CR37 Misrepresentation by independent broker prior to conclusion of contract


Misrepresentation by independent broker prior to conclusion of contract – complaint that quotations provided and representations made induced the complainant to enter into a contract which in a material respect did not comply with his requirement.


It was common cause that the complainant approached the broker for advice on appropriate investment of a lump sum for a period of five years and that his requirement included a reasonable monthly income and a guarantee of “return of capital”.

He was provided with five quotations. Four of these provided a guaranteed monthly income as well as a guaranteed maturity value at the end of the term equal to the full amount of the total proposed investment. The fifth quotation also guaranteed a monthly income over the period. Unlike the other quotations, this specific quotation did not as such contain a guarantee of payment equal to the full amount invested at the end of the term. It reflected projected values on the basis of assumed rates of return. The broker, however, provided the applicant in addition to the quotation also with marketing material and emphasized by marking it with a coloured highlighter statements in the marketing material that a return of 100% of the initial amount invested at the end of the five year term was guaranteed. This marketing material only related to the “investment” portion of the quotation.

The guaranteed monthly income, quoted in respect of the last mentioned product, was significantly higher than those in the other quotes. On the strength of the quotations and representations of the broker, the complainant applied for the last mentioned product.

On receipt of the contractual documents, the complainant noted that only a return of just over 50% of the total consideration paid was guaranteed at the end of the term. He complained to the broker. The broker’s initial responses to the complaints were rather evasive and may be interpreted as supporting the complainant’s stance that the total amount invested should have been guaranteed. The complainant submitted an affidavit in which he states that he was given assurances by the broker that the required guarantee will be attended to. He was, however, eventually informed that the contract was issued in accordance with his application and the quotation which was also signed by him. In response to enquiries by our office, the broker contended that the complainant was fully informed when he elected to enter into the particular contract.


The issue which under the circumstances seems to clamour for an explanation is why the complainant entered into a contract in accordance with the one quotation which did not meet his requirements of a guaranteed income and a guarantee of investment at the end of the term.

The complainant contends that the quotations were presented to him in such a manner that he was under the impression that they were in fact similar with regard to the guarantees of income and return. The broker, on the other hand, contends that the complainant was “fully informed”. Although given all opportunities to do so, the broker did not contend that the significant difference between the quotations were explained to the complainant. It is our perception that a reasonable prudent intermediary under the particular circumstances would have at least indicated this significant difference.

A more significant aspect is that a guarantee of a return of the amount invested was specifically emphasized by the broker. According to the complainant this was done in response to his enquiry as to whether the total investment amount was guaranteed. The contentions by the complainant in this respect was not denied by the specific intermediary. During our investigation of the matter we were provided with a memorandum by the intermediary which supported the impression that the intermediary was even at that stage, under the impression that the guarantee applied to the total amount invested in respect of both the annuity/income as well as the “investment” portion of the total amount paid by the complainant.

Our opinion was that the available information confirmed on a balance of probabilities that the broker represented to the complainant that the contract entered into contained the guarantee of return of the total investment consideration similar to the other quotations.

It was furthermore our opinion that in the light of the stated requirement of the complainant any advice to invest in a product which does not provide for a guarantee requested for, would fall short of the standard which may reasonably be expected from a broker in similar circumstances.


We recommended that the broker accept liability for any losses caused by the representations made and advice provided.


The matter was resolved in that the broker provided the complainant with a certificate signed by its executive director in which it undertook to compensate the complainant for any loss in respect of the total amount invested at the end of the term.