Eric Preston v Euroz Securities [2011] FCAFC 11

The investor’s margin loan facility was switched to Opes Prime following the alleged misrepresentation of the stockbroker that the facility was the same as the investors previous facility. However it was not the same because the investor was exposed to greater insolvency risk under the new facility. The investor sued alleging:

  1. Misleading and deceptive conduct (the misrepresentation) on the part of the stockbroker;
  2. That if the misrepresentation was not made the stockbroker nonetheless had a duty of care to advise the investor about Opes Prime.

The trial judge’s findings

The trial judge found for the stockbroker (and against the investor) on the following grounds:

  1. That the stockbroker did not make the misrepresentation. This was decided on credit (the investor was disbelieved and the stockbroker believed).
  2. That even if the stockbroker had made the misrepresentation there had been no reliance upon it by the investor. This was because the investor subsequently received an email which warned him about Opes Prime. After he received the email he had the opportunity to refinance with his former margin lender (if he made adjustments to his portfolio) but declined to do so.
  3. The investor was precluded from running an alternative case (the duty of care case) should he be disbelieved on the misrepresentation case. However even if there was a duty any breach of that duty did not cause the loss. This was because the email (referred to above) would have broken any chain of causation.
  4. The relaying of information from Opes Prime by the stockbroker was not misleading because where a corporation merely purports to pass on information supplied by another, without adopting or endorsing it, either expressly or impliedly, the corporation cannot be said to engage in misleading or deceptive conduct.

The appeal
The investor raised 24 grounds of appeal. The Full Court disposed of them all noting:

There is no escape from the fact that the trial judge’s findings of fact are fatal to the investor’s claims. These findings were not just limited to finding that the misrepresentation was not made. It is the trial judge’s findings on the issues of reliance and causation which make the appeal almost unarguable one for the investor.

Out of courtesy the Full Court nevertheless made the following observations:

  • Stockbroker’s duty to advise. The duty of a stockbroker is to execute the client’s orders. Stockbrokers are not duty bound in law to give advice. Absent some voluntary undertaking by the stockbroker of a duty to advise, there is no duty to do so (Martin v Option Investments (Aust) (No 2) [1982] VR 464).
  • Ignoring the expert’s testimony. It is a fundamental principle of the law that an expert’s opinion based upon assumptions which are not proved in evidence is irrelevant (Ramsay v Watson [1961] HCA 65).
  • A trial judge’s finding as to fact cannot be disturbed. Before a judge’s findings on fact can be disturbed they must be glaringly improbable or contrary to incontrovertible facts (Fox v Percy [2003] HCA 22).

Click here to read the full judgment

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