Dover v NAFP (Financial Planning) Pty Ltd
[2022] VMC 3
•7 February 2022
IN THE MAGISTRATES’ COURT OF VICTORIA
AT MELBOURNE
Case No. L11895846
| DOVER FINANCIAL ADVISERS PTY LTD (ACN 112 139 321) | Plaintiff |
| v | |
| NAFP (FINANCIAL PLANNING) PTY LTD -and- | First Defendant |
| FRANK GAZZOLA | Second Defendant |
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MAGISTRATE: | Magistrate J.P. Foster |
WHERE HELD: | Melbourne (Online Magistrates’ Court) |
DATE OF HEARING: | 31 January – 2 February 2022 |
DATE OF DECISION: | 7 February 2022 |
CASE MAY BE CITED AS: | Dover v NAFP (Financial Planning) Pty Ltd & Anor |
MEDIUM NEUTRAL CITATION: | [2022] VMC 3 |
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ILLEGALITY – Ex turpi causa non oritur actio – Termination – Breach of contract – Limitation of liability.
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APPEARANCES: | COUNSEL | SOLICITORS |
| For the Plaintiff | Mr A. Panna, one of Her Majesty’s Counsel | TMC Legal |
| For the Defendants | Mr L. Magowan | Choice Legal |
HIS HONOUR:
On or about 17 June 2016, the Plaintiff (“Dover”) and the First Defendant (“NAFP”) and the Second Defendant (“Gazzola”) entered into an Authorised Representative Agreement (“Agreement”).[1]
[1](Exh P-1) CB 48-65
Gazzola separately entered into a Guarantee and Indemnity (“Guarantee”)[2] with Dover, guaranteeing the performance of NAFP’s obligations under the Agreement.
[2](Exh P-1) CB 66-72
Pursuant to the Agreement: -
a.Dover appointed NAFP and Gazzola as its authorised representatives for the purposes of providing the Services[3];
[3]Clause 2(a) of the Agreement.
b.“Services” means[4] all financial services permitted to be provided by Dover under the Financial Services Licence, subject to any limitations or variations set out in any written notice given by Dover to the Representative from time to time[5];
[4]Clause 1.1 of the Agreement
[5]Item 4 to the Schedule to the Agreement
c.NAFP and Gazzola could provide the Services in accordance with the Policies and Procedures[6];
[6]Clause 2(d)(i) of the Agreement.
d.“Policies and Procedures” means[7] all policies and procedures adopted by Dover relating to the provision of financial services by its authorised representatives from time to time including:-
[7]Clause 1.1 of the Agreement
i.Dover Ethics;
ii.The Privacy Policy; and
iii.policies and procedures relating to the form of the financial services guides to be issued by its authorised representatives;
e.Dover would do all things reasonably within its power to maintain the Financial Services Licence[8].
f.In consideration of Dover granting the Authorisation to NAFP and Gazzola, NAFP and Gazzola would pay fees to Dover[9].
g.NAFP and Gazzola must strictly comply with the Policies and Procedures notified by Dover to NAFP and Gazzola from time to time in relation to the provision of the Services[10].
[8]Clause 3 of the Agreement.
[9]Clause 4 of the Agreement.
[10]Clause 6.4(a) of the Agreement.
It was an implied term of the Agreement that Dover would not act unlawfully in performing or seeking to perform the Agreement[11].
[11]This implied term was alleged at paragraph 4(e) of Amended Defence filed 31 January 2022. This implied term was denied at paragraph 3(i) of Amended Reply filed 1 February 2022. During the course of closing submissions, I was taken to section 18.23 of Cheshire & Fifoot’s Law of Contract which states in the final sentence of the first paragraph:- “Indeed, it is normally an implied term that a party will not act illegally in performing the contract”. Support for that statement is said to come from the reasoning of McHugh and Gummow JJ in Fitzgerald v FJ Leonhart Pty Limited (1997) 189 CLR 215 at 226.
What transpired during the course of the Agreement is conveniently set out in the judgment of O’Bryan J. in Australian Securities and Investments Commission v Dover Financial Advisers Pty Ltd [2019] FCA 1932:-
[1] The Australian Securities and Investments Commission (ASIC) seeks declaratory relief and civil pecuniary penalties against Dover Financial Advisers Pty Ltd (Dover) in respect of alleged false, misleading or deceptive conduct relating to the content of a document entitled “Client Protection Policy” provided to clients by Dover’s authorised representatives between around 25 September 2015 and around 30 March 2018 (which I will refer to as the relevant period). ASIC also seeks declaratory relief and civil pecuniary penalties against Mr Terrence McMaster on the basis that Mr McMaster was knowingly concerned in Dover’s false, misleading or deceptive conduct. ASIC’s application is made under ss 1041H and 1101B(1)(a) of the Corporations Act2001 (Cth) (Corporations Act) and under ss 12DA(1), 12DB(1)(i) and 12GBA(1) of the Australian Securities and Investments Commission Act2001 (Cth) (ASIC Act) (in force during the relevant period).
[2] During the relevant period, Dover operated a financial services advice business and held an Australian financial services licence (AFSL) to conduct such a business. Mr McMaster was the sole director and shareholder of Dover and a responsible manager and key person on the AFSL. A substantial number of individuals and corporate entities operated as authorised representatives of Dover to provide financial services to clients. The number of authorised representatives increased over time from around 200 in September 2015, around 300 in 2016 and between around 350 to 400 in 2017. Dover’s AFSL was cancelled by ASIC on 1 August 2018 on application by Mr McMaster pursuant to an undertaking given by him and Dover to ASIC under s 93AA of the ASIC Act.
[3] Dover, acting through Mr McMaster, required its authorised representatives to incorporate into, or provide with, statements of advice provided to clients a document entitled "Client Protection Policy". For the reasons discussed below, the title of that document was highly misleading and an exercise in Orwellian doublespeak. The document did not protect clients. To the contrary, it purported to strip clients of rights and consumer protections they enjoyed under the law. Some 19,402 clients of Dover's authorised representatives were provided with the Client Protection Policy in conjunction with a statement of advice.
…
[10] For the reasons explained below, I am satisfied that the provision to clients of the Client Protection Policy in conjunction with statements of advice was conduct of Dover that contravened s 1041H of the Corporations Act and ss 12DA(1) and 12DB(1)(i) of the ASIC Act as alleged by ASIC. I am also satisfied that Mr McMaster was knowingly concerned in those contraventions.
…
[81] On 22 March 2018, ASIC wrote to Mr McMaster informing him that ASIC believed that various clauses of Dover's Client Protection Policy were misleading or deceptive within the meaning of s 1041H of the Corporations Act or s 12DA of the ASIC Act. ASIC sought an undertaking from Dover to withdraw the policy and not to rely on the policy in any dispute with a current or former client of its authorised representatives.
[82] On 27 March 2018, Dover gave the undertaking sought by ASIC.
[83] In the ensuing weeks, ASIC and Dover negotiated a form of corrective publication to be made by Dover. ASIC and Dover agreed that Dover would send a notice of correction by email or letter to all clients that had been provided with a statement of advice during the relevant period and would prominently display the notice of correction on the homepage of Dover's website for 60 days. The agreed notice of correction sent to current and former clients in mid-April 2018 was in the following form:
Dear Name
I am writing to you regarding advice previously provided by Dover.
This advice included materials incorporated into the advice by a hyper-text link known as the Dover Client Protection Policy (the “Protection Policy”).
The Protection Policy has been withdrawn and replaced by the Dover Client Information Policy, with retrospective effect.
The Protection Policy was deceptive because it contained certain provisions the effect of which were to avoid liability to compensate clients for any loss resulting from the advice provided.
Dover does not and will not rely on these clauses in any dispute because they are unlawful and are voided by the financial services law and the general law.
If you consider the advice provided to you has resulted in a financial loss you should seek independent legal advice or lodge a complaint with the Credit Industry Ombudsman and you should disregard the Protection Policy.
Please do not hesitate to contact me should you require further information about this matter.
Terry McMaster
Director
[84] On 6 July 2018, Mr McMaster wrote to ASIC requesting the immediate cancellation of Dover's AFSL.
[85] On 1 August 2018, ASIC gave notice to Dover of the cancellation of its AFSL with effect on 1 August 2018.
(hereinafter referred to as “the Reasons”)
On 8 June 2018, Mr McMaster sent an email to the Defendants[12] and a number of other licensees (“8 June 2018 email”).
[12](Exh P-1) CB 182-187.
Relevant extracts from that lengthy email are set out below:-
Subject: Important Notice. Cancellation of Dover’s AFSL
Date: Friday, 8 June 2018 4:00:00 PM
Please take the time to read this email thoroughly. It contains some unhappy news.
Closure of Dover
Following an agreement reached with ASIC earlier this week, I am writing to inform you that Dover Financial Advisers Pty Ltd will cease to operate as an AFSL. We have been negotiating with ASIC about the most orderly way for this to happen.
The following has been agreed:
1. Dover to withdraw the authority of its authorised representatives to provide financial advice by 8 June 2018 (today);
2. Dover to terminate the appointment of its authorised representatives and cancel its AFSL by 6 July 2018;
3. Dover’s authorised representatives may implement advice in the period to 6 July 2018 provided the instructions were received from their clients on or before 8 June 2018.
In summary, this means that:
a. We have withdrawn your authority to provide financial advice. No new advice may be provided to clients after the 8 June 2018 (today);
b. Advice that has been reviewed by our compliance team and accepted, in writing, by clients on or before 8 June 2018 can be implemented. Insurance applications that have already been commenced, for example, can be continued with;
c. No services other than those which have been approved by Dover and agreed to by clients, in writing, on or before 8 June 2018 may be provided;
d. All authorised representatives will be removed from Dover’s register by 6 July 2018 at the latest;
e. Dover’s AFSL will be cancelled on 6 July 2018. We very much apologise for the short notice. The above was only agreed in the last 72 hours. Various aspects of the agreement, including the time of year and the speed of the closure, were entirely outside of our control. We tried, but have not been able to give you more time than this.
We very much apologise for the short notice. The above was only agreed in the last 72 hours. Various aspects of the agreement, including the time of year and the speed of the closure, were entirely outside of our control. We tried, but have not been able to give you more time than this.
The following points will hopefully answer any questions you may have.
Revocation
Your authority to represent Dover will terminate on or before the 6 July 2018. Between now and the time your termination becomes final, you cannot provide any new advice to clients. You can implement only that advice which was agreed to, in writing, by your clients on or before 8 June 2018. You cannot provide any other services which were not agreed to in writing on or before the same date.
Unfortunately, there can be no exceptions here. Our agreement with ASIC is that no new advice or services occur after today (8 June 2018).
You are of course free to arrange another licencing option before 6 July – and we encourage you to do so as soon as possible. But if you have not arranged another option before 6 July you will simply be removed from the register. We will do all we can to assist you to transition to your new licensing arrangement.
External consultants tell us that other AFSLs are recruiting at the moment and we know that many licensees have contacted our advisers over the past six weeks. Hopefully, this will allow you to quickly to find satisfactory new licensing arrangements.
On 25 July 2019, Dover sought payment of the amounts the subject of its claim.
The following matters fall for determination by this court:-
a.Has the Plaintiff acted unlawfully in performing the Agreement?;
b.If so:-
i.does the Plaintiff’s unlawful conduct constitute a breach of its Agreement with the Defendants?;
ii.does the Plaintiff’s unlawful conduct prevent the Plaintiff enforcing the terms of its Agreement with the Defendants?;
c.Does any other conduct by Dover constitute a breach of the Agreement?;
d.Have the Defendants suffered loss and damage as a result of any breach by the Plaintiff?;
e.If so, are the Defendants limited in their ability to recover loss and damage by reason of the limitation of liability clause contained within the Agreement?; and
f.Is there any long-trail commission payable by the Plaintiff to the Defendants permitting a further set-off upon Dover’s claim?
Has the Plaintiff acted unlawfully in performing the Agreement?
Pursuant to the terms of the Agreement, NAFP was obliged to comply with Dover’s Policies and Procedures, which included the provision of the Client Protection Policy to the clients[13].
[13]Paragraph 18A of Amended Defence filed 31 January 2022.
Dover admits that pursuant to clause 6.4 of the Agreement, the Defendants were obliged to comply with Dover’s Policies and Procedures[14].
[14]Paragraph 7 of Amended Reply filed 1 February 2022.
Having regard to the Reasons of O’Bryan J. it is clear that Dover, acting through Mr McMaster, required its authorised representatives to incorporate into, or provide with, statements of advice provided to clients a document entitled "Client Protection Policy".
That was unlawful conduct, in that Dover that contravened s 1041H of the Corporations Act and ss 12DA(1) and 12DB(1)(i) of the ASIC Act.
Does the Plaintiff’s unlawful conduct constitute a breach of its Agreement with the Defendants?
As stated previously, it was an implied term of the Agreement that Dover would not act unlawfully in performing the Agreement[15].
[15]This implied term was alleged at paragraph 4(e) of Amended Defence filed 31 January 2022. This implied term was denied at paragraph 3(i) of Amended Reply filed 1 February 2022. During the course of closing submissions, I was taken to section 18.23 of Cheshire & Fifoot’s Law of Contract which states in the final sentence of the first paragraph:- “Indeed, it is normally an implied term that a party will not act illegally in performing the contract”. Support for that statement is said to come from the reasoning of McHugh and Gummow JJ in Fitzgerald v FJ Leonhart Pty Limited (1997) 189 CLR 215 at 226.
Dover’s unlawful conduct identified in the Reasons (particularly paragraph 3 of the Reasons), constitutes a breach of that term of the Agreement.
Does the Plaintiff’s unlawful conduct prevent the Plaintiff enforcing the terms of its Agreement with the Defendants?
The Defendants contend that this court ought to decline to enforce the Agreement on public policy grounds in that, by reason of Dover’s unlawful conduct under the terms of the Agreement - which unlawful conduct existed at all relevant times after the formation of the Agreement.
The Defendants contend that the Agreement could only be performed in a manner that was unlawful, it being the intention of Dover that the Agreement be so performed.
In Alexander v Rayson [1936] 1 KB 169 at 182 (Scott LJ) held:
“The second issue raises a question of much greater difficulty. It is settled law that an agreement to do an act that is illegal or immoral or contrary to public policy, or to do any act for a consideration that is illegal, immoral or contrary to public policy, is unlawful and therefore void. But it often happens that an agreement which in itself is not unlawful is made with the intention of one or both parties to make use of the subject matter for an unlawful purpose, that is to say a purpose that is illegal, immoral or contrary to public policy. The most common instance of this is an agreement for the sale or letting of an object, where the agreement is unobjectionable on the face of it, but where the intention of both or one of the parties is that the object shall be used by the purchaser or hirer for an unlawful purpose. In such a case any party to the agreement who had the unlawful intention is precluded from suing upon it. Ex turpi causa non oritur actio. The action does not lie because the Court will not lend its help to such a plaintiff. Many instances of this are to be in the books.”
The statement of principle was approved by the New South Wales Court of Appeal in McCarthy Bros (Milk Vendors) Pty Ltd v The Dairy Farmers’ Co-operative Milk Company Ltd (1945) 45 SR(NSW) 266 at 268 where the judgment in Alexander v Rayson was approved by Jordan CJ (for the Court) at 268.
In Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd[16] Gibbs ACJ said:
There are four main ways in which the enforceability of a contract my be affected by a statutory provision which renders particular conduct unlawful: (1) the contract may be to do something which the statute forbids; (2) The contract may be one which the statute expressly or impliedly prohibits; (3) The contract, although lawful on its face, may be made in order to effect a purpose which the stature renders unlawful; or (4) The contract, although lawful according to its own terms, may be performed in a manner which the statute prohibits.
[16](1978) 139 CLR 410 at 413.
The fourth item is most relevant for the present case.
In my view, the following three matters militate against the contention put by the Defendants.
Firstly, a valid contract is not necessarily made invalid because it involves a contravention of legislation in its performance[17]. It has been held, for example, that misleading conduct in breach of s.18 of the Australian Consumer Law does not render a contract induced by or involving such conduct illegal[18].
[17]Fitzgerald v FJ Leonhart Pty Limited (1997) 189 CLR 215
[18]See SH Lock (Australia) Ltd v Kennedy (1988) 12 NSWLR 482 at 487, 494. See further the discussion at section 18.10 of Cheshire & Fifoots Law of Contract
In the present case, there is no suggestion that the Agreement itself was unlawful.
Secondly, where a contract is claimed to be void because it was made for an illegal purpose, a deliberate intention to break the law must be clearly established.
The fact that illegal conduct has actually occurred does not demonstrate that it was always intended[19]. The onus to of establishing the illegal purposes rests on the party asserting the illegal purpose[20].
[19] Meehan v Jones (1982) 149 CLR 571
[20]Norton v Angus (1926) 38 CLR 523. See also Fitzgerald v FJ Leonhart Pty Limited (1997) 189 CLR 215
The Defendants assert that Dover’s unlawful conduct was deliberate.
Mr. McMaster did not give evidence in this proceeding. The Defendants invited me to draw a Jones and Dunkel[21] inference on account of McMaster’s unexplained absence.
[21]Jones v Dunkel (1959) 101 CLR 298 at 320
The rule operates where there is an unexplained failure by a party to give evidence, to call witnesses or to tender documents or other evidence. In appropriate circumstances, this may lead to an inference that the uncalled evidence would not have assisted the party.
In RHG Mortgage Ltd v Ianni [2015] NSWCA 56 The court reiterated that the circumstances for drawing a Jones v Dunkel inference are found where an uncalled witness is a person presumably able to put the true complexion on the facts relied on by a party as the ground for any inference favourable to that party. The three conditions to be applied are: first, whether the uncalled witness would be expected to be called by one party rather than the other; secondly, whether his or her evidence would elucidate the matter; thirdly, whether his or her absence is unexplained.
I would decline to draw the inference in circumstances where the pleading incorporating that claim of illegality was permitted on the opening day of the hearing. In my view, the absence of McMaster is “explained” on that basis alone.
Furthermore, it is appropriate to go further and state that, the rule is complex and unless the appropriate circumstances are present, the court will not be bound to draw the adverse inference. Moreover, where the inference is drawn, the rule cannot be used to fill gaps in the evidence or to convert conjecture into suspicion: “[t]he failure [to call a witness] cannot fill gaps in the evidence, as distinct from enabling an available inference to be drawn more comfortably”: Jagatramka v Wollongong Coal Ltd [2021] NSWCA 61 at [49]; Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361 at [64]. See J D Heydon AC, Cross on Evidence, 12th edn, 2019, LexisNexis, Sydney at [1215].
With this in mind, I pay particular attention to the judgment of O’Bryan J. in Australian Securities and Investments Commission v Dover Financial Advisers Pty Ltd (No 3) [2021] FCA 170, addresses the issue in contention:-
[100] Weighing all of the evidence, I am not satisfied that the defendants’ contraventions of the ASIC Act were deliberate in the sense that they continued to issue the Client Protection Policy consciously aware that it was false or misleading. It is implicit in Mr McMaster’s admission that he was knowingly concerned in Dover’s contravention that he was aware of all relevant facts that made the introductory clause false and misleading. However, it is a further step to find that he was consciously aware that the document was false or misleading and mandated the use of the document regardless of that fact. I find that Mr McMaster was not consciously aware that the introductory clause in the Client Protection Policy was false or misleading. Further, it would not be accurate to describe the contravening conduct as careless. My impression is that Mr McMaster did care about legal compliance. However, Mr McMaster had excessive confidence in his own legal qualifications and was not receptive to concerns being raised about the Client Protection Policy. Given the importance of the Client Protection Policy in defining the legal rights of clients, Dover ought to have sought legal advice about the content of the Client Protection Policy but did not do so. Ultimately, that was the cause of the problem.
Dover, acting through Mr McMaster, “deliberately” requiring its authorised representatives to incorporate into, or provide with, statements of advice provided to clients a document entitled "Client Protection Policy", is beside the point.
The Defendants’ contentions on this point did not address the onus resting upon the Defendants to establish that Dover had deliberately intended to break the law.
The Defendants have not, in my view, established that Dover’s unlawful conduct was deliberate.
Thirdly, the provision by the statute of sanctions for non-compliance will cause the court to lean against construing the statute as imposing the further sanction of invalidation[22].
[22]Nelson v Nelson (1995) 184 CLR 538 at 613.
In Australian Securities and Investments Commission v Dover Financial Advisers Pty Ltd (No 3) [2021] FCA 170, O’Bryan J. stated:-
[142] Taking account of all of the matters referred to above, in my view an appropriate aggregate penalty to be imposed on Dover in respect of all 19,402 contravening acts is $1.2 million. In imposing a penalty of that size in circumstances where Dover no longer conducts business and has limited assets, I am most conscious of the importance of general deterrence and the need for the Court to mark its disapproval of the contravening conduct. In respect of Mr McMaster, in my view an appropriate aggregate penalty is $240,000. In this case, there is no relevant difference in the degree of culpability of Dover and Mr McMaster for the contravening conduct, as Mr McMaster was the owner and controller of Dover and made all relevant decisions. It is appropriate to impose a penalty on Mr McMaster that reflects the statutory ratio of corporate and individual penalties, being one fifth.
In Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd[23] Mason J. stated:
There is much to be said for the view that once a statutory penalty has been provided for an offence the rule (sic)[24] of the common law in determining the legal consequences of the offence is thereby diminished.
[23](1978) 139 CLR 410 at 429. Here, Mason J. was speaking of the operation of public policy at common law, not of whether a contract prohibited by statute is as a matter of statutory construction unenforceable. But a similar principle applies. See 20.230 Heydon on Contract.
[24]Should read “role.”
A further factor to be considered here is the curiosity which arises if Dover is to be punished twice:- civilly (if the Agreement was deemed unenforceable) as well as criminally[25].
[25]St John Shipping Corp v Joseph Rank Ltd. [1957] 1 QB 267 at 292.
For the foregoing reasons, Dover’s unlawful conduct does not result in the Agreement being unenforceable. To put that somewhat confusing double-negative statement in affirmative language, I find that the Agreement remains enforceable despite Dover’s unlawful conduct.
It is not necessary for me to determine the more difficult question put to me by the parties as to whether or not the unlawful conduct went to the “substance of the transaction” in any event[26]. Even if I was to accept the Defendants’ contention that the unlawful conduct went to the “substance of the transaction”, my determination in the preceding paragraph would remain unaffected.
[26]See Neal v Ayers (1940) 63 CLR 524.
Does any other conduct by Dover constitute a breach of the Agreement?
Pursuant to the terms of the Agreement, Dover was obliged to do all things reasonably within its power to maintain the Financial Services Licence.
It is clear from the email dated 8 June 2018, that Dover had negotiated and agreed with ASIC (sometime in the previous 72 hours leading up to 8 June 2018) that:-
a.Dover would withdraw the authority of its authorised representatives to provide financial advice by 8 June 2018; and
b.Dover would terminate the appointment of its authorised representatives and cancel its AFSL by 6 July 2018;
The Reasons[27] make it clear that:
a.On 6 July 2018, Mr McMaster wrote to ASIC requesting the immediate cancellation of Dover's AFSL;
b.On 1 August 2018, ASIC gave notice to Dover of the cancellation of its AFSL with effect on 1 August 2018; and
c.This course of conduct came about upon application by Mr McMaster pursuant to an undertaking given by him and Dover to ASIC under s 93AA of the ASIC Act. It is not expressly stated from the Reasons when this undertaking was given by Dover. In the absence of any explanation by the Dover, I infer that such undertaking[28] would have been given in the 72-hour period prior to the 8 June 2018 email when the balance of the agreement between Dover and ASIC was being struck, according to the 8 June 2018 email.
[27]See paragraphs 2, 84 and 85 of the Reasons
[28]Different to the undertaking not to rely on the Client Protection Policy which was given by Dover to ASIC on 27 March 2018 according to paragraph 82 of the Reasons.
I find, as a matter of fact, that Dover’s unlawful conduct led to (or caused) the loss of the AFSL. That unlawful conduct, in itself, is a failure by Dover to do all things within its power to maintain the Financial Services Licence and constitutes a breach of clause 3 of the Agreement.
Furthermore, the 8 June 2018 email seems to reveal a complete capitulation by Dover to offer up its AFSL to be cancelled. This was so, even after Dover had agreed with ASIC not to rely upon or enforce the provisions of the Client Protection Policy[29] and to send an agreed notice of correction to current and former clients in mid-April 2018[30].
[29]Paragraph 81 of the Reasons.
[30]Paragraph 83 of the Reasons
No explanation was proffered by Mr. Thompson (the witness called by Dover) or by McMaster (who was not called) as to what further steps were taken by Dover to comply with its obligation to do all things reasonably within its power to maintain the Financial Services Licence, in the face of the enquiries being pursued by ASIC.
Dover might have said in evidence that it wanted to maintain the AFSL, but that ASIC insisted on the cancellation of the AFSL and that Dover had no choice but to undertake to seek the cancellation of the AFSL.
If so, that would only tend to buttress my earlier finding that Dover’s unlawful conduct led to (or caused) the loss of the AFSL and that, in itself, is a failure by Dover to do all things within its power to maintain the Financial Services Licence and constitutes a breach of clause 3 of the Agreement.
Have the Defendants suffered loss and damage as a result of any breach by the Plaintiff?
The Defendants have suffered loss and damage as a result of the breach by Dover of the implied term of the Agreement that Dover would not act unlawfully in performing the Agreement, in that the breach causally and inexorably led to:-
i.ASIC investigating Dover with respect to the Client Protection Policy;
ii.Dover giving undertakings to ASIC to terminate the AFSL;
iii.Dover terminating the Agreement with the Defendants; and
iv.the Defendants not having an AFSL, so as to continue providing financial advice, until 12 months later.
The Defendants have also suffered loss and damage as a result of the breach by Dover of the express term of the Agreement that Dover was obliged to do all things reasonably within its power to maintain the Financial Services Licence, in that the breach causally and inexorably led to:-
i.ASIC investigating Dover with respect to the Client Protection Policy;
ii.Dover giving undertakings to ASIC to terminate the AFSL;
iii.Dover terminating the Agreement with the Defendants; and
iv.the Defendants not having an AFSL, so as to continue providing financial advice, until 12 months later.
Gazzola gave evidence that the Defendants, for a period of 12 months, were unable to secure an alternate AFSL to utilise and thereby were unable to continue giving financial advice and thereby suffered loss[31].
[31]Damages and set-off pleaded at paragraph 21 of the Amended Defence filed 31 January 2022.
The materials in the Plaintiff’s Courtbook (Exhibit P-1) allude to correspondence being received by the Defendants concerning alternative AFSL licences on offer from alternate AFSL holders. Indeed, Gazzola agreed that he had received many such offers, but was unable to take up such offers, as I understand it, due to further training requirements.
I envisage that Dover will assert that the Defendants have failed to act reasonably to mitigate their loss and damage, although that alleged failure to mitigate has not been pleaded in the Amended Reply[32].
[32]paragraph 21 of the Amended Reply filed 1 February 2022.
However that issue (and any amended pleading) is to be determined at a later time.
Previous interlocutory orders made by me in this proceeding, utilising s.47 of the Civil Procedure Act 2010 have deferred the assessment of that loss and damage (if any) to a later date, following the determination of liability in this proceeding.
If so, are the Defendants limited in their ability to recover loss and damage by reason of the limitation of liability clause contained within the Agreement?
Dover asserts that the Agreement can be terminated by will.
Clause 15.1 of the Agreement provides:
Termination by Dover
(a) This agreement may be terminated with immediate effect, at any time, by Dover giving written notice to that effect to the Representative. Dover’s rights under this clause are set out in section 916A(4) of the Act which section provides that an authorisation may be revoked at any time by the relevant licensee giving written notice to the authorised representative (as those terms are defined therein).
(b) Dover is not required or obliged to give any reasons to the Representative for terminating this agreement or for otherwise exercising its rights in accordance with this agreement or the Act.
Dover further asserts that the Agreement expressly provides that any loss or damage arising out of the termination of the Agreement by the Plaintiff was not actionable by the First or Second Defendant.
Clause 16 of the Agreement provides:
No Claims
The representative hereby agrees and acknowledges that it shall have no claim or cause of action whatsoever (including for damages) against Dover arising out of or in relation to the termination of this agreement (including under clause 15.1) and the Representative:
(a) hereby releases and forever discharges Dover from any and all such claims and causes of action; and
(b) agrees and acknowledges that this agreement may be pleaded as a bar by Dover to any action, suit or proceedings brought by the Representative in connection with the termination of this agreement.
In my view, clause 16 does not limit the claim of the Defendants because the claim of the Defendants does not arise out of or in connection with the termination of the Agreement.
The Defendants claims for loss and damage arise out of the breaches by Dover of:-
a.the implied term of the Agreement that Dover would not act unlawfully in performing the Agreement; and
b.the express term of the Agreement that Dover was obliged to do all things reasonably within its power to maintain the Financial Services Licence.
These breaches were each made out before the Agreement was terminated by email dated 8 June 2018.
As stated earlier in this judgment, it is clear from the email dated 8 June 2018, that Dover had negotiated and agreed with ASIC, sometime in the previous 72 hours leading up to 8 June 2018, that:-
a.Dover would withdraw the authority of its authorised representatives to provide financial advice by 8 June 2018; and
b.Dover would terminate the appointment of its authorised representatives and cancel its AFSL by 6 July 2018.
This reasoning is reinforced by the bold-typed sentence[33] in the 8 June 2018 letter which states:
Unfortunately, there can be no exceptions here. Our agreement with ASIC is that no new advice or services occur after today (8 June 2018).
(underlined emphasis added)
[33]Being the second paragraph under the heading “Revocation” (see Exh P-1) (CB 183).
In McDonald v Dennys Lascelles Ltd [1933] 48 CLR 457 at 476-477 it was held:
When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected.
The Defendants’ complaint is not as to any wrongful termination, but rather that during the life of the Agreement, Dover breached clause 3 of the Agreement and it otherwise behaved unlawfully and that the Defendants suffered loss and damage as a consequence of it.
The complaint is not answered by section 16 of the Agreement.
The issue is not that Dover sought to terminate the Agreement, but rather (as alleged at paragraph 20 of the Defence) that Dover engaged in 19,402 contraventions of the Corporations Act and ASIC Act and, owing to its conduct, sought the termination of the Agreement and the cancellation of its AFSL.
If, contrary to my determination above, the correct position (on a literal interpretation of the clause) is that the Defendants’ set-off claims do arise out of or in connection with the termination of the Agreement, then in my view, clause 16 of the Agreement should be read down if clause 16 of the Agreement cannot be applied literally without creating the absurdity of defeating the main object of the Agreement[34].
[34]See Van der Sterren v Cibernetics (Holdings) Pty. Ltd. Pty. Ltd. [1970] ALR 751 at 760 per Walsh J. (Barwick CJ and Kitto J. agreeing).
Such a modification by implication of the language which the parties have used in an exclusion clause is not to be made unless it is necessary to give effect to what the parties must have understood to have intended[35].
[35]Ibid.
In my view, the relevant preconditions are made out.
Here, a crucial object of the Agreement was for Dover to do all things reasonably within its power to maintain the AFSL, so that the Defendants (and all other authorised representatives of Dover) could continue to provide financial advice whilst relying upon that AFSL.
The breaches referred to above led to a situation whereby Dover was forced to undertake to ASIC that Dover would cancel its AFSL which had the natural consequence of Dover being forced to terminate its Agreement with the Defendants.
In my view, the parties to the Agreement must be understood to have intended clause 16 of the Agreement not to apply in the present circumstances where Dover had breached the main object (or one of the main objects) of the Agreement. To suggest otherwise would, in my view, create an absurdity.
Is there any long-trail commission payable by Dover to the Defendants permitting a further set-off upon Dover’s claim?
Upon the evidence of Gazzola (for which he was not challenged), the Defendants submit that there is outstanding long tail commission owing, which ought be set off.
Dover produced business records in relation to this issue which showed that some long trail commission had been received and set-off against the amounts that were owed by the Defendants to Dover.
The Defendants, being dissatisfied with the material produced by Dover, made a call for further records of Dover concerning its receipt of long trail commissions payable to the Defendants.
In answer to the call, Dover (through its counsel) informed the court on the final hearing day that no further records were available and reiterated that the documentary evidence produced (indicating that all long trail commission payable by Dover to the Defendants had been accounted for) was, in essence, the end of the matter.
In my view, the state of the documentary evidence left much to be desired. Clearly long trail commission was likely to be received by the Defendants after Dover had its AFSL cancelled. However, I cannot be satisfied on the evidence before me that other entities responsible for the payment of the long trail commission, ever paid any sums to Dover to be on-forwarded to the Defendants. It is equally possible that the other parties stopped paying any long tail commission to Dover (otherwise attributable to the Defendants) once Dover’s AFSL was cancelled.
No doubt a more rigorous approach to pre-trial discovery, or the issuing of any necessary subpoenas, might have clarified this issue.
But as the matter rests before me, on the documentary evidence before me, I must dismiss this aspect of the set-off claim.
Conclusion
Insofar as the various matters fall for determination by this court, I make the following findings.
Consistent with the Reasons of O’Bryan J., Dover acted unlawfully in its performance of the Agreement.
Dover’s unlawful conduct constitutes a breach, by Dover, of an implied term of the Agreement that Dover would not act unlawfully in performing the Agreement.
The unlawful conduct does not prevent Dover enforcing the terms of the Agreement with the Defendants for the recovery of amounts sought in the Complaint.
The Plaintiff has breached an express term of the Agreement that Dover would do all things reasonably within its power to maintain the Financial Services Licence.
The Defendants will have suffered loss and damage as a result of those breaches by the Plaintiff, insofar as the breaches inexorably led to Dover giving undertakings to ASIC to terminate the AFSL, which, in turn, required Dover to terminate the Agreement with the Defendants which, in turn, required the Defendants to obtain a different AFSL 12 months later so as to continue providing financial advice.
The Defendants are not limited in their ability to recover any loss and damage by reason of the limitation of liability clause contained within the Agreement.
Finally, I note that this case is the first of approximately 25 other related proceedings, between Dover and other authorised representatives, set down to be heard in this court.
For the sake of completeness, I note that another matter raised by the Defendants in its pleadings, namely that any fees payable by the Defendants to Dover should be reduced having regard to the so called “free period” for the first 365 days of the Agreement, was abandoned by the Defendants during the course of the hearing.
That abandonment was properly made having regard to the extensive evidence (both emails and invoices) tendered by the Plaintiff which showed that payment of the fees payable under the Agreement were simply deferred for 12 months.
I had previously refused a summary dismissal application by the Defendants on this point.
Had I been required to decide the point in this judgment, I would have interpreted the relevant clause as being one which simply deferred (for 365 days) the fees that were otherwise due and payable by the Defendants to Dover.
I will hear from the parties on what further interlocutory orders are necessary prior to fixing a further hearing to assess the Defendants’ loss and damage having due regard to any further matters the Plaintiff may wish to contend concerning the Defendants’ alleged failure to mitigate.
The court will then be in a position to determine what set-off, if any, ought to be made against the Plaintiff’s claim for the outstanding sum of $18,308.40.
MAGISTRATE J.P FOSTER
7 FEBRUARY 2022
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