Leading case of negligence by an investment adviser sets standard of care24Jul2004
Field v Barber Asia
Last week the Hong Kong Court of Appeal dismissed an appeal by Barber Asia Limited, an SFC-licensed professional investment advisor, to try to overturn an earlier Judgment where Barber Asia were found to have been negligent when advising an investor, Ms Field.
The case of Field v Barber Asia Limited (HCA7119/2000) has a far-reaching impact on the commercial relationship between investment advisors and investors. In this case, where Tanner De Witt acted for the successful Plaintiff, the Hong Kong courts concluded and clarified a financial advisor’s duty of care to investors. It was previously thought that so long as financial advisors complied with the regulatory rules that govern them, they would not be liable for losses an investor suffers in a fluctuating market. This is not the case.
Susan Field, an inexperienced investor, used the services of Barber Asia to advise and assist her to set up a “conservative” investment portfolio. This was done initially with a Sterling dominated portfolio, however a few months later Barber Asia recommended that she “gear up” her existing portfolio with a Japanese Yen loan. However, in the months that followed the Yen appreciated against the Sterling, and Ms Field was required to provide added security for the loan. Without further assets to provide such security Ms Field was eventually forced to encash certain assets to pay the required sums due under the loan, and practically lost her entire investment.
The Court of First Instance
At first instance, in a landmark 92 page judgment, Deputy High Court Judge Aarif Barma, SC, awarded Ms Field damages for Barber Asia’s negligence in the sum of £219,890.25 plus interest and costs. It is now the case that in the modern era of sophisticated and complex investment schemes, the burden is upon investment advisors to ensure that products introduced by them heed to the real intention of the investor. A mere general introduction of the products is no longer enough to discharge their duty of care.
Duty of Care for Investment Advisors
The court found that an investment advisor owes a duty of care in tort to their client, the investor. It confirmed that where an investment advisor: –
assumes the responsibility of providing advice to a plaintiff (Ms Field), and knows or ought to know that the Plaintiff is likely to rely on that advice, a duty of care is likely to arise. Pertinent factors to take into account will also include the relative skill and knowledge of the parties, the context in which the advice is given, whether the giver of the advice is doing so completely gratuitously or is getting a reward, whether in some direct or indirect form, and whether or not there are any express disclaimers of responsibility (which would negative any assumption of responsibility by the defendant).”
“There can be no doubt that Barber Asia, as professional investment advisers, were in possession of special skills and knowledge which Ms Field, a wholly inexperienced investor, did not have.”
“It seems to me … that Mr. Barber and Barber Asia considered themselves to be financial advisers to Ms Field.”
“Barber Asia did fall short of the standard of care to be expected of them in a number of significant respects.”
Barber Asia breached its duty of care, as it had failed to warn Ms Field of the particular risks involved in gearing, which were seen to be contrary to Ms Field’s “conservative” investment strategy. The obligation to warn of such risk is reasonably expected from a prudent investment adviser. It is not sufficient for the investment adviser to merely bring such risk to the attention of the investor. This is so even when Barber Asia had complied with all the regulatory rules and Ms Field signed all the application forms, explanatory document, declaration and risk disclosure statements. The Court noted “… it seems to me unlikely that a detailed explanation of the various risks involved was provided …“
Despite the findings of the Judge at first instance, Barber Asia proceeded to appeal the Judgment and the hearing of the appeal took place last week. The Court of Appeal unanimously dismissed Barber Asia’s appeal with costs.
After the hearing, Ms Field, said “I am overjoyed at this result. It has been a very hard fight but I felt that it was the right thing to do. I would have preferred not to take this matter to Court but Barber Asia left me with no alternative. I was very fortunate in finding Ian De Witt of Tanner De Witt, Solicitors to represent me in this matter. The firm has supported me throughout, in what has been a very traumatic time and I cannot thank them enough.”
Our Ian De Witt commented that “We are of course very pleased with the outcome, which we feel is the correct outcome. It is unfortunate that sometimes investment advisers do not take their duties seriously enough and that these matters have to come before the Courts. I extend thanks to the team at my firm in helping bring this matter to a satisfactory conclusion, and also Mr. Jose Maurellet of counsel, who has done an exemplary job.”
Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.