Hudson v National Australia Bank
[2022] FCA 1222
•14 October 2022
FEDERAL COURT OF AUSTRALIA
Hudson v National Australia Bank [2022] FCA 1222
File number: NSD 1277 of 2019 Judgment of: MARKOVIC J Date of judgment: 14 October 2022 Catchwords: CONSUMER LAW – misleading or deceptive conduct – unconscionable conduct – breach of contract – natural justice – where first applicant caused second applicant to enter into a sub-originator agreement with the second respondent – where second respondent terminated the sub-originator agreement – whether second respondent engaged in misleading or deceptive conduct by making representations to the effect that the first applicant had not performed her role satisfactorily – whether respondents engaged in unconscionable conduct in allegedly forming false conclusions about the applicants without giving them a proper hearing and then suspending and terminating the applicants by reason of those allegedly false conclusions – where the second respondent refused to provide a letter of separation in the terms requested by the applicants – whether in doing so the second respondent engaged in unconscionable conduct – whether second respondent breached confidentiality and good faith obligations contained in the sub-originator agreement – whether the respondents owed a duty to the applicants to afford them natural justice – application dismissed Legislation: Australian Consumer Law being Sch 2 to the Competition and Consumer Act 2010 (Cth) ss 18, 21, 22
National Consumer Credit Protection Act 2009 (Cth) ss 6, 7, 8, 9, 29, 35, 47, 64
Cases cited: Australian Consumer and Competition Commission v TPG Internet Pty Ltd (2020) 278 FCR 450
Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1
Australian Securities and Investments Commission v National Australia Bank Limited [2020] FCA 1494
Bodney v Bennell (2008) 167 FCR 84
Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184
Carey v Freehills [2013] FCA 954
Dasreef Pty Limited v Hawchar (2011) 243 CLR 588
Enderby Town Football Club Ltd v Football Association Ltd [1971] Ch 591
Good Living Company Pty Ltd v Kingsmede Pty Ltd (2021) 284 FCR 424
I&L Securities v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109
Paciocco v Australia and New Zealand Banking Group Limited (2015) 236 FCR 199
R v Gaming Board for Great Britain; Ex Parte Benaim v Khaida [1970] QB 417
Re Pergamon Press [1971] Ch 388
R v Commission for Racial Equality; Ex Parte Hillingdon London Borough Council [1982] AC 779
Sundararajah v Teacher’s Federation Health Limited (2011) 283 ALR 720; [2011] FCA 1031
Trans Petroleum (Australia) Pty Ltd v White Gum Petroleum Pty Ltd (2012) 268 FLR 433; [2012] WASCA 165
Trivett v Nivison [1976] 1 NSWLR 312
Unique International College Pty Ltd v Australian Competition and Consumer Commission (2018) 266 FCR 631
Watson v Foxman (1995) 49 NSWLR 315
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 446 Date of hearing: 30 August 2021 – 6 September 2021 Counsel for the Applicants: Mr M W Young SC Solicitor for the Applicants: Gavin Parsons and Associates (7 August 2019 to 24 September 2020)
Bransgroves Lawyers (24 September 2020 to present)Counsel for the Respondents: Mr J Giles SC with Mr M Rose Solicitor for the Respondents: Dentons ORDERS
NSD 1277 of 2019 BETWEEN: KERRY ANN HUDSON
First Applicant
LEASEWORKS AUSTRALIA PTY LTD
Second Applicant
AND: NATIONAL AUSTRALIA BANK LIMITED
First Respondent
FINANCE & SYSTEMS TECHNOLOGY PTY LTD
Second Respondent
ORDER MADE BY:
MARKOVIC J
DATE OF ORDER:
14 OCTOBER 2022
THE COURT ORDERS THAT:
1.The originating application filed on 8 August 2019 and the further amended statement of claim filed on 6 May 2020 be dismissed.
2.The parties are to confer on the question of costs of the proceeding and either:
(a)on or before 28 October 2022 provide the Associate to Markovic J with proposed consent orders addressing the costs of the proceeding; or
(b)if the parties are unable to agree as to the proposed form of orders then:
(i)on or before 4 November 2022 the respondents are to file and serve their submissions on the question of costs of the proceeding, not exceeding five pages in length; and
(ii)on or before 11 November 2022 the applicants are to file and serve their submissions on the question of costs of the proceeding, not exceeding five pages in length; and
(c)unless either party requests an oral hearing, the question of costs will be determined on the papers.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
TABLE OF CONTENTS
THE STATUTORY CONTEXT
[4]
THE FACTS
[13]
The witnesses
[13]
Ms Hudson and Leaseworks
[15]
FAST
[22]
NAB
[31]
BPM
[33]
BPM broker reviews
[34]
BPLAC
[38]
Leaseworks is accredited and enters into a sub-originator agreement with FAST
[45]
Submitting loan applications to Panel Lenders
[55]
Leaseworks’ FAST affiliated accreditations
[60]
Ms Hudson meets Mr Dandachli
[65]
Ms Hudson meets with Mr Maroun, ANZ
[72]
Events following Ms Hudson’s meeting with Mr Maroun
[74]
The August 2014 email
[89]
Accreditation with ANZ
[98]
The Dandachli database of files
[101]
Mr Mohamed’s early interactions with Ms Hudson
[103]
First BRR Report
[106]
First file review meeting
[113]
Events following the first file review meeting
[134]
First BPLAC Submission
[139]
May 2016 BPLAC meeting
[144]
First and final warning letter
[146]
Second BRR Review
[155]
Second BPLAC Submission
[159]
Ms Nguyen recommends that Ms Hudson undertake a compliance audit
[164]
April to June 2017
[171]
NAB suspends Ms Hudson
[188]
Second file review meeting
[195]
Third BPLAC Submission
[225]
Events following the second file review meeting
[227]
Ms Hudson’s health
[234]
Mr Davidson prepares a “BPLAC Firm Review Submission”
[239]
Extraordinary BPLAC meeting – 14 August 2017
[241]
NAB cancels Ms Hudson’s accreditation and FAST gives notice of its intention to terminate the Sub-Originator Agreement
[251]
FAST issues a letter of separation
[256]
Steps taken by other Panel Lenders – August 2017
[260]
BPLAC meetings – 30 August 2017 and 12 September 2017
[264]
FAST terminates the Sub-Originator Agreement
[267]
Ms Hudson’s accreditation terminated by other Panel Lenders – September 2017
[268]
Correspondence between the parties
[271]
Evidence given by Mr Currie and Dr Hasham
[276]
THE PLEADED CASE
[289]
DID NAB AND FAST ENGAGE IN MISLEADING OR DECEPTIVE CONDUCT?
[298]
Statutory framework and legal principles
[298]
The applicants’ submissions
[302]
Consideration
[306]
DID NAB AND FAST ACT UNCONSCIONABLY?
[312]
Statutory framework and legal principles
[312]
The applicants’ submissions
[319]
Consideration
[333]
DID NAB AND FAST FAIL TO AFFORD NATURAL JUSTICE?
[345]
The applicants’ submissions
[346]
Consideration
[353]
DID FAST BREACH THE SUB-ORIGINATOR AGREEMENT?
[374]
The applicants’ submissions
[377]
Consideration
[379]
DAMAGES
[394]
The expert evidence
[395]
Mr Monaghan’s evidence
[397]
Objection to Mr Monaghan’s report
[404]
Respondents’ submissions
[406]
Reasons for overruling the respondents’ objection
[413]
Mr Giliberti’s evidence
[422]
The joint report
[425]
The applicants’ alternate claim for damages
[440]
CONCLUSION
[444]
REASONS FOR JUDGMENT
MARKOVIC J:
Kerry Ann Hudson and Leaseworks Australia Pty Ltd, the first and second applicants (together, applicants), bring this proceeding against the National Australia Bank Limited (NAB) and Finance & Systems Technology Pty Ltd (FAST), as first and second respondents respectively (together, respondents). At the relevant time FAST was NAB’s wholly owned subsidiary. The relationships between the parties are described below but the proceeding essentially arises out of the dealings between FAST, which carries on business as a mortgage aggregator, and Leaseworks, which carries on business as a finance broker. Ms Hudson is and was a shareholder in and director of Leaseworks.
In summary Ms Hudson and Leaseworks allege that:
(1)NAB and FAST:
(a)engaged in misleading or deceptive conduct contrary to s 18 of the Australian Consumer Law being Sch 2 to the Competition and Consumer Act 2010 (Cth);
(b)engaged in unconscionable conduct within the meaning of s 21 of the Australian Consumer Law; and
(c)breached their duty by failing to provide Ms Hudson and Leaseworks with natural justice or procedural fairness in making certain decisions about them;
(2)FAST breached its contract with Leaseworks; and
(3)because of the conduct set out above the applicants have suffered loss and damage.
NAB and FAST deny the allegations made by the applicants.
THE STATUTORY CONTEXT
Before proceeding further it is instructive to set out the statutory framework within which both Ms Hudson and Leaseworks, on the one hand, and NAB and FAST, on the other, operate their respective businesses in relation to the provision of credit to consumers.
The National Consumer Credit Protection Act 2009 (Cth) (National Credit Act) regulates the provision of credit. It provides for a comprehensive licensing regime for persons or entities engaging in “credit activity” as defined in s 6 of that Act. In Australian Securities and Investments Commission v National Australia Bank Limited [2020] FCA 1494 at [83]-[85] Lee J identified the scope of the National Credit Act:
83… Under this regime, those wishing to engage in a “credit activity” are required to apply for, be issued with, and hold, an [Australian credit licence]. The National Credit Act imposes entry standards for licensing and, once an ACL is granted, licensees must meet ongoing standards of conduct. ASIC has the power to suspend or cancel an ACL, or to ban individuals from engaging in a “credit activity”. The key aims of the licensing regime are to regulate credit industry participants and enhance consumer protection.
84Section 27 provides a guide to Part 2-1 of the National Credit Act which makes this clear, comprising Division 2 – Engaging in credit activities without a licence (containing s 29) and Division 3 – Other prohibitions relating to the requirement to be licenced (containing s 31):
This Part is about the licensing of persons to engage in credit activities. In general, a person cannot engage in a credit activity if the person does not hold an Australian credit licence.
Division 2 prohibits a person from engaging in credit activities without an Australian credit licence. However, the prohibition does not apply to employees and directors of licensees or related bodies corporate of licensees, or to credit representatives of licensees.
Division 3 deals with other prohibitions relating to the requirement to be licensed and to credit activities. These prohibitions relate to holding out and advertising, conducting business with unlicensed persons, and charging fees for unlicensed conduct.
85The National Credit Act also introduced industry-wide responsible lending conduct requirements for licensees. Those requirements aim to protect consumers (both from conduct of lenders and from consumers making poor borrowing decisions) by imposing standards of behaviour on licensees prior to and when entering into a credit contract. The conduct requirements apply only to persons who are licensed under the National Credit Act (that is, holders of an ACL). Relevantly, licensees are required to test the suitability of the proposed credit contract and assess the consumer’s ability to meet their financial obligations under the proposed credit contract. To do so requires direct dealings between the lender and the putative borrower, hence the prohibition on an unlicensed intermediary.
As set out above, s 6 of the National Credit Act defines “credit activity” and relevantly, for the purposes of this proceeding, provides that “a person engages in a credit activity”:
(1)in relation to “credit contracts” if:
(a)the person is a credit provider under a credit contract; or
(b)the person carries on a business of providing credit, being credit the provision of which the National Credit Code applies to; or
(c)the person performs the obligations, or exercises the rights, of a credit provider in relation to a credit contract or proposed credit contract (whether the person does so as the credit provider or on behalf of the credit provider);
(2)in relation to “credit service” if “the person provides credit service”.
The term “credit service” is defined in s 7 of the National Credit Act as follows:
A person provides a credit service if the person:
(a) provides credit assistance to a consumer; or
(b) acts as an intermediary.
In turn, s 8 and s 9 of the National Credit Act define the terms “credit assistance” and “acts as an intermediary”. Those sections relevantly provide:
8 Meaning of credit assistance
A person provides credit assistance to a consumer if, by dealing directly with the consumer or the consumer’s agent in the course of, as part of, or incidentally to, a business carried on in this jurisdiction by the person or another person, the person:
(a)suggests that the consumer apply for a particular credit contract with a particular credit provider; or
…
(d)assists the consumer to apply for a particular credit contract with a particular credit provider; or
…
It does not matter whether the person does so on the person’s own behalf or on behalf of another person.
9 Meaning of acts as an intermediary
A person acts as an intermediary if, in the course of, as part of, or incidentally to, a business carried on in this jurisdiction by the person or another person, the person:
(a)acts as an intermediary (whether directly or indirectly) between a credit provider and a consumer wholly or partly for the purposes of securing a provision of credit for the consumer under a credit contract for the consumer with the credit provider; or
(b)acts as an intermediary (whether directly or indirectly) between a lessor and a consumer wholly or partly for the purposes of securing a consumer lease for the consumer with the lessor.
It does not matter whether the person does so on the person’s own behalf or on behalf of another person.
Section 29 of the National Credit Act prohibits a person from engaging in a credit activity unless the person holds a licence. Such a licence is known as an Australian credit licence (ACL). It authorises the licensee to engage in particular credit activities specified in a condition of the licence: see s 35 of the National Credit Act.
Section 47 of the National Credit Act sets out the general conduct obligations of a licensee. It relevantly provides:
(1) A licensee must:
(a)do all things necessary to ensure that the credit activities authorised by the licence are engaged in efficiently, honestly and fairly; and
(b)have in place adequate arrangements to ensure that clients of the licensee are not disadvantaged by any conflict of interest that may arise wholly or partly in relation to credit activities engaged in by the licensee or its representatives; and
(c) comply with the conditions on the licence; and
(d) comply with the credit legislation; and
(e)take reasonable steps to ensure that its representatives comply with the credit legislation; and
(ea)comply with the Reference Checking and Information Sharing Protocol in relation to:
(i)if the licensee is an individual to whom the Protocol applies—the licensee; and
(ii)if a former, current or prospective representative of the licensee is an individual to whom the Protocol applies—the representative; and
(f)maintain the competence to engage in the credit activities authorised by the licence; and
(g)ensure that its representatives are adequately trained, and are competent, to engage in the credit activities authorised by the licence; and
(h) have an internal dispute resolution procedure that:
(i)complies with standards and requirements made or approved by ASIC in accordance with the regulations; and
(ii)covers disputes in relation to the credit activities engaged in by the licensee or its representatives; and
(ha)give to ASIC the same information it would be required to give under subparagraph 912A(1)(g)(ii) of the Corporations Act 2001 if it were a financial services licensee (within the meaning of Chapter 7 of that Act); and
(i) be a member of the AFCA scheme; and
(j) have compensation arrangements in accordance with section 48; and
(k)have adequate arrangements and systems to ensure compliance with its obligations under this section, and a written plan that documents those arrangements and systems; and
(l) unless the licensee is a body regulated by APRA:
(i)have available adequate resources (including financial, technological and human resources) to engage in the credit activities authorised by the licence and to carry out supervisory arrangements; and
(ii) have adequate risk management systems; and
(m)comply with any other obligations that are prescribed by the regulations.
Section 64 of the National Credit Act permits a licensee to give a person a written notice authorising that person to engage in specified credit activities on behalf of the licensee and the person so authorised is a “credit representative” of the licensee.
Against that background I turn to set out the facts.
THE FACTS
The witnesses
The following witnesses gave evidence for the applicants:
(1)Ms Hudson. She has been a director of Leaseworks since its incorporation save for the period from 30 July 2017 to 19 August 2018. Ms Hudson has worked in the finance industry for 20 years. She has a Certificate III in financial services and a Certificate IV in finance and mortgage broking. Since May 2012 Ms Hudson has been an accredited member of the Finance Brokers Association of Australia Limited, and as part of maintaining her membership, has completed various courses. Ms Hudson was the principal witness relied on by the applicants. She gave evidence about Leaseworks’ business, her own experience as a broker and her dealings with NAB and FAST. Ms Hudson was cross-examined. While I accept that she was doing her best, Ms Hudson’s evidence was unreliable in some respects which I have described below. While I accept that her recollection of events was likely affected by the passing of time and possibly by her health issues which, unbeknownst to her, she was experiencing at the time, there are instances where her recollection cannot not be accepted;
(2)John Christopher Currie who was a director of Leaseworks from its incorporation in 2007 until 2012. He holds 41% of the shares in Leaseworks. Mr Currie gave evidence about his interactions with Anthony Hasham who had an interest in acquiring Leaseworks or its business. Mr Currie was cross-examined;
(3)Anthony Hasham who is the sole director of Australian Consulting Engineers Pty Ltd (ACE), a multi-disciplinary firm that provides civil and structural engineering services. ACE has around 150 staff with offices in Lebanon, Abu Dhabi, the Philippines and Australia. Dr Hasham gave evidence about his interest in acquiring Leaseworks, or its business, and discussions he had in about 2015 to 2017 about that. He was cross-examined;
(4)Professor Stan Sidhu, a specialist endocrine surgeon, who provided a report on Ms Hudson’s health as at July 2017. Professor Sidhu was not cross-examined; and
(5)Trevor Monaghan, an accredited business valuation specialist under the Chartered Accountants Australia and New Zealand (CAANZ). Mr Monaghan prepared two reports on behalf of the applicants in which he opined as to the loss suffered by each of Ms Hudson and Leaseworks as a result of the conduct that they allege was engaged in by NAB and FAST. Mr Monaghan also prepared a joint report with the respondents’ expert, Adam Giliberti. Mr Monaghan gave evidence concurrently with Mr Giliberti.
The following witnesses gave evidence for the respondents:
(1)Rob Ryan who was an employee of NAB from November 2006 until March 2021. From August 2013 until the sale of FAST in early 2021, Mr Ryan was the Head of Northern Region for FAST, a leadership and management function for New South Wales (NSW), the Australian Capital Territory (ACT) and Queensland (QLD). In that role, he was involved in managing operations in those states and leading and managing a team of eight partnership managers, including Patrick Clarkson and Hien Nguyen (see below), who together practice managed about 800 brokers in NSW, the ACT and QLD. Mr Ryan was also a member of the FAST Leadership Team. This involved managing, coaching and leading a distribution team. Mr Ryan was cross-examined;
(2)Patrick Clarkson who has been employed by NAB since 2013 in the role of FAST partnership manager. In that role Mr Clarkson was responsible for:
(a)developing and managing relationships with a portfolio of brokers aggregated with FAST;
(b)assisting brokers to obtain accreditation with Panel Lenders (described at [24] below);
(c)assisting brokers with compliance and risk management, commissions, managing broker relationships for FAST’s Panel Lenders, client relationship management (CRM) and training, including in the use of the CRM system.
From March 2013 until 30 September 2014, Mr Clarkson was Ms Hudson’s FAST partnership manager. He gave evidence about his interactions with Ms Hudson. Mr Clarkson was cross-examined;
(3)Hien Nguyen who was an employee of FAST from September 2015 to February 2019 and also held the role of FAST partnership manager. In that role she had the responsibilities described at (2)(a)-(c) above. From about July 2015 until Ms Hudson’s termination in 2018, Ms Nguyen was Ms Hudson’s FAST partnership manager. She gave evidence about her interactions with Ms Hudson in that role. Ms Nguyen was cross-examined;
(4)Allison Smith who has been an employee of NAB since 23 January 1989. She is currently the manager of broker partnerships monitoring and the chair of the Broker Partnerships Lender Accreditation Committee (BPLAC), a committee within NAB (described at [38] below). Ms Smith gave evidence about her review of submissions for and attendance at relevant BPLAC meetings. She was cross-examined;
(5)Nick Notaras, NAB’s “head of broker distribution for NSW/ACT”. Mr Notaras is responsible for managing a team of business development managers (BDM) and relationship associates who, in turn, support brokers submitting home loan applications to NAB in relation to, among other things: NAB policy; process; pricing and compliance. Mr Notaras’ team manages day to day interactions with the brokers in their respective portfolios, part of which involves reviewing and managing broker activity that may be a potential risk to NAB. Mr Notaras had limited direct involvement with individual brokers. Mr Notaras gave evidence about his role in completing and considering submissions prepared for BPLAC. Mr Notaras was cross-examined;
(6)Brent Davidson, a NAB employee from May 2011 until March 2018. From August 2015 to March 2018, Mr Davidson held the role of “manager broker relationship team NSW/ACT, broker distribution”. In that role, he conducted file review meetings with brokers accredited with NAB for the purpose of reviewing a selection of files for loans the broker had submitted to NAB for approval. From August 2015 to March 2018, Mr Davidson attended approximately eight to 15 file review meetings each month with brokers accredited with NAB. Mr Davidson gave evidence about his attendance at file review meetings with Ms Hudson and subsequent reporting. Mr Davidson was cross-examined;
(7)Mustafa Mohamed who has held the role of “BDM, broker distribution”, with NAB since 2015. Mr Mohamed is a member of the BDM team managed by Mr Notaras. He was Ms Hudson’s NAB BDM from 1 February 2015 to July 2017 and gave evidence about some of his discussions and other interactions with Ms Hudson. Mr Mohamed was cross-examined;
(8)Shane Mahoney who is a senior consultant, cyber forensic and investigations, with NAB. Mr Mahoney gave evidence about conducting an “email recovery search” for emails sent between the emails addresses of Ms Hudson, Mr Ryan and Mr Clarkson between July and October 2014. Mr Mahoney was not cross-examined;
(9)Monique Tavares, a solicitor in the employ of Dentons, the respondents’ solicitors. Ms Tavares gave evidence about her review of the material identified during the “email recovery search” undertaken by Mr Mahoney. Ms Tavares was not cross-examined; and
(10)Adam Giliberti who is a member of CAANZ and is recognised by CAANZ as a forensic accounting specialist and a business valuation specialist. Mr Giliberti provided his expert opinion on Ms Hudson and Leaseworks’ claim for damages and responded to Mr Monaghan’s report. Mr Giliberti gave evidence concurrently with Mr Monaghan.
Ms Hudson and Leaseworks
As set out above, Ms Hudson has worked in the finance industry for 20 years.
Leaseworks was incorporated on 8 February 2007. It has a number of shareholders including Ms Hudson and Mr Currie who each hold approximately 41% of its shares while the balance of the shareholders hold the remaining 18%. Ms Hudson has been a director of Leaseworks since its incorporation, save for the period from 30 July 2017 to 19 August 2018, and worked in Leaseworks’ business.
On 20 December 2010 the Australian Securities & Investments Commission (ASIC) issued ACL 390454 to Leaseworks authorising it to:
(a) Engage in credit activities other than as a credit provider by:
(i) providing a credit service where the licensee is not or will not be:
(A)where the service relates to a credit contract or proposed credit contract – the credit provider under the contract; or
(B)where the service relates to a consumer lease or proposed consumer lease – the lessor; and/or
(ii)performing the obligations or exercising the rights of a credit provider in relation to a credit contract or proposed credit contract under which the licensee is not or will not be the credit provider; and/or
(iii)performing the obligations or exercising the rights of a mortgagee in relation to a mortgage or proposed mortgage that secures or will secure obligations under a credit contract under which the licensee is not the credit provider; and/or
(iv)performing the obligations or exercising the rights of a beneficiary under a guarantee or proposed guarantee that guarantees obligations under a credit contract under which the licensee is not the credit provider; and/or
(v)performing the obligations or exercising the rights of a lessor in relation to a consumer lease or proposed consumer lease where the licensee is not or will not be the lessor.
Leaseworks maintains required insurance and is a member of dispute resolution schemes including the Australian Financial Complaints Authority and before that, the Credit Ombudsman Service Limited.
Because Leaseworks was licensed at all relevant times, Ms Hudson was not required to hold any formal credit representative authorisation. However, under Leaseworks’ agreements with various lenders and financiers (described below), Ms Hudson also had accreditations, at least from the time of commencement of the National Credit Act.
Between July 2007 and about July 2014, Ms Hudson and Leaseworks were primarily engaged in broking for commercial equipment finance, vehicle finance, insurance products and extended warranties. In or about June 2014 they decided to expand Leaseworks’ broking business into both consumer and commercial real property lending.
Leaseworks has been, and continues to be, an authorised representative of a number of Australian financial services licensees. It also has and has had introducer agreements and accreditations with lenders to introduce vehicle finance, equipment finance and personal loan applications on behalf of loan applicants. It is not necessary to set out the detail of those relationships and arrangements.
FAST
FAST is a wholesale aggregator in the finance broking industry specialising in residential, commercial and asset finance. It does not have franchises. Its brand is known to brokers and lenders rather than the general public. NAB was, at the time of the events the subject of this proceeding and, as I understand it, until relatively recently, FAST’s ultimate holding company. All of the shares in FAST were held by NAB’s subsidiary, Advantedge Financial Services Holdings Pty Ltd.
An aggregator is an intermediary between lenders and mortgage and finance brokers. When the role of aggregator first emerged, they managed commission payments and lender accreditations, giving brokers access to more lenders and reducing their administration by having a centralised entity to manage them. The role of an aggregator has developed and now offers licensing solutions, CRM platforms, loan processing systems and compliance options, and broker professional development and training.
As an aggregator FAST has lender agreements with an extensive panel of residential, commercial and asset finance lenders including banks, building societies and credit unions (Panel Lenders). As at July 2020 FAST’s Panel Lenders comprised around 45 residential lenders and 25 commercial lenders.
FAST acts as an intermediary between brokers and lenders. Brokers accredited with FAST have access to, and source residential home loans, commercial loans and asset and equipment finance through its Panel Lenders. In addition, for those brokers, FAST provides access to:
(1)CRM platforms for the transmission of loan applications to Panel Lenders;
(2)an allocated partnership manager to assist a broker with obtaining accreditation with a selection of Panel Lenders and with various aspects of its business; and
(3)training and development opportunities such as broker forums.
In order for a broker to become accredited with FAST, it had to complete and submit a “New Partner Accreditation Pack” (FAST Accreditation Application) together with the following:
(1)copy of professional indemnity insurance certificate of currency and policy;
(2)certificate of business registration;
(3)certificate of registration of business name;
(4)copy of trust deed (if applicable);
(5)copy of current mortgage industry association membership certificate;
(6)copy of current external dispute resolution scheme membership certificate;
(7)company profile including resumes of directors/partners/proprietors;
(8)letter of separation (if with another aggregator prior to joining FAST);
(9)copy of current national police clearance; and
(10)certificate IV in financial services (finance/mortgage broking).
Upon receipt by FAST of a FAST Accreditation Application, it was reviewed by partnership support officers or the associate operations and sales support team who would check that it had been completed in full and that all supporting documents had been provided and were in order.
Since September 2010 brokers accredited with FAST could either operate under their own ACL or they could apply to be authorised to engage in credit activities as a representative of BLSSA Pty Ltd, which holds an ACL. NAB was also the ultimate holding company of BLSSA. Brokers authorised to act as BLSSA’s representatives could provide mortgage broking services to consumers using BLSSA’s accreditation.
Once a FAST Accreditation Application was approved, the broker and FAST entered into a sub-originator agreement (see below) pursuant to which FAST carries on the business of providing mortgage bulking facilities for mortgage originators and the sub-originator, or broker, utilises FAST’s mortgage bulking facilities, which is the process of bulking loan volumes. This enables enhanced negotiations between brokers and lenders in relation to matters such as commissions and service levels. An individual broker may not otherwise have the volumes to negotiate in the same way.
Mr Ryan explained that each of NAB and FAST were independent of each other and had separate functions. FAST did not share information which was subject to privacy obligations with NAB, brokers were required to obtain accreditation with NAB separately, even if they had accreditation with FAST, and FAST did not have access to NAB’s lender accreditation reviews or internal processes.
NAB
As set out above, NAB was at the relevant time and until recently the ultimate holding company of FAST. There are a number of areas and processes within NAB relevant to this proceeding which I describe below.
Relevantly, despite the commonality in ownership between NAB and FAST, NAB through its relevant areas, BPLAC and Broker Partnerships Monitoring (BPM) (described below), treat FAST as it would any other aggregator. It follows all of the usual formalities when dealing with a FAST broker, including notifying FAST as aggregator of any suspension or termination of a broker and inviting the relevant broker and a FAST representative to attend any meeting (which usually takes place before a meeting of BPLAC) where broker conduct is discussed.
BPM
BPM, previously known as Broker Risk Review (BRR), is an area within NAB responsible for reviewing third parties accredited with NAB Broker Partnerships to ensure they adhere to the obligations and standards of their accreditation.
BPM broker reviews
A broker review generally arises in one of two ways:
(11)as a monitoring review resulting from a member of the BPM team randomly selecting a broker to review; or
(12)as an investigation based on intelligence being provided, by an internal or external source, to the BPM team about broker behaviour.
Reviews are completed according to their seriousness, as opposed to the date of receipt.
The BPM team member responsible for the review records his or her findings which includes details of the:
(1)broker under review;
(2)action to be taken after the review;
(3)overall review rating which may be green, amber or red;
(4)review purpose;
(5)broker’s background information;
(6)review summary; and
(7)information in relation to each broker file review, presented in a tabulated form recording information for each loan review including the:
(a)name of the loan applicants,
(b)loan amount;
(c)application date;
(d)loan purpose;
(e)security address; and
(f)BPM reviewer’s loan score from 0 to 15 (Number Rating) and rating of green, amber or red (Colour Rating) allocated to various categories in relation to the loan application including credit, regulatory compliance, operational risk and file outcome, being the overall rating for the file.
In relation to:
(1)the Number Rating:
(a)0 = for noting only;
(b)5 = minor finding. Attempt made to meet policy but has fallen short;
(c)10 = failure to attempt to meet obligations or suspect fraud; and
(d)15 = confirmed fraud, regulatory breach or other serious finding;
(2)the Colour Rating:
(a)green is generally satisfactory. However it may give rise to an opportunity to provide feedback to a broker;
(b)amber generally indicates some concerns exist, but they are not considered material, or there may be insufficient information to prove the allegations; and
(c)red is generally unsatisfactory and indicates that there are concerns which are serious in nature.
Following a BPM review: the matter may be referred to BPLAC; referred to broker distribution to request a formal response to matters arising from the review; or referred to broker distribution to provide feedback to the broker.
BPLAC
BPLAC’s role includes reviewing findings from file review meetings conducted by leaders from NAB’s broker introduced lending businesses, NAB Broker & Advantedge. It makes decisions on cases presented to it about broker accreditations including whether a broker’s accreditation is to remain active, be suspended or terminated.
As at 2017 the members of BPLAC included: Ms Smith as chair; Emily Black, a senior consultant, broker network assurance, as secretary; Steve Kane, general manager, NAB broker distribution; Christine McArthur, head of management assurance, broker partnerships; Brett Halliwell, general manager, Advantedge; and Gary Howard, described by Ms Smith as general manager operations. Ms Smith and Ms Black did not vote on outcomes. The decision making committee comprised Ms McArthur and Messrs Kane, Halliwell and Howard.
Where BPM refers a matter to BPLAC a document titled “BPLAC Submission” is prepared by a case presenter who is the “Head Of” the respective channel within NAB e.g. Head of NAB Broker, NSW. If BPM completes a “Broker Partnerships Review” form, it is also presented to BPLAC.
Once a matter is referred to BPLAC, NAB’s usual practice is to require a broker interview to take place in order to afford the broker a “right of reply”. Following the broker interview the matter is presented to BPLAC at its monthly meeting either for:
(1)a decision to be made – this occurs where the chair of BPLAC and the case presenter do not agree on the recommended outcome and a decision needs to be made; or
(2)endorsement – this occurs where the chair of BPLAC and the case presenter agree on the recommended outcome.
Any decision made by BPLAC must be unanimous. If it is not, the matter is referred to the Executive General Manager of Broker Partnerships for a final decision.
The outcomes following referral to BPLAC may include:
(1)no further action;
(2)coaching required;
(3)process improvement required;
(4)issue of a warning or of a final warning; or
(5)termination of the broker’s accreditation.
Findings made by BPLAC in relation to a broker are communicated to an aggregator, where relevant, by the distribution team.
As at 2017 Ms Smith was aware that generally FAST would follow a decision made by NAB in relation to a broker, although it was for FAST to make its own decision about the broker. Ms Smith was also aware that FAST did not carry out the same type of investigations as NAB but would make its own decision following a NAB investigation. It is not always the case that where NAB terminates the accreditation of a broker with it, the aggregator also terminates its relationship with that broker.
Leaseworks is accredited and enters into a sub-originator agreement with FAST
On or about 23 September 2010 Ms Hudson signed, and submitted, on behalf of Leaseworks a FAST Accreditation Application (Hudson Accreditation Application).
On or about 1 October 2010 the Hudson Accreditation Application was approved.
On 27 October 2010 FAST and Leaseworks as “Sub-Originator” entered into a Sub-Originator Agreement. The recitals to that agreement provide that FAST carries on the business of providing mortgage bulking facilities for mortgage originators and that the Sub-Originator, in this case Leaseworks, wishes to utilise those facilities.
Clause 2 of the Sub-Originator Agreement is titled “Applications” and provides:
2.1The Sub-Originator will use its best endeavours to source and generate finance applications through FAST.
2.2Applications sourced by the Sub-Originator will be processed through FAST in accordance with this Agreement and any direction given by FAST to the Sub-Originator in writing from time to time.
2.3The Sub-Originator will use FAST for the purposes of submitting finance applications to Lenders during the term of this Agreement unless otherwise approved by FAST in writing.
Clauses 3 and 4 respectively set out the obligations of FAST and the Sub-Originator. They relevantly provide:
3. OBLIGATIONS OF FAST
3.1 FAST will at all times during the Term:-
3.1.1maintain all licences and business registration required for the purposes of carrying on its business;
3.1.2as requested co-ordinate training and accreditation of the Sub-Originator in regard to the products and lending guidelines for each Lender;
3.1.3become obliged to pay commission to the Sub-Originator, subject to, and in accordance with, the terms of this agreement, when FAST becomes entitled to receive commission from a Lender.
4. SUB-ORIGINATOR’S OBLIGATIONS
4.1During the Term the Sub-Originator agrees that the Sub-Originator and (where applicable) its staff, agents and contractors who are involved in the preparation and submission of finance applications:-
…
4.1.2comply with all relevant laws and rules of professional conduct applicable to it, including the Financial Transaction Report Act 1998, the Privacy Act 1998, the Trade Practices Act 1974, the Consumer Credit Code 1996, the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and the MFAA Code of Conduct;
…
4.1.4act with absolute integrity with regard to all matters pertaining to finance applications;
…
4.1.7provide FAST upon request with such other information as may from time to time be required by FAST to enable FAST to satisfy the compliance requirements pursuant to any relevant legislation or Codes of Conduct, or as required by any Lender;
…
4.2The Sub-Originator must ensure that neither it, any member of its staff, nor any of its agents or contractors does anything which could give rise to a claim against FAST for loss or damage from any person who could become a borrower from FAST or a Lender including by:
4.2.1making fraudulent, misleading, deceptive or false statements; or
4.2.2acting unconscionably or unfairly.
4.5The Sub-Originator will at all times maintain professional indemnity insurance cover of not less than one million dollars ($1,000,000) and where it engages employees, adequate Workers Compensation Insurance and separately where it owns or leases business premises, Public Liability Insurance of not less than ten million dollars ($10,000,000). The professional indemnity insurance is to be maintained in force for the Term and, following termination of this Agreement, for such further period as the Sub-Originator is entitled to receive further commissions under this Agreement. The Sub-Originator will upon request from FAST from time to time provided evidence of the currency of insurances required to be maintained pursuant to this clause.
4.6The Sub-Originator will ensure at all times during the Term that the Sub-Originator’s employees, agents and contractors who are involved in the preparation and submissions of finance applications in relation to this Agreement comply with all provisions of this Agreement on the part of the Sub-Originator to be complied with.
Clause 7 is titled “Good faith and confidentiality” and provides:
7.1 The Sub-Originator and FAST agree:
7.1.1to show the utmost good faith and attention to their mutual business activities and use their best endeavours to promote, develop and extend the mutual business interests of both parties;
7.1.2the keep confidential all information, documents, dealings, transactions, client list, data, processes, apparatus, specifications, drawings, reports, operations, inventions, patents, technology, know-how, accounts or other documents and things, of whatever type of nature relating to the mutual business interests of both parties which is obtained by both parties or may be available to both parties or which both parties become aware of as a result of or during the term of this Agreement.
7.1.3it is not FAST’s intention to market or contact for marketing purposes clients introduced to Lenders by the Sub-Originator without the prior consent of the Sub-Originator.
Clauses 10 and 11 respectively concern termination and suspension. Clause 10 provides:
10.1This Agreement may be terminated by either Party, at its sole and absolute discretion at any time by giving one month’s notice in writing to the other Party. Termination of this Agreement by either Party in this manner does not affect the Sub-Originator’s entitlement to Commission where that entitlement arose from a right or event which occurs prior to termination.
10.2If a party breaches a term of this Agreement (“Defaulting Party”), and that breach is not remedied within fourteen (14) Business Days of notice being given by the other party (“Non Defaulting Party”) to remedy that breach, the Non-Defaulting Party may termination this Agreement on giving written notice to the Defaulting Party.
10.3FAST may terminate this Agreement upon giving written notice to the Sub-Originator if:
10.3.1the Sub-Originator or any director, employee or contractor of the Sub-Originator is found to have made any fraudulent, dishonest, misleading, deceptive or false statement or has been knowingly concerned in any fraudulent, dishonest, misleading or deceptive conduct;
10.3.2the Sub-Originator or any of the Directors of the Sub-Originator commits a Prescribed Offence;
10.3.3a liquidator, trustee in bankruptcy or administrator is appointed of the Sub-Originator, or a Controller as defined in section 9 of the Corporations Act 2001 is appointed in respect of any property of the Sub-Originator.
10.4In the event this Agreement is terminated, the Sub-Originator will immediately deliver to FAST all documents, reports, data, specifications, or other documents, and things of whatever type or nature bearing the name of FAST or otherwise relating to the business of FAST.
10.5If this Agreement is terminated by FAST pursuant to clause 10.2 or 10.3, FAST shall, notwithstanding any other provision in this Agreement to the contrary, be entitled to immediately cease paying any further commissions to the Sub-Originator and retain those commissions for its own benefit without prejudice to FAST’s other rights and remedies under this Agreement or at law.
Clause 11 relevantly provides:
11.1FAST may suspend the operation of this Agreement by notice in writing to the Sub-Originator to that effect if:
11.1.1the Sub-Originator or any of its Directors are charged with a Prescribed Offence;
11.1.2it has been alleged by a Lender, a mortgage insurer, an industry organisation, or a government or semi-government authority that the Sub-Originator has not complied with a statue or regulation relating to the provision of loans or the operation of the Sub-Originator’s business, or that the Sub-Originator or any of its Directors has engaged in fraudulent, misleading, deceptive or dishonest conduct;
11.1.3the Sub-Originator fails to comply with any of the provisions of clause 4.5.
The term “Prescribed Offence” is defined in cl 1.1.6 to mean “an offence which may in the reasonable opinion of FAST reflect on the honesty, trustworthiness or integrity of the person charged with the offence”.
Mr Ryan explained that, typically, after a broker enters into a sub-originator agreement with FAST, the sub-originator will nominate the lenders it wants FAST to arrange accreditation with, usually around eight lenders. The nominated lenders would then contact the broker to notify it of the outcome of any accreditation application and to arrange for the broker to undertake any required training.
Submitting loan applications to Panel Lenders
Once accredited by FAST, a broker can submit loan applications for assessment and approval to Panel Lenders with whom the broker is accredited via FAST’s online portal known as Podium, which is used by the majority of FAST’s accredited brokers. Lending applications are processed through Podium to lender platforms called “NextGen” or “Apply Online” which link Podium with the particular Panel Lender’s online system.
For leasing applications, the broker will usually submit scanned documents to the lender via email.
When submitting documents to Panel Lenders, the onus is on the broker to ensure that it has complied with all applicable laws, practices and requirements of the particular Panel Lender and to ensure the integrity of documentation received from the loan applicant and submitted via Podium.
Mr Ryan, explained that, since at least 2010, brokers have been required to take the following steps when submitting loan applications (although particular Panel Lenders may have additional requirements which brokers are required to familiarise themselves with before submitting a loan application):
(1)send a credit guide to the loan applicant(s) before submitting a loan application to a Panel Lender;
(2)sight original documentation (unless certified copies are acceptable to a particular lender);
(3)undertake a fact-find and needs analysis (also described as a preliminary assessment). A fact-find is a document which addresses the needs of the loan applicant and a needs analysis is a guide which documents those findings; and
(4)make a recommendation of suitable lenders based on the broker’s preliminary assessment of the loan applicant’s needs.
Once a Panel Lender receives an application, it reviews and assesses it pursuant to its own internal assessment processes. FAST is not involved, nor does it contribute to, or engage in, this process. FAST’s function is to facilitate the relationship between the broker and Panel Lenders and to provide the Podium platform.
Leaseworks’ FAST affiliated accreditations
During the course of the Sub-Originator Agreement, FAST assisted Ms Hudson and/or Leaseworks to obtain accreditation from the following lenders for vehicle and other consumer loans not related to real property:
(1)Liberty Financial Pty Ltd in the period 2010 to 2017 for consumer vehicle loans;
(2)Commonwealth Bank of Australia (CBA) in the period 2016 to 2017 for commercial equipment and vehicle finance; and
(3)Medfin Australia Pty Ltd in 2017 for medical equipment finance.
Ms Hudson explained that as at February 2020 the accreditation with Liberty had been suspended and the accreditations with CBA and Medfin had been suspended and were subsequently terminated.
In or about 2016 FAST assisted Ms Hudson to have her personal accreditations with Pepper Asset Finance Pty Ltd, for commercial equipment and vehicle finance, transferred. Ms Hudson had accreditations affiliated with a pre-existing aggregator for that lender transferred. After the transfer, applications were submitted to that lender pursuant to the accreditations affiliated with FAST.
In or around July 2014, FAST assisted Ms Hudson to obtain personal accreditation with lenders for residential and/or commercial property mortgages. The lenders included:
(1)NAB;
(2)Australia and New Zealand Banking Group Limited (ANZ) for commercial and residential property;
(3)Pepper Home Loans for residential property;
(4)Westpac Banking Corporation for residential property;
(5)St George Bank for residential property;
(6)CBA for residential property; and
(7)Deposit Power for residential property.
Insofar as the accreditation with NAB was concerned, Ms Smith explained that Ms Hudson was personally accredited with NAB as a representative of FAST. NAB did not have a direct relationship with Ms Hudson, its agreement was with FAST and Ms Hudson was a representative under that agreement. Leaseworks had no agreement with NAB and was not accredited with it, only Ms Hudson was accredited with NAB.
Ms Hudson meets Mr Dandachli
In or about April 2014, a colleague of Ms Hudson’s, Alex Patsellis, contacted her. At the time of his call, Mr Patsellis was working at Platinum Direct. Mr Patsellis informed Ms Hudson that he was moving to Classic Funding and that he had a couple of referring brokers with whom he had dealt who he was going to direct to Ms Hudson. Ms Hudson recalls that Mr Patsellis mentioned a few first names including “Muzzi” but that she did not know any of the people mentioned.
Ms Hudson assumed that, because Platinum Direct was regarded as a major broker, its referrers would have been vetted and that the referrers Mr Patsellis had mentioned in his call would work in the same field as Leaseworks.
In or around April 2014 Ms Hudson was contacted by Moustafa Dandachli (also known as Muzzi) who explained that Mr Patsellis had given him her number. They agreed to meet in the coming weeks.
Subsequently Mr Dandachli met with Ms Hudson at her office. Ms Hudson recalls that during the course of their meeting they had a conversation to the following effect:
Mr Dandachli: I am moving into commercial property development and business mentoring. I was previously in home loan lending. I have a potential pipeline of commercial equipment and vehicle finance referrals I can send your way. I am also considering selling my residential trail book.
Ms Hudson:I am interested. But I need to learn more about home loans as it is not an area that I have a lot of experience or knowledge in.
Mr Dandachli: I can provide you with training and if you are still interested in the trail we can further discuss.
Ms Hudson:OK. What kind of numbers are we talking about?
Mr Dandachli: In or around $150,000.
In about June 2014 Mr Dandachli contacted Ms Hudson to inform her that he was moving office and ask if he could bring some files over to Ms Hudson’s office so that they could “at least start the process”. Ms Hudson agreed.
Despite Ms Hudson’s recollection that the conversation in the preceding paragraph took place in June 2014, she said that in about May 2014 Mr Dandachli brought four filing cabinets of files to Leaseworks’ office. In about June 2014 Mr Dandachli started to provide informal training to Ms Hudson in relation to home loans. Ms Hudson recalls that the training, which continued until about July 2014, included: the interview process; completion of forms; supporting documents required; and the loan approval process.
Ms Hudson was unaware, at the time of first meeting Mr Dandachli and thereafter until she was informed by Mr Clarkson (see [79] below), that Mr Dandachli had been permanently banned by ASIC from engaging in any credit activities as at 7 or 14 March 2014 and that he had been convicted of fraud in 2013.
Ms Hudson meets with Mr Maroun, ANZ
In about July 2014, Tony Maroun of ANZ, together with another ANZ employee, attended Leaseworks’ office to finalise Ms Hudson’s commercial real property accreditation with ANZ. Mr Dandachli was at Leaseworks’ office at the time and also joined in the meeting.
Ms Hudson recalls that at the meeting they discussed the lending market generally and the commercial property market in which she and Leaseworks were interested in working. The meeting concluded on the basis that Ms Hudson would hear from ANZ in relation to next steps.
Events following Ms Hudson’s meeting with Mr Maroun
Ms Hudson recalls that, as it was taking some time for ANZ to get back to her about her accreditation application, she telephoned Mr Maroun to find out the cause for the delay. They had a conversation to the following effect:
Ms Hudson: Hi Tony, what is going on with the accreditation, when can I start?
Mr Maroun:Well, about that, there’s an issue with who is in your office. You should contact your BDM, Patrick Clarkson.
Ms Hudson was perplexed by Mr Maroun’s comment. Accordingly, on 6 August 2014 she sent a text to Stefania Riotto, her FAST partnership manager at the time. The text message read (as written):
Hey Steph can you give me Patrick’s number? I just spoke to Tony @ ANZ. He told me whats going on. Its Kerry
According to Ms Hudson, on or about 7 August 2014 she telephoned Mr Clarkson and he informed her that he would come to her office to discuss the issue that had arisen following Mr Maroun’s visit.
Mr Clarkson recalls that Mr Maroun had contacted him to inform him that he had seen Mr Dandachli at Ms Hudson’s office. Mr Clarkson knew of Mr Dandachli from an ASIC release that reported that he had been convicted of falsifying loan documents after an ASIC investigation. Mr Clarkson accepted that he spoke to Ms Hudson on or about 6 or 7 August 2014. He recalled that he wanted to meet with Ms Hudson in person because she was a valued broker and he was concerned that the suggestion that Mr Dandachli had been at Leaseworks’ office posed a potential risk to her.
There is a dispute between the parties as to whether Ms Hudson and Mr Clarkson met on one or two occasions in early August 2014. The relevant evidence about that issue follows.
Ms Hudson recalls that on 7 August 2014 Mr Clarkson attended Leaseworks’ office and at that time they had a conversation to the following effect:
Mr Clarkson: Look, we need to talk about Mr Dandachli. Are you aware of his background? Do you know anything about him?
Ms Hudson:He’s a broker. I am looking to buy his book. He is asking for in or around $150,000. What is there to know?
Mr Clarkson: He is a banned broker. He has been convicted of fraud.
Ms Hudson:What?
Mr Clarkson: Yes. You need permission from FAST to buy the book. You cannot use it without our approval.
Ms Hudson:Of course.
Mr Clarkson recalls that he had minimal face to face contact with Ms Hudson during the time that he was her FAST partnership manager. He recalls that most of his contact with her was by telephone but, based on his outlook calendar, he was able to say that he went to Leaseworks’ office on two occasions: 13 August 2014 and 25 September 2014. As to the former, Mr Clarkson recalls the meeting at Leaseworks’ office in Parramatta on that day because it was the first time he had been to Leaseworks’ office. He recalled making a mental note of the office’s location for future meetings. Mr Clarkson’s evidence was that he only met with Ms Hudson about the issue that had arisen with Mr Dandachli’s files on one occasion, 13 August 2014. That recollection is borne out by the email referred to in the paragraph below.
On 10 August 2014 Ms Hudson sent an email to Mr Maroun, copied to Mr Clarkson, in which she wrote:
As discussed I was unaware of Muzi Dandachli’s conviction for fraud & my first reaction was of horror as he had come to me via a rather large brokerage, Platinum Direct Finance. As he had been vetted by them & had been referring equipment finance deals I never suspected for a moment that he had a criminal conviction for fraud.
Having said all that I didn’t think that I would have to disclose to anyone outside my business that we were in the process of looking at purchasing his Trail book. I am advising you that this is the reason why he made himself available to assist me with how to put together mortgages & how we would transition his customer base to Leaseworks, which included sitting in on some meetings.
When I asked him why he hadn’t revealed his conviction, he told (sic) that the information was widely available on the internet & ASIC’s website & then went on to state that he did not believe it was relevant to the purchase or sale of his trail book.
I assume that his trail book is not fraudulent, otherwise it would have been taken from him, but I have now been placed in a position that I have had to disclose confidential plans for my business. I thought this was a good way to progress the mortgage component of my business but now I am uncertain of whether the purchase will put me at odds with ANZ.
Can you please advise me if the purchase is in conflict with ANZ’s policies & if I were to continue the process would this exclude me from accessing ANZ’s commercial facility.
I will be having this conversation (sic) Patrick on Wednesday, to confirm with him that were I to proceed with the purchase that I would not be jeopardising my Fast accreditation.
(Emphasis added.)
At the time of his meeting with Ms Hudson on 13 August 2014, Mr Clarkson understood, from his previous dealings with her, that she was a car finance broker working predominantly in the area of commercial loans. He was not aware of Ms Hudson doing any work in relation to residential loans. Mr Clarkson recalls that during the meeting Ms Hudson informed him that she wanted to acquire Mr Dandachli’s loan book. Mr Clarkson denies telling Ms Hudson during the meeting that she needed FAST’s permission to purchase that loan book, as recalled by her and set out at [79] above, and does not recall Ms Hudson referring to the cost of Mr Dandachli’s loan book. Mr Clarkson explained that it is not usual practice to speak in dollar amounts around loan books, rather it is usual to speak in multiples when considering book values.
Mr Clarkson recalls that at their 13 August 2014 meeting he and Ms Hudson had a conversation to the following effect:
Ms Hudson:I want more income streams so I am looking to buy a loan book from Moustafa Dandachli.
Mr Clarkson: Whether you buy a book or not is a matter for you, but you should be careful. This guy [Dandachli] has been suspended by ASIC. There are risks. If it were me, I would not be buying the loan book.
Ms Hudson denies that Mr Clarkson said the words attributed to him above.
Mr Clarkson said that he did not give permission to Ms Hudson to introduce loans from Mr Dandachli’s book or to use it to generate leads. Mr Clarkson did not have authority to give any such approval or permission, it was not within the functions or duties of his role as a partnership manager.
With leave, Ms Hudson gave oral evidence about a meeting she had with Mr Clarkson in August 2014, which I infer to be the meeting on 13 August 2014. She said that during the course of that meeting they had a conversation relating to Mr Dandachli’s presence at her office to the following effect:
Ms Hudson: What were you talking about a problem being in my office?
Mr Clarkson: Are you aware who was in your office – Mr Dandachli?
Ms Hudson:Yes, there was somebody in here. Tony Maroun was in at ANZ. What seems to be the problem?
Mr Clarkson: Do you know that he’s a – been convicted of fraud?
Ms Hudson: No I didn’t.
Mr Clarkson: Well, you can look it up. It’s on Google.
Following his meeting with Ms Hudson Mr Clarkson posted a file note on Salesforce, a “customer management relationship system” used for entering and maintaining records in relation to broker groups and brokers. Mr Clarkson’s file note, which was entered on 14 August 2014 at 8.44 am records, among other things:
Visited Kerry due to an issue arising with a book she was looking at buying. The owner of the book m dandachli has just been prosecuted by ASIC and found guilty of fraud. ANZ BDM Tony Maroun was in her office and recognised him. He advised us as well as speaking to Kerry who was unaware of situation. She had advised ANZ of events by email.
Also looking to expand business and look at Residential lending. Advised would need to obtain Diploma as previously purely leasing. Has enrolled with Walker miller to complete via RPL.
Also interested in Podium have requested upgrade with 3 months free period.
Also looking to put on a new Consultant under her license. Have sent forms and requirements including checklist to her.
Ms Hudson said that she was shocked by what Mr Clarkson had told her and uncomfortable with the whole situation. In about mid August 2014 she had a conversation with Mr Dandachli in which she confirmed with him that he had been convicted of fraud and banned and told him that he could not return to Leaseworks’ office and that she did not want to proceed with the purchase of his book or referrals. According to Ms Hudson, at that time, Mr Dandachli told her that he did not “have any need for the files”, that she could “do with them what [she wanted]” and that “there’s nothing wrong with them. ASIC climbed all over them. The ones I got done for are with the lawyers or ASIC”.
While Ms Hudson maintained that she had two meetings with Mr Clarkson, on 7 and 13 August 2014, I do not accept that is so. Contrary to Ms Hudson’s recollection the objective evidence suggests, and I find, that the following occurred:
(1)Mr Maroun attended Ms Hudson’s office in July 2014;
(2)following that meeting Ms Hudson learnt from Mr Maroun that Mr Dandachli, who was present at her office at the time of the meeting with Mr Maroun and whose trail book she wished to purchase, had been banned by ASIC. This is borne out by:
(a)Ms Hudson’s text message to Ms Riotto;
(b)her 10 August 2014 email to Mr Maroun; and
(c)Mr Clarkson’s file note dated 14 August;
(3)on 7 August 2014 Ms Hudson telephoned Mr Clarkson. By that time Mr Clarkson was aware from Mr Maroun that Mr Dandachli had been at Ms Hudson’s office. They agreed to meet;
(4)on 10 August 2014 Ms Hudson sent an email to Mr Maroun, copied to Mr Clarkson, explaining how she came to meet with Mr Dandachli, why he was at her office and that she wished to purchase his trail book. By that time she was aware of Mr Dandachli’s conviction; and
(5)as foreshadowed in Ms Hudson’s 10 August 2014 email and recalled and, indeed, recorded by Mr Clarkson, Ms Hudson and Mr Clarkson met on 13 August 2014. This was the only meeting they had at the time. During that meeting, they discussed Mr Dandachli. I accept Mr Clarkson’s evidence to the effect that he did not tell Ms Hudson that she needed FAST’s permission to buy Mr Dandachli’s book, that he did not give any such permission and that he had no authority to give that permission in any event.
The August 2014 email
According to Ms Hudson in or about late August 2014 she sent an email to Mr Ryan, copied to Mr Clarkson. Despite her efforts to do so, Ms Hudson has been unable to obtain a copy of that email. However, she recalls that the email was to the following effect:
I/[Leaseworks] were planning on expanding our business into residential (and commercial) property;
We were looking for more income streams. We considered purchasing Mr Dandachli’s book for in or around $150,000. We saw the trail/ using the book as another potential income stream;
Since the meeting with Mr Clarkson, we had confronted Mr Dandachli. He admitted that he was a banned broker/had been convicted of fraud. We told him that we were no longer interested in the proposed purchase of his book/any dealings with him;
We told him to come and collect his files but he refused and has left them at our office;
We were unaware that we needed permission to use them;
Can we use the database to generate leads?
Ms Hudson did not receive a response to the email referred to in the preceding paragraph. She said that eventually she telephoned Mr Clarkson in late August 2014 and had a conversation to the following effect:
Ms Hudson:I haven’t received a response to my email about using the Dandachli files.
Mr Clarkson: Look - you can use the database to generate work. Just be very careful/take care with them, as you would with any other file.
Mr Ryan has reviewed his email inbox and has been unable to locate any record of the email referred to in [89] above, despite his practice of keeping all emails that he receives. He said that if he had received an email from Ms Hudson containing words to the effect set out in [89] above, it would have raised many “red flags” for him and he would have had serious concerns about its content. This was particularly so given its reference to the purchase/use of a loan book from an individual referred to as a “banned broker/[who] had been convicted of fraud” and the request to “use the database to generate leads”.
Had Mr Ryan received an email to the effect of that referred to in [89] above, he would have immediately asked Mr Clarkson to arrange a meeting with Ms Hudson to discuss its content and his concerns and to advise Ms Hudson not to have anything to do with Mr Dandachli and his database. Mr Ryan said that it is likely that he would have arranged for that meeting to be a site visit to Leaseworks’ premises to gain a better insight into the broker and the premises from where she was operating. Mr Ryan did neither of those things because he did not receive the email.
Similarly, Mr Clarkson does not recall receiving an email from Ms Hudson to the effect set out at [89] above. He has searched his inbox for emails sent and received around that time and has not located any such email from Ms Hudson. Mr Clarkson denies having a conversation with Ms Hudson to the effect set out at [90] above. In cross-examination Mr Clarkson said that if he had such a conversation, given its subject matter, he would have recorded it in the notes section of Salesforce.
In cross-examination Ms Hudson conceded that her email referred to at [89] above “obviously hadn’t gone through” and accepted that she had not located a copy of her “unsent email” on her computer. She recalled that she was having issues with her computer/IT system at the time. Ms Hudson said that at about that time Leaseworks’ office flooded, all of their equipment had to be replaced and that was possibly why the email went missing. However, Ms Hudson maintained that she had a “general conversation” with Mr Clarkson as set out at [90] above.
Ms Hudson said that from about late August 2014 to July 2017, in reliance on the permission given by Mr Clarkson regarding the use of Mr Dandachli’s files, set out at [90] above, (referred to as the Permission), they dealt with those files to generate work. This included by broking residential and/or commercial applications to NAB, including Advantedge, ANZ, Pepper Home Loans, Westpac, St George Bank and CBA.
Even if I accept that Ms Hudson drafted an email in the terms set out at [89] above, it is clear that the email was not received by Messrs Ryan and Clarkson. So much is apparent from their evidence which I accept. Further, comprehensive searches undertaken by Mr Mahoney, and reviewed by Ms Tavares, did not recover any email from Ms Hudson to Messrs Ryan and Clarkson to the effect set out at [89] above. In any event, Ms Hudson accepted that the email did not go through.
In light of that and Mr Clarkson’s evidence I do not accept that the conversation referred to by Ms Hudson at [90] above occurred. Ms Hudson is mistaken in her recollection of these events and her alleged conversation with Mr Clarkson. It follows that, contrary to Ms Hudson’s evidence, Mr Clarkson did not give permission on behalf of FAST or otherwise to use Mr Dandachli’s loan book to generate work or leads i.e. he did not give the Permission as alleged. It follows that I do not accept Ms Hudson’s evidence set out at [95] above, that in reliance on the Permission she dealt with Mr Dandachli’s files to generate work.
Accreditation with ANZ
As at October 2014, Ms Riotto had been reappointed as Ms Hudson/Leaseworks’ partnership manager.
By emails exchanged on 16 October 2014 Ms Hudson made inquiries of Ms Riotto about the progress of her ANZ accreditation application.
Ms Hudson recalls that ANZ approved her commercial property accreditation with conditions in about late October 2014 and that during October 2014 she and Ms Riotto had a conversation to the following effect:
Ms Riotto:I’ve had to chase Mr Scott Wunderlich [of ANZ] a few times. He has approved it – subject to these conditions: (a) anything moving forward with the commercial property accreditation, the applicant/s had to be interviewed by the ANZ BDM; and (b) the applicant/s had to execute the loan documents at a local branch.
Ms Hudson:For all applicants or just those from the Dandachli files?
Ms Riotto:All applicants.
Ms Hudson:OK-got it.
The Dandachli database of files
To assist with the generation of work from the database comprising the Dandachli files in about early 2015 Ms Hudson had that database, of about 300-400 files, uploaded onto FAST’s Salesforce system. Eventually all of Leaseworks’ other databases were also loaded onto Salesforce.
If a new application eventuated from the database, the loan application/submission process on Podium would be more efficient as the loan applicant’s details were pre-loaded. Where a lender was not on Podium, there was a need to scan and dispatch or load paper applications to individual website portals.
Mr Mohamed’s early interactions with Ms Hudson
Mr Mohamed, who was Ms Hudson’s NAB BDM, recalls that he met with Ms Hudson three or four times prior to 19 April 2016, the date of the first file review meeting (see [116] below). Jamie Brill, a small business commercial business development manager, attended some of those meetings with Mr Mohamed. The purpose of Mr Mohamed’s meetings at that time was to provide an update on NAB’s latest residential and small business commercial products and policies and to discuss any loan applications in the pipeline, where Ms Hudson may have needed assistance from Mr Mohamed, e.g. in liaising with other parts of NAB.
On 24 March 2015, Ms Hudson exchanged emails with Divya Choudary, an associate in the NAB broker mortgage services team, copied to Mr Mohamed. In her email Ms Hudson asked Ms Choudary a number of questions relating to a loan application in the name of Houssan Dandachli. Ms Choudary responded to Ms Hudson’s queries including her query as to whether NAB would accept a letter or statutory declaration “from the tenant confirming they pay the rent in cash”. In response to that query Ms Choudary noted that:
To use rental income - can we have it on tax returns? if yes, we need tax returns to confirm that applicant is receiving the funds and being declared to ATO. If not I won’t use this income, as there’s no evidence of income being received, hence it fails income verification process.
On 7 May 2015 Mr Mohamed received an email from Ms Riotto asking if he could “reach out for [Ms Hudson] in Parramatta” as she had “been recently ramping up her mortgage business”. Mr Mohamed knew that Ms Riotto was Ms Hudson’s FAST partnership manager. At the time of receiving Ms Riotto’s email, Mr Mohamed had held the position of BDM only for around three months and had a panel of around 400 FAST brokers. He was reliant on the FAST partnership managers to provide him with the contact details of FAST brokers who needed introduction to him as their new BDM. Based on his usual practice at the time, Mr Mohamed believes that after receiving Ms Riotto’s email he would have reached out to speak with Ms Hudson but he can no longer recall any specific conversation with her. He believes, based on his usual practice, that he would have telephoned Ms Hudson and introduced himself to her as her NAB broker BDM and sought to arrange a face to face meeting.
First BRR Report
In March 2016 Ms Hudson was selected for a review by BPM (which at the time was still known as BRR). The review was prompted by three suspect fraud alerts.
Maria Casano, an assurance analyst with BRR, prepared a report (First BRR Report) based on a review of six files. The First BRR Report gave an “overall review rating” of “red” and included:
Review Purpose
Kerry Ann Hudson of FAST has been selected for a review in order to ascertain the quality of their applications. This review was prompted by 3 suspect fraud alerts received by the broker. This report has been provided in order to assist you to discuss the findings with Kerry Ann Hudson and is not intended for distribution direct to the Broker.
And:
Action Required
1.As this review has been referred to BPLAC for further consideration, conduct an investigation in conjunction with the Broker’s aggregator into the findings of Appendices 3, 4 & 5 of this report.
2.Complete a BPLAC Submission which details your findings in regards to the issues identified above and the recommended course of action.
3.Send the completed BPLAC submission to the Committee Secretary to enable scheduling at an upcoming meeting.
Pages 3, 4 and 5 of the First BRR Report each included:
(1)a “File Type” of “NAB Broker (Suspect Fraud)”;
(2)a “Settlement Date” recorded as “Withdrawn”, which Ms Smith explained signified that the broker withdrew the application; and
(3)in relation to “Operational Risk”, among other things, that each of the applications was “originally alerted in Detica”, a fraud detection system.
By emails sent on 31 March 2016 Ms Casano provided the First BRR Report to Ms Smith, Ms Black and Messrs Notaras and Mohamed noting that the “review has been referred to [BPLAC] for further consideration”. This was because of the “following material concerns” identified in the report:
The review has been rated Red
ŸSuspect Fraud: Appendices 1 - 3.
ŸPayslips suspected to be manufactured: Appendices 3, 4 & 5.
On or about 31 March 2016 Mr Davidson also received a copy of the First BRR Report.
Where, as with the First BRR Report, the “Overall Review Rating” is red, part of the BPLAC process is to conduct a review, including conducting a voluntary interview with the broker. This gives the broker the opportunity to respond to any questions that NAB, as lender, might have. The aggregator, in this case FAST, is also given the opportunity to be involved. It is rare for an aggregator not to attend a meeting where a broker is aggregating under them.
Mr Notaras also explained that a representative from FAST, usually a partnership manager, attended file review meetings. This was to ensure that FAST had oversight of the review process and was aware of any concerns that NAB had about any of its brokers.
First file review meeting
On 4 April 2016 Mr Mohamed sent an email to Ms Nguyen, who by that time was Ms Hudson’s FAST partnership manager, copied to Ms Riotto and Mr Davidson, forwarding Ms Casano’s email (see [109] above) and noting:
See below - BPLAC review for Kerry Ann Hudson attached
I’ll have to get [Ms Riotto] or [Mr Davidson] to attend the interview as [Mr Notaras] is on annual leave the next 2 weeks
Please let me know you diary for April
On 4 April 2016 Mr Mohamed telephoned Ms Hudson to arrange a file review meeting. Following her telephone conversation with Mr Mohamed, Ms Hudson sent an email to him seeking further details about the proposed meeting including the list of files that were to be reviewed or the questions to be asked.
By email dated 4 April 2016 Mr Mohamed responded to Ms Hudson’s email notifying her of the date and venue for the meeting and the six files she would need to bring with her. They were:
ŸAngela BITAR - $XXX,XXX - Application date 10/10/15
ŸMinh & Trang NGUYEN - $XXX,XXX - Application date 10/6/15
ŸVan NGUYEN - $XXX,XXX - Application date 16/7/15
ŸHassan SINARAM - $XXX,XXX - Application date 27/8/15
ŸNenad & Ljiljana TODIC - $XXX,XXX - Application date 8/11/15
ŸHoussan DANDACHLI & Abeir TOUKAN - $XXX,XXX - Application date 10/4/15
The proposed file review meeting (which I will refer to as the first file review meeting) took place on 19 April 2016 at NAB’s offices at 105 Miller Street, North Sydney. In attendance were Ms Hudson, Mr Davidson, Mr Mohamed and Ms Nguyen, who by that time was Ms Hudson’s FAST partnership manager.
The first file review meeting was the first occasion on which Mr Davidson met Ms Hudson. Based on his practice at the time, Mr Davidson would prepare for a meeting of the nature of the first file review meeting by undertaking a comprehensive review of the relevant report, the applications and all supporting documents including the loan applications and other documents such as payslips, tax returns and credit files. He recalls that prior to the first file review meeting he printed the relevant documents in case Ms Hudson did not bring them with her.
Ms Nguyen engaged with brokers in her portfolio regularly, often meeting them over coffee or lunch. Ms Nguyen also explained that from time to time a Panel Lender would interview a broker whom it had accredited at FAST’s request and that this would occur when the lender had concerns about loans being introduced by that broker. Where such an interview was to proceed, Ms Nguyen arranged and attended the interview. She would usually take brief notes and thereafter provide an outline to her boss, Mr Ryan.
Ms Nguyen attended the first file review meeting as an “Aggregator Representative”. She was required to attend the meeting because Ms Hudson was one of FAST’s brokers. It was FAST’s preference to send a representative to support its brokers at file review meetings. Ms Nguyen recalls that Mr Davidson led the meeting and did most of the talking and that she mostly observed. Mr Davidson also recalls that he led the meeting and asked questions relevant to the First BRR Report.
According to Ms Hudson only three of the six files listed in Mr Mohamed’s email referred to at [115] above were discussed at the first file review meeting. They were the Van Nguyen, Todic and Sinaram files. Ms Hudson recalls that she had exchanges with Mr Davidson to the following effect about those files:
(1)in relation to the Van Nguyen file:
Mr Davidson: Where did you meet Mr Van Nguyen?
Ms Hudson:He was a referral from his cousin, Mr Minh Nguyen (whom we did a personal loan application and CTP for), another file that you have asked me to bring along.
Mr Davidson: Where did you get supporting documents for Mr Van Nguyen’s application?
Ms Hudson:Some documents came from him personally. Others came from his employer. I believe it’s all in the file.
Mr Davidson: Why didn’t the application proceed?
Ms Hudson:There were follow up questions regarding his existing unencumbered property and how that was acquired. He couldn’t provide evidence as to how he had acquired the property. I recall he stopped responding to our enquiries. Given the lack of response/information, the application was withdrawn.
(2)in relation to the Todic file:
Mr Davidson: Where did you meet the Todic?
Ms Hudson:We had a preliminary meeting. I believe this would have followed a round of marketing to our database.
Mr Davidson: Where did you get the supporting documents?
Ms Hudson:This was provided to us by the Todic. What is the issue with this one? The refinance application eventually proceeded (following some back and forth about Liliana’s part time position) and was unconditionally approved/ settled by NAB?
Mr Davidson: Yes – we will come back to that.
(3)in relation to the Sinaram file:
Mr Davidson: Where did you meet him?
Ms Hudson:We had a preliminary meeting. He cold called us. This was his first property and so I doubt that we had any pre-existing details on our database.
Mr Davidson: Where did you get the supporting documents?
Ms Hudson:Like the Todics and any others – either at the preliminary meeting or afterwards via email.
(4)and, in relation to all three files:
Mr Davidson: Have a look at the three payslips.
Ms Hudson:Yes, what about them?
Mr Davidson: Look at the bank account details on the payslips. The last four numbers for each end in 1038.
At this point Ms Hudson looked at the payslips and observed that the same bank account had been provided for each of the Van Nguyen, Todic and Sinaram applications. She was stunned and recalls that she told Mr Davidson that she “was shocked”.
For those reasons, in my view, Leaseworks has not established that FAST breached cl 7.1.2 of the Sub-Originator Agreement in the manner alleged.
It follows that Leaseworks has not established that FAST breached the Sub-Originator Agreement. In those circumstances it is not necessary for me to address the question of causation in this context save to note that the applicants’ case on causation, assuming they were able to establish a breach of the Sub-Originator Agreement and accepting the different context, suffers from some of the same flaws I have already identified.
DAMAGES
Given my conclusions in relation to liability and the applicants’ failure to establish any of the alleged breaches, the question of the damage suffered by the applicants, as a result of the conduct, does not arise for consideration. However, for completeness I set out below a summary of the expert evidence going to that question and my observations about that evidence and the applicants’ claim for damages more generally.
The expert evidence
Both the applicants and the respondents relied on expert evidence. As set out at [13(5)] above, the applicants relied on evidence given by Mr Monaghan, an accredited business valuation specialist, and the respondents relied on the evidence of Mr Giliberti, a forensic accounting and business valuation specialist. Mr Monaghan provided two reports: the first dated 17 September 2020 and the second, in response to Mr Giliberti’s report, dated 4 March 2021. Mr Giliberti provided one report dated 10 December 2020. Mr Monaghan and Mr Giliberti also prepared a joint report dated 3 May 2021.
A summary of the evidence given by Mr Monaghan and Mr Giliberti follows.
Mr Monaghan’s evidence
In his first report Mr Monaghan was asked to address two questions:
(1)what loss had Ms Hudson suffered as a result of the “Conduct”?; and
(2)what loss has Leaseworks suffered as a result of the “Conduct”?
In the letter of instruction provided to Mr Monaghan, the “Conduct” was defined as follows:
In August 2017 the Respondents then proceeded first to suspend and then terminate their business relationships with the Applicants. Also in or around August and September 2017, the Respondents contacted a variety of lenders for whom the Applicants worked to inform them first of the suspension and then later of the termination. The communications carried the imputation that the suspension and termination were due to the misconduct of the Applicants. This imputation was strengthened by the subsequent (and ongoing) refusal by the Respondents to provide a letter to the Applicants (which they would then be able to show to other lenders to restore their reputation) stating that the termination was not as a result of misconduct on their part. …
In answer to the first question, Mr Monaghan calculated that Ms Hudson had suffered a loss of personal income of $87,799 (after tax) for the period 1 July 2017 to 30 June 2020 in addition to lost potential dividends and share value. In order to assess Ms Hudson’s loss Mr Monaghan calculated the difference between what Ms Hudson actually earned in that period with what she would have earned in the same period “but for” the Conduct.
For the purposes of calculating Ms Hudson’s actual remuneration, Mr Monaghan had regard to the pre-tax wages declared by Leaseworks for Ms Hudson, adjusted by any increase in her loan account, income tax and the Medicare levy.
For the purpose of calculating the wage Ms Hudson would have received in the “but for” scenario, Mr Monaghan had regard to a document titled “PayScale salary data for mortgage brokers in Australia” (PayScale data document). He adopted the 90th percentile total pay for the 2020 financial year from the PayScale data document and reduced that amount by 3% for each preceding year to allow for deflation. He then adjusted the resulting amounts for income tax and the Medicare levy to give a net income figure in each of the relevant years.
In answer to the second question, Mr Monaghan calculated Leaseworks’ loss for the period 1 July 2017 to 30 June 2020 as $378,755. He arrived at that figure by undertaking two calculations.
The first was for loss of profits from declining lending commissions compared to the “but for” scenario between 1 July 2017 and 30 June 2020 which he calculated to be $168,880.
The second was for loss of business goodwill as at 30 June 2020 from declining profits and, in particular, the declining trailing income when compared to the “but for” scenario. Mr Monaghan calculated loss of business value of $209,895. For the purpose of that valuation Mr Monaghan valued the business at 30 June 2020 and compared that value to what the value would have been “but for” the Conduct. In doing so he calculated the actual business valuation and the “but for” business valuation as at 30 June 2020 using the “recurring revenue method” which he opined is the primary valuation method used in the mortgage broking industry adopted by buyers and sellers, particularly for smaller businesses. As a check method of that calculation, Mr Monaghan also carried out calculations of the value of the actual and “but for” values of Leaseworks’ business as at 30 June 2020 using the capitalisation of future maintainable earnings method, which resulted in a lengthy lower valuation for both scenarios.
Objection to Mr Monaghan’s report
The respondents objected to the whole of Mr Monaghan’s first report dated 17 September 2020 on three bases. They contended that:
(1)there was no basis for the opinions expressed by Mr Monaghan in that report;
(2)Mr Monaghan does not have the relevant expertise to express his opinions; and
(3)Mr Monaghan did not disclose his central reasoning in his report.
After hearing submissions from the parties I overruled the objection and allowed the tender of Mr Monaghan’s first report. At the time of doing so I indicated to the parties that I would include reasons for my ruling in these reasons for judgment. Thus a summary of the respondents’ submissions and the reasons for my ruling follow.
Respondents’ submissions
The respondents’ principal submission was that the there was no basis for the opinions expressed by Mr Monaghan, both in relation to the loss said to have been suffered by each of Ms Hudson and Leaseworks.
As to the loss said to have been suffered by Ms Hudson, the respondents observed that in assessing the loss said to have been suffered by Ms Hudson a key assumption made by Mr Monaghan was that a “fair wage was not able to be paid to [Ms Hudson] due to the decline in income and profits of [Leaseworks]”. The respondents submitted that:
(1)there was no support in the evidence for that assumption;
(2)Mr Monaghan does not identify what a “fair wage” is; and
(3)there is no basis for the statement that there was a decline in income and profits given that the particular evidence of Ms Hudson relied on to support the statement was rejected.
The respondents submitted that there was a further issue, namely Mr Monaghan’s reliance on the PayScale data document. The respondents submitted that Mr Monaghan does not explain when the PayScale data document was obtained, from where it was obtained or the qualifications, if any, of the compiler of the information in the document. They contended that the PayScale data document does not provide any basis upon which wages can properly be calculated and that, on any view, this is not a matter in respect of which Mr Monaghan has any expertise nor does he disclose his reasoning. They submitted that it followed that there is no basis for any of the opinions expressed by Mr Monaghan in relation to the loss said to have been suffered by Ms Hudson.
In relation to the loss said to have been suffered by Leaseworks, the respondents’ complaint concerned the multipliers used by Mr Monaghan. They observed that Mr Monaghan used two separate multipliers in seeking to determine the loss it is said to have suffered: the capitalisation multiple, in calculating future maintainable earnings; and the recurring revenue multiple, in calculating the multiple recurring revenue method.
In relation to the capitalisation of future maintainable earnings method, the respondents submitted that, in adopting a valuation methodology of capitalising actual or projected income, an essential matter of expertise and expert opinion is the appropriate capitalisation rate. They contended that Mr Monaghan does not provide any reasoning as to why he chose what it described as those “seemingly arbitrary multipliers” and that he does not explain how or why the trends to which he refers matter, provide any basis or justification for the selection of the multipliers or the range from which the multipliers might be selected. The respondents submitted that there is no basis for the adoption of the multipliers disclosed and that he fails to address any of the “qualitative factors”, which he lists in his report, and which he said “influence the required rate of return when assessing the value of any business”. They submitted that the effect of this is that the calculations based on those multipliers must be rejected.
In relation to the recurring revenue multiple, the respondents again submitted that the multiple selected is critical and that Mr Monaghan does not provide any reasoning as to why he chose those “seemingly arbitrary” multipliers, save for the adoption of assumptions for which there is no support on the evidence. The respondents noted that the only support appeared to be “information from Radar Results in the source documents” but there was no explanation for the source of that document or for the information in it. The respondents contended that, in the absence of any basis for the opinion proffered, and where there is no reasoning disclosed, the opinion based on those multipliers must be rejected.
Finally, the respondents submitted that Mr Monaghan’s report is inadmissible because many of the assumptions upon which he relies are not proved, nor, in many cases, is an attempt made to prove them. They contended that, in one part of his first report, Mr Monaghan uses a form of “boilerplate assumption” which Ms Hudson and Leaseworks have failed to make good and that they have also failed to make good the specific assumptions.
Reasons for overruling the respondents’ objection
The respondents’ attack on Mr Monaghan’s first report was to particular components of his calculations. But their objection was to the whole of the report. As I understood it, the respondents’ position was that, taking each of those matters into account, I would conclude that there was a lack of reasoning in Mr Monaghan’s first report which, in turn, would lead me to conclude that Mr Monaghan did not have the expertise required to provide the opinions in the report. For that reason the report would be rejected. The respondents reinforced this approach given their stated position that, if the objection to the whole failed, they did not, in the alternative, seek to make objections to particular paragraphs or parts of the report.
Section 79(1) of the Evidence Act 1995 (Cth) provides:
If a person has specialised knowledge based on the person’s training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge.
In Dasreef Pty Limited v Hawchar (2011) 243 CLR 588 at [37], the High Court (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ) relevantly said:
… The admissibility of opinion evidence is to be determined by application of the requirements of the Evidence Act rather than by any attempt to parse and analyse particular statements in decided cases divorced from the context in which those statements were made. Accepting that to be so, it remains useful to record that it is ordinarily the case, as Heydon JA said in Makita, that “the expert’s evidence must explain how the field of “specialised knowledge” in which the witness is expert by reason of “training, study or experience”, and on which the opinion is “wholly or substantially based”, applies to the facts assumed or observed so as to produce the opinion propounded”. The way in which s 79(1) is drafted necessarily makes the description of these requirements very long. But that is not to say that the requirements cannot be met in many, perhaps most, cases very quickly and easily. …
(Footnotes omitted.)
Mr Monaghan sets out his training and credentials in his first report. As observed at [13(5)] above, he is a member, and a public practice certificate holder, of CAANZ, an accredited business valuation specialist, recognised by CAANZ, a registered tax agent and has a diploma of financial planning, a Bachelor of Commerce and a Bachelor of Economics. In addition he has approximately 20 years’ experience in a variety of professional roles but predominantly in accounting. It is also apparent that Mr Monaghan has experience in providing expert reports, having done so on numerous occasions, and business valuations across a number of areas including in the mortgage broking and banking industry.
I was satisfied that Mr Monaghan has the specialised knowledge, based on his training and experience, to be able to provide an opinion of business value in relation to a mortgage and loan broking business. In his report Mr Monaghan provides an opinion of the loss occasioned by Ms Hudson and the loss occasioned by Leaseworks by reason of the Conduct. As to the former, I would infer that he applied his skill and experience as an accountant and valuation expert and, as to the latter, he undertakes that assessment by, in turn, undertaking a valuation of the Leaseworks’ business at a particular point in time and in two scenarios, applying the same expertise.
The respondents’ objection speaks of a lack of reasoning by Mr Monaghan in his first report as well as a lack of reliability of source material on which he relies.
As to the latter, the respondents were critical of two particular documents, the PayScale data document deployed in relation to the calculation of Ms Hudson’s loss and the Radar Results document deployed in relation to the identification of the recurring revenue multiple. However, an expert is entitled to rely on publications and articles produced by others in their area of expertise. In Bodney v Bennell (2008) 167 FCR 84 at [92]-[93] a Full Court of this Court (Finn, Sundberg and Mansfield JJ) said:
[92]Before the Evidence Act it was well established that experts are entitled to rely upon reputable articles, publications and material produced by others in the area in which they have expertise, as a basis for their opinions. In Borowski v Quayle [1966] VR 382 at 386 (Borowski) Gowans J, quoting Wigmore on Evidence (3rd ed) Vol 2, pp 784–5, said that to reject expert opinion because some facts to which the witness testifies are known only upon the authority of others, “would be to ignore the accepted methods of professional work and to insist on finical and impossible standards”. Experts may not only base their opinions on such sources, but may give evidence of fact which is based on them. They may do this although the data on which they base their opinion or evidence of fact will usually be hearsay information, in the sense they rely for such data not on their own knowledge but on the knowledge of someone else. The weight to be accorded to such evidence is a matter for the court. See generally Borowskiat [1966] VR at 385–387; PQ v Australian Red Cross Society [1992] 1 VR 19 at 34–5; H v Schering Chemicals Ltd [1983] 1 1 WLR 143 at 148–149; Milirrpum v Nabalco Pty Ltd (1971) 17 FLR 141 at 161–163 and Jango (No 4) 214 ALR 608 at [8].
[93] There is nothing in the Evidence Act that displaces this body of law. …
Mr Monaghan is entitled to rely on the research and data of others including the PayScale data document and the Radar Results. The respondents complain about a lack of information or explanation about these documents, their authors and the source of their contents. But they are matters that go to weight, rather than to admissibility of the opinion based on them.
As to the former, the respondents raised issues about the lack of reasoning in relation to the selection of the recurring revenue multiple and the capitalisation of future maintainable earnings multiple. Mr Monaghan has given some explanation of the factors to be taken into account in estimating these multiples. As to the latter he identified a range of factors and then identified the multiples he adopted and explained why he did so, albeit perhaps not in the detail the respondents might like. There is reasoning in the report. I do not accept that the respondents are unable to cross-examine for reason of lack of explanation as to how Mr Monaghan arrived at the multiples. To the extent that the respondents raise criticisms about Mr Monaghan’s approach, they are matters on which the respondents can not only cross- examine but can make submissions as to the weight to be given to the opinions set out in the report.
Mr Giliberti’s evidence
That then brings me to Mr Giliberti’s evidence. As set out at [14(10)] above, he provided a report in response to Mr Monaghan’s first report. Mr Giliberti was instructed to address the following two questions:
a)Assuming that Leaseworks and Ms Hudson’s case on liability is accepted and the loss accrues from 24 July 2017, is the approach adopted by Mr Monaghan a reasonable one for the purposes of assessing loss for a claim for damages?
b)Are the assumptions adopted by Mr Monaghan reasonable and if not, why not?
At [3.6] of his report, Mr Giliberti concludes as follows in relation to Mr Monaghan’s first report and the methods adopted in undertaking his calculations:
a)the assumptions adopted by Mr Monaghan to calculate Leaseworks’ past losses up to 30 June 2020, Leaseworks’ loss of trail book value as at 30 June 2020, Leaseworks’ loss of goodwill value as at 30 June 2020 and Ms Hudson’s losses up to 30 June 2020 are not supported by evidence and therefore are unreasonable.
b)based on my instructions at paragraph 2.3(a) and 2.3(b) above, the approach adopted by Mr Monaghan to quantify Leaseworks’ past losses up to 30 June 2020, Leaseworks’ loss of trail book value as at 30 June 2020, Leaseworks’ loss of goodwill value as at 30 June 2020 and Ms Hudson’s losses up to 30 June 2020 is not an appropriate approach to measure the applicants’ losses. The preferrable approach would be to assess a single amount reflecting the present value as at 24 July 2017 of the stream of losses to Leaseworks (without Ms Hudson’s remuneration) applying a discount rate of 39.1%. This approach is similar to the valuation method called a ‘discounted cash flow’ method, being a valuation method outlined in paragraphs 8.4 to 8.8 of Mr Monaghan’s Report.
Mr Giliberti provides his detailed reasons for arriving at these conclusions and an illustrative calculation of the applicants’ combined loss.
The joint report
Messrs Monaghan and Giliberti prepared a joint report in which they set out the areas of agreement and disagreement between them and their reasons for the latter.
They agreed on limited matters of principle only and disagreed on a range of matters in relation to the valuations arrived at and the methods adopted by Mr Monaghan. The particular areas of disagreement were:
(1)Mr Monaghan’s opinions on “ex-ante” and “ex-post” approaches where the former characterises the loss quantification approach that Mr Giliberti considers to be preferable and the latter characterises the loss quantification approach that Mr Monaghan has adopted. The ex-post approach adopted by Mr Monaghan involves a calculation of past annual losses for the period 1 July 2017 to 30 June 2020 and a loss of asset value as at 30 June 2020. The ex-ante approach preferred by Mr Giliberti requires an assessment of the applicants’ total loss as at the date of the first alleged wrong doing, i.e. 24 July 2017;
(2)revenue discrepancies. There was agreement as between Mr Monaghan and Mr Giliberti that not all information provided or asserted could be independently verified and that the calculations rely on certain assumptions but disagreement about the effect of those gaps in the information on the calculations undertaken; and
(3)revenue growth in a “but for” scenario.
Mr Monaghan and Mr Giliberti gave concurrent evidence in relation to each of the areas of disagreement in their joint report as well as Mr Giliberti’s illustrative calculations included in his report and updated in the joint report.
In relation to the “ex-ante” and “ex-post” date of valuation issue, Mr Monaghan said that he selected the 30 June 2020 date for his valuation based on the most recent financial information made available to him. Mr Monaghan conceded that he could have assumed that the business was not to be sold, or not capable of sale, as at 30 June 2020 and he could have instead opined about the present value of a future sale or future stream of cash flows beyond that date. However, instead using the best information available to him, he looked at lost profits up to 30 June 2020 based on the actual figures.
Mr Monaghan explained that he valued the trail book, i.e. the trailing income of mortgages, and not other parts of the Leaseworks business, and that he had assumed that there was an ability to sell the trail book. However, in valuing the business as at 30 June 2020, Mr Monaghan declined to use a discounted cash flow methodology. He looked at the most recent month of available data, June 2020, annualised the income and then added an industry benchmark. He described this approach as a market method, as opposed to an income method, which has little to do with profit or discounted cash flow methods. Mr Monaghan disagreed that a more reliable valuation methodology would be to adopt a future projection based on the income as at July 2017 (which was the method which Mr Gilberti considered to be the correct approach).
Mr Monaghan adopted a growth rate in upfront commission of 3% for FY18, FY19 and FY20 in his calculation. He did so despite the fact that there had been a decline in commission revenue in FY17. He adopted the growth rate on two bases: first, because of evidence given by Ms Hudson (as to her illness), which was rejected; and secondly, because of information provided by his instructing solicitors to the effect that Leaseworks was working on a few big deals, none of which came to fruition because of the Conduct. However, Ms Hudson’s evidence to that effect was not read by the applicants. It follows that the evidentiary foundation underpinning Mr Monaghan’s assumption of 3% growth was not made out which, in turn, undermines a critical plank in his calculation.
Further, Mr Giliberti rejected the suggestion that a 3% growth rate was conservative given that, according to the objective evidence contained in an IBISWorld report, the industry was not growing at 3% at the relevant time and inflation was not at that level.
Mr Monaghan identifies two multipliers in his report. The recurring revenue multiplier was taken from the range provided in the Radar Results document, which it seems is produced by a business broker who provides information about multiples by email. Mr Monaghan was unable to provide any detail about the source of the information in that document: the sample size or nature of the transactions considered to underpin the data or the literature the author of the information had reviewed. Mr Monaghan disagreed that he had simply adopted the mid-range of the data provided as the appropriate multiplier. He said that he had used his knowledge gathered over time and adopted a multiple that he considered to be reasonable in the circumstances for both the actual and “but for” scenarios. While I accept that Mr Monaghan has experience as a valuer of businesses across a range of industries, and putting to one side the reliability or otherwise of the range of multipliers in the Radar Results document, Mr Monaghan’s inability to explain with greater precision why he selected the particular multiples for his calculations based on recurring revenue causes me some concern. The multiple is a key input into the calculation. I would thus expect an expert valuer to explain why he or she chose a particular multiple in the circumstances of the business in question. The lack of a more detailed explanation for that component, in my view, affects the reliability of the calculation.
In relation to the calculation undertaken by Mr Monaghan of Ms Hudson’s loss of remuneration, Mr Monaghan accepted that he is not a remuneration specialist. For that reason he used the PayScale data document in order to undertake his research on salary. Mr Monaghan did not think that the salary he had selected for the purpose of his calculation was unreasonably high. He said he would normally use data from the top of the scale in his calculations when he is considering an employee who is managing the business and thus who has additional duties beyond that of an employee.
As set out at [400] above, Mr Monaghan arrived at annual remuneration for Ms Hudson by taking the 90th percentile figure from the PayScale data document for 2020, being $99,000, and deflated that amount to allow for wage growth for previous years. That resulted in an amount of $93,317 for FY18. He did not continue that exercise, by applying the same rate of deflation, to take the figure back to FY17. Ms Hudson’s remuneration for FY17 was in fact $60,000. Had Mr Monaghan continued to apply his formula to the amount he had arrived at for FY18 remuneration, he would have arrived at a figure substantially in excess of Ms Hudson’s actual wages for FY17.
Mr Monaghan made inquiries of his instructing solicitors as to why Ms Hudson was paid at that level in FY17 but was not provided with any explanation. Mr Monaghan said that, by looking at hypothetical remuneration which was compiled based on surveys, he had assumed that a person with the requisite skills and experience to fulfil the role occupied by Ms Hudson would be paid the amount he had calculated. Implicitly he had assumed that Ms Hudson was paid less than a market wage in FY17. He said that there could be reasons for that but he was not aware of those reasons.
In circumstances where there is evidence of Ms Hudson’s actual remuneration in FY17, it is difficult to accept Mr Monaghan’s calculation of Ms Hudson’s loss which starts with a hypothetical figure as at FY20 and works backwards. Mr Monaghan was aware of Ms Hudson’s remuneration as at FY17. There may have been reasons why she was paid at that level, which according to Mr Monaghan was under market. Be that as it may, that she was paid at that level in FY17 significantly undermines the reliability of Mr Monaghan’s calculation of Ms Hudson’s loss and the basis upon which he calculated her lost wages and her overall loss. I would not give any weight to this aspect of Mr Monaghan’s report.
In relation to revenue discrepancies, Mr Monaghan accepted that the revenue in the financial statements was Leaseworks’ business income. Mr Monaghan relied on source documents available to him to identify the component parts of the total revenue shown in the financial statements. However when he did so he could not get the information in the available source documents to reconcile with the revenue amount in the financial statements. He sought an explanation for the discrepancies, but none was provided. Further, Leaseworks did not keep management accounts, which did not assist.
Ultimately, Mr Monaghan relied on an excel spreadsheet produced by Ms Hudson in relation to which he undertook some calculations by way of a check of the data. In doing so he identified some typographical errors (incorrect transposition of numbers) which he did not correct because he did not have any information to enable him to do so. Although Mr Monaghan had some comfort, because when he reconciled the FY17 figures, the discrepancy was only $2,682, he was ultimately not sure where the figures came from for the reported total revenue and why they could not be reconciled.
Having regard to those matters, I would not accept Mr Monaghan’s evidence in relation to Ms Hudson’s alleged loss. There are also a number of issues which arise in relation to his calculation of Leaseworks’ alleged loss such that I would put little weight on his report in that regard. Accepting that Mr Monaghan did the best he could in the circumstances a number of the assumptions he relied on were not established in the evidence or doubt was cast upon them and the underlying material on which he relied.
The applicants’ alternate claim for damages
In the alternative the applicants contend that they have a claim for damages amounting to the lost sale to Dr Hasham. That is, but for the alleged conduct the proposed sale negotiated between Mr Currie and Dr Hasham would have proceeded.
There is no evidence to support such a claim.
First, I do not accept that Dr Hasham’s proposal to purchase the Leaseworks business for $2 million was anything more than that. I do not accept his evidence that he would arrive at a purchase price without undertaking some analysis and reviewing the business’ accounts.
Secondly, Dr Hasham accepted that before he could proceed with a sale he would need to satisfy himself that the trail commission figure was accurate and he would do that by inspecting Leaseworks’ books. As he said “once there was something solid [they] would be doing some forensic accounting confirming everything is fine and then moving on”. However, there was, to adopt Dr Hasham’s language, nothing “solid”. There had been discussions and, at best, an expression of interest. But no agreement had been reached on any terms, let alone purchase a price.
CONCLUSION
The applicants have failed to establish any of their pleaded claims. Accordingly the proceeding should be dismissed.
Costs would ordinarily follow the event. However, the respondents have requested that I reserve on the question of costs. The parties are to confer on the question of costs of the proceeding and either to provide my Associate with proposed consent orders addressing the costs of the proceeding within 14 days of the date of publication of these reasons, or if they are unable to reach agreement on that issue:
(1)the respondents are to file and serve their submissions on the question of costs of the proceeding, not exceeding five pages in length, within 21 days of the date of publication of these reasons;
(2)the applicants are to file and serve their submissions on the question of costs of the proceeding, not exceeding five pages in length, within 28 days of the date of publication of these reasons; and
(3)unless either party requests an oral hearing, the question of costs will be dealt with on the papers.
I will make orders accordingly.
I certify that the preceding four hundred and forty-six (446) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic. Associate:
Dated: 14 October 2022
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