Barber Paradox

Many market practitioners know Susan Field v Barber Asia is a classic court case in HK about mis-selling of investment products. This case is so prominent because it demonstrates the interpretation and enforcement of investment sales regulations. In addition, the defendant had entangled with SFC in a long appeal process.

Yesterday the Court of Appeal dismissed the appeal by Andrew Barber againat the decision of Securities & Futures Appeal Tribunal (SFAT) to suspend his licence for giving unsuitable investment advice. If you have not heard about this case before, please see the following brief summary.

Civil Proceedings Against Barber Asia

In the civil case initiated by Susan Field against Barber Asia Ltd in 2003, the Court of First Instance (CFI) decided that Barber Asia had, through Barber, owed Field (an inexperienced & conservative investor) a tortious duty of care when giving negligent advice to her in a high risk investment strategy. As a result, the CFI awarded damages (millions in HK$) to Field.

Disciplinary Proceedings Against Barber

To "beat the dog under water", SFC suspended Barber's licence for 6 months after the CFI judgment was affirmed by the CA. Then Barber lodged an appeal to the SFAT against the SFC’s decision.

At the SFAT hearing, Barber submitted "new evidence" (for his provision of investment documentation to Field), which had not been previously submitted to SFC or the courts in civil proceedings. Finally the SFAT decided to reduce the suspension period from 6 months to 1 month but insisted that Barber had failed to ensure suitability of advice and sufficient risk disclosures to Field.

Court of Appeal’s Ruling

In 2005 Barber lodged an appeal against the SFAT’s decision on the ground that, in view of the new evidence, the SFAT should not have reached the decision to suspend him. But the CA decided that the SFAT was fully entitled to suspend Barber. The CA considered that an independent investment adviser was not merely an agent or product marketer. Barber had the duty to diligently assess the suitability of the investment for the particular client. He should also emphasize the potential losses to let the client make an informed decision.

The Paradox

Perhaps Barber has not realized his blind spot. He may want to advise only those clients who need only documentation but not suitability assessment. But if he was not required to care about client suitability, should he claim himself to be an adviser?

Just kidding: Let me call the above thought "Barber Paradox"! (stolen the idea of the 20th-century philosopher Bertrand Russell)