FEDERAL COURT OF AUSTRALIA Combined Insurance Company of America trading as Combined Insurance Company of Australia v Trifunovski (No 3) [2011] FCA 238 Citation: Combined Insurance Company of America trading as Combined Insurance Company of Australia v Trifunovski (No 3) [2011] FCA 238 Parties: COMBINED INSURANCE COMPANY OF AMERICA T/A COMBINED INSURANCE COMPANY OF AUSTRALIA v BLAGOJA TRIFUNOVSKI, HERACLEA PTY LIMITED ACN 007 437 372, JOSEPH VIVIL RIENZIE PERIES, SHANE PEREZ, WILLIAM DICINOSKI and FETIE VICKI DICINOSKI File number: NSD 1860 of 2008 Judge: PERRAM J Date of judgment: 8 March 2011 Catchwords: PRACTICE AND PROCEDURE – Pleadings – statement of claim – application to amend – principles applicable to grant of leave to amend – Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 Legislation: Trade Practices Act 1974 (Cth) Fair Trading Act 1987 (NSW) Cases cited: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 cited Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 cited Date of hearing: 8 March 2011 Date of last submissions: 8 March 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 41 Counsel for the Applicant: Mr A Leopold SC with Mr T Saunders Solicitor for the Applicant: Allens Arthur Robinson Counsel for the Respondents: Mr A Britt Solicitor for the Respondents: K P O'Donnell & Associates IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1860 of 2008 BETWEEN: COMBINED INSURANCE COMPANY OF AMERICA T/A COMBINED INSURANCE COMPANY OF AUSTRALIA Applicant AND: BLAGOJA TRIFUNOVSKI First Respondent HERACLEA PTY LIMITED ACN 007 437 372 Second Respondent JOSEPH VIVIL RIENZIE PERIES Fifth Respondent SHANE PEREZ Sixth Respondent WILLIAM DICINOSKI Eighth Respondent FETIE VICKI DICINOSKI Ninth Respondent JUDGE: PERRAM J DATE OF ORDER: 8 MARCH 2011 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Leave be granted to the Applicant to file in court an Amended Application. 2. The Applicant be directed to serve on the Respondents' solicitors by 6pm on 8 March 2011, via email, a further version of the proposed pleading giving effect to these reasons for judgment. 3. The Applicant to pay the Respondents' costs thrown away by reasons of amendment to the application. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1860 of 2008 BETWEEN: COMBINED INSURANCE COMPANY OF AMERICA T/A COMBINED INSURANCE COMPANY OF AUSTRALIA Applicant AND: BLAGOJA TRIFUNOVSKI First Respondent HERACLEA PTY LIMITED ACN 007 437 372 Second Respondent JOSEPH VIVIL RIENZIE PERIES Fifth Respondent SHANE PEREZ Sixth Respondent WILLIAM DICINOSKI Eighth Respondent FETIE VICKI DICINOSKI Ninth Respondent JUDGE: PERRAM J DATE: 8 MARCH 2011 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This is an application by the applicant in NSD 1860 of 2008 to amend its Amended Statement of Claim and therefore to file a Further Amended Statement of Claim, together with an Amended Application. The application is made on the second day of a trial which is fixed for hearing for five weeks. The basic question is whether five insurance agents who were formerly retained by the applicant in NSD 1860 of 2008, which I shall call Combined, are employees. 2 That question arises because the agents have made claims for long service leave payments and also for payments for annual holidays. To vindicate that proposition, that is, that they were employees, they, at an earlier time, commenced proceedings in the Chief Industrial Magistrate's Court of New South Wales, being proceeding 643, 644, 646, 647 and 649 of 2009 and in each of those proceedings the abovementioned claims were made. 3 In the case of each agent there are written agreements in place signed by Combined and by each agent. For present purposes there are two features of each of those agreements to which attention should be drawn. The first is that each contains an indemnity against cost and expense, broadly speaking, caused to Combined arising out of the activities of the agents' business. Secondly, and perhaps more importantly for present purposes, there are clauses within each contract which would provide some support for the proposition that the relationship between Combined and each agent was not one of employment. 4 No doubt moved by those agreements, Combined then commenced proceedings in this Court, NSD 1860 of 2008, against each of the agents and, in addition, against two companies which were related to two of the agents. In proceedings NSD 1860 of 2008 Combined, in the most recent version of its filed pleadings, sought relief in respect of what was said to be misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth) and/or s 42 of the Fair Trading Act 1987 (NSW). 5 To put the matter briefly, the misleading and deceptive conduct was alleged to be constituted by, inter alia, the statements in the contracts by which each agent had agreed that he or she was not an employee. The claim worked this way: if the agents were successful in the proceedings before the Chief Industrial Magistrate's Court of New South Wales in establishing that they were employees, then they had, so it would transpire, engaged in misleading and deceptive conduct by representing to Combined that they were not employees. 6 In addition to those claims, there was also a claim made for indemnity under the contractual provision to which reference has already been made and there were allied claims to the s 52 claim based on estoppel by representation and estoppel by convention. Sometime after those proceedings were commenced, the proceedings in the Chief Industrial Magistrate's Court were transferred to the Supreme Court of New South Wales and thereafter to this Court. This present trial concerns the trial of each of those actions together with Combined's claim against the agents. The proposed amendments relate to Combined's claim against the five agents and another company, Heraclea Pty Ltd. 7 It is convenient to deal, at least in the first instance, with the proposed amendments in relation to the first respondent, a Mr Trifunovski. The reason for this is that the issues which arise in relation to each of the other respondents are the same and the determination of the issues which arise in relation to the first respondent will effectively resolve the other issues. The questions which arise may be grouped into two categories; the first concerns the extent to which the respondents to Combined's claim will be prejudice by the proposed amendments and, insofar as prejudice is established, the extent to which an appropriate or sufficient explanation has been put before the Court, by Combined, to explain the timing of the application. I take those two principles to be the required approach from the High Court's decision in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175. 8 The final version of the proposed pleading took the form of Exhibit 1 on the application. The first amendment to which objection was taken was to paragraph 8A of the proposed pleading. Paragraph 8A alleges: The First Respondent caused the Second Respondent to enter into the Second Respondent's Contract. 9 Paragraph 8B alleges: The conduct of the First Respondent pleaded in paragraph 8A above was in trade or commerce. 10 It was submitted that these represented new cases being put against Combined. I accept that, however, I do not think that either allegation raises any real issue of prejudice. The allegation that the first respondent caused the second respondent to enter into a contract is one which is easily understood and readily met; so too, the allegation that certain conduct occurred in trade and commerce requires no more than a consideration of the High Court's decision in Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 particularly when it is appreciated that the content of that analysis is to be conducted by reference to paragraph 8A. 11 Objection was next taken to paragraph 9. The proposed amendments to paragraph 9 now include in 9(ii) a number of particulars, each of which makes reference to specific clauses in the contract between Mr Trifunovski and Combined. These additional particulars are said to make good the proposition that the first respondent had represented in each contract entered into with Combined that he was an independent contractor. I do not, for myself, see any difficulties for the respondents in meeting a fresh case based upon those clauses. This is first because Combined is already entitled to plead these matters by way of defence in the claims brought against it by the agents and secondly because, in any event, as a matter of substance one only needs to look at the contract in order to meet the claims. 12 I should say in relation to the first point that the argument which was advanced by Combined and which, in effect, I accept, is that in the proceedings in which the agents seek to recover their various entitlements as employees an underlying question is whether they are, in fact, employees. In making a denial of that allegation in each of those cases Combined is entitled to seek to contest the employment issue as it is able. Plainly enough, the provisions of the contract between each agent and Combined will be relevant in that analysis. Since that defence can be raised in those proceedings, I can see no real prejudice to the agents in permitting it to be raise in proceedings which are being heard at the same time. 13 The next objection was taken to paragraph 10. Paragraph 10 is as follows: The First Respondent never warned the Applicant that there was any risk that he would make any claim based on the allegation that he was employed by the Applicant or that he did not consider himself (and subsequently the Second Respondent) irrevocably bound by the promises and agreements referred to in paragraph 9 above or paragraph 30 below. 14 I do not think that in any way the respondents are prejudiced in meeting this allegation. 15 An amendment was then sought to be made to paragraph 11. Proposed paragraph 11 is as follows: By his conduct referred to in paragraphs 7, 8A, 9 and 10 above and by the further conduct by him pleaded in paragraph 25 pleaded below, the First Respondent, on a continuing basis from the time when he conducted himself as alleged, partly expressly and partly impliedly represented to the Applicant that he would at all times operate in conformity with the rights and obligations of an independent contractor in selling insurance on behalf of the Applicant and that he considered himself (and subsequently the Second Respondent) bound by the promises and agreements referred to in paragraph 9 above or paragraph 30 below (the First Respondent's Continuing Representation). Particulars (i) The express part of the conduct was that referred to in paragraphs 7 and 9 above; (ii) The implication arose from the express language used in the First Respondent's Contracts and the Second Respondent's Contract, from the facts, matters and circumstances pleaded in paragraph 25(b), (e), (h)-(m), (q)-(w), (y)-(ee), (gg), (ii)-(mm) and (oo)-(uu) below and from the failure of the First Respondent to warn the Applicant that there was any risk that he would make any claim against the Applicant based on the allegation that he was employed by the Applicant or that he did not consider himself irrevocably bound by the promises and agreements referred to in paragraph 9 above and paragraph 30 below. 16 Again, whilst it erects a structure of a continuing representation which may be contrasted with the basic case of a representation as to employment being made, I do not think that it broadens the responsibilities, or burdens, of the respondents in meeting the claim. I do not think, in that circumstance, that they are prejudiced by it. 17 Objection was then taken to paragraph 15. Paragraph 15 is as follows: The First Respondent's Continuing Representation caused the Applicant to fail to (and therefore lost the opportunity to) take steps that it would (or might) otherwise have taken, namely: (a) to exercise its right of termination under clause 5(a) or 6(a) of the First Respondent's Contracts or clause 6(a) of the Second Respondent's Contract; and/or (b) to negotiate a further contract or contracts with the First Respondent on the basis that further steps would be taken to ensure that the First Respondent could not or would not be characterised as an employee of the Applicant; (c) alternatively, closing the Applicant's sales operations in Australia and possibly outsourcing that role to a third party corporate service provider. 18 The objection was first taken to the words "and therefore lost the opportunity to". I do not think that the respondents are unable to meet a case about that. The opportunities referred to may be articulated, they may be discussed, they may be criticised, but that does not mean that a case about them cannot be met. However, in relation to paragraph 15(c), Mr Britt, who appeared for each of the respondents, submitted that this case was entirely new, could not be found elsewhere in the pleadings and, on its face, required investigation. I agree with that submission. It seems to me that the respondents would be entitled, if they chose, to seek to show that Combined would not have closed its sales operations and would not have outsourced that role to a third party corporate service provider. In that circumstance I accept that actual prejudice in relation to paragraph 15(c) is established. 19 Objection was taken to paragraph 16 on the basis that it picked up the allegation about continuing representation. For reasons already given I do not accept that that generates prejudice. Objection was also taken to paragraph 18. The point, as I understood it, was that the claim on the indemnity had now been broadened by picking up the cross-claim, in addition to the claims in the other proceedings. I do not think that gives rise to any prejudice. It is simply a question of the proper construction of the indemnity. 20 Objection was then taken to paragraph 22. I will not set 22 out. However, paragraph 22(a)(iii) made an allegation in the following terms: alternatively, closing the Applicant's sales operations in Australia and possibly outsourcing that role to a third party corporate service provider. 21 For reasons I have already given, this seems to me to give rise to real prejudice in the hands of the respondents because it will require both further investigation and, therefore, time to deal with it and, of course, it is not presently a case which is pleaded. 22 Objection was then taken to paragraph 23(c). It provides: The Applicant, having made payments to the First Respondent and Second Respondent for many years on a basis which reflected no need on the part of the Applicant to bear significant on-costs of the kind referred to in paragraph 18(b) above, will, if the First Respondent was, as he alleges, at all material times an employee of the Applicant, now have to bear those significant on-costs; 23 Mr Britt submitted that this would require an investigation or examination of the kind of on-costs which were being incurred. However, in his submissions in reply, Mr Leopold SC, who appeared with Mr Saunders of counsel for the applicant, submitted that the only point which was being sought to be made by paragraph 23(c) was the factual reality that Combined would have to pay those additional higher costs if the respondents were successful in making their employment claim good. On that basis, it does not seem to me to generate any prejudice. 24 Objection was also taken to paragraph 23(d). All that paragraph 23(d) does is to pick up the contents of paragraph 22. If paragraph 22 does not contain 22(a)(iii), then I do not think that any problem arises. 25 Objection was then taken to paragraph 25. The first objection related to an allegation in the body of the paragraph that the first respondent had been acting on behalf of the second respondent (I interpolate that the second respondent is the corporate vehicle for the first respondent). I do not think, largely for similar reasons to those which I have already given, that this gives rise to any prejudice. 26 Paragraph 25 is accompanied by a formidable array of particulars, stretching from (a) through to (vv). It is necessary to deal with the complaints made in relation to each. So far as particulars (a) to (f) were concerned, no objection was taken. In relation to particulars (g) to (i), concerning the GST régime, the submission was made that it would be unfair to allow these amendments to occur because it would be necessary to garner expert evidence dealing with the administration of the GST régime. I do not agree. All that the particulars (g) to (i) do is to make allegations about the actual operation of the GST régime which is entirely a matter of law and entirely a matter upon which the respondents are quite able to make submissions if they should choose. 27 Objection was then taken to particulars (j) and (k). These deal with the question of GST, but unlike particulars (g) to (i), they come down from the realm of the theoretical into the realm of the factual and deal with the manner in which, and the mechanisms by which, the respondents dealt with their GST issues. It was said that this was a new case and that it would require investigation and so on. Granted that that be so, I do not think that it is a particularly heavy burden in the context of a five week trial and particularly where all of the tax documents, as I understand it, are already in the court library or at least available to ask of the respondents that they examine those documents. I do not accept that there is sufficient prejudice in that case. 28 Particulars (l) to (q) were not the subject of objection by Mr Britt. Particular (r) was in the following terms: At all times after the commencement of the GST regime, the First Respondent enjoyed the benefit of the receipt of gross commissions and bonuses from the Applicant, without any PAYG tax deductions and had the substantial benefit of the use of those gross commissions and bonuses including the 10% GST component added by the Applicant (as opposed to the use only of the gross commissions and bonuses less PAYG tax and Medicare levy and without any GST component, which is the much more limited benefit he would have had if he had been an employee) until approximately one month after the conclusion of the quarter in which those commissions and bonuses including the GST component were received; 29 The point, as I apprehend it, was that the proposed timing benefit to which Combined had referred might well be eaten up by the numerical possibility that the actual rate of income which might be leviable upon an employee agent would be smaller. It does not seem to me that that is necessarily a particularly likely outcome, but I think the answer to it is that it was within the rights of Combined in fact to run that point in its defence to the agents' proceedings in the Chief Industrial Magistrate's Court. In that circumstance, it does not seem to me that there is any additional prejudice suffered by reason of particular (r). 30 As I understood it, no objection was taken to particular (s) beyond that which had already been taken in relation to (j) and (k). In relation to particulars (t) through to (v), I do not accept that there is any substantial prejudice established in relation to those matters. No objection was taken to (z) by Mr Britt. As I understood it, no objection was taken to particulars (aa) through to (nn), although objection was taken to particular (oo). Particular (oo) provided: The First Respondent for many years procured income protection insurance, reflecting the fact that he had no entitlement to claim paid sick leave from the Applicant; 31 I do not see that requiring the first respondent to give some evidence about his income protection insurance arrangements is a species of prejudice which ought to stand in the way of such an amendment. In saying that, I do not accept the explicit submission that there is an advantage given to those who give their evidence by affidavit over those who give their evidence orally in the box. This is for two reasons. I do not accept necessarily that this evidence would need to be given by a witness in the witness box. It may well be just as easily given by the tender of a document. Secondly, in any event, my impression about the relative efficacy of affidavits and oral evidence is to the contrary of that submitted, that is, generally witnesses who give their evidence in chief in the box have an advantage over those who need to give their evidence by affidavit. 32 No objection was taken to particular (pp). Objection was taken to particular (qq). It is in the following terms: Prior to about 2006, the First Respondent and the Second Respondent refrained from seeking any advice as to whether he/it was, as mutually assumed by the Applicant and the First and Second Respondents, in fact and in law an independent contractor; 33 I do not accept that having to meet that allegation will involve any risk or prejudice to the respondents. As I understood it, no objection was taken to particular (rr) or (ss), although objection was taken to (tt). Particular (tt) is as follows: From about September 2003 the First Respondent became an Authorised Representative of the Applicant, the holding of which certification was unnecessary if the First Respondent had been an employee of the Applicant; 34 I do not accept that an allegation that the respondent had become an authorised representative of the applicant is a matter which will cause any embarrassment to the applicant. That proposition has been on the table for some time. As I understood it, there was no objection to particulars (uu) or (vv). 35 I turn then to the objection to paragraph 26. It picked up, in part, paragraphs 22 and 23. To the extent that paragraphs 22 and 23 have been affected by some of my indications already, that which it picks up is obviously now slightly different to the present form of the pleading. 36 There was no substantive objection to particular (i). Particular (ii) was in the following terms: If the First Respondent succeeds with the First Respondent's Claims, then he will have enjoyed the windfall benefit of having both, on the one hand, high commissions paid by the Applicant to him (and subsequently to the Second Respondent) only on the basis that he (or it) was an independent contractor and, on the other hand, the additional emoluments now claimed in the First Respondent's Claims, which would (if truly payable by the Applicant) represent a significant additional cost to the Applicant never factored by the Applicant into its cost structure because of the mutual assumption; 37 Mr Leopold SC submitted that all that was being sought to be conveyed by this paragraph was that Combined was exposed to additional cost, but that the quantum of those costs was not material. It was not the case, so he submitted, that Combined sought to demonstrate that there was some benefit being accrued by reason of that arrangement. That being so, I do not see that there is a difficulty generated by subclause (ii). A similar point was made in relation to subclause (vi)(B) and should be governed by the same reasoning. It follows from everything which I have said that I accept that the respondents would suffer actual prejudice if required now to meet the case proposed to be pleaded in paragraphs 15(c) or 22(a)(iii). 38 Mr Dooley, who is the solicitor with the day-to-day carriage of the matter, gave evidence by affidavit before me that the reason that the proposed amendments were not articulated until 18 February 2011 was because he had only apprehended the need to amend the particulars, based on the contents of affidavits filed in the proceedings, "to ensure that they accurately reflect the broader evidence which supports Combined's conventional estoppel claims". He also made the point that he did not regard them as having added any fresh causes of action. Mr Leopold SC referred me to paragraph 13 of his affidavit, where he said that: The other Amendments proposed in addition to the above seek merely to tighten up the existing pleading and make deletions from it consequential on the withdrawal by the former Third, Fourth and Seventh Respondents of their claims against Combined and of Combined's withdrawal of its claims against them. 39 That explanation is a perfectly acceptable explanation in relation to the vast bulk of the amendments to which I have made reference. However, in relation to the amendments to paragraphs 15(c) and 22(a)(iii), they do not really explain how it is that the fresh claim in relation to the issue of closing down operations is being put. I do not mean that as a criticism. Mr Leopold SC put from the bar table that it had really arisen out of a desire to give greater particularity to an affidavit of a Mr Gurney, it having been thought that in some ways the wording of an earlier version of that affidavit was perhaps a little general and could require further specificity. Be that as it may, it does not seem to me that that is a sufficiently good reason to put the respondents to the additional prejudice they would suffer if they were now required to meet that case. 40 In those circumstances I indicate that I am minded to grant leave to amend the statement of claim in relation to the first respondent in the form which has been articulated as Exhibit 1, except that I will not grant leave in relation to paragraph 15(c) or 22(a)(iii). All I will do, because I will not grant leave on an unarticulated document, is to direct that the applicant serve upon the respondents' solicitors by 6 pm this evening, via email, another version of the proposed pleading giving effect to what I have just determined in relation to the first respondent and dealing with the second, fifth, sixth, eight and ninth respondents. 41 In relation to the amendment to the application (which was not opposed), I grant leave to the applicant in NSD 1860 of 2008 to file an Amended A pplication in the form annexed to Mr Dooley's affidavit. I order the applicant to pay the respondents' costs thrown away by reason of the amendment to the application. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram. Associate: Dated: 8 March 2011