The Hong Kong Court of First Instance has recently handed down its judgment in Shine Grace Investment Ltd v. Citibank, N.A. and Another (HCCL 28/2008), a case relating to alleged mis-selling of equity accumulator contracts by Citibank.

In dismissing the plaintiff’s claim, Mr Justice Peter Ng applied the Hong Kong Court of Appeal’s (CA’s) reasoning in Chang Pui Yin & Ors v Bank of Singapore [2017] 4 HKLRD 458 that a bank-customer relationship alone does not without more give rise to a duty to advise on the part of the bank. Instead, whether the bank has assumed any such duty or legal responsibility will be assessed objectively, for instance through the contractual terms and any other relevant factual circumstances concerning the bank and its customers.

This is another welcome decision for banks, affirming the central importance of the contractual terms themselves. As a matter of contractual interpretation, the court rejected an argument that the SFC’s main code of conduct had been incorporated by the express terms of the relevant contractual documents. Apart from the contractual terms, the relative sophistication and character of the customer in question was also highly relevant to the court’s decision.

Going forward, financial institutions will no longer be able to rely on their contractual terms to exclude or limit liability in relation to investments entered into after 9 June 2017. Since that date, where a written client agreement is required under SFC regulations (ie, primarily where individual investors and inexperienced corporate investors are involved), a financial institution subject to the regulations is required to include a mandatory suitability clause in the agreement, and may not derogate from this requirement by way of any other contractual arrangement. In the longer term, this is likely to mean fewer mis-selling cases along the lines of Shine Grace.


The plaintiff company in the main action, Shine Grace, was wholly owned and controlled by the late socialite Anita Chan until her death in October 2007. After Mrs Chan’s death, her four children became directors of Shine Grace.

Shortly before Mrs Chan’s death, she directed Shine Grace to enter into nine equity accumulator contracts (Disputed ACs) with Citibank. After Mrs Chan’s death, Citibank issued margin calls under some of the Disputed ACs. Shine Grace, now under the management of Mrs Chan’s children, argued that the Disputed ACs were invalid and unenforceable and did not meet the margin calls.

Of the nine Disputed ACs, three were knocked out. The remaining six were closed out and unwound by Citibank. Citibank then demanded the shortfall from Shine Grace. In response, Shine Grace alleged mis-selling of the Disputed ACs by Citibank.

The main actors in this dispute are Mrs Chan and a Ms Hailey Mak, the Citibank relationship manager of Shine Grace and Mrs Chan. Ms Mak was named as the second defendant in this action. Given that Mrs Chan was the only person from Shine Grace who was involved in the Disputed ACs, her absence as a witness would have been challenging evidentially, but for the existence of extensive tape-recordings between her and Citibank as evidence.

The mis-selling allegations

In summary, Shine Grace alleged that Citibank:

  1. breached its duty to advise on the un-suitability of the Disputed ACs;
  2. breached an “intermediate” duty to provide reasonable, fair, accurate and honest advice, and a duty not to mislead (intermediate common law duty); and
  3. misrepresented to Shine Grace that entering into the Disputed ACs was very safe.

Mr Justice Ng found in favour of Citibank on each allegation, dismissing the plaintiff’s claims in their entirety. The main issues of legal interest are (1) and (2), as the court had dismissed (3) on factual grounds.


Issues (1) and (2): duty to advise

Citing the CA’s judgment in Chang Pui Yin, Mr Justice Ng held that the starting point was that no duty to advise arose merely by virtue of there being a bank-customer relationship. The proper test was to “examine the terms and conditions set out in the Services Agreements and the Risk Disclosure Statements as well as other relevant factual circumstances surrounding the dealings between the parties in determining the extent to which the Bank owed duties towards the Plaintiffs in respect of the recommendations of financial products and the management of their portfolios.” (emphasis added)

As in the great majority of mis-selling cases, Citibank had included non-reliance clauses into its terms and conditions, to the effect that the customer should make its own judgment in relation to its investment transactions. Having reviewed two non-reliance clauses between Shine Grace and Citibank, the court concluded that Citibank had effectively disclaimed any duty to give advice, and if any advice was given, Citibank assumed no responsibility for any investment decisions made by Shine Grace. For reference, a section of Citibank’s non-reliance clause provided:

“You understand and agree that:

(b)  in respect of services rendered by us on a non-discretionary basis,

(i)  you make your own judgment in relation to the transactions;

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

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


Shine Grace relied on language such as the below in Citibank’s contractual documents:

You [Shine Grace] seek predominantly investment advisory services from us [Citibank].

The court held that this did not necessarily mean that Citibank had assumed legal responsibility to advise. Again, Mr Justice Ng relied on the CA’s comments in Chang Pui Yin to the effect that the mere act of giving advice alone did not necessarily mean the bank had assumed legal responsibility for the advice given. As such, the mere classification of the relationship as “advisory” or “investment advisory” was neither here nor there.

Another important factor in the court decision was the fact that Mrs Chan was a sophisticated, strong-minded and impatient investor who did not require advice from Citibank. In fact, Mrs Chan was such a confident investor that she had on more than one occasion “expressly asked [Citibank’s staff] not to interfere with her investment decisions.”

Finally, the court rejected Shine Grace’s submission that Citibank owed a free-standing intermediate common law duty regardless of whether Citibank had assumed legal responsibility to advise.

In reaching its decision, the court also dismissed an argument that the SFC’s main code of conduct had been incorporated by reference into the parties’ contractual arrangements, and hence imposed duties on Citibank, including a duty to act responsibly, diligently and carefully in providing advice or recommendations suitable to the client or a duty to ensure the client understands the nature and risks of a recommended transaction. The court found that this was inconsistent with the express terms of the contract and was not satisfied that the parties had intended to incorporate it (which had no force of law). That finding is consistent with previous mis-selling cases, such as DBS Bank (Hong Kong) Limited v San-Hot HK Industrial Company Limited and Hao Ting (HCA 2279/2008) and DBS Bank (Hong Kong) Limited v Sit Pan Jit (FAMV 45/2016) (see our bulletin of 24 February 2017 regarding the latter case).

Other factual findings

Assuming (contrary to the court’s finding) that Citibank had a duty to advise, the court found that Citibank would not have breached this duty, as the Disputed ACs were not unsuitable for Shine Grace.

Mrs Chan’s degree of sophistication and approach towards the bank’s advice was also considered when assessing causation. Even if Citibank had breached any alleged duty, the court concluded that she would have made her own decision to enter into the Disputed ACs regardless of whether advice had been given by Citibank.


This is yet another welcome decision for banks, upholding the well-worn principles of contractual estoppel. It remains to be seen whether Shine Grace will file an appeal. Of particular interest in this case is the sophistication and character of the customer in question. Of course, when dealing with such customers in general, it will still be best practice for banks to remain robust in stating the risks involved in the financial products even if they are routinely not taken in.

Shine Grace did not any raise arguments based on the Control of Exemption Clauses Ordinance (Cap 71) or the Unconscionable Contracts Ordinance (Cap 458) as the plaintiffs in Chang Pui Yin successfully did (see our bulletin of 9 August 2017 for further details). However, given the court’s  factual finding that the Disputed ACs were not unsuitable, Mrs Chan’s relative sophistication as an investor and her interaction with Citibank, these arguments, even if raised, would have been of little assistance to Shine Grace.

The contractual documents in this case were entered into before the implementation of the SFC’s new client agreement requirement. Since 9 June 2017, where a written client agreement is required under SFC regulations, a financial institution subject to the regulations is obliged to include a mandatory suitability clause in the agreement, which states that if it solicits or recommends a financial product to a client, the product must be reasonably suitable for the client, having regard to the client’s financial situation, investment experience and investment objectives.

On the facts of this particular case, the inclusion of the suitability clause would not have changed the outcome (as the court found that the Disputed ACs were not unsuitable). However, going forward, it is clear that where the mandatory suitability clause applies (ie, primarily where individual investors and inexperienced corporate investors are involved), it will be an important consideration in the analysis particularly given that contractual provisions which seek to disclaim or exclude liability for breach of the suitability clause will no longer be valid.

Gareth Thomas
Gareth Thomas
Partner, Head of commercial litigation, Hong Kong
+852 2101 4025
Dominic Geiser
Dominic Geiser
Partner, Hong Kong
+852 2101 4629
William Hallatt
William Hallatt
Partner, Head of financial services regulatory, Asia, Hong Kong
+852 2101 4036
Hannah Cassidy
Hannah Cassidy
Partner, Hong Kong
+852 2101 4133
Joanna Caen
Joanna Caen
Partner, Hong Kong
+852 2101 4167



Herbert Smith Freehills LLP is licensed to operate as a foreign law practice in Singapore. Where advice on Singapore law is required, we will refer the matter to and work with licensed Singapore law practices where necessary.