. Mrs Li often prevaricated when faced with questions she was not willing to answer. For instance, when asked about whether equity linked notes were relatively risky products, Mrs Li’s answer was that “there are risks for each and every investment product”.[261] Similarly, when asked whether accumulators were high risk products, Mrs Li’s response was: “...it also depends on the market environment and also depends on whether some unavoidable events happened in the market at that time”.[262]

99. For the above, and the following, reasons, I do not accept Mrs Li assertion that she thoroughly explained the nature, terms, and risks of each investment product to the Changs in the early period of the plaintiffs’ relationship with the Bank[263].

100. The tape recordings are the best evidence of Mrs Li’s tendency to give inadequate explanations to the Changs. Mrs Li’s presentation to the Changs of the products that she was telling them to buy was invariably short and bereft of any explanation of risk or disadvantages. A typical example was the following conversation between Mr Chang and Mrs Li in October 2007:^{^[264]}

“YC[265]: ...Today the stock market had fallen somewhat, had fallen by 900 something points. I want to see whether you want to buy something.

CPY[266]: Fine, you decide, you decide.

YC: Right, you see, today (neh), we will do two of those accumulators, that is accumulate shares every day.

CPY: Huh?

YC: Buying some shares each day. The first one (neh) is to accumulate China Life Insurance, and (neh) receive the goods at 83% discount, so if the shares go up to 102%, then cannot buy anymore. If it is lower than 83%, then must buy double on that day.

CPY: Yes.

YC: Right. So the other one (neh) is Kowloon Wharf, buying at 86.9%. If it goes up to 102% then cannot buy anymore, same for this one.

CPY: Orr.

YC: If it goes below 86.9, must also buy double, so how about buying some every day?

CPY: Fine.

YC: Each day buy for you 200 shares... for both, is it alright?

CPY: Fine, fine.

YC: So I will call you back after I have done it.

CPY: Fine.”

Mrs Li made no mention to Mr Chang of the current market price; the strike price (except as a percentage); the duration; the total value of the contract; the issuer; or the risk associated with the contract, which omissions would have made it impossible for Mr Chang to assess the risk even if he had the requisite knowledge.

101. Another example of Mrs Li’s tendency to give inadequate explanations to the plaintiffs was when Mrs Chang received shares from an equity linked note for a US company called Peabody, which occurred because the share price fell below the strike price. Mrs Li’s explanation was only geared towards reassuring Mrs Chang that no loss would be suffered^{^[267]}:

“ ... I just want to inform you, yesterday (neh) we received shares from one linked to Peabody. So receiving shares (neh) you might think, aiya, does that mean it is not good? It is not so, because recently, this one, this one, is an American coal company. But because the weather in Australia and America hasn’t been good, which caused the production to, eh, that is, the transportation is delayed, therefore the share price had fallen.” [emphasis added]

102. Further examples of conversations in which Mrs Li made no mention of risk, and gave inadequate explanation of the investments product’s features, are set out in Appendix 2 to this judgment. In the majority of cases, there was no mention of duration, strike price (except as to %), current market price and risk, and in one case, no mention of total contract value.

103. Even at trial, Mrs Li gave explanations which were one-sided. A telling moment at trial occurred when Mrs Li insisted that equity linked notes were safe investments[268] and that Mrs Chang’s portfolio as at February 2005, with loans at more than 64% of net assets and structured notes at more than 50% of net assets, was not risky.[269] This contradicted her insistence that she had explained the risks of the investment products to the Changs back in 2004 for the simple reason that she could not have explained the risks if she did not believe that any existed. When this contradiction was pointed out to Mrs Li, she made responses which were defensive:

“A: Now I’ve looked at this statement, I would say I don’t think the risk at that time was high.

Q: So it follows from that, doesn’t it, that you wouldn’t have explained that there was a high risk to Mrs Chang?

A: At that time, there was no high risk. Doesn’t mean that I did not explain the risk to her at that time.

Q: But presumably you explained the risks to her in the way that you saw them, which was as low?

A: I did explain the risks to her, but I did not tell her that the risk was low.”[270]

104. Mrs Li has set out at §§64-72 of her witness statement[271] the gistof the explanations that she gave to Mr and Mrs Chang when she first introduced the various investment products to them. These explanations are highly technical and complicated. Given the tenor of the conversations in the transcript of telephone recordings that I have seen, I cannot accept that Mrs Li gave such detailed, complicated and technical explanations orally to Mr and Mrs Chang either in 2004, or between 2004 and 2006.

105. Mrs Li admitted that, when offering structured notes to the Changs, she sometimes did not inform them about the current share price and the note issuer.[272] This would have made it impossible for the Changs to assess the risk of the structured note, even if they had the knowledge to do so, because they would have been unable to make any assessment of whether the price was likely to rise or fall; and the chance of the note issuer going into default.

106. I also doubt whether Mrs Li had a full understanding of the complex investment products that she was selling to the Changs. As Mrs Li stated in her evidence, she started her career as a bank teller right after completing secondary school; after working as a bank teller for 6 years, she then worked another 6 years as a customer service representative.[273] Mrs Li did not have an extensive formal education in finance. Mrs Li’s ignorance of the investment products could be seen, for example, in her inaccurate explanation to Mrs Chang about Garmin[274]; and her report that she had placed an order for Mrs Chang for a “US stock” called Petrobras[275], whereas Petrobras is in fact a well-known Brazilian oil company, as its name suggests.

107. Mrs Li also admitted that, at the beginning of each day, the Bank would give relationships managers, such as Mrs Li, a list of products that they wanted her to sell; and that the relationships managers would then call up their clients and persuade them to buy those products.[276] With this “product-driven” approach, it does not surprise me that Mrs Li skipped over the step of explaining the risks and disadvantages of the products, particularly as she well knew that the Changs would not understand the technicalities of these sophisticated products.

108. Mrs Li’s own evidence was that, before this litigation, she did not know any of the details of how the Changs had lived in the US (which was their home for over 25 years); Mr Chang’s role in Shiu Wing; Mr Chang’s gifts of money to Mrs Chang and his children; and Mrs Chang’s university education[277]. It is also telling that the Bank’s “client bio-data” forms – which were filled out by Mrs Li[278] and never sent to the Changs for verification[279] – contained patent inaccuracies about the Changs.

109. One instance is the bio-data form for Mr Chang dated October 2004 that stated that he was “one of the pioneers of the famous Shiu Wing Steel Ltd, and worked together with Mr Pong Ding Yuan, founder of the steel company for years”[280]. As even Mrs Li was forced to concede[281], this was a gross exaggeration of his role at Shiu Wing Steel: Mr Chang was only a nominal director of Shiu Wing Steel and never participated in its management.[282] Mr Chang’s bio-data form also stated that he had prior investment experience in “foreign exchange margin trading” and “future/options”[283]. This was manifestly untrue[284]. Mrs Chang’s bio-data form stated that she had “more than 30 years experience in the stock market”[285]. This was entirely incorrect[286]. It appears to me that these inaccurate statements might have been inserted in order to “qualify” the Changs to open the private banking accounts or to purchase high risk investment products.

110. The Bank’s policy obliged Mrs Li to inform the Changs about unrealised loss over a certain amount.[287] However, Mrs Li repeatedly gave misleading explanations to the Changs, in particular, by asserting that unrealised losses were “not real” losses.[288] A typical example was this explanation given by Mrs Li to Mrs Chang in August 2007[289]:

“YC[290]: Yes, have money coming back. But lately I (neh) have (neh) not done anything for you, have not done anything for you. Because lately the market is relatively volatile. And also (neh) I-I now have to explain something to you (neh). Our bank (neh), will (neh), eh, will keep check on everything being done in customers’ portfolio. Well, for mine (neh), on the day of 6^th of August (neh), took a photo snapshot of your account. It is like taking a snapshot in your horse racing. Then well, previously (neh), we have done some foreign currencies options, equity options, so on the day of 6^th August, the market was not accommodating. So if using that date to calculate (neh)...

TC[291]: What does that mean?

YC: It means the market was not accommodating. If the figures on that date had to be used for calculation (neh), using the exchange rate of that date, using the share price of that date (neh), the (performance of) account does not look good. Then (neh), that date, if the rate for that date is used to look at it (neh), the foreign currencies options (neh), w-would have not an actual, that is will have a loss. It is not, not a real one, it will be one, but it is not, it is not, we in English...

TC: So how much is that?

YC: It is not... We in English, we call it unrealized in English.

TC: Uh.

YC: Eh, for the foreign currencies there would be, be a loss (neh) of $260,000 something US dollars.

TC: Wow (Shocked sound)...

YC: Stocks (neh), stocks (neh) is 150,000 something US dollars. But this is (neh) an unrealized, uh, not real. Why so (neh)? We have done for you some foreign currencies, the contract period is as long as a whole year. The earliest one, the earliest one (neh) does not expire until this October. The other stocks, those options (neh), did I not tell you the way to do it is to buy some for you every day? Accumulate for you everyday. So the shares are received only once a month. After having received the shares (neh), only if the price is right, would I sell them for you. So if the price on that date is used in the calculation (neh), would result (neh), on the account (neh) if you look at it (neh), on the account it would appear that there is a loss. But because the price of the stocks was calculated by the price on that day, calculated for an entire year, then it becomes not good to look at. But then (neh), we have a responsibility (neh) to tell you. So why are we telling you, eh, we have so much money returning to us? That is to say, in case (neh), if it is really not accommodating, we still have money to pay for the shares, therefore (neh) you don’t need to worry about this.

TC: Well, it is still a loss.

YC: Eh, this one is not a real...

TC: 200,000 is lost then.

YC: This is not a real loss. It means, it is not, it is not, it is not a, it is not a real loss, Because, eh, foreign currencies and stocks do go up and down. ... ” [my emphasis]

On the same day, Mrs Li gave a similar explanation to Mr Chang[292]. Other examples of conversations in which Mrs Li gave a misleading explanation of the meaning of “unrealised loss” are listed in Appendix 3 to this judgment.

111. Mrs Li’s explanation of unrealised loss as “not real” was misleading. Unrealised losses are real, and they have been suffered by the client. The fact that such losses have not been crystallised is a different point. As I had noted:

“A loss is a loss, and this ‘unrealised’ business is just marketing.”[293]

“That’s just semantics and euphemism. If an equity linked note has a strike price of $90 and the share goes down to $10, it’s unrealised, but the reality is you’re never going to recover that money. It will never go back to 90.”[294]

112. At trial, Mrs Li steadfastly denied that there was anything wrong in her explanation of unrealised loss as “not real”. My exasperation at her answers can be seen in the following exchange:[295]

“HIS LORDSHIP: It's outright false, isn’t it? It's a real loss, Mrs Li.

A: I disagree. There’s an unrealised loss.

HIS LORDSHIP: Yes, it’s unrealised, but it's still a loss. The loss may never recover.

A: But similarly, the loss may be recovered. Perhaps we can take a look at the statements to get the proof of it.

HIS LORDSHIP: Yes, but a future recovery doesn’t make the loss unreal at this time, does it?

A: I did not say the loss was unreal. I said the loss was unrealised.

HIS LORDSHIP: At page 63, ‘But this one is not real.’ Do you accept that’s not right?

A: At that time I said this one was not real, I was trying to tell the client that it was an unrealised loss.”

113. In the same vein, Mrs Li refused to accept that any loss was suffered on an accumulator when the market price fell below the strike price, with the result that the client had to purchase shares at a price higher than market price. Her reasoning was that no loss was really suffered until the shares were sold,[296] ignoring the fact, as I had pointed out, that the client might have to sell the shares, at a loss, in order to fund the daily purchases,[297] or that a margin call might be triggered, if margin financing was used.

114. I find that, instead of giving accurate explanations to the plaintiffs about their losses, Mrs Li was continually “painting a picture of sunshine and profits.”[298] I find that Mrs Li did so in order to encourage the plaintiffs to make further investments and continue to trust her advice.

The Plaintiffs were always medium risk investors

115. I find that Mrs Li, notwithstanding her knowledge that the Changs were medium risk investors, was recommending high risk investments as early as December 2004, and that the Changs’ and Nextday’s portfolios were high risk or above, being at Risk Level 7 and higher[299], from that time onwards. However, the portfolios, which had been classified as medium risk, were not re-classified as “high risk” until more than two and a half years later, in September 2007. I find that Mrs Li did so in order to conform to the requirements of her compliance department, but without clearly explaining to the Changs the high risks of the individual products they had, or were purchasing, and without clearly explaining to them the high risks inherent in their portfolios as a whole. On the contrary, she comforted them by assuring them, on 24 September 2007, that the portfolios would be adjusted to medium risk[300]. However, instead of doing so, she proceeded, after her internal re-classification of the portfolios to “high risk” on 25 September 2007, to sell the Changs an additional US$14 million worth of high risk products. Indeed, Mrs Chang complained about the Bank’s classification of her as high risk[301]:

“MR HO: And then entry 97, after you asked ‘dim gai’, Mrs Li said: ‘... because of investments in those, in those products. But you have done it for so long, do you feel anything peculiar? You don’t, do you? It is just the same, it does not affect you whatsoever, but the bank would categorise this way.’ Do you see that?

A: Yes, I see that.

Q: Thank you. And then immediately following 97, this is 98, you said: “I wouldn't know, that’s what you say.”

A: Yes, I --

Q: That’s what you say that you told me I’m now high risk.

THE INTERPRETER: I'm sorry, the witness said something and I haven’t yet provided the translation.

HIS LORDSHIP: Yes.

A: That’s correct. The reason why I didn't know was that she did not tell me.

MR HO: Well, anyway, move to -- sorry. The point is, Mrs Chang, just to be very sure about this, the point is now she told you.

A: So she did some high risk investment for me and I did not know about that. And at that point of time, she told me about that. Is that the case?

Q: Yes. She told you that you were –

A: So I’d like to --

Q: -- a high risk category.

A: So I’d like to ask, is that okay?

Q: Sorry, I beg your pardon. I’m getting confused myself.

HIS LORDSHIP: She [Mrs Chang] is asking whether it was appropriate for her [Mrs Li] to do that. If she is medium risk, why was she investing in these high risk products?

A: That's correct. I was categorised as a medium risk investor, and so she should have picked medium risk investment products for me. But then she said now I was categorised as high risk and I had made a profit. I was happy, so that’s the case?[302] No, I thought she should have first asked me about that.”[My emphasis]

In a conversation in May 2008, Mrs Chang told Mrs Li not to take risks anymore[303]:

“YC[304]: But this one, this one is a eh Russian bond is... that is, a bond by a very big bank in Russia, we had bought it before, it is good stuff.

TC[305]: Hm.

YC: That’s why I am doing little by little for you.

TC: Hm.

YC: Doing little by little for you. Right, slowly, like that.

TC: Ai! (sigh) Now it has taken away all my confidence. You see in the past I had not paid any attention to what you did, ai! I am very frightened now.

YC: Don’t be frightened! You, your confidence needs to be gradually, gradually, to be built up again, like that!

TC: Ai! (unclear)

YC: Right.

TC: Don’t take risk anymore, alright?” [My emphasis]

116. Mr Chang’s concern that Mrs Chang was overdoing it[306] supports my finding that he was always a medium risk investor. Mrs Chang clearly overdid it by accepting every recommendation of Mrs Li to invest such that, in the year 2007, Nextday’s portfolio was at risk level 8 for 6 months of that year and at Risk Level 9 for the other 6 months and, astonishingly, in the year 2008, Nextday’s portfolio was at risk level 10 for 9 months of that year[307]. However, she did so without any material understanding of the huge risks she was taking on board. Mr Chang’s portfolio was at Risk Level 9 or 10 for the greater part of 2007 and 2008, falling to Risk Level 8 only in February and March of 2008. As at 12 March 2008, Mr Chang had life savings[308] in the amount of US$3,946,205.34, 62.2% of which had been invested with the Bank. As at 18 June 2007, Mrs Chang had life savings[309] in the amount of US$2,997,739.79[310], 56.18% of which had been invested with the Bank[311].

117. As I had stated above[312], it appears to me that inaccurate statements were inserted in the bio-data forms in order to “qualify” the Changs to open the private banking accounts or to purchase high risk investment products. I do not want to speculate and will refrain from making any findings on this matter. It is the Bank’s case that the nature of their portfolios were such that the Changs and Nextday were, and had been, in the high risk category for a substantial period of time, notwithstanding the statements in the earlier biodata forms I have reviewed above. Mrs Li’s evidence was that they became high risk investors by reason of the great amount of investment products they had purchased.[313] I do not accept this submission and Mrs Li’s evidence on this matter. I am satisfied, on the evidence before me, that Mrs Li knew that the Changs were medium risk investors and that they were properly classified as such. She accepted, during cross examination, that Mrs Chang always had a medium risk appetite[314]:

“Q. You always knew that Mrs Chang had, always had had, and always would have, nothing other than a medium risk appetite.

A. I agree”

Mr Chang, according to her, was medium risk but closer to high risk[315]. This is difficult to accept, given Mrs Chang’s evidence, which I accept, that Mrs Li’s frequent practice was to arrange for Mr and Mrs Chang to purchase the same investment products[316]. I find that Mrs Li also knew that they had never agreed to be classified or re-classified as high risk investors. However, notwithstanding this, she recommended high risk and very high investments to them without fully explaining the high risks and very high risks involved. The reality is that Mrs Li recommended and sold high risk and very high products to the Changs and to Nextday, who were medium risk investors and who were properly classified as such, and she did so without warning them of the high risks and the very high risks they were undertaking.

The events of 2008

118. Lehman Brothers collapsed on 15 September 2008 and the financial world melted across the globe. But even before that Mr Chang had voiced concerns about their portfolios[317]. However, alarm bells only rang in August 2008 when David Peter Chang was informed by Mrs Chang that Mrs Li had arranged a US$5 million insurance policy for her. While talking to his mother, he formed the impression that she had misunderstood that there was an actual offer from the insurance agent. He then thought that he had better look at the account statements. Shortly afterwards, Mrs Li sent Nextday's statement for July 2008 by email. After he had looked at the statement briefly, Mrs Li called him to discuss the insurance policy. She confirmed that she had only provided to Mrs Chang an illustration of an insurance policy, and not an actual offer. The discussion then turned to the investments that Mrs Chang had made through the Bank. Although David Peter Chang was not an experienced investor and did not understand the bank statement fully[318], he knew enough to realise that the accounts were employing loans and were invested in derivatives and other complex instruments which he did not recognise or comprehend. He did recognise that these were high risk investments and, during that conversation, he told Mrs Li that these investments were completely unsuitable for his mother since they were of such high risk, and because of his mother’s advanced age and lack of investment knowledge. He said that it was “crazy” that the bank had allowed his mother to make such investments. He expressed his doubts on whether she was eligible to have a margin account and invest in derivatives such as options. He told Mrs Li that she had to bear in mind his mother’s risk profile. The above is the gist of the conversation that took place on 8 August 2008[319].

119. There were disputes between the parties as to whether or not there was a second telephone conversation between David Peter Chang and Mrs Li and when instructions were given to liquidate the portfolios which I need not resolve as they are not material to the issues I have to determine. Complaints were raised by the Changs at meetings held in September and October 2008. By its letter dated 9 December 2008[320], the Bank denied any wrongdoing and expressly stated:

“We note your Account is an advisory account. An advisory account, such as your Account, operates only on customer’s instructions.”

These proceedings were commenced in the High Court on 14 January 2011, as HCA No. 76 of 2011, and subsequently transferred to the Commercial List.

The Contractual Provisions

120. The Bank held a banking licence from the Hong Kong Monetary Authority and a licence in respect of Type 1 regulated activity (dealing in securities) from the Securities and Futures Commission (“SFC”). The relationship of the parties in relation to the 3 accounts was contractual and governed by the terms and conditions contained in the following, amongst other, documents:

(1) For Mr Chang’s account:

(a) Account Opening Form dated 28 October 2004[321];

(b) Services Agreement of the Bank, version 02/04 (“the 1^st Old Services Agreement”)[322];

(c) Memorandum of Charge (First Party) of the Bank (“Memorandum”) dated 23 November 2004[323];

(d) isks Disclosure Statement signed by Mr Chang (“Signed Risks Disclosure Statement”)[324];

(e) Short Term Advances/Overdraft and Foreign Exchange/ Option and Precious Metals Trading Facilities dated 28 August 2006[325];

(f) Acceptance of Short Term Advances/Overdraft and Foreign/Option and Precious Metals Trading Facilities dated 28 September 2006[326];

(g) Services Agreement of the Bank, version 08/06 (“the Updated Services Agreement”) which incorporates an updated Risks Disclosure Statement (“the Updated Risks Disclosure Statement”)[327];

(h) Supplementary – Short Term Advances/Overdraft and Foreign Exchange/Option and Precious Metals Trading Facilities dated 6 June 2007[328];

(i) Supplementary – Short Term Advances/Overdraft and Foreign Exchange/Option and Precious Metals Trading Facilities dated 6 August 2008[329];

(j) Cancellation letter of facilities dated 15 June 2009[330]; and

(k) Power of Attorney in favour of Ms. Chang Eman, Eva (“Eva Chang”) dated 4 May 2007[331].

(2) For Mrs Chang’s account:

(a) Account Opening Form dated 23 June 2004[332];

(b) Services Agreement of the Bank, version 09/02 (“the 2^nd Old Services Agreement”)[333];

(c) Memorandum dated 23 July 2004[334];

(d) Risks Disclosure Statement signed by Mrs Chang (the Signed Risks Disclosure Statement)[335];

(e) Short Term Advances/Overdraft and Foreign Exchange Trading Facilities dated 8 July 2004[336];

(f) Acceptance of Short Term Advances/Overdraft and Foreign Exchange Trading Facilities dated 23 July 2004[337];

(g) Cancellation of Facility Letter dated 8 July 2004 by a letter of 19^th September 2006 sent by the Bank[338]; and

(3) For Nextday’s account:

(a) Account Opening Form dated 4 July 2005[339];

(b) Services Agreement of the Bank, version 12/04 (“the 3^rd Old Services Agreement”)[340];

(c) Memorandum dated 21 August 2006[341];

(d) Risks Disclosure Statement signed on behalf of Nextday (the Signed Risks Disclosure Statement)[342];

(e) Short Term Advances/Overdraft and Foreign Exchange/ Option and Precious Metals Trading Facilities dated 31 July 2006[343];

(f) Acceptance of Short Term Advances/Overdraft and Foreign Exchange/Option and Precious Metals Trading Facilities dated 21 August 2006[344];

(g) Guarantor Acceptance of Short Term Advances/ Overdraft and Foreign Exchange/Option and Precious Metals Trading Facilities dated 21 August 2006 executed on behalf of Nextday[345];

(h) Certified Extract of Board Resolution of Client Authorising the Establishment of Facilities dated 21 August 2006[346];

(i) Supplementary – Short Term Advances/Overdraft and Foreign Exchange/Option and Precious Metals Trading Facilities dated 6 June 2007[347];

(j) Supplementary – Short Term Advances/Overdraft and Foreign Exchange/Option and Precious Metals Trading Facilities dated 12 March 2008[348]; and

(k) Cancellation letter of facilities dated 15 June 2009[349]

(collectively “the Key Agreements”).

121. The contractual provisions defined the relationship between the Bank and the Changs and Nextday and set out the role and responsibilities of the respective parties. The following terms and conditions from the Services Agreement (Version 09/02[350]) are material to the present case:

“A. GENERAL TERMS & CONDITIONS APPLICABLE TO ALL SERVICES

These general terms and conditions, together with the specific terms applicable to particular services included in this booklet and any other terms and conditions with respect to particular accounts, facilities or services provided by the Bank (collectively, the Services), constitute your agreement (the Services Agreement) with the Bank. The terms in the Services Agreement, together with the terms in the Account Opening Form (which are incorporated by reference herein), will apply to and govern your relationship with the Bank. All terms and references used in the Account Opening Form which are not defined therein shall have the same meaning and construction in the Services Agreement unless the context requires otherwise.

...

(17) Risk Disclosure Statement

PLEASE READ THE RISK DISCLOSURE STATEMENT IN ANNEX A CAREFULLY

The intention of the Risk Disclosure Statement is to inform you that the risk of loss in any trading or investments in Securities, foreign currencies, derivative products or a combination of any of them can be substantial. You should therefore carefully consider whether such transactions are suitable for you in light of your financial condition and your understanding of the nature of the transactions and the extent of your exposure to loss.

In respect of all transactions entered into by you or by the Bank on your Instructions or on your behalf, you understand and agree that:

(i) you make your own judgment in relation to investment or trading transactions;

(ii) the Bank assumes no duty to give advice or make recommendations;

(iii) if the Bank makes any such suggestions, it assumes no responsibility for your portfolio or for any investments or transactions made;

(iv) any risk associated with and any losses suffered as a result of the Bank entering into any transactions or investments on your behalf are for your account; and

(v) subject to the provisions of Clause C(4), in respect of all trades you may effect, you are deemed to have obtained independent advice from your legal, financial and investment advisers. The Bank does not hold itself or any of its directors, employees or agents out as acting in an advisory capacity to you in relation to any such trades. None of the Bank’s directors, employees or agents are authorised to give such advice.

The Risk Disclosure Statement cannot disclose all the risks of investing or trading in Securities, foreign currencies, derivative products or a combination of any of them. The Bank may from time to time send you descriptions of some products that the Bank may trade with or for you and the risks generally associated with these products, and further supplements on other products and risk descriptions which you are strongly recommended to read. Before you trade in any product or enter into any transaction, you should ensure that you understand the detailed terms and effects of such product or transaction and its suitability for you. You should read through these carefully and study the market before you trade or invest.

...

C. INVESTMENT SERVICES–TERMS AND CONDITIONS APPLICABLE TO INVESTMENT AND TRADING SERVICES

(1) Permissible Investments

If you request investment Services, the Bank will purchase, sell and hold investments for your Account(s) and provide other Services incidental to this activity as set forth in this Agreement. Investments will be as directed by you in the case of custody Accounts (Custody Accounts) and Accounts which are established on an advisory basis only (Non-Discretionary Accounts). In the case of Accounts established on a discretionary basis (Discretionary Account(s)), investments will be as determined by the Bank in accordance with considerations of availability and applicable fiduciary standards. Investments (Investments) which may be made for a Client’s account include stocks, bonds, warrants, options, forwards, futures, bonds, debentures, notes, unit trusts, currencies, precious metals and other financial investments and commodities, bank deposits, tenancy bills, commercial paper, mortgages, debt and equity securities of public and private sector issuers located in developing countries, sub-underwriting, and all other securities, money market investments, obligations and derivatives of every description in which the Bank may legally invest for the Client’s account, in any currency, whether registered or unregistered, restricted or unrestricted, publicly traded or not and on or off any Exchange, whether rated or unrated and any documents or other instruments evidencing the Client’s rights or interests therein.

...

(4) Management

For Discretionary Accounts, the Bank is appointed to manage Investments for the Client’s account and to hold, sell, invest and reinvest in the Bank’s sole discretion, guided by the investment objectives specified by the Client and agreed to by the Bank.

The Bank, its Affiliates and/or their staff may provide you with information and express views in relation to Investments. Such provision of information and expression of views shall not constitute the giving of investment advice (save for the giving of advice in respect of a Client’s Discretionary Account) and the Bank, its Affiliates and their staff shall have no liability in respect thereof. The Client will make its own decisions regarding investments and may accept or disregard, in the Client’s sole discretion, any views expressed for recommendations made by the Bank, its Affiliates and/or their staff, none of whom accept any liability (including but not limited to liability for any diminution in the value or loss or damage to any Investment) for any such decision made by the Client.

The Bank will have no duty or responsibility to supervise Investments or to make recommendations with respect to the purchase, retention or sale of Investments. The Bank shall be under no duty to assess the prudence of any instructions given by the Client or on the Client’s behalf, or to warn the Client if any instructions are ill-timed or inadvisable or if any instructions are likely to lead to a loss to the Client.

All transactions for the Client’s Accounts whether Discretionary, Non-Discretionary or Custody, will be for the sole account and risk of the Client. The Bank has no duty or responsibility to give notice of default or make demand for payment or take any other action with respect to any Investment as to which a default in payment has occurred.” [My emphasis]

122. The Risks Disclosure Statement[351] contained the following provisions:

“1. For the avoidance of doubt, the Bank wishes to draw the Client’s attention to certain financial risks generally associated with share trading transactions, foreign exchange trading transactions, currency trading transactions, options trading transactions and securities trading transactions (the “Transactions”). The Client must carry the burden of these and all other risks (which can be substantial) and the Bank will not be responsible for any losses whatsoever arising from or in connection with the Transactions generally. The Client should therefore consider whether such trading is suitable in the light of his/its financial condition. The Bank recommends that the Client obtains independent legal advice before entering into the Transactions.

2. This brief Risk Disclosure Statement does not purport to disclose or discuss all of the risks or other significant aspects of the derivatives, securities or currency markets or of entering into the Transactions. This Risk Disclosure Statement is intended as general guidance only and is not specific to any transaction.

3. The Client should carefully make its own assessment of the relevant markets and consider whether investing in the Investments will be suitable for the Client in the light of the Client’s own experience, financial circumstances and investment objectives. It is important for the Client to note that it is the Client’s responsibility to ensure that the Client has fully understood the nature and the characteristics of, and the risks related to, the Investments before entering into the Agreement.

4. The Transactions may involve a wide range of various securities and products, some of which may be more volatile and risky than others. The Client should therefore be aware of the inherent risks involved in each such security/product and in the derivatives of each such security/product.

5. In considering whether to enter into the Agreement, the Client should be aware of the following:-

(i) Certain securities and instruments may not be readily realisable. ...

(ii) Options, futures, derivatives and contracts for differences can be highly volatile and carry a high risk of loss. ...

(iii) Where liabilities in one currency are matched by an asset in a different currency, or where assets are denominated in a currency other than your reference currency, movements of exchange rates may have a separate effect, unfavourable or favourable, on any gain or loss otherwise experienced on the investment.

(iv) Interest Rate Risk: Securities may be issued with fixed or floating interest rates. Securities bearing fixed interest payments will be adversely affected by rising interest rates and the longer the term of such securities, the greater the interest rate risk or loss from the movement of the market interest rates.

(v) Investment Risk: Repayment on maturity may be subject to intervening circumstances such as government action or legal restrictions ...

(vi) Tax Risks: Income or profit from trading or dealings in the Investments may be subject to withholding tax, capital gains tax or other taxes imposed ...

(vii) Liquidity Risk: Under certain market conditions, it may be difficult or impossible to liquidate or otherwise dispose of the Investments before the interest and/or the principal sum is due and payable. The Bank is not obliged to purchase any of the Investments from the Client under any circumstances whatsoever.

(viii) Foreign Exchange Risk: The Investments may be priced in a foreign currency. Movements in foreign exchange rates of the currencies of the Investments against your primary reference currency may substantially reduce the yield which you may expect from the Investments and have an adverse effect on your profit/loss position.

(ix) Foreign Markets Risk: Foreign markets will involve different risks from your own [market/markets]. In some cases the risks may be greater. ...

(x) Emerging Markets Risk: Investments in emerging markets need careful and independent assessment by you of each investment and the risks ...

(xi) Electronic Trading: Trading by way of electronic trading facilities which are supported by computer-based component systems (for order-routing, execution, matching, registration, clearing of trades, etc.) carry a certain amount of risk. ...

(xii) Risks of Counterparties And Brokers: All transactions involving the Investments are entered on the Client’s behalf and at the Client’s own risk ...

(xiii) Others: The credit and financial risks of the issuer of the Investments are on the Client. The Bank is not the Client’s fiduciary, nor does it accept any fiduciary obligations to the Client.

The Client’s net returns from the Investments could also be reduced by transaction costs (i.e. commission, fees and other charges) charged by the Bank. These costs must be considered in any risk assessment made by the Client.

Settlement of any transaction involving the Investments may be effected through correspondents or custodians appointed by the Client, the Bank or brokers. If any such correspondents or custodians should fail to carry out their instructions at all or fail to carry out their instructions properly, the Client may suffer loss in respect of the total amount of the Client’s investment, interest payments, the underlying assets of such transaction and/or any right to receive or dispose of such assets.

6. The Bank makes no representations, warranties or guarantees regarding the performance of the Investments and the Bank shall not be responsible for the accuracy or completeness of any recommendation or information it may communicate to the Client.

7. All terms used herein which are not defined herein shall be construed according to their definitions in the Services Agreement.” [My emphasis]

123. Having signed the account opening forms[352], the plaintiffs became bound by the Key Agreements, whether or not they read or understood them[353]. It was accepted that the accounts were non-discretionary[354]. Although the Services Agreement was governed by and had to be construed in accordance with Singapore law[355], no evidence was adduced that Singapore law differed from Hong Kong law in any material respect.

124. It was the plaintiff’s case that the plaintiffs retained and employed the Bank to provide private banking and investment services and that, pursuant to the banking agreements, the Bank would ascertain the financial circumstances and investment objectives of the plaintiffs; would, in giving advice and making recommendations regarding the plaintiffs’ investments, do so with reasonable care, skill, and diligence in accordance with those circumstances and objectives; would give proper explanation to the plaintiffs of the risks and consequences of any recommended investments; and would periodically review each of the plaintiffs’ portfolio of investments and take steps to ensure that such portfolio was consistent with the plaintiffs’ investment objectives and risk profile[356]. In his opening Mr Manzoni submitted that the duty was two-fold: the relationship manager should not be proposing to the client to buy an investment product that was obviously unsuited to the investment objective and risk appetite of the client; and secondly, if the relationship manager does propose such a product, he was obliged to point out the risks of the product and that it was not suitable to the client’s investment objective and risk appetite[357].

125. It was the Bank’s case that no duty to advise arose in this case. Under the Old Services Agreement and the Updated Services Agreement, the Bank might provide the client with information and express views in relation to investments but it was under no duty to advise its client. Pursuant to the Services Agreement, a client makes his/her/its own judgment in relation to investment or trading transactions[358]. Under the signed Risks Disclosure Statement and the Updated Risks Disclosure Statement, the Bank makes no representations, warranties or guarantees regarding the performance of the investments and the Bank shall not be responsible for the accuracy or completeness of any recommendation or information it may communicate to the client[359]. It is the Bank’s case that as an agent/servant for the Bank at all material times, Mrs Li’s relevant responsibilities in relation to the accounts were principally to communicate with the plaintiffs with respect to matters concerning the plaintiffs’ accounts; to identify investment products of potential interest to the plaintiffs or any of them and present such products to them for their respective consideration; and to arrange execution of transactions authorised by the plaintiffs[360]. In the words of Clause C(4) of the Services Agreement, Mrs Li merely provided the plaintiffs with information and views in relation to investments for the plaintiffs’ consideration and decision, but such provision of information and views did not constitute the giving of investment advice and the Bank had no liability in respect thereof[361].

126. It was also the Bank’s case that a contractual estoppel arose from the terms of the Services Agreements and Risks Disclosure Statements. In response to a submission that such a defence had not been properly pleaded, the Bank took out a summons for leave to re-amend to insert a new §24A to its defence in these terms:

“The Defendant repeats paragraph 14 above[362]. In the premises, on the basis of the contractual provisions in the agreements between the parties (including those pleaded in paragraphs 22 and 23 above[363]), the Plaintiffs are estopped from contending a state of affairs which is contrary to that stated in the contractual provisions.”

After hearing argument, I acceded to Mr Manzoni’s submissions that I should rule on the application at the end[364] when I hand down my judgment. I did so for the reason that the Bank could, in their final submissions, fully particularise the matters they relied upon to support its plea. Having heard from the parties, I grant leave to the Bank to re-amend its defence in the terms of the draft attached to its summons, with costs of and occasioned by the application to re-amend to the plaintiffs in any event. I dispense with re-service of the same. I allow the re-amendments because they introduced no new facts and no new provisions of the Key Agreements that were not previously identified; and because the defence of contractual estoppel is to be resolved as a question of law upon the construction of the contractual provisions.

The proper construction of the Key Agreements

127. The scope of the services the Bank was providing can only be ascertained by looking at all the relevant provisions in the Key Agreements and by a proper construction of those provisions. I found the following observations to be of assistance to me in looking at and construing the relevant provisions. In Standard Chartered Bank v Ceylon Petroleum Corporation[365], Hamblen J. usefully restated the principles to be gleaned from JP Morgan Chase Bank v Springwell Navigation Corporation[366]:

“508. First, there is a clear distinction between giving advice and assuming legal responsibility for that advice. This point is made very clearly by Gloster J in the Springwell case. In that case she stated as follows:

(1) The term “advisory relationship” is ambiguous: “one has to be clear whether the term simply refers to a situation where A gives advice to B in the context of a commercial relationship; or whether the term necessarily connotes the existence of an obligation on the part of the provider of the advice to take reasonable care and / or to give advice about certain matters” (at [374]).

(2) Accordingly, the fact that a person, in the capacity of a salesperson, gives investment advice, “tells us nothing about what, if any, obligations were in fact owed...still less does it inform us to the extent of any such duties of care as were owed. In order to decide whether the advice given gave rise to obligations that went beyond the normal recommendations or “advice”, given in the daily interactions between an institution’s sales force and a purchaser of its products, so as to import obligations of the type owed by a fully-fledged investment advisor, one needs to look at all aspects of the objective evidence of the relationship between the parties” (at [374]).

(3) The real question, therefore, is not whether there was an “advisory relationship” between the parties but whether the giving of investment advice by a salesperson in that capacity attracts the obligations and duties of care of an investment advisor (para 451). In this aspect, it is important to bear in mind that there is “a real distinction...between the investment advisor, properly so-called, who is retained to advise a client, usually backed by considerable research...and the advice or recommendations given by a bonds salesperson...as part of the selling process” (at [452]).

(4) It should be appreciated that the expressing of opinions and giving of advice is “part and parcel of everyday life of a salesman in emerging markets” (at [361]).

(5) It follows that mere giving of advice, even specific investment advice, is not sufficient to establish a duty of care. This is the case even where the investment advice is relied upon by a customer: “The fact that...a salesman...was, in that capacity, giving such advice and making recommendations, and that the customer was taking salesman’s advice and recommendations into account... does not in my judgment predicate that a duty of care arises on the party of the salesman. Reliance on its own, even if established, does not necessarily give rise to an advisory relationship, with consequential duties of care” (at [449]).

(6) Accordingly, the fact that a witness accepts that they were giving investment advice to a customer (as was the case in Springwell) does not constitute an admission as to the existence of an “advisory relationship” in the relevant sense of that phrase (at [379]).

(7) Where phrases such as “trusted financial advisor” are used in internal documents, or even in correspondence between the parties, the court has to construe their meaning in the relevant context. Such words and phrases may be a mere “slogan” or “buzzword...intended to encourage relationship managers to maintain close relationships with their customers and to understand their business as a whole” (at [380]).

(8) The absence of any written advisory agreement “is a significant pointer against the existence of an advisory obligation” (at [440]).” [my emphasis]

In Grant Estates Ltd. v The Royal Bank of Scotland plc, Lord Hodge, after his review of the authorities, presented the following 5 propositions in relation to a tortious duty of care[367]:

“(1) It is not sufficient to set up a duty of care to assert the existence of an “advisory relationship”. There is a clear distinction between giving advice and assuming legal responsibility for that advice. A salesperson of a financial product may give investment advice or express opinions without becoming an investment adviser and undertaking duties of care as such. Whether the giving of advice gives rise to legal obligations in tort or delict to exercise reasonable care or to advise on certain matters depends on the terms of the legal relationship between the parties: Standard Chartered Bank, Hamblen J at §§505ff, 544.

(2) The absence of any written advisory agreement is a significant pointer against the existence of an advisory obligation: Springwell, (first instance), Gloster J at §440; Wilson v MF Global Ltd, Eady J. at §174.

(3) Parties can enter into a contract which defines the basis of their trading or banking relationship and allocates risk in a way which negates any possibility of a general or specific advisory duty coming into existence: Springwell, (1^st instance), Gloster J at §§475 and 478. The outcome can be expressed in different ways but with the same meaning. The contractual terms can define the parties’ relationship in a way that no assumption of responsibility can be inferred. The relationship so defined is not equivalent to that of professional adviser and advisee which would make it just and reasonable to impose a duty of care: IFE Fund SA, Toulson J at §§70-71.

(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. See, for example, the non-reliance statements in Standard Chartered Bank which prevented Ceylon Petroleum Corporation from asserting that advice had been given and relied on (§544). See also Peekay Intermark Ltd., Moore-Bick LJ at §56; and Springwell (CA), Aikens LJ at §156f. 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. See Peekay, Moore-Bick LJ at §57; Springwell (CA), Aikens LJ at §§ 141-171.” [My emphasis]

Did the Key Agreements contain an advisory element or were they “execution only”?

128. The modern approach to a proper construction of the provisions of a contract is guided by the judgment of the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society in which Lord Hoffman stated[368]:

“Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

...

The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean.”

The words must be construed in their context and with regard to the factual matrix. Lord Hoffman, sitting as a Non Permanent Judge of the Court of Final Appeal in Jumbo King Ltd. v Faithful Properties Ltd.[369] also said[370]:

“The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well. Their language may sometimes be careless and they may have said things which, if taken literally, mean something different from what they obviously intended. In ordinary life people often express themselves infelicitously without leaving any doubt about what they meant. Of course in serious utterances such as legal documents, in which people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other. The court is not privy to the negotiation of the agreement — evidence of such negotiations is inadmissible — and has no way of knowing whether a clause which appears to have an onerous effect was a quid pro quo for some other concession. Or one of the parties may simply have made a bad bargain. The only escape from the language is an action for rectification, in which the previous negotiations can be examined. But the overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean. Therefore, if in spite of linguistic problems the meaning is clear, it is that meaning which must prevail.”

129. The primary clause governing the scope of the banking services being provided is Clause C(1)[371]:

“If you request investment Services, the Bank will purchase, sell and hold investments for your Account(s) and provide other Services incidental to this activity as set forth in this Agreement. Investments will be as directed by you in the case of custody Accounts (Custody Accounts) and Accounts which are established on an advisory basis only (Non-Discretionary Accounts). In the case of Accounts established on a discretionary basis (Discretionary Account(s)), investments will be as determined by the Bank in accordance with considerations of availability and applicable fiduciary standards.”

130. The first sentence of the clause does not create any difficulty. If the client requests investment services, the bank will purchase, sell and hold investments for the client’s account and provide other incidental services as set out in the Services Agreement. The very next sentence, referring to accounts “established on an advisory basis only”, suggests that some advisory services are to be provided by the bank.

131. One can infer from the letter from the Bank dated 9 December 2008[372], in which the Bank expressly stated:

“We note your Account is an advisory account. An advisory account, such as your Account, operates only on the customer’s instructions.”

that the writer was of the view that the account was “execution only” and only operated on the client’s “advice”, that is to say that the account was only to be operated on the client’s “advice” or “instruction”. There are difficulties with such a construction. Firstly, Clauses A(3) and (4)[373] dealing with client’s instructions or orders only refer to the client giving instructions or orders, they make no mention of the client “advising” the Bank what to buy or what to sell. Further, in a commercial context, “advice” may mean “to announce” or “to give formal notice” but that is usually in the context of a bank “advising” the beneficiary of the opening of a letter of credit. Finally, “advise” often implies professional or technical expertise and, in the context of the banking services agreement, the expression “established on an advisory basis only” suggests that the Bank is providing an advisory service.

132. A discretionary account is one where the bank not only advises, but also decides what to buy or sell. Clause C(4) of the Services Agreement deals with “management” of the account and states[374]:

“For Discretionary Accounts, the Bank is appointed to manage Investments for the Client’s account and to hold, sell, invest and reinvest in the Bank’s sole discretion, guided by the investment objectives specified by the Client and agreed to by the Bank.”

The expression “advisory basis” is often equated with discretionary accounts as in Price[375] where Mr Price complained to the Pensions Commissioner that Towry, in their capacity as the Self Invested Personal Pension (“SIPP”) administrator, on receipt of his transfer instructions in December 2009, allegedly failed to make him aware that a small proportion of the SIPP assets had been invested in a hedge fund which was difficult to encash. At the time of SIPP establishment, Mr Price had signed a Discretionary Investment Management & Advisory Agreement instructing Towry to manage the SIPP investments on a discretionary and “advisory basis”. By doing so, he had given Towry permission to buy and sell investments for the SIPP at their discretion without first seeking his approval. In N[376]another complaint was made to Pensions Commissioner in connection with another SIPP. In that case, “execution only accounts” were contrasted with “advisory or discretionary accounts”[377].

133. In Wilson v MF Global Ltd.[378], financial investment brokers were found to have had complied with the requirements of the Conduct of Business Rules (“COB”), issued by the Financial Services Authority of the UK, when classifying a client as an intermediate customer for the purposes of regulatory protection, and they were held not liable for trading losses suffered by the client. The claimants (W and P) sought to recover trading losses caused by alleged breaches of duties and contractual terms by the defendant financial investment brokers (G). W was a businessman and co-trustee of a company pension scheme. P was the corporate co-trustee of that scheme. W and P had entered into “execution only” accounts with G enabling W to trade directly in various investment products. They suffered losses and claimed that, despite the execution only status, reliance had been placed on G’s advice regarding general strategy and particular trading transactions. Clients were required to provide details of their experience and understanding regarding investment products before classification by G. W failed to provide some of the information requested but was classified as an “intermediate customer” in relation to contracts for differences and futures and options, which indicated a certain level of experience and understanding. He had received written notice from G regarding the implications of being an intermediate customer.

134. Eady J. held that a significant obstacle to W and P’s claim was that the intermediate customer accounts were opened on an “execution only basis”, which was what W had wanted. He had direct access to the markets and was afforded real time information about his trading positions. He could trade without reference to anyone if he so wished. The fundamental point was that the parties were not in an “advisory” relationship at all and the COB rules had no application. The role of an account handler such as X, given the execution only contractual framework and W’s intermediate customer status, was made clear in the express terms of business for each of the relevant accounts. There was no duty on G to advise, although they were entitled to use their discretion in providing clients with market information, advice and/or recommendations. It would be clearly understood by any reasonable client in W’s position, if he had read the contracts, that he was not being given advice on the merits of particular transactions and that any information or opinions offered were purely incidental to the dealing relationship. Eady J. made the following findings and observations in his judgment which assist in making clear the very marked distinction between “execution only” and “advisory” accounts:

“65. The form also contained Mr Wilson’s request for an “execution only” service so as to enable him to trade in on-exchange Futures and Options (both in relation to “financials” and “commodities”). ... he was seeking an “execution only” service (not “advisory service”) and would, accordingly, be making his own decisions both as to strategy and individual trades.

...

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. As I have already recorded, 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. ...

...

88. The underlying assumption of this [claim] is that the CFD accounts and the futures and options accounts were in fact conducted on an advisory basis (whatever the contracts provided) so as to give rise to the obligations to advise on “suitability” and “risk”.

...

92. The fundamental point is that the parties were not in an advisory relationship at all. Accordingly, the COB rules set out above, imposing the obligations relied upon, had no application. The Claimants’ case appears to be that in practice, and whatever the contractual documents actually said, the Defendants in fact took on an advisory role.

...

174. Had the business relationship between the Defendants and the First Claimant and Donwin consisted of an investment advisory and/or management service then there are a range of factors that I would expect to observe but I did not, including:

(a) A signed contract of agreement for the provision of investment advisory and/or management services.”[My emphasis]

135. In Thomas, Raymond Bailey, MTR Bailey Trading Limited v Barclays Bank Plc[379] the bank’s Retail Client Agreement, containing the following provisions, made very clear the difference between a “non-advisory” service and an “advisory” service:

“Non-advised services:

2.1 Except as set out in clause 2.2 below, we will not provide any advice to you in relation to a Transaction. You confirm that the information that you have provided and provide from time to time to allow us to assess the appropriateness of the activities and services we are providing to you is accurate and complete.

Advice:

2.2 Notwithstanding clause 2.1 above, we may provide you with advice in relation to Transactions, where we have notified you in writing that we will do so. If we do give such advice, you confirm that the information that you have provided and provide from time to time to allow us to assess the suitability of the activities and services we are providing to you is accurate and complete.” [My emphasis]

The bank had written to its client on 17 March 2011, enclosing its Retail Client Agreement, and explaining, under the heading “Regulatory Matters”, the following:

“1. Non-advisory service

Please treat this Letter as written notice that Barclays Capital will be providing this service to your Business on a non-advisory basis. Barclays Capital will not provide you with any personal recommendations. Barclays Capital will not assess whether the relevant product or services meets the investment objectives of your Business.

As a result, Barclays Capital is not required to assess the suitability of the product or the service provided or offered to you. Consequently, in the event you are unhappy with a product that you have entered into with Barclays Capital, you will not benefit from the FSA rules on assessing suitability.

This means that you must determine on your own behalf or through independent financial advice the merits, terms, conditions and risks of the risk management product or the service provided or offered to you, and the potential impact on your Business. You may also wish to seek independent legal, accounting or tax advice on the product or service provided or offered to you.” [My emphasis]

The court observed[380] that the statements in the Retail Client Agreement and in the letter of 17 March 2011, making it clear that the Bank was acting on a non-advisory basis, were not only clear but precisely in accord with reality and[381] that the contention that the references to a non-advisory service and to the absence of a personal recommendation were a falsification of the true state of affairs was quite hopeless.

136. The second sentence in Clause C(1)[382] that:

“Investments will be as directed by you in the case of custody Accounts (Custody Accounts) and Accounts which are established on an advisory basis only (Non-Discretionary Accounts).”

suggests that the decision whether to buy or sell vests in the client in the case of non-discretionary accounts, which is consistent with Clause (4) which states:

“The Client will make its own decisions regarding Investments and may accept or disregard, in the Client’s sole discretion, any views expressed for recommendations made by the Bank, its Affiliates and/or their staff, none of whom accept any liability (including but not limited to liability for any diminution in the value or loss or damage to any Investment) for any such decision made by the Client.”

To suggest that “advisory basis’ means “advise” or “notice” from the client as to what to buy or sell does not sit well with the first part of the sentence which already states that investments will be directed by the client. What is the need to say that twice? A simple statement that:

“Investments will be as directed by you in the case of custody Accounts (Custody Accounts) and Non-Discretionary Accounts.”

would have sufficed. As the above authorities make clear, “on an advisory basis only” cannot mean “on an execution basis only”; and it most definitely cannot mean “on a non-advisory basis”.

137. In construing the clause in question it is legitimate to look at the factual matrix which must include the marketing brochure[383] dated 1 June 2004 containing the following statements[384]:

“By understanding your needs and objectives in every phase of your life, we are able to offer you solutions which best suit your personal situation.”

“Our job is not to push products. We have an open architecture approach: among all the products in the market, we select the best of breed products from the market to match the client's risk reward profile.”

“Private banking is more than the combination of cash management, credits, investment advice and insurance products. It is the translation of financial questions into long-term wealth management solutions.”

“We believe that trust can only be built over time by continuously providing quality advice to our customers.” [my emphasis]

All these statements support the construction that an advisory service was being provided by the Bank.

138. In my judgment, the only proper construction of the Services Agreement is that the Bank contracted to provide an advisory service to the client. The client did not have to accept any such advice and the decision, whether or not to buy or sell the investment product that was the subject matter of the advice, vested in the client. In the words of Lord Hoffman, in serious utterances such as legal documents, in which people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language. The overriding objective in construction is to give effect to what a reasonable person, rather than a pedantic lawyer, would have understood the parties to mean. Therefore, if in spite of linguistic problems the meaning is clear, it is that meaning which must prevail.

139. How do clauses such as:

“The Bank, its Affiliates and/or their staff may provide you with information and express views in relation to Investments. Such provision of information and expression of views shall not constitute the giving of investment advice (save for the giving of advice in respect of a Client’s Discretionary Account) and the Bank, its Affiliates and their staff shall have no liability in respect thereof.”

in Clause C(4)[385] and similar clauses in Clause A(17)[386] that:

“you understand and agree that:-

(i) you make your own judgment in relation to investment or trading transactions;

(ii) the Bank assumes no duty to give advice or make recommendations;

(iii) if the Bank makes any such suggestions, it assumes no responsibility for your portfolio or for any investments or transactions made;

(iv) any risk associated with and any losses suffered as a result of the Bank entering into any transactions or investments on your behalf are for your account;”

sit with the assumption of a contractual advisory duty on the part of the bank for non-discretionary accounts?

140. It was common ground that the accounts in question were not discretionary accounts. Custody accounts are accounts in which the Bank may accept securities and other investments for safekeeping[387]. The accounts of the Changs and Nextday were custody accounts[388]. They were also non-discretionary accounts that were “established on an advisory basis only”. Most private banking accounts would tend to be non-discretionary as well as custody accounts, the custody element being included for the convenience of the client and because the investments have to be held by the bank as security for loans advanced to the client. However, in order to give effect to the assumption of a contractual advisory duty on the one hand, and the disclaimer of liability for any advice, on the other, I am driven to accept Mr Manzoni’s submissions[389] that there is a distinction to be made in this case between custody accounts and non-discretionary accounts “established on an advisory basis only”. Clauses which contain a disclaimer of liability for advice given must be construed to apply only to “pure” custody accounts which are not “established on an advisory basis only”. On my construction of the Key Agreements, such clauses do not apply to discretionary accounts, as expressly stated, for example, in Clause C(4)[390], nor to non-discretionary accounts “established on an advisory basis only”. Indeed, Clause C(4)[391] expressly recognises the 3 separate types of accounts when it expressly states that:

“All transactions for the Client’s Accounts whether Discretionary, Non-Discretionary or Custody, will be for the sole account and risk of the Client.”

141. The principle, enunciated in Woolfall and Rimmer Ltd v Moyle[392] andFraser v B. N. Furman (Productions) Ltd[393], that one should not construe a term or condition in a contract in a way that would make it repugnant to the commercial purpose of the contract[394] has application in the present case. If a clause contained in the Key Agreements expressly disclaims liability for advice and appears, by virtue of its terms, to apply to both custody accounts and non-discretionary accounts “established on an advisory basis only”[395], then such clauses must, nevertheless, be construed, in accordance with this principle, as not applying to the latter. Such a construction would ensure that these clauses are not repugnant to the commercial purpose of the Services Agreement containing the primary duty undertaken by the Bank, under Clause C(1)[396], to provide an advisory service to the plaintiffs.

142. The following cases have to be distinguished from the present case as they concerned “execution only” banking services:

(a) Wilson v MF Global Ltd.[397] referred to in §§133 - 134 above;

(b) Thomas, Raymond Bailey, MTR Bailey Trading Limited v Barclays Bank Plc[398] referred to in §135 above;

(c) DBS Bank (Hong Kong) Ltd. v San-Hot HK Industrial Co Ltd & Anor[399] in which the contract between DBS and San-Hot BVI expressly described DBS’s service “only as a transaction execution service” and that “No investment advice is offered to the Customer”;

(d) JP Morgan Chase Bank v Springwell Navigation Corporation[400]: “In a nutshell, the relevant contractual provisions in Springwell stated that: (i) Springwell acknowledged that it was a sophisticated investor; (ii) the transaction had been conducted on an execution-only basis.”[401]

(e) Grant Estates Ltd. v The Royal Bank of Scotland plc[402]: “We will provide you with general dealing services on an execution-only basis in relation to ... contracts for differences and rights or interests in investments.”;

(f) Standard Chartered Bank v Ceylon Petroleum Corporation[403]: “ ... I am not satisfied that SCB ever held itself as a general adviser to CPC. There are no documents crossing the line which support such an inference and it is inherently unlikely that SCB would have done so given the clear demarcation, as least as far as SCB was concerned, between a selling and an advisory role.”;

(g) Kwok Wai Hing Selina v HSBC Private Bank (Suisse) SA[404]: “account opening booklet contained the forms for opening an execution-only account for the plaintiff to mandate HSBC to buy and sell various high risk financial products in accordance with her instructions.”; and

(h) Titan Steel Wheels Ltd v Royal Bank of Scotland Plc[405]: “But on either basis, I conclude that the terms outlined, taken as whole, are only consistent with the conclusion that Titan and the bank were agreeing to conduct their dealings on the basis that the bank was not acting as an advisor nor undertaking any duty of care regardless of what recommendations, suggestions or advice were tendered”. David Steel J. also stated:

“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 order 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.”

143. Rubenstein v HSBC Bank plc[406] is a case in which the court held that an advisory duty arose from the contract made between the claimant and the bank. The case concerned a financial mis-selling claim in which Mr Rubenstein complained that he was wrongly advised to invest in an AIG bond. The Rubensteins had sold their London home and, because of the way the property market was, they wanted to invest the proceeds of sale until such time as they decided to buy another property. Mr Rubenstein went to HSBC where a Mr Marsden, an independent financial adviser (“IFA”), suggested to him to invest in the AIG bond which he did. The main issue was whether the investment was an “execution only” transaction. The disclosure documents sent by Mr Marsden to Mr Rubenstein contained 3 statements in Section 3:

“‘Which service will we provide you with?’:

‘We will advise and make a recommendation for you after we have assessed your needs.

You will not receive advice or a recommendation from us. We may ask some questions to narrow down the selection of products that we will provide details on. You will then need to make your own choice about how to proceed.

We will provide basic advice on a limited range of stakeholder products and in order to do this we will ask some questions about your income, savings and other circumstances but we will not:

• conduct a full assessment of your needs.

• offer advice on whether a non-stakeholder product may be more suitable.’ ”

None of the boxes against these statements had been marked. The court held that there was no default presumption that the transaction was ‘execution only’, if the distinction between the giving of advice and the provision of information was not expressly addressed. The circumstances, apart from a failure to complete a “know your customer” document, strongly suggested that the contract was being treated by the bank as an advisory one. It could not be inferred from the absence of that document that the transaction was ‘execution only’. The better view was that the IFA devoted insufficient thought to whether the transaction was an advised one or not. A bystander reading the emails exchanged and the bank’s records would have concluded that the transaction was being treated as advised, rather than as execution only. On that basis, the court concluded that a contract for advice had been made between Mr Rubenstein and the bank[407].

The scope of the advisory duty

144. There were no provisions in the Key Agreements that defined the scope of the bank’s duty to provide advice to clients who opened a non-discretionary account on advisory basis only. Mr Manzoni referred me to the decision in Seymour v Ockwell[408] in which the court, whilst accepting that the ambit of the duty of care owed by a financial adviser at common law was not necessarily co-extensive with the duties owed by that adviser under the applicable regulatory regime, observed that the regulations afforded strong evidence as to what was expected of a competent adviser in most situations. However, Mr Manzoni did not refer me to the applicable regulatory regime that was current in Hong Kong during the period from the time of the opening of these accounts up to the end of 2008.

145. He was content to rest his case on the decision of Deputy Judge Barma, as he then was, in Susan Field v Barber Asia Ltd.[409]. In that case Field, an inexperienced investor, brought an action against Barber Asia Ltd (“Barber Asia”), a SFC-licensed independent financial adviser, for damages in respect of negligent advice rendered to her. She had told Mr Barber of Barber Asia that she wanted to invest her money conservatively, without risk of significant loss of capital, and that her objective was to do better than placing money on deposit in a bank. Field did not enter into an investment advisory agreement with Barber Asia and she did not pay any fees to him; however, Field did sign a risk disclosure statement provided by an established investment house. Barber Asia provided advice to Field from time to time, and she relied on the advice and invested in products that Barber Asia recommended. Barber Asia received commission and fees from the institutions providing the products in which Field invested. A few months after the “conservative” investment, Barber Asia recommended that Field adopt a strategy that involved gearing up her existing portfolio. She eventually lost her money in this “high risk” strategy that involved borrowing in Japanese Yen and investing in Pound Sterling denominated assets. Barber Asia had not explained to Field the risks of the investment and had Field known about the risks from the possibility of the Japanese Yen appreciating against the British Pound, which occurred in 1999, she would not have invested in these products. In the course of his judgment, Deputy Judge Barma stated:

“166. The first allegation (paragraph 37(1)) is that Barber Asia failed sufficiently to heed Ms Field’s stated desire to invest in conservative investments. This is clearly something to which a reasonably competent investment advisor would have had regard. ... as I cannot see any basis on which a reasonably competent investment adviser could properly give advice which was or should have been known to be inconsistent with an advisee’s stated desires or objectives.

...

169. I find, however, that Barber Asia (acting through Mr Barber) did not in fact sufficiently warn Ms Field of the existence or nature of this risk[410], as it should have done, had it acted with reasonable care and skill. ... I do not think that this was sufficient to bring to Ms Field’s attention the risks associated with the currency mismatch, which it was incumbent on Mr Barber to do if he were to deviate (as he did) from Ms Field’s instructions to provide her with a conservative or conservative/medium risk investment strategy. The obligation to warn of particular risks is, I think one which a reasonably prudent investment advisor would be expected to comply with (see e.g. NMFM Property Pty Ltd v Citibank Ltd (No. 10) (2001) 186 ALR 442, at paras 423 to 443 of the judgment).

...

173. Having regard to the findings which I have made above, it follows that the complaint in paragraph 37(9) that Ms Field was advised to invest in a manner which was attended by inappropriate risks is made out. Like the first two complaints, this is, I think, in essence an allegation that the investment was unsuitable for Ms Field, and should not have been recommended to her. I accept that the recommendation of an investment which is or should be known to be unsuitable for the prospective investor will amount to a breach of the duty of care owed by an investment adviser to those to whom he gives advice (see e.g. Martin v Brittania Life Ltd [2000] Lloyds Rep PN 412; NMFM Property Pty Ltd v Citibank Ltd (No. 10) (supra) at paras 444 et seq. of the judgment). [My emphasis]”

146. When a professional person, such as a banker or financial adviser, agrees to render certain services in the course of a business to a client for a fee, there is implied into the contract a duty to exercise reasonable care and skill in the performance of the service[411]. Although there was no contract between Field and Barber Asia, the learned judge held that a duty of care arose in tort from the voluntary assumption of responsibility by Barber Asia, a professional investment adviser, upon whose advice they knew Field would rely to invest in products, which they gave without disclaimer of liability and which enabled Barber Asia to earn fees and commissions.[412] I accept Mr Manzoni’s submissions that I can have regard to this authority to demarcate the scope of the contractual advisory duty that arose in the case, particularly as there were no provisions in the Key Agreements that defined the scope of the bank’s duty to provide advice to clients who opened a non-discretionary account on advisory basis only.

147. In addressing the scope of the advisory duty, Mr Manzoni submitted, relying upon decision of Susan Field v Barber Asia Ltd., that there were 3 components: firstly, the advisor has to have regard to the investor’s investment objectives and risk appetite; secondly, he must only offer products which are suitable to the investment objectives and risk appetite of the investor; and, thirdly, he has to warn of the risks inherent in the investments that are being offered. I accept these submissions and find, based on Section 5 of the Supply of Services (Implied Terms) Ordinance, Cap. 457 and the decision in Susan Field v Barber Asia Ltd., that a contractual duty of care arose in this case that encompassed, at the very least, these 3 elements; namely, that Mrs Li and the Bank had to exercise reasonable care and skill to ascertain the investor’s investment objectives and risk appetite and to have regard to these objectives and risk appetite; that Mrs Li and the Bank had to exercise reasonable care and skill to only offer products which were suitable to the investment objectives and risk appetite of the investor; and that Mrs Li and the Bank had to exercise reasonable care and skill to warn clients of the risks inherent in the investments that were being offered[413].

The breaches of the advisory duty

148. Based on the findings of fact that I have made in this case, I conclude that Mrs Li and the Bank breached the contractual duty they owed to the Changs and to Nextday by failing to exercise reasonable care and skill to ascertain and to have regard to their investment objectives and risk appetite; by failing to exercise reasonable care and skill when offering products which were not suitable to their investment objectives and risk appetite; and by failing to exercise reasonable care and skill to warn of the risks inherent in the investments that were being offered to them.

149. The breaches occurred when Mrs Li advised and recommended to them to purchase products which did not match their investment objective of being medium risk investors and which raised the risk level of their portfolios to risk levels higher than medium risk. I find that the breaches occurred when Mrs Li advised and recommended to them to purchase products which raised the risk level of their portfolios to Risk Level 7 or higher, which I find to be risk levels higher than medium risk. I also find that the breaches continued during the period of time that the portfolios remained at Risk Level 7 or higher. Such continuing breaches occurred from the failure of Mrs Li and the Bank to advise them to alter the composition of their portfolios, by selling high risk products and purchasing lower risk products, as would reduce their portfolios to at least Risk Level 6; and/or by Mrs Li and the Bank continuing to advise and recommend to them to purchase products which maintained the risk level of their portfolios at Risk Level 7 or higher.

150. For almost the entirety of the time that the plaintiffs maintained accounts with the Bank, their portfolios were at Risk Level 7 or higher from as early as 31 December 2004. Mrs Li and the Bank were in continuing breach of duty to Mr Chang from 31 December 2004 up to 31 October 2008 during which period of time his portfolio was at Risk Level 7 or higher. Mrs Li and the Bank were in continuing breach of duty to Mrs Chang from 31 December 2004 up to 30 June 2006 during which period of time her portfolio was at Risk Level 7 or higher. Mrs Li and the Bank were in continuing breach of duty to Nextday from 30 April 2006 up to 31 December 2008 during which period of time its portfolio was at Risk Level 7 or higher[414].

151. I find that the plaintiffs have succeeded in establishing their case against the Bank for breach of the Bank’s contractual advisory duty. The Bank was in continuing breach of duty to Mr Chang from 31 December 2004 up to 31 October 2008. The Bank was in continuing breach of duty to Mrs Chang from 31 December 2004 up to 30 June 2006. The Bank was in continuing breach of duty to Nextday from 30 April 2006 up to 31 December 2008.

152. I enter interlocutory judgment in favour of Mr Chang against the Bank for damages suffered by Mr Chang from 31 December 2004 up to 31 October 2008 to be assessed. I enter interlocutory judgment in favour of Mrs Chang against the Bank for damages suffered by Mrs Chang from 31 December 2004 up to 30 June 2006 to be assessed. I enter interlocutory judgment in favour of Nextday against the Bank for damages suffered by Nextday from 30 April 2006 up to 31 December 2008 to be assessed.

153. As the issues of proof of damage, proof of causation of damage, and mitigation of damage will be dealt with at the assessment of damages, I refrain from expressing any views on these issues.

The other issues raised

154. To cater for the event that I am found to have been wrong in concluding that the banking relationship between the parties was not “execution only”, I shall proceed to deal shortly with the other issues that were raised.

155. If the banking relationship between the parties was “non-advisory” and “execution only”, then I would have found that the Bank succeeded in its defence of contractual estoppel, for the reasons set out by Mr Ho in his closing submissions[415]. In the words of David Steel J.[416], if the Bank’s activities were to extend beyond mere execution, the contractual terms catered for that situation: there was no question of going beyond or outside those provisions. Notwithstanding Mr Manzoni’s interesting submissions that the doctrine of contractual estoppel was not properly founded in law, being an attempt, he submitted, not to create an estoppel as to past fact, but an attempt to create an estoppel as to the future assumption of obligations and as to future facts, I conclude that I ought to follow persuasive English Court of Appeal authority[417] on its validity. If the doctrine of contractual estoppel is to be overturned then it must be done by a higher court in Hong Kong. Indeed, an attempt to do so was made in DBS (Hong Kong ) Ltd. v Sit Pan Jit[418]. However, that attempt did not gain much headway as the Court of Appeal ruled that it did not have to deal with the submissions on the legality of the contractual estoppel doctrine. Notwithstanding that ruling, the Court of Appeal still made the following observations:

“129. In light of our conclusions on the 6^th Representations and the meaning of the Words, Sit’s appeal must fail. The need to consider other GOAs does not arise. Out of deference to the very thorough and extensively researched submissions made by Mr Lee and his legal team, we would like to mention this.

130. DBS relied on contractual estoppel to defeat Sit’s claims of misrepresentation. The Judge held that contractual estoppel is part of the laws of Hong Kong and it was available to DBS as a defence to a claim brought under Section 108[419]. Mr Lee argued that contractual estoppels as proferred in [Spingwell] Navigation v JP Morgan Chase (SA) [2012] 2 CLC 705 was wrong in principle, and lacks proper juridical basis as the cases which supposedly recognized the doctrine in fact involved conventional legal principles such as estoppel by convention. It is also argued that the doctrine was inconsistent with the Privy Council’s judgment in Prime Sight Ltd v Lavarello [2014] AC 436, and that its effect has been much watered down in the light of the Singapore Court of Appeal decision in Deutsche Bank AG v Chang Tse Wen [2013] SGCA 49.

131. Mr Lee further argued that on a proper construction of Section 108, contractual estoppel, even if it is good law, would not defeat a statutory claim brought thereunder. In particular, it is submitted that Section 108(6) does not support such a construction, and that the changes from section 8(4) of the Protection of Investors’ Ordinance to Section 108(6) did not indicate a legislative intent to allow contracting out.

132. We can see the force in the above legal submissions. However, as Sit has failed to overcome the threshold of persuading us to overturn the Judge’s finding on the 6^thRepresentations and the meaning of the Words, we would refrain from expressing a view on these interesting legal issues.”

156. Mr Ho appeared, during his submissions, to accept[420] that a low level duty of care arose on the part of a salesman of investment products not to make negligent misstatements and to use reasonable care not to recommend a highly risky investment without pointing out that it was such, citing the English Court of Appeal’s decision in Springwell Navigation Corporation v JP Morgan Chase Bank[421]. Mr Manzoni did not disagree[422]. As I have found for the plaintiffs on the ground that the Bank was in breach of its contractual duty to advise, it is not necessary for me to find whether or not Mrs Li and the Bank were also in breach of the “salesman’s duty”; and, if so, when those breaches occurred; and, more importantly, whether a “salesman’s duty” can co-exist with contractual estoppel: specifically, if an investor is estopped from asserting that there was a duty to advise him, how can he assert that the bank failed to advise him that a recommended product was a highly risky one.

157. As I have found for the plaintiffs for breach of the Bank’s duty in contract, it is not necessary for me to find whether or not Mrs Li’s “explanations” of the unrealised losses in the accounts amounted to an actionable misrepresentation, particularly as no plea of misrepresentation, based on Mrs Li’s “explanations” of unrealised loss, was raised on the pleadings. The alleged misrepresentation that was pleaded and in respect of which a claim was advanced under section 3(1) of the Misrepresentation Ordinance, Cap 284, and under section 108 of the Securities and Futures Ordinance, Cap. 571, was that Mrs Li falsely misrepresented that the plaintiffs would be able to obtain low interest loans and to invest in funds to achieve “guaranteed” returns. Such a claim must fail on my finding that no guarantees were given[423].

158. I am not satisfied that the defence of undue influence has been made out. In order for any influence to be “undue”, the relevant consideration is whether, on the totality of the evidence, the complainant was “unconscionably abused”. The complainant must prove that he or she has been “overborne” or “coerced”, with the defendant’s actions amounting to “excessive pressure”, “emotional blackmail” or “bullying”[424]. Although I find that the plaintiffs entered into the contracts with the Bank because they trusted Mrs Li, absent evidence of any coercion or emotional blackmail, I conclude that the plaintiffs have failed to establish a case of undue influence. They have failed to establish that Mr Chang and Mrs Chang, or either of them, were “completely dominated”, or that they regarded themselves, or either of them regarded himself or herself, “to be obliged to be wholly subservient and obedient” to Mrs Li[425].

159. The plaintiffs’ reliance on the Unconscionable Contracts Ordinance (Cap 458) (“UCO”) also fails. According to section 3(1) of the UCO, a party “deals as consumer” in relation to another party if:

“(a) he neither makes the contract in the course of a business nor holds himself out as doing so;

(b) the other party does make the contract in the course of a business; and

(c) the goods passing or servicesprovided under or in pursuance of the contract are of a type ordinarily supplied or provided for private use, consumption or benefit.” [My emphasis]

I find that the selling of financial products by the Bank to the plaintiffs as part of the service provided to them as private banking clients is not a service “of a type ordinarily supplied or provided for private use, consumption or benefit” within the meaning of s.3(1)(c) of the UCO. Whilst credit card services may be ordinarily supplied, private banking services are only available to the wealthy who can put down at least US$1 million to open an account. Everyone may have a bank account but only very few can have a private banking account.

160. If the contracts were execution only and not advisory, the plaintiffs cannot seek relief from the terms of the Control of Exemption Clauses Ordinance, Cap. 71 (“CECO”). There is a clear distinction between clauses which exclude liability, and clauses which define the terms upon which the parties are conducting their business. Clauses which define the roles and obligations of the parties, which allocate risk as between the parties, and which prevent an obligation from arising in the first place fall into the latter category. The CECO only applies to the former; otherwise, every contract which contains contractual terms defining the extent of each party’s obligations would have to satisfy the requirement of reasonableness[426]. The terms of the Risks Disclosure Statements in the present case were very similar to the clauses in question in DBS Bank (Hong Kong) Ltd. v San-HotHKIndustrial Co Ltd.[427], where the only type of service that DBS contracted to offer was “execution-only”. DHCJ Pow SC found that they were not exclusion clauses, but merely “emphasised that DBS was not assuming responsibility for services it did not contract to provide” and that the clauses “were doing no more than setting out the parameters” of the bank’s services, and were not to be considered exclusion clauses subject to the CECO[428]. The “but for” test expounded by Lord Griffiths in Smith v Eric Bush[429]has no application to banking contracts where that parties have agreed that the bank would offer “execution only” services. In such contracts, the duty to advise is not removed by a notice excluding liability to advice: the advisory duty does not arise in the first place. In this regard I also echo the observations of David Steel J. in Titan Steel Wheels Ltd v Royal Bank of Scotland Plc[430]:

“The focus [in Smith v Eric Bush] of course was on the issue of liability for poor service rather than the scope of the service to be provided. Further the decision may have been overtaken by later decisions in regard to the assumption of responsibility and move away from any “but for” test in regard to the existence and extent of any duty.”

161. Even if it were to be found that the Risks Disclosure Statements were exclusion clauses subject to the CECO, they would satisfy the test of reasonableness under section 3 of the CECO. It was reasonable for the Bank to contract on the basis that it was providing an “execution-only” service. Such terms are standard across the trade, and similar clauses were held to be reasonable in JP Morgan Chase Bank v Springwell Navigation Corporation (both at first instance[431] and in the Court of Appeal[432]), Titan Steel Wheels Ltd v Royal Bank of Scotland Plc[433]andDBS Bank (Hong Kong) Ltd. v San-HotHKIndustrial Co Ltd[434].

162. If the contracts were execution only and the doctrine of contractual estoppel applied to this case, the plaintiffs’ reliance on the doctrine of waiver cannot succeed. There is no evidence that Mrs Li or anyone in the Bank made any express representations to the Changs and to Nextday that the Bank would not rely on their legal rights as contained in the Key Agreements and, in particular, in the Risks Disclosure Statements. The effect of the contractual estoppel principle is that any advice given by Mrs Li is to be treated as being irrelevant for the reason that the parties have agreed that if the Mrs Li does give advice, Mrs Li and the Bank are not to be treated as accepting any responsibility from giving such advice. Any advice given subsequently by Mrs Li cannot then be construed as an express representation to the Changs and to Nextday that the Bank has waived its contractual rights giving rise to the estoppels.

Costs

163. I make a costs order nisi that the Bank pays the costs of the plaintiffs’ action on the issue of liability and the costs of this trial on liability, to be taxed, if not agreed, with certificate for 3 counsel.

164. In all these mis-selling cases, private banking relationship managers rightly complain that their clients accuse them of wrongdoing when markets fall and forget about all the profits they accumulated when times were good. Such clients deserve no sympathy. They knew the risks involved and took them with eyes wide open. They took huge bets and, when markets were favourable, enjoyed amazing returns on their investments. When markets went south they employed smarts lawyers to look for loopholes in the banking documentation in order to sue their private bankers. The Changs are wholly different from the vast majority of plaintiffs pursuing their private bankers in our courts. The Changs were elderly, unsophisticated clients to whom Mrs Li was keen to sell investment products which they little understood. The Changs did not make informed choices. They entrusted their money to Mrs Li. They had no proper understanding of the products that Mrs Li told them to buy and no understanding at all of the risks involved.

165. I cannot conclude without expressing my gratitude to counsel for the assistance they have rendered to me.

	(Mohan Bharwaney)
	Judge of the Court of First Instance
	High Court

Mr Charles Manzoni SC, Mr Jose Maurellet and Mr Wilson Leung, instructed by C P Lin & Co, for the 1^st, 2^nd and 3^rdplaintiffs

Mr Ambrose Ho SC and Mr Simon Chan, instructed by Deacons, for the defendant

Appendix 1

Examples of recordings showing Mrs Li in effective control of the plaintiffs’ accounts

CPY = CHANG Pui Yin (Mr CHANG)

TC = CHANG CHEN Theresa Linda (Mrs CHANG)

YC = Yvetti CHAU (Mrs LI)

1. Recording No. 8, Utterances 34-59, 1 August 2007, C1/54-60:

“YC:   So sometimes, right, right, I just want to inform you, yesterday (neh) we received shares from one linked to Peabody. So receiving shares (neh) you might think, aiya, does that mean it is not good? It is not so, because recently, this one, this one, is an American coal company. But because the weather in Australia and America hasn’t been good, which caused the production to, eh, that is, the transportation is delayed, therefore, the share price had fallen.

TC:  What? What production?

YC:  Coal.

TC:  Orr, coal!

YC:  The kind of coal for burning, the company is called Peabody.

TC:  Orr.

YC:  It specializes in coal production in America. But, we think (neh) this stock, is quite good in the long term.

TC:  Hm.

YC: Right, it is just that we have received the shares, well now that the shares are received, I will see, set them aside first, well I will sell them for you only at a good price, so you don’t have to worry, yes, like that.

TC:  OK.

YC:  What are you busy with these days?

TC:  Nothing, it’s because Mrs Pong is here.

YC:  I see, OK.

TC:  (laughing sound)

YC:  Listen, tell you some news, see if you would or would not, today Hong Kong stock market fell 767 points.

TC:  Orr, how come?

YC:  Er, ah, well you know, it previously had gone up so much recently, of course it is bound to, bound to, whatever. Sometimes there are, some rumours are out, it is said that some stocks are being changed into A shares, some rumours say something else, well even though we are holding so many things {investment products}, but our, our strike is all very, very deep, therefore you need not worry.

TC:  Hm, hm.

YC:  Right, Well then, right, that’s it. I, on the other hand, have now another thing I want you to invest in, there is a fund on ecology, a fund, there is a ...

TC:  Don’t funds take a long time?

YC:  Yes, they do take longer. Well it is slower, slower, that is it is a bit slower. But it means you can diversify so not everything is put into the one thing, So do {invest in} one over in Europe, but do {invest} in US dollars, this one is, eh eh, eh, energy, ecology, I have reviewed it, it is quite good, so you can do {invest} a little.

TC:  Can you do {invest in} forest?

YC:  Yes. No. It is energy, it is a glob.. global ecology fund, it is, which means it is very diversified, which means it has electricity, wind power, water, well agriculture, well everything is very diversified, which means it is investing in many different countries, it is not like it would be concentrated in America, or Hong Kong. It has {invested in} America, England, Germany, er, and also in many northern European countries, also in Japan. I know you have {money}, so I am thinking of doing {investing} 200,000 US dollars for you, is it alright? I will place 200,000 US dollars for you then.

TC:  Alright.

YC:  Fine, that’s it for now. OK. Bye bye.

TC:  Bye Bye.”

2. Recording No. 16, Utterances 1-19, 17 Sept 2007, C1/121-123:

“CPY:  Hello.

YC:  Hello, Mr Chang?

CPY:  Yes yes.

YC:  Mrs Li here, how are you.

CPY:  How are you.

YC:  Yes, there was something I forgot to tell you just now, I am sorry.

CPY:  Right.

YC:  Last Friday evening (neh), we did one more {equity linked} note, well (neh) {the interest is} as much as 21 and a half percent, did two, one is BNP, one is Royal Bank of Scotland, Scotland Bank.

CPY:  Orr.

YC:  And so pays 21 and a half percent, the strike is 95, the eh eh, call 95, strike 78, there is a kick in 69, and so the coupon is paid every two months like that, and 300,000 US dollars was done for you.

CPY:  Yes.

YC:  That’s it.

CPY:  Fine.

YC:  May I speak to Mrs Chang?

CPY:  She... is out.

YC:  She is out? Orr orr orr. I will call again later. You...haven’t had your dinner yet? You had your dinner already, right?

CPY:  Yes, okay. fine.

YC:  Orr oh, fine, fine, bye bye.

CPY:  bye bye.”

3. 18, Utterances 4-8, 17 Sept 2007, C1/135-136:

“YC:   Mrs Li here, I am sorry, forgot to tell you just now. Eh, Friday night we did for you eh, note, eh...done in US dollars, pays 21 and a half percent. And it is for two banks, one is the French BNP, one is Royal Bank of Scotland. And call once every two months, and it is very good, did for you US dollars, uh, 300,000. And the strike is 78%, there is a kick in 69, call 95, and receive 21 and a half percent, that’s it.

TC:  Thank you.

YC:   Alright, will not take up your time, it is late for you, is it not?

TC:  Yes it is late.

YC:  Alright, fine, bye bye.”

4. 24, Utterances 186-208, 2 Oct 2007, C2/245-250:

“TC:  Our things (neh), because my husband asked you to find out, our money placed with you besides what you had done, how much profit was made, so that is, the account, eh, does it, if, so does it have idle money?

YC:  Has idle money.

TC:  That is, that is, is there...is there? That is, for example if we have stocks here, they sometimes have money in a cash fund.

YC:  There is.

TC:  Is there?

YC:  There is.

TC:  So does the money with you get interest like at a bank?

YC:  Yes, even higher than theirs, the interest.

TC:  Oh? Does that mean, does that mean, like what you said before it is higher, higher than Standard Chartered by half a percent?

YC:  That is right.

TC:  Those idle money.

YC:  The idle money is collecting interest. At the same time you have fixed deposits.

TC:  Have fixed deposit also? But how do you take out the money from fixed deposits?

YC:  How do I take out the money? That is why I am scheduling the dates for you, am I not? For example, {when I} have bought things for you, when is the settlement, payment, I schedule the dates for you when to do what don’t I? I will monitor for you when payment is due. I have scheduled the dates already. If nothing was done for you, the money would be put into fixed deposit, like that.

TC:  Yes so, you do that everyday, how could there be a fixed deposit? How can there be a fixed deposit? You fixed deposit... a fixed deposit takes quite a long time.

YC:  Look, because, look, when I do fixed deposit (neh), we have to see whether it is for long or short term. So often I would do two weeks for you. Right, so we do... we for example let’s say Mrs Chang bought something today. But to buy today, does not mean pay today, payment occurs two weeks afterward.

TC:  Orr.

YC:  So, it turns out sometimes, there is some spare money, I would put it in fixed deposit for you.

TC:  So, you mean, that is, two weeks fixed deposit is still better than ordinary interest.

YC:  Right. That’s right.

TC:  Orr.

YC:  That’s how it is. The order I told you about this morning is done, it is done, the 25%   one I did for you already.

TC:  Ok.”

5. Recording No. 26, Utterances 1-11, 9 Oct 2007, C2/296-298:

“CPY:  Hello?

YC:  Hello, Mr Chang? Mrs Li here. I would like to inform you (neh), in fact last week (neh) we had two notes which were called, so this week there will be money coming back. So the two notes together is 400,000 US dollars, not including interest.

CPY:  Huh?

YC:  There is also interest to be collected. And today (neh) we will open another one for some Hong Kong stocks, Hong Kong stocks, for three stocks, one (neh) is Kowloon Wharf, one is Hutchison Whampoa and the other one (neh) is Bank of China, Bank of China.

CPY:  Hm.

YC:  And the strike is 80%, and the call level is 94%, and there is a call every two months, the interest is 31.2%, and this is for two years, like that. I see since anyhow you have money returned to you, so if it is possible to transfer 200,000 to do this one, is it alright?

CPY:  Yes.

YC:  So I will do this one for you.

CPY:  Hm.

YC:  I will call you after I have done it.

CPY:  Thank you.”

6. Recording No. 29, Utterances 6-12, 9 Oct 2007, C2/306-307:

“YC:  Nothing, I just want to notify you, today I, will open a Hong Kong stock note. Well it will be for 3 stocks, one is Hutchison Whampoa, one is Kowloon Wharf, and the other one is Bank of China. Well, it is for two years, one call every two months. The strike is at 80 percent call 94%. So it has as much as 31.2%. Last week we, you had two notes that were called and money returned.

TC:  Is there enough?

YC:  Enough, enough. I will do for you 20, is that alright?

TC:  Is there enough?

YC:  Enough! Enough to do 20, don’t do so much.

TC:  Ok.

YC:  Fine, bye bye.”

7. Recording No. 31, Utterances 1-41, 9 Oct 2007, C2/320-326:

“TC:   What’s up? Hello!

YC:  Hello! Mrs Chang.

TC:  Hello, yes!

YC:  This is Mrs Li. Reporting to you on the two orders this morning, each order did US$200,000, all were done.

TC:  OK!

YC:  Is that alright? So would you like [me] to repeat the details?

TC:  Yes!

YC:  Look! China life Insurance, China Life Insurance (neh) is at 48.15, and Construction Bank 7.23, Hong Kong Exchange at 246.8. The strike is 75%. The call is 85%. 40% [interest]. Another one is Kowloon Wharf plus Bank of China. Kowloon Wharf 39.4.

TC:  Ok.

YC:  So done, there...

TC:  Huh!

YC:  That was done, each one did for you US$200,000.

TC:  Orr!

YC:  Then you also have money coming back intermittently from some notes. And we tonight also have another one also on US stock. And I think can also let you do this one, so will also do that one for you, have 21% odd.

TC:  Louder, can’t hear. Am out on the street.

YC:  Out on the street? Look, I will repeat one more time. Tonight (neh) there is another one (neh) General Cable, plus Johnson&Johnson, ah, ah. Wai Sun. And (neh) the strike for this, strike is 70%, call (neh) is 90%, and there is a kick in at 65%. And a call every two months, have 21.25%.

TC:  Hm!

YC:  Since you will have money coming back intermittently from many American things, is it alright that I also do $200,000 for you for this one?

TC:  Hm!

YC:  is it alright?

TC:  Yes!

YC:  Alright then!

TC:  Still have something to say.

YC:  Yes.

TC:  Last night (neh) I saw HSBC was $152?

YC:  Not yesterday, it was last week.

TC:  Orr!

YC:  That’s right.

TC:  So it has gone down now?

YC:  Has gone back down now.

TC:  What does it mean by gone back down?

YC:  Gone back down! Not so high. Not so high. Let me see what it is doing now, $149.7.

TC:  Orr.

YC:  That’s right!

TC:  When did you say that I had to sell those?

YC:  You hold them for now, you have been holding them for so long.

TC:  Alright!

YC:  Right! Let me count to make sure that was all.

TC:  Ok.

YC:  Bye bye!

TC:  Thank you! Bye bye!”

8. Recording No. 32, Utterances 1-12, 10 Oct 2007, C2/327-329:

“TC:   Hello!

YC:  Good morning. Mrs Chang. Like I said, it is good that you are back! Have some good news to tell you.

TC:  (Laughing sound) Really! So lucky!

YC:  (Laughing sound). Yes, it is like this (neh), previously we (neh), earlier (neh) we did some equity linked notes, didn’t we (neh)? The shares we received were called Peabody, one that makes coal, and (neh) we received the shares at $49.20, well last night it went up to $51.

TC:  Oh.

YC:  So they were sold for you already, sold 4...you had 4,048 shares, sold at $51.

TC:  Hm.

YC:  That’s right. So you made a profit of around $US8,500 there.

TC:  US dollars?

YC:  Yes!

TC:  T-Then it is quite good then?

YC:  It is quite good! {I} deserve praise, (laughing sound).”

9. Recording No. 33, Utterances 1-8, 10 Oct 2007, C2/356-357:

“TC:   Hello.

YC:  Hello, Mrs Chang. Mrs Li here!

TC:  Yes.

YC:  Nothing! Tonight (neh) we have a US stock...those, equity linked note on one called Garmin Limited, {It} does those, eh, computer internet, eh, eh, that kind of technology.

TC:  Can’t hear {you}!

YC:  Computer internet that kind. So (neh) the interest (neh) for one month is 18.3%. And (neh) the spot price (neh) is 112.5. The strike is 95%, if it goes up to 103 (neh), then (neh) {you} just sit back and collect the money. So I do US$200,000 for you, is it alright?

TC:  Hm.

YC:  Hm, ok, alright! Bye bye!”

10. Recording No. 35, Utterances 1-13, 11 Oct 2007, C2/367-369:

“TC:   How are you?

YC:  Hello, Mrs Chang?

TC:  It is.

YC:  Mrs Li here.

TC:  Yes.

YC:  Tonight (neh) we will do a US stock (neh). Previously we did equity-linked [notes] one month by one month, but (neh) this time (neh), we buy the actual shares, but (neh) buy 100 shares every day, and (neh) buy every day (neh) at 83%. And (neh) if the share goes up to 105%, cannot buy anymore. If on that day {it} goes below 83% (neh), then have to buy double on that day.

TC:  Hm.

YC:  So it is Yamana.

TC:  Ok.

YC:   So buy 100 shares for you every day, is it alright?

TC:  Ok.

YC:     Fine, then I will call you tomorrow after it is done, bye bye.

TC:  Ok, bye bye.”

11. Recording No. 39, Utterances 1-26, 15 Oct 2007, C2/396-399:

“TC:   Hello?

YC:  Hello? Mrs Chang?

TC:  It is.

YC:  Mrs Li here.

TC:  Yes.

YC:  We have today two notes (neh), you know, do some Hong Kong stocks ones..

TC:  Right.

YC:  The strike is 80%, call is 95%.

TC:  Right.

YC:  So, the first one (neh) is to do that Hutchison Whampoa plus that, er, Huaneng,

TC:  Right.

YC:  So, the interest rates is 27.45 percent, call once every two months.

TC:  Right.

YC:  The other note is to do three Chinese banks, the first one is Construction Bank, the second is Industrial and Commercial,

TC:  Right.

YC:  The third one is Bank of China.

TC:  Right.

YC:  And (neh) the call is at 90 percent, the strike, the strike (neh) is 78.5, the call is once a month.

TC:  Hmm.

YC:  And it pays 30 percent.

TC:  Right.

YC:  So, I do two hundred thousand US dollars for you for each one, is that alright?

TC:  Fine.

YC:  Okay, fine.

TC:  Okay.

YC:  Fine, thank you, bye bye.”

12. Recording No. 43, Utterances 1-25, 16 Oct 2007, C2/450-453:

“CPY:  Hello.

YC:  Good morning, Mr Chang!

CPY:  Yes, good morning, good morning!

YC:  Mrs Li here, how are you.

CPY:  How are you, how are you.

YC:  Eh, nothing much, Mr Chang’s account (neh), you see, still has a lot of Hong Kong dollars.

CPY:  Huh?

YC:  Mr Chang’s account has a lot of Hong Kong dollars, has as much as a little over four million, Hong Kong dollars.

CPY:  Yes, yes.

YC:  o today we (neh) have an equity linked {note} for only a month, and it is on that, er, Hutchison Whampoa.

CPY:  Yes.

YC:  Number 13 Ticker. And then the strike is at 92%.

CPY:  Yes.

YC:  That’s right, 92 percent, and it is only for one month, and the interest is as much as 19.63 percent.

CPY:  Yes, yes.

YC:  Almost 20. Since I see if it is for one month, how about do some for you?

CPY:  Fine, fine,

YC:  Is that alright?

CPY:  Yes.

YC:  So no need to do all of it, do half, do two hundred for you, is that alright?

CPY:  Yes, yes.

YC:   Alright, so I call you back after I have done it.

CPY:  Okay, thank you.

YC:  Good, thank you, bye bye.

CPY:  Ok, bye bye.”

13. Recording No. 45, Utterances 6-8, 16 Oct 2007, C2/456-457:

“YC:  Yes, you have a lot of Hong Kong dollars here. Today (neh) we will do an equity link (neh), linked (neh) to this Hong Kong stock Hutchison Whampoa. And the discount is (neh) at 92%. And for one month (neh) pays as much as 19.63 percent. Is it alright to do for you two million Hong Kong dollars?

TC:  Yes.

YC:  Fine, call you back after I have done it...”

14. Recording No. 46, Utterances 16-17, 16 Oct 2007, C2/466:

“YC: Would you want to do a little more?

TC: Up to you, hey! You are in charge!”

15. Recording No. 55, Utterances 1-13, 2 Nov 2007, C3/515-517:

“TC:  Hello.

YC:  Hello, Mrs Chang? Mrs Li here, want to tell you, the two orders today, the first one Kowloon Wharf, to buy 200 shares everyday, was done at 45 dollars and 10 cents. T-The, strike is 86.9, that is 39 dollars 19 cents.

TC:  Hm.

YC:  So 102%, 46 dollars and 2 cents,

TC:  Hm.

YC:  Then cannot buy anymore. 200 shares {will be} bought every day.

TC:  Hm.

YC:  China Life Insurance was done at 50 dollars and 5 cents, the discount is 83%. If the shares go up to 102% then it will be knocked out, 200 shares will also be bought e-everyday.

TC:  Hm.

YC:  So next week on 6^th (neh), you have some Hong Kong dollars notes (neh) that need to be settled, so I will change US dollars into Hong Kong dollars for you.

TC:  Hm.

YC:  Is that alright? Is Mr Chang next to you?

TC:  No, I am out.”

16. Recording No. 75, Utterances 1-48, 19 Dec 2007, C5/943-949:

“TC:  Good morning!

YC:  Good morning, Mrs Chang!

TC:  Yes.

YC:  Mrs Li here.

TC:  Yes.

YC:  Yes, how are you? Nothing much, want to tell you, the coming 21^st (neh), Er...

TC:  Speak louder, can’t hear!

YC:  The coming 21^st...

TC:  Yes.

YC:  Friday...

TC:  Yes.

YC:  Will receive some money back (neh), the one we did a US that equity linked (neh) Garmin, there, eh, will receive all the money and interest back.

TC:  Hm.

YC:  So there will receive Eh two hundred thousand US dollars.

TC:  Orr.

YC:  Fine. Then, look, today (neh) what can we do with the US dollars (neh)? Well if we place the US dollars in US dollar fixed deposit, we are getting 4 something percent interest.

TC:  Hm.

YC:  4 something percent interest.

TC:  Hm.

YC:  Well if we do those foreign currency linked (neh)...

TC:  Hm.

YC:  If it is linked to Australian dollar (neh), I have selected a, um...that, that, eh, the strike (neh) is 0.85, which means (neh), after two weeks, if the Australian dollars goes down to 0.85, only then would you have to receive Australian dollars.

TC:  Hm.

YC:  Right. So there if it is done like this for two weeks (neh), you would... you would get more... Er... in total, two weeks you would get 14 something percent more of interest.

TC:  Orr.

YC:  Is that alright?

TC:  Hm.

YC:  Then I will do this one for you.

TC:  Fine.

YC:  Then... we will do it in batches, shouldn’t do all in one go.

TC:  Fine.

YC:  Well now you have US dollars... now have 1,900,000 something, and separately, 200,000 on the 21^st, I first do {invest} US$1,000,000 for you for the time being.

TC:  Fine.

YC:  Is that alright?

TC:  Fine.

YC:  Yes.

TC:  How about those (neh)? You said, you said those that are falling have nothing to do with us?

YC:  Those do not affect you.

TC:  Huh?

YC:  Because we... the shares we are now holding are not that many.

TC:  Huh?

YC:  Not holding so many shares, because all you have done are {equity linked} notes.

TC:  Orr.

YC:  Uh.

TC:  That is, it is better than...

YC:  The most important thing is that you get interest and that would be fine.

TC:  Huh?

YC:  The most important... that’s right, as long as you get interest it would be alright.”

17. Recording No.97, Utterances 1-31, 12 Mar 2008, C5/1057-1062:

“TC:  Good morning!

YC:  Good morning, Mrs Chang.

TC:  Yes.

YC:  Mrs Li here. Yes, How are you! Eh, the Hong Kong stock market is better again today.

TC:  That means, so... that means... then what does that mean?

YC:  Look, then have to look for something to do {invest in}!

TC:  (Sigh), do again? I am very scared!

YC:  Uh, must do something.

TC:  (sigh)

YC:  Must make up, you see.

TC:  Then you...

YC:  Look, hear me out first, uh.

TC:  Hm hm.

YC:  Look, we are currently holding (neh) a, one of those, um... China Life Insurance {shares}, received every month.

TC:  Hm.

YC:  Receive them every month. Well if they are sold now (neh), for sure there will be a loss, not... not make economic sense.

TC:  Huh?

YC:  If they are sold now, for sure there will be a loss.

TC:  Yes.

YC:  Does not make economic sense.

TC:  Hm...

YC:  SO we (neh) want to place an order for you (neh). So if today that... that stock goes up to 30 dollars 45 cents (neh), will do for you a...er... er... er... we are holding now (neh), you have 27,600 China Life Insurance shares.

TC:   Hm.

YC:  Right. Then if, eh, it goes up to 30 dollars and 45 cents today (neh), I will place an order for you, we call it cover call, that is to say (neh), er... in a month and a half from now, the share goes up to 35 dollars, only then we will sell them.

TC:  Hm.

YC:  If the share {price} doesn’t go up to 35 dollars (neh), then we will not sell them. Then in the meantime, this month and a half (neh), it will give you interest, there is as much as 10,000 dollars in interest. So if, for example, you actually get the 10,000 dollars in interest, and also actually sell the shares at 35 dollars (neh), we can still... that is, can, that... that is break even, so is it alright to do this one for you?

TC:  I don’t know anymore! You have to fix it yourself now. I don’t understand.

YC:  No, well I still... I... that is, I think, that is if we do this one (neh), we still... still... eh, okay, can still... can do this one. So that means besides sitting and waiting, you still get some interest while you wait, is that alright?

TC:  (Mumbling) Alright.

YC:  Fine. So I will {do it} for you... look, don’t know whether it can be done, that is, I just place an order, that’s all.

TC:  Um um.”

18. Recording No. 104, Utterances 52-101, 9 May 2008, C6/1186-1194:

“YC:   Right. Well... eh... yesterday (neh) have helped eh helped you buy a bond for one hundred thousand US dollars.

TC:  Hm.

YC:  It is this eh previously spoken to you about, that Russian Standard Bank.

TC:  Wouldn’t owe money, would it?

YC:  It wouldn’t, this is good. The interest of this has eight point six two five, matures in year 2011.

TC:  Ai... now, now, I’m not... not so something. You said in the past, interest was good. But the interest (neh) does not... not... cover... it is not until now that I understand, the interest cannot cover the loss, so what the devil is the use in getting the interest?

YC:  Eh but the market is not this bad all the time, Mrs Chang!

TC:  Huh... well how would you know!

YC:  Huh? (Unclear)

TC:  Well now {you} say {you} don’t know, your risk is big!

YC:  Well that’s why bonds are being bought for you now, you see?

TC:  Orr.

YC:  Uh.

TC:  Bonds don’t have risk then?

YC:  With bonds (neh), just sit still and collect the money...

TC:  I remember my husband in the past, that, that, that, Standard Chartered that manager bought for him. As soon as he bought it, it fell... on the following day fell by one hundred thousand!

YC:  Hm, well it could happen to anything... well...

TC:  Then you are taking big risks!

YC:  But this one, this one is a eh Russian bond is... that is, a bond by a very big bank in Russia, we had bought it before, it is good stuff.

TC:  Hm.

YC:  That’s why I am doing little by little for you.

TC:  Hm.

YC:  Doing little by little for you. Right , slowly, like that.

TC:  Ai! (sign) Now it has taken away all my confidence. You see in the past I had not paid any attention to what you did, ai! I am very frightened now.

YC:  Don’t be frightened! You, your confidence needs to be gradually, gradually, to be built up again, like that!

TC:  Ai! (unclear)

YC:  Right.

TC:  Don’t take risk anymore, alright?

YC:  I know, I know. Right, is Mr Chang at home?

TC:  He is here. But he does not... he is scared to answer your phone call.

YC:  Orr, is that so?

TC:  Why don’t you call Eman.

YC:  Orr, I will talk to Eman, alright?

TC:  Yes, okay.

YC:  Okay, alright. So I will give your son’s email to Miss Lam.

TC:  Hm hm.

YC:  Is that alright? Fine!

TC:  Okay.

YC:  Then... wish you a happy Mother’s Day, Mrs Chang!

TC:  Okay, thank you.

YC:  Won’t telephone you until next week then.

TC:  You... you wish me happiness...

YC:  Wishing us happy Mother’s Day, (laughing sound)...

TC:  I know... you have to make me happy, otherwise it would not do, ai!

YC:  (laughing sound)... Eh you happy, me happy! (laughing sound)...

TC:  Aiya! I am not... this is it, I am not happy now, ai!

YC:  Okay, alright, fine.

TC:  Okay!

YC:  Byebye.

TC:  Byebye. Hm.”

Appendix 2

Examples of recordings in which Mrs Li made no mention of risk, and gave inadequate explanation of the investments product’s features

CPY = CHANG Pui Yin (“Mr CHANG”)

TC = CHANG CHEN Theresa Linda (“Mrs CHANG”)

YC = Yvetti CHAU (Mrs LI)

1. Recording No. 16, Utterances 1-19, 17 Sept 2007, [C1/121-123]:

“CPY:  Hello.

YC:  Hello, Mr Chang?

CPY:  Yes yes.

YC:  Mrs Li here, how are you.

CPY:  How are you.

YC:  Yes, there was something I forgot to tell you just now, I am sorry.

CPY:  Right.

YC:  Last Friday evening (neh), we did one more {equity linked} note, well (neh) {the interest is} as much as 21 and a half percent, did two, one is BNP, one is Royal Bank of Scotland, Scotland Bank.

CPY:  Orr.

YC:  And so pays 21 and a half percent, the strike is 95, the eh eh, call 95, strike 78, there is a kick in 69, and so the coupon is paid every two months like that, and 300,000 US dollars was done for you.

CPY:  Yes.

YC:  That’s it.

CPY:  Fine.

YC:  May I speak to Mrs Chang?

CPY:  She... is out.

YC:  She is out? Orr orr orr. I will call again later. You...haven’t had your dinner yet? You had your dinner already, right?

CPY:  Yes, okay. fine.

YC:  Orr oh, fine, fine, bye bye.

CPY:  bye bye.”

2. Recording No. 18, Utterances 4-8, 17 Sept 2007, [C1/135-136]:

“YC:  Mrs Li here, I am sorry, forgot to tell you just now. Eh, Friday night we did for you eh, note, eh...done in US dollars, pays 21 and a half percent. And it is for two banks, one is the French BNP, one is Royal Bank of Scotland. And call once every two months, and it is very good, did for you US dollars, uh, 300,000. And the strike is 78%, there is a kick in 69, call 95, and receive 21 and a half percent, that’s it.

TC:  Thank you.

YC:   Alright, will not take up your time, it is late for you, is it not?

TC:  Yes it is late.

YC:  Alright, fine, bye bye.”

3. Recording No. 23, Utterances 198-202, 2 Oct 2007, [C1/217-218]:

“YC:  Alright, alright. Ah, I have one thing to tell you, today (neh) we have one note maturing and also one maturing on 4^th, looking at it now, it is far from satisfactory {the exercise price}, that is the money for sure will be received, and one is 18% the other one is 24%. Today (neh) we will open another one note which has 25%, doing shares of two banks, one is Bank of China, one (neh) is Industrial and Commercial Bank of China. And (neh) the strike is 80%, call at 95%, for two years. For the two years (neh), there is a call every two months. And has 25%. So is it alright to do $200,000 for you to collect interest first?

TC:  Hm, ok. You just email it to him.

YC:  Alright then.

TC:  Tomorrow I have to wire out, tomorrow morning still have to go (unclear)

YC:  Ok, hm, fine. Ok, fine, bye bye.”

4. Recording No. 29, Utterances 6-12, 9 Oct 2007, [C2/306-307]:

“YC:  Nothing, I just want to notify you, today I, will open a Hong Kong stock note. Well it will be for 3 stocks, one is Hutchison Whampoa, one is Kowloon Wharf, and the other one is Bank of China. Well, it is for two years, one call every two months. The strike is at 80 percent call 94%. So it has as much as 31.2%. Last week we, you had two notes that were called and money returned.

TC:  Is there enough?

YC:  Enough, enough. I will do for you 20, is that alright?

TC:  Is there enough?

YC:  Enough! Enough to do 20, don’t do so much.

TC:  Ok.

YC:  Fine, bye bye.”

5. Recording No. 35, Utterances 1-13, 11 Oct 2007, [C2/367-369]:

“TC:   How are you?

YC:  Hello, Mrs Chang?

TC:  It is.

YC:  Mrs Li here.

TC:  Yes.

YC:  Tonight (neh) we will do a US stock (neh). Previously we did equity-linked [notes] one month by one month, but (neh) this time (neh), we buy the actual shares, but (neh) buy 100 shares every day, and (neh) buy every day (neh) at 83%. And (neh) if the share goes up to 105%, cannot buy anymore. If on that day {it} goes below 83% (neh), then have to buy double on that day.

TC:  Hm.

YC:  So it is Yamana.

TC:  Ok.

YC:   So buy 100 shares for you every day, is it alright?

TC:  Ok.

YC:   Fine, then I will call you tomorrow after it is done, bye bye.

TC:  Ok, bye bye.”

6. Recording No. 39, Utterances 1-26, 15 Oct 2007, [C2/396-399]:

“TC:  Hello?

YC:  Hello? Mrs Chang?

TC:  It is.

YC:  Mrs Li here.

TC:  Yes.

YC:  We have today two notes (neh), you know, do some Hong Kong stocks ones..

TC:  Right.

YC:  The strike is 80%, call is 95%.

TC:  Right.

YC:  So, the first one (neh) is to do that Hutchison Whampoa plus that, er, Huaneng,

TC:  Right.

YC:  So, the interest rates is 27.45 percent, call once every two months.

TC:  Right.

YC:  The other note is to do three Chinese banks, the first one is Construction Bank, the second is Industrial and Commercial,

TC:  Right.

YC:  The third one is Bank of China.

TC:  Right.

YC:  And (neh) the call is at 90 percent, the strike, the strike (neh) is 78.5, the call is once a month.

TC:  Hmm.

YC:  And it pays 30 percent.

TC:  Right.

YC:  So, I do two hundred thousand US dollars for you for each one, is that alright?

TC:  Fine.

YC:  Okay, fine.

TC:  Okay.

YC:  Fine, thank you, bye bye.”

7. Recording No. 43, Utterances 1-25, 16 Oct 2007, [C2/450-453]:

“CPY:  Hello.

YC:  Good morning, Mr Chang!

CPY:  Yes, good morning, good morning!

YC:  Mrs Li here, how are you.

CPY:  How are you, how are you.

YC:  Eh, nothing much, Mr Chang’s account (neh), you see, still has a lot of Hong Kong dollars.

CPY:  Huh?

YC:  Mr Chang’s account has a lot of Hong Kong dollars, has as much as a little over four million, Hong Kong dollars.

CPY:  Yes, yes.

YC:  So today we (neh) have an equity linked {note} for only a month, and it is on that, er, Hutchison Whampoa.

CPY:  Yes.

YC:  Number 13 Ticker. And then the strike is at 92%.

CPY:  Yes.

YC:  That’s right, 92 percent, and it is only for one month, and the interest is as much as 19.63 percent.

CPY:  Yes, yes.

YC:  Almost 20. Since I see if it is for one month, how about do some for you?

CPY:  Fine, fine,

YC:  Is that alright?

CPY:  Yes.

YC:  So no need to do all of it, do half, do two hundred for you, is that alright?

CPY:  Yes, yes.

YC:  Alright, so I call you back after I have done it.

CPY:  Okay, thank you.

YC:  Good, thank you, bye bye.

CPY:  Ok, bye bye.”

8. Recording No. 63, Utterances 1-18, 14 Nov 2007, [C4/677-679]:

“TC:  Hello?

YC:  Hello? Mrs Chang?

TC:  Yes.

YC:  Mrs Li here!

TC:  Yes.

YC:  Nothing much, tonight (neh) will do a US stock ELN, which is Apple computer.

TC:  Hm.

YC:  Have done it before.

TC:  Hm.

YC:  So the strike (neh) is 95%, so if the stock goes up to 103 percent (neh), even though it has not reached... er... not reached valuation date, we will definitely receive all the money on valuation date.

TC:  Hm.

YC:  Well (neh) the interest (neh) is 18.27%, and tonight, the order (neh) will be placed at 170 US dollars and 81 cents.

TC:  Hm.

YC:  So is it alright to do... two hundred thousand US dollars for you?

TC:  Okay.

YC:     Fine!

TC:  Fine.

YC:  So I will place this order for you! Okay!”

9. Recording No. 83, Utterances 1-12, 4 Jan 2008, [C5/977-979]:

“TC:  Hello? How are you?

YC:  How are you? Mrs Chang? Mrs Li here!

TC:  Yes.

YC:  Tonight we will open a note (neh) on two US stocks, and the two US stocks...

TC:  Can’t hear you!

YC:  On two US stocks, eh, for two years, and (neh) there is a call every month. The strike is very low, it is 66.4 percent, the call is 90 percent. And (neh) there is also a protection of 55 percent, it is 20 percent. There is a call every month. One... Er... look, so the two US stocks, one (neh) is the one that produces iron called Rio, the other one (neh) Petrobras is the one that produces oil. And we have done these before, so is it alright to do 200,000 US dollars for you?

TC:  Okay.

YC:     Is that okay? Fine.

TC:  Um, thank you.

YC:  Then I... I won’t be able to call you until Monday, if it is done uh.

TC:  Okay, thank you.

YC:  Fine, bye bye!”

10. Recording No. 85, Utterances 1-13, 9 Jan 2008, [C5/982-983]:

“TC:  Hello.

YC:  Hello. Mrs Chang? Mrs Li here.

TC:  Yes.

YC:  Yes. How are you? Eh, tonight (neh) we will do an ELN (neh) on a US stock, eh, Apple computer. The strike (neh) is very low, 81%. Well for one month, {you} receive 22%.

TC:  Hm.

YC:  Right, so is it alright to do 200,000 US dollars for you?

TC:  Fine.

YC:  Fine.

TC:  Hm.

YC:  Then, I will call you after I have done it.

TC:  Fine.

YC:  Fine. Bye bye!

TC:  Thank you. Bye bye!”

Appendix 3

Examples of recordings in which Mrs Li gave a misleading explanation of “unrealised loss”

CPY = CHANG Pui Yin (Mr CHANG)

TC = CHANG CHEN Theresa Linda (Mrs CHANG)

YC = Yvetti CHAU (Mrs LI)

1. Recording No. 9, Utterances 10, 8 Aug 2007, [C1/62-63]:

“YC: Well (neh), we did in the past some foreign currency option, equity opinion (neh)! Because if just looking at the price (neh), it would seem (neh) eh, eh, eh, not so good. So (neh) the bank (neh) would pick a day to take a photo snapshot (neh) of your account (neh). Taking a photo snapshot in this way (neh), [it] would have an, what we call, Unrealised Loss. That is not yet, not yet a real loss. Well for those (neh), for foreign currencies (neh), is already US$260,000. For equities, is US$120,000. But this one is not real. It is just to take a photo snapshot to show to you, this could be possible. So we would tell you. But (neh) these (neh), because those foreign currency options we did not due soon. The earliest one (neh) is only due in October. Well for the shares, we are receiving them day by day, receiving the goods (stocks) month by month, so eh receiving every month. So you don’t need to worry yet. When there is further development, I will explain to you, will explain to you, so don’t need to worry, alright?”

2. Recording No. 10, Utterances 10-22, 8 Aug 2007, [C1/67-72]:

“YC:  Yes, have money coming back. But lately I (neh) have (neh) not done anything for you, have not done anything for you. Because lately the market is relatively volatile. And also (neh) I-I now have to explain something to you (neh). Our bank (neh), will (neh), eh, will keep check on everything being done in customers’ portfolio. Well, for mine (neh), on the day of 6^th of August (neh), took a photo snapshot of your account. It is like taking a snapshot in your horse racing. Then well, previously (neh), we have done some foreign currencies options, equity options, so on the day of 6^th August, the market was not accommodating. So if using that date to calculate (neh)...

TC:  What does that mean?

YC:  It means the market was not accommodating. If the figures on that date had to be used for calculation (neh), using the exchange rate of that date, using the share price of that date (neh), the (performance of) account does not look good. Then (neh), that date, if the rate for that date is used to look at it (neh), the foreign currencies options (neh), w-would have not an actual, that is will have a loss. It is not, not a real one, it will be one, but it is not, it is not, we in English...

TC:  So how much is that?

YC:  It is not... We in English, we call it unrealized in English.

TC:  Uh.

YC:  Eh, for the foreign currencies there would be, be a loss (neh) of $260,000 something US dollars.

TC:  Wow (Shocked sound)...

YC:  Stocks (neh), stocks (neh) is 150,000 something US dollars. But this is (neh) an unrealized, uh, not real. Why so (neh)? We have done for you some foreign currencies, the contract period is as long as a whole year. The earliest one, the earliest one (neh) does not expire until this October. The other stocks, those options (neh), did I not tell you the way to do it is to buy some for you every day? Accumulate for you everyday. So the shares are received only once a month. After having received the shares (neh), only if the price is right, would I sell them for you. So if the price on that date is used in the calculation (neh), would result (neh), on the account (neh) if you look at it (neh), on the account it would appear that there is a loss. But because the price of the stocks was calculated by the price on that day, calculated for an entire year, then it becomes not good to look at. But then (neh), we have a responsibility (neh) to tell you. So why are we telling you, eh, we have so much money returning to us? That is to say, in case (neh), if it is really not accommodating, we still have money to pay for the shares, therefore (neh) you don’t need to worry about this.

TC:  Well, it is still a loss.

YC:  Eh, this one is not a real...

TC:  200,000 is lost then.

YC:  This is not a real loss. It means, it is not, it is not, it is not a, it is not a real loss, Because, eh, foreign currencies and stocks do go up and down. We previously... ”

3. Recording No. 14, Utterances 26-39, 12 Sept 2007, [C1/107-110]:

“YC:  Another thing (neh) I want to tell you, already talked about it last month. Well, the bank (neh), w-would, that is (neh), every month (neh) would pick a day, take out the account and take, like a photo snapshot, like your horse racing, take a photo snapshot. And previously didn’t we do some foreign currency option, equity option, equity options, foreign currency option? The photo taken that day (neh) was not accommodating, therefore it became (neh), what we in English call an unrealized loss. which means it is not real, that is, it is not a real loss yet, but have to tell you.

CPY:  Right.

YC:  If with the foreign currencies, it is around 283,000 something US dollars.

CPY:  Oh, oh.

YC:  Equities (neh) is 72,000 something US dollars, the total (neh) is 355,000 odd.

CPY:  Right, right.

YC:  But compared to last month, shows improvement already, which means the figure is smaller already. But the bank, that is, we have a responsibility to tell you! But (neh) this is not a real, a real loss.

CPY:  Right!

YC:  That’s it, alright? That is, have to tell you, that’s all.

CPY:  Fine!

YC:  Because many have not reached expiry date yet, alright?

CPY:  Fine.

YC:  So, the stocks received, if the price is right, will call you and sell them for you.

CPY:  Fine.”

4. Recording No. 15, Utterances 14-23, 12 Sept 2007, [C1/115-118]:

“YC:  And also (neh), last month I (neh), we have a day every month (neh), pick a day to have a look, have a look at the account, how is t-t-t-the status of the account, a-and have to explain to you. Because I told you once last time already, because we did many those foreign currency options, equity options, didn’t we? Some of the foreign currency options (neh) were not so accommodating. If, for example, on that day (neh), if [I] were to liquidate for you (neh), the foreign currencies in Mrs Chang’s company bank account (neh), if all had to be liquidated (neh), then there would be, what we call unrealized loss, that is, not a real loss. That amounts to some US$288,000 odd. For equities, there are...

TC:  It fell?

YC:  Yes. If really liquidated for real on that day (neh), foreign currencies would have a what we called an unrealised loss which is US$288,000 odd. For equities (neh), there would be US$92,000 odd. In total (neh), there would be some US$381,000 odd. But this is not real. That is, if it was to be liquidated on that day, but I (neh) have the responsibility to notify the clients. So I told you, told you last month, [it] did not amount to anything. Last month, also did not amount to anything. The figure last month was even bigger. The figure this month is smaller.

TC:  Hm.

YC:  Right. But still have to tell you. Right, just so you know... you should know t-t-that thing.

TC:  But if it doesn’t go up then it is real?

YC:  But you {the option contracts} have not matured yet.

TC:  Hm.

YC:  Not yet reached expiry date, when expired, when expired, there is still, some have a whole year to expiry. The earliest one is expiring in October. So we have reserved money here, if have to received we have the money for settlement, we can sit, we can wait, (for recovery) you see.

TC:  Hm.”

5. Recording No. 36, Utterances 6-13 & 49-51, 12 Oct 2007, [C2/371-373 & 377-378]:

“YC:  Ok, well (neh), another thing (neh) I have to tell you (neh), didn’t we say every month (neh), there is a day (neh) on which a photo snapshot is taken of the account, like that?

TC:  Hm.

YC:  Right. So I have to tell you. So if it is, eh, eh, didn’t I say last time I told you we have something called unrealized? Loss, which means it is not real, which means there is a possibility, because of the foreign currency. We have done many foreign currency options, but have not reached expiry, haven’t we? So there (neh), if the account were to be settled on that date (neh), the account would be three hundred sixty three thousand US dollars in the red.

TC:  Wow! (Shocked sound)

YC:  Uh. Right. Didn’t I tell you... because have to... this is a bank measure? It means, when there is such a situation, tell the client. But this is actually not real {loss}, you know.

TC:  Hm.

YC:  This means {since} we have not reached settlement date yet. Right, so just need to let you know.

TC:  Hm.”

...

“YC:  Right. Look, every month (neh) we, there is a day (neh), would take out the account to take a photo snapshot. So, we previously (neh) had done some foreign currency options (neh), because they have not expired, so if a photo is taken on that day, the account (neh) will ehh what, becomes (neh), the account (neh), will ehh we have something called, in English, unrealized loss, that is not a real loss. But if you were to settle on that day (neh), the account (neh), becomes (neh), becomes red, which means there could be a, could, could have a possible loss, of US$356,000 odd dollars, but this is not a real.

CPY:  Yes.

YC:  It’s just a photo snapshot taken on that day. So, in the past if there were any such situation (neh), the Bank also has a responsibility (neh), to notify the bank like that, that is, to notify the client.”

6. Recording No. 60, Utterances 6-8 & 22-26, 13 Nov 2007, [C3/582-583 & 585-586]:

“YC:  That’s right. And another thing I have to now do retroactively with you, didn’t I tell you this morning, we said we have a thing called unrealized loss? Not a real one, uh, if for example {the account} is to be settled in November, if it is settled, if on that day (neh) we did some foreign currency options (neh), if the foreign currencies are to be settled, there would have a, not an a real loss, it is 412,000 something US dollars.

TC:  Wah! (Shocked sound)

YC:  As for shares (neh), it is around 120,000 something. But you know with these stocks, we would sometimes receive them... but they are not received right away, you know, receive them month by month. There in total it is 551,000 something US dollars. But this (neh) one is not real, which means if the account were to be settled on that day (neh), it would be like this.”

...

“YC:  And, another thing (neh), one day every month (neh), your account is taken out to have a photo snapshot taken for you. Like I told you last time (neh), if on that day, that is for November, the account was taken out for a photo snapshot (neh), foreign currencies (neh), would have something called an unrealized loss, which means not a real loss, uh, so the foreign currencies (neh) converted to US dollars would be, 410,000 odd. As for stocks, 30,000 odd, so, in total, 440,000 odd US dollars, that’s the sum, but this is not a real one.

CPY:  Yes.

YC:  It means, if, for instance, a photo snapshot was taken on that day it would look like this.

CPY:  Yes.

YC:  But, we {option contracts} have not expired yet, so, no need to worry. Are you out for a drink or a meal?”

7. Recording No. 68, Utterances 14-17, 12 Dec 2007, [C4/922-923]:

“YC:  Another thing is (neh), look, have to take a photo snapshot for the month again. Just to tell you this, well, for the foreign exchange (neh), if calculated using the date on the account cutoff date, then it is called, eh, eh, there is something called, we call it unrealized loss, it is 459,000.

TC:  Wah! (shocked sound)

YC:  As for stocks (neh), it is 126,000 {US dollars}. But (neh), with stocks, we previously, eh, that, eh, Kowloon Wharf was already knocked out, its gone. Now only one Citibank is left, together with this China Life Insurance. China Life Insurance is going up, making money. And so, still, but have to tell you as a formality, ah, that was all there was when the photo snapshot was taken that day, like that.

TC:  Hm.”

8. Recording No. 87, Utterances 30-38, 10 Jan 2008, [C5/992-993]:

“YC:  Ah! Also (neh), Eh, again... again another month to take a photo snapshot on that which is called Unrealised Loss. So it was only to take a photo snapshot on that day uh. That means, if the photo snapshot was taken on 8^th January, suppose on that day (neh) all was settled, that is, such as those eh currency KIKO we had done previously.

TC:  Hm hm...

YC:  Stocks

TC:  Hm hm...

YC:  Then, Er... Er... if a photo snapshot was taken like this on that day (neh), in currency there (neh) would be 513,000 odd US dollars. In stocks (neh), it would be 187,000 odd. So this one is not real, that is, if a photo snapshot was taken on that day it would be like this...

TC:  Hm.

YC:  It’s just a figure uh.

TC:  Hm.

YC:  Just to let you know.”

9. Recording No. 97 Utterances 44, 12 Mar 2008, [C5/1064-1065]:

“YC: Right, quit quickly. Yes, I understand. Then another thing (neh) I have to reort to you again (neh), that is it... that is each month... I mean, a photo snapshot is taken, Well, we previously did three of those, er...currency options, that is, have become, that is, {they} affect the account, so it is not looking good, it was because those... er... er... er... currency options were done. So there (neh){the unrealized loss} it is 591,000 something. And aside from those (neh), you have some equity options, there it is 260,000 something, in total it is 851,000 something. That means to take a photo snapshot to show you, we call it unrealized loss, this is to report to you every month. Right. Oh, I want to ask, I heard... I heard ah... ah... heard you said to Mr Chang the other day, eh, eh, your other son is coming to Hong Kong next week?”

10. Recording No. 100, Utterances 24-26, 10 Apr 2008, [C5/1083-1084]:

“YC:  Ah! Another thing, another thing, want to report the sum to you. That is, every month (neh), again, a photo snapshot was taken (neh). On 2^nd of April, the unrealized loss, there are three of those foreign currency options, 685,000 something.

TC:  Can’t hear.

YC:  685,000 something, those foreign currency options. As for equity options (neh), it is 239,000 something. So the day when the photo snapshot was taken, the total sum was 920,000 something. But if you look at yesterday (neh), it went down to only 700,000 something, so this has to be reported to you. That is, it is given to you each time just for reference only.”

[1] Not counting the 2 days for Final Submissions.

[2] 4 for the plaintiffs: Mr and Mrs Chang and their sons David Peter Chang and Peter Chang; and 3 for the Bank: Mrs Li, Mr Edward Chow (“Mr Chow”) and Mr Sermon Kwan (“Mr Kwan”).

[3] Although the private banking accounts with the Bank were opened in 2004, the recorded telephone conversations only go back to 2007.

[4] See [B2/413 - 420].

[5] I also directed the experts to prepare a Further Joint Statement in order to give Dr Vinaimont an opportunity to comment on the risk of the portfolios as a whole (as opposed to the risk of the individual investment products): Day 8 p.38(9-14). This was filed on 10 April 2014.

[6] I accept Mr Chang’s evidence in his WS §§2-3 [B1/35-36] that he was born in 1924 but declared that he was born in 1928, the date shown in his identity card, when he came to Hong Kong in the fifties.

[7] Mrs Chang was born on 23 December 1934. See: Mrs Chang WS §2 [B1/59]; Mrs Chang’s HKID [G/5106]

[8] Mrs Chang had been married before and gave birth to David Peter Chang in 1966.

[9] The account opening forms were signed by Mrs Chang on 23 June 2004, by Mr Chang on 28 October 2004, and by Nextday on 4 July 2005 [D1/189-200]. Nextday’s account started to be active from March 2006: See Mr Green’s expert report at §4.10.1 [B2/392]

[10] Mr Chang WS §§29-30 [B1/43]; Mrs Chang WS §§14-17 [B1/63-64]

[11] Mr Chang WS §29 [B1/43]

[12] Mrs Chang WS §16 [B1/64]. As Mrs Chang explained during cross-examination: “My friend said it would rise and I trusted my friend, so I bought the shares. I knew nothing about it but my friend did, so I followed his or her recommendations”: see Day 1 pp.117(18-24), 118(10-20).

[13] Mrs Chang WS §17 [B1/64]

[14] Mrs Li WS at §24 [B1/179]

[15] [G/4467-4635: personal name account] [G/4877-4898: Wing Yan Co Ltd account]

[16] Mr Chang and his three brothers had also invested in an office unit in Lippo Centre (with each of them contributing about HK$5 million): Mr Chang WS §39 [B1/45]. In the context of Hong Kong, this was not a sophisticated or complex investment.

[17] [G/4237-4328]

[18] Mrs Li Xxn Day 5 pp.25(20)-26(3)

[19] Mrs Li Xxn Day 6 pp.4(13)-6(5)

[20] Mrs Li Xxn Day 5 p.31(3-13)

[21] At that time she was already 69 years old.

[22] [G3455]

[23] Mrs Li Xxn Day 5 pp.3(13)-4(1)

[24] [G3456] Mrs Li admitted that this suggested a “lower-end medium” risk appetite: Mrs Li Xxn Day 5 pp.7(24)-8(2).

[25] Mrs Li Xxn Day 5 p.8(7-8)

[26] See G3453-7.

[27] Mrs Li accepted that it was her handwriting on the form: Mrs Li Xxn Day 4 pp.103(11-20), 105(1-2), 108(14-17).

[28] At G3455. Under cross-examination, Mrs Li accepted that the form was an accurate statement of Mrs Chang’s investment experience at the time: Mrs Li Xxn Day 5 p.2(9-12).

[29] Mrs Li Xxn Day 4 pp.104(14)-111(1).

[30] At [D7/1727].

[31] The column for “Foreign Exchange Margin Trading” was ticked without qualification even though Mrs Chang did not have experience in margin trading at SCB.

[32] [D7/1727]

[33] [D7/1728]

[34] [D7/1728]

[35] I do not see any material difference between the expressions “common housewife” and “ordinary housewife”: Xxn Mrs Li: Day 4 p.96(18).

[36] [D7/1734-1737]

[37] There is no evidence to support this statement. I accept the evidence of Mrs Chang that she had bought some shares before the 1972 Hong Kong stock market crash and had kept them over the years.

[38] [D7/1730-1733]

[39] There is no evidence to support this statement. I accept the evidence of Mr Chang that he was a non-executive director of Shiu Wing Steel Ltd. and that he worked as factory manager at plimsoll factories of the Shiu Wing Group until 1972.

[40] There is no evidence to support this statement.

[41] Mrs Li Xxn Day 1 pp.125-143, Day 2 pp.5-13

[42] Mrs Li WS §15 [B1/175]; Mrs Li Xxn Day 4 p.104(14-19)

[43] On the first day of trial, I did not grant leave to the Bank to adduce certain fund fact sheets from 2013 and 2014. See: Day 1 pp.1-3.

[44] [G/3454] Mrs Li Xxn Day 4 pp.104(20)-105(18)

[45] Mrs Chang Xxn Day 2 pp. 17(22)-18(2)

[46] Mrs Li Xxn Day 5 p.25(2-7)

[47] Mrs Chang Xxn Day 2 pp.14(11)-15(2), 16(22)-17(21)

[48] A bank which was later taken over by UBS.

[49] About US$24,000, as I had pointed out: Day 2 pp.36(24)-37(4).

[50] [G/3622-4090]

[51] As I had noted: Day 2 p.37(7-8). See for example, the statement for April 2002 [G/3674]. Recent correspondence from UBS also confirmed that the UBS bank account was not approved for aggressive investments, and that such investments would have required additional approvals: see Mrs Chang 2^ndSupp WS §§17-18 [B1/163-165].

[52] Mr Chang WS §§7-8, 26 [B1/36-37, 41-42]. The Bank knew that Mr Chang could not speak English, as shown by Mrs Li advising her colleague not to use a lot of English when speaking to Mr Chang: see Rec.128 (9 Oct 2008) at Utt 34 [C8/1924].

[53] Mrs Li WS §19 [B1/177]

[54] Mr Chang WS §22 [B1/39]

[55] Mr Chang WS §24 [B1/40]

[56] Mr Chang WS §§19-21 [B1/39]

[57] Mrs Chang WS §6 [B1/60]

[58] Mrs Chang WS §6 [B1/60]

[59] Mrs Chang WS §12 [B1/62]

[60] Mrs Chang Xxn Day 1 p. 138(4-20). See also: Mrs Chang Xxn Day 1 pp.131(15-23), 132(13)-134(12), 135(23)-138(25). See also: Mrs Chang WS §25 [B1/66]

[61] Mrs Chang Xxn Day 3 pp.28(3)-29(16)

[62] TC was used as an abbreviation for Mrs Chang.

[63] Mrs Chang Xxn Day 2 pp.6(4)-10(6)

[64] Mrs Chang Xxn Day 2 pp.11(12)-15(2), 16(22)-17(21)

[65] Mr Chang Xxn Day 3 pp.74(2-4), 77(1-10)

[66] Mrs Chang WS §§72(4) [B1/82]; Mrs Chang Xxn Day 3 p.47-48

[67] Mrs Chang WS §§25-26, 68 [B1/66 & 79]

[68] Banks’ Closing Submissions §§179-184 pp.59-60

[69] Mrs Chang Xxn Day 1 p.120(7-9); Day 2 p.33(9-18)

[70] Mrs Chang Xxn Day 1 p.140(18-24); Day 2 p.34 (1-14); Mr Chang Xxn Day 3 pp.78(19)-79(1)

[71] Mrs Chang Xxn Day 2 p.34(15) - p.35(5)

[72] Mr Chang’s daughters from a previous relationship: Mr Chang WS §5 [B1/36]

[73] Mrs Chang Xxn Day 3 p.3(18)-p.4(7)

[74] Mrs Chang Xxn Day 3 p.25(1-19)

[75] [C2/385-395]

[76] Mrs Chang Xxn Day 3 p.9(1)-p.10(20)

[77] Rxn Mrs Li Day 7 p.36(25) – p.37(7)

[78] Xxn Mr Chang Day 4 p.24(13) - p. 28(25)

[79] Rec.24 at Utt 192 [C2/246]

[80] TC was used as an abbreviation for Mrs Chang.

[81] YC was used as an abbreviation for Yvetti Chau (Mrs. Li).

[82] Mrs Chang WS §§35(2), 59 [B1/68,76]

[83] Rec.122 (8 Aug 2008) at Utt.61-68 [C8/1702-1705]; Rec. 123 (8 Aug 2008) at Utt.203-205 [C8/1748-1749]

[84] It was not disputed that Mrs Chang knew that she was provided with loan facilities to borrow money to invest: Mrs Chang WS §72(2)-(3) [B1/82]

[85] Rec.123 (8 Aug 2008) at Utt.199-208 [C8/1747-1751]

[86] TC was used as an abbreviation for Mrs Chang.

[87] YC was used as an abbreviation for Yvetti Chau (Mrs Li).

[88] “YC: Hm, right, yes.” Utt.204 [C8/1749]

[89] Mrs Chang Xxn Day 2 p.45(5-17)

[90] Mrs Chang Xxn Day 2 pp.67(18-23), p.68 (20) - p.69(2)

[91]Mrs Chang Xxn Day 2 pp.51(12) - p.52(7)

[92] Amended Defence §25(4) [A/94]

[93] David Peter Chang WS §§7-11 [B1/2-5]. The fact that David Peter Chang worked in an administrative role was expressly recognised by Mrs Li in a telephone conversation with Mrs Chang: see Rec.66 (15 Nov 2007) at Utt.105-115, 265-275 [C4/866-867, 890-892]

[94] David Peter Chang WS §12 [B1/5]

[95] David Peter Chang WS §§23-24 [B1/7]

[96] Mr Chang WS §§70-72 [B1/54-55]; Mrs Chang WS §§60, 74-77 [B1/77, 83-84]

[97] See §4 above.

[98] See §4 above.

[99] Mr Chang WS §72 [B1/55]; Mrs Chang WS §77 [B1/84]

[100] Mrs Li accepted that she was the one who filled in the bio-data form for Mrs Chang: Mrs Li Xxn Day 4 p.94(21-25)

[101] Mrs Li accepted that she was the one who filled in the bio-data form for Mr Chang: Mrs Li Xxn Day 4 p.94(21-25); Day 5 p.28(20-24)

[102] [D7/1735]

[103] Mrs Li Xxn Day 5 p.35(22-24)

[104] Mrs Li Xxn Day 5 pp.34(3-6), 35(15-24), 36(6-10)

[105] Mrs Li Xxn Day 6 pp.73(2-5), 78(14-23)

[106] [D7/1755]

[107] [D7/1762]

[108] Mrs Li Xxn Day 6 pp.78(24)-79(19)

[109] [D7/1756]

[110] Mrs Li Xxn Day 6 p.85(18-25)

[111] [D8/2096-4]

[112] Rec.19 at Utt. 95-155 [C1/153-163]

[113] It had been suggested during the cross-examination of Mrs Chang that the Changs were categorised as high risk investors (Day 2 pp.93(23)-94(19)). As I have found, they were always categorised as medium risk investors, but their portfolios came to contain high risk investments.

[114] YC was used as an abbreviation for Yvetti Chau (Mrs Li).

[115] Rec.19 at Utt.95 [C1/153]

[116] Rec.19 at Utt.111 [C1/156]

[117] Day 2 p.85(14-19)

[118] Rec.19 at Utt.103, 105 [C1/155]

[119] Rec.19 at Utt.115, 117 [C1/157]

[120] Rec.19 at Utt.121 [C1/158]

[121] Rec.19 at Utt 96-98 [C1/154]

[122] TC was used as an abbreviation for Mrs Chang.

[123] I.e. “Why would I be categorized as high risk”. This line of the transcript was amended on Day 2 p.80(11-16).

[124] Rec.19 at Utt.122 [C1/158]

[125] At Rec.19 at Utt.150-155 [C1/162-163]

[126] CPY was used as an abbreviation for Mr Chang.

[127] [D8/2096-5]

[128] As can be calculated from Schedule 1 of the Amended Statement of Claim, by adding up the figures, from October 2007 onwards, for the following categories of investments: Securities Fixed Income; Structured Notes; Derivatives Currency Option/Accumulative Forwards; and Knock Out Daily Accumulator [A/24, 26, 31, 39-40, 42, 44, 48, 50].

[129] See Rec.104 at Utt.54-56 [C6/1187] and Rec.104 at Utt.65-70 [C6/1189-1190]

[130] YC was used as an abbreviation for Yvetti Chau (Mrs Li).

[131] TC was used as an abbreviation for Mrs Chang.

[132] [D7/1745, 1747]

[133] [D7/1739, 1741]

[134] Mrs Li Xxn Day 6 p.85(1-12); Mrs Li Xxn Day 6 pp.86(11-14): “[From July to September 2007] Mr Chang was just at the borderline of high risk”. Mrs Li WS §29 [B1/182];Bank’s letter dated 9 December 2008to Mrs Chang [D8/2086, 2089]

[135] Mrs Li Xxn Day 6 p.91(16-19). Mr Chang, according to her, was medium risk but closer to high risk: Mrs Li Xxn Day 6 p.92(15)

[136]Mrs Chang Xxn Day 2 pp.50(24)-51(11); Day 3 pp.14(16-20), 25(20-22). Mr Chang Xxn Day 4 pp.4(12-23), 14(5-9)

[137] [A/19-53]

[138] [A/27-40]

[139] [A/41-44]

[140] [A/48-50]

[141] [A/21-22]

[142] [A/24-26] As noted in Mr Green’s expert report at §3.8.2 [B2/377], all of the bonds in the plaintiffs’ portfolios (with one exception) were non-investment grade.

[143] [A/45-47] All these products are explained in Mr Green’s expert report at §3.7.2-3.7.13 [B2/370-6].

[144] [D1/228] Although Mrs Li at one stage sought to downplay this risk rating table by saying that it was issued in 2012, she accepted that the nature of accumulators was the same in 2004 as in 2012: see Mrs Li Xxn Day 6 p.52(9-22)

[145] Mrs Li’s assertion that a bond rating of B to B+ was regarded as “investment grade” (Mrs Li WS §107 [B1/220]) is inconsistent with the Bank's categorisation of bonds rated B+ to BB+ as having “high downside risk”.

[146] [D7/1751, 1752]

[147] [D8/2086, 2089]

[148] Mr Green’s risk rating scale is explained in his expert report at §4 [B2/377-378]

[149] Expert report §§4.4.6-4.5.5 [B2/386-387]. See also Mr Green’s comments in the Joint Statement at pp.5-6 [B2/414-417].

[150] Expert report §§4.6.6 [B2/388]

[151] Expert report §§4.6.6 [B2/388]

[152] Expert report §§4.7.1-4.7.6 [B2/388-389]. See also Mr Green’s comments in the Joint Statement at pp.6-7 [B2/417-418].

[153] Day 8 p.38(9-14)

[154] Further Joint Statement at pp.8-19 [B2/430-441]

[155] Mr Green’s expert report §§1.1.1-1.1.2 [B2/345-346]

[156] Mr Green’s expert report §1.2.3 [B2/347]

[157] Mr Green’s expert report §§1.2.1-1.2.2 [B2/346]

[158] Mr Green’s expert report §§1.5.1-1.6.7 [B2/348-349]

[159] Mr Green’s expert report §1.2.4 [B2/347]

[160] Mr Green’s expert report §§1.3.1-1.3.2 [B2/348]

[161] Mr Green’s expert report §§1.2.8-1.2.9 [B2/347-348], and Appendix 2 [E/1408]

[162] CV [E/1-6]

[163] Value at Risk

[164] Further Joint Statement at p.5 [B2/427]

[165] Further Joint Statement at pp.7-8 [B2/429-430]

[166] Further Joint Statement pp.4-7 [B2/426-429]

[167] Mr Green’s expert report §4 [B2/377-378]

[168] Dr Vinaimont’s expert report at p.14 [B2/323]

[169] Dr Vinaimont’s expert report at p.15 [B2/324]

[170] Dr Vinaimont’s expert report at p.15 [B2/324]

[171] P.2 [B2/413]. See also: Further Joint Statement p.2 [B2/424]

[172] Expert report at §4.3.2 [B2/385]

[173] This was considered and analysed by Mr Green in his expert report at §§1, 4.1.1-4.2.4, 4.2.19-4.2.20 [B2/344-345, 378-381, 384]; the Joint Statement at pp.2-3, 7-8 [B2/413-414, 418-419]; and the Further Joint Statement at p.20 [B2/442].

[174] Expert report at §1 [B2/345]

[175] Joint Statement at pp.7-8 [B2/418-419]

[176] Joint Statement at p.9 [B2/420]; Further Joint Statement at p.6 [B2/428]

[177] Joint Statement at pp.7-8 [B2/418-419]

[178] This was discussed during Mrs Li’s cross examination: Xxn Day 6 pp.1(13)-4(12), 11(9)-12(12). See: Mrs Chang bank statement as at 30 July 2004 [D4/859-860], 31 August 2004 [D4/862-864], and 30 September 2004 [D4/867-869]

[179] Expert report at §5.1.1 [B2/403-405]

[180] Mr Green’s expert report at §4 [B2/377-378]. The supporting analysis is contained in his expert report at §§4, 4.9.1–4.11.20 and Appendices 3, 4, 5 [B2/377, 390-401, 443, 450-452].

[181] Mr Green’s expert report [B2/443]

[182] [B2/450-452]

[183] In Appendices 3, 4, 5 of the Further Joint Statement [B2/450-452]: see the row entitled “loans to net assets (%).

[184] Mr Green’s expert report at §4.1.3 [B2/379]

[185] [A/19-53]

[186] [A/41-43]

[187] [B2/390-401]

[188] Day 1 p.28(16-23)

[189] Mr Chang WS §§65-68 [B1/52-54]; Mr Chang Supp WS §6 [B1/109]; Mrs Chang WS §§68-73 [B1/79-83]; Mrs Chang Supp WS §6 [B1/127-128]. Mrs Chang Xxn Day 3 p.50(6-7). See also: Mrs Chang Xxn Day 3 pp.4(6-7), 5(3-5); Mr Chang Xxn Day 4 p.13 (10-17)

[190] Mrs Chang Xxn Day 2 p.3(11-12). See also: Mrs Chang Xxn Day 3 p.54(19-21)

[191] YC was used as an abbreviation for Yvetti Chau (Mrs Li).

[192] TC was used as an abbreviation for Mrs Chang.

[193] Mr Chang Supp WS §38 [B1/122]

[194] Mrs Chang Xxn Day 3 p.54(10-11)

[195] Mr Chang WS §44 [B1/46]; Mrs Chang WS §§32-33 [B1/68]. See e.g. Rec.7 (25 Jul 2007) at Utt. 92-143 [C1/43-49]; and Rec.66 (15 Nov 2007) at Utt.36-421 [C4/866-914] (a long conversation in which Mrs Chang talked to Mrs Li about her son).

[196] Mr Chang WS §47(2) [B1/46]; Mrs Chang WS §32 [B1/68]

[197] David Peter Chang WS §37 [B1/10]; Mr Chang WS §47(1) [B1/46]

[198] Mr Chang WS §§45, 47(3) [B1/46-47]; Mrs Chang WS §32 [B1/68]

[199] David Peter Chang WS §§17-18 [B1/6]; Mrs Chang WS §48 [B1/71]; Mrs Chang Supp WS §§46-47 [B1/143]; David Peter Chang Xxn Day 4 pp.54(3-14), 58(14-22) , 61(3-10)

[200] Mrs Li Xxn Day 5 pp.19-21

[201] Mrs Li Xxn Day 5 p.20(6)

[202] Mrs Li Xxn Day 5 p.21(19)

[203] Mrs Li accepted that she was the one who filled in the bio-data form: Day 4 p.94(21-25)

[204] [D7/1728]

[205] Mrs Li Xxn Day 5 pp.24(3)-25(1)

[206] Mrs Chang Xxn Day 2 p.13(1-3). See also Mrs Chang WS §§23-25 [B1/65-66]

[207] Mrs Li Xxn Day 5 p.28(11-19)

[208] Mrs Chang WS §§34-36 [B1/68-69]; Mr Chang WS §§48-52 [B1/47-48]

[209] See e.g. Rec. 16 (17 Sept 2007) at Utt.1-19 [C1/121-123]; Rec.18 (17 Sept 2007) at Utt.4-8 [C1/135-136]. Other recordings of similar effect appear in [C1/85-86, 88, 94-95, 99-101, 106-107, 125-128 & 180-181]

[210] See Mr Chang WS §69 [B1/54]; Mr Chang Supp WS §§22-23 [B1/116]

[211] Xxn Mr Chang Day 4 pp.40-41

[212] Mr Chow WS §§22-25 [B2/245-247]

[213] Mrs Li WS §§97-99 [B1/216-217]

[214] Mr Chang SWS §§22-24 [B1/116-117]

[215] Xxn Mr Chang Day 4 p.16(2-17)

[216] Xxn Mrs Li Day 5 p.53(23) – p.54(3), Rxn Mrs Li Day 7 p.30(8-10)

[217] TC was used as an abbreviation for Mrs Chang.

[218] YC was used as an abbreviation for Yvetti Chau (Mrs Li).

[219] Banks’ Closing Submissions at p.41 §128

[220] Amended Defence §24 [A/91]. See similarly: Mrs Li WS §51 [B1/189]; Mrs Li Supp WS §40 [B2/292]; Mrs Li Xxn Day 5 p.51(18-21)

[221] Rec.46 (16 Oct 2007) at Utt.17 [C2/466]

[222] Mr Chang WS §61 [B1/51]; Mrs Chang WS §§58-60, 72 [B1/76-77, 81-82]; Mrs Chang Xxn Day 2 pp.79(14), 86(21-23); Mrs Chang Xxn Day 3 pp.15(1-24), 25(16-19)

[223] Mr Chang WS §§61, 74 [B1/51, 55]; Mrs Chang WS §§58, 72, 81 [B1/76, 81-82, 85]; Mrs Chang Xxn Day 3 pp.45(1)-46(7); Mr Chang Xxn Day 4 p.12(12-18)

[224] Mr Chang WS §§62, 74 [B1/51, 55];Mrs Chang WS §§62, 81 [B1/77, 85]

[225] Mr Chang WS §67 [B1/54]; Mrs Chang WS §70 [B1/81]

[226]Mrs Chang WS §60 [B1/77]; Mrs Chang Xxn Day 2 pp.68(24)-69(15), 78(4-6); Mrs Chang Xxn Day 3 pp.5(18-20), 6(7-10). See e.g. Rec.10 at Utt 42 [C1/77]

[227] Mr Chang WS §65 [B1/52]; Mrs Chang Xxn Day 3 pp.5(3-5, 18-20), 6(7-10). See e.g. Rec.68 (12 Dec 2007) at Utt.1-13 [C4/920-922]; Rec.75 (19 Dec 2007) at Utt.37-63 [C5/948-951]; Rec.94 (25 Feb 2008) at Utt.28-37 [C5/1039-1041]

[228] Mrs Chang Xxn Day 2 p.52(2-7)

[229] Mrs Chang Xxn Day 3 p.15(1-3)

[230] [D1/215-223]

[231] Mrs Chang Xxn Day 2 p.62(12-13); Mr Chang Supp WS §12 [B1/112]; Mrs Chang Supp WS §14 [B1/133]

[232] Day 2 p.62(24)-63(8)

[233] See e.g. [G/2109-2119]

[234] Mr Sermon Kwan (“Mr Kwan”) only attended a few meetings with the plaintiffs near the time that they closed their accounts: Mr Kwan WS §§25-26, 35 [B2/269-270, 272]. Mr Kwan accepted in cross-examination that the factual matters stated in his witness statements regarding the Changs were simply based on what he had been told by Mrs Li and the Bank’s compliance department: see Day 7 pp.67(3)-68(8). As for Mr Edward Chow (“Mr Chow”), he claimed in his witness statement at §14 [B2/241] that he had met the Changs at certain seminars and perceived them as having knowledge of investment products. However, during cross-examination, Mr Chow accepted that he only met the Changs on about 2 occasions, and these meetings were at large seminars with about 100 attendants: see Day 8 p.59.

[235] Mrs Li WS §§55, 58-59, 63 [B1/193-195, 197]

[236] [G/3453-3457]

[237] “I want to preserve my capital but I am willing to accept small price fluctuation to enhance the potential return of my investment” [G/3455]

[238] [G/3455]

[239] Mrs Li Xxn Day 4 pp.104(14)-111(1)

[240] Mrs Li Xxn Day 5 pp.3(13)-4(1), 7(24)-8(2)

[241] Mrs Li Xxn Day 5 pp.10(1)-15(10)

[242] [D7/1730-1733]

[243] Mrs Li Xxn Day 5 p.30 (7-24)

[244] Mrs Li Xxn Day 5 pp.44(21)-45(10), 47(5)-48(7)

[245] Mrs Li Xxn Day 5 pp.66(19)-69(2)

[246] Rec.33 (10 Oct 2007) at Utt 4, 6 [C2/356-357] (Cf. her explanation of another US company called Freeport: “...it has to do with gold, copper, and such things, eh eh, mines, which means it is like manufacturing, silver and such”: Rec.51 at Utt.26 [C3/487])

[247] Mrs Li Xxn Day 5 pp.84(7)-85(25). (Even the Court commented that it had never heard of Garmin before.)

[248] §§43-46 above

[249] Mrs Li Xxn Day 6 p.82(9-11)

[250] Mrs Li WS §86 [B1/213]

[251] Day 6 pp.83(22)-84(3)

[252] Mrs Li Xxn Day 6 pp.4(13)-6(1). Mrs Li’s initial answer also contradicted her own evidence that Standard Chartered did not offer complicated investment products to their clients at the material time: see Mrs Li Xxn Day 5 pp.25(20)-26(3).

[253] Rec.32 (10 Oct 2007) at Utt.1-12 [C2/327-329]

[254] Mrs Li Xxn Day 5 pp.76(5)-77(12), 80(11)-82(22)

[255] Mrs Li Xxn Day 4 pp.101(5)-102(17)

[256] Mrs Li Xxn Day 5 p.3(8-10)

[257] Mrs Li Xxn Day 5 p.79(9-23)

[258] Mrs Li Xxn Day 6 pp. 6(22)-7(15)

[259] Mrs Li Xxn Day 6 p.40(21-25)

[260] See §§51-54 above

[261] Mrs Li Xxn Day 6 p.10(19-22)

[262] Mrs Li Xxn Day 6 pp.50(23)-51(3). This contradicted the Bank’s own product risk rating table dated June 2012, which identified accumulators as carrying “very high downside risk”[D1/226-228]

[263] Mrs Li WS §§55, 58-59, 63 [B1/193-195, 197]. None of the tape recordings for that period have been retained by the Bank.

[264] Rec.54 (2 Nov 2007) at Utt. 46-59 [C3/512-514]

[265] YC was used as an abbreviation for Yvetti Chau (Mrs Li).

[266] CPY was used as an abbreviation for Mr Chang.

[267] Rec.8 (1 Aug 2007) at Utt.34-42 [C1/54-56]set out in Appendix 1 of the judgment.

[268] Mrs Li Xxn Day 6 p.9(8-10, 22)

[269] Mrs Li Xxn Day 6 pp.23(16)-24(14)

[270] Mrs Li Xxn Day 6 p.24(5-14)

[271] [B1/198-208]

[272] Mrs Li Xxn Day 5 pp.66(19)-68(16)

[273] Mrs Li Xxn Day 4 pp.88(2)-89(6)

[274] §90 above

[275] Rec.84 (7 Jan 2008) at Utt.2 [C5/980]

[276] Mrs Li Xxn Day 5 pp. 69(21)-70(6)

[277] Mrs Li Supp WS §§4, 20 [B2/278, 284]; Mrs Li Xxn Day 4 p.95(15-17)

[278] Mrs Li Xxn Day 4 p.94(21-25)

[279] Mr Chang Supp WS §7(1) [B1/110]; Mrs Chang Supp WS §7(1) [B1/128]

[280] [D7/1732]

[281] Mrs Li Xxn Day 5 p.29(1-6)

[282] Mr Chang WS §§14-21 [B1/38-39]; Mr Chang Xxn Day 3 p.69(1). The Bank has adduced no evidence to the contrary.

[283] [D1/1746]

[284] See §§9-23 above

[285] [D7/1735]

[286] See §§9-23 above

[287] Mrs Li WS §10 [B1/173]. See, for example, the email from the Bank to Mrs Li and other staff dated 7 August 2007 [D9/2217-2218].

[288] Mr Chang WS §84 [B1/57]; Mrs Chang WS §84 [B1/86]; Mr Chang Supp WS §§14-20 [B1/113-115]

[289] Rec.10 (8 Aug 2007) at Utt.10-22, 36-44 [C1/67-72, 75-78]

[290] YC was used as an abbreviation for Yvetti Chau (Mrs Li).

[291] TC was used as an abbreviation for Mrs Chang.

[292] Rec.9 (8 Aug 2007) at Utt.8-11 [C1/62-63]

[293] Day 7 p.13(5-6)

[294] Day 3 p. 41(5-9)

[295] Mrs Li Xxn Day 7 p.4

[296] Mrs Li Xxn Day 7 pp.11(4)-12(3)

[297] Mrs Li Xxn Day 7 p.12(5-7)

[298] Day 3 p.41(16-18)

[299] See §66 above.

[300] See §44-46 above.

[301] Xxn Mrs Chang Day 2 p.81(15) – p.83(3)

[302] I understand this phrase to mean: “Should I be happy about that?”

[303] Rec.104 (9 May 2008) Utt.70-79 [C6/1190-1191]

[304] YC was used as an abbreviation for Yvetti Chau (Mrs Li).

[305] TC was used as an abbreviation for Mrs Chang.

[306] Xxn Mr Chang Day 4 p.24 (13) - p. 28(25)

[307] See Mr Green’s Monthly Risk Profile Table at [B2/443].

[308] Not including their apartments in Hong Kong and San Francisco and shares not obtained from financial institutions.

[309] Not including their apartments in Hong Kong and San Francisco and shares not obtained from financial institutions.

[310] Not including assets held by her that belonged to David Peter Chang and to Madam Tu Ching Chen, Mrs Chang’s mother.

[311] Mrs Chang 2^nd Affirmation [A/202-226]

[312] At §§108-109 above.

[313] Mrs Li Xxn Day 6 p.85(1-12); Mrs Li Xxn Day 6 pp.86(11-14): “[From July to September 2007] Mr Chang was just at the borderline of high risk”. Mrs Li WS §29 [B1/182];Bank’s letter dated 9 December 2008to Mrs Chang [D8/2086, 2089]

[314] Mrs Li Xxn Day 6 p.91(16-19)

[315] Mrs Li Xxn Day 6 p.92(15)

[316] Mrs Chang Supp WS §12(1) [B1/132]. Mrs Li sold the same non-investment grade Russian bond to both Mr Chang and Nextday in May 2008: Schedule 1 of Amended Statement of Claim [A1/24,26].

[317] Mr Chang WS §84 [B1/57]

[318] I accept the evidence of David Peter Chang on these matters contained in his witness statement at §§26-29 [B1/8-9].

[319] Rec.124 (8 Aug 2008) at Utt.1-485 [C8/1799-1883]

[320] [D8/2084-2090]

[321] [D1/195-196]

[322] [D1/43-85]

[323] [D1/235-246]

[324] [D1/193-194]

[325] [D7/1647-1655]

[326] [D7/1657]

[327] [D1/129-188]

[328] [D7/1658-1660]

[329] [D7/1669-1671]

[330] [D7/1672]

[331] [D9/2311]

[332] [D1/191-192]

[333] [D1/1-42]

[334] [D1/232-234]

[335] [D1/189-190]

[336] [D7/1617-1623]

[337] [D7/1624]

[338] [D7/1656]

[339] [D1/199-200]

[340] [D1/86-128]

[341] [D1/247-249]

[342] [D1/197-198]

[343] [D7/1634-1642]

[344] [D7/1643]

[345] [D7/1644]

[346] [D7/1645-1646]

[347] [D7/1661-1663]

[348] [D7/1665-1666]

[349] [D7/1673]

[350] [D1/1-42]. Mr Ho accepted that the terms were essentially the same in the later Updated Services Agreements: Day 9 p.30(15-18).

[351] [D1/189-190] Mr Ho accepted that the terms were essentially the same in the later Updated Risks Disclosure Statements: Day 9 p.30(15-18).

[352] [D1/191-192; 195-196; 199-200]

[353] Ming Shiu Chung v Ming Shiu Sum [2006] 2 HKLRD 831 at §84

[354] §12 of Amended Defence [A/79]; §4(1) of Re-amended Reply [A/129]

[355] Clause 30 [D1/15]

[356] §§9, 10(1) to (4) of the Amended Statement of Claim [A/5-6]

[357] Day1 p.77(24) – 78(9)

[358] §22 of the Amended Defence, [A/87-90]; [D1/1-23 &129-156]

[359] §23 of the Amended Defence, [A/90-91; D1/189-190]

[360] §21 of the Amended Defence, [A/87]; Mrs Li WS§9 [B1/173]

[361] §22 of the Amended Defence, [A/87-90, D1/16-17]

[362] Which referred to the terms and conditions of the Key Agreements.

[363] Which pleaded, amongst others, the provisions highlighted in §§121-122 above.

[364] Day 9 p.8(5-6)

[365] [2011] EWHC 1785 (Comm.)

[366] [2008] EWHC 1186 (Comm.)

[367] [2012] CSOH 133, at p.15, §73

[368] [1998] 1 WLR 896 at pp.912, 913

[369] (1999) 2 HKCFAR 279

[370] At p.296D-I

[371] [D1/16]

[372] [D8/2084-2090]

[373] [D1/4-5]

[374] [D1/16]

[375] Pensions Ombudsman Determinations/2011/April/Price [80179/1]

[376] Pensions Ombudsman Determinations/2016/June/N [PO-7334]

[377] At §§6 and 42

[378] [2011] EWHC 138 (QB)

[379] [2014] EWHC 2882 (QB)

[380] At §26

[381] At §51

[382] [D1/16]

[383] [D1/201-204]

[384] [D1/202]

[385][ D1/16-17]

[386] [D1/10]

[387] See Clause C(7) [D1/17]

[388] As can be seen from the portfolio statements reviewed by Mr Green [B2/390-401]

[389] Day 9 p.129(1-22)

[390] Set out in the preceding paragraph.

[391] [D1/17]

[392] [1942] 1 KB 66

[393] Fraser v B.N. Furman (Productions) Ltd [1967] 1 WLR 898

[394] Per Diplock LJ, as he then was, in Fraser v B.N. Furman (Productions) Ltd [1967] 1 WLR 898 at p.905

[395] Arguably the provision in C(4) quoted in §139 above is such a clause.

[396] [D1/16]

[397] [2011] EWHC 138 (QB)

[398] [2014] EWHC 2882 (QB)

[399] [2013] 4 HKC 1, at p.7D-E

[400] [2008] EWHC 1186 (Comm.)

[401] As summarised by Deputy Judge Pow SC in DBS Bank (Hong Kong) Ltd. v San-Hot HK Industrial Co Ltd & Anor [2013] 4 HKC 1, at p.137 §195.

[402] [2012] CSOH 133: clause 3.2 quoted in §29

[403] [2011] EWHC 1785 (Comm.) at §§490-491

[404] [2012] 4 HKC 260, at p.260D of the headnote

[405] [2010] EWHC 211 (Comm) at §85

[406] [2011] EWHC 2304 (QB)

[407] The judge’s decision was overturned by the Court of Appeal [2013] 1 All ER (Comm) 915, not on this finding, but on the judge’s findings on the remoteness of damage.

[408] [2005] EWHC 1137 (QB)

[409] HCA 7119/2000; upheld on appeal by the Court of Appeal [2004] 3 HKLRD 871; per Le Pichon JA at p.880C: “In my view, there is no reason for interfering with the Judge’s finding of a duty of care and its breach by Barber Asia.”

[410] The risk of currency mismatch.

[411] Section 5 of the Supply of Services (Implied Terms) Ordinance, Cap.457

[412]At §§157-158

[413] Cf. the implied terms pleaded in §10(1) – (3) of the Amended Statement of Claim.

[414] [B2/443]

[415]Bank’s Written Closing Submissions at§§17-45and Oral Closing Submissions Day 9 p.21(15)-p.57(16)

[416] Quoted at §142(h) above

[417] Peekay Intermark Ltd. v Australia and New Zealand Banking Group Ltd.[2006] 1 CLC 582; Springwell Navigation Corporation v JP Morgan Chase Bank [2010] 2 CLC 705

[418] CACV 91 of 2015, 10 June 2016

[419] Of the Securities and Futures Ordinance, Cap 571.

[420] Day 9, pp.60 (13) – 66(19)

[421] [2010] 2 CLC 705, at p.743 §123

[422] Day 9, p.148(1-8).

[423]At §35 above

[424] Bank of China (Hong Kong) Ltd. v Wong Kam Ho [2014] 1 HKLRD 41 at §§25-26.

[425] Bank of China (Hong Kong) Ltd. v Wong Kam Ho [2014] 1 HKLRD 41 at §53.

[426] JP Morgan Chase Bank v Springwell Navigation Corporation [2008] EWHC 1186 at §§601-602.

[427] [2013] 4 HKC 1

[428] At §234

[429] [1990] 1 AC 831 at p.857A-E.

[430][2010] 2 Lloyd’s Rep 92 at §104

[431] [2008] EWHC 1186 at §605-606

[432] [2010] 2 CLC 705 at §183-184

[433][2010] 2 Lloyd’s Rep 92 at §105-108.

[434] [2013] 4 HKC 1 at §236

Citation

Court

Procedural posture

Issues

Holdings

Legal principles

Disposition

Appeal history

CHANG PUI YIN AND OTHERS v. BANK OF SINGAPORE LTD
CFI · 8 Aug 2016
This judgment
CHANG PUI YIN AND OTHERS v. BANK OF SINGAPORE LTD
CA · 20 Jul 2017
On appeal from