SHINE GRACE INVESTMENT LTD v. CITIBANK, N.A. AND ANOTHER

CACV 483, 484 & 485/2018
(Heard together)
[2022] HKCA 1341

CACV 483/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 483 OF 2018

(ON APPEAL FROM HCCL NO 28 OF 2008)

________________________

________________________

AND

CACV 484/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 484 OF 2018

(ON APPEAL FROM HCCL NO 28 OF 2013)

________________________

________________________

AND

CACV 485/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 485 OF 2018

(ON APPEAL FROM HCCL NO 29 OF 2013)

________________________

________________________

(Heard together)

________________________

J U D G M E N T

________________________

Hon Kwan VP:

A. Introduction

1.  On 30 July 2018, Ng J handed down his judgment (“Judgment”) in three actions which were heard together in a trial lasting 13 days. The plaintiff in each action has appealed against the Judgment. For ease of reference, I shall adopt the terms and expressions in the Judgment.

2.  The main action (HCCL 28/2008; CACV 483/2018; “Main Action”) was brought by Shine Grace Investment Ltd (“Shine Grace”) against Citibank, NA (“Citibank”) and one of its relationship managers Hailey Amy Seen Kwan Mak (“Ms Mak”). Shine Grace was owned, controlled and operated by Mrs Anita Chan Lai Ling (“Mrs Chan”)[1] until her sudden death on 17 October 2007. The main action involved claims that Citibank had mis-sold nine equity accumulator contracts (“Disputed ACs”) to Shine Grace on 15 and 16 October 2007. Shine Grace did not meet Citibank’s margin calls and disclaimed the Disputed ACs on 21 November 2007, asserting that they were invalid and unenforceable. The present complaints against Citibank are those of the directors of Shine Grace appointed after Mrs Chan’s passing.

3.  The other two actions (HCCL 28 and 29/2013; CACV 484 and 485/2018; referred to collectively as “Guarantor Actions”) were brought by Shine Grace’s two guarantors, Shinning International Holdings Limited (“Shinning”) and Bonds & Sons International Limited (“BSI”), five years after the Main Action was commenced. Shinning was also owned by Mrs Chan. BSI was the overseas flagship umbrella investment holding company, holding substantially all the assets of the family enterprise of the Chan family[2]. The judge found that notwithstanding the niceties of the shareholding structure, Mrs Chan “called the shot(s)” in BSI during her lifetime[3]. The Guarantor Actions were brought to challenge the transfer of funds by Citibank from the accounts of Shinning and BSI (HK$25,609,002.71 and HK$39,109,301.58 respectively) to meet the outstanding liability of Shine Grace. These companies claimed that Shine Grace had no liability under the Disputed ACs, for the same reason advanced by Shine Grace. BSI raised an additional issue that it had already terminated the two guarantees it provided to Citibank (“2004 Guarantee” and “2006 Guarantee”; collectively “BSI Guarantees”) by written notice on 26 July 2007.

4.  The judge dismissed all three actions. In the Main Action, he found that each and every element of the claims was not established: Citibank did not owe to Shine Grace the alleged duty to advise; even if Citibank owed a duty to advise Shine Grace on the risks of its investments, Citibank did not breach the alleged duties; and the alleged breaches did not cause Shine Grace to suffer any loss. Shine Grace seeks to overturn all of these findings to succeed in its appeal.

5.  The primary basis of the challenge in the Guarantor Actions fell away with the dismissal of the Main Action. As for the additional issue raised by BSI, the judge found that Agatha Lai Sui Yee (“Ms Lai”), the financial controller of the Bonds Group, had the authority to and did on behalf of BSI instruct and agree with Citibank to suspend the termination instructions dated 26 July 2007 until further discussions after the end of October 2007. Since such discussions never took place, he found that the BSI Guarantees had not been terminated. BSI seeks to challenge these findings in its appeal.

B. Background

6.  The background matters are taken from the Judgment and other matters that are not in dispute.

B1. Mrs Chan

7.  Mrs Chan, who was at the heart of this case, was in many ways a remarkable person. She was 69 years old and still highly energetic when she passed away on 17 October 2007, as a result of overdose of prescribed medication. She was born into a lower middle class family and educated up to Form 5. She married Chan Shu Kui, a prominent businessman and philanthropist, who passed away in 1973. She was a “self-taught businesswoman”, assisting her husband in running his businesses from 1965 to 1973, including real estate, education and a stock brokerage firm known as Standard Capital Brokerage Limited. After her husband passed away, she ran the family businesses including the brokerage firm. The firm only ceased business in 2002 when it went into voluntary liquidation. She was a licensed dealer, dealing director, commodities trading adviser and securities investment adviser. She was a director of at least 56 companies, several being private investment companies used solely as investment vehicles.

8.  Mrs Chan was a director of Shine Grace from 2 January 2003 until she passed away on 17 October 2007[4]. She was the sole beneficial owner of the Lady Secret Group of companies. Shine Grace and Shinning were within this group. She was also the chairman and chief executive of the Bonds Group. While the core business of the Bonds Group was in property investment, management, leasing and development, BSI also engaged in the trading of securities, including derivative instruments, from time to time. In December 2003, the Bonds Chan Family Unit Trust was established and all the shares of the holding company in the Bonds Group (which held BSI) were owned by the trust. Mrs Chan had 44.45% beneficial interest in the trust and hence the Bonds Group. She also had a minority interest in the trustee company which managed the trust and was one of its six directors.

9.  In terms of investment experience, Mrs Chan had decades of experience of active trading in the capital market. During the 1980s and 1990s, she had investments through a number of financial institutions for her own investment companies, on behalf of companies in the Bonds Group including BSI, and companies owned by her sons. She was an enthusiastic and prolific investor, with exceptional ability to read the stock market. Her investments covered a wide range of products including local and foreign equities, Hong Kong stock index futures, Hong Kong index options, stock options, foreign exchange contracts, funds, bonds, treasury bills, and structured products such as equity linked notes and market linked instruments.

10.  Citibank had been one of Mrs Chan’s bankers since 1980s. Ms Mak was assigned to manage her accounts from mid-1997, taking on the role independently in mid-1999. According to the bank’s annual credit approval in June 2007, her net worth was estimated at around US$400 million, US$430 million and US$453 million in 2005, 2006 and 2007 respectively. By any standard, she was a hugely successful businesswoman and an ultra-high net worth individual.

11.  In January 2004, Mrs Chan was introduced to the then relatively new product of equity accumulators. From 2 January 2004 to 16 October 2007, Shine Grace entered into 282 equity accumulator contracts (“ACs”) with Citibank, the last nine of which were the Disputed ACs. In addition, BSI, via her, had entered into over 130 ACs with Citibank. Apart from Citibank, Mrs Chan had also entered into 50 ACs with the Bank of East Asia between 20 April and 16 October 2007.

12.  With such a large investment portfolio, Mrs Chan had a team of support staff to assist her, including Ms Lai. The team’s role was solely of an administrative nature, ie facilitating the settlement of trades, arranging funding for settlement, attending to accounting matters and compiling position and cash reports. All investment decisions were made and all orders were placed by and only by Mrs Chan, who normally worked from home and placed orders over the telephone with Ms Mak.

13.  Leaving aside the Disputed ACs, Shine Grace’s trading in ACs with Citibank was very profitable. From Shine Grace’s internal records, its net realised profits between 2004 and 2007 were close to HK$180 million. And out of that, HK$146 million was made in 2007. Between 3 September and 5 October 2007, Shine Grace entered into over 40 ACs and realised profits from them of HK$81 million.

14.  Mrs Chan was hospitalised on 6 October 2007 due to momentary loss of consciousness caused by overdose of medication. She was discharged from hospital on 10 October 2007 and had apparently recovered well without complication from this incident, according to the hospital record and the coroner’s report. Having heard the audio recording of her telephone conversations with Ms Mak on 15 and 16 October 2007 and read the transcripts of those conversations, the judge found that her cognitive ability was not impaired to any significant extent notwithstanding her recent hospitalisation.

B2. Citibank’s ACs and the Disputed ACs

15.  A derivative is a contract between two or more parties the value of which is tied to a specified underlying financial asset, which comprised listed shares in the present case. ACs are bespoke derivatives, illiquid and not publicly traded. Under an AC, an investor contracts to purchase from Citibank a fixed number of the underlying listed shares (“daily number of shares”) at the accumulating forward price (“AFP” or “strike price”) on each trading day for the duration of the contract, ie one year. The AFP is set at a discount to the market price (“spot price”) of the listed shares prevailing at the time of the AC. To make the AC attractive to investors, the discount is typically 10 to 20% below the spot price. In the case of the Disputed ACs, the AFP was fixed at between 83.10% to 84.80% of the spot price (a discount of between ~15% to ~17%).

16.  If the spot price of the listed shares rises to or above the pre-agreed knock-out price level (“knock-out price”), the AC will terminate and the investor is no longer entitled or obliged to purchase further shares. The knock-out price is set at a premium to the spot price of the listed shares at the time of the AC. The premium is typically 2 to 5% above the spot price. In the case of the Disputed ACs, it was set at 2% above spot price. So the knock-out price of each of the Disputed ACs was set at 102% of the spot price.

17.  Settlement under the AC takes place at the end of the month. The investor will receive the shares which had been “accumulated” in the preceding month and has to make payment to Citibank for them. If, on the date of settlement, the spot price of the listed shares is higher than the AFP, the investor gains an unrealised profit. If, on the other hand, the spot price is lower than the AFP, the investor suffers an unrealised loss. In both instances, the gain or loss is not realised until the investor sells the shares in the market.

18.  The Disputed ACs provide for a guaranteed period of one month. This means that the investor is entitled to purchase one month’s quantity of the listed shares at the AFP from Citibank at a substantial discount, even if, for instance, the AC is knocked out on the first day. The investor can take delivery of the shares or place an order to sell all of them without waiting until the end of the month. Of the 282 ACs traded by Shine Grace since January 2004, only 12 were not knocked out and Mrs Chan had made a handsome profit out of them.

19.  The ACs contain a “step-up” feature. This means that when the spot price of the listed shares closes below the AFP on a trading day, the investor is obliged to purchase double the daily number of shares (“stepped-up daily number of shares”). This “step-up” feature has the effect of magnifying the losses of the investor.

20.  At any given point of time, a value can be attributed to an AC. The process of calculating the value of an AC is referred to as “mark to market” (“MTM”). The MTM value of an AC represents the estimated credit exposure of the parties to each other in case of non-performance. From Citibank’s point of view, the MTM value represents the amount which it is likely to lose if the investor defaults at that moment in time. The MTM value of an AC depends on a number of variables, including the spot price of the underlying shares, the implied volatility of the underlying shares, their expected dividend, interest rate and the remaining duration of the contract. Ascertaining the MTM value of an AC is highly complicated and requires the use of sophisticated financial models which are not available to the public. Different banks have different formulae for ascertaining the MTM value of an AC.

21.  As for the margin requirements of Citibank, they can be divided into two broad types: (1) an initial margin, which will be a percentage of the investor’s maximum exposure under the AC (“MAIA”); the level of the initial margin varies from AC to AC; in respect of the Disputed ACs, the initial margin was set at either 15% or 18%; (2) additional margin, which may be demanded when the risk to the bank changes during the term of the contract; the primary determinant of the level of additional margin is the MTM value of the AC.

22.  The stocks which underlay the nine Disputed ACs were four Hong Kong listed shares: China Petroleum & Chemical Corporation (“Sinopec”; code: 386), Petrochina Company Limited (“Petrochina”; code: 857), China Shenhua Energy Company Limited (“Shenhua”; code: 1088) and China Life Insurance Company (“China Life”; code: 2628).

23.  On 15 October 2007, Shine Grace entered into three of the Disputed ACs with Citibank and two ACs with the Bank of East Asia. On 16 October 2007, Shine Grace entered into the other six Disputed ACs with Citibank and four more ACs with the Bank of East Asia, making a total of 15 ACs in two days. During the trading hours of the Hong Kong Stock Exchange on 15 October 2007, Mrs Chan had over 20 telephone conversations with Citibank’s staff, mostly Ms Mak. On 16 October 2007, she had 18 such telephone conversations. As found by the judge, she sounded alert, sometimes very animated, always good with figures and was able to make quick decisions on whether to enter into an AC for a particular listed stock, at what price and for how many shares. She was also able to exchange views with Ms Mak on the movement of the Hang Seng Index (“Index”).

24.  The details of the Disputed ACs are set out in the table below:

Citibank Ref No.	Trade Date	Underlying Shares	AFP (HKD)	KO Level (HKD)	Daily Number of Shares	Step-up Daily Number of Shares	Initial Margin (HK$)	MAIA (HK$)
EA 71015066	15 Oct 2007	Sinopec	10.3819	12.7432	20,000	40,000	15,323,684.40	102,157,896
EA 71015026	15 Oct 2007	Petrochina	14.9900	18.4600	50,000	100,000	55,313,100.00	368,754,000
EA 71015126	15 Oct 2007	Shenhua	45.4418	55.1793	30,000	60,000	120,729,774.24	670,720,968
EA 71016109	16 Oct 2007	Shenhua	45.9400	55.2600	20,000	40,000	81,368,928.00	452,049,600
EA 71016024	16 Oct 2007	Petrochina	16.0368	20.1199	50,000	100,000	59,175,792.00	394,505,280
EA 71016137	16 Oct 2007	Petrochina	15.7865	19.8060	50,000	100,000	58,252,185.00	388,347,900
EA 71016061	16 Oct 2007	Sinopec	10.7526	13.2942	10,000	20,000	7,935,418.80	52,902,792
EA 71016018	16 Oct 2007	Sinopec	10.6583	13.1775	30,000	60,000	23,597,476.20	157,316,508
EA 71016037	16 Oct 2007	China Life	42.4683	52.6338	25,000	50,000	94,024,816.20	522,360,090

25.  On 15 October 2007, the Index opened at 29,147 and closed at 29,540. In a telephone conversation Mrs Chan had with Ms Mak that day at 3:19 pm, Mrs Chan expressed her view that the Index would go up to 32,000 before it would come down. Her prediction only fell short by 362 points as 15 days later the Index peaked at 31,638 on 30 October 2007. Thereafter the Index began to fall, as she had expected. Within three weeks, the Index dropped to 26,004 on 22 November 2007 and went downhill sharply after a short-lived rebound in late November and early December 2007. The share prices of the four underlying stocks and the movement of the Index at the material times were as follows:

(1) On 15 October 2007,

i. The Index closed at 29,540.

ii. Sinopec closed at HK$12.96.

iii. Petrochina closed at HK$18.78.

iv. Shenhua closed at HK$54.10.

v. China Life closed at HK$50.60.

 

(2) On 16 October 2007,

i. The Index closed at 28,954.

ii. Sinopec closed at HK$12.24.

iii. Petrochina closed at HK$18.38.

iv. Shenhua closed at HK$52.35.

v. China Life closed at HK$50.30.

 

(3) On 30 October 2007,

i. The Index closed at its peak of 31,638.

ii. Sinopec closed at HK$11.92.

iii. Petrochina closed at HK$19.76.

iv. Shenhua closed at HK$51.15.

v. China Life closed at HK$51.95.

 

(4) On 20 November 2007,

i. The Index closed at 27,771.

ii. Sinopec closed at HK$10.90.

iii. Petrochina closed at HK$14.84.

iv. Shenhua closed at HK$43.35.

v. China Life closed at HK$43.45.

 

(5) On 22 January 2008,

i. The Index closed at 21,757.

ii. Sinopec closed at HK$7.65.

iii. Petrochina closed at HK$9.62.

iv. Shenhua closed at HK$38.50.

v. China Life closed at HK$27.60.

26.  The first two Disputed ACs (EA 71015066 and EA 71015026) were knocked out on the same day (15 October 2007) and the sixth Disputed AC (EA 71016137) was knocked out on 1 November 2007.

27.  The total MAIA of the nine Disputed ACs was around HK$3.109 billion. If the three Disputed ACs that were knocked out were disregarded, the MAIA came to around HK$2.25 billion. The initial margin of all the Disputed ACs was around HK$515 million.

28.  The remaining six Disputed ACs were closed out and unwound by Citibank on 22 January 2008. By then, the spot prices of the underlying shares had fallen well below the AFP as shown by the table below:

Date of ACs	Underlying share	Spot at inception (HKD)	AFP (HKD)	Spot at close out (HKD)	% difference (initial spot and spot at close out)	% difference (AFP and spot at close out)
15 October	Shenhua	54.0794	45.4418	38.5	-28.8%	-15.3%
16 October	Sinopec	12.9191	10.6583	7.65	-40.8%	-28.2%
16 October	Sinopec	13.0335	10.7526	7.65	-41.3%	-28.9%
16 October	Shenhua	54.1800	45.9400	38.5	-28.9%	-16.2%
16 October	Petrochina	19.7254	16.0368	9.62	-51.2%	-40.0%
16 October	China Life	51.6018	42.4683	27.6	-46.5%	-35.0%

29.  The total unwinding costs of the open positions on the six Disputed ACs exceeded HK$427 million, while the losses suffered from the sale of the shares accumulated under all the Disputed ACs were around HK$51 million, making a total loss of HK$478 million.

B3. The contractual framework of Shine Grace’s account with Citibank

30.  While Mrs Chan had been a customer of Citibank since 1980s, Shine Grace only opened an account with the bank in March 2003. On 12 March 2003, Mrs Chan on behalf of Shine Grace signed a number of account opening documents. They were described at the trial as first tier documents (general banking documents), second tier documents (which governed derivative transactions) and third tier documents (which governed AC trade).

31.  The most relevant first tier documents were: (1) Application for Banking, Fiduciary and Investment Services – Corporation, which incorporated Citibank’s Terms and Conditions for Banking, Fiduciary and Investment Services (“General Terms”); (2) Addendum to Terms and Conditions for Banking, Fiduciary and Investment Services, which incorporated Citibank’s Risk Disclosure Statement (“RDS”) and Terms and Conditions for Derivative Transactions (“Derivative Terms”); and (3) Bank Mandate.

32.  Clauses I(H) and I(O) of the General Terms provided as follows[5]:

“(H) Investment Decisions

All investments are made solely upon my judgment and at my discretion. Nothing in your brochures or investment reports shall be construed by me as your investment advice as regards the relative attractiveness of one investment option over the other.

…

(O) Indemnity

… I fully understand that (1) you are not obliged to provide me with any financial, market or investment information or suggestion; (2) if you so act, you do not provide the same as a required service, nor act as an adviser; and (3) you assume no responsibility for the accuracy and completeness of or the performance or outcome of any investment made by me after receipt of the same.”

33.  Under Clause 3 of the Bank Mandate, Citibank was instructed to honour Shine Grace’s written instructions provided that they were signed by the requisite number of authorised signatories. Schedule 1 to the Bank Mandate contained Shine Grace’s list of designated authorised signatories, which were divided into two groups. Under Group A, Mrs Chan was authorised to sign solely. Under Group B, two signatories were required, namely Mrs Chan’s daughter Lily together with either Ms Lai or Mr Ho Shek Tim.

34.  The most important second tier documents were the Master Derivative Agreement (“MDA”), which, by virtue of Clauses 2.1 and 6.2, incorporated inter alia the General Terms, RDS and Derivative Terms. The MDA set out the terms which governed the relationship between Shine Grace and Citibank on existing and future derivative transactions.

35.  The relevant provisions of the MDA were:

(1) Clause 2.3 (Clause 2 is headed “Relationship”):

“All advice, confirmations, schedules and addenda issued by us in respect of any transaction will constitute a supplement to, form an integral part of and be governed by this Agreement. You agree that this Agreement and all such documents shall constitute a single agreement for all purposes and govern all derivative transactions from time to time to be concluded with or through us, it being understood that you would not otherwise enter into any transaction”.

(2) Clause 3.1 (Clause 3 is headed “Our Role”):

“From time to time, you may directly or indirectly instruct either our Hong Kong branch or Singapore branch to enter into derivative transactions. In all such transactions, we will act as your agent for your account and at your risk.”

(3) Clause 4 (Clause 4 is headed “Risk Disclosure Statement”):

“The risk of loss in derivative transactions may be substantial in certain circumstances. You understand the nature of the transactions and the extent of your exposure to risk. You are also satisfied that the transactions are suitable for you in light of your circumstances and financial position.”

(4) Clause 4.12 (the sub-heading for this provision is “Acknowledgment”):

“You understand and agree that:

(a) the above brief statement cannot disclose all the risks and other significant aspects of the derivatives market and you should therefore carefully study derivative transactions before you trade;

(b) in respect of services rendered by us on a non‑discretionary basis,

(i) you make your own judgment in relation to the transactions;

(ii) we assume no duty to give advice or make recommendations;

(iii) if we make any suggestions, we assume no responsibility for your portfolio or for any investment or transaction made;

…

(d) in either of the above cases,

(i) we and our affiliates may hold positions for ourselves or other clients which may not be consistent with our officers’ or employees’ suggestions or discretionary management for you; and

(ii) any risks associated with and any losses suffered as a result of our entering into any transactions for you are for your account.”

(5) Clause 5.1 (Clause 5 is headed “Governing Law”):

“Each derivative transaction or its underlying instrument or asset shall be subject to the rules, regulations, by‑laws, guidelines and policies of all relevant governmental and other regulatory bodies and agencies, including but not limited to the applicable stock, commodity, futures or options exchanges or markets, if any, and the rules, regulations, by‑laws, guidelines, policies and customary market practices as the same may be constituted from time to time at the applicable exchanges or markets, if any.”

36.  The relevant parts of the RDS provided that:

“The intention of this Statement is to inform you that the risk of loss in derivative transactions may be substantial in certain circumstances. You should not deal in them unless you understand the nature of the transactions you are entering into and the extent of your exposure to risk. You should also carefully consider whether and be satisfied that the transactions are suitable for you in the light of your circumstances and financial position. In considering whether to trade, you should also be aware of the following:

…

CONTINGENT LIABILITY TRANSACTIONS / MARGIN

All futures, options selling and contracts for differences are contingent liability transactions. They usually require deposit of an initial margin for transacting a larger base amount.

If you trade in futures, contracts for differences or sell options, you may sustain a total loss of the initial margin and any additional margins that you deposit to establish a position or maintain positions in the relevant market. If the market moves against you, you may be called upon to pay substantial additional margins at short notice to maintain your positions. If you fail to do so, your positions may be liquidated at a loss and you will be liable for any resulting deficit. The use of leverage can lead to large losses as well as gains.

…

ACKNOWLEDGEMENT

You understand and agree that

(a) the above brief Statement cannot disclose all the risks and other significant aspects of the derivatives market and you should therefore carefully study derivative transactions before you trade;

(b) in respect of services rendered by the Bank on a non-discretionary basis,

(i) you make your own judgment in relation to the transactions;

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

(iii) if the Bank makes any suggestions, it assumes no responsibility for your portfolio or for any investment or transaction made; …”

37.  Clauses 12, 13 and 14 of the Derivative Terms dealt with margin, termination and close-out and liquidation:

“12. Margin

12.1 Prior to any Contract, you shall have deposited with us such Margin as having a value … equivalent to such percentage of the value or amount of the Contract as we may stipulate from time to time in accordance with our internal practice and policy …

12.2 We may at any time monitor your open position by squaring all your outstanding Contracts with Contracts which would otherwise have been necessary to off‑set all your outstanding Contracts in such manner as we may deem fit. If the result of such net position shows a loss to you in an amount more than such percentage of the Margin … as we may stipulate from time to time in accordance with our internal practice and policy, we shall be entitled (but not obliged) to request your immediate deposit with us such additional Margin in form and content satisfactory to us …

12.3 In the event that you fail to comply forthwith with our demand for additional Margin, we are unable to contact you or in our opinion, the circumstances so require, we may without prior notice to or consent from you:-

(a) withdraw from any of your accounts with us sufficient amount in payment, and/or set off any Collateral held by us … against, such additional Margin;

(b) enter into one or more Contracts in exchange for or liquidation of the obligations maturing under any of your outstanding Contracts upon such terms as we consider fit; or

(c) deal with any of your outstanding Contracts in such manner as we consider fit.

13. Termination

…

13.2 In addition, any one of the following circumstances shall be Special Circumstance:

(a) If you shall fail duly to pay any amount hereunder when due or on demand; …

14. Close-Out and Liquidation

14.1 If … a Special Circumstance has occurred and is continuing, then we shall have the right to close‑out and liquidate in the manner described below…

…

14.6 Any request by you to terminate a Contract prior to its termination date shall be solely at our discretion …”

38.  The third tier documents were Citibank’s Confirmation (“Confirmation”) and Tailored Investment Proposal (“TIP”) relating to every individual AC, including the Disputed ACs, which were sent to Shine Grace after each AC trade. They are the most important documents in light of the issues in this case. The purpose of the Confirmation was to set out the terms and conditions of each individual AC in question. The TIP was annexed to the Confirmation.

39.  The Confirmation provided that:

“This Confirmation supplements and forms part of the Master Derivatives Agreement signed by you with us … If we do not receive any objections to the details set out in this Confirmation within ninety days of the date you receive or are deemed to have received it, this Confirmation shall be conclusive evidence, without further proof that the details herein are correct. …”

40.  The Confirmation also contained this representation and acknowledgment by the investor:

“In connection with this Confirmation, you represent and acknowledge to us that: i. you have the capacity to evaluate this Transaction (including decisions regarding the appropriateness or suitability of this Transaction) and have made your own decision to enter into this Transaction; ii. you understand the terms, conditions, and risks of this Transaction as stated in the Tailored Investment Proposal (ECU012‑50702) iii. you are willing to assume (financially and otherwise) those risks and that this transaction is consistent with your investment objectives ...”

41.  The TIP contained information on the product description, investment rationale, risks of the trade as well as its detailed terms and conditions. The following features of the TIP are particularly important.

42.  First, the Product Description section provided:

“This strategy comprises a series of Forward contracts and is suitable for clients who wish to accumulate a long position for a specific number of units of an underlying security, at a predetermined ‘Accumulating Forward Price’ (AFP), which is lower than the spot price on trade date … It is suitable for clients who expect the price of the underlying security to remain stable at or above the current spot level as of trade date for the duration of the contract. However, if the price of the underlying security declines below the AFP on settlement dates, the client could suffer significant losses.”

43.  Second, the sections entitled “Investment Objectives” and “Investment Rationale” provided a summary of the suitability of the investment. For ACs with a guaranteed period, the section “Investment Objectives” stated:

“You seek:

- To accumulate a long position in the underlying security over a period of time.

- To take delivery of the underlying security at potentially lower price than spot price on trade date.

- To accumulate a minimum amount of shares over the guaranteed period.

You can accept:

- Significant losses if the price of the underlying security falls below the pre‑determined AFP. Since the number of shares accumulated will be ‘stepped‑up’ if the closing price is below AFP, more shares will be accumulated in such cases and will INCREASE the losses incurred.

- Limited liquidity.

- Limited upside gain if the structure is knocked out when Trigger Event has occurred.”

44.  Third, the section entitled “Investment Rationale” provided:

“This strategy is suitable for clients who wish to accumulate a long position for a specific number of units of an underlying security, at a predetermined ‘Accumulating Forward Price’ (AFP), which is lower than the spot price on trade date. This strategy is suitable for clients who expect the price of the underlying security to remain stable at or above the current spot level as of trade date for the duration of this contract. However, if the price of the underlying security declines below the AFP on settlement dates, the client could suffer significant losses.”

45.  Fourth, the section entitled “Risk Information” gave a summary of the risks of the trade including inter alia the following:

“The fluctuations of the equity markets can be significant. The value of the various components embedded in this strategy is affected by a number of factors including but not limited to, general market forces, price of the underlying security, interest rates, the volatility and the time remaining to maturity. All of these will have an impact on the overall value of the strategy. There is no guarantee that the price of the underlying security will always trade above the current spot price but below the Knock out Level. If the price of the underlying security declines below the pre‑determined AFP, the client could have significant losses.

Leverage increases risk significantly. A relatively small market movement will have a proportionately larger impact on the funds you have deposited or may have to deposit. This can work for you as well as against you. A variety of factors (such as option volatility, interest rates, time, etc) affect the price/value of this strategy at any point in time and since this strategy will be marked to market, any change in these factors can have a significant adverse impact on the value of your transaction. Standard top‑up and sell‑out rules will apply and you may be required at short notice to make additional margin deposits or liquidate your position at significant loss.”

46.  Fifth, there was a disclaimer in the box at the bottom of the front page which read:

“Prior to making any investment decision, you should fully understand the economic risks and merits, as well as the legal, tax and accounting characteristics and consequences of the transaction, and make your own determination that the investment is consistent with your objectives and that you are able to assume the risk. You are solely responsible for consulting your own independent advisers as to the legal, tax, accounting and related matters concerning this transaction and nothing in this document or any communication, whether or not in writing, between you and Citibank … constitutes such advice.”

47.  Sixth, each TIP contained a “sensitivity analysis” providing projections as to how the investor’s realised gain or loss would be impacted by (a) the price at which the investor sold the accumulated shares, (b) the percentage of the contract duration which had elapsed before the AC was knocked out, and (c) the number of days on which the step-up feature was engaged.

48.  Lastly, the TIP provided that the risk rating for the ACs was “Very High (5)”, which was the highest possible rating.

B4. Witnesses

49.  Shine Grace called two factual witnesses, Ms Lai and Mrs Chan’s son Anson. Both had no role to play in the formulation of Mrs Chan’s investment strategy in ACs when she was alive. Their evidence shed little light on the crucial factual matters concerning Mrs Chan’s decision to enter into the Disputed ACs on 15 and 16 October 2007.

50.  Citibank called four factual witnesses, the main witness was Ms Mak. It is the credibility of Ms Mak, and to a much smaller extent her assistant Kiev Pui Shan Yim (“Ms Yim”), which has significant impact on the judge’s deliberation on the factual issues raised.

51.  Despite the non-availability of the testimony of Mrs Chan, the judge considered that he was greatly assisted in his task as most, if not all, of the material telephone conversations were recorded and transcripts of those conversations were in evidence.

52.  The judge found Ms Mak a truthful witness. He held that she had developed an in-depth knowledge of Mrs Chan’s investment experience, strategy and appetite, given their long-standing relationship and frequent contact. Notwithstanding the tremendous pressure she was under because of scathing attacks by Shine Grace on her integrity and professionalism, the judge saw little sign of her becoming highly defensive and argumentative or any tendency to embellish her testimony.

53.  There was one expert witness for each side, Mr Satyajit Das (“Mr Das”) gave evidence for Shine Grace and Mr Pawan Malik (“Mr Malik”) testifed for Citibank. Their evidence is primarily germane to the complaint of breach of duty, whether Citibank had made sufficient disclosure of the risks of the Disputed ACs to Shine Grace.

C. The approach of the appeal court

54.  Mr Benjamin Yu, SC, who appeared for Shine Grace, Shinning and BSI on appeal[6], submitted that notwithstanding challenges are made against findings of primary fact, there are palpable errors which warrant appellate interference in that the judge had erred in fact and law. He contended that the judge’s conclusion was based on a misunderstanding of the evidence, or failure to appreciate the significance of material evidence in the context of a crucial factual dispute, or that his conclusion was one which no reasonable judge could have reached.

55.  Mr Yu emphasised that given most factual findings are premised on audio recordings as opposed to viva voce evidence, the appeal court is as competent and well-placed as the judge to form an opinion on the facts and draw relevant inferences from available evidence. There is no need to be held back by the usual restraint to reject a finding by the trial judge of specific or primary facts, especially when it is based on the credibility or bearing of a witness. Attached to his first skeleton submission[7] was a colour coded annexure (“Annexure”)[8] giving a description of selected audio recordings of telephone conversations between Mrs Chan and Citibank’s staff (mostly with Ms Mak) from 2 January 2004 to 16 October 2007 as providing support for his contention that Citibank had provided advice to Mrs Chan and Mrs Chan had relied on such advice and demonstrating there was an advisory relationship. This court was asked to read the Annexure and the transcripts of recordings to form our own view and draw relevant inferences.

56.  Mr Jat Sew Tong, SC, who appeared for Citibank[9], contended that the appellants are asking this court to re-try the matter by challenging most of the findings of fact and evaluative judgment of the trial judge after a lengthy trial and the arguments of Shine Grace on evidence and factual findings are in substance just repetition of the submissions rejected by the judge. Further, dozens of the transcripts of recordings in the Annexure (denoted by the alphabet F) were not even placed before the judge and plainly fall foul of the criteria in Ladd v Marshall [1954] 1 WLR 1489. He submitted that this attempt to take a second bite of the cherry at fact-finding is a misuse of the appellate process.

57.  I will first deal with the additional transcripts put in by Shine Grace on appeal. 686 items of audio recordings were contained in Trial Bundle 34 with an index denoting whether a transcript of each recording was provided in the trial bundles. Not all of these recordings were transcribed for the purpose of the trial. Shine Grace has now placed before this court two bundles marked F1 and F2 containing 63 transcripts of recordings not previously transcribed. There is no suggestion they had been overlooked by the legal team of Shine Grace and no explanation was given why these recordings were not transcribed. They were not referred to in the opening submissions, the examination of witnesses or the closing submissions. I do not think Citibank’s complaint of procedural unfairness is unwarranted, as the bank was deprived of the opportunity of responding to them at the trial.

58.  Notwithstanding this, I would not exclude the additional transcripts for these appeals. As the recordings were placed before the judge, strictly speaking the evidence was adduced at the trial. Mr Jat has attached to his first submissions an Appendix 2 (“Appendix 2”) incorporating the Annexure and giving brief responses and comments of Citibank to each of the conversations (including those transcribed in Bundles F1 and F2) to demonstrate why those recordings relied upon do not support Shine Grace’s contention.

59.  Whatever weight should be attached to the additional transcripts is for this court. In determining the appropriate weight that should be given, I bear in mind that these recordings had not been transcribed for the trial, probably because they were not considered sufficiently important or relevant, and that the bank’s witnesses did not have opportunity to respond to them fully.

60.  As for the way I approach these appeals, I would be guided by these principles:

(1) The appellate process is not designed to give an appellant another chance of repeating his arguments in the hope that the appeal court might be persuaded to accept the account of facts he advanced unsuccessfully before the primary judge.

(2) It is the trial judge who has the primary role in assessing evidence and making relevant findings of fact, not the appeal court. The trial before the primary judge should be the “main event”, not a “tryout on the road”. The appeal court should defer to the trial judge’s conclusion even if in some doubt as to its correctness, because it is unlikely to gain as much insight to the facts from seeing how the evidence unfolded, or be as familiar with the evidence as the primary judge, who has lived with the trial from beginning to end. Besides, the perception of the appeal court may be narrowed or distorted by selective readings of the transcript when the focus is on the challenge of a particular finding.

(3) For the appeal court to intervene, a palpable error identified must be sufficiently material to undermine the judge’s conclusion. The court should only intervene in respect of findings of fact if satisfied that such findings are plainly wrong.

(4) Even though the judge’s assessment of the evidence was greatly assisted by the recordings and transcripts of material telephone conversations, his task involved going through hundreds of recordings and receiving days of oral testimony. Importantly, the recordings and transcripts were assessed in the light of extensive cross-examination on the telephone conversations. The judge had the considerable advantage of receiving first hand the evidence of Ms Mak and assessing her credibility, albeit this was done against the available documentary materials. As rightly submitted by Mr Jat, this holistic evaluation of the evidence cannot effectively be replicated by the appeal court focusing on selected recordings and transcripts.

(5) The evaluative conclusions of the judge were arrived at after taking into account a number of factors and making an evaluation of the effect of factual incidents, giving such weight to the factors as he thought fit and weighing them against each other. This is in principle no different from the decision whether someone has been negligent or whether a patented invention was obvious. An evaluation of the facts is often a matter of degree upon which different judges can legitimately differ. The appeal court should be reluctant to intervene where the standards applied by law varied a great deal and the court has to weigh up a number of factors in deciding whether the standards have been met. The judge’s conclusions ought not be disturbed unless they proceeded from some error of principle or are clearly unsustainable[10].

(6) The reasons for the above approach, as identified by Lewison LJ (with whom Longmore LJ and Kitchin LJ agreed) in FAGE UK Ltd v Chobani UK Ltd [2014] EWCA Civ 5 at §114 are worth repeating:

“Appellate courts have been repeatedly warned, by recent cases at the highest level, not to interfere with findings of fact by trial judges, unless compelled to do so. This applies not only to findings of primary fact, but also to the evaluation of those facts and to inferences to be drawn from them. The best known of these cases are: Biogen Inc v Medeva plc [1977] R.P.C.1; Piglowska v Piglowski [1999] 1 W.L.R. 1360; Datec Electronics Holdings Ltd v United Parcels Service Ltd [2007] UKHL 23; [2007] 1 W.L.R. 1325; Re B (A Child) (Care Proceedings: Threshold Criteria) [2013] UKSC 33; [2013] 1 W.L.R. 1911 and most recently and comprehensively McGraddie v McGraddie [2013] UKSC 58; [2013] 1 W.L.R. 2477. These are all decisions either of the House of Lords or of the Supreme Court. The reasons for this approach are many. They include

i. The expertise of a trial judge is in determining what facts are relevant to the legal issues to be decided, and what those facts are if they are disputed.

ii. The trial is not a dress rehearsal. It is the first and last night of the show.

iii. Duplication of the trial judge’s role on appeal is a disproportionate use of the limited resources of an appellate court, and will seldom lead to a different outcome in an individual case.

iv. In making his decisions the trial judge will have regard to the whole of the sea of evidence presented to him, whereas an appellate court will only be island hopping.

v. The atmosphere of the courtroom cannot, in any event, be recreated by reference to documents (including transcripts of evidence).

vi. Thus even if it were possible to duplicate the role of the trial judge, it cannot in practice be done.”

D. The issues on appeal

61.  The main issues raised in these appeals and the respondent’s notice may be stated as follows:

(1) Whether Citibank owed a duty of care to advise Shine Grace on the risks of its investments in the Disputed ACs: (a) by reason of express incorporation of relevant provisions in the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (May 2006 ed) (“SFC Code”); and/or (b) at common law?

(2) Whether Citibank was in breach of its duties to Shine Grace in these respects: (a) failure to advise or warn Shine Grace of the total maximum exposure of the Disputed ACs against the cash resources available to it rendering the Disputed ACs unsuitable for Shine Grace; (b) inadequate and wholly unsatisfactory disclosure of material risks in the ACs; and (c) positively misleading Mrs Chan into believing that the Shenhua ACs would either reach the knock-out level or at least stay above the spot price?

(3) Was there a causal link between the breaches of duties and Shine Grace’s decision to enter into the Disputed ACs?

(4) Whether Shine Grace was contractually estopped from asserting that (a) Citibank was subject to the alleged duties, and (b) but for Citibank’s alleged breach of duty, Shine Grace would not have entered into the Disputed ACs?

(5) Whether Ms Lai had suspended the termination instructions of the BSI Guarantees and whether she had authority to do so?

62.  The main issues will be considered in the order set out above.

E. Duty of care

63.  The judge dealt with the duty to advise in section H of the Judgment. Having considered the relevant authorities, and taking into account the relevant terms in all three tiers of contractual documents (which are an important aspect of the objective evidence of the relationship between Citibank and Shine Grace), the judge declined to draw the legal inference that Citibank had assumed legal responsibility to provide advice to Shine Grace on the suitability and risks of investing in ACs, no matter what recommendations or suggestions might have been provided to Shine Grace in the course of their relationship. Nor did other factual circumstances surrounding the dealings between Shine Grace and Citibank support the contention that the bank had assumed legal responsibility to advise which went beyond the terms of the contractual arrangement. The judge also rejected the contention of Shine Grace that by clause 5.1 of the MDA, the SFC Code was expressly incorporated into the agreement between the parties.

E1. Duties under SFC Code

The arguments of Shine Grace

64.  Shine Grace contended on appeal, as it did before the judge, that relevant provisions in the SFC Code were incorporated as express terms of the MDA by virtue of Clause 5.1, which is repeated here for easy reference:

“Each derivative transaction or its underlying instrument or asset shall be subject to the rules, regulations, by‑laws, guidelines and policies of all relevant governmental and other regulatory bodies and agencies, including but not limited to the applicable stock, commodity, futures or options exchanges or markets, if any, and the rules, regulations, by‑laws, guidelines, policies and customary market practices as the same may be constituted from time to time at the applicable exchanges or markets, if any.”

65.  The SFC Code was a “rule, regulation, by‑law, guideline or policy” of the SFC, which is a relevant “regulatory body” referred to in Clause 5.1. The relevant provisions in the SFC Code incorporated by Clause 5.1 are as follows:

“3.10 Best interests of clients

A licensed or registered person should act in the best interests of its clients in providing services or recommending the services of an affiliated person to its clients.”

“5.1 Know your client: in general

(a) A licensed or registered person should take all reasonable steps to establish the true and full identity of each of its clients, and of each client’s financial situation, investment experience, and investment objectives. …”

“5.2 Know your client: reasonable advice

Having regard to information about the client of which the licensed or registered person is or should be aware through the exercise of due diligence, the licensed or registered person should, when making a recommendation or solicitation, ensure the suitability of the recommendation or solicitation for that client is reasonable in all the circumstances.”

“5.3 Know your client: derivative products

A licensed or registered person providing services to a client in derivative products, including futures contracts or options, or any leveraged transaction should assure itself that the client understands the nature and risks of the products and has sufficient net worth to be able to assume the risks and bear the potential losses of trading in the products.”

66.  Particular emphasis was placed on the words “subject to” in Clause 5.1 of the MDA. In considering whether regulatory provisions promulgated by an authority were incorporated in a contract between a bank and its customer, the words “subject to” were said to be “clear words of incorporation” (Larussa-Chigi v CS First Boston Ltd [1998] CLC 277 at 295C to G[11]; Brandeis (Brokers) Ltd v Black & Ors [2001] 2 All ER (Comm) 980 at §§10, 15 to 19[12]; NRAM plc v McAdam [2016] Bus LR 232 at §21).

67.  Properly construed, Clause 5.1 of the MDA does not incorporate provisions in the SFC Code ‘holus bolus’, but only relevant parts of the SFC Code which have a bearing on the way in which Citibank was to perform the services it contracted to perform to Shine Grace and could be sensibly transposed into the contractual arrangements between them. (Brandeis (Brokers) Ltd v Black & Ors at §18) The purpose and effect of Clause 5.1 is that provisions of the SFC Code, insofar as they are relevant, will govern the parties’ rights and obligations regarding the transactions, such as requiring Citibank to “take all reasonable steps to establish each client’s financial situation, investment experience, and investment objectives”, to “ensure the suitability of the recommendation or solicitation for that client is reasonable in all the circumstances”, and to “assure itself that the client understands the nature and risks of the [derivative] products and has sufficient net worth to be able to assume the risks and bear the potential losses of trading in the products”. And Citibank is not able to contract out of its obligations under the SFC Code. (HSBC Private Bank (Suisse) SA v Securities and Futures Commission, Reasons for determination of Securities and Futures Appeals Tribunal in Application No 3 of 2015, 21 November 2017, at §§91 to 92)

68.  Thus, insofar as the SFC Code imposed specific duties on Citibank as mentioned above and which it cannot contract out of, a reasonable man with knowledge of the relevant background would have understood Clause 5.1 of the MDA to mean that the parties must have agreed that Citibank should be subject to such duties and act in accordance with the SFC Code vis-à-vis Shine Grace. There ought to be no difficulty in understanding what relevant and applicable provisions in the SFC Code could sensibly be transposed into the contractual arrangements between the parties. And this construction makes commercial sense as the rules and regulations incorporated are those which “may be constituted from time to time”, so there would be no need for Citibank to amend its agreement with the customer in complying with its duties imposed by the SFC Code.

69.  Last but not least, Clause 5.1 of the MDA, being a standard form document put forward by Citibank, should be construed contra proferentum. Any ambiguities in its construction should be resolved in favour of Shine Grace.

The arguments of Citibank

70.  Mr Jat argued that it is clear from the heading, wording and surrounding provisions of Clause 5.1 of the MDA that its purpose is to incorporate the rules and regulations governing the “transaction or its underlying instrument or asset”, such as rules on trading hours, suspension of trading, limitations on trading by non-professional investors, etc., rather than regulatory rules concerning the scope of advisory duties of financial institutions. Clause 5.1 is intended to incorporate rules governing the trading of assets or instruments, hence the reference to “rules, regulations, … and customary market practices … from time to time at the applicable exchanges or markets”. The SFC Code falls outside the ambit of Clause 5.1, as it is a set of regulations governing the conduct of persons licensed or registered under the Securities and Futures Ordinance, Cap 571 (“SFO”) rather than a set of regulations governing the trading of instruments or assets. (DBS Bank (Hong Kong) Ltd v San-Hot HK Industrial Co Ltd & Anr [2013] 4 HKC 1 at §217)[13] It does not follow from the fact that Citibank was subject to the SFC Code that Clause 5.1 must have incorporated the SFC Code into Citibank’s contracts with its customers.

71.  Mr Jat distinguished the cases cited by Mr Yu (Larussa-Chigi; Brandeis) and referred to other authorities in support of his interpretation of Clause 5.1: Thornbridge Ltd v Barclays Bank plc [2015] EWHC 3430 (QB) at §§132 to 137; Bailey & Anr v Barclays Bank plc [2014] EWHC 2882 (QB) at §§52 to 55; Flex-E-Vouchers Ltd v The Royal Bank of Scotland plc [2016] EWHC 2604 (QB) at §§22 to 41.

72.  As for the decision in HSBC Private Bank (Suisse) SA v SFC, this involved a regulatory determination whether to suspend HSBC’s right to pursue certain regulated activities by reason by systemic failures. The Tribunal was concerned with issues of a regulatory nature, as distinct from private rights and obligations of parties arising out of contract (at §99).

Discussion

73.  To resolve this issue of construction, it is necessary to focus on the terms of Clause 5.1, the context of this provision within the agreement being the MDA, and the relevant provisions of the SFC Code in the statutory context.

74.  There are six main clauses in the MDA, they are set out in this order with the following headings: 1. Derivatives; 2. Relationship; 3. Our Role; 4. Risk Disclosure Statement; 5. Governing Law; 6. Agreement. Provisions are made in these sub-clauses on the relationship and rights and obligations of the parties: Clauses 2.3, 3.1 and 4. The full terms of Clauses 2.3, 3.1 and 4.12 have been set out in section B3 of this judgment.

75.  Under the Risk Disclosure Statement in Clause 4 of the MDA, there is detailed provision on the risks, obligations and rights of the customer under 11 kinds of transactions and situations (futures, options, swap transactions, market risks: suspension of trading and clearing house protection, foreign markets/off exchange transactions, contracts for differences, emerging markets, contingent liability transactions/margin, risks of counterparties and brokers, liquidation of position, spread position). Clause 4.12, which comes at the end, is headed “Acknowledgment” and contains pertinent statements regarding the customer’s understanding and agreement, including the following: that the foregoing sub-clauses “cannot disclose all the risks and other significant aspects of the derivatives market and [the customer] should therefore carefully study derivative transactions before [he/she trades]”; that in respect of services rendered by Citibank on a non-discretionary basis, the customer “[makes his/her] own judgment in relation to the transactions”, Citibank “[assumes] no duty to give advice or make recommendations”, and “[assumes] no responsibility for [his/her] portfolio or for any investment or transaction made” if it makes any suggestions; and that “any risks associated with and any losses suffered as a result of [Citibank] entering into any transactions for [the customer] are for [the customer’s] account”.

76.  Clause 6, which is headed “Agreement”, provides that by signing the MDA, the customer agrees that all existing and future derivative transactions shall be subject to the terms of the MDA and the Derivative Terms, and that all account opening application and security documents (including the General Terms) are “deemed to be incorporated in [the MDA]”.

77.  Clause 5, which is headed “Governing Law”, comes after detailed provisions are made concerning the relationship, rights and obligations of the parties in Clauses 2.3, 3.1 and 4.12. On a literal reading of Clause 5.1, it is possible to construe this in the manner as suggested by Mr Yu, that the effect of the words “subject to” is to incorporate the SFC Code, being “rules, regulations … and policies of all relevant … regulatory [body]” for “[each] derivative transaction or its underlying instrument”. I am inclined to think there are pointers suggesting that this is not the correct interpretation:

(1)  The construction of Shine Grace does not read well with the language and the rest of the provisions in Clause 5.1. The rules and regulations to which “each derivative transaction or its underlying instrument or asset” are subject are those that would have a bearing on “derivative transaction or its underlying instrument or asset”, such as those relating to “applicable stock, commodity, futures or options exchanges or markets”, and “rules, regulations, by-laws, guidelines, policies and customary market practices as the same may be constituted from time to time at the applicable exchanges or markets”. There is much to be said for Mr Jat’s submission that Clause 5.1 is intended to incorporate rules and regulations governing the trading of assets or instruments, to ensure that the bank is able to act in accordance with the rules and regulations imposed by the relevant exchanges and regulatory authorities when dealing with transactions without contravening any duties which it may owe to customers.

(2)  Clause 5.1 is grouped under the heading “Governing Law”. A governing law clause does not usually have the effect of providing for the relationship, rights and obligations of the parties. The other two sub-clauses in Clause 5 provide for the application of Hong Kong law or Singapore law in specified situations. If additional provision for the relationship, rights and obligations of the parties is meant to be made in Clause 5.1 in the manner as suggested by Shine Grace, it would be far more logical (bearing in mind the MDA is a professionally drafted standard agreement) for such provision to be found under Clause 2 (Relationship), Clause 3 (Our Role) and Clause 4 (Risk Disclosure Statement) instead of under the provision on Governing Law.

(3)  One should endeavour to construe the provisions in the MDA as a consistent and coherent whole. If the duties suggested by Shine Grace are imposed by the relevant provisions in the SFC Code on the performance of the services Citibank contracted to render to Shine Grace under the MDA on a non-discretionary basis, they would be in apparent conflict with the earlier specific provisions in the MDA. The general provision in Clause 5.1 (if it were to be construed in the way as suggested by Shine Grace) should give way to the specific provisions in particular Clause 3.1, Clause 4, Clause 4.12(a), (b)(i) to (iii) and (d)(ii), applying the principle of construction in the maxim of generalia specialibus non derogant[14].

78.  As to Mr Yu’s submission that only the relevant and applicable provisions in the SFC Code that could sensibly be transposed into the contractual arrangements should be incorporated, I think it is pertinent to have regard to the statutory context of the Code, which was analysed by Deputy High Court Judge Pow, SC in DBS Bank (Hong Kong) Ltd v San-Hot HK Industrial Co Ltd at §217.

79.  The SFC Code was promulgated and published pursuant to section 399(1) of the SFO. The stated objectives of the power of the SFC to publish codes or guidelines are for providing guidance: (a) for the furtherance of any of its regulatory objectives; (b) in relation to any matter relating to any of the functions of the SFC under any of the relevant provisions; (c) in relation to the operation of any provision of the SFO.

80.  Section 399(6) provides that a failure on the part of any person to comply with the provisions set out in any code or guideline so published that apply to him “shall not by itself render him liable to any judicial or other proceedings, but in any proceedings under [the SFO] before any court the code or guideline shall be admissible in evidence, and if any provision set out in the code or guideline appears to the court to be relevant to any question arising in the proceedings it shall be taken into account in determining that question.”[15] (emphasis supplied)

81.  Section 399(8) provides that “Any code or guideline published under this section is not subsidiary legislation.”

82.  Deputy Judge Pow also noted these pertinent statements in the Explanatory Notes to the SFC Code:

(1)  the SFC will be guided by the SFC Code in considering whether a licensed or registered person satisfies the requirement that he is fit and proper to remain licensed or registered;

(2)  to reflect the realities of today’s markets, the SFC recognises that conduct of business principles should be flexible enough to differentiate between professional and non-professional investors and some provisions of the SFC Code need not be observed in the case of professionals;

(3)  the SFC Code does not have the force of law and should not be interpreted in a way that would override the provision of any law.

83.  In light of the above provisions, Deputy Judge Pow came to the view that the SFC Code was primarily promulgated for the purpose of determining whether a person is a fit and proper person to be or to remain as a licensed or registered person under the SFO. I am of the same view. It is not meant to be a code or guideline to govern the contractual relationship of a licensed or registered person and his customers.

84.  It is possible for a code or guideline promulgated by a regulatory body not meant to govern private rights and obligations of parties to be incorporated into a contract and thereby affect contractual relations, but there must be clear words to indicate that this was the intention of the parties, particularly when detailed provisions have already been made governing their relationship, rights and obligations. I am not persuaded that clear language was used in Clause 5.1 to bring about the effect contended by Shine Grace. Nor do I think it is appropriate to invoke contra proferentum on a plain reading of the MDA.

85.  Mr Yu and Mr Jat sought to distinguish each other’s cases on incorporation of regulatory rules. I do not think it is particularly helpful to rely on any particular case, as there are distinguishing features in the contractual provisions and the regulatory regime considered in each case, as rightly pointed out by both counsel. The degree of a distinguishing feature that may render the case helpful or unhelpful is debatable. The reasons for holding a regulatory regime to be incorporated or not incorporated vary from case to case, so it is not particularly useful to give a detailed analysis. As stated in Bailey & Anr v Barclays Bank plc at §55: “Although one notes with respect the decisions in the cases relied on, they are not authority for any point of law; each was a decision concerning the construction of a particular contract”, involving “different regimes and different contexts”. Ultimately, I must be guided by the established rules of contractual interpretation and apply them to the construction of this particular contractual provision in its proper context.

86.  For the reasons given above, I reach the same construction as the judge regarding Clause 5.1 that it does not have the effect of incorporating the duties imposed by the SFC Code into the contract between Shine Grace and Citibank.

E2. Duties at common law

The arguments of Shine Grace

87.  Mr Yu submitted that on the facts, Citibank had plainly assumed legal responsibility to provide investment advice to Shine Grace. He relied on the following matters.

88.  First, in the defence filed by Citibank, it is pleaded in §13 that that the term “Advisory” “most accurately described Mrs Chan’s investment relationship with [Citibank]”. As described by Citibank, an “Advisory” relationship denotes that “the client generally wishes to be advised or informed of various products that are suitable and consistent with the stated investment objectives”[16]. It was also accepted by Ms Mak that the role of Citibank in the management of Mrs Chan’s relationship “is best described as advisory”[17]. In the Suitability Confirmation Letters issued by Citibank to Shine Grace dated 31 August 2006 and 20 April 2007[18], regarding “Type of Relationship”, it was stated that “[Shine Grace] seek predominantly investment advisory services from [Citibank].” The words “Investment Advisory” appeared in the bank statements issued to Shine Grace in March 2003 and October 2007 to describe its relationship with the bank.

89.  Second, for each of the years in 2006 and 2007, Citibank reaped over US$9 million on services rendered to Mrs Chan categorised by the bank as “Advisory”.

90.  Third, these statements were made in the internal annual reviews of Citibank on client relationship with Mrs Chan/Shine Grace, showing that Shine Grace did rely on Citibank and that the bank was prepared to assume the role of advisor knowing that Shine Grace was relying on it:

“we have adopted a proactive performance monitoring approach over client’s overall discretionary investments”, which was “accepted and appreciated” by client, and “we will continue to focus on discretionay investment via portfolio counseling for re-allocation of existing investments” (Annual Review 2001);[19]

“The group [of companies owned by the Chan family] has complimented our due diligence on investment risk management with recommendation not only for position taking but also to take profit or exit from investment positions which are anticipated either with not much upside or there is a change in view” (Annual Review 2005);

“The Chan family complimented our due diligence on investment discipline and risk management to exit from open positions when not much upside is anticipated or there is a change in investment view.” (Annual Review 2007)

91.  Fourth, on the evidence Citibank had advised Mrs Chan/Shine Grace of the risks associated with ACs:

(1) In the TIP sent to Shine Grace after each AC trade, Citibank volunteered explanation about AC transactions.

(2) Ms Mak gave evidence she often stressed to Mrs Chan the total exposure, credit risk including the fact that Mrs Chan must have sufficient surplus or funds to cover the initial margin, and the MTM risk. Ms Mak said she had highlighted to Mrs Chan if the stock price dropped significantly, this would lead to MTM loss[20].

92.  Fifth, the available recordings contained evidence of the advisory nature of the relationship, showing how Ms Mak had provided advice to Mrs Chan and how the latter had relied on Ms Mak for advice from 10 March 2004 to 16 October 2007[21]. On those occasions, which are “numerous”, Ms Mak had made recommendation to Mrs Chan, or moderated Mrs Chan’s views, or made counter-proposals and Mrs Chan had accepted and acted on Ms Mak’s advice. They described themselves as “best partners” (好拍檔，最佳拍檔)[22] and the “dynamic duo” in their “combined effort to ‘fix up’ the market” (雙劍合璧呀! 我哋兩個出嚟搞掂個市呀!)[23].

93.  Sixth, as to the Disputed ACs, the factual context should include these specific circumstances leading up to and of 15 to 16 October 2007:

(1) On 8 October 2007, Ms Mak was told by Ms Lai that Mrs Chan was not feeling well and was resting and Ms Mak did not need to look for Mrs Chan. Ms Lai also told Ms Mak that Mrs Chan would not be making any orders in the next few days[24].

(2) Ms Mak was told by Mrs Chan on 15 October 2017 that she had been very sick (病到我死、死吓) and she had been to the “gates of Hades” and barely returned to the living (我今次都去過鬼門關架喇。… 返嚟啦，冇事啦，個鬼唔收我呀)[25].

(3) On 15 October 2017, Mrs Chan had expressed the view to Ms Mak that in light of the market, she had to play safe. Ms Mak agreed and observed that Mrs Chan should first be free from all obligations (甩哂身先啦). Mrs Chan later expressed the view it was “very risky” (睇呀，幾牙煙嘅)[26].

(4) On 15 October 2007, Ms Mak asked Mrs Chan whether she would be interested in and procured the execution of the Shenhua ACs[27]. On 16 October 2007, Ms Mak asked Mrs Chan whether she wanted to do a further AC on Shenhua to average down after the market had fallen[28].

94.  Mr Yu submitted that the judge’s finding on the evidence that Mrs Chan did not require investment advisory service, at least in relation to the Disputed ACs[29], is plainly wrong. He argued that the fact that Mrs Chan was very strong-minded and confident as an investor or that she had navigated the stock market for over 30 years did not mean that Citibank did not, from time to time, advise her on the suitability and risks of ACs; nor did it mean that she did not rely on the bank to advise her in relation to the ACs or the Disputed ACs. On an objective assessment of the facts, Citibank did assume the role of an advisor to Mrs Chan and did from time to time give advice.

95.  As for Clause 4.12 of the MDA, he submitted that properly construed and construed contra proferentem, this provision did not materially affect the advisory relationship of the parties. It did not negate the fact that Citibank may from time to time give advice to the investor who may rely on such advice even though the investor would make his/her own judgment. It provides at most that Citibank is not responsible for the outcome (such as predicting the flow of the market or the performance of suggested products) but does not negative the assumption of legal responsibility for the advice itself.

96.  It was further contended that the regulatory guidelines in the SFC Code should inform the common law duties to which Citibank was subject, citing Seymour v Ockwell [2005] PNLR 758 at §77 and Fine Care Homes Ltd v National Westminster Bank plc & Anr [2020] EWHC 3233 (Ch) at §§95 to 97.

The arguments of Citibank

97.  Mr Jat emphasised the multiple contractual terms set out earlier which made clear that (1) Citibank assumed no duty to provide advice; and (2) even if Citibank did provide information, suggestions or recommendations which might loosely be described as advice, it did not assume responsibility for their accuracy or completeness. He referred in particular to the MDA Clause 4.12, the RDS and the General Terms Clauses I(H) and I(O). The judge’s interpretation of these terms is plainly correct and supported by the interpretation of materially similar terms in Chang Pui Yin v Bank of Singapore Ltd [2017] 4 HKLRD 458 at §§22, 39 to 50[30].

98.  Over the course of the lengthy trial, the judge had carefully evaluated the evidence as a whole and came to the view there were no factual circumstances justifying the imposition of a duty of care going beyond the contractual arrangement. This is not a finding that should be lightly disturbed. Mr Jat emphasised five points.

99.  First, there is ample evidence to support the judge’s findings that (1) Mrs Chan had her own investment strategy and did not rely on Citibank staff to provide her with investment advice; and (2) Ms Mak’s role was primarily to follow Mrs Chan’s instructions and facilitate the execution of the trades placed by Mrs Chan[31].

100.  Second, Shine Grace’s reliance on the use of the terms “advice”, “Advisory” and “Investment Advisory” in the Suitability Confirmation Letters and other documents of Citibank is misplaced. These terms are ambiguous and do not shed light on the question whether there was an assumption of legal responsibility to provide investment advice in the sense contended for by Shine Grace. (JP Morgan Chase Bank v Springwell Navigation Corp [2008] EWHC 1186 (Comm) at §§374, 379 to 380, 451 to 452) It is more important to focus on the conduct of the relevant persons to determine if Citibank had assumed legal responsibility for the accuracy and completeness of the suggestions given. (Chang Pui Yin v Bank of Singapore Ltd at §§35 to 36)

101.  Third, Citibank’s description of its role in its Annual Review documents is consistent with the judge’s findings. What Mrs Chan sought (and Citibank provided) was information in the sense of due diligence and performance monitoring rather than investment advice in the sense contended for by Shine Grace.

102.  Fourth, the conversations between Mrs Chan and Ms Mak summarised in the Annexure must be viewed in the light of the important distinction between the provision of ideas and suggestions (what might loosely be called “advice”) and the assumption of legal responsibility to provide investment advice. It was open to the judge to find on the evidence that the informal discussions between Mrs Chan and Ms Mak did not involve the assumption of legal responsibility to provide investment advice in the sense pleaded by Shine Grace[32]. This was akin to the situation in JP Morgan Chase Bank v Springwell Navigation Corp (at §§445 to 449), in which it was held that an advisory relationship with consequential duties of care did not arise, where the bank staff gave advice and recommendations in his capacity as a salesman in many telephone conversations with the customer, who had a keen appreciation of the commercial terms and potential of the financial products and made his own investment decision even though he also took into account the advice. The fact that the bank staff was extremely keen to make profits for the bank and this might have influenced his enthusiasm to recommend the products did not predicate that a duty of care should arise. “All salesmen, from the local butcher to the vendors at a designer dress shop, share that quality.”

103.  Fifth, insofar as it is suggested that an advisory duty arose because Mrs Chan was unwell on 15 and 16 October 2007, this is contrary to the judge’s findings (against which there is no appeal) that she had recovered well without complication from her recent hospitalisation, that her cognitive ability was not impaired to any significant extent and that she was able to make investment decisions of her own accord in what she considered to be her best interests[33].

Discussion

104.  The undisputed starting point is that bankers are not normally under a duty to advise customers on the prudence of their investments or warn them of the risks involved. As stated in Chang Pui Yin v Bank of Singapore Ltd at §44(a), “it is not possible to deduce from the mere fact that a statement has been made (which can be described in a general sense as advisory services) that the maker of a statement has assumed legal responsibility for such statement”.

105.  It is also common ground that the scope of a bank’s duty of care is fact-sensitive and turns on what responsibilities were assumed having regard to all aspects of the objective evidence of its relationship with the customer and the inference that may reasonably be drawn. One important aspect of the objective evidence is the terms of the contract between the parties. Where the parties have agreed on their respective rights and duties by way of contract, this will normally preclude any wider duty of care from arising at common law, and is especially true if the relevant duty has been expressly precluded by contract. (Titan Steel Wheels Ltd v Royal Bank of Scotland plc [2010] 2 Lloyd’s Rep 92 at §89; CGL Group Ltd v Royal Bank of Scotland plc [2018] 1 WLR 2137 at §§70 to 71)

106.  When one objectively analysed the things said and done by the staff of Citibank to Shine Grace throughout their dealings, it is pertinent to bear in mind the contractual context under which those things were said and done. As stated in DBS Bank (Hong Kong) Ltd v San-Hot HK Industrial Co Ltd at §223: “The proper question was: whether such things were said and done within the framework contemplated by the terms and scope of the banking services agreement as oppose (sic) to [the bank] assuming responsibilities over and above their contractual obligations stipulated in the express terms of the banking services agreement.”

107.  I agree with the judge’s interpretation of the MDA Clause 4.12, the material parts of which are repeated in the RDS. The meaning of the provisions is clear and they are comparable to the clauses considered in Chang Pui Yin v Bank of Singapore Ltd at §48. Quite clearly, Citibank disclaimed any duty to give advice or make recommendations and if suggestions were made by its staff, it assumed no legal responsibility for any investment by Shine Grace. The duties pleaded by Shine Grace are at odds with the contractual provisions and must have been negatived by the disclaimer of responsibility under cover of which the services were provided. The submission that a bank must be taken to have assumed legal responsibility to provide comprehensive advice to a customer on the suitability of his investment insofar as the bank had volunteered to give advice had often been made by investors and was rejected by the courts. (Property Alliance Group Ltd v Royal Bank of Scotland plc [2018] 1 WLR 3529 at §§39 to 43, 57 to 67)

108.  The judge did not refer to Clauses I(O) and I (H) of the General Terms specifically[34], although he did say in his conclusion that “the alleged duties to advise are inconsistent with the terms of all the three tiers of contractual documents taken as a whole, including in particular those parts of the General Terms (first tier) and the TIPs (third tier)”[35]. Mr Yu submitted that Citibank should not be permitted to rely on Clauses I(O) and I(H) of the General Terms in considering the contractual context, because these provisions have not been pleaded in the defence. On Day 6 of the trial, Citibank had applied to amend the defence to plead reliance on these provisions but its application to amend was withdrawn when Shine Grace indicated that it should be entitled to put in consequential amendments[36] and raised an argument on the scope of such consequential amendments.

109.  I agree with Mr Jat that this pleading point is a technical objection and has no merits. It would have no impact on the evidence if any party is allowed to rely on these clauses in the General Terms. By Clause 6 of the MDA, the General Terms are “deemed to be incorporated in the [MDA]”. The judge was required to “look at all aspects of the objective evidence of the relationship”[37] in order to determine the extent of the duty assumed by the bank. The General Terms are clearly part of the objective evidence that the judge was entitled to consider.

110.  As for the contention that the regulatory guidelines in the SFC Code should inform the common law duties to which Citibank was subject, this appears to conflate the existence of a duty of care and the content of the duty. The SFC Code cannot create a duty of care where one does not exist on the basis of the common law principles. (Fine Care Homes Ltd v National Westminster Bank plc & Anr at §97)

111.  I agree also with the judge’s finding that the other factual circumstances surrounding the dealings between the parties are insufficient for the court to find that Citibank had assumed legal responsibility to advise Shine Grace on the suitability and risks of the ACs, for the reasons given in the Judgment[38] and the submissions made by Mr Jat summarised earlier. Mr Yu is seeking to re-argue matters raised by his predecessor and rejected by the judge.

112.  Applying the established principles in an appeal to challenge findings of primary facts and evaluative judgments, it would not be appropriate to embark on fact findings of our own in an unfocused review of such an enormous amount of evidence. To have regard to the meanings attributed by Shine Grace to specific statements in selected documents and recordings would risk a distorted perception, when we do not have the benefit of seeing the evidence unfold and examining the evidence in the proper context in a holistic assessment. To each of the instances set out by Mr Yu in his Annexure showing that Mrs Chan had on many occasions accepted the advice and suggestions of Ms Mak, Mr Jat has given the responses of Citibank in his Appendix 2. And, vice versa, to each of the instances set out in Mr Jat’s Appendix 1 showing Mrs Chan had made her own investment decisions and did not rely on advice from Ms Mak, Mr Yu has set out the comments of Shine Grace in his own colour-coded schedule. The process of resolving apparently conflicting evidence should be undertaken by the parties before the primary judge, when each would have the opportunity of testing the other’s case by cross-examining the witnesses. The appellate process is not suited for this exercise. As aptly stated by the English Court of Appeal in Dexia Crediop SpA v Comune di Prato [2017] 1 CLC 969 at §42: “This court is in no position to recreate the judge’s experience from a reading of the transcript and by ‘island hopping’ (to use Lewison LJ’s vivid metaphor) in the sea of relevant evidence available to the judge.”

113.  Mr Jat gave an example of the Annual Review documents relied on by Shine Grace. He pointed out that the references to “due diligence” and “performance monitoring” appeared in sections concerning discretionary accounts and would appear to be taken out of context, as the AC trade was provided by the bank on a non-discretionary basis. If the references in the Annual Review documents were considered relevant, they should have been taken up with the witnesses and clarified in cross-examination but this was not done. As this is but one example, we cannot be satisfied that there would not be any danger that evidence considered on paper in this way would not be taken out of context.

114.  For all the above reasons, we uphold the judge’s finding there was no duty for Citibank to advise Shine Grace on the suitability and risks of ACs, no matter what recommendations or suggestions might have been made to Shine Grace in the course of their relationship.

F. Breach of duties

115.  Strictly speaking, it is not necessary to consider the issue on breach of duties when it has been held there was no duty of Citibank to advise Shine Grace on the ACs. The judge nevertheless dealt with this issue in section I of the Judgment. The grounds of challenge of Shine Grace under this heading are concerned with the judge’s findings of fact, the weight to be attached to the evidence and/or his evaluative conclusions. They are largely a repetition of the contentions raised before the judge[39]. They will be considered under the sub-headings stated below.

F1. Failure to advise or warn of total maximum exposure of Disputed ACs

The arguments of Shine Grace

116.  Mr Yu submitted that Citibank failed to advise or warn Mrs Chan of the total maximum exposure of the Disputed ACs against the cash resources available to Shine Grace, rendering the Disputed ACs unsuitable for Shine Grace. He pointed to the following matters:

(1)  Upon entering into the Disputed ACs on 16 October 2007, Shine Grace had a total maximum exposure of HK$3.109 billion. This level of exposure was unprecedented. The exposure of of HK$3.109 billion and the initial margin of HK$515,721,174 of all the Disputed ACs stood in stark contrast with the cash flow available to Shine Grace, in light of Mrs Chan’s express intention (see (4) below) to keep BSI separate. Moreover, the financial commitment flowing from the Disputed ACs would have far exceeded the cash flow available to Shine Grace or the Lady Secret Group or the Bonds Group[40].

(2)  Prior to 16 October 2007, Ms Mak was aware that Mrs Chan had been suffering from a very serious illness.

(3)  In one of the conversations with Mrs Chan on 15 October 2007, Mrs Chan had expressed the view that she had to play safe in light of the market and Ms Mak agreed that Mrs Chan had to offload all liabilities.

(4)  Prior to 15 October 2007, Citibank was aware that the assets of BSI were to be kept separate from the AC trading of Shine Grace, since BSI had to be kept fairly liquid to cover investments in real estate projects[41].

117.  Notwithstanding the need for caution, Ms Mak recommended Shenhua AC to Mrs Chan. This was a share Mrs Chan had not traded before. And to induce Mrs Chan to acquire Shenhua AC, Ms Mak told her that JP Morgan Chase had upgraded the target price of Shenhua to HK$101 when the spot price was just HK$54.30. She did not inform Mrs Chan that Citibank’s internal target price for Shenhua at the time[42] was HK$44. And although Mrs Chan only wanted to do a little (同我做少少吖)[43], Ms Mak nonetheless “fed” Mrs Chan with suggestions of accumulating 500,000 or 400,000 per month (which translates to 25,000 or 20,000 shares per day)[44], and Mrs Chan ended up placing an order on 15 October 2007 for 30,000 per day. When Shenhua’s share price fell the next day, Ms Mak suggested to buy another Shenhua AC to average down and Mrs Chan accepted that advice and placed an order for 20,000/40,000 per day. The total exposure on the two Shenhua ACs alone was HK$1,122,770,568.

118.  The judge’s reference to Mrs Chan’s financial strength and/or access to BSI’s and Shinning’s resources and/or the ability to draw on credit lines available to her other companies is entirely misplaced. He wrongly placed reliance on the figure of US$453 million[45] when a large part of this figure was attributable to BSI’s assets. Mrs Chan only had assets to the tune of HK$416.58 million in respect of all the companies wholly beneficially owned by her[46].

119.  The judge failed to consider the evidence that BSI only entered into three ACs in 2007 (all were done by Anson) and that had stopped in March 2007[47]. Instead he referred to over 100 ACs entered into by Mrs Chan with Citibank for BSI prior to the Disputed ACs[48], when they were all before 2007.

120.  Citibank’s failure to advise should be seen in the context that Ms Mak knew Mrs Chan was expecting the market to top out imminently, to be followed by sharp market correction. In their conversation on 15 October 2007 at 15:19 hours, Ms Mak agreed with Mrs Chan it would be likely that there would be a large market correction after the Index reached 32,000[49]. Ms Mak knew there was a prevailing market sentiment of the same, that there might be a big adjustment in the market in October[50]. This was contrary to the objective of ACs stated in the Product Description of the TIPs: “It is suitable for clients who expect the price of the underlying security to remain stable at or above the current spot level as of trade date for the duration of this contract.” Mrs Chan did not hold this view for the 12-month contract period of the Disputed ACs, and the potential downside was significant and unbearable in the context of Shine Grace’s resources. Given this background, it was essential that Mrs Chan was warned or advised that the Disputed ACs were unsuitable.

The arguments of Citibank

121.  Dealing with the last point first on Mrs Chan’s market outlook, Mr Jat submitted that on the evidence Mrs Chan actually had a positive outlook for the market in both the short term and long term, and that she had a multi-pronged strategy which would allow Shine Grace to profit even if there were market corrections during the 12-month contract period of the Disputed ACs. He referred to these matters:

(1)  On 15 and 16 October 2007, the Index closed at 29,540 and 28,954 respectively. Mrs Chan expected the Index to go up until it reached 32,000 (an increase of 8 to 10%). This meant that the Disputed ACs would most likely have been knocked out within a month, and Shine Grace would most likely have been able to sell the accumulated shares under the guaranteed period for a quick profit.

(2)  While Mrs Chan was alerted to the possibility of a market correction, she believed that any market correction would be small involving a drop of around 2,000 to 3,000[51]. In the medium to long term, she had a bullish outlook both in relation to the general market and the underlying shares of the Disputed ACs. She was prepared to accumulate the underlying shares in the event that their market price fell near or below the AFPs, as she believed their price would rebound and Shine Grace would eventually be able to resell those shares at a profit[52].

122.  Hence, contrary to Mr Yu’s contention, Mrs Chan’s strategy was consistent with the TIPs as (1) she did wish to accumulate a long position in the underlying shares; and (2) she did expect the market price of those shares to remain above the spot price in the medium to long term. And nothing in the TIPs suggests that the Disputed ACs were unsuitable merely because Mrs Chan envisaged a short-term price dip.

123.  As for the alleged failure to advise or warn Mrs Chan of the total maximum exposure of the Disputed ACs, Citibank was under no duty to advise her whether Shine Grace had adequate financial resources as she was in a far better position to assess this risk. It is not in dispute Mrs Chan fully understood how the maximum exposure for each AC was calculated. She had a dedicated team of staff to monitor her investments and prepare periodic reports setting out Shine Grace’s total exposure and the financial resources available to support its AC trades. Citibank did not have the full picture as to the financial resources available to support Shine Grace’s trading activities. Although Citibank carried out Know Your Customer reviews from time to time, it was only able to estimate the amount of Mrs Chan’s assets.

124.  In any event, the judge was right to reject the contention that Shine Grace did not have sufficient resources to support the Disputed ACs trades. The alleged unprecedented volume and size of the Disputed ACs were in fact not that unprecedented[53]. Citibank’s internal records noted that Mrs Chan’s net worth was conservatively estimated at around US$453 million in 2007 and a substantial portion was invested in liquid assets. Such assets exceeded the maximum exposure under the Disputed ACs (around US$330 million if the two ACs knocked out on 15 October 2007 are disregarded) by a substantial margin even in the unlikely worst case scenario where the price of the underlying shares immediately went to zero.

125.  Further, the companies owned and controlled by Mrs Chan had access to around US$200 million worth of low interest loans from Citibank. Mrs Chan held accounts with many other banks. She was fully prepared to make use of credit lines to support Shine Grace’s trading activities[54].

126.  The judge rightly rejected the contention that the financial resources of the Bonds Group were not available to Shine Grace because of the alleged “changing of the guard” in the leadership of the group[55]. The available evidence showed that Mrs Chan called the shots for the Bonds Group while she was alive, meaning that she must have been able to use its resources to support her trading activities if she should so choose[56]. Neither Mrs Chan, Anson nor Ms Lai ever informed Citibank that the assets of the Bonds Group would, as a rule, no longer be available to support Shine Grace’s trading activities. At most, Citibank was told there was a general intention to keep the assets of the Bonds Group fairly liquid to cover real estate investments. There was nothing to suggest that this general intention was immutable and absolute. Furthermore, Mrs Chan did in fact make use of the assets of the Bonds Group to support Shine Grace’s trading activities from time to time in 2006 and 2007[57].

127.  The argument that the Disputed ACs were unsuitable because the monthly settlement amounts exceeded the available cash flow is plainly bad. There is nothing inherently objectionable to use existing assets (as opposed to cash flow generated from business operations) to finance an investment. Besides, the alleged difference between the financial commitments under the Disputed ACs and the cash flow available to Shine Grace is exaggerated, in light of these matters:

(1)  Two of the nine Disputed ACs were knocked out on 15 October 2007.

(2)  Mrs Chan also expected most of the remaining Disputed ACs to be knocked out within the month, as she expected the Index to increase by 8 to 10% in the short term and did not expect Shine Grace to accumulate more than one month’s worth of shares.

(3)  Even in a scenario where the remaining Disputed ACs were not knocked out, Mrs Chan was prepared to draw on credit lines and sell the accumulated shares at a loss to generate sufficient cash to fulfil Shine Grace’s settlement obligations. And this was the strategy she had adopted previously[58].

128.  In respect of the Shenhua ACs, Mr Jat made these points:

(1)  It is incorrect to say that Ms Mak induced Mrs Chan to enter into the two Shenhua ACs. As Ms Mak testified, it was Mrs Chan who asked Ms Mak, during the latter’s sick leave in August 2007, to monitor the share price of, inter alia, Shenhua, because Mrs Chan had a positive outlook for Chinese energy share in general as well as Shenhua (a big state-owned coal producer the shares of which were trading in large volume)[59].

(2)  It was Mrs Chan who decided on the size of the trades. Ms Mak was merely trying to guess or anticipate the number of shares Mrs Chan wished to accumulate. And her guesses were conservative and disregarded by Mrs Chan who was in favour of larger trades[60].

(3)  As with other AC trades, Mrs Chan and her team were fully capable of assessing the financial commitments involved. There was no need for Ms Mak to advise Mrs Chan on this.

Discussion

129.  I find no basis to disturb the evaluative conclusion of the judge that the Disputed ACs were not unsuitable in all the circumstances[61]. I am not persuaded that the matters urged upon us by Mr Yu are sufficiently material to undermine the judge’s findings of fact and inferences or that the conclusions he reached are plainly wrong. I do not think it assists his case by referring to other evidence in his reply submission or asking the court to re-read selected parts of the recording with renewed or different emphasis. This is not a proper use of the appellate process as this court is not re-trying the case.

130.  I agree with Mr Jat the position taken by Shine Grace in this regard is contrived and artificial. Shine Grace does not dispute that Mrs Chan knew well her financial commitments and had her own team of staff to monitor her investments and provide daily and regular reports to her. There is no good reason why Citibank should be regarded as having acted in breach of duty in failing to advise her in these circumstances. As submitted by Mr Jat, it is not the job of the bank to micromanage Mrs Chan’s arrangement of her finances. Once it becomes clear that she had sufficient resources to cover the exposure under all the Disputed ACs, whether or not Shine Grace had sufficient cash flow to meet the settlement amount is immaterial.

131.  The reliance of Mr Yu on the SFC Code in his reply submission is misplaced. For the reasons given in section E of this judgment, the SFC Code has not been incorporated into the agreement between the parties, nor does the SFC Code inform any common law duty to which the bank may be subject. Nor is it helpful to invoke the remarks in HSBC Private Bank (Suisse) SA v SFC, when the legal context (a regulatory determination as distinguished from a private law claim for damages) and factual context are very different.

132.  As for the submission that Ms Mak’s omission to mention to Mrs Chan Citibank’s target price of Shenhua and that her reference to JP Morgan Chase’s target price of HK$101 was reckless and misleading, like many other points raised by Mr Yu, this contention must be considered in context and with regard to the totality of the evidence. Mr Jat pointed to other evidence about the share price of Shenhua, which was trading at around HK$25 to 33 when Citibank made its internal research report dated 24 August 2007 giving a target price of HK$44. Between 16 August 2007 and 16 October 2007, the Index rose 40% and Shenhua was trading at around HK$54. The internal target price of Citibank had been superseded by 15 and 16 October 2007. These are not matters that an appeal court may be readily alive to, in a case like this with a massive quantity of evidence. This is why we should treat the findings and evaluations of the primary judge, who had the benefit of receiving the evidence in this long trial, with appropriate respect.

133.  As for the market outlook of Mrs Chan which is said to be contrary to the objective stated in the TIPs, this is another instance of Mr Yu seeking to overturn a factual finding and inference in the Judgment based on selected exchanges in the recordings. The judge had listened to over 38 recordings on 15 and 16 October 2007 and carefully considered the conversations with the oral testimony[62]. He was entitled to find that Mrs Chan did not have a bearish view of the market in the medium to long term, that she had a positive long-term outlook in relation to the underlying shares in question and the market as a whole, and that she was prepared to accumulate the shares even if the Disputed ACs were not knocked out[63].

134.  I have not overlooked Mr Jat’s complaint that the allegation that Ms Mak should have advised Mrs Chan on Shine Grace’s lack of resources has not been put to Ms Mak in cross-examination. I do not think it is necessary to deal with this save to say that the defendants had responded to the Shine Grace’s case on the unsuitability of the Disputed ACs due to the failure to advise on lack of resources and there is no procedural unfairness here.

F2. Inadequate and unsatisfactory disclosure of material risks in the ACs

The arguments of Shine Grace

135.  Shine Grace complained that in volunteering information and explanations of the ACs (including the Disputed ACs), Citibank failed to provide a full, fair, reasonable, accurate and honest depiction of the risks involved, and had positively misled Mrs Chan into the Disputed ACs. The following matters are relied upon.

136.  First, the “black box” nature of MTM calculations and margin calls was not properly and adequately explained to Mrs Chan.

137.  Ms Mak admitted in her testimony she did not know exactly how the MTM value of the Disputed ACs was calculated, and this in turn means that she could not have been able to explain it adequately to Mrs Chan (who was not interested) or Ms Lai (who asked her about it only after Mrs Chan passed away)[64]. Hence, Shine Grace would not have been in a position to gauge the extent of MTM losses in advance and cater for cash flow to meet sudden margin calls. It could not have made an informed and calculated decision whether to enter into an AC with reference purely to Mrs Chan’s outlook on the underlying stock.

138.  Leaving aside the need to reveal how the MTM calculations are done, Citibank never disclosed that the MTM calculations of the ACs cannot be independently verified. And given that Ms Mak did not understand the risk, it can readily be inferred that Mrs Chan could not have understood the risk. Mrs Chan was plainly labouring under the wrong belief she was trading in a product that she understood. Whether she was willing to do so nonetheless is a separate matter of causation.

139.  Mr Yu again prayed in aid the remarks in HSBC Private Bank (Suisse) SA v SFC[65], in which the tribunal concluded on the evidence that the systems in place did not ensure that from the outset of their trading, the complainant investors would have been given the necessary information by the bank in a clear and balanced fashion to enable them to understand the features of ACs and their inherent risks and the bank had fallen short of the standards in the SFC Code.

140.  Second, there was “disproportionately unbalanced” explanation of the ACs in the TIPs and glaring omission that the ACs could show MTM losses even where the share price remained above the AFP.

141.  The sentence “If the price of the underlying security declines below the pre-determined AFP, the client could have significant losses” appeared three times in the TIP under the headings of “Investment Objectives”, “Investment Rationale” and “Risk Information”. This repeated emphasis gave the misleading impression that absolute share price movement is the relevant risk. The quantitative analysis in the “sensitivity analysis” attached to the TIPs further tilts the information balance, placing undue weight on absolute share price movement and Hold to Maturity (“HTM”) risk without providing any quantitative analysis on MTM risk.

142.  One crucial feature is that MTM figures could be huge (and substantial margin calls would be made) even when the share price remained above the AFP[66]. Ms Mak only discovered this after Mrs Chan passed away[67]. This feature was glaringly omitted in the TIPs which focused on presenting HTM risks.

The arguments of Citibank

143.  As the judge noted[68], the TIPs succinctly explained in layman’s language the risk of MTM value changes, and the impact of adverse changes in MTM including providing additional margin deposits at short notice. Pertinently, the TIPs disclosed: (1) the MTM value is based on an extensive list of factors including market forces, price of the underlying security, interest rates, volatility and time remaining to maturity; (2) changes to any of those factors could have a significant adverse impact on the MTM; and (3) this could trigger the need to deposit additional margin or result in the liquidation of the investment.

144.  The argument that Citibank should have gone further to disclose that the MTM calculations cannot be independently verified has no merit for these reasons:

(1)  The judge has explained why he considered such disclosure was not necessary[69]. This is an evaluative judgment based on a detailed examination of the expert evidence. There is no appeal against the primary factors the judge relied upon, namely that (a) the additional disclosure is unsupported by market practice or regulatory guidance; (b) such disclosure was more likely to confuse than to enlighten retail investors[70].

(2)  The assertion that such disclosure would have been useful to Mrs Chan is not the touchstone for determining whether such disclosure fell within Citibank’s duty of care.

(3)  The claim that such disclosure was material to Mrs Chan is plainly artificial. By October 2007, she had experienced several margin calls arising from MTM losses, and had never asked for any explanation on (a) how MTM values were calculated and (b) whether such calculations were predictable and independently verifiable. In Ms Lai’s own words, her boss did not care much about margin calls[71].

145.  The argument that the disclosure in the TIPs was unbalanced or disproportionate is equally bad for these reasons:

(1)  The TIPs clearly stated that changes to any of the listed factors – including volatility – could result in significant adverse impact on the MTM values. The claim that the TIPs failed to explain MTM losses could occur even when the share price remained above the AFP is wrong.

(2)  There is no basis, whether in the form of market practice or regulatory guidance, for the assertion that the TIPs ought to have placed greater emphasis on the possibility of MTM losses where the share price remained above the AFP.

(3)  In any event, this point is artificial when the margin calls in the present case were actually driven by changes to the share price.

Discussion

146.  I will deal with this succinctly. Mr Yu’s submissions are a repetition of the arguments advanced before the judge, which were rejected after detailed consideration of the expert evidence and careful analysis. I agree with the judge and the submissions of Mr Jat. I reject the contention that the disclosure in the TIPs was inadequate, unbalanced or misleading in any way.

147.  As to the feature that the MTM figures could be huge and hence substantial margin calls would be made even when the spot price remained above the AFP, there is nothing in this point. I agree with the judge that this complaint is not valid and highly artificial, as there is no real connection between this complaint and what actually happened with the Disputed ACs[72]. Further, there was a previous instance on 17 August 2007 when Citibank required a lot of margin to be provided and according to the table compiled by Shine Grace of all the accumulators that were open as at 10 August 2007, other than the first accumulator for Toyota, every one of the open accumulators had a market price above the AFP and yet Ms Lai was informed by Ms Yim there was a shortfall for 13 accumulators and they had MTM loss and additional margin was required. Ms Lai should have realised back then that even if the spot price was above the AFP, it was possible there could be MTM loss[73].

F3. Misleading Mrs Chan into believing Shenhua ACs would be knocked out

The arguments of Shine Grace

148.  It was alleged that Ms Mak positively misled Mrs Chan into believing that Shenhua ACs would either reach the knock-out level or at least stay above the spot price.

149.  It was contended that on 15 and 16 October 2007, Ms Mak must have been aware that Citibank’s internal target price for Shenhua was HK$44. However, she did not inform Mrs Chan that Citibank’s internal target price for Shenhua was HK$44[74] and gave Mrs Chan an unverified figure of HK$101 “from the news”, making an erroneous reference to that price being a JP Morgan Chase target price[75], when it was UBS which was reported as having lifted its 12-month target on Shenhua from HK$35.15 to HK$101[76].

The arguments of Citibank

150.  No allegation was made in the statement of claim that Ms Mak had positively misled Mrs Chan into believing Shenhua ACs would either reach the knock-out level or at least stay above the spot price.

151.  There is no evidence suggesting that it was the market practice to disclose the bank’s own target price before every transaction.

152.  The fact that Ms Mak mentioned the target price of other banks should make no difference, as the target price is a matter of opinion upon which different financial institutions may have very different views. In informal discussions of the market with a customer, it is open for the banker to select or prefer one view over the others. This is particularly so when the internal target price of Citibank for Shenhua was outdated.

Discussion

153.  Although the statement of claim did not plead specifically that Ms Mak had positively misled Mrs Chan into believing that the Shenhua ACs would be knocked out, it was pleaded that Ms Mak “encouraged Mrs Chan to expect the prices of the underlying shares [of the Disputed ACs] to rise above the ‘knock out’ prices” and that the mention of the JP Morgan Chase target price and the omission to mention Citibank’s target price for Shenhua was “misleading” (at §52(5)). Ms Mak and Citibank had the opportunity to respond and did respond to the allegations in the defence. Ms Mak was cross-examined at length on the Shenhua ACs and the allegations were put to her properly. There is no unfairness to the defendants and nothing in the pleading point.

154.  The Shenhua ACs have been addressed in the earlier part of this judgment. There is no basis to interfere with the judge’s finding of fact that Mrs Chan was not misled about the Shenhua ACs.

G. Causation

155.  The judge dealt with this issue in section K of the Judgment. He concluded on the available evidence that Mrs Chan would have entered into the Disputed ACs anyway. He found it wholly speculative for Shine Grace to suggest that the defendants could have dissuaded Mrs Chan from entering into the Disputed ACs, by advising her these ACs were somehow unsuitable, whether generally or in light of the circumstances on 15 and 16 October 2007. This is again a challenge of the findings of fact and the inferences drawn.

The arguments of Shine Grace

156.  Mr Yu argued that the judge failed to appreciate the significance of the following material evidence.

157.  First, he referred to the recordings summarised in the Annexure, in support of his contention that on previous occasions Mrs Chan’s views were “moderated, defined or influenced” by the defendants. The judge was wrong to place “undue emphasis” on Mrs Chan’s strong will.

158.  Second, he contended that at the very least, Mrs Chan would not have entered into the two Shenhua ACs, had it not been for Ms Mak’s recommendation.

159.  Third, he referred to Citibank’s description of its role in its internal reviews concerning Shine Grace/Mrs Chan, in which the bank acknowledged its role as the advisor of Shine Grace, and the Chan family had “complimented [its] due diligence on investment discipline and risk management to exit from open positions when not much upside is anticipated or there is a change in investment view”.

160.  Fourth, the judge had not appreciated the proper context in assessing Mrs Chan’s mindset, particularly when Mrs Chan’s physical and mental conditions were far from ideal on 15 and 16 October 2007. One must also bear in mind the “changing of the guard” in the leadership of the group and Mrs Chan’s express intention on 15 October 2007 to “play safe” and that she ought to be free from all obligations first given the market conditions.

161.  Fifth, the judge misunderstood Mrs Chan’s financial strength and apparent lack of care about margin calls[77]. Mr Yu repeated his earlier contentions about the financial resources of Mrs Chan. The judge’s reference to the financial ability to satisfy the HK$427 million of unwinding costs of the Disputed ACs is misconceived as this is irrelevant, the correct approach should be to look at the potential exposure on entering the Disputed ACs against the available resources of Shine Grace, or the Lady’s Secret Group at most. And the judge failed to appreciate the significance of the recordings summarised in the Annexure.

The arguments of Citibank

162.  Mr Jat emphasised that the judge’s conclusion was based on a holistic assessment, which the appeal court should not lightly disturb. He submitted that it is plainly open to the judge to find that causation was not established and highlighted these matters.

163.  First, Mrs Chan was a highly experienced investor with extensive experience trading in ACs and other types of investments. By 15 October 2007, she had entered into over 400 ACs through various investment companies.

164.  Second, she had an exceptional ability to read the stock market and prided herself on her “market sense”. She vividly described herself as a guiding light in times of market uncertainty (苦海明燈) and mentioned that even professional traders had sought her guidance[78].

165.  Third, she was a very strong-willed and decisive person. This is evidenced by the fact that she was able to lead and build up a multi-billion corporate group, her demeanour during the recorded calls with Ms Mak, and that she had told the staff of Citibank not to stop her from trading on her market sense[79].

166.  Fourth, she did not seek investment advice from Citibank and did not see that as the bank’s role.

167.  Fifth, she was fully aware of the risks involved in the Disputed ACs and was prepared to accept such risks. She had been subject to margin calls in the past and her staff had been informed that the margin shortfalls were attributable to MTM losses[80]. In the words of Anson, she obviously did not think receiving a massive margin call was “a big deal”[81].

168.  Sixth, her AC trading was highly profitable. By 15 October 2007, her AC trading activities had produced around HK$180 million in profits for Shine Grace.

169.  Seventh, she was bullish about the general market and the underlying shares in both the short term and long term. She also held a bullish view in relation to the underlying shares of the Disputed ACs[82].

170.  Eighth, she was highly confident about the trades on 15 and 16 October 2007. This is not a case where the investor was unsure but was “egged on” by the relationship manager. Ms Mak had warned Mrs Chan about the possibility of an impending market correction but Mrs Chan held a more bullish view and decided it was worth taking the risk[83].

171.  As for the matters relied on by Mr Yu, Mr Jat responded as follows.

172.  First, the selected parts of the recordings summarised in the Annexure gave a lopsided view of the relationship between Mrs Chan and Citibank. There are other recordings summarised in Appendix 1 to his submissions showing that Mrs Chan had her own investment views and would only follow Citibank’s suggestions when they accorded with her own ideas.

173.  Second, the recordings showed that the decision to enter into the Shenhua ACs was an independent decision by Mrs Chan. Ms Mak’s role only consisted of reminding Mrs Chan of her interest in this stock and providing her with information.

174.  Third, Citibank’s description of its role is consistent with the fact that Mrs Chan only sought information rather than investment advice from the bank.

175.  Fourth, the evidence relied on by Mr Yu should be considered with other evidence that Mrs Chan was bullish about the market and the Disputed ACs and was prepared to accept the risks involved.

176.  Fifth, Mr Yu’s submissions are premised on his incorrect contention that Mrs Chan was not aware of the maximum exposure under the Disputed ACs and that Shine Grace did not have sufficient financial resources to support those trades. The recordings do not support the contention that Mrs Chan saw margin calls as a material risk. At best, they showed that she was aware of the need to maintain sufficient margin but was prepared to accept the risk of margin calls.

Discussion

177.  Mr Yu replied to the eight points raised in Mr Jat’s argument and the latter’s responses to his submissions. He asked this court to go through selected evidence, giving his take on various aspects of the evidence to persuade us to arrive at a conclusion different from the judge. I do not propose to lengthen this judgment by dealing with each of his responses to Mr Jat’s submissions. Suffice to say I have considered his first submissions and his responses and am not persuaded that he has identified any palpable error of the judge that is sufficiently material for this court to intervene. He is re-arguing the matter and making points that had been or should have been made before the trial judge. This is not an appropriate use of the appellate procedure. Whether the appeal court might have taken a different view from the judge is beside the point. The judge’s findings of primary fact should not be disturbed unless it is shown that he was plainly wrong.

178.  Despite the lengthy submissions of Mr Yu, I am not persuaded that this threshold was remotely met. As rightly submitted by Mr Jat, the need for caution for overturning an evaluative judgment applies with greatest force to the issue of causation. Shine Grace has plainly not established that its losses would have been avoided but for the alleged breaches of duties of the defendants.

H. Contractual estoppel

179.  This is an issue raised by Citibank in its respondent’s notice, on the premise that even if Shine Grace should succeed on all of the grounds raised above, it is nonetheless estopped from asserting that Citibank was subject to the alleged advisory duties and but for Citibank’s alleged breach of duty, Shine Grace would not have entered into the Disputed ACs. Citibank referred to the contractual provisions mentioned in the earlier part of this judgment and seeks to rely on the principle of contractual estoppel, citing the English Court of Appeal judgment in Springwell Navigation Corp v J P Morgan Chase Bank [2010] 2 CLC 705 at §§143 to 144, and DBS Bank (Hong Kong) Ltd v San-Hot HK Industrial Co Ltd at §203. It is not necessary to deal with this issue in light of the conclusions I have reached on Shine Grace’s appeal.

I. BSI Guarantees

180.  The judge dealt with the issues relating to the BSI Guarantees in section M of the Judgment. Having reviewed the evidence, he made a finding of fact that Ms Lai did instruct and agree with Citibank to suspend the termination instructions of BSI dated 26 July 2007 pending further discussions after the completion of Citibank’s annual credit review at the end of October 2007. He also found that Ms Lai had authority to agree to the suspension of the termination instructions.

181.  BSI sought to challenge both findings in its appeal.

182.  It was contended that the judge should have found on the evidence that Mrs Chan made all the decisions for BSI and Ms Lai only acted on Mrs Chan’s instructions and this was known to Citibank. The termination instructions were signed by Mrs Chan. Not only did Ms Lai have no authority to agree to suspend the termination notices, Citibank had known, or must have known, that the termination notices were the culmination of a gradual process by which the assets and credit lines of BSI were to be separated from Mrs Chan’s personal trading via Shine Grace.

183.  It was further contended that Ms Lai did not communicate in clear and unequivocal terms to terminate the BSI Guarantees[84]. And three days before Ms Yim’s conversation with Ms Lai on 17 August 2007, Ms Yim had already told Ms Amy Cheong of the Credit Department not to take action on the termination notices, thus indicating that Citibank had decided internally not to take action on the request irrespective of what Ms Lai might say on 17 August 2007[85]. Hence, Citibank had not demonstrated any reliance on Ms Lai’s alleged waiver regarding the termination notices.

184.  On the factual issue that Ms Lai had suspended the termination notices, there is no basis to disturb the judge’s findings regarding the two material telephone calls on 17 August 2007 at 15:55 hours and on 5 October 2007 at 12 noon. The judge gave a detailed analysis of the context of these calls, and had considered the surrounding circumstances and the testimony of Ms Lai, Ms Yim and Ms Mak. He was entitled to find that Ms Lai had instructed Ms Yim on 17 August 2007 to put the termination notices on hold. This was because Ms Lai “knew full well that if the BSI Guarantees were terminated, Mrs Chan would have to provide alternative funding in support of her trading in ACs”[86]. I do not propose to recite the supporting details set out in Mr Jat’s submission. As for the telephone conversation on 5 October 2007 between Ms Lai and Ms Mak[87], it is clear from that conversation that Ms Lai had agreed with Ms Mak the suspension of the termination notices would last until the end of October 2007, because Ms Lai was told that “Mrs Chan had entered into new ACs and she was afraid that the surplus might not be enough”[88]. Again, I will not set out the supporting details in Mr Jat’s submission giving the background to this conversation. Any reliance of BSI on waiver is misplaced.

185.  On the authority issue, the judge found that Ms Lai had authority to suspend the termination instructions as she was the Financial Controller of the Bonds Group and acted as the financial “gatekeeper” of companies controlled by Mrs Chan, including Shine Grace and BSI, and gave instructions on their behalf to Citibank from time to time regarding their financial affairs. There is no reason to think that specifically in relation to the BSI Guarantees, Ms Lai lacked the necessary authority to agree to suspend the termination notices[89]. I agree with the judge.

186.  Apart from actual authority, Mr Jat relied on apparent authority, in that there is clearly evidence Mrs Chan had permitted Ms Lai to give instructions to Citibank in relation to the use of BSI’s funds (as well as other related companies) to support the trading activities of Shine Grace[90].

187.  Mr Yu seeks to raise a pleading point in his reply submissions that it is not open to Citibank to rely on apparent authority because the plaintiffs have pleaded that Ms Lai had no authority to give instructions to Citibank in respect of the guarantees and the defendants have not served a rejoinder raising apparent authority. I do not think it is necessary to serve a rejoinder. In any event, no prejudice was suffered by BSI as Citibank relies on evidence given by Ms Lai herself and she was given full opportunity to respond on the issue of her authority in cross-examination.

188.  The ground of appeal on the authority issue must also be rejected.

J. Conclusion and costs

189.  For all the above reasons, these appeals of Shine Grace, Shinning and BSI must be dismissed. As there is no dispute that costs of these appeals should follow the event, I will order the appellants to pay Citibank its costs in these three appeals, with a certificate for three counsel.

Hon Yuen JA:

190.  I agree.

Hon Au JA:

191.  I respectfully agree with the Judgment of Vice President.