Protection for Investors and Structured Products
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2. Apart from the position of investors under common law explained above in Q1, what are the relevant statutes?

In Hong Kong, some of those principles mentioned above are incorporated in statutes. The Misrepresentation Ordinance, Chapter 284, Laws of Hong Kong is one of those statutes.

Section 2 of the Misrepresentation Ordinance provides:-

  • “Where a person has entered into a contract after a misrepresentation has been made to him, and -
    (a) the misrepresentation has become a term of the contract; or
    (b) the contract has been performed,
    or both, then, if otherwise he would be entitled to rescind the contract without alleging fraud, he shall be so entitled, subject to the provisions of this Ordinance, notwithstanding the matters mentioned in paragraphs (a) and (b).”

Section 3 details damages for misrepresentation:-

  • “(1) Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable grounds to believe and did believe up to the time the contract was made that the facts represented were true.

    (2) Where a person has entered into a contract after a misrepresentation has been made to him otherwise than fraudulently, and he would be entitled, by reason of the misrepresentation, to rescind the contract, then, if it is claimed, in any proceedings arising out of the contract, that the contract ought to be or has been rescinded the court or arbitrator may declare the contract subsisting and award damages in lieu of rescission, if of opinion that it would be equitable to do so, having regard to the nature of the misrepresentation and the loss that would be caused by it if the contract were upheld, as well as to the loss that rescission would cause to the other party.

    (3) Damages may be awarded against a person under subsection (2) whether or not he is liable to damages under subsection (1), but where he is so liable any award under subsection (2) shall be taken into account in assessing his liability under subsection (1).”

Cap. 284 does not add to or alter the common law position outlined above.

As previously mentioned, the contracts between the investors and the banks would most likely contain a clause limiting or excluding the bank’s liability in case the investment failed. However, that does not mean that an investor is unable to pursue a legal claim against the bank.

The Control of Exemption Clauses Ordinance, Chapter 71, Laws of Hong Kong, is aimed at protecting a contracting party who is facing clauses excluding the liability of the other contracting party under their contract.

Section 7 of the Control of Exemption Clauses Ordinance covers “Negligence Liability”:-

  • “(1) A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence.

    (2) In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness.

    (3) Where a contract term or notice purports to exclude or restrict liability for negligence a person's agreement to or awareness of it is not of itself to be taken as indicating his voluntary acceptance of any risk.”

Section 8 provides for “Liability arising in contract”:-

  • “(1) This section applies as between contracting parties where one of them deals as consumer or on the other's written standard terms of business.

    (2) As against that party, the other cannot by reference to any contract term -
    (a) when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or

    (b) claim to be entitled -

    (i) to render a contractual performance substantially different from that which was reasonably expected of him; or

    (ii) in respect of the whole or any part of his contractual obligation, to render no performance at all, except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness.”

In Hong Kong, contracts are generally required to be reasonable. The "reasonableness" test is laid down under section 3 of the Control of Exemption Clauses Ordinance.

Schedule 2 of the Control of Exemption Clauses Ordinance laid down the guidelines for the application of the reasonableness test.

To be effective, the exemption clause has to satisfy the “reasonableness” test.

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