QUESTION
Raj approaches Australia Banking Group Ltd ('ABG') for savings and credit card account facilities. He is required to complete various forms and the bank officer informs him he will receive his separate debit and credit cards in the mail, as well as other documents. Raj mentions to the bank officer that he would like some advice about investing an inheritance of $120,000 which he recently received from his uncle.
That money is currently held in a trust account with the lawyers administering his deceased uncle's estate.
The bank officer arranges an immediate appointment for him to discuss his options with the bank's financial planner, Erica Smith in the office next door. At this meeting, Raj reveals a little about his personal circumstances- that he is married with two children; he is aged 50; and expects to continue working for at least another 15 years.
He says he hopes to do some overseas travel with his family in the near future, a matter that interests Erica enormously, as she used to be a travel agent. The next hour of the conversation focuses on the topic of travel, and at the end of the meeting, Erica managed to obtain just a few basic details about Raj. She suggests in a casual manner that in the meantime Raj should deposit the inheritance into his savings account with ABG, and after that, she would recommend some investment opportunities to him.
Accordingly, Raj receives the inheritance money from the lawyers (above), and deposits the full amount of $120,000 into his savings account with ABG.
A week passes before he receives his debit and credit cards from ABG, but Raj does not receive any further documents or written information from ABG.
A few days later, in the mail he also receives a short letter from Erica referring to their earlier meeting, recommending that he invest in an Australian Managed Investment Scheme that specialises in investing in high risk pharmaceutical and medical research. The letter concludes with the encouraging words 'this is a sure thing, and you can expect to make gains of 25% per year on this investment'.
On that basis, Raj invests all his inheritance in this scheme. He never receives any further information from Erica. TheManaged Investment Scheme send him an initial receipt and regular investment account statements regarding the market value of his investment.
Six months later, Raj is horrified to discover that the Scheme has made a series of careless investment decisions, resulting in a loss of 65% to his $120,000 investment. It is likely the Scheme is insolvent.
Required:
By reference to various sources of banking law:
- outline the duties that ABG and/or Erica owed to Raj, explaining whether ABG and/or Erica breached any of their legal obligations to him, and if so, what legal action he may take against them.
- in providing your advice, you also need to describe the characteristics of all of the accounts referred to in the facts.
- assess the legal correctness of the following statements made by ABG in a subsequent letter to Raj:
o 'We acknowledge you may wish to refer your complaint about Erica's behaviour to the Financial Services Ombudsman'
o 'There was nothing wrong with Erica's conduct in her dealings with you
o 'In order to respect your privacy, we decided we were not required to report your deposit of $120,000 to the relevant government regulator '
o None of the banking industry codes apply to you
- refer to legislation, common law and industry codes, where applicable.
- note that the issues in this question span several topics of the course.
Word length: 1,500- 2,000 words