Mis-selling claim against DBS bank dismissed

On 12 March 2013, Hong Kong's High Court handed down its judgment in DBS Bank (Hong Kong) Limited v San-Hot HK Industrial Company Limited. This was a claim by DBS Bank for money owing from a customer in respect of a bank account used for trading in accumulator contracts. The 1^st Defendant, company, San-Hot, was the account holder and the 2^nd Defendant, Madam Hao, its owner and guarantor for its liabilities with DBS.

Initially San-Hot obtained considerable profits from trading in the accumulator accounts, but later the tide turned and huge losses were sustained, resulting in huge liabilities owing to DBS after DBS unwound the outstanding accumulator contracts and realized and appropriated all collateral. DBS claimed against San-Hot HK$92,648,489.83 and JPY23,545,784.77 plus contractual interest and against Madam Hao for the same amounts, in her capacity as guarantor.

San-Hot defended the claim and counterclaimed against DBS for losses, alleging that (i) the accumulators were purchased after misrepresentations by DBS staff; (ii) DBS had breached its professional duties (duties of care in contract and tort) towards it, thereby causing it loss; and (iii) DBS was in breach of section 108 of the Securities and Futures Ordinance (“SFO”), which section imposes civil liability in certain circumstances where a person makes any fraudulent, reckless or negligent misrepresentation inducing another to invest money.

Madam Hao, the guarantor, also alleged that representations were made to her by DBS that the guarantee was limited to certain funds and also that neither its full terms or an explanation were provided when she signed it.

The Court held as follows:-

1. The contractual terms and conditions governing the operation of the account were contained in the (i) Account-opening Form, (ii) Private Banking Agreement; (iii) Professional Investor Declaration, (iv) General Commercial Agreement, (v) Mortgage, and (vi) Charge, and formed part of the banking services agreement between DBS and San-Hot.
2. DBS could rely on the various clauses in the contract between it and San-Hot including “no advice offered“, one describing DBS's services as a “transaction execution service only” and one saying that it was expressly agreed and declared that in entering into any transaction, San-Hot's decision would be based on its own judgment independently of any recommendation of DBS and that San- Hot accepted that DBS would bear no responsibility for any advice or views expressed.
3. It was clear from the evidence, that DBS staff did from time to time provide materials and information about investment products to Madam Hao and provided her with their opinions and suggestions that could loosely be described as “advice“. However, these activities were clearly contemplated by clauses in the Private Banking Agreement that stated in no uncertain terms that in doing so, DBS was not providing investment advice, was not obliged to do so and was not assuming responsibility. Things said and done by DBS staff did not amount to an assumption of responsibility in the contractual or factual context of this case.
4. The approach and analysis in the case of Kwok Wai Hing Selina v HSBC Private Bank (Suisse SA) (a case also involving accumulator accounts transacted by a private customer and where the “core duties” said to have been owed by HSBC to the customer were similar to the professional duties alleged to have been owed by DBS to San-Hot in the present case) was correct, namely that:-
   1. One could not use the subsequent conduct of one party to an agreement to construe the terms of the agreement;
   2. The terms of the agreement forms part of the context in which the advice or recommendations were given. In other words, the advice or recommendations by the relationship manager needed to be viewed in the context that such a framework contemplated by the contractual terms was in place.
   3. The Account Opening Booklet made it clear by the Risk Disclosure Statement that the account being opened was an execution- only account i.e. HSBC was not to be regarded as offering investment advice of any nature in connection with the account.
   4. While HSBC might make recommendations from time to time, it was ultimately for the customer to assess whether a particular transaction was suitable in the light of that customer's financial condition, risk tolerance and investment experience;
   5. One could not imply obligations, which were contrary to the express terms of the agreement;
   6. The account being an execution-only account, HSBC could not be taken to have impliedly accepted a “core duty” to manage the account and, to the contrary, HSBC was undertaking to execute the customer's instructions promptly with care and skill, immediately.
   7. There was no assumption of risk by HSBC in respect of the core duties.
5. The allegations of misrepresentation were unfounded. Madam Hao was a sophisticated business woman. She had an appetite for risk and took risky investment decisions on her own motion and sometimes against recommendations to the contrary by DBS staff.
6. If Madam Hao had not been so greedy, she could have accepted DBS's repeated suggestions of disposing of the accumulated shares to lock-in her profits and improve her cash flow. Madam Hao failed not because she had been introduced to a wrong investment product, but failed because of her imprudent and over-confident utilization of her credit line, given her own bullish view of the market. This resulted from her independent judgment and decision.
7. DBS had not assumed the onerous responsibility to warn Madam Hao/San-Hot against over-stretching her financial capability. Furthermore, as evidenced by contemporaneous taped telephone conversations, there were numerous occasions on which DBS staff made tacit suggestions of “taking profit“; “spreading her risk by diversifying into other products”; and “choosing a lower transaction amount”.
8. The information provided by DBS staff was not in any way inaccurate or misleading and Madam Hao had not been induced to enter into the transactions in question.
9. Accordingly, judgment would be entered in favour of DBS for HK$92,648,489.83 and JPY23,545,784.77 plus contractual interest.