The years 1992-1997 inclusive average out at a per annum rate of $213,525.00.
45 In April 1997 Mr Attard had a client base of approximately 400 "active" clients with substantial funds invested and receiving a quarterly portfolio watch report, with about $50m in funds under management. He also had approximately 2,000 "inactive" clients as potential investors and referral sources. He estimated the market value of this client base at $630,000.00.
46 Mr Attard had, earlier in April 1997, made some enquiries with other financial planning firms in the event that his services were terminated. He commenced as a financial planner with Charter Financial Planning on or about 6 May 1997.
47 The applicant's case included a strong attack upon the nature of the legal relationship between Mr Attard and Bridges. The attitude of Bridges at least from some point in 1987, some months after their relationship was established, was that the true nature of the relationship was that of principal and independent contractor. The concern of Bridges was to maintain that position and to avoid the risk of any contrary finding, particularly in respect of matters such as income tax and payroll tax, neither of which were deducted. There appears to be no other conclusion available but that when the parties commenced their relationship in 1987 it was one of employer and employee. Mr Attard's interview with Mr Sharp made no contrary point. The $300 per week payments made for the training period probably ought be characterised as wages despite Bridges' description of them as non-repayable loans. There was simply no discussion of any matter which would encourage the view that the parties had a consensual position of intending to create an independent contractor relationship. The arrangement by which the applicant would receive an equal split of commission was not necessarily inconsistent with a relationship of employment.
48 However, some weeks later the need for a corporate structure was raised by Bridges, in respect of which Mr Attard was able to and did employ Avocari, the corporation he had acquired for utilisation with Bleakleys. Were the matter to have rested there one might be more willing to accept the view submitted on behalf of Mr Attard that there was no more here than an amateurish attempt to disguise a true employee/employer relationship by simply introducing a corporate structure for payment purposes. The matter was not left there. The parties thereafter for approximately a decade contracted on an understanding which reflected not employment but a principal/contractor relationship; it would be disingenuous to suggest otherwise. Avocari was not merely a vehicle to "receive payments". It was used by the applicant, in the usual way, to provide him with taxation advantages; to establish a superannuation fund for him; to provide office furniture and equipment at the Parramatta office which Mr Attard felt necessary but was unable to otherwise obtain; to be his employer. Further, the payment structure of commissions, based as it was on a 50/50 split, was predicated upon the relationship having this fundamental feature. The absence of annual leave and long service leave accrual was an inherent aspect of the relationship which again can only be regarded as a feature of the division of commission. It may be accepted that there are arguments in favour of the proposition that the relationship was one of employer and employee, not the least of which concerns Bridges' postulation of the relationship with certain former planners as either employment or principal and agent in a statement of claim filed in the Supreme Court by Bridges seeking to restrain those planners from advising clients of Bridges, other than privat clients, and an account of profits, damages etc. Also, perhaps at a lower level of persuasion, the reference contained in Bridges' agreement with the TCU (see paragraph 20 hereof). There is, in my opinion, an unconscionable aspect to the proposition, only advanced after the relationship has continued on this basis for 10 years, that it should be viewed, with hindsight, differently to that which was truly intended. The Commission possesses a discretion to deal with issues of this kind in the making of its orders. Were the relationship, in law, one of employment then a discretionary question would arise as to whether the benefits obtained by Mr Attard in the context of his corporate structure would need to be brought to account (as to which see Leggett and Anor v. Aardvark Security Services Pty Ltd [2000] NSWIRComm 188, 15 September 2000). Alternatively, the view is available to be taken that the Commission ought in the resolution of the proceedings consider the fairness of the relationship as it was predicated between the parties and if the relevant unfairness is found in that context to seek to remedy that matter. That is the approach I intend to take. There is no inherent unfairness in the concept that Bridges was intent upon pursuing a course which established and maintained a particular legal relationship.
A Right of Sale?
49 Mr Scully recognised in his evidence that an issue between Bridges and the planners over a long period had been the formalisation of a right to sell a planner's business upon leaving Bridges. In August 1993 Mr Scully circulated to all planners a memorandum referring to the concept of having a consultants retirement agreement. The memo made the point that for a number of reasons Bridges had decided not to proceed with such an agreement. The memo concluded with this paragraph:
However, in the interest of achieving such an objective should any adviser wish to make an appointment to view the draft agreement at our Parramatta office or to discuss the procedure for implementing such an agreement, please do not hesitate to contact me.
50 The draft agreement provided for the "consultants" giving notice in writing to Bridges of the wish to sell or dispose of the business. It provided for the possibility of a sale to an incoming or existing consultant of Bridges. It also provided that in the event the consultant was unable to obtain expressions of interest to purchase the business then "the Company as a last resort shall be offered the opportunity to purchase the Business from the Consultant subject to conditions as agreed . . ."
51 Mr Scully suggested that Mr Attard would have seen the draft agreement on 24 August 1993, a date in respect of which he, Mr Scully, had a diary note recording Mr Attard's attendance upon him at 9am. Given Mr Attard's interest in these matters I can readily accept that he would have responded quickly to the invitation to view the draft agreement and that Mr Scully's diary note may be taken as confirmation of that fact. However, Mr Scully deposed to Bridges' Board of Directors, having ratified "the draft agreement" . . . "essentially in the same terms" in October 1994. A comparison of the draft agreement and that which Mr Scully said was ratified demonstrates they are in quite different language; the second document omits any reference to Bridges being a buyer of last resort.
52 Mr Attard contended in evidence that on 11 October 1994 he and Mr Frank were shown by Mr Scully a document purporting to be the final version, which contained a reference to Bridges as the buyer of last resort at a multiplier of 1.5 times the ongoing commission. A copy of such a document did not surface in evidence. However, Mr Scully did refer in evidence to Bridges as the buyer of last resort under the "Retirement Policy" but deposed "it has never bought the business of a financial planner".
53 The October 1994 policy document in evidence purports to have been executed on 26 October 1994 by Mr Scully and Mr Reg Richardson, then the Chairman of Bridges. It is called "Bridges Policy - Financial Planners/Consultants Retirement Arrangements."
54 Mr Frank's evidence was that this must have been the document that he saw on 11 October 1994. His recollection was generally vague about that matter. However, the issue here is whether this document, produced by Mr Scully very late in the proceedings despite it having been the subject of a notice to produce served by the applicants 12 months before, is in effect a fabrication. No matter what difficulty I might have with portions of Mr Scully's evidence, it seems to me there is no basis upon which I should conclude on the applicant's recollection of having seen something in a document in 1994 that the document does not represent the policy adopted by Bridges. This is particularly so when the forerunner draft contained a buyer of last resort provision, which is capable of having operated on Mr Attard's memory, and where there is no other written record, even one made by Mr Attard, of the buyer of last resort provision being retained in the October 1994 version of the policy. On the face of the document, as signed by Mr Scully and Mr Richardson, no buyer of last resort provision was adopted. Nevertheless, there is a real significance in the document's recognition of a saleable "business".
55 The applicant's case contained a complaint about the way in which Bridges had unilaterally introduced many changes over the course of the parties relationship which operated to Mr Attard's financial detriment. The first was the introduction of the payment of 15 per cent commission to the TCU which had the effect that Bridges split on a 50/50 basis only 85 per cent of the total nominal fees. The payment of the 15 per cent commission to a credit union in these circumstances which, as Mr Scully attested, was a necessary condition for Bridges and its financial planners performing the work, does not seem to me to be properly described as an "expense" which should have been borne entirely by Bridges. The effective sharing of that burden appears to me to have been entirely appropriate. But, in any event, there is another matter of concern raised in the evidence about this issue. Mr Scully's evidence was that neither the State Health Credit Union or the James Hardie Credit Union required the payment of such a fee. These were the credit unions with which Mr Attard was working prior to his being allocated, at his request, the TCU, "a plum" as it was described in the evidence. When he commenced to work with the TCU the 15 per cent commission scheme had already been in operation for some time. It was therefore not a unilateral introduction by Bridges of a fee in that regard at all.
56 It is to be remembered that Mr Attard deposed that one of the main reasons he joined Bridges was that they had access to credit union lead sources.
57 This leads to the next point referred to by Mr Attard, which concerned the obligation he said was imposed upon him to provide a secretary at his cost, as to two-thirds thereof. Mr Scully explained this matter in evidence as having not been introduced without discussion with financial planners. It was necessary, he said, in changing arrangements between Bridges and the planners, to have regard to the general acceptance of the planners of any proposed change. It was not in Bridges' interest to unilaterally impose onerous changes upon its financial planners. Planners were entitled to share a secretary or personal assistant and therefore share the cost. The secretary or personal assistant was an additional resource which enabled planners to undertake activities which should result in their businesses growing. It was designed to foster growth of the financial planners. Again this happened in the latter part of 1988 when Mr Attard was allocated to service particular credit unions. I consider it quite unreal of Mr Attard to expect that his working arrangements could not be expected to be changed, particularly with respect to business development and retention matters.
58 The next matter I deal with in this context concerns portfolio watch fees. Those fees related to what was called the Portfolio Watch Service under which Bridges maintained an overview of clients' portfolios on a continuing basis. The fee was levied upon a sliding scale according to the market value of the particular portfolio. In November 1989 the maximum fee was increased from $150 to $400 and planners were required to pay the fee by way of a deduction by Bridges from commission due to them. It was changes of this sort which convinced Mr Attard that Bridges considered itself entitled to vary the terms of what he referred to as his "contractual arrangements" without his consent. This caused him on a number of occasions to speak with Mr Scully about consolidating terms in an agreement. The aggregate cost over 10 years of the items I have listed, including two relatively small amounts of $24,442 as a result of an organisational restructure and $15,635 in relation to a branch manager's fee imposed for a relatively short period of time, $1,183 resulting from the 15 per cent deduction from commission due from the TCU and a cost of $122,667 over the years for a secretary, gave a total of $344,632. This sum Mr Attard viewed as, in effect, unauthorised deductions from what was otherwise due to him. It seems to me to pay no regard to the need to maintain a fluidity of sorts in relation to these matters given the fact that Bridges did not have a captive market. Just as the 15 per cent fee or commission payable to the TCU and other credit unions resulted from predatory approaches to those credit unions from competitors of Bridges, and became necessary from Bridges' point of view to preserve the business, changes in the market needed to be responded to in order to ensure that Bridges' services were able to be provided on a basis competitive with other operators. In this context, it is not appropriate to try to reconstruct the arrangement which the parties engaged in for many years. The claim made by Mr Attard in respect of the perceived loss of $181,883 deriving from the 15 per cent credit union commission would have the effect that Bridges would be required to pay entirely for that element. Given that the net commission received by Bridges and then divided with the planners was 85 per cent of the notional 100 per cent fee, such an approach would be entirely without merit. I consider Mr Attard's position in relation to this item to be quite misconceived. There was, in my consideration of this matter, and indeed the other deductions which have been referred to, no unfairness of any relevant kind visited upon Mr Attard. The fact of the matter is that for a period of approximately 10 years he had the opportunity to work in the industry and as I have noted, averaged over the last five of them, in excess of $200,000 per annum in fees for his advice. To speculate that he may have received more than that sum were these deductions not effected, is to raise the question whether, in relation to the TCU, the business would have been available at all between 1988 and 1997. It is impossible to conceive that Bridges paid 15 per cent of the total fees due to the TCU for no reason. The reason advanced by Mr Scully is the only plausible one available. It was not a business expense in the ordinary sense but rather a necessary contribution to maintain the very existence of the business. It was that existence which permitted Mr Attard to earn what I consider to have been a substantial sum on an annual basis in the fulfilment of his obligations.
59 Finally, on the issue of unilateral changes, I observe that despite making contemporaneous complaints that he had not agreed to changes, he acquiesced and continued thereafter on the altered basis, in some respects for many years. This position was reflected in his agreement in cross-examination that he would have been prepared to continue on the terms operating between the parties at the date of termination.
60 I now turn to deal with the question whether the business of Mr Attard had a value which was likely to be able to be obtained upon an appropriate sale. There appears to be no basis in the evidence for concluding that the business, identified perhaps most appropriately as an "income stream", was not saleable for value. Mr Scully, in his evidence, adverted to the fact that sales had been effected in his experience, usually between outgoing planners and other planners within Bridges' structure. As to value, there are three sources within the evidence: an estimate made by Mr Scully and the evidence of two witnesses advanced, one by each side, as experts in the valuation of businesses. The first, called by Mr Kimber, was Max John Kurz. He is a qualified valuer by occupation. He is a licensed business broker and valuer and has been working as such for 17 years. He is a director and part-owner of K E Business Advisory Services Pty Ltd which has operated for five years in the field of business sales and evaluations. Mr Kurz's position was that the business has a value within the range of 2.5 to 3 times the assessed super profit of the business. The multiple is determined by the level of risk attaching to the business. Here, a large part, approximately 75 per cent, of income is what was described as non-exertion, recurring income. That factor had two effects in Mr Kurz's valuation. Firstly, it assisted him readily to assess the multiplier at 2.5 to 3 and, secondly, it caused him to consider that the skills of a para-planner (a person employed by an authorised representative but without the skills and/or qualifications of the representative) would be sufficient to maintain the income level received by Mr Attard. Mr Kurz treated Mr Attard's income as referrable to a substantial number of clients, anywhere between 400-1500 clients. He regarded the TCU as a referral source but not as a client. Mr Hilton Deane, the valuation expert called by Bridges, treated the TCU as a single client and, because of that fact and the highly competitive nature of the industry, considered a multiplier of 1.5 to 2 should be used.
61 The multiplier, in Mr Kurz's opinion, should be applied to a figure of $146,000 per annum which consists of the $216,412 average income over the last complete five years reduced by the secretarial costs for which Avocari was liable ($15,000) and the $40,000 notional salary attributable to a para-planner necessary, in effect, to replace Mr Attard. Also deductible for this purpose Mr Kurz would not deduct other expenses revealed in the annual accounts of the business which are of a non-recurring or personal nature because they are not true operating expenses that a purchaser would necessarily incur. These were referred by him in his evidence as "add backs" to the gross profit revealed by the accounts. Mr Kurz's efforts in this regard, then, were more directed to the actual position and an assessment of super profit in that context other than for the para-planner salary to which I shall return.
62 Mr Deane is the principal of R H Deane & Co, a business which undertakes real estate and business valuation. He holds the Degrees of Bachelor of Economics and Master of Business Administration (Macq.). He is a Real Estate Institute accredited practising valuer, a certified practising valuer and a registered real estate valuer. His approach to the determination of residual (or "super") profit was to calculate earnings before interest and tax, deduct a suitable salary for the proprietor and an appropriate return on investment. This, he contended, was possible to obtain from a proforma income statement "which critically requires knowledge of financial relationships from past years".