Financial Disputes Resolution

Robert Rhoda of Smyth & Co in association with RPC

The preference to litigate or arbitrate banking and finance related disputes featured large in a stellar panel debate before a packed audience at an HKIAC event (co-organised by HKIAC and RPC) on 16 April 2015.

Without wishing to attribute comments to any particular panel member or member of the audience, a number of interesting points arose. Some points are well known; others may be deserving of more consideration or action. They include:

  • The banks have not lost a so-called "mis-selling" claim in the Hong Kong courts since the 2008 financial crisis. Those cases that have gone to trial have involved wealthy investors who appear to have got out of their depth with (for example) so-called "forward accumulator" investments (which in a falling market have no "knock out" price to bail them out). Anecdotal evidence suggests that in the current rising markets (at the time of writing) investors continue to pile into such products. More cases may be expected.
  • The banks in Hong Kong have been careful in which cases they take or defend to trial. So far, precedents have been in their favour as they rely on client agreements and the like to show an "execution only" role and to negate any advisory duty. Contractual estoppel also appears to be alive and well in Hong Kong and ready to assist a bank's defence. The extent to which an investor can rely on promissory estoppel to defeat contractual estoppel appears unclear.
  • As a related point and going forwards, the outcome of the SFC's further consultation on client agreement requirements will need to be considered; for which, to date, see – (i) Karen Man's article in the April 2015 edition of Hong Kong Lawyer and (ii) the Industry Insights, for November 2014 ("SFC Plumps for Reasonably Suitable") and December 2014 ("Conclusion of Consultation Paper on Proposed Amendments to Hong Kong Professional Investor Regime").
  • More interesting, perhaps, are those cases that the banks have settled; for example, for commercial reasons and/or because the evidence was not helpful (records of certain conversations and questionable customer risk profiles).
  • Arbitration does have a role to play in banking and finance related disputes and appears to be gaining traction in Hong Kong. For example, for more on this topic, see - "Arbitration Rising", IFLR (Capital Markets), April 2015 (Cary & Rhoda, Smyth & Co in association with RPC).
  • The cost and efficiency of arbitration over litigation is still a moot point, depending on the case and which side of the debate you are. However, arbitration does offer confidentiality and some technical know-how (depending on the panel) and that can be important.
  • Experiences in trying to enforce arbitral awards in countries in, among other places, South East Asia (that are signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards) appear mixed.
  • The question was posed – "What should Hong Kong's response be (if any) to Singapore's International Commercial Court?". This also begs the question what should (and will) become of the Commercial List in the Court of First Instance in Hong Kong?

Readers attending the upcoming IPBA Conference in Hong Kong will, no doubt, contribute to a lively debate on some of these issues.