Androvitsaneas v Members First Broker Network Pty Ltd
[2012] VCC 406
•24 April 2012
| IN THE COUNTY COURT OF VICTORIA | Revised |
AT MELBOURNE
CIVIL DIVISION
Case No. CI-11-05110
| John Androvitsaneas | Plaintiff |
| v | |
| Members First Broker Network Pty Ltd | Defendant |
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JUDGE: | Lewitan | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 30, 31 January and 1, 2, 6, 7 and 8 February 2012 | |
DATE OF JUDGMENT: | 24 April 2012 | |
CASE MAY BE CITED AS: | Androvitsaneas v Members First Broker Network Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 406 | |
REASONS FOR JUDGMENT
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Catchwords: Termination of authorisation to act as credit representative; material breach; breach capable of remedy; Chapter 3 of the National Consumer Credit Protection Act 2009.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr B. Gillies | Sebastian Tartaglia |
| For the Defendant | Mr A. Downie | Phillips & Wilkins |
HER HONOUR:
Regulatory Framework
1 The National Consumer Credit Protection Act 2009 (NCCPA) prohibits a person from engaging in credit activities without a licence.[1] Members First Broker Network Pty Ltd (Members First) is the holder of an Australian Credit Licence.[2] A licensee may give a person a written notice authorising the person to engage in specified credit activities on behalf of the licensee. A person who is so authorised is a credit representative of the relevant licensee.[3]
[1]Section 29(1).
[2]Transcript p 343, exhibit E.
[3]National Consumer Credit Protection Act 2009, s 64.
2 Licensees must comply with the responsible lending conduct obligations in Chapter 3 of the NCCPA. The conduct obligations apply to both credit providers (i.e. lenders, such as banks and finance companies) and credit assistance providers (e.g. mortgage and finance brokers).[4] Regulatory Guide 209 sets out the expectations of the Australian Securities & Investments Commission (ASIC) for meeting the responsible lending obligations in Chapter 3 of the NCCPA.
[4]Regulatory Guide 209.
3 On 4 March 2011 Members First entered into a Credit Representative Deed with John Androvitsaneas (the credit representative deed).[5] John Androvitsaneas is also known as John Andrews (Andrews). On that day Members First authorised Andrews to provide credit services in respect of loans introduced through lenders forming part of the Members First panel of suppliers.[6]
[5]Exhibit 3, p 28 - 47.
[6]Exhibit 3, p 71.
4 Members First cancelled the appointment of Andrews as a credit representative by letter dated 14 June 2011[7]. In a letter dated 16 June 2011[8] Members First confirmed the termination of the membership and status of Andrews as a credit representative. Andrews claims that the termination is invalid because he did not breach the credit representative deed and Members First did not specify the breach which entitles it to terminate the agreement. Members First claims that Andrews breached the credit representative deed and that the breach was not capable of remedy. In the alternative Members First claims that it reasonably considered that the breach was a material breach. Members First claims that it was entitled to terminate the credit representative deed pursuant to clause 13.2(b).
[7]Exhibit 3, p 85.
[8]Exhibit 3, p 93.
The membership agreement
5 A credit representative requires access to lenders via an aggregator. Plan Australia Pty Ltd (PLAN) is an aggregator with a panel of lenders. Members First has a sub–aggregation agreement with PLAN (the sub-aggregation agreement). PLAN allows Members First and its credit representatives to access its panel of lenders and use its technology systems and software.
6 On 17 March 2011 Members First and Andrews entered into a membership agreement.[9] Members First agreed to appoint Andrews as a loan consultant to introduce mortgage loan applications to Members First using the “PLAN Australia IT platform”. [10]
[9]Exhibit 3, p 48.
[10]Exhibit 3, p 49.
7 The membership agreement provides:
3.3Compliance with law
The Loan Consultant and its Contractors (whether Licensees or Credit Representatives) must comply with all laws and rules of professional conduct applicable to the Loan Consultant, including, without limitation, the National Consumer Credit Protection Act 2009 (NCCP Act), the National Credit Code (NCC), the MFAA Code of Practice, the Financial Transaction Report Act 1998, the Privacy Act 1998, and the Trade Practices Act 1974. The Loan Consultant indemnifies, and must keep indemnified, MEMBERS FIRST against any claim, action, damage, loss, liability, cost, charge, expense, outgoing or payment which MEMBERS FIRST pays, suffers, incurs or is liable for, in respect of any breach by the Loan Consultant or its Contractors of this clause.
….
3.5 Accurate Information
In the course of undertaking its duties the Loan Consultant will (and must procure that each Contractor will) assist potential Borrowers in the completion of the Application Documents and thoroughly and accurately record in such Application Documents the information supplied by the Borrowers and will not include in such application forms information which the Loan Consultant or the relevant Contractor knows or suspects is inaccurate, false or misleading, including by way of incompleteness.
The obligations of a credit representative
8 The obligations of a credit representative under the credit representative deed are set out in clause 5[11] which provides:
[11]Exhibit 3, p 35.
5.Your obligations
5.1Obligations
From the date the Letter of Authority takes effect, You must, and must take all reasonable steps to ensure that each individual Credit Representative will:
(a) act as a credit representative in accordance with the terms of this Deed;
(b) comply with the Statutory Requirements;
…
(d)comply with the Standards and with any lawful directions or instructions We issue to You from time to time;
(e)participate in training and education programs as We reasonably require;
…
(k)not engage in misleading, deceptive or unconscionable conduct in connection with the Credit Activities, or do or fail to do anything which could damage Our good name and reputation or that of any other Group Entity;
…
(t)at all times, have the training, education and experience necessary to be competent to undertake the Credit Activities in accordance with this Deed
The termination provisions in the credit representative deed
9 The termination provisions in the credit representative deed are contained in clause 13 which provides:
13.1 Termination on notice
This Deed can be terminated:
(a)by Us immediately on notice to You if We suspend Your authorisation under the Letter of Authority under clause 12.1; or
(b)by either party giving the other party at least two months’ notice of the termination or such other time as the parties agree.
13.2Termination for breach
If You breach this Deed, We may terminate this Deed (and revoke Your Letter of Authority) by notice to You effective from the date of the notice if:
(a)the breach is capable of remedy, and You do not remedy the breach to Our reasonable satisfaction within 14 days of Our giving You notice to do so (or such other time as specified in the notice); or
(b)the breach is not capable of remedy or We reasonably consider the breach is a material breach.
13.3Termination following a Termination Event
Notwithstanding Clause 12.2 we may terminate this Deed (and revoke Your Letter of Authority) immediately, by notice to You on a Termination Event occurring or at any time after a Termination Event occurs.
13.4 Opportunity to be heard
(a)Prior to terminating this Deed under clause 12.2(a) or clause 13.3, We must notify You that You have five Business Days from the date of the notice to:
(i)explain to Us the relevant breach or Termination Event; and
(ii)suggest alternatives to termination for Us to consider.
…
(c) For the avoidance of doubt:
…
(iii) We have an absolute discretion to either accept or reject alternatives to termination presented by You under clause 13.4(a)(ii).[12]
[12]Exhibit 3, p 41.
The audit
10 On 5 May 2011 Kevin John Davies (Davies), the operations and compliance manager at Members First, forwarded an email to Andrews and Neil Migliorisi advising them that a business review would be held at Allied Lending Offices at 248 Union Road Ascot Vale on 17 May 2011. Davies forwarded a questionnaire to be completed by 16 May 2011.[13] One of the questions contained in that questionnaire was “Have you notified Members First of any known breaches of MFBN/BLSSA Standards?”.[14]
[13]Exhibit 3, pp 73 -77.
[14]Exhibit 3, p 76.
11 Andrews said that Davies attended the Allied Lending Offices on 17 May 2011. After assessing three of his files, Davies called him into the meeting room and advised him that he considered that he had detected a breach with a loan application Andrews had lodged for his cousins.[15]
[15]Paragraph 13, affidavit made by Andrews on 26 October 2011, exhibit 3.
Evidence of Kevin Davies
12 Davies made an affidavit on 16 November 2011 (Davies affidavit)[16] and gave oral evidence. I found Davies to be a reliable and truthful witness. He answered the questions put to him in cross-examination in an honest manner.
[16]Exhibit J, pp 147 – 222.
13 Davies attended the premises of Allied Lending at 248 Union Rd Ascot Vale on 17 May 2011. Andrews and Neil Migliorisi advised Davies that whilst Andrews was submitting some applications under Neil Migliorisi’s accreditation, they both, initially, interviewed the borrower.[17]
[17]Kevin Davies affidavit, para 14.
14 Davies said that it is the practice of Members First to review the files that are settled.[18]
[18]Kevin Davies affidavit, para 16.
15 Davies stated that he commenced the review of the file and noticed that there was a supporting note for each application. The supporting note for the Bankwest application had income which was inconsistent with the income stated in supporting notes for the ANZ and St George loan applications. The Bankwest supporting notes stated that the business had returned a profit of $101,000, whereas the supporting notes for the ANZ and St George applications stated that the business had a ‘turnover’ of $68,892.
16 Davies stated that income has been put on a PAYG basis as $34,446 for both Denis and Michelle Androvitsaneas (total for both being $68,892) in the St George servicing calculator. However the declared income came from business activity statements (BAS) which were supplied together with the application to St George. The income would likely be considerably less than that, as the total sales recorded in the BAS statements had not been adjusted for business expenses.
17 Davies stated that the net profit before tax figures in respect of the Bankwest application were substantially inconsistent with the income figures used in the ANZ and St George applications.[19]
[19]Kevin Davies affidavit, para 19 (c) (iv).
18 Under the section entitled ‘financials of the business’ in the Bankwest serviceability calculator (completed by Andrews as part of the Bankwest loan application), the net profit before tax of the business for the 2009 financial year was declared to be $99,000. The net profit before tax for the 2010 financial year was declared to be $101,000. In an attempt to try and reconcile the calculation of $101,000, Davies calculated the total income from all stated sources as being $70,439 (using partnership taxation return (PTR) adjusted net profit) or $90,353 (using BAS) as follows[20]:
[20]Kevin Davies affidavit, para 19 (c) (vii).
·Family assistance: $10,224.
·Net profit (per 2010 partnership tax return), adjusted for addbacks $48,978 (or using income per BAS: $68,892)
RMIT:$11,237
Total $70,439 (using PTR) or $90,353 (using BAS).
Both figures exclude rental income which had been input as a separate figure in the servicing calculation. This is also notwithstanding that in John’s affidavit he subsequently stated that he did not use Family Assistance in the Bankwest servicing calculation.
19 Davies stated that as soon as he had completed his review he approached Andrews for an explanation about the discrepancies. He showed Andrews the Bankwest application and Andrews told him that the income set out in the net profit before tax figure was an amalgamation of all income sources. Davies told Andrews that this was not correct because of the calculations he had made (see above paragraph 18). Andrews told Davies that he included rent in this gross income figure. Davies told Andrews that he could not have done this because rental had a separate section in the Bankwest application form.[21]
[21]Kevin Davies affidavit, para 21.
20 Davies also told Andrews that there was a partnership tax return on file which was totally inconsistent with the business income figures set out in the Bankwest application. Davies told Andrews that he should be aware that it would be inappropriate to submit “a low doc application” when a tax return had been provided, to which Andrews offered no response. There was at that time no mention that the Partnership Tax Return was provided after settlement in early May 2011.
21 After he completed the file review, Davies took the file of Denis and Michelle Androvitsaneas with him and returned to the offices of Members First.
22 On 23 May 2011 Davies forwarded an email to Mr Mansfield at PLAN.
23 Davies said that he had some serious concerns with the Bankwest application insofar as the serviceability calculator and the support notes quite clearly stated that the business, being the partnership, D & M Clever Clean, had a net profit before tax of $101,000 in the financial year 30 June 2010. Davies said that he knew that this could not have been the case based on the documentation he had seen on the file. In cross-examination Davies said that the breach by Andrews was the fact that there was a misrepresentation of income in the Bankwest application. That was the only breach that Members First pursued.[22] The evidence of Davies when cross-examined was[23]:
[22]Transcript p 394 – 395.
[23]Transcript p 395.
“If that was the only one that you pursued, what was it actually a breach of?...It was a breach of the Credit Representative Deed. It’s a breach of the Membership Agreement, the Members First Membership Agreement. It’s also a breach of the MFAA Code of Conduct, of which Mr Andrews was a member of the MFAA, as well as a member of Members First.
Let’s look at the Credit Representative Deed. How is that a breach of the Credit Representative Deed? …There’s a specific clause in the Credit Representative Deed which deals with conduct in terms of misleading information.
…
Which clause are you referring to?...it’s under the “Your obligations” section, Item K.
So he was “not to engage in misleading, deceptive or unconscionable conduct in connection with credit activities or do anything or fail to do anything which could damage our good name and reputation or that of any other group entity”?...Yes
And what do you say he has done in breach of K?...That he has misrepresented income in the Bankwest application.
24 In relation to the Bankwest Serviceability Calculator[24], Mr Gillies suggested to Davies that there was nothing wrong with the actual servicing calculation.
Yes, and those input figures – there is nothing wrong with the input figures, is there?...Well, I’m saying that, yeah, there was because I couldn’t get - I couldn’t add up where those figures came from based on what the documents were in the file.
Well I suggest to you the figures came, did they not, from what had been certified by the accountant?...No. The accountant was certifying the current level of income. The accountant wasn’t certifying the historical previous years’ figures.
Yes, but what goes into – if I take to p199, if you look at the serviceability assessment, as you look at the page on your right-hand side as you look down the page, you see a document headed Serviceability Assessment, don’t you – a small box?...Yes.
There is nothing wrong with those figures there, is there?...Well, the calculations would be correct based on the input that Mr Andrews had put on the left-hand side.
Yes, and I suggest to you that those calculations are derived from what the accountant told him?...That’s not what-when I asked the question the answer that I was given was that those figures were a consolidation of figures, being the BAS, the rental income, the PAYG and the family allowance. [25]
[24]Exhibit J, p 199.
[25]Transcript p 431.
A. Did the plaintiff breach the credit representative deed?
25 Andrews made an affidavit on 26 October 2011 (Andrews first affidavit). Andrews has been a finance consultant and mortgage broker for the last eight years. He was previously employed by Wizard Home Loans, which was taken over by GE Money and subsequently sold to Aussie Home Loans.[26] Wizard Home Loans had a panel of about twenty lenders.
Application to ANZ [27]
[26]Exhibit 3, p8, para 2.
[27]Exhibit J pp 194 -195.
26 Andrews said that a Low Documentation loan application for $354,000 was lodged for Denis and Michelle Androvitsaneas, to the ANZ bank, on 16 March 2011, through Allied Lending by Neil Migliorisi, with appropriate Business Activity Statements as per the lender’s requirements. Andrews filled out the information for the loan; he agreed that the information contained in the application was in his handwriting.[28]
[28]Transcript p 82.
27 Denis and Michelle (also known as Mirsina) Androvitsaneas wished to purchase a residential property. Settlement of the sale of their current home and the settlement of the purchase of the new home was on the same day on 19 April 2011.[29] Denis and Michelle Androvitsaneas were the cousins of Andrews.
[29]Exhibit J p 194.
28 Andrews said that at that point of time, he had not received a licence from Members First. He was not officially a broker, he was only a referrer and was not accredited with any lenders.[30]
[30]Transcript p 66.
29 Neil Migliorisi is an associate broker and is the sole director and owner of Mortgage Services Australia Pty Ltd trading as Allied Lending. Andrews said that he and Neil Migliorisi interviewed his cousins when they attended Allied Lending.[31]
[31]Transcript p 81.
30 In cross-examination Andrews said that there were several bits of information provided to him. There were full BAS statements, a partnership tax return, a family assistance letter, and an RMIT PAYG statement for Mr Dennis Androvitsaneas.[32]
[32]Transcript p 81.
31 There were supporting notes accompanying the application.[33] Andrews said that he wrote them in conjunction with Neil Migliorisi. Under the heading “Employment/Income” the supporting notes state:
The applicants have had a cleaning business for over 5 years. They can provide BAS showing a turnover of $68,889 for the past 12 months and are registered for GST.
Denis also works one day per week at RMIT as a trainer and earns approximately $11,000 gross per annum.
The applicants also have an investment property that earns $1,500 per month.
They also have 3 dependants and receive a Centrelink family assistance of $852 per month.
[33]Exhibit J, p 194.
32 Under the heading “Income Average Monthly” on the loan application there are two boxes for Income earner 1 and Income earner 2 which provide that the gross per annum income for each income earner was $34,446.[34] The defendant submitted that this figure is an inaccurate representation of the alleged income because the BAS contains a total sales figure which does not represent the income earned by the partnership; it is a figure from which expenses must be deducted.
[34]Exhibit J p 195.
33 In cross-examination Andrews agreed that the BAS statements he was given are contained at pp 200 – 207 of the Court Book. The first statement, for the period 1 January 2010 to 31 March 2010, indicates total sales of $16,964.[35] The statement was signed by Denis Androvitsaneas on 27 April 2010. The second statement for the period 1 April 2010 to 30 June 2010 indicates total sales of $16,967.[36] The statement was signed by Denis Androvitsaneas on 27 July 2010. The third statement, for the period 1 July 2010 to 30 September 2010 shows total sales of $17,744.[37] This statement was signed by Denis Androvitsaneas on 28 October 2010. The fourth statement, for the period 1 October 2010 to 31 December 2010, shows total sales of $15,629.[38] This statement was signed by Denis Androvitsaneas on 28 February 2011. The sum total of the sales for the period from 1 January 2010 to 31 December 2010 was $67,304. A partnership tax return for “Denis Androvitsaneas and Mirsina Androvitsaneas”[39] declares that the total business income was $62,627 for the 2009-2010 tax year. The total expenses were $20,782 and the net income from the business was $41,845.[40]
[35]Exhibit J p 200.
[36]Exhibit J p 202.
[37]Exhibit J p 204.
[38]Exhibit J p 206.
[39]Exhibit J p 208 -220.
[40]Exhibit J p 211.
34 Another piece of information was a PAYG Payment Summary for Denis Androvitsaneas from RMIT University which indicated that his gross income for the 2009 to 2010 tax year was $11,237.[41]
[41]Exhibit J p 221.
35 Also contained in the file was a document headed “Your Family Assistance” issued by the Australian Government Family Assistance Office on 16 December 2010 which indicated that the information used for calculating “your regular payment” was “a combined income” of $57,988.00.[42]
[42]Exhibit J p 222.
36 The application was declined by ANZ due to ANZ using only 40% of the figures demonstrated on the BAS.[43] I accept Davies’ evidence that ANZ’s policy for low doc applications is to discount BAS to allow for business expenses.[44]
Application to St George [45]
[43]Andrews affidavit, paragraph 16.
[44]Kevin Davies affidavit paragraph paragraph 19 (a) (iii).
[45]Exhibit J pp 196 – 197.
37 On 28 March 2011 a low documentation application for a loan of $360,000 was lodged for Denis and Mirsina Androvitsaneas with St George Bank.
38 This application was submitted by Neil Migliorisi because the plaintiff did not have the requisite authority to deal with St George. The information that was provided at the first interview carried on to the second application.[46]
[46]Transcript p 82.
39 The supporting notes for the application of a loan for $360,000 from St George Bank state:
The applicants have had a cleaning business for over 5 years. They can provide BAS showing a turnover of $68,892 for the past 12 months and are registered for GST. As directors they each share 50% of the business profits.
Denis also works one day per week at RMIT as a trainer and earns approximately $11,000 gross per annum.
The applicants also have an investment property that earns $1500 per month.
They also have 3 dependants and receive a Centrelink family assistance of $852 per month.
40 The application to St George states on the left hand side of the page that the base income was $34,448 for each individual which adds up to a total of $68,892.[47] The defendant submits that the stated income is, once again, incorrect. The income stated for each income earner did not take into account the expenses of the partnership business.
[47]Exhibit J p 197.
41 Under the heading tax deductions in the St George application, a figure of “0” has been included for both Dennis and Michelle Androvitsaneas. In cross-examination Andrews agreed that, as in the ANZ application, he took the total sales figure and divided it by two.
42 The defendant submitted that the figures that are noted as BAS income and other income in the St George application are entirely inconsistent with the Family Tax Benefit statement. The figure on the left hand side of the St George application under “income other” is PAYG and the figure on the right hand side is Family assistance. If one adds the figure of $11,000 (the PAYG figure) and $68,892, that amounts to approximately $80,000 which is at odds with the combined income stated in the Family Tax Benefit statement. When asked about the discrepancy between those figures Andrews said “There’s different figures…but it is “an incorrect assumption that they should be the same.”[48] Andrews did not provide a credible explanation as to why the combined income in the loan application should be different from the combined income stated in the Family Tax Benefit declaration.
[48]Transcript p 90.
43 Andrews stated that “[d]ue to the income declared to Centrelink being lower than the income indicated on the current BAS, St George requested the application to be a full documentation application and as this was not possible the application was withdrawn.”[49]
[49]John Andrews affidavit, paragraph 17.
Application to Bank West
44 Andrews said that the third application was made on or about 19 April 2011 when he lodged a low documentation application to Bankwest for a loan amount of $360,000.[50]
[50]Exhibit J p 199.
45 The supporting notes for the Bankwest application state[51]:
[51]Exhibit J p198.
Settlement date: 21/4/2011 or as soon as possible.
Employment/Income
The applicants have had a cleaning business for over 5 years. They operate D & M Cleverclean and are registered for GST. As directors they each share 50% of the business profits which was $101,000 last financial year.
Applicants 1 [sic] also have an investment property that earns $1,500 per month.
General Comments
Please note that the applicants sold their home which was due to settle on the 19/4/2011. Settlement for the purchase of the new home is on the same day of the 19/4/2011 but complications have delayed the settlement considerably.
The clients also have an ongoing ANZ Investment mortgage.
They had a loan with St George which was discharged with the sale of their property.
46 Andrews filled in the information contained in the serviceability calculator for the Bankwest loan[52]. Next to the words “business name” he inserted the words “D & M Cleverclean”. In response to the question “What type of business is it?”, Andrews inserted the word “Partnership”. Under the heading “Financials of the business”, the form stated “Please enter the financial information for the past two years if available. If only the last year is available, use only the right-hand column”. In response to that request, Andrews inserted the following information:
[52]Exhibit J p 199
Enter Year 2009 2010
Net Profit Before Tax (NPBT) $99,000 $101,000
47 Andrews also filled out the figures contained in the Easy Doc Home Loan application by Denis and Mirsina Androvitsaneas.[53] In that application Mirsina and Denis declared that their combined total current monthly income is $8416. On the third page of that document, “Accountant one” certified “I am the accountant for Denis Androvitsaneas. I am a NTAA [National Tax and Accountants Association]. I declare that the income details provided above are true and correct.” The document was signed by Mr John Iacona in the presence of Candy Wu.[54]
[53]Exhibit 1.
[54]Transcript p 64.
48 Andrews said that he filled out the figures in the Easy Doc Home Loan application after consulting with his client.[55] He said that he had never met or spoken to the accountant.
[55]Exhibit 1.
49 The application was approved and proceeded to settlement. The total income declared for Mr and Mrs Androvitsaneas in this application was $119,000.
50 Andrews gave different explanations for the discrepancy between the income derived by Mr and Mrs Androvitsaneas and declared in the BAS statements referred to in the above paragraph 33 and the income of Mr and Mrs Androvitsaneas stated in the application to Bankwest.
First explanation – failure to include rental income
51 I accept Davies’ evidence that as soon as he completed the review of the Bankwest file on 17 May 2011, he approached Andrews for an explanation about the discrepancies. Davies showed Andrews the Bankwest application. Andrews told him that the income set out in the net profit before tax figure was an amalgamation of all income sources. Davies told Andrews that this was not correct because of the calculations Davies had made (see above paragraph 18). Andrews told Davies that he included the rent in this gross figure. Davies told Andrews that he could not have done this because there was a separate section in the Bankwest application form for declaration of rental, which was declared to be $18,024. [56]
[56]Paragraph 21, Kevin Davies affidavit.
Second explanation – Mirsina Androvitsaneas returned to work in March 2011
52 Andrews said that, at the time of the income declarations, he did not have any reason to doubt the applications made.[57] In paragraph 20 of Andrews first affidavit), Andrews stated that “the reason the income is slightly higher in the declaration to Bankwest compared to the documentation provided to St George and the ANZ Bank is that Michelle Androvitsaneas has been inactive from work for the past few years having three children. In March 2011 she resumed her full time work and as a result business has almost doubled. That was demonstrated in the applicant’s BAS and is confirmed by the following extract from the tax agent portal lodged with the Australian Taxation Office.”
[57]Paragraph 20, John Andrews first affidavit.
53 Mrs. Androvitsaneas returned to work in March 2011.[58] The application was made and signed on 19 April 2011.[59]
[58]Transcript p 96.
[59]Transcript p 96.
54 However as Davies stated in his affidavit made 16 November 2011, “John says that it was Michelle Androvitsaneas’ recent return to work from March 2011 which altered the Bankwest income declaration. However the information declared in the Bankwest income application was for 2009 and 2010, not for 2011.”[60]
[60]Para 28(d) Kevin Davies affidavit, Exhibit J.
Third explanation – partnership tax return was not provided until after settlement
55 The partnership tax return for Denis and Mirsina Androvitsaneas for the 2010 tax year indicates that the total business income for the partnership was $62,627 and the net income was $42,845.
56 Andrews said that he received the clients’ partnership tax return in early May 2011 after the application was made.[61] However in cross-examination, Andrews said that he had been provided with the partnership tax return when he interviewed Denis and Mirsina Androvitsaneas with Neil Migliorisi before the loan applications were made.[62]
[61]Transcript p 74.
[62]Transcript p 81.
57 Davies said that after he reviewed the Bankwest file on 17 May 2011, he told Andrews that there was a partnership tax return on file which was totally inconsistent with the business income figures set out in the Bankwest application. Davies told Andrews that he should be aware that it would be inappropriate to submit a low documentation application when a tax return had been provided, to which Andrews offered no response. Davies said that there was at that time no mention that the partnership tax return was provided after settlement in early May 2011.
58 Denis and Michelle Androvitsaneas were not called. Mr Downie referred to O’Donnell v Reichard[63]. I accept Mr Downie’s submission that the Court is able to draw an inference that their evidence, (about the date when they forwarded the 2010 partnership tax return to Andrews), would not have assisted the plaintiff’s case.
[63][1975] VR 916.
Fourth explanation – the 2009 and 2010 figures reflect the customer’s declaration
59 Andrews said that after Davies inspected the files, Davies told him that Davies had detected a breach with a loan application Andrews had lodged for Andrews’ cousins. Andrews said that he asked Davies to explain what he meant and that Davies held up the low documentation declaration and the business tax return and that Davies asked:
“How did you arrive at the income amount used?” to which [Andrews] replied “I didn’t. The clients and their accountant did.” [64]
[64]Exhibit 3, Andrews first affidavit, para 15.
Fifth explanation – typographical error
60 The supporting notes for the Bankwest application state that “[a]s directors they each share 50% of the business profits which was $101,000 last financial year”. When cross –examined Andrews said:
“Okay. I agree there might have been a slight typo mistake there, which should have said the total income, rather than business profits, but it is still the only figure I have used as total income without any PAYG additional or with any Family Allowance in addition to the $101,000, is the total income.[65]
[65]Transcript pp 97 – 98.
Sixth explanation – tax benefit
61 In the second affidavit Andrews made on 23 November 2011 (Andrews second affidavit), Andrews refers to paragraph 19(c)(ii) of Davies’ affidavit and the income used for the serviceability of the Bankwest application i.e. net profit before tax of $99,000 for the 2009 financial year and $101,000 net profit before tax for the 2010 financial year.
62 Andrews said that “Mr Davies has calculated that income to be $90,353 yet it appears that Mr Davies has taxed the entire business income before dividing it to equal partners which places [the partner] in the high tax bracket.”[66]
[66]Exhibit 4, Andrews second affidavit, para 14.
63 In cross-examination Andrews stated:
According to Mr Davies’ calculations, the best that I should have declared, as a maximum, and combined of all those incomes, should have been $90,353. Your Honour, the Bankwest income calculation does not allow for each client’s figures to be separated and this paper does not allow for them to have in detail of their income [sic] So I was limited by the amount that they had declared. If we split the BAS statement of $68,000 that Mr Davis has, which is 34,400 each for Michelle and Dennis, then we add the PAYG for Dennis and the family allowance for Michelle, you tax them at a lower threshold because, as a partnership, that’s how they are taxed, at 50 per cent, separate. That would give me approximately $77,000 of net income, which is the income that I learned that is mainly concerned about because it’s the disposable income. However, by not allowing us to tax them separately, that $77,000, in order to be reflected to its true value, has to come up to about $102,000 in order to get the $77,000 net income, otherwise you’re disadvantaging the customers by reflecting a lower income.[67]
[67]Transcript pp 109 -110.
64 In re-examination Andrews said:
If, for example, that figure does say “net profit before tax”, what would tax be on the $101,000, do you believe? I believe the net figure is about $77,000 or the tax would be about $24,000.
And that tax would be for a single person or for a partnership?...That would be for a single person.
If a partnership had an income of $101,000, how would tax be assessed on that, a two people partnership, how would tax be assessed on that?...It would be split between the partnership.
…
How would the tax be assessed on a 50/50 partnership when you have income of $101,000?...the business income would be split equally between the two parties, which we’d lower the tax threshold and benefit from a lower tax increment.
…what gross income figure did you use for [Mr and Mrs Androvitsaneas] when you assessed their eligibility for a loan; what was the gross figure that you used?...Aproximately $90.000.
And that $90,000 because it was a partnership, would have been taxed in what way?...Into two separate parts.
So that means, of the two separate parts of $45,000?...Yes.
How would the tax have been taken out of each of those sums of $45,000?...It would have been approximately $8000 each, so the net figure would be about 37,000 each.
If you add those figures together, the figure that you arrive is approximately $74,000 net combined.[68]
And that figure of $101,000, if it was taxed at a single person’s rate, what would that tax be?...The net income would be $74,000, so you are looking at approximately $25,000 tax.
So is that why the figure of $101,000 is put there by you?...Yes. You work backwards to reflect the correct net income of the applicants.[69]
[68]Transcript p 158.
[69]Transcript pp 156- 158.
65 I do not accept Andrews’ explanation. Even on his own evidence, it is contrary to the explanation Andrews said he gave to Davies. In paragraph 15 of Andrews first affidavit :
I asked him to explain what he meant and he held up the Low Documentation income declaration and the business tax return and asked me “How did you arrive at the income amount used?” to which I replied “I didn’t. The clients and their accountant did.”
66 Second, on his own evidence, Andrews has taken the total of the sales in the BAS statements as “net income” without making any allowance for business expenses and deductions.
67 Andrews had been a mortgage broker for 8 years and was familiar with loan application forms. The Bankwest loan application clearly provided for the declaration of the “net profit before tax” of the partnership. Andrews provided an estimate of the income of each of the partners after tax. In any event, his justification for calculating the income of Denis and Michelle Androvitsaneas in this manner is not well founded. Andrews knew that the loan application referred to a partnership, that the Bankwest form requested him to declare the net profit before tax of that partnership and that the Bankwest form specifically provided that each partner had a 50% share of the income.
68 In re-examination Andrews said that for the year 2009, he inserted a figure of $99,000 in the loan serviceability calculator. When asked how he arrived at the figure he said that the clients advised him that they earned a few thousand dollars less the previous year.[70] That was the figure he arrived at after speaking to his clients about their income.[71] The defendant submitted that Andrews did not take steps to verify the customer’s financial situation. The defendant submitted that Andrews’ conduct did not comply with the guidelines published by ASIC for responsible lending. Andrews attended a workshop conducted by Members First in December 2010 and received professional training of the obligations and the conduct required by Responsible Lending Conduct Regulatory Guide 209.[72]
[70]Transcript pp 166 – 167.
[71]Transcript p 167.
[72]Transcript p 79.
69 In cross-examination Andrews conceded that the $101,000 declared as the net profit before tax in the Bankwest serviceability calculator was not an actual amount of money that was earned by the partnership.[73] In cross-examination Andrews conceded that the banks rely on the figures in the right-hand column under “serviceability assessment” in order to determine whether or not to give an applicant a loan.[74]
[73]Transcript p 186.
[74]Transcript p 186.
70 In cross-examination Andrews agreed that when he filled out the Bankwest application he used Microsoft Excel. “It is provided by the lender as a template.”[75] Andrews agreed that in the left hand side under the section “Self Employed Worksheet”, he typed in the name “D & M Clever Clean”. Andrews agreed that he was then asked “what type of businesss is it”? The screen dump of the excel spreadsheet of the Bankwest serviceability calculator[76] indicated that there was a drop down box which contained a number of options including sole trader, partnership, trust beneficiary, company, company as trustee of a trust. Andrews agreed that he selected “Partnership” and then entered the years 2009 and 2010. He was then asked to insert the figures Net Profit Before Tax (NPBT). In response to the question “available cash for distribution” Andrews stated that the share of income was Dennis 50% and Michelle 50%.[77]
[75]Transcript p 180
[76]Exhibit A.
[77]Exhibit J p 199, transcript p 181.
Seventh explanation – the Bankwest loan is ambiguous
71 Andrews stated that the Bankwest serviceability calculator is ambiguous. When it says 2010, “I believe I used it as the 2010 to 2011 tax year.[78] It represents their true net figure.[79] Because the net figure is the disposable income figure that a lender uses to see if they can afford the loan.[80] I do not accept this evidence. It is inconsistent with Andrews’ statement in the supporting notes submitted with the application for the Bankwest loan in April 2011 that the business profits of the business operated by Denis and Michelle Androvitsaneas were $101,000 in the “last financial year”.[81]
[78]Transcript p 155.
[79]Transcript p 156.
[80]Transcript p 156.
[81]Exhibit J p 198.
72 Davies was asked about the figures on the left-hand side of the Bankwest loan application under the years 2009 and 2010:
They don’t tell you if they’re financial years or whole years, the income, do they?...Well it’s always been industry practice for the 25 years I’ve been in the mortgage industry that you work on financial years.[82]
[82]Transcript p 399.
Andrews’ evidence
73 In my view Andrews was not a reliable witness. He was evasive when answering questions in cross-examination. He was a witness who, in effect, would say what he thought would assist his case as opposed to a witness who was endeavouring at all times to give a truthful and accurate account of the facts. For example he gave unsatisfactory and inconsistent accounts of the reasons why the Bankwest serviceability calculator contained a declaration that in 2010 Denis and Michelle Androvitsaneous had a net profit before tax of $101,000[83]. He gave an unsatisfactory explanation as to why he stated in the supporting notes of the Bankwest loan application that “the business profits” of the cleaning business conducted by Denis and Mirsina Androvitsaneas were “$101,000 last financial year.” [84]
[83]Exhibit J p 199.
[84]Exhibit J p 198.
74 Andrews did not provide a reasonable explanation about why in two separate affidavits he gave different reasons for how he arrived at the net profit before tax figures in the Bankwest application, being either a figure arrived at by the clients and their accountants[85], or a figure which he calculated from financial documents provided by the clients.[86]
[85]Exhibit 3, paragraph 15 and 20.
[86]Exhibit 4, paragraph 15.
75 There were discrepancies between the evidence contained in Andrews affidavit and his oral evidence in Court. Andrew Tan (Tan), a director of Members First, said that he telephoned Andrews on 18 May 2011 and had a discussion during which he told Andrews that there appeared to be a misrepresentation of the income in the Bankwest application.[87] In paragraph 28 of Andrews’ second affidavit, Andrews denied that he had any telephone call with Tan on 18 May 2011. However when asked in cross-examination whether he accepted that Tan called him on 18 May 2011, Andrews answered that Tan might have called me but he did not say those things.[88] Later in cross-examination Andrews conceded that it is possible that he had a phone call from Tan on that day.
[87]Andrew Tan’s affidavit made 16 November 2011, para 15.
[88]Transcript p 120.
76 Andrews referred to the notes he made “Record of events re: licence deregistration”[89] and said that “in referring to my notes which I recorded at the time on a daily basis, I can confirm there was no telephone conversation [with Tan]”.[90] However the notes are inaccurate insofar as those notes record that Davies visited the offices of Allied Lending on 20 May 2011. In his first affidavit, Andrews said that Davies visited the office of Allied Lending to conduct a business review on 17 May 2011.[91] In cross-examination Andrews said that the first date of 20 May 2011 was a “typo”, it should be “Friday 17 May 2011”. However 17 May 2011 was a Tuesday, not a Friday.
[89]Exhibit 3, pp 88 – 92.
[90]Transcript p 128.
[91]Andrew’s first affidavit, para 12.
77 On 1 September 2011, Tan forwarded an email to Andrews asking the following question:
The St George application shows a total income of $107,342. However, joint gross income from serviceability calculator is $104,535. ANZ has a joint income of $108,060 and Bankwest $101,000. ANZ and St George applications had BAS stating gross income of $68,892 for the 12 months preceding. Why the differences?”[92]
[92]Transcript p 65.
78 Andrews gave evidence:
The ANZ income calculation was taken direct from documents provided by the clients from BAS statements, PAYG income for one of the applicants who is a trainer one day a week at a TAFE college, family allowance, and also rental income for one investment property and that came to the ANZ income calculation. With that application failing, the next option was the St George application which, when we researched it, the fact is that they considered all of the BAS statements as income and we realised that one of the BAS statements provided by the clients for the court, it was the wrong year. So in asking them to replace that with the correct year, there was a slight difference in the income, otherwise it would have been perfectly the same. The third calculation, which is the Bankwest calculation of income, was a declaration for the Easy Doc loan, which was provided by the client and their accountant. And that is how they differ.[93]
[93]Transcript pp 65 – 66.
Failure to call witnesses
79 One of the issues in dispute in this case was whether the information contained in the Bankwest Serviceability Calculator was accurate. The plaintiff did not call Denis and Michelle Androvitsaneas. The plaintiff did not provide any explanation as to why Denis and Michelle Androvitsaneas were not called as witnesses. I accept Mr. Downie’s submission that I am entitled to draw the inference that the evidence of Denis and Michelle Androvitsaneas in relation to the income declared in the Bankwest Serviceability Calculator would not have assisted the plaintiff’s case.
80 The plaintiff could have called the accountant who signed off on the Easy Doc Home Loan application[94] which formed the basis of the loan application to Bankwest. The plaintiff did not provide any explanation as to why the accountant, Mr Iacona, was not called as a witness. I accept Mr. Downie’s submission that the Court is entitled to draw the inference that Mr. Iacona’s evidence would not have assisted the plaintiff’s case.
[94]Exhibit 1.
Was the notice defective?
81 The plaintiff claims that the notice of termination that was given by the defendant was defective because it did not provide particulars of the breach.
82 Mr Gillies submitted that the notice is equivocal, vague or imprecise and does not state what the breach is. He referred to Diploma Construction Pty Ltd v Marula Pty Ltd.[95] The facts in that case were different from the facts in this case. In Diploma the relevant clause contained in a building subcontract for plastering work was at paragraph 8:
If [the respondent]:
(a)fails to carry out any of its obligations under this Subcontract and fails to rectify the default within 3 days of becoming aware of the details of the default (by notice from [the appellant] or otherwise), [the appellant] may by notice to the [respondent] terminate this Subcontract. (emphasis mine).
[95][2009] WASCA 229.
83 In those circumstances Owen JA held that to be a valid notice under cl 8.1(a), a notice had to clearly direct the respondent’s attention to the alleged default with sufficient specificity that the default was capable of being readily identified by the respondent.[96]
[96][2009] WASCA 229, [79].
84 The defendant submitted that the credit representataive deed was properly terminated pursuant to clause 13.2(b) and that the notice was adequate. Mr Downie referred to the statement by Newnes JA in Diploma Construction Pty Ltd v Marula Pty Ltd[97] that “each case ultimately depends upon the particular contractual provisions in question and I do not think that any real assistance is to be gained from canvassing the various cases.” Similarly in Al Jadeed TV and others v United Broadcasting International Pty Ltd Flick J stated that each case must ‘necessarily depend upon its own facts and upon the terms of the contract in issue’.[98] Mr. Downie submitted that Clause 13.2(b) of the credit representative deed imposes no requirements on the defendant to set out the particulars of the breach. Where the contract does not prescribe the contents or requirements of a notice of termination for breach, a notice of termination given in exercise of a contractual right to terminate for breach must clearly convey to a reasonable person in the position of a recipient that the contract is being terminated by it.[99]
[97][2009] WASCA 229, [71].
[98](2011) 283 ALR 205.
[99]NC Seddon and MP Ellinghaus, Cheshire and Fifoot’s Law of Contract (9th Ed, 2008).
85 Mr Downie submitted that even if there was some obligation to give particulars of the breach, the test for whether a notice is adequate is whether the recipient reasonably understands the notice taking into account the relevant objective contextual background.[100] In FPM Constructions Pty Ltd v Council of the City of Blue Mountains[101] the New South Wales Court of Appeal held that it is appropriate to take account of surrounding circumstances. Mr Downie submitted that the contextual background in this case includes the communications between Tan and Andrews (see below paragraphs 156 - 160, 162, 166 - 171). Mr Downie referred to the letter by Members First to Andrews and submitted that the defendant made it clear, both orally and in writing, that the basis for the termination was the misrepresentation of income declared in the Bankwest loan application for Denis and Michelle Androvitsaneas. Further, because the requirement to provide notice was not limited to notice in writing, the particulars provided orally would also suffice in the circumstances. Mr Downie submitted that a reasonable plaintiff in the circumstances would well be aware of how he breached those agreements. Tan telephoned Andrews on 18 May 2011 and told him that Davies had conducted a review and found that the incomes in the three applications were inconsistent and that there appeared to be a misrepresentation of the income in the Bankwest application.
[100]Mannai Investment Co v Eagle Star Life Assurance Co. Ltd. [1997] AC 749, 767; Diploma Construction Pty Ltd v Marula Pty Ltd [2009] WASCA 229, [79].
[101][2005] NSWCA 340, [150], [151].
86 Mr Downie further submitted that at common law the right to determine a contract and thereafter to justify it on grounds not raised or even known at the time has long been recognised.[102] In Shepherd v Felt & Textiles of Australia Ltd.[103] Dixon J held:
When the respondent terminated his agency it was not aware of the contents of the telegrams and the letter which he had sent to its customer’s buyer, and it acted upon other grounds. It is well established, however, that a servant’s dismissal may be justified upon grounds on which his master did not act and of which he was unaware when he discharged him (Boston Deep Sea Fishing and Ice Co v Ansell, LR 39 Ch D 339; Spotswood v Barrow (1850) 5 Ex 110; Willets v Green (1850) 3 Car. & Ker 59, 175 ER 462; Mercer v Whall, (1845) 5 QB 447 at 466, 114 ER 1318 at p 1325; Ridgway v Hungerford Market (1835) 3 A. & E. 171, 111 ER 378). It is true that the agreement between the appellant and the respondent does not amount to a contract of service. But the rule is of general application in the discharge of contract by breach, and enables a party to any simple contract who fails or refuses further to observe its stipulations to rely upon a breach of conditions, committed before he so failed or so refused, by the opposite party to the contract as operating to absolve him from the contract as from the time of such breach of condition whether he was aware of it or not when he himself failed or refused to perform the stipulations of the contract.
“It is a long established rule of law that a contracting party, who after he has become entitled to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed, whether he was aware of it or not.”[104]
[102]Intico (Vic) Pty Ltd v Walmsley [2004] VSCA 90.
[103](1931) 45 CLR 359, 377.
[104]Taylor v Oakes Roncoroni and Co (1922) 127 L.T. 267, 269 per Greer J; see also Williams v Frayne [1937] 58 CLR 710, 733.
87 Having considered all the facts and the submissions made by counsel, I reject the plaintiff’s submission that the notice given by Members First to the plaintiff and dated June 14 2011 was defective. The credit representative deed did not require Members First to give particulars of the breach. The notice clearly stated that the plaintiff’s appointment as a credit representative of Members First was cancelled and he was no longer authorised to engage in credit activities on behalf of Members First. Further, the credit representative deed imposes no requirements for the content or form of the notice and does not specify that the notice need be in writing.
Has there been a breach?
88 The plaintiff’s first contention is that the plaintiff has not breached the credit representative deed.[105] The defendant submits that Andrews misrepresented the income declared in the Bankwest mortgage application for Denis and Michelle Androvitsaneas and thereby breached clauses 5.1(a), (b), (d) and (k) of the credit representative deed. Pursuant to clauses 5.1(a), (b), (d) and (k) Andrews had an obligation to comply with the provisions of any legislation, regulatory guidelines and regulatory directives relevant to engaging in credit activities, to meet the standards and not engage in misleading conduct in connection with credit activities.
[105]Transcript pp 14 and 20.
Did Andrews fail to comply with Clause 5(b) of the credit representative deed?
89 Pursuant to clause 5(b) of the credit representative deed Andrews had an obligation to comply with the statutory requirements which are defined as the provisions of any legislation, regulatory guidelines and regulatory directives relevant to engaging in credit activities, including the National Credit Laws.
90 Chapter 3 of the NCCPA is headed “Responsible lending conduct” and applies to licensees that provide credit assistance in relation to credit contracts. ASIC has published a regulatory guide for credit licensees setting out ASIC’s expectations for meeting the responsible lending obligations in Chapter 3 of the NCCPA (Regulatory Guide 209).[106] To meet those obligations a credit licensee is required to take reasonable steps to verify a consumer’s financial situation (regulation 209.38). “Generally, this will require some positive steps to verify the information provided by the consumer: see Table 4”.
[106]Exhibit J, pp 157 – 193.
91 Table 4 contains examples of the types of information the licensee could use to verify a consumer’s financial situation. For self-employed consumers this information includes recent income tax returns, a statement from the person’s accountant and Business Activity Statements.
92 In cross-examination Andrews agreed that he attended a Members First Workshop in December 2010 concerning the NCCPA and compliance with it.[107] Andrews agreed that the presenters discussed Regulatory Guide 209. At the end of the workshop Andrews filled out a NCCPA training quiz.[108] Andrews scored 10 out of 10 on the quiz[109] and gave the following answers to the following questions:
[107]Transcript p 79.
[108]Exhibit C, pp 258 – 260.
[109]Kevin Davies affidavit, para 11.
What are your three key obligations to satisfy the provisions of Responsible Lending (three points)?
(1)Make reasonable inquiries about a customers financial situation and their requirements and objectives
(2)Take reasonable steps to verify the consumers financial situation
(3)Make an assessment about whether the credit contract is not unsuitable for the consumer (following Assessment).
…
Responsible Lending provisions require you to verify financial information, list possible documents you may use to verify income for a self employed applicant (one point for each document):
2 years Tax Returns
Trading statements
BAS statements [110]
[110]Exhibit C p 258, Kevin Davies affidavit para 11.
93 Regulation 209.42 of the Regulatory Guide states[111]:
[111]Exhibit J, p 173.
What constitutes ‘reasonable steps to verify’ where a consumer provides inconsistent information?
In some circumstances, taking reasonable steps to verify information should involve making additional inquiries about the consumer where:
(a)the information that a consumer provides is inconsistent with other information that you hold about the consumer (e.g. in a credit report or account information for existing customers); and/or
(b)the information that a consumer provides is outside the standard range for the consumer (e.g. the income stated is far greater than would be expected for the type of work the consumer undertakes, as indicated by benchmarks).
94 Andrews said that in filling out the serviceability calculator for the Bankwest loan application, he relied on the figures given to him by Mr and Mrs Androvitsaneas and their accountant (see above paragraph 59).
95 Andrews said that he filled out the figures in the application to Bankwest headed “Serviceablity Calculator”[112]. The left hand column contains the following information.
[112]Exhibit J p 199; Transcipt p 93.
Business Name D & M Cleverclean
What type of business is it? Partnership
Financials of the business
Please enter the financial information for the past two years if available
If only the last year is available , use only the right hand column.
Enter Year 2009 2010
Net Profit Before Tax (NPBT) $99,000 $101,000
AVAILABLE CASH FOR DISTRIBUTION $100,000
DenisMichelle
Share of income (%) 50% I 50%
Income Available to Borrowers $100,000
Comprised of PAYG Income $100,000
Extraordinary Income $100,000
96 The net profit before tax of the business, under the section entitled ‘financials of the business’, for the 2009 financial year was declared to be $99,000. The net profit before tax for the 2010 financial year was declared to be $101,000.
97 In cross-examination Andrews was asked:
So you accept that they reflect those financial years?...By the customer’s declaration, yes.[113]
[113]Transcript p 91.
98 However the customers’ declaration was inconsistent with the BAS statements and the Family Benefit Tax statement held in the customers files.
99 In cross-examination Andrews accepted that the Bankwest serviceability calculator states that in the 2009 financial year, the business of Mr and Mrs Androvitsaneas was earning a net profit before tax of $99,000.[114] Andrews accepted that the Bankwest application form states that in the 2010 financial year, Mr and Mrs Androvitsaneas, through their business partnership, were earning net profit before tax of $101,000. Andrews also accepted that the BAS statements from 1 January 2010 to 31 December 2010 indicated that the total sales of the business of Michelle and Dennis Androvitsaneas was $67,299.[115] He accepted that the family allowance document dated 10 December indicated that the combined income of both Michelle and Dennis Androvitsaneas was $57,988. Andrews accepted that the partnership tax return of Michelle and Dennis Androvitsaneas showed that they were earning $62,627 gross for the 2009 to 2010 financial year and $41,845 net. Andrews accepted that the total sales in the BAS statements which he received from 1 January 2010 to 31 December 2010 did not differ very much from the gross figures in the partnership tax return.[116]
[114]Transcript p 93.
[115]Transcript p 94.
[116]Transcript p 94.
100 The BAS statements did not support the net profit before tax figures declared in the Bankwest application. The partnership tax return did not support the net profit before tax figures declared in the Bankwest application.
101 Davies stated that he attempted to try to reconcile the calculation of $101,000 declared in the Bankwest application form. He calculated the total income from all stated sources as being $70,439 (using PTR adjusted net profit) or $90,353 (using BAS). [117]
[117]Exhibit J, Kevin Davies affidavit para 19 (c)(vii); see above paragraph 18.
102 The plaintiff submitted that in completing the Bankwest application form he relied on a calculation which was confirmed by an accountant, Mr Iacona, showing that the current combined income of Denis and Michelle Androvitsaneas was $8416 per month.[118] However Andrews was unable to provide a reasonable explanation about how he arrived at the combined income figure of $8416 and how he arrived at a net profit, before tax figure of $99,000 for the 2009 financial year and $101,000 for the 2010 financial year.
[118]Exhibit 1.
103 Andrews was unable to provide a reasonable explanation about why he used a sales revenue figure from the BAS statements without deducting expenses, why there was an inconsistency between the income declared in the family assistance application dated 16 December 2010 and the total of the sales revenue declared in the Bankwest loan application, and why there was an inconsistency between the 2010 BAS statements and the net profit before tax figures in the Bankwest application.
104 Taking into account all the evidence, I have formed the view that Andrews failed to take reasonable steps to verify the financial situation of Mr and Mrs Androvitsaneas when he completed the Bankwest serviceability calculator and thereby failed to comply with regulatory guide 209 published by ASIC.
Did Andrews fail to comply with Clause 5(d) of the credit representative deed?
105 Clause 5(d) of the credit representative deed requires Andrews to comply with the Standards. “Standards”[119] is defined to mean:
the document or collection of documents titled as Standards issued by Us containing the standards, instructions, procedures and policies that apply to You, or an Individual Credit Representative, acting as Our credit representative.
[119]Exhibit 3 p 32.
106 The Standards (the standards) are contained in a document headed BLSSA Pty Ltd & MFBN Pty Ltd Credit Representative Standards & Tools/Templates[120]. This document was originally compiled by BLSSA Pty Ltd (a subsidiary of the National Australia Bank). Members First modified the standards by inserting its own version of the templates. Members First adopted the BLSSA standards and published the BLSSA standards on line.
[120]Exhibit F.
107 Under the heading “Responsible Lending: General Obligations” the standards provide:
Licensees and their Credit Representatives must comply with the responsible lending conduct obligations in Ch.3 of the NCCP Act.
The key concept is that credit providers and credit assistance providers must not enter into a credit contract with a client, suggest a credit contract to a client or assist a client to apply for a credit contract if the credit contract is unsuitable for the client.
ASIC’s Regulatory Guide 209 sets out the expectations for compliance. This standard sets out the content of the responsible lending obligations.[121]
[121]Exhibit F, p 84.
108 Compliance breach levels are categorised into three groups depending upon the cause and seriousness of the breach. A “Level 1 Breach” is summarised as:
A breach of compliance requirements that may lead to the immediate cancellation of the Credit Representative’s authority either by the operation of the NCCP Act, or by BLSSA giving notice.
Such a breach takes place if there is a “Disqualification Event” that is not capable of remedy, or a “Termination Event” that is not capable of remedy, or a breach that BLSSA reasonably considers to be a material breach of the Credit Representative Deed.[122]
[122]Exhibit F, p 41.
109 The standards also provide that a credit authorisation may be revoked at any time by the Licensee giving written notice to the credit representative. The standards provide:
A credit representative’s authority is contingent upon its continued satisfaction of the legislative requirements and BLSSA’s standards. Where any requirements are not met, BLSSA may withdraw the Credit Representative’s authority.[123]
[123]Exhibit F, p 55.
110 In cross-examination Andrews said that he had never seen the standards before. Andrews did however say that in the process of being a broker he had access to the CRM system (the customer relationship management system). The CRM system is the software system issued to Members First by PLAN. Andrews agreed that the CRM System is an online system which allows mortgage brokers to make on-line applications to lenders. The CRM system had various documents. Andrews said that he could not confirm whether one of those documents was the document containing the standards. He said that he did not see the link to the standards on the CRM website.
111 Davies said that although he had never given hard copies of the standards to the brokers, Members First had referred their brokers to the location of the standards within the PLAN software in one of Davies’ compliance update emails.[124] Davies could not state the exact date of the communication, or whether Andrews was a credit representative at that time. Davies said that he remembered that the communication was within a few months of the workshop and thought that Andrews would have been a credit representation at that time.[125] A copy of that email was not produced at the trial.
[124]Transcript p 378.
[125]Transcript p 379.
112 Tan confirmed that the standards were located on the CRM software platform.[126] All the mortgage brokers that aggregate through PLAN have access to this system.[127] Tan said that the standards were referred to at the workshop in December 2010 which Andrews attended.[128]
[126]Transcript p 347.
[127]Transcript p 347.
[128]Transcript p 347.
113 Having considered all the evidence, I am not satisfied that Andrews received a copy of the standards. In any event, aside from the obligation to comply with the responsible lending conduct obligations in Chapter 3 of the NCCPA and the obligations to comply with ASIC’s Regulatory Guide 209, the other provisions set out in the standards were not put to Andrews in cross-examination.
Did Andrews fail to comply with Clause 5(k) of the credit representative deed?
114 Clause 5(k) of the credit representative deed requires the credit representative to take all reasonable steps to ensure that he will not engage in misleading conduct. The defendant contends that the plaintiff has engaged in misleading conduct by declaring in the Serviceability Calculator for Bankwest that the net profit before tax of D & M Cleverclean was $101,000.
115 Andrews agreed that he was a broker who knew the industry and the information he was required to get from borrowers and the information to be put in the forms.[129]
[129]Transcript p 80.
116 Mr Gillies submitted that what Andrews had done was to give a notional figure for the 2010 income for Mr and Mrs Androvitsaneas. As Andrews explained in the witness box, Andrews wanted to make sure that the net partnership income would have the same level of disposable income as the individuals. Mr Gillies submitted that that might be wrong-headed and foolish, but it was never suggested to Andrews that he had knowingly done that in a sense of attempting to mislead or gain a financial advantage. Andrews said in answer to a question put by Mr Downie, that it was not his intention to mislead. Mr. Gillies submitted that Andrews’ conduct was not misleading as there is no evidence that Bankwest was ever misled.
117 Mr Gillies referred to Miller’s Annotated Trade Practices Act, 33d edition at p 1552:
Whether particular conduct (including representations) is misleading or deceptive is a question of fact to be determined in the context of the evidence as to the alleged conduct and to the relevant surrounding facts and circumstances. Irrespective of whether conduct is likely to produce confusion, it cannot be categorised as misleading unless, in all of the circumstances, it leads the respondent into error.
118 Mr Gillies submitted that there is no evidence that anyone has been led into error. Bankwest has not said that it was led into error. Tan said that he spoke to the business development manager, Ms Sue Papas at Bankwest, and she told him that they would put the file on watch.
119 I reject Mr. Gillies submission. In Taco Co of Australia Inc v Taco Bell Pty Ltd[130] Franki J set out what he said in Annand & Thompson Pty Ltd v Trade Practices Commission:
The question is not whether the purchaser was deceived but whether the conduct was misleading or deceptive. [131]
[130](1982) 42 ALR 177
[131](1979) 25 ALR 91, 102.
120 In Taco Co v Taco Bell[132] Deane and Fitzgerald JJ stated:
[E}vidence that some person has in fact formed an erroneous conclusion is admissible and may be persuasive but is not essential. Such evidence does not itself conclusively establish that conduct is misleading or deceptive or likely to mislead or deceive. The court must determine the question for itself. The test is objective (see, generally, Annand & Thompson Pty Ltd v Trade Practices Commission (1979) 25 ALR 91, per Franki J at 102; Sterling v Trade practices Commission (1981) 35 ALR 59, per Franki J (with whom Northrop J agreed) at 66 and per Keely J at 69; Snoid v Handley (1981) 38 ALR 383, per the court (Bowen CJ, Northrop and Morling JJ); and Brock v Terrace Times, supra, per Bowen CJ and Franki J).
[132](1982) 42 ALR 177, 202-203.
121 In Parkdale Custom Build Furniture Pty Ltd v Puxu Pty Ltd[133] Gibbs CJ agreed that the court must decide objectively whether conduct is misleading and that evidence that members of the public have actually been misled is not conclusive.
[133](1982) 149 CLR 191, 197.
122 The question whether the conduct is misleading is one for the court.[134]
[134]Taco Co v Taco Bell (1982) 42 ALR 177, 181.
123 In cross-examination Andrews in effect conceded that it was misleading to declare that the net profit before tax of the partnership in 2010 was $101,000. Mr. Downie questioned Andrews about his version of how he arrived at the figure of $101,000 for the 2010 financial year.[135] Andrews was asked:
[135]Transcript p 186.
That means the $101,000 is not an actual amount of money that was earned?...No.
If you look at court book p.199?...Yes.
And if you look on the right-hand column under “serviceability assessment”?...Yes
You know that the banks rely on all of these figures in order to determine whether or not to give an applicant a loan?...Yes
And the bank relies on the credit assistance provider?...Yes.
Such as yourself?...Yes.
In order to ensure that these figures are accurate?...Yes.
And if you put a figure in this calculator?...Yes.
Which is inaccurate?...Yes.
Then that misleads the bank?...Yes.
And if you put a figure in this calculator which wasn’t actually earned, then that misleads the bank?...Yes.
Mr Andrews, if you say that there is a notional tax amount on this figure in the 2010 column?...Yes.
And that figure there does not represent what the applicants actually received, then isn’t that, according to your evidence, misleading the bank?...That was not my intention Mr. Downie. (emphasis mine).
124 It has been held that misleading conduct is not confined to conduct that is intended to mislead. [136]
[136]Yorke v Lucas (1985) 158 CLR 661, 666.
125 Having considered all the evidence I accept the defendant’s submission that the declaration by Andrews that the net profit before tax of the partnership was $101,000 in the 2010 year was misleading. In those circumstances Andrews has breached clause 5(k) of the credit representative deed.
The Membership Deed
126 The defendant claims that the plaintiff has also breached clauses 3.3 and 3.5 of the membership agreement.
127 The plaintiff submits that the membership agreement has never been terminated because there is no letter terminating that agreement.
128 The letter by Members First to Andrews dated 14 June 2011 terminating Andrews’ appointment as a Credit Representative of Members First makes no reference to the membership agreement.[137] However the letter dated 16 June 2011 by Members First to Andrews makes reference to his “membership” and is headed “Termination of Membership and Credit Representative Status”. The first paragraph of that letter states that Andrews was verbally advised that his membership and his status as a credit representative of Members First were to be terminated. The letter was provided to confirm the details of that telephone conversation.
[137]Exhibit 3 p 85.
129 The defendant submitted that even if the membership agreement was not terminated, the issue in this case is whether Andrews breached the credit representative deed and whether he is authorised to engage in credit activities on behalf of Members First pursuant to the credit representative deed. I accept the defendant’s submission that it is not necessary for me to determine the question of whether the defendant has terminated the membership agreement.
B. Was the breach capable of remedy ?
130 In its letter dated 16 June 2011, Members First stated that the reason for the termination was due to a misrepresentation of income declared in the Bankwest mortgage application.
131 Mr Gillies submitted that there was no evidence that the breach relied upon by Members First as justifying termination was not capable of being remedied.
132 Mr. Gillies submitted that Andrews could have been given a warning and been supervised by Members First for the next six loan applications.[138]
[138]Transcript p 279.
133 The question of whether a breach was capable of being remedied was considered by Hargrave J in Australian Style Pty Ltd v .au Domain Administration Ltd.[139] Hargrave J referred to the judgment of Lord Reid in L Schuler AG v Wickman Machine Tool Sales Ltd. who considered whether a breach was capable of being remedied in the following terms:
It appears to me that clause 11(a)(i) is intended to apply to all material breaches of the agreement which are capable of being remedied. The question then is what is meant in this context by the word “remedy.” It could mean obviate or nullify the effect of a breach so that any damage already done is in some way made good. Or it could mean cure so that matters are put right for the future. I think that the latter is the more natural meaning. The word is commonly used in connection with diseases or ailments and they would normally be said to be remedied if they were cured although no cure can remove the past effect or result of the disease before the cure took place. And in general it can only be in a rare case that any remedy of something that has gone wrong in the performance of a continuing positive obligation will, in addition to putting it right for the future, remove or nullify damage already incurred before the remedy was applied. To restrict the meaning of remedy to cases where all damage past and future can be put right would leave hardly any scope at all for this clause. On the other hand, there are cases where it would seem a misuse of language to say that a breach can be remedied. For example, a breach of clause 14 by disclosure of confidential information could not be said to be remedied by a promise not to do it again.[140]
[139][2009] VSC 422.
[140][1974] AC 235 at 249-50.
134 Hargrave J then referred to the judgment of the Court of Appeal (NSW) in Burger King Corporation v Hungry Jack’s Pty Ltd[141] and the following statement of Sugerman J in Batson v de Carvalho[142]:
A breach may, I think, be “capable of remedy”, looking at the matter as at the date of giving notice, even though there is then no certainty that, notwithstanding the efforts of the lessee to remedy it, it will be remedied.
[141](2001) 69 NSWLR 558.
[142](1948) 48 SR (NSW) 417.
135 Hargrave J held that such statements “only apply where the particular breach in question is in fact theoretically capable of being remedied”.[143] In Australian Style Pty Ltd v .au Domain Hargrave J held that the breach by Australian Style of its obligation to give immediate notice of a security incident, was not theoretically capable of remedy.[144] The first reason he gave was that the agreement in that case distinguished between breaches which were capable of remedy and those which were not.
[143][2009] VSC 422, [119].
[144][2009] VSC 422.
136 Similarly, in this case, clause 13.2 of the credit representative deed distinguishes between breaches which are capable of remedy and those which are not. Accordingly the credit representative agreement recognises that not all breaches are capable of remedy.
137 Hargrave J stated that whether or not a particular breach is capable of remedy must be judged by reference to the purpose of the relevant agreement as a whole. The purpose of the credit representative deed was to authorise Andrews to engage in credit activities on behalf of Members First pursuant to s64 of the NCCPA. The rules contained in the NCCPA are aimed at protecting consumers and preventing them from being in unsuitable credit contracts.[145]
[145]Chapter 3, NCCPA.
138 Section 33 of the NCCPA provides:
Prohibition on giving misleading information
(1)A person (the giver) must not, in the course of engaging in a credit activity, give information or a document to another person if the giver knows, or is reckless as to whether, the information or document is false in a material particular or materially misleading.
Civil penalty: 2,000 penalty units.
Offence
(2)A person commits an offence if:
(a)the person gives information or a document to another person; and
(b)the person does so in the course of engaging in a credit activity; and
(c)the information or document is false in a material particular or materially misleading.
Criminal penalty: 100 penalty units, or 2 years imprisonment, or both.
139 Section 324 of the NCCPA provides that:
(1)Any conduct engaged in on behalf of a body corporate:
(a)by a director, employee or agent (an official) of the body within the scope of the person’s actual or apparent authority; …
is taken, for the purposes of this Act…to have been engaged in also by the body.
140 The plaintiff is a member of the Mortgage & Finance Association of Australia (MRAA). Clause 8 of the Mortgage & Finance Association of Australia Code of Practice[146](Code of Practice) provides that members must not engage in any acts or omissions of a misleading, deceptive, dishonest or fraudulent nature. The plaintiff objected to the tender of the Code of Practice. Mr Gillies submitted that there is no allegation of dishonesty in the pleadings. However in paragraph 4 (b) of its defence, the defendant pleaded that the plaintiff’s obligations in the credit representative deed included an obligation “not [to] engage in misleading, deceptive or unconscionable conduct in connection with the Credit Activities, or do or fail to do anything which could damage Our good name and reputation or that of any other Group Entity”.[147] In paragraph 6 of the defence the defendant pleaded that the plaintiff had breached the credit representataive deed. On 5 December 2011 the plaintiff requested further particulars of the breach of the credit representative deed , specifying the actual clause breached. In response to that request the defendant referred to clauses 5.1(a)(b) and (k) of the Credit representative deed. Insofar as the Code of Conduct provides that “members must not engage in any acts or omissions of a misleading or deceptive nature”, that allegation is part of the obligation contained in paragraph 5(k) of the credit representative deed. Accordingly I propose to admit the tender of Mortgage & Finance Association of Australia Code of Practice tendered as exhibits G and H into evidence absolutely. The Code of Practice (exhibit G) was amended on 22 July 2010. The Code of Practice (exhibit H) was amended on 4 March 2011, published on 10 March 2011 and effective as at 11 April 2011. The Bankwest application was lodged on or about 19 April 2011.[148] Accordingly the relevant provisions are contained in Code of Practice tendered as exhibit H.
[234] Transcript p 73.
[235] Transcript p 135.
[236] Transcript p 135.
206 The evidence in relation to the plaintiff’s claim for damages is highly unsatisfactory. Apart from the plaintiff’s own evidence, no other documentary evidence was produced to support the plaintiff’s claim about his expected income. Similarly the defendant did not produce any evidence that contradicted the plaintiff’s own evidence. The Court is therefore placed in a difficult situation in assessing damages. As stated in McGregor on Damages:
A claimant claiming damages must prove his case. To justify an award of substantial damages he must satisfy the court both as to the fact of damage and as to its amount. If he satisfies the court of neither, his action will fail, or at the most he will be awarded nominal damages where a right has been infringed. If the fact of damage is shown but no evidence is given as to its amount so that it is virtually impossible to assess damages, this will generally permit only the award of nominal damages…[237]
[237] Harvey McGregor, McGregor on Damages (18th ed., 2009) 325-326.
207 That principle however must be weighed up against the principle stated by Sheppard, Morling and Wilcox JJ in Enzed Holdings Ltd. v Wynthea Pty. Ltd. that: [238]
The principle is clear. If the court finds damage has occurred it must do its best to quantify the loss even if a degree of speculation and guess work is involved. Furthermore, if actual damage is suffered, the award must be for more than nominal damages. .. We emphasize, however, that the principle applies only when the court finds that loss or damage has occurred. It is not enough for a plaintiff merely to show wrongful conduct by the defendant. [239]
[238] (1984) 57 ALR 167, 183.
[239] Harvey McGregor, McGregor on Damages (18th ed., 2009) 325-326.
208 In Commonwealth v Amann Aviation Pty Ltd[240] the High Court again made it clear that “mere difficulty in estimating damages does not relieve a court from responsibility of estimating them as best it can…[w]here precise evidence is not available the court must do the best it can.”[241]
[240] (1991) 174 CLR 64.
[241]Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, 83.
209 The plaintiff’s claim for damages primarily centres on his claim that he cannot find alternative employment in the industry without a letter of clearance from the defendant. Andrews claims that “[i]n seeking to join a new organisation in the finance industry you need to have a clean reference letter disassociating yourself from the previous organisation.” [242]
[242] Andrews’ second affidavit made 23 November 2011, para 45.
210 The plaintiff called Carlo Capello (Capello) to give expert evidence. Capello is a self-employed finance broker with eight years experience in the industry. He previously held authorisation with PLAN and currently holds authorisation with the Australian Finance Group (AFG). He previously held a credit representative licence with the defendant and Southern Cross and currently holds a credit representative licence with AMP Financial Services, a sub-aggregator of AFG.[243]
[243] Transcript pp 192-193 and 201.
211 Capello said that when a person seeks approval to join a credit licence organisation, the person is required to state whether or not he or she has been deregistered or declined accreditation by any previous credit licence organisation or aggregator.[244] A person’s ability to obtain accreditation with a new credit licence organisation or aggregator would be affected if that person could not produce a letter from their previous organisation, granting release with no adverse conduct.[245] Capello said that he would not have been offered accreditation with AFG without producing a clean conduct release letter from PLAN.[246] He could not say whether the same would be the case when trying to move between one sub-aggregator, such as the defendant, to another.[247]
[244] Transcript p 191.
[245] Transcript p 191.
[246] Transcript p 201.
[247] Transcript p 202.
212 Capello conceded in cross-examination that his evidence that an applicant was required to provide a clean reference letter in order to join a credit licence organisation was limited to his experience with PLAN and AFG.[248]
[248] Transcript p 208.
213 In his first affidavit, Tan stated that he believed that Andrews is free to seek approval as a credit representative through any other credit licence organisations (being credit licensees) accredited with the Australian Securities and Investments Commission (ASIC) of which there are approximately 6000. According to the ASIC registry, there were 6081 credit businesses licensed at 30 June 2011. Tan stated that Andrews could do this to continue with his business and he does not require reinstatement with Members First in order to continue earning an income as a finance broker or credit representative.[249]
[249] Exhibit C, Tan’s first affidavit, para 41.
214 However in cross-examination, Tan agreed that before extending a credit representative licence to a person, he would ask for a reference letter indicating that the applicant had a ‘clean bill of health’. Other similar corporations would also seek such a reference letter.[250] Tan therefore conceded that as a result of the defendant’s letter terminating the plaintiff’s credit representative licence, the plaintiff “may or may not be able to gain an accreditation with another lender”. Tan agreed that the defendant would not re-employ Andrews nor would they employ a person from another organisation if they approached Members First with a similar story.[251] Tan gave evidence that “[th]e letter that [the plaintiff] seeks has to come from PLAN Australia.” When asked whether the plaintiff could get a job at an organisation similar to the defendant company without that letter, Tan conceded that “[n]ot as a credit representative or broker, no….he would have to get another role within the industry...”[252] “He may have trouble getting an aggregator to accept him as a self employed mortgage broker, without that release letter from Plan Australia…”[253]
[250] Transcript p 305.
[251] Transcript p 305.
[252] Transcript p 306.
[253] Transcript p 306.
215 The preponderance of evidence (Tan, Capello and Andrews) is that Andrews would be unable to obtain a credit representative licence with another credit licensee without a letter of clearance. For the purpose of this exercise, I find that as a result of the defendant terminating the plaintiff’s credit representative licence, the plaintiff has suffered loss as he has been unable to continue working as a mortgage broker. The Court therefore finds itself in a position where despite the absence of any complete or satisfactory evidence as to what that loss is, it nevertheless has to do its best to estimate the loss.
216 Mr Downie referred to the following statement by Mason CJ and Dawson J in Commonwealth v Amann Aviation Pty Ltd on which the defendant sought to rely:
The onus of proving damages sustained lies on a plaintiff and the amount of damages awarded will be commensurate with the plaintiff’s expectation, objectively determined, rather than subjectively ascertained. That is to say, a plaintiff must prove, on the balance of probabilities, that his or her expectation of a certain outcome, as a result of performance of the contract, had the likelihood of attainment rather than being mere expectation. [254]
[254]Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, 80.
217 The defendant made the following submissions with respect to the plaintiff’s claim for loss:[255]
[255] Defendant’s outline of submissions, prepared by Andrew P. Downie and dated 8 February 2012, pp 11-12.
1. No documents were tendered which confirmed the total amount of settled loans that the plaintiff lodged during the six week period that he held a credit representative licence with the defendant.
2. No evidence was given or tendered which justified the commission rates which formed the basis of the plaintiff’s claim.
3. The plaintiff’s claim equates to him earning $130,000 a year and yet his previous income was $70,000 per year. His expectation of earning $130,000 based on a six week period was speculative at best.
4. The plaintiff has not deducted any income earned from other sources since his termination.
5. The plaintiff has not applied for another credit representative authority from another licensee.
6. The plaintiff has not taken into account in his loss calculation the likelihood of commissions being ‘clawed back’ if the loan is paid out or refinanced within one to two years. He has assumed that the loans he lodged would have an average life of two years.
7. The plaintiff has not taken into account in his loss calculation the fact that the applicants’ commission would be clawed back by reason of the Bankwest loan being paid out in around seven months.
Earnings from other sources
218 When cross-examined, Andrews said that since he had ceased lodging loans with the defendant, he had tried to earn income “in the best way I can”.[256] He gave evidence that he had earned “[i]ncome as a referrer and just assisting other brokers in the office in what possible way I can and sharing some of their income from their deals.”[257] When pressed on the what other income he had earned, Andrews emphasised that he had “tried to do other things” but that “[t]he only income I’m earning is from my trails off the loans that I lodged in those six weeks.”[258]
[256] Transcript p 138.
[257] Transcript p 138.
[258] Transcript p 138.
219 No evidence was given or tendered as to how much Andrews had earned from the attempts he had made to earn income, such as from acting as a referrer or assisting other brokers. Further, such income was not deducted from the amount the plaintiff claims in damages. I find that a reasonable allowance should be made on account of income received by the plaintiff from his attempts to find alternative employment. I would allow a 10 percent reduction from any award of damages to the plaintiff on account of earnings received.
Duty to mitigate
220 The defendant submitted that the plaintiff failed to mitigate his loss by seeking alternative employment or a credit representative authority with another licensee and that a reasonable deduction ought to be made from any amount of damages awarded on account of this failure.[259]
[259] Defendant’s outline of submissions, prepared by Andrew P. Downie and dated 8 February 2012.
221 Andrews was cross-examined on what attempts he had made to obtain a credit representative authority with another credit licence provider. Andrews conceded that he had not made any applications with other credit licensees.[260] He had however had discussions with one other credit licence provider, Southern Cross[261] but was advised by Southern Cross that “[u]nder the circumstances, that you don’t have a letter, a clear letter of release, we cannot accommodate you.”[262] Andrews also spoke with “PLAN itself, which is the current aggregator that deals through Members First, which can also offer aggregation services through other licence providers.”[263] Andrews conceded however that PLAN had been informed about the circumstances in which the plaintiff ceased lodging loans through Members First and that any enquiries with PLAN were likely to be negative. He also accepted that he had not made enquiries with any other aggregators.[264]
[260] Transcript p 138.
[261] Transcript p 139.
[262] Transcript p 140.
[263] Transcript p 140.
[264] Transcript p 140.
222 Andrews also gave evidence about his attempts to find alternative employment within the industry as discussed above.[265]
[265] See above under ‘Earnings from other sources’.
223 Tan gave evidence that it might be possible for Andrews to obtain alternative employment in the industry, but not as a mortgage broker.[266]
[266] Transcript p 306.
224 The basic rule in relation to a plaintiff’s duty to mitigate is described in McGregor on Damages in the following terms:
The first and most important rule is that the claimant must take all reasonable steps to mitigate the loss to him consequent upon the defendant’s wrong and cannot recover damages for any such loss which he could thus have avoided but has failed, through unreasonable action or inaction, to avoid. Put shortly, the claimant cannot recover for avoidable loss. [267]
[267] Harvey McGregor, McGregor on Damages (18th ed., 2009) 236.
225 It is a well established principle that where the defendant is contending that the plaintiff should have taken steps to mitigate their loss, the defendant has the onus of proving this contention.[268]
[268] See Goldburg v Shell Oil Co of Australia Ltd(1990) 95 ALR 711, at 714–717, and the authorities referred to in that case.
226 I do not accept the defendant’s submission that the plaintiff has failed to mitigate his losses by seeking a credit representative authority with another licensee. I accept Tan’s evidence that without a letter of release from PLAN, the plaintiff would not be able to obtain employment “as a credit representative or broker, no….he would have to get another role within the industry...”[269]
[269] Transcript p 306.
227 Further I am not satisfied that the defendant has discharged its onus of proving that the plaintiff should have taken additional steps to mitigate his loss by finding alternative employment. The plaintiff gave evidence that he had “tried to do other things” such as earning “[i]ncome as a referrer and just assisting other brokers in the office…”[270] The defendant did not put to the plaintiff during cross-examination alternative employment opportunities that he could have pursued.
[270] Transcript p 138.
228 In any event, the facts of this case are analogous to a claim for damages as a result of wrongful dismissal. In that jurisdiction, the courts have held that in order to satisfy the requirement to mitigate loss, the employee must make reasonable efforts to find new employment at a wage equal to or as near as possible to that earned at the time they were wrongfully dismissed.[271] The employee is not required however to accept work which is different or inferior from that which he or she was previously performing.[272]
[271]Norton v Williamson (1884) 6 ALT 128; Harding v Harding (1928) 29 SR (NSW) 96.
[272]Scharmann v APIA Club Ltd (1983) 6 IR 157; Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567.
229 Tan stated in cross-examination: [273]
He’d have to change his status as to what he did in the industry, wouldn’t he? --- Yes, he would have to get another role within the industry, yes, that’s correct.
And that would be a lesser role than the role he’s presently performing? --- That’s your opinion, Mr Gillies, I do not know whether a business development manager or someone in the sales room is lesser or greater than a self employed mortgage broker.
[273] Transcript p 306.
230 No other evidence was produced concerning the status of the alternative roles within the industry which the defendant asserted the plaintiff would be capable of obtaining without requiring a letter of clearance from PLAN. It is clear however, from Tan’s own evidence, that the roles suggested by the defendant are different in nature from that which Andrews was performing prior to the termination of the credit representative authority with the defendant. In these circumstances, the defendant has not satisfied its onus of proving that the plaintiff has failed to mitigate his losses on account of a failure to find alternative employment either within or external to the industry.
Failure to deduct commission claw back
231 Under cross-examination, the plaintiff accepted that in the agreements mortgage brokers held with aggregators there was a commission clawback provision which provides that if a loan settled under a certain period of time, generally one or two years, the trail commission was repayable or ‘clawed back’.[274] Andrews conceded that in his loss calculations he had not factored in the possibility that some of the loans might have been settled, that is paid out or refinanced, within the clawback period.[275] For example the plaintiff’s cousins paid out their loan within seven months and therefore Andrews accepted that the commission he had received for this loan was likely to be clawed back.[276]
[274] Transcript p 141.
[275] Transcript p 141.
[276] Transcript p 142.
232 I accept the defendant’s submission that in determining an appropriate award of damages, it is appropriate to make allowance for the possibility of a clawback of trail commission and the likely clawback of commission received from lodging the loan on behalf of the plaintiff’s cousins. Doing the best to estimate the likely value of any commission recouped in the absence of any evidence such as the percentage of loans that are paid out within the clawback period, I will make an allowance of 20 per cent reduction on any damages awarded for loss of trail commissions to account for this eventuality. That would reduce the amount claimed for trail commissions to $25,843.20.
Number of settled loans/ commission rates
233 The defendant contended that no documents were tendered in evidence confirming the commissions said to have been earned in the six week period between commencement and termination and similarly no evidence was given which justified the commission rates applied by the plaintiff in the amount of damages claimed.
234 Indeed the only evidence given about these facts was from the plaintiff himself. However in the absence of any alternative evidence, the Court is entitled to rely on the only available evidence and as such I reject Mr. Downie’s submission that the evidence ought to be rejected as being unsubstantiated by documents or supporting material.
Remedy sought is responsibility of PLAN Australia
235 Mr Downie submitted that the letter that the plaintiff seeks in order to allow him to approach another credit licensee and obtain accreditation with lenders via another aggregator is from PLAN. PLAN is not a party to the proceeding. It is not the defendant’s role to provide this letter.[277]
[277] Defendant’s outline of submissions, prepared by Andrew P. Downie and dated 8 February 2012, p 12.
236 I am not persuaded by this argument. Although it may be the case that it would be necessary to obtain the letter of clearance from PLAN, for the purpose of this exercise (and assuming that I had not found that the defendant had validly terminated the appointment of Andrews as a credit representative), it is arguable that the plaintiff suffered damages as a result of Members First’s actions in terminating the credit representative deed.
Conclusion as to damages
237 In my view, had the Court found that the defendant invalidly terminated the plaintiff’s credit representative authority, (and doing the best to quantify the loss) the plaintiff would have been entitled to damages of $70,478.75 from the date of termination together with interest. This amount is calculated as follows:
$53,841.55 for up front commissions
$25,843.20 for trail commission[278]
[278] This figure makes an allowance for a reduction of 20% of the amount claimed for trail commissions.
Less $ 8,196 estimate of expenses
$71,488.75
238 It would however be necessary to reduce the amount claimed by 10 per cent on account of income earned by the plaintiff from alternative employment during that period.
Orders
239 The plaintiff’s claim is dismissed.
240 I will hear from the parties on the question of costs.
Certificate
I certify that this and the preceding 70 pages are a true and correct copy of the reasons for judgment of Her Honour Judge Lewitan, of the County Court of Victoria, delivered on 24 April 2010.
Dated the 30 day of April 2012
Kimberley Moran
Associate to Her Honour Judge Lewitan AM
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