It was with interest that I read this Business Times headline on 12 August 2016: “Hong Kong court rules against OCBC unit in mis-selling case”.  This headline caught my attention because law reports since the 2008 global financial crisis are filled with unsuccessful lawsuits by burnt investors against their banks for mis-selling of financial products, breach of duty of care or misrepresentation, etc.  The major reasons include (i) no advisory duty of care was owed by the bank to the investor in execution-only relationships; and (ii) the bank’s liability was negated by disclaimers and non-reliance clauses in the contract between the bank and the customer.  The outcome also tends to be negative where the claimant is a sophisticated investor or has strong financial resources and thus is in a good bargaining position.  The legal landscape for such lawsuits seems to be similar for both Singapore and Hong Kong, as seen in thiscomparative study issued in May 2014 by law firm RHTLaw Taylor Wessing.

Unfortunately, the news report did not provide further detailed explanation for the court’s decision.  For this, I had to help myself through the full 105-page judgment ofChang Pui Yin v Bank of Singapore Limited [2016] HKEC 1721 long into 3 a.m. to try to discern what distinguished this case from its peers in the recent past.  “Hey, go out and party, or get some sleep”, I hear you say.  But I’m curious about this, and the full judgment can be found here.  This case was about the sale of investment products by the defendant Bank of Singapore Limited (the “Bank”) to its plaintiff private banking clients, Mr and Mrs Chang (the “Changs”).  Even though there were present the usual standard disclaimers and non-reliance clauses in the service agreements between the Bank and the Changs, the court ruled in favour of the plaintiffs.


Between 2004 to 2008, the Changs, an old, newly-wealthy couple in their 80s and 70s at that time, were sold a range of high-risk investment products, including accumulators (nicknamed “I-kill-you-later” because its P&L mechanism is so toxically against the customer and in favour of the issuing bank), equity-linked notes, foreign currency options and forwards, high yield bonds and equity options — see [51] of the full judgment.  This was even though their risk appetite as filled into the account opening forms was only “medium-risk” — at [19].  These investments — in fact, I prefer to call them “punts” because the word “investment” in my book connotes proper analysis and calculation instead of guesswork and hope — suffered significant losses as a result of the 2008 financial crisis.

It was the plaintiff’s case that, pursuant to the banking agreements, the Bank would, among other things, ascertain the financial circumstances and investment objectives of the plaintiffs; and then give investment advice and recommendations with reasonable care, skill, and diligence in accordance with those circumstances and objectives — at [124].

Not surprisingly, as in the recent history of such cases, the Bank argued that, as found in the account opening forms, service agreements, risk disclosure statement etc (at [120]), the bank-customer relationship with the plaintiffs was non-advisory and “execution-only”.  The Bank also cited other clauses which stated that the plaintiffs understood they were making their “own judgment in relation to the … transactions” and that the Bank assumed “no duty to give advice or make recommendations” and “no responsibility for … for any investments or transactions made— see [121] and [125].  It was also the Bank’s case that a contractual estoppel arose from the terms of the service agreements, i.e. the plaintiffs were estopped from arguing a state of affairs which was contrary to that stated in the contractual provisions — at [126].  The Bank’s case appeared strong.


The first issue for the Hong Kong Court of First Instance to decide was whether the Bank owed an advisory duty of care to the plaintiffs.  Whether the giving of advice gives rise to legal obligations in tort or delict to exercise reasonable care or to advise on certain matters depends on the terms of the legal relationship between the parties — at [127] where the judge cited from the case of Grant Estates Ltd. v The Royal Bank of Scotland plc [2012] CSOH 133.

In this regard, the key provision which the court focussed on was found in the services agreements and stated that, in rendering the Bank’s investment services, the investments “will be directed by [the plaintiffs] in the case of custody Accounts (Custody Accounts) and Accounts which are established on an advisory basis only (Non-Discretionary Accounts).  In the case of Accounts established on a discretionary basis (Discretionary Account(s)), investments will be as determined by the Bank in accordance with considerations of availability and applicable fiduciary standards.” — we’ll denote this as the “Key Clause” which we will re-visit below.

The Court found in favour of the plaintiffs by determining that although the Bank’s Custody Accounts were “execution only”, its Non-Discretionary Accounts gave rise to a requirement to provide advisory services. The court also took into account the factual matrix which included the Bank’s marketing brochure, which stated the provision of “investment advice”, “quality advice” and offering to “select the best products from the market to match the client’s risk reward profile” — see [137].  Due to the manner in which this Key Clause was drafted, the court construed that the Bank’s non-reliance clauses and disclaimers were limited to only the Custody Accounts but did not apply to its Non-Discretionary Accounts “established on an advisory basis only” — see [140].  The key legal principle applied by the court in interpreting this clause given the factual matrix is that found in the cases of Woolfall and Rimmer Ltd v Moyle [1942] 1 KB 66 and Fraser v B. N. Furman (Productions) Ltd [1967] 1 WLR 898, i.e. that one should not construe a term or condition in a contract in a way that would make it repugnant to the commercial purpose of the contract — see [141].


Having established an advisory duty of care being owed by the Bank to the Changs, Judge Mohan Bharwaney established the scope of such duty as having at least 3 components, based on the case of Susan Field v Barber Asia Ltd HCA 7119/2000 (at [147]):

  • The adviser has to have regard to the investor’s investment objectives and risk appetite;
  • The adviser must only offer products which are suitable to the investment objectives and risk appetite of the investor; and
  • The adviser has to warn the customer of the risks inherent in the investments that are being offered.

The court held that the Bank had breached its contractual duty of care towards the plaintiffs because its relationship manager (“RM”) Yvetti Chau Kwan-siu (a.k.a. Mrs Li) had recommended investment products which exceeded the Changs’ medium risk appetite and which did not match the Changs’ investment objectives, and then failed to adequately explain the risks inherent in such products to them.  The court’s analysis also took into account the Changs’ education, lack of financial knowledge and investment history prior to their experience under the Bank from 2004 onwards.

The court at [142] also distinguished this case from past cases which dealt with “execution-only” relationships, such as (i) DBS Bank (Hong Kong) Ltd. v SanHot HK Industrial Co Ltd & Anor [2013] 4 HKC 1; (ii) JP Morgan Chase Bank v Springwell Navigation Corporation [2008] EWHC 1186 (Comm.); and (iii) Kwok Wai Hing Selina v HSBC Private Bank (Suisse) SA [2012] 4 HKC 260.


I am doubtful if this decision in Chang Pui Yin’s case can be viewed as genuinely indicating a shift towards a more investor-friendly or investor-protective approach by the Hong Kong courts, in terms of how the court considers those non-reliance clauses and disclaimers which are typically relied upon by the bank to defend such type of lawsuits.  Reading into the particular facts of the case, it seems that the court’s judgment turned upon how the court interpreted that not-so-well-drafted Key Clause within the services agreement.  This Key Clause resulted in the court finding that the Bank’s relationship with the plaintiffs was advisory in nature, even though other clauses had stated no such nature.  This episode suggests that a bank’s lawyers may have to be much more careful with their words in drafting the service agreements, and not to forget that even the words in the marketing brochures etc can also be brought in as part of the factual matrix for contractual interpretation.

On another note, banks will do well to have policies to remind their private bankers or RMs to take great care to fulfill the 3 abovementioned components of their advisory duty, if there is assumed such a duty in the relationship with a particular customer.  Brain-dead moments from the sales staff (like the few highlighted in the next paragraph) are just embarrassing and woeful, but not uncommon I can assure you.  This case is also helpful in illustrating the factors that the court considers in assessing the suitability of financial products vis-à-vis the customer’s investment objectives and risk appetite, e.g. the customer’s education and personal background, their risk profile and investment history or experience, tape recordings of communication between the plaintiffs and the RM, as well as financial expert’s evidence on the risk level of products.

Clearly, financial institutions have to put in place adequate systems and controls to monitor compliance by their sales staff with the policies laid down, amid the salesperson’s haste to meet their monthly commission targets — no, not the customer’s investment targets if you’re still wondering!  Comprehensive and detailed documentation, storage and easy retrieval of the reasons behind suitability assessments, and interactions with clients (be it via email or phone recordings) are also important —- all of which should be nothing new and common sense really.


The following 4 tape recorded conversations presented in court as evidence may seem comical, but they are also disgusting in how incompetent and negligent the RM Yvetti Chau Kwan-siu was as she tried to generate commissions from the Changs’ account:-

(i)  When recommending a high-yield Russian corporate bond to the Mrs Chang:-

Chang: Bonds don’t have risk then?

RM: With bonds (neh), just sit still and collect the money… this one is a eh Russian bond is…that is, a bond by a very big bank in Russia, we had bought it before, it is good stuff.

(ii)  When recommending Mrs Chang to purchase an equity-linked note for a US company called Garmin (which actually makes global navigational, GPS-related devices as the cyclists or runners among you may know), by giving the following explanation about Garmin to Mrs Chang:-

… {It} does those, eh, computer internet, eh, eh, that kind of technology…Computer internet that kind.

(iii)  When recommending Rio Tinto (an Australian company) and Petrobras (a Brazilian company) to the customer to buy:-

RM: One… Er… look, so the two US stocks, one (neh) is the one that produces iron called Rio, the other one (neh) Petrobras is the one that produces oil. And we have done these before, so is it alright to do 200,000 US dollars for you?”

(iv)  When explaining the meaning of unrealized losses on the punting positions to Mrs Chang:-

“RM: …Then (neh), that date, if the rate for that date is used to look at it (neh), the foreign currencies options (neh), would have not an actual, that is will have a
loss.  It is not, not a real one, it will be one, but it is not, it is not, we in English…
Mrs Chang: So how much is that?
RM: It is not… We in English, we call it unrealized in English.
RM: Eh, for the foreign currencies there would be, be a loss (neh) of $260,000 something US dollars.
Mrs Chang: Wow (Shocked sound)…
RM: Stocks (neh), stocks (neh) is 150,000 something US dollars. But this is (neh) an unrealized, uh, not real…..we still have money to pay for the shares, therefore (neh) you don’t need to worry about this.
Mrs Chang: Well, it is still a loss.
RM: This is not a real loss. It means, it is not, it is not, it is not a, it is not a real loss, Because, eh, foreign currencies and stocks do go up and down….. ”

Putting aside the law, it may be useful for us to reflect upon who’s really to blame for poor investment advice leading to financial losses.  More often than not, the burnt customer certainly prefers to believe that he or she has been robbed, rather than that he or she has been a fool on the advice of fools.