Read the full judgment text of CACV 483/2018, CACV 484/2018 and CACV 485/2018 on BabelCite. This Court of Appeal judgment was delivered on 9 September 2022 before Kwan VP, Yuen JA and Au JA.
Civil law – banking – mis-selling of equity accumulator contracts – duty of care – construction of Master Derivative Agreement – incorporation of SFC Code – common law duty to advise – breach – causation – contractual estoppel – authority of financial controller to suspend termination of guarantees – appellate review of findings of fact and evaluative judgment – equity accumulators entered into by Shine Grace Investment Ltd on 15 and 16 October 2007 with Citibank after advice of relationship manager Ms Mak – underlying stocks Sinopec, Petrochina, Shenhua and China Life – maximum exposure of approximately HK$3.109 billion and initial margin of about HK$515 million – Mrs Anita Chan Lai Ling, the owner of Shine Grace, died on 17 October 2007 – six Disputed ACs closed out on 22 January 2008 with total losses of approximately HK$478 million – whether Clause 5.1 of the Master Derivative Agreement, providing that each derivative transaction shall be 'subject to' the rules and regulations of relevant regulatory bodies, expressly incorporated the SFC Code of Conduct into the contract – held, no – Clause 5.1 is a governing law provision governing trading rules of exchanges and markets, not regulatory codes governing the conduct of licensed persons, and on proper construction does not import the SFC Code's advisory duties – SFC Code promulgated under section 399 of the SFO to guide fitness and properness, not to govern private contractual relationships – whether Citibank assumed a common law duty to advise on suitability and risks of equity accumulators – held, no – contractual framework on a non-discretionary basis, express disclaimers of advisory responsibility, and Mrs Chan's own extensive investment experience negated any assumption of legal responsibility – banker-customer relationship akin to that in JP Morgan Chase Bank v Springwell Navigation Corp and Chang Pui Yin v Bank of Singapore Ltd – whether Citibank breached any alleged advisory duty by failing to warn of total maximum exposure against available cash resources, by inadequate risk disclosure, and by allegedly misleading Mrs Chan about the Shenhua ACs – held, no breach established – TIPs and risk disclosures adequately disclosed MTM risk, step-up risk and margin obligations – allegation of positive misleading conduct regarding Shenhua ACs not made out on the evidence – whether there was a causal link between alleged breach and Shine Grace's loss – held, no – Mrs Chan was a strong-willed, highly experienced investor who would have entered into the Disputed ACs in any event and causation was wholly speculative – whether Ms Lai instructed and agreed with Citibank to suspend the termination instructions of the BSI Guarantees dated 26 July 2007, and whether she had authority to do so – held, yes on both points – Ms Lai was the financial controller of the Bonds Group and had both actual and apparent authority to deal with Citibank on BSI's financial arrangements – appellate court declined to disturb the trial judge's findings of primary fact and evaluative judgment in the absence of palpable error – appeals dismissed with costs and a certificate for three counsel.
Legal issues: Incorporation of SFC Code by Clause 5.1 of the Master Derivative Agreement · Common law duty of care to advise on suitability and risks of ACs · Breach of alleged duty to advise on maximum exposure and risk disclosure · Causation between alleged breach and Shine Grace's loss · Suspension of termination of BSI Guarantees and Ms Lai's authority
Outcome: Appeals of Shine Grace, Shinning and BSI against Citibank and Ms Mak dismissed in all three actions; trial judge's findings upheld.
Cited by 19 cases · Cites 2 cases