There has been a significant rate of global growth of litigation in the financial services sector following the 2008 global financial crisis. While the existence of financial services litigation is truly a global phenomenon, it has become apparent that the law and procedures in relation to such disputes have evolved in different ways across the jurisdictions.
The recently published third edition of Getting the Deal Through – Financial Service Litigation, edited by Damien Byrne Hill and Ceri Morgan, compiles chapters dedicated to financial services litigation from jurisdictions across the globe, including those contributed by a number of our offices.
The text charts the growth of litigation in the financial sector worldwide, with expert authors answering key questions in major jurisdictions. Topics include: common causes of action; powers of regulatory authorities; alternative dispute resolution; specialist courts and procedures; disclosure requirements; data governance issues; remedies and enforcement; and changes in the regulatory landscape since the financial crisis.
Please find attached a copy of the publication, also available on the Getting the Deal Through website.
Australia – Andrew Eastwood, Tania Gray and Simone Fletcher
France – Clément Dupoirier and Antoine Juaristi
Germany – Matthias Wittinghofer and Tilmann Hertel
Hong Kong – Gareth Thomas, William Hallatt, Hannah Cassidy, Dominic Geiser, Jojo Fan and Valerie Tao
Indonesia – Alastair Henderson and Emmanuel Chua
South Africa – Peter Leon and Jonathan Ripley-Evans
United Arab Emirates – Stuart Paterson, Natasha Mir and Sanam Khan
United Kingdom – Damien Byrne Hill, Karen Anderson, Ceri Morgan, Ajay Malhotra, Sarah Thomas and Ian Thomas
United States – Scott Balber, Jonathan Cross and Michael R Kelly
Accreditation: Reproduced with permission from Law Business Research Ltd. Getting the Deal Through – Financial Services Litigation 2018 was first published in August 2018. For further information please visit www.gettingthedealthrough.com.
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  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. Continue reading
The Financial Dispute Resolution Centre (FDRC) in Hong Kong has issued its conclusions to its consultation on proposals to significantly expand the jurisdiction of the Financial Dispute Resolution Scheme (FDRS), its alternative dispute resolution scheme for conflicts between financial institutions and their individual customers.
The FDRC’s consultation met with mixed responses, with respondents from the banking and securities sectors opposing the proposed changes while other respondents, including the Department of Justice and consumer rights groups, supported the suggested reforms. Given this, the FDRC has chosen to implement a more moderate package of reforms than those it originally contemplated (as outlined in our October e-bulletin).
The key changes from the consultation paper include:
- raising the maximum claimable amount to HK$1,000,000. This is an increase from the current limit of HK$500,000, but significantly lower than the proposed increase to HK$3,000,000;
- extending the limitation period for lodging claims from 12 months to 24 months from the date of purchase of the financial instrument or date of first knowledge of loss, whichever is later, rather than the 36 months previously suggested; and
- that the FDRC will cease its current practice of providing case information such as application forms, mediated settlement agreements or arbitral awards, to the Securities and Futures Commission and Hong Kong Monetary Authority. However, it will continue to provide monthly reports regarding the number and type of disputes handled by the FDRC and information regarding systemic issues and suspected serious misconduct.
The FDRC also announced that it will enact a range of other reforms in a form largely unchanged from that proposed in its consultation paper. These include:
- expanding the scope of eligible claimants by allowing “small enterprises” to bring complaints against financial institutions (FIs);
- accepting applications for claims which are under current court proceedings without requiring the claimant to withdraw the case from court; and
- introducing a voluntary referral system.
These reforms amount to a sizeable expansion of the FDRC’s jurisdiction. As foreshadowed in our previous bulletin, FIs are likely to see an increase in claims being accepted by the FDRC once these reforms are enacted, though this increase is likely to be smaller than that which would have resulted from the enactment of the FDRC’s original proposals.
The amended terms of reference for the FDRS are expected to take effect on 1 January 2018, with the exception of the reforms allowing small enterprises to bring claims, which will take effect on 1 July 2018.
Our recent e-bulletin sets out the reforms in more detail. If you wish to discuss these further, please do not hesitate to contact our Hong Kong team featured on the e-bulletin or your usual Herbert Smith Freehills contact.
The Hong Kong Court of Appeal (CA) has recently affirmed a decision of the Court of First Instance (CFI), in which a ruling was made in favour of the plaintiff investors in a mis-selling claim against a bank, albeit on different grounds to that of the CFI (click here for the full judgment and here for our e-bulletin on the CFI decision).
Overturning the CFI’s ruling on contractual interpretation, the CA held that the exclusion clauses in the bank’s services agreement did apply to the plaintiffs’ non-discretionary accounts. The CA however went on to find that the exclusion clauses the bank sought to rely on to limit its liability were unconscionable under the Unconscionable Contracts Ordinance and did not satisfy the requirement of reasonableness under the Control of Exemption Clauses Ordinance.
This is the first decision of its kind where the court considered unconscionability in a banking context. Our recent e-bulletin examines the decision in more detail. If you wish to discuss this further, please do not hesitate to contact our Hong Kong team as listed on the e-bulletin, or your usual Herbert Smith Freehills contact.
Since early March 2017, the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) have collectively taken disciplinary actions against five regulated entities and an individual relating to breaches of anti-money laundering (AML) and counter financing of terrorism (CFT) regulatory requirements. The entities were fined amounts ranging from HK$2.6 million to HK$7 million, whereas the individual was banned from re-entering the industry for nine months.
Both the SFC and the HKMA have made it clear that AML and CFT compliance will continue to be a priority in 2017, and the recent disciplinary actions demonstrate swift action on their part. The SFC has set up a temporary specialised team within its Enforcement Division to tackle know-your-client and AML/CFT control failings. The raft of disciplinary actions serves as a warning that the SFC and the HKMA are prepared to impose tough sanctions and that regulated entities should take action now to ensure compliance with the relevant requirements.
Please click here to view our full briefing.
The Securities and Futures Commission (SFC) in Hong Kong has recently sought disqualification orders against listed company directors in a number of court actions commenced in the past few months. The proceedings against the directors have been brought under section 214 of the Securities and Futures Ordinance. If successful, the court has the power to disqualify the relevant directors from being directors or from being involved, directly or indirectly, in the management of any corporation for up to 15 years. The SFC is also seeking compensation orders from certain directors in some cases.
There have also been a number of regulatory developments emphasising the role of boards of directors and senior management. These, together with the recent enforcement actions, highlight the increased focus on directors. In light of this, all directors, including non-executive directors, must ensure that they fully understand the regulatory framework and are able to properly discharge their responsibilities.
Last Friday, the Hong Kong Court of Final Appeal brought to a close the long-running case of DBS Bank (Hong Kong) Limited v Sit Pan Jit (FAMV 45/2016).
The dispute concerned 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 such investments based on misrepresentation, breach of duties in contract and/or tort (common law and statutory) and breach of fiduciary duties.
Earlier this month, the Hong Kong government launched two consultations on legislative proposals aimed at bringing Hong Kong in line with international standards for combatting money laundering and terrorist financing. With a mutual evaluation of Hong Kong’s regime with other members of the Financial Action Task Force (FATF) looming in 2018, the government is keen to ensure that Hong Kong’s regime aligns with the FATF’s standards. The consultations will last for two months and will end on 5 March 2017. Subject to the views and comments received, the government aims to introduce the proposed reforms into the Legislative Council in the second quarter of 2017.
One consultation paper proposes to amend the Companies Ordinance to enhance the transparency of beneficial ownership of Hong Kong incorporated companies. Under the proposals, all Hong Kong incorporated companies (other than listed companies who will be exempt) will be required to obtain and hold beneficial ownership information, which will be available for public inspection. The regime will be backed by criminal sanctions for non-compliance. For further details, please refer to our e-bulletin of 16 January 2017.
The other consultation paper proposes to extend customer due diligence (CDD) and relevant record-keeping requirements to designated non-financial businesses and professions (DNFBPs), when they engage in "specified transactions". They include solicitors, accountants, real estate agents and trust or company service providers (TCSPs). The proposals are intended to be implemented by extending the application of the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance, which currently only apply to specified financial institutions. It is also proposes that a licensing regime be introduced for TCSPs, which (unlike the other DNFBPs) are not currently subject to any regulatory regime. For further details, please refer to our e-bulletin of 18 January 2017.
If you wish to discuss the above further, please do not hesitate to contact any member of the Hong Kong team listed on the respective e-bulletins, or your usual Herbert Smith Freehills contact.
In its recent circular (with annexes 1 and 2 and a set of FAQs), the Securities and Futures Commission (SFC) introduced new measures to heighten the accountability of the senior management of all licensed corporations (LCs). The circular clarifies who should be regarded as the senior management of a LC and requires the LCs to designate fit and proper individuals to be “Managers In Charge” of certain Core Functions (MICs, MIC Regime).
The SFC's increased focus on senior management accountability is part of a global trend to make it easier for regulators to hold individuals to account, and comes following the recent introduction in the UK of the Senior Managers and Certification Regime. While the SFC emphasises that the MIC Regime does not impose any additional civil or criminal liability on the senior management of LCs, individuals must consider carefully whether they should be appointed as MICs and, if so, what their responsibilities for the designated Core Function are.