Investment Law Au

Topics: Financial adviser, Investment, Collective investment scheme Pages: 12 (3162 words) Published: February 23, 2013

Law of Investment and Financial Markets
LAW 2460
Group Report

Through an anonymous letter, Mandy was induced into attending a seminar held by Warren Hopkins. Mandy trusted the advices given by Warren and the professional investment managers and signed up for Investbank. However, months later she found out that the Investbank system was a scam.

There are several issues to be addressed, mainly with regards to whether did Warren owe Mandy a duty of care and if Mandy's funds are able to be recovered. We will be addressing the issue through 2 categories of law, namely statutory and common law.

Common Law

Negligent Advice

Under the rules of negligence, a plaintiff could claim damages for pure monetary losses caused by a negligent statement without any physical damage being present. This rule applies even as no contractual relationship exists between two parties. Hedley Bryne & Co Ltd V Heller & Partners Ltd. 1

By applying the neighbor principle, Donoghue v Stevenson2, when Warren and the professional investment managers come forth for the seminar, it is presumably appropriate to say that the speakers should have realized that their speech would be relied upon in decision-making for the investors, especially so when this is a seminar, not just a casual social gathering. Therefore, it can be assumed that it was reasonable for Mandy to have relied on the speakers' speech, since they were introduced as 'professional investment managers'. RSP Architects Planners & Engineers V MCST Plan No. 1075) 3

Fiduciary Duties

As Mandy rely on the speakers’ advice and signed up for Warren’s Investbank, the speakers’ stands in a fiduciary relationship to Mandy. Boardman V Phipps4. In which a fiduciary duty is a responsibility to act in good faith for the benefit of another, the essence of this relationship is to exercise duties in the interests of the other, not in order to gain secret profits. ASIC V Citigroup5 Warren not only failed to exercise his duties in the interest of Mandy Pilmer V The Duke group Ltd6 but also failed to provide a transparent disclosure of the product to Mandy. Aequitas v Aefc7

Contract Law

Mandy reads a one page flyer about the Investbank system and signs up. The issue here is what has Mandy signed? ___________________________________________
[1964] AC 465 1 [2007] FCA 9635
[1932] UKHL 1002 [2001] 207 CLR 1656
[1999] 2 SLR 4493  [2001]. NSWC 147
[1966] UKHL 2 4

Simple contracts can be made orally or in written form. It is an agreement between two parties and in Warren’s case, the obligation of Mandy to make weekly payments here under shall constitute a contractual liability of a professional advisor and client. Rahmat Ali V Poynton(2002)8

By applying Parol Evidence Rule, if Mandy and Warren had a verbal agreement that her money will yield high returns based on warren’s investment system, Mandy is putting herself at the risk of not being able to recover her losses if Warren run away. Forefront Medical Technology Pte Ltd V Modern-Pak Pte Ltd. 9

With the ambiguous information provided in the question, it is not possible to decide whether has Warren breach the agreement under contractual law, however, it is highly recommended that Mandy should always have any agreements made in formal writing. Wellmix Organics Pte Ltd V Lau Yu man. 10


For a statement to be misrepresented, it must be first be a fact and not an opinion. Secondly, the representee must be induced into entering a contract relying on the statement.

By using words like, “Guaranteed”, Warren is assuring a future return based on the present. Futuretronics International P.L V Gadzhis. 11 Section 12BB of the ASIC Act proves that Warren’s advice was misleading and deceptive as he has no reasonable grounds to make that statement with respect to any...
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