Dbs Bank (Hong Kong) Ltd v. San Hot HK Industrial Co Ltd and Another

HC A 2279/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2279 OF 2008

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JUDGMENT

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Index

A.  INTRODUCTION

1.The plaintiff (“DBS”) is a licensed bank carrying on business in Hong Kong under the Banking Ordinance, Cap. 155.  It is also registered with the Securities and Futures Commission under section 119 of the Securities and Futures Ordinance, Cap. 571(“SFO”) as a Registered Institution to carry out Regulated Activities as defined in SFO, namely, dealing in securities, advising on securities and advising on corporate finance and asset management.

2.The 2^nd defendant (“Madam Hao”) is a PRC citizen resident in Beijing.  She is one of the two shareholders of a Hong Kong incorporated company named San-Hot Industrial Company Limited (“San-Hot HK”).  San-Hot HK was established in 2003 and has been engaged in the trading of petroleum and petrochemical products and equipment.  The experience of Madam Hao in the business world; her wealth; her experience in dealing with banks; and her general knowledge about banking activities are matters in dispute.  A detail analysis of her background will be dealt with later in this Judgment.

3.The 1^st defendant (“San-Hot BVI”) is a company incorporated in the British Virgin Islands. Madam Hao is the sole shareholder and director.  San-Hot BVI was established in 2007 as a corporate vehicle of Madam Hao at the suggestion and with the assistance of DBS.

4.Although Madam Hao, San-Hot HK and San-Hot BVI all opened private banking accounts with DBS, it is the banking account relating to San-Hot BVI that has become the subject matter of this action. DBS claims against San-Hot BVI for money due and owing from San-Hot BVI (with contractual interests) arising out of activities and transactions undertaken in San-Hot BVI’s private banking account with DBS. Madam Hao is sued as a guarantor of the liabilities of San-Hot BVI towards DBS.

5.It is not in dispute that a banker-customer relationship between DBS and San-Hot BVI was established on 28 August 2007 when DBS accepted San-Hot BVI’s previously submitted written application for bank account opening by establishing a bank account for the use of San-Hot BVI.  Between September and November 2007, San-Hot BVI traded in a number of “Knock-out Discount Accumulator Contracts” (“Equity KODAs”) and “Accumulating Par Forward Contracts”  (“APFCs”). Equity KODAs were contracts commonly known as “accumulators” relating to listed shares.  APFCs were also accumulator contracts but they relate to foreign currencies.  An accumulator contract has the following main features:-

(1)  a customer who enters into such a contract has the right and obligation to purchase a set volume of listed shares (or foreign currencies) at a price (the “Strike Price”) lower than the prevailing market price at the time when the contract was entered into ( the “Initial Price”);

(2)  the difference between the Strike Price and the Initial Price, when expressed in terms of a percentage of the Initial Price, is normally described as the “Discount”;

(3)  if the price of the underlying listed shares (or foreign currencies) has arisen to or above a certain pre-agreed price (the “Knock-out Price”) at the close of a trading day, then the contract will automatically be determined, i.e. “knock-out”.  In that case, the customer will get a guaranteed amount of the shares purchased at the Strike Price;

(4)  unless the contract is knock-out, i.e. the price of shares (or foreign currencies) fluctuates below the Knock-out Price, the customer’s right and obligation to purchase the fixed volume of listed shares (or foreign currencies) per trading day will continue until the expiry of the entire term of the contract (1 year in the present case).  In other words, the customer will be accumulating the said listed shares (or foreign currencies).  This is however a slight misnomer because the customer can always choose to sell the listed shares (or foreign currencies) back into the market at any time he sees fit. He may do so when there is a profit arising or he may do so to limit loss and to keep his cash-flow healthy;

(5)  a contract may simply require a customer to purchase a fixed volume of listed shares (or foreign currencies) when the closing price for any trading day falls below the Strike Price.  In that case, the contract is described as a “1X contract”.  A contract will be described as a “2X contract” if it requires a customer to purchase twice the fixed volume of listed shares (or foreign currencies) under the same circumstances.  For the same listed share (or foreign currency), a “2X contract” will customarily offer a higher Discount as compared to a “1X contract”;

(6)  an accumulator contract may be a product structured and devised by a bank and offered to its own customers.  It may also be a product structured and devised by a third party issuer and marketed by a bank to its customers.

6.After the establishment of the bank account of San-Hot BVI, Madam Hao caused various amounts of cash, mutual funds and listed shares to be transferred to the account[1].  On or about 27September 2007, credit facilities were granted by DBS to San-Hot BVI.  The cash, mutual funds and listed shares transferred to San-Hot BVI’s bank account became collaterals for the said credit facilities.  Since then, transactions conducted in San-Hot BVI’s bank account were effected by drawing upon the said credit facilities[2].

7.Between 20 September 2007 and 15 November 2007, San-Hot BVI entered into a total of 21 accumulator contracts (17 Equity KODAs and 4 APFCs). At the initial stage, most of the contracts were quickly knock-out and San-Hot BVI obtained considerable profits.  Later, the tide turned against San-Hot BVI and huge loss was sustained resulting in huge liabilities owing to DBS after DBS unwound the outstanding accumulator contracts, realized and appropriated all collaterals.  DBS claims against San-Hot BVI for the net sums due and owing of HK$92,648,489.83 and JPY23,545,784.77 with contractual interests. DBS claims against Madam Hao for the same sums in her capacity as a guarantor for San-Hot BVI’s liabilities.

B.  THE DEFENCE AND COUNTERCLAIM

8.With respect to the pleader for the defendants, the Defence and Counterclaim[3] was rather confusing.  Furthermore, issues had arisen on whether the defendants should be allowed to run defences or arguments not pleaded. I have thus decided to devote one section of this Judgment on analyzing the Defence and Counterclaim.

9.San-Hot BVI first raised what I would describe as a “Misrepresentation Defence” bearing the following essential allegations :-

(1)   At a meeting on 11 July 2007 and on diver occasions including those in early September 2007 prior to the first Equity KODA transaction on or about 20 September 2007, Mr Santos Wong (“Santos”) who was an employee of DBS made certain representations (“the Wong’s Representations”) to Madam Hao. 

(2)   The Wong’s Representations were pleaded[4] as follows:-

(i)   that Equity KODAs enabled DBS’s clients to acquire shares at a discount to the market price, and this discount was something which was not available to anyone else in the market;

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

(iii)  that she was assuming little or no risk as she would be able to dispose of the shares accumulated immediately on the market.

(3)   In reliance of the Wong’s Representations Madam Hao, acting on behalf of San-Hot BVI, entered into the 17 Equity KODAs in the period from 20 September 2007 to 7 November 2007[5].

(4)   In order to induce San-Hot BVI to enter into the Equity KODAs, DBS (through Santos) made the Wong’s Representations[6].  The Wong’s Representations did have the effect of inducing San-Hot BVI to enter into the Equity KODAs[7].

(5)   The Wong’s Representations were false/untrue[8] and San-Hot BVI was entitled to rescission of the Equity KODAs and it did rescind the Equity KODAs[9].

(6)   By reason of the rescission of the Equity KODAs, San-Hot BVI should be restored to the position it would have been in had it not entered into the Equity KODAs[10].

(7)   San-Hot BVI also claims damages for misrepresentation pursuant to the Misrepresentation Ordinance, to be assessed[11].

10.It can be seen that the claim for rescission was confined to the 17 Equity KODAs. No claim for rescission was pleaded for the 4 APFCs. In fact, when it came to the evidence of Madam Hao in relation to the 4 APFCs[12], she did not suggest that she entered into the 4 APFCs upon reliance of the Wong’s Representations.  Consistently, there was no prayer for the relief of rescission in respect of the 4 APFCs. Neither was there any plea of non est factum or other vitiating grounds in law.

11.It is also important to note that there was no claim for rescission in respect of the contract between DBS and San-Hot BVI in relation to the establishment of banker/customer relationship.  In the Statement of Claim[13], DBS pleaded that the banker/customer relationship was governed by the terms and conditions contained in the following agreements:-

(1)   account Opening Form-Non Individual Account dated 27 August 2007 (“the Account Opening Form”);

(2)   private Banking Account Master Agreement, whose terms are incorporated by reference in the Account Opening Form (“the Private Banking Agreement”);

(3)   general Commercial Agreement dated 14 August 2008 (“the General Commercial Agreement”);

(4)   mortgage over Stocks, Shares and other Securities to Secure Liabilities of the Depositor dated 14 August 2007 (“the Mortgage”);

(5)   charge on Cash Deposits to secure Liabilities of the Depositor dated 14 August 2007 (“the Charge”); and

(6)   Banking Facilities letter dated 27 September 2007 (“the Facilities Letter”) incorporating Terms and Conditions Government Banking Facilities and Services (“the Facilities Terms and Conditions”).

12.In the course of the hearing, Mr Jat SC (leading counsel for DBS) and Mr Coleman SC (leading counsel for the defendants) agreed that the submission of a signed Account Opening Form by a customer who applies for the bank’s services constitutes a written offer from the customer to DBS. Acceptance by DBS of the offer is signified by DBS approving the application and establishing a bank account for the customer.  Thereupon, contractual relationship between a customer and DBS is established. In due course, I will have to make findings on whether terms and conditions contained in the Account Opening Form and the Private Banking Agreement constitute binding contractual terms in respect of the banker/customer relationship between DBS and San-Hot BVI.  At this juncture, I would just point out that the Defence and Counterclaim has pleaded no rescission, non est factum or other vitiating grounds in law in respect of the banking services agreement that existed between DBS and San-Hot BVI.

13.The General Commercial Agreement, the Mortgage and the Charge were all executed by Madam Hao on behalf of San-Hot BVI[14].  There was again no rescission, non est factum or other vitiating grounds in law pleaded in respect of these signed written agreements.

14.Similarly, the Facilities Letter dated 27 September 2007 was counter-signed by Madam Hao on behalf of San-Hot BVI on 28^th September 2007.  The Defence and Counterclaim has pleaded no rescission, non est factum or other vitiating grounds in law in respect this signed written agreement for the provision of credit facilities by DBS to San-Hot BVI. In due course, I again will have to make findings on whether the terms and conditions set out in the Facilities Terms and Conditions had been incorporated by reference into the agreement for the provision of credit facilities by DBS to San-Hot BVI.

15.Closely related to the “Misrepresentation Defence” is a claim made under section 108 of the SFO.  Since this section has not, as submitted by counsel, been subjected to any judicial consideration, I will set it out in full:-

“108. Civil liability for inducing others to invest money in certain cases

(1) Where a person makes any fraudulent misrepresentation, reckless misrepresentation or negligent misrepresentation by which another person is induced –

(a) to enter into or offer to enter into –

(i) an agreement to acquire, dispose of, subscribe for or underwrite securities; or

(ii) a regulated investment agreement or an agreement to acquire, dispose of, subscribe for or underwrite any other structured product; or (Replaced 8 of 2011 s. 7)

(b) to acquire an interest in or participate in, or offer to acquire an interest in or participate in, a collective investment scheme,

the first-mentioned person shall, whether or not he also incurs any other liability (whether under this Part or otherwise), be liable to pay compensation by way of damages to the other person for any pecuniary loss that the other person has sustained as a result of the reliance by the other person on the misrepresentation.

(2) For the purposes of this section, where a company or other body corporate has made any fraudulent misrepresentation, reckless misrepresentation or negligent misrepresentation by which another person is induced to do any act referred to in subsection (1)(a) or (b), any person who was a director of the company or body corporate at the time when the misrepresentation was made shall, unless it is proved that he did not authorize the making of the misrepresentation, be presumed also to have made the misrepresentation.

(3) For the avoidance of doubt, where a court has jurisdiction to determine an action brought under subsection (1), it may, where it is, apart from this section, within its jurisdiction to entertain an application for an injunction, grant an injunction in addition to, or in substitution for, damages, on such terms and conditions as it considers appropriate.

(4) This section does not confer a right of action in any case to which section 40 of the Companies Ordinance (Cap 32) (whether with or without reference to section 342E of that Ordinance) applies.

(5) A person may bring an action under subsection (1) even though the person against whom the action is brought has not been charged with or convicted of an offence by reason of a contravention of this Part.

(6) Nothing in this section affects, limits or diminishes any rights conferred on a person, or any liabilities a person may incur, under the common law or any other enactment.

(7) For the purposes of this section –

(a) "fraudulent misrepresentation" (欺詐的失實陳述) means –

(i) any statement which, at the time when it is made, is to the knowledge of its maker false, misleading or deceptive;

(ii) any promise which, at the time when it is made, its maker has no intention of fulfilling, or is to the knowledge of its maker not capable of being fulfilled;

(iii) any forecast which, at the time when it is made, is to the knowledge of its maker not justified on the facts then known to him; or

(iv) any statement or forecast from which, at the time when it is made, its maker intentionally omits a material fact, with the result that –

(A) in the case of the statement, the statement is rendered false, misleading or deceptive; or

(B) in the case of the forecast, the forecast is rendered misleading or deceptive;

(b) "reckless misrepresentation" (罔顧實情的失實陳述) means –

(i) any statement which, at the time when it is made, is false, misleading or deceptive and is made recklessly;

(ii) any promise which, at the time when it is made, is not capable of being fulfilled and is made recklessly;

(iii) any forecast which, at the time when it is made, is not justified on the facts then known to its maker and is made recklessly; or

(iv) any statement or forecast from which, at the time when it is made, its maker recklessly omits a material fact, with the result that –

(A) in the case of the statement, the statement is rendered false, misleading or deceptive; or

(B) in the case of the forecast, the forecast is rendered misleading or deceptive;

(c) "negligent misrepresentation" (疏忽的失實陳述) means –

(i) any statement which, at the time when it is made, is false, misleading or deceptive and is made without reasonable care having been taken to ensure its accuracy;

(ii) any promise which, at the time when it is made, is not capable of being fulfilled and is made without reasonable care having been taken to ensure that it can be fulfilled;

(iii) any forecast which, at the time when it is made, is not justified on the facts then known to its maker and is made without reasonable care having been taken to ensure the accuracy of those facts; or

(iv) any statement or forecast from which, at the time when it is made, its maker negligently omits a material fact, with the result that –

(A) in the case of the statement, the statement is rendered false, misleading or deceptive; or

(B)   in the case of the forecast, the forecast is rendered misleading or deceptive.”

16.First of all, it is in the nature of a counterclaim which, if successful, could amount to a defence of set off.  Secondly, this claim is solely based on the allegation that the Wong’s Representations were false[15].  The same findings of fact will equally applied to all claims whether under section 108 of SFO, common law misrepresentation or the Misrepresentation Ordinance.  Thirdly, Mr Coleman categorically stated in open court that the defendants do not allege fraud against DBS or its employees.  Hence, the only differences between relying on section 108 of SFO as opposed to a conventional claim based on common law misrepresentation or the Misrepresentation Ordinance are:-

(1)   the definition of “representation” under section 108 of SFO includes “forecasts” which, are not representation of facts that could give rise to remedies under common law misrepresentation or the Misrepresentation Ordinance; and

(2)   a claim under section 108 of SFO is confined to compensatory damages.  There is no relief for rescission; damages in lieu of rescission; or restitution.

17.Then San-Hot BVI pleaded a claim based on “Breach of Professional Duties”. Again, this is in the nature of a counterclaim such that, if successful, could be used as a defence of set off.  I will set out the plea in full:-

“14. The Plaintiff owed fiduciary duties and duties of care towards both the 1^st Defendant and the 2^nd Defendant, and that such duties included the following duties (the "Professional Duties"):-

(1) to act honestly, fairly, and in the best interests of the Defendants;

(2) to act with due skill and care in the best interests of the Defendants;

(3) to ensure that representations it made and information it provided to the Defendants were accurate and not misleading;

(4) to act diligently and carefully when providing advice to the Defendants;

(5) to make all reasonable efforts to familiarize itself with the Defendants' financial situation, needs, experience, and objective;

(6) to ensure the suitability of its recommendations and solicitations to the Defendants, having regard to information about the Defendants that it should be aware through the exercise of due diligence; and

(7) to ensure that the Defendants fully understood the nature and risks of any products that it recommended to or solicited the Defendants to purchase.

15. The Plaintiff's Professional Duties arose:

(l) by reason of its status as a Registered Institution and being subject to the Applicable Laws and Regulations;

(2) by reason of the banker-customer relationship which it had with the Defendants;

(3) by reason of the fact that the Applicable Laws and Regulations were expressly incorporated terms (as provided for by Clause 1 of Section 1 of the Private Banking Agreement) and/or implied terms of the contract between the Plaintiff and the Defendants by reason of business efficacy and/or obvious inference.

53. Still further and/or in the alternative, the Plaintiff was in breach of the Professional Duties pleaded at paragraph 14 above.

Particulars

(1) The Defendants further repeat paragraphs 8 to 13 above and aver that the Defendants were not and should not have been regarded by the Plaintiff as professional investors.

(2) The Defendants repeat paragraphs 9-12, 16 to 26.1, 40 to 45 and 50-51 above and aver the Plaintiff had:

(a) failed to ensure that the representations it had made and information it provided to the Defendants were accurate and not misleading;

(b) failed to ensure that the Accumulators were suitable for the 1^st Defendant given, as pleaded above, the Defendants’ conservative investment objectives, the Defendants’ lack of relevant investment experience in Accumulators, the fact that the assets transferred to the Plaintiff represented the bulk, if not all, of the Defendants’ wealth, the degree of leverage involved and the financial exposure undertaken by the 1^st Defendant in transacting the Accumulators, and the disproportionate risk/reward of the Accumulators;

(c) failed to ensure that the Defendants understood the nature and risks of the Accumulators, in particular in the circumstances of the attendant level of leverage of the Accumulators;

(d)   failed to follow whether properly or at all its own Guidelines which failure in and of itself, in the circumstances that the Guidelines were put in place to ensure compliance with the Professional Duties, evidenced a breach and/or failing short of the Professional Duties.”

18.The defendants’ pleadings on the nature of these Professional duties were rather nebulous.  It first referred to them as “fiduciary duties and duties of care”.  It then stated that they arose out of three reasons, two of which related to the status of DBS as a registered banking institution and its banker/customer relationship with San-Hot BVI which were thus essentially "contractual" in nature.  The third reason was express incorporation into their contractual relationship (by relying on Clause I1 of the Private Banking Agreement) and by the principle of implied terms.  On the point about express incorporation, it eventually became clear that the defendants sought to argue that “The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission” ("the Code") fell within the ambit of Clause I1 of the Private Banking Agreement and was thereby expressly incorporated into the contractual relationship between DBS and San-Hot BVI.  On the point about implied terms, there was a mere general assertion that they were implied by reason of business efficacy and/or obvious inference.  It would appear on the face of the pleading that the Professional Duties were presented to be contractual in nature.

19.At the hearing, Mr Coleman clarified[16] that the Professional Duties were put forward on the basis of “concomitant contractual and tortious duties”.  In his words, the issue will be as to the extent to which those duties have been circumscribed or modified by the applicable and enforceable contractual framework, such that the tortious duties are to be considered co-extensive with the contractual duties.  In other words, the first step would still involve identifying the contractual terms (and hence duties) governing the relationship between DBS and San-Hot BVI.

20.Then on the tortious level, Mr Coleman relied on the tort of negligence. He said that the Professional Duties owed by DBS to San-Hot BVI arose from the proximity of the relationship between them as banker and customer in circumstances that can be described as asset management. Other than that, no further factual particulars were provided.  He also provided additional particulars of the alleged negligence as follows:-

“11. Reference is made to the Defence and Counterclaim paragraphs, which are thought to identify the negligence, but it can also be phrased that the Plaintiff (through Mr Wong) was negligent in that:

(1) he failed properly or at all to understand the features of the Equity KODAs as pleaded in paragraph 10(1)-(5);

(2) he failed properly or at all to understand the features of the Accumulating ParForward Contracts as pleaded in paragraph 11;

(3) he failed properly or at all to understand that the defendants did have to commit capital to the transactions;

(4) he considered that the contracts would come to an end quickly;

(5) he failed properly or at all to understand that the defendants would assume and had to assume significant financial risks in entering into the agreements;

(6)   he made the Wong Representations carelessly or without reasonable grounds for believing them to be true.”

21.At this juncture, I should also mention that one of the pleaded breaches of Professional Duties involved the allegation that DBS failed to adhere to its own “Private Bank-HK Client Suitability Assessment Guideline on Investment Products Version 1.2” (“the Guideline”) in a number of respects[17]. In summary, the defendants alleged that:-

(1)  DBS did not sufficiently attempt to familiarize itself with San-Hot BVI’s investment/product experience and risk tolerance level;

(2)  DBS did not sufficiently attempt to properly rate San-Hot BVI’s risk profile or review it in the light of material changes and financial needs;

(3)  DBS did not sufficiently attempt to ensure that:

(i) San-Hot BVI’s understood the accumulator contracts and their associated risks;

(ii) that it could manage their inherent risk;

(iii) that they were appropriate products to San-Hot BVI in view of its overall financial needs and investment objectives;

(4)  DBS erroneously categorized San-Hot BVI as having a high risk profile and the accumulator contracts were erroneously given a lower risk rating.

22.Although not pleaded as one of the Professional Duties which were said to have been breached by DBS, there was a general averment that Santos did not inform or explain to Madam Hao the contractual terms that would apply in respect of the Equity KODAs and APFCs transactions[18].  There was a similar averment that Santos did not explain to Madam Hao DBS’s margin requirements and policies[19].  There was also an averment that the Confirmations were in English only, not signed by San-Hot BVI and their contents had not been explained to Madam Hao/San-Hot BVI[20].

23.The defendants then pleaded that by reason of the breaches of Professional Duties, San-Hot BVI suffered loss because but for those breaches, it would not have entered into the Equity KODAs and APFCs. In relation to the loss under the Equity KODAs, San-Hot BVI basically identified it as the loss of the net funds injected into DBS and the profits it made in the Xinxin IPO subscription[21] totalling HK$69,334,930.08[22].  In relation to loss under the APFCs, it was pleaded that loss and damage should be assessed by reference to sums necessary to restore San-Hot BVI to the position but for entering into the same[23].

24.In relation to DBS’s claim against Madam Hao as guarantor, she argued that she entered into the guarantee dated 28 September 2007 (“the Guarantee”) relying on “the Guarantee Representations”[24]:-

“31. On or around 28 September 2007, Ms Hao signed the Guarantee. Pages 1, 5 and 6 of this document was e-mailed or mailed to Ms Hao by Jason Tse of the Plaintiff for her signature along with the Facilities Letter pleaded at paragraph 6(12) above for the stated purpose of being required for the Xinxin IPO and in particular it was made clear by Santos Wong and/or Jason Tse of the Plaintiff that the Guarantee was limited to the funds required for the Xinxin IPO ("the Guarantee Representations"). This document was in English only and the full contents of the said document were not provided to Ms Hao at the time of her signature, nor were they explained to Ms Hao at all, alternatively not in any detail. Save as aforesaid, paragraph 22 is denied. Ms Hao further repeats paragraphs 6(12) and (15) above.”

25.She then alleged that the Guarantee Representations were untrue in that the Guarantee was not limited to the funds required for the Xinxin IPO. Although there was originally an allegation that the Guarantee Representations were made fraudulently, Mr Coleman clarified at the hearing that no allegation of fraud will be made against DBS of its staff. Madam Hao’s case was that she was entitled to rescission of the Guarantee which she did by letters to DBS dated 29 May 2008 and/or 31 October 2008 and/or issuance of the Counterclaim.  She also claimed damages under the Misrepresentation Ordinance, to be assessed.

C.  REPLY AND DEFENCE TO COUNTERCLAIM

26.In reply to the “Misrepresentation Defence” and the “Section 108 SFO Claim”, DBS first denied that Santos had made the Wong’s Representations.  DBS however admitted that prior to San-Hot BVI’s entry into the first Equity KODA, Madam Hao had been informed that:-

(1)  Equity KODAs would enable her to acquire shares at a discount to the market price;

(2)  such discount would only be available to private bank customers who were professional investors;

(3)  San-Hot BVI would be able to dispose of the shares accumulated on the market;

(4)  there were occasions where Equity KODAs were knocked out before running their full term.

27.DBS then relied upon a number of contractual clauses contained in the Account Opening Form; the Private Banking Agreement; the Confirmations issued in respect of each Equity KODA transaction and the Facilities Terms and Conditions (set out in Appendix 1 of this Judgment) and asserted that San-Hot BVI was estopped by contract, convention, representation or otherwise from asserting that it had relied upon the Wong’s Representations in entering into the Equity KODAs. DBS also argued that San-Hot BVI was similarly estopped from asserting that it did not make its own independent decision to enter into the Equity KODAs and its own judgment on their appropriateness.

28.Prompted by the defendants’ general averments referred to in paragraph 22 above, DBS relied upon further terms and conditions set out in the Private Banking Agreement (set out in Appendix 2 to this Judgment). DBS argued that by reason of all the terms set out in Appendices 1 and 2 to this Judgment, San-Hot BVI was estopped by contract, convention, representation or otherwise from asserting that it did not agree or understand the provisions as to margin requirement, or did not understand the nature of or risk associated with trading on such terms.  Equally, San-Hot BVI was estopped from asserting that it did not make its own independent decision to enter into those trades on such terms and its own judgment on their appropriateness.  Furthermore, DBS argued that that the fact that Madam Hao might not have read or understood those terms could not alter their binding effect. Neither was there a duty, as a matter of law, to explain the contractual terms to Madam Hao.

29.Although estoppel by convention and estoppel by representation were pleaded, at the end of the day, Mr Jat relied only upon the principle of “contractual estoppel”.

30.In the same vein, DBS relied upon further terms and conditions set out in the Account Opening Form and the Private Banking Agreement (set out in Appendix 3 to this Judgment). DBS argued that by reason of these terms, the Confirmations; the monthly statement of the account; and DBS’s records were conclusive and binding on San-Hot BVI.

31.DBS’s reliance on the principle of “contractual estoppel” prompted not only arguments as to the extent of its applicability in Hong Kong.  At the hearing[25], Mr Coleman clarified that he would argue that the contractual terms relied upon by DBS were not in fact incorporated into the contracts(s) and did not bind San-Hot BVI.  This argument will thus call into close scrutiny the circumstances under which the banking services agreement was reached between DBS and San-Hot BVI as well as the circumstances under which Madam Hao executed various banking documents on behalf of San-Hot BVI.

32.As an alternative argument, DBS originally argued that the terms set out in Appendices 1 to 3 of this Judgment were in any event reasonable for the purposes of the Control of Exemption Clauses Ordinance (Cap. 710) and the Misrepresentation Ordinance (Cap. 284)[26]. In the course of the trial, it became clear that this issue related only to those terms which were relied upon to establish contractual estoppel.  The defendants argued that these terms giving rise to contractual estoppel were unreasonable by reason of disparity in bargaining position[27].  They also argued that these exclusion of liability clauses had not been brought to the attention of the defendants. All these arguments of course beg the question as to whether these terms could properly be classified as exclusion of liability clauses in the first place.

33.On the “Breach of Professional Duties Defence”, DBS relied on the same terms set out in Appendix 1 to this Judgment to negate the existence of the alleged Professional Duties[28].  Contractually, DBS argued that these Professional Duties could not be implied into the contractual relationship between DBS and San-Hot BVI as they were contrary to various express contractual terms and that they could not satisfy the test of business efficacy/obvious inference/necessity[29]. On the point of express incorporation of the Code, DBS argued that on a matter of construction, the Code did not fall within the terms of Clause I1 of the Private Banking Agreement[30].

34.On factual level, there was a general denial of breach of the alleged Professional Duties[31].  In essence, DBS’s case is that all the contractual documents stated that it only contracted to provide an “execution only” service. DBS was never engaged as an investment adviser for San-Hot BVI.  In other words, "asset management" was to be understood as assisting customers in their management of their assets through the provision of "execution only services".  Madam Hao (acting on behalf of San-Hot BVI) was a sophisticated businesswoman and she understood the nature and risks involved in engaging in accumulator contracts.  She had an appetite for risk.  She took risky decisions on her own motion, and sometimes against recommendations to the contrary by staff of DBS.  Although from time to time, staff of DBS (in particular, Santos) might have expressed their views, they were not offered on any basis of assumption of responsibility. Madam Hao fully understood that she had to exercise independent judgment and she in fact did so.

35.As for the defendants’ reliance on the Guidelines, DBS’s case is that the Guidelines were internal guidelines irrelevant to the issue of DBS’s liabilities towards its customers. Furthermore, DBS pointed out that San-Hot BVI was merely categorized as having a medium risk profile for the purposes of the Guideline[32]. Allegations for breaches of the Guidelines were denied.

36.In relation to the “Misrepresentation Defence in respect of the Guarantee”, DBS denied having made the Guarantee Representations.  The issue is thus one of facts only.

D.  THE ISSUES

37.In the light of the above backgrounds, the main issues which I have to decide are as follows:-

(1)  What were the contractual terms and conditions governing the banking services agreement concluded between DBS and San-Hot BVI?

(2)  In the light of the terms of their agreement, whether San-Hot BVI is estopped by the principle of “contractual estoppel” from alleging that:-

(i)  when it entered into the 17 Equity KODAs, it had relied on the Wong’s Representations;

(ii)  it did not understand the nature of or risk associated with the Equity KODAs; and

(iii)   it did not make its own independent decision and judgment.

(3)  In the light of the terms of their agreement, whether San-Hot BVI is estopped by the principle of “contractual estoppel” from alleging that:-

(i)   it did not agree or understand the provisions as to margin requirement;

(ii)  it did not understand the risk associated with trading on those terms;  and

(iii)  it did not make its own independent decision and judgment.

(4)  Whether the Wong’s Representations had in fact been made, and if so whether they would entitle San-Hot BVI to rescind the 17 Equity KODAs.

(5)  Whether a claim under section 108 of SFO has been made out.

(6)    Whether, in the light of the terms of their agreement, DBS owed the Professional Duties in contract or in tort, and if so, whether such duties had been breached.

(7)  Whether the Guarantee Representations had in fact been made, and if so, whether they would entitle Madam Hao to rescind the Guarantee.

E.  THE CONTRACT OF BANKING SERVICES

(I)  The protagonists

38.Madam Hao was aged 41 as of mid-2007.  Madam Hao described herself as a businesswoman engaged in the trading of petroleum and petrochemical products.  She is a PRC citizen residing in Beijing.  Her father was a world renowned expert in petroleum well drilling with numerous past students now being employees of established petroleum corporations in China and overseas.  It is apparent that Madam Hao was brought up amongst intellectuals and professionals.  During 1984-1987, she studied computer software at South-Western Petroleum University.  During 1988-1999, she worked in a subsidiary of Sinopec and was responsible for purchasing monitors from overseas manufacturers.  In 1999, she resigned and established 北京盛豪特石油科技有限公司 (“Beijing San-Hot”) which carried on trading of monitors for petroleum industry.  In 2000, her connections led to a big business opportunity of participating in purchasing a substantial amount of imported equipment.  It was necessary to establish a company that could trade in US Dollars.  Madam Hao therefore established 香港盛豪實業發展公司 (an unlimited company) in 2000 and opened a bank account with HSBC Hong Kong. In 2002, Madam Hao and her ex-husband also established another company named Haos International (Hong Kong) Limited which opened a bank account with HSBC Beijing branch and obtained a letter of credit facility for her business.  Then in 2003, she established San-Hot HK. San-Hot HK is a company owned by her and her ex-husband who is also an expert in petrochemicals.  The principal business of San-Hot HK is importing petroleum and petrochemical equipment to the PRC and selling them to major oil companies such as Sinopec and PetroChina.  San-Hot HK opened bank accounts with both HSBC Hong Kong and HSBC Beijing. It also has a letter of credit facility.  Madam Hao admitted that the business of San-Hot HK did well, that she is busy and constantly on business trips.  Thus, based on her own evidence, Madam Hao was, at all material times, experienced in trading (including international trades) and dealing with banks.

39.In cross-examination, Madam Hao admitted having signed account-opening documents with HSBC for香港盛豪實業發展公司 and San-Hot HK.  She also admitted having at least one personal bank account with HSBC.  In 2006, she also opened a personal bank account with Citibank.  She also admitted having signed many contracts with trading partners and with banks.  Madam Hao from time to time suggested that she could not understand English documents.  DBS’s witnesses held the impression that Madam Hao understood some English.  It was never suggested that she had at any material time asked for Chinese documents (including banking documents, bank statements, emails, transactions information and confirmations) to be supplied instead.  In any event, she was the boss of several sizable companies engaging in international trades. She certainly had the resources to obtain translation assistance if required.

40.Santos joined DBS as a Relationship Manager ("RM") on 10 July 2007.  Prior to joining DBS, he worked in Citibank for about 10 years.  He started off as a bank teller and was eventually promoted to the post of RM in 2000 when he started dealing with bank customers having Citigold accounts, a form of personal banking and wealth management services for customers with investment portfolio reaching or exceeding HK$1 million.  He is now registered with the Hong Kong Monetary Authority to carry out Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) activities.

41.It is not in dispute that Santos came to know Madam Hao in early 2006 when Santos was still working with Citibank.  Madam Hao was a walk-in customer.  Madam Hao opened a personal account with Citibank which Santos oversaw as RM. 

(II)  Dealings at Citibank

42.The dealings between Santos and Madam Hao at Citibank were not directly relevant to the issues in this action.  However they do shed lights on the investment experience of Madam Hao and her experience in executing banking documents immediately prior to her banking with DBS. Furthermore, both Santos and Madam Hao had respectively been extensively cross-examined in relation to the Client's Risk Profiles of Madam Hao kept at Citibank which reflected also upon their credibility.  I shall therefore have to deal with the pre-DBS dealings between Santos and Madam Hao.

43.It is not disputed that Madam Hao signed an application for account opening at Citibank on 19 April 2006[33].  It was a Chinese document. Under the section on "Terms", it contained a statement from Madam Hao that:-

“˙ The following terms have been provided to me/us the receipt of which I/we acknowledge. Notwithstanding your explanation of such terms, I/we shall review them to ensure my/our complete understanding. My/Our utilization of your services or operation of my/our account(s) will constitute my/our full acceptance of such terms.

˙ Account and services terms

˙ Citibank securities services terms

˙ Citibank US securities services terms

˙ Foreign exchange margin trading account terms and conditions

˙ Foreign exchange options transactions terms and conditions

˙ Gold transactions account terms and conditions

˙ Citibank ready credit terms and conditions

˙ Market linked deposits terms and conditions

˙ Structured notes trading terms and conditions

˙ Citibank electronic monthly statement usage agreement

˙ Policy statement relating to the Personal Data (Privacy) Ordinance

˙  Citibank Ultima Card agreement/"Citibank VISA card and MasterCard agreement"/"Citibank Private Label Card agreement” [English translation]

Under the section on "Investment Suitability Confirmation (applicable to investment and financial products)", it contained a statement from Madam Hao that:-

I/We have already completed the investment risk suitability assessment, and fully understand the risk and return of the products below. Furthermore, I/we am/are still willing to make the relevant investments

Foreign currency premium deposit

Bonds trading services

Market linked notes (100% principal protected)

Market linked deposits (100% principal protected)

Foreign currency margin trading

Foreign currency leveraged investment

Foreign exchange options transaction

Funds

Value added investment portfolio”

Under the section on "Risk Disclosure Declaration", it contained various statements from Madam Hao that:-

Mutual fund/selected fund saving plan

My/Our investment in the mutual fund account has a risk of principal loss, andsuch investment is not bank deposit and is not guaranteed or insured by you, orCitigroup Inc., or its subsidiaries, affiliates or associate companies in and out ofHong Kong from time to time, or related organization or branch (each a “Citigroup Organization),the responsibilities of each are only limited to those set out in this agreement. The value of the mutual fund investment can anddoes fluctuate. Any' investment in mutual fund may experience upward anddownward movements and may even become valueless. In some circumstances,my/our rights to redeem or sell the investments may be restricted. There is aninherent risk that losses may be incurred instead of profits made as a result ofbuying and selling investments in the mutual fund account.

Mutual fund/guaranteed fund plan

I/We understand, my/our investment in the guaranteed fund is guaranteed by the guarantor as set out in the fund document. I/We understand if I/we are to enjoy principal guarantee and/or other protective terms as set out in the fund documents, I/we must maintain the relevant level of investment in the guaranteed fund for the entire specified period according to the fund offering document. I/We also understand if the relevant fund units are prematurely redeemed, I/we shall bear the investment risk, and may result in loss of the principal amount.

Hong Kong/US Securities

I/We understand that the prices of securities can and do fluctuate and that any individual security may experience upward and downward movements, and may even become valueless. I/We acknowledge therefore that there is an inherent risk in trading securities and it is as likely that losses will be incurred rather than profit made as a result of trading in securities. There is the risk that I am/we are prepared to accept. I/We take complete responsibility for any outcome of buying and selling securities and agree not to hold you responsible for any losses resulting from my/our trading strategy. You will take due care according to your internal procedure on the selection of your nominee, broker,agent or any counterparty. I/We acknowledge and accept all risks associated with custodising securities with any such party authorising you to borrow or loan securities from or to such party. You shall not be responsible for any damage or loss arising from or in connection with such custody or action. I/We acknowledge that the internet is, due to its open, insecure and unreliable nature and unpredictable traffic congestion, an inherently unreliable medium of communication and that such unreliability is beyond your reasonable control. I/We acknowledge that as a result of such unreliability, there may be: (a) failure and/or delays in the transmission and receipt of instructions and other information which may result in delays in the execution of instructions and/or the execution of instructions at prices different from those prevailing at the time when the instructions were given; (b) unclear and/or incomplete transmission of instructions which may lead to misunderstanding or errors in any communication; and (c) loss of confidentiality in the transmission of information and that all such risks shall be fully borne by me/us. I/We further acknowledge that it will not usually be possible to cancel an instruction after it has been given. I/We acknowledge that any subscription for or acquisition or purchase of any securities registered outside Hong Kong and the receipt and collections of income there from and other administrative matters thereof may not be governed by Hong Kong laws. I/We agree to bear all risks relating to my/our instructions to deal with such securities which are not governed by Hong Kong laws.

Securities

I/We understand that the prices of securities can and do fluctuate and that any individual security may experience upward and downward movements, and may even become valueless. I/We acknowledge that there is an inherent risk in trading in securities and therefore that it is as likely that losses will be incurred rather than profit made as a result of trading it securities. There is the risk that I am/we are prepared to accept. I/We take complete responsibility for any outcome of buying and selling securities and agree not to hold you responsible for any losses resulting from my/our trading strategy. You will take due care according to your internal procedure on the selection of your nominee, broker, agent or any counterparty. I/We acknowledge and accept all risks associated with custodising securities with any such party or authorising you to borrow or loan securities from or to such party. You shall not be responsible for any damage or loss arising from or in connection with such custody or action. I/We acknowledge that any subscription for or acquisition or purchase of any securities registered outside Hong Kong and the receipt and collections of income there from and other administrative matters thereof may not be governed by Hong Kong laws. I/We agree to bear all risks relating to my/our instructions to deal with such securities which are not governed by Hong Kong laws.

Foreign currency premium deposits

Although the amount of alternate currency to be paid for the foreign currency premium deposit is pre-determined when such deposit is set up, but I/we are still subject to the risk of fluctuation of the alternate currency. The depreciation in the alternate currency as compared to the base currency before the maturity of the deposit will undoubtedly cause you to exercise your rights to repay me/us in the alternate currency but not the base currency. The consequence is that the loss in receiving a weaker alternate currency as compared to the base currency will and can substantially reduce the amount that we are / I am to receive when such deposit is set up (depending on the extent of depreciation of the alternate currency). Therefore, I/we should study the currency market carefully and consider whether foreign currency premium deposits are suitable to me/us in light of my/our financial position and investment objectives.

Gold trading account

The price of gold is volatile based on the market and I/we understand its investment value may go up or down. My/Our investments in gold are subject to investment risks, including the possible loss of principal invested. Investments in gold are not insured by any governmental agency. Gold investment does not represent a deposit of money and provides no yield or interest. The gold trading account is established according to the conceptual gold purchase scheme, and is limited to gold traded on paper, which is not supported by actual gold. You have the right to decide on the relevant hedging arrangements of gold in this plan.

Market linked notes

Market linked notes are provided by the issuers and the issuers assume all responsibilities. This product is not bank deposit and is not protected by the government. Unless a warranty is set out in the relevant information, you and other Citigroup Organization will not be liable to or provide guarantees to the marked linked notes and I/we must be subject to investment risk, including the possibility of losing the principal invested. Past performance is not indicative of future performance, the prices may go up as well as go down. Investment made in notes cleared in a non-local currency will be subject to exchange rate fluctuation and may lead to loss of principal. Principal guarantee and/or interest guarantee are provided by the issuers and I/we must assume the issuer's risk. Unless otherwise stated you and other Citigroup Organization will not be liable to, or provide guarantees on the principal guarantee and/or interest guarantee given by the issuer. In the event that the notes are prematurely redeemed, the principal guarantee and interest guarantee given by the issuer will not be applicable, Investor should refer to the offering notice and/or summary of terms for relevant terms on principal guarantee and/or interest guarantee.

Customer assets received or outside Hong Kong (applicable to mutual funds/selected fund saving plan, securities, market linked notes, bonds)

Customer assets received or held by you outside Hong Kong are subject to the applicable laws and regulations of the relevant overseas jurisdiction which may be different from the Securities and Futures Ordinance (Cap.S71) and the rules made there under. Consequently, such client asset may not enjoy the same protection as that conferred on client assets received or held in Hong Kong.”

44.It will be apparent when I subsequently deal with the account opening procedures involving DBS that the account-opening documents used by Citibank and signed by Madam Hao in 2006 bore substantial similarities with the account opening documents used by DBS.  Madam Hao thus had previous experience of executing banking documents in which she was asked to give various confirmations as to her knowledge and understanding of the contractual terms and the investment risks involved. Risk Disclosure  Statement was no stranger to her. This document was in Chinese.  There could have been no problem for Madam Hao to understand its contents.  At this juncture, I will briefly deal with a point that is not in dispute between Mr Jat and Mr Coleman.  An account-opening application form signed by a prospective customer is, as a matter of law, an offer made by the prospective customer to the bank.  Although the terms on which the bank is willing to provide its services are invariably drafted, dictated and printed by the bank and are incorporated by reference in the application form, they nonetheless constitute integral parts of the offer made by the prospective customer to the bank. In a nutshell, the prospective customer is applying for the bank's services. By signing and submitting the application form, the prospective customer is offering to the bank that he is willing to be bound by those terms in relation to the services that the bank would be providing.  The bank will then process the application.  It may or may not accept the application. In the event that the application is accepted, this will be signified by the opening of an account for that customer.  Thereupon, a formal contract for banking services would have been concluded.

45.The account opening process in respect of Madam Hao's bank account at Citibank was conducted by Santos.  There is no suggestion that Santos did not provide Madam Hao with those documents listed under the Section on "Terms". It will however be seen below when I deal with the account opening procedures in relation to the DBS Private Banking accounts opened by Madam Hao, San-Hot HK and San-Hot BVI that Madam Hao suggested that the Private Banking Agreement (which was incorporated by reference in the DBS account-opening application form) was not provided by Santos to her. I will then deal with her evidence in greater detail.

46.Apart from the account-opening application form, Madam Hao also admittedly signed a "Personal Investment Risk Profile" on 19 April 2006.[34]  This document was in the form of a Questionnaire.  Appropriate boxes were ticked and Madam Hao signed at the end.  In this document, Madam Hao's investment experience was described as "Moderate: I have some experience in investment. I would like further guidance".  In respect of her investment objectives and comfort level, she described herself as "Moderate: I prefer a balanced approach and would like to invest in instruments with both growth and income characteristics.  I can accept negative fluctuations for periods of 2-3 years in order to earn returns considerably higher than time deposits". On the question of her preference to increase potential return by taking more risks, her statement was: "I am willing to take a little more risk with some of my money".  On the face of the document, she also stated that she was experienced with the following kinds of products:-

-  Mutual Funds

-  Stocks

-  Bonds

-  Property Investments

-  Structured Deposits

-  Foreign Currency Deposits

-  Insurance

47.In the cross-examination of Santos by Mr Coleman, it was not suggested to Santos that there was any irregularity in compiling this "Personal Investment Risk Profile" on 19 April 2006.  Yet, when Madam Hao was cross-examined by Mr Jat, she said that she only had experience in Mutual Funds, Foreign Currency Deposits and Insurance and could not have told Santos otherwise. She accused Santos of "making up a lot of things". She claimed that there was only a casual chat between Santos, herself and her friend Madam Yuen who also wished to open an account with Citibank. Madam Hao said that in the course of a casual chat on who would be willing to bear risks, Madam Yuen said she was the most conservative type.  Madam Hao then commented that she was the second-most conservative type.  Then nothing else was talked about. Madam Hao said that Santos did not go through a risk assessment process with her. As pointed out by Mr Jat, her evidence was contradicted by her own witness statement in which she said[35] on that occasion Santos conducted a risk assessment for her.  It was also inconsistent with the case put by Mr Coleman to Santos. Furthermore, in cross-examination, Madam Hao said that Santos did not ask whether she had experience in trading stocks and shares and so she did not tell Santos that she held Bank of China stocks.  On the contrary, in her witness statement, she said that she positively told Santos that she did not have experience in buying and selling stocks. Madam Hao was, in my view, unable to provide cogent and convincing explanation for the discrepancies. She staunchly maintained that Santos ticked various boxes indicating her experience in a variety of products without instructions or information from her.  At the end, she accused Santos of making things up on the very first day they met on 19 April 2006.  The attitude of Madam Hao sat oddly against the very clear stance avowed by Mr Coleman at the outset of the trial, namely, that there will be no accusation of fraud or dishonestly against Santos.

48.Madam Hao did not impress me as an honest and credible witness.  This was just one of the many instances in which I have lost faith in the veracity of her evidence.  On many occasions, the evidence she gave in Court was shown to contradict her witness statements or was inconsistent with contemporaneous documents.  One clear example is discernable when one examines the first complaint letter issued by her solicitors to DBS[36]. This letter portrayed a case very different from the case now run by the defendants. In this letter, Madam Hao alledged that all her funds transferred to DBS were expressed to be “只作San-Hot日常營運的資本之用途”.  This statement was wholly inconsistent with indisputable evidence of subsequent investment activities carried out by Madam Hao utilizing those funds. DBS was further accused of “私自運用客戶資金進行槓杆投資”.  There was no suggestion of the “Wong’s Representations” at all.  The focus of her complaint was the unauthorized use of customer’s funds in investment activities.  This accusation bears no resemblance to the case now run by the defendants.  When cross-examined on this letter, Madam Hao reluctantly accepted that its contents were inaccurate.  Yet, it begs the question why such glaringly different instructions were given to her solicitors in the first place.  On many occasions, she would give unconvincing explanations in order to wriggle out of obvious conclusions basing on documents admittedly signed by her.  She seldom gave a direct answer to even a simple question.  Much of her evidence was inherently improbable.  For logistical reason, I cannot set them all out at this stage.  I will deal with them at the appropriate places as my treatments of the evidence enfold.  As far as the present issue is concerned, her suggestion that Santos set out to con her on the very first day of their encounter was inherently improbable, to say the least.  I have no hesitation in finding that on 19 April 2006, Santos did conduct a risk assessment exercise with her and compile the "Personal Investment Risk Profile" based on information provided by Madam Hao to him.

49.Then according to the evidence of Santos, subsequent to the opening of the Citigold account, Madam Hao invested in mutual funds, investment linked insurance, securities, and currency linked deposits. He recalled Madam Hao complaining about the slow return rates of her investments in balanced funds and the Asian funds.  Madam Hao told him that she wanted quicker return which led to a revision of her "Personal Investment Risk Profile" in April 2007.

50.According to the "Revised Personal Investment Risk Profile"[37], Madam Hao's investment experience was changed to "Extensive: I am an active and experienced investor and would prefer to make my own investment decisions".  As regards her willingness to increase potential return by taking more risk, it was changed to "I am willing to take a lot more risk with some of my money". This "Revised Personal Investment Risk Profile" bore the date 14 April 2007 and the signature of Madam Hao.  Santos was subjected to extensive cross-examination by Mr Coleman in respect of this document.

51.Santos first referred to this "Revised Personal Investment Risk Profile" in his witness statement[38].  He was then subjected to interrogatories asking whether the review was conducted in person with Madam Hao and if so when and where.  Santo's answer was "As far as I recall, I conducted the review with Madam Hao in person at Citibank's Tsim Sha Tsui branch on or around 14 April 2007".  In the supplemental witness statement of Madam Hao[39], she adduced her movement records showing that she was not in Hong Kong on 14 April 2007 and said as follows:-

"Although the signature which purports to be my signature on the document is similar to my usual signature, I know that I was not in Hong Kong and that I did not sign any such document on or around 14 April 2007. I do not know why Santos Wong has signed the document as a witness.  He certainly did not witness me signing the document." [emphasis added]

52.In Santos supplemental witness statement[40], whilst acknowledging the force of the movement records, he denied having forged Madam Hao's signature on the "Revised Personal Investment Risk Profile".  He said that if Madam Hao was not in Hong Kong at the time of the said review, then it was possible that he had conducted the review with her which she then signed when she last visited Hong Kong prior to April 2007, but the document was (for reason he could not recall) dated 14 April 2007.  Another possibility was that he had conducted the review over telephone with Madam Hao and sent the form to her for signing.  She then returned it around April 2007.  The upshot of his evidence was that he did not forge Madam Hao's signature on the document which must have been signed by her.

53.In cross-examination, Mr Coleman suggested to Santos that Madam Hao did not tick the boxes in the "Revised Personal Investment Risk Profile" and never authorized him to do so.  Santos denied. It was not suggested to Santos that he forged Madam Hao's signature on the document.  This was perhaps understandable because Mr Coleman had previously avowed that there would be no accusation of fraud or dishonesty against Santos. It was then suggested to Santos that without the revision, he would not have been permitted to market the two higher risk funds, namely the JP Morgan Europe Small Cap Fund and the Schroder Commodity Fund to Madam Hao. Santos replied by saying that it was not the case. Mr Jat picked that up in re-examination.  He referred Santos to 2 "Fund Transaction Forms" in respect of the purchases of the said 2 funds.  Both forms contained ticked boxes as follows:-

"I/We have gone through the investment risk suitability assessment and fully understand the associated risks and returns of the above-mentioned fund which I/we intend to apply for.  I/We confirm that I/we wish to proceed with my/our investment in the above-mentioned fund.

I/We confirm to invest in the above-mentioned fund, and understand that the risk level of this fund investment is higher than the level I indicated in my investment risk suitability assessment."

One of the 2 forms contained Santos handwritings: "customer aware the deviation of portfolio she positive on Euro zone" and the other form wrote: "customer aware the deviation and positive on commodity sector". Both forms were signed by Santos on behalf of the customer and marked "BBP" which was explained by Santos to mean:"Bank by Phone".  Santos explained that he received instructions from Madam Hao over telephone, explained the deviation from portfolio to her which she understood and then carried out the transaction for her and signed on her behalf. Santos thus explained that even if Madam Hao had not gone through the "Revised Personal Investment Risk Profile" process, she could still be permitted to purchase the said two riskier funds.

54.Madam Hao was also cross-examined on the "Revised Personal Investment Risk Profile".  She was confronted with what purported to be her signature.  When asked whether she was accusing Santos of forging her signature, Madam Hao said that she did not say the signature was forged, but the fact was that she did not consent to a change of her risk profile. Then in the course, she mentioned that she had inspected the original of the "Revised Personal Investment Risk Profile" at Citibank.  The original she inspected bore a signature written by a ball-point pen or an ink pen. She said the signature looked very much like her signature but still she could not tell whether it was actually signed by her.  However, when asked again by Mr Jat, she maintained that she did not put her signature on the document.

55.I am baffled by Madam Hao's case on this point.  The "Revised Personal Investment Risk Profile" is a bilingual document. If she had signed on this document, either she knew its contents or did not care to read its contents. In either case, she would be bound by its contents unless there are specific vitiating factors such as non est factum, undue influence or misrepresentation.  No such cases have been put forward.  On the other hand, if she had definitely not signed on the document, then what purported to be her signature must have been a forgery.  This would be a very serious allegation against Santos and she has to set about proving that by cogent evidence.  The evidential burden would be squarely on her. However, she did not set about doing so in this Court even though she had, at one stage, reported the matter to the police.  Her evidence was reduced to a bare allegation that she was not responsible for the contents of the "Revised Personal Investment Risk Profile".  I cannot accept Madam Hao's evidence. In my view, the stance taken by Madam Hao was consistent with her other vain attempts to try and wriggle out of obvious conclusions borne out in documents which bore her signatures.  Compared with Madam Hao, I find Santos to be a far more reliable witness.  He was straight forward and not evasive in answering questions during cross-examination. He readily accepted logical conclusions that flew from contemporaneous documents.  When he was mistaken in his recollection, he readily accepted that he could have been mistaken and corrected himself. I have no difficulties in preferring Santos evidence to that of Madam Hao. I find that Santos was genuinely mistaken when he originally stated that the review was conducted in person with Madam Hao on 14 April 2007.  After all, when he gave his witness statement, it was already close to 3 years after the event.  All along, there was no complaint about Santos's service to Madam Hao whilst at Citibank.  It is only understandable that Santos might not retain acute recollect of this episode and was genuinely mistaken when he tried to refresh his memory from the documents.

56.Furthermore, in cross-examination, Madam Hao referred to several telephone calls in which Santos was selling to her the benefits of the 2 funds.  She then confirmed that she did tell Santos to go ahead with purchasing the 2 funds.  However, in her supplemental witness statement[41], she suggested that Santos created the 2 "Fund Transaction Forms" without discussing with her and obtaining her agreement.  I find that Santos evidence as well as the admissions made by Madam Hao in cross-examination were entirely consistent with the contents of the 2 "Fund Transaction Forms".  They are powerful contemporaneous records.  Madam Hao alleged in her supplemental witness statement and in cross-examination that Santos did not explain to her the deviation from her risk profile over telephone.  She even suggested having listened to tape recordings at Citibank which proved her point.  These alleged tape recordings were never adduced by the defendants.  I agree with Mr Jat that I cannot rely on Madam Hao's bare assertion as to their alleged contents and comprehensiveness.

57.I therefore find, on balance of probabilities, that the "Revised Personal Investment Risk Profile" was actually signed by Madam Hao. A more inherently likely scenario is that the review was conducted over telephone and the document was sent to Madam Hao for her signature and then returned to Santos.  There has been no suggestion that Madam Hao signed the document in blank and the boxes were later filled in by others. I find that the contents of the "Revised Personal Investment Risk Profile" were based on information provided by Madam Hao and accuracy of the contents was confirmed by her signature.  I therefore find that in or about April 2007, Madam Hao did knowingly change her risk profile kept at Citibank.  Although Santos knew that Madam Hao had signed the document, strictly speaking, he did not physically witness the signing and hence Santos should not have appended his signature as a witness to Madam Hao's signature.

(III)   The 11 July 2007 meeting

58.In June or early July 2007, Santos mentioned to Madam Hao that he would shortly be leaving Citibank for DBS Private Banking.  According to Santos, Madam Hao was interested in the possibility of switching to DBS which led to an important meeting in Beijing on 11 July 2007.  According to Madam Hao, she was initially reluctant.  Then in early July 2007, Madam Hao met her friend Mr Zhong who told her about his connection with a company which was about to make an IPO in Hong Kong.  Mr Zhong said he could secure a large allocation of IPO shares and asked Madam Hao to explore on the necessary steps for such subscription. This led to the meeting in Beijing on 11 July 2007 between Madam Hao, Santos and his boss Miss Joddy Kong ("Joddy"). In other words, according to Madam Hao, the possibility of making arrangements to undertake subscription of IPO shares was an important agenda in her mind.

Plaintiff's Evidence

59.According to the evidence of Santos, the meeting took place under the following circumstances:-

(1)  Santos joined DBS on 10 July 2007.  On the first day of his employment with DBS, he flew to Shanghai to meet several potential clients. Then on 11 July 2007, he flew to Beijing.  The meeting with Madam Hao was a lunch meeting at a Chinese restaurant in his hotel.  His immediate superior Joddy was also present.  The purpose of the meeting was to introduce DBS's Private Banking services to Madam Hao;

(2)  at the meeting, Madam Hao expressed her interest in investing in Hong Kong listed stocks.  She mentioned her interest in a private placement before an IPO in relation to a company that she personally knew its management. She mentioned that this private placement would involve considerable amount of money. Santos and Joddy were later informed by Madam Hao that the intended private placement was in relation to Xin Jiang Xinxin Mining Industries Co. Ltd. ("Xinxin");

(3)  over lunch, Joddy and Santos introduced to Madam Hao the services offered by DBS's Private Banking. Madam Hao was told that services relating to private placement were only available to Private Banking customers who were Professional Investors. Santos and Joddy explained to Madam Hao that in order to be classified as a Professional Investor, one had to have a portfolio of investments of at least HK$8 million.  Madam Hao was also told that as a Professional Investor, one could receive offers to take up a range of products not approved by the Securities and Futures Commission and she was given a copy of the English version of the Professional Investor Declaration and its covering letter containing details about Professional Investors;

(4)  Madam Hao appeared to understand their services including possible financing that DBS could provide her on the basis of her investment portfolio.  She also indicated that she wanted to open a personal account with DBS Private Banking, and that later on, she would like to open a corporate account;

(5)  as to the corporate account, Santos recalled Madam Hao mentioning that she would make some other investments using this account although she did not indicate the nature of those other investments. Madam Hao said she initially intended to use the corporate account for the private placement in the Xinxin IPO and would transfer her other investments to this corporate account;

(6)  at the meeting, Madam Hao also mentioned her plan to emigrate to Canada. It was then suggested to Madam Hao (either by Santos or Joddy) that she could consider setting up a BVI company for investment purposes due to potential Canadian tax implications. Madam Hao agreed with the suggestion and in the end, DBS did assist Madam Hao in the incorporation of San-Hot BVI.  Madam Hao also expressed her interest in buying Canadian Dollars for her plan to purchase properties in Canada and indicated that she would require at least Can$ 2 million;

(7)  towards the end of the lunch meeting, Madam Hao was provided with the account opening documents. Santos said (in response to the Court's request for clarification) that sets of account-opening documents were couriered to his hotel by the arrangement of his assistant. Each set was contained in a folder.  Within each set, there would be an account-opening application form; a Private Banking Agreement; a specimen signature card; a Professional Investor Declaration form; a draft covering letter explaining what a Professional Investor meant; and a W-8BEN form intended for non-Americans (clarifying one's status as non-American for USA tax purposes);

(8)  in his witness statement, Santos said that he and Joddy explained briefly the nature of each of those documents to Madam Hao and walked through with her the more important terms.  Santos said (in response to the Court's request for clarification) that it was Joddy who took the more prominent role in doing the explanation.  Santos however recalled telling Madam Hao that the account would be an investment account and so there would be related risks. As to what were the more important terms that Joddy had explained to Madam Hao, Santo said he could not recall.  After that, Madam Hao was told to let Santos and Joddy know if she had any question.  Then they went through the documents with Madam Hao filling out some of the blanks in the forms;

(9)  on that occasion, Madam Hao signed on the account-opening form in relation to her personal Private Banking Account.  She also signed on the Professional Investor Declaration. The originals of these two documents were sent back to Hong Kong for processing.  The folder containing the rest of the documents were given to Madam Hao;

(10)  during the meeting, Santos said that there was no discussion on Madam Hao's "risk appetite" as he thought that it was premature, there being no discussion on specific investment products at that meeting. Neither did he enquire about the value of her assets at that point in time;

(11)  After returning to Hong Kong, Santos handed his notes and other relevant documents to his assistant Mr Jason Tse ("Jason") for handling.  Jason was to assist him in compiling Madam Hao's account profile as well as processing the account opening application.  DBS's compliance team and operation team were responsible for processing a customer's application for account opening and being a Professional Investor.

Defendants' Evidence

60.The evidence of Madam Hao in respect of what happened at the 11 July 2007 meeting differed from that of Santos in the following material respects:-

(1)  at the lunch meeting, she told Joddy and Santos that she knew nothing about shares and that her friend told her that he could secure IPO shares.  She then asked Joddy and Santos what she could do. Santos and Joddy said they could help on that but there was no detail discussion on the matter;

(2)  Madam Hao told Santos and Joddy that her money would be needed for working capital in her business and for opening letters of credit. Joddy and Santos stressed that a private bank could also do such things for her. In addition, her personal finances would also be managed;

(3)  Santos and Joddy did not suggest to Madam Hao that she should agree to be classified as a professional investor so that she could invest in non-SFC authorized investment products. She only came across the term "professional investor" in newspaper for the first time in April 2008;

(4)  the lunch meeting lasted for about one hour.  After finishing lunch, Santos took out some documents and put them on a side table and asked Madam Hao to sign.  Madam Hao was reluctant. Sensing that, Santos told her that she could sign the documents first, with no obligation to actually use the account or transfer funds to the account after it was opened.  However, if she wanted to use the account, she would not need to travel again to have documents executed.  On that day, there was no discussion on the opening of any corporate account.

(5)  Madam Hao signed the documents at locations requested by Santos.  There was no detail discussion.  She was sure that she was not given a copy of the Private Banking Agreement at the meeting. She was also not given copies of the documents she signed at the conclusion of that meeting.  She only saw the Private Banking Agreement for the first time on 20 June 2008 when her solicitors requested a copy from DBS;

(6)  at the time, Madam Hao told Santos that she did not understand the DBS documents which were in English. Santos said that those documents were standard form documents which were more of less the same as those documents she previously signed with Citibank.  Santos did not draw any risk disclosure to her attention.

Discussions on Evidence

61.Before I proceed to evaluate the evidence of Santos and Madam Hao, I shall first explain the relevant documents involved in this meeting.  The first one was the "DBS Private Banking Account Opening Form - Individual account"[42]. The format of this document bore substantial similarities with the account-opening form which Madam Hao previously executed for the opening of her Citigold bank account.  As the title of the form expressed, it related to the opening of a personal private banking account by Madam Hao. This was not the account through which the accumulator contracts were subsequently transacted.  There is no dispute that this document was signed by Madam Hao on 11 July 2007. It is also important to note that this document was bilingual. Under the section "Account(s) To Be Opened", it read:-

"Please open the following accounts ("the Accounts") in my/our name

HKD Current Account   Time Deposit Account

Multi-currency Savings Account  Securities Account

RMB Savings Account   Others________

DBS Private Banking Account Master Agreement ("the Master Agreement") governs the operation of the Account(s) selected.  A copy of the current version of the Master Agreement is attached."

It was thus clear that by signing this document, Madam Hao was making an offer to DBS on the basis that the accounts when opened would be governed by the terms of the Private Banking Agreement.  It was also anticipated that the current version of the Private Banking Agreement would be provided to the customer.

After several sections dealing with personal information, and under the section "Client Instructions", it read:-

"I/We wish to be able to give 'Remote Instructions' which shall include telephone, facsimile or such other communication device as the Bank may from time to time approve.  I/We agree and accept the terms of the 'Remote Channel Authority and Indemnity' set out in Section H of the Master Agreement."

It was then followed by the section "Client Declaration - Securities Account" which read:-

"1.  I/We have read and understood the Risk Disclosure Statements set out in Section K of the Master Agreement and the Trading Agreement related Terms and Conditions in Section I of the Master Agreement that apply to Securities Accounts.  I/We have been invited to ask questions on the Risk Disclosure Statements and take Independent professional advice if I/We wish.

2.  I/We declare that as an investor, I/we am/are familiar with and/or have knowledge in trading securities and other investments and in foreign exchange transaction, and acknowledge that in entering into any Transaction, I/we have decided to do so based on my/our personal judgment and independent of any advice or recommendation of the Bank. I/We hereby accept the risks involved in my/our underlying obligations under any Transaction.  The Bank shall have no liability to me/us for any advice given or views expressed to me/us regardless of whether such an advice is given or views are expressed at my/our request.

3.  I/We further undertake that prior to instructing the Bank to enter into any derivative Instruments and/or other Transaction, I/we have read and fully understood:

(i) Any term sheets and all annexures and supplements pertaining to the Transaction;

(ii) The nature of the Transaction and the terms and conditions governing the said Transaction; and

(iii) The Bank's margin/overdraft requirements, if applicable.

4.  I/We confirm that I/we am/are the ultimate beneficiary(ies) of the account and am/are responsible for originating Instruction(s) to the Bank."

It was followed by the Section "Client Declaration - Master Agreement" which read:-

"I/We acknowledge that I/We have received, read and fully understood the attached Master Agreement which comprises:-

1.(i) [A] General Terms and Conditions applicable to Account

[B] Hong Kong Dollar Current Account

[C] Statement Savings Account (Hong Kong Dollar/Multi-Currency)

[D] Passbook Savings Account (Hong Kong Dollar/Multi-Currency)

[E] Time Deposit Account

[F] Loan Services

[G] Service Channels Authority and indemnity

[H] Remote Channel Authority and indemnity

[I] Trading Agreement related Terms and Conditions

[J] Structured Deposits related Terms and Conditions

[K] Risk Disclosure Statement

(ii)  confirm that I/we have read the Risk Disclosure Statements, have been invited to ask questions and take independent professional advice if I/we wish.

2.  I/We agree that the operation of the Accounts(and any additional account(s) I/we may from time to time open) will be governed by the Master Agreement, as may be varied from time to time."

These client's declarations were essentially similar to Items 1 and 2 of Appendix 1 that were contained in the Account-opening Form for a limited company. After another short section on "Client Declaration - Data Policy" (which is not relevant for our purposes) it was followed by Madam Hao's signature under the statement "Sign and Confirm all the above by:"

Under the section "For Bank Use Only", there was a declaration by bank staff signed by Santos and dated 11 July 2007 which read:-

"I, SANTOS WONG (Name in Block Letters), as employee of DBS (Hong Kong) Limited, confirm that I have provided the 'Risk Disclosure Statement' in a language which the Customer understands (English and Chinese); and have asked the Customer to read the Risk Disclosure Statement, ask questions and take independent professional advice if the Customer wishes."

62.The Private Banking Agreement (which was given the abbreviation 'Master Agreement' in the application form) was a bilingual booklet containing many sections of terms and conditions[43]. Various terms relied on by DBS in these proceedings as set out in Appendices of this Judgment were contained in this booklet.

63.As for the Professional Investor Declaration relating to this personal banking account of Madam Hao, it was in English and dated 30 September 2007 for reasons that would be subsequently explained in the evidence of Santos. As for Madam Hao's case, she was not certain whether it was one of the documents she signed on 11 July 2007. In cross-examination, she said she was not certain on which occasion she appended her signature on this document.  Madam Hao did not suggest however that her signature was forged.  The contents of this declaration read:-

“PROFESSIONAL INVESTOR DECLARATION

To: DBS Bank (Hong Kong) Limited (“the Bank”)

Name of client:

I/We confirm that I/we have read and understood the Bank’s written explanation of the risks and consequences of being designated as a professional investor and of the right to withdraw from being so designated at any time.

I/We consent to being treated as a professional investor by the Bank until such time as I/we withdraw my/our consent or until I/we no longer meet the criteria applied by the Bank.

I/We confirm that I/we have read and understood the criteria required by the Bank in order to designate me/us as a professional investor. I/we confirm that I/we meet the criteria.

I/We understand that the Bank will endeavor to obtain the necessary documentation to demonstrate that I/we satisfy the criteria for designation as a professional investor.  I/We acknowledge that in certain circumstances the Bank may require me/us to produce such documentation.”

64.This Professional Investor Declaration referred to a written explanation by the bank. The written explanation was in fact formatted as a draft letter from the bank to the prospective customer. There is a minor twist here. According to Santos' written statement, he exhibited a bundle of account-opening documents which he handled on 11 July 2007.  A copy of the said draft letter formed part of the exhibit but it included only the first page of the draft letter[44].  The full form of the letter[45] should contain 3 pages.  Santos was cross-examined on this. Obviously, as of 11 July 2007, Santos was not very familiar with the DBS documents. When confronted with this anomaly, he said that at the time, with the assistance of Joddy, the situation of Professional Investor was explained to Madam Hao. Santos had mentioned earlier in cross-examination that it was Joddy who did most of the explaining to Madam Hao.  With this answer from Santos, there was no further cross-examination by Mr Coleman on this point and no further reference was made in the defendants' closing submissions. I am of the view that this is a point of no real significance. The missing pages could well have resulted from the photocopying process and left undiscovered except to the keen eyes of Mr Coleman.  In fact, during cross-examination of Santos, when Mr Coleman referred to the full version of the draft letter, he obtained it from amongst the exhibits to the witness statement of Jason who subsequently handled the account opening procedures for San-Hot BVI.  The sets of account-opening documents sent to Beijing were arranged by the assistant of Santos which should have been a fairly mechanical exercise. I am prepared to accept that the full draft letter was included in the account-opening folder on 11 July 2007.

65.I now return to the conflicting evidence between Santos and Madam Hao. The first issue to resolve is whether the Private Banking Agreement was given to Madam Hao.  It is inherently more probable that it was given to Madam Hao as part of the normal account-opening procedures.  There was no particular reason why it was not given to the customer. The purpose of including it in the folder was to give it to the customer because it would form part of the banking services agreement that might eventually be concluded between the bank and the customer.  This would have been the standard practice of every bank. It was not suggested that Santos had any motive to hide the Private Banking Agreement from Madam Hao. In cross-examination, Santos recalled telling Madam Hao: "This is our private banking master agreement, you can take it away for your reference, and if you have any question, you can contact us"[46].  Santos also fairly admitted that when Joddy walked through the terms of the master agreement with Madam Hao, she did not do so in detail.  Then in re-examination[47], Santos clarified what Joddy did: "Joddy said to her: 'these are the relevant terms and provisions of our private banking' and then asked her to take it away to read it, and if she had any question, she was asked to contact us". Santos said he recalled giving the Private Banking Agreement to Madam Hao.

66.Mr Coleman took Santos to the "Client Declaration - Master Agreement" on the Account-Opening Application Form which stated that: "I acknowledge that I have received, read and fully understood the attached master agreement …".  Santos readily accepted that when Madam Hao signed the Account-Opening Application Form, she could not have read the Private Banking Agreement and could not have understood it fully.  He said that was the reason why he told Madam Hao: "if there is something you are not clear and you have any questions, feel free to contact us at any time".  Santos also readily accepted that in the circumstances, he could not have believed the "Client Declaration" to be true.

67.Santos was then taken to the statement in the Client's Declaration suggesting that Madam Hao had read the risk disclosure statement.  He again readily accepted that Madam Hao had not read the statement even though he had invited her to read it and ask questions.  He also readily admitted not telling Madam Hao that she could take independent professional advice.  In effect, he was accepting that his own bank staff declaration was not entirely correct.

68.Santos struck me as an honest and straight-forward witness.  He did not evade Mr Coleman's cross-examination or try to bend over backwards to provide bogus excuses.  He maintained this attitude throughout his evidence as I would describe later in this Judgment.

69.On the other hand, I am not so impressed by Madam Hao.  Mr Jat first cross-examined Madam Hao on her business experience and her experience in dealing with banks as mentioned in paragraph 38 of this Judgment.  Given that background, Mr Jat naturally suggested to Madam Hao that when she signed a contract, she must have realized that she was accepting the terms stated therein and agreed to perform the contract on those terms.  Madam Hao's answer was odd to say the least.  She said it would be the case if the other party were a trading partner or business counterpart, but not including banks.  When pressed for an explanation, she prevaricated and could not give any convincing explanation.  When Mr Jat suggested to her that when she signed on the account-opening application form, she knew that the printed terms were terms on which the bank agreed to provide their services, Madam Hao gave rather astonishing answers:-

“Q. I'll try again, Ms Hao. I'll ask it one last time.

I'm suggesting to you that you knew that the printed terms that you were asked to sign when you opened an account with the bank are the terms on which the bank agreed to provide their services to you. Don't talk about anything else, Ms Hao; just answer my question.

A. If I had known that what the bank staff said was totally contrary to the terms of the documents, I would not have signed it.

Q. So you mean you knew that those were the terms that the bank was supposed to provide services to you, but you say that if you had reason to believe that what you were being told about them was different, then you wouldn’t sign them; is that your evidence?

A. Right.

Q. So leaving aside the question of what you were told about the documents, you confirm that you knew that the printed terms were terms that applied to the bank's provision of services to you?

A. One can't say this, one can't completely say this.

Q. Let me put it the other way round. What then, from your point of view, was the point of the bank asking you to sign these documents?

A. I deposited my money with the bank and the bank provided service to me.

Q. And those were the terms on which the services were provided to you.

A. My understanding of the terms is not binding terms or terms in opposition.

HIS LORDSHIP: Madam, you were asked by -- let's forget about the present bank. Let's think about the Hongkong & Shanghai Bank. Cast your mind to the time, for example, when you opened your personal account with Hongkong & Shanghai Bank. Right?

A. (Witness nods).

HIS LORDSHIP: You were asked to fill out an application form; right?

A. (Witness nods).

HIS LORDSHIP: With a lot of printed terms on it; right?

A. (Witness nods).

HIS LORDSHIP: There would also be agreements, contracts, with a lot of printed terms on them which the bank will ask for your signature, to confirm; right?

A. Right.

HIS LORDSHIP: And when you signed on those documents, you knew that these documents contained the terms, contract terms, upon which Hongkong & Shanghai Bank was willing to offer the service of a bank account for your use; isthat not correct?

A. My concept is this. I’m a client of the bank, and the reputation of the bank also represents the reputation of the country, the nation. I did not concern myself too much -- and that was why I did not concern myself too much about the terms from the bank. I did not get an explanation, and I did not get an understanding or I did not understand the terms, because I was of the view that the terms of the bank would not be disadvantageous to me. So I did not concern myself with the terms.

On top of that, it's my money.  I deposited my money with the bank.  So I did not concern myself with those things, and then I signed it; I did not understand the terms.”

70.In my view, Madam Hao's evidence was inherently improbable, unreasonable and strained. It was obvious that she was at pain to avoid the consequence of having signed on documents which DBS now relies upon. I find her evasive. Moreover, she eventually put forward a new case that had not been pleaded. Effectively, she was (for the first time in the witness box) suggesting that she was misrepresented by the bank staff into signing the account-opening documents.  I have pointed out in paragraph 10 of this Judgment that the only claim for rescission pleaded in the Defence and Counterclaim related solely to the 17 Equity KODAs. It was never pleaded that the banking services agreements (whether between Madam Hao personally with DBS or between San-Hot HK or San-Hot BVI with DBS) should be avoided on grounds of misrepresentation or other vitiating factors. In fact, I had in the course of the plaintiff's opening ascertained from counsel that there was no pleaded defence of rescission in relation to the banking services agreement between DBS and San-Hot BVI[48].  The stance taken by Madam Hao was thus contrary to the defendants' pleaded case as well as the stance taken on the defendants' behalf by their counsel.

71.I also find Madam Hao's evidence of her reluctance to open an account with DBS contrived.  It was inconsistent with the taped telephone conversation between her and Santos on 24 July 2007[49].  During this conversation, there were active discussions on the IPO subscription which by then Madam Hao had identified the subject company as Xinxin.  It was repeatedly mentioned that as the arrangement for placement would probably be finalized in August 2007, Santos would hurry up the account opening process so that her funds could be transferred to DBS in time for DBS to assist her in the subscription.  Madam Hao also took initiatives to ask Santos about the procedures for transfer of her funds in Citibank and HSBC to DBS.

72.In the circumstances, I have no hesitation in preferring the evidence of Santos to that of Madam Hao. I find that at the 11 July 2007 meeting, Santos did give a copy of the Private Banking Agreement to Madam Hao, asked her to read it and raise with them any question that she might have.  It is not in dispute that Madam Hao did not raise any question about the terms contained in the Private Banking Agreement at the 11 July 2007 meeting or at any time thereafter before DBS accepted her offer and opened a personal private banking account for her in August 2007[50].  Even after the establishment of the account, if Madam Hao had cared to read the Private Banking Agreement and discover any term unacceptable to her, she was at liberty not to use the account at all.  Obviously, she never did so.

73.Based on Santos admissions, I also find that the terms of the Private Banking Agreement were not explained to Madam Hao in any detail.  Santos fairly admitted that he could not remember what were the more important terms that were explained by Joddy to Madam Hao[51].  However, I do accept Santos’ evidence[52] that he did tell Madam Hao that it was an investment account and there would be related risks. I also find that when Madam Hao signed on the bilingual Account-opening Application Form, she knew that it contained contractual terms and conditions which would govern her relationship with DBS although she did not care to read the Account-opening Application Form or the Private Banking Agreement in detail before appending her signature on the Account-opening Application Form.  I also reject her evidence that she was in any way misled by Santos or Joddy in signing her name on the Account-opening Application Form.

74.The next issue is whether Madam Hao was explained the purport of being a Professional Investor and whether she signed the Professional Investor Declaration.  It is not in dispute that during the 11 July 2007 meeting, there was no discussion on specific investment products that would be marketed to Madam Hao. From Madam Hao's evidence, her only interest at the time was to find out how she could participate in the subscription of shares in the impending IPO of Xinxin.  In my view, it was rather contrived for her to say that after this topic was raised and Joddy said DBS could help, there was no further discussion.  Madam Hao's version was inherently improbable. I accept Santos evidence that he or Joddy had explained to Madam Hao that DBS could assist her in the subscription but such service would only be available to private banking customer of DBS who would qualify as a Professional Investor.  In line with the earlier admissions made by Santos, I am prepared to accept that there might not have been very detailed explanations on the criteria for one to qualify as a Professional Investor.  However, it was most likely explained to Madam Hao that to qualify as a Professional Investor, a customer would need to show that he/she has a portfolio of investments of at least HK$8 million.  Since Madam Hao's evidence was that she and Mr Zhong was expecting to participate in a substantial allocation of IPO shares, and given her knowledge of her own wealth, it must not have been an obstacle for Madam Hao.  In my view, it was most likely that Madam Hao indicated that she would qualify which led to the signing of the Professional Investor Declaration.

75.Much was made by Mr Coleman about the fact that the Professional Investor Declaration was dated 30 September 2007 instead of 11 July 2007. He argued that if it were signed by Madam Hao on 11 July 2007, there was no reason to date it 30 September 2007.  Santos explained that 30 September 2007 was the date on which Madam Hao's Professional Investor status was processed by DBS. Prior to DBS processing such a status application, Madam Hao would either have transferred funds above HK$8 million to DBS or showed bank statements with other banks to demonstrate that she had investment portfolio of over HK$8 million. Santos was adamant that Madam Hao did append her signature on the Professional Investor Declaration on 11 July 2007.  I find Santos evidence reasonable and convincing. Mr Coleman put to Santos in cross-examination that without this Professional Investor Declaration and a similar one signed by Madam Hao on behalf of San-Hot BVI, DBS would not have been able to sell the disastrous accumulator contracts to San-Hot BVI.  As far as the Professional Investor Declaration bearing Madam Hao's signature in her personal capacity is concern, this suggestion must be wrong. It is not disputed that none of the Equity KODAs or APFCs were transacted through Madam Hao's personal private banking account.  The Professional Investor Declaration for San-Hot BVI's account (through which the accumulator contracts were transacted) was dated 19 September 2007.  There was absolutely no reason or motive for DBS to fake Madam Hao's personal Professional Investor Declaration and dated it 30 September 2007. As for the Professional Investor Declaration in relation to San-Hot BVI's account, it was handled by Jason and I would deal with his evidence subsequently.

76.Madam Hao's evidence (in cross-examination) was that she was not certain on which occasion she appended her signature on this Professional Investor Declaration.  Madam Hao did not suggest however that her signature was forged.  Bearing in mind her poor credibility, I prefer the evidence of Santos and find that she did sign this Professional Investor Declaration on 11 July 2007 although it was undated at the time. I also note that in the taped telephone conversation between Santos and Madam Hao on24 July 2007[53], Santos mentioned that the only outstanding documents for her account-opening were copies of her identity card and passport. This contemporaneous record was consistent with Santos' evidence that on 11 July 2007, Madam Hao had already signed and provided him with the Professional Investor Declaration. I also find that a copy of the English draft letter setting out explanations of the status, criteria and purport of a professional investor was provided to Madam Hao. Again, consistent with her answers given in cross-examination, it may well be that Madam Hao did not take care to read the English draft letter in detail whether at the meeting or thereafter.

77.What happened afterwards related to the processing of Madam Hao's account opening application, in particular, the processing of the "Personal Profile"[54].  Santos was cross-examined extensively on this topic which largely relates to whether there was breach of the alleged "Professional Duties". I will deal with this aspect of Santos' evidence in a subsequent section of this Judgment. At this juncture, I will just mention that Santos performance under cross-examination on this topic did not affect my positive assessment of his overall credibility.

(IV)   Meeting on 3 August 2007

Defendants' Evidence

78.According to Madam Hao, she was urged by Mr Zong to go to Hong Kong on 1 August 2007 to discuss on the arrangements for the IPO shares subscription. She told Santos of her visit.  Santos told her that Joddy would like to meet her to discuss on financing for the subscription of the IPO shares[55].  The meeting was arranged to take place on 3 August 2007 at DBS's office.  On 2 August 2007, Madam Hao, Mr Zong and someone from Bank of China International ("BOCI") met to discuss about the IPO subscription.  BOCI was the underwriter of the Xinxin IPO.  Madam Hao was advised by BOCI that she needed to open a corporate securities account at BOCI for the subscription process.

79.On 3 August 2007, Madam Hao met Joddy to discuss on the Xinxin shares subscription.  Santos was not present.  She told Joddy that she had to make the subscription through a company.  Joddy persuaded her to open a corporate account for San-Hot HK. Joddy said DBS could advance a Hong Kong Dollar loan based on the value of assets that she transferred to DBS (foreign currency deposits and funds). Then she could use the loaned money to place subscription through BOCI.  Madam Hao was also advised by DBS to incorporate a BVI company to undergo the IPO subscription for tax benefits. DBS also offered to handle the incorporation process for her. Madam Hao was agreeable to this arrangement.  Eventually, San-Hot HK was incorporated.

80.Madam Hao then met Jason (plaintiff's 3^rd witness).  She was asked by Jason to sign many documents at DBS. Jason asked her to sign at specified places without explaining the contents of the documents.  Jason merely stated that they were for account-opening and IPO financing.  She was not given photocopies.  She did not know whether the documents were signed in blank or had been filled-in with relevant details.

Plaintiff's Evidence

81.Jason is now a Manager in the Private Banking Division of DBS. He joined DBS in June 2007 as a Manager, Marketing.  Since July 2007, he worked closely with Santos as his assistant. His responsibilities were generally administrative, including preparing customer account opening documents, contacting customers to follow up with orders of trades and taking customers’ instructions when their respective RMs were not available.  The evidence of Jason on what happened on 3 August 2007 was as follows:-

(1)  he was told by Santos that Madam Hao might wish to open corporate account with DBS and had arranged to meet with DBS Corporate Services (Hong Kong) Limited ("DBS Corporate Services" on 3 August 2007 to consider setting up a BVI;

(2)  on 3 August 2007, he met Madam Hao for the first time.  Madam Hao informed him that she wished to open two corporate accounts with DBS: one for her existing company San-Hot HK and another for her newly set up BVI. As Santos was out of office that day, he attended Madam Hao;

(3)  he knew that Madam Hao had applied for opening a personal account with DBS private banking. He believed that Santos and Joddy would have explained the relevant account-opening documents to Madam Hao. The account-opening documentations for a personal account and a corporate account were largely similar;

(4)  on that occasion, he went through the following documents with Madam Hao:-

-  Account Opening Form - Non-Individual Account

-  Private Banking Account Master Agreement

-  General Commercial Agreement

-  Mortgage over Stocks and other Securities to Secure Liabilities of the Depositor ("Mortgage")

-  Charge on Cash Deposits to Secure Liabilities of the Depositor ("Charge")

-  Declaration for corporate Director (under Companies Ordinance s. 154A)

-  Client Identity Undertaking Form

-  Tax Declaration Form

-  Declaration of Beneficial Ownership

-  Professional Investor Declaration including cover letter with explanations

(5)  some of the above documents were applicable to one of the corporate accounts while some applied to both.  Some were also signed in contemplation of the grant of banking facilities;

(6)  he explained to Madam Hao the general nature of each of the above documents and drew her attention to the more important terms.  He also filled in the forms for her basing on information she provided;

(7)  in relation to banking facilities, the first batch of documents included the General Commercial Agreement, the Mortgage and the Charge. Jason recalled directing Madam Hao's attention to when and under what circumstances DBS could enforce the Mortgage.  He explained that the banking facilities covered all amounts owed to the bank under the banking facilities. Jason denied having told Madam Hao that those documents were executed for the purpose of Xinxin IPO only;

(8)  he also confirmed with Madam Hao that the two corporate accounts were opened for investment purposes and that funds in the accounts were not to be used as working capital for running business. It was DBS Private Banking's policy not to allow customers to use their accounts for business operational purposes or for keeping working capital;

(9)  he provided the complete set of Professional Investor Declaration documentations to Madam Hao which included a covering letter containing detail explanations on the criteria and implications of becoming a Professional Investor.  They were bilingual.  They were provided to Madam Hao before she signed on the Declaration. Prior to her signing, Jason also explained to her:-

-  the definition of Professional Investor;

-  that she needed to have a portfolio of assets to the worth of at least HK$8 million; and

-  that a Professional Investor could have access to a greater variety of structured products including non-SFC authorized products not subject to SFC regulations.

Madam Hao did not ask any question and appeared to have understood his explanation before signing the documents.

Discussions on Evidence

82.According to the defendants' pleaded case, it was not disputed that Madam Hao signed on the "Account Opening Form-Non-individual Account" for San-Hot BVI[56].  It was also agreed by counsel at the hearing that the contractual relationship of banker/customer was established between DBS and San-Hot BVI on 28 August 2007[57].  From the trial bundle, it can also be seen that Madam Hao signed on another "Account Opening Form-Non-individual Account" for San-Hot HK on 3 August 2007[58].  It is common ground that as of 3 August 2007, San-Hot BVI was not yet incorporated.  The clear intention and arrangement was however to have San-Hot BVI incorporated.  However, when Madam Hao was cross-examined, she denied having executed any document for the opening of account for San-Hot BVI on 3 August 2007[59].  She was then confronted with the Account Opening Form for San-Hot BVI[60].  She said: "The signatures were mine, but I'm positive that on 3 August, I did not open an account for the BVI and I absolutely did not sign anything in relation to the BVI".  She said she did not know when prior to August 2007 did she sign that particular Account Opening Form.  She also denied having signed the Professional Investor Declaration for San-Hot BVI's account.  Her evidence suggested that her signatures on the Account Opening Form and the Professional Investor Declaration for San-Hot BVI were appended under circumstances that she was unaware of the nature of the documents on which she signed.  Though not expressly making the allegation, she seemed to suggest that she was somehow misled into thinking that the documents she signed on 3 August 2007 were for opening of account for San-Hot HK only.  No plea of non est factum or misrepresentation had been pleaded.  Quite the contrary, it was clearly pleaded in paragraph 5 of the Defence and Counterclaim that: "…it is admitted that the Plaintiff entered into a banker-customer relationship with the Defendants…since around August 2007 and that the 1^st Defendant executed the documents enumerated at paragraph 4(a) to (f) [of the Statement of Claim]…".  I find that this was yet another instance where the evidence of Madam Hao departed from the defendants' pleaded case.  Mr Coleman did not suggest to Jason in cross-examination that Madam Hao did not execute the Account Opening Form and the Professional Investor Declaration for San-Hot BVI on 3 August 2007.  It is also intuitive to note that Mr Coleman did not refer to this part of Madam Hao's evidence in his closing submissions.  I have no hesitation in rejecting Madam Hao's evidence.  I find that Madam Hao did execute the Account Opening Form and Professional Investor Declaration in respect of San-Hot BVI's bank account on 3 August 2007.

83.Flowing from my earlier findings in paragraphs 73 and 82 above, I find that Madam Hao must have known that the two Account Opening Forms she signed on 3 August 2007 on behalf of San-Hot HK and San-Hot BVI (yet to be formed) contained contractual terms governing the operation of the respective accounts. The gravamen of her complaint was that Jason did not explain the contents of the documents to her before asking her to sign. I will in due course analyse what legal consequence, if any, may flow from the fact that one contracting party did not explain the contents of the contractual documents to the other contracting party. At this juncture, since cross-examination of Jason was focus on the issue of “explaining”, I shall deal with this aspect of the evidence.

84.The " Account Opening Form-Non-individual Account " in relation to San-Hot HK[61] bore the signature of Madam Hao and was dated 3 August 2007. This form was similar to the account opening form Madam Hao executed for her personal bank account on 11 July 2007. It contained the same statement that "Please open the following accounts … DBS Private Banking Account Master Agreement ('Master Agreement') governs the operation of the accounts selected. A copy of the current version of the Master Agreement is attached."  I had previously found as fact that on 11 July 2007, Madam Hao was already given a copy of the Private Banking Agreement.  She had it for about 3 weeks by 3 August 2007. If she had chosen to read it, she would have been familiar with the terms set out therein.  According to the evidence of Jason, the meeting on 3 August 2007 would be the second occasion Madam Hao was provided with this document. This account opening form bore the name and particulars of San-Hot HK which must have been provided by Madam Hao to DBS.  Madam Hao's connection with San-Hot HK seemed to be relatively new information given by Madam Hao to DBS.  According to the "Client Profile" processed for Madam Hao's personal bank account application[62], it was originally stated that Madam Hao was the owner and Executive Director of Tianjin Hi-Tech Enterprises Co. Ltd.  Then, additional information was updated on 8 August 2007 which described Madam Hao as also a Director and General Manager of San-Hot HK[63]. This updating of information was corroborated by the taped telephone conversations between Madam Hao and Jason on 7 August 2007[64].

85.Under the "For Bank Use Only" section, one can find the declaration by bank staff which was signed by Joddy Kong and dated 3 August 2007 confirming that she had provided the "Risk Disclosure Statement" to the customer and had asked the customer to read it, ask questions and take independent professional advice.  Although Mr Coleman did not refer to this document in the cross-examination of Jason, I understand from the general tenor of his cross-examination that various bank's staff's declarations did not accurately reflect the true factual situation. In relation to this application form, DBS's case was that it was handled by Jason.  Jason's evidence did not mention Joddy being present during his processing of the documentations with Madam Hao. Joddy's declaration did not represent the true situation even on DBS's own evidence.

86.Jason was however cross-examined specifically on the account opening application form in relation to San-Hot BV1[65]. This document was dated 27 August 2007 and bore the signature of Madam Hao.  Jason was adamant that Madam Hao signed this document on 3 August 2007.  He explained that the date "27 August 2007" was put by him because it was the date Santos put his signature on the "Declaration by Bank Staff".  The evidence of Santos was that he signed the declaration even though he was not present at the meeting because it would require a RM to sign and since he knew Jason had done it on his behalf.  Santos accepted that the declaration was not entirely correct because he did not personally handle the procedures[66].  Jason explained that on 3 August 2007, as San-Hot BVI did not yet exist, the form was not dated. Jason was then referred to a number of documents which he said were executed by Madam Hao on 3 August 2007 yet bearing different subsequent dates.  He explained that the documents signed by Madam Hao in relation to San-Hot BVI were under a special arrangement with her. He communicated with Madam Hao and she clearly understood that on 3 August 2007, San-Hot BVI had not yet been set up. So he suggested to Madam Hao that when she signed the documents, the dates would be left blank until after San-Hot BVI was set up.  He said Madam Hao was clear about the arrangement and consented to it.  The arrangement was for the convenience of Madam Hao because she could not frequently visit Hong Kong.  These documents were executed by her in advance so that she would not need to visit Hong Kong again for the signing of documents once the company was set up.  The Professional Investor Declaration[67] was dated 19 September 2007 when he submitted it to other departments of the bank for processing. The General Commercial Agreement[68] was dated 14 August 2007 when he subsequently handled this document after the incorporation of San-Hot BVI.  The same would apply to the Mortgage[69] and the Charge[70].  He also admitted that when Madam Hao signed various documents for San-Hot BVI on 3 August 2007, no common seal was available and it was only later affixed to the various documents.

87.Jason was also asked why the Professional Investor Declaration (signed by Madam Hao on 11 July 2007) in relation to her personal bank account was dated 30 September 2007 whilst the Professional Investor Declaration (signed by Madam Hao for San-Hot BVI on 3 August 2007) was dated 19 September 2007.  Jason explained that the dates were dates of processing the respective Professional Investor status applications. He said that his understanding at the time was that the account of San-Hot BVI (as opposed to Madam Hao's personal account) would mainly be used for dealing with Madam Hao's investments.  Hence the documents in relation to San-Hot BVI's account were given priority in processing.

88.Mr Coleman made a fair point that the dates filled into the various documents and the declarations made by bank staff did not accurately reflect what happened. For instances, the declaration signed by Santos on the account opening application form for San-Hot BVI[71] could not have been true as he was not even present on 3 August 2007 when Madam Hao appended her signature.  Further it was dated 27 August 2007, a date which bore no relationship with the actual date of signing by Madam Hao. Similarly, Joddy signed the declaration on the account opening application form in relation to San-Hot HK[72] even though she did not handle that document.  It was however correctly dated 3 August 2007 when Madam Hao signed it.  Furthermore, the account opening form in relation to San-Hot BVI contained a mandate and a confirmation that resolutions were passed by the company.  Mr Coleman said it could not have been true as San-Hot BVI did not exist as of 3 August 2007.  As for the General Commercial Agreement; the Mortgage; the Charge; the Tax Declaration[73]; the Client Identity Undertaking[74] and the Professional Investor Declaration[75], they were clearly executed in blanks by Madam Hao pending the incorporation of San-Hot BVI.

89.Firstly, on the evidence, I certainly agree that I cannot rely on the bank staff’s declarations made by Joddy and Santos because they were on their face incorrect.  However, it does not mean that I should on that ground alone reject the evidence of Jason as to what actually happened on 3 August 2007 between him and Madam Hao.  I still have to assess the evidence given by them.

90.Secondly, I have some difficulties understanding the relevance of the cross-examination on points relating to the fact that various documents concerning San-Hot BVI were executed by Madam Hao even before it was incorporated.  It was no part of the defendants’ pleaded case that contractual documents executed by Madam Hao on behalf of San-Hot BVI were not binding, enforceable or valid on the ground that San-Hot BVI was not by that time incorporated.  In fact, it was admitted in the Defence and Counterclaim that banker-customer relationship existed between DBS and San-Hot BVI.  Counsel also confirmed at the hearing that the date of establishment of contractual relationship was the date of opening of San-Hot BVI’s account at DBS on 28 August 2007.  Furthermore, pre-incorporation agreements can in given circumstances be binding on a company (see section 32A of the Companies Ordinance, Cap. 32) but no defences had been structured on the basis that this section could not apply. In the defendants' closing submissions, Mr Coleman sought to argue that as the Account-opening Application Form for San-Hot BVI was executed by Madam Hao prior to the formation of San-Hot BVI, no contractual terms and conditions could be incorporated into the banking services agreement between DBS and San-Hot BVI.  Mr Jat submitted that this new line of defence was not pleaded and was in fact contrary to their pleaded case.  I agree with Mr  Jat and I refer to my analysis set out in paragraph 82 above.  I will not allow the defendants to run this argument.  I thus consider that evidence on this issue could at most be relevant on the credibility of Jason and Santos.

91.In cross-examination, Jason fairly admitted that he did not have a specific recollection of what he exactly did on 3 August 2007.  He gave his evidence in a cogent and straight-forward manner.  He was able to explain spontaneously why a certain document was so specifically dated even though one may not agree with that to be the most appropriate way of handling the matter.  I find him to be an honest witness.  The source of most problems lied in the bank staff's willingness to sacrifice accuracy for convenience.  At times, the bank staff's declarations were signed for the sake of signing. Many of the documents were executed by Madam Hao in escrow even before San-Hot BVI was formally incorporated. There was however no suggestion of any sinister motive.  Madam Hao clearly agreed to incorporate San-Hot BVI and to use San-Hot BVI to carry out the IPO subscription[76]. Her preoccupation at that time was to proceed with the Xinxin shares subscription.  She needed a corporate account and she accepted the advice that a BVI company would bring tax benefits. 

92.Madam Hao alleged that the contents of the documents that she signed were not explained to her and Jason merely said that they were for account-opening and IPO financing.  On the other hand, Jason was unshaken in cross-examination and maintained that he did explain the nature of the documents to Madam Hao. He was told by Madam Hao that two corporate accounts would be opened, one for San-Hot HK and one for the BVI company to be incorporated.  In relation to the Private Banking Agreement, he said he mentioned the risk disclosure statement and said that investment in stock market or securities would involve risks.  He also mentioned that the Private Banking Agreement contained terms about the operation of the account. He could not recall explaining any other matter about the Private Banking Agreement to Madam Hao[77].  Mr Coleman did not suggest to Jason that no copy of the Private Banking Agreement was given to Madam Hao.

93.In relation to the Professional Investor Declaration, it was suggested to Jason that he did not provide the English and Chinese versions of the draft explanatory letter to Madam Hao.  Jason was adamant that he did.  He also explained that Madam Hao signed her name on the English version of the Professional Investor Declaration because it was the bank's practice to seek customer's signature on the English version.  He pointed out spontaneously that the template of the Chinese version did not provide a space for the customer to sign[78].

94.Mr Coleman finally suggested that he told Madam Hao that she needed to put her signature on those documents so as to open an account for the intended private placement pre-IPO. Jason answered: "I did explain that the accounts she opened could be used for investment.  There was a chance that I gave examples, including she planned to do the placement of IPO and also other sale and purchase of stocks and funds"[79].

95.I am impressed by Jason and find him generally to be an honest witness.  I reiterate my negative assessment of Madam Hao's credibility. Her evidence on what she executed on 3 August 2007 was also contrary to the defendants' pleaded case. In case of conflict between their evidence, I would prefer the evidence of Jason. I find that he did explain to Madam Hao that the Private Banking Agreement contained the terms for the operation of the corporate bank accounts. I of course accept that there would not have been detail explanations.  As Mr Coleman pointed out in closing submissions, the "execution only" clause in the Private Banking Agreement could not have been specifically explained by Jason.  This I accept.  However I find that Madam Hao had at least been explained the nature of the documents and their relationship with the account to be opened by San-Hot BVI.  I find that Madam Hao certainly knew that the Account Opening Form and the Private Banking Agreement contained contractual terms that governed the operation of San-Hot BVI’s account when opened.  Mr Coleman relied on a taped telephone conversation between Jason and Madam Hao on 7 September 2007[80] to show that Madam Hao was still raising a lot of questions about the services offered by DBS. He therefore submitted that Jason could not have explained DBS's services to Madam Hao on 3 August 2007.  With respect, I do not accept this submission. The fact that Madam Hao felt unclear about DBS's services a month later did not necessarily indicate that Jason did not provide explanations on 3 August 2007.  Whether Madam Hao truly understood his explanations on 3 August 2007 was a different matter.

96.I also find that the Account Opening Form was signed before the incorporation of San-Hot BVI because of a special arrangement between Madam Hao and DBS. DBS Corporate Services would proceed with assisting Madam Hao to incorporate San-Hot BVI.  The Account Opening Form was signed in anticipation of the incorporation.  As soon as San-Hot BVI became incorporated, DBS could proceed formally with the account opening application. The arrangement was for the convenience of Madam Hao, or one may say, for DBS as well.  Madam Hao would not need to travel to Hong Kong a second time and DBS would not need to stall its account opening procedures.  The subsequent placing of common seal of San-Hot BVI on the various documents was clear evidence of ratification.

97.I also accept Jason's evidence that copies of the English and Chinese versions of the draft explanatory letter on Professional Investor Declaration were provided to Madam Hao on 3 August 2007 and they were briefly explained to Madam Hao.  I also find that the Professional Investor Declaration in relation to San-Hot BVI's account[81] was signed by Madam Hao on 3 August 2007 in anticipation of San-Hot's incorporation.  I find that it was part of the special arrangement I mentioned above.

98.As for the Mortgage; the Charge; the Tax Declaration; and the Client Identity Undertaking, I find that they were all signed by Madam Hao on 3 August 2007 as part of the aforesaid special arrangement in anticipation of the incorporation of San-Hot BVI. I also find that Madam Hao knew that they contained contractual terms and conditions governing the account to be opened.  I also accept Jason's evidence that he did explain to Madam Hao that the account opened could be used for her investments, including the intended placement of shares.  I should add that it was no part of the defendants' case that the San-Hot BVI account, when opened, would only be used for the Xinxin shares subscription[82].

99.Based on various taped conversation transcripts, I also find that between 3 August 2007 and 28 August 2007, there were telephone contacts between Madam Hao, Santos and Jason but at no time did Madam Hao raise questions in relation to the contractual terms contained in the Private Banking Agreement or any other documents she executed on 3 August 2007.

100.Subsequent to the 3 August 2007, Santos and Jason proceeded with the preparation of "Client's Profile" for each of the 2 corporate accounts of San-Hot HK and San-Hot BVI.  I will return to their evidence in due course. It was agreed between counsel that the private banking account for San-Hot BVI was opened on 28August 2007.

(V)  Discussions on what were the contractual terms and conditions governing the banking services agreement concluded between DBS and San-Hot BVI 

101.I have taken such close examination of the evidence leading to the opening of the private banking account of San-Hot BVI largely because of the submissions made by Mr Coleman in the course of the defendants' closing.  Mr Coleman submitted[83] that on the evidence, the Account Opening Form (for San-Hot BVI) was simply filled out and signed at the very moment. Madam Hao could not have the opportunity of reading the Private Banking Agreement.  The "Declaration of Bank Staff" made by Santos was false. The bank knew that Madam Hao had not read the documents and could not have understood them.  Therefore, none of the terms set out in the Account Opening Form and the Private Banking Agreement formed any part of the contract between DBS and San-Hot BVI.  This was what he called the "1^st level argument". To put Mr Coleman's "1^st level argument" to its logical conclusion, there would be no written terms and conditions governing the admitted banker-customer relationship between DBS and San-Hot BVI. MrColeman also made a "fall-back argument" based on the principle enunciated in Interfoto Library Ltd. v. Stiletto Ltd.[84], namely, where clauses incorporated into a contract contained a particularly onerous or unusual condition, the party seeking to enforce that condition had to show that it had been brought fairly and reasonably to the attention of the other party.

102.I will first summarize my factual findings which are pertinent to the issue of incorporation of contractual terms between DBS and San-Hot BVI:-

(1)   on 11 July 2007, Madam Hao was given a copy of the Private Banking Agreement, which was a bilingual document;

(2)  when it was given to Madam Hao, she was told that it was DBS's private banking master agreement, that she could take it away for her reference, and that if she had any question, she could contact them (i.e. Santos and Joddy);

(3)  Madam Hao did not there and then read the Private Banking Agreement;

(4)  although the Risk Disclosure Statement in Section K of the Private Banking Agreement was not explained by Santos to Madam Hao, he did mention that the account would be an investment account and there would be related risks;

(5)  when Madam Hao signed on the bilingual Account-opening Application Form, she knew it contained contractual terms and conditions which would govern her relationship with DBS;

(6)  between 11 July 2007 and 3August 2007, there were telephone contacts between Santos and Madam Hao but she never raised any question relating to the Account-opening Application Form or the Private Banking Agreement;

(7)  on 3 August 2007, Madam Hao did execute, inter alia, the Account-opening Application Form; the General Commercial Agreement; the Mortgage; and the Charge relating to the account of San-Hot BVI;

(8)  Madam Hao was again given a copy of the Private Banking Agreement by Jason.  Madam Hao had ample time, prior to 3 August 2007, to familiarize herself with the contents of the Private Banking Agreement;

(9)  Madam Hao knew that the Account-opening Application Form; the Private Banking Agreement; the General Commercial Agreement; the Mortgage; and the Charge contained contractual terms governing the operation of the account of San-Hot BVI when established. She knew that she could carry out a variety of investment activities using that account;

(10)  these documents were signed in escrow and in blanks pending the incorporation of San-Hot BVI and as part of a specific arrangement agreed between Madam Hao and DBS;

(11)  Jason explained to Madam Hao that the Private Banking Agreement contained terms for the operation of the account when opened.  There was otherwise no detail explanations made;

(12)  Jason briefly explained to Madam Hao the nature of the documents she was asked to sign and their relationship with the account to be opened; and

(13)  between 3 August 2007 and 28 August 2007, there were telephone contacts between Madam Hao, Santos and Jason but Madam Hao did not raise questions in relation to the contractual terms contained in the Private Banking Agreement and all other documents she executed on 3 August 2007.

103.The basic principles for incorporation of contractual terms are summarized in Chitty on Contracts [85]

"Proof of terms.  Where the agreement of the parties has been reduced to writing and the document containing the agreement has been signed by one or both of them, it is well established that the party signing will ordinarily be bound by the terms of the written agreement whether or not he has read them and whether or not he is ignorant of their precise legal effect.  But it by no means follows that the document will contain all the terms of the contract: it may be partly oral, and partly in writing.  Further, many contracts are made solely by word of mouth or are contained in or evidenced by documents which have not been signed by the party affected.  In such cases, it will be necessary to prove which statements, or stipulations, were intended to be incorporated as terms of the contract or to have contractual effect.

Contracts in standard form.  A different problem may arise in proving the terms of the agreement where it is sought to show that they are contained in a contract in standard form, i.e. in some ticket, receipt, or standard form document.  If a party signs a contractual document, he will normally be bound by its terms.  More often, however, the document is simply made available to him before or at the time of making the contract, and the question will then arise whether the printed conditions which it contains have become terms of the contract.  The party to whom the document is supplied will probably not trouble to read it, and may even be ignorant that it contains any conditions at all. Yet standard form contracts very frequently embody clauses which purport to impose obligations on him or to exclude or restrict the liability of the person supplying the document.  Thus it becomes important to determine whether these clauses should be given contractual effect.

Meaning of notice.  It is not necessary that the conditions contained in the standard form document should have been read by the person receiving it, or that he should have been made subjectively aware of their import or effect. The rules which have been laid down by the courts regarding notice in such circumstances are three in number:

(1)  if the person receiving the document did not know that there was writing or printing on it, he is not bound;

(2)  if he knew that the writing or printing contained or referred to conditions, he is bound;

(3)  if the party tendering the document did what was reasonably sufficient to give the other party notice of the conditions, and if the other party knew that was writing or printing on the document, but did not know it contained conditions, then the conditions will become the terms of the contract between them."

[emphasis added]

104.Mr Jat also referred me to Ming Shiu Cheung v. Ming Shiu Sum[86]. It was a case involving the validity of certain shares transfer documents executed by a deceased father in favour of one of his children.  Ribeiro PJ said:-

"G.   The legal viability of the “no knowledge and consent” agreement

(i)  The Court of Appeal’s approach

83.   Even if, contrary to what is stated above, it could properly be inferred that the father signed the instruments unaware of their contents, it can by no means be assumed that such fact, without more, suffices to invalidate the instruments signed.  However, the Court of Appeal appears to have proceeded on precisely that assumption.  They stated:

Provided that the plaintiffs succeed in proving that the father did not know what he had signed, it was unnecessary for them to prove how or why it was that he nevertheless signed. (§ 75)

(ii)  The applicable principles

84.   With respect, that approach is contrary to principle.  It is in law highly material to ask how or why the father nevertheless signed the documents.  Reliance is universally placed on signatures appended to documents by persons of full age and understanding as signifying the signatory’s assent or adherence to what that document states. Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed.  It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the tenens) of the document signed.  But they are held to the documents which they have chosen to sign unless there is shown to be a recognized legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.

85.   Thus, in Saunders v Anglia Building Society [1971] AC 1004 at 1016_, Lord Reid warned against an approach, like that of the Court of Appeal, which inverts the general rule:

We find in many of the authorities statements that a man's deed is not his deed if his mind does not go with his pen.  But that is far too wide.  It would cover cases where the man had taken no precautions at all, and there was no ground for his belief that he was signing something different from that which in fact he signed.  I think that it is the wrong approach to start from that wide statement and then whittle it down by excluding cases where the remedy will not be granted.  It is for the person who seeks the remedy to show that he should have it.

86.   And in Bank of China (Hong Kong) Ltd v Fung Chin Kan & Another (2002) 5 HKCFAR 515 at p.533, Litton NPJ acknowledged:

... the fundamental principle that, generally speaking, when a person signs a legal document, he or she is bound by the act of signature: As a matter of general law, it is no defence to say that he or she did not understand the contents of a legal document; that person takes the chance of being bound by its terms, as he or she can take the simple precaution of not signing until its contents have been fully explained and understood.

87.   The vitiating factors at common law include fraud, mistake, misrepresentation, non est factum, duress, undue influence and lack of mental capacity: see, for instance, Blay v Pollard & Another [1930] 1 ]KB 628; and Gillman v Gillman (1946) 174 LT 272.  To disown a signed legal document, facts constituting the particular vitiating factor relied on must be pleaded and established by the evidence."

[Emphasis added]

105.Mr Jat also referred me to Kincheng Bank v. Kao Yu Kuei [87] which was a case involving the defence of non est factum raised with a view to avoiding liabilities under a signed guarantee.  The Court of Appeal first held that whether the guarantor understood all the contents of the document was not relevant and the burden was on him to show that he thought he was signing a document of a different nature. Huggins VP  also said:-

"The judge’s conclusion that the second defendant was not negligent cannot bear scrutiny.  Anyone who signs a document in a language he does not understand is necessarily negligent unless he has been actively misled as to its nature.  There is no suggestion that the plaintiff misled the second defendant; it is said that the first defendant did so.  Again, the first defendant may have misled him as to the precise terms – the judge has found that he did so – but the second defendant knew very well he was signing a guarantee and thought only that he was responsible to get the principal to pay the money.  He has not done even that.

Then, the judge found that the plaintiff contributed to the second defendant’s damage by not reading and explaining the document in the right language or dialect.  Disregarding the fact that the plaintiff had no reason to doubt the second defendant’s understanding of Cantonese, the finding cannot stand because the plaintiff was under no duty to read and explain the document in any language or dialect."

[Emphasis added]

106.Based on my findings of fact summarized above and applying the above legal principles, I rule that by 28 August 2007 (when the banking services agreement was concluded between DBS and San-Hot BVI), the contractual terms and conditions governing the operation of the account were contained in the following documents:-

(1)  The Account-opening Application Form signed by Madam Hao on 3 August 2007 but dated 27 August;

(2)  The Private Banking Agreement (having been incorporated into the Account-opening Application Form by virtue of the section "Account(s) to the Opened" in the said form);

(3)  The Professional Investor Declaration;

(4)  The General Commercial Agreement;

(5)  The Mortgage; and

(6)  The Charge.

107.I accordingly reject Mr. Coleman's "1^st level argument". As for the "fall-back argument" based on the Interfoto principle,consideration of this argument requires closer examination on the nature and classification of each of the terms set out in the Appendices.  I proposed to deal with it in a later section of this Judgment after have I analyzed the legal concept of "contractual estoppel".  At this juncture, subject to the Interfoto arguments, I conclude that all terms and conditions set out in the above documents formed part of the banking services agreement between DBS and San-Hot BVI.

108.The private banking account of San-Hot BVI was opened on 28 August 2007. It was not in dispute that Madam Hao indicated at one stage that she would like to set aside a small portion of her investment funds in San-Hot BVI's account for the purpose of opening letters of credit.  Eventually, Joddy liaised with DBS's Enterprise Banking Team in Macau which provided such services to Madam Hao.  Subsequently monies, mutual funds and stocks were transferred by Madam Hao into San-Hot BVI's account.

109.After the 3 August 2007 meeting, Jason proceeded with the account-opening applications by San-Hot HK and San-Hot BVI. He assisted Santos in preparing the relevant "Client Profiles". Jason was cross-examined on this matter which is largely relevant to the issue of "Breaches of Professional Duties".  I would return to this issue in due course.  Suffice for me to mention at this stage that Jason's performance under cross-examination did not cause me to detract from the favourable view that I hold in respect of his credibility.

F.  EVENTS AFTER THE OPENING OF THE ACCOUNT

(I)  Meeting of 17 September 2007

Defendants' Evidence

110.It is common ground that on 17 September 2007, a dinner meeting took place between Madam Hao, her husband, Santos, Joddy and Rocky discussing mostly on the Xinxin IPO. Madam Hao said that she was then offered by BOCI to handle her IPO subscription. During the meeting, DBS staff spent most of the time trying to persuade her to carry out the IPO subscription through DBS.

111.According to Madam Hao's evidence-in-chief, Joddy Kong offered her the following terms:-

(1)  a loan in Hong Kong dollars secured by funds and foreign currencies that Madam Hao transferred to DBS;

(2)  the most favourable interest rate;

(3)  Rocky, being an expert in dealing with securities would tell her the best price at which to sell the Xinxin shares on the day of listing; and

(4)  Joddy could make special arrangements for Madam Hao to sell the subscribed shares at prices 10-20% higher than the market price.

112.Then Joddy mentioned that DBS was the strongest bank and that she helped one of her clients to earn 1 million a day.  Joddy did not mention by what product and through what means such profits could be made.  Joddy said Santos would take care of Madam Hao's account and that Rocky's team would be her financial consultants. Joddy said they could help Madam Hao to make lots of money.  When Madam Hao mentioned that she dared not use her money for other purposes as it might be required for her business at any time, Joddy said she could use a "credit line" instead of her money so that her business dealings would not be affected.

113.Santos then said that "the product" was exclusively offered to major private banking customers of DBS and would not be available to common people.  Santos added that Madam Hao could make money by selling shares in the market at a higher price as soon as she received them and hence there was basically no risk. After the meeting, Santos kept emphasizing that she could get shares at discounted prices which could then be resold at prices higher than market prices.  Madam Hao said that at the time, she did not know what derivative transactions were.  She thought DBS was able to buy and sell shares for her in the market in a certain way whilst giving her discounts.  According to Madam Hao, that was all the information she received during the meeting.  Towards the end of the meeting, Madam Hao asked for explanatory guide in respect of “the product”.  Santos promised to bring her a copy the following day.  After the dinner meeting, as they were walking outside, Rocky said their team was so formidable that they had many profit-making products which were unavailable to other banks.  They could introduce these products to her after the IPO subscription. Rocky then took several sheets of paper from his briefcase and gave them to her, saying that they were product guides for her review.  Madam Hao did not read them and left them in the hotel.  Madam Hao said that there was no detail discussion about KODA transactions during that dinner meeting. Nobody explained to her what extent of losses one could sustain under a KODA transaction in the event of share price falling and knock-out not occuring.  Madam Hao denied having been given a Chinese version of the product guide explaining the nature and risk of KODA products[88].

114.Furthermore, without mentioning when and where, Madam Hao said in her witness statement[89] that Joddy and Santos emphasized that KODAs would be knocked out within a few days.  She asked them whether there would be risks if share prices fell. They said that even in that case, she could still acquire shares at discounted prices lower than market prices. She could still make a profit and the question was simply for how much.  She asked what if the market continued to fall. Santo Wong reassured her that the situation would absolutely not happen because the market would not crash in such a manner.  She said Santos had mentioned similar things on 10 September 2007. Madam Hao then stressed that they (still referring to Joddy and Santos) kept emphasizing that KODAs would be knocked out within a few days. She did not have any idea that such transactions could last for one year. If she had known that she would need to bear the risk of losing money when market prices fell below the discounted prices and that the situation could continue for one year, she would certainly not have agreed to do the KODA transactions.  She also recalled Santos kept emphasizing that the greater the discount, the lower the risk. Hence, that was the reason why Santos only recommended her to buy the "2X" type of KODA which offered a greater discount.

115.Madam Hao then described what happened on 18 September 2007. In that afternoon, she had an appointment to meet one Mr Wu of BOCI at his office.  Santos arranged to accompany her to BOCI. After the meeting with BOCI, Santos gave her an envelope containing documents said to be relating to the Xinxin subscription.  Madam Hao did not suggest having discussions with Santos pertaining to KODA.

116.Then in the afternoon on 19 September 2007, Madam Hao went to DBS to discuss on the arrangement for issuing a letter of credit.  On that day, Santos asked Madam Hao whether she wanted to do any "saving shares", i.e. KODA transaction.  Santos told her that many clients of DBS were doing so and making good profits. He also said she could use a DBS credit line to carry out the transactions. Madam Hao said she could do so if that would not affect her business activities.  She did not mention any conversation about the nature and operation of KODA transactions.

117.Then in the morning on 20 September 2007, Santos called her and persuaded her to try doing a KODA.  Santos said that he was going out of office and so Joddy would call her.  When Joddy called her, Madam Hao agreed over telephone to do the first KODA transaction.  Madam Hao said she did not have any written materials about KODAs at the time.  The reason why she agreed to the transaction was partly because DBS had told her that money could be easily earned. However, the main reasons behind were that DBS had told her:-

(1)  she would not be using her working capital; and

(2)  basically there was no risk.[90]

118.Madam Hao then said when she later packed up for her return trip to Beijing, she thought about the transaction she concluded over phone with Joddy.  She wanted to read about the product on the plane.  She looked for the product materials amongst the documents in her hotel room but could not find them.  She mentioned that over the dinner on 17 September 2007, Rocky only gave her some advertising leaflets on equity linked notes.  She also mentioned about the envelope Santos gave her which contained documents relating only to the Xinxin subscription. She therefore called Santos and asked why he had not provided her with the KODA product guide.  Santos said he had given them to her and they were contained in the envelope. He then said he would ask Jason to email the documents to her again.

119.Later that day, Jason emailed to her a set of DBS information memorandum dated 14 September 2007[91]. These were documents that she was given before.  She then complained to Santos again and asked them to send hard copies of the KODA product guide to her before she departed for the airport.  She also suggested that they could at least deliver them to Mr Zhong (who was not leaving Hong Kong that day) for onward passing to her. Madam Hao said that in the end, no KODA product guide was ever provided to her. She suggested that Santos was intentionally withholding them from her, knowing that she would certainly not have entered into the KODA transactions if she had read the product guide[92].

Plaintiff's Evidence

120.Rocky is a senior Vice President of the Investment Advisory Team in the Private Bank Division of DBS. He has over 13 years' experience in the finance industry. He specializes in equities and equities related financial products.  He is registered with the Hong Kong Monetary Authority to carry out Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) activities. He joined DBS in 2004 and in 2007, he was a Vice President.  He was responsible for sourcing equity-related investment products from issuers for DBS Private Banking and providing RMs with regular market updates and information on investment products. He would monitor market activities and provide RMs with up-to-date analysis on market trend, sentiment and outlook.  He also provided training seminars to RMs and answered their queries.  Generally, he would not need to meet with Private Banking customers unless specifically requested by RMs.

121.Rocky first met Madam Hao on 3August 2007 at a meeting held in the office of DBS.  He was invited by Joddy to attend the meeting to explain to Madam Hao how private placement of IPO worked in Hong Kong.  At this meeting, Madam Hao said she knew the senior management of Xinxin and would be able to secure a substantial allocation of Xinxin shares through private placement during Xinxin's IPO. She also mentioned contacts having been made with BOCI to arrange for an account to be opened and to obtain necessary financing for the private placement.  Rocky explained to Madam Hao the workings of private placement during an IPO in Hong Kong.  He also mentioned that BOCI could allot shares to her even if her securities account was maintained with DBS. He left the meeting shortly after giving his explanations on private placement.

122.In September 2007, he was invited by Joddy and Santos to join them at dinner with Madam Hao.  That was the meeting on 17 September 2007.The main focus of the meeting was to further explain about private placement at the Xinxin IPO and the credit facilities that DBS could offer to Madam Hao.  According to Rocky, prior to the dinner meeting, Joddy suggested they should bring along a set of presentation materials on 2 investment products, namely "Callable Accrual Notes" and KODAs, which were "hot" amongst DBS Private Banking customers at the time. Rocky identified those materials and referred to it as "the Presentation Deck"[93].  It was a set of leaflets consisting of a Chinese version and an English version.  It bore the title: "Brief Product Description - Confidential,  Date 2007,  Type: Equity structured product". The first product introduced was Callable Accrual Notes ("CAN"). The second product introduced was KODA. In respect of both products, there were pictorial descriptions, assisted by graphs, to demonstrate the essential workings and characteristics of each product.  In relation to KODAs, it began with a page consisting of two prominent boxes juxtaposed one above the other.  The upper box set out the "Product Description" and the lower box the "Product Mechanism" as follows:-

"Product description

  KODA – OTC (Over-The Counter) is an equity structured product.

  Investor can accumulate share daily to capture investment returns through KODA – OTC.

  KODA – OTC is suitable for investor who aims for investment growth, and has a positive view on the underlying share.

Product Mechanism

  KODA – OTC is a short term to medium term structured product.  Unless, the price of the underlying share closed at or above the knock-out level, investor needs to buy a pre-set amount of underlying share at strike level.

  If the closing price of the underlying share is at or above the knock-out level, the share accumulation will be stopped immediately.

  If the KODA – OTC is not knock-out during the whole observation periods, investor will accumulate the pre-set maximum amount of shares at pre-set discount level (Compared to the Initial Spot).

  The knock-out event is determined on daily basis."

It was then followed by a page of annotated graph describing the operational mechanism of a KODA in different scenerios of market conditions.  I find that the essential operations of a KODA transaction were adequately explained in the various scenerios depicted in the graph coupled with the literal descriptions.  The next page again consisted of two prominent boxes setting out the "Advantages" and "Major Risks" of a KODA as follows:-

"Advantages

  Investor accumulates share at a discount (Compared to Initial Spot).

  Investor can earn profit in market neutral condition; even if the underlying price remains unchanged.

  Investor captures profit by selling the accumulated shares which are usually monthly settled.

  Upfront investment is only a small percentage of the notional amount.

Major Risks

  Investor need to bear the downside risk of price fluctuation. If the price of the underlying share falls, and investor may bear a mark-to-market (MTM) loss in valuation."

It was then followed by similar presentations in relation to "Leveraged-2X" type of KODA.  The corresponding boxes containing explanations were as follows:-

"Product description

  KODA – OTC (Leveraged-2x) is an equity structured product which continuously accumulates share to capture investment return.

  It is suitable for investor who aims for investment growth, and has a positive view on the underlying share.

Product mechanism

  KODA – OTC (Leveraged-2x) is a short term to medium term structured product.  Unless, the price of the underlying share closed at or above the knock-out level.  Investor needs to buy a pre-set amount of underlying shares (if the underlying share close below the strike price, investor needs to buy a double amount of shares) at pre-set discount level (Compared to the Initial Spot).

  If the closing price of the underlying share is at or above the knock-out level, the share accumulation will be stopped immediately, and the KODA – OTC (Leveraged-2x) is knocked-out (expired).

  The knock-out event is determined on daily basis.

Advantages

  Investor accumulates share at a greater discount (Compared to Initial Spot).

  Investor earns profit in market neutral condition; even if the underlying price remains unchanged.

  Investor captures profit by selling the accumulated shares which are usually monthly settled.

  Upfront investment is only a small percentage of the notional amount.

Major Risks

  Investor bears the downside risk of price fluctuation.  If the price of the underlying share falls, and investor may bear a mark-to-market (MTM) loss in valuation.

  When the closing price is lower than the strike level on daily count basis, investor need to accumulate 200% amount of underlying share at strike level.  It is possible to record a loss."

There was also an annotated graph to explain the operational mechanism of a Leveraged-2X KODA at different scenerios of market conditions. For both types of KODAs, there were respectively tables of normal indicative term sheets taken from issuers as of 16 March 2007 for reference.  In my view, the statement that “investor bears the downside risk of price fluctuation” is to be read in conjunction with the statement that a customer would be obliged (unless the contract is knocked out) “to acquire the pre-set maximum amount of shares during the whole observation periods”.  Together, these statements fairly summarized the risks involved which should have been understood by a person of ordinary intellect.  In the course of the hearing, Mr Coleman frequently referred to the term “maximum financial exposure” in relation to a KODA transaction.  With respect, the real maximum will only occur in the event of the underlying shares becoming completely worthless. Unless and until this extraordinary event occurs, a customer will (in a falling market) incur “mark-to-market” loss for every batch of shares acquired.  That loss could immediately be materialized to lessen one's cashflow pressure.  On the other hand, if he/she has sufficient holding power, he/she could hold onto the shares acquired, waiting for a better time to dispose of them.  It is not different from saying that the customer bears the downside risk of price fluctuation.

The Chinese version of the leaflet was then concluded by one page in prominent print of an English disclaimer in the following terms:-

"Disclaimer:

The information herein is published by DBS Bank (Hong Kong) Limited (the "Bank", which shall include its successors and assigns).  It is based on information obtained from sources believed to be reliable, but the Bank does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose.  Opinions expressed are subject to change without notice.  Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee.  The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgment by addressees, who should obtain separate legal or financial advice. The Bank, or any of its related companies or any individuals connected with the bank group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Bank or any other person has been advised of the possibility thereof.  The information herein is not to be construed as an offer or a solicitation of an offer to enter into any transaction (including buy or sell any securities, futures, options or other financial instruments) or to provide any investment advice or services.  This document is not intended to replace, or be a substitute for reading the term sheet in its entirety before investing.  The Bank does not make any representation or warranty as to the outcome of any investment in connection with the information contained in this document.

The Bank and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in the products mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for the product providers.  The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to the laws or regulations of such jurisdiction or country.

This investment product and the contents of this document have not been authorized and reviewed by any regulatory authority in Hong Kong.  You are advised to exercise caution in relation to this document.  If you are in any doubt about any of the contents of this document, you should obtain independent professional advice."

[emphasis added]

123.According to Rocky, he learnt from antos that DBS was selling itself and its services to Madam Hao in the hope of handling her Xinxin IPO private placement.  It was thus common ground that conversations were principally focused on the Xinxin IPO.  Rocky said that he discussed the outlook of Hong Kong stock market and private placement of IPO with Madam Hao.  It was his understanding that Madam Hao required financing to fund her private placement, hence he suggested that if the share price of Xinxin rose substantially above the allotment price during the first day of trading, she should consider selling her allotted shares immediately to lock-in profits to avoid further exposure to market volatility and to minimize accruing interest.  Madam Hao indicated however that she would hold onto the allot shares.  She said she had previously participated in trading of A-shares in the PRC and knew what she was doing. She also mentioned her close relationship with the senior management of Xinxin and her bullish view on the prospect of Xinxin. Rocky said that Madam Hao appeared to hold a bullish view of the market generally, in particular of A-shares. During the meeting, Rocky also gave an overview of CAN and KODA to Madam Hao based on the Presentation Deck.  He covered their operational mechanisms as well as pros and cons.  He took roughly 10 to 15 minutes in the explaining.  He clearly remembered using the Presentation Deck in the course but could not recall whether he gave a copy to Madam Hao at the end.  He did not explain the Presentation Deck word for word. His explanations took the form of a chat.  After that, he told Madam Hao if she was so bullish about Xinxin and wanted to hold onto its shares, she could firsts sell her allotted shares to lock-in profits and then enter into a KODA to gradually build-up her Xinxin portfolio at a discounted rate to further maximize her potential return.  Rocky observed that Madam Hao was not familiar with CAN and KODA. Yet, she considered the returns from CAN too low and showed more interest in KODA. Mr. Coleman did not suggest to Rocky in cross-examination that during the meeting, Joddy had mentioned that he and his team would be Madam Hao’s “financial consultants”. Neither was it suggested to Rocky that he and his team in fact undertook such a role.

124.The evidence of Rocky was generally corroborated by that of Santos.  Santos said it was explained to Madam Hao that KODA would enable her to acquire shares at a discount to the market price and that such discount would only be available to Private Banking customers who were Professional Investors.  Santos denied having represented to Madam Hao that she would not need to commit any capital for such investments as they would come to an end very quickly.  At no time was it represented to Madam Hao that she was assuming little or no risk for those investments.  Santos confirmed that Rocky had explained to Madam Hao an investor's exposures and risks under a KODA.  Santos confirmed that Rocky did use the Presentation Deck in his explanations to Madam Hao[94]. Santos remembered Madam Hao expressing interest in KODA and picked out a few stocks for him to provide her with more information.  She also enquired about how to make the best of her banking facilities with the profits she could make in the Xinxin IPO private placement.  Similarly, Mr Coleman did not suggest to Santos in cross-examination that during the meeting, Joddy had mentioned that Rocky's team would act as Madam Hao's "financial consultants".

Discussions on evidence

125.I would first make some observations on the inherent features apparent from Madam Hao's own evidence.  First of all, Madam Hao began with saying that during the 17 September 2007 meeting, Joddy did not identify the product arrogated to generate a profit of 1 million a day.  Based on Madam Hao's version of events, Rocky did not explain CAN and KODA to her at all (whether with or without the assistance of the Presentation Deck). Hence, when she described the specific discussions on KODA that she had with Joddy and Santos as summarized in paragraph 114 above, Madam Hao could not have been talking about discussions that took place on 17 September 2007 or prior to that.  Secondly, if such discussions did take place, they must have been prior to 20 September 2007, which was the date of the first KODA transaction that San-Hot BVI entered into.  Otherwise, Madam Hao would not have said that these conversations led her into entering the KODA transactions.  Thirdly, there was no suggestion that Madam Hao met Joddy between 17 and 20 September 2007.  Hence, in so far as the alleged discussions involved Joddy, it could only have taken place over telephone. Fourthly, Madam Hao specifically described the meetings she had with Santos on 18 and 19 September 2007 in her witness statements[95].  There was no reference to such alleged discussions with Santos. Neither was there reference to the alleged discussions when she dealt with the events that took place on 20 September 2007[96].

126.Within this narrow window between 17 and 20 September 2007, it was thoroughly unclear as to when Joddy and Santos made the alleged "quick to end" and "no risk" representations about KODAs to Madam Hao.  It is also important to compare the pleaded case on the "Wong's Representations".  Paragraph 19 of the Defence and Counterclaim[97] read:-

"At the July Meeting and on divers occasions including those in early September 2007 prior to the first Equity KODA transaction on or about 20 September 2007, Santos Wong represented to Ms Hao that [i] Equity KODAs enabled the Plaintiff's clients to acquire shares at a discount to the market price, and that this discount was something which was not available to anyone else in the market.  Santos Wong also represented to Ms Hao that [ii] she would not have to commit any capital to such transactions as they would come to an end very quickly, and that [iii] she was assuming little or no risk as she would be able to dispose of the shares accumulated immediately on the market (collectively "Wong's Representations")."

In the quoted passage, I have broken down the Wong's Representations into 3 elements (i) to (iii).  Element (i) was not suggested to be false in any sense[98].  Elements (ii) and (iii) are what I described as the "quick to end" and"no risk" representations.  The essence of "no risk" lies in the suggestion share price would not drop below the discounted price.  The essence of "quick to end" lies in the suggestion that share price would soon rise above the Knock-out price.  The concept of "no commitment to capital" is intrinsically linked to the suggestion that KODAs would be knocked out quickly and they carried little or no risk.  It is thus quintessential to identify whether these representations of "quick to end" and "no risk" were in fact made to Madam Hao.  Hence the important of her evidence as set out in paragraph 114 above.

127.As mentioned earlier, Madam Hao's evidence was unclear as to when the "quick to end" and "no risk" representations were made to her.  From her evidence, it would seem that these representations were made by Joddy and Santos.  However, it was pleaded that Santos was the maker of the Wong's Representations. Furthermore, it referred to them as having been made even at the July Meeting.  Madam Hao's evidence on the 11 July 2007 was that there was no discussion of any investment product at all. The Wong's Representations could not have been made at the July Meeting.  The suggestion that they were made "on divers occasions" was also not supported by Madam Hao's vague evidence.  I have considered the taped telephone conversations between Madam Hao, Santos and Joddy between 24 July 2007 and 20 September 2007. I cannot find any reference to the "quick to end" and "no risk" representations and Mr Coleman did not suggest otherwise.

128.Prior to 5 September 2007, tape transcripts showed that conversations between them related solely to the opening of bank accounts and the Xinxin IPO. On 5 September 2007, Santos and Madam Hao discussed on placing her money in short-term deposit notes.  On 10September 2007[99], Santos offered for Madam Hao's consideration a type of CAN[100] involving China Communication Construction and Yanzhou Coal Mining and it is common ground that in the end, Madam Hao was not interested and did not enter into any transaction. In relation to this product, so long as the combined share prices of these two companies were maintained at 65% of or above a specified rate, there would be no obligation for a customer to take up shares and the customer would receive 28% interest p.a.  But if the combined share prices dropped by 35% from the specified rate, the customer would have to take up shares at a price 75% that of the specified rate.  If the share prices rose to 85% or above the specified rate, the contract would be terminated.  The customer would get back the principal plus up-to date interest at 28% p.a. In relation to this particular product, there were discussions of risks between Santos and Madam Hao as follows:-

"Santos:  … But I saw that this is quite good, Merrill Lynch the interest rate of this one also reach 28%, so I also give…

Hao:  What do you mean by interest rate reaching 28%?

Santos:  Oh, this interest rate, it will distribute interest every 3 months. As long as these two stocks, because these two are rather big-sized stocks, and also that is, er, it’s growth is also rather stable, as long as these two stocks are at 85% discount (15% off)…at…at…the level of 75% or above, one will receive, er, the return of the interest rate.  28%.

Hao:  What does it mean by 75?

Santos:  Um, maybe you…you can open up the, er, information and have a look first.

Hao:  You wait a minute and let me have a look at the thing you sent over.

Santos:  It is okay…

Hao:  I said you can get 28 for two years?

Santos:  Um, right, right, right, right.

Hao:  You, 28 for two years is considered a lot?

Santos:  Oh, no, this is annual…annual interest rate.

Hao:  Then you…then you still have risky times.  When at whatever situation you cannot reach, you…you still have other possibilities.

Santos:  Oh, of course there is such risk.  The risk is that there is a chance that you will have to take up the shares.  But this situation of taking up shares would happen…er, where (sic) would it happen? That is to say this, it…if you open this part, can you see 85%...%, 75% and 65%?  As long as these stocks are at 65% or above there is no need to take up the shares, one can get back the capital, and can also obtain 28…28% the interest.  But the biggest risk is that if one of these two stocks falls…falls relatively badly, falls by 35%, then you will use 75% this unit price to take up the shares.

Hao:  Look, I am looking.  But it seems that I do not understand your [Santos: Um.]…what this…this means.

Santos:  Uh-huh.  Oh, actually it is very simple.  That is, isn’t it linked to two stocks?  That is this stock code 1171 and also 1800, that is China Communications Construction and Yanzhou Coal, these two stocks…

Hao:  Er, what is 1171?

Santos:  Um?

Hao:  Your 1171.  What is this stock?

Santos:  1171?

Hao:  Um.

Santos:  Yanzhou Coal Mining.

Hao:  Yanzhou Coal Mining?

Santos:  Right, right, right.  Wait a moment, I…

Hao:  I will check later myself.  I will check online later and see what this is.

Santos:  Um, um, um.  [Hao: Um.]  The other one is 1800, 1800, er, perhaps Miss Hao has heard of it.  This 1800 is, the only, er, for Hong Kong; there is only one stock belonging to China construction type.  Therefore a lot of funds would also buy this stock, China Communications Construction.

Hao:  Um, I will check later…

Hao:  So for this one of yours, that is the one you sent to me just now, this stock, this one, is it necessary to convert U.S. dollars to Hong Kong dollars?

Santos:  Oh, no, this is done in U.S. dollars.

Hao:  Done in U.S. dollars, right?

Santos:  Right, right, right, right.  Because previously, it was not, it wasn’t shown to you previously because the amount of money it required was relatively large.  But now because there is already a…there are some relatively big clients, they have already done it, so if we add to it then the required amount would just be 100,000 dollars.  So you can have a look first, and later I will contact you, and explain to you in detail.  But to put it simply, that is, as long as for these stocks, it is every 3 months, for the first 3 months it is certain that it would distribute 28% to you.  Afterwards, every time, it depends on…on if these stocks are at the level of 85% or above.  That is, if it is at the level of 85%, then it will be terminated, and won’t continue, and you will not have to wait for two years and the capital and also, that is, the last phase of the interest will be returned to you.  But the worst scenario is that when these stocks fall to 65%, you have to take up the shares, using the 75% level.  However, there is…but we felt that this chance is relatively small, because if these two stocks are to fall by 35%, then I think this possibility would exist only if the whole stock market experienced a very very big market crash.

Hao:  Um, so you are saying that now, that is, er, to be more secure, it is to receive the 28%, right?

Santos:  Er, right, right, right, right.  But…but this one, perhaps the period is a bit longer than what you required.  But as long as these two stocks, if it…

Hao:  So for this one of yours, if, say halfway through I don’t want…I don’t want to do it anymore, I need the money, then I…I…is it that I cannot get the money out?

Santos:  Oh, this is one of the factors to consider.  That is to say, if by any chance halfway through you need the money, there is the second-hand market, but usually we won’t encourage people to do it this way.  Because if halfway through you have to sell it off, it must be sold at the market price at that time.  So this is one of the considerations for this…this reason.  But our general prediction is that you should be able to get it back earlier after around er, 9 months or 1 year. It’s because this…these two stocks don’t have to climb up, or if its adjustment is within 15%, then you can already get it back earlier, because its call level is at 85%...%."

[Irrelevant parts removed and emphasis added]

129.First of all, the conversation related not to KODAs.  Secondly, it shows it that Madam Hao appreciated that there were risks in investment activities as any person of ordinary intellect would. Thirdly, Santos was rather careful in analyzing the risk factors of a derivative product with Madam Hao.  In relation to this specific product, a customer would be required to take up shares only if the share price dropped below 65% of the specified rate.  Even with this wide spread of 35%, Santos did not suggest that there was "little or no risk".  Santos still pointed out that there was such a risk of worst case scenario, namely the possibility of having a very big market crash. He was careful to describe it as "we felt this chance is relatively small".  Furthermore, Santos was expressly giving a general prediction when he said the contract would likely be terminated within 9 months to 1 year.  Mr Jat submitted that in all the KODA transactions, the discounts from spot rates were nowhere near 35%[101].  He submitted that it was inherently improbable that Santos would have made the "quick to end" and "no risk" representations. I can see considerable force in his submission.  Furthermore, it also appeared that Santos was not hard-selling.  Once Madam Hao asked about the possibility of requiring cash half way down the two years contract, Santos pointed out that he would not recommend client to do so.  Madam Hao's allegation that Santo had on 10 September 2007 represented that the market would definitely not crash to the extent of causing loss to her was clearly contrary to the true tenor of this taped conversation.  This is an important piece of contemporaneous evidence demonstrating the unreliability of Madam Hao's evidence.

130.The next transcript was a conversation between Santos and Madam Hao on 13 September 2007[102].  It focused on the performance of Madam Hao's mutual funds which she bought at Citibank and HSBC.  Madam Hao was clearly not happy with the rates of return of those funds.  She also mentioned about her trading of stocks in the PRC.  Then discussions turned to the Xinxin IPO and the possibility of an arrangement whereby DBS might try to sell the newly subscribed Xinxin shares at 10% above market by slowly pushing daily tranches into the market[103]. There was no discussion on KODA in this conversation. This taped conversation however corroborates Santos’ evidence that Madam Hao complained of “low returns”. It also contradicts her professing of naivity in stocks trading.

131.Then on 20 September 2007, there were a number of taped conversations.  The first one was at 09:22 hour[104]. It began with Madam Hao instructing Santos to buy 700,000 shares of Hualing (stock382).  Madam Hao then said she wanted to read certain product guide during her flight but was not given the documents.  This is a matter that I shall return to in due course.  Towards the end, Santos said he would be leaving office but the quote in relation to the "Bank of China Accumulator" had not yet come out. Santos said Joddy would contact her regarding the arrangement.

132.This led to the conversation between Madam Hao and Joddy at 10:40 hour[105].  From the way in which the conversation began, it was apparent that Madam Hao had previously indicated to Santos that she wished to carry out a KODA.  Joddy then referred Madam Hao to two quotations of KODA, one in respect of Bank of China shares and the other in respect of Shanghai Petrochemical.  Joddy told her that the share price of Shanghai Petrochemical had risen a lot on 19 and 20 September 2007 and it would be too risky to trade in it.  Madam Hao then decided not to engage in the Shanghai Petrochemical KODA. This episode is wholly inconsistent with Madam Hao's case of the "no risk" representation in relation to KODA contracts generally.  There was then a discussion on whether it was viable to trade in the Bank of China KODA.  Madam Hao appeared to understand Joddy's analysis and passed her own comment saying that the KODA in respect of Bank of China shares was safer.  Thereupon, Joddy explained the term sheet for the Bank of China KODA.  Again, Madam Hao appeared to understand Joddy's explanation and asked meaningful questions before indicating agreement.  Joddy even warned her that since she would be doing the Xinxin IPO subscription in October, she should not enter into a large KODA trade.  Joddy suggested her to consider a range between 10,000 to 50,000 shares and asked Madam Hao to determine for herself.  Joddy explained specifically to Madam Hao that if the trade volume were too large and by the time of the Xinxin subscription the contract was not knock-out, a large chunk of her funds might be locked up.  It was clearly explained to Madam Hao that her funds would be locked up and Joddy used an example:

"Joddy:  Er, how about you consider (a quantity of) around 10,000 -50,000 shares?  You decide how many (shares) you want to buy.  Er, if the trading amount is too large, I think -at that time, if it - won't knock out, then a huge trunk of funds will be locked up, and for your IPO subscription, that will be…

Hao:   But is'nt it that the shares won't be delivered until one month later?  One month later, it's already - already - the new shares will have been issued.

Joddy:   Right.  However, there's a locked-up period in-between, that is to hold fund, a deposit will be locked-up. For example, if you trade in 100 - 10,000 shares daily, er, for 250 days, then the total subscription quantity will be 2 - 2.5 million shares, the er the price is $3.41124, which means the amount will be ($)8.5 million in total.  However, the deposit amount will be 28%, which means ($)2.38 million will be locked up, but that doesn't matter too much.  Er, but if (you) subscribe for a huge amount, say 100,000 shares, then ($) 20 million odd will be locked up.

Hao:  Um.

Joddy:   Um. However, your - your locked-up capital may at anytime be, say, placed as term deposits, foreign currencies, er funds etc., just that in all this sum of deposit has to be locked up.

Hao:  Er, [Joddy: Um] okay…

Joddy:   So your…how many do you want to trade?

Hao:  That's okay, then I think…

Joddy:   And if you trade in small quantities separately, er, that isn't bad because (you) may deal in different types of stocks separately.  Some may be sooner, those which change faster will be knocked out sooner.  It is not necessary to concentrate on one stock.

Hao:  So 20,000 shares then, [Joddy: Um], 20,000 or 30,000 shares will do.

Joddy:   Um. Then make it 20,000 shares first.

Hao:  Er. okay.

Joddy:   Is that okay?

Hao:  Okay.

Joddy:   Then I'll place an order for you er, 20,000 shares of 3988 Bank of China.

Hao:  Um.

Joddy:   That will be er for a double quantity, that is if it falls below er 86.8 percent of the spot price, then, then twice the quantity will be bought, twice the quantity will be bought on that day, er, otherwise, a single batch will be bought, which is 20,000 shares every day.

Hao:  Okay.

Joddy:   Er. 103, it will terminate at (the level of) 103%.

Hao:  Otherwise, lets place 30,000 shares for that one.

Joddy:   30,000 shares?

Hao:  It's because I believe er the QDII will only take one month's time.

Joddy:   Um.

Hao:  That one.

Joddy:   That's okay too.

Hao:  So 30,000 shares, (buying) 30,000 shares sounds better.

Joddy:   Alright, okay.  Then I'll make it 30,000 shares for you.

Hao:  Um.

Joddy:   Um. So - er, after completing this, (I) will give you a phone confirmation again.

Hao:  Er, okay.

Joddy:   Okay?

Hao:  Um.

Joddy:   Um. Well, today's spot price is ($)3.93, I place an order for you to buy at ($)3.92, okay?

Hao:  Um, okay…"

[Emphasis added]

This is obviously another important contemporaneous document.  The operation of KODA was in my view clearly explained to Madam Hao.  It was also clear that she was fully conversant with the characteristics of a KODA transaction.  She was obviously aware that KODA could carry certain risk as she was able to conclude for herself that entering into a KODA for BOC shares was, at that time, relatively safer than a KODA for Shanghai Petrochemical.  She was made aware of the locking-up of her funds after a trade was conducted.  The amount of funds locked-up was calculated with reference to the purchasing of shares for 250 days in the daily amount that she herself determined to trade in. The funds locked-up could be in form of deposits, currencies or funds in her account. Her capital would thus be committed. It is ludicrous for Madam Hao to suggest that she thought her capital would not be utilized in her investment activities.  There was no suggestion that the KODA contract would be quickly knocked out. On the contrary, Joddy put forward the scenario of it not being knocked out by the time Madam Hao might need cash for the Xinxin IPO subscription, hence warning her not to engage in too large a quantity of KODA contract.  There was absolutely no hard-selling by Joddy at all.  Joddy then suggested a comfortable range for Madam Hao to decide for herself.  Even when Madam Hao indicated that she could trade in 20,000 or 30,000 shares, Joddy suggested the lower figure.  It was later due to Madam Hao's own bullish view by reason of her anticipation of a quick imposition of QDII that she changed to opt for a 30,000 shares contract.  The "2X" element was also explained to and understood by Madam Hao given the clear example used by Joddy. This episode clearly contradicted Madam Hao's evidence in cross-examination when she said that prior to entering into the 1^st KODA contract, she was not told about the "one-fold or two-fold thing"[106]. In view of the contents of this taped conversation, Madam Hao's evidence as set out in paragraph 114 above appears to me unbelievable. I also find her assertion that she was not aware of her financial exposure under a KODA contract incredible.  The contents of this taped conversation were clearly inconsistent with the alleged representations as set out in paragraph 114 above.

133.The next taped conversation on 20 September 2007 took place at 11:28 hour[107].  After confirming the trade of 700,000 shares in stock code 382, Madam Hao again referred to some documents that she wished to read during the flight. She also suggested delivering the documents to Mr Zhong instead.  Then Santos asked whether Joddy had contacted Madam Hao on the "shares accumulating matter".  She confirmed that Joddy had done so.  Madam Hao did not indicate that she had any problem or lack of understanding in respect of the KODA trade which she dealt with Joddy earlier that day. In cross-examination, Madam Hao asserted[108] that on 20 September 2007, her understanding of KODA was merely that it was purchasing shares at discount. Later on, after she traded in several KODAs, she gradually came to know that there were "1X" and 2X" versions of KODA.  Furthermore, she said[109] that at the beginning, she did not realize that a KODA could last longer than one month.  Only later on did she come to know that. Mr Jat then referred Madam Hao to the taped conversation she had with Joddy on 20 September 2007. In answering a question from the Court, Madam Hao accepted that Joddy did give her detail explanation on the operation of KODAs.  She also accepted that she did not raise any question or indicate that she did not understand the explanation. Madam Hao was then asked why, if there were anything that she failed to understand, did she not seek clarification from Joddy.  Madam Hao gave a long answer:-

"HIS LORDSHIP: Whether or not you understood her explanation at that material time, after she explained fully, at item 61, when she asked how much you want to do, you immediately answered her "20,000 or 30,000", either will do.

My question to you, Madam, is, I hope you can explain to me if you said you did not understand what was explained to you about the transaction, why did you not ask for clarification before you placed the definite order?

A.  So your Lordship allows me to give you an explanation?

HIS LORDSHIP: Yes.  I very much hope you can explain it to me.

A.  On 17 September, at that time Madam Kong, Mr Wong and also Mr Cheung, in order to solicit me or persuade me to do the new share, the placement of the new shares, talking about the IPO of the Xinxin company.  At that dinner, in fact the main talk was about the IPO of Xinxin. This thing, KODA, was used by them to attract me to let them do the IPO at their place; that is a preference or an advantage or a condition given to me, that KODA.  That is why at that time, what they said was only about the advantages of it.  That was on 17 September.

After that, on 18 September and on 19 September, Mr Wong Wai Yip saw me.  He kept promoting this to me.  At that time, I did not know what this product was.  The only thing I knew about it was that it was a favour or a preference given to clients.  And so I did not know the specific operation of it.  So on the morning on the 20th, Mr Wong Wai Yip telephoned me, telling me that he would go out.  He told me that Madam Kong would phone me.

So at this time, when Madam Kong phoned me -- that is, during this particular telephone conversation – Madam Kong simply gave me so many figures and at this time, I really did not hear them clearly.  To be accurate, I did not quite understand when I heard these things.

Your Lordship asked me why I did not ask her when I did not understand it.  Because I was not so familiar with Kong Suet Kam.  The real situation is this.  If Wong Wai Yip had made this telephone call to me, I would definitely have asked him in details.

Because every time when he phoned me and introduced or promoted products to me, every time he did that I asked him for clear information.

HIS LORDSHIP: So because you were not very familiar with Madam Kong, you were a little bit inhibited in asking her for detailed explanation; right?

A.  I did not feel comfortable to ask her.  And therefore, after that, I telephoned Mr Wong Wai Yip asking him to provide me with a description booklet on the product." [Emphasis added]

I find Madam Hao's explanation prevaricating and contrived.  It can be seen from the taped conversations between Santos and her at 11:28 hours on 20 September 2007 that her earlier transaction with Joddy over telephone was specifically mentioned.  If she had anything about KODA that she did not understand, she could have raised it with Santos, a person whom she felt no inhibition in raising questions.  The fact is, Madam Hao did not raise any question with Santos or indicated any aspects about KODA that she failed to understand.  Madam Hao's evidence appeared even more contrived when the next taped conversation on 25 September 2007 was put to her in cross-examination.

134.On 25 September 2007 at 10:50 hour, Santos telephoned Madam Hao. To put things in context, The 1^st KODA contract which Madam Hao entered into on 20 September 2007 was knocked-out on 24 September 2007.  She therefore received the guaranteed amount of Bank of China shares purchased at the Strike Price (i.e. a price considerably lower than the spot rate as of the date of knock-out).  If Madam Hao was willing to dispose of these shares at market on 25 September 2007, she could immediately cash in substantial profit.  The taped conversation thus began with Santos asking whether Madam Hao wished to take profit:-

"Santos:  Well, just to er check whether (you) want to make profits first for the Bank of china (shares) today or what?

Hao:  Um, no need, er, for now, [Santos: Not now.]  Oh my goodness, it’s surged so…(indistinct) (laughing sound)

Santos:  Then, the other one…

Hao:  Won’t deal in such a short-term one.

Santos:  Er, no problem.  Well, on the other hand, today…er, we may continue to trade in this kind (of product) which accumulates shares.  I have checked for you today actually because you probably…you probably know that the China Construction Bank’s A-shares are listed today, don’t you?

Hao:  Um.

Santos:  It’s risen by around 34%, but the H-shares are fall…falling as it’s an ex-day.  It’s down by around 3.2% by now.

Hao:  Orr.

Santos:  So if (you) want to do trade today, the China Construction Bank is worth considering.  Well, we’ll look for a bank…

Hao:  Which bank?  The China Construction Bank, right?

Santos:  Yeh yeh yeh.

Hao:  Um, um.

Santos:  It’s because anyway, today, it’s down, down by…around 3%.

Hao:  Um, that’s okay, that’s okay, um.

Santos:  Er, we may make one…make one which is that once it’s up 3%, th-th-then it will stop.

Hao:  Um.

Santos:  Er, but the one available is 8 point…80…80…80…84… [Hao: That…] 16% off means 84.5.

Hao:  Um.

Santos:  Er, the one at a dis…discount of 15.5%.

Hao:  Um.

Santos:  Again multiply by two.

Hao:  Okay.

Santos:  Okay?

Hao:  Um, okay.

Santos:  Er, let me first check er whether this can be obtained, okay?

Hao:  Um, okay.

Santos:  So (I) will get back to you later.

Hao:  Um.

Santos:  For this one, how many shares will you consider accumulating every day?

Hao:  Er, just get as many as possible, look at the…look at, that is you…how you feel about that…don’t you still have to (indistinct) (laughing sound)  In th-these few days I will probably have…have another sum of money, another sum of USD 600,000 odd coming in.

Santos:  (USD) 600,000, let me check and make one for 20,000 shares for you, or around 20,000 to 30,000 (shares).

Hao:  Um, okay, it will be fine for 20,000 to 30, 000 (shares).

Santos:  Okay?"

[emphasis added]

After taking Madam through the contents of this taped conversation, the Court raised some questions for her clarification which was then followed-up by Mr Jat:-

"A.  Right.

HIS LORDSHIP: My question to you is, at the time when you placed this order, are you saying that you did not understand the characteristics of this order that you placed with Mr Wong?

A.  I should say I did not fully understand that.

HIS LORDSHIP: Then can you explain –

A.  I only knew – well, the only thing I knew was that there was a discount and when the price rose to a certain rate, then it would stop.  Earlier on –

THE INTERPRETER: Witness pointing at counter 30 on page 1397.

A.  -- these words Mr Wong said, “Er, let me first check er whether this can be obtained”, these words are words that Mr Wong often said.

HIS LORDSHIP: Madam, if there was anything that you did not fully understand, can you explain why you did not ask Mr Wong to explain?  Can you explain that?

A.  Because at this time, the previous one had already stopped and that was the same as what he had described before.  And I did not think so much, and then he said this to me, and then I carried on to continue to do this.  Because he stressed, he emphasized, the stop and also the discount to me.

HIS LORDSHIP: I'm sorry to have interrupted you.

MR JAT: Yes, my Lord.

Ms Hao, you see numbers 26, 27, 28 and 29, Mr Wong , specifically told you it’s for double, and you said “sing”, “okay”.  He asked you again, "Okay?''' and you said, “Yes”.

A.  Right.

Q.  You obviously understood what he was talking about by “double”?

A.  No.

Q.  You did not ask him?

A.  That's right, I did not.

Q.  Not only did you not ask him, you said, "Okay".

A.  Right.

Q.  You're still trying to tell his Lordship that you did not understand the parameters of this contract?

A.  At that time, what I knew was this.  That is, what he told me, that after it had risen by 2 per cent or 3 per cent, then it would stop and on top of that, there would be a discount.  And also there would be a onefold or twofold, and that's all I knew, and I did not know anything else.

Q.  Onefold of what, twofold of what?

A.  At that time, I did not think of it so much.  If I had thought of it so much, one contract would mean 50-odd million, then I would not have done it, even if I had been beaten to death.

Q.  You knew that twofold means twice the daily number of shares, did you not?

A.  No, I did not.  If I had known it, I would not have purchased -- I would not have made the purchase."

As a result of the clear instructions from Madam Hao, San-Hot BVI eventually entered into the 2^nd KODA transaction on 25 September 2007.  In my view, the various taped conversations demonstrated that quite apart from Rocky’s explanation on 17 September 2007, detail explanations were given by Joddy and Santos respectively on the operation of the 1^st and 2^nd KODA before Madam Hao placed the orders.  Madam Hao appeared to have understood the explanations given and raised no queries. Her persistent denial of knowledge on the operations of KODAs was incredible. She was obviously happy with the quick profit she made on the 1^st KODA and her view of the market was bullish.  Madam Hao was also keen to make use of her funds to make profits through KODAs even before she was granted any credit facilities.  She was obviously not minded to have "short term" investments.  In all these taped conversations, there was no trace of the alleged "quick to end" or "no risk" representations.  This contradicted Madam Hao’s evidence that she would not use her “captital” for investment activities.

135.The next relevant taped conversation took place at 15:57 hour on 28 September 2007 between Santos and Madam Hao[110].  After talking briefly about the imminent Xinxin IPO placement, the parties returned to the issue of the Bank of China shares which San-Hot BVI obtained under the knocked-out 1^st KODA:-

"Santos:  Further…further…ah, now (it) has gone back again.  Just now I called you, I wanted to say that Bank of China rose to the 4.2…4.2 level.  Actually I…er Miss Kong told me, that she advises your to first realize the profits for this, and later when (it drops) lower, we do it again using the method of shares accumulation.

Hao:  Mm, apparently they are…I have asked them, the [Santos: Mm.] may…may be prepared to pull this up, therefore you……

Santos:   Bank of China, right?

Hao:  Yes.

Santos:   Mm.

Hao:  So spread trade is not recommended.

Santos:   Just now it was…now it has gone back again.  When it rises again…again, we will contact you again.

Hao:  Mm.

Santos:   Now it has gone down to 4.15.

Hao:  It is okay.  They seem to want to do something about this stock.

Santos:   Mm mm mm mm.

Hao:  Therefore for this kind of stock, it is okay for you to just leave it there."

[emphasis added]

This conversation showed that Madam Hao had access to information from someone within Bank of China which fueled her bullish view.  It also showed that Santos and Joddy were repeatedly reminding Madam Hao to consider taking profit on her investment which she consciously declined.  Madam Hao also had her own idea as to when and for what she would like to conduct “spread trade”. All these contradicted her evidence that her money at DBS was for working capital of her businesses and not to be risked.  It also contradicted her answers to the Court's question put to her earlier in relation to the taped conversation between her and Joddy on 20 September 2007:-

"HIS LORDSHIP: Can I ask the next question now?  At that time, in September 2007, is it correct that you personally saw that the Bank of China share had a very good prospect of price increase?  You personally.

A.  Can I explain the –

HIS LORDSHIP: Can you answer my question, Madam.  It’s a very simple question.

A.  (Chinese spoken).

HIS LORDSHIP: Personally, did you treat Bank of China shares to have good prospect of share price increase?

A.  That was what I thought, based on the information they gave me on the previous day.

HIS LORDSHIP: Do you know personally someone in mainland China working very high up in Bank of China?

A.  No.

HIS LORDSHIP: Do you know senior people working in Bank of China in Hong Kong?

A.  When I was doing the IPO of Xinxin Mining, I saw several of them.  But I was not familiar with them.  It was someone who brought me along to see them."

136.I have gone through the taped transcript from 24 July 2007 all the way to some time after 19September 2007.  These contemporaneous documents showed no trace of the "quick to end" and "no risk" representations.  In fact, they were quite inconsistent with the alleged representations having been made. They also corroborated the evidence of Rocky and Santos on the bullish view of the market held by Madam Hao.  They also demonstrated that Madam Hao was experienced in trading of shares. Madam Hao was not simply interested in making investment in the Xinxin IPO subscription.  She also engaged herself in trading of securities in Hong Kong.  She was not interested in short-term trading and was consciously holding her positions despite the attraction of immediate substantial profits. Not only did she understand the workings of KODAs, she even took independent judgments and decisions, frequently against the suggestions from Joddy and Santos.  It is also important to note that prior to 27September 2007, Madam Hao was trading in KODAs and other securities using her own funds.  By that time, DBS had not yet granted any credit facilities to San-Hot BVI.  Madam Hao obviously knew that she was using her “capital” in her pre-27 September trading.  There was hence no truth in Madam Hao's assertion of a representation that “there would be no commitment to her capital”.  It was clearly explained by Joddy to her that funds would be locked-up when she entered into a KODA. The calculation example used by Joddy also served to indicate the financial exposure that Madam Hao would face when entering into a KODA, a financial obligation extending to 250 trading days.  Joddy also clearly warned that a KODA might not be knocked out when she may need funds for another purpose.  This is wholly inconsistent with the alleged “quick to end” representation.  Any businesswoman with life experience and education of Madam Hao would understand the financial implications involved.  Madam Hao’s persistent attempt to portray her naivety was not credible to say the least.

137.I now turn to the issue about the “Presentation Deck”[111]. In the cross-examination of Santos[112], Mr Coleman put to Santos that the “Presentation Deck” was not the set of documents used by Rocky in the course of the dinner meeting on 17 September 2007. Instead, it was another set of general financial information printed by DBS bearing a print/preparation date 14 September 2007[113] that was used by Rocky.  Santos’ evidence was that according to his recollection, both sets of documents were used at the meeting.  Santos was also adamant that a copy of the “Presentation Deck” was provided to Madam Hao for her to take away.  The same question was put to Rocky in cross-examination[114].  Rocky distinctly recollected the use of the “Presentation Deck” at the meeting but could not remember whether the other set of materials was used.  On the other hand, Madam Hao’s case was that the “Presentation Deck” was not used or explained at the meeting.  In fact, her case was that there was no detail discussion about KODA during that meeting at all.

138.In paragraph 131 above, I mentioned a taped conversation that took place on 20 September 2007 at 09:22 hour.  Madam Hao mentioned that she wanted to read certain product guide during her flight.  There was some confusion between Santos and Madam Hao as to what were the documents that she wished to get hold of.  Mr Jat followed that up in cross-examination of Madam Hao[115].  In the course, Madam Hao agreed that what she looked for was not B1 tab 34 as she had previously received it. She agreed that what she asked from Santos was in her own terms the “Product Descriptions”.  Madam Hao was then taken through the dialogues in the transcript.  She agreed that the word “he” in the sentence “what he gave me was another one, which is the one with some shares, and goes up and down --- with options--- that product” in dialogue 38 was a reference to Rocky.  At dialogue 46, in a further attempt to identify the documents she wanted, Madam Hao said[116]: “During the meal, what that Mr Cheung gave me was something about product structure”.  Mr Jat thus suggested that what Rocky gave Madam Hao during the 17 September 2007[117] meeting must have been the “Presentation Deck”.  Although Madam Hao disagreed with Mr Jat’s suggestion, I fully accept the deduction of Mr Jat.  No other document that could fit the descriptions of Madam Hao in the above dialogues had been suggested by Mr Coleman.  The statements made by Madam Hao in these dialogues contradicted her own evidence.  Furthermore, bearing in mind her poor credibility as hitherto explained, I have no hesitation in preferring the evidence of Rocky and Santos that the “Presentation Deck” was used in the course of the dinner meeting as a tool to explain to Madam Hao the essential mechanisms of and risks involved in the CAN and KODA contracts. 

139.I further accept Santos evidence that Madam Hao was given a copy of the “Presentation Deck” on 17 September 2007.  She obviously tried to look for it.  That was a likely indication that she remembered having been given one.  She must have later misplaced it and hence she asked Santos for another copy on 20 September 2007.  I was also referred to another taped conversation on 20 September 2007 at 11:28 hours[118].  It was a tripartite telephone conversation between Madam Hao, Santos and Jason.  This was a follow-up conversation on how the documents she sought for could be delivered to her.  After Madam Hao hung up, Santos and Jason continued to talk between themselves.  Santos mentioned that he must have given Madam Hao the documents she wanted.  He urged Jason to do him a favour by arranging for delivery of the documents once again to Madam Hao, hopefully before she departed from Hong Kong. They also explored the possibility of faxing the documents to her but were concern about diagrams being distorted in the process.  I find that there was absolutely no basis for Madam Hao to continue maintaining her accusation that Santos was intentionally withholding the product descriptions from her. 

Conclusion and findings

140.For reasons explained above, I prefer the evidence of Santos and Rocky on what actually happened during the dinner meeting on 17 September 2007 and make the following findings:-

(1)  Santos and Joddy did not make the Wong’s Representations, whether at the July Meeting, the dinner meeting on 17 September 2007 or at any time prior to the making of the 1^st KODA transaction on 20 September 2007.

(2)  During the dinner meeting on 17 September 2007, Rocky explained the essential features of CAN and KODA transactions, their operational mechanisms and pros and cons to Madam Hao with reference to the “Presentation Deck”. I also accept Mr Jat's submission that the mechanism of KODA was not difficult to understand and that its essential feature and maximum financial exposure was not difficult to calculate (namely, the strike price x total number of days x daily number of shares depending on whether it is a "1x" or "2x" transaction).  This theoretical "maximum financial exposure" is of course calculated on the assumption that the given stock would become completely worthless.  In my view, it is more appropriate to think in terms of maximum "cashflow" exposure, which means the amount of cashflow that a customer needs to maintain in order to meet the worst case scenario, i.e. the need to collect shares for the full term of the contract. On this concept, I accept Rocky's evidence that he had told Madam Hao that there was a likelihood that she had to receive all the shares under a KODA contract[119].

(3)  Madam Hao was given a copy of the “Presentation Deck” to take away after the dinner meeting.  I also find that the contents of the "Presentation Deck" provided an adequate explanation as to the essential features and risks involved in a KODA transaction, including the need to pay an initial margin and the risk of sustaining substantial loss, depending on the volume one chooses to transact upon.

(4)  Joddy did not represent that Rocky and his team would act as Madam Hao's financial consultants. I reject Madam Hao's bare assertion based on her poor credibility and the fact that this allegation had not been put to Rocky and Santos in cross-examination.

(5)  On 20 September 2007, prior to Madam Hao giving instructions for the execution of the 1^st KODA transaction to Joddy over telephone, Joddy again gave a detail explanation of the operational mechanism of the KODA transaction to Madam Hao. In particular, Madam Hao was aware (from the example used by Joddy) that her funds could be locked up and the amount locked up was calculated with reference to the entire term of the contract.  She was also aware of the double exposure involved in a “2X” contract.  Madam Hao was also aware that engaging in a KODA transaction would involve risk.  She was able to form her own view and distinguish between the relative risks involved in KODA contracts for different types of stock. I find that Madam Hao understood Joddy's explanation and did not raise any query.

(6)  In or about 20 September 2007, Madam Hao held a rather personal bullish view of the Hong Kong stock market based partly on her expectation of the imposition of QDII and information obtained from her personal contacts such as Bank of China and Xinxin.

(7)  Madam Hao continued to hold the same bullish view about the market when she entered into the 2^nd KODA transaction on behalf of San-Hot BVI on 25 September 2007.  She was not interested in short term trading and declined to take substantial profit. In deciding the denomination of the 2^nd KODA transaction, Madam Hao was hoping to maximize on the use of US$600,000 which was about to be deposited by her with DBS.

(II)    Execution of further banking documents on 28 September 2007

141.It is not in dispute that on 28 September 2007, Madam Hao was asked to execute further banking documents. The exact circumstances under which she signed these documents are relevant to the "Guarantee Representation" defence.

142.Madam Hao was not in Hong Kong on 28 September 2007. She was in Beijing. Santos contacted her over telephone on 3 occasions during that day and their conversations were tape-recorded. The first conversation took place at 12:22 hours[120]. They first talked about the Xinxin IPO subscription.  Madam Hao referred to her arrangement with the management of Xinxin on the strategy of subscription.  Madam Hao said that the amount of shares allocated for her was 7.5 million and the subscription application should be made for 5 folds of that amount.  These are the relevant parts of the conversations:-

“Hao: Still 7.5 million, when placing the order it has to be placed at 500%.

Santos: Er, no need. Actually we will talk to them about this--this arrangement.

Hao: Er, no, no, you listen to me, this is correct. This--this is absolute. It is not for you to arrange.

Santos: Mm.

Hao: This is for Party A to arrange. By the time all the funds will be placing (their) orders at 500%-600%, and then you place (an order) for such a small quantity and you are given so many. It will not look good.

Santos: Er but-er actually because we had done this for other clients before on taking delivery……

Hao: That’s not what (I) mean. You have no idea. You listen to me. On this, you have to listen to me. You place--place this at 500%.

Santos: Er this--because basically -- if it exceeds by 500%, we will need to arrange another credit limit for you.

Hao: Ai ya. It will not give you that many. In the end when you pay, there will be no need for your credit limit.

Santos: I know, I know, …."

143.It is significant to note that Santos mentioned that "another credit limit" would have to be arranged if the subscription was to be made in 5-folds of 7.5 million shares. Even according to Madam Hao's own evidence[121], she was aware (as she was told by Santos and Joddy) that a credit facility would be arranged for her use in "doing transactions".  In the proper context of this taped conversation, Santos was merely saying that if the subscription application to Xinxin was to be in the amount of 37.5 million shares, a greater credit limit than what was originally anticipated would have to be arranged.

144.The next telephone conversation between Santos and Madam Hao took place at 15:57 hours[122].  They also began with a discussion on the Xinxin IPO subscription.  Santos sought Madam Hao's confirmation that the subscription application would be made on "no price limitation" basis.  Their conversation then turned to BOC shares which was the subject matter of the 1^st KODA contract[123]. They briefly returned to the topic of Xinxin IPO subscription but that was equally confined to the " no price limitation " instruction.

145.The third and last conversation on 28 September 2007 took place at 16:41 hours[124].  Santo began with telling Madam Hao that Jason had just emailed certain documents for her signature. He described these documents as relating to the "credit limit and its quota"[125].  He requested Madam Hao to append her signatures and fax them back to DBS.  Madam Hao readily agreed to this procedure.  He said that the originals would be couriered to Madam Hao and there was then a discussion on the proper address.  The dialogues then continued:-

"Santos:  Which address is more convenient to be sent to?

Hao:  You must have my signature before you can place the order there?

Santos:   Er, basically er because time is quite tight, so I am sending er an e-mail first, you--we can do it first after receiving your fax, but we still have to get the original back afterwards."

146.It can again be seen that Santos was talking in general terms about the credit limit.  He did not suggest in any way that the documents to be executed by Madam Hao was for any particular type of transactions.  Certainly, he did not suggest that they were confined to the Xinxin IPO subscription.

147.The email sent by Jason to Madam Hao at 16:33 hours on 28 September 2007[126] was entitled "Credit letter & Fund transfer instruction". It contained a number of attachments.  The titles of these attachments did not suggest that they related to Xinxin IPO subscription. The body of the email read:-

"Dear Madam Hao,

On behalf of Santos, please print and sign the attached Credit related documents and a fund transfer instruction.  There are total 9 signatures required, please sign and fax us the signed pages at 852-28065357."

Amongst the attachments, there was one "Written Resolution of the Sole Shareholder" in relation to San-Hot BVI[127]. It began with stating:-

"NOTED that

(1)  DBS Bank (Hong Kong) Limited ("Bank") had offered to make available/continue to make available certain banking facilities to the Company on the terms and conditions set out in the Bank's facility letter dated 27 September 2007 together with the "Terms and Conditions Governing Banking Facilities and Services" attached therein (collectively called the "Facility Letter"), a copy of which was attached hereto;

(2)  there were also attached hereto the following document(s) that was/were required to be executed by the Company and delivered to the Bank before the facilities would become available:

(a)  General Commercial Agreement;

(b)  Charge on Cash Deposit(s);

(c)  Mortgage over Stocks, Shares and Other Securities;

(d)   Sharing of Credit Data-Customer Consent Form

("Security Document(s)")

(3)#  the sole directed had duly declared his/her interests in the transaction."

The draft written resolutions then pertained to the sole shareholder of San-Hot BVI approving the acceptance and execution of the Facility Letter and the Security Documents.  There was, amongst the attachments, another draft "Written Resolution of Sole Director" of San-Hot BVI in similar terms and effect[128].  Both were expected to be executed by Madam Hao as the sole shareholder and director of San-Hot BVI.

Then a full version of the Facility Letter was attached to this email for Madam Hao's execution for and on behalf of San-Hot BVI[129]:

BANKING FACILITIES

DBS Bank (Hong Kong) Limited (the “Bank”, which expression shall include its successors and assigns) is pleased to advise that it is prepared to consider making available or continuing to make available the banking facilities detailed below (the “Facilities”) to the Borrower described below, subject to the provisions of this facility letter and the attached “Terms and Conditions Governing Banking Facilities and Services”.

A.  BORROWER:

San-Hot HK Industrial Company Limited

B.  FACILITY LIMITS:

Type(s) of Facility		Facility Limit(s)
1.	Revolving Term Loan	HKD54,600,000.-
2.	Treasury Facilities – Forward Foreign Exchange Contract and/or Sell Currency Options	HKD23,400,000.-
3.	Treasury Facilities – Forward Foreign Exchange Contract (Ratio Par Contract) and/or Accumulating Par Forward Contract and/or Knock Out Discount Accumulator	HKD70,200,000.-

C.  PRICING AND CONDITIONS:

Unless otherwise provided herein, interest and commission(s) on the Facilities will be charged at the Bank’s standard rate that may be varied from time to time at the Bank’s discretion.

Revolving Term Loan	Drawdown: …. Currencies allowed for drawdown: …. Interest: …. Repayment: ….
Treasury Facilities – Forward Foreign Exchange Contract and/or Sell Currency Options	Maximum Tenor: 1 year. Minimum Contract Size: USD100,000.- Aggregate Contract Size: USD3,000,000.- 10% cash margin or earmark of the available limit of Facilities at a percentage determined by the Bank from time to time on the contract value is required and must be maintained at all times during the investment period.  Failing which, the Bank has the right to unwind the contract. Top up by cash is required immediately whenever total deposit margin level falls below 5% of the market value of the total outstanding foreign exchange contracts and sell currency options. If total deposit margin level falls below 3% of the market value of the total outstanding forward foreign exchange contracts and sell currency options, the Bank has the right, but not being obliged, to close out any of the forward contract and sell currency options booked under this facility. Historical Rate rollover is not allowed.
Treasury Facilities – Forward Foreign Exchange Contract (Ratio Par Contract) and/or Accumulating Par Forward Contract and/or Knock Out Discount Accumulator	Aggregate Contract Size: USD9,000,000.- Minimum Contract Size: USD100,000.- Maximum Tenor: USD-HKD Ratio Par Contract : 1 year Accumulating Par Forward Contract : 13 weeks Knock Out Discount Accumulator: 1 year Maximum Delivery Ratio : 2 times Currency Allowed for Accumulating Par Forward Contract: AUD, CAD, CHF, EUR, GBP, JPY, NZD, SGD against USD Cash margin deposits or earmark of the available limit of Facilities at a percentage determined by the Bank from time to time on the contract value is required and must be maintained at all times during the investment period. Failing which, the Bank has the right to unwind the contract.

Handling Fee of Facilities:

A handling fee in an amount to be determined by the Bank will be payable in respect of the annual review to be carried out by the Bank so long as the Facilities are continuing.  Such fee will be debited to the Borrower’s account.

D.  SECURITY AND CONDITIONS PRECEDENT:

The Facilities will be made available or continue to be made available to the Borrower provided that the Bank has received each of the following, in a form and substance satisfactory to the Bank:

1.  This letter duly executed by the Borrower.

2.  General Commercial Agreement duly executed by the Borrower.

3.  All monies Charge on Cash Deposit(s) and all monies Mortgage over Stocks, Shares and Other Securities duly executed by the Borrower in respect of Cash Deposits and/or Securities as defined below and such other investment assets or products as may be acceptable to the Bank from time to time.  The value of the securities charged, which the Bank has the absolute right to determine, must at all times be maintained at an amount acceptable to the Bank.  The securities charged are to be held in the name of the Bank or to the order of the Bank or in the name of the Bank’s nominee company as may be required by the Bank, and to be lodged with the Bank or the Bank’s approved custodian agent(s).

4.  Guarantee and Indemnity for an unlimited amount duly executed by Hao Ting.

5.  ….

E.  FACILITY ADJUSTMENT AND TOP-UP REQUIREMENT

….

F.   COVENANTS AND UNDERTAKINGS:

….

G.  OTHER TERMS AND CONDITIONS

The Facilities are available at the sole discretion of the Bank and are in all respects uncommitted.  The Bank may at any time immediately modify, terminate, cancel or suspend the Facilities or any part of it, or otherwise vary the Facilities or any part of it, without the consent of the Borrower or any other person.

Notwithstanding any provisions stated in this letter, the Facilities are repayable on demand by the Bank.  The Bank has the overriding right at any time to require immediate payment of all principal, interest, fees and other amounts outstanding under this letter or any part thereof and/or to require cash collateralization of all or any sums actually or contingently owing to it under the Facilities.

The “Terms and Conditions Governing Banking Facilities and Services” attached and/or referred to in this letter form an integral part of this letter and the Borrower agrees to observe and be bound by them.

This letter and the Facilities shall be governed by the laws of the Hong Kong Special Administrative Region and the parties hereto submit to the non-exclusive jurisdiction of the Hong Kong Courts.

Please signify your understanding and acceptance of this offer by signing and returning to us the duplicate copy of this letter and provide each of the items under the section headed “Security And conditions Precedent” above, for the attention of Mr Santos Wong (“Designated Relationship Manager”), within one month from the date of this letter, otherwise the offer will lapse at the discretion of the Bank.

We enclose a set of documents which should be also be completed and returned to us.  If you have any queries, please contact the Designated Relationship Manager at telephone number 2218 8190.

We are pleased to be of service to you.

Yours faithfully,

For and on behalf of

DBS Bank (Hong Kong) Limited

____________________________

Authorized Signatories

CCH/kc

Encl.

We hereby confirm our understanding and acceptance of all the terms and conditions set out in (i) this letter and (ii) the “Terms and Conditions Governing Banking Facilities and Services” attached to this letter and our agreement to be bound by all of them.

Signed for and on behalf of

San-Hot HK Industrial Company Limited

____________________________

Authorized signor(s) HAO TING

Signature of Witness:

____________________________

Name of Witness:

Identity Card No:

Passport No:

148.It is immediately apparent from the contents of the above documents that the banking facilities granted were not confined to the Xinxin IPO subscription. In fact, one of the 3 types of facilities covered by this Facility Letter was specifically catered for accumulators.  Under the box for "Pricing and Conditions", DBS's right to demand "Cash margin deposits or earmark of the available limit of Facility" and DBS's right to unwind the accumulator contracts were specifically stipulated.  And under the section on "Conditions Precedent" for the grant and maintenance of this Facility, San-Hot BVI was required to provide DBS with a "Guarantee and Indemnity for an unlimited amount duly executed by Hao Ting".  It was crystal clear that Madam Hao's liability as guarantor was in respect of San-Hot BVI's liability under this Facility, which included, inter alia, use of the Facility in accumulator transactions.

149.As for the Guarantee and Indemnity to be executed by Madam Hao[130], it is true that not the entire document was attached to this email.  Only the front page and the execution pages were attached and Madam Hao was asked to sign at a place indicated on page 6. Be that as it may, Clause 1 of the Guarantee and Indemnity (which appeared on the front page) read:-

"Guarantee Provision

In consideration of DBS BANK (HONG KONG) LIMITED ("Bank"…) granting, continuing or affording facilities at the request of the person named in Part 1 of the Schedule ("Guarantor"…) for as long as the Bank may think fit to the person named in Part 2 of the Schedule ("Principal"), the Guarantor HEREBY AGREES and undertakes with the Bank to pay to the Bank on demand all sums of money and liabilities (collectively "Liabilities") whether certain or contingent, now or hereafter owing or incurred to the Bank on any account whatsoever by the Principal …"

It must have been clear, to any person who cared to read the draft written resolutions, the Facility Letter and the first clause of the Guarantee and Indemnity that the execution of the Guarantee and Indemnity was a condition precedent for DBS's grant of the entire credit facility to San-Hot BVI. Furthermore, the Guarantee and Indemnity was to cover all liabilities incurred by San-Hot BVI through the use of the Facility (which included and was catered partly for accumulator transactions).  I could not find any reference to "Xinxin IPO subscription" in all the attachments to Jason's email, let alone any limitation to it.

150.I have set out Madam Hao's pleaded case in paragraph 24 of this Judgment. The essence of her case was that on or about 28 September 2007, it was "made clear by Santos Wong and/or Jason Tse" that the Guarantee was limited to the funds required for the Xinxin IPO subscription.  In her witness statement, she gave her account as follows:-

"96.  Prior to the IPO, I was asked by Santos Wong to sign various documents on 28 September 2007.  These documents were mostly in English and included a personal guarantee.

97.   My understanding at the time, which was based on what Santos Wong had said to me, was that all the documents were signed for the IPO Subscription only, and the personal guarantee was for the purpose of and limited to the extent of the financing extended to me for the IPO subscription.  I was therefore not concerned about giving a personal guarantee, as I had more than enough assets held with DBS to cover the cost of the entire allocation, and hence I thought that there was no real exposure for me personally.

98.   I was not aware that the documents included a credit facility letter which stated that a credit facility was being given to me to trade KODAs, nor did I know the letter had stated that the personal guarantee I had given would mean that I was personally liable for repayment of any credit extended by DBS to San-Hot HK to trade KODAs or any amounts owed to DBS as a result of trading KODAs.  I was also not aware of the terms in the credit facility letter which stated DBS’ rights to value the KODAs on a mark-to market basis and to demand further collateral to be deposited if DBS considered that there was a paper loss on the KODAs on a mark-to-market basis, and that DBS was entitled to terminate the KODAs if their margin requirements were not complied with.  None of these matter were explained to me by Santos Wong at all when he asked me to sign the documents.  He simply told me that he needed me to sign the documents so that DBS could place the order for me in the Xinxin Mining IPO subscription.

99.   On 28 September 2007, Santos Wong called me several times about the Xinxin Mining IPO subscription.  At first he did not mention anything about any documents which he needed me to sign.  It was only later in the afternoon that Santos Wong then said that some documents had been e-mailed to me at around 4:30 p.m. by Jason Tse, and that I needed to sign those documents before DBS could place the order for the Xinxin Mining IPO Subscription.  Santos Wong was concerned by the fact that the Golden Week holidays were coming up and that if the documents were not signed immediately there would be a big problem.  I was told that I needed to sign in about a dozen places on the documents.  I did not have any reason to doubt whether the documents were all for the Xinxin Mining IPO subscription as Santos Wong had said.  As my assistant Ms Jiang was due to finish work at 5:00 p.m., and I relied on her to handle all clerical matters such as printing our and faxing documents, while I was still on the phone with Santos Wong I immediately asked her to access e-mail and to print out the documents for me to sign.  As soon as the documents had been printed out, I signed them and asked Ms. Jiang to fax them back to Santos Wong.

100.  I should mention for the sake of completeness that I was dealing with a family emergency on 28 September 2007.  Around noon that day, I received a call from my ex-husband at around noon.  He said that our son had been kidnapped.  I was of course very agitated.  Later on that afternoon, I found out that the kidnapping was a hoax and that my son was safe.  After learning about this matter, Santos Wong sent me those letters that required my signature.

101.  That afternoon, Santos Wong also said that he would arrange for the same documents to be couriered to me for my signature.  I do not recall whether I have received the couriered documents, and whether I have signed such documents and sent them to Santos Wong.  When I went to Hong Kong on 26 October, Santos Wong said he had not received the documents and I signed another set of the documents."

151.First of all, the plea of the Guarantee Representation having been made by Jason is wholly unsupported by evidence.  There was no contact between Madam Hao and Jason on or about 28 September 2007 other than the said email[131].  The contents of the email and its attachments did not point, even faintly to any limitation of Madam Hao's liability as guarantor, let alone making the limitation to Xinxin IPO subscription "clear".  Secondly, Madam Hao's evidence was unspecific on when and how Santo said to her that "all the documents were signed for IPO subscription only, and that the personal guarantee was for the purpose of and limited to the extent of the financing extended to her for the IPO subscription".  Paragraph 99 of her witness statement must be a reference to the taped conversation at 16:41 hours on 28 September 2007.  I have set out the relevant part of the taped conversations in paragraph 145 above.  This contemporaneous record did not support Madam Hao's version.  Santos did not say that she needed to sign the documents before DBS could place the order for the Xinxin IPO subscription.  Mr Coleman submitted that as of 28 September 2007, the 1^st KODA contract was already knocked out and the 2^nd KODA contract had already been executed on 25 September 2007, hence there was no transaction to enter into other than the Xinxin IPO subscription. Even if that be right, that execution of the documents was needed for formally establishing the Facility so that DBS would be in a position to place a subscription order in the Xinxin IPO, it does not mean that the documents were signed for the purpose of Xinxin IPO subscription only.  Santos certainly did not say or represent so expressly or impliedly during the telephone conversation.  All the more, nothing was said or mention in the telephone conversation about Madam Hao's liability as a guarantor for San-Hot BVI at all. In the cross-examination of Santos, Mr Coleman never suggested that there were other occasions (other than the telephone conversation at 16:41 hours on 28 September 2007) at which the "Guarantee Representation" was made to Madam Hao. I have gone through all taped telephone conversations between Santos and Madam Hao since 24 July 2007 upto 28 September 2007 and can find no trace of the alleged "Guarantee Representation".

152.Santos was adamant in cross-examination that he did not make such representation. In the cross-examination of Madam Hao, she confirmed that on 28 September 2007, when she was asked to execute a number of documents, she was aware that one of them was a personal guarantee[132].  Mr Jat then drew her attention to the Defendants' pleaded case at paragraph 31 of the Defence and Counterclaim and asked:-

"Mr Jat:  I just want to clarify from you, Ms. Hao, your understanding, your alleged understanding that the personal guarantee was for the Xinxin IPO.  Was that something Mr Wong said to your, or is it from something Mr Tse said to you, or is it something both of them said to you?

Hao:   (Chinese spoken)

Court:  The question can be put like this.  Who told you that the guarantee was for the IPO subscription only? Was it Mr Wong or was it Mr Tse?

Hao:   Mr Wong, after he emailed me and during a telephone conversation after the email, when he asked me to put these signatures, I confirmed with him that these were for the IPO, these signatures were for the IPO.  And then I got the understanding that this was only for the IPO."

[emphasis added]

This evidence of express confirmation of the limited purpose of those documents is wholly unsupported by the tape transcript of the telephone conversation.  Bearing in mind the poor credibility of Madam Hao, I have no hesitation in preferring the evidence of Santos.  More importantly, I am of the view that Madam Hao's version was inherently improbable.  The contents of the Facility Letter clearly referred to 3 types of facility, one of which was specifically for accumulators.  All other documents attached to Jason's email made no specific reference to any limitation to the Xinxin IPO subscription. It was plainly inherently improbable for Santos to volunteer such a limitation.  In conclusion, I find that Santos did not make the alleged "Guarantee Representation".  Neither did Jason.  Madam Hao’s attempt to avoid liability as a guarantor for the liabilities of San-Hot BVI fails.

153.I would also add that as observed in paragraphs 11 to 14 of this Judgment, the Defence and Counterclaim pleaded no rescission, non est factum or other vitiating grounds in law in respect of the Facility Letter duly signed and accepted by Madam Hao on behalf of San-Hot BVI. Basing on the legal principles as set out in paragraphs 103 to 105 of this Judgment, I conclude that the terms set out in the Facility Letter were valid and binding on San-Hot BVI.  The fact that Madam Hao did not bother to read its contents before appending her signature, or that she was not explained its contents offered no escape.  I further note that in Jason's email, the Facility Letter was accompanied by a document entitled "Terms and Conditions Governing Banking Facilities and Services"[133].  This was the document referred to in the first paragraph of the Facility Letter.  The terms set out therein had thus been incorporated by reference as part of the terms and conditions of the Facility Letter.

154.As for the Guarantee and Indemnity, Santos’s evidence was that an original copy was sent, together with the originals of the other documents attached to Jason’s email, by courier to Madam Hao’s address in Beijing.  Madam Hao’s evidence was that she could not remember.  Santos’ evidence was corroborated by a telephone conversation on 24 October 2007[134].  It appeared that Madam Hao had misplaced her documents again.  She thought she had already signed and mailed the documents back to Santos. Santos did not receive any.  She promised to try to locate them and if unable to do so, she was prepared to execute them again. I accept Santos evidence that the original documents were in fact couriered to Madam Hao.  The fact that she did not bother to read them is not a ground for holding that the terms and conditions set out in those documents were not binding on San-Hot BVI.

(III)  Execution of the 3^rd to 7^th KODA up to 24 October 2007

155.After Madam Hao executed the various documents attached to Jason’s email dated 28 September 2007, she faxed the execution pages back to DBS.  The banking facilities as stated in the Facility Letter became operational. By drawing upon the “Term Loan facility”, San-Hot BVI participated in the Xinxin IPO subscription and was allotted 6 million shares on or about 12 October 2007.  Admittedly, by 14 October 2007, 5.2 million shares of Xinxin had been sold through DBS. San-Hot BVI made a net profit of HK$27,762,532. San-Hot BVI continued to hold onto the 800,000 shares of Xinxin in its account.

156.In the meantime, the 2^nd KODA contract was knocked out on 10 October 2007 and Madam Hao experienced another substantial profit made within a short period of time. On 12 October 2007, when the Xinxin IPO took place, Madam Hao would no doubt be expecting substantial quick profit from the subscription given her bullish view of the market and of Xinxin.  It was under this environment that Madam Hao entered into the 3^rd and 4^th KODA contracts on 12 October 2007.

157.I would first deal with the taped conversations between Santos and Madam Hao prior to 12 October 2007. On 4 October 2007, in their telephone conversations, there were the following dialogues in relation to the 1^st and 2^nd KODA contracts dealing with shares of BOC and China Construction Bank respectively:-

"Hao:  Um, [Santos: Um] then another thing, that is, as for the China Construction Bank one, has it terminated yet?

Santos:   Er, not yet – not yet because if fell – it dropped today.  Er, in fact, it once had a chance of stopping yesterday afternoon, but in the afternoon – afternoon, contrarily…

Hao:  It reversed?

Santos:   (It) will – will reverse again, so today – but no need to hurry because we bought it around the level of $6.  It’s now around the level of $7 -- $7.

Hao:  I know, I just asked, is this one still – still collecting every day?

Santos:   Yeh yeh, still collecting every day. 

Hao:  Orr, so just keep collecting, never – never mind, even if it falls, it won’t fall much.

Santos:  (Laughing sound) Yeh, on the contrary, the Bank of China once reached – yesterday, I called Miss Hao but couldn’t reach you.  Yesterday, it once reached the level of around $4.6, er, today it might…

Hao:  It dropped afterwards?

Santos:   Er, at present, it’s still – still not bad, it’s still around $4.23.

Hao:  Orr, that’s okay, [Santos: Um] in fact, this one may be kept for a while at present, they told me.

Santos:   Um um um.

Hao:  It’s because the –their, their side’s – the chief at the Bank of China side said perhaps…

Santos:   Orr,

Hao:  …perhaps its share price would be adjusted upward, [Santos: Contrarily…] some time before, the situation had been that although other banks were moving, it stayed."

[emphasis added]

In relation to 2^nd KODA contract, Madam Hao was thus fully aware that San-Hot BVI had been purchasing and accumulating shares of China Construction Bank every trading day since 25 September 2007.  She was happy to do so because in her own view as expressed, the share price of China Construction Bank could not drop significantly.  As for the BOC shares which San-Hot BVI obtained under the knocked out 1^st KODA contract, Madam Hao was prepared to hold onto them basing on information she obtained from "the chief at the Bank of China side".  This piece of contemporaneous evidence demonstrates that Madam Hao was an investor who exercised her own independent judgment and had independent access to financial information.  The conversations then turned to discussions on the recent performance of shares in the energy sector including China Shenhua, CNOOC and Sinopec Shanghai.  I can see that Madam Hao was able to engage in meaningful discussions.  She was conversant with the market conditions and appeared to be an experienced investor in stocks and shares. Discussions then moved onto her investments in funds and currencies. Madam Hao expressed on several occasions her dissatisfaction over the small returns from such investments.

158.Another taped telephone conversation of interest is the one that took place at 18:37 hours on 10 October 2007[135].  At dialogue 34, Santos first referred Madam Hao to the credit line for the use of San-Hot BVI.  Subsequently, from dialogue 236 onwards, there were the following discussions on the use of the credit line:-

"Santos:  Er, no, I just g--get this credit line limit for you first so that……

Hao:  Get that much first?

Santos:   Right right right, for example, if you have more money in future, we could further increase it a little bit for you, that’s no problem.

Hao:  Um.

Santos:   Um.

Hao:  (USD)7 million means that we could use it for new stocks, [Santos: um.] or could -- could it be used for KODA?

Santos:   Yes yes yes, that’s right.

Hao:  Orr.

Santos:   That’s why -- as this is the case I -- I think this would be enough.

Hao:  Er, it’s enough for the time being.

Santos:   Um.

Hao:  But this if this if (the shares of) Xinxin Mining are sold, we could do it again if we wish to do so.

Santos:   Yes, (if) you do it like -- this, it’ll be a little bit more flexible.

Hao:  Um."

[Emphasis added]

It is thus clear that as of 10 October 2007, Madam Hao was fully aware that the credit facility granted to San-Hot BVI could be used for subscription of news shares, namely at the Xinxin IPO, as well as for KODA transactions.  She should have been aware of the credit limit of US$7 million from the terms of the Facility Letter.  She was again reminded by Santos during the above taped conversation.

159.The taped telephone conversation that took place at 16:59 hours on 11 October 2007[136] began with a discussion that the grey market value of the Xinxin shares one day before the IPO had already increased by 70%. Madam Hao appeared flabbergasted with delight.  Santos then suggested to Madam Hao that if Xinxin's share price should climb steeply the following day, she could consider disposing most of her allocated shares to reap the substantial profit.  Then she could explore the possibility of entering into an accumulator for Xinxin's shares. Madam Hao then expressed her intention to enter into a decumulator[137] in respect of BOC shares since she had already accumulated up to HK$8 million worth of shares. On this matter, Santos pointed out it had to be specially arranged for her and he would have to talk to Rocky first.  Subsequently, the topic turned to accumulator contracts in relation to other shares. From dialogue 233:-

“Hao: Sell it, look at 1171 and 1898, [Santos: Um] look at these two stocks. You ask Mr Cheung whether they are worth accumulating. And one more, [Santos: Um] look at, you know what, the one most people are accumulating, the key point is to follow the crowd, right?

Santos: Okay, okay. Perhaps they will continue to accumulate 1088, tomorrow.

Hao: No accumulator for 1088, you don’t have any – orr, yeh yeh yeh.

Santos: Yeh yeh yeh, there is, I remember [Hao: There is.] (I) have accumulated it for other clients these days.

Hao: Orr, then you can simply accumulate 1088.

Santos: It doesn’t matter, you – tomorrow, I’ll check again which order is better.

Hao: Then you just do this, that is – we accumulate what most people are accumulating. When the majority sells, (laughing sound) the force could be quite large.

Santos: Or, yeh yeh yeh yeh, that’s okay, okay."

[Emphasis added]

It would appear that Madam Hao came to her own tactic of "following the investment crowd" in respect of accumulator contracts. There is no truth in her accusation[138] that "Santos always told me what KODAs other DBS clients were doing and suggested me to follow the crowd…". Having heard that other investors were engaged in accumulating Shenhua Energy shares (stock code 1088), she was prepared to join the queue. This would be the subject matter of the 4^th KODA contract entered into on 12 October 2007.  The topic then turned to BOC shares at around dialogue 256:-

"Santos:  Moreover, the third thing is to see – that is, for resource stocks like 1171, 1898 and 1088, see which ones are – are more heavily traded in, that is those with a better unit price for trading.

Hao:  Yeh yeh yeh yeh.

Santos:   Okay, besides…

Hao:  Alright.

Santos:   Besides, will you – will you continue to accumulate 3988?

Hao:  Er, (I) will.  I think – I think…

Santos:   Will – I – I will wait – I think you…

Hao:  … this one should not be risky because it’s rather stable."

[emphasis added]

Again, it can be seen that Madam Hao formed her own opinion on the prospect of BOC shares and indicated to Santos that she would continue to accumulate BOC shares. She was able to analyze the risks involved.  In the end, Madam Hao expressed her bullish view on accumulator contracts at dialogue 277:-

"Hao:  (Laughing sound) Okay then, w-well, you just handle your business first, then – then, (you) take a look at those we mentioned today and see how – how it should be accumulated.  It’s because I now find that the accumulator thing is quite good.  Why?  Because it is rising too fast for 2 or 3 days -- [Santos: Um] it then stops in just one or two days.  Then, you will get shares for 20 days…

Santos:   Yeh, yeh."

[Emphasis added]

It is quite clear that Madam Hao’s formed her own favourable view about accumulator contracts due to her successful experience with the 1^st and 2^nd KODA contracts. By that time, San-Hot BVI had received 600,000 shares of BOC purchased at a substantial discount from the market price.  Instead of disposing them at market price to lock-in her profits, Madam Hao was not only prepared to keep the BOC shares.  She was even keen to continue accumulating further BOC shares.  She considered BOCshares stable and not risky. She was also contemplating accumulating BOC shares to such volume as would enable her to structure her own decumulator contract so as to make even bigger profits.

160.On 12 October 2007, Madam Hao first gave instruction to enter into the 3^rd KODA contract in respect of BOC shares. Her instructions were given at a taped telephone conversation at 11:21 hour on 12 October 2007[139].  During the same conversation, she also expressed interest in Shenhua Energy shares.  That was followed up in another taped conversation at 15:10 hours on 12 October 2007[140].  Madam Hao initially indicated that she wished to enter into a "2000 shares" accumulator contract in relation to Shenhua Energy shares. Then Santos told her that the credit facility was insufficient due to funds ear-marked for the 3^rd KODA contract in respect of BOC shares. The relevant dialogues began at 30:-

"Santos:  Um um, but since this one – this one’s percentage is 42%, so – ($)9 million odd have to be kept, maybe at this limit [ Hao: Um] er – you may – do you have – if you have – no – no problem, so I’ll place the order for you.

Hao:  What does it mean by ($)9 million odd of limit?

Santos:   Orr, it’s because this – it’s because if you receive shares every day, if it’s set – set with 250 days, you will receive a double quantity, 20 million odd means – and 42%, then the credit line will be ($)9 million odd.

Hao:  You mean using up the credit line, right?

Santos:   Um, yeh.

Hao:  Orr, so if it is stopped, the previously mentioned credit line will be available?

Santos:   It – right, yeh yeh yeh. So you – I just check – whether you are going to save some of it.

Hao:  No, you said in that case, the credit line would be used up.

Santos:   Er, no, no, not used up. However, I’ll place an order for you for this one at, say, 50 – at only b-below $51.1.

Hao:  Um. (Noise)

Santos:   Um.  To accumulate by 1,000 (shares) first?

Hao:  A-accumulate by 1,500 (shares) then.

Santos:   1,500 (Laughing sound) Orr, okay."

[Emphasis added]

It can be seen that Santos did explain to Madam Hao the essential concept of "ear-marking" of the credit facility. Madam Hao was told that by reason of the 3^rd KODA contract on BOC shares, HK$9 million in San-Hot BVI's credit line was occupied.  Hence, the amount of Shenhua Energy shares which she could transact in the 4^th KODA would have to be reduced accordingly.  Although Santos only suggested her to go for a “1,000 shares” accumulator contract, Madam Hao determined for herself to engage into a “1,500 shares” accumulator contract.  She clearly exercised her independent judgment, no doubt driven by her bullish view of the market.  Consequently, San-Hot BVI entered into the 4^th KODA contract on 12 October 2007.

161.The chronology moved on to 17October 2007. At 10:59 hour that day, Madam Hao had a telephone conversation with Jason[141].  The discussion was on whether it was viable to enter into an accumulator contract in respect of ICBC shares.  At the beginning Madam Hao expressed her view that the price of ICBC was on the rise and it might not be so viable. Jason then informed her that they were in the process of pooling customers together for a deal using the average price of ICBC for the day as denomination. Jason asked whether she would be interested if such a deal could in fact be structured. Madam Hao expressed that if the average price was adopted as the basis, then it could still be viable.In the course of discussion, Madam Hao mentioned about her intention to participate in the IPO of Alibaba shares[142].  She asked about the up-to-date available credit limit and said she would like to save part of that limit for the Alibaba IPO subscription. Jason then explained that to participate in the subscription, only 10% margin deposit was needed and the rest could be financed.  Therefore, Jason told Madam Hao that she still had ample credit line. Thereupon, Madam Hao indicated that she wanted to enter into an accumulator contract for ICBC shares in the amount of 10,000 shares per day.  In confirming her order, Jason clearly mentioned that the proposed contract was “2X” and the total trading days were 247.  That instruction was, of course conditional upon DBS being able to pool together customers to structure the deal. In the end, when the deal went through, i.e. the 5^th KODA contract, the daily amount of shares allocated for a contract with San-Hot BVI was only “4650 shares”[143]. This 5^th KODA contract was quickly knocked out on 18 October 2007. Madam Hao again experienced obtaining quick substantial profit.  From this taped converstion, it can be seen that Madam Hao knew how to manage the use of her credit limit. That was based on her understanding of the "ear-marking" requirement in KODA contracts and "margin" requirement in shares subscriptions.

162.On 18 October 2007, San-Hot BVI entered into the 6^th KODA contract. It was in respect of BOC shares. I have gone through the taped conversations between Madam Hao and Santos on 18 October 2007[144] which contained no specific discussion about this transaction.  Similarly, the evidence of Madam Hao did not mention this transaction specifically. I infer that her reasons for engaging in this transaction were no different from those of entering into the 3^rd KODA contract for BOC shares on 12 October 2007.

163.The 7^th KODA was entered into on 24 October 2007. It was in relation to China Coal Energy shares (share code: 1899).  The taped conversations held on 24 October 2007 which were adduced in evidence[145] did not made reference to China Coal Energy shares.  In fact, as seen from the recorded conversation at 11:16 hours on 22 October 2007, Madam Hao’s interest lied in Shenhua Energy shares which she had started accumulating under the 4^th KODA contract.  The following dialogues are of interest:-

"Hao:  Er, because [Santos: Um] at present – but I see that the Hong Kong HSI has picked up a bit just now, right?

Santos:   Er, it’s picked up a bit. It’s still falling just now – orr, it has narrowed, it’s around 1,200 points at most now, it’s 800 points now, just now it’s – before I called you just now, it’s 900-odd (points).

Hao:  Um, for now, I – for now, are there any stocks worth accumulating?

Santos:   Stocks worth accumulating – yes, you -- but what are your choices, I – let me check for you.

Hao:  Er, what’s the price for accumulating Shenhua at present?

Santos:   Shenhua, let me see.  Are you referring to (the price) w-we did the accumulation before or at present?

Hao:  Er, j-j-just now, since it – it has fallen by so many points, it’s very appropriate to accumulate it at present.  Once it rebounds, it will surge."

[Emphasis added]

Madam Hao was thus choosing the target shares of interest to her contrary to the picture she sought to portray in her evidence[146].  She held her own view about market performance and investment strategy.  Santos and Madam Hao then discussed on the differences between several offers of accumulator contracts, including their initial prices, strike price percentages, and percentage discounts.  Then Madam Hao expressed her view as follows:-

"Hao:  $39.6, I think it will not drop to that level.

Santos:   Um um um.

Hao:  Th-these few days, this-this-this stock has now become a manipulated stock so someone is manipulating it.

Santos:   Um um.

Hao:  If it doesn’t work, then make another order for accumulating this one by 1,000 shares, orr, now, I need to save some money for getting Alibaba, right?

Santos:   (Laughing sound) Er, it doesn’t matter, this one can be loaned, s-s-see how you would consider about this.

Hao:  Then, now simply make it 1,000 shares for accumulating this one for me, I think if it falls together with this one, it will definitely rebound.

Santos:   Um, but you – would you choose, choose Shenhua, this 102 or 103 for this one?

Hao:  Um, may as well 102, 102, it’s mainly, may as well continue – in fact, 102 and 103 are more or less the same [Santos: Um] because no matter whether the increase is 2% or 3%, this idea is the same.

Santos:   Yeh yeh, yeh.  If it’s 103, the discount will be higher.

Hao:  103, 103.

Santos:   103, I – let me – let me check for you first, the market – do it at the market price, right?

Hao:  It’s up one point again, it has reached ($)48.2 just now.

Santos:   Yeh, yeh, yeh yeh yeh.

Hao:  $48.2 and how much was its lowest price actually?

Santos:   The lowest price was $47.05.

Hao:  Forty-seven dollars?

Santos:   Yeh.

Hao:  It’s picked up a bit.

Santos:   Um.  It doesn’t matter.  You may place – you may place it at that level.  Only trade if it reaches this level…

Hao:  Place it at – I think you may place it at 40 – it looks like it won’t drop, it’s hard to say.

Santos:   Um.

Hao:  It’s because today – er, you place it at $48.

Santos:   At $48?

Hao:  Um.

Santos:   Um, accumulate by 1,000 shares, right?

Hao:  Um.

Santos:   At 103, that is 18.2% less, should be $48.103.

….

Santos:   If it’s based on $48.5 at present, at 18.2(% less), that will be $39.67.

Hao:  How much – how much – how much is the difference?  How much is the difference from ($)48 just now?  It’s not a big difference?

Santos:   Er, just a small difference, um.

Hao:  It’s okay if it’s just a small difference, (noise) if I can make it, I’ll accumulate a little bit because I think it’s almost there, it will probably rebound.  It has been falling for three consecutive days in a row already.

Santos:   Um um."

[Emphasis added]

These dialogues clearly depicted Madam Hao as an experienced and sophisticated investor.  She was capable of making and did frequently make independent judgment basing on her personal views as to the performance of respective shares in the market. She was aware that she had been accumulating Shenhua Energy shares (under the 4^th KODA contract) and saw the recent drop in share price of Shenhua Energy as an opportunity to enter into further accumulator contract, expecting for a rebound. Indicative terms of different offers were explained to her and she made her own judgment on selection.

164.In the taped telephone conversation at 11:38 hour on 22 October 2007, after consulting with Rocky, Santos tried to advise  Madam Hao against engaging in further accumulator contract on Shenhua Energy shares:-

"Santos:  Orr.  Er, well, I asked Mr Cheung just now.  He said he was a bit worried that some profit-taking (activities) for Shenhua A shares might – might continue, so…

Hao:  Er, might continue to go down, right?

Santos:   Yeh yeh yeh yeh, he had such concern.  He said since we had already accumulated a little er – er 1088 at $54 before, er, he suggested that (you) may diversify a bit instead of concentrating on one single stock.

Hao:  Um, he suggested (I) diversify a bit?

Santos:   Yeh.

Hao:  Yeh.  However, my consideration might be different from his.

Santos:   Um.

Hao:  I think, that is to say – what you mean is – for now, how was that accumulated initially?  Was it done at $44?

Santos:   Er, $44.7, um.

Hao:  At $40.7?

Santos:   Yeh yeh, yeh.

Hao:  Was it $44 or $40.7?

Santos:   Er, $44.71.

Hao:  Right, at $44.

Santos:   Right ($)44…

Hao:  At $44, if you accumulate again at present, it-it will become $30 – [Santos: Um] At $39 or $40, it would be equivalent to apportioning the cost in a downward manner.

Santos:   Orr, yeh yeh yeh, (you) may say so, if…

Hao:  That’s right." 

[Emphasis added]

The above dialogues again demonstrated Madam Hao’s exercise of independent judgment.  She even disagreed with the opinion of Rocky.  Eventually, no further accumulator contract on Shenhua Energy shares was concluded. Instead, the 7^th KODA contract was executed with reference to shares of another energy company, China Coal Energy.

(IV)   Meeting on 26 October 2007

165.On 25 October 2007, Madam Hao came to Hong Kong. Prior to this trip, Madam Hao had informed Santos of her interest in acquiring Canadian dollors because she might emigrate to Canada in 2008[147]. Santos thus briefly introduced the idea of Foreign Exchange Accumulators to Madam Hao[148].  He also arranged Madam Hao to meet up with his colleagues in the foreign exchange department.

166.On 26 October 2007, Madam Hao went to DBS’s office. She did not bring the original banking documents executed by her.  She was attended by Jason.  A new set of documents were thus prepared for her re-execution.  Madam Hao said that Jason did not explain the contents of the documents to her.  Jason did not suggest that he did.  I have previously rejected Madam Hao’s evidence on the “Guarantee Representation”. For similar reasons, I reject her evidence that she was willing to re-execute the documents on 26 October 2007 because Santos represented to her and she believed that the documents were for the subscription of the Xinxin IPO shares.  And for the reasons set out in paragraphs 152 to 154 above, I find that it made no difference to the binding and enforceable nature of the terms and conditions set out in the Facility Letter and the Guarantee and Indemnity.

167.In the afternoon on 26 October 2007, Madam Hao met with Joddy and Santos at DBS’s office.  Madam Hao was introduced to oneMr Chui who was a DBS colleague specialized in the field of foreign exchange transactions.  There was a discussion on APFCs.  As I have pointed out in paragraph 10 of this Judgment, there is no claim for rescission in respect of the 4 APFCs subsequently entered. Madam Hao’s evidence did not suggest that she entered into the APFCs upon reliance of the Wong’s Representations.  The pleaded Wong’s Representations were also clearly directed at KODA contracts (referring to listed company shares).

168.However, Madam Hao alleged[149] that during this meeting, Santos said about the KODA transactions so far executed by San-Hot BVI as follows:-

“I also asked Santos Wong whether there was any risk in doing the KODA transactions that were being done for some time. He said that there was no risk and reassured me that this was because I was given a huge discount for each KODA transaction; and even if the share price fell, I would only earn less profit. For instance, if the expected profit was originally 30%, I could still make a profit of 10% despite a 20% fall in the share price. Furthermore, he said that for each month I could sell the shares immediately on the day of taking delivery of the shares and that no deposit was required because of Hong Kong’s T+2 settlement system, under which the shares could be sold immediately on the day of taking delivery of the shares and that I would not need to use my own money. I would only lose money if the stock market fell by more than 30%, but it would only happen when there was a major stock market crash where the government would then intervene and the market conditions would recover shortly. For example, the financial crisis in 1997 was intervened by the government, which would not allow material market fluctuations to occur.”

169.This alleged representation made on 26 October 2007 was not pleaded in paragraph 19 of the Defence and Counterclaim. Mr Coleman did not put this allegation to Santos in the course of his cross-examination.  Furthermore, as seen from for my analysis of the taped telephone conversations between 28 September 2007 and 25 October 2007, Madam Hao was holding a bullish view of the market basing on her independent view and the financial information she received from her own sources.  She even disagreed with the more conservative view expressed by Rocky through Santos.  She was excited about the quick profits so far obtained from the various KODA contracts.  It was inherently improbable that out of the blue, she suddenly felt concern about whether there was “any risk” in doing the KODA transactions and raised this query with Santos. Base on the poor credibility of Madam Hao and the contents of the taped telephone conversations, I reject her evidence.

(V)  The 8^th to 17^th KODAs and the 4 APFCs

170.Madam Hao’s optimism was again proven correct.  The 7^th KODA contract was knocked out on 29 October 2007.  On the same day, the 3^rd KODA contract was also knocked out.  San-Hot BVI again made incredible profits within a relatively short time span. On 30 October 2007, the 6^th KODA was also knocked out.  Thus only the 4^th KODA on Shenhua Energy shares remained open. On the same day, San-Hot BVI entered into the 8^th KODA which related to shares of Xinxin.

171.The first telephone conversation on 29 October 2007 took place at 17:43 hours[150].  Santos began with reporting on the knock-out of the 3^rd KODA and the 7^th KODA, making a total profit of HK$860,000 odd.  Discussion then turned onto the amount of BOC shares so far accumulated. In total, there were 2.27 million shares. She also expressed her positive view over the prospect of BOC shares[151].  Santos expressed his reservations.  Discussions then turned to investing in funds.  Santos recommended that course as it would reduce the risk of her portfolio[152]. The second conversation took place at 19:25 hours.  It was principally about Santos’ suggestion that Madam Hao should invest into some fixed income funds.  One of the benefits, as explained by Santos was “risk diversification”[153].  When the discussion turned to BOC shares, Madam Hao again expressed her optimistic view due to the expected appreciation of RMB[154].  In the course, Santos also mentioned Rocky’s view that it was not a suitable time for entering into a decumulator for BOC shares, pending the release of company results[155].  In the end, Madam Hao only gave instructions for engaging in two commodity funds.

172.The first telephone conversation on 30 October 2007 took place at 14:31 hours[156].  Prior to this conversation, Madam Hao had requested Jason to provide her with information about accumulators in respect of three types of shares: Xinxin (code 3833); Zhaojin (code 1818) and Soho (code 410)[157].  After Madam Hao indicated her interest in Zhaojin, Santos indicated that for this accumulator, the transaction would be 500 shares per lot.  When Madam Hao suggested 5,000 shares or 3,000 shares, Santos did a calculation on the ear-marked figure based on 3,000 shares.  Madam Hao was told that it would occupy HK$8.1 million odd of her credit line.  She was also told that the total amount involved in the transaction would be some HK$24 million[158].  It was another clear instance where the financial exposure of a transaction was specifically mentioned to Madam Hao. After hearing the analysis, Madam Hao decided to engage in the transaction.  The subject then moved to Xinxin shares and Madam Hao indicated that she also wished to engage into an accumulator contract.  She suggested the transaction amount of 10,000 shares.  After Madam Hao determined for herself the initial price at which she was prepare to execute a contract, Santos again calculated the ear-mark figure for her, amounting to HK$6.7 million odd.  Madam Hao then expressed her acceptance.

173.The next conversation on 30 October 2007 took place at 18:30 hours[159].  Santos informed Madam Hao that all previous KODA on BOC shares had been knocked out and that so far, she had accumulated 2.67 million shares.  Santos said that since Madam Hao had so many BOC shares in hand, he would consult Rocky on what arrangement could be made.  Santos then reported that her instruction to engage in an accumulator contract for Zhaojin could not be executed.  Madam Hao indicated that she was still interested in Zhaojin and would try again tomorrow if the price of Zhaojin came down.

174.In the end, the only accumulator contract entered into on 30 October 2007 was the 8^th KODA re Xinxin shares.  It can be seen from the above taped conversations that Madam Hao actively sought information about KODA transactions on specific types of shares.  She relied upon her own judgment in deciding on the entry point and the amount of the transaction.  She was aware of the financial commitment involved.

175.The first taped conversation on 31 October 2007 took place at 11:22 hours[160].  In a discussion on the prospect of BOC shares, Madam Hao clearly indicated her intention of keeping the BOC shares[161].  They then explored on the possibility of entering into another accumulator for BOC shares. This was followed up in the next taped conversation at 11:27 hours[162]. During this conversation, Madam Hao sought to bargain for a steeper discount rate.  She also expressed her positive view about the prospect of BOC shares.  In the next conversation at 15:41 hours[163], Santos suggested Madam Hao to consider accumulator contract for Huaneng Power (code 902).  Madam Hao was able to conduct meaningful discussions with Santos on the indicative terms of several offers. After learning that she had a large credit line as a result of the knocking out of a number of KODA contracts, Madam Hao suggested transacting in the amount of 40,000 or 50,000 shares of Huaneng Power.  When Santos asked again, Madam Hao opted for the higher amount of 50,000 shares.  Thereupon, Santos confirmed with her the indicative terms of offer. At 15:55 hours[164], Jason called Madam Hao informing her that a transaction for 50,000 shares of Huaneng Power would involve too high an ear-mark amount.  Jason suggested her to reduce the transaction amount to 30,000 shares and Madam Hao accepted. In the end, the transaction could not be executed.

176.In the taped conversation at 16:21 hours[165], Madam Hao reiterated that she wanted to keep the BOC shares despite knowing that she could obtain huge profit.  She indicated that she would keep the BOC shares at least until after completion of QDII. Discussion then turned to CNOOC (code 883) as a stock to watch out for. Santos also suggested Madam Hao to consider certain CAN.  When the topic returned to KODA, Madam Hao expressed her view that it was risky to do KODA at that point, which involved "long term restraints", and that she would wait for the market to drop before resuming[166]. This is again clear evidence that Madam Hao was fully aware of the nature of risks being inherent in KODA transactions. She know that they may involve long term restraint, i.e. they may not be knocked out quickly.

177.On 1 November 2007, the first conversation took place at 10:59 hours[167].  It began with Santos mentioning to Madam Hao that her friend Madam Yuen had decided to conduct a KODA in relation to Zijin Mining shares (code 2899). Santo asked whether Madam Hao would also participate. Santos explained to her that in relation to this stock, the ear-mark ratio would be higher.  The following dialogues were then exchanged:-

“Santos: That er--let's see, Miss Hao, accumulate 400 shares for--for you, okay? Or a bit less?

Hao: Ah?

Santos: Because--because the deposit ratio for this is relatively high, at 58%

Hao: The deposit ratio is so large?

Santos: Yes yes yes yes.

Hao: Then is the risk relatively high for this one?

Santos: Er-normally for this--for this kind of mining stocks –for this kind of gold stocks, normally it is at around 40 something percent to 60 percent. For bank stocks, it is lower. For bank stock stocks, say Bank of China, we did it at 24 before. (Noises)

Hao: Oor, no more, this is no more.

Santos: Mm mm. Hello?

Hao: Er

Santos: (Cantonese) Yes.

Hao: M.

Santos: Er. Because it dep--depends on the type of stocks. Say Jiangxi--Jiangxi……

Hao: Then do a little less. Then it will be okay to do a little less.

Santos: Yes.

Hao: If it does not stop, you also have to keep a lot of cash pledge.

Santos: Correct. For Jiangxi Copper, it is 50--56%, almost the same. Er for 4000 shares, the deposit ratio--the deposit required is 6.60 million. Or do a little less?

Hao: Er, do a little less then.

Santos: 2000 shares?

Hao: Mm……

Santos: For 2000 shares, the deposit required is 3.3 million.

Hao: Er, okay. Because I have not done this type before. If this is a mistake, there will be a problem.

Santos: Mm mm mm. then do 2000 (shares), right?

Hao:  Yes.”

[emphasis added]

Again, it can be seen that Madam Hao fully appreciated that a KODA contract may not be knocked out quickly.  She was also aware of risks being involved and the locking up of her credit line. When she entered into the 10^th KODA relating to Zijin Mining, she deliberately controlled her risk by opting for a “2,000 shares” contract.

178.The next conversation at 11:45 hours on 1 November 2007[168] related to CNOOC shares (code 883).  After discussions on the past performance of this stock, Madam Hao decided to do an accumulator on CNOOC shares although she was mindful that the transaction amount should not be great.  They decided to keep this stock under watch and wait for the resumption of the market in the afternoon. The next conversation was at 15:00 hours[169].  On seeing that the price of CNOOC shares had dropped a bit, Madam Hao decided to do a KODA on it.  She and Santos discussed on the indicative terms of the offer. Santos did a calculation of the ear-mark amount on the basis of a “2,000 shares” transaction and arrived at the sum of HK$1.9 million odd. On hearing that, Madam Hao immediately decided to enter into a “5,000 shares” transaction.  Santos was apprehensive and reminded Madam Hao that the ear-mark figure would be around HK$5 million.  Santos then suggested her just to do a “3,000 shares” transaction instead.  Consequently, San-Hot BVI executed the 9^th KODA.  Time and time again, one can see Santos’ attempts to remind Madam Hao to make more conservative decisions.

179.On 1 November 2007, San-Hot BVI also executed the 1^st APFC.  This transaction date may be due to time difference because the instruction from Madam Hao was actually recorded in the taped conversation at 10:05 hours on 2 November 2007[170].  This was in fact a conference call between Madam Hao, Santos and England Zai. It began with Mr. Zai explaining to Madam Hao the current market conditions of the two currencies involved, i.e. Canadian dollar and Japanese Yen. Mr Zai suggested Madam Hao to transact at the exchange level of “116.35” saying that: (i) it was a rather safe position; (ii) although it was a “2x” transaction, the chance of Madam Hao being required to take up double volume of currency was low; and (iii) there was also a chance of the contract being knocked out. Madam Hao appeared to understand Mr Zai’s analysis and raised no query.  As I had mentioned earlier[171], Madam Hao’s motive behind entering to APFCs was rather different.  She was anticipating her emigration to Canada and hence her desire to accumulate Canadian dollars at suitable exchange rates. In that sense, the execution of APFCs was not for speculative gains.

180.On 2 November 2007, 2 KODAs were executed by San-Hot BVI, they were the 11^th and 12^th KODA.  The second taped conversation was between Jason and Madam Hao at 10:51 hours[172].  Madam Hao was hurrying Jason to look into a KODA with Fosun International shares (code: 656).  Madam Hao was anxious because she saw that the share price of Fosun International was surging. In a subsequent taped conversation[173], it was revealed that Madam Hao was acquainted with the general manager of Fosun International who gave her information that the company results were about to be published and the share price was expected to surge. Jason explained the indicative terms to her and Madam Hao said she could transact on a “20,000 shares” basis.  The ear-mark amount was calculated for her, amounting to HK$8 million odd.  After hearing that, Madam Hao was agreeable, remarking that another US$1 million funds would soon be remitted to her accounts in DBS.  Jason then explained the essential terms of this KODA transaction to her for her confirmation.  Jason clearly mentioned to Madam Hao that the contractual period was 250 days. Madam Hao must have appreciated her financial exposure. This was the 12^th KODA executed by San-Hot BVI on 2 November 2007[174].

181.The 3^rd taped conversation on 2 November 2007 was at 11:57 hours[175].  Santos recommended two KODAs for Madam Hao’s consideration.  One was in relation to shares of Huaneng Power (code: 902).  The other was in relation to shares of China Shipping Container Lines (code: 2866).  Madam Hao commented that she was also paying attention to Huaneng Power.  She was not familiar with China Shipping Container Lines and Santos gave her some background information.  Madam Hao expressed interest in the Huaneng Power KODA.  After hearing Santos’ explanation on the performance of Huaneng Power, Madam Hao personally decided on the initial price for the intended KODA transaction.  She then asked Santos the amount of shares she was permitted by her credit line to transact and Santos promised to do some calculations for her.  This was followed up in the next telephone conversation at 12:09 hours[176].  Santos informed Madam Hao that on the basis of a “5,000 shares” transaction, the ear-mark amount would be HK$3.3 million odd. She then confirmed her instruction of transacting on “5,000 shares” basis. She also personally determined the initial price for the intended KODA transaction. This was the 11^th KODA contract executed by San-Hot BVI on 2 November 2007.

182.On 5 November 2007, San-Hot BVI entered into 3 KODA contracts, the 13^th to 15^th KODA.  The 13^th KODA contract was in relation to Air China shares (code: 753).  This was at the recommendation of Rocky. It was executed on 5 November 2007 and knocked out on the same day. The 15^th KODA contract was in relation to BOC shares.  This was at Madam Hao’s own initiation[177].  The 15^th KODA contract was executed on 5 November 2007 and knocked out on the same day.  The 14^th KODA contract was in relation to Zijin Mining shares (code: 2899).  This was also at the recommendation of Rocky because the share price had dropped.  Madam Hao accepted the recommendation after due consideration.  She was aware that San-Hot BVI was still accumulating shares of Zijin Mining under an ongoing KODA.  Madam Hao was striving for a rebound and was hoping that this new KODA contract entered into at a lower share price could have diluting effect[178]. Madam Hao also explained her different strategy for different types of shares. For Zijin Mining shares, once the KODA contract was knocked out, she would dispose of the shares.  However for BOC shares, she was happy with continual accumulation[179].

183.On 6 November 2007, the 1^st APFC contract was knocked out. Under the terms of this APFC, there was no guaranteed amount of exchange and hence, there was no settlement. Madam Hao did not acquire any Canadian dollar under this contract[180].

184.On 7 November 2007, San-Hot BVI entered into the last two KODA contracts, i.e. the 16^th KODA contract in relation to BOC shares and the 17^th KODA contract in relation to Huaneng Power shares (code: 902).  From the taped conversation at 11:40 hours on 7 November 2007[181], it can be seen that the 16^th KODA contract was executed at the sole initiative of Madam Hao.  She telephoned DBS to look for Santos.  The telephone call was picked up by Jason. Madam Hao then asked Jason to carry out this transaction.  She named the share amount, the knock-out percentage, and the initial price for the transaction.  Jason explained the indicative terms to her, in particular the 250 days duration of the contract.  Madam Hao must have appreciated the financial exposure under this contract.

185.In the next taped conversation at 11:54 hours[182], Jason first reported on the successful execution of the 16^th KODA contract. He then referred to Madam Hao’s earlier instruction to engage into a KODA contract for Huaneng Power shares.  Jason reported that an order had been placed but the transaction had not yet been executed. Madam Hao asked Jason to keep the order placed.  Eventually, this order was transacted and became the 17^th KODA contract executed by San-Hot BVI.

186.To summarize, as of 7November 2007, San-Hot BVI had entered into the following KODAs which remained open:-

(1)  the 4^th KODA on Shenhua (code: 1088)

(2)  the 8^th KODA on Xinxin (code: 3833)

(3)  the 9^th KODA on CNOOC (code:883)

(4)  the 10^th KODA on Zinjing Mining (code: 2899)

(5)  the 11^th KODA on Huaneng (code: 902)

(6)  the 12^th KODA on Fusun (code: 656)

(7)  the 14^th KODA on Zinjin Mining (code: 2899)

(8)  the 16^th KODA on BOC (code: 3988)

(9)  the 17^th KODA on Huaneng (code:902)

187.Madam Hao did not acquire any Canadian dollar under the 1^st APFC. On 8 November 2007, she entered into the 2^nd APFC which was knocked out on the same day. Under the 2^nd APFC, she acquired CAD100,000[183]. Settlement was achieved by drawing upon her Japanese Yen loan facility.  At the material time, loans in Japanese Yen were commanding very low interest rates.

188.On 9 November 2007, Madam Hao entered into the 3^rd APFC.  It was a “1x” transaction.  If the knock-out price was not reached, she would have to exchange CAD100,000 every week until the full term of 13 weeks[184].  In the taped conversation on 15 November 2007 at 14:30 hours[185], Santos explained to Madam Hao that the previous APFCs were transacted on the exchange between Japanese Yen and Canadian Dollar.  Due to the increase in strength of US Dollar against Canadian Dollar, Santos told Madam Hao that if she still wanted to accumulate Canadian Dollars, she could consider doing an APFC basing on the exchange rates between US Dollar and Canadian Dollar.  Santos clearly told Madam Hao that under the 3^rd APFC, she would be accumulating CAD100,000 per week for 13 weeks if the contract was not knocked out. He pointed out that in the worst case scenario, Madam Hao would have accumulated CAD1,300,000 under the 3^rd APFC. He stressed that if that amount of Canadian Dollar was sufficient for her purpose, then there was no need to enter into another APFC. However if she needed no less than CAD2,000,000, then she could still consider entering into a further similar APFC basing on the exchange rates between US Dollar and Canadian Dollar.  After hearing Santos’ explanation, Madam Hao decided to enter into the 4^th APFC, which was the last APFC executed by San-Hot BVI. 

189.The tide of market soon changed for the worse around 19 November 2007, Madam Hao started to have reservations about the number of KODA transactions which she had transacted.  In a taped conversation that took place on 19 November 2007 at hour 16:51[186], the following conversations were exchanged:-

“Hao: Mm, then--then okay. Because I cannot really figure it out. But in the future [Santos: Mm.], I dare not do anymore KODA this kind of things. You see, this time, some of them are already making a loss at 20%, 30%, and also have to take up double number of shares.

Santos: Mm, that is why, as I have said before, on one hand--it has to be done gradually, instead of doing a lot in a short period of time, but… …

Hao: That is still not a short period of time? Everyone is saying how I could do 8, 9 kinds of stocks at the same time. For other people who have several hundred millions of capital, they just do 1 to 2 kinds. How could I collect one here, and collect the other there[187], and how could I take up so many shares? I also do not have experience now. Also that, whatever.

Santos: Mm, actually at--er basically we see that the stocks are for the time being without problems. That is--but the problem is, there has to be a cash balance to provide for--for-for making a er preparation only. But we feel that recently it is more--more unstable, but the problem is, the stocks picked by Miss Hao, you, are still--still quite good.

Hao: Still, you cannot do that many. Now [Santos: Mm.] everyone is also saying how I could be doing so many types of stocks there, er whether I could--I could monitor them?[188] That means, for the other--that fund house, how many billions does it have? It is only doing 10 odd type of stocks. How could one--one person do so many stocks?

Santos: Er actually that is not a lot. Actually there are other clients who had done more than Miss Hao.

Hao: Then their loss is even greater that is for sure.

Santos: Er--de--de--depends. Because basically speaking, it de--depends. The most important thing is to do it by diversifying into different types; some of them should be bank stocks, while some of them should be resources stocks. Er but Miss Hao you don’t have to worry too much. For the time being--for the time being, this is--this is still okay. Now the stocks which experience more swings are er some--for the time being--for the time being are the resources stocks, which experience more swings.

Hao: Mm, it is now--it swings a lot, in this case, now my pro--problem I have many of them that are taking up double amount of shares.

Santos: Er yes. But the problem is we--we on the contrary think the problem will not be too great. The most--on the contrary, er Mr. Cheung has also talked to you about this before, that is there--er the 3833 today has also dropped quite a lot, on the contrary we are quite worried about this. Because--because it is also accumulating. Basically--this is, basically--this is, that is we are quite worried about this stock. For the rest, we feel that they can--er wait for the situation to stabilize, then the chanc--chanc--chance for them to level is still--still--still quite good. However because 3833 has also dropped about 12% today, therefore for the other stocks, we again--still think they are okay, and there shouldn’t be any major problems. For this you can relax. Perhaps we will--will also continue to pay attention for you.

Hao:  Mm, then okay.”

[emphasis added]

It is interesting to note that even at this time when Madam Hao lamented over entering into too many KODAs, the crux of her complaint was that she entered into KODAs “for too many different types of stock”.  In other words, she thought she should have focused on a few stocks instead.  More importantly, there was no accusation that the KODAs were entered into as a result of the Wong’s Representations.  She was obviously worried about the drop in share prices and the fact that many of the KODA contracts were of “2x”, i.e. involving collection for double amount.  There was however no indication or suggestion that she did not understand the nature, features and financial exposure of the respective KODAs at the time when she gave instructions for execution.

190.The next taped conversation of importance took place on at 12:01 hour on 30 November 2007[189]. To put things in context, the last KODA transaction was undertaken on 7 November 2007.  The Hang Seng Index closed at 29,708.93.  On 19 November 2007, the Hang Seng Index closed at 27,460.17, having successively dropped for over a week accumulating to over 2,200 points, hence the worry that Madam Hao expressed in the taped conversation of that day.  The market however substantial rebounded and on 29 November 2007, the Hang Seng Index closed at 28,482.54. On 30 November 2007, the market continued to recover and it was under this sentiment that the following conversations took place:-

“Santos: (Cantonese) How many points has the market gone up now, Jason?

(Telephone connecting tone)

Jason: (Cantonese) 100 points for now.

(Santos: 100 points?), 150.

Hao: Hello.

Jason: Hello, er Miss Hao.

Hao: Ah.

Jason: Er, hello, I am er Mr. Tse.

Hao: Ah ah.

Jason: Hi, how do you do. Er I am giving you a reply now. Er, for the order just placed for you just now which is selling 31.5k shares of 1088--1088, er at 46 dollars, it has been done and completed for you.

Hao: Done and completed, you mean it has been sold?

Jason: Sold, yes, completely--completely done.

Hao: No. You mean the transaction has been completed?

Jason: Yes yes yes, correct.

Hao: How could that be? It has not yet reached that price level?

Jason: Er that 1088, right? Yes, it has reached… …

Hao: 1088 simply has not reached 46 dollars.

Jason: Yes, it has reached. Just now it has reached there for a while. It is at that moment when it reached that level that we helped you--er--er--er completed it.

Hao: Well, how come I am still under the impression that just now I was calling you and wanted to tell you that if you hadn’t sold it, then do not--do not sell it?

Jason: Oor, because just now there was a moment when it shot up to 40--er(46). After we placed the previous order, just about er 20 minutes ago, it was seen that it had shot up to er 46.1 dollars for a moment, but it went back down very quickly. But at that--that very time the order had already been placed, lined up and completed.

Hao: Oor, then [Jason: Mm mm mm.] okay. As it was sold, it was sold, ah.

Jason: Haa, no problem.

Santos: Mm.

Jason: Then er now er--er Mr Wong is also on on the line, er [Hao: Mm.] he has er--er some information to report to you.

Hao: Mm, okay.

Santos: Mm, hello, Miss Hao.

Hao: Er.

Santos: Ah, basically this 1088 er--not--does not matter. We first realize profit for this portion. Later Mr. Tse will work out for you how much profit we can make for this portion. Actually because there should be a certain amount of 1088 coming back, because previously [Hao: Mm.] if it was lower than the level at which accumulated the shares, my estimation is that about 20k odd shares can still be taken up. Therefore, realizing profit for this portion first is not a bad thin.

Hao: Mm, okay. [Santos: Mm, mm.] It was sold anyway, then sold it is.

Santos: Yes.

Hao: Originally 18… …

Jason: Probably… …

Hao: For 1898, I just sold the 1898, now the 1898 is going up fiercely. It goes up every day.

Santos: (Laughing sounds) Further, for this 753, I’ll remind you that, for the 753, didn’t it stop as soon as we did it, on day one? We took it up at 8.94 dollars. Now the latest unit price is 9.64 dollars. We have 44k shares. Er I remind you that this has reached the price point--reached the price point, and there is also--also profit to be made. For this we will--will pay attention to this situation for you.

Hao: Mm. mm.

Santos: This is Air China, Air China.

Hao: Ah, I know. Today it is falling. Just leave it as it is first. Wait for whichever day when it goes up, then just scoop it up.

Santos: Ah, no, no. This has already gone up. We took it up at 8.94 dollars. This is already in our securities account, which we also--er have 44k shares. Now the market price is 9.6 dollars--9.64 dollars, that is… …(Indistinct). At… …

Hao: I know, but then for this--for such a large sum of capital I have, if it merely goes up 20 cents every day and then I sell it out, it is very unfavorable to me. Also … …

Santos: No no no, I--I--I am not telling you to sell it out. I am just reminding you that this is already er at a profitable level. Just reminding you er about this er. So that you can pay attention to it.

Hao: Mm.

Santos: Okay? Further for this 902, Huaneng, also this CNOOC, er they are also higher than the level at which we accumulated their shares. Er for 902, we accumulated at 7.79 dollars. It is 8.4 dollars now. For 883, CNOOC, we accumulated it at 12.87 dollars, now it is about 14.2 dollars. For these two, there should be incoming shares in the beginning of month of December, which is next week. Er we will continue to pay attention to this for you.

Hao: Mm. This on the contrary does not matter. For CNOOC, because it probably has a concept of returning (to the PRC), so just leave it there.

Santos: Yes yes yes yes yes.

Hao: Mm.

Santos: For this Huaneng, it also dropped a lot the day before. Now it has--now it has already rebounded. We will continue to pay attention to this situation for you. Because we have two--have two KODAs for Huaneng, so when we are to er take up the shares, we will see what the situation is, and see if wer’re to level part of it first or whatever. We will look at the situation again next week, but we let you--er know in advance about this. Okay?

Hao:  Mm, okay.”

[emphasis added]

It can be seen that Madam Hao's confidence in the market recovered and she seemed to have forgotten about her previous lamenting.  She even tried to countermand her earlier instruction of disposing of some of the Shenhua shares (code: 1088). These shares were accumulated under the 4^th KODA which was entered into on 12 October 2007.  It was perfectly clear to Madam Hao that the 4^th KODA was not knocked out for over 1½ month.  There was no complaint on the basis of the alleged "quick to end" representation.  On the contrary, when the market was in her favour, she intended to hold onto the shares.  Then Santos explained to her that she should first take profit because she would likely continue to receive about 20,000 shares of Shenhua shares.  The 4^th KODA was a "2x" contract on the denomination of 1,500 shares per day.  In other words, Santos anticipated that the 4^th KODA could at least remain open for approximately another 8 days.  Madam Hao was not unhappy with that situation.  Madam Hao then mentioned that she had also taken profit on another stock code number 1898.  This was a stock not purchased through DBS. Clearly, Madam Hao was also trading on securities through another venue.  The conversation then turned to the Air China shares (code: 753) which were accumulated under the 13^th KODA entered into on 5 November 2007 and knocked out the same day.  Again, contrary to Santos' suggestion of taking profit, Madam Hao decided to hold onto the shares.  She even expressed that it was unwise to dispose of shares merely because their prices went up for 20 cents a day.  Santos was clearly right in his evidence to describe Madam Hao as a person of "considerable appetite for returns".  She was willing to take risk even after her experience of a market down-turn.  The subject matter then turned to CNOOC shares (code: 883) accumulated under the 9^th KODA.  Santos told Madam Hao that further shares were expected to be accumulated next week. Madam Hao then expressed that it was allright as she had confidence in its performance due to the concept of reunification ("回歸概念").  She was happy to hold onto the shares.  Then discussions turned to Huaneng shares (code: 902) accumulated under the 11^th and 17^th KODAs.  Santos reminded Madam Hao that Huaneng's share price had rebounded and asked whether, when shares were to be received under the two KODAs, Madam Hao would like to level her position by disposing of them.  Madam Hao was agreeable to keep this matter under observation.  The 11^th KODA was executed on 2 November 2007 and the 17^th KODA on 7 November 2007.  They had remained not knocked out for over 3 weeks.  Again, Madam Hao did not complain that they were not "quick to end".

(VI)   Findings in relation to the KODAs and APFCs

191.I have gone through the contemporaneous taped conversations between 5 September 2007 and 30 November 2007 in great detail and compared them against the evidence of Madam Hao, Santos, Jason and Rocky.  I prefer the evidence of Santos, Jason and Rocky. In addition to the findings that I made at paragraph 140 above, I make the following findings in relation to the circumstances under which the 3^rd to 17^th KODAs and the 4 APFCs were executed:-

(1)  All along, Madam Hao knew and understood the essential features of the KODAs. Most if not all the time, indicative terms were first provided to her through emails[190]. There were also emails confirming the parameters of the executed KODAs[191].  Summary of KODA transactions were also provided[192]. Confirmations of each of the KODA transactions were sent to Madam Hao’s Beijing address in a matter of few days after the transactions[193]. Invariably the indicative terms were repeated over phone to Madam Hao at the time when she gave respective instructions to execute. Adequate explanations had been given to her;

(2)  Madam Hao was an experienced and sophisticated investor and understood the explanations given to her. At all times, she exercised her personal judgment and made independent decisions.

(3)  Madam Hao was aware that the transactions were conducted upon a credit facilities granted by DBS to San-Hot BVI.  She was aware of the concept of “ear-marking” and "margin". She knew that after entering into a KODA transaction, her credit facilities would be “held up” correspondingly.  The available balance of the credit facilities at any given time was invariably a factor she took into account when determining the size of the transaction she entered into. She knew how to and did manage her credit line.

(4)  Madam Hao was aware of the financial exposure involved.  Adequate explanation had been given to her.

(5)  Madam Hao was aiming at high returns. In view of her background, education and experience, she must have appreciated that higher returns inevitably came with higher risks.  She appreciated the risks involved and was able to compare the relative risks involved in different offers.

(6)  She was prepared to take risks due to a myriad of factors including her own bullish view of the market; market information she received from her own connections; her personal investment strategy; the substantial profit she made in the Xinxin IPO; and the initial quick substantial profits she made in the earlier KODA transactions.

(7)  In relation to the successive APFCs, Madam Hao entered into such transactions because she wanted to accumulate no less than CAD2,000,000 for her intended emigration to Canada.  She was fully prepared for the consequence of the 3^rd and 4^th APFC not being knocked out before their full terms.

G.  CONTRACTUAL ESTOPPEL

192.As mentioned earlier in paragraphs 27, 28 and 30 of this Judgment, DBS sought to rely on the terms set out in Appendices 1 to 3 for the following purposes:-

(1)  Appendix 1 terms

that San-Hot BVI is estopped from:-

(i)  asserting that it relied on the Wong’s Representations; and

(ii)  asserting that it did not make independent decision and/or exercise its own judgment before entering into each transaction.

(2)  Appendix 2 terms

that San-Hot BVI is estopped from:-

(i)  asserting that it did not agree/understand the provisions as to margin requirement; and

(ii)  asserting that it did not understand the nature of risks involved in the accumulators.

(3)  Appendix 3 terms

that the Confirmations, Monthly Account Statements and DBS’s records of indebtedness are conclusive and binding.

193.In view of my findings of fact, it becomes unnecessary for DBS to rely on the principle of “contractual estoppels” arising out of the Appendices 1 and 2 terms to defeat the following defence allegations:-

(1)  that Madam Hao/San-Hot (BVI) relied on the Wong’s Representations;

(2)  that Madam Hao/San-Hot (BVI) did not make independent decision and/or exercise own judgment before entering into each transaction;

(3)  that Madam Hao/San-Hot (BVI) did not agree/understand the provisions as to margin requirement; and

(4)  that Madam Hao/San-Hot (BVI) did not understand the nature of risks involved in the accumulators.

However, in deference to counsel’s submissions, I would still express briefly my views on the principle of “contractual estoppel”.  Further, I will also deal with the legal effect of "conclusive evidence clauses" which in nature the clauses set out in Appendix 3 truly were.

(I)  The Legal Principles of contractual estoppel

194.The analysis should begin with Peekay Intermark Ltd. v.Australia and New Zealand Banking Group Ltd. [194].  The 1^st plaintiff was an investment vehicle of the 2^nd plaintiff.  The 1^st plaintiff traded in a variety of investments. The defendant bank developed an investment product structured in such a way that repayment would be linked to the performance of a Russian Government Bond (GKO).  The details of this product were set out in an indicative term sheet. The 2^nd plaintiff expressed an interest in investing in this product. He was sent the indicative term sheet.  He was later sent the final terms and conditions and a risk disclosure statement which he signed and returned on behalf of the 1^st plaintiff.  At the trial, the 1^st plaintiff claimed that the bank had told the 2^nd plaintiff that the product was a “GKO Note” which led him to belief that by investing in the product, the 1^st plaintiff would obtain an interest in the GKO itself.  The English Court of Appeal firstly held that although in the course of discussions, the bank had misdescribed the nature of the product, yet the final terms and conditions sent to the 2^nd plaintiff were sufficient to make it clear, if he cared to read them, that the nature of the product was not to give any proprietary interest in the GKO. The Court thus reversed the trial judge’s finding that the plaintiffs were induced by misrepresentation into executing the transaction. The Court then went on to consider the legal effect of the 2^nd plaintiff signing a declaration at the foot of the risk disclosure statement.  The issue was whether by so signing, the 1^st plaintiff was precluded as a matter of contract from contending that it did not understand the true nature of the investment. Starting from paragraph 54 his Judgment, Moore-Bick LJ said:-

“54. In the course of the hearing of the appeal Mr Pymont applied for permission to amend ANZ’s notice of appeal to raise an alternative argument to the effect that Peekay was estopped by its signature of the Risk Disclosure Statement from alleging that it had been induced to enter into the contract by misrepresentation on the part of Mrs Balasubramaniam. In view of the conclusion to which I have come on the primary ground of appeal it is unnecessary to decide this question, but since it was fully argued I propose to express my views on it as briefly as I can.

55. The argument was based on the following two passages in the Risk Disclosure Statement:

‘You should also ensure that you fully understand the nature of the transaction and contractual relationship into which you are entering.’

and

‘The issuer assumes that the customer is aware of the risks and practices described herein, and that prior to each transaction the customer has determined that such transaction is suitable for him.’

which Mr Pawani on behalf of Peekay confirmed by his signature that he had read and understood. Mr Pymont submitted that as a result of having done so Mr Pawani and Peekay were estopped from asserting that they had not understood the nature and effect of the FTCs and so could not maintain that they had been induced by misrepresentation to enter into the contract.

56. There is no reason in principle why parties to a contract should not agree that a certain state of affairs should form the basis for the transaction, whether it be the case or not. For example, it may be desirable to settle a disagreement as to an existing state of affairs in order to establish a clear basis for the contract itself and its subsequent performance. Where parties express an agreement of that kind in a contractual document neither can subsequently deny the existence of the facts and matters upon which they have agreed, at least so far as concerns those aspects of their relationship to which the agreement was directed. The contract itself gives rise to an estoppel: see Colchester Borough Council v Smith [1991] Ch 448, affirmed on appeal [1992] Ch 421.

57. It is common to include in certain kinds of contracts an express acknowledgment by each of the parties that they have not been induced to enter the contract by any representations other than those contained in the contract itself. The effectiveness of a clause of that kind may be challenged on the grounds that the contract as a whole, including the clause in question, can be avoided if in fact one or other party was induced to enter into it by misrepresentation. However, I can see no reason in principle why it should not be possible for parties to an agreement to give up any right to assert that they were induced to enter into it by misrepresentation, provided that they make their intention clear, or why a clause of that kind, if properly drafted, should not give rise to a contractual estoppel of the kind recognised in Colchester Borough Council v Smith. However, that particular question does not arise in this case. A clause of that kind may (depending on its terms) also be capable of giving rise to an estoppel by representation if the necessary elements can be established: see EA Grimstead & Son Ltd v McGarrigan (CA) (unreported, 27 October 1999).

58.   In so far as the argument in this case turns on the true construction and effect of the contractual documents (including the Risk Disclosure Statement) and is one to which no further findings of fact might have been relevant, ANZ should, in my view, be allowed to advance it.  I would therefore grant the bank permission to amend its notice of appeal to raise the issue of contractual estoppel, but I would not allow it at this stage to contend that there was an estoppel by representation since the judge was not asked to consider that question and did not make findings in relation to it.  The question then is whether, in the light of Mr Pawani’s signature of the declaration at the foot of the Risk Disclosure Statement Peekay, is precluded as a matter of contract from contending that it did not understand the true nature of the investment.”

195.JP Morgan Chase Bank & oths. v. Springwell Navigation Corp. [195]was a case involving the alleged mis-selling of derivatives called “GKO-linked notes”. The facts of that case were extremely complicated.  Suffice for the present purpose to note that one of the issues involved was whether Springwell was contractually precluded and estopped from: (i) alleging that bank was under a tortuous duty to render proper advice; and (ii) asserting that it entered into the transactions relying on the bank’s misrepresentations. The relevant terms of the contractual documents had subsequently been helpfully set out in Appendix 1 of the Court of Appeal’s decision[196].  Without going into detail analysis, one can see that there are striking similarities between the terms relied on by the bank in Springwell and the terms relied on by DBS in the Appendices to this Judgment.  In a nutshell, the relevant contractual provisions in Springwell stated that: (i) Springwell acknowledged that it was a sophisticated investor; (ii) the transaction had been conducted on an execution-only basis; (iii) the bank had not given and Springwell had not received any advice in relation to the trasactions; and (iv) Springwell had not relied upon any advice from the bank.  At the first instance level, it was argued before Gloster J that the bank was not entitled to rely on those provisions for the following reasons:-

(1)  the evidence showed that factually, the statements set out in (i) to (iv) above were false. By the authority of Lowe v. Lombank Ltd. [197], a false statement made about a matter of past fact could not operate either as an estoppel by representation or (where the fact is expressed as an agreement) a contractual estoppel;

(2)  in any event, a statement of past fact, when expressed as an agreement, could not amount to a contractual obligation. As a matter of substance, it was no different from a representation.  Therefore, in order to have precluding effect, it must satisfy the conventional requirement of “estoppel by representation”, including reliance to someone’s prejudice;

(3)  Peekay, in so far as it supported the proposition that a contractual estoppel would not need to satisfy the requirements applicable to “estoppels by representation”, was obiter and per incuriam as Lowe v. Lombank was not cited to the Court; and

(4)  Moore-Bick LJ was in substance speaking in terms of “estoppel by convention” which could only apply to parties adopting a convention going forward. Parties cannot “agree” that they have done something in the past or that a subsisting relationship shall be characterized as something it is not. Lowe v. Lombank was exactly the authority preventing that.

196.Gloster J rejected the submissions of Springwell.  Her Ladyship went through the very special facts in Lowe v. Lombank to decipher the actual ratio in that case and said:-

“In my judgment, the ratio of the decision in Lowe v Lombank cannot, when analysed in its context, be regarded as authority for the far-reaching proposition that there can never be an agreement in a contract that the parties are conducting their dealings on the basis that a past event had not occurred, or that a particular fact was the case, although both parties know that, in reality, that past event had, or might have, occurred, or that the particular fact was not, or might not have been the case… ”

Her Ladyship analysed the Court of Appeal’s decision in Peekay and concluded that the dictum of Moore-Bick LJ on “contractual estoppel” was neither obiter nor per incuriam.  She also noted that Peekay and subsequent authorities indeed recognized that there is a difference between contractual estoppels and estoppels by representation, in that the former specie of estoppel does not require the parties to prove detrimental reliance.  She held that a contractual estoppel can arise from an agreement or a representation about past facts.  Consequently, she upheld the precluding effect of the relevant contractual provisions.

197.Gloster J’s decision was taken on appeal[198]. The appeal was dismissed. On the issue of “contractual estoppel”, Aikens LJ said[199]:

“143. Before I examine Lowe v Lombank and subsequent cases on this issue, I will try and analyse the matter from principle. If A and B enter into a contract then, unless there is some principle of law or statute to the contrary, they are entitled to agree what they like. Unless Lowe v Lombank is authority to the contrary, there is no legal principle that states that parties cannot agree to assume that a certain state of affairs is the case at the time the contract is concluded or has been so in the past, even if that is not the case, so that the contract is made upon the basis that the present or past facts are as stated and agreed by the parties. It is, after all, common in marine insurance contracts for an assured to ‘warrant’ that a certain state of affairs has existed in the past and is still existing at the time the insurance contract is concluded or will continue, e.g. that the nationality of a ship was and is British; or that a ship was and is ‘in Class’ with her Classification Society. The shipowner may know that those things are not the case; the insurer may have his suspicions that they are not the case. The parties agree that for the purposes of the insurance contract, the facts as ‘warranted’ by the assured are as he has stated them to be. A ‘conclusive evidence’ clause in a sale contract, viz. that a report on e.g. the amount or condition of a commodity sold under a contract between A and B shall be ‘conclusive evidence’ of the matters stated in the report is to the same effect. The parties are agreeing that the statements in the report shall be the case for the purposes of the contract of sale and the parties cannot go behind that agreement.

144.    So, in principle and always depending on the precise construction of the contractual wording, I would say that A and B can agree that A has made no pre-contract representations to B about the quality or nature of a financial instrument that A is selling to B.  Should it make any difference that both A and B know at and before making the contract, that A did, in fact, make representations, so that the statement that A had not is contrary to what each side knows is the case?  Apart from the remarks of Diplock J in Lowe v Lombank, Mr Brindle did not show us any case that might support the proposition that parties cannot agree that X is the case even if both know that is not so.  I am unaware of any legal principle to that effect.  The only possible exception might be if the particular agreement between A and B on the certain state of affairs concerned contradicts some other specific or more general rule of English public policy.l61 Like Moore-Bick LJ in Peekay162 I see commercial utility in such clauses being enforceable, so that parties know precisely the basis on which they are entering into their contractual relationship.”

198.Aikens LJ then conducted a careful examination of the facts in Lowe v Lombank eventually ended up agreeing with the aforesaid dictum of Gloster J.  After considering Burrough’s Adding Machines Ltd v Aspinall[200]; Colchester Borough Council v Smith[201]; Spenser Bower and Turner, Estoppel by Representation[202]; and Peekday, Aikens LJ concluded that the principles stated in Peekay was good law. He said:-

“Springwell signed the terms and conditions more than once. In law it is to be taken as having read and understood them. Therefore the terms are part of the contract for the sale of the GKO LNs and Springwell is bound by them. Springwell and Chase contract for the purchase of the GKO LNs on the basis that Springwell is bound contractually to its statement, or acknowledgment, that no representation or warranty has been made by Chase. Moreover, Springwell must be bound by the terms of Section 5(e), which means that it accepts that CMSCI has not made any representation or warranties of the kind set out there.”

On the same basis, Aikens LJ held that in respect of the other term setting out an acknowledgment that “Springwell was a sophisticated investor, that it is familiar with and able to evaluate the merits and risk associated with the product and is able to assume the risk of loss associated therewith”, Springwell was contractually bound by this representation.  The effect of that clause was that Springwell accepted that no express or implied representations are or will be made by the bank.  On the issue as to whether “unconscionable to resile” is a necessary ingredient of “contractual estoppel”, Aiken LJ said:-

“I have, effectively, rejected Mr. Brindle’s argument that there is no juristic concept of ‘contractual estoppel’ which is distinct from the doctrine of ‘estoppel by convention’. To my mind, once it is accepted that there is a separate doctrine of ‘contractual estoppel’ then there is no room for a requirement that the party which wishes to rely on that estoppels must demonstrate that it would be unconscionable for the other party to resile from the conventional state of affairs that the parties have assumed. The reason why that is a requirement in the case of ‘estoppel by convention’ is precisely because there is no contract between the parties. Therefore some other mechanism has to come into play to make the non-contractual ‘convention’ enforceable.”

199.Subsequent to the Court of Appeal’s decision in Springwell, the principles of “contractual estoppel” had been applied in Titan Steel Wheels Ltd. v. Royal Bank of Scotland[203] and Bank Leumi (UK) Plc v. Wachner[204].

200.Mr Coleman referred me to a recent article published in Lloyd’s Maritime and Commercial Law Quarterly 2011 entitled “Documentary fundamentalism in the Senior Courts: the myth of contractual estoppel”.  The learned author argued that the decisions of Peekay and Springwell represented a “policy choice” by the judiciary built upon a weak juridical basis. He argued that Burrough and Colchester did not support the robust proposition of contractual estoppels because:-

(1)  Burrough was a case involving a “verification clause” which stated that all statements of account sent by the company to a salesman (employee) shall be deemed to be accepted by the salesman as correct unless he gave written notice that they were not within 30 days of receiving the account.  In that case, the salesman only challenged the correctness of the accounts several years later and the Court of Appeal decided that it was too late.  The author argued that implicit in a contractual time limitation for challenge is a right to challenge that “black is not white” and that black may then be treated as white upon the expiry of the limitation period.  He argued that it did not support the proposition that parties had agreed that black should be treated as white.

(2)  Colchester was a case concerning a bona fide compromise between parties to a dispute.  There were specific negotiations resulting in a compromise. It was different from cases whereby one party merely seeks to rely on a standard provision to exculpate itself from its common law and statutory liability for misrepresentation.  The decisions in Peekay and Springwell represented a radical extension of the principle in Colchester.

201.With respect, I cannot agree with the above arguments of the learned author. In respect of Burrough, the stipulated “time limit” was merely a condition that kicked off the operation of the deeming provision.  The crux of the matter was: both parties agreed that after the expiration of a period within which parties could raise challenge, “black would indeed be deemed white” as between the agreeing parties. The “contractual estoppel” arose after the expiration of the time limit.  By upholding the operation of this clause, the Court of Appeal was actually endorsing the principle that as between two contracting parties, they could agree to mutually treat a certain state of affair or certain fact to be true, conclusive and/or binding.  The purpose of such an agreement was clearly to avoid disputes by preventing each party from subsequently challenging that state of affair or fact. I do not find Burrough distinguishable.  As for Colchester, it may well be true that the subject agreement was reached after specific pre-contractual negotiations. There is however no doctrinal basis to suggest that the same principle could not apply to situations of “standard form contracts”.  Contracts, albeit concluded on one party’s standard form, would nonetheless involve pre-contractual negotiations although their contents and duration or the relative bargaining position of parties may differ widely.  Once it is concluded that agreement has been reached between the parties, the next question would be on what terms.  And once it is concluded that a particular term forms part of the agreement, there is no logical basis to distinguish between its binding operation by reason of whether it originated from “specific negotiation” or “standard form”.  The learned author’s concern was one of “incorporation” rather than the legal effect of a proven agreed term.  The decision of Colchester was on the legal effect of a term.  The same principle should apply whether or not such a term originated from one party’s standard form so long as the Court concludes a priori that such a term has been duly incorporated into the contract between the parties.  Neither should the operation of a term giving rise to “contractual estoppel” be affected by one’s party’s subjective knowledge or understanding.  This is of course subject to the Interfoto principle which is essentially a principle of “incorporation” and to the statutory regime of Control of Exemption Clause Ordinance which affects “enforceability”.

202.The learned author lastly attacked the decision in Peekay on its confirmation that “proof of detrimental reliance” or “unconscionability in resiling” was not necessary ingredient of contractual estoppel. He criticized that such a new unorthodox specie of estoppel bore no resemblance to other well established categories of estoppel such as evidential estoppels, promissory estoppels or estoppels by convention.  Again, I cannot agree with such criticism.  As pointed out by Aiken LJ, “contractual estoppel” is indeed different from other forms of estoppel for the reason that that it is based on an enforceable agreement reached between the parties.  Detrimental reliance and unconscionability are concepts akin to quasi-contracts.

203.In conclusion, I do not agree with the observations made by the learned author. Neither am I prepared to accept Mr Coleman’s submission that the application of “contractual estoppel” should be confined to sophisticated parties. I can see no rational or juridical basis for such limitation.  I am satisfied that the principle of “contractual estoppel” is a common law principle firmly established and settled after the English Court of Appeal’s decision in Springwell.  I can see no reason for not applying this principle in Hong Kong.

204.Subsequent to parties’ closing submissions, the Singaporean High Court handed down its decision in Deutsche Bank AG v Chang Tse Wen[205] on 11 December 2012.  Both parties agreed that my attention should be drawn to this authority.  Although it is also a case of alleged mis-selling of accumulators by bank, the facts of that case were unusual and the arguments run by the customer were different in many respects.  In that case, the customer alleged that several months prior to the signing of the banking services agreement, the bank had already undertaken to advise him to manage his recently acquired wealth. The customer was later asked to sign banking services agreement which contained, inter alia, a “non-advisory clause”, namely, stating that the bank was not acting as the customer’s fiduciary or advisor in respect of the services provided.  There were also “own-judgment clauses” stating that the customer had made his own decisions as to whether any transaction was appropriate for him and understood/accepted the terms and risk of any transaction.  It was the customer’s case that the bank misrepresented the nature of the services they would provide him; that they assumed a duty of care to use reasonable care to advise him on managing his new wealth which they, in the circumstances, failed to do.  The customer also argued that the bank also assumed a fiduciary obligation to him which they breached.  The learned judge framed the two questions of law as follows[206]:- 

(1)   under what circumstances may private banks acquire pre-contractual legal duties to prospective clients; and

(2)   how do frequently signed banking documents affect such earlier acquired legal duties.

205.Based on the evidence adduced, the Court found that several months prior to the execution of banking documents, the bank already assumed a duty of care to advise the customer on managing his new wealth which, from the range of capabilities of the bank as presented to him, would in the circumstances include advising him on wealth preservation, enhancement and investment solutions. Having made such findings of fact, the Court turned to the claim raised by the customer that the bank had misrepresented the type of service that was provided. The Court found that there was no actionable misrepresentation largely because the representations argued were not statements of fact but rather expressions of intention.  The Court also rejected the customer’s arguments based on breach of fiduciary duty.  It then proceeded to consider whether the contractual terms contained in the subsequently executed banking documents could effectively exclude a concurrent tortious duty of care. The English authorities on “contractual estoppel” were considered which included Peekay, Lowe v Lombank, Springwell and Titan.  The Court also referred to the earlier Singaporean Court of Appeal decision in Orient Centre Investments Ltd. v Societe Generale[207] where, after considering the English authorities on “contractual estoppels” said:-

“In our view, the combined effect of the express general and specific terms and conditions applicable to the structured products provides an insuperable obstacle to any claim by the [plaintiffs] against [the defendants] based on the alleged breach of representations of duties, fiduciary or contractual or on negligence on the part of [the second plaintiff]. ”

Philip Pillai J then said[208]:-

“136. DB relies on Orient to argue that the Service Agreement Disclaimers or the Derivative Disclaimers were sufficient to prevent" any duty of care from arising or estopping Dr Chang. However, it is important to note that both plaintiffs in Orient were financially sophisticated parties: the first plaintiff was an investment company, whilst the second plaintiff was a knowledgeable financial investor. At least with respect to relatively unsophisticated customers, the Court of Appeal appears to have subsequently retreated somewhat from its previous position in Orient that express terms in banking documents provided an “insuperable obstacle” to any claim based on alleged breaches or duties, whether fiduciary, contractual or tortious. Recently, in the Court of Appeal decision of Als Memasa and another v UBS AG [2012] SGCA 43 ( “Als Memasa”), Chan Sek Keong CJ held at [29] that it may be desirable for the courts to reconsider whether financial institutions should be entitled to invoke such non-reliance clauses against unsophisticated customers:

‘However, in the light of the many allegations made against many financial institutions for “mis-selling” complex financial products to linguistically and financially illiterate and unwary customers during the financial crisis in 2008, it may he desirable for the courts to reconsider whether financial institutions should be accorded full immunity for such “misconduct” by relying on non-reliance clauses which unsophisticated customers might have been induced or persuaded to sign without truly understanding their potential legal effect on any form of misconduct or negligence on the part of the relevant officers in relation to the investment recommended by them’…

138.  Given the Court of Appeal’s observations in Als Memasa, I would be extremely hesitant to apply the doctrine of contractual estoppel developed in the line of cases following Peekay.  Although I am bound by the Court of Appeal’s decision in Orient, that case can be distinguished from the present case on the basis that Dr Chang was known to the RM and DB to be financially inexperienced and the RM and DB themselves have the expertise and undertook pre-contractually to advise him in managing his new wealth.  I further find that even if the doctrine of contractual estoppel did operate in Singapore, that the precondition to its operation, viz, the clear intention for it to operate, has not been established on the evidence before me.”

206.I am not convinced that I should take such policy considerations in mind when my task is merely to declare what the common law principles on one branch of the law of contract should be.  With respect, Philip Pillai J’s refusal to apply the doctrine of contractual estoppel was not based on strict analysis of legal principles. He did not point out in what ways the analysis of the Courts in Peekay, Springwell, and Titan were flawed. His decision was obviously heavily influenced by an intended policy change advocated by the Singaporean Court of Appeal. In the end, my views as expressed in paragraph 203 above remain unchanged.

(II)  Conclusive evidence clauses

207.Counsel did not specifically refer me to any authorities pertaining to the legal effect of "conclusive evidence clauses".  In fact, this matter did not feature in Mr Coleman's Opening Submissions; Note For Defendant (8/8/2012); and the Closing Submissions. I shall thus only briefly deal with the relevant authorities.  The legal effect of such clauses was first affirmed in Bache & Co. (London) Ltd. v. Banque Vernes et Commerciale de Paris SA [209].  In fact, the Privy Council in Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank [210] accepted that in principle, such clause 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; and is intended to have conclusive effect if no query is raised at all or within certain time limit.  The validity of such clauses had also been upheld in numerous commonwealth authorities including Columbia Graphophone Co. v. Union Bank of Canada [211]; Rutherford v. Royal Bank of Canada [212];  Arrow Transfer Co. Ltd. v. Royal Bank of Canada [213] ; and Dobbs v. National Bank of Australasia Ltd. [214].  In Hong Kong, the effectiveness of such clauses was confirmed in Sun Hung Kai Forex & Buillion Co. Ltd. v. Yick Ming Kit ( unreported, HCA 8589/1992).

208.In the present case, Clause A(4) of the Private Bank Agreement[215] relates to the conclusive nature of the monthly bank statement supplied by DBS to San-Hot (BVI).  The clause expressly stated that the customer "shall examine" each statement; "shall notify DBS of any error or discrepancy within 90 days"; and that otherwise the statement "shall be conclusive and binding upon the Customer".  I find that all requisite ingredients prescribed in Lord Scarman's dictum in Tai Hing Cotton Mill Ltd. were squarely brought home to San-Hot (BVI).

209.According to the Amended Statement of Claim[216], the figures of indebtedness were calculated as of 2 November 2008.  The indebtedness under the Hong Kong Dollar Overdraft was HK$92,648,489.83.  The indebtedness under the Japanese Yen Term Loan was ¥23,545,784.77.  However, according to the Statement for the month of November 2008 provided by DBS to San-Hot (BVI)[217], the indebtedness was stated to be HK$93,667,448.21 and ¥23,619,934.  There was no evidence that San-Hot (BVI) had ever notify DBS of any error or discrepancy in these two figures, whether within 90 days of receipt of the bank statement or at all.  Counsel did not explain the descripancies.  It could well be that the bank statement was made up to the end of November 2008 whilst the figures in the Amended Statement of Claim were made up to 2 November 2008 only.  Although strictly speaking, basing on the conclusive evidence clause, DBS could have made its claim on the basis of the November 2008 bank statement, since it had chosen to claim for the lesser amounts of HK$92,648,489.83 and ¥23,545,784.77 in the prayer, I would adopt the lesser figures as the indebtedness.

210.There is only one side issue on the amount of indebtedness which I can quickly deal with at this juncture. In his Closing Submission, Mr Coleman submitted that DBS did not suffer the alleged "unwinding cost" flowing from the early termination of the Equity KODAs. He relied on one statement contained in the Expert Report of Mr. Pawan Malik[218] which stated:-

"When selling the Accumulators to San-Hot, DBS simultaneously entered into an equal and opposite transaction internally with DBS Bank (Hong Kong) Limited, Global Finance Markets ("GFM")."

This statement was made as part of Mr Malik's recounting of the background to the dispute between the parties. Mr Coleman submitted that hence, when the accumulators were unwound, they were mere internal transfers from one department of DBS to the other within the same bank. He argued that DBS did not suffer any loss in the unwinding at all.  In his Closing Submissions, Mr Jat objected to Mr Coleman taking this fresh point[219].  He said that such a point should have been pleaded and, if properly pleaded, evidence could have been called to explain that despite this alleged internal hedging arrangement, DBS still suffered loss in the unwinding process.  I agree with Mr Jat. DBS should not have been put to surprise.  Frankly, in the absence of evidence on the actual nature and operation of the hedging arrangement, I am unable to grasp the weight of Mr Coleman's argument.

211.In any event, the unwinding costs had been debited to San-Hot (BVI)'s overdraft as early as 15 October 2008[220]. They formed part of and resulting in the indebtedness as stated in the November 2008 bank statement.  San-Hot (BVI) is thus bound by the conclusive evidence clause.

H.  THE MISREPRESENTATION DEFENCE AND THE CLAIM UNDER S. 108 SFO

212.Consequent upon my findings of fact, I conclude that:-

(1)  the claim for rescission of the 17 KODAs fails;

(2)  the claim for damages for common law misrepresentation or under the Misrepresentation Ordinance in relation to the 17 KODAs fails;

(3)  the claim for damages for common law misrepresentation or under the Misrepresentation Ordinance in relation to the 4 APFCs fails;

(4)  for the same reasons, the claim made pursuant to section 108 of SFO equally fails;

(5)  the claim for rescission of the Guarantee fails；and

(6)  the amounts of indebtedness as stated in the November 2008 bank statement are conclusive and binding on San-Hot (BVI) although DBS only prayed for 2 slightly lesser amounts.

I.   BREACH OF PROFESSIONAL DUTIES

(I)  Duties implied to the banking services agreement?

213.Under paragraph 14 of the Defence and Counterclaim, the defendants pleaded that DBS owed 7 “fiduciary duties and duties of care” towards both San-Hot (BVI) and Madam Hao.  I have commented earlier that the defendants’ pleaded case was rather nebulous[221]. In both the “Note For Defendant (handed up on 8 May 2012) and the Closing Submissions, Mr Coleman no longer sought to argue that fiduciary duties were owed by DBS towards the two defendants. I commend that as a sensible position to take.  It can be seen from Deutsche Bank AG v. Chang Tse Wen[222] that the establishment of a fiduciary relationship in relatively similar commercial settings requires “exceptional circumstances”. Consequently, the first two “Professional Duties” pleaded under paragraphs 14(1) and (2) should be understood as having been amended by deleting the words “in the best interests of the Defendants”. As I understand from Mr Jat’s Closing Submissions, he had no problem accepting that DBS owed the usual duties of reasonable care and skill towards the defendants[223].  Given the banker/customer relationship, I also accept that DBS would be under a duty to act honestly and fairly.  These duties could easily be implied into the banking services agreement with San-Hot BVI.

214.The third “Professional Duty” pleaded under paragraph 14(3) is rather strange. In so far as it seeks to argue that DBS was under a duty not to make misrepresentations, it is otiose. In any event, based on my findings that there were no misrepresentations, such alleged duty (whether contractual or tortious) could not affect the result of this case.  In so far as it seeks to argue that DBS was under a duty to ensure that “information” it provided to the defendants were accurate and not misleading, I shall first consider whether such a contractual duty could be implied to the banking services agreement.  It is trite law that a term shall not be implied to a contract which contradicts the express terms of that contract.  In my judgment, the alleged duty is repugnant to the following express terms in the banking services agreements:-

(1)  Clause I21 of the Private Banking Agreement[224]; and

(2)  Clause I33 of the Private Banking Agreement[225].

Accordingly, I refuse to imply such a contractual duty into the banking services agreement.  As to whether there still exists between DBS and San-Hot BVI a tortious duty to ensure that information provided to it was accurate and not misleading, I will consider that in a later section.

215.The 4^th to 6^th “Professional Duties” pleaded under paragraphs 14(4) to (6) were all predicated upon an advisory role and a duty to render investment advice on the part of DBS.  The 7^th “Professional Duties” suggests that DBS had a duty to ensure that the defendants fully understood the nature and risks of the relevant products.  On a pure “implied term approach”, I find that these alleged duties are repugnant to the following express terms in the banking services agreement:-

(1)  Clause 5 of the Mandate For Limited Company Account[226];

(2)  Clause I of the Private Banking Agreement[227];

(3)  Clause I21 of the Private Banking Agreement[228];

(4)  Clause I33 of the Private Banking Agreement[229]; and

(5)  Clause 4 of the Confirmations in relation to each KODA and AFPC.

(II)    Duties by express incorporation into the banking services agreement?

216.In the defendants’ Closing Submissions, Mr Coleman argued[230] that the 4^th to 7^th “Professional Duties” were contained in the Code and the Code was incorporated by reference into the banking services agreement by reason of Clause I1(i) of the Private Banking Agreement which read:-

“Applicable Rules and Regulations

Each 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 so that:-

(i) in the event of any conflict between any provision of the Trading Agreement and any such constitution, rules, regulations, customs, usages, rulings, interpretations, law and regulation, such provision shall be deemed to be modified or rescinded to the extent necessary to secure compliance;

(ii)  the Bank may take or omit to take any action which it determines to be necessary in order to ensure compliance with the same, which shall bind the Customer, who shall at all times ensure his compliance with the same…”

217.This is thus purely an issue of contractual interpretation.  I would first set out the relevant portions of the Code in its proper statutory context.  The Code was promulgated and published pursuant to section 399(1) of SFO.  The stated objectives of the Commissioner's power to publish codes and guidelines are for providing guidance:- (1) for the furtherance of any of its regulatory objectives; (2) in relation to any matter relating to any of the functions of the Commission…; (3) in relation to the operation of any provision in the Ordinance.  Section 399(6) specifically provides as follows:-

"A failure on the part of any person to comply with the provisions set out in any code or guideline published under this section that apply to him shall not by itself render him liable to any judicial or other proceedings, but in any proceedings under this Ordinance before any court the code or guideline shall be admissible in evidence, and if any provision set out in the code or guideline appears to the court to be relevant to any question arising in the proceedings it shall be taken into account in determining that question." [emphasis added]

Sub-section (8) then states that "any code or guideline published under this section is not subsidiary legislation".  In the Explanatory Notes of the Code,  it is stated that:-

(1)  the Commission will be guided by this Code in considering whether a licensed or registered person satisfies the requirement that it is fit and proper to remain licensed or registered;

(2)  to reflect the realities of today's markets, the Commission recognizes that conduct of business principles should be flexible enough to differentiate between professional and non-professional investors and some provisions of the Code need not be observed in the case of professionals;

(3)  the Code does not have the force of law and should not be interpreted in a way that would override the provision of any law.

In Ever-long Securities Co. Ltd. v. Wong Sio Po[231], Cheung JA accepted, albeit obiter, that the Code did not have the force of law.  Furthermore, under section 1.5 of the Code, a failure by any person to comply with any provision of the Code that applies to it shall not by itself render it liable to any judicial or other proceedings and the wordings in section 399(6) of SFO were reiterated.  In my view, the Code was primarily promulgated for the purpose of determining whether a person is a fit and proper person to be or to remain as a licensed or registered person under SFO. Section 399(6) does not make the Code admissible in all proceedings.  Only in proceedings under SFO is the Code admissible.  And in such proceedings, the Code may become relevant to certain issues arising therein.

218.Mr Coleman argued that the Code amounts to "regulations … of …any other authority having jurisdiction" within the wordings of Clause I1 of the Private Banking Agreement in that the Securities and Futures Commission is "an authority having jurisdiction". Mr. Coleman further relied on Larussa-Chigi v. CS First Boston Ltd[232] .

219.Mr Jat first argued that Clause I1(i) of the Private Banking Agreement has no application as it concerns merely the legality of a transaction to be effected, and modifies the terms of the contract with the customer to the extent necessary to achieve legality.  Mr Coleman argued that this interpretation is too restrictive.  I tend to agree with Mr Coleman.  Mr Jat's submission was no doubt based on the reading of sub-clause (i) He however ignored sub-clause (ii) which permits the Bank to act or not to act in a particular way so as to achieve compliance, which action/omission shall be binding on the Customer.  In other words, the Clause was intended to affect not only the legality of a particular transaction but also the way in which the Bank performs its contractual obligations.  To me, the real force of Mr Jat's argument is in his second submission, namely, that the Securities and Future Commission is not "an authority with jurisdiction" within the meaning of the Clause. Firstly, according to the New Oxford Dictionary of English, the word "jurisdiction" means the official power to make legal decisions and judgments.  This interpretation is consistent with the Chinese version of the Clause which reads:-

"適用的規章制度

每項交易均須依據交易所、相關的結算機構以及任何擁有司法管轄權的機構的憲章、規則、條例、慣例、準則、裁決及詮譯進行，並須遵守香港或任何其他司法區的適用法律及條例" [Emphasis added]

In my judgment, the terms "any authority with jurisdiction" and "任何擁有司法管轄權的機構" both connote some form of judicial function rather than mere regulatory, supervisory or administrative functions.  The Securities and Futures Commission is not an "authority with jurisdiction" within the meaning of the Clause.  Neither can the Code (which merely provides guidance for the purposes so stated in its Explanatory Notes) amount to "constitution, rules, regulations, customs, usage, rulings and interpretations".  In my view, the case of Larussa-Chigi v. CS First Boston Ltd is clearly distinguishable.  The case involved two regulatory regimes, one under the Financial Services Act 1980 ("FSA") and the other governing "exempted persons".  The regime for regulating exempted persons was promulgated by the Bank of England in the London Code of Conduct under powers derived from section 43(2) of the FSA and from other legislations.  One of the issues involved was whether the London Code of Conduct, being regulations promulgated by the Bank of England, became incorporated as contractual terms by virtue of two contractual documents between the bank and its customer.  The first contractual document was a "wholesale warning letter" the material part of which read:-

"We have identified you as someone who is, or may become, a ‘wholesale counterparty’ by engaging in transactions with us in the instruments specified in Schedule 5 of the Act.  None of your transactions with us in these instruments will be - for so long as you remain a "wholesale counterparty" - within the investor protection regime established by the Act.  Instead, they will be governed by a Code of Conduct established by the Bank of England, to which we will adhere.[emphasis added]

In accepting the submission of counsel for the customer, Thomas J. said:-

"Mrs Chigi's argument was as straightforward as it was attractive.  She said that this was a contractual document and [the bank] agreed in the paragraph which I have set out, that the transactions would be governed by a Code of Conduct established by the Bank of England.  The Code of Conduct is the London Code of Conduct.  Bu those clear words it was incorporated into the contract.

In my view, her argument is correct.  The words 'the transactions will be governed by a Code of Conduct established by the Bank of England' are amongst the clearest words that could be chosen by parties to indicate that the transactions in question were to be governed by the code."

Thomas J. then examined the second contractual document called "First Boston's terms of business", the material portion of which read:-

"All transactions in Securities shall be subject to the rules and customs of the exchange or market and/or any clearing house through which the transactions are executed (if any), the rules and regulations of the Securities and Investment Board, the Securities and Futures Authority Limited and the Bank of England so far as they are applicable… " [emphasis added]

After referring to the above term, Thomas J. accepted Mrs Chigi's contention that read naturally, the above clause made the transaction subject to the applicable regulations of the Bank of England - the London Code of Conduct.  The Court thus held that the London Code of Conduct was incorporated into the contract between the bank and the customer.  That decision was thus based on the specific reference to the "Code of Conduct established by the Bank of England" and the "rules and regulations of the Bank of England" in the contractual documents.  I conclude that this authority is of no assistance to the defendants.  I find that the Code had not been incorporated into the banking services agreement between DBS and San-Hot (BVI) under Clause I1 of the Private Banking Agreement.  In conclusion, I find that save as to the limited extent explained in paragraph 213 above, the "Professional Duties" pleaded in paragraph 14 of the Defence and Counterclaim had not been established as contractual duties falling upon DBS.

(III)   Duties in Tort?

220.As mentioned in paragraphs 18 to 20 of this Judgment, Mr Coleman argued at the hearing that the "Professional Duties" also arose out of the tort of negligence. Mr Coleman described them as "concomitant contractual and tortuous duties".  I have already concluded above that there were no such contractual duties.  The current issue is whether such duties could arise from the examination of the relevant principles governing the tort of negligence.  As it is a case of allegedly causing pure economic loss, the relevant legal principles are those developed from Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd.[233].  As explained by Lord Goff in Henderson v. Merret Syndicates Ltd.[234],the governing principle of Hedley Byrne was based on "assumption of responsibility by the defendant along with reliance by the claimant":-

"From these statements, and from their application in Hedley Byrne, we can derive some understanding of the breadth of the principle underlying the case.  We can see that it rests upon a relationship between the parties, which may be general or specific to the particular transaction, and which may or may not be contractual in nature.  All of their Lordships spoke in terms of one party having assumed or undertaken a responsibility towards the other.  On this point, Lord Devlin spoke in particularly clear terms in both passages from his speech which I have quoted above.  Further, Lord Morris spoke of that party being possessed of a “special skill” which he undertakes to “apply for the assistance of another who relies upon such skill.”

Furthermore, especially in a context concerned with a liability which may arise under a contract or in a situation “equivalent to contract,” it must be expected that an objective test will be applied when asking the question whether, in a particular case, responsibility should be held to have been assumed by the defendant to the plaintiff: see Caparo Industries Plc. v. Dickman [1990] 2 A.C. 605, 637, per Lord Oliver of Aylmerton.  In addition, the concept provides its own explanation why there is no problem in cases of this kind about liability for pure economic loss; for if a person assumes responsibility to another in respect of certain services, there is no reason why he should not be liable in damages for that other in respect of economic loss which flows from the negligent performance of those services.  It follows that, once the case is identified as falling within the Hedley Byrne principle, there should be no need to embark upon any further enquiry whether it is “fair, just and reasonable” to impose liability for economic loss—a point which is, I consider, of some importance in the present case.  The concept indicates too that in some circumstances, for example where the undertaking to furnish the relevant service is given on an informal occasion, there may be no assumption of responsibility; and likewise that an assumption of responsibility may be negative by an appropriate disclaimer." [emphasis added]

221.Lord Goff emphasized that in determining whether, on a given set of factual circumstances, there was assumption of responsibility by the defendant, the Court should apply an objective test. In Williams v. Natural Life Foods Ltd.[235], Lord Steyn amplified the point and said:-

"The touchstone of liability is not the state of mind of the defendant.  An objective test means that the primary focus must be on things said or done by the defendant or on his behalf in dealings with the plaintiff. Obviously, the impact of what a defendant says or does must be judged in the light of the relevant contextual scene.  Subject to this qualification the primary focus must be on the exchanges (in which term I include statements and conduct) which cross the line between the defendant and the plaintiff." [emphasis added]

One important contextual scene in the present case (and indeed in all cases involving a banker/customer relationship established through the execution of banking services agreements) was the scope of the banking services agreement between DBS and San-Hot (BVI).  Clause I of the Private Banking Agreement[236] provided that "the Security Account is provided only as a transaction execution service. No investment advice is offered to the Customer."  Contemplated under Clause I21 of the Private Banking Agreement[237] was the possibility of DBS providing materials and information in respect of securities and other investment products to the customer. However, Clause I21 clearly pointed out that in so doing, no investment advice was offered to the customer.  It also pointed out that DBS was under no obligation to provide such materials and in so doing, it would not be providing a required service to the customer. It also stated that DBS would assume no responsibility for their accuracy or completeness.  DBS also assumed no responsibility for the performance/outcome of any investment and all associated risks would be on the customer. More importantly, it warned that customers should seek their own investment advice from a suitably qualified adviser. Clause I33 of the Private Banking Agreement[238] essentially conveyed the same messages, albeit that it was coughed in terms of the customer's acknowledgment.  In particular, Clause I33(ii) contemplated that DBS might provide some "advice" to the customer.  However, it was clearly stated that the customer understands and acknowledges that DBS was not under any duty to provide any advice and that the customer would not rely on any advice given but would exercise its own judgment.  There was also a clear disclaimer of responsibility.  In short, Mr Jat described the services agreed to be provided by DBS to San-Hot (BVI) as "execution only".

222.In Bank Leumi v Wachner [239], the Court there was dealing with a case where the banking services agreed to be provided to the customer was on "execution only" basis. Clauses 16.6 and 16.7 of BLUK's Terms of Business read:-

"6.16 Suitability

Unless BLUK enters into a specific agreement with you to do so, BLUK shall not owe you any duty to advise on the merits or suitability of any investment entered into or contemplated by you.  You agree that you will rely on your own judgment for all trading decisions.

6.17 Advice

Furthermore, any trading recommendation, market or other information communicated to you is incidental to the provision of services by BLUK under these Terms and BLUK gives no representation, warranty or guarantee as to its accuracy or completeness or as to the taxation consequences of any investment…"

The customer put forward a claim based on negligent advice on the part of the BLUK. Flaux J. commented as follows:-

"185.   So far as the negligent advice claim is concerned, in her closing submissions Ms Prevezer sought to put forward on behalf of Ms Wachner a case that BLUK through Mr Leslie and Mr Gabb assumed a general duty to advise Ms Wachner on an ongoing basis as to the suitability of the RKI options which she traded and as to whether she should cease trading such options and that BLUK was in breach of that duty because it failed to warn Ms Wachner of the risks involved in RKI options.  In my judgment, there are a number of problems with this argument.

186.    First and foremost, in relation to the transactions which Ms Wachner entered into with BLUK directly from September 2008, clause 6.16 of BLUK's Terms of Business provides:

‘Unless BLUK enters into a specific agreement with you to do so, BLUK shall not owe you any duty to advise on the merits or suitability of any investment entered into or contemplated by you. You agree that you will rely on your own judgment for all trading decisions.’

Ms Prevezer accepts that, unless she can show a specific agreement by BLUK to act in an advisory capacity, the effect of this provision (as I have indicated above in the context of the misrepresentation claim) is to operate as a contractual estoppel to any attempt to contend for a duty to advise.  As to what would constitute a ‘specific agreement’, Ms Prevezer submitted that the use of the word ‘agreement’ rather than ‘contract’ suggested that a degree of informality was permissible in determining whether there had been a specific agreement.  She may well be right that a formal written contract is not required, but what is required is an agreement by BLUK that it will assume a duty to advise Ms Wachner in relation to the merits or suitability of either any particular trade or of the trading generally…

189.    Second, even if the hurdle of clause 6.16 could be overcome, the contractual relationships in place here present an insurmountable obstacle to the existence of a duty of care owed by BLUK to Ms Wachner, at least during the operation of the BLUSA Agency Agreement which is the period upon which much of the allegations of breach of such a duty focus.  This is because as I have held, BLUK was acting as agent for BLUSA in its dealings with Ms Wachner under the Agency Agreement and under the terms of business in the contract between BLUSA and Ms Wachner the relationship is expressly a non-advisory one leaving no room for the imposition of a duty to advise on BLUSA.  In those circumstances, it is difficult to see how BLUK as agent could be under a duty which was not imposed on its principal, given that any advice given in the relevant period between March and September 2008 must have been given as agent for BLUSA.  It seems to me that Ms Wachner's case did not really grapple with this difficulty.

190.    Of course, if that analysis were wrong and Ms Wachner was the client of BLUK throughout the BLUSA Agency Agreement as Ms Prevezer contends, then the relationship between her and BLUK would be governed by the Terms of Business throughout, including clause 6.16 and, in the absence of a specific agreement, any duty to advise would remain precluded."

223.Flaux J. was relying on the principle of "contractual estoppel" in arriving at his conclusion. However, in my view, quite apart from the principle of "contractual estoppel" and adopting the objective test propounded in Henerson v. Merret Syndicates Ltd. and Williams v. Natural Life Foods Ltd., the collective effect of the various clauses mentioned above was to define the scope of the banking services provided by DBS to San-Hot (BVI).  A fortiori to the facts in Bank Leumi case, the contract between DBS and San-Hot (BVI) expressly described DBS's service as "transaction execution service only".  There were also clear references to "no investment advice offered" and repeated disclaimers of responsibility.  Hence, when one objectively analyze the things said and done by DBS's staff to Madam Hao throughout their dealings, one has to firmly bear in mind the contractual context under which such things were said and done.  That was an important, if not the most important, contextual scene.  The proper question was: whether such things were said and done within the framework contemplated by the terms and scope of the banking services agreement as oppose to DBS assuming responsibilities over and above their contractual obligations stipulated in the express terms of the banking services agreement.

224.It is clear from the evidence that staff of DBS did from time to time provide materials and information about investment products to Madam Hao. There were also discussions on the mutual funds portfolio of Madam Hao/San-Hot (BVI). They also provided Madam Hao with their opinions and suggestions that can loosely be described as "advice".  These activities were however clearly contemplated by Clauses I21 and I33 of the Private Banking Agreement that stated in no uncertain terms that in so doing, DBS was not providing investment advice; was not obliged to do so; and was not assuming any responsibility. The evidence of Santos on his role was clear. In cross-examination[240], he said that he was not providing "advice". He was merely providing products for customers' consideration.  When he was cross-examined on the 11 July 2007 meeting, Santos said that he gave Madam Hao a broad outline of the services that could be offered by DBS Private Banking. Mr Coleman did not suggest to him that he in any way represented DBS as offering the service of "investment advisor" or "financial consultant" to Madam Hao[241]. In the Presentation Deck and the other set of financial materials used at the 17 September 2007 meeting[242], they both carried prominent disclaimer, albeit in English, stating that they should not be interpretated as offer for the provision of investment advice services.  The disclaimer reminded the customer to seek independent investment advice.  In my judgment, the things said or done by staff of DBS did not amount to "assumption of responsibility" in the contractual and factual context of this case.  Similar conclusion was reached by Reyes J. in Kwok Wai Hing Selina v. HSBC Private Bank (Suisse) SA [243]. It was a case involving accumulator contracts transacted by a private banking customer. Not all the contractual terms were set out in the Judgment but one can see that the account opening document clearly defined it as an "execution-only " account and that the risk disclosure statement contained similar statements of "no investment advice offered"; "information supplied and opinion expressed not offered as investment advice"; and "customer to act on own independent judgment"[244].  It is interesting to note that the "core duties" said to have been owed by HSBC to Madam Kwok[245] were very similar to the Professional Duties argued by Mr Coleman in this case.  Reyes J. said[246]:-

"99.  Mr Fung refers to these additional obligations as ‘core duties’.  He argues that they arose by reason of the following:-

(1)  Mr Chu stated in his email to Ms Lau (quoted above) that it was a Relationship Manager’s duty “to manage client’s risk exposure”.

(2)  The duties arise by implication of law.

(3)  HSBC (through Ms. Chau) voluntarily assumed responsibility for the core duties.

100.  I am unable to agree with Mr Fung.

101.  First, I do not see how, as a matter of law, what Mr Chu wrote in an internal email to Ms Lau many years after Ms Kwok opened her HSBC account can define the obligations which HSBC undertook in relation to Ms Kwok as a result of the opening of her account.  It is an elementary principle of contract law that one cannot use the subsequent conduct of one or other party to an agreement to construe the terms of their contract.

102.  The Account Opening Booklet made it clear by the Risk Disclosure Statement that the account being opened by Ms Kwok was an execution-only account.  It was an execution-only account in the sense that HSBC was not to be regarded as offering investment advice of any nature in connection with the account.

103.  While HSBC might make recommendations from time to time, it was ultimately (the Statement stressed) for a client to assess whether a particular transaction was suitable in light of that client’s financial condition, risk tolerance and investment experience.  The Statement expressly warned that the investment risks associated with a financial product might be substantial and, if in any doubt about whether a product was suitable, the client should seek independent third party advice.

104.  The Statement could not be clearer.  In that light, I am unable to see how Mr Chu’s personal views as to the extent of a Relationship Manager’s duties (views which were not expressed to Ms Kwok at the material time) can be regarded as somehow modifying the plain meaning of the Statement.

105.  Second, it is also an elementary principle of contract law that one cannot imply obligations which are contrary to the express terms of an agreement.

106.  Thus, the alleged duty to advise would be contrary to what the Risk Disclosure Statement expressly says.  HSBC might state a house view on a proposed investment from time to time, but the client should not regard that as advice.  The client must make up his or her own mind in light of his or her own personal circumstances.

107.  The account being execution-only (that is, authorising HSBC to act in accordance with Ms Kwok’s instructions in relation to financial transactions), HSBC cannot be taken as having impliedly accepted a core duty to manage Ms Kwok’s account.  To the contrary, HSBC was only undertaking to execute Ms Kwok’s instructions promptly with due care and skill."

Having dismissed the customer's arguments based on "implied term approach", Reyes J dealt with the evidence of alleged "assumption of responsibility". The customer alleged that on numerous occasions, the bank staff agreed to "take care of her account".  Reyes refused to find that there was assumption of responsibility in respect of the alleged core duties[247].  Similarly, an equivocal description of DBS’s private banking services as “asset management services” adds nothing.  Provision of “execution only” services is one form of assisting customers in the management of their assets. Such description is not necessarily inconsistent with DBS assuming responsibility only for “execution only” services.  His Lordship further commented on the customer's attempt to establish the core duties basing on tort:[248]-

"136.  Mr Fung also refers to duties of care at common law. But that does not really assist.

137.  It is possible to claim pure economic loss under the law of tort when a defendant has breached a duty of care arising by reason of a special relationship between plaintiff and defendant.  There is here a special relationship between Ms Kwok and HSBC.

138.  However, that special relationship is defined by the contract between Ms Kwok and HSBC contained in and evidenced by the Account Opening Booklet and Risk Disclosure Statement.  It follows that recourse to the law of tort cannot add significantly to an analysis based upon the law of contract."

I am in respectful agreement with the approach and analysis of Reyes J.  In any event, based on my finding of facts, Madam Hao exercised her own independent judgment and decision at all material times. On the evidence, there was no "reliance" established.

225.In so far as it is necessary, I also rely on the principle of "contractual estoppel" to negate the existence of the alleged duty to render advice.  Clause 5 of the "Mandate For Limited Company Account"[249] constituted an express agreement and declaration of San-Hot (BVI) that in entering into any transaction, San-Hot (BVI)'s decision would be based on its own judgment independently of any or recommendation of DBS.  San-Hot (BVI) also accepted that DBS shall have no liability for any advice given or views expressed.  Similar agreement/acknowledgement was contained in Clauses I21 and I33 of the Private Banking Agreement that reiterated the "no duty to render advice"; "no reliance" and "no responsibility" points.  Under Clauses I32(d) and I33(iv) and (v) of the Private Banking Agreement, San-Hot (BVI) also warranted and acknowledged that it had read the Risk Disclosure Statement[250] and was aware of the risks as well of its financial ability to bear such risks.  In fact, similar agreement, warranty, representation and/or acknowledgment were made in Clause 4 of each of the transaction Confirmations[251].  Similar contractual terms had been held in Springwell and Titan Steel as giving rise to contractual estoppel negating the existence of a tortious duty of care to render advice.  Similar conclusion was reached in Go Dante Yap v. Bank Austria Creditanstalt AG[252] which was in fact one of the authorities cited by Mr. Coleman.

(IV)   The "Interfoto" argument

226.In an attempt to avoid the effect of the contractual clauses analyzed above, Mr Coleman relied on the principle enunciated in Interfoto Library Ltd v. Stiletto Ltd. [253]  I had briefly mentioned Mr Coleman's arguments in paragraphs 101 and 107 of this Judgment. In an appendix to his Closing Submissions, Mr Coleman clarified that this argument would apply to the clauses set out in Appendix 1; items 1 and 2 of Appendix 2; and items 2 to 5 of Appendix 3 to this Judgment.

227.In Interfoto, the plaintiffs ran a photographic transparency lending library.  Following a telephone inquiry by the defendants, the plaintiffs delivered to them 47 transparencies with a delivery note.  The delivery note contained printed conditions, one of which stipulated that all transparencies had to be returned within 14 days otherwise a holding fee of £5 a day would be charged for each transparency retained.  The defendants, who had not used the plaintiffs' services before, did not read the conditions and returned the transparencies 4 weeks later.  The plaintiffs invoiced the defendants for £3,783.50.  The defendants refused to pay and the plaintiffs brought an action to recover that sum.  The trial judge found for the plaintiffs and the defendants appealed.  The English Court of Appeal (consisting of Dillon and Bingham L.JJ.) allowed the appeal.  Dillon L.J. said[254]:-

"Condition 2 of these plaintiffs’ conditions is in my judgment a very onerous clause.  The defendants could not conceivably have known, if their attention was not drawn to the clause, that the plaintiffs were proposing to charge a “holding fee” for the retention of the transparencies at such a very high and exorbitant rate.

At the time of the ticket cases in the last century it was notorious that people hardly ever troubled to read printed conditions on a ticket or delivery note or similar document.  That remains the case now.  In the intervening years the printed conditions have tended to become more and more complicated and more and more one-sided in favour of the party who is imposing them, but the other parties, if they notice that there are printed conditions at all, generally still tend to assume that such conditions are only concerned with ancillary matters of form and are not of importance.  In the ticket cases the courts held that the common law required that reasonable steps be taken to draw the other parties’ attention to the printed conditions or they would not be part of the contract.  It is, in my judgment, a logical development of the common law into modern conditions that it should be held, as it was in Thornton v. Shoe Lane Parking Ltd. [1971] 2 Q.B. 163, that, if one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that that particular condition was fairly brought to the attention of the other party."

On the other hand, Bingham L.J. said[255]:-

"The tendency of the English authorities has, I think, been to look at the nature of the transaction in question and the character of the parties to it; to consider what notice the party alleged to be bound was given of the particular condition said to bind him; and to resolve whether in all the circumstances it is fair to hold him bound by the condition in question.  This may yield a result not very different from the civil law principle of good faith, at any rate so far as the formation of the contract is concerned.

Once the jiffy bag was opened and the transparencies taken out with the delivery note, it is in my judgment an inescapable inference that the defendants would have recognised the delivery note as a document of a kind likely to contain contractual terms and would have seen that there were conditions printed in small but visible lettering on the face of the document.  To the extent that the conditions so displayed were common form or usual terms regularly encountered in this business, I do not think the defendants could successfully contend that they were not incorporated into the contract.

The crucial question in the case is whether the plaintiffs can be said fairly and reasonably to have brought condition 2 to the notice of the defendants.  The judge made no finding on the point, but I think that it is open to this court to draw an inference from the primary findings which he did make.  In my opinion the plaintiffs did not do so.

The defendants are not to be relieved of that liability because they did hot read the condition, although doubtless they did not; but in my judgment they are to be relieved because the plaintiffs did not do what was necessary to draw this unreasonable and extortionate clause fairly to their attention."

228.In my view, it is difficult to filter out the true ratio decidendi of Interfoto. Dillon L.J. seemed to have treated it as an extension to the principle of "notice" required in the ticket cases. It was thus a matter of "incorporation" of terms into a contract. This was so treated by the learned author of Chitty on Contracts.[256]  On the other hand, Bingham L.J. was clearly not treating it as an issue of incorporation. He was relieving a contracting party of liability under a doubtlessly incorporated clause based on the general notion of fairness. This was however not the state of the modern law as stated by the learned author of Chitty [257].

229.In HIH Casualty and General Insurance v. New Hampshire Insurance Co. [258], one of the issues facing the Court was whether a term in an original insurance policy had been incorporated by reference pursuant to a clause contained in re-insurance contract.  The underwriter argued that the term in the original insurance policy was not brought to its attention and relied on Interfoto. Rix L.J. made a number of observations[259] on the application of Interfoto to the facts of the case in front of him, some of which are of relevance to the present analysis:-

"209. … In the first place, Interfoto v. Stiletto was not concerned with the effectiveness of an incorporation clause in a signed contract, which is essentially a question of construction, but rather with a question of notice: the question of whether sufficient notice has been given to a person by means of a document which has not been signed so as to render that person contractually bound by the term or terms set out in that document.

211. Seventhly, I am not persuaded that the Interfoto test applies to a term that is merely unusual, at any rate in the context of a binding incorporation clause.  I acknowledge that some of the dicta in previous cases referred to in Interfoto v. Stiletto mention the case of a term that is “unusual”: but Interfoto v. Stiletto itself was concerned with a term which was not merely unusual, but very onerous, unreasonable and extortionate.  No one has suggested that those descriptions apply to cl. 8, however much it might increase the risk undertaken by an insurer.  The experts were not asked to opine on such a question: their reports make it clear that they were asked whether cl. 8 was an unusual clause.  Lord Justice Dillon spoke of a term which is “particularly onerous or unusual” (at p. 439A); and both he and Lord Justice Bingham went out of their way to stress the particular objections to the offending clause in that case."

230.In the first instance decision of Springwell, Gloster J. was also faced with an argument similar to that presented by Mr Coleman.  After quoting Interfoto and HIH, Gloster J. considered subsequent authorities with a view to decipher whether Interfoto could apply to signed contracts[260]:-

"584.   However, the point whether the principle could ever conceivably apply to signed contracts has not been conclusively determined.  In Amiri Flight Authority v BAE Systems,¹⁷⁴ Mance LJ left open the possibility that there might be some unusual types of contract to which the principle might apply, and referred to “... a provision of an extraneous or wholly unusual nature”; but these are very far removed from the present case.  Equally, in Ocean Chemical Transport Inc v Exnor Craggs,¹⁷⁵ Waller LJ seemed prepared to assume (although it did not matter for his judgment) that the principle might apply to a signed contract in “an extreme case”.  I also refer to Lacey’s Footwear v Bowler^l76.

585.    Whatever the precise scope of the principle, I conclude that it must, on any basis, have a very limited application to signed contracts between commercial parties operating in the financial markets.  I certainly do not consider that it applies in the circumstances of the present case, even though, as I have found, many, if not most, of the Relevant Provisions were not expressly drawn to Springwell’s attention.  In my judgment, none of the Relevant Provisions in any of the contractual documentation here could be characterised as “particularly onerous or unusual¹⁷⁷”, let alone “unreasonable” or “extortionate”.  Certainly Springwell had not adduced any market or expert evidence to support such a characterisation.

586.    What the Relevant Provisions did was to confirm, in various ways, that Chase was not providing investment advice to Springwell in its decision to purchase emerging markets investments, and was not assuming any liability for any advice which it did provide.  Nor were the Relevant Provisions unusual.  They were routine, standard form and normal provisions in contractual documents of this kind."

231.I am in respectful agreement with the observations of Gloster J.  In fact, I am prepared to go one step further.  In my view, I cannot see how the so-called Interfoto principle could apply to a contracting party who had signed and executed documents he knew to have contained contractual terms though he did not bother to read them before appending his signature signifying his agreement and acceptance.  To do so would infringe the Court of Final Appeal's decision in Ming Shiu Cheung by which I am obviously bound.  The situation would be wholly different if a party signed on documents not knowing that they contained contractual terms.  If he was misled into signing them, he would have relief basing on the law of misrepresentation.  If he was wholly mistaken as to the nature of the document he signed, he might have remedies under the law of mistake. In the present case, my finding[261] was that Madam Hao knew that the Account-opening Application Form; the Private Banking Agreement; the General Commercial Agreement; the Mortgage; and the Charge contained contractual terms governing the operation of the account of San-Hot (BVI) when established.  Madam Hao signed on the Account-opening Application Form which expressly incorporated all terms of the Private Banking Agreement by reference.  Mr Coleman argued that Madam Hao only signed on the Account-opening Application Form. It was not a case of "terms contained in signed contracts".  With respect, he did not carefully analyze the terms set out in the Appendices.  The first two items in Appendix 1 were contained in the Account-opening Form itself.  Items 3 to 7 and 9 of Appendix 1 were contained in the Private Banking Agreement which were incorporated by express reference as part of her written offer to DBS[262].  Only item 8 of Appendix 1 was not contained in documents signed by Madam Hao (whether directly or incorporated by reference).  Item 10 of Appendix 1 was again incorporated by express reference in the Facility Letter which Madam Hao signed on 28 September 2007 on behalf of San-Hot (BVI)[263].  As for items 1 and 2 of Appendix 2 and items 2 to 5 of Appendix 3, they were equally contained in the Private Banking Agreement. I agree with Rix L.J. in HIH that Interfoto was not applicable to situations of incorporation by express reference in signed contractual documents.  In any event, I agree with Gloster J. that these terms could not be classified as "very onerous" or "unreasonable and extortionate".  In conclusion, I reject Mr. Coleman's submissions basing on the case of Interfoto.

(V)  Control of Exemption Clauses Ordinance

232.In the Note For Defendant (8 May 2012), Mr Coleman sought to argue that the following clauses were exclusion or exemption clauses and were subject to the requirement of reasonableness under the Control of Exemption Clauses Ordinance (Cap. 71):-

(1)   Clause 5 (in particular 5.3) of the Account Opening Form[264];

(2)   Clause I[265]; Clause I21(i)[266], Clause I33(ii)[267] and Clause I29[268] of the Private Banking Agreement; and

(3)   Clause 23 of the Facilities Terms and Conditions[269].

233.In the first instance decision of Springwell, Gloster J. was again faced with similar arguments, albeit under the Unfair Contract Terms Act.  Her Ladyship said:-

"601.   I accept Mr Hapgood's submission that most of the provisions within the contractual documentation do not fall within the scope of this legislation. There is a clear distinction between clauses which exclude liability and clauses which define the terms upon which the parties are conducting their business; in other words, clauses which prevent an obligation from arising in the first place.  In Tudor Grange Holdings v Citibank, Sir Richard Scott, V-C stated that:

“The Act of 1977 is normally regarded as being aimed at exemption clauses in the strict sense, that is to say, clauses in a contract which aim to cut down prospective liability arising in the course of the performance of the contract in which the exemption clause is contained.”¹⁸²

602.    Thus terms which simply define the basis upon which services will be rendered and confirm the basis upon which parties are transacting business are not subject to section 2 of UCTA.  Otherwise, every contract which contains contractual terms defining the extent of each party’s obligations would have to satisfy the requirement of reasonableness.  A good example of this approach is to be seen in IFE v Goldman Sachs,¹⁸³ where the claimants sought to characterise all of the relevant terms, upon which reliance was placed, as exclusion clauses and thus open to challenge under the legislation.  However, Toulson J concluded that they should not be characterized as a notice excluding or restricting a liability for negligence, “but more fundamentally as going to the issue whether there was a relationship between the parties (amounting to or equivalent to that of professional advisor and advisee) such as to make it just and reasonable to impose the alleged duty of care”.  The Court of Appeal, as already indicated, took exactly the same approach, in characterising the clauses as determining the basis of the relationship between the parties.¹⁸⁴"

234.Upon a similar analysis, Clause I and Clause I21(i) of the Private Banking Agreement were, in my judgment terms defining the nature and scope of the services which DBS contracted to provide.  They were not exclusion clauses subject to Cap. 71.  Although Clause I33(ii) of the Private Banking Agreement was couched in terms of "DBS assumes no responsibility", it has to be read in conjunction with sub-clause (i) which again stressed the limited nature and scope of the services which DBS contracted to provide. In short, it merely emphasized that DBS was not assuming responsibility for services it did not contract to provide.  In my view, Clause 29 of the Private Banking Agreement was not different in nature.  It stressed the role of DBS as an agent of the customer in the operation of the account.  This flew from the fact that the only type of service that DBS contracted to offer was "execution-only". Accordingly, Clause 29 stressed that the risk of the transaction was on the customer (except when DBS acted as principal).  Clause 5.3 of the Account-opening Form was couched in terms of "DBS shall have no liability for any advice given or views expressed…".  Again, it has to be read in the context of the entire clause as well as other clauses in the Private Banking Agreement.  Clause 5 was expressing an agreement and declaration of the customer.  It began with confirming that the customer had read and understood the Risk Disclosure Statement (Section K of the Private Banking Agreement) and Section I of the Private Banking Agreement. Clause I, I21(i) and I33(ii) analyzed above were thus very much in the picture.  In particular, Clause I21[270] contemplated that in the course of providing "execution-only services", staff of DBS might engage in conversations with and provide materials and information to the customer which might be interpreted or categorize as "advice" (in the broad sense of the word). It then stressed that such activities were not within the services that DBS contracted to provide for which DBS would not assume any liability.  The customer was invited to take independent professional advice and to exercise its own judgment. In my view, Clause 5 (in particular 5.3) was doing no more than setting out the parameters of DBS's services. I do not regard it as an exemption clause.

235.In the end, only Clause 23 of the Facilities Terms and Conditions was a true exemption clause.  With respect, I cannot see how it could be suggested that Clause 23 was unreasonable. Under this clause, DBS would not escape liability if its actions fall within the descriptions of "negligence" or "willful misconduct". DBS was not seeking to avoid liabilities altogether.

236.Even if I were wrong to classify Clause 5 of the Account-opening Form and Clauses I, I21(i), I33(ii) and I29 not as exclusion clauses, I am of the view that they all satisfy the test of reasonableness.  In fact, I cannot find from Mr Coleman's submissions any specific reason why these clauses were suggested to be unreasonable other than a general statement that DBS and Madam Hao/San-Hot (BVI) did not have equal bargaining power. Mr Jat referred me to Gloster J.'s remarks on the issue of "reasonableness" in Springwell [271]. Mr Jat made further submissions as follow:-

(1)  It is clear that parties can reasonably contract on the basis that no liability is to be assumed for any communications or recommendations made, and then proceed to provide recommendations on a “no recourse” basis;[272]

(2)  The parties’ bargaining positions were equal.  Clearly, there were many private banks in Hong Kong to whom Ms Hao could have gone.  Indeed she had discussed with BOC in respect of the Xinxin IPO private placement, and had used that as leverage to get a better bargain from DBS;

(3)  It is reasonable for DBS to contract on the basis that it was only providing an “execution only” service, given that the Bank only charged on a “per transaction” basis, and no fee was charged on the provision of advice;

(4)  Ms Hao had had the opportunity, and as stated in, say, clause I21(i) of the Private Banking Agreement and clause 5.1 of the Mandate, to obtain legal or other professional advice regarding the terms of the contract or her investments;

(5)  Further, these terms are standard across the trade.  This was one of the reasons why Gloster J held (and the English Court of Appeal agreed) that the clauses in Springwell were reasonable.  The same was the case in Titan Steel.

237.I agree with Mr Jat’s submissions.  I find that none of the above clauses can be said to be unreasonable.

(VI)   Breach of Professional Duties

238.As a result, it is strictly unnecessary for me to analyze the evidence on the alleged breach of Professional Duties.  However, it is only for completeness sake that I shall now do so briefly.

239.Mr Coleman submitted that there was no attempt on DBS's part to understand Madam Hao's investment objectives and attitude to risk.  He challenged Santos' evidence that "…my impression of Ms Hao was that she was prepared and willing to take risks and accept losses in her investments. I considered her to be a medium high risk taking client with an interest in enhanced growth….  I was of the impression that she was an aggressive investor."[273].  I shall briefly deal with the evidence on Madam Hao's risk profile.

240.I have previously dealt with the evidence relating to the making of the Citibank Revised Personal Investment Risk Profile in April 2007[274].  This document[275] contained no information about the personal and business background of Madam Hao. As to her investment experience and objective, she was described as follows:-

(1)   her investment experience was best described as extensive.  She was an active and experienced investor and would prefer to make her own investment decisions;

(2)  she had experience with mutual funds; bonds; forex tradings; structured notes; currency linked deposits; property investment; insurance;  and non-transferable forward forex contract;

(3)  her investment objective was described as "Moderate" meaning that she preferred a balanced approach and would like to invest in investments with both growth and income characteristics.  She can accept negative fluctuations for periods of 2-3 years in order to earn returns considerably higher than time deposits;

(4)  she was willing to take a lot more risk with some of her money; and

(5)  the money she would like to invest was more than HK$5 million which constituted less than 50% of her wealth.

241.After Madam Hao signed and submitted the Account Opening Forms for herself and San-Hot HK on 11 July 2007, and as part of the account opening procedure, a "Private Banking Full Personal Profile" ("personal profile") was prepared for Madam Hao.  This was handled by Jason.  In the personal profile of Madam Hao[276], under the "Occupation" section, she was first described as a director of oil-related equipment company.  Under the "Sources of Wealth" section, she was described as the 100% owner of a private trading company (which was not named).  The unnamed company was a supplier of nitrogen producing and pressure control system.  It was said to have annual sales volume of HK$18 million and net profit of HK$3.6 million.  She was also described as having a net worth of HK$93 million odd (out of which HK$60 million was liquid cash; HK$20 million was property; HK$8 million was in equities and HK$5.6 million in others).  Madam Hao's personal profile was updated on 8 August 2007[277].  It was stated that Madam Hao was also a director and general manager of San-Hot HK with estimated annual sales of US$10 million and net income of US$1 million.  This information about San-Hot HK was passed from Madam Hao to Jason during a taped between them on 3 August 2007[278].  The unnamed company mentioned in the earlier version of personal profile was here named Tianjin Hi-Tech Enterprises Co Ltd ("Tianjin").  She was said to be the sole owner and executive director of Tianjian.  Madam Hao claimed that she had no ownership interest in Tianjin which was only a business partner of San-Hot HK.  She admitted having a name card describing her as a director of Tianjian and she gave one to Santos on 11 July 2007.  She said that her directorship in Tianjian was arranged only for convenience in business negotiations and did not indicate her ownership of any interest in the company.  She admitted that she might have mentioned the name of Tianjin when Santos asked about her business activities, but she definitely would have told Santos that Tianjin was a mere business partner of San-Hot HK.  According to Santos[279], Madam Hao told him (whilst at Citibank) that she was the owner of Tianjian.  At the 11 July 2007 meeting, she even agreed to make arrangement for Santos to visit the office of Tianjian.  She did not say that Tianjian was merely a business partner or that she had no interest in it.  I do not believe her evidence and prefer the evidence of Santos.  In the Account Opening Form[280] which she signed, she was described as "Self-employed" and the company mentioned was Tianjin.  There was no reason for Santos and Jason to fake this information.  There was no other evidence adduced by Madam Hao to prove that she had no interest in Tianjian.  That remained her bare assertion which I reject in view of her poor credibility.  The corporate profile then set out further information about Tianjin which Jason admittedly derived from Tianjian's company website.  In this update, Madam Hao was said to have 11 years experience in stocks; 6 years in mutual funds, 11 years in forex; and 7 years in bonds.  Under "Risk Tolerance Level", Madam Hao was described as having moderate risk tolerance level.  It was further sated that she anticipated mainly for long term investment.  On her estimated net worth, it was stated as "over HK$93.6 million odd gained money from business and investment dealing. According to client, of this HK$93.6 million, HK$20 million refers to mortgage-free residential properties owned by client in China".  Under the section on "Time Horizon/Financial Security", her investment horizon was stated to be more than 3 years.  Under the section on "Risk Tolerance/Holding Power", Madam Hao was again described as willing to tolerate moderate risk and that she had high ability to stick with a given investment as its value fluctuates.  Under the "Return Expectations" section, Madam Hao was stated to expect moderate return.  Her motivation was described as "Growth of investible assets for future needs".  She was stated to have little knowledge in derivatives although she had experience and general knowledge in currencies; bonds, equities and others, such as mutual funds.  In the end, Madam Hao's profile was classified as "Medium-High" in respect of financial security; risk tolerance; return expectation; experience and knowledge.  She was also classified as "High" in respect of time horizon and holding power.

242.In the "Private Banking Account Profile for Corporate Account" ("corporate profile") of San-Hot HK made on 3 August 2007[281], it was described as a company set up in Hong Kong in 2003 for trading oil-drilling equipment. Its shareholder was Madam Hao and her husband Mr Liu Ji Ming holding 70% and 30% respectively.  It was stated that Mr Liu merely held the shares as nominee of Madam Hao who was the ultimate sole beneficial owner.  This information could only have come from Madam Hao.  Under the section of "Purpose and reasons for opening account", it read:-

"Client opens this account for investment and wealth management.  Client is intended to apply credit facilities for security trading.  Although this company is an operating company, this a/c serves for the purpose of using surplus funds for investment purpose only and is not for the company's daily operation or commercial transactions.  Ms Hao Ting is not in the process of setting up a BVI company through our DBS Trust department to be used as the primary PB account with us to make investment.  Therefore, this account is likely to be a transitional account before the BVI company is set up and opens a DBS PB account because client would like to make investment earlier while the set up of the BVI may take a while.  The investment held under this account will likely be fully or partially transferred to the new BVI company's DBS PB account ultimately."

The descriptions of investment experience/knowledge; risk tolerance/holding power; return expectations and overall profile were essentially similar to those described in the personal profile of Madam Hao.

243.The corporate profile of San-Hot BVI was made on 27 August 2007[282].  It stated that San-Hot BVI was set up for investment holding purpose and was not an operating company.  The purpose of opening account was for investment and wealth management purpose using Ms Hao's surplus funds from her business.  Again, information about investment experience/knowledge; risk tolerance/holding power; return expectations and overall profile were essentially similar to those described in the personal profile of Madam Hao.

244.In cross-examination of Santos[283], he admitted that information about Madam Hao's estimated net worth came from the best understanding he accumulated from the time he first came to know Madam Hao up to the time he passed the information to Jason.  He accepted that they were his estimates and not based on what Madam Hao said at the 11 July 2007 meeting.  Santos also accepted that the descriptions about risk tolerance, return expectations or experience/knowledge were filled in without the benefit of anything said at the 11 July 2007 meeting.  They were based on the feeling he and Jason had about Madam Hao's expectation of return, risk tolerance, and knowledge/experience in investment products.  Santos said that such feeling he had about Madam Hao was based on his previous contacts with Madam Hao whilst at Citibank.  In re-examination, Santos clarified that information about Madam Hao's experience/knowledge on investment products were based on information given by Madam Hao to him at Citibank which he had no reason to doubt[284].  Jason was not cross-examined by Mr Coleman on his preparation of Madam Hao's personal profile save and except on one matter relating to information concerning Tianjian[285].

245.Based on this evidence, Mr Coleman argued at closing that there was no attempt on DBS's part to understand Madam Hao's investment objectives and attitude to risk.  Mr Jat submitted that the basic information was derived from Santos' dealings with Madam Hao albeit largely during his days at Citibank.  Assessments in the personal profile inevitably involved estimates and judgment.  Their purpose was to provide a general understanding that Madam Hao was a client of significant worth and investment experience.  In any event, Mr Jat pointed out that Madam Hao had adduced no evidence about her net worth as of July 2007.  In fact as I have found, Madam Hao attempted to hide her interest in Tianjian.  Santos was entitled to take into account the worth of Madam Hao's interests in San-Hot HK and Tianjian in the estimation of her net worth.  I agree with the submissions of Mr Jat.  I do not find that Santos' estimation was materially inaccurate.  Accordingly, I do not find that the grant of credit facilities, based on Santos' estimation, was unreasonable.  Mr Coleman also pointed out the discrepancies between the 2007 Citibank Risk Profile and DBS's personal profile of Madam Hao in respect of her investment experience.  I note the discrepancies which may reflect that Santos' recollection of the information might not have been entirely accurate. However, I am of the view that Santos is an honest witness.  I find nothing sinister.  It was probably due to Santos not having the 2007 Citibank Risk Profile in front of him when he and Jason prepared the DBS personal profile.  Since 2006, Madam Hao's investment knowledge and experience as well as investment objectives had moved on as seen in the April 2007 revision at Citibank.  It was also revealed in the various taped conversations that Madam Hao had been engaging in trading of PRC and Hong Kong securities, especially in relation to PRC companies.  There were also repeated references to Madam Hao feeling unhappy about the small returns she derived from mutual funds.  More importantly, Madam Hao was intending to subscribe very substantially in the IPO of Xinxin which, by itself, also involved considerable risk.  It also indicated that Madam Hao had considerable resources at her disposal which she was prepared to utilize in volatile investment activities.  All-in-all, I do not find that the classification of Madam Hao (as of July to September 2007) as "Medium-High" in respect of financial security; risk tolerance; return expectation; experience/knowledge and her classification as "High" in respect of time horizon and holding power were in any way inaccurate.  As time progressed, it could be seen from the taped conversations that Madam Hao's appetite for profits and the corresponding tolerance for risk increased tremendously.  I accept the evidence of Santos and his description of Madam Hao as an aggressive investor.  In the defendants' pleaded case[286], it was originally argued that the conduct of Santos was in breach of DBS's internal guidelines requiring a RM to conduct a "Know your client" procedure.  In his Opening Submissions, Mr Jat pointed out that this allegation added nothing.  He submitted that DBS's liability must be judged by what is required by law and transpired between itself and the customer.  It cannot be liable because it has imposed a stricter set of guidelines on itself, just as it cannot escape liability because it has adopted lax internal guidelines.  I agree with his submissions.  Santos and Jason might not have followed the guidelines to their letters.  However, it does not mean that they had not exercised reasonable skill and care in compiling the personal and corporate profiles.  In any event, this alleged breach of internal guideline was not further relied upon in Mr Coleman's Closing Submissions[287].  In the circumstances, I find that DBS had not failed to make reasonable efforts to familiarize itself with the defendants' financial situation, needs, experience and objective.

246.As seen from my findings of fact set out in section F of this Judgment, I also find that staff of DBS had reasonably and sufficiently explained the nature and risks of KODAs and AFPCs to Madam Hao and hence San-Hot BVI. I do not find any breach of duty as alleged.  For the same reason, I find that information about KODAs and AFPCs provided by staff of DBS to Madam Hao and San-Hot BVI were not in any way inaccurate or misleading.  There was also no breach of duty on this limb.

247.At the introductory section of Mr Coleman's Closing Submissions, he sought to argue that the defendants were wrongly regarded as Professional Investors.  It was however not followed up by detail submissions.  Mr Jat responded by saying that there was no substance in this complaint.  He referred me to section 15.2 of the Code which read:-

"Professional Investors

There are 2 categories of Professional Investors:-

A.  A person falling under paragraphs (a) to (i) of the definition of "professional investor" in Part 1 of Schedule 1 to the SFO.

B.  A person falling under paragraph (j) of the definition of "professional investor" in Part 1 of Schedule 1 to the SFO."

The definition of Professional Investor under Part 1 of Schedule 1 of the SFO reads:-

"professional investor means:

(j)  any person of a class which is prescribed by rules made under section 397 of this Ordinance for the purposes of this paragraph as within the meaning of this definition for the purposes of the provisions of this Ordinance…"

This brings us to the relevant rules which are the Securities and Futures (Professional Investor) Rules. Section 3 reads:-

"3.  Persons prescribed as professional investors

For the purposes of paragraph (j) of the definition of "professional investor" in section 1 of Part 1 of Schedule 1 to the Ordinance, the following persons are prescribed as within the meaning of that definition for the purposes of any provision of the Ordinance …

(b)  any individual, either alone or with any of his associates on a joint account, having a portfolio of no less than $8 million or its equivalent in any foreign currency …

(d)   any corporation the sole business of which is to hold investments and which is wholly owned by an individual who, either alone or with any of his associates on a joint account, falls within the description in paragraph (b)"

Mr Jat submitted that Madam Hao and San-Hot BVI clearly satisfied the above requirements.  Santo's evidence was that it was not necessary to have assets of no less than HK$8 million transferred to DBS before it would process a customer's application for the status of professional investor.  If a customer provided them with statements, including statements from other banks, to show that he had funds of at least HK$8 million, DBS would help the customer to process the Professional Investor Declaration.  It was never suggested to Santos and Jason that at the time when the various Professional Investor Declarations were processed by DBS, Madam Hao had not provided adequate proof of having a portfolio of no less than HK$8 million.  I accept Mr Jat's submissions. There is no substance in this complaint.

248.Mr. Coleman argued that DBS's internal risk rating of KODAs as bearing the same risk as the underlying share was inappropriate.  DBS rated the risk of KODAs as "3" out of a scale of "1 to 5".  In the cross-examination of Rocky, Mr Coleman asked for his opinion as to the appropriateness of DBS's rating[288]:-

"Q.   I take it from one of your earlier answers that you were not involved in the risk rating that was given to the KODA product by DBS?

A.  Right.

Q.  In 2007, the KODAs were given a risk rating of 3 by DBS, 3 on a scale of 1-5.

A.  Talking about Hong Kong stocks, except HSBC, which HSBC gets the rating of 2, all other Hong Kong stocks have a rating of 3.

Q.  And that rating is the same as the rating of the underlying equity?

A.  Right…

MR COLEMAN:  Not at all, my Lord.  It’s always helpful. 

So whether I choose to buy shares on a limited basis just today at the market price, or whether I choose to buy shares at a set price in a set number every day for possibly the next year, the bank thinks that the risk of those two activities is the same; is that right?

A.    At that time, I did not take part in defining the risk ratings, at that time.  So to your question, I can’t answer it on behalf of the bank.

Q.   All right.  Imagine we’re not in court. We’re in a bar.  I don’t know you work for DBS, but I know you are an investment adviser.  I ask you your personal view as to whether those two activities are the same degree of risk.  What’s your answer?

MR JAT:  My Lord, is this witness being asked to give an expert opinion?

HIS LORDSIDP:  Opinion evidence.

MR COLEMAN:  No, I’m asking him his personal view; the kind of personal view he says he expressed to his clients.

HIS LORDSIDP:  He did not say he expressed comparison of risk to a client, did he?  Mr Coleman, can you address me to any particular paragraph of the witness statement that you think your question can be justified on?

MR COLEMAN:  Yes.  Paragraph  9.  We looked at it earlier.

HIS LORDSHIP:  Yes.

MR COLEMAN:  I’m a customer.  If I asked him the question,

“If I buy 100 shares today with my own money, is that the same risk as agreeing to buy 100 shares every day for the next year at a particular price?” --

HIS LORDSHIP:  You see, the problem I think Mr Jat is objecting on is as to relevance of his opinion evidence, whether it is admissible at all. Now, first of all, if we look at paragraph 9, he didn’t suggest specifically that he had given any opinion to any client as to the rating of risk relevant to KODA.  That’s the first thing.  I cannot get from this paragraph --

MR COLEMAN:  I agree.

HIS LORDSHIP:  The second thing is, I cannot get from any other paragraph of his witness statement that he was in fact asked about this question.  So the problem I haveis, whilst you can make submission, definitely, on the basis of our understanding of KODA, and we can take judicial notice of commonsense to be applied in the circumstances, the difficulty I have is whether this witness should be asked for his opinion on such matters when there is no such admissible basis.

MR COLEMAN:  Perhaps I can try to get at it this way, my Lord.

HIS LORDSHIP:  Try.  Try.

MR COLEMAN:  As a regulated individual, you are required to comply with the Code of Conduct of the SFC, aren't you?

A.  Yes.

HIS LORDSHIP:  Can you give a reference to the Code of Conduct so I can take a look?

MR COLEMAN:  It’s number 6 in the plaintiffs authorities.  I’m happy to show you a copy of it, if you want at any stage, but I’m just going to ask you general questions.  One of the things that the Code requires is that products sold to customers are matched for suitability to that customer.

A.  Right.

Q.   That means, doesn’t it, that for a customer who expresses only a medium risk tolerance, you should not solicit business or recommend or advise that customer toenter into high-risk investment?

A.  Talking about client suitability, that’s the job of relationship managers.  It’s for them to decide.  Before 2007, our IA team could not access information on clients.  Usually relationship managers will bring forward their investment portfolio or profile, namely clients’ investment portfolio, and bring these things to us to seek our opinions.

On top of that, the main duty of IA is not to market.  The main duty of IA is to provide additional information on the product or the market.

Q.  Does that mean that the main duty is to provide additional information in relation to a product which the relationship manager has already decided is suitable for the client?

A.  Right.

HIS LORDSHIP:  Mr Cheung, can I ask you this.  Under the Code of Conduct, a licensed or registered person should act in the best interests of his client in providing services or recommending the services of an affiliated person to his client. Is that right?  Do you know that?

A.  Yes.

HIS LORDSHIP:  My question to you is this.  You, as a registered person, if the bank, your bank, your employer, rates a product as risk number 3, which you personally disagree with the rating, you think it's much riskier than 3, would you recommend it to your client or to the RM who would forward the recommendation to the client?

A.  If such a scenario arises, the first thing I will do is to give my opinion to my own bank.  Secondly, if the bank does not accept it, then I will consider whether this will risk my own licence.

A.  (In English) I’d probably quit.

HIS LORDSHIP:  Mr Cheung, we know that it did not happen in 2007 in relation to the KOPA, right, sold by DBS.  It was on the shelf.  It was recommended by RM to individual clients.  It was even rather hot.  So what you told us about the difficulty that might arise did not arise.  Does it mean that you did not disagree with the bank’s rating?

A.  My Lord, actually I had considered this.  Before this crisis, at the beginning, the introduction of KODA, well, at that stage, it was simply used to purchase shares.  When we are talking about the risk of the product, we are considering whether you are considering to buy -- you are buying things with the same amount of money.  When I purchase shares, for example -- just take an example -- I buy 100 shares of HSBC, and in another scenario I buy 100 shares of HSBC but I divide the purchase into 10 times, and also on top of that every time, every occasion I buy the shares, the price is lower than the spot price, then it’s difficult to decide which risk is greater.

Though in that year I did not take a decision in relation to the risk level, I did think about this matter for the sake of my career.

MR COLEMAN:  The question his Lordship asked you was whether you did not disagree with the bank’s rating; I suppose, did you agree with the bank’s rating?

The answer you gave said that you thought about it, but you didn’t make a decision.

A.  Because earlier on, just now I have given you a scenario.  You can’t decide whether the risk is greater than that.  And so I accepted it.

HIS LORDSHIP:  So do I understand it that you make the assessment, and based on the scenario and the theory that you had in mind, you had no reason to disagree with the bank’s rating and therefore you accepted it?  Is that what summarises your evidence?

A.  (In English)  Yes.

HISLORDSHIP:  Right.  That’s the first part.  And the second part, to see if I understand it correctly.  What you mean is when you assess or compare risks of two different scenarios, you must compare apple to apple.

A.  (Witness nods).

HIS LORDSHIP:  That is, for example, if you are comparing risk of entering into one KODA, which, if the contract comes to an end, involves the buying of 100 shares throughout the period of one year, the total number of shares to be acquired at the end of the contract would be 100 shares, then you have to compare risk of buying 100 shares today in the market. That is how you compare risk.  You can’t compare otherwise.  Do I understand it correctly? 

A.  Right.

HIS LORDSHIP:  Thank you.  Yes, Mr Coleman."

249.No expert evidence has been adduced to either confirm or challenge DBS's risk rating of KODAs. With his background, knowledge and experience in financial products and derivatives, Rocky was unable to disagree with DBS's risk rating. I accept him as an honest witness and his evidence as set out above. Mr. Coleman relied on a letter from the Hong Kong Monetary Authority to the chief executives of all authorized institutions dated 22 December 2010[289]. The said letter reads:-

"Selling of Accumulators

Triggered by recent market conditions, there have been signs of renewed activities in AI's selling of accumulators, including stock accumulators and foreign currency accumulators, to investors.  I am therefore writing to remind authorized institutions (Ais) to ensure compliance with the relevant regulatory requirements when selling accumulators to customers.

In general, accumulators are derivative products associated with significant investment risks.  AIs should adopt a cautious selling approach and ensure that accumulators are only sold to customers who can fully understand the structure and risks, have the risk appetite for acquiring the underlying assets (e.g. stock, foreign currency) with leverage (where applicable), and have ability to withstand the potential financial loss.  When making a recommendation or solicitation to a customer in respect of accumulators, AIs should ensure that the suitability of the recommendation or solicitation for the customer is reasonable in all the circumstances."  [emphasis added]

The Monetary Authority was, in the letter, making a general statement as to the risk involved in accumulators.  As to how significant the risk is, it would depend on a myriad of factors peculiar to any given investor.  In particular, his financial resources; cash flow condition; holding power; and the amount that he chooses to transact within a certain time horizon all make the difference.  The prevailing market conditions and economic environment are also important factors.  The discount from spot rate at which a customer is required to take up shares in any given contract would also significantly affect the overall risk involved.  In my view, it is impossible to conclude, basing on this statement alone made by the Monetary Authority some 3 years after the event, that DBS's risk rating of KODAs in 2007 was unreasonable. If I were invited to draw such conclusion, I would certainly refuse to do so without the benefit of properly presented expert evidence.  I would also require comparative evidence about risk ratings by other private banks and/or recognized rating institutions at the material time.  Without the assistance of such evidence, I am unable to draw any conclusion as to whether DBS's risk rating of KODAs in 2007 was unreasonable in all the circumstances.

250.Mr. Jat also referred me to Secretary for Trade and Industry v. Bairstow[290].  He submitted that views of a third party on issues in the case are not admissible at all. In Bairstow, even the finding of a civil court was found not admissible as evidence of the fact so found in subsequent legal proceedings in which no estoppel per rem judicatem could arise.  In any event, Mr Jat submitted that they were wholly unhelpful given that they were only made 3 years after the material event.  I accept Mr Jat's submissions.  I find that the evidence does not establish a breach of duty on the basis that DBS had rated the risks involved in KODAs as "3" out of a scale of "1 to 5" in 2007.

251.On the alleged duty to "ensure suitability", Mr Jat submitted that it was difficult to see what precisely was meant by "suitable".  It was also difficult to see why accumulator contract, as a product, was not suitable for Madam Hao or San-Hot BVI.  Mr Jat made the following points:-

(1)  Madam Hao was a sophisticated businesswoman who could choose which shares to invest herself;

(2)  accumulator contracts are not difficult to understand, particularly to persons with the education, life experience, business experience and investment experience of Madam Hao.  Adequate explanations on the nature and risks involved had been fairly presented to Madam Hao.  She obviously understood them and raised no query;

(3)  The evidence shows that Madam Hao had an appetite for risk;

(4)  The evidence also shows that Madam Hao took risky investment decisions on her own motion, and sometimes against recommendations to the contrary by staff of DBS; and

(5)  Madam Hao's suggestion that she had told DBS that her funds were to be available for her business was plainly untrue.  She had purchased numerous funds and equities.  She also knew that her assets were pledged to DBS to finance her investments.  That was how she obtained her credit line "額度".

252.I accept Mr Jat's submissions.  In fact, a lot of the points have been featured in my earlier findings of fact.  I am unable to find that accumulator contract, as a product, was unsuitable for Madam Hao/San Hot BVI at all.  Madam Hao clearly had very substantial financial resources at the material time.  If she had chosen to transact with moderation at any given time horizon, she could maintain considerable holding power.  If she had not developed her own tactic of "following the crowd", she could have maintained a healthy amount of open contracts at any given time and sustained her initial success or at least contained her losses to tolerable limits.  If she had not been so greedy, she could also have accepted DBS's repeated suggestions of disposing of the accumulated shares to lock-in her profits and improve her cash flow.  She did not have to stretch her credit line to its limit.  In the ultimate analysis, it is my view that Madam Hao failed not because she had been introduced a wrong investment product.  She failed because of her imprudent and over-confident utilization of her credit line given her own bullish view about the market.  This resulted from her independent judgment and decision.  Neither the defendants' pleaded case nor the submissions of Mr  Coleman throughout suggested any breach of duty of the part of DBS not to warn Madam Hao/San Hot BVI against over-stretching her financial capability.  In any event, on the evidence I find that DBS had not assumed such onerous responsibility. Furthermore, as evidenced by contemporaneous taped conversations, there were numerous occasions on which staff of DBS made tacit suggestions of "taking profit"; "spreading her risk by diversifying into other products"; and "choosing a lower transaction amount".  When Madam Hao made her own independent decisions despite such tacit suggestions, there was simply no duty on the part of DBS to deter her from so doing.  In conclusion, I find that DBS had not breached any of the alleged Professional Duties even if they existed.

J.  Final Conclusion

253.For the above reasons, I find for the plaintiff and reject all defences and counterclaim. I enter judgment in favour of the plaintiff in the sums of HK$92,648,489.83 and Japanese ¥23,545,784.77.  Counsel have not made submissions on the amount of contractual interest chargeable from 3 November 2008 to date of Judgment.  I direct that parties shall endeavour to agree upon a schedule of interest chargeable during the said period which can then be included in the formal Judgment.  For that purpose, I grant liberty to apply.  I dismiss the defendants’ counterclaim with costs. I make an order nisi that the defendants shall pay to the plaintiff costs of the action and the counterclaim to be taxed (if not agreed) on party-and-party basis with certificate for two counsel. The order nisi shall become absolute if no application for variation is made within 14 days of the delivery of this Judgment.

Appendix 1[291]

1.  Clause 5 of the “Mandate For Limited Company Account” in the Account Opening Form in respect of the 1^st Defendant provides that the 1^st Defendant had resolved:

That the Company hereby agrees and declares the Bank as follows:

5.1  To confirm that has read and understood the Risk Disclosure Statement set out in Section K of the Master Agreement and the Trading Agreement related Terms and Conditions in Section I of the Master Agreement that apply to Securities Accounts, and that has been invited to ask questions on the Risk Disclosure Statement and take independent professional advice if wishes.

5.2  To declare and acknowledge that in entering into any Transaction or Foreign Exchange Contract, it is based on the Company’s judgment and is independent of any advice or recommendation of the Bank.

5.3  To accept the risks involved in underlying obligations under any Transaction or Foreign Exchange Contract.  The Bank shall have no liability for any advice given or views expressed regardless of whether such an advice is give or views expressed at the Company’s request.

5.4  To undertake that prior to instructing the Bank to enter into any derivative instructions and/or warrants and/or other Transaction, the Company has read and fully understood:

(i)  Any term sheets and all annexures and supplements pertaining to the Transaction;

(ii)  The nature of the Transaction and the terms and conditions governing the said Transaction;

(iii)   The Bank’s margin/overdraft requirements, if applicable.

2.  Clause 6 of the “Mandate For Limited Company Account” in the Account Opening Form in respect of the 1^st Defendant provides that the 1^st Defendant had resolved that:

That the Company hereby acknowledges with the Bank as follows:

6.1  [It] [h]as received, read and fully understood the attached Master Agreement [ie the Private Bank Agreement] which comprises:

[A] General Terms and Conditions applicable to Account; [B] Hong Kong Dollar Current Account; [C] Statement Savings Account (Hong Kong Dollar/Multi-Currency); [D] Passbook Savings Account (Hong Kong Dollar/Multi-Currency); [E] Time Deposit Account; [F] Loan Services; [G] Service Channels (1) Phone Banking Services (2) Automatic Teller Machine (ATM) Card; [H] Remote Channel Authority and Indemnity; [I] Trading Agreement related Terms and Conditions; [J] Structured Deposits related Terms and Conditions; [K] Risk Disclosure Statement.

6.2  It agrees that the operation of the Accounts will be governed by the Master Agreement, as may be varied from time to time.

3.  Clause I of the Private Banking Agreement provides that:

“The Securities Account is provided only as a transaction execution service.  No investment advice is offered to Customers.”

4.  Clause I4(ii) of the Private Banking Agreement provides that:

“…neither the Bank, its nominee, nor its custodian shall have trust or similar obligations in respect of the Securities or Other Investments.”

5.  Clause I21 of the Private Banking Agreement provides that:

(i)  Any information provided is for reference only and no reliance should be placed on any conversations that take place with the Bank’s personnel.  Customers should seek their own investment advice from a suitably qualified adviser.  No investment advice is offered to Customers.

(ii)  Subject to paragraph I21(iv), the Bank may from time to time make available to the Customer for inspection or collection at its designated office materials and information in respect of the Securities and/or Other Investments.  The Customer fully understands and agrees:

(a)  that the Bank is under no obligation to make such materials or information available to the Customer or to provide the Customer with any financial, material or investment information or suggestion;

(b)  if the Bank so acts, that the Bank is not providing such materials, information or suggestion as a required service to the Customer;

(c)  that the investment is made safely upon the Customer’s judgment and at the Customer’s discretion notwithstanding any such materials, information or suggestion the Bank may have provided to the Customer;

(d)  that the Bank assumes no responsibility for the accuracy and completeness of any such materials or information provided by the Bank; and

(e)  that the Bank assumes no responsibility for the performance or outcome of any investment made by the Customer after receipt of such materials or information and any risk associated with any losses suffered as a result of the Customer entering into any investment are for the account for the Customer.

(iii)   If the Customer wishes to raise any questions or seek further details in respect of such materials or information provided, the Customer may address such questions to the Bank and the Bank may (but is not bound to) use all reasons and endeavours to obtain a response to such questions from the appropriate institution concerned.

(iv)   The Bank shall upon request provide the Customer with produce specifications, any prospectus or other offering document covering derivate products, including future contracts or options.  Where the Bank so acts, the Customer fully understands and agrees Sub-paragraphs I21(b) to (e).

(v)  The Customer acknowledges and agrees that the Customer will make an independent analysis and decision with respect to all dealings in the Trading Assets or in other investments.

6.  Clause I32 of the Private Banking Agreement provides that:

The Customer represents and warrants to the Bank as of the date hereof and at all times during the term of this Agreement that:

[…]

(d)  the Customer has read the terms of this Agreement, the Risk Disclosure Statement and other Conditions Precedent Documents (or the contents of this Agreement and the Conditions Precedent Documents have been fully explained in a language which the Customer understands) and the Customer accepts these Terms that it has adequate financial expertise and resources to comply with its terms.

7.  Clause I33 of the Private Banking Agreement provides that:

The Customer understands and acknowledges that although the Bank may contact the Customer with regard to investment opportunities which may be of interest to the Customer:

(i)  the Bank is not required to render any advice to the Customer for the Customer’s trading or investment decisions;

(ii)  the Customer will not rely on any advice given by the Bank and will rely solely on its own judgment in making investment and/or trading decisions and the Bank assumes no responsibility for the performance or outcome of any investments made by the Customer, relying on the financial, investment information, suggestions or recommendations communicated by the Bank, its affiliates or representatives;

(iii)   any advice, recommendations or information communicated to the Customer by the Bank, although based upon information obtained from sources believed by the Bank to be reliable, may be incomplete, may be inaccurate, may not have been verified and may be changed without notice to the Customer;

(iv)   the Customer has read (or had been explained to) the Risk Disclosure Statement and is aware of the risks of trading Securities and Other Investments and in foreign exchange transactions and is financially able to bear any risks associated therewith; and

(v)  the Customer is aware of the risks of foreign exchange trading and is financially able to bear any risks associated therewith.

8.  Clause 4 of the Confirmations in respect of the Equity KODAs and Clause 4 of all the Confirmations in respect of the Accumulating Par Forward Contracts provide that:

Each party represents to the other party on the date n which the Transaction is entered into the … (7) it is acting for its own account, it has made its own independent decision to enter into Transaction and as to whether the Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary, it is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into the Transaction; it being understood that information and explanations related to the terms and conditions of the Transaction shall not be considered investment advice or a recommendation to enter into the Transaction, and it has not received from the other party any assurance or guarantee as to the expected results of the Transaction, and it has not received from the other party any assurance or guarantee as to the expected results of the Transaction; (8) it is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice) and understands and accepts, the terms, conditions and risks of the Transaction and it is also capable of assuming, and assumes the financial and other risks of the Transaction; and (9) the other party is not acting as a fiduciary or an adviser for it in respect of the Transaction.

9.  Clause I29 of the Private Banking Agreement provides that:

All actions which the Bank may take or cause or omit to take or cause in connection with the Account, and the services under this Agreement are solely at the Customer’s account and risk (excepting, for the avoidance of doubt, Transactions or Foreign Exchange Contracts to the extent the Bank is acting as principal).

10   Clause 23 of the Facilities Terms and Conditions provides that:

The Bank, its agent and correspondent shall not be liable to the Borrower for any action taken or not taken by them unless directly caused by their negligence or wilful misconduct.

Appendix 2

1.  Clause I24 of the Private Banking Agreement provides that:

(i)  […] If the Bank agrees with the Customer to effect a Transaction or Foreign Exchange Contract on a margin basis the Customer shall charge assets acceptable to the Bank and maintain with the Bank a margin of the percentage notified by the Bank from time to time of the current market value from time to time of the investment or Foreign Exchange Contract held or to be purchased pursuant to the Transaction or Foreign Exchange Contract and/or the amount as determined by the Bank of the aggregate liability of the Customer under the Transaction or Foreign Exchange Contract involving an open position or contingent liability.

[…]

(iii)   The margin required by the Bank ma exceed any margin requirements prescribed by any exchange or clearing house and may be changed by the Bank from time to time without prior consultation with the Customer.  The Bank may demand from the Customer from time to time such additional margin as the Bank may consider fit.

(iv)   Margin calls must be met immediately or within such time limit as may be specified by the Bank from time to time.  If the Customer shall fail to comply with any margin call by the end of a business day on which such demand is due, the Bank may effect any Transaction at the Customer’s expense without notice or reference to the Customer for the purpose of protecting the Bank’s position (including closing out any short sold position of the Customer) and may take such other action pursuant to this Paragraph I24 and/or Paragraph I30 and I31 as the Bank in its absolute discretion may determine.  Any sums due to the Bank as a result of closing out any short sold position of the Customer will be payable by the Customer to the Bank on demand.

2.  Clause K3 of the Private Banking Agreement (being part of the Risk Disclosure Statement) provides that:

The risk of loss in financing a transaction by deposit of collateral is significant.  You may sustain losses in excess of cash and an other assets deposited as collateral with the Bank.  You should fully understand the terms and conditions in the Agreement that are applicable to any Transaction to be effected on margin or overdraft or which involves a contingent liability (set out in Paragraphs I23 and I24).  In particular, you should be aware that:

(i)  the Bank may call upon you at short notice to provide additional margin as determined by the Bank in its sole discretion.  This amount may be substantial and may exceed the amount originally committed as initial margin;

(ii)  if the required margin deposits or interest payments are not made within the prescribed time, the Bank may realize such part or all of the margin as the Bank deems necessary to satisfy your liabilities without notice to or consent from you (or other party providing collateral); and/or

(iii)   the Bank may close out, liquidate, set off, realize or otherwise deal with any or all outstanding Transactions (notwithstanding that any of the same has not yet matured), (whether or not any additional loss may thereby arise).  In the event a Transaction is liquidated at a loss and the loss exceeds the aggregate margin deposited, you will remain liable for any resulting deficit in your account and interest charge on your account.

You should therefore carefully consider whether such a financing arrangement is suitable in light of your financial position and investment objectives.

3.  Paragraph K4 of the Private Banking Agreement (being part of the Risk Disclosure Statement) provides that:

“Leverage may be by way of overdraft or loans, trading on margin or embedded within an instrument such as structured note.  A high degree of leverage or gearing for example, resulting from a relatively small margin requirement, can work against you as well as in your favour.  The use of leverage may result in large losses as well as gains.  It also means that relatively small market movements will have a proportionately larger impact in the value of your investment: this may work against you as well as in your favour.”

Paragraph K16(i) of the Private Banking Agreement (being part of the Risk Disclosure Statement) provides that:

“The risk of loss in trading derivatives is substantial.  In some circumstances, you may sustain losses in excess of your initial margin funds… You may be called upon at short notice to deposit additional margin funds.  If the required funds are not provided within the prescribed time, your position may be liquidated.  You will remain liable for any resulting deficit in your account.  You should therefore carefully study and understand derivatives before you trade and carefully consider whether such trading is suitable in light of your own financial position and investment objectives.”

Appendix 3

1.  Under “Remote Channel” in the Account Opening Form, the 1^st Defendant has checked the box against the following:

“Yes, the Company wishes to be able to give ‘Remote Instructions’ which shall include telephone, facsimile or such other communication device as the Bank may from time to time approve.  The company agrees and accepts the terms of the ‘Remote Channel Authority and Indemnity’ set out in Section H of the Master Agreement.”

2.  Clause H(ii)(d) of the Private Bank Agreement provides that:

(if the Bank gives written confirmation of any Remote Instructions), that customer must examine such confirmation and must notify the Bank with 3 days of its receipt of any of error, discrepancy or unauthorized transaction arising from whatever cause (including forgery, fraud, lack of authority or negligence by customer or by any other persons).  Unless there is manifest error, or the Bank has failed to act in good faith, after such period, the Bank’s confirmation will be deemed to be correct with conclusive evidence that the transaction is authorized and binding on customer.

3.  Clause I8 of the Private Bank Agreement provides that:

The Bank will deliver to the Customer a combined advice or contract note in respect of every contract for the purchase, sale or exchange of Securities or Other Investments effected on the Customer’s behalf within the time limit prescribed by law together with the debit advice for the related transaction charges.  The above shall be conclusive and deemed to be accepted if not objected to in writing by the Customer within 90 days after delivery to the Customer (in accordance with Paragraph A32).  The Customer shall never treat the Bank’s confirmation telephone call as final notification or confirmation.

4.  Clause A(4) of the Private Bank Agreement provides that:

“(i)  A monthly statement for all the Customers’ Account will be sent to the customer by the Bank unless otherwise requested.  (ii) The Customer shall examine each statement received and notify the Bank (by an Approved Communication Channel) of any error or discrepancy within 90 days of delivery (in accordance with Paragraph A32).  Unless any errors or discrepancies are so notified, the statement shall be conclusive and binding upon the Customer. (iii) Hold Statement/Correspondence services are not available, unless by express written agreement.  An additional charge may be levied.”

5.  Clause A(46) of the Private Bank Agreement provides that:

“The books and records of the Bank signed by any officer of the Bank shall (in the absence of manifest error) be financial and conclusive the amount due from the Customer to the Bank.  The Bank is authorized to disclose any information regarding the Customer to any proposed transferee of, participant in, any of its rights in relation to the Customer or, if disclosure is required by any applicable governmental, legal or regulatory body.”