Parents suing for negligent financial advice on behalf of a child, by Eugene Duhovnikoff BA/LLB

Can parents sue for negligent financial advice arising out of investment which they have made on behalf their children?

The recent Chan v King[1] decision illustrates the point. The plaintiffs were a married couple with who have made an investment on behalf of their daughter. Following the financial crisis the plaintiffs suffered losses and sued a director of financial advisory company for negligence. One of their claims was made on behalf of their daughter. Given that in relation to that claim parents have suffered no loss themselves the defendant argued that what had to be done was appointing a litigation guardian who could have sued on her behalf instead of suing the defendant themselves. Since it has not been done that cause of action had to be stricken out. In relation to the third-party loss plaintiffs were held to be the trustees and therefore were suing as trustee and on recovering, had to account to the beneficiaries (their daughter) for any damages recovered. It was held that:

In Alfred McAlpine Construction Ltd v Panatown Ltd, Lord Clyde made some comments that help put the problem in context: “The problem which has arisen in the present case is one which is most likely to arise in the context of the domestic affairs of a family group or the commercial affairs of a group of companies. How the members of such a group choose to arrange their own affairs among themselves should not be a matter of necessary concern to a third party who has undertaken to one of their number to perform services in which they all have some interest. It should not be a ground of escaping liability that the party who instructed the work should not be the one who sustained the loss or all of the loss which in whole or part has fallen on another member or members of the group. But the resolution of the problem in any particular case has to be reached in light of its own circumstances. ” [27] That was a statement in a case for breach of contract where the question was whether one company in a group of companies could sue for losses suffered by another company in the same group.
This case is a claim in tort, where the question is whether some members of a family can sue in respect of losses suffered by other members of the family. Lord Clyde was not purporting to lay down a rule of law. He was simply making an observation for considering cases such as the present. His last sentence (“ … the resolution of the problem in any particular case has to be reached in light of its own circumstances”) shows the need to have regard to the facts and rules of law in any particular case. [28] At the same time, Lord Clyde also recognised that while there is a general rule that a plaintiff cannot be awarded damages for losses suffered by somebody else, there are exceptions.
He said:7 [30] While those statements were made for a case in contract and this is a tort claim, Mr Rooney accepted that the principle is equally applicable here. This case is an assumption of responsibility claim in negligence. That is the kind of tort that comes close to a claim for breach of contract. When one looks at the law of torts generally, it can be seen that the idea that a plaintiff may sue for losses suffered by others is not unheard of. A case that comes to mind is the principle in The Winkfield,9 under which a bailee is entitled to sue for damages for the value of goods lost, but is under a duty to account to the bailor for the damages received. That is a well-known example where tort law recognises the right of a plaintiff to recover damages which are more extensive than the plaintiff's own losses.”

The defendant’s application to strike out the cause of action was dismissed. The substantive hearing is soon to follow.


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[1] [2014] NZHC 774.

Reeves/Duhovnikoff & Associates Ltd. 2017