Question mark over liability in EDR cases
Financial services providers may not be able to rely on proposed changes to proportionate liability laws in spreading the costs of damages in disputes, particularly where they are decided by external dispute resolution (EDR) bodies.
This is the view of The Fold solicitor director Charmian Holmes who stated that under the proposed laws, which will apply across Australia, proportionate liability would not apply in the event a dispute is taken to an EDR unless the parties expressly agree to it in the terms of any contract covering their business relationship.
However, Holmes said while clearly stipulating this arrangement in the contract was a solution for proportionate liability for those seeking alternative dispute resolution processes like mediation or arbitration it was inconsistent with arrangements outside EDR schemes.
"For those whose actions could be judged by an external dispute resolution body like the Financial Ombudsman Service, it seems extremely unfair that a dispute could be dealt with differently to court proceedings - especially when one party is legally required to submit client disputes to that body and has no influence over its terms of reference," Holmes said.
Proportionate liability, where responsibility for damages can be divided according to the degree to which each wrongdoer's actions contributed to the loss, has received more attention in recent months for the pressure it could place on professional indemnity insurance premiums for financial planners and licensees.
The most significant case in the past year has been that of WealthSure which was being sued for $1.7 million by two clients. In a ruling handed down in July, Wealthsure and the adviser involved David Bertram had damages against them halved under the proportionate liability conditions.
Holmes said that while the new laws are still yet to be finalised and will require each state and territory to amend their own laws to create a national alignment and recommended financial services providers involved with contracting seek legal advice around indemnities and dispute resolution clauses.
Recommended for you
Adviser willingness is the key hurdle to the uptake of ESG matters by financial advisers; they should not feel afraid or embarrassed if they are less familiar with what clients are seeking.
In his first move since the acquisition by Count, former Diverger managing director Nathan Jacobsen has taken up a new leadership role in the financial advice space.
Medical grounds are no excuse for compliance failures as a Victorian AFSL is sentenced for failing to lodge annual financial reports.
The balance of ASIC enforcement activity is skewed towards civil rather than criminal cases, but the corporate regulator says it is seeking to redress this balance.
