Green and anor v AMP Financial Planning Pty Ltd and anor

APPLICANTS Mr J Trew QC Solicitor: Mr M J Wright

LEGAL REPRESENTATIVES: RESPONDENTS Mr J West QC with Mr Steele of counsel Solicitor: Mr R Featherston Mallesons Stephen Jaques

JUDGMENT: - 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: MARKS J Friday 4 June 2004 Matter No IRC 1028 of 2002 GARY SYDNEY GREEN AND ANOR v AMP FINANCIAL PLANNING PTY LTD AND ANOR Application under s 106 of the Industrial Relations Act 1996 INTERLOCUTORY JUDGMENT NSWIRComm 135

1 These proceedings are currently constituted by a second further amended summons. By motion the applicants have sought to further amend the proceedings by way of a third further amended summons.

2 The proceedings are brought under s 106 of the Industrial Relations Act 1996 ("the Act"). Sections 105 and 106 of the Act are in the following terms:

105 Definitions In this Part: contract means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument . unfair contract means a contract: (a) that is unfair, harsh or unconscionable, or (b) that is against the public interest, or (c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or (d) that is designed to, or does, avoid the provisions of an industrial instrument .

106 Power of the Commission to declare contracts void or varied (1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. (2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason. (3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time. (4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force. (5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case. (6) In making an order under this section, the Commission must take into account whether or not the applicant (or person on behalf of whom the application is made) took any action to mitigate loss.

3 The amendment seeks to add an additional third respondent, AMP Capital Investors Limited, which is referred to in the proposed amended summons as AMP Henderson, a designation which I will use for the purpose of this interlocutory judgment. Apart from the additional respondent, the proposed amended summons in essence deletes certain allegations as to conduct and resultant alleged unfairness made against the existing respondents and seeks to add additional allegations of conduct and unfairness against the existing respondents and, also, as against the proposed third respondent.

4 In general terms, the existing first and second respondents resist the proposed amendments to the summons on the basis that they alter the case sought to be made out against them by the applicants in such a substantial way that they constitute an abuse of process of the court. In general terms the proposed third respondent asserts that the applicants are time barred from maintaining proceedings against it.

5 In order to understand the conflicting arguments and submissions of the parties it is necessary to set out in some little detail the changes to the proceedings sought to be made by the proposed third further amended summons.

6 It is a condition precedent to the exercise of jurisdiction and power by this court under s 106 of the Act that there be a finding of unfairness with respect to a contract as defined. The contract which is the subject of the proceedings as currently constituted is described in the alternative as a contract or arrangements or collateral arrangements between the applicants and the existing first and second respondents whereby it is said that the applicants performed work "in the financial services industry" for and on behalf of the first and second respondents. Although the proposed third further amended summons is framed by reference to the contract etc between the applicants and "the respondents" so as to include the proposed third respondent, as was made clear during the course of submissions, it is the applicants' intention that the finding of unfairness is directed to the same contract as described between the first and second applicants and the first and second respondents only and that there is no intention to direct attention to any other contract. I proceed to deal with this interlocutory application on this basis, and the applicants have acknowledged that the proposed third further amended summons will require modification so as to reflect this understanding. As will be seen, this is an important matter for the purpose of dealing with the respective submissions made by the parties.

7 The form of a summons for relief under s 106 is specified by the rules of this court. By rule 18A an application must be in the form of a designated Form 12A and must "specify in summary the matters in fact and law which form the basis of the application, but not the evidence by which those facts are to be proved…".

8 Form 12A requires specification of the relief sought whether by reason of avoidance or variation and also specification of the contract with respect to which a finding of unfairness is sought. There is then a requirement to set out the summary of matters of fact and law which form the basis of the application. The discussion of the proceedings as currently constituted and of the amendments sought which has occurred to date is sufficient to indicate the contract with respect to which the finding of unfairness is sought. The discussion which follows is directed to the summary of matters of fact and law specified both in the existing proceedings and by way of the proposed amendments.

9 As currently constituted the contract as described is between the applicants and the first and second respondents whereby, in 1976, the first applicant, Gary Sydney Green, became an AMP agent and in 1988, following substantial changes in the legislative framework under which the AMP group operated and AMP products were sold, both the first applicant and the second applicant, Gary Green Pty Ltd, of which the first applicant is a director and shareholder, entered into a number of contractual arrangements with both the first respondent, AMP Financial Planning Pty Ltd, and the second respondent, AMP Life Limited. I should stress that I have attempted to summarise in the most brief and general terms a complex set of arrangements, but I trust that I have captured the essence of what occurred sufficiently for the purpose of these interlocutory proceedings. Perhaps I should add that the changes in the contractual arrangements reflected the evolution of products formerly marketed by life insurance companies from fully underwritten life insurance products as understood from at least the 19th Century into a sophisticated array of investment products involving the provision of financial and investment advice as occurred during the latter part of the 19th Century.

10 In essence the summary of matters of fact and law contained within the proceedings as currently constituted described the fact that the applicants were engaged in the marketing of financial products developed by the two respondents and that those products were marketed to the applicants' clients. In doing so the applicants were given training advice and information in relation to the products and in relation to industry developments and legislative requirements from time to time by the respondents. It was alleged that the respondents undertook extensive research, maintained a recommended list of financial products and undertook the administration of sales of those products.

11 The current summons also makes allegations to the effect that the applicants were personally permitted and encouraged by the respondents to acquire their financial products for their own purposes. There is reference to a facility provided by the respondents by way of the availability of margin loans to allow investors to enhance the amount invested and thereby maximise any successful investment gains.

12 The existing summons sets out in some detail the commission structure and other remuneration provided to the applicants including loan monies made available to assist in the development of the applicants' agency business. There are allegations also about requirements imposed by the respondents to ensure that not only were the applicants complying with their requirements in terms of the marketing of their products but that there was compliance also with legislative requirements.

13 It is convenient at this stage to describe the way in which the proposed third respondent, AMP Henderson, is sought to be brought into the proceedings. It is said to be a related corporation to the first and second respondents in that the ultimate holding company of each of the first and second respondents and AMP Henderson is AMP Limited. In describing the recommended list of financial products which the respondents, and in particular the first respondent, made available to the applicants to market to their clients from time to time, the proposed amended summons refers to two of these products, being the AMP Global Technology Fund (GTF) and the AMP Global Growth Opportunities Fund (GGOF). These financial products were said to be contained in the recommended list and it is claimed that "AMP Henderson is the Responsible Entity for the management investment schemes pursuant to which each of GTF and GGOF are constituted". It was submitted on behalf of the applicants that the sole reason why AMP Henderson was sought to be joined into the proceedings was because of its responsibility for the management of the investment schemes constituted by each of these two funds. The proposed amended summons sets out in some detail a list of documents provided to the applicants with respect to these two global funds.

14 It is now appropriate to describe some of the other amendments sought to be made by way of the proposed amended summons. The proceedings as currently constituted refer several times to the fact that particulars about certain matters will be provided after discovery has been effected. Certain of the variations sought to be made were said, by Mr J L Trew QC, who, together with Mr Wright of Counsel appeared for the applicants, to have arisen following the discovery process. In particular, proposed paragraph 14A details reliance by the applicants upon a compliance service, provided by the first respondent, said to safeguard the applicants from a number of risks associated with their arrangements. These included risks of potential claims from clients with respect to actual or alleged inappropriate or negligent financial advice, potential claims made against them by the first respondent for failure to observe contractual terms, potential financial losses including capital losses resulting from a diminution in value of AMP financial products acquired by the applicants and potential loss of reputation. Included within the arrangements about which reliance is complained of are allegations of actual reliance on safeguards issued not only by the first and second respondents but also by AMP Henderson.

15 The proposed amended summons makes specific allegations about the conduct of AMP Henderson and the second respondent, AMP Life Limited, in connection with their ownership of units in each of the GTF and GGOF. As against AMP Henderson it is alleged that as at 30 June 2000 that company owned 11% of all units issued in GTF and acquired 21,000 units in GTF during the year ended 30 June 2001. It is further alleged that AMP Henderson redeemed all of its holding in GTF during the year ended 30 June 2001. As against the second respondent in its capacity as a wholesale investor it is alleged that there was a substantial reduction in the number of units held in GTF from 42% to 16% during the year ended 30 June 2001 and that there was a reduction in the number of units held by it in GGOF from 80% to 77% during the year ended 30 June 2001. It is alleged that AMP did not disclose to the applicants or to the clients of the applicants that it was trading in units in the GTF and GGOF throughout the year ended 30 June 2001 and that AMP Henderson did not likewise disclose that it was selling down all of its units in the GTF during the same financial year. Furthermore, it was said that the units in both the GTF and GGOF declined significantly in value during that period "thereby creating an opportunity for profit taken by informed unit owners by selling high (ie in the first half of the year) and buying low (ie in the second half of the year)". It is sought to be alleged in the proposed amended summons that this was information which should have been made known to the applicants and the clients of the applicants who held shares in those funds and that if the applicants had been made aware of these trading activities they would have reviewed not only their own investments in the funds but also investments made by their clients on their recommendation. The failure to disclose this information is alleged to constitute relevant unfairness.

16 Another new allegation of unfairness sought to be made in the proceedings by the proposed amended summons is the establishment by the first respondent of a facility whereby persons could acquire managed investments directly without using an agent and thereby would avoid having to pay the normal entry fee of 4% of acquisition cost. The establishment of such a facility was also said to create unfairness for the applicants by diminishing their remuneration both actually and potentially and by impacting adversely on the value of their goodwill.

17 There are a number of allegations of unfairness contained within the proceedings as currently constituted which are sought to be removed by means of the proposed amended summons. The first is constituted by reference to obligations allegedly held by the first respondent under s 851 of the Corporations Law. The second relates to certain risks which were said to be associated with the acquisition of investments in GTF and GGOF. The third was said to be risks associated with the obtaining of margin loans. The fourth refers specifically to failure to provide the applicants with specific documentation and training. The fifth related specifically to the operation and maintenance of a legal compliance system. However some of these matters do form the basis of allegations of unfairness otherwise contained within the proceedings as currently constituted and are referred to in different terms within the amendments sought to be made by way of the proposed amended summons.

18 Paragraph 68 and 69 of the existing summons contained detailed allegations as to why the contractual arrangements between the applicants and the first and second respondents respectively were unfair for the purpose of s 106. These are sought to be amended in a substantial way by deleting specific allegations of unfairness and substituting others as well by making reference to the products and activities in which AMP Henderson was involved. However, it is my impression that whilst there are a number of specific allegations which are sought to be deleted, and a number of specific allegations which are sought to be added, the general nature and effect of the allegations as constituted by the proposed amended summons within these two paragraphs may be described as "variations on a theme". The underlying theme as to the general nature of the unfairness alleged remains even though the detail has changed. I should add that, apart from the specific reference now made to AMP Henderson in the proposed amended summons, the changes overall which are sought to be made to the manner in which the proceedings are constituted are to the same effect, namely "variations on a theme". I should further add that, even in the case of AMP Henderson, I agree with the submissions made by Mr Trew that that entity and its products may be seen to be included in the proceedings so as to include reference to all of the products which the applicants marketed to their clients within the AMP group of companies. It is clear even from the way in which the proceedings are currently constituted that there was reference to the two funds for which AMP Henderson was the responsible entity, so that in this sense the changes sought to be made by way of the proposed amended summons are changes by way of greater specificity and particularisation.

19 Having regard to the changes which I have sought to describe in summary terms, it is now necessary to determine whether they are so substantial as to constitute in reality a different set of allegations and may thereby be characterised as an abuse of process as submitted by the respondents. In determining this issue it is also necessary to have regard to the basis upon which the applicants seek to have AMP Henderson joined in the proceedings as a third respondent. That entity is not said to be a party to the contract with respect to which the finding of unfairness is sought and which is the subject of alternative orders sought by way of avoidance or variation. It was submitted by the applicants that AMP Henderson was sought to be joined as an additional party as permitted by principles recognised by the High Court of Australia in Brown v Rezitis (1971-1972) 127 CLR 157. That case, which discussed a predecessor to s 106 of the Act, set out principles whereby persons or entities not parties to the contract sought to be impugned by a finding of unfairness may nevertheless be made parties to proceedings brought under s 106. The decision is so well known that it is not necessary that I deal with it in any detail. At page 164 Barwick CJ rejected the proposition that parties to proceedings are to be limited to parties to the contract. He referred to the possibility of persons involved in a subterfuge "who are not parties to the contract or arrangement but who are in reality the actors deriving benefit from the making or the execution of the contract or arrangement". The Chief Justice also referred to persons whose rights may be affected by the avoidance or variation of a contract. McTiernan, Windeyer and Owen JJ all agreed with the reasoning of the Chief Justice. Menzies J in a separate judgment reached the same conclusion and in discussing persons who were not a party to the contract against whom an order for the payment of monies might be made spoke of such persons who were "connected in some way with the making of the contract, or the work done, or the expenditure made, or the obligation incurred thereunder. Such persons could, I think, be ordered as it were to recompense the worker for what he has lost." (at 170).

20 It was submitted by the applicants that AMP Henderson was sought to be joined into the proceedings as an entity which had benefited in some way from the unfairness which was said to have arisen under the contract between the applicants and the first and second respondents. Seen in this way, the amendment, to the extent that it seeks to join AMP Henderson into the proceedings, does not in my opinion create any significant or substantial variation.

21 It is not unusual for litigation to proceed as part of an evolving process. Steps such as discovery, the compulsory production of documents and the furnishing of particulars often reveal new facts which are relevant to the proceedings and which cause plaintiffs and defendants alike to change their attitudes and approach to the proceedings, sometimes in a substantial manner. This is one reason why courts are given wide discretionary powers to allow proceedings to be amended. It is imperative that not only are the real issues between the parties to be litigated, but that all of the relevant issues are litigated subject, or course, to constraints such as the nature of the jurisdiction and power of a particular court.

22 The respondents did not attempt to characterise the proposed amendments as constituting an abuse of process within the well-known principles usually applying in this area, for example because of improper purpose. (See generally the discussion on abuse of process in the High Court of Australia in Williams v Spautz (1992) 174 CLR 509.) It was submitted by the respondents that the proposed amendments wrought changes so substantial that in truth they did not constitute an amendment to the existing proceedings but constituted new proceedings.

23 Whilst the changes sought to be made are substantial in number, they do not in my opinion constitute in effect new proceedings. The same applicants seek to impugn the same contract (as defined in s 105) arising out of the circumstances of the same relationship, albeit referring more specifically to AMP Henderson as the promoter of two specified funds. True it is that there are changes sought to the particularisation of the unfairness, but these are, as I have observed, variations of the same theme and are not allegations of a significantly different nature. In the same way, the amendments sought by way of the deletion of reliance on alleged breaches of certain provisions of the Corporations Law do not change the nature of the proceedings. It is not unusual for parties in litigation to determine not to pursue certain factual allegations and to modify their arguments. I would put the proposed deletion of reliance on these matters in this category.

24 For these reasons I reject the respondents' submissions that the proposed amendments constitute in some way an abuse of process and should be disallowed on this basis.

25 The respondents also submitted that the attempt to add AMP Henderson as an additional respondent was precluded by s 108B of the Act. That section is in the following terms:

108B Time for making application (1) An application for an order under this Division in relation to a contract that has been terminated must be made not later than 12 months after the termination of the contract. (2) The Commission does not have jurisdiction to extend the time for making any such application or to accept an application made after the time prescribed by subsection (1).

26 Section 108B was inserted into the Act with effect from 24 June 2002. As at that date, more than 12 months had elapsed from the termination of the contractual arrangements between the applicants and the first and second respondents, but the proceedings as currently constituted had been commenced prior to that date.

27 The operation of s 108B and its application with respect to the joinder of an additional respondent not a party to the contract sought to be impugned as unfair was the subject of proceedings before a Full Bench of this court in Crowe v UCS Developments Pty Ltd (2003) NSWIRComm 234. The court held, in essence, that once an application has been brought under s 106 of the Act within the time limited by s 108B, then the proceedings may be varied by the addition of a further respondent provided that it can be said that the application which is constituted by the original proceedings is with respect to the same contract. If it can be said that the application to amend the summons and the proposed amended summons "do not constitute a fresh application for an order, but are in substance an amendment to an application for an order made under s 106(1) prior to s 108B coming into effect. The amendment sought and, if granted, the resulting amended summons are therefore not precluded by s 108B". (at paragraph 55).

28 However, the Full Bench cautioned in paragraph 56 that "There may be circumstances in which an amendment to an original application may be so substantial or its nature such as to warrant the conclusion that it could be characterised as an application for an order caught by s 108B".

29 These observations by the Full Bench in Crowe lead back to the matters originally considered, namely a characterisation of the changes sought to be made by the proposed amended summons. That is, are the changes sought to be made so substantial and do they alter the nature and character of the claim brought by the applicants against the respondents, including AMP Henderson, so that it can be said that in effect the respondents are now faced with a significantly different claim made against them as constituted by the current proceedings. Whilst, as I have related, there are different allegations made against the first and second respondents in the proposed further amended summons, they are essentially directed to the same contractual arrangements and may be characterised as different manifestations of the type of claims and the basis for the allegations of unfairness already made.

30 For these reasons I conclude that the variation sought is not so substantial or of such a nature as would warrant the application of s 108B. Accordingly, this does not create an impediment under s108B to the granting of the leave to amend sought by the applicants. Neither does s 108B create an impediment to the addition of the proposed third respondent AMP Henderson. That is because there is no allegation with respect to the joinder of s 108B that changes in any way the contract as defined sought to be impugned in the proceedings and AMP Henderson is sought to be joined on the basis as previously outlined. In the context of the joinder of the proposed third respondent, this is the same factual situation as was considered by the Full Bench in Crowe and which led the court to determine that s 108B had no application.

31 Accordingly, I propose to grant leave to the applicants to amend the summons in the manner indicated, subject to the respondents and AMP Henderson being satisfied that the proposed amended summons has been suitably further amended so as to make it clear that the contract or arrangements or collateral arrangements referred to in the first claim contained within the document are precisely the same contracts as defined referred to in the existing second further amended summons. The proposed third further amended summons reflecting this alteration should be filed in the court within 14 days of the appropriate consent forthcoming. In the event that the parties are unable to reach agreement on this discreet issue the proceedings may be re-listed before me by either party at short notice.

32 I shall reserve costs and grant liberty to apply.

33 The parties are asked to consider whether by reason of the addition of the third respondent further conciliation is either appropriate or necessary, and to make contact with my Associate accordingly.

34 ORDERS 1. Subject to the variations referred to in these reasons for judgment, leave is granted to the applicants to further amend the proceedings in the form of the third further amended summons.

2. Costs are reserved. 3. Liberty to apply with respect to the form of the further amended summons and with respect to costs.

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