Blog

Australia is becoming more popular as the destination for investors and business migrants from Asia, particularly China, to invest in. In the case of business migrants, they are often required under their visa conditions to invest significant amount of money (ranging from $500,000 to $5 million depending on the type of visas) into “eligible businesses” in Australia.

However, being new to Australia, business migrants are not familiar with businesses in Australia. Moreover, they usually do not speak fluent English and their business affairs in Australia have to be conducted through various professional advisors, such as accountant, migration agent, lawyer, business broker and sometimes their interpreter. It is common that business migrants rely on their trusted advisors to introduce and recommend business opportunities.

The important question is: How independent is the advisor?
In Australia, most of the professional advisors, once engaged, owe fiduciary duty to the client which dictates that the professional advisor must act in the best interest of their client at all times and must not involve in transactions that the personal interest of the advisor may be in conflict with the client’s interest. The essence of fiduciary obligations is that the fiduciary is precluded from acting in any other way than in the interests of the person to whom the duty to so act is owed. In short, the fiduciary obligation is one of ‘undivided loyalty’: Beach Petroleum NL v Kennedy (1999) 48 NSWLR 46–7.

Unfortunately, there are situations when this rule is not followed by professional advisors. Take for instance one common scenario, where the professional advisor receives some kind of fees (such as introduction fee or referral fee) from a third party for introducing the client to that third party, and the advisor failed to disclose and obtain consent from the client in relation to such fee arrangement.

This type of arrangement means significant risks are added to the investor’s investment because he could no longer fully trust the independency of the advisor. This may result in the investor investing into a “second-best” project simply because the “second-best” project gives a referral fee to the advisor whilst the better project did not. In the extreme case, however, this may result in the investor investing into a completely unviable project and ended up losing all or most of his investment funds. In the event that the investor is also a business migrant, it may have negative implications on the business migrant satisfying the migration requirements.

This type of arrangement is also problematic for the advisor. Despite the advisor may have acted in the best interest of the client, the advisor may have omitted to disclose his personal interests to the client and obtain informed consent from the client. The advisor may have “innocently” breached the fiduciary duty owed to the client. Such breach may result in a legal claim by the client against the advisor and the advisor facing disciplinary action from the regulatory body.
It is important that the investor and the advisor have clear communication about their respective goals and interests (including potential conflict of interests) prior to the engagement. If the investor “smells something fishy”, he should immediately seek clarification from the advisor.

On the other hand, if it ever appears to the advisor that his/her personal interest may be in conflict of the interest of the client, the advisor should immediately stop everything and seek consent from the client, failing which withdraws himself from acting for the client.