Question 3 [Total 33 marks]

Eric is the owner of an online shop called kids.com wholesaling childrens clothes online. A client, Mykids Ltd, put in a large order and invited Eric to enter into a joint venture. Eric wanted to check their financial position and creditworthiness, and subsequently asked their bank Hong Kong Banking Corporation (HKBC) for a reference on Mykids Ltd.

A day later, Eric watched a financial programme on television that said Mykids Ltd is a rising star in the fashion industry and mentioned how the company plans to expand in the next few years. Eric is skeptical about the programme and decided to wait for HKBCs reference. HKBC sent a letter to Eric that said Mykids Ltd is considered good for its ordinary business engagements. The letter was sent free of charge. Having seen the letter, Eric decided to enter into the joint venture with Mykids Ltd. Three months later, Mykids Ltd went into liquidation and Eric loss eight million Hong Kong dollars (HKD $8,000,000) on a number of contracts.

1. a) Advise Eric. (23 marks)

2. b) If the letter contained a disclaimer that said without responsibility on the part of HKBC, would your answer be different? Explain. (10 marks)