In 2012 in a significant decision for financial advisers, the  Federal Court of Australia found a foreign bank, credit agency  and an Australian investment advisory company were all liable  for misrepresentation with respect to the sale of a financial  product to local councils in New South Wales (Bathurst  Regional Council v Local Government Financial Services Pty Ltd  (No 5) [2012] FCA 1200). 

We noted at the time of the original decision that although  the case concerned financial products, it had implications for a  variety of industries. In particular:

  • A company engaged to provide an opinion or assessment  cannot necessarily rely upon information provided to it  for the purpose of formulating the opinion. The company  must exercise due care and skill to satisfy itself that it is  appropriate to rely upon the information provided. This has  application in a broad range of industries including banking,  financial services, insurance, construction, engineering,  environment and accounting;
  • Notwithstanding written disclaimers to the effect that  opinions should not be relied upon, companies who are  engaged to provide independent views, but who fail to verify  information relied on or who fail to take into account all  relevant factors, may still be found liable to third parties who  rely on the opinion provided;
  • There is a risk that companies who publish the opinion of an  independent expert in selling a product may be held liable for  misleading and deceptive conduct if they are aware that the  independent opinion is not based on accurate information (for  example, if they know the data provided to the independent  expert was controlled to achieve a particular opinion); and
  • Financial advisers with long standing client relationships  who fail to ensure their clients understand the nature of the  investment may be liable to the client for losses incurred as a  result of that investment.

ABN Amro Bank NV (ABN Amro), ratings agency Standard &  Poor’s (S&P) and investment adviser Local Government Financial  Services Pty Ltd (LGFS) appealed the original Federal Court  decision to the Full Court of the Federal Court of Australia: ABN  Amro Bank NV v Bathurst Regional Council [2014] FCAFC 65.

The Full Federal Court dismissed the appeals including the  argument of S&P that because it was supplying the product to  an experienced commercial entity which had its own Australian  Financial Services Licence and experience in the financial  markets it did not owe a duty of care to LGFS. The Court rejected  this argument and held that in the circumstances S&P still owed  a duty of care to LGFS.

The only changes to the decision of the trial judge made by the  Full Court was to narrow the scope of information in LGFS’s  possession that was said to create a conflict of interest for the  investment advisor that it should have told its clients about and  to clarify that one of the claims was not apportionable under the  Corporations Act 2001 (Cth).