Chang Pui Yin and Others v. Bank of Singapore Ltd
Read the full judgment text of CACV 194/2016 on BabelCite. This Court of Appeal judgment was delivered on 20 July 2017.
1. The 1 st and 2 nd Plaintiffs [Mr and Mrs Chang respectively] are a couple, with Mr Chang born in 1924 and Mrs Chang born in 1934. They were married in 1975 and led humble lives in the United States. In the judgment below, they were described as “a simple couple who led uncomplicated lives” [1] until Mr Chang’s windfall in 1997. Due to his family connection, Mr Chang received approximately $120 million from a wealthy relative and he shared part of it with Mrs Chang. They retired back to Hong K
Cited by 12 cases · Cites 7 cases
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CACV 194/2016 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO 194 OF 2016 (ON APPEAL FROM HCCL NO 12 OF 2013) _______________________
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_________________ JUDGMENT _________________ Hon Lam VP (giving the Judgment of the Court): 1.The 1st and 2nd Plaintiffs [Mr and Mrs Chang respectively] are a couple, with Mr Chang born in 1924 and Mrs Chang born in 1934. They were married in 1975 and led humble lives in the United States. In the judgment below, they were described as “a simple couple who led uncomplicated lives”[1] until Mr Chang’s windfall in 1997. Due to his family connection, Mr Chang received approximately $120 million from a wealthy relative and he shared part of it with Mrs Chang. They retired back to Hong Kong and they were introduced to Mrs Li, who was then a relationship manager of the Standard Chartered Bank to assist them in their wealth management. 2.In 2004, Mrs Li changed her employment to work for ING Bank [“the Bank”], as the Defendant formerly was known. Mr and Mrs Chang opened private banking accounts with the Bank and were continuously served by Mrs Li. 3.The 3rd Plaintiff [“Nextday”] was solely owned by Mrs Chang as she was its sole shareholder and director. It was only a corporate vehicle of Mrs Chang in her investment. 4.The Plaintiffs suffered substantial losses in their investments conducted through the Bank. By this action, they claimed against the Bank for negligent advice, misrepresentation and breach of contract. 5.The action was tried before Bharwaney J in February and July 2014. At the pre-trial review on 15 January 2014, the learned judge directed that the trial would be split into two parts and the first part of the trial would not deal with issues on proof of damage, proof of causation of damages which were reserved to the Judge in charge of the Commercial List in the second part of the trial. 6.On 8 August 2016, the judge handed down the judgment in respect of the first part of the trial. He found for the Plaintiffs in establishing that the Bank was liable to them for breach of duties. He entered interlocutory judgment for damages to be assessed against the Bank with costs. 7.This is the Bank’s appeal against that judgment. Findings by the judge and the conclusions in the judgment 8.After adverting to the background of the Plaintiffs and the genesis of their wealth, the judge considered the investment knowledge and appetite of the Plaintiffs. He found that they had limited investment knowledge[2], rudimentary understanding about the investments they made through the Bank and the risks associated with them[3], and their investment objective had always been to preserve their capital and achieve a return slightly better than bank deposits, belonging to the category of medium-risk investors[4]. 9.Notwithstanding her knowledge of the profiles and investment objectives of the Plaintiffs, after the switch of their accounts to the Bank, Mrs Li recommended high risk products to them. Upon being alerted to the mismatch, Mrs Li promised Mrs Chang and Mr Chang that she would re-adjust their portfolio back to medium risk level. Despite such promise, the risk profiles of Mr Chang and Nextday maintained by the Bank internally were changed, without their knowledge, to high risk on 25 September 2007 instead. After September 2007, more than US$14 million worth of high risk products were sold to Mr Chang and Nextday[5]. 10.The judge further found that the Plaintiffs relied heavily on Mrs Li and Mrs Li was aware of that, so much so that the judge described Mrs Li as the person in control of the Plaintiffs’ accounts[6]. Significantly, Mrs Li never told the Plaintiffs that she was merely acting as a salesperson in making recommendations to them[7]. The judge was not impressed by the evidence of Mrs Li and found that she had not properly explained the risks of the investments to the Plaintiffs[8]. 11.In August 2008, the son of Mrs Chang confronted Mrs Li with the unsuitability of the investments in the Plaintiffs’ accounts. After that there were complaints raised by the Plaintiffs at meetings in September and October 2008. By then substantial losses had been incurred in the Plaintiffs’ accounts. The Bank denied liability on the basis that the accounts were “advisory accounts” and they were only operated on the Plaintiffs’ instructions[9]. 12.Against such factual findings, the judge examined the Plaintiffs’ claims against the Bank. The Bank relied on provisions in the documents executed by the Plaintiffs when the accounts were opened. They were set out by the judge at [121] to [122] of the judgment:
13.Misrepresentation aside, the Plaintiffs’ case was that the Bank acted in breach of its duties towards them. At [124] of the judgment, the judge summarized the way Mr Manzoni SC advanced the case of breach of duties on behalf of the Plaintiffs at the trial:
14.The Bank relied on the provisions in the account opening documents to contend that there was no duty to advise. The crux of the Bank’s case was set out by the judge at [125] of the judgment:
15.The Bank also relied on contractual estoppel based on the same provisions, and the judge allowed the argument to be run by granting leave to re-amend the defence[10]. 16.Hence, it was necessary for the judge to consider whether the provisions had the effect as contended by the Bank. The judge examined this question at [127] to [143] of the judgment. The conclusion of the judge can be found at [138] and [140]:
17.Based on such construction, the judge held that the Bank cannot exonerate itself by reference to those provisions. 18.The judge then went on to find that the Bank was in breach of the duties it owed to the Plaintiffs. The relevant findings are at [147] to [149] of the judgment:
19.Whilst the judge did not find it necessary to determine the other issues raised in granting interlocutory judgment against the Bank, he did decide some of them and make observations on others:
Issues in the appeal and the Respondent’s Notice 20.The Bank appealed against the judgment. In light of the submissions advanced on behalf of the Bank before us, the appeal of the Bank is founded upon a challenge to the construction of the relevant provisions by the judge. Mr Jat SC submitted that the judge erred in holding that the provisions did not apply to the non-discretionary accounts of the Plaintiffs. 21.In addition to defending the judge’s construction of the relevant provisions, Mr Manzoni on behalf of the Plaintiffs also sought to uphold the result by reference to breaches of the salesman duty. Counsel also contended that the Bank could not rely on the provisions by reason of the UCO and CECO and the judge was wrong in holding that they are not applicable. The construction issue 22.Mr Jat submitted that banks generally do not owe their customers any duty to provide advice on the suitability and risks of investments. Whilst banks may assume responsibility to provide advice, the mere giving of advice does not necessarily mean that a bank has assumed legal responsibility for such advice. He relied substantially on JP Morgan Chase Bank v Springwell Navigation Corporation [2008] EWHC 1186 (Comm), in which Gloster J (as she then was) said at [374]:
23.Relying on the same judgment at [452], Mr Jat drew a distinction between an investment advisor who is retained to advise a client on investment and the advice and recommendations given by a salesperson as part of the selling process. 24.He submitted that the absence of a written advisory agreement setting out the scope of the duty to advise and the relevant fee structure was an important indication that the bank did not assume legal responsibility to advise on suitability and risks. 25.In the present case, he submitted that the judge erred in construing Clauses A(17) and C(4) of the Services Agreements and clauses 1, 3 and 6 of the Risk Disclosure Statements as only applicable to custody accounts of the Plaintiffs but not to their non-discretionary accounts. These clauses provide that the Bank assumes no duty to give advice and assumes no responsibility for the customer’s portfolio or for any investments or transactions made. Further, if the Bank provides information and express views in relation to investments, the Bank would not accept any liability for investment decisions made by the Plaintiffs and it is under no duty to assess the prudence of any instructions given by the Plaintiffs. Counsel said the effect of these clauses was to negate the existence of any duty to recommend suitable investments and to warn the Plaintiffs of the risk of such investments. 26.The judge explained how he came to the construction he did at [127] to [141] of the judgment. He quite correctly noted that the accounts of the Plaintiffs consisted of custody accounts and non-discretionary accounts. Identifying Clause C(1) as the primary clause governing the scope of the services provided by the Bank, and placing great significance on the expression “established on an advisory basis only” in that clause, he found that the services provided in respect of non-discretionary accounts included some advisory services. After referring to some cases, he rejected the suggestion that “advisory basis” means the accounts being operated in accordance with the “advice” from the customers. Making reference to the marketing brochure of the Bank, the judge found that it was intended that advisory services would be provided by the Bank. 27.Mindful of the apparent conflict between the existence of a duty to advise and Clauses C(4) and A(17), the judge resolved the same by accepting Mr Manzoni’s contention that those clauses were only applicable to pure custody accounts which are not established on an advisory basis. The judge also relied on the principle 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. 28.Mr Jat submitted that the judge erred in the following respects in arriving at such construction:
29.Dealing first with the last limb of Mr Jat’s submissions, on the facts of the present case we do not derive much assistance from that citation from the judgment of Gloster J. We accept that as a matter of law the provision of information (even if it could factually be characterized as the giving of advice) in a banking context does not necessarily import a full-fledged duty of reasonable care and skill on the part of the bank as if it is giving advice as a financial or investment advisor. We also agree with Gloster J that it is necessary to look at all aspects of the objective evidence of the relationship between the parties in order to determine the extent of the duty assumed by the bank in offering the recommendations or advices. 30.There is obviously a difference between the duty owed by a full-fledged investment advisor and that by a salesperson marketing financial products. However, Gloster J did not regard the latter as owing no duty whatsoever. At [108] of the judgment in JP Morgan Chase Bank v Springwell Navigation Corporation, the learned judge observed as follows:
31.When that case went to the English Court of Appeal (reported in [2010] 2 CLC 705), Aikens LJ was prepared to accept that there would be a low level duty of care on the part of a salesman not to make any negligent misstatements, and to use reasonable care not to recommend a highly risky investment without pointing out that it was such, see [123]. 32.In Crestsign Ltd v National Westminster Bank plc [2015] 2 All ER (Comm) 133, the judge discussed this salesman duty at greater length. After alluding to the submissions advanced by counsel, the judge held at [143] that a bank which undertakes to explain the nature and effect of a transaction owes a duty to take reasonable care to do so as fully and properly as the circumstances demand. In coming to such conclusion, as shown in [145] to [150], the judge adopted the approach of Mance J (as he then was) in Bankers Trust International plc v PT Dharmala Sakti Sejahtera [1996] CLC 518 at p.553:
33.The judge in Crestsign highlighted the distinction in the different levels of duties at [153]:
34.As illustration of the salesman duty, Mr Manzoni also referred us to the decision of Lindgren J in the Federal Court of Australia in NMFM Property v Citibank (No 10) (2001) 186 ALR 442 at [396] to [402], which was endorsed by Stone J in Formosa Taffeta v Banque Indosuez [2009] 1 HKLRD 568 at [139]. Counsel also cited the recent judgment in Thomas v Triodos Bank [2017] EWHC 314 (QB) at [74] to [81]. 35.We do not find it necessary to discuss these authorities at length in this judgment. As held by Lord Hoffmann in Customs and Excise Commissioner v Barclays Bank plc [2007] 1 AC 181at [36], whether a defendant has assumed responsibility is a legal inference to be drawn from his conduct against the background of all the circumstances of the case. At [35], His Lordship said:
36.It is thus necessary for the court to examine the conduct of the salesperson against the facts and circumstances of each case before one can determine if responsibility had been assumed when recommendations were made. It is not possible to regard decisions reached in other cases with different facts and circumstances as directly applicable and transpose the same to the situation in the case before the court. 37.Hence, the giving of advice per se does not answer the question as to assumption of responsibility for such advice. One must examine the terms and conditions set out in the Services Agreements and the Risk Disclosure Statements as well as other relevant factual circumstances surrounding the dealings between the parties in determining the extent to which the Bank owed duties towards the Plaintiffs in respect of the recommendations of financial products and the management of their portfolios. 38.Having regard to the way in which the judge explained the extent of duties owed by the Bank and the breaches of the same at [147] to [149], quite obviously he did not find against the Bank on the basis that it owed the Plaintiffs a full-fledged duty to advise (as advocated in JP Morgan Chase Bank v Springwell Navigation Corporation). Though the judge only referred to the advisory services provided by the Bank generally at [138], he must also have in mind the extent of the duty as elaborated later in the judgment. 39.On the issue of construction, we should focus on the relevant context and factual matrix at the time when the Services Agreements were executed. 40.In our judgment, Mr Jat was correct in submitting that on its face, the terms and conditions in the Services Agreements were applicable to non-discretionary accounts as well as custody accounts. It was stated clearly in the Introduction section the terms and conditions in the General Terms and Conditions (viz. under Section A) are applicable to “all accounts established with, and all services provided by, the Bank”. The heading of Section A was “General Terms & Conditions applicable to all services”. 41.Referring to the Risk Disclosure Statement in Clause A(17), the intention was plain that it would be applicable to investment transactions (which would be conducted, in the cases of the Plaintiffs, in the non-discretionary accounts) as opposed to mere custody services provided by the Bank[18]. As it was in such context that the references to “the risk of loss in any trading or investments” were made, the need to consider the suitability of transactions and extent of exposure to loss were meaningful. There were explicit references to “all transactions’, “investment or trading transactions”, the Bank making suggestions without assumption of responsibility “for your portfolio or for any investments or transactions made”. All these were indicia that the parties intended that the terms would be applicable to the non-discretionary accounts. 42.The judge placed great emphasis on Clause C(1) where the non-discretionary accounts were “established on an advisory basis only”, taking it as the primary clause governing the scope of the banking services. His Lordship took the view that it suggested that some advisory services were to be provided by the Bank in respect of these accounts[19]. He rightly held that “advisory basis” could not be referring to “advice” from the customers[20] (and Mr Jat properly accepted that this must be right). The judge then, basing himself on several English authorities, drew a distinction between “account on an execution basis only” and “account on advisory basis only”[21]. He concluded that in light of some statements in the marketing brochure, the Bank did offer advisory services to the Plaintiffs[22]. 43.Given that advisory services would be provided by the Bank, the non-discretionary accounts could not be accounts operated on an execution basis only. He regarded this objective fact as negating the statements in Clauses C(4) and A(17) as they conflicted with the assumption of a contractual advisory duty on the part of the Bank[23]. He therefore felt driven to the construction suggested by Mr Manzoni. 44.With respect, the judge’s approach was flawed:
45.In this appeal, Mr Manzoni sought to support the judge’s construction. He submitted that though the clauses in question were ex facie wide enough to be applicable to non-discretionary accounts, when one pays proper regard to the context and factual matrix, they should not apply to those accounts. Counsel said the very purpose of an advisory account is to provide advice. There was a clear distinction between a custody account and an advisory account. The latter was an account with services beyond execution. Coupled with Mrs Li’s knowledge that the Plaintiffs’ accounts were opened as a continuation of their previous relationship at the Standard Chartered Bank (when Mrs Li had been directing the Plaintiffs’ investments), Mr Manzoni submitted that it made little commercial sense for the Bank to contract out of the very service which it offered to provide. A more rational construction was the one adopted by the judge, confining the application of these clause to custody accounts. 46.With respect, we cannot accept these submissions. In substance, the foundation of Mr Manzoni’s submissions is that the commercial purpose of the setting up of these accounts was for the Bank to give advices to the Plaintiffs. As we have explained above, this approach is flawed. One cannot disregard the terms of the agreement altogether in assessing the purpose of the accounts. The accounts were opened to facilitate the Plaintiffs’ conduct of their investment through the use of the Bank’s services. Part of such services involved the Bank recommending certain products to the Plaintiffs. There is no inherent implausibility or lack of commercial sense in Mr Jat’s submissions that such recommendations were put forward by the Bank on the basis that it would not assume legal responsibility for the same. 47.In his oral submissions, Mr Manzoni drew a line between advisory duty and investment duty and submitted that even if it is held that the clauses apply to non-discretionary accounts, they were only effective as disclaimers of the investment duty but did not operate as disclaimers of the advisory duty on the part of the Bank. 48.This was not an argument adopted by the judge. In any event, we do not think it is possible to draw such a line in the relevant terms and conditions in the present case. The following clauses clearly point to recommendations or suggestions made by the Bank, as such relate to what Mr Manzoni classified as the advisory duty.
49.Mr Manzoni placed considerable reliance on Li Kwok Heem John v Standard Chartered International (USA) Ltd [2016] 1 HKC 535. However, we derived little assistance from that judgment on the question of construction. As Mr Jat submitted, there are material distinctions in the relevant provisions in that case and the present case. Most importantly, the comparable clauses in that case were contained in the Risk Disclosure Statement which L Chan J found to be inapplicable to the products in question, see [174]. The General Business Conditions in that case did not contain provisions similar to Clauses A(17) and C(4) in the present case. 50.On proper construction of Clauses A(17) and C(4), subject to what we shall say below, we are of the view that they are applicable to non-discretionary accounts of the Plaintiff. We respectfully disagree with the judge on this issue. Unconscionable Contracts Ordinance 51.The UCO provides for relief in respect of a contract for supply of services in which one of the parties deals as consumer. If the court finds any part of such contract to have been unconscionable in the circumstances relating to the contract at the time it was made, the court may grant the relief set out in section 5(1) of the UCO. Such relief includes the enforcement of the contract without the unconscionable part or limit the application of, or revise or alter, any unconscionable part so as to avoid any unconscionable result. 52.The provision of services in relation to the non-discretionary accounts are contracts for the supply of services. The judge however held that the plaintiffs did not deal as consumer, thus UCO was not applicable in the present case. 53.Section 3 of the UCO defines the circumstances in which a party to a contract “deals as consumer”. Section 3(1) reads:
54.There is no doubt that the Plaintiffs did not make the contracts with the Bank in the course of a business whilst the Bank did. The judge found against the Plaintiffs because he was of the view that as private banking services are only available to the wealthy, they are not services ordinarily provided for private use, consumption or benefit. In other words, the criterion in Section 3(1)(c) was not satisfied. 55.With respect, that is a rather surprising conclusion. In this appeal, Mr Dawes SC (who argued this part of the appeal on behalf of the Bank) was unable to make any submission to support the judge’s conclusion. In our judgment, one cannot determine if a service is ordinarily provided for private use, consumption or benefit simply by examining the class of the consumers using such service. There are wealthy consumers and there are less wealthy consumers. What is required is that the services (or goods) in question are ordinarily provided for private use, consumption or benefit, the criterion is satisfied notwithstanding that the services are offered at a price or other terms which only those with considerable wealth could afford or meet. Mr Manzoni referred to several authorities as illustration of this proposition: Wong Lung v CUHK HCA 1122 of 2010, 2 Nov 2016 (investment advisory services); Freeway v Tam Chuen On HCA 61 of 2010, 2 July 2010 (loan agreement for $5 million); Rasbora v JCL Marine [1977] 1 Ll Rep 645 (36-foot power boat); Feldarol v Hermes Leasing [2004] EWCA Civ 747 (hire purchase of a Lamborghini). 56.Section 3(3) places the onus of proving that a person does not deal as consumer on the party making such allegation. There is no evidence to suggest that private banking is not a service ordinarily provided for private use or benefit. 57.We hold that the judge erred in his conclusion that UCO was not applicable to private banking services. 58.Therefore, we have to consider if the terms relied upon by the Bank, particularly those set out in [48] above, are unconscionable in the circumstances relating to the contract at the time it was made. 59.Section 6(1) of the UCO directs the court to have regard to the following matters:
60.By the expression “among other things”, the section also makes it clear that the list is non-exhaustive, see Shum Kit Ching v Caesar Beauty [2003] 3 HKC 235. As held in that case, the court must have regard to all circumstances relevant to the determination if a part of a contract is unconscionable. 61.The UCO was drafted with reference to Australian legislations (see Law Reform Commission’s Report on Sale of Goods or Supply of Services at [7.5.1] to [7.5.2] and [7.7.5]). Whilst the wordings are not exactly the same and the Australian Trade Practices Act 1974 had been replaced by the Australian Consumer Law in Schedule 2 of the Competition and Consumer Act 2010, in our view the underlying concepts regarding unconscionable conduct in the Australian jurisprudence provides some guidance in identifying if a particular provision is unconscionable in the UCO context. 62.At the same time, one must also keep in mind the distinctions between the UCO and the Australian statutes. Notably, the Australian statutes target unconscionable conducts as opposed to unconscionable contract. As such, the inquiry under the Australian statutes is wider, transcending beyond the circumstances at the time when the contract is made. In Hong Kong, the UCO directs against unconscionable contract and expressly stipulates that the court shall not have regard to any unconscionability arising from circumstances that were not reasonably foreseeable at the time the contract was made, see Section 6(2). 63.The list of non-exhaustive factors in Section 22 of the Australian Consumer Law [“ACL”] contains, in addition to factors in Section 6(1) of the UCO, several other factors. Section 22 provides,
64.Depending on the facts and circumstances of a case, we are of the view that some of these additional factors could also be relevant in the examination of the unconscionability of the contract in the Hong Kong UCO context. As shall be explained below, in the present case, factors (g) and (i) are of some significance. 65.We have been referred to several Australian authorities on the topic. It is not necessary for us to discuss all of them. Instead, we would highlight some propositions which, after paying due regard to the differences between the UCO and the Australian statutes, we believe to be helpful in applying the UCO in the Hong Kong context. We derive these propositions principally from recent Australian authorities: Australian Competition and Consumer Commission v South East Melbourne Cleaning Pty Ltd [2015] FCA 25; Paciocco v Australia and New Zealand Banking Group Limited (2015) 236 FCR 199, (2016) 33 ALR 569; Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd [2017] FCAFC 75. 66.Whilst the court must have regard to the non-exhaustive list of factors in the statute, it should also consider all other relevant matters and circumstances reasonably foreseeable at the time of making the contract in determining if there is any unconscionability in the terms of the contract. Unconscionability means “something not done in good conscience” and it is to be evaluated by reference to a normative standard of conscience. In such evaluation in the statutory context, the court is not constrained by the general equitable concept of unconscionability. 67.Hardship or bad bargain for a party per se cannot be a sufficient foundation for a finding of unconscionability. At the same time, it may not be too helpful to ask if there has been a high level of moral obloquy or moral tainting[25]. Whilst conducts involving dishonesty, sharp practice or conscious wrongdoing are unconscionable, conducts falling short of these could still be regarded as unconscionable. 68.In Paciocco v Australia and New Zealand Banking Group Limited (2015) 236 FCR 199 at [296], Allsop CJ explained the evaluation of unconscionability as follows:
69.Much of what His Honour said in terms of the norms and values embedded in the law is equally apposite in Hong Kong. We respectfully echo the sentiment and we consider that a similar approach is equally applicable in the context of our UCO though (unlike the position in Australia) we are confined to consumer’s dealings and unconscionability of the terms of the contract at the time when the contract is made. 70.In that context, as opined by Recorder Edward Chan SC in Shum Kit Ching v Caesar Beauty, supra, at p.240-1 the court may have regard to:
71.Coming to the facts of the present appeal, the focus of the inquiry is whether the standard terms in the Services Agreements and the Risk Disclosure Statements, in particular those set out at [48] above are conscionable. In terms of the matters in the Section 6(1) non-exhaustive list, none of them are determinative. On the relative strengths of the bargaining positions of the parties, though the Plaintiffs were not poor and uneducated and could have chosen to use the services of another institution for the maintenance of their substantial wealth, the reality remains that there is very little scope for them to negotiate for a different set of terms and conditions. 72.On the reasonable need to protect the legitimate interests of the Bank, it depends on the extent of the protection. Whilst we accept there is a reasonable need for protection of some potential liabilities flowing from recommendations of financial products, we do not see any legitimate interest on the part of the Bank to have absolute protection so that it would not be liable for conducts amounting to a complete disregard of the express instructions of the customers in terms of their investment objectives and risk appetites as it had happened in the present case (as we shall further explain below). 73.Though the evidence shows that no-one drew the attention of the Plaintiffs specifically to the clauses in question, we accept the 2nd Plaintiff could understand English and the clauses in question. Also there is no suggestion that undue influence had been exercised upon the Plaintiffs in procuring the agreements to be signed. We shall address the question of unfair tactics later. 74.There is not much evidence on the possibility of the Plaintiffs acquiring identical or equivalent services from other institutions. They had previously maintained their accounts with the Standard Chartered Bank. We are prepared to accept that the Plaintiffs could have opened private banking accounts with similar services offered by other banks. Yet we find this factor to be of minimal significance in the context of the present case. 75.As we said, on the facts of the present case these statutory factors are inconclusive. As held by the High Court of Australia in Paciocco v Australia and New Zealand Banking Group Limited (2016) 33 ALR 569, one should not regard any of these factors as determinative. The list of factors is not meant to be relied upon as a score list and whether a term is unconscionable is not to be determined by checking how many are achieved out of the several factors mentioned in it. Hence, the existence of inequality in bargaining power cannot by itself be conclusive on unconscionability (as in Paciocco). Likewise, the absence of such inequality would not be conclusive as to the conscionability of the contract. The same can be said in respect of the other matters in the list. The court must have regard to all the circumstances relating to the contract at the time when it was made in the exercise of its evaluative judgment to determine if the contract (or part of it) is unconscionable. 76.In addition to the matters in the statutory list, the following facts and matters, in our judgment, are also relevant to the exercise of that evaluative judgment:
77.Though some the above matters took place after the Changs had opened their accounts (but before the Nextday’s accounts were opened in July 2005), in light of the history of dealings between Mrs Li and the Changs as well as the proximity in time at which high risk products were introduced to their portfolios, the unconscionability (and, as explained below, we find there is unconscionability) flowing from the clauses (excluding the Bank’s liabilities arising from these matters) was reasonably foreseeable when the agreements were executed. 78.It is all the more so in respect of the Nextday’s accounts. By the time those accounts were opened, Mrs Li had been investing high risk products for the Changs for quite some time. 79.We come to the view that the clauses were unconscionable because (a) it makes a complete mockery of the purported compliance by the Bank with their regulatory duties (which were in place to protect investors like the Changs) and their purported efforts in ascertaining the investment objectives and risk appetites of the Plaintiffs in order to select suitable products for them; and (b) the whole arrangement adopted by the Bank was to deprive the Plaintiffs of the opportunity to make informed decisions on risk level of the products they invest in and yet place the entire risk arising out of such decisions on them, taking advantage of the trust they placed on Mrs Li. 80.According to the 2003 version of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission [“the Code”] (which was the applicable version at the material time) and it was applicable to the representatives of the Bank involved in the business of private banking, a licensed or registered person should act in the best interests of its clients in providing services to its clients[36]. Such person should take all reasonable steps to know his or her clients, including their investment objectives and should ensure the suitability of the recommendation or solicitation for a client is, having regard to information about the client, reasonable in all the circumstances[37]. When providing services in relation to derivative products or leveraged transaction, he or she should also make sure that the client understands the nature and risks of the products[38]. 81.Pursuant to the Code, Risk Disclosure Statements had to be provided and there were standard terms which had to be included in such statements[39]. It is indeed ironic that, as we have seen in the present case, that financial institutions made use of the Risk Disclosure Statements to limit their responsibilities to the customers. 82.In our judgment, the Code set out the benchmark for the standard in the financial industry which was applicable to the Bank at the material times. In compliance with such standard, the Bank obtained information about the Plaintiffs in terms of those recorded in the biodata files maintained by the Bank. Such information included the risk profiles and appetites as well as investment objectives of the Plaintiffs. The Code required the Bank to pay regard to such information in the conduct of its business with the Plaintiffs in respect of investment transactions in the private banking accounts. In the present context, in recommending products to or solicitation of the Plaintiffs, the Bank had a duty under the Code to act accordingly. 83.The Bank, in effect, contended that irrespective of its duties under the Code, it could rely on the clauses in the Services Agreements and the Risk Disclosure Statement to escape liabilities for not fulfilling such duties. In this connection, Mr Jat faintly referred to Green v Royal Bank of Scotland plc [2013] EWCA Civ 1197, [2013] Bus LR 168 where the English Court of Appeal rejected the notion of a common law duty of care arising from duties set out in a set of professional standards. However, it is plain that the English Court of Appeal did not have to consider the matter from the angle of a statutory provision similar to our UCO. In line with the observations of Tim Kerr QC sitting as a deputy judge in Crestsign Ltd v National Westminster Bank plc [2015] 2 All ER (Comm) 133 at [146] to [148], we think it is necessary to bear in mind the difference in context that the industry standard is said to be relevant. It is perhaps in light of that Mr Jat did not actually cite any particular part of the judgment in Green. Having read that judgment, we do not believe the English Court of Appeal ruled out the potential relevance of the professional standard in examining the common law duties though they decided that it would not be correct to hold that they were coterminous[40]. 84.We can advert back to the Australian approach in which the statute explicitly provides that industry standard is a relevant matter to be considered in assessing unconsionability, see Section 22(1)(g) of the ACL. We respectfully regard it as a sound approach and counsel did not put forward any serious argument to persuade us to exclude the obligations under the Code from our assessment in the context of UCO. This is particularly so when the Bank, in its marketing efforts, projected the image that it would be selecting suitable products for its customers, an image which is misleading if it were permitted to rely on the clauses in the agreements to escape liabilities. 85.After all, the Code was a standard of fair and responsible dealings in the financial industry agreed upon by the stakeholders. It was the norms set by the industry. As such the court should accept it as the embodiment of the business conscience to which we can make reference in assessing what is unconscionable in the context of the UCO. 86.Mindful of the lack of arguments before us on Green v Royal Bank of Scotland plc, supra, we refrain from imposing by the backdoor through the operation of the UCO a duty on the part of the Bank which is coterminous with its duties under the Code. We can see that there is scope for argument that not every breach of the Code would give rise to unconscionability in the context of the UCO. Much depends on the facts and circumstances of each case. This brings us to the second feature we pinpointed earlier which leads us to our evaluative judgment on unconscionability in the present instance. 87.According to the judge’s findings, the Plaintiffs had no idea that Mrs Li did not follow their investment objectives as medium risk investors and put their funds in high risk portfolios. This was possible only because the Plaintiffs placed their full trust on Mrs Li and the Bank was aware of the situation. At no stage did the Bank alert the Plaintiffs that these portfolios were high risk and they could lose substantial portion of their wealth before they consent to adopt the recommendations of Mrs Li. 88.We have no problem with the Bank telling the Plaintiffs that they should bear the risk consequences of their own investment decisions provided that the Bank had not conducted itself in a manner which misled the Plaintiffs. Had the Plaintiffs made informed choices on their investments, it would not be unconscionable for the Bank to stipulate that they should bear the consequences. Regrettably, in the present case, Mrs Li had deemed fit to recommend high risk products to the Plaintiffs without alerting them in any way that investment in such products was not consistent with their investment objectives and risk profiles. According to the findings of the judge, what she did was to exploit the trust which the Plaintiffs placed upon her and lull them into a false sense of security without drawing to their attention the Bank did not accept responsibility for the recommendations and the products were of a high risk nature. The Plaintiffs were not given any opportunity to make any informed choices. 89.Before the execution of the Services Agreements, the Plaintiffs had not been specifically alerted to the fact that Mrs Li was only acting as a salesperson in making recommendations on investment products and she might suggest products not consistent with their investment objectives and unsuitable to them. On the contrary, the Bank was painting a very different picture in projecting an image of its representative acting professionally in their investment recommendations and selection products. Viewed in that light, it is of significance that the clauses in question and their effects had not been highlighted and buried amongst many standard clauses. Whilst we do not agree with Mr Dawes’ submission that UCO only focuses on procedural fairness, we have no hesitation in coming to the conclusion unfair tactics were employed in procuring the Plaintiffs’ agreement to such clauses. 90.We have no doubt that the features in the present case are so aberrant from the commercial norms that the reliance of the clauses in question to avoid liabilities on the part of the Bank can properly be characterized as unconscionable. In so holding, we do not accept Mr Jat’s submission that it was a fair and reasonable bargain since the customers benefit from the availability of investment services without charge. Whilst apparently the Bank did not charge the Plaintiffs directly in respect of recommendations by Mrs Li, the Bank (as a sales agent for the products) would earn commissions from the transactions. Further, since these were leveraged transactions, the Bank also earned interests in respect of the loans it provided to the Plaintiffs. The Bank did not act gratuitously in providing such services. 91.It was not reasonably necessary to give the clauses in [48] their full effect to protect the Bank’s legitimate interest. There is no reason why the Bank should have any legitimate interest to avoid liabilities on the facts of the present case when all they needed to have done was either to make it very clear to the customers that they only acted as salesperson and the recommendations of their representatives might not be consistent with the customers’ objectives or to take reasonable steps to make sure the customers understand the risk level of the products they recommended. 92.We therefore come to the conclusion that giving full effect to the clauses in [48] above would be unconscionable. The Court should exercise its power under Section 5 of the UCO to limit the applications to those clauses to avoid the unconscionable result by holding that the Bank cannot rely on those clauses to avoid liabilities to the Plaintiffs in the present case. Control of Exemption Clauses Ordinance 93.The Plaintiffs also relied on the CECO. The judge held that this ordinance is not applicable because, if the contracts were execution only and not advisory, the clauses define the responsibility of the Plaintiffs as opposed to excluding liabilities. Further, on the same supposition, if the ordinance is applicable, the judge found that they were not unreasonable. 94.However, as we held above, the clauses in question are not confined in their operation to “execution only” services, it behoves us to address these issues afresh. Insofar as Mr Jat laboured under the misapprehension that the judge had decided on the applicability of CECO and the reasonableness of the clauses in the context of advisory contracts, he failed to pay proper regard to the first sentence at [160] of the judgment. 95.On the non-applicability of the CECO, the judge referred on the judgment of Gloster J in JP Morgan Chase Bank v Springwell Navigation Corporation, supra at [601] to [602]; Deputy Judge Pow SC in DBS Bank (Hong Kong) Ltd v San-Hot HK Industrial Co Ltd [2013] 4 HKC 1 at [234] and David Steel J in Titan Steel Wheels Ltd v Royal Bank of Scotland Plc [2010] 2 Ll Rep 92 at [104]. These authorities drew a distinction between “basis clause” and “exclusion clause”. 96.On our part, we find the discussion in the judgment of Christopher Clarke J (as he then was) in Raiffeisen Zentral Bank v RBS [2011] 1 Ll Rep 123 at [313] to [315] illuminating:
97.It is noteworthy that in the English cases, the judges emphasized the difference between a case where commercial parties of equal bargaining power negotiated with each other at arms-length and a case where a consumer dealt with a large commercial entity doing business on standard terms without any scope for negotiation. Thus, Springwell and Titan Steel (like Raiffeisen Zentral Bank) are cases falling within the former category. In Springwell, supra, Gloster J said at [603] and [604]:
98.In Titan Steel, supra, David Steel J alluded to the dichotomy between those who deal as consumers and other which underlie the Unfair Contract Terms Act 1977, citing the judgment of Dillon LJ in R & B Customs Brokers Co Ltd v United Dominion Trust Ltd [1988] 1 WLR 321. 99.In Hong Kong, whilst Deputy Judge Pow SC in DBS Bank (Hong Kong) Ltd v San-Hot HK Industrial Co Ltd, supra, concluded in favour of the bank in that case that its scope of services was defined by the terms of the agreement, L Chan J distinguished the same and concluded against the bank on this point in Li Kwok Heem John v Standard Chartered International (USA) Ltd [2016] 1 HKC 535 at [177] and [178]. 100.In Lee Yuk Shing v Dianoor International Ltd [2016] 4 HKC 535, the Court of Appeal dealt with the argument that a clause merely defines the extent of responsibility of a party as opposed to operate to exclude liability (thus not attracting the application of the CECO) in a non-banking context. Kwan JA stressed at [96] and [97] that one should be cautious before accepting this line of argument which could emasculate this piece of legislation and one must look into the substance of the matter and not to part company with reality. 101.A similar point arose in the banking context in the Singaporean case of Deutsche Bank AG v Chang Tse Wen [2013] 4 SLR 886. The Singapore Court of Appeal examined the English authorities and had this to say at [63]:
102.Section 13(1) of the Singaporean UCTA is the same as Section 5(1) of our CECO. It provides:
103.The latter part of that provision refers to terms and notices which exclude or restrict the relevant obligation or duty. The same provision is to be found in section 13(1) of the Unfair Contract Terms Act 1977. The English authorities cited above did not appear to have considered the implication arising from this part of the statute. Chitty on Contracts 32nd Edn discussed this issue at para 15-070 without reference to the Singapore Court of Appeal judgment. The learned editor had this to say,
104.Coming back to Deutsche Bank AG v Chang Tse Wen, supra, after referring to the earlier English cases of Phillips Products Ltd v Hyland [1987] 1 WLR 659 and Smith v Bush [1990] 1 AC 831, the Singapore Court of Appeal continued at [67] and [68]:
105.Arguments based on Smith v Bush, supra, had been run in England but met with little success, see Titan Steel at [101] to [104] and Thornbridge Ltd v Barclays Bank Plc [2015] EWHC 3430 (QB) at [110]. Judges in those cases regarded the law as having moved on since Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, see the discussion at Titan Steel at [87] to [90]; Springwell (Gloster J) at [474]. In the latter case, Gloster J pinpointed the rationale for drawing a distinction between terms which define the basis upon which services are supplied and exemption clauses at [602]:
106.We are of the view that a superficial classification of the nature of a clause simply by reference to its drafting without reference to the context in which the term was agreed or circumstances in which a signature is appended to a document would not suffice. As Kwan JA put it in Lee Yuk Shing v Dianoor International Ltd, supra, such an approach will emasculate the statute. It also fails to pay proper regard to Section 5(1). In this connection, we reject the written submissions of the Bank that the section only prevents the exclusion or restriction of obligations or duties insofar as it amounts to “excluding or restricting liability”. The correct analysis is that the issue has to be resolved by reference to substance rather than form. This is also the English approach. In Raiffeisen Zentral Bank, supra, at [274] to [276] Christopher Clarke J referred to the earlier decision of Cremdean Properties Ltd v Nash (1977) 241 EG 837 and [1977] 2 EGLR 80. He quoted the following part of the judgment from Bridge LJ in that case:
107.And at [308] to [310], His Lordship explained the approach of the court in applying the UCTA without being outmanoeuvred by artful draftsmanship:
108.We believe this was what His Lordship adverted to when he subsequently adopted the test at [314] of “attempts to rewrite history or parts company with reality”. 109.Thus, the court must examine the substance in the context of the dealings between the parties (and as the Singapore Court of Appeal held, the effect of such clauses is part of the context as opposed to their form). 110.In light of the findings by the judge, in particular those set out at [8] to [11] above and the matters highlighted at [76] above, the reality was that the Bank had intimated to the Plaintiffs that it would select products for the Plaintiffs according to their investment objectives and risk appetite and Mrs Li was aware that the Plaintiffs would rely on her in that regard. As we have said earlier by reference to the judgment of Lord Hoffmann in Customs and Excise Commissioners v Barclays Bank Plc, supra, one must have regard to all the circumstances of the case in deciding whether the Bank had assumed responsibility. On the facts as found by the judge, we have no difficulty in coming to the conclusion that as a matter of substance the clauses in question are provisions which exclude or restrict the relevant obligation or duty of the Bank. Hence, they would not be effective to exclude or restrict liability for negligence unless they satisfied the requirement of reasonableness in the CECO, see Section 7(2). 111.The test of reasonableness is set out in Section 3 of the CECO. In the present context, the relevant provisions are in Section 3(1) and (6):
112.Though there are guidelines in Schedule 2 of the CECO on the application of the test of reasonableness, it only applies under Section 3(2) for the purposes of Sections 11 and 12 which have no application in the present case. 113.It is not necessary for us to repeat what we have said above in the context of the UCO. Given our conclusion on unconscionability of the clauses in question, we have little difficulty in concluding that the Bank fails to satisfy us that the clauses are fair and reasonable ones to be included having regard to the circumstances of the present case. 114.Hence, the Bank cannot rely on these clauses to escape liabilities to the Plaintiffs. Disposition 115.For the above reasons[41], we dismiss the Bank’s appeal. We make an order nisi that the Bank shall pay 2/3 of the costs of the Plaintiffs. Such costs are to be taxed with certificate for two counsel if not agreed.
Mr Charles Manzoni SC, Mr Jose Maurellet SC and Mr Wilson Leung, instructed by C P Lin & Co, for the plaintiffs Mr Jat Sew-Tong SC, Mr Victor Dawes SC and Mr Joshua Chan, instructed by Deacons, for the defendant [1] Judgment at [4] [2] Judgment at [24] [3] Judgment at [26], [30], [31] [4] Judgment at [37], [40], [41] [5] Judgment at [40] to [49]. As to the finding of the high risk nature of the products, see [51] to [69]. See also [115] to [117] [6] Judgment at [70] to [80] in particular [79] [7] Judgment at [72] [8] Judgment at [81] to [114] [9] Judgment at [118] to [119] [10] Judgment at [126] [11] Judgment at [155] [12] Judgment at [156] [13] Judgment at [157] [14] Judgment at [158] [15] Judgment at [159] [16] Judgment at [160] and [161] [17] Judgment at [162] [18] It was provided under Clause C(7) that custody account was for safekeeping of securities or other investments. See also judgment at [140] [19] Judgment at [130] [20] Judgment at [131] and [136] [21] Judgment at [132] to [136] [22] Judgment at [137] [23] Judgment at [138] to [139] [24] Hedley Byrne v Heller [1964] AC 465; see also the analysis of Lord Goff in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at p.193B to E. A more recent example can be found in Barclays Bank plc v Grant-Thornton UK LLP [2015] EWHC 320 [25] See Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd [2017] FCAFC 75 at [52]; Paciocco v Australia and New Zealand Banking Group Limited (2015) 236 FCR 199 at [262]; Australian Competition and Consumer Commission v South East Melbourne Cleaning Pty Ltd [2015] FCA 25 at [116(i)]. [26] At [259] to [295] of the judgment, Allsop CJ recited the infusion of these norms and values in the law. [27] Judgment at [70] to [80] [28] Judgment at [24] to [31] [29] L Chan J made those observations regarding a plaintiff who was a partner in a large accountancy practice who had about 20 years’ experience in investing in equities. The relevant part of the observations is:
[30] Judgment at [37] to [43] and [117] [31] Judgment at [137] [32] Judgment at [72] [33] Judgmetn at [88] [34] Judgment at [80] to [114] [35] Judgment at [23] and [66] [36] [3.10] of the Code [37] [5.1] and [5.2] of the Code [38] [5.3] of the Code [39] [6.2(h)] and [Schedule 1] of the Code. The standard terms did not include provisions for limiting liabilities. [40] See [18] of the judgment in Green v Royal Bank of Scotland, supra. [41] For the purpose of this judgment, we need not discuss the implications of Sections 5 and 8(1) of the Supply of Services (Implied Terms) Ordinance Cap 457 as parties have not advanced arguments on the same in the present appeal. | |||||||||||||||||||||||||
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