Casaclan v Wealthsure Pty Ltd [2015] FCA 761 is the most recent decision involving Wealthsure Pty Ltd and their former authorised representative Mr Colin Oberg following the High Court’s Selig & Another v Wealthsure Pty Ltd (2015) 320 ALR 47 judgement.

The Claimants’, a group of seven former clients of Mr Oberg and Wealthsure, commenced separate actions alleging that Mr Oberg misappropriated client funds during the period that he was an authorised representative of Wealthsure (18 October 2004 to 30 September 2010) and the period after Wealthsure had terminated Mr Oberg’s representative status (1 October 2010 to 25 July 2011).  The claims alleged that Wealthsure was liable for the conduct of Mr Oberg and sought to be compensated for losses suffered in both periods.
 

Background to the claims

In or about September 2010 Wealthsure took steps to revoke Mr Oberg’s authorised representative status following the receipt of complaints from his clients alleging that he was dealing with funds without authority and concerns as to the suitability of advice. Formal notice of revocation of Mr Oberg’s authority was sent to ASIC on 12 October 2010 with Wealthsure authoring a letter to Mr Oberg outlining the steps that were to be conducted to investigate the complaints, including a complete file audit, onsite audit and a statement from Mr Oberg confirming the investments recommended to his clients.

These steps did not take place and, after termination of Mr Oberg, Wealthsure did not contact or notify his clients that Mr Oberg’s representative status had been terminated or the reasons for the termination until mid-2011.  In the period between September 2010 to mid-2011 Mr Oberg misappropriated further funds whilst giving the impression that he was still a representative of Wealthsure.

His Honour Buchannan J reviewed the individual circumstances of each of the claimants’ allegations and reviewed the liability of Wealthsure which can be summarised as follows:

Losses up to 30 September 2010

Despite allegations of Mr Oberg’s criminality (which Wealthsure’s suggested limited their liability pursuant to s917F of the Corporations Act (the Act)) s917B of the Act intended to operate so that a licensee was directly liable for the conduct of their representative, regardless of whether the conduct was within or without authority.[1]

Losses October 2010 and beyond

s917B of the Act assigns responsibility to Wealthsure for the conduct of Mr Oberg whilst he was their authorised representative.  Although Mr Oberg’s status as an authorised representative was terminated, Wealthsure was also responsible for the subsequent losses.  Buchannan J considered that Mr Oberg was acting with the ‘apparent’ or ‘ostensible’ authority of the licensee as the relevant test when considering apparent authority requires an ‘examination of the representation of authority made to third parties by the licensee’.[2]  As Wealthsure took no effective steps to revoke or deny Mr Oberg’s apparent authority (despite having knowledge that he was continuing to advice his clients) WealthSure was ‘estopped from denying Mr Oberg’s apparent authority pursuant to s 769B’.[3]

The Casaclan decision identifies circumstances that an Australian Financial Services Licensee may be liable for the conduct of their former authorised representatives after the date that the advisor’s representative status was terminated.  However, extending liability for post termination losses will usually only occur in limited circumstances where the risk of loss to the client was foreseeable.

[1] Paragraph 199

[2] Paragraph 194

[3] Paragraph 313

Written By Callun Blurton, Associate – Commercial Dispute Resolution

Supervisor - Mark Victorsen, Partner

For further information please contact Callun Blurton on 07 3235 0115 or at callun.blurton@holmanwebb.com.au or Mark Victorsen on 07 3235 0102 or at mark.victorsen@holmanwebb.com.au