Knowles v Interprac

The decision in Knowles v Interprac Financial Planning Pty Ltd [2025] QSC 78 concerned a claim by Mr Knowles’ entities, including his SMSF and personal investment trust, against not the financial adviser who caused the harm (who received a 3 year ban) but rather the Australian Financial Services Licence (AFSL) holder that authorised that financial adviser (including in relation to superannuation advice and dealing) under its AFSL. Ultimately the claim was held to have been statute barred and failed.

Mr Knowles, a construction worker in his early thirties at the time with excess disposable income and who had around $68,500 in super combined with his wife, searched the internet and found a free superannuation property investment seminar run by Francis Investment Strategists Pty Ltd (Francis Investments) (a corporate authorised representative (authorised to provide financial services but not as an employee) of Interprac) which was run by Mr. Drew Grosskreutz. 

Mr Knowles sought Mr Grosskreutz’s advice in 2011 (about 2 years before the best interests duty came into force) on investing in a townhouse or apartment in Sippy Downs close to a university which could be relatively easy to rent out. Mr Grosskreutz said that area would not deliver the capital growth or rental returns required and instead suggested that Mr Knowles invest in Hillcrest Villas, near Emerald, an inland town about 9 hours drive north-west from Sippy Downs.

Mr Grosskreutz also informed Mr Knowles that he knew the developer of Hillcrest Villas and sought to negotiate a rebate at settlement to allow Mr Knowles to purchase not one but two units in the same block. This would raise his accumulated investment debt to a high loan to value ratio of approximately 95% to 97% which Mr Grosskreutz described as “good debt” stating that “taking on substantial debt and using the bank’s money to grow his own investments was how successful investors operated”.

Mr Knowles followed Mr Grosskreutz’s advice and proceeded in late 2012 and early 2013 to invest in one villa through a new SMSF into which he rolled over his and his wife’s superannuation retirement savings and then two other villas in the same block using a new personal investment trust. Mr Grosskreutz also advised that Mr and Mrs Knowles should refinance their home mortgage, obtain $90,000 in cash from Mr Knowles’ father, cash in Mr Knowles’ long service leave and withdraw $11,750 from their savings to finance the equity deposit for the other two villas.

All of the investments failed which coincided with a substantial decline in the property market in Emerald in mid 2014. The villas had been untenanted for a significant amount of time and Mr Knowles could not continue to make the bank loan repayments without sufficient rental cashflow. The banks forcibly sold the properties in 2017 and 2018 significantly below their original purchase price.

In 2017, the Australian Securities & Investments Commission banned Mr Grosskreutz as a financial adviser for 3 years for advising clients to establish SMSFs to purchase properties without considering whether this was in the client’s best interests. Francis Investments was deregistered as a company in mid 2015.

These proceedings were commenced against Interprac on 2 August 2022. If either cause of action arose before 2 August 2016 then Mr Knowles’ claims against Interprac would be statute barred, which they were. Mr Knowles’ claims in negligence and for breaches of sections 945A and 945B of the Corporations Act (as applied at the time, which had since been replaced by the best interests duty provisions) were not brought within 6 years from the date on which the causes of action arose and therefore failed as being statute barred.

If the claims against Interprac had not been statute barred then one of them was found to succeed. The Court found that Mr Grosskreutz did not take Mr Knowles through the warnings set out in his Statement of (Financial) Advice (SOA) to ensure that Mr Knowles understood the material risks of the villa investments and high loan to valuation ratio. Those risks did materialise in a significant financial loss which the Court found could extend the scope of Interprac’s liability to a claim by Mr Knowles for opportunity loss. The Court found that this was a breach of the duty which Mr Grosskreutz (and through him Interprac) owed to Mr and Mrs Knowles in providing the SOA.

Otherwise the Court found there was no negligence in the way Mr Grosskreutz’s SOA was prepared, the appropriateness of Mr Grosskreutz’s financial advice, or Mr Grosskreutz’s investigation into Mr Knowles’ circumstances and financial status that led to the preparation of the SOA. Mr Grosskreutz’s advice regarding the personal investment trust (unlike super is not a regulated financial product), real estate and investment mortgages was found to be outside the scope of Interprac’s authorisation for Francis Investments and could not be imputed to Interprac.

It may have been possible for Mr Knowles to recover some of his losses from Interprac if his claim had been brought earlier. Which could have been allowed at least in part due to the investment involving a dealing in his super (a financial product) being his emptying out of his super to invest through a new SMSF. Otherwise real estate and investing through a personal investment trust on its own would not fall under the financial products regulation in the Corporations Act.