Financial Services

The case of Swan & Baker Pty Ltd v Marando [2013] NSWCA 233 is a matter concerning financial negligence on the part of a financial adviser. The case reveals an element of the duty of care held by financial advisers, namely that the duty of care can continue beyond the provision of financial services. It also illustrates circumstances in which this duty can be breached.

A. Facts

Mr and Mrs Marando used the accounting services of Swan & Baker for many years. They only had a basic understanding of money matters, the extent of their understanding limited to the previous experience of Mr Marando in buying and selling properties.

Mr and Mrs Marando decided to invest $500,000 in a term deposit. Mr Legat, of Swan & Baker, advised the use of a Mortgage Fund (‘the Fund’) in the form of a registered managed investment scheme. A copy of the Fund’s Product Disclosure Statement was provided to Mr and Mrs Marando, which detailed a cooling off period of 14 days for new investments. Mr Legat did not make the cooling off period known to Mr and Mrs Marando. It was common ground under the terms of the Product Disclosure Statement that the cooling off period would expire on the 18 March 2008. The form to apply to the Fund was lodged on the 26 February.

It became apparent from media articles published on the 28 February and 4 March that the Fund was in severe financial difficulties. On 3 March 2008, the Fund extended the period of investment to 180 days (as opposed to the agreed 90 days). However, Mr and Mrs Marando were on holiday until late March. It was on their return that they received a notification from the Fund detailing these changes, which also included a reminder of the existence of the 14-day cooling off period. Mr Marando then contacted Mr Legat, where Mr Legat informed Mr Marando that there was nothing to be done at that point in time. A redemption request was completed by Mr and Mrs Marando, however the Fund later resolved that all existing redemption requests were extinguished. Mr and Mrs Marando subsequently sustained substantial loss.

B. Decision

The appeal court at paragraph [50] held that Swan & Baker owed Mr and Mrs Marando a duty of care when advising them to invest in the Fund. Justice Sackville stated that this duty required Swan & Baker to take reasonable care that the advice provided was both accurate and did not expose Mr and Mrs Marando to an avoidable risk of financial loss. His Honour stated that the duty of care would not have been breached ‘if, for example, Mr Legat had advised the respondents to invest in the Fund without undertaking obvious inquiries that would have revealed that the Fund was in a precarious financial position or that the respondents were unlikely to be able to redeem their investment at the expiration of the 90-day term.’ (see paragraph [52])

It was found that this duty held by Swan & Baker to Mr and Mrs Marando did not end once they had made their investment. This was predominantly a consequence of the freeze on redemptions, which increased the risk of financial loss and was a matter that Mr Legat knew. Moreover, Mr Legat knew that Mr and Mrs Marando were on holiday and he had their telephone details, yet failed to contact them. The court held Swan & Baker had breached their duty of care to ‘avoid a real and foreseeable risk of economic loss’ to Mr and Mrs Morando. (see paragraphs [54], [60], [74])

Evidently, the case of Swan & Baker v Marando provides some insight into the duty of care binding financial advisers, particularly in relation to financial negligence. If you believe this case raises similarities to your matter, it may be beneficial to contact the Oppenheim Legal team for further clarification.

This article was authorised by Warwick Heeson.

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