A Hong Kong court has ordered an individual investor who unsuccessfully represented himself in a suit against DBS Bank over losses from so-called minibonds to pay the bank’s legal costs, with interest.
In a costs decision issued Monday against plaintiff Shum Kin Yee, Hong Kong District Court Judge Simon Leung said he “would not be surprised if the legal costs incurred by the Bank might have matched, if not exceeded, the amount of claim even before trial.”
DBS was represented at the trial by DLA Piper and barristers Ambrose Ho SC and Victor Dawes. DLA Piper’s May Ng argued the costs issue.
The decision is a particularly striking application of the “loser pays” rule in civil cases that the Hong Kong legal system inherited from British rule. Though often hailed as a deterrent to frivolous cases, such rules are also frequently criticized for limiting access to justice, especially by claimants of lesser means.
Such plaintiffs have fewer options in Hong Kong generally, as contingency fees and class actions are currently not available. A proposal to permit the latter gained some momentum after the minibond scandal and has now been in discussions for several years. Shum had sought legal aid assistance with his case but was turned down.
Shum claimed he lost around $89,000 investing in minibonds offered by DBS to retail customers in 2007. Also known as credit-linked notes, these structured financial products are tied to specified entities, generally banks and large corporations, in a way that a “credit event” at one or more of those entities could render the notes worthless. Lehman Brothers was such an entity in Shum’s notes.
Minibonds were widely marketed in Hong Kong and Singapore by retail banks, and the large-scale losses triggered angry demonstrations by customers who claimed they had been misled by bank staff about the level of risk involved in the notes.
The uproar led the banks to settle most of the losses customer incurred in minibond investments, but Shum was excluded from settlements because he was classified as a “growth” investor with a greater appetite for risk, based on a customer questionnaire he had filled out at his branch bank. He filed suit in 2011.
In a July 2013 decision, Judge Leung ruled for DBS, finding that the risks of Shum’s investment were well-detailed in the accompanying pamphlet and prospectus. In addition, the judge criticized Shum’s conduct of his case, calling his presentation of evidence “highly subjective” compared to the “straightforward” witnesses put forth by the bank.
In opposing the judge’s imposition of costs, Shum had argued that the costs were out of proportion to the amount at issue and that DBS had hired too many and too highly qualified lawyers for a relatively insignificant case. In support of his position, Shum pointed out that the Consumer Legal Action Fund of Hong Kong’s Consumer Council had denied his application for assistance on the grounds that his was not a “test case” that would help resolve similar cases.
But, in his costs decision, the judge noted that Shum’s was the first case of its kind against DBS and the defendant had a right to ensure that all of its arguments concerning its role in the marketing of the notes at issue were strongly advanced. “The amount at stake does not necessarily reflect the complexity of the issues, the difficulty in handling the case or the significance of the case,” the judge wrote.
He further ruled that Shum’s handling of his case likely increased costs, noting that he was advised to seek counsel to reduce his potential liability. The judge also noted that the plaintiff rejected a $19,000 settlement offer from the bank.
Though he said he could see why someone coming from a U.S. legal perspective might be surprised by it, King & Wood Mallesons litigation partner Denis Brock said the decision was in keeping with the Hong Kong court system’s conservative approach. He added that he thought the ruling was correct.
“The bank spent a lot of money on this case,” he said. “They have a right to try to get it back.”
Barrister Anthony Neoh SC also saw nothing wrong with the decision. “The claim has failed, so legal costs follow generally the event,” he said. “The loser would have to pay. That is the general rule in the Hong Kong civil justice system.”
Neoh agreed that a decision ordering a pro se plaintiff to pay the costs of a bank was a particularly stark example of the rule, but a valid one nonetheless. “Banks have rights under the civil justice system too,” he said.