Hong Kong Court of Appeal Upholds Dismissal of Improper Selling Claim Filed Against Major Bank

September 21, 2022

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The Court of Appeal (the “California”) recently delivered judgment CACV 483, 484 & 485/2018 (Shine Grace Investment Ltd v Citibank, NA and Anor), affirming the District Court’s decision to dismiss plaintiffs’ claims for alleged misuse of stock accumulation contracts by Citibank, NA (the “Bank”).

The CA decision reaffirms the principle that, in determining the extent of a bank’s duty of care to a customer, the Court places significant weight on the relevant factual circumstances (including the nature of the parties’ transactions and the relative sophistication of the client) as well as the terms of the contractual documentation. It should be noted in particular that the mere fact that the bank advises a client voluntarily cannot be interpreted as meaning that it has assumed the legal obligation to advise on the suitability of investments.

  1. Background

The litigation involved three related actions. The main action related to claims made by Shine Grace Investment Ltd (“shine grace”), an investment vehicle owned and controlled by Ms. Anita Chan (“Ms Chan”) until his sudden death on October 17, 2007, that the Bank had mis-sold nine equity accumulation contracts (the “CA disputed”) to Shining Grace on October 15 and 16, 2007. The other two actions were brought by Shinning Grace’s two guarantors, Shinning International Holdings Limited (“bright”) and Bonds & Sons International Limited (“BSI”), seeking to challenge the Bank’s transfer of funds from Shinning and BSI’s accounts to meet Shine Grace’s outstanding debt.

Three of the nine disputed CAs were eliminated in October/November 2007. Since November 20, 2007, the Bank had required Shine Grace to post additional margin collateral, but Shine Grace (then controlled by Ms Chan’s children after her death ) waived Challenged the NOCs and asserted that they were invalid and unenforceable. The remaining six disputed CAs were closed and settled by the Bank in January 2008. Shine Grace incurred losses totaling approximately HK$478 million, which included the costs of unwinding the disputed CAs (over HK$427 million) and losses of approximately HK$51 million from the sale of accumulated shares in connection with the disputed CAs.

The trial of the three actions took place before the Honorable Judge Ng (“Ng J”) in November and December 2017, lasting 13 days. On July 30, 2018, Ng J rendered judgment dismissing the three actions, holding that (i) the Bank did not owe Shine Grace the alleged duty to advise, (ii) even if such a duty existed, the Bank did not did not have the breach and (iii) the alleged breach of duty did not cause Shine Grace’s losses. Shine Grace, Shinning and BSI appealed the judgment of Ng J.

  1. The judgment of the CA

The CA dismissed the appeal on September 9, 2022, upholding Ng J’s findings regarding each element of Shine Grace’s claims.

2.1 Duty of care

The CA confirmed that the Bank was under no obligation to advise Shine Grace on the suitability and risks of disputed CAs, regardless of any recommendations or suggestions that may have been made to Shine Grace during their relationship.

With reference to Chang Pui Yin v Bank of Singapore Ltd [2017] 4 HKLRD 458, the CA noted that the starting point is that banks are not normally required to advise customers on the prudence or risks of their investments. However, the scope of a bank’s duty of care is very fact-sensitive and depends on the precise nature of its relationship with the customer.

The CA observed that a huge body of evidence (including no less than 680 pieces of audio recordings) was available before the trial judge as to the relationship between the parties, and it would not be appropriate for the CA to go into its own findings of fact in an unfocused review of such evidence. The trial judge was entitled to conclude from the evidence that Ms. Chan, being a shrewd and experienced investor, had her own investment strategy and did not rely on any investment advice from the Bank; the Bank mainly followed Ms. Chan’s instructions to facilitate the execution of transactions.

The CA also agreed with Ng J’s interpretation of clause 4.12 of the Master Derivatives Agreement, which clearly had the effect of disclaiming any obligation on the part of the Bank to give advice or make recommendations to Shine Grace. The substantive parts of the clause provided the following:

“You understand and agree that:

(a) the above brief statement cannot disclose all the risks and other important aspects of the derivatives market and you should therefore consider derivatives transactions carefully before trading;

(b) in respect of services we render on a non-discretionary basis,

(i) you make your own judgment regarding transactions;

(ii) we assume no obligation to give advice or make recommendations;

(iii) if we make suggestions, we assume no responsibility for your portfolio or for any investment or transaction made;

d) in either of the above cases,

(i) we and our affiliates may fill positions for ourselves or for other clients that may not be consistent with suggestions from our officers or employees or with discretionary management for you; and

(ii) all associated risks and losses incurred as a result of our entering into transactions for you are for your account. »

The CA pointed out that the mere fact that the bank volunteered to give advice cannot be interpreted to mean that the bank must have assumed legal responsibility to advise a client on the suitability of their investment.

The AC also rejected the argument that the Code of Conduct for Persons Licensed or Registered with the Securities and Futures Commission (the “SFC code”) should illuminate the common law obligations to which the Bank was subject. The SFC Code cannot “create” a duty of care that does not exist under common law.

2.2 Breach of duty

Having concluded that the Bank was under no obligation to advise Shine Grace on the disputed CAs, it was not strictly necessary to consider the issue of breach of duty. Nevertheless, the CA considered that there was no breach of duty on the part of the Bank.

The CA upheld Ng J’s evaluative conclusion that the disputed CAs were not unsuitable for Shine Grace. Ms. Chan was a knowledgeable investor and had her own team to monitor her investments and compile regular reports. It is not for the Bank to “micro-manage” Ms. Chan’s financial affairs and she cannot be considered to have failed in her duty by not advising her in these circumstances.

The CA also rejected the argument that there was inadequate or unsatisfactory disclosure of the material risks of the challenged CAs in the contract documentation.

2.3 Causality

The CA held that Ng J was entitled to conclude, based on the available evidence, that Ms. Chan would have entered into the contested CAs anyway; to suggest that the Bank could have somehow dissuaded Ms. Chan from participating in the disputed CAs by advising her that they were unsuitable was highly speculative. Accordingly, Shine Grace failed to establish causation.


The CA decision reaffirms the long-established legal principle that the appellate court will only interfere with findings of fact if there are manifest errors identified that are material enough to undermine the conclusion of the appeal. trial judge. Here, the trial judge’s task was to review voluminous audio recordings and receive days of oral evidence, and he was entitled to draw the evaluative conclusions he did. The CA found that Shine Grace did not identify any manifest error made by the trial judge to interfere with his findings of fact.

It should be noted that since the reform of the Professional Investor Regime by the Securities and Futures Commission (entry into force on June 9, 2017), when a written client agreement is required, it must include an adequacy clause. following effect:

“If we [the intermediary] solicit the sale or recommend any financial product to you [the client], the financial product must be reasonably suitable for you, taking into account your financial situation, your investment experience and your investment objectives. No other provision of this agreement or any other document which we may ask you to sign and no statement which we may ask you to make derogates from this clause.

Requiring a mandatory adequacy clause would undermine the effect of non-dependency provisions such as that of the derivatives master agreement mentioned above.

In any case, shine grace remains an important case that illustrates the value of having clear contractual documentation and contemporaneous records of transactions, which would illuminate the scope of any legal obligations assumed by a bank to its customers.

Gibson Dunn attorneys are available to answer any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer you usually work with, or the following authors and lawyers in the firm’s Hong Kong Litigation Practice Group:

Brian Gilchrist (+852 2214 3820, [email protected])
Elaine Chen (+852 2214 3821, [email protected])
Alex Wong (+852 2214 3822, [email protected])
Andrew Cheng (+852 2214 3826, [email protected])

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Publicity for Lawyers: The attached materials have been prepared for general information purposes only and are not intended to be used as legal advice.

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