High Court hits financial advisors where it hurts – restriction on apportionment of liability
Where a financial advisor is found to have engaged in misleading and deceptive conduct with respect to financial products or services provided to a client, the Corporations Act 2001 (Cth) (Act) requires that the financial advisor compensate that client for any loss suffered due to such conduct. Historically, a financial adviser who found themselves in such a situation could seek to rely on other provisions in the Act to limit or reduce their liability if they could show that conduct of their client, or even a third party, contributed to the loss suffered by their client. This concept is known as apportionment of liability.
There have been, in recent times, conflicting Full Federal Court decisions regarding this apportionment of liability principle and its application to claims against financial advisors. The High Court of Australia has now resolved this conflict in the handing down of its decision in Selig v Wealthsure [2015] HCA 18.
The conflict had arisen in circumstances where a financial advisor was sued, not only on the basis of having engaged in misleading and deceptive conduct, but where there were also claims against the financial advisor of having breached other duties (for example, a common law duty of care). Did the apportionment of liability principle apply to the other breaches of duty claimed, or only to the duty not to engage in misleading and deceptive conduct?
The High Court, in a unanimous 5-0 ruling, decided that the apportionment of liability regime under the Act is available to financial advisors to reduce their liability only in respect to claims of misleading and deceptive conduct, not in respect to any other breach of duty which may have occurred.
Whilst the High Court undoubtedly reached the correct decision, the practical consequence of the judgment is that the ability for financial advisors to limit or reduce their liability by claiming apportionment under the Act has all but disappeared.
If a client now wishes to pursue a financial advisor for loss allegedly suffered then, in order to defeat any attempt by that financial advisor to apportion their liability to the client (including by using the client’s own conduct), all that is required is for the client to show that the alleged loss arose due another breach of duty by the financial advisor (such as a breach of contract or breach of common law duty), rather than from the financial advisor engaging in misleading and deceptive conduct. From a legal perspective, it would be a rare case indeed where a claim for misleading and deceptive conduct against a financial advisor could not also support a case involving a breach of contract or breach of a common law duty.
In light of the Selig v Wealthsure decision, it would be prudent for financial advisors to review their internal risk management systems with a view to ensuring best practice when providing products or services to clients.
If you would like further information on the above matters, please contact Craig Shepherd or Anneliese Seymour at Murdoch Lawyers on (07) 4616 9898.
Prepared by Craig Shepherd
This publication has been carefully prepared, but it has been written in general terms and should be viewed as broad guidance only. It does not purport to be comprehensive or to render advice. No one should rely on the information contained in this publication without first obtaining professional advice relevant to their own specific situation.
