Jing Zhi Wong - Financial Planners

Wong on Civil Liability

Financial Planners' Liability in Australia

Work-in-progress, 12 August 2024

[A18] Financial Advisors/Planners:

[A18.1] Duty of Care: See, ABN Amro Bank NV v Bathurst Regional Council [2014] FCAFC 65, [1101], [1109], [1111]: "1101. The primary judge found that LGFS owed to the NRB Councils a duty which included a duty to exercise reasonable care and skill in: (a) analysing investments being considered on behalf of the NRB Councils and identifying the risks associated with the investment; (b) only recommending investments that were suitable for the NRB Councils and (c) properly providing the NRB Councils with all material information about the investment that might reasonably be considered as bearing upon the investment decision: J[2263]-J[2265]. ... 1109. These contentions fail for a number of reasons. First, at trial, LGFS did not contend that the content of these duties of a financial advisor was inconsistent with the statutory regime in the Corporations Act regulating the conduct of financial advisors. The alleged inconsistency was only relied on by LGFS if LGFS was found to be a mere salesman. The primary judge correctly rejected the contention that LGFS was a mere salesman: see [1023]-[1024] above and J[2262]. ... 1111.Legally, there is no disconformity between the statutory provisions identified by LGFS and the content of the duties identified in [1101] above: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 6) (2007) 63 ACSR 1 at 140 [540(7)] and 148 cf [588]. That last statement requires further explanation.".

[A18.2] Scope of the Duty of Care:

Defrancesca v Ruby Loans Pty Ltd [2020] SADC 106, [773] et seq: "Claim in proffesional negligence against the defendants ... 764. It is common in trials of this nature that expert evidence is called as to the accepted standards of practice in a particular profession, and in particular as to financial advisors on the one hand and financial brokers on the other. ... 770. He also submitted that the defendants, in that economic climate, ought to have ensured that they spoke directly to the plaintiff as they had almost always received instructions from Eustice and it was essential to obtain instructions from the plaintiff, to ensure that she actually agreed to her houseboat being further encumbered. 771. I infer that the plaintiff also asserted that the defendants were obliged to ensure that the proceeds of the subject loan were correctly disbursed. 772. Ultimately, the scope of the duty of care even in the case of a solicitor is confined by the matter for which he is retained. 773. In Midland Bank Trust Co Ltd v Hett Stubbs & Kemp (a firm), Oliver J said: There is no such thing as a general retainer in that sense. The expression “my solicitor” is as meaningless as the expression “my tailor” or “my bookmaker” in establishing any general duty apart from that arising out of a particular matter in which his services are retained….The extent of his duties depends upon the terms and limits of that retainer and any duty of care to be implied must be related to what he is instructed to do. Now no doubt the duties owed by a solicitor to his clients are high, in the sense that he holds himself out as practising a highly skilled and exacting profession, but I think that the court must beware of imposing upon solicitors or upon professional men in other spheres – duties which go beyond the scope of what they are requested and undertake to do. ... 775. I accept that the scope of a duty of care may vary with changed circumstances. 776. As I have explained, by the time of the subject loan the defendants had acted as a finance broker for the plaintiffs in respect of 7 previous loans, including the Stones’ loan for a similar amount. 777. In my opinion, they plainly owed Eustice and the plaintiff a duty of care, as a finance broker, to act in that role with reasonable care, skill and diligence. They also owed them a duty to ensure that the proceeds of the loan were correctly disbursed. While in this case they appointed “OL” to undertake the latter duty, they were still obliged to provide the correct details to “OL”. 778. It is the scope of that duty of care which was in dispute, in the subject case. 779. On any reasonable view of the evidence, the scope of the duty of care was quite limited. 780. That scope can be ascertained from the history of the seven previous loans and the circumstances leading to the subject loan. Because of the urgency of the subject loan, the defendant did owe a duty to act diligently and to ensure that any loan approval was expedited. 781. The defendants had never been asked by Eustice or the plaintiff to provide financial advice to them. Indeed, the defendants had never even volunteered financial advice. 782. While there are some cases, particularly involving solicitors where the Courts are prepared to infer from a continuing relationship, a duty to give advice, even if not requested, the subject case is not one of them. 783. It would have been plain to both Eustice and the plaintiff, that the defendants’ role in respect of the subject loan was to quickly locate a lender to prevent the houseboat being sold. 784. I repeat that on each significant loan, in the past, the seventh defendant, had appointed solicitors “OL” to undertake the other tasks of preparing the subject loan documents and, if required to provide legal advice. 785. The plaintiff’s counsel submitted that it was the defendant’s “function to source the loans, but that the supply of finance has obviously a broad range of financiers ranging from banks and other institutions down to persons in business with capital to lend often at high rates of interest for short term periods like, for example, Dr White”. 786. He submitted that the defendants were obliged to test the market, and obtain loan proposals that would suit the requirements of the plaintiff and Eustice (my emphasis). 787. He also submitted that the defendants were obliged to take instructions directly from the plaintiff to explain the nature and effect of the subject loan to the plaintiff, personally and to advise her of the risks associated with the loan (my emphasis). 788. I do not accept the submissions of the plaintiff as to these “duties”. 789. In my opinion, the duties of a finance broker at that time are well settled in the case law. 790. A finance broker, generally, in contrast to the position of a financial advisor, was not obliged to provide financial advice to the subject borrowers. He was not obliged to discuss the capacity of a borrower to meet the obligations under a loan. ... 792. I adopt the dicta of Tottle J in Dewar v Ollier, supra, as to the description of the role of the seventh defendant at [224]: It is important to record that the finance broker was not obliged to provide financial advice … the role is to be contrasted with that of a financial advisor. A financial advisor’s core obligation, [by contrast] is to warn a client of the material risks of a potential investment. The Broker is not obliged to determine whether [the plaintiff] could afford to make the repayments under the loan. 793. In Perpetual Trustee Co Ltd v Burniston (No 2), supra, Edelman J (as he then was), at [328]-[333]: There is no general common law duty upon a lender or [finance broker] to advise or protect a borrower against fraud; nor to warn of the risk of loss; or to take precautions; or to check the accuracy of information in order to prevent exposing borrowers to fraud. ... 800. As I have already noted the defendants were under no duty “to be imbued with perfect foresight or to be required to foresee every conceivable risk so as to alert the plaintiff that her partner may possibly be committing forgeries” ...".
Carmody v Priestley [2005] WASC 120, [95], [98].

[A18.3] Tax (Financial) Advice - what is: Galea v Camilleri; The Estate of Patricia Camilleri [2023] NSWSC 206, [856].

[A18.4] "financial product advice" - what is:

see, ASIC RG 36.7, 36.9, 36.19, 36.41, 36.43-47, 175.24;
Corporations Act 2001 (Cth) s 766C(2);
ASIC v Secure Investments Pty Ltd (No 2) [2020] FCA 1463, [41];
Quantum Group Holding Pty Ltd v Thomson [2021] FedCFamC2G 339, [62].

[A18.5] Duty to advice/inform/warn (even incidentally):

NMFM Property Pty Ltd v Citibank Ltd [2000] FCA 1558, [803].
Defrancesca v Ruby Loans Pty Ltd [2020] SADC 106, [792].
Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) [2012] FCA 1028, [794]-[790].
Aequitas v AEFC [2001] NSWSC 14, [21], [281]-[288].
Carmody v Priestley [2005] WASC 120, [104]-[119].
HAP2 Pty Ltd v Bankier [2020] QCA 152, [63]-[81].
Adam v Perpetual Trustees Australia Ltd [2006] SADC 62, [186]-[212].
Ali v Poynton Ltd [2002] VSC 113, [266]-[270].
Astley v Austrust Ltd (1999) 197 CLR 1, [30], [35].

[A18.Z] Misc

Gregory Curtin, 'The legal case against financial planners' (2010) 97 Precedent 36 <https://www.austlii.edu.au/au/journals/PrecedentAULA/2010/26.pdf>.
Pauline Sadler, 'Liability for Negligent Misrepresentation in the Finance Industry' (2009) 11 Legal Issues in Business 17 <https://classic.austlii.edu.au/au/journals/LegIssBus/2009/3.pdf>.
'Professional standards for financial advisers' (ASIC) <https://asic.gov.au/regulatory-resources/financial-services/financial-advice/professional-standards-for-financial-advisers/>. -- Corporations Amendment (Professional Standards of Financial Advisers) Act 2017; Financial Sector Reform (Hayne Royal Commission Response – Better Advice) Act 2021 (Cth).
'High Court makes it harder for financial advisers to apportion claims' (Cooper Grace Ward Lawyers, 22 May 2015) <https://cgw.com.au/publications/apportionment-of-liability-by-financial-advisers/>.
Simone Degeling and Jessica Hudson, 'Equitable Money Remedies Against Financial Advisers who Give "Advice about Advice"' (2015) 33 Corporate & Securities Law Journal 166.
RP Austin and Michael Vrisakis, 'Personal Financial Product Advice underr the Corporations Act' (2017) 35 Corporate & Securities Law Journal 503.
Pelma Rajapakse and Jodi Gardner, 'Legal Liability for Financial Advisors in Australia and Singapore: A Comparative Perspective' (2015) 6(1) Global Review of Accoounting and Finance 176 <http://dx.doi.org/10.21102/graf.2015.03.61.12>.
Jane Campbell and John Wakim, 'Referring clients for financial advice: Is it worth the trouble?' (2004) 61 Plaintiff: Journal of Australian Plaintiff Lawyers Association 13 <https://classic.austlii.edu.au/au/journals/PlaintiffJlAUPLA/2004/6.pdf>.