20 July, 2012
The GFC caused a flurry of cases to be brought before the courts by disgruntled investors, many of which are now starting to come to trial. One such case, in which judgment was handed down last week, was Kwok Wai Hing Selina -v- HSBC Private Bank (Suisse) SA (formerly known as HSBC Republic Bank (Suisse) SA. In that case the plaintiff, "a wealthy housewife", sustained heavy losses on her trading account with HSBC by investing in forward accumulators and other structured products which were deemed to be high risk, despite her declared risk category being "medium". The result was an overwhelming victory for the bank.
The judge had little sympathy with Kwok's contention that she was an "unsophisticated investor" to whom HSBC owed a duty of care. The account opening documentation included a Risk Disclosure Statement signed by Kwok which clearly pointed out that HSBC did not offer investment advice of any nature and if the investor was "in any doubt about the risks involved in any trading or investment arrangements" then she should seek "independent professional advice". The judge took the view that, in the absence of any outward indication to the contrary, as an
educated adult the onus was on Kwok to know and understand what she was signing.
Kwok sought to rely on statements made by HSBC's relationship manager years after the account was opened to try to bind the bank to vary the account opening terms. However, the judge relied on basic contract law to dismiss this submission stating it was not possible:
- to use the subsequent conduct of one or other party to an agreement to construe the terms of their contract; nor
- to imply obligations which are contrary to express terms of an agreement.
In addition to the account opening documentation, throughout the course of their relationship, HSBC sent Kwok term sheets and other documents setting out the risk level involved for each trade. Kwok maintained that she was "too unsophisticated, too busy, or too occupied by other matters, to look at the many papers being sent to her. Therefore, she did not bother to read or understand them." In those circumstances, the judge concluded that "Ms. Kwok only has herself to blame".
Nor was the judge interested in looking in detail at the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. In his view, the Code could not override express contractual provisions. He stated "It cannot impose a contractual duty which by the clear terms of the Account Opening Booklet and Risk Disclosure Statement, HSBC has not undertaken."
Notwithstanding the lack of HSBC's liability in this case, the judge did give some useful insight into how he would have viewed the amount of damages had Kwok persuaded him on liability. In his view, it could not be right simply to take into account the transactions where Kwok had suffered a loss. In the judge's words, by taking that approach "Kwok would essentially be enjoying a free ride". In his view, the only proper way of assessing damages would be to take into account both profits and losses Kwok had made or suffered in respect of her forward accumulator and equity linked note transactions throughout her entire trading history with HSBC.
This is one of the first post-GFC judgments to be handed down in respect of these claims in Hong Kong, and it is clearly encouraging for the financial institutions that the plaintiff's claim was so comprehensively rejected – although it should always be borne in mind that cases of this nature involve a fact-specific review of each claim and so it would be unwise to conclude that this judgment represents the end of the wronged investor claim. It will also be interesting to see the outcome of the other highprofile mis-selling claim involving DBS, where the trial took place recently and judgment is expected shortly.
In terms of the lessons that can be learnt from this case:
- Financial institutions need to ensure the opening account documentation and other documentation provided to clients (for example, product flashes, term sheets etc.) contain the requisite explanations, risk disclosure statements and exclusions of liability to protect them against claims; and
- would-be investors should carefully read and understand the documents before signing, as ignorance is no excuse.
One major time-consuming issue in these disgruntled investor cases concerns the disclosure of documents. It is a common tactic for investors' solicitors to go on a proverbial "fishing expedition" against the bank to muddy the issues and tie up the bank with exhaustive requests for documents. The courts' attitude to these "specific discovery" applications will form the basis of a follow-up article.
For further information, please contact:
Gareth Hughes, Partner, Ashurst
International Dispute Resolution Law Firms in Hong Kong