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Confusion reigns on financial advice liability

Confusion reigns on financial advice liability

Tim Stewart
— 1 minute read

Two contradictory Federal Court judgements concerning proportionate liability have left the financial planning industry scratching its head, says a financial services lawyer.

The Full Court has issued "two separate and contradictory judgements" on the topic in less than a month, said Halsey Legal Services principal Mark Halsey.

In the case of Selig v WealthSure, the Australian Financial Services licensee and its representatives were held to be fully liable for their clients' losses – despite the case involving 11 other defendants including the product issuer, said Mr Halsey.

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WealthSure successfully appealed the verdict, arguing that it should only be liable for a proportion of the liability, he said.

"In the appeal ... the Full Court held by a majority of 2-1 that the whole of the claim against an AFS licensee and its representative should be apportioned, despite the fact that the clients (Seligs) had succeeded in other causes of action (parts of the claim) which were non-apportionable," said Mr Halsey.

However, in ABN Amro Bank NV v Bathurst Regional Council, the Full Court of the Federal Court unanimously held that the proportionate liability provisions in the Corporations Act only apply in respect of conduct that is "misleading and deceptive" (section 1041H).

"The Full Court held that the express reference to section 1041H in the context of proportionate liability appears to indicate parliament’s intention to exclude defendants whose conduct was deliberate or reckless from the benefit of the reduction in liability that can come under the proportionate liability regime," said Mr Halsey.

"These two directly contradictory Full Federal Court judgements come at a bad time for the financial advice industry," he added.

"The industry has been subject to months of uncertainty and confusion relating to the ultimate form of the FOFA regime going forward as a result of the confused position in parliament and the Senate," said Mr Halsey.

"[The industry] can certainly do without contradictory and confusing messages from the courts. If ABN Amro is followed, it would appear to be “business as usual”. However, if WealthSure is followed it may tend to benefit financial advisers and their PI insurers because it is likely to limit their liability."

 

Confusion reigns on financial advice liability
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