The Court dismissed the conspiracy claim, held the firm vicariously liable for unauthorised warrant trades carried out by its employee, rejected the firm's contributory negligence defence and ordered it to pay damages. The decision provides important lessons on the limits of internal compliance policies, the weight courts place on contemporaneous records such as WhatsApp messages and the risks of blaming a client for losses caused by a firm's own supervisory failures.

Background and facts

Black Marble is a Hong Kong securities brokerage. In July 2016, Dr Rabie, a doctor, opened a cash account with the company and then deposited HK$1 million into the account. The funds were intended to be his son’s education funds and he informed his account executive, Thomas Lai, a licensed representative and Vice President of the company, of the same and that he was risk-averse given his age and fine with low returns. Notably, Thomas provided the account opening documents only in Chinese, a language Dr Rabie does not read. The initial arrangement was that Thomas would only trade upon Dr Rabie's express prior approval. By around October 2016, however, Dr Rabie had given Thomas full discretion to trade in stocks, though he had clearly instructed Thomas not to trade in warrants. Despite that instruction, over the next year Thomas executed 365 transactions, 84% of which were warrants. By July 2017, Dr Rabie had lost the bulk of his investment.

Dr Rabie complained to Black Marble about Thomas’ conduct, and Black Marble reported the matter to the Securities and Futures Commission ("SFC"). As a result, the SFC banned Thomas from the industry for 20 months for breaching the SFC’s Code of Conduct for licensed/registered persons. Black Marble itself was reprimanded and fined HK$1.8 million for breaching the same Code of Conduct and the SFC's guidelines on management, supervision and internal control. Black Marble then sued Dr Rabie and Thomas for unlawful means conspiracy, alleging they had agreed to a discretionary trading arrangement which allowed Thomas to operate the trading account and make trading decisions on behalf of Dr Rabie without consulting Dr Rabie, and such arrangement was kept secret from and not approved by Black Marble. The company also sought to recover the costs of its internal investigation, its SFC-related legal costs and the fine. Dr Rabie counterclaimed against Black Marble and Thomas for breach of duties, including on the basis that Black Marble was vicariously liable for Thomas' conduct.

Conspiracy and "secret arrangement"

The Court dismissed Black Marble’s claim entirely. The Court reached this conclusion primarily by analysing the WhatsApp messages between Dr Rabie and Thomas in 2016 rather than oral testimonies made at trial. It found Black Marble's version of events to be "unsupported by any evidence from Thomas or the contemporaneous document". There was no evidence he ever knew the difference between a cash account and a discretionary account or that the latter was not permitted by Black Marble. Dr Rabie also had no intention to cause harm to Black Marble. Rather, Dr Rabie regarded Thomas as Black Marble's agent. The true cause of Black Marble's investigation and SFC-related costs, as well as the fine, was its own systemic internal control failures, not any conspiracy.

Breach of duties by Thomas

Although Black Marble did not dispute that Thomas had potentially breached his duties, it challenged Dr Rabie’s account of their trading arrangement by relying on the parties’ WhatsApp records. Dr Rabie's message - "No warrants buddy" – and his subsequent protest after finding out that Thomas had nevertheless traded in warrants were, on their face, clear and unambiguous. On a balance of probabilities, the Court preferred the objective reading of Dr Rabie’s messages over any after-the-fact explanation by Black Marble especially regarding conversations Dr Rabie and Thomas may have had in person. The Court went on to find multiple breaches by Thomas, including (i) failing to provide or explain the Chinese-only account opening documents to a non-Chinese-reading client; (ii) wrongly recording Dr Rabie's risk tolerance as "medium" when it should have been "low" (given the purpose of the funds and Dr Rabie’s age); (iii) executing warrant trades against Dr Rabie's express instructions; (iv) earning commission on those unauthorised trades; and (v) failing to keep Dr Rabie informed about the account.

The Court also found Thomas in breach of his fiduciary duties. Trading warrants was plainly inappropriate for a client whose own account opening form recorded "no knowledge of derivative products".

Vicarious liability of Black Marble

Having established Thomas’ breach of duties, the key question then became whether Black Marble could be held vicariously liable for Thomas' conduct. Under Hong Kong law, an employer is vicariously liable for an employee's wrongful actions if those actions are closely connected with the employee's job.

Black Marble conceded vicarious liability for Thomas' failures at the account opening stage but averred that it was not liable for Thomas’ subsequent actions. It argued that Thomas was only licensed for dealing, not advising, so his investment advice fell outside his job scope. The Court dismissed this argument, citing Black Marble's own written submissions to the SFC, in which the firm had admitted that it was "expected that, as a common market practice", account executives "may from time to time provide market information/investment advice to his clients (which is wholly incidental to his securities dealing functions)". It held that providing investment advice naturally accompanies a securities dealing business. In other words, they are “closely connected”.

The Court also rejected the argument that Black Marble's internal rules requiring written authorisation before discretionary trading should shield it from liability. Those rules merely governed how Thomas was supposed to do his job, not the scope of what he was employed to do. A firm cannot escape vicarious liability simply because its employee broke its own internal rules.

Adopting the SFC’s findings on Black Marble’s breach of duties (which was undisputed by Black Marble), the Court found that Black Marble's monitoring was inadequate: those tasked with monitoring trading activities did not understand their responsibilities, the trading report which was supposed to be circulated daily to enable the monitoring was not consistently circulated or reviewed and there was no system to flag derivative trades by clients recorded as having no derivative knowledge.

Contributory negligence

As a defence and in the hope of reducing damages, Black Marble argued that Dr Rabie was guilty of contributory negligence because he failed to check his own investments via email statements or by logging onto the trading platform. The Court did not accept this defence on the basis that Dr Rabie was never told statements would be sent by email, never logged onto the platform and was not tech-savvy. Again, the Court looked to the contemporaneous record. The WhatsApp messages showed that Thomas had provided regular updates to Dr Rabie up to mid-October 2016, which had "lulled him into a false sense of security". The Court therefore took the view that Dr Rabie was not careless and had reasonably placed his complete trust and confidence in Thomas as his investment advisor.

Separately, notwithstanding it not being an issue for determination, there appears to be an acceptance by the parties and the Court that contributory negligence will not apply to damages awarded for a breach of fiduciary duties.

Outcome

In light of the Court’s analyses as set out above, Black Marble was ordered to pay Dr Rabie HK$740,226.27 in net losses from the unauthorised warrant trades plus HK$60,000 being commission paid to Black Marble, together with interest and legal costs.

Key takeaways

1. Internal controls must actually work. Black Marble's internal rules did not shield it from vicarious liability because no one followed or enforced them. Firms should ensure their compliance frameworks include functioning safeguards such as automated alerts that warn staff to conduct further enquiries when trades do not match a client's recorded risk profile or product knowledge, documented escalation procedures when mismatches are detected, a clear assignment of monitoring responsibilities so that every relevant staff member understands what they are expected to do and verifiable records  showing supervisory reviews have taken place. This case illustrates the significant financial and reputational costs of an ineffective system.
2. Contributory negligence is hard to establish and may not apply at all. Firms should not assume they can deflect liability by pointing to a client's failure to check statements. Instead, the firm should ensure proactive reporting processes are in place and confirm delivery methods with clients, verify platform access, and keep records of those communications. If a dispute arises, the question will be whether the client was given a realistic opportunity to monitor the account, not simply whether statements were technically sent. The judgment also suggests contributory negligence will not apply to claims of breach of fiduciary duties.
3. Contemporaneous records trump oral testimony. The Court in assessing the credibility of the witnesses attached greater weight to the contemporaneous written documents which were in existence before the issues in dispute arose, in this case, the WhatsApp messages and preferred them over the conflicting testimonies given at trial. Firms should ensure all client communications, including on platforms like WhatsApp, WeChat or Signal, are properly archived and subject to regular supervisory review.

BLACK MARBLE SECURITIES LIMITED (貝格隆証券有限公司) v RABIE, ABOU BAKR MAHMOUD AND ANOTHER [2025] HKCFI 5487 – judgment available here.