The Defendants' Duty of Care
76Whilst is it clear that the defendants owed the plaintiffs a duty of care as their accountant, Mr Legat sought to limit his role, and disavowed acting as a licensed financial service provider to the Marandos for the purpose of filling in the application form on 20 February 2008 or providing financial product advice (as he was otherwise licensed to do). Further, he sought to establish that he was merely providing "information" about their investment into the fund, rather than "advice". The distinction is important, as liability in tort law for negligent advice causing economic loss has, since the High Court's decision in Mutual Life & Citizens Assurance Co Ltd v Evatt (1968) 122 CLR 556, been well established.
77In Professional Liability in Australia 2nd Ed, Walmsley, Aberdee and Zipser, the learned authors cite (at [5.570]) Craig v Troy (1997) 16 WAR 96 and Cade v Simmons (1998) 71 SASR 171 as examples where accountants have been held liable in negligence for giving investment advice to their clients. The first case involved advice as to the feasibility of restoring or developing a hotel, the latter case, attempting a management buy out. Further, the proffering of investment advice is governed by the provisions of the Corporations Act 2001 (Cth) relating to financial services.
78In determining whether a duty of care existed in respect of pure economic loss, in Perre v Apand Pty Limited (1999) 198 CLR 180 McHugh J at [100] said:
"In determining whether the defendant owed a duty of care to the plaintiff, the ultimate issue is always whether the defendant in pursuing a course of conduct that caused injury to the plaintiff, or failing to pursue a course of conduct which would have prevented injury to the plaintiff, should have had the interest or interests of the plaintiff in contemplation before he or she pursued or failed to pursue that course of conduct. ... If the defendant should have had those interests in mind, the law will impose a duty of care. If not, the law will not impose a duty."
79The plaintiffs rely on the High Court's decision in Hawkins v Clayton (1988) 164 CLR 539 where at p 579 Deane J said:
"The content of the duty of care in a particular case is governed by the relationship of proximity from which it springs. It may, in some special categories of case, extend to require the taking of positive steps to avoid physical damage or economic loss being sustained by the person or persons to whom the duty is owed."
80The plaintiffs also relied on Waimond Pty Limited & Anor v Byrne (1989) 18 NSWLR 642 in which the Court of Appeal held that the scope of the duty of care of a solicitor is not confined to his contract of retainer but may extend, depending on the circumstances, to require the taking of positive steps beyond the specifically agreed task or function the solicitor was employed to carry out where these are necessary to avoid a real and foreseeable risk of economic loss being sustained by their client.
81In Riz v Perpetual Trustee Australia Limited [2007] NSWSC 1153, in a case again concerning the scope of a solicitor's duty of care, Brereton J having reviewed the authorities, stated that Waimond v Byrne remained good law - see [112] and [113] where his Honour stated:
"113 Accordingly, the prevailing position is that the scope of a solicitor's duty of care is not limited to the terms of the retainer but, depending upon the circumstances of the particular case, may require the taking of positive steps beyond the specifically agreed professional task or function, where these are necessary to avoid a real and foreseeable risk of economic loss being sustained by the client."
82The defendants agreed that that statement of principle was applicable in this case, as well as the statement of principle from the judgment of Deane J in Hawkins v Clayton referred to above. However, the defendants submitted that there was no real or foreseeable risk of such loss given that the risk arising here fell into one of two categories, namely:
(1) The risk that Mr West might be right, and Mr Swan wrong about the financial circumstances of the Fund, or,
(2) The risk that the plaintiffs would only be able to redeem their investment after a longer period than 90 days, possibly up to 180 days. Such a delay in redemption would not sound in any economic loss at all, but merely delay the plaintiffs' plans to purchase real estate.
83In Riz, supra, in determining whether the solicitor's duty of care extended in the circumstances of the particular case to require the taking of positive steps where such steps are necessary to avoid a real and foreseeable risk of economic loss being sustained by his client, Brereton J at [101] referred to the following passage from the judgment of Kirby P in Waimond Pty Limited v Byrne at 657:
"In the present case, the loss was foreseeable because the solicitor had knowledge of the respective interests of his several clients and the dealing which he arranged on the instruction of two of them had no apparent interest or benefit for the third. The burden which the 'positive step' required (namely, of securing instructions) was trivial. The burden of the loss which has accrued to the client from the solicitor's failure to take that step, is substantial. Because I believe the loss would not have occurred had the solicitor taken specific instructions, as reasonable care required, I consider that the want of care caused the loss sued for."
84The defendants submit that to impose a duty of the kind the plaintiffs propound would be extraordinary in that it would "require an accountant who is merely aware of financial choices that his tax clients may have made or be intending to make - not being ones that he had recommended - to carry out ongoing monitoring of all such choices, by all such clients, in case of possible 'changes in circumstance'; to acquire detailed knowledge of all available options open to the clients - both pursuant to the particular contractual terms of any chosen contract or investment and in relation to alternatives thereto; and to provide advice, on an ongoing basis, in relation to those available options (even though not asked, at any stage, to do so)". In reliance on that proposition the defendants refer to City Corp Australia Limited v O'Brien (1996) 40 NSWLR 398 per Sheller JA at 418 E-G. What is clear, is that each case depends on its particular circumstances.
85Here, it is clear that Mr Legat owed the Marandos a duty of care. The real issue is, what was the extent of that duty. Did it extend to a duty, having regard to all of the circumstances of the matter and Mr Legat's state of knowledge, to take positive steps to warn and advise the plaintiffs during the cooling off period of their entitlement under the PDS to withdraw their money from the Fund? The following are relevant matters that I take into account in determining that matter:
(i)The purpose of the plaintiffs seeing Mr Legat on 29 January 2008 was clearly to discuss with him how to invest the proceeds of settlement from the sale of their home. That included a discussion about the taxation implications including capital gains tax, together with Mr Marando's superannuation fund.
(ii)The meeting held on 18 February 2008 was for a far more specific purpose. That purpose was to discuss where the plaintiffs would invest their funds for 90 days. I have set out my findings in relation to that meeting in paragraph 44 above. Those findings included the finding that it was on the information given to them at that meeting by Mr Legat that the plaintiffs decided to invest $500,000 in the Fund.
(iii)Mr Legat understood that the plaintiffs were relying on what he told them in coming to their decision to invest.
(iv)The plaintiffs were not sophisticated investors. Rather, they were poorly educated people who understood basic money matters.
(v)I do not accept Mr Legat's evidence in cross-examination that he was not giving the plaintiffs "financial advice", but was discussing "his knowledge of the product". Mr Legat knew that the plaintiffs were relying on his advice which he understood had to be truthful and honest.
(vi)Also relevant are the facts as I have found them, that the PDS for the Fund was available in the waiting room of the first defendant. It had been displayed there for some years, and it was the only PDS for any financial product displayed in that waiting room.
(vii)The fact of Mr Swan's nonexecutive directorship of CPL added weight to the attraction of CPL as an investment vehicle for the plaintiffs.
(viii)Mr Legat facilitated the plaintiffs' investment in the Fund by filling out the application form for them to sign and by forwarding it to the Fund.
86Having regard to all of those matters, I find that the scope of the duty of care owed by Mr Legat to the plaintiffs extended to taking reasonable care in advising the plaintiffs in respect of their investment of money into the Fund to avoid a real and foreseeable risk of economic loss. He had crossed the line of merely providing "information" and was in fact, advising the plaintiffs in respect of the investment of their money. He knew they were relying on his advice. His duty therefore extended to having knowledge of the PDS, which he had read prior to 18 February 2008, and with which he stated he was familiar (see para 34 above).
87I do not accept the submission made by the defendants that the foreseeable risk of loss fell into the two categories outlined in paragraph 82 above. Given the extent of the run on the Fund, there was a real and foreseeable risk of economic loss being sustained by the plaintiffs, both in terms of the Fund delaying redemptions indefinitely or becoming frozen. Both were significant risks given the plaintiffs' insistence on the investment for a period of no longer than 90 days.