DWA Insurance Pty Ltd v Community Broker Network Pty Ltd (No 2) [2020] NSWSC 376

Supreme Court New South Wales

Medium Neutral Citation: DWA Insurance Pty Ltd v Community Broker Network Pty Ltd (No 2) [2020] NSWSC 376 Hearing dates: 7 April 2020 Date of orders: 08 April 2020 Decision date: 08 April 2020 Jurisdiction: Equity - Duty List Before: Robb J Decision: Order 6 made by the Court on 20 March 2020 is hereby discharged.

Parties should confer as to the orders that should be made for the future case management of these proceedings. Those orders should make provision for the confidentiality of relevant exhibits and the exchange of submissions concerning the costs of these proceedings to date. Catchwords: CIVIL PROCEDURE – Injunctions – where balance of convenience does not favour extending earlier ex parte orders in the Duty List Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 DWA Insurance Pty Ltd v Community Broker Network Pty Ltd [2020] NSWSC 280 Resort Hotels Management v Resort Hotels of Australia (1991) 22 NSWLR 730 Category: Procedural and other rulings Parties: DWA Insurance Pty Ltd (plaintiff) Community Broker Network Pty Ltd (defendant) Representation: Counsel: P Gray SC / FF Salama (plaintiff) E A Cheeseman SC/ M A Karam (defendant)

Solicitors: Coleman Greig Lawyers (plaintiff) DLA Piper Australia (defendant) File Number(s): 2020 / 89198

Judgment 1. These proceedings were commenced in the Duty List after hours on 20 March 2020. 2. The application was based primarily on the affidavit of the director of the plaintiff (DWA), Mr Michael Wasef, dated 20 March 2020. 3. The Court was persuaded to make a number of mandatory and prohibitory interlocutory orders against the defendant (CBN), on an ex parte basis, by order 6 made on that day. In substance, the Court ordered, until further order, that CBN reinstate the Corporate Authorised Representative Licence of DWA, and the Authorised Representative Licences of a number of its employees. It also ordered CBN to reinstate DWA's access to its email addresses and certain other platforms, and that CBN be restrained from changing or terminating DWA's access to email addresses, servers, and the like. 4. The Court published brief reasons: DWA Insurance Pty Ltd v Community Broker Network Pty Ltd [2020] NSWSC 280. 5. These reasons will assume an understanding of the reasons in the earlier judgment. 6. CBN sought to move the Court on a number of occasions for orders discharging the ex parte orders that were made on 20 March 2020, but the Court declined to make any variation of the orders before the return date of DWA's summons. By agreement between the parties, the proceedings were adjourned on a number of occasions until they came before me on 7 April 2020, sitting as duty judge, for determination. 7. The position taken by CBN was, and has been since the orders were originally made, that the orders in par 6 of the orders made on 20 March 2020 should be discharged. 8. The arguments relied upon by CBN are set out in detail in the written submissions of its senior and junior counsel dated 30 March 2020. 9. While most of the submissions made by CBN remain relevant, the complexion of the proceedings has changed materially as a result of the following events. 10. As recorded at [47] of the earlier reasons for judgment, DWA had tendered Binding Heads of Agreement dated 20 March 2020, under which a purchaser had agreed to purchase DWA's insurance book on certain terms and conditions, for the sum of $3,200,000 including GST. One of the matters that affected the Court's view of the balance of convenience was the possibility that the conduct of CBN, in revoking the various authorisations of DWA and its employees, and either terminating or suspending the Authorised Representative Agreement entered into between the parties in February 2015, might cause a considerable part of the value of DWA's portfolio to be lost or not realised. If that happened, the completion of the sale might be jeopardised. 11. The evidence now establishes that, on 1 April 2020, DWA entered into a binding agreement with a purchaser to sell its insurance portfolio to the purchaser for a price of $3.6 million. 12. The contract for sale is due to be completed 21 days after the date of the contract, being 22 April 2020, although it may be completed on an earlier date. 13. The price payable by the purchaser under the contract for sale is a fixed price, and there is no mechanism for the price to be reduced if, between now and the completion of the contract, the portfolio diminishes by reason of the manner in which DWA's insurance clients are serviced, if that role is performed by CBN, in the period up to completion. 14. Furthermore, in special condition 73 of the contract for sale, the purchaser, in effect, acknowledges the present dispute between DWA and CBN. It is not possible for the Court to know, at this stage, whether any aspect of the dispute between the parties may give the purchaser a right to terminate the contract for sale. I am satisfied that the Court can properly proceed on the basis that, provided that the portfolio is substantially maintained, the purchaser will be required to complete the contract for sale. In any event, DWA has not established the contrary to that proposition. 15. DWA put a submission to the Court at the hearing, on a number of occasions, that, if CBN were permitted to service DWA's portfolio in the period up to completion of the contract for sale, there was a significant risk that CBN's conduct would lead to the purchaser terminating the contract. That submission was put as a bare assertion, and there was neither evidence nor rational explanation as to how there was any significant risk of that outcome. 16. In the view I took of the dispute at the date of the hearing, the issues that I considered to be relevant at the time the ex parte orders were made have now been reduced by circumstances. The primary issue is whether, over the 15 day period between the date of the hearing and the date fixed for completion of the contract for sale, the balance of convenience favours DWA or CBN servicing DWA's portfolio. I acknowledge that the description of the primary issue in those terms oversimplifies the matter, but it is a useful practical description of the question that requires determination. 17. CBN correctly submits that, even though the ex parte orders made on 20 March 2020 were made until further order, DWA has the burden of establishing that the Court should make an order continuing the earlier orders: Resort Hotels Management v Resort Hotels of Australia (1991) 22 NSWLR 730 at 731. 18. Although it remains necessary for DWA to establish that it has a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo before CBN's recent actions, pending the trial, as observed by Gummow and Hayne JJ in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 at [65], I propose to start by addressing the balance of convenience. That is because I have concluded that, even assuming that the evidence relied upon by DWA does establish the sufficient likelihood of success that is required, the balance of convenience clearly favours the Court discharging the existing ex parte orders. 19. Before I made the interlocutory mandatory orders, the effect of ss 916A(4) and 916B(7) of the Corporations Act 2001 (Cth) was that the authorisations of the DWA and its employees were effectively revoked. Those sections form part of Part 7.6 of the Corporations Act that governs the licensing of providers of financial services. Division 5, which concerns authorised representatives, governs the making and revocation of authorisations and sub-authorisations by financial services licensees. Division 6 deals with the liability of financial services licensees for the conduct of authorised representatives. 20. It is sufficient to note, for present purposes, that s 917B has the effect that, if the authorised representative is the representative of only one financial services licensee, the licensee is responsible, as between the licensee and the client, for the conduct of the representative, whether or not the representative's conduct is within authority. Section 917B provides that the responsibility of a financial services licensee under the Division extends so as to make the licensee liable to the client in respect of any loss or damage suffered by the client as a result of the representative's conduct. Under s 917F, the client may have the same remedies against the licensee that it has against the representative. This outline of the liability of a financial services licensee for the conduct of its authorised representatives is not comprehensive. It is sufficient for present purposes to describe the nature of CBN's potential liability for the conduct of DWA and its employees, whenever the relationship of authorised representative exists. 21. I also accept the evidence provided by CBN, which I will not elaborate, that CBN is at risk of its relationship with the many insurers with whom it deals deteriorating, as a result of delinquent conduct on the part of its authorised representatives. 22. These considerations are relevant to the determination of the present dispute, because the effect of the continuation of the ex parte orders will be to oblige CBN to continue, against its wishes, with the relationship of licensee and authorised representatives, in circumstances where the conduct of the representatives is liable to put CBN at considerable risk. That risk includes potential liability to clients and insurers; conceivably even extending to a risk to CBN's financial services licence. It is also at significant reputational risk. 23. There is force in CBN's submission that the relationship between financial services licensee and authorised representative is akin to one involving the provision of personal services by one party to another. The mechanics of the relationship, as demonstrated by the evidence, are that, not only have DWA and its employees acted as authorised representatives of CBN, but they do so using platforms and other electronic facilities established and maintained by CBN. 24. Consequently, it may have been appropriate for the Court to discharge the existing ex parte orders, even if there were no grounds for the belief that DWA and its employees may have engaged in delinquent conduct. 25. However, the evidence establishes that, by reason of information provided to CBN by a particular insurer, and the comprehensive investigations carried out by CBN in consequence, CBN has discovered an apparent pattern of delinquent conduct by DWA. 26. The investigations and the nature of the conduct discovered are detailed in the affidavit of Mr David McKinnis sworn on 30 March 2020 and served by CBN, particularly in pars 90 to 123. It is not necessary for the Court to set out the nature of the conduct apparently discovered by CBN in detail. It is sufficient to note that the conduct falls into three categories. First is the obtaining of premium quotations from insurers at a lower rate than is actually appropriate, by giving false addresses for the overnight parking of vehicles at places that attract lower premiums. This is called 'address clustering'. Secondly, there may have been regular non-disclosure of prior claims history. Thirdly, lower premiums may have been obtained on the basis that the client held multiple policies with insurers, when that was not the case. If established, the conduct would only be consistent with dishonesty on the part of DWA and some of its employees. The most significant aspects of the possible delinquency are described in detail in a spreadsheet explained by Mr McKinnis in par 100 of his affidavit. On the face of the evidence, CBN's investigation was meticulous and comprehensive. 27. If established, the conduct would involve DWA depriving insurers of premiums to which they were properly entitled, and putting clients at risk of their insurance policies being denied by insurers. CBN would be at risk, if this conduct were shown to have occurred, by reason of its legal relationship with DWA and its employees. 28. It is crucial that it be understood that a substantial reason for the making by the Court on 20 March 2020 of the ex parte orders, was the appearance created by Mr Wasef's affidavit that the accusations of delinquent conduct now explained in Mr McKinnis' affidavit had been put to Mr Wasef without proper notice, and in circumstances where he was not given a proper opportunity to investigate the claims and respond to them on behalf of DWA. Mr Wasef's affidavit created the impression that CBN may have acted precipitously, and without due notice, with the possible result that DWA's business may have been placed in jeopardy. 29. DWA has been unable to make a substantive response to the serious questions raised by CBN, since the time it received Mr McKinnis' affidavit, even if only to an interlocutory standard. 30. Mr Wasef has given evidence that he has been unable to do so, because of the disturbance to DWA's business caused by CBN's conduct, and the effort needed to try to re-establish the business, after DWA succeeded in obtaining the ex parte orders made by the Court. 31. While I accept that Mr Wasef would most likely have been distracted by those matters, the terms of my earlier reasons made it obvious that the ex parte orders were made on the basis that DWA may not have been given a proper opportunity to respond to the concerns raised by CBN. The making of the ex parte injunction called for DWA, in preference to any other matter, to do all that could be done to dispel the appearance of delinquent conduct on its part. 32. Whether or not, in reality, DWA has not been able, because of extraneous circumstances, to fashion an adequate interlocutory response to the expression of concerns by CBN, the fact is that it has not done so. 33. In so far as the balance of convenience is concerned, the Court could not continue mandatory and prohibitory injunctions that have the practical effect of requiring CBN to maintain DWA and its employees as CBN's authorised representatives. 34. I have arrived at that conclusion in the context that clause 22(d) of the Authorised Representative Agreement, to which I referred at [26] of the earlier reasons, makes provision for CBN to step in to service DWA's clients. 35. CBN commenced to take that course, after it initially revoked the authorisations of DWA and CBN to represent it. Both DWA and CBN have served evidence going to the issue of whether CBN's servicing of DWA's portfolio has been deficient. I accept the submission made by senior counsel for CBN that the question is one as to which there is a contest between the parties, and the contest cannot properly be resolved at this interlocutory stage of the proceedings. DWA put into evidence a substantial quantity of email communications that it said proved that CBN's servicing of its clients was inadequate. While I have tried to survey that evidence, as is often the case with bulk emails, it is not possible, without guidance, to understand the true import of the evidence. Mr McKinnis, in his 3 April 2020 affidavit in response, put CBN's explanation of Mr Wasef's complaints. My review of the evidence confirms to me the view that DWA has not established that CBN is incompetent in respect of the servicing of DWA's portfolio of clients. 36. CBN is plainly a substantial professional organisation, and even if aspects of its servicing of DWA's portfolio were less than perfect initially, which is not a finding that I make, that may be understandable in the circumstances. Senior counsel for CBN, in direct terms, assured the Court that, if the injunctions were discharged, CBN would exercise its right to revoke the authorisations of DWA and its employees, and CBN would then service DWA's clients, until the completion of the contract of sale in respect of DWA's portfolio. Furthermore, senior counsel advised the Court that CBN would not act to terminate the Authorised Representative Agreement until after the completion of the contract of sale. 37. In my view, the balance of convenience clearly favours Court discharging the ex parte orders made on 20 March 2020. 38. I consider that there is real doubt about whether DWA has established a sufficient probability of success in its claim that CBN has breached the Authorised Representative Agreement to justify, in any event, the continuation of the injunctions, but for the reasons that I have given above, it is not necessary for the Court to consider that issue in detail. 39. I add that there is a real possibility that, if time during the hearing had permitted the issue to be considered in depth, the Court would have concluded that the ex parte interlocutory orders should be discharged on the ground that DWA did not adequately disclose all of the information in its possession relevant to the issue of whether the order should be made. 40. DWA's evidence created a strong impression that CBN may have been acting to take improper advantage of its right of first refusal, and that it raised issues concerning the probity of DWA's conduct in circumstances where DWA was kept wrong-footed and not given an adequate opportunity to respond. Although, on the totality of the evidence, these impressions cannot be sustained, I would not have discharged the interlocutory order on that ground. It is possible that, in the heat of events, Mr Wasef genuinely formed a personal perspective on events that has ultimately been shown to be inconsistent with the objective evidence. 41. However, DWA did not put before the Court the spreadsheet that Mr Wasef asked for, and was provided by CBN under cover of its 11 March 2020 letter. The spreadsheet provided, in precise detail, the results of CBN's investigations concerning the 'address clustering' issue. Even though the meaning of aspects of the spreadsheet may not have been entirely clear to DWA, it would have been significant for the Court to have known that CBN's investigations had been taken to that level of detail, and that the detail had been provided to DWA nine days before DWA first made its application in this Court. 42. Further, Mr Wasef said, in pars 14 and 15 of his 6 April 2020 affidavit, in reply to Mr McKinnis' affidavit, that the first time that he had been provided with an explanation of the meaning of the spreadsheet was in Mr McKinnis' affidavit. Had this information been provided earlier, Mr Wasef said, he would have been able to better understand the full circumstances, and the allegations being made, and would have been able to respond and undertake his own investigation. He said that a large amount of the information in the spreadsheet was not readily understood, and that, at the time he made his 6 April 2020 affidavit, he did not have the time and resources to respond. 43. Mr Wasef did put into evidence, by his 20 March 2020 affidavit, in the exhibit at MW-A, Tab 16, a letter dated 6 March 2020 to DWA from CBN. I have now had a better opportunity to read that letter. Albeit that it was short, it contained a transparent explanation of the 'address clustering' issue. The explanation was sufficient to have enabled Mr Wasef to have explained, in the body of his affidavit, the nature of at least one serious aspect of DWA's alleged conduct, that had caused CBN to act as it did. In urgent ex parte applications, it is not sufficient disclosure to tender information contained in a letter that, while referred to in the body of the affidavit, is but one part of an exhibit some 2.5 cm thick. At par 24 of his 20 March 2020 affidavit, Mr Wasef merely said that the letter referred to "concerning activities" and "potential breaches". In fact, CBN's 6 March 2020 letter was much more specific than Mr Wasef's affidavit disclosed. The Court was led to determine the application in the belief that CBN had provided to DWA much less specificity as to the nature of the apparent delinquent conduct of DWA than was, in fact, the case. 44. Fairness requires that I mention that Mr Wasef's affidavit, in support of the application made on 20 March 2020 appeared to suggest that CBN's conduct may have been engaged in to give it an unfair advantage in the exercise of a first right of refusal given to it by the Authorised Representative Agreement. I mentioned this issue at [43] of the earlier judgment, noting, however, that there was no basis on the evidence for suggesting bad faith on CBN's part. 45. It should be recorded that, on the comprehensive evidence put before the Court, there is no reason at all for it to be thought that CBN's conduct has involved any bad faith. By its recent letter, CBN has formally indicated that it does not wish to exercise its right of first refusal, and will not stand in the way of the completion of the contract for sale of DWA's portfolio. 46. The result is that the Court must make an order that has the effect that order 6 made on 20 March 2020 is discharged. 47. I accordingly make the following order: Order 6 made by the Court on 20 March 2020 is hereby discharged. 48. The parties should confer as to the orders that should be made for the future case management of these proceedings. Those orders should make provision for the confidentially of relevant exhibits and the exchange of submissions concerning the costs of these proceedings to date and the provision of those submissions to my associate.