Negligent Advice

Topics: Financial services, Tort, Negligence Pages: 3 (645 words) Published: March 17, 2013

To prove that negligence exists, three elements must be established.


Two factors must be established, relationship proximity and reasonable foreseeability.

According to Hedley Byrne principle(Hedley Byrne v Heller & Co Ltd [1964] AC 465), there was a relationship of circumstantial proximity between a professional financial adviser and client, which gave rise to Denise owing Charlie the duty of care because Charlie would rely on Denise with the intention to act on the information or advice given by Denise.

As a professional financial adviser, Denise can reasonably foresee that if advice is given without reasonable basis, it may cause Charlie to lose all his savings.


It is an obligation on Denise under Corporation Act 2001 – Section 945A and B to do a fact find and reasonable inquiries on Charlie’s circumstances so that appropriate advice with reasonable basis can be given to Charlie and to match product to Charlie’s requirement. The following points proved that Denise, as a professional, failed to meet the standard of care, thus the duty of care was breached.

As required by the Corporation Act 2001, the FSG was not given to Charlie before the financial service is provided: Section 941D. Charlie was also not provided with a SoA: Section 946A. A PDS was not provided to Charlie when Denise recommended products: Section 1012A -1012C.

Similar to (Ali v Hartley Poynton Ltd [2002] VSC 113) Charlie who was not educated in financial matters relied on Denise who failed to explain the associated higher risk of higher return financial products that were not within Charlie’s risk tolerance and misrepresented the returns were guaranteed. In accordance to (Newman v Financial Wisdom Ltd (2004) 56 ATR 634) Denise recommended the product of Ostrich farm unit trust without reasonable basis and failed to explain the nature of the product, which resulted in Charlie not able to make an informed decision and...
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