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Module 6: Objectives. describe sources of potential liability of professional advisers to their clients and third parties under general lawoutline potential sources of liability arising under statute pertinent to professions associated with the banking and finance and related industriesapply law on responsibility for financial advice .
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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