FEDERAL COURT OF AUSTRALIA Leung v American International Assurance Company (Australia) Limited [2004] FCA 1763 PRACTICE & PROCEDURE – representative proceeding – Part IVA of Federal Court of Australia Act – similar representations alleged to have been given by respondent to each applicant - similar or related circumstances – substantial common issue of law or fact – order that the proceeding no longer continue as representative proceeding in the interests of justice Federal Court of Australia Act, ss 33C, 33H Bright v Femcare Limited [2001] 188 ALR 633 Wong v Silkfield Pty Limited [1999] 165 ALR 373 Philip Morris Australia Limited v Nixon [1999] 170 ALR 487 Zhang v The Minister for Immigration, Local Government and Ethnic Affairs (1993) 45 FCR 384 LEUNG v AMERICAN INTERNATIONAL ASSURANCE COMPANY (AUSTRALIA) LIMITED N 1497 OF 2003 HILL J 16 DECEMBER 2004 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1497 OF 2003 BETWEEN: LEUNG APPLICANT AND: AMERICAN INTERNATIONAL ASSURANCE COMPANY (AUSTRALIA) LIMITED RESPONDENT JUDGE: HILL J DATE OF ORDER: 16 DECEMBER 2004 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application no longer continue under Part IVA of the Federal Court of Australia Act 1976, and that each applicant conduct a separate proceeding. 2. The applicants each file and serve amended applications and statements of claim by 21 January 2005. 3. The respondent file and serve its defences by 4 February 2005. 4. The proceedings be stood over for further directions and the hearing of any motions on 7 February 2005 at 9.30am. 5. The respondents in the motion (the applicants in the proceedings) pay the costs on the motion of the applicant in the motion (the respondent in the proceedings). Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1497 OF 2003 BETWEEN: LEUNG APPLICANT AND: AMERICAN INTERNATIONAL ASSURANCE COMPANY (AUSTRALIA) LIMITED RESPONDENT JUDGE: HILL J DATE: 16 DECEMBER 2004 PLACE: SYDNEY REASONS FOR JUDGMENT HILL J: 1 On 1 October 2003 there was commenced in this court proceedings purporting to be representative proceedings within the meaning of Part IVA of the Federal Court of Australia Act by six applicants, being respectively Mr Leung, Ms Rong, Wen Goodwill (Australia) Pty Limited, Mr Yang, Aulian Enterprise Pty Limited and Ping Lin also known as Peter Lin. These proceedings named the respondent American International Assurance Company (Australia) Limited as the respondent to the proceedings. 2 The amended application relying upon s 33C of the Federal Court of Australia Act ("the FCA Act") and s 33H(1) of that Act purported to describe or otherwise identify the group members to whom the proceedings related, specified the nature of the claims made on behalf of the group members and the relief claimed, and specified what was said to be the questions of law or fact common to the claims of the group members. The description of the group members was as follows: (a) all those persons or corporations who from and including 1 October 1997 ("the commencing date") entered into contracts with the respondent, which contracts authorised them to act as the agents of the respondent, in the arranging of contracts of insurance between the respondent and third parties and, (b) who entered such contracts as a result of attending seminars and/or training courses conducted by the respondent, and, (c) who entered into such contracts as a result of receiving representations in the same, or substantially the same form as the representations contained in the First Schedule to the Amended Statement of Claim filed with this Application, and, (d) whose agency contracts were the standard contracts of the respondent (e) who at the time of entry into the agency contracts were advised by the respondent to the effect that: (i) that the contracts complied with all relevant laws, (ii) that the contractual terns were not negotiable, (iii) that the contract or contracts were standard, (iv) that all other insurance agents of the respondent had signed the contract, (v) that it was not necessary for the respondent to explain the contract or contracts to the intended agent, and (vi) that it was not necessary for the intended agent to obtain independent legal advice in relation to the contract or contracts. (f) whose agency contracts with the respondent have been terminated by the respondent. 3 The claim stated in the application in summary form was that the respondent conducted seminars and training courses, that at these seminars and training courses representations were made, the form of which is set out in detail in schedule 1 to the statement of claim, as well as representations that the relations between persons entering into contracts with the respondent would be such that there would be a mutually supportive relationship between them independent to that contained in any legal contract as well as other representations. It is said that that contracts entered into between the respondents and other group members were unfair. 4 It is said that the contracts were entered into and the respondents and other group members engaged in setting up their own agency businesses, but that the contracts were ultimately terminated by the respondent in cases where there was no misconduct by the insurance agents and in circumstances where the respondent received substantial financial benefits from the termination in that ongoing commissions were not received and insurance premiums were retained by the respondent. 5 In essence, claims are made against the respondent relying upon the provisions of s 51AC of the Trade Practice Act 1974 ("the Act"), s 52 of the Act, s 59 of the Act, s 53B of the Act and s 60 of the Act. 6 It is also claimed that the applicants can rely upon the Contracts Review Act 1980, although it is now conceded that that is not the case. 7 The questions of fact or law said to be common to group members are then listed. There are 11 of them. Suffice to say that these include whether the respondent's conduct was, in the circumstances, unconscionable, whether it breached s 52 or whether it breached s 59 or the other sections of the Act to which reference has been made, or whether the respondent has been unjustly enriched. 8 A motion has been brought by the respondent relying upon s 33N of the FCA Act seeking an order that the proceedings not continue as representative proceedings. The motion also seeks relief in the nature of striking out pleadings. The parties have, however, agreed that matters of pleading will await the resolution of the principal matter presently in dispute between them, namely whether the proceedings should be permitted to continue as representative proceedings. 9 I should note that it is agreed between the parties that there are, in essence, two separate issues for resolution by me. The first is whether the proceedings may be brought as representative proceedings under the provisions of Part IVA of the FCA Act. Secondly, if the first question is answered in the affirmative, whether nevertheless I should make an order under s 33N of the FCA Act that the proceedings be continued as separate proceedings. 10 That the two questions are appropriately separate, appears from the judgment of Stone J in Bright v Femcare Limited [2001] 188 ALR 633 where her Honour, having decided that the criterion for representative actions were satisfied, continued to determine whether the matter should proceed as a representative action. 11 It seems clear to me that the question whether the proceedings properly are representative proceedings is a question that should be determined on the pleadings. This was the course adopted by the High Court in Wong v Silkfield Pty Limited [1999] 165 ALR 373 and see Philip Morris Australia Limited v Nixon [1999] 170 ALR 487 at 515. Nevertheless, there was tendered without objection affidavits from Mr Leung, Mr Yang and Mr Lin setting out, in essence, the facts upon which they relied. I have read these affidavits and think the appropriate course is that they can be taken into account, but only to the extent to which they are not inconsistent with the pleadings. 12 Although the cases as pleaded rely upon various sections of the Act, the basic claim really relies either upon s 52 of the Act or upon s 51AC of the Act, that is to say the allegation of unconscionable conduct. It is obvious that unless the applicants succeeded under either of these sections, they would be unable to succeed on the other claims sought to be advanced. 13 Put shortly, the case of the six applicants is that at various times representations were made to them by various persons associated with the group members. It is not suggested that the representations were made by the same persons to each of the applicants. However, the representations are, in essence, said to be the same. 14 The principal representations alleged are that upon becoming an insurance agent of the respondent the agency would last for life; the agent would be entitled to income for life; the agency he, she or it created would be the agent's own property and able to be sold by the agent, and that the relationship between the agent and the respondent would have the characteristics of a "family". 15 Implicit from the representations is, it would seem, that the respondent would not, at least unless there was default on the part of an agent, terminate the agency relationship entered into between them. It is then alleged that in reliance on these and other representations, the individual applicants, or in at least two cases, the corporate applicants, entered into agency agreements. 16 The allegation is that the applicants were not given the opportunity of obtaining independent legal advice, nor for that matter translation of the agreements which were in English, notwithstanding that the applicants did not speak English, at least well, and inferentially were unable to understand the agency agreements. In fact, the agency agreements contained clauses which permitted the respondent to terminate the agency on 15 days notice. In the event of termination, the respondent was entitled, under the agreement entered into, to retain insurance premiums which had been paid to it, but more importantly was entitled not to pay thereafter commissions to the agents including, in certain cases, override commissions on business written by other agents who were being supervised by the applicants. 17 It is then alleged that the applicants commenced business for the respondent and indeed built up substantial agencies, thus becoming entitled to commission from insurance they introduced, or, as I have indicated, in some cases amounts by way of override of commissions from other persons. 18 Notwithstanding the representations said to have been made and relied upon, the respondent ultimately terminated each of the contracts entered into with the agents and thereafter paid no amounts by way of commission, and in some cases retained commission that otherwise is said to have been due at the time of termination. 19 The statement of claim itself contains no pleading relevant to the case of other persons who might be group members, even in the most general of terms, although there is set out in the third schedule what are said to be common claims of applicants, namely claims for damages, exemplary damages, orders under s 87 of the Act, interests and costs. However, counsel for the applicant indicated that in this regard it was sought to rely upon what was said in the amended application and no doubt if this were a significant matter leave could be given to re-plead the matter in a statement of claim in a form similar to that contained in the amended application. 20 The first question to resolve, therefore, is whether, assuming for present purposes that there are seven or more persons with claims, (and it is alleged that there are something in the order of a thousand such persons) those claims are in accordance with s 33C(1)(b) of the FCA Act, that is, "in respect of or arise out of the same, similar or related circumstances" and give rise to a "substantial" common issue of law or fact. 21 The question whether claims are in respect of or arise out of the same, similar or related circumstances will necessarily at least in some cases involve questions of judgment. In Zhang v The Minister for Immigration, Local Government and Ethnic Affairs (1993) 45 FCR 384 referred to with apparent approval by Sackville J in Philip Morris v Nixon supra, French J said at 404-5: The question whether the claims of the persons who are proposed as members of a group arise out of 'the same, similar or related circumstances' as required by s 33C(1) is not to be answered by an elaboration of that verbal formula. It contemplates a relationship between the circumstances of each claimant and specifies three sufficient relationships of widening ambit. Each claim is based on a set of facts which may include acts, omissions, contracts, transactions and other events. As appears from s 33C(2), the circumstances giving rise to claims by potential group members do not fall outside the scope of the legislation simply because they involve separate contracts or transactions between individual group members and the respondent or involve separate acts or omissions of the respondent done or omitted to be done in relation to individual group members. The outer limits of eligibility for participation in representative proceedings are defined by reference to claims in respect of or arising out of related circumstances. The word 'related' suggests a connection wider than identity or similarity. In each case there is a threshold judgment on whether the similarities or relationships between circumstances giving rise to each claim are sufficient to merit their grouping as a representative proceeding. At the margins, these would be practical judgments informed by the policy and purpose of the legislation. At some point along the spectrum of possible classes of claim, the relationship between the circumstances of each claim will be incapable of definition at a sufficient level of particularity, or too tenuous or remote to attract the application of the legislation. 22 It seems to me that claims may be said to arise out of related circumstances where the various applicants rely upon similar representations even although the representations are made separately to them perhaps even at different times. If this were the case it would not matter that factually questions of reliance or damages differed in each case. On the other hand, it is unnecessary to decide this in the present case. However it may be the case that the circumstances in which representations are made to each group member are so diverse that it could not be said that the making of representations, even in identical terms, arose out of circumstances that were related. There is much to be said for the view that the present I such a case. 23 I am prepared however, for present circumstances, to accept that the present is a case which is at the outer limits of "similar or related circumstances" but nevertheless is such as might fall within s 33C(1)(b). 24 The next question is whether the claims give rise to a "substantial" common issue of law or fact. The word "substantial" in s 33C(1)(c) was said by the Full High Court in Wong v Silkfield supra to be directed to "issues which are 'real or of substance' see at 381". The purpose of Part IVA is not to narrow access to representative proceedings and so the word "substantial" is not to be given a meaning such as "special significance" or "major impact on the litigation" as was thought to be the case by the Full Court of this court in the same case. (See [1998] 159 ALR 329.) 25 It is submitted by counsel for the applicants that there are common issues of fact, for example the making of the representations, the fact that the contracts did not conform with these representations and the termination of the contracts. In the way in which the common questions of fact (or law) are stated in the application, they involve conclusions of fact and law, namely whether the conduct breached the various sections of the Act. 26 While it is no doubt appropriate to give attention to commonality rather than diversity when considering s 33C, it must be said in the present case that the facts said to give rise to a claim in each applicant are arguably unique. 27 No doubt it can be said that if it can be proved that representations were made in trade or commerce which are false or misleading, and these representations were relied upon to the detriment of an applicant who suffered damage, the applicant would be entitled to succeed. But that is to state the question of law at too great a level of generality. Unless these elements were alleged, the pleadings would be capable of being struck out as not involving any cause of action. However, for present purposes I am prepared to accept that it can be said that there is a substantial common issue, at least of law, perhaps of fact, in the application, in the sense that there is a real common issue between the parties, although in accepting that I think it is doubtful that this is the case. 28 Accordingly, it seems to me that the problem should be approached by considering the alternative question arising under s 33N, that is to say whether on the application of the respondent or otherwise I should order that the present proceeding no longer continue under Part IVA. I am authorised to exercise this discretion where I am satisfied that it is in the interests of justice to do so because of one of the factors set out in 33N(1)(a) to (d). 29 It is submitted on behalf of the applicants that there could be a substantial saving in costs if the proceedings continue as representative proceedings in that there could be findings on an issue which would be binding on all parties to the representative proceeding. 30 I have personally great doubt in seeing that any finding made in the representative proceedings would be of great utility, bearing in mind the factual matters that arise here for consideration. As I have already indicated, essentially it will be necessary to consider in each case what representations were actually made to each applicant, whether those representations were in fact relied upon by each applicant and if so, what damage each applicant suffered. 31 So far as the issue of unconscionable conduct is concerned, it will obviously be necessary in each case to consider the particular circumstances of each applicant, the relationship between that applicant and the respondent in the entry into of the contract and its ultimate termination. 32 The case is obviously one where the relief sought can be obtained either in representative proceedings supplemented by individual proceedings in each case, or by separate proceedings being individual proceedings. 33 With all respect to the applicant, I do not think that the representative proceedings would provide an efficient and effective means of dealing with the claims of group members. I say this because as I hope is obvious from what I have already said, the factual circumstances of each applicant will differ. Let me give one example which is apparent from the affidavits that were placed before me. 34 In the case of one group of applicants it is suggested in correspondence passing between the applicants and the respondent that the applicants had retained premiums received from persons purchasing insurance and not passed them on, as they were obliged to do, to the respondent. If that allegation were proved, then even despite the representations said to have been made, one would think it would be the case that the respondent would be entitled to terminate the agreement between the parties, even if not able to rely upon the ability in the contract to terminate on the giving of notice but without otherwise breach on the part of the applicants. 35 To treat the matters as representative proceedings could involve prejudice to the respondent as was submitted on behalf of the respondent. To some extent this depends on precisely what the common issue is that was to be determined by a representative proceeding. If that common issue was said to be the making of representations in similar terms, the respondent would be faced with having to deal with evidence of representations having been made to various applicants. 36 Ordinarily, when the issue is whether a particular representation is made to one applicant, evidence that some even identical representation was made by another person to another applicant would be inadmissible as tendency evidence because it would not be logically probative of the fact in dispute, namely whether the particular representation was made. It would be otherwise if it was suggested that there was some policy on the part of the respondent to make representations of a particular kind to all applicants. This is not pleaded and indeed counsel for the applicant specifically disavowed seeking an amendment of the pleadings to suggest that. In other words, litigating the question of whether, over a period of time, representations in similar terms were made by different persons to different applicants could operate adversely to the respondent. 37 However, the most significant point is that the facts in each case, whether those facts relate to the case sought to be made under s 52 or the case sought to be made of unconscionable conduct, are likely to be so diverse that to deal with the case as involving a representative proceeding together with numerous individual proceedings involving which applicant will ultimately involve greater time than would be the case if each application were treated as a separate proceeding and litigated as such. 38 It is true that some additional cost would be incurred in pleading each case and for court fees. However, that additional cost ultimately would not seem to involve much difference from the costs that would be incurred if there were first some representative proceeding directed at establishing what must inevitably be a narrow common issue, but then investigating each separate factual matter, particularly where each matter could involve reinvestigating what was said to be the common issue in any event. 39 For the reasons I have sought to give, I am of the view that the present is a case where it is in the interests of justice that each matter proceed as a separate proceeding rather than that the present proceeding continue as a representative proceeding. 40 It would follow that the pleading issues raised in the motion do not now arise before me as it would be necessary for the applicants to re-plead their cases as individual cases. However, since there would seem to be some strength in some of the matters raised, it would be desirable if those representing the applicants take into account some of the matters raised in the motion when they lodge the relevant pleadings. 41 I will now consider what orders should appropriately be made to enable the matter to proceed, and without further delay, as separate proceedings. 42 It seems to me an appropriate order is the respondents to the motion, that is to say the applicants in the proceedings, pay the costs of the applicants in the motion, the respondents in the proceedings. I make no order as to the costs being payable forthwith. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill. Associate: Dated: 19 January 2005 Counsel for the Applicant: I Archibald Solicitor for the Applicant: Accentro Legal Counsel for the Respondent: M Jones Solicitor for the Respondent: Ebsworth & Ebsworth Date of Hearing: 16 December 2004 Date of Judgment: 16 December 2004