LAW3108 Finance Law

1. LAW3108 Finance Law Module 6 Professional Liability

2. 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

3. 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

4. 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

5. 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

6. 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

7. Specific Liability1. Bankers Banker�s Advice (SR 6.3) Duty to Advise: Contractual Duties Duties in Tort Equitable Doctrines Statutory Duties

8. 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?

9. 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 agreement�s object

10. 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 .

11. 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 <$40,000 (not amount of loan but fees etc)

12. 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

13. 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 speaker�s information/advice

14. 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 - > normal rel�ship - assumed responsibility to monitor loan; take positive action if need arose

15. 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

16. 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?

17. 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

18. 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

19. 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

20. Statutory Duties s 52 TPA: misleading /deceptive conduct

21. 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

22. 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)

23. 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)

24. Investment Advisers Providing Personal advice: Reasonable basis for advice Determine client�s 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