4. Case Studies
4.2 Structured Note litigation Cases with Civil Courts
4.2.1. Taiwan District/High Court Civil Judgment on Structured
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(ix) Type 9: Cases where there are actual facts that are enabled to show that Bank sales representatives have mis-sold the Structured Note Products to customers.
4.2 Structured Note litigation Cases with Civil Courts
According to a non-official records announced by the BA, there were not more than ten cases with District Courts in R.O.C. that judgments were made in favour to the Structured Notes investors. In this Chapter as we would like to review the customers disputes models that were normally found with the courts, we therefore choose to review three civil Structured Note litigation cases with Taipei Court whereby the three claims we have chosen were cases where Judgments were in favourable to investors. The purpose is also to understand the customer‟s dispute in common and from the review of the Judgment to understand some of the Judges‟ thoughts and attitudes on Structured Notes Investment disputes between investors and Financial Institutions.
4.2.1. Taiwan District/High Court Civil Judgment on Structured Note Claims (1) Case Number One16
(i)Brief Description of the Claim:
Judgment Date: 5 Jan 2010
Judgment No: Taiwan High Court Judgment R.O.C. Year 99 Appeal No. 299 Appellor (i.e. Plaintiff): Mr. ABC (p.s. name replaced for data privacy reason)
16司法院法學資料檢索系統臺灣高等法院 裁判書 民事類，臺灣高等法院民事判決 98 年度上易字第 299
號 民國 99 年 1 月<http://jirs.judicial.gov.tw/Index.htm>
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Appellee (i.e. Defendant1): Ms. Money (employee of China Trust Commercial Bank) (p.s. actual name of the employee replaced for data privacy reason)
Appellee (i.e. Defendant 2): China Trust Commercial Bank
Brief of the Court Judgment: Defendant, China Trust Commercial Bank should pay Appellor (i.e. plaintiff) NTD720,377 plus an interest at 5% commencing from 17 Dec. 2008 until payment date.
(ii)Summary of the facts alleged by Plaintiff:
(a)Plaintiff Ms. ABC engaged into a Trust Contract with China Trust Commercial Bank (“the Bank”) through the introduction of the Bank‟s employee, Ms. Money around November of year 2005. After then, Ms. ABC invested NTD 1 million in a Structured Note (Name: CSF B3 HKD Tomorrow Star Structured Note 港幣明日 之星連動債
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through the Bank.(b)Ms. ABC alleged that the Bank‟s employee understand that she would like to invest only in hundred percent guarantee product but still, the employee by knowing that the investment product was not hundred percent guarantee, induce and cheated her to investment the Structured Note. Ms. ABC claims that she has wrong concept on the investment product due to the fraud behaviour of the employees, and therefore made the decision to invest such product Ms. ABC therefore wanted to revoke the investment contract and requested Bank to pay her back the entire investment amount and compensate her loss for such investment.
(c)Ms. ABC further alleged that Ms. Money did not play her obligation to act a trustee for her investment. Ms. Money failed to explain the product‟s nature or fully
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disclose the embedded risks in such investment and did not inform her of on fluctuation of the investment product risks performance and therefore she would considered that the employee of the Bank had violated the Trust law Article 22 and Civil law Article 535 i.e. to act in due diligence of a good administrator or appointed agent.
(d) Ms. ABC claimed that the Bank and employee should be held jointly liable for the amount of NTD0.89million and a 5% interest commencing from 17 Dec. 2008 until payment date.
(iii) Defense statement summary from Defendants:
Ms. Money denied of the fraudulent act as alleged by the plaintiff and therefore would not be obliged to any compensation to the plaintiff. She stated that she has told Ms. ABC of the non-principal guarantee nature of the investment product and all risks were fully disclosed to the investor.
(iv) Summary (Extract) of the Court Judgment:
(a) Agreed by both party, investment amount was HKD 1 million and matured date of the investment product was on 30 Dec. 2008. During the investment period, investor was paid with an interest amount of HKD27, 600. After the occurrence of the financial Tsunami, the redemption of the investment amount returned to the investor was only HKD41, 243.33. There were no argument on the content of the trust contracts, term sheet of the investment product and Bank‟s monthly statements that were delivered to the investor.
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(b) According to the Trust contract entered between the Bank and the customer, Bank by charging the Trust fees against the customer should act in due diligence as a good administrator of the investor based upon the Trust Enterprise Law Article 2217 and Civil law 53518. In particular, under the circumstances that Bank is aware that customer has requested principal guarantee products and no risks on lost of entire principal amount, Bank should have under control, the background of the customer that the customer did not have any offshore product investment experience and have no ability to suffer great loss from investment and therefore should provides customer suitable investment service. This services shall includes complete explanation of the Structured Note Contract Terms and Conditions clause by clause and clear notice of associated risks on the nature of the Structured Note Product, such as the possibility of the guarantee of investment principal, and the extent of the non-protection of the investment amount. Bank should not caused any misunderstanding or doubts and during the investment period, to pay attention on the changes of risks on the investment product and to inform customer of such change at appropriate time so as to provide investor necessary information to avoid any investment risks. Court is with the view that the Bank did not act in due care as a good manager, Bank should not introduce non-principal protected structured note product to customer and that Bank had neglected to completely introduce and instructions of the principal and with the same care as he would deal with his own affairs. If he has received the remuneration, he shall do so with the care of a good administrator
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structured note causing misunderstanding from the customer that such Structured Product is principal protected. In additionally, Bank did not update the changes in the investment risks of the product periodically to the customers and failed also to proactively inform customer of the great change of the investment risks after the broke out of the financial tsunami, causing great loss to the customer. Court is of the view that Bank protest that monthly statement with investment information provided to the customer was not sufficient to support Bank‟s position to prove that Bank had acted in due diligence to have taken care of the customer‟s investment in this case.
(c) The Court further states that Bank could not provide evidence, such as record to prove that the employee of the Bank had conducted the introduction or explanation of the Structured Note products, and the signatures on the Structured Note Terms Sheets would not either proved that Ms. Money had completely explained the risks or non-principal protection nature or is it able to proof that customer had read and understand the relevant terms and conditions on such Structured Note Contract.
Moreover, the font printed on the Structured Note contract and other relevant documents is apparently tiny and close together and English wording were also included in such documents, it is obviously not easy for customer to understand within a short period of time. As such if customer denied that Bank had given reasonable review time to the customer, Bank shall need to provide other supporting evidence to substantiate her defense statement. The statement model template without the investment information of the customer was unable to show that the Bank had informed customer on the change of the risks of customer‟s
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investment and therefore it is difficult for Court to consider that Bank had exercised her due care on this case.
(d) While for the responsibilities of the Bank‟s employee, court held the view that the employee was not the contract party of the investment contract and due to lack of evidence to proof that the employee has any fraud intention in this case, court is of the view that the employee should not be held responsible for customer‟s loss. The Court ordered that Bank should be held responsible for customer investment loss, after deduction of the interest which customer had received during the investment term and principal customer had received after maturity of the Structured Note, Bank should pay customer at NTD 720, 377 and interest calculated at 5% starting from 17 Dec. 2008 until payment date.
(2) Case Number Two19
(i) Brief Description of the Claim:
Judgment Date: 23 Nov. 2010
Judgment No: Taiwan High Court Judgment R.O.C. Year 99 Appeal No. 45 Appellor (i.e. Plaintiff): Ms. A, Ms. B and Ms. C
Appellee (i.e. Defendant): China Trust Commercial Bank
Brief of the Court Judgment: Defendant, China Trust Commercial Bank must pay appellor(i.e. plaintiff)Ms. A NTD433,840 and Ms. B NTD3,623,699 and Ms. C NTD 641,604 plus an interest at 5% commencing from 23 Sept. 2008 until payment date.
19司法院法學資料檢索系統臺灣高等法院 裁判書 民事類，臺灣高等法院民事判決 99 年度重上字第 45
號 民國 99 年 11 月 23 日<http://jirs.judicial.gov.tw/Index.htm>
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(ii)Summary of the facts Claimed by Appellor (Plaintiff):
(a) The Appellors claims that the Bank‟s sales were aware that they have intension only to invest in hundred percent guarantee financial products and the Bank‟s sales have mentioned that all the Structured Notes introduce to them were all hundred percent guarantee and the interest were higher than normal Term Deposits.
Furthermore, they have no awareness of the so-called “DM” or Trust Deed or have authorized to deduct any money or to withdraw money from their account for such investment. They claims that the Bank‟s sales had completed the withdrawal slip without their authorization and invested in different Structured Notes (CALYON 2
年台幣連結全球銀行及保險公司連動債; 盧森堡 2 年美元日本類股連動債;
盧森堡 2 年台幣精品類股連動債; 盧森堡 2 年台幣日本類股連動債; JPI 台幣 投資大亨連動債) for NTD3millions, USD30,000, NTD1milllion respectively on behalf of Ms. A, and NTD 700,000 for Ms, B and NTD10 millions for Ms. C. The appellant claims that there were no agreement of such structured notes investment and therefore the Structured Note Investment Agreements were never in place.
(b) Appellors further stated that even if the Structured Note contracts were deemed valid in law, however according to the terms and conditions of the specific Structured Products, they were not to be distributed in other countries publicly and were to be sold only to professional investors or institutions. The Bank had never released the above information or had explained to them they are investing Structured Note product or had they been notified that there were risks in principal loss. Appellors further claimed that neither did the Bank explain the contract clause
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by clause or did the Bank conducted the “Know Your Customer” process in thorough, and therefore they would revoke the contract that were made under misunderstanding conditions.
(c) Moreover, Appellors alleged that Bank had mis-sold, and did not perform well the obligations of trustee, and never showed them relevant legal documents completely or did they informed them of any investment risks and therefore Bank did not perform to act in due diligence as a prudent trustee should be and hence Appellors claimed to revoke the trust contract and requested Bank to return their principal amount. Nonetheless, if Appellors were not permitted to revoke the contract, Appellors considered that the Bank should compensate their investment loss according to Trust Law Article 23, breach of consumer protection act etc. laws.
(iii) Summary of the defense statement from Defendant:
(a) Bank stated that the sales of the Bank had complied with the sales process by introducing the issuance terms and conditions and investment risks of the Structured Products, and after customers had showed their intention to invest, sale representatives then go through clause by clause again the issuance conditions and risks associated in such investment. Customers then signed on the relevant legal documentations (including product term sheet and trust agreement etc.). In additionally, Bank argued that it was clearly printed on the Structured Note Product term sheet that “This Structured Note is a non-principal protected Note, investor may suffered hundred percent loss in the principal amount” and “This Structured Note may at the time of maturity contain risk of hundred percent loss in the
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principal amount” therefore there were no way that customer could have misunderstood. In additionally, Bank had sent monthly statement which includes their investment details and Bank had also remit the interest paid by the issuer to the investor in accordingly; and also customers were able to find out their latest investment price information on their bank website.
(b) Bank further states that there are mutual agreements in such investments and that the Bank sales did not mislead their customer in anyway to believe that they are investing a “term deposit” products and not a non-principal protected structured note product.
(c) Bank further states that they were not the issuer or the guarantor of the Structured Notes and does not involves in any further investment decisions of the Structured Note and that the depreciation of the underlying assets were due to the financial crisis conditions and therefore there was no direct relationship between the investment loss of the customers and the performance of the Bank, i.e. whether or not Bank had acted in due diligence as a prudent trustee or not. Also, as customers had invested the Structured Note via Non-discretionary trust platform of the Bank, the investment performance of the customers would not be applicable to Customer Protection Law in anyway.
(iv) Extract (Brief) of the Court Judgment:
(a) As agreed by other parties, the structured note related legal documents and investment amounts of the Appellors were the same as both parties have presented
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to the Court.
(b) With regard to the argument if contract is in force, from the chops and signatures of the Appellors that shown on the relevant legal documents, Court is of the view that all the investment contract between the customers and the Bank is valid in force.
Appellors failed to provide strong evidence to the court that the employees of the defendant (i.e. the Appellee) have chopped the customer‟s personal seals on these documents without proper authorization from the customer.
(c) Had Bank violate the due care obligation to act as a trustee? Can Appellors requests compensation from the Bank for loss they had suffered in the investment? Court held the view that Bank should act in due diligence as a trustee to protect investors at their best benefits and provide appropriate services to the customers, these shall include not to mislead or caused any misunderstanding of the customer or to have customers investment on non-principal protected product if Bank is aware that customer‟s risk appetites is not to invest non-principal protected products or have any foreign investment experience. Additionally, Bank should pay attention to the performance of the customer investment and proactively inform customers with relevant information to enable customers to make appropriate judgment whether or not they should early terminate their structured note investment to mitigate their investment loss. Bank would not be considered had act in due diligence if important investment risks information were only released to the customers after Structured Note Investment value had fallen to the lower capped value of the Note.
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(d) Court considered that Bank was unable to prove that they have explained to the customers the risks and non-principal protected nature of the investments product or has given reasonable review time period to the customer and that the signatures on the relevant Structured Notes Contract could only manifest that customers have chopped their seals on these legal documents. In additionally, Court did not accept the defense from the Bank that the DM of the Structured Note product have clearly specified that “ the worst scenario is the total lost of the principal amount but fixed interest shall be paid at 8% per annum” and wordings such as “ Possible loss of all principal amount” so as black and bold wording being highlighted in the product term sheets such as “ This Note is a non-principal protected types of Note, it is possible that investor may suffered 100% loss at the time of maturity”. Court held the view that it is hard for customers to read such small wordings which was squeezed together and English wordings in between the Chinese language unless sufficient time is given to the customer to read through every terms and conditions on the legal document provided by the Bank. Court therefore was of the view that under such conditions, customers would easily misunderstand that they will only benefit from such kind of investment and may not have risks.
(e) Furthermore, it was clearly stipulated in the English Product Term Sheets that “The Note may not be sold or offered in the Republic of China” but it was not shown on Chinese translated product term sheets which were provided to the customers. The Judge of the case did not accept Bank‟s defense by saying that Bank was authorized by the customers to purchase such Note overseas as such kind of activity is same as if such Note were distributed and sold in Taiwan to the
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customer.
(f) Bank defense that they have act in due diligence as a trustee since monthly statement that shown the investment information were sent to the customer.
Nevertheless, Judge was of the opinion that the information shown on the monthly statement were not sufficient to enable customer to aware of their investment performance as only investment amount and interest payment were shown on the statement. The lack of latest market price/value loss or gain reference index and the small letter wordings specified on the statement to advise customers to access the public internet for update investment information showed that Bank did not proactively inform customer necessary information or have act in due care of a trustee.
(g) Moreover the Court refuse to consider Bank‟s defense that besides the monthly statement, they had indeed contacted customer by telephone to inform the occurrence of the worst scenario of the investment products, Judge overruled Bank‟s defense as Appellors denied to have receive such calls from the Bank and Bank was not able to provide any other supporting evidence to prove that Bank had
(g) Moreover the Court refuse to consider Bank‟s defense that besides the monthly statement, they had indeed contacted customer by telephone to inform the occurrence of the worst scenario of the investment products, Judge overruled Bank‟s defense as Appellors denied to have receive such calls from the Bank and Bank was not able to provide any other supporting evidence to prove that Bank had