In March this year the Supreme Court of Queensland delivered its decision in Jamieson & Ors v Westpac [2014] QSC 32. The decision is a reminder to financial advisors of their obligations to clients in providing financial advice and demonstrates the importance of ensuring that clients are fully informed before making investment decisions.

Facts

In May 2007, Westpac Bank (Westpac) provided a statement of advice (the Advice) to Mr Mark Jamieson, his wife and a company controlled by Mr Jamieson (Jamiesons). The Advice recommended two investment strategies.

Investment strategy one

The first strategy recommended that Mr Jamieson borrow $5 million from Macquarie Bank. The proceeds of this loan were to be invested into an investment scheme described as the ‘MQ Gateway Trust’ (MQ Gateway Trust Investment). The aim was that the growth of the value of the investment would provide a return greater than the costs of the loan and other administrative costs.

Investment strategy two

The second strategy recommended that the Jamiesons borrow $600,000 from Westpac to make substantial undeducted contributions to a self-managed superannuation fund which would invest funds in self-funding instalment warrants.

At the time  of the investments the Jamiesons had substantial personal assets and were experienced and sophisticated investors. Both investment strategies were ultimately unsuccessful.

The Jamiesons’ claim

The Jamiesons sued Westpac for breach of contract, negligence and contraventions of the Australian Securities and Investments Commission Act 2011 (Cth) (ASIC Act). The Jamiesons argued that they would not have entered into the MQ Gateway Trust Investment or the associated loans but for Westpac’s negligent advice and thus would not have suffered the alleged loss.1

The alleged breaches

Capitalised Interest Assistance Loan

The Jamiesons alleged that Westpac negligently failed to draw their attention to, or mention in the Advice, the Capitalised Interest Assistance Loan. The failure to mention and explain the Capitalised Interest Assistance Loan meant that interest implications concerning the investment were not made clear to the Jamiesons.

Failure to provide terms and conditions of investment and associated loans

The Jamiesons alleged that Westpac failed to provide Mr Jamieson with the full terms and conditions of the MQ Gateway Trust Investment prior to the investment being made.

Failure to advise the Jamiesons of their exposure

The Jamiesons alleged that Westpac failed to advise them of the true extent of their exposure in respect of the MQ Gateway Trust Investment. Westpac had advised, in an unqualified way, that investments in MQ Gateway Trust associated loans put less than ten per cent of Mr and Mrs Jamieson’s overall net wealth at risk of loss.

Did the allegations amount to breach of contract and/or tort?

Westpac admitted that it owed a duty of care (in tort) to take reasonable care in the provision of financial advice to Mr and Mrs Jamieson.2 Jackson J made the following findings:

  • it was a breach of contract and negligent for Westpac to fail to mention the Capital Interest Assistance Loan or to describe more accurately its operation;3
  • it was a breach of contract and negligent for Westpac to fail to provide the Jamiesons with the full terms and conditions of the MQ Gateway Trust Investment;4
  • it was a breach of contract and negligent for Westpac to state in an unqualified way that investments in MQ Gateway Trust associated loans put less than ten per cent of Mr and Mrs Jamieson overall net wealth at risk of loss.5 Westpac should have made the potential impacts and risks of the investment clear to the Jamiesons; and
  • each of the findings of breach of contract or negligence was also misleading or deceptive conduct or conduct that was likely to mislead or deceive in contravention of s12DA(1) ASIC Act.6

Damages

In finding that the losses included those arising from the global financial crisis His Honour said:

In my view Kenny & Good and Astonland provide a sufficient basis to conclude that loss caused by the general market decline associated with the global financial crisis should not be regarded as extraneous in measuring the loss caused or suffered by the breaches of contract, negligence or breach of s 12DA in respect of Mr Jamieson’s investment in the MQ Gateway Trust and associated loans.7

What to take away from this decision

Currently, there is a real focus on advice provided by financial advisors. The recent controversy concerning the Senate Report into financial advice provided by Commonwealth Bank financial advisors throughout 2003-2012 will only mean that advice provided by financial advisors will continue to come under further scrutiny.

Financial advisors should consider this decision a reminder of one of their most paramount obligations in ensuring that the client is fully informed of all relevant information and potential risks before making an investment decision.