Reining in the freedom of contract in Hong Kong financial services contracts

The aftermath of the 2008 Financial Crisis saw a flurry of cases involving customers suing financial institutions for the losses arising from financial products sold to them. An oft successful defence consists of the documentation defining the financial institution’s obligation as execution only; in face of the allegation that the financial institution had recommended unsuitable financial products, the defence succeeds by the prior agreed assumption of responsibility and the allocation of risks captured in the documentation. A related defence consists of the customer contractually agreeing that she will not rely on any statements made by the bank’s employees; the customer is thereby prevented from suing in misrepresentation. This article looks at the hold that the liberal theory of contract has over the adjudication of these disputes, how the Hong Kong courts responded to the challenge of controlling the undue exploitation of one’s bargaining power, and how regulatory changes were made to address the perceived inadequacies of a legal culture that takes as a starting point the separation of regulatory norms and private law norms.