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Brief Counsel

Court order against financial adviser unlikely to set precedent

24 September 2009

The order by the High Court that a financial adviser pay almost $260,000 in damages to an elderly widow whom it advised to invest in a Blue Chip scheme is unlikely to set a strong precedent for similar claims in our view.

This Brief Counsel discusses the case and its potential implications for others.

The case

Beryl Breeze was 75 years old when VPFS Financial Planners Ltd (VPFS) advised her to invest in Blue Chip.  The investment was described by Mrs Breeze’s expert witness as “unwise” and “wholly unsuited” to an investor in Mrs Breeze’s position.  The Court agreed that, because maximisation of gains for the investment was “some years down the track”, it was “an unsuitable investment for her, and obviously so.”

VPFS had advised Mrs Breeze for several years and knew her conservative investment profile “aimed at modest income returns”.  The Court held that VPFS provided poor advice to Mrs Breeze and that it failed to meet the standards of a reasonable financial adviser.

The Court, having found VPFS to have been negligent, ordered the company to pay Mrs Breeze the amount of her loss, as well as $43,000 in legal costs and disbursements of $10,000.

VPFS did not defend the case, which was dealt with “on the papers” (that is, by affidavit evidence), without the need for a hearing.  The affidavits were from Mrs Breeze and her expert witness, and this material was not contested.  The Court’s judgment is short, with only a brief discussion of the relevant facts and no examination of the relevant law. 

Potential implications for other cases

At least one commentator has claimed that the case could become a “benchmark” for other claims relating to the $80 million Blue Chip collapse last year.  In our view, it would be premature to claim that Mrs Breeze’s victory sets a strong precedent for similar claims.

Few other cases are likely to be as straightforward as Mrs Breeze’s, which required the application of well-settled principles to achieve a common sense outcome. 

In general, a professional owes a duty to a client to take reasonable care when giving advice to that client.  A professional’s actions will be measured against what a reasonably competent and prudent professional would have done in the circumstances. 

Like many disputes, claims of professional negligence turn on their particular facts.  For a plaintiff in Mrs Breeze’s position, the Court had no difficulty finding the adviser liable.  In other circumstances, where sophisticated, well-informed investors are involved, the Court is likely to be required to carefully assess competing expert views and evidence before granting judgment.

In some cases, an adviser will no longer be in business or will not have the funds to satisfy any claim.  In this situation, claimants will no doubt look to the adviser’s insurer (if any) to recover losses.

For further information, please contact; Michael Arthur, James Burt or James McMillan

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