Think the big banks should be broken up? You're in good company.

HCA 495/2011 Morgan Stanley Octave Notes sold by Bank of China HK

The judge blasted Bank of China lawyer from Clifford Chance to read about the case before coming to court, the lawyer cannot give the judge of using high price mediators for this case, and the judge told this stupid female lawyer to answer his question of the reason of mediation frauds of bank of China which disgrace the court.

New Lehman case should be judged to be conducted in Mandarin :

香港特別行政區高等法院
日期: 2013年05月16日 (星期四)
聆案官聆訊案件表
Date : Thursday, 16th May 2013
IN THE HIGH COURT
MASTER’S DAILY CAUSE LIST
第38庭2字樓

⋯⋯ Court No. 38(2/F)
龍劍雲司法常務官

Mr. Registrar K.W. Lung


內庭聆訊(公開)

Chambers Hearing (Open to Public)

The wife of Ronnie Tong is working in Clifford Chance that help the bank to cover bank frauds in Lehman cases :

上午10:00 am
內庭聆訊(公開)
Chambers Hearing (Open to Public)
民事訴訟
HCA 495/2011
Lehman case against Bank of China (HK)
Case Management Summons
無律師代表
In Person
高偉紳律師行
Clifford Chance

Watchdog to arm investors

The Securities and Futures Commission proposed to raise the bar for professional investors, who now will have to undergo a suitability test before making investments.
The watchdog is seeking to revamp the code of conduct for brokerages and wealth management firms during a three-month public consultation period starting yesterday.
Its move was sparked off by the 2008 Lehmanminibond saga.
The SFC recommends that intermediaries, when offering investment products to individual professional investors, conduct the so- called suitability test. This includes conducting product due diligence to ensure the products they are recommending match the clients' current conditions.
Intermediaries would have to meet such requirements when selling any financial product to professional investors.
They can, however, still take part in private placements.
The watchdog will require the suitability requirements be detailed in contracts signed between professional investors and financial institutions. The contracts will also have to list actual services provided by intermediaries to the client.
Stephen Po Wai-kwong, senior director for intermediaries supervision at the SFC, said the amendments would not raise compliance cost for financial institutions as most of the procedures are already being implemented.
It will ``give investors better protection, as they would be in better positions to claim upon misconduct because the responsibilities of the intermediaries will be written in black and white,'' Po said yesterday.
Individuals, together with their investment vehicles and family trusts, are considered professional investors if their total portfolio is worth HK$8 million or more.

Litigation & Dispute Resolution Beware of the Small Prints

Litigation & Dispute Resolution

Beware of the Small Prints:

The Sanctity of the Written Terms in Banking Service Agreements

In a recent case, DBS Bank (Hong Kong) Ltd v San-Hot HK Industrial Co Ltd HCA 2279/2008, the Court of First Instance upheld the validity of the written terms of a banking service agreement despite finding that the customer had not read the documents and that the terms might not have been fully explained to the customer before signing.

Background

The 2nd Defendant, Madam Hao, is an established businessperson whose wealth was acquired from the trading of petroleum and petrochemical products and equipment in China and internationally. The 1st Defendant, San-Hot BVI, is the corporate vehicle of Madam Hao set up for investment purposes at the suggestion of DBS for tax benefits.

San-Hot BVI and Madam Hao are both private banking clients of DBS since August 2007. In the latter part of the same year, Madam Hao had, through San-Hot BVI, entered into a total of 21 accumulator contracts with DBS for an array of shares and foreign currencies. Under the terms of these accumulator contracts, San-Hot BVI was obliged to purchase a certain amount of listed securities and foreign currencies every day at a predetermined price (fixed at a discount to the initial market price) for one year unless the spot price of the shares or foreign currencies rises to a certain threshold (“the knock out price”) where the contract will be “knocked-out” and terminated. As the market was on a rising trend at the outset, some of the contracts were quickly knocked out yielding a substantial profit. Then the market reversed and deteriorated, San-Hot BVI was obliged to continue to buy the shares and foreign currencies at the predetermined price which is higher than the spot price at the time, causing significant mark-to-market loss and significant cashflow strains to San-Hot BVI.

Eventually, San-Hot BVI was unable to meet its contractual obligations to purchase the shares and foreign currencies under the contracts from DBS, thus DBS unwound the contracts and initiated the debt recovery claim against San-Hot BVI and Madam Hao as guarantor for more than HK$ 92.6 million and JPY 23.5 million owing under the contracts.

The Defence and Counterclaim

In resisting the claim, Madam Hao and San-Hot BVI (collectively “the Customers”) alleged that DBS has made certain representations which were relied on by San-Hot BVI in entering into the equity accumulator contracts:

1. that the equity accumulators enabled DBS’s clients to acquire shares at a discount to the market price which was not available to anyone else in the market;

2. that Madam Hao would not have to commit any capital to such transactions as they would come to end very quickly; and

3. that Madam Hao was assuming little or no risk as the shares could be disposed of immediately in the market.

Further, the Customers also relied on section 108 of the Securities and Futures Ordinance (“the SFO”), which imposes civil liabilities on a person for inducing others to invest money by misrepresentation. The Customers also pleaded that DBS breached certain professional duties arising out of the banker and customer relationship and also by the express terms of the banking agreement.


The Outcome

The court held that there was no misrepresentation as alleged by the Customers. As Madam Hao was an experienced and sophisticated investor, she knew and understood the essential features of the accumulator contracts and exercised personal judgment and made independent decisions. She was also aware of the financial exposure involved and adequate explanation had been given by DBS. Thus the court found that the Customers did not rely on the representations allegedly made by DBS and found that DBS is entitled to the full amount it claimed with interest.

The Court also found that a claim under section 108 of the SFO differed from a claim for misrepresentation under common law or the Misrepresentation Ordinance in two aspects .
Firstly, the definition of “representation” under the SFO includes “forecasts” while traditional misrepresentation claims only cover representations of fact. Secondly, a claim under section 108 of the SFO is confined to compensatory damages and other reliefs like rescission, damages in lieu of rescission or restitution are unavailable.

Contractual Estoppel

A more interesting point is that the Court held that the principle of Contractual Estoppel settled by the English Court of Appeal decision in JP Morgan Chase Bank v Springwell Navigation Corp [2010] 2 CLC 705 also applies in Hong Kong. The Court found that parties to an agreement may agree that a certain state of affairs should form the basis of a transaction, regardless of whether the state of affairs actually exists. A properly drafted clause making that intention clear shall stand unless it contradicts some other specific or more general rule of public policy.


This has significant implications on the drafting of banking agreements. Banks can make provisions in the banking agreement specifying that parties to the agreement may give up rights to assert that they were induced to enter into it by misrepresentation so long as the intention is clear. This would essentially extinguish claims of misrepresentation in such cases.

Conclusive Evidence Clause

The Court also considered the legal effect of a “Conclusive Evidence Clause” in the banking agreement, which provides that the monthly statements shall be “conclusive and binding upon the customer” unless the customer notifies the bank within 90 days of any error or discrepancy.

The Court find that such clauses could have the desired effect if the term “brings home to the customer the intended importance of inspection of the statement”; “expressly or impliedly invites the customer to make such inspection of the statement” and “is intended to have conclusive effect if no query is raised at all or within certain time limit”. Thus banks may protect themselves by inserting such clauses into the banking agreements, and preclude disputes in transactions by adducing monthly statements, which shall serve as conclusive evidence binding on the customer.

The Incorporation of the SFC Code of Conduct

The Customers argued that the Code of Conduct ("the Code") for Persons Licensed by or Registered with the Securities and Futures Commission (“the SFC”) has been incorporated into the banking agreement by reference and any breach of the Code is a breach of the professional duties owed to the Customers. The banking agreement provides that ”[e]ach transaction shall be subject to the constitution, rules, regulations, customs, usage, rulings and interpretations in force of the Exchange, the relevant clearing house through which the transaction is conducted and any other authority having jurisdiction and to the applicable laws and regulations in Hong Kong or any other jurisdiction”. The Court held that since the SFC does not have any judicial function, it is not an “authority with jurisdiction” nor was the Code “constitution, rules, regulations, customs, usage, rulings and interpretations”. The Code has not been incorporated into the banking agreement and thus does not form part of the professional duties owed by DBS to the Customers.

The Court’s ruling on this argument is questionable. If one consider the phrase “the Exchange, the relevant clearing house through which the transaction is conducted and any other authority having jurisdiction” carefully, it seems that “any other authority having jurisdiction” shall have a wider meaning than authorities exercising judicial function as it is preceded by the reference to “the Exchange” and “relevant clearing house” which clearly does not exercise any judicial function. Further, the SFC has been tasked with wide regulatory and supervisory powers under the Securities and Futures Ordinance and it seems puzzling to suggest that it is not an “authority having jurisdiction”.


Notice of Incorporation of Contractual Terms

The Court held that regarding standard form documents, it is not necessary for the person receiving the document to have read it or been made subjectively aware of their import or effect if he knew that the writing or printing contained or referred to contractual terms before he is bound by the terms.

They are bound by the terms of the document they have signed unless they can show their apparent consent is vitiated or obtained by some other form of unconscionable conduct which justifies relief in equity.

Conclusion

The case illustrates that a banking agreement will govern the rights and obligations between a banker and client even the client is not aware of its contents. Bank customers are well advised to read and understand the terms before they sign any banking agreements.

For enquiries, please contact:
Sherman Yan
Managing Partner, Head of Litigation & Dispute Resolution
T: (852) 2107 0343
E: sherman.yan@onc.hk
Ludwig Ng
Senior Partner
T: (852) 2107 0315
E: ludwig.ng@onc.hk
14-15th Floor, The Bank of East Asia Building, 10 Des Voeux Road Central, Hong Kong
T: (852) 2810 1212 F: (852) 2804 6311 E: onc@onc.hk www.onc.hk
Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.
Published by ONC Lawyers © 2013