A decision of the Federal Court provides some useful reminders
about misrepresentations by financial brokers and reliance on
statements passed on by those brokers.
Dartberg Pty Ltd (as trustee for Pollard Children Trust) v
Wealthcare Financial Planning Pty Ltd (No 2) (2009) 74 ACSR
373 involved a dispute between the cross-claimant, Wealthcare, and
the cross-respondent, Property Investment Research Pty Ltd (PIR),
whereby Wealthcare was seeking damages against PIR in the amount of
$350,000 plus the costs incurred in defending the claim in the main
proceedings. Those proceedings (which were settled prior to the
hearing) concerned claims by Dartberg Pty Ltd (Dartberg) against
Wealthcare relating to investments made by Dartberg on the
recommendation of Wealthcare in promissory notes issued by two
companies within the collapsed Westpoint group of companies.
In 2001, Wealthcare was supplied with two PIR Reports from
Westpoint relating to certain promissory notes backed by two
related companies. Each was accompanied by an Information
Memorandum. Shortly thereafter, those promissory notes were placed
on Wealthcare's approved product list. Throughout 2002,
Dartberg invested in the promissory notes and in 2005, the two
related companies went into liquidation.
At trial, it was alleged by Wealthcare that, in its reports, PIR
made representations that were false and misleading as they failed
to provide that the offering of the promissory notes was of an
interest in a managed investment scheme and so fell within the
definition of "securities" under s 92 of the
Corporations Act 2001 (Cth) (the Act) and consequently was
subject to the registration, prospectus and other requirements set
out in the Act. It was alleged that as registration requirements
were not followed, the schemes were liable to be wound up.
In his decision, Middleton J characterised the alleged
misrepresentations as merely passing on the information in the
Information Memoranda, namely, that the issue of the promissory
notes was not covered by the Act, and held that it was up to the
reader of the PIR report to make enquiries and to be satisfied that
the offer met all compliance criteria such as required by the
Managed Investments Act 1998 (Cth) or the Act.
He further held that whilst P IR made representations as to the
investments being of an "investment grade" quality, it
was not suggested that the statement as to "investment
grade" quality was not one honestly held. If this was based on
the Information Memorandum, it would involve no misleading or
deceptive conduct. He found no misleading conduct on the part of
PIR, nor that the statements made by PIR were false or
As to causation, Middleton J held that even if the statements in
the PIR reports were false or misleading and deceptive, the
evidence suggested that there was no causal connection between them
and the actions of Wealthcare and the damage alleged to have been
It was held that the evidence established that Wealthcare did
not rely on the representations in the PIR report when making the
recommendation and that even if the alleged misrepresentations
relied upon by Wealthcare were false, or PIR's conduct was
misleading or deceptive, this was not a cause of the loss suffered
Accordingly, the cross-claim was dismissed.
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This part will cover the legal position in relation to promotional materials and misleading and deceptive conduct.
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