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.
AUTHOR
Jason Spits
Recommended for you
As advisers risk losing two-thirds of FUA during the $3.5 trillion wealth transfer, two co-founders underscore why fostering trust with the next generation is vital to retaining intergenerational wealth.
As advisers seek greater insights into FSCP determinations, what are the various options considered by the panel and can a decision be appealed?
Amid the current financial adviser shortage, advice firm Link Wealth is looking to expand its financial literacy program for high school students across the country.
TAL Risk Academy has updated its range of ethics courses to help financial advisers meet their CPD requirements following adviser feedback, including interpreting FSCP determinations.
