Friends without benefits – what happens when investments go wrong?

01 April 2015.

Investors have had something of a hard time suing financial institutions or financial advisers in Hong Kong for alleged claims sounding in breach of contract or negligence.


Generally, the financial institutions (eg, banks) have successfully managed to rely on their client agreement disclaimers and/or their acting on an execution-only basis. What of investments made through friends that are not subject to a formal written agreement and then turn sour? The recent case of Kurtzman v Petter [2015] HKEC 380 is one such example.(1)

In this case an unsophisticated investor (albeit a professional – an architect) invested relatively significant sums of money through a series of transactions with a "best friend" adviser. When the funds were not repaid on time, he sued the friend. At trial, the claim succeeded, but not in contract; rather, it succeeded on the basis that a fiduciary relationship was held to have arisen between the two, giving rise to a position of trust and a duty to account.

While fact specific, the case is a useful reminder that investing money on behalf of someone else in these circumstances can give rise to a duty of care and/or a fiduciary relationship. The case also highlights a difference as regards claims against financial institutions that have client agreements (with disclaimers and exclusion clauses) and customer risk disclosure statements in place.(2)


In the aftermath of the financial crisis in 2008 and in a relatively low-yield environment, the plaintiff was looking to improve his investments. With this in mind, he approached his then good friend (the defendant) about investing. Over the course of about a year (2009 to 2010), the plaintiff made a number of investments in cash and equity-linked products through the defendant. The defendant appears to have been an experienced and apparently wealthy investor in his own right.

Some investment returns were made early on by the plaintiff and he invested further sums with the defendant. However, by the latter part of 2010 the plaintiff wanted to close out his investments held by the defendant. The total amount apparently owing by the defendant to the plaintiff was approximately US$250,000.

The defendant was unable to return the plaintiff's funds immediately, stating that they were (in effect) locked up. There appears to have been several acrimonious exchanges between the two, apparently including an argument at a well-known restaurant, an alleged chair-throwing incident at the defendant's apartment and some heated words. There were also some colourful email exchanges between the two and certain conversations appear to have been recorded (and used in evidence).

At one point, the defendant appears to have offered to return the plaintiff's funds, provided that he took a sizeable loss for unwinding a currency transaction. A loan arrangement involving the purchase of a residential apartment also appears to have been mooted.

Leaving aside the above exchanges, mediation appears not to have been possible and the case proceeded to trial. The plaintiff claimed for:

  • damages for breach of contract;
  • money "had and received" by the defendant for the plaintiff's use; and
  • damages for breach of fiduciary relationship and/or trust.

The plaintiff also claimed that, pursuant to an oral agreement, his funds were invested by the defendant on his behalf on a trade-by-trade basis that required his prior authorisation and were returnable on demand.

The defendant argued that (among other things) he had complete discretion over the investments on the plaintiff's behalf and, in any event, there was no binding contract between the two.

At issue were:

  • the nature of the investment relationship between the plaintiff and the defendant; and
  • whether the plaintiff was entitled to the return of his funds in contract, pursuant to a fiduciary relationship and/or as money had and received by the defendant for the plaintiff's use.


On the facts, the judge held that there was no contract between the plaintiff and the defendant. There was no agreement in writing and no oral agreement as alleged by the plaintiff. However, applying leading case law in Hong Kong, the judge had little difficulty finding that there was a fiduciary relationship between the plaintiff and the defendant.(3) The defendant did invest the plaintiff's funds on his behalf and made the investment decisions. While the precise nature of a fiduciary relationship can vary on the facts, the judge noted as follows:

  • The plaintiff and defendant had been close friends; at one time they were described as "best friends".
  • They shared similar values and mixed socially and often, and a position of trust and confidence grew between them.
  • The defendant was an experienced investor; the plaintiff was not.
  • The defendant represented himself to the plaintiff as a successful investor, who apparently also advised a number of other people.
  • The defendant could access certain wealth management investment products that the plaintiff could not.
  • The plaintiff's investments were made in the defendant's name and, in effect, the plaintiff was investing in the defendant's experience.
  • The plaintiff relied entirely on the defendant to allocate his funds.
  • The plaintiff trusted and depended on the defendant's investment advice and, as a result, the defendant took on a duty to act inthe plaintiff's interests and in good faith.

As the judge found that certain key investments conducted by the defendant on the plaintiff's behalf had not been authorised by the plaintiff and the defendant had not returned the funds on being requested to do so, the judge had little difficulty in finding the defendant in breach of his fiduciary relationship. As a result, the plaintiff was entitled to compensation in the amount of the funds not returned – approximately US$250,000, together with interest at 1% above prime rates from the date on which the funds should have been returned to the plaintiff (October 15 2010) to the date of judgment.

For good measure, the judge also found that the defendant was liable to pay back the same amount as money had and received by the defendant for the plaintiff's use (of course, without there being double recovery). The defendant was also required to account for any profit.


As noted above, investors have faced challenges in bringing successful claims against financial institutions and their advisers in Hong Kong, because of (among other things) certain standard disclaimers and exclusion clauses contained in client agreements. However, the courts have been more willing to come to the assistance of inexperienced investors by imposing a duty of care or fiduciary relationship where an adviser has held himself or herself out as having investment expertise and the investor has relied on that.(4)

As for establishing a fiduciary relationship, Hong Kong common law is well set out in the leading case of Libertarian Investments Ltd v Hall.(5) Where the fiduciary relationship is one of ascendancy or influence of one over the other and the breach involves a lack of appropriate skill or care, a fiduciary duty is in effect indistinguishable from a duty of care at common law.

Given the relationship between the parties and that the amount ordered to be repaid is not large by comparison to many financial disputes, it is perhaps surprising that the case went as far as trial. Usually in cases such as these, although matters can become personal, the costs of going to trial can be prohibitive. There is the added disincentive of having the dispute tried in an open forum such as a court; one never quite knows who might be watching, including (for example) the tax authorities.

While it will be interesting to see whether the defendant (who was self-represented) appeals, the judgment is difficult to fault on its facts.

As a final comment, an investor looking for extra yield in a relatively low-yield environment by using the services of a financial adviser who is a friend would do well to think twice and, in any event, document carefully the advice sought and given. Professional advice should be sought from good professional advisers, and financial advice and friendships generally tend not to mix.

For further information on this topic please contact Jonathan Cary or Warren Ganesh. 


(1) HCA 38/2012, March 6 2015.

(2) For details on the Securities and Futures Commission's 2014 consultation on client agreements see

(3) Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681.

(4) Field v Barber Asia Ltd [2004] 3 HKLRD 871.

(5) Supra note 3.

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