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

CACV 91/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 91 OF 2015

(ON APPEAL FROM HCA 382 OF 2009)

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JUDGMENT

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Hon Poon JA (giving the Judgment of the Court) :

1. This is the appeal against the judgment and order of Deputy High Court Judge Marlene Ng dated 2 April 2015, whereby she entered judgment for the plaintiff, DBS Bank (Hong Kong) Limited against Mr Sit Pang Jit, a former client, in the sum of US$3,429,724.27 with interest and costs; and dismissed Sit’s counterclaim.

2. The background may be summarized as follows.

A.  Background

A1.  Sit – a wealthy businessman and seasoned investor

3. Sit was a very successful and wealthy businessman.  According to Sit’s personal profile kept by DBS, as at April 2004, the estimated annual sales volume of Sit’s businesses was US$100 million and the estimated annual net income was US$6 million.  Sit’s case was that in 2004 he had about HK$100 million in cash and his and his family’s net worth was about HK$ 1billion.

4. Sit was a seasoned investor, too.  The Judge recounted his investment history in some details,[1] which we need not repeat here.  For present purposes, we just need to highlight a few points.

5. Sit began his investments in the stock market in 1993.  He employed Dicky Tak-lap Kong (“Kong”) as his personal assistant in that regard.  When the stock market crashed in 1994, Sit left and terminated Kong’s employment.

6. In 1999, when the stock market recovered Sit went right back in through the accounts he opened with Overseas Trust Bank and DBS.  Significantly, the Judge rejected Sit’s evidence that he was then only interested in “principal protected” investments or that he all along adopted a conservative/prudent approach to investments.  On the contrary, she found that Sit was quite prepared to take risks in the stock market for potential returns and that he only left the stock market upon market downturn following the burst of the dot-com bubble in about 2001.

7. The Judge went on to say:[2]

“ Plainly, Sit was a bullish investor in buoyant markets with a matching risk appetite as evidence by his dabbling in short-term equities trading and willingness to take risks of principal loss and stock market crash for profit gains. But his realization that the stock market could crash, which in turn could result in loss of principal by a substantial percentage, did not deter him from re-entering the financial market with some gusto in the heady period in 2004-2008 before the downfall of Lehman Brothers.”

8. Sit’s re-entry into the financial market took place when he opened a private banking account with DBS (“Sit’s Account”) on 20 April 2004.

A2.  Trading in ELNs via Sit’s Account

9. Kong, by then a DBS’s relationship manger, served Sit and handled trades for Sit’s Account at all material times.

10. Between February 2007 and January 2008, Sit utilized facilities granted by DBS to purchase investment products including 69 equity-linked notes (“ELNs”).  The ELNs were mortgaged/pledged to DBS as securities.

11. Very briefly, an ELN is a structured product with the final payout based on the return of the underlying equity (single stock or basket of stocks).  A “basket” ELN pays an attractive coupon provided the price of the equity stocks does not fall dramatically during its life.  The investor will benefit if the referenced basket of equity stocks stays above a pre-designed threshold level.  But if one of them falls below the pre-designed threshold level, the investor will receive reduced coupon or be exposed up to 100% loss of principal.

12. What gave rise to the present disputes were 10 ELNs that Sit purchased between February 2007 and January 2008 (“the 1^st ELN” to 10^th ELN” respectively).

13. The 1^st ELN was a target accrual range note.  Its performance was linked to the performance of a basket of six Japanese equity stocks with a guaranteed first coupon of 16% and a cap of 18% on the maximum coupon.  The investor needed to earn a further 2% coupon to reach the cap before the note structure would terminate early.  If the note was not terminated early, and one/more of the equity stocks fell considerably, the investor would be exposed to the possibility of loss of principal on the investment.

14. The 2^nd to 10^th ELNs were callable bull notes.  Each of these notes had a maturity of two years and its performance was linked to a basket of three locally listed equity stocks. They were structured in a similar way.  The investor would earn an attractive coupon if all stocks in the basket stayed above a pre‑designed threshold level.  The ELN would redeem early at par if all stocks in the basket were above an agreed trigger threshold.  If at final maturity all stocks were above an agreed knock-in threshold, the investor would receive par, otherwise he would receive shares of the worst performing stock.  In short, the callable bull notes would pay an attractive contingent coupon and subject the investor to risk of reduced coupon and principal loss based on the performance of the underlying stocks measured by the relative difference between the price of each stock on the trade date and its current price.

A3.  Collapse of the market in 2008

15. Lehman Brothers collapsed in October 2008, which triggered a financial tsunami worldwide.  Sit, like many other investors, was engulfed when the mark-to-market value of his investments dropped significantly resulting in material depreciation of the securities held by DBS.

16. Between October and December 2008, DBS demanded Sit to settle the outstanding indebtedness in the Account but to no avail.

B.  Proceedings below

B1.  DBS’s claim

17. On 13 February 2008, DBS commenced the action below to sue Sit for recovery of US$3,429,724.27, being the outstanding indebtedness in the Account with interest and costs.  Their claim was simple and straightforward.  It was based on a written contract constituted by the following banking documents signed by Sit in the course of his dealings with DBS :

(a)  “Account Opening Form – Individual Account” dated 20 April 2004 (“Account Opening Form”);

(b)  Facilities letter dated 28 April 2004;

(c)  “Charge on Cash Deposit(s) to Secure Liabilities of the Deposit(s)” dated 3 May 2004;

(d)  “Mortgage over Stocks, Shares and Other Securities to Secure Liabilities of the Depositor” dated 3 May 2004;

(e)  “General Commercial Agreement” dated 3 May 2004;

(f)  Facilities letter dated 27 July 2004;

(g)  Facilities letter dated 26 May 2006 with “Terms and Conditions Governing Banking Facilities and Services” attached;

(h)  Facilities letter dated 18 June 2007 with the T&C attached;

(i)  “ISDA Master Agreement for DBS Bank (Hong Kong) Limited” dated 3 March 2008; and

(j)  the pre-July 2007 the DBS Private Banking Account Master Agreement as varied from time to time, which variation included amendments in July 2007.

(collectively referred to as the “Banking Documents”).

18. It was DBS’s case they granted credit facilities to Sit pursuant to the terms as contained in the Banking Documents. And Sit was contractually bound to settle the outstanding indebtedness in the Sit’s Account.

B2.  Sit’s defence and counterclaim

19. Sit raised a host of defence.

20. Sit first alleged that Kong made oral representations to him in April 2004 that :

(a)  DBS would give Sit credit facilities for investment purpose;

(b)  return from investments made by DBS for Sit would be more than the interest earned from cash deposits;

(c)  Kong would be personally responsible for looking after Sit’s investments; and

(d)  when Sit expressed he wanted investments that were “principal protected” “in the sense that at worst he would not be able to earn interest or yield from his investment only, but that he would not lose his entire principal sum for such investment”, Kong said DBS would not take up risky investments for him as they would be mortgaged to DBS as securities (“1^st Representations”).

21. It was said that what governed the parties’ relationship was an oral contract with terms as contained in the 1^st Representations, and not the Banking Documents.

22. Sit raised another five heads of Representations.  The 2^nd to 5^th Representations are immaterial for this appeal because Sit no longer relied on them.  On the 6^th Representations, Sit alleged that Kong represented to him that :

(a)  investing in notes, including ELNs, being merely interest-generating products, was safe, conservative and traditional (and this was reinforced by his use of phrases such as “insurance line” or “protection”);

(b)  investing in ELNs was less risky than investing in products in the nature of mutual funds; and

(c)  the ELNs were “structured” or tailor-made by Kong for Sit.

23. Further, the 6^th Representations were false and (as DBS knew or ought to have known) made without reasonable grounds in support in that (1) the true nature, mechanism and risks of investing in ELNs were not adequately stated, (2) mutual funds were less risky as compared with ELNs, (3) the ELNs were not “structured” or tailor-made by Kong for Sit, and (4) the ELNs were intended to be investment products for professional investors in general and were not designed for Sit.

24. Sit claimed he was induced by the 1^st to 6^th Representations to deposit about HK$90 million with DBS and to use the investment services of DBS as proposed by Kong to purchase investment products, including the 1^st to 10^th ELNs.  Sit claimed that the Representations, which were made recklessly or negligently, were false and made without reasonable grounds in support.

25. Sit further alleged that by making the misrepresentations, DBS was in breach of section 108 of the Securities and Futures Ordinance, Cap 571 (“Section 108”).

26. In reply, DBS relied on the doctrine of contractual estoppel, arising from the Banking Documents, to defend Sit’s claim of misrepresentation, whether based on common law or Section 108.

27. Sit also complained that DBS was in further breach of their duties in tort (common law and statutory) and in contract and/or fiduciary duties.  Sit relied on various provisions in the Supply of Services (Implied Terms) Ordinance, Cap 457, Control of Exemption Clauses Ordinance, Cap 71 and Misrepresentations Ordinance, Cap 284.  Sit also disputed the amount of his indebtedness even if he were held liable.

28. Finally, Sit counterclaimed for various declarations and damages with interest and costs.

B3.  The trial

29. The trial took place before the learned Judge in February 2014.

30. There were two factual witnesses, Vicky Leung Wai-kay, DBS’s senior vice president and Sit himself.  Leung had no personal knowledge of the matters.  Her evidence was based primarily on DBS’s available documents and records.  DBS did not call Kong.  We will deal with Sit’s complaint about that in a moment.

31. Both parties also called an expert each but their evidence, according to the Judge, had limited significance only.

32. The transcripts and records of various telephone conversations (“Recordings/Transcripts”) between Sit and Kong were produced as evidence.  Sit placed heavy reliance on parts of the Recordings/Transcripts.  We will examine them in greater detail below.

33. The trial was hard fought to the bitter end.  To quote the Judge, “the industry of Sit’s legal team left almost no factual, legal or evidential stone unturned”.[3] Eventually, the trial took 12 days to finish.

C.  The Judge’s major findings

34. On 6 April 2015, the Judge handed down a lengthy and meticulous judgment, the main body of which ran to 284 pages with 5 Appendixes, dealing with all the issues raised comprehensively.

35. Thanks to the industry of the Judge, the landscape of litigation now takes a much more settled form and the “sea of allegations and counter-allegations”,[4] once rolling vehemently before the Judge, has calmed down considerably.

36. As will be seen shortly, the issues raised on appeal have been significantly reduced, in terms of both number and nature. They are now more focused.  So we are spared the unenviable task of revisiting all the findings made by the Judge.  We only need to address those which are relevant to this appeal.  We will not detail her reasoning and analysis in support of those findings at this juncture, as they will be discussed where necessary below.  The major findings made by the Judge are as follows.

C1.  Terms of the contract

37. The Judge roundly rejected Sit’s case on the oral contract.  She found that the written terms and conditions in the Banking Documents formed the banking services agreement between the parties. She further found that Sit knew that the Banking Documents were binding contractual documents that governed his banker-customer relationship with DBS, the operation of Sit’s Account and the use of the credit facilities granted by DBS.[5]

C2.  Misrepresentations

38. The Judge rejected Sit’s two anchor arguments in support of his case on misrepresentations, namely (1) he reposed absolute trust in Kong ever since April 2004 and was thereby induced to rely on the 1^st to 6^th Representations, and (2) Sit was only interested in products that were “principal protected” and Kong assured him his investments would be safe on such basis.[6]

39. The Judge next found that Sit had failed to establish each of the 1^st to 5^th Representations.[7]  There is no appeal against the Judges’ findings in connection with the 1^st to 5^th Representations.  Sit’s appeal is directed against the Judge’s findings made in connection with and on the existence of the 6^th Representations.

40. On the 6^th Representations, DBS did not dispute that the Telephone Recordings/Transcripts in relation to the 10 ELNs and some other transactions showed that Kong did use “砌咗一隻” or similar words (collectively, “Words”), they did not accept Kong made the other statements that formed the 6^th Representations, ie the ELNs were “safe, conservative and traditional” and “less risky than mutual funds”.  The Judge found that apart from the Words, Kong did not make the 6^th Representations.[8]

41. On the meaning of the Words, the Judge found that :[9]

“... In my view, no reasonable private banking customer in the position of Sit would have understood the Words to mean the ELNs were specifically created, “structured” or tailor-made by Kong for him. I find on balance that in all the circumstances the only objective and reasonable interpretation of the Words in the context they were used and bearing in mind the characteristics of and the relationship between Sit and Kong must be that Kong hand-picked and selected for introduction to Sit the ELNs (with particular features that Kong believed Sit might be interested in), and the Words used in such context were not false, misleading or deceptive.”

42. She also found that the alleged 6^th Representations could not have played any real or substantial or any effective part in inducing Sit into investing in the 1^st to 10^th ELNs.[10]

43. In light of her findings above, the Judge did not find it necessary to deal with the question if the 6^th Representations were false, misleading or deceptive.[11]

C3.  Section 108 and contractual estoppel

44. Turning to Section 108, the Judge noted that the real debate between the parties was whether or not contractual estoppel would be applicable to a claim under Section 108.[12]  The Judge devoted considerable efforts in discussing the case law and the parties’ submissions on this question.[13] She then held that the doctrine of contractual estoppels applied to Hong Kong and to the contract between the parties.[14]  She specifically found that :

“ The contractual estoppel that arose from the clauses in Schedules A and B,[15] especially the Group Clauses, was apt to defeat Sit’s allegations that he was induced by and/or relied on the Representations, that he did not exercise independent judgment and/or make his own decision before entering into investment transactions (including the 10 ELNs), that he did not invest by margin financing, that he did not understand/agree the provisions as to margin requirement and/or that he did not understand the nature/features/risks involved in ELNs (including the 10 ELNs). I find on balance that the agreed contractual basis between Sit and DBS was that DBS only provided “execution only service” and any view, recommendation and/or information given by DBS to Sit was on “no recourse” basis.”

C4.  Other matters

45. The Judge found that when Kong made the alleged Representations to Sit, he did not do so as agent on behalf of DBS, but was performing his part-time investment advisory moonlighting service to Sit, who had bribed him to do so.[16]

46. The Judge found that Sit had failed to establish that DBS was in breach of the various duties complained of[17] or that he was entitled to rely on the various statutory provisions invoked.[18]

47. Finally, the Judge rejected Sit’s case on quantum and found that he was liable to DBS as per their claim.[19]

D.  Grounds of appeal

48. Although Sit has raised a total of 20 grounds of appeal (“GOA(s)”) , the scope of his appeal is much narrower than what had transpired before the Judge.  The GOAs can be conveniently grouped under the following heads :

(1)  The Judge erred in her finding that, apart from the Words, the 6^th Representations were not made (GOAs 1, 5, 8 – 12).

(2)  The Judge erred in her finding on the meaning of the Words and in finding they were not false, misleading or deceptive (“GOAs 2, 3).

(3)  The Judge erred in her finding that Kong was not DBS’s agent when he made the 6^th Representation or uttered the Words (GOA 17).

(4)  The Judge erred in her finding that Sit was not induced by the 6^th Representations or the Words in buying the 1^st to 10 ELNs (GOAs 4, 6 and 7).

(5)  The Judge erred in her ruling that contractual estoppel was part of the laws of Hong Kong and that DBS was entitled to set it up as a defence to a claim brought under Section 108 (GOAs 13 – 16).

(6)  The Judge erred in her ruling relating to the Control of Exemption Clauses Ordinance and the Misrepresentations Ordinance (GOAs 18 and 19).

(7)  The Judge erred in failing to apply the Interfoto principle[20] to find that the provisions identified in Schedules A and B of the Judgment, which purported to exclude DBS’s liability for breach of duties, to be onerous terms which were not specifically drawn to Sit’s attention and were therefore not incorporated into the contract between the parties (GOA 20).

49. In opening his appeal, Mr Lee SC, for Sit submitted that Sit’s case was based on Section 108.  Section 108 reads :

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

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

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

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

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

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

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

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

50. Section 108(7) contains definitions for fraudulent, reckless and negligent misrepresentations.

51. Like his case based on misrepresentation under the common law, in order to succeed under Section 108, Sit has to establish factually that (a) DBS had made the 6^th Representations or (b) misrepresentation as contended by him arose out of the utterance of the Words.  That being the case, Sit’s appeal would not get off the ground until he can satisfy us that the Judge erred in her finding that Kong did not make the 6^th Representations, other than the Words, and on the meaning of the Words.  If he cannot, his appeal must fail.  The other grounds of appeal, which are all dependent on such a successful challenge, would not even arise for our determination.  So to the Judge’s findings on the 6^th Representations and the meaning of the Words we first turn.  We will discuss the 6^th Representations in Parts E to F and the meaning of the Words in Part G respectively.

E.  Why the Judge rejected Sit’s case on the 6^th Representations

E1.  Sit’s credibility generally

52. The Judge rightly pointed out that whether the Representations were in fact made would be a matter of Sit’s credibility as witness.[21] On his overall credibility, for the reasons that she gave, the Judge found Sit to be an unimpressive and inherently unreliable witness who was prepared to craft his evidence to suit his purpose and to make up his evidence as he went along in response to perceived difficulty in answering questions in a manner consistent with his case.  She found him to be untruthful and rejected his evidence on the core matters.[22]

E2.  Some specific matters

53. We further highlight the following specific matters on which the Judge found against Sit before we come to the 6^th Representations.

E2.1  On his ability to understand English

54. The Judge found that Sit clearly had no difficulty in understanding ordinary and/or business English but he tried to downplay his ability to understand English used in business contracts despite his extensive experience in the trade.[23]

E2.2  On his usual practice of signing documents

55. The Judge rejected Sit’s evidence that his usual practice was to sign documents, including contractual documents, without reading them at all and/or (at the very least) without understanding their nature and effect.[24]

E2.3  On the Banking Documents

56. The Judge found that Sit had no difficulty in understanding the contents of the Customer Declarations on the Accounting Opening Form.  She did not believe Sit’s evidence that he had not read the Customer Declarations or had not found out about them.  She found Sit’s contention inherently hollow and improbable.[25]

57. The Judge found that Sit did read and understand the Customer Declarations, and knew the Banking Documents were binding contractual documents that governed his banking-customer relationship with DBS, the operation of the Sit’s Account and the use of the credit facilities granted by DBS.[26]

E2.4  On Sit’s two anchor arguments

58. The Judge pointed out that it was a running theme in Sit’s case that (a) ever since April 2004 he reposed absolute trust in Kong and was thereby induced to rely on the Representations and to enter into the Oral Contract; and (b) he was only interested in products that were “principal protected” and Kong assured him his investments would be safe on such basis.  These two matters were crucial to Sit’s credibility, and any failure to establish either matter would seriously undermine his testimony.[27]  For the reasons that she gave, the Judge found against Sit on both matters.[28]

E2.5  On the oral contract

59. The Judge rejected Sit’s case on the oral contract. She found his assertion of oral contract an unconvincing and poor attempt to wriggle out of the obvious conclusions evidenced by the Banking Documents that bore his signatures.[29] She was not persuaded that Sit placed HK$90 million cash deposit with DBS pursuant to the oral contract or because he relied on the 1^st Representations or because he reposed absolute trust in Kong.  She found that Sit did so for the purpose of obtaining the term loan facility of DBS in order utilize it to make investments.[30]

E2.6  On the 2^nd, 3^rd and 4^th Representations

60. For the reasons that she gave, the Judge found that Sit failed to prove that Kong had made the 2^nd, 3^rd and 4^th Representations as alleged.[31]

E3.  The 5^th and 6^th Representations

61. The Judge dealt with the 5^th and 6^th Representations together in Part XX.  Before her, Mr Lee heavily relied on the Call Report dated 27 April 2007 (“the Call Report”) and the Recordings/Transcripts to support Sit’s case on the 5^th and 6^th Representations.  We will set out how the Judge disposed of them in greater details.

62. The Call Report was prepared and signed by Kong to cover his lunch meeting with Sit on 19 April 2007, which was between the trade dates of the 1^st and 2^nd ELNs.  The relevant parts read :

“ AUM [asset under management]:

HKD328 million-

......

Result of call R Objectives met £ Objectives not met

......

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

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

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

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

63. It was Sit’ evidence that he understood ELNs were “very dangerous” because the volatility of share price fluctuation in respect of an ELN linked to one underlying stock/share would be magnified for an ELN with three underlying stocks/shares.  The danger was obvious to Sit given his substantial investments in ELNs over the years.  That was why at the meeting on 19 April 2009 Sit queried the economic/market outlook.  Kong managed to convince him he should not worry about short-term fluctuation that would not affect his investments because (a) ELNs were bought for their interest coupons so market fluctuations would not affect their performance, and (b) even if he had to take up the worst performing share upon maturity of the ELNs it would be 1½ to 2 years later.  Sit claimed that Kong’s representations were false because the financial crisis in 2008 led to forced sale of his investment assets.

64. The Judge summarized Mr Lee’s arguments pertaining to the Call Report thus :

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

65. However, the Judge disagreed with Mr Lee. She pointed out that it was Sit’s pleaded case that the 5^th Representations were made during telephone conversations and such representations addressed the 10 ELNs.  That was reiterated in Sit’s witness statement.  In other words, the Call Report did not feature in Sit’s pleadings or witness statement as grounding either of the 5^th or 6^th Representations.  More importantly, Sit said Kong made the 5^th Representations since July 2007.  And the 5^th Representations, which concerned alleged “invariable” assurance that the 10 ELNs would yield positive return at the end of the investments, were quite different from what Kong mentioned at the meeting on 19 April 2007 about short-term market fluctuations as noted in the Call Report.[32]  In the circumstances, the Judge concluded that Sit’s arguments based on the Call Report were recent opportunistic contentions made to embroider his case.  Nothing turned on whether Sit was not cross-examined in respect of the Call Report and Sit’s reliance on the rule in Browne v Dunn[33] was misplaced.[34]  The Judge went on to find that the Call Report could not have documented or recorded the 5^th Representations.[35]

66. Mr Lee argued that nevertheless the Call Report was a powerful contemporaneous record that showed DBS had previously given advice/opinion to Sit and Sit was “again” satisfied and relied on Kong’s advice.  But the Judge found that it was of no assistance in establishing the 5^th Representations that were allegedly made since July 2007.  She found that notwithstanding any house view or trade opinion given by Kong, Sit exercised his own judgment in making investment decisions and he was not influenced by Kong’s explanation made at the meeting.[36]

67. As to the Recordings/Transcripts, the Judge remarked that they showed that from time to time Kong reminded Sit of the risk of exposure and “top up”, so it was not the case that in respect of the 10 ELNs Kong “invariably orally assured Sit that there was no problem and the investment would yield positive return at the end of the investment.  Sit well knew that ELNs were not “principal protected” and he himself had experience of receiving the underlying shares instead of the principal upon maturity of 3-4 ELNs.  Time and again Kong explained to Sit the strike price and the consequence of “接貨”.  Against these matters and bearing in mind Sit’ poor credibility overall, the Judge did not believe Kong made the 5^th Representations as alleged.

68. Turning to the 6^th Representations, the Judge started her discussion with Sit’s pleaded case, that is, the 6^th Representations were allegedly made by Kong during telephone conversations when he informed Sit about “the product he intended to purchase for Sit”.[37]  The Judge then said :

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

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

240.  However, the rule in Browne v Dunn is not an inflexible one, and there is no requirement in law that the tribunal of fact must accept that evidence.”

69. The Judge referred to Pacific Electric Wire & Cable Company Limited v Gold Global Limited & Ors[38] and LWYA v KYW and LLP (intervenor)[39] to support the view.  She went on to say :

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

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

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

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

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

70. The Judge next addressed the crucial question of whether additional to the Words, other parts of the 6^th Representations had been made.  In the course of doing so, she examined various parts of the Recordings/Transcripts relied upon by Sit and Mr Lee’s arguments thereon.  Since Mr Lee has taken us to this part of the Judge’s judgment quite extensively and has more or less repeated his arguments made to the Judge, we will set out in full this part of the judgment (with the footnotes removed) :

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

RM: 係啦無錯。

D: 咁咪係佢要幾多percent吖?

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

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

RM: 佢跌佢會再加架喎... 加得好勁架喎...

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

RM: 係。

D: 咁咪得囉。

RM: 係... 但係佢之後佢加呢，因為...

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

(寧靜)

D: anything else?

RM: 有... ER... 我我... 即係我睇下你... 你...

D: Just follow my instructions!

RM: 好，ok，ok。”

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

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

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

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

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

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

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

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

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

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

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

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

“ RM: 淨返100萬，再睇吓。仲有呢我 ...em...我想幫你買50萬基金呀?

D: 咩基金呀?

RM: 呀... China Focus Fidelity

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

D: 你宜家你宜家嘅睇家本領就係全部都係保守。保守。收息咋嗎。

RM: 好啦，咁我哋唔玩呢Ｄ”

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

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

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

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

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

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

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

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

71. For completeness, we note that for the reasons that she gave, the Judge found that there was no reliance by Sit on the 6^th Representations.[40] She found it unnecessary to decide the issue whether the 6^th Representations were false, misleading or deceptive.[41]  She finally dealt with DBS’s case that even if Kong did make the Representations to Sit, Kong did not do so as agent or employee of DBS because Sit (but not DBS) paid Kong to serve him.  She found that DBS would not have authorized and did not in fact authorize Kong to give investment advice to Sit, and Kong’s part-time investment advisory moonlighting service was done for Sit rather than on behalf of DBS.[42]

F.  Applicability of the “plainly wrong” test

72. The Judge’s finding that, other than saying the Words, Kong did not make the 6^th Representations is eminently a finding of fact.  It is well settled that an appellate court will disturb a finding of fact made by a trial judge only if the appellant can demonstrate that it is plainly wrong : Ting Kwok Keung v Tam Dick Yuen.[43]  The authorities, whether local or from other common law jurisdiction, all speak with one voice. They are familiar and need no repetition.

73. Mr Lee accepted that the “plainly wrong” test applies to findings of primary facts.  But he argued that the “plainly wrong” test does not apply here.  He took two points.

F1.  Wrong approach to the evidence

74. First, Mr Lee submitted that the Judge had misdirected herself in law as to the correct approach to the evidence so that the “plainly wrong” test does not apply : LCYP v JEK,[44] per Kwan JA at §20, quoting Arden LJ in Henwood v Barlow Clowes International Ltd (in liquidation) & Ors,[45] at §6 :

“ ...If an appellate court considers that the judge has come to a conclusion that is plainly wrong and outside the ambit within which reasonable disagreement is possible, it is bound to intervene, even though the question is one of fact. This standard does not apply if the judge has misdirected himself in law as to the correct approach to the evidence. If he has made an error of law in this way, there is no further requirement that the judge’s finding should be plainly wrong or outside the ambit within which reasonable disagreement is possible.”

75. Mr Lee argued that the Judge applied a wrong approach in assessing the credibility of Sit in respect of the issues concerning the 6^th Representations.  Even if Sit’s evidence was found to be unsatisfactory in some respects, which he did not accept,[46] that only means the Judge should approach his general evidence with caution, but she must consider his evidence on the 6^th Representations in light of contemporaneous documents.  Mr Lee further referred to what he described as the highly unusual features in the present case, namely, (a) DBS’s case on the 6^th Representations is based on bare denial and non-admission; and DBS called no relevant factual witness, in particular Kong, to contradict Sit; (b) the 6^th Representations were contained in and largely corroborated by contemporaneous documents produced by DBS; and (c) DBS chose not to cross-examine Sit on his understanding of, and reliance on, the 6^th Representations and the Call Report.  Mr Lee submitted that having regard to these unusual features, the Judge was clearly wrong to hold that the 6^th Representations were not made.

76. Mr Lee relied heavily on a judgment of the Supreme Court of New South Wales in Lee & Ors v Westpac Banking Corporation & Ors.[47] There, Lee claimed that Westpac engaged in misleading and deceptive conduct in inducing him to invest in certain financial products.  Harrison AsJ found that Lee was prepared to be untruthful to the bank in order to borrow money to invest in the stock market; that Lee made two false statements in his testimony, namely, he read the documents he signed and he received advice from his own lawyer, when in fact he did not; that he was evasive and not prepared to make obvious concessions.  The judge in §46 decided to treat Lee’s evidence with caution and went on to consider it in light of contemporaneous documentations.  He accepted Lee’s evidence on the representations which founded his claim, since the representor was not called to give evidence and Lee’s evidence on the representations was unchallenged in cross-examination.  Mr Lee drew support from what he considered to be the similar features in that case to criticize the Judge in her approach to the evidence in the present.

77. To recap, Mr Lee’s submissions consist of the following major building blocks :

(1)  The Judge’s finding on Sit’s general credibility is wrong.

(2)  The Judge failed to draw adverse inference against DBS on its failure to call Kong to give evidence to contradict Sit.

(3)  The Judge failed to have sufficient regard to the fact that Sit was not cross examined on some material aspects of his case. This concerns the rule in Browne v Dunn.

(4)  The Judge misunderstood the significance of the Call Report.  This raises the point about “similar facts”.

(5)  Contrary to the Judge’s view, Sit’s case on the 6^th Representations was contained in or evidenced by the Recordings/Transcripts.

78. We will consider them in turn.

F1.1  Sit’s general credibility

79. The relevant grounds of appeal on Sit’s general credibility are GOAs 9 to 12.  Mr Lee did not really develop them in either his written or oral submissions.  They can be disposed of shortly.

80. GOA 9 complained that the Judge erred in finding that “Sit did try to downplay his ability to understand English used in business contracts despite his extensive experience in the trade”,[48] in that there was no evidence whatsoever to support it.  We disagree.  There was ample evidence available to enable the Judge to come to that finding : see [58] – [61] of her judgment.

81. GOA 10 concerned the signing of the Bank Staff Declaration on the Accounting Opening Form by a bank officer Kim-chuan Tew.  Sit’s case was that Tew and Kong made a false declaration in the Accounting Form.  As presently couched, GOA 10 simply does not concern this appeal.  We fail to see how any of the things complained of in GOA 10 would advance Sit’s case on his general credibility or on the 6^th Representations.

82. GOA 11 complained that the Judge erred in rejecting, without any or any sufficient evidence, Sit’s evidence that the was not required to sign contracts generally in his trade as nothing but a poor attempt to distance himself from the signed Banking Documents, in that the Judge completely failed to address Sit’s Closing Submissions in this regard, at §66.  We have read §66 of Sit’s Closing Submissions, which need not be repeated here.  Suffice it to say that the points made in the Closing Submissions and Sit’s evidence relating to those points must be firmly in the mind of the Judge when she rejected Sit’s story.  The Judge had also given ample reasons for doing so.  We fail to see how her rejection of Sit’s story can be flawed simply because she did not deal with every single point raised in Sit’s Closing Submissions.

83. GOA 12 complained that the Judge erred in finding that Sit tried to shy away from his knowledge of margin financing and in drawing adverse inferences against Sit on his credibility.  It was said that the Judge failed to direct herself either properly or at all on the following matters :

(1)  Sit had in his pleadings expressly admitted his knowledge that his cash deposits and investment products so purchased would be mortgaged in favour of DBS and loans would be advanced to him by DBS on this basis;

(2)  Sit’s evidence was that he understood margin financing to mean a loan with security like the purchase of properties rather than margin financing.  DBS did not make any submission that Sit’s evidence in this regard was unreasonable.  Nor did the Judge make any finding in this respect; and

(3)  The Judge’s finding that what Sit understood actually amounted objectively to margin financing did not necessarily impinge on Sit’s credibility, for it was consistent with Sit being honest though mistaken.

84. GOA 12 is in substance no more than a repetition of Sit’s submissions on this point below.  But it has failed to convince us that the Judge’s finding is plainly wrong.

85. In sum, we are not satisfied that Mr Lee has demonstrated that the Judge’s findings on Sit’s credibility were plainly wrong which entitles this Court to disturb.  On the contrary, we are satisfied that the Judge, having regard to all the evidence before her, is well entitled to find that Sit is a poor and unreliable witness and to reject his evidence on the core matters.

F1.2  Failure to call Kong

86. This is GOA 8.

87. Undoubtedly Kong, if called, might be expected to give material evidence on the 6^th Representations. Since DBS did not call him, Mr Lee argued that adverse inference should be drawn against DBS on the 6^th Representations.

88. But there is no inflexible rule that whenever a party fails to call a witness who might be expected to give material evidence on an issue adverse inference should be drawn against him.  It depends on the actual circumstances of the case.  Generally speaking, there must be a prima facie case on the issue before the court can draw the adverse inference. If there is a plausible explanation as to why the witness was not called, then the court is entitled not to draw the adverse inference.  See Polarpark Enterprises Inc v Rupert Allason,[49] per Briggs J at §30; R (on the application of Stapleton) v Revenue & Customs Prosecuting Office,[50] per Sir Thomas Morrison at §39; and Ip Man Shan Henry & Anor v Ching Hing Construction Co Ltd & Ors (No 2),[51] per Deputy Judge Lam (as Lam VP then was) at §155.  Ultimately, it is a matter for the trial judge, whose view the Court of Appeal will not lightly disturb.

89. Here, DBS did not call Kong to testify for legitimate reasons.

90. In November 2008, when DBS demanded Sit to “top up” his margin shortfall, Sit disclosed to DBS that in the past, due to good performance and yield, on various occasions, he had paid a total sum of HK$1,300,000.00 to Kong as a gift for his managing Sit’s investment.  DBS reported the matter to the HKMA and at HKMA’s request made a report to the ICAC.  What ensued were criminal proceedings against both Sit and Kong.

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

92. On 26 April 2012, Kong was convicted after trial in DCCC1038/2011 of three counts of accepting advantage from Sit without lawful authority or reasonable excuse as inducement/reward for doing or having done any act in relation to the affairs or business of DBS as his principal. On 11 May 2012, Kong was sentenced to imprisonment for 26 months.  He was further ordered to pay to DBS HK$1.15 million, being part of the advantage received by him.

93. Back in December 2008, Kong left DBS’ employ.  A senior vice president Ms Katherine Yim telephoned Kong on 21 February 2011 with a view to ascertaining his willingness to be a witness for DBS.  No one answered her call.  On 9 March 2011, Ms Yim by telephone invited Kong to give evidence for DBS, but he said he did not want to be involved in this case and refused to assist.  DBS did not contact Kong after 9 March 2011. According to Ms Vicky Leung, who had by then replaced Ms Yim, she thought Kong was still imprisoned given the length of his sentence.

94. The Judge first dealt with Mr Lee’s criticism about DBS’s failure to approach Kong after 9 March 2011 to persuade him to give evidence.  It was Mr Lee’s submission that Kong would have been released in/about October 2013 due to ⅓ remission of sentence for good behaviour.  The Judge did not accept his submission.  She pointed out that without evidence as to whether (and if so when) Kong was released or whether he was on good behaviour during imprisonment, his alleged availability as a freed person to give evidence was mere surmise.  There was no basis for her to doubt that Ms Yim did approach Kong who indicated unwillingness to give evidence for DBS.  Thus she concluded that there was little evidence that Kong was willing and able to give evidence at the time of the trial.[52]

95. The Judge next considered the very conflict between Kong’s employment with DBS and his relationship with Sit that eventually resulted in Sit’s and Kong’s convictions.  She opined that it was understandable why DBS (which also fielded quite a few prosecution witnesses against Kong in DCCC1038/2011 from amongst their own staff) made no further attempt to secure Kong as their witness, especially during the sensitive period from the time he was charged up to the conclusion of his criminal trial. Kong’s subsequent conviction, incarceration and requirement to reimburse DBS after a defended trial would not have eased (and indeed might have heightened) any likely hostility.  In such context it was readily understood why DBS did not call Kong as witness.[53]

96. We agree with the Judge that DBS’s decision not to call Kong to testify had been credibly and satisfactorily explained. She was perfectly entitled not to draw any adverse inference against DBS for not calling Kong.  We can see no basis to disturb her decision at all.

F1.3  Sit not cross examined – Browne v Dunn

97. At trial, Mr Lee took the Browne v Dunn point in relation to the Call Report, his subjective understanding of the meaning of the Words and inducement.  They are now contained in GOAs 4 and 7.  They strictly do not concern the question whether Kong made the 6^th Representations, other than the Words.  But since it is a major plank of Mr Lee’s submissions on his attack against the Judge’s approach to the evidence, we will deal with the point here.

98. Briefly stated, the rule of Browne v Dunn is that if it is intended to suggest that a witness is not speaking the truth, his attention must be directed to it by cross-examination so that he has a chance to explain : see Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation,[54] per Hunt J at pp 623-624.  This again is not an inflexible rule.  The applicability of the rule depends on the actual circumstances of the case.

99. In relation to the Call Report, as rightly pointed out by the Judge, it could not have documented or recorded the 5^th or the 6^th Representations.  And as will be seen shortly, we are unable to accept Mr Lee’s submissions on the relevance of the Call Report.  That being the case, there is nothing wrong for Mr Wong not to cross-examine Sit on the Call Report.

100. In relation to the meaning of the Words, as the Judge had rightly held,[55] it is an objective test.  Sit’s subjective interpretation and understanding of the meaning of the Words are irrelevant.  It really serves no purpose to cross-examine Sit on those matters.

101. In relation to inducement, Sit’s case was premised on his subjective understanding of the Words.  If his subjective understanding of the Words is irrelevant and hence does not call for cross-examination, the same must be true for the question of inducement based on his subjective understanding of the Words.

102. We agree with the Judge that Sit’s reliance on the rule in Browne v Dunn is misplaced.

F1.4  The Call Report

103. This is GOA 1.

104. As said, the Judge found that the Call Report could not have documented the 5^th Representations.  Mr Lee submitted that the Judge misunderstood the relevance of the Call Report.  Referring to the contents of the Call Report and the timing of the meeting (19 April 2007), Mr Lee submitted that the Call Report documented an occasion where (a) Sit sought opinion from Kong; (b) Kong gave an erroneous opinion; and (c) Sit relied on it yet again.  Its contents constituted similar fact evidence supporting the making of the 6^th Representations, and Sit’s reliance on Kong’s representations.  The Call Report is both highly relevant and probative as it was contemporaneous and was DBS’s own internal documents and DBS chose not to cross-examine Sit on it.  But for the Judge’s misapprehension of its nature, she could not have disregarded the Call Report entirely.

105. To be fair to the Judge, she was fully cognizant of and had carefully considered Sit’s contention that the Call Report supported his case on the 5^th and 6^th Representations. For the reasons that she gave, she was entitled to find that the Call Report did not support Sit’s case.  Even assuming that the Call Report did record an occasion that Sit sought advice from Kong; Kong gave an erroneous advice and Sit relied on it yet again, it is a far cry from Sit’s allegation that on some other occasions Kong made the 6^th Representations to him concerning the 10 ELNs.  With respect, we fail to see how the Call Report can be said to be relevant to Sit’s case on the 6^th Representations.

F1.5  The Recordings/Transcripts

106. This is GOA 5.

107. Essentially, Mr Lee argued that the 6^th Representations were all recorded in the Recordings/Transcripts.  His submissions are a repetition of his submissions before the Judge.

108. In §70 above, we have quoted in extenso the relevant part of the Judge’s judgment on the Recordings/Transcripts.  The Judge rightly considered the contents of the Recordings/Transcripts relied on in context and in light of Sit’s evidence as a whole.  She also comprehensively dealt with Mr Lee’s submissions, now repeated before us.  We agree with the Judge’s analysis of the Recordings/Transcripts and her conclusion that they do not contain the 6^th Representations, other than the Words, as contended.

F1.6  Reliance on Lee v Westpac

109. With all the major building blocks in his submissions dismantled, it can be readily seen that Mr Lee’s reliance on Lee v Westpac is misplaced.

F1.7  The Judge’s approach impeccable

110. In any event, how a trial judge approaches the evidence before him is case-specific.  It is entirely a matter for him. Here, a careful reading of the Judge’s judgment shows that she had taken a holistic approach in determining whether Kong made the 6^th Representations by taking into account all the evidence and relevant circumstances, including Sit’s pleadings, what he said or did not say in the witness statements and oral testimony, the inherent improbabilities in his evidence and, contrary to Mr Lee’s submissions, all contemporaneous documents including the Call Report and the Recordings/Transcripts.  Her approach to the evidence is impeccable.

F2.  Inferences as opposed to primary facts

111. The second point taken by Mr Lee on the applicability of the “plainly wrong” test is this.  He submitted that the Judge’s finding that other than the Words Kong had not made the 6^th Representations is not a finding of primary facts, but only inferences.  For inferences, a less stringent test applies.  So the “plainly wrong” test does not apply.  He cited Ting Kwok Keung v Tam Dick Yuen, supra, at §34 in support.  Again, we respectfully disagree.

112. The applicable principle is well explained by Lord Hodge in Beacon Insurance Company Limited v Maharaj Bookstore Limited.[56]  There, after surveying the relevant authorities and reiterating the rationale behind the “plainly wrong” test as it applies to primary findings of fact,[57] his Lordship continued :

“ 16. In Piglowska v Piglowski [1999] 1 WLR 1360, 1372 Lord Hoffmann referred to the advantage that a judge at first instance had in seeing the parties and the other witnesses when deciding questions of credibility and findings of primary fact. He suggested that an appellate court should also be slow to reverse a trial judge’s evaluation of the facts and quoted from his earlier judgment in Biogen Inc v Medeva plc [1997] RPC 1, 45:

‘ The need for appellate caution in reversing the trial judge’s evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance ... of which time and language do not permit exact expression, but which may play an important part in the judge’s overall evaluation.’

17. Where a judge draws inferences from his findings of primary fact which have been dependent on his assessment of the credibility or reliability of witnesses, who have given oral evidence, and of the weight to be attached to their evidence, an appellate court may have to be similarly cautious in its approach to his findings of such secondary facts and his evaluation of the evidence as a whole. In re B (a Child) (above) Lord Neuberger at para 60 acknowledged that the advantages that a trial judge has over an appellate court in matters of evaluation will vary from case to case. The form, oral or written, of the evidence which formed the basis on which the trial judge made findings of primary fact and whether that evidence was disputed are important variables. As Lord Bridge of Harwich stated in Whitehouse v Jordan [1981] 1 WLR 246, 269-270 :

‘ [T]he importance of the part played by those advantages in assisting the judge to any particular conclusion of fact varies through a wide spectrum from, at one end, a straight conflict of primary fact between witnesses, where credibility is crucial and the appellate court can hardly ever interfere, to, at the other end, an inference from undisputed primary facts, where the appellate court is in just as good a position as the trial judge to make the decision.’

See also Lord Fraser of Tullybelton, at p 263G-H; Saunders v Adderley [1999] 1 WLR 884 (PC), Sir John Balcombe at p 889E; and Assicurazioni Generali SpA v Arab Insurance Group (Practice Note) [2003] 1 WLR 577 (CA), Clarke LJ at paras 12-17.  Where the honesty of a witness is a central issue in the case, one is close to the former end of the spectrum as the advantage which the trial judge has had in assessing the credibility and reliability of oral evidence is not available to the appellate court.  Where a trial judge is able to make his findings of fact based entirely or almost entirely on undisputed documents, one will be close to the latter end of the spectrum.”

113. In Hong Kong, this Court has adopted a similar approach on an appeal against inferences based on primary facts : see Pang Ketian Sally v Tam Yuk Hung Annie,[58] per Cheung CJHC at §§26–32; and Ageas Insurance Co Ltd v Lam Hau Wah Inneo,[59] per Kwan JA at §§27–30.

114. In Ting Kwok Keung v Tam Dick Yuen, supra, at §34, Bokhary PJ said :

“ In discussing these guiding principles, the first thing to be noted is that appeals against findings of primary fact are approached very differently from appeals against findings of fact made by a process of inference. Benmax v Austin Motor Co Ltd [1955] AC 370 at pp.377-378concerned a patent. The issue of fact was whether the invention claimed involved an inventive step. No question of credibility arose. By a process of inference, the trial judge found that the invention claimed involved an inventive step. Also by such a process, the Court of Appeal reversed that finding. The House of Lords affirmed the Court of Appeal's decision. As Viscount Simonds noted (at p.374) there is:

“... on the one hand, universal reluctance to reject a finding of specific fact, particularly where the finding could be founded on the credibility or bearing of a witness, and, on the other hand, no less a willingness to form an independent opinion about the proper inference of fact, subject only to the weight which should, as a matter of course, be given to the opinion of the learned judge.”

115. The effect of Bokhary PJ’s judgment was explained by the Chief Judge in Pang Ketian Sally v Tam Yuk Hung Annie thus :

“ 31. This “plainly wrong” test, in other words, is applicable unless the finding of fact is based purely on inferences, or otherwise has nothing to do with the witnesses’ demeanour or the trial judge’s having received the evidence at first hand. In this regard, it is worth remembering that when Bokhary PJ referred to the dichotomy between a finding of primary fact and a finding of fact made by a process of inference in paragraph 34 of the judgment, he referred to Benmax v Austin Motor Co Ltd [1955] AC 370 as an example to illustrate the second category of finding of fact based on inference. As explained by the judge, the issue of fact in that patent case was whether the invention claimed involved an inventive step. No question of credibility arose. By a process of inference, the trial judge found that the invention claimed involved an inventive step. Also by such a process, the Court of Appeal reversed the finding. The House of Lords affirmed the Court of Appeal’s decision and pointed out that whilst there is a universal reluctance to reject a finding of specific fact, particularly where the finding could be founded on the credibility or bearing of a witness, there is no less a willingness to form an independent opinion about the proper inference of fact, subject only to the weight which should, as a matter of course, be given to the opinion of the trial judge (per Viscount Simonds at page 374).”

116. Properly understood, neither Bokhary PJ’s judgment at §34 of Ting Kwok Keung v Tam Dick Yuen nor Cheung CJHC’s judgment at §31 of Pang Ketian Sally v Tam Yuk Hung Annie supports the argument that the “plainly wrong” test does not apply to challenges against inferences drawn from primary facts.  In fact recently a similar argument had been rejected by this Court (differently constituted) in Ageas Insurance Co Ltd v Lam Hau Wah Inneo, supra, where Kwan JA said :

“ 29. Mr Strachan sought to persuade us that many of the findings he wished to challenge are inferences of fact drawn from primary facts, so the appeal court may be more inclined to disturb such inferences because it should be in as good a position as the trial judge to draw inferences.  But as the Chief Judge has explained in Pang Ketian Sally v Tam Yuk Hung Annie, CACV 147 of 2013, 25 April 2014, the “plainly wrong” test in Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 is nonetheless applicable, unless the finding of fact is based purely on inferences, or otherwise has nothing to do with the witnesses’ demeanour or the trial judge’s having received the evidence at first hand.”

117. Accordingly, whether the Judge found that Kong did not make the 6^th Representations, other than the Words, as primary facts or inferences based on primary facts does not matter.  The same and only “plainly wrong” test applies to Sit’s challenge against such a finding.

F3.  Applying the “plainly wrong” test

118. Applying the “plainly wrong” test, Mr Lee must pinpoint the palpable errors made by the Judge, that is, errors of such nature which warrant intervention from this Court : see China Gold Finance Limited v CIL Holdings Limited & Others,[60] per Lam VP at §16 and §27. Mr Lee must convince us that the Judge did make those errors as he contended. Mr Lee relied on all the complaints which we have discussed in Part F1 above. Mr Lee went so far as submitting that the Judges’ finding that Kong did not make the 6^th Representations, other than the Words, was perverse.

119. We have already explained in Part F1 why Mr Lee’s complaints cannot stand.  In the circumstances, we are not satisfied that the Judge’s finding on the 6^th Representation was “plainly wrong” or perverse.  On the contrary, we agree with her finding and reasoning entirely.

120. We next turn to the meaning of the Words.

G.  Meaning of the Words

121. This concerns GOA 2.

122. To recap, the Words read “砌咗一隻” or similar words.  It was Sit’s case that the 10 ELNs were “structured” or tailor-made by Kong for Sit.  The Judge roundly rejected Sit’s case.  She held that Sit’s own subjective interpretation and understanding of the meaning of the Words were neither here nor there.  For it is an objective exercise to be undertaken by the court.[61]  The Judge further rejected Sit’s evidence that it was unreasonable for him to understand the Words to mean that the 10 ELNs were tailor-made for him as alleged.  She found the no reasonable private banking customer, in the position of Sit, would have understood the Words to mean the 10 ELNs were tailor-made (or created specifically) for him.  Significantly, she also found that Sit knew well that neither Kong nor DBS were the issuers of the ELNs and Kong could not have created the ELNs specifically for him.[62] She said at the end of [244] :

“I find that on balance that in all the circumstances the only objective and reasonable interpretation of the Words in the context they were used and bearing in mind the characteristics of and the relationship between Sit and Kong must be that Kong hand-picked and selected for introduction to Sit the ELNs (with particular features that Kong believed Sit might be interested in), and the Words sued in such context were not false, misleading or deceptive.”

123. She rejected Sit’s case that Kong represented to him the ELNs were “structured” or tailor-made for him and found that there was no misrepresentation by use of the Words.[63]

124. Mr Lee argued that the Words could not objectively bear the meaning ascribed to them by the Judge.  Referring to what Kong said in the Recordings/Transcripts concerning the 4^th ELN :

“ 咁呢依個呢就特別之處呢，就係因為依家個market都幾高下嘅，所以我哋就整到個call level呢...80...跌20%都有得call嘅。”

“ 咁另外我再加多個保險線跌50%...”

“ 咁就因為呢3隻股票呢，江西銅中石化中石油依都呢都係幾高下嘅，咁所以呢我哋就擺到嗰啲strike呀保險呀全部擺得好低嘅...”

125. Mr Lee submitted that Kong clearly referred to his ability to customize certain features of an ELN for Sit, that is, Kong structured an ELN for Sit.  With respect, we think what Kong said on particular occasion(s) must be understood in context and in light of all the relevant circumstances.  Objectively viewed, what Kong said (as quoted) did not mean that he could structure or tailor-make an ELN in the way as suggested by Sit. It did not detract from the correctness of the Judge’s finding on the meaning of the Words after a careful consideration of all the evidence and relevant circumstances.

126. Further, as rightly submitted by Mr Wong, SC, for DBS, Sit did not seek to challenge the Judges’ finding that he knew well that neither Kong nor DBS were the issuers of the ELNs and Kong could not have created the ELNs specifically for him.  Mr Wong submitted and we agree that it is manifestly implausible that a customer like Sit, knowing full well that his relation manager could not have tailor-made the ELNs, could possibly have understood the Words to mean that he would tailor-make the ELNs for him.

127. Mr Lee argued that the Judge’s finding on the meaning of the Words was inconsistent with her findings elsewhere on Sit’s ability to negotiate the terms with banks.  We do not agree.  The Judge held that if Sit found the terms governing his banking relationship with DBS unacceptable, he could have gone to other private banks to negotiate whatever terms that were acceptable to him as there were other financial institutions that offered discretionary account or investment advisory services.[64]  Mr Wong submitted and we agree that it cannot be reasonably suggested that this finding is in any way related to, let alone inconsistent with, Sit’s case of Kong tailor-making the ELNs for him.

128. We uphold the Judge’s finding on the meaning of the Words.

H.  Other grounds

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.  Mr Lee argued that contractual estoppels as proferred in Spingwell Navigation v JP Morgan Chase (SA)[65] 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,[66] 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.[67]

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^th Representations and the meaning of the Words, we would refrain from expressing a view on these interesting legal issues.

I.  Dispositions

133. We dismiss Sit’s appeal.  Costs should follow the event.  We make an order nisi that Sit should pay DBS the costs of the appeal, with a certificate for two counsel, to be taxed if not agreed.

134. Lastly, we thank counsel for their able assistance.