The Court of First Instance has recently handed down its judgment in DBS Bank (Hong Kong) Limited v Sit Pan Jit (HCA 382/2009), a copy of which was made available on Wednesday, 8 April and can be accessedhere.
This case concerns a claim by DBS Bank (Hong Kong) Limited (DBS) against its former customer, Sit Pan Jit, for failing to meet margin calls in respect of certain investments and a counterclaim by Mr Sit against DBS for mis-selling those investments. The court found in favour of DBS and dismissed Mr Sit’s counterclaim, marking a further success for banks in defending investment mis-selling claims in recent years.
In brief, Mr Sit opened a private banking account with DBS in 2004 and signed various banking documents with DBS during his time as a customer of the bank. He utilised credit facilities provided by DBS to purchase a number of investments including some equity-linked notes (ELNs), which were then pledged to DBS as securities. The ELNs were essentially structured products in which the final payout was based on the return of the underlying shares.
As a result of adverse market conditions in 2008, the value of Mr Sit’s investments materially depreciated and DBS sought payment or additional security from Mr Sit to cover the margin shortfall, which Mr Sit failed to provide. DBS commenced proceedings to recover the outstanding amount of around US$3.43 million plus interest and costs.
Mr Sit defended DBS’s claim and counterclaimed for various declarations and damages, on the basis that DBS had mis-sold the ELNs to him. He argued (among others) that:
- there was an oral contract between him and DBS for the provision of the investments services by DBS to him – in particular, there was an implied condition or representation by DBS that it would comply with the Securities and Futures Ordinance (SFO), subsidiary legislation and all relevant codes and guidelines issued by the Securities and Futures Commission (SFC);
- the oral contract was invalid and void for uncertainty and/or was unenforceable due to illegality as a result of breaches by DBS of the SFO and various SFC code provisions;
- the terms of the banking documents relied on by DBS were not binding on him because they had not been incorporated into any contract between him and DBS or drawn to his attention;
- DBS’s relationship manager made various reckless or negligent misrepresentations to induce him to sign the banking documents and to make investment decisions which turned out to be inappropriate and unsuccessful;
- DBS, as salesperson and investment advisor, owed him various duties in contract and/or in tort (common law and statutory), as well as fiduciary duties, and such duties were breached.
The Court of First Instance rejected Mr Sit’s defences and counterclaim in their entirety and found in favour of DBS.
In recent years, the courts in Hong Kong have generally ruled in favour of banks in investment mis-selling cases and this case is yet a further example. However, this should not be taken lightly and we shall, in a follow up e-bulletin, analyse the judgment in more detail with a view to identifying the lessons that can be learnt by banks to defend mis-selling claims against them.