In HAP2 Pty Ltd v Bankier [2020] QCA 152 the Queensland Court of Appeal dismissed an appeal by a financial adviser against findings of negligence in the provision of financial advice to a client.
In June 2019 Carter Newell reported on the first instance decision (read here). We now bring you the next instalment.
Facts
In 2002, when the plaintiff was 21 years old, she received a $2 million award of damages for serious spinal and internal injuries she suffered in a car accident. The award was to compensate her for future loss, medical expenses and associated matters.
Shortly after the award, the plaintiff engaged the defendant financial planning firm, HAP2, to provide advice on investing part of the award. Importantly, HAP2’s adviser had previously acted for the plaintiff’s father, who died in the car accident. The adviser was therefore aware of the circumstances leading to the plaintiff seeking financial advice.
After paying her mortgage and amounts to her family, the plaintiff invested $1.132 million on HAP2’s advice, primarily in managed funds and direct shares. The plaintiff’s investment objective was to generate adequate tax effective income to meet her current and projected living expenses.
From time-to-time, between 2002 and 2005, the plaintiff instructed HAP2 to withdraw various amounts totalling around $85,000 from the portfolio. During that time, she also:
- Established a surf photography business, including leasing premises, which required some international travel and does not appear to have been profitable. The adviser was consulted from time-to-time about her spending associated with the business; and
- Bought an investment property financed with a loan. She sought advice from the adviser regarding her ability to afford the investment.
In June 2006 the plaintiff’s portfolio was valued at around $1.5 million, but fell in value to around $700,000 by December 2008, which was during the global financial crisis.
The plaintiff commenced proceedings against HAP2 and was successful at first instance.1 The trial judge found that HAP2 owed a duty to warn the plaintiff about the material risks of her level of expenditure. Although some warning was given to the effect that the plaintiff’s expenditure would eat into her capital, that did not go far enough. The trial judge found that the risk which HAP2 should have but did not warn about was the resulting impact the expenditure would have on the plaintiff’s ability to fund her future medical expenses.
HAP2 appealed.
