Any certainty planners, licensees and professional indemnity insurers may have gained from a recent court decision regarding proportionate liability has been undermined by a second case in the Full Federal Court of Australia which has contradicted the first, according to a lawyer working in financial services.
Halsey Legal Services principal Mark Halsey said that planners, licensees and insurers were given a clearer picture of the potential extent of their liability in cases involving misleading and deceptive conduct and breaches of duty of care. The clarification was a result of a recent appeal by financial planning group WealthSure regarding costs in a long running case brought against the group.
The appeal decision handed down on May 30 apportioned the costs between the clients, WealthSure, one of its former advisers and two failed property investment groups.
At the time of the decision Halsey stated that it could only be overturned by the High Court of Australia but a recent case (ABN Amro Bank NV v Bathurst Regional Council), also heard in the Full Federal Court, has contradicted the same court's previously stated position.
As a result of these two decisions Halsey said the financial advice sector was "now faced with the uncertainty of two directly contradictory Full Federal Court decisions relating to proportionate liability as it applies to financial advisers under the Corporations Act 2001, and ASIC Act 2001".
Halsey stated that in the WealthSure appeal case the Full Federal Court held by a majority of two to one that the whole of the claim against an Australian Financial Services licensee and its adviser representative should be apportioned and interpreted section 1041L(2) of the Corporations Act to mean that proportionate liability provisions of the statute are triggered in circumstances where different causes of action caused the same loss or damage.
However Halsey said in the ABN Amro case the Full Federal Court unanimously held that the proportionate liability provisions only apply to misleading and deceptive conduct that contravened section 1041H of the Corporations Act which was innocent and without allegation that the conduct was intentionally misleading or deceptive.
He said the two contradictory judgements were not ideal for advisers, arriving during the debate around the Future of Financial Advice reforms and "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," Halsey said.