LAW3108 Finance Law

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LAW3108 Finance Law

• Module 6 Professional Liability

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Module 6 Objectives

• describe sources of potential liability of
  professional advisers to their clients and third
  parties under general law
• outline potential sources of liability arising
  under statute pertinent to professions associated
  with the banking and finance and related
  industries
• apply law on responsibility for financial advice

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Professional Liability

• in general
• general law contract, torts, equity
• statute law TPA
• liability specific to profession
• concentrate upon bankers financiers and
  financial advisers
• bankers
• investment advisers

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Liability at General Law

• Torts
• negligence (negligent mis-statement)
• Contract
• breach of express or implied terms
• Equity
• equitable remedy eg contract (misrepresentation)
  fiduciary relationships undue influence
  unconscionable conduct

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Liability under Statute (TPA Fair Trading Act)

• s 52 TPA
• A corporation shall not, in trade or commerce,
  engage in conduct that is misleading or deceptive
  or is likely to mislead or deceive.
• s 74 TPA (no exclusion s 68 TPA)
• implied warranty in supply of services that
• services will be rendered with due care skill
• services will be fit for known purpose

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Loss Control

• Avoid unprofessional conduct
• see standards
• Statutory authority SR 6.1 4-280
• Case law SR 6.3 p 187, Einfeld J w.r.t. bankers.
• Compliance
• Disclaimers
• not always appropriate or effective
• see SR 6.1 4.240 SR 6.3 pp 202 - 205
• Professional Indemnity Insurance

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Specific Liability1. Bankers

• Bankers Advice (SR 6.3)
• Duty to Advise
• Contractual Duties
• Duties in Tort
• Equitable Doctrines
• Statutory Duties

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Contractual Duties

• relationship of banker and customer essentially
  one of contract (Latimer SR 1.5 16-040 )
• Express terms - usually minimal eg bank accepts
  account of customer
• term to give financial advice? - implied from
  officers statements or advertising?

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Contractual Duties

• Implied terms of contract -
• exclusive contracts where contract complete
  (parole evidence rule - 4 corners clause) - no
  implied terms
• non-exclusive contracts eg banker /customer
  (refer to banking practice)
• implied from parties conduct
• implied as necessary to achieve agreements object

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Contractual Duties

• Implied term to give advice?
• does not arise out of general content of
  bank/customer contract
• may arise out of specific services or transaction
• eg forex loans in most cases, plaintiff customer
  alleged that bank officers assured customer that
  the loan was safe and undertook to provide
  continual monitoring of it .

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Contractual Duties

• Implied term from statute
• s 74 TPA provision of service to consumer -
  implied term that it will be rendered with due
  care and skill
• s 4 services - includes contract between banker
  and customer in course of business of banking
  (see Maguire text)
• s 4B consumer - price of services lt40,000
  (not amount of loan but fees etc)

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Duties in Tort

• SR 6.1 and 6.2
• Negligence
• duty of care
• breach of standard of care
• damage caused by breach
• causation - not too remote

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Duties in Tort

• Duty of care - negligent mis-statement?
• special relationship L Shaddock Assoc P/L
  Parramatta CC (HC)
• circumstances such - caused (or be calculated to
  cause) speaker to realise being trusted by
  recipient to give information/advice
• subject matter - serious or business nature
• speaker realises or ought to realise recipient
  intended to act on information/advice
• reasonable for recipient to seek, or accept, and
  to rely upon speakers information/advice

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Duties in Tort

• Duty of care
• Westpac Banking Corporation v Potts 1992 FC SC
  Qd not necessarily a duty in banker/customer
  relationship w.r.t. advice
• depends on relative commercial skill and
  knowledge of parties SR 6.3 pp 185 - 188
• eg Foti v Banque Nationale de Paris 1989 SC SA -
  gt normal relship - assumed responsibility to
  monitor loan take positive action if need arose

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Duties in Tort

• Standard of care?
• standards set by prevailing banking practice -
  adviser not a guarantor
• see Quaede v Commonwealth Bank of Australia 1988
  Fed Ct, Einfeld SR 6.3 p 187
• to exercise skill and care of prudent financier
  in supplying information

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Duties in Tort

• Causation?
• in foreign exchange, loss caused by AUD drop
• plaintiff must show excessive loss not have
  occurred but for failure of banker to advise
  plaintiff properly eg to hedge risk
• Remoteness?

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Equitable Doctrines

• fiduciary relationship
• banker/customer relationship not normally a
  fiduciary one
• only in special circumstances Lloyds Bank Ltd v
  Bundy 1975 QB 326 - customer depended
  completely on advice of bank manager

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Equitable Doctrines

• undue influence
• is relationship one where undue influence
  presumed? - if so superior party must show s/he
  took no advantage of other party and other party
  exercised free judgment based upon full
  information
• if not such a relationship, weaker party must
  show entered transaction because of undue
  influence of stronger party

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Equitable Doctrines

• unconscionable conduct
• one party was at a special disadvantage in
  dealing with other party
• other party unconscientiously takes advantage of
  the fact
• Commercial Bank of Australia v Amadio 1983 HC

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Statutory Duties

• s 52 TPA misleading /deceptive conduct

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Specific Liability2. Investment Advisers

• Reading SR 6.4 extended reading see notes
  below for major points
• general law principles apply to investment
  adviser/client relationship
• specific regulation exists in respect of
  licensing and standard of services to be provided

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Investment Advisers

• Corporations Act 2001 (Cth) amended by Financial
  Services Reform Act 2001
• Australian financial services licence (AFSL)
  people who carry on financial services in
  jurisdiction to be licensed
• S 766A defines provision of financial services
  includes providing financial product advice
  (defined in s 766B)

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Investment Advisers

• Obligations
• Strong compliance system and procedures in place
  to properly conduct its business
• Eg ensure financial services are provided
  efficiently, honestly and fairly (s 912A(1)(a))
• Obligations to retail clients
• Provide Financial Services Guide
• Provide Statement of Advice (SoA)

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Investment Advisers

• Providing Personal advice
• Reasonable basis for advice
• Determine clients personal circumstances
• Make reasonable enquiries about them
• Warn client if advice is based on incomplete or
  inaccurate information
• Give client an SoA (ss 947B 947C) including
• Set out the advice the basis on which it is
  given any benefits advisor might receive from
  giving the advice that might influence the advisor