The best interests duty must relate to something The laws that
protect us from each other have developed largely through cases. A
case occurs when a particular transaction goes wrong. There will
always be involved the parties to the dispute (namely a
relationship of some sort) and a task (the thing that hasn't
been done properly). Accordingly it is always necessary to ask two
questions to identify the duties that the law imposes and what
those duties must be applied in relation to.
The first question is "what is the relationship between the
parties"? This might give rise to some or all of: contractual
duties, tortious duties, fiduciary duties and statutory duties.
Those duties will be to the effect that one party must act towards
the other in a particular way, but it leaves the question open, in
relation to what?
The second question is "what is the job, task or action
that one party has undertaken, been asked to do, or has done in
relation to the other." It is in going about that task that
the person who owes the duties must be careful to exercise those
duties. Those duties may be, depending on the relationship: to take
the care that a reasonable person or reasonable professional in
that person's situation would take, or act with due care and
skill, or not to obtain an advantage from any conflict of interest
etc. But how is one to judge whether a person has met their duties
if it is not with reference to anything?
An understanding of the way the law has developed aids us in
understanding why section 961B(1) defines the best interests duty
as: "The provider must act in the best interests of the client
"in relation to the advice". That duty,
by the way, remains unchanged in the recent amendments. Of course,
the legislation doesn't tell us what "the advice" is.
The word "the" is critical but is often left out in
commentary. The mischief of leaving the word "the" out is
that it leaves the duty untethered. The word "the" begs
the questions "What is the advice" in relation to which
the best interests duty is owed. If the answer to that question is
not to be found in the legislation, where is it to be found? The
answer is, in the facts of the case. The communications between the
provider and the client will reveal the task that the adviser was
asked to address. It is in relation to this that the best interest
duty is owed. That is why the "safe harbour" provisions
in s961B(2) define the client's relevant circumstances as those
that are relevant to the advice sought on the subject matter, or to
put it another way, the matter which is the subject of the
The law has never been different in this respect. The
professional adviser's task, irrespective of the profession, is
to satisfy their professional duties to the client in relation to
the engagement. It is therefore critical to ensure that "the
engagement", irrespective of whether it is called the scope of
the task, the subject matter of the advice, the contract between
the parties, etc., is clearly understood by both the client and the
adviser, and is documented.
Some commentary seems to suggest that the duty to act in the
best interests of the client should drive the terms of the
engagement. The duty will certainly inform the discussion between
the client and the adviser but ultimately it will be the terms of
the engagement, or subject matter of the advice, that must be
dominant. Any other result would be so uncertain as to be
unworkable and would lead to the result that the professional
adviser becomes an insurer of any adverse outcome that a client
might suffer. That has never been the intention or the operation of
the law relating to the giving of advice.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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