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)  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  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).