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Law Notes Securities and Financial Services Regulation Notes

Customer Agreements Traditional Advisory Accounts Notes

Updated Customer Agreements Traditional Advisory Accounts Notes

Securities and Financial Services Regulation Notes

Securities and Financial Services Regulation

Approximately 294 pages

A 204 page bible of detailed cases and materials summaries, super summaries ideal for open book exam use and a rights/remedies map.

Please be aware that the FOFA legislation has gone through substantial revisions and continues to be modified - some of the material contained in these documents regarding FOFA may be out of date.

Structure of the cases and materials summaries:
Class 1 - Introduction
Class 2 - What is 'regulation'
Class 3-6: How are we regulating (Generally, Disclosure to Re...

The following is a more accessible plain text extract of the PDF sample above, taken from our Securities and Financial Services Regulation Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Customer Agreements – Traditional Advisory Accounts

The relationship between an FSL and their clients at general law

The terms of the contract between a FSL and its client

  • The scope of an FSL’s duties to its clients depends on the terms of the contract between the licensee and client (Hawkins v Clayton).

    • If it is a written contract terms may be implied under general contractual principles (Con-stan v Norwich) if:

      • It is so obvious that it goes without saying

      • It is necessary to give business efficacy to the contract

      • It is reasonable and equitable

      • It is capable of clear expression; and

      • It does not contradict the express terms

      • [For example] A simple instruction to a stockbroker by a client to execute a transaction is unlikely to satisfy requirement 2 for a term that the stockbroker is to offer investment advice.

        • Thus in Eric v Preston there was no evidence a stockbroker agreed to act also as an investment advisor because this shouldn’t be implied to give the contract business efficacy – especially where the broker’s FSL didn’t authorise him to do so

    • If there is no written contract, terms may be more readily implied (Byrne v AU Airlines)

  • [Duties and obligations] An FSL may be s.t. duties and obligations arising from the nature of a particular role

    • [Stockbrokers/futures brokers] are under an obligation to

      • Carry out their clients instructions as long as it is lawful to do so.

        • If they act in accordance with the clients instruction and their legal obligations they may be indemnified for liabilities arising out of the transaction

        • If they do not they may lose their commission and their right to their indemnity, and be liable in damages for breach of contract

      • Undertake a transaction at the best possible price for the client within the limits set by the client’s instructions.

        • It must also purchase/sell securities at a lower/higher price than the price specified by its client (Thomson v Meade)

        • The obligation to undertake a transaction lapses at the point which the market price of the securities exceeds the buying price or is lower than the selling price specified by the client

        • The broker has no general authority to initiate transactions such as sale/purchase of securities without the client’s instruction (Option Investments v Martin)

      • To make a valid and enforceable contract, act honestly and observe the rules, usages and market practices of the exchange; keep its client’s property separate from its own; keep proper accounts .

      • [They are not under]

        • A positive duty to advise its clients to close out its position if the broker considers they will suffer loss and no duty to do that themselves (Drexel v El Nasr)

        • An obligation to close out a client’s position immediately after the client fails to meet a margin call or repudiates its contract (Options Investments v Martin)

        • [But cf] A futures broker is under an obligation to act in good faith in the manner of closing out a client’s position though it will be able to discharge this by closing it out on an on-market dealing

      • In Bernadle v How Trading the VSC held that a clearing participant who was s.t. an implied obligation of good faith in exercise its rights to liquidate a trader’s portfolio breached it by failing to act reasonably in doing so

    • [Insurance brokers | NZ Cases] are under an obligation to ensure that effective cover is arranged by the insurer (Cee Bee v Lombard). They must either arrange insurance within a reasonable time or advise if unable to do so (Cee Bee). They must take reasonable care in ensuring the cover they arrange is appropriate and in accordance with the insured’s instructions (Tadoran v Delaney)

Agency

  • An FSL may act as its clients agent in aspects of its business –

    • Stockbrokers being instructed to buy/sell shares o/b/o a client acts as its agent (Christopher Barker v IRC)

      • [The scope of this agency] is modified by the fact that brokers operate in a competitive market where commodity prices are set by a large number of individual trades and their reduced ability to influence prices by negotiations. They act as an “intermediary rather than a negotiating agent” (Jones v Cameron)

    • An insurance broker acts as agent either for the insurer or insured

      • They usually act on behalf of the insured in arranging insurance or setting a claim (Con-stan v Norwich)

        • [Binders exception] An exemption exists where the broker is acting under a binder (being an agreement with an insurer by which the broker is given authority to make certain decisions that would otherwise be made by the insurer – e.g. authority to grant final cover).

        • Brokers who act under a binder act as agents for the insurer instead of the insured

  • [Ratification of unauthorised transactions] At general law a client isn't bound by, and is unable to ratify, unauthorised transactions undertaken by a broker if the broker didn’t disclose the client as its principal at the time of the transaction (Maynegrain v Compafina Bank)

    • The origin of this principle seems to be the same as the idea in Trident v McNiece that a contract cannot be made on behalf of an undisclosed principal unless the agent has the principal’s authority to make the contract

    • [Exception?]In Maynegrain v Compafine Bank it was held that a client is entitled to ratify the contract in circumstances where the other party knew that the broker was acting as an agent, although it didn’t know the identity of the particular client

      • This can get complicated where the broker enters a single transaction o/b/o several clients – here it is difficult to identify which of the broker’s clients is its principal in the transaction, until the broker allocates parcels to satisfy a particular client’s order

Fiduciary duties of FSLs

  • The seminal case in this area is Daly v Sydney Stock exchange

    • Facts: The appellant’s husband had placed money with a broking firm as a loan, after an employee of the firm advised him not to invest immediately in the stock market

    • Held (court below): The...

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