Financial planning groups have been provided with a clearer definition about the potential extent of their liability in cases involving misleading and deceptive conduct and breaches of duty of care which may in turn reduce professional indemnity insurance premiums.
The definition stems from a recent appeal by WealthSure regarding costs in a long running case brought against the group. The appeal decision handed down on May 30 effectively reduced by half the costs owed by WealthSure and David Bertram, a former financial adviser of the group.
The original case was brought seeking $1.7 million in damages for advice provided by Bertram regarding investments in failed property development groups Neovest and Norton Capital.
While that case was won by the clients – Ronald and Janna Selig- WealthSure appealed the apportioning of costs with the 30 May ruling finding they would be apportioned between the Seligs, Wealthsure and Bertram, and the directors of Neovest and Norton Capital.
Halsey Legal Services principal Mark Halsey said the decision by the majority of the Full Federal Court to apportion damages in the Wealthsure case had important implications, particularly as it could only be challenged in the High Court of Australia.
He stated the appeal established “that liability between defendants under the Corporations Act 2001 will be apportioned based on the relative degree of responsibility, even if only one cause of action for the same loss or damage is apportionable”.
This differed from the judgement in the initial trial in which the Seligs sued a total of 13 defendants including WealthSure and Bertram. The ruling in that trial stated that WealthSure was liable for the total losses suffered by the Seligs since they were the result of advice provided by WealthSure.
Halsey said the appeal not only establishes that this was not the case and but also looked to enact the legislative intention behind proportionate liability.
“When the proportionate liability regimes were introduced, it was said that part of the rationale for the introduction was to prevent so-called deep pocket syndrome — i.e. circumstances in which the plaintiff lawyers targeted the more substantial defendants, or the defendants that had substantial professional indemnity insurance.”
Halsey stated that as a result of the appeal financial planners and their licensees now have “greater certainty about more realistically scoping the potential extent of their liability in cases involving misleading and deceptive conduct and breaches of duty of care”.
“It is hoped that the result of this successful appeal will tend to permit downward pressure on professional indemnity insurance premiums.”
