Financial Products and Financial Advisers

A summary of this matter is contained in the Practice Area, Companies and Associations Law – Judicial Advice Applications contained on this web-site. The matter involved an application by a liquidator for Judicial Advice pursuant to s 479(3) of the Corporations Act and/or cl 90-15 – 90-20 of the Insolvency Practice Schedule for approval for an assessment and payout scheme for over 100 claimants who had alleged that they had been negligently advised by a financial advisory group to make certain investments resulting in them sustaining financial loss.

This matter involved an appeal from the first instance decision of Jagot J in Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200. The appeal involved complex issues in relation to:

• Breach of contract and damages;
• Breaches of the Corporations Act;
• Financial products that were held to be derivatives under s 761D(1) of Corporations Act 2001 (Cth);
• Misleading and deceptive statements – whether statements were based on reasonable grounds and were the result of the exercise of reasonable care and skill – the effect of disclaimers and proportionate liability provisions;
• The rescission requirements contained in s924A of Corporations Act 2001 (Cth);
• Damages – causation – remoteness – “rule” in Potts v Miller (1940) 64 CLR 282 – contributory negligence – statutory damages – measure for damages– and apportionment – proportionate liability;
• Equity – fiduciary obligations and breach of fiduciary duty – equitable compensation – equitable contribution;
• Insurance – whether a party was an insured entity pursuant to a contract of insurance – the effect of s 48 of the Insurance Contracts Act 1984 (Cth) – duty of disclosure – construction of terms;
• Practice and Procedure - entitlement to raise new matters on appeal;
• Statutory interpretation– whether investment permissible under s 625 of Local Government Act 1993 (NSW)– whether product a security within the meaning of relevant Ministerial order;
• Tort – whether a duty of care was owed – negligent misstatement – indeterminate liability –vulnerability – causation – unlawful conduct – effect of disclaimers – contributory negligence;
• Trade Practices –misleading and deceptive conduct – whether conduct engaged in “in this jurisdiction” – whether conduct in relation to financial product or financial services – “mere conduit”.

This long matter involved numerous claims by a number of New South Wales Councils against a financial advising company which had recommended that the Councils invest in a financial product known as “Rembrandt notes”. These Notes were held to be a form of hedged derivatives. Questions of duty of care, breach of contract, breach of fiduciary duty, breach of statutory provisions including provisions contained in the Corporations Act were raised. Other questions included whether a ratings agency owed a duty of care and whether the particular agency breached that duty when they rated the particular financial product “AAA”. Other questions of negligence were raised in relation to the Bank who had created the product. Insurance issues of non-disclosure were also raised.

This matter involved an application by a representative party, who, together with other group members, were clients of a financial services business conducted by the respondent between 2003 and late 2005 and who, in reliance on advice given by the respondent, invested in one or more financial products known as "Westpoint Products", and suffered loss as a result. The contention was that the respondent acted negligently, in breach of contract and engaged in misleading and deceptive conduct. In addition, there were claims for breach of s 912A Corporations Act. These particular proceedings involved an application to rely upon a proposed further amended statement of claim.