The plaintiff, DWA Insurance Pty Ltd (DWA), has operated as an authorised representative of the defendant, Community Broker Network Pty Ltd (CBN).
CBN is the holder of an Australian Financial Services Licence under the Corporations Act 2001 (Cth).
In February 2015, DWA entered into a Corporate Authorised Representative Agreement (Authorised Representative Agreement) with a different holder of an Australian Financial Services Licence. That Licence was subsequently assigned, and by about 9 October 2019, CBN was the Licensee under the Authorised Representative Agreement.
Since entering into the Authorised Representative Agreement, DWA has acted as broker signing up insurance policies in respect of all general insurance products. Through that Agreement, DWA and its employees have had access to write business with insurers through platforms called the Sunrise platform, the SPU Platform or insurers directly. DWA, as Authorised Representative, was able to login and write up policies for its clients. However, as part of this arrangement, CBN is able to permit or terminate the access of DWA to the various platforms available to CBN to write or renew policies.
On 18 March 2020, CBN purported to terminate the Authorised Representative Licenses for both DWA and its principal, Mr Michael Wasef.
As a result of this act of termination by CBN, DWA is unable to write new policies, renew policies of insurances that are due or fall due shortly, or issue updated certificates of currency. DWA is unable to answer or respond to client inquiries. DWA and its staff have had their Authorised Representative Licences cancelled.
By after hours application in the Duty List on Friday 20 March 2020, DWA applied ex parte for certain mandatory and prohibitory interlocutory relief against CBN.
I made orders granting leave to DWA to file its summons, orders for the service of documents and the return of the summons in the Duty List, and interlocutory orders as sought by DWA. The summons is returnable on Wednesday 25 March 2020 before the duty judge.
I made orders until further order that CBN reinstate the Corporate Authorised Representative Licence Number of DWA, and also the Authorised Representative Licence Number of Mr Wasef and a number of other employees of DWA. I ordered that CBN reinstate DWA's email addresses and a number of other access capabilities necessary for the conduct of DWA's business. I restrained CBN from changing or terminating DWA's Authorised Representative Licence logins, its email addresses and its web servers. Finally, I made an order restraining CBN from acting on the Notice of Termination dated 18 March 2020.
By its summons, DWA seeks various final relief, which in summary includes a declaration that the Notice of Termination is invalid, a declaration that CBN holds on trust for DWA all income received by it from operating DWA's business, and damages in the amount of $4,300,000.
The Court was unable to give reasons for making the orders that it did. These are short reasons why the Court made the orders.
Mr Wasef gave evidence that he had decided to sell DWA's business, and he found a buyer who, on 31 January 2020, offered in principle to buy DWA's business for $4,000,000.
Mr Wasef informed CBN, and had discussions, principally with a Mr Richard Crawford. The substance of those discussions involved an assertion that CBN had a right of first refusal in relation to the acquisition of DWA's business, and DWA provided a substantial amount of information to CBN to enable it to decide whether it wished to buy DWA's business.
As a result of this process, on 6 February 2020, CBN made an offer to DWA which DWA considered was not satisfactory.
Starting in about 19 February 2020, Mr Wasef was required to attend meetings with representatives of a number of businesses who apparently are engaged in the provision of insurance products that are relevant to DWA's business.
Mr Wasef disclosed to the Court, in some detail, assertions that were made to him about DWA having misconducted itself in the operation of its business. While Mr Wasef revealed what had been said to him, he said that the assertions made were not on notice, he did not understand them, and was not given sufficient time to carry out any investigations to determine whether DWA had acted wrongly or to provide proper explanations for its conduct.
Mr Wasef's affidavit contains what appears to be a relatively full disclosure of his email and letter correspondence on this subject.
It is not practicable for the purposes of this interlocutory judgment to summarise the effect of all of the communications.
On 13 March 2020, CBN wrote to DWA. CBN disputed an earlier assertion made by DWA that it had given unfettered access to the business and all of the records of DWA. CBN listed all of the information that it asserted was needed by CBN for the purpose of considering whether to buy the business. CBN stated that the information listed had not been provided to CBN.
CBN then referred to certain communications that it had engaged in with insurers and underwriters, apparently in relation to concerns about the manner in which DWA had conducted its business.
The letter then stated:
In regard to your assertion that Community Broker Network have made a decision in relation to these matters we refute this. All that we have done is request that you provide us with an explanation as to the following issues:
1. The basis of DWA Insurances use of multiple policy discounts;
2. An explanation as to why multiple unrelated policies were being insured at a single address; and
3. The non-declaration of past claims.
At no stage has Mr MacPherson or anyone else from Community Broker Network advised that they were intending to terminate or suspend your Authorised Representative authority…
The letter asserted that DWA had been provided with a schedule that listed the matters that needed to be addressed by it, and welcomed the opportunity to meet with DWA as soon as possible "to go through the matters raised with the intent of gaining some insight into what has happened historically…"
On 16 March 2020, DWA's solicitors responded to CBN's 13 March 2020 letter. The solicitors suggested an interim arrangement whereby Mr Wasef would be replaced as the director of DWA, and advised CBN that DWA was currently finalising negotiations with prospective purchasers of its business.
In response, on 18 March 2020, the Chief Executive Officer of CBN wrote a letter to DWA's solicitors.
CBN stated that, as a result of the failure of DWA to provide the information demanded by CBN, CBN had decided to immediately terminate the Authorised Representative Licenses for both DWA and the individual Authorised Representative License of Mr Wasef. As a consequence, DWA's access to the CBN systems would be terminated at 10:30 AM on 18 March 2020.
CBN then said that, in accordance with clause 22 (d) of the Authorised Representative Agreement, CBN would immediately step in to service DWA's clients "and will continue to manage the business until such time as either the business can transfer the business to another AFS Licensee, or a purchaser is found".
The letter then set out in detail a number of operational procedures that would have the effect of preventing DWA staff from operating its business, and allowing CBN to do so in DWA's stead.
In recognition of DWA's continuing financial obligations, the letter offered that CBN would pay DWA 30% of gross commissions and fees received during the interim period.
Subsequent communications took place between DWA and its solicitors and CBN. For present purposes, that correspondence demonstrates that there is a considerable factual dispute between the parties.
On 18 March 2020, CBN also revoked the individual Authorised Representative Licenses of DWA's staff.
The Authorised Representative Agreement includes the following terms that are of particular relevance to this matter.
By clauses 1 and 2, the term of that agreement was three years from 18 February 2015. I am not aware of the terms of any agreement that may have been made extending the term of the Authorised Representative Agreement.
Clause 15 contains what is in effect a right of first refusal in favour of CBN if DWA wishes to transfer its rights under the Agreement.
Clause 22 contains the terms governing CBN's right to "suspend the authorities conferred on the Authorised Representative by this Agreement" and when the Agreement itself may be terminated.
It is not entirely clear from CBN's 18 March 2020 letter what power it purported to exercise. In practical terms, by immediately terminating the Authorised Representative Licenses for both DWA and Mr Wasef, it appears that CBN has effectively terminated the Agreement. Alternatively, the statement of CBN's intention to continue to manage the business until the business could be transferred to another Australian Financial Services Licensee, or a purchaser was found, suggests that, in practical terms, DWA's rights under the Authorised Representative Agreement were suspended.
The ground specified in CBN's 18 March 2020 letter was the alleged "absence of a clear and transparent response by your client to our request for an explanation".
Clause 22(f)(iii) gave CBN a right of termination if it reasonably considered that DWA was acting in a manner which was unprofessional, unethical or likely to harm the professional standing of CBN or the insurers or affected CBN's Australian Financial Services License.
This provision required that five business days' notice in writing of the termination be given to DWA.
In these circumstances, the Court determined that it was proper for the Court to make the interlocutory orders sought by DWA on the basis that, although the orders were made until further order, it would be available to CBN to require DWA to justify the continuation of those orders on 25 March 2020. The orders were made for the following reasons.
The 18 March 2020 termination letter did not clearly explain the grounds for the termination by reference to the terms of the Authorised Representative Agreement.
If, in fact, the Agreement was terminated under clause 22(f)(iii), which seems to be the most likely ground, the required five business days' notice was not given.
While the Court could not make any tentative determination concerning the allegations of fact made by both parties, there is a strong appearance of a genuine dispute as to the underlying facts upon which CBN has acted.
The dispute has arisen in the context of DWA's desire to sell its business, and the operation of the right of first refusal. While, at this time, there is no basis for suggesting bad faith on CBN's part, there is justification for the Court maintaining the status quo for the time being.
The effect of the termination will be that DWA will lose at least 70% of its income.
There was considerable evidence of DWA's clients being upset and confused by their inability to continue to deal with the employees of DWA in the manner with which they are familiar. Although CBN asserts that it will manage DWA's business, there may be some risk to DWA's clients as a result of that process working imperfectly.
The conduct of CBN in unilaterally terminating the various Authorised Representative Licences is likely to do considerable reputational harm to DWA and the other Licensees.
DWA tendered Binding Heads of Agreement dated 20 March 2020, between itself and a purchaser, under which the purchaser agreed to purchase DWA's insurance book on certain terms and conditions for the sum of $3,200,000 including GST. That agreement may be in jeopardy as a result of the termination effected by CBN.
Finally, nothing emerged from the evidence that would suggest that the making of the interlocutory orders would put CBN in any jeopardy or cause it any loss. In particular, it appears that the mandatory orders made concerning the reinstatement of the Authorised Representative Licences and DWA's and its employees' access to various email facilities and platforms will only involve some administrative arrangements for their implementation.
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Decision last updated: 01 April 2020