High Court rejects “boilerplate” defenses, affirms strict standards for financial advisers YTL LLP

The High Court of Hong Kong recently handed down a significant judgment in Li Yuhong v oOo Securities (HK) Group Ltd [2025] HKCFI 5270, sending a stern warning to investment advisers and asset managers. The Court found the Defendant liable for fraudulent misrepresentation and multiple breaches of fiduciary duty, underscoring that standard-form “non-reliance” clauses are no shield against established misconduct.

Executive Summary

The Plaintiff, a Mainland investor seeking residency under the Capital Investment Entrant Scheme (CIES), was induced to switch from a safe bond fund to high-risk, unlisted bonds issued by China Agroforestry Low-Carbon Holding (the “Listco”). The Defendant acted as both the exclusive placing agent for the Listco and the discretionary asset manager for the Plaintiff.

When the Listco defaulted, the Plaintiff lost her HK$10.5 million investment. Deputy Judge Li found for the Plaintiff on nearly every issue, highlighting the “dual hats” worn by the Defendant as a fatal conflict of interest.

Key Pertinent Facts

The Inducement: An employee of the Defendant made two critical representations: (1) the bonds allowed early redemption upon 30 days’ notice, and (2) they were a “low-risk” investment. Both were false; the bonds were unrated, illiquid, and the issuer was in financial distress.
The Conflict: The Defendant earned a substantial 10% placing commission from the issuer while simultaneously charging the Plaintiff management and performance fees totaling approximately 27% of her returns.
The Inaction: Despite the Plaintiff’s repeated requests for redemption starting in 2018, the Defendant failed to monitor the issuer’s public distress or exercise available “Event of Default” exit routes.

Legal Analysis: Breaking the “Boilerplate” Shield

Fraud and the Failure of Adverse Inferences

The Defendant chose not to call the primary relationship manager as a witness, claiming she was “unwilling to testify” because her evidence might support the Plaintiff. The Court drew strong adverse inferences, noting that a party cannot avoid liability by silencing the only witness with personal knowledge of the alleged fraud.

“Non-Reliance” Clauses Struck Down

The Defendant attempted to rely on standard English-language exemption clauses. The Court rejected these defenses on three grounds:

*Non Est Factum: The Plaintiff did not understand English, and the document was radically different from what was represented.
Unreasonableness: Under the Control of Exemption Clauses Ordinance (Cap. 71), it is inherently unreasonable for a licensed professional to use boilerplate to exclude liability for negligent advice upon which a retail consumer clearly relied.
Fraud: Contractual terms cannot exclude liability for fraudulent misrepresentation.

The Fiduciary Trap: “Dual Hats”

This case clarifies the high standard for “informed consent.” The Court held that merely mentioning a commission in a 13-clause English document does not satisfy a fiduciary’s duty to disclose a conflict. By acting for both the buyer and the seller without transparent, bilingual disclosure, the Defendant breached its No-Conflict and No-Profit duties.

Why This Matters

For Victims of Mis-selling: Beyond the Contract

If you have suffered losses in unlisted, non-investment-grade bonds, do not assume a “Professional Investor” declaration or a “non-reliance” clause bars your claim. This case proves that:

Licensed advisors owe a Duty of Care to warn of inherent risks, regardless of the client’s alleged experience.
Fiduciary duties—specifically the No-Conflict and No-Profit duties—are breached when a manager earns high commissions from an issuer without a client’s fully informed consent.

For Licensed Corporations: Preventing Fiduciary Failure

This ruling is a “red alert” for compliance departments. To mitigate similar risks, firms must:

Audit Dual Roles: Ensure that where a firm acts as a placing agent and a manager, the conflicts are disclosed in the client’s native language with granular detail.
Implement “Active” Monitoring: The Court found Defendant breached its duties by “sitting there and doing nothing” despite the Listco’s publicly deteriorating financials and changes in core business.
Preserve the Paper Trail: Defendant’s inability to produce internal records of due diligence or monitoring was fatal to its defense.

How We Can Assist

The Li Yuhong decision represents a significant shift toward investor protection in the Hong Kong High Court. Whether you are an investor seeking to recover assets or a corporation looking to shore up your fiduciary compliance, our team has the deep litigation experience required to navigate these complexities.