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Val Smith is 53 and has recently accepted a redundancy from her position as the sales manager of a company which sells plumbing supplies.

Val Smith is 53 and has recently accepted a redundancy from her position as the sales

manager of a company which sells plumbing supplies. She is expecting to receive a lump

sum redundancy package of $500,000.


At a dinner party held by an old friend, Libby Green, Val meets Noel Spencer. Noel is also a

friend of Val. After a couple of glasses of wine Val tells Noel of her pending redundancy and

the funds she will receive. She tells Noel that she is afraid about how long it will take to get

another job so she needs to ensure that the money is invested in something that is very secure

and liquid as she may need the funds to live on. Val also states that she is concerned

as, although she knows a lot about the plumbing industry, she knows little about



Noel tells her that he is a licensed investment adviser and regularly gives people investment

advice. Noel says that he would be happy to assist Val with the investment of the

redundancy pay out and he says: "Look, we've been friends for ages. I won't charge for the

advice. Anyway, I have done very nicely out of the stock market recently."


Val makes an appointment to see Noel at 9.00am the following Monday at his office. She

tells Noel that apart from a one-bedroom apartment in Clontarf and a 10-year-old car she

has no other significant assets. Noel gives her a prospectus for an investment in shares

issued by a company called Australian National Reserve Limited. Noel advises Val to invest

the whole of the $500,000 by subscribing for these shares.


Val states that she is uncomfortable using the whole of her redundancy funds to invest in

shares. Noel assures her that the company is very strong and owns a large number of

commercial office blocks around Australia. He shows Val the balance sheet in the

prospectus which shows assets of $10,000,000 and liabilities of only $4,000,000. Val states

she would prefer to invest in something more secure. Noel replies: "I am a very busy man

and have a lot of other appointments today - this is what you should invest in."


Val reluctantly agrees and completes a prospectus application form. She sends this

together with a cheque for $500,000 to Australian National Reserve Limited. Two days later

she receives confirmation that the shares have been issued to her


One month later Australian National Reserve Limited is placed into liquidation. The liquidator

sends a letter to the shareholders, including Val, informing them that they will lose the whole

of their investment. It appears that the value of the commercial office blocks is only

$2,000,000. The $10,000,000 valuation was set by the company's directors who have since

disappeared. It also appears that the auditors of Australian National Reserve Limited, Slack

& Co, did not request copies of valuations of the company's property when they conducted

the audit of the accounts in the prospectus.


What are Val's chances in bringing a successful action in tort against:

(a) Noel Spencer.


Please refer to both the common law and the Civil Liability Act 2002 (NSW) in your


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