Australian Securities and Investments Commission v Select AFSL Pty Ltd [2022] FCA 785 | Case summary

ABRAHAM J: 1 By interlocutory application dated 8 February 2021, the Australian Securities and Investments Commission (ASIC) sought leave pursuant to r 16.53 of the Federal Court Rules 2011 (Cth) (Rules) to file a Further Amended Statement of Claim (FASOC) to correct an oversight in its pleadings relating to the statutory unconscionability limb of its individual consumer claims. Select AFSL Pty Ltd, BlueInc Services Pty Ltd and Insurance Marketing Services Pty Ltd (the Corporate Defendants) opposed the amendments. The matter was heard on 16 February 2021. On 19 February 2021, I made orders granting leave to amend in respect to two of the three categories for which leave was sought (and in respect to some other minor amendments). As a result, the hearing of the substantive proceeding was adjourned by consent for three months, to enable the Defendants to overcome any suggested prejudice occasioned to them as a result of the amendments. 2 On 19 February 2021, I made the following orders: 3. Pursuant to rule 16.53 of the Federal Court Rules 2011 (Cth): a. leave to amend in respect of the first category of proposed amendments is refused, being the pleading that the Vulnerable Consumers lacked a sophisticated understanding of insurance and financial services (being amendments at [82.4A], [202.3A], [269.3A], [313.4A], [385.3A], [424.4A], [463.3A], [498.5A], [562.4A], [621.4A], [676.4A] and [733.3A] of the proposed FASOC and related amendments, such as, for example, particular (f) to [121A] of the proposed FASOC); b. leave to amend in respect of the second category of proposed amendments is granted, being the pleading that the Relevant Agents could not have been reasonably satisfied about the Vulnerable Consumers' level of understanding (being amendments at [96], [214], [286], [328], [402], [437], [474], [518], [578], [637], [693] and [755] of the proposed FASOC); c. leave to amend in respect of the third category of proposed amendments is granted, being the pleading that the Relevant Agents knew or ought to have known of the Vulnerable Consumers' personal characteristics and, at times, their level of understanding and took advantage of that vulnerability, or alternatively, weakness, in taking certain actions (being amendments at [121A], [252A], [260A], [303A], [368A], [377A], [417A], [456A], [491A], [547A], [555A], [600A], [611A], [660A], [668A], [718A], [727A] and [767A] of the proposed FASOC); and d. leave to amend is granted to make minor changes, including to the description of the Vulnerable Consumers' characteristics (being amendments at [82.3], [82.4], [202.3], [385.3], [424.4], [463.3], [498.1A], [498.3], [621.3], [676.3], and [733.3] of the proposed FASOC). 4. For the avoidance of doubt, and to give effect to the previous order, leave is granted to file the FASOC in the form circulated to the Defendants on 22 February 2021 (amended to insert 'reasonably' in 'reasonably satisfied' in the amendment at [474] of the FASOC). 3 In addition, on 23 March 2021, I ordered that: 4. Pursuant to rule 16.53 of the Federal Court Rules 2011 (Cth), ASIC has leave to file the Further Amended Statement of Claim consistent with the orders made on 19 February 2021 and reflected in the form of the Further Amended Statement of Claim circulated to the Defendant on 22 February 2021 (amended to insert 'reasonably' in reasonably satisfied' in the amendment at [474] of the Further Amended Statement of Claim). 5. ASIC is to pay the Defendants' costs thrown away by the amendments made in the Further Amended Statement of Claim as taxed or agreed. 6. The costs of the interlocutory application filed on 8 February 2021 and the costs thrown away by reason of the vacation of the hearing in Order 1 are otherwise reserved. 4 The following are brief reasons for the orders made. 5 It is important to note that this application was made and determined at a time before the Full Court delivered its decision of Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd [2021] FCAFC 40; (2021) 285 FCR 133 on 19 March 2021. The nature of the claims made are described in Australian Securities and Investments Commission v Select AFSL Pty Ltd (No 2) [2022] FCA 786 (liability judgment), and are unnecessary to repeat here. Suffice to say this application related to an aspect of the Consumer Contraventions (as so described in the liability judgment) which related to 14 identified consumers (Consumers; each, a Consumer). 6 This Court has power to grant leave to amend pleadings pursuant to r 16.53 of the Rules. The onus is on the party seeking leave to amend to persuade the court that such leave should be granted: Dye v Commonwealth Securities Limited (No 2) [2010] FCAFC 118 at [17]. Relevant principles are considered in, for example, Caason Investments Pty Ltd v Cao [2015] FCAFC 94; (2015) 236 FCR 322 at [19]-[21], Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 (Aon) and Tamaya Resources Ltd (in liq) v Deloitte Touche Tohmatsu (A Firm), in the matter of Tamaya Resources Ltd (in liq) [2015] FCA 1098. The principles, which are well established, are unnecessary to recite here. Suffice to say, each case turns on its own facts. 7 The three categories of amendments sought were as follows. First, for each of the 12 consumers which ASIC pleads are vulnerable (Vulnerable Consumers; each, a Vulnerable Consumer), ASIC sought to add an additional facet to the personal characteristics, that the Vulnerable Consumers "lacked a sophisticated understanding of insurance and financial services". Second, in respect to the allegation that at the conclusion of the sales call each Vulnerable Consumer did not understand, inter alia, that he or she had signed up to the relevant policy, ASIC sought to add that the Sales Agent "could not have been reasonably satisfied that [the Consumer] did understand". Third, ASIC sought to add an allegation that Select, via its Sales Agents (and Retention Agents) knew or ought to have known of the personal characteristics of the Vulnerable Consumers as pleaded, including that the Sales Agents could not have reasonably been satisfied that the Vulnerable Consumers understood the relevant policy they had signed up to, and took advantage of that vulnerability, or alternatively, weakness, in taking the action that was pleaded. ASIC also sought leave to make some minor amendments to the descriptions of the Vulnerable Consumers' pleaded personal characteristics. 8 The second and third category (with very limited exception) were directed to the state of mind of the agent. 9 I accepted that the evidence established that the application to amend resulted from an oversight on the part of ASIC's counsel when settling the pleadings. It was not a result of any tactical decision made by the plaintiff: cf Aon at [108]. The Corporate Defendants ultimately also accepted that, although they submitted the explanation was inadequate and unsatisfactory. 10 To explain the delay in bringing the application, ASIC referred to observations in Cement Australia Pty Ltd v Australian Competition and Consumer Commission [2010] FCAFC 101; (2010) 187 FCR 261 at [53]-[56]. I accepted the evidence relied on by ASIC to explain the basis of the application, and in my view, in the circumstances, which relevantly included that the Corporate Defendants did not challenge the proposition that the omission was due to oversight, no further evidence was needed to accept that proposition. 11 I also accepted that no additional evidence needed to be relied on by the plaintiff if leave was to be granted. The evidence was within the material to be relied on, which had already been filed and served. The application to amend the pleadings to include the reference to knowledge of the personal characteristics of the alleged Vulnerable Consumers reflected the manner in which ASIC, in its written opening submission filed on 23 October 2020, explained the evidentiary basis on which the unconscionability claim was to be advanced. ASIC asked the Court to permit it to amend its pleadings to align them, in respect to one topic, to its case, which had been made clear throughout its conduct of the proceedings, and at the very least, by 23 October 2020, when it filed its opening submissions. Although there was no doubt that the oversight was unfortunate, as was the timing of the application, it was nonetheless based on an oversight, and when the oversight was recognised, it was brought to the Defendants' attention promptly, which was more than one month before the listed hearing of the matter. 12 ASIC is tasked with enforcing the consumer protection provisions of the Australian Securities and Investments Commission Act 2001 (Cth), and in doing so, performs an important public function. I accepted the submission that an important part of the proceeding relates to the alleged selling of insurance policies to 14 consumers, including the 12 Vulnerable Consumers. The evidence established that the primary regulatory objective sought to be addressed by the proceeding was to address misconduct in relation to the sale of insurance to Vulnerable Consumers and thereby to act as a deterrent to other industry participants from engaging in similar conduct. There was, and is, a substantial public interest in this case being heard and adjudicated in its fullest terms. 13 Although the Corporate Defendants submitted that there was other conduct pleaded in respect to the sales and retention calls with the Consumers, even if ASIC were unable to prove the claims, I accepted that the claims were important and were a significant aspect of ASIC's case, as they were directed to the vulnerability of the Consumers and the alleged unconscionable conduct towards them. 14 In so far as the Corporate Defendants submitted that the amendments were not substantial or significant to ASIC because ASIC submitted that under statutory unconscionability special disadvantage was not a necessary component, the submission could not be accepted. First, the Corporate Defendants submitted in their written opening that special disadvantage was necessary, and therefore, on any scenario it was a live issue (noting again this application was made before the decision in Quantum). Second, this was in the context where there was conflicting first instance authority of this Court on the issue. Third, special disadvantage had been alleged as an integer to establish the unconscionability claims in respect to 12 of the Vulnerable Consumers and as such it must have been established that the innocent party was under a special disadvantage, and that the Corporate Defendants took advantage of that special disadvantage. To establish that, it had to be shown that the Corporate Defendants knew or ought to have known of the special disadvantage. That was the position advocated by the Corporate Defendants in their written opening: see for example [182] and [200]. 15 I accepted ASIC's submission that its case concerning the Vulnerable Consumers would be substantially prejudiced, and the public interest in resolving the case would suffer significant detriment, if it were technically shut out from proving the factual matters giving rise to the proposed amendments. Although the amendments would have prejudiced the Defendants in their preparation for the proceedings, I did not accept that the amendments sought had as substantial an impact on the proceedings and the preparation as they contended. The amendments related to only one of the four aspects of the case. Moreover, a consideration of the history of the proceedings made it plain that the Defendants were on notice of the issue. The Corporate Defendants' submission as to prejudice in the preparation for the proceedings had to be considered in context. 16 The Corporate Defendants in their written opening engaged with ASIC's opening submission as to knowledge. The written opening included a positive assertion as to lack of knowledge: at [204], and assertions as to lack of knowledge of various matters: at [202]. It also included that even if the Sales Agents' knowledge "in general terms" of the Consumers' vulnerabilities was pleaded, it could not be proved: at [199], and if such knowledge were part of the case "it would need to be pleaded": at [203]. It was not suggested that ASIC's submission as to knowledge was irrelevant. Rather, it was suggested that the Court must be careful not to ascribe to the Sales Agents knowledge they could not have had at the time of the calls: at [203]. The Corporate Defendants took a pleading point, although they suggested otherwise. It was plain from the written opening that the Corporate Defendants submitted the claims could not be proved. At least in part they relied on there being no suggestion that the agents knew of the characteristics, and submitted that ASIC could not submit otherwise because it was not pleaded. Given ASIC's opening and the evidence relied on, the obvious inference was that the Corporate Defendants were on notice of this issue as to the relevance of knowledge since 23 October 2020. The response that they were holding ASIC to its pleadings could only go so far. It was one thing for a party not to consent to any amendment, but if an application was made, as it was, the issue was for the Court to determine. 17 The Corporate Defendants' submission as to prejudice and delay was based in part on the need to contact the former agents. It was put in very broad terms, claiming the need to contact all agents, or all agents they could locate. That submission, and the submission that they were not aware of the relevance and reliance on the knowledge of the former agents did not sit comfortably with their written opening. Nor did the submission that they needed to revisit all the decisions they had made based on the pleadings. No doubt it was accepted that consideration needed to be given to matters which may have been affected by the application and its delay, but given the above, the extent of the decisions needed to be made was unclear. The submission as to the extent of the consideration to be given to matters was speculative. I did not accept the extent of the prejudice claimed. Moreover, any prejudice was able to be cured by an adjournment. 18 The issue of costs to the Defendants was raised. This aspect of prejudice to the Corporate Defendants' preparation was able to be addressed by a costs order or an adjournment. In that context, I was mindful of the considerations of prejudice referred to in Aon that were said to arise from any adjournment. I bore in mind the broader issues as to the impact of any delay on these Defendants and other court users, as described in Aon. The Corporate Defendants led evidence as to the financial circumstances of the companies and that the proceeding hanging over them was affecting the health of Mr Howden (given his position in the Corporate Defendants and as the fourth defendant in these proceedings). This is in a context where granting the application would lead to a delay in the hearing. In that latter regard, I note the evidence was only a general assertion and there was no medical or other evidence indicating it was other than what might be expected in the circumstances. I was satisfied that the public interest favoured granting leave to file the FASOC in respect to the second and third category: Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2010] FCA 294 at [25], [34]-[35]. 19 The first category stood in a different position to the other two; it was not based on any evidence as to oversight, but rather was made to "more precisely plead the matters to make clear that an integer of vulnerability was the consumers' lack of sophisticated understanding of insurance and financial services". ASIC submitted that this was a conclusion to be drawn from what was already pleaded. The Corporate Defendants complained about, inter alia, the effect of the amendment, and given what it alleged, that it would require investigations of the state of understanding in respect to each of the Vulnerable Consumers. There was no explanation as to the timing of this proposed amendment. In all the circumstances, leave was not granted to amend the Amended Statement of Claim (ASOC) filed on 19 October 2020 to include this characteristic. I noted that ASIC submitted the pleadings, as they were then drafted, gave rise to the inference, and that the submission would ultimately be made on that basis. 20 For the reasons above, leave to amend the ASOC was granted in respect to the second and third category of amendments sought by ASIC, and not to the first category. Leave was also granted in respect to the matters referred to in 3(d) of the orders made, which were as to minor amendments to the descriptions of the Vulnerable Consumers' pleaded personal characteristics. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Abraham.

Australian Securities and Investments Commission v Select AFSL Pty Ltd

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