Resilium Pty Ltd v Nest Insurance Consult Pty Ltd

[2024] NSWSC 1190

Supreme Court

New South Wales

Medium Neutral Citation:

Resilium Pty Ltd v Nest Insurance Consult Pty Ltd [2024] NSWSC 1190

Hearing dates:

9 and 10 September 2024

Date of orders:

20 September 2024

Decision date:

20 September 2024

Jurisdiction:

Equity - Commercial List

Before:

Hammerschlag CJ in Eq

Decision:

Cross-claimant’s cross-claim against the cross-defendants, and all other claims and cross-claims in the proceedings dismissed

Catchwords:

CONTRACTS – Breach of Contract – Cross-Claim for damages for breach of a contractual term of confidentiality – The cross-claimant was an authorised representative and agent, of the first cross-defendant insurance broker and Australian Financial Services Licence holder, under a written Authorised Representative Agreement (the Agreement) – The Agreement contained a provision that during and after termination of the Agreement, each party must keep confidential and must not use the other party’s Confidential Information (a defined term) except as necessary to perform the Agreement or as required by law – The Agreement and the cross-claimant’s appointment as the first cross-defendant’s Authorised Representative were terminated after the first cross-defendant became aware that the cross-claimant had knowingly provided false information about insured clients to insurance companies to reduce the premium payable – The first cross-defendant transmitted the client information to another Authorised Representative to carry out a policy remediation process and service the clients – The cross-claimant claims that this was in breach of the confidentiality provision and claims damages being the loss of the sale value of the insurance broking portfolio which the cross-claimant was administering – HELD on the proper construction of the Agreement, the information concerned was not Confidential Information – What the first cross-defendant did was required by law – Any loss and damage caused to the cross-claimant was caused by its own acts and not the acts of the first cross-defendant – The cross-claimant failed to place before the Court sufficient material to enable the Court to make a rational assessment of the loss – Methodology adopted by the expert valuers was inappropriate in the circumstances of this case

Legislation Cited:

Corporations Act 2001 (Cth)

Cases Cited:

Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99

CampbellvBackofficeInvestmentsPty Ltd (2009) 238 CLR 304

Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389

Electricity Generation Corporation Ltd v Woodside Energy Ltd (2014) 251 CLR 640

Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd (2023) 276 CLR 500

March v E & MH StramarePty Ltd (1991) 171 CLR 506

McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579

Mount BruceMining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104

Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451

Spencer v Commonwealth of Australia (1907) 5 CLR 418

Troulis v Vamvoukakis [1998] NSWCA 237

WardleyAustralia Ltd v Western Australia (1992) 175 CLR 514

Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522

Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530

Texts Cited:

Paul Stanley, The Law of Confidentiality: A Restatement (Hart Publishing, 2008) 55

Category:

Principal judgment

Parties:

Resilium Pty Ltd (Plaintiff / Second Cross-Defendant)
Resilium Insurance Broking Pty Ltd (First Cross-Defendant)
Nest Insurance Consult Pty Ltd (Defendant / Cross-Claimant)

Representation:

Counsel:
MR Elliott SC with D Ratnam (Plaintiff / Cross-Defendants)
P Braham SC with S Gray (Defendant / Cross-Claimant)

Solicitors:
Roberts & Partners Lawyers (Plaintiff / Cross-Defendants)
Cite Legal (Defendant / Cross-Claimant)

File Number(s):

2020/00356006

Publication restriction:

Nil

JUDGMENT

1. This is a claim (brought by way of cross-claim) for damages for an alleged breach of a term in a written contract that each party must keep confidential and must not use the other party’s Confidential Information except as necessary to perform the agreement or as required by law.

2. The claim fails because:

1. the claimant has not established that the information concerned was its Confidential Information within the terms of the contract;

2. in any event, the respondent was entitled to use it as it did, because this was required by law;

3. the claimant, and not the respondent, was the cause of any loss suffered by the claimant; and

4. the claimant has not established that by the respondent’s conduct it suffered any loss or the quantum of it.

The Parties

Nest Insurance Consult Pty Ltd

3. The cross-claimant is Nest Insurance Consult Pty Ltd (Nest), a company associated with Mr Kien Nhat Nguyen (Nguyen) who incorporated it, and who, at all material times, was its sole director.

Resilium Insurance Broking Pty Ltd

4. The first cross-defendant is Resilium Insurance Broking Pty Ltd (RIB). It has, at all material times, held an Australian Financial Services Licence authorising it to deal in and advise on general insurance products (that is insurance broking).

Resilium Pty Ltd

5. The second cross-defendant, Resilium Pty Ltd (Resilium), is the holding company of RIB and a general insurance broker, which at all material times held an Australian Financial Services Licence authorising it to deal in and advise on general insurance products. For reasons which will be explained later, Resilium no longer has any direct part to play in this controversy.

Legislative Context

6. Although this dispute is purely contractual, it arises in the context of a statutory regime and should be viewed in that light.

7. Chapter 7 of the Corporations Act 2001 (Cth) (the Act) concerns financial services and markets. Sections referred to below are, unless otherwise stated, sections of the Act and are within Chapter 7.

8. Section 760A states, relevantly, that the main object of the Chapter is to promote fairness, honesty, and professionalism by those who provide financial services.

9. The Chapter makes provision for the grant by ASIC of an Australian Financial Services Licence (AFSL) to fit and proper persons to provide the financial services covered by the licence. ^[1]

   1. Corporations Act 2001 (Cth) ss 913A-914A.

10. Section 912A requires an AFSL holder to do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly. Under s 915C, ASIC may suspend or cancel an AFSL, relevantly, if the AFSL holder has not complied with their obligations under s 912A.

11. Division 5 of the Chapter contains provisions under which a AFSL holder may give a person (Authorised Representative or AR) a written notice authorising that person to provide a specified financial service or financial services on behalf of the AFSL holder.

12. Division 6 of the Chapter contains provisions which make the AFSL holder responsible as between them and the client for the conduct of the Authorised Representative, whether or not the representative’s conduct is within authority. Section 917E extends the responsibility of the AFSL holder so as to make them liable to the client in respect of any loss or damage suffered by the client as a result of the representative’s conduct.

13. Section 1311, which is in Chapter 9, makes it an offence for a person to do an act or thing that the person is forbidden to do by or under a provision of the Act.

14. Subsequent to the events which gave rise to these proceedings, s 912EA was introduced into the Act. ^[2] It provides that an AFSL holder must take reasonable steps to notify a person (the affected client) of a reportable situation, which includes where an Authorised Representative has breached a core obligation and the breach is significant. A core obligation includes doing all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly. The section did not, and does not, apply here, but is reflective, in my view, of RIB’s general obligation to those for whom it acts as broker under its AFSL.

Factual Background

2. As a result of recommendations made by the Hayne Royal Commission.

Portfolio transfer to Nest

15. From 2008 to 2012, Nguyen worked for GIO as a service consultant and then member of its general commercial sales team. In mid-2012, he started in the role of business insurance specialist, brokering commercial insurance products for clients with more complex risks than those covered by the general commercial sales team. He was assigned a portfolio of commercial insurance policies. He was given a list of names and contact details of policyholders, details of their policies and premiums and other information concerning their businesses.

16. Resilium and RIB were, until 2017, part of an AR network which was part of the Suncorp Group, the ultimate holding company of which was AAI Limited which traded as GIO. Vero is another GIO brand name.

17. In 2017, Suncorp’s AR network was restructured to the intent that insurance broking portfolios run by Authorised Representatives would thenceforth be owned by them (as opposed to GIO). The effect was that Authorised Representatives would, in that capacity, carry on a business in their own right.

18. The restructuring made in-house insurance advisers at GIO redundant. Advisers, including Nguyen, were offered the opportunity to join the Resilium network as Authorised Representatives.

19. To this end, on 20 July 2016, Resilium and Nest entered into a written Referral and allocation agreement under which Resilium, in consideration of Nest paying an Allocation Price ($510,431 calculated on the value of the transferred portfolio - payable in monthly instalments of $8,290), would refer clients and identified policies recorded on a Register maintained by Resilium, to Nest for renewal. Resilium would then allocate to Nest, within the Register, all such policies where the client had elected to renew with Nest.

20. Resilium duly provided Nest with a list of client insureds together with information concerning them and their policies.

21. Thereafter, on 28 July 2016, Resilium and Nest entered into a written Authorised Representative Deed of Agreement (AR Agreement) under which Resilium authorised Nest, for the purposes of Ch 7, to provide financial services on its behalf. The AR Agreement incorporated Master Terms (updated on 30 August 2017) (the Master Terms). It was terminable by either party giving notice to the other and, relevantly, by Resilium immediately if Resilium was of the reasonable opinion that Nest had engaged in conduct considered to be an act of dishonesty or serious misconduct or failed to perform its duties efficiently, honestly and fairly. Nguyen guaranteed Nest’s performance of the AR agreement. The AR Agreement made provision for nomination of a specified officer to be the principal point of contact for dealings between Resilium and Nest. Nguyen was nominated. The AR Agreement and the Master Terms included a provision that during its term, subject to various exceptions, the clients would be Nest’s and Resilium would not contact them. It contained provisions about Confidential Information which make it clear that it had Resilium’s information, rather than Nest’s, in mind. It included provisions requiring Nest to deliver up to Resilium its Confidential Information and give Resilium all client lists and client files on termination.

22. On that date, Nest also entered into an Authorised Representative Agreement (Corporate) on similar terms with RIB.

The RIB Corporate Authorised Representative Agreement

23. On 1 June 2019, Resilium ceased to be a member of the Suncorp Group and became the largest privately owned insurance broking business in Australia. Suncorp ceased offering corporate policy renewals from Resilium. Renewals would henceforth be offered via Vero.

24. From that time, practically, RIB took the place of Resilium with respect to the Authorised Representative relationship with Nest. RIB uses the Resilium banner.

25. Following this, on 30 June 2020, RIB, as Licensee, and Nest, as Authorised Representative, entered into a further written Authorised Representative Agreement (Corporate) (the RIB-Nest Agreement). This was to implement the business model under which Nest would have ownership of, and the goodwill in, its own business.

26. Unless otherwise stated, or the context indicates differently, references below to clauses are references to clauses in the RIB-Nest Agreement.

27. The RIB-Nest Agreement records that RIB is a general insurance broker with an AFSL under which it is authorised to provide general and personal financial product advice in relation to general insurance products and to deal in such products. It records that Nest had submitted an application to RIB to be given an Authorisation to provide financial services on behalf of RIB.

28. Under clause 1, RIB authorised Nest, pursuant to s 916A, to provide financial services on its behalf and Nest accepted the appointment.

29. The RIB-Nest Agreement provides for an 80/20 split, in favour of Nest, in Broking Commission and Fee Income earned from the portfolio. It also provides for Nest to pay an annual Licence Fee for access to RIB’s broker management system and ongoing training and support by RIB.

30. The following are the pertinent clauses of the RIB-Nest Agreement:

1 APPOINTMENT OF THE AUTHORISED REPRESENTATIVE

…

1.5 The relationship that exists between the Licensee and the Authorised Representative is of principal and agent. The Authorised Representative is not in any way a partner or employee of the Licensee and must not represent itself as such in any circumstances.

…

1.8 The Authorised Representative cannot act as an authorised representative of another AFS licensee without the written consent of the Licensee. The Licensee may consent or refuse consent at its absolute discretion.

…

3 OBLIGATIONS OF AUTHORISED REPRESENTATIVE

3.1 The Authorised Representative will provide the Authorised Financial Services in accordance with the:

3.1.1 requirements of the Relevant Law;

3.1.2 conditions of Licensee’s AFS Licence; and

3.1.3 terms and conditions of this agreement.

…

3.6 The Authorised Representative will provide the Licensee with all information necessary (and within the time necessary) for the Licensee to comply with its obligations under the Relevant Law and the conditions of its AFS Licence.

3.7 The Authorised Representative will provide the Licensee with all information necessary (and within the time necessary) that the Licensee requires to ensure the Authorised Representative is complying with its obligations under this Authorised Representative Agreement.

…

3.14 Upon being appointed as an Authorised Representative, the Authorised Representative will provide all necessary assistance to enable the prompt transfer to the Licensee of the Authorised Representative’s Existing Brokered Policies.

…

5 TERM OF AUTHORISATION

Revocation

…

5.3 The Licensee may revoke the Authorisation of the Authorised Representative immediately by written notice to the Authorised Representative (but without any prior notice) on the happening of any of the following events:

…

5.3.1 If any of the events specified in clause 1.1.5(a)–(h) of Schedule 1…

5.3.4 If the Licensee is of the reasonable opinion that the Authorised Representative has, or if the Licensee reasonably suspects that the Authorised Representative has, engaged in or falls within one or more of the following:

(a) engages in conduct that is considered to be an act of dishonesty or serious misconduct;

…

(c) fails to perform their duties efficiently, honestly and fairly;

…

6 TERMINATION OF AGREEMENT

Authorised Representative termination rights

6.2 The Authorised Representative may terminate this Agreement by:

6.2.1 3 months written notice in the first 12 months of being authorised by the Licensee (or sooner as may be agreed by both parties);

6.2.2 365 days written notice after 12 months of being authorised by the Licensee (or sooner as may be agreed by both parties);

Licensee termination rights

6.3 The Licensee may terminate this Agreement:

6.3.1 3 months written notice in the first 12 months of being authorised by the Licensee (or sooner as may be agreed by both parties);

6.3.2 365 days written notice after 12 months of being authorised by the Licensee (or sooner as may be agreed by both parties); or

6.3.3 immediately by written notice to the Authorised Representative (but without any prior notice) on the happening of any of the events listed or described in clause 5.3.

6.3.4 the Authorised Representative can no longer fulfil its obligations under this agreement;

6.3.5 ASIC informs the Licensee that it considers that the Authorised Representative’s involvement in the provision of financial services on behalf of the Licensee will significantly impair the Licensee’s ability to meet its obligations under Chapter 7 of the Corporations Act or its AFS Licence Conditions; or

6.3.6 a banning or disqualification order is made against the Authorised Representative in accordance with section 915C (1) of the Corporations Act.

Consequences of termination

6.4 Upon the termination of this agreement or the Authorisation, the Authorised Representative shall, if requested by the Licensee, provide all reasonable assistance to the Licensee in the orderly transfer of the Authorisation, functions and operations provided in accordance with this agreement to another service provider or to the Licensee itself.

…

6.6 Upon the termination of this agreement the Licensee/s and the Authorised Representative if requested, will be required to sign a termination/transfer deed to ensure all requirements are met prior to any client data being released. Please refer to a draft copy of the transfer deed: Appendix 1 – Resilium Transfer Deed.

…

8 OWNERSHIP OF BUSINESS

Goodwill and other interests

8.1 The Authorised Representative retains ownership of the goodwill attaching to the Business including goodwill developed by the Authorised Representative in carrying on the Business in accordance with this agreement.

Client Data

8.2 If the Authorised Representative gives notice to terminate this agreement pursuant to clause 6.2, the Licensee will provide such consents as are reasonable and necessary to enable the Authorised Representative to obtain an electronic copy of Client Data from the Licensee’s broking software provider. The Authorised Representative must contact the broking software provider directly to arrange for access to the Client Data and must bear any costs associated with the broking software provider granting access to the Client Data.

…

13 CONFIDENTIAL INFORMATION

13.1 Subject to clause 13.2, during and after termination of this agreement, each party must keep confidential and must not use, the other party’s Confidential Information except as necessary to perform this agreement or as required by law.

13.2 If a government, regulatory authority or court orders a party to disclose Confidential Information, that party will, to the extent permitted, immediately advise the other party and will disclose only such of the Confidential Information necessary to comply with the order.

13.3 Nothing in this clause 13 restricts the use or dissemination of Confidential Information obtained lawfully from a third party.

13.4 The Authorised Representative may only use or disclose Confidential Information solely for the purpose for which it was collected. In addition, the Authorised Representative may use or disclose Confidential Information relating to a Client in any way authorised in writing by that Client.

13.5 Each party authorises the other to disclose its Confidential Information to its auditors, professional agents and advisors and any related bodies corporate.

…

Assignment

15.2 A party must not assign any of its rights or obligations under this agreement without the prior written consent of the other party.

…

16 DEFINITIONS AND INTERPRETATION

…

16.2 In this agreement the following definitions apply:

…

Business means the activities of the Authorised Representative providing the financial services on behalf of the Licensee to the clients in accordance with and by virtue of the rights granted by this agreement.

Client Data means the information held by the Licensee on the Licensee’s broker management software relating to the Authorised Representative’s Business.

…

Confidential Information means all information, data, practices and techniques relating to a party, or a related body corporate, customers, competitors, business, operations, strategies, computer systems, marketing systems and intellectual property or other property of which the other party becomes aware in negotiating or performing this agreement and the terms of this agreement and arranging or issuing policies of insurance.

Confidential Information does not include information that is in the public domain or later comes into the public domain (unless it came into the public domain by a breach of confidentiality or this agreement).

31. Schedule 1 to the RIB-Nest Agreement contains the following provisions:

1 AUTHORISED REPRESENTATIVE GENERAL OBLIGATIONS

1.1 Authorised Representative must comply with the following obligations:

…

1.1.4 Perform its duties and provide the Financial Services efficiently, honestly and fairly; and

1.1.5 Notify the Licensee immediately if:

…

(f) they breach in any material respect the Relevant Law or this Agreement…

RIB discovers Nest’s dishonesty

32. On 18 November 2020, in a meeting with Vero, RIB became aware that in acting as its Authorised Representative, Nest had engaged in conduct which RIB considered to be acts of dishonesty or serious misconduct.

33. Nest knowingly gave insurers (including Vero) false information when applying for commercial (mostly motor vehicle) insurance policies. First, it gave wrong or false post codes where motor vehicles were garaged. Second, it gave false information about the age of the youngest driver. Nest admits this.

34. Although neither Nest nor Nguyen admit that their purpose was to achieve lower premiums for clients by ameliorating the perceived risk, no other rational explanation for what they did was proffered at the hearing. I am satisfied that this was their purpose. There is evidence that Nguyen admitted that this was the motive. Nguyen swore four affidavits in the proceedings but said nothing about this. I infer that his evidence would not have assisted him. ^[3]

    3. Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418.

35. Throughout the trial, it was said on Nest’s behalf that some 40 policies were involved. The truth is that at least 74 policies were infected by this dishonesty. I will refer to these policies as the infected policies. The 40 number was apparently the policies audited by Vero.

36. The seriousness of the implications of this behaviour by an Authorised Representative for an AFSL holder, the client and the insurer is obvious.

37. Under the Act, RIB was responsible for Nest’s behaviour and liable to the clients for any loss or damage suffered thereby. Their policies were imperilled and the insurers potentially defrauded.

38. Nest does not dispute that RIB was entitled to immediately terminate the RIB-Nest Agreement and Nest’s AR status.

39. To this point, Nest had, on the face of things, been successful. It had 754 clients with 1,095 policies. The big question is how much of its success was attributable to its dishonest broking practices.

RIB terminates the Agreement and Nest’s Authorised Representative Status

40. On 19 November 2020, after a meeting with Vero, Mr Drue Castanelli (Castanelli), RIB’s Director of Operations and Compliance, and Mr Benjamin Hastie, RIB’s Managing Director, had a telephone conversation with Nguyen.

41. Castanelli then sent the following email to Mr Adrian Kitchin (Kitchin), an Executive Director of RIB:

Adrian

File note from today

Ben and I called Kien Nguyen 2.19pm 19 November 2020 to discuss issues raised by Vero in our meeting 18 November 2020 and confirmed by them via email 8.13am 19 November 2020 (attached)

• I opened the discussion and said that we had a meeting with Vero and they had conducted an in-depth review of his practices transactions and found many irregularities, mainly around incorrect post codes on PTE MTR and occupation/underwriting info for package polices. (sic)

• Kien first asked the names of the clients, I said there were too many to list and they numbered in the 10’s of dozens. He then went on to say that many of his clients had holiday homes in regional Victoria and elected to garage their vehicles there. There was some discussion about the correct way and that the garaging address should be the clients residential address where they spend most of their time.

• Ben asked if he had specifically targeted clients who had holiday homes as he seemed to have many, Kien did not offer an answer. Ben also said that Vero’s audit had found that many of the addresses did not exist.

• I said from the information we had seen it is clear that this is a systematic issue and a deliberate misrepresentation and misdescription of client information. As responsible managers we cannot accept this behaviour and we would not put our AFSL and all those who depend upon it at risk. This is a serious breach and we are obliged to report this to ASIC.

• Kien then said that ‘he does not deny manipulating data to achieve cheaper premiums for his clients’ (sic). Ben said, thanks for confirming this, I now advise you that we are terminating your authority immediately. We will allow your staff to continue to renew policies and we expect that the information provided on each renewal will be correct.

• I advised that Vero are no (sic) prepared to transact any new business with his practice and would disable this function today

• Kien asked what next. Ben said he would have to find a buyer and that we had an option in the network that could assist. He asked if his staff could by (sic) the business, I said no, you cannot work within Resilium. He mentioned Blaze Insurance, we said he could talk to him if he wishes. He asked about his TEAL payments and we confirmed these are still on foot and whatever sale arrangement we agreed to would need to consider this.

• We suggested he spend the afternoon/night considering next steps – he said why, you have already made up your mind. We confirmed his considerations should be around who he wants to sell to

• We suggested another call tomorrow to discuss

Thanks Drue

42. Kitchin thereafter sent the following email to Nguyen:

Dear Mr Nguyen

We refer to the telephone conversation with you today attended by Ben Hastie and Drue Castanelli at 2.19pm in which we addressed discrepancies that have been uncovered by Vero as part of their routine audit.

Vero Audit

The following are examples of these discrepancies – the list is by no means exhaustive:

44 motor policies were reviewed by Vero and they have found:

• Of those 44 policies, 41 had a different GARAGED suburb than the POSTAL suburb.

• Of those 41 policies, 40 of them have the GARAGED address in a RURAL suburb, where the postal is METRO.

• Some of the postcodes have been rearranged to appear as they are a typographical error.

• A number of the GARAGED addresses in the system simply do not exist.

The Authorised Representative Agreement (Authorised Person)

We refer to the Authorised Representative Agreement (the Agreement) between Nest Insurance Consult Pty Ltd ACN: 613 658 076 (the Business) and Resilium Insurance Broking Pty Ltd ACN 169 975 973 (RIB) and Kien Nguyen (You).

Specifically, we refer you to Clause 5.3 which provides as follows:

5.3 The Licensee may revoke the Authorisation of the Authorised Person immediately by written notice to the Authorised Person (but without any prior notice) on the happening of any of the following events:

5.3.4 If the Licensee is of the reasonable opinion that the Authorised Person has, or if the Licensee reasonably suspects that the Authorised Person has, engaged in or falls within one or more of the following:

(a) engages in conduct that is considered to be an act of dishonesty or serious misconduct;

(b) conduct which brings or is likely to bring the Licensee, Resilium Pty Ltd the Suncorp Group or the product issuers into disrepute or which is prejudicial to the reputation, business or goodwill of the licensee, Resilium Pty Ltd or the product issuers;

(c) fails to perform their duties efficiently, honestly and fairly;

Clause 6.6 provides as follows:

6.3 the Licensee may terminate this Agreement:

6.3.1...

6.3.2...

6.3.3 immediately by written notice to the Authorised Person (but without any prior notice) on the happening of any of the events listed or described in Clause 5.3.

Findings

In your phone call with Mr Hastie and Mr Castanelli, you admitted that "I don't deny any of it."

1. These discrepancies would appear to be deliberate and systemic and an attempt to manipulate the premium that would otherwise be payable;

2. If these discrepancies had not been uncovered, they would represent conduct that is likely to bring Resilium Pty Ltd into disrepute;

3. We regard these discrepancies as a failure by you to perform your duties efficiently, honestly and fairly

Next Steps

1. Pursuant to the Agreement, your Authorisation is terminated with immediate effect;

2. You are specifically directed not to have any contact with clients regarding their insurance matters;

3. You systems access to Insight and Sunrise has been revoked;

4. Vero has suspended their system for quoting or binding new insured customers for the Business;

5. The business is no longer authorised to process any new business with any insurer whilst we conduct a full review of every insured customer to ensure that their risks are properly described and disclosed;

6. We will communicate with the staff of the Business to advise them of the revocation of your Authorisation and to request their full co-operation with our investigation;

7. We will write to insured customers at the conclusion of our investigation to advise them that your Authorisation has been revoked;

8. We will advise the Insurers with whom we deal that your Authorisation has been terminated;

9. We will prepare a report following our investigation which we will provide to ASIC advising them of our findings in relation to your conduct.

Mr Nguyen, this is a serious matter and Resilium expects your cooperation and of the employees of the Business as we conduct our investigation.

Yours faithfully

[Adrian Kitchin]

43. The following day, 20 November 2020, Kitchin sent the following email to Nguyen:

Dear Mr Nguyen,

Following on from my email below dated 19 November 2020 and your discussions with Ben Hastie and Drue Castanelli, we now confirm the following:

The Authorised Representative Agreement (Corporate)

We refer to the Authorised Representative Agreement (the Agreement) between Nest Insurance Consult Pty Ltd ACN: 613 658 076 (the Business) and Resilium Insurance Broking Pty Ltd ACN 169 975 973 (RIB) dated 30 June 2020.

Specifically, we refer you to Clause 5.3 which provides as follows:

5.3 The Licensee may revoke the Authorisation of the Authorised Representative immediately by written notice to the Authorised Representative (but without any prior notice) on the happening of any of the following events:

5.3.4 If the Licensee is of the reasonable opinion that the Authorised Representative has, or if the Licensee reasonably suspects that the Authorised Representative has, engaged in or falls within one or more of the following:

(a) engages in conduct that is considered to be an act of dishonesty or serious misconduct;

(b) conduct which brings or is likely to bring the Licensee, Resilium Pty Ltd or the product issuers into disrepute or which is prejudicial to the reputation, business or goodwill of the Licensee, Resilium Pty ltd or the product issuers;

(c) fails to perform their duties efficiently, honestly and fairly;

It is agreed that each of the above events give the Licensee the right to revoke the Authorisation of the Authorised Representative notwithstanding that the events may, in some cases, overlap.

Clause 6.6 provides as follows:

6.3 the Licensee may terminate this Agreement:

6.3.1…

6.3.2…

6.3.3 immediately by written notice to the Authorised Representative (but without any prior notice) on the happening of any of the events listed or described in Clause 5.3.

Next Steps

1. Pursuant to the Agreement, the Authorisation for the Business is terminated with immediate effect. This is in addition to the termination of your Authority under the Authorised Representative Agreement (Authorised Person) a set out in the email below dated 19 November 2020;

2. You and the staff of the Business are specifically directed to have no contact with clients regarding their insurance matters;

3. We will communicate with the staff of the Business to advise them of the revocation of your Authorisation and to request their full co-operation with our investigation;

4. Systems access to Insight and Sunrise has been revoked for you and your staff;

5. The business is no longer authorised to process any new business with any insurer whilst we conduct a full review of every insured customer to ensure that their risks are properly described and disclosed;

6. We will write to customers advising that Nest Insurance Consult Pty Ltd ABN: 54 613 658 076 and Mr Kien Nguyen is no longer authorised to act under our AFSL. The servicing of the customers' insurance needs will be handled by Milestone GI Pty Ltd T/as ACIS (a CAR of RIB);

7. ACIS have agreed to undertake a policy remediation plan for all customers previously serviced by the Business under the supervision and direction of RIB as the AFSL holder;

8. We will advise the Insurers with whom we deal that Authorisation for the Business has been terminated;

9. The Business currently has a Loan in place pursuant to the Referral and Allocation Agreement between the Business and RIB dated 20 July 2016. The current Loan balance outstanding is $91,193 which is immediately repayable;

10. ACIS will pay you 50% of all paid income generated from your client register for a period of 12 months; however, RIB will withhold all amounts that would otherwise be payable to the Business until such time as the Loan is repaid;

11. We will prepare a report following our investigation which we will provide to ASIC advising them of our findings in relation to your conduct;

12. You agree to provide all reasonable assistance to the Licensee in the orderly transfer of the Authorisation functions and operations in accordance with this agreement to the Licensee; and

13. ACIS will contact you to discuss next steps and consider the possibility of making employment offers to some/all staff

David Huffer will contact you on Monday to progress.

Yours faithfully

[Adrian Kitchin]

44. Later that day, Hastie sent the following email to Nguyen:

Dear Kien,

Confirming our phone conversation of 5.12pm this afternoon 20th Nov 2020.

You called following receipt of the email below. You questioned why the business had to be transferred to ACIS as your preference was for the business to be transferred to Blaze Insurance Solutions.

I communicated that our assessment is that Blaze Insurance Solutions is not adequately resourced with enough experienced staff to adequately service the clients and perform the necessary remedial work on the portfolio.

As licensee we have an obligation to ensure client’s needs are met and the appropriate level of advice is given.

David Huffer will be in touch on Monday to work with you on the logistics of the portfolio transition to ACIS.

Regards,

Ben

Post Termination Events

45. On 22 November 2020, Nguyen sent the following email to Kitchin:

Dear Mr Kitchin

In response to your email of 20 November 2020, I would like to advise that I am in the process of obtaining urgent legal advice.

In the meantime I request that you take no action that may detrimentally affect the value of my proprietary rights in my client register; including making contact with any of my clients.

I also refer you to clause 6.6 of the Authorised Representative Agreement requiring the signing of a termination/transfer deed prior to any client data being released.

Best Regards,

Kien Nguyen | Director

46. Kitchin replied:

Dear Mr Nguyen,

Thank you for your email.

We are exercising our contractual rights which we are entitled to exercise upon the termination of your agreement with you.

Your reliance upon clause 6.6 is mistaken as we have not required the execution of any transfer deed.

Please provide us with your solicitor’s details so we can pass those details onto our solicitors.

Our solicitor’s details are as follows:

…

All correspondence from your solicitor should be sent to our solicitor and not directly to us.

Our solicitor is instructed to accept service of any Court processes which are issued in New South Wales as that is the governing jurisdiction for any dispute.

Regards

[Adrian Kitchin]

47. There followed an exchange of correspondence between the parties’ solicitors which it is not necessary to recount.

48. RIB wrote to Nest’s clients that Nest was no longer authorised to act under its AFSL and would no longer be managing their general insurance policies. This would henceforth be done by Milestone GI Pty Ltd trading as Australian Consolidated Insurance Services or ACIS (Milestone).

49. It will be observed that RIB’s original intention was to sell the portfolio to Milestone for 50% of a year’s net income earned from it. However, RIB ultimately simply gave Milestone the portfolio information on its computer system which Milestone used as its Authorised Representative.

50. Professional Services Corporation Network (PSC) is an insurance broking network. On 27 November 2020, Nguyen wrote to Messrs Tony Walker and Ewan Thompson of that organisation:

Hi Tony & Ewan,

Thanks again for your time earlier.

As discussed, my AR agreement with Resilium has been terminated effective 20/11/2020 on the basis of the alleged 'act of dishonesty or serious misconduct' misrepresentation of garage postcodes for my client's commercial motor policies.

Below is a summary timeline of the happenings and attached relevant contracts for your perusal.

Event Timeline

• Mid July 2016 redundancy with GIO (Suncorp) Business Insurance Representative (8 years in with GIO)

• 2 options: take redundancy payout to do something else or put toward purchasing portfolio and continue with Resilium as AR.

• 28th July 2016 given less than 2 weeks to accept/sign contract with Resilium (Suncorp) AR capacity.

• 5/8/2016 commence with Resilium as AR.

• 26/08/2016 5 years interest free loan of $550,000 with Suncorp.

• 21/03/2019 Suncorp sold off Resilium (MBO)

• 19/11/2020 received phone call while driving (car hands free) from Ben Hastie and Drue Castanelli advising of practice breach and immediate termination. Informed me to call back the following day with nominated AR to transfer portfolio to. Received email from Adrian Kitchin re this matter.

• 20/11/2020 received email from Adrian Kitchin confirming decision made for nest and appointed alternative AR of his choice to take over portfolio without my consent.

• 20/11/2020 called Ben Hastie to ask why they did not wait for me to selected my nominated AR. He explained not required and AR nominating does not meet their requirements.

• 20/11/2020 received email from Ben Hastie outlining phone conversation and their decision not to appoint Blaze Insurance Solutions.

• 22/11/2020 emailed Adrian Kitchin & associates advising I will be engaging legal advice.

• 23/11/2020 engaged Solicitor to intervene.

Priority Outcome

• For me have the final say who/where portfolio is transferred to; preferably Resilium AR Blaze Insurance Solutions.

• All nest staff bar myself to be redeployed to Blaze Insurance Solution.

• nest staff to continue servicing portfolio under Blaze Insurance Solution, minimising any disruption to clients and their policies.

• Myself and team authorised under another AR licence agreement.

Please see trail below for your reference:

…

51. Nguyen met with them on 27 November 2020, after sending the email. According to Nguyen, PSC was interested in having him “onboard” and Walker told him that he should set up a new entity for the onboarding process, given the dispute with Resilium. Based on this discussion, he says he set up a new entity, Postcode Insurance Pty Ltd (Postcode).

52. Subsequently, on 8 December 2020, Nguyen met with PSC, however, at the start of the meeting, Walker said words to the effect of “we can no longer assist with your appointment. My MD has received a call from Adrian Kitchin and now strongly advises against your appointment”.

53. On 24 December 2020, Nguyen and Postcode became Authorised Representatives of another insurance broker called Edgar’s Insurance Brokers.

54. Nest no longer operates as an insurance broker.

55. It is not in dispute that information disclosing the identity and policy details of the insured clients (the client information) was given by RIB to Milestone and used by Milestone, amongst others, to carry out a process of remediating the infected policies.

56. Despite the transfer of the client information to Milestone, Postcode, due no doubt to the efforts of Nguyen and his connection with the clients, was thereafter able to “retrieve” a large part of the portfolio. His degree of success is demonstrated by the fact that for the 12 months ending on 19 November 2020, the revenue of the whole portfolio was $1,037,157, whereas the income earned by Postcode from customers who were customers of Nest, from 20 November 2020 to 4 October 2023, was $1,583,534, derived from 510 clients. This amounts to a retrieval rate of some 70%.

The Proceedings

57. At the time of the hearing, Nest owed Resilium approximately $80,000 of the Allocation Price under the Referral and allocation agreement, and RIB owed Nest some $90,000 of unpaid broking commission and fee income pertaining to the period prior to termination.

58. These proceedings started life as a claim by Resilium, as plaintiff, in the Local Court of New South Wales for the unpaid balance of the Allocation Price. The proceedings were transferred to this Court because of Nest’s cross-claim against both Resilium and RIB for damages for alleged breach of contract by RIB in disclosing the client information to Milestone and for equitable compensation against both Resilium and RIB for breach of an equitable duty of confidence. The equitable claims were correctly abandoned at the hearing. They were manifestly unmaintainable, not least of all because Nest comes to Court with unclean hands. Nest also abandoned claims of unconscionable and misleading and deceptive conduct. Nest cross-claimed against RIB for its unpaid commission and fee income. Resilium’s claim and Nest’s cross-claim were settled during the course of the hearing and can be put to one side.

59. The result is that Nest’s cross-claim against Resilium falls to be dismissed. All that needs to be determined is Nest’s cross-claim in contract against RIB.

The Hearing

60. The hearing was originally set down for 5 days. However, none of Nest’s witnesses (lay or expert) were cross-examined. RIB did not call any lay evidence and its expert witness was not cross-examined.

61. The Court had the benefit of written opening submissions from both sides, extensive oral closing argument, and closing written submissions from RIB.

62. The hearing concluded in two days.

The Parties’ Positions

Nest

63. Nest puts that:

1. its “client list” (as distinct from every piece of information held by RIB on its broker management software about the clients and their insurance) was Confidential Information under cl 16.2; ^[4]

2. in breach of cl 13.1, RIB failed to keep confidential and used the client list by giving it to Milestone;

3. prior to disclosure to and use by Milestone of the client list, the portfolio had a market (sale) value;

4. the disclosure and use of the client list denuded it of confidentiality causing Nest loss; and

5. its loss is the market value of the portfolio of insurance policies brokered by Nest as at the date of the breach. It quantifies its loss by taking the annual revenue derived from the portfolio (as at 19 November 2020) and applying to it a multiplier said to reflect what purchasers have paid for comparable portfolios.

   4. This is not the formulation used in Nest’s Cross-Claim. The Confidential Information alleged to have been disclosed is particularised as “The details of customers of Nest, including contact details and details as to the insurance policies held by those customers” (Amended Commercial List Cross-Claim Statement [29]). In the present case I do not consider that anything material turns on the difference.

64. Nest conceded, correctly, that provision by RIB to Milestone of the client information about the infected policies was not in breach of cl 13.1. The basis for the concession was that RIB was “required by law” to take steps of the kind that it did with respect to the infected policies. RIB had a statutory obligation to the insureds to act efficiently, honestly and fairly. It was responsible to the clients for Nest’s misconduct and exposed to them for any loss or damage suffered by them because of it. Nest’s authorisation had been terminated for good cause. In those circumstances, RIB had no choice but to act to protect those insureds, and it did so. How it went about this was, in my view, a matter for it.

65. Nest’s concession was correct for an additional reason. Where the definition of Confidential Information in cl 16.2 refers to performing the agreement and arranging or issuing policies of insurance, this must be construed as a reference to lawful behaviour. ^[5] A construction that excludes from the definition of Confidential Information, information pertinent to a party’s illegal behaviour in the course of “performing” the agreement or issuing policies of insurance is supported by the general principle that there is no confidence in an iniquity. This principle may legitimately be employed in construing an express contractual obligation of confidentiality. ^[6]

    5. See Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd (2023) 276 CLR 500 at [36].

    6. See Paul Stanley, The Law of Confidentiality: A Restatement (Hart Publishing, 2008) 55.

RIB

66. RIB denies that the client information given to Milestone was, on the proper construction of cl 13.1 read with cl 16.2, Nest’s Confidential Information. It argues that it was its own Confidential Information. It seeks to deploy in aid of this construction, the terms of the AR Agreement which protect its Confidential Information.

67. RIB argues that it was in any event entitled to act as it did because it was, within cl 13.1, required by law to do so.

68. It denies that it caused any loss to Nest. It says that any loss suffered by Nest was caused by Nest itself.

69. It argues that Nest has failed to prove that it suffered any loss, or the quantum of it, because Nest’s approach of using a multiplier derived from so called comparable transactions to the historical annual revenue of Nest is out of accord with its pleaded case and erroneous. As well, it argues that Nest led no evidence of intending to sell the portfolio. This, says RIB, has the consequence that Nest cannot recover the portfolio sale value (if any).

Consideration

Liability

70. The RIB-Nest Agreement is a commercial contract which is to be given a business-like interpretation. Interpreting it requires attention to the language used by the parties, the commercial circumstances which it addresses, and the objects which it is intended to secure. The meaning of the words chosen is determined objectively by reference to its text, context, and purpose, the question being what a reasonable businessperson would have understood them to mean. Preference is given to a construction supplying a congruent operation to the various components of the whole, so as to avoid commercial inconvenience. Where language is open to more than one construction, the Court will prefer a construction which avoids consequences which are capricious, unreasonable, inconvenient or unjust. ^[7]

    7. See Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at [22]; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]; Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530 at [82]; Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 at [15]; Electricity Generation Corporation Ltd v Woodside Energy Ltd (2014) 251 CLR 640 at [35]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [47]-[51].

71. I do not consider that the terms of the AR Agreement can properly be deployed in construing the RIB-Nest Agreement because the context of that agreement was the Suncorp AR network as it stood before the restructuring. The restructuring involved a different business model, under which the AR’s owned their own businesses and were not in-house consultants.

72. In my opinion, the client information (including any client list – which no doubt could be generated from the information held on RIB’s computer system) disclosed by RIB to Milestone is not, on the proper construction of cl 13.1 and cl 16.2, Confidential Information in the hands of RIB qua Nest.

73. Starting with the definition in cl 16.2, it covers all information, data practices and techniques relating to a party, or a related body corporate, customers, competitor or other property of which the other party becomes aware in negotiating or performing the agreement or in arranging or issuing insurance policies. This formulation is directed to protecting information which relates to one party from being disclosed by the other party who learns of it. It is not intended to capture information which relates to the receiving party and especially not information which is, and always was, that party’s own information.

74. This is reflected in the words in cl 13.1, under which a party must not use the other party’s Confidential Information.

75. Under cl 16.2, Client Data is the information held by RIB on its broker management software relating to Nest’s business. It is not in issue that the client information passed to Milestone is Client Data. Manifestly, Client Data, which is a narrower category than Confidential Information, is not intended to be covered by the definition of Confidential Information. So much is evident from cl 8.2, under which Nest (as Authorised Representative) gets access to Client Data only if it (and not RIB) terminates the RIB-Nest Agreement. The obverse of this is that, if RIB terminates, Nest has no entitlement to this information, which is inimical to any suggestion that it is Nest’s Confidential Information.

76. It is to be observed that the RIB-Nest Agreement contains a provision (cl 15.2) that a party must not assign any of its rights or obligations under it, without the prior written consent of the other party. The effect of this, is that Nest could not (without RIB’s written consent – which I am prepared to infer would not have been given) have passed the benefit of the RIB-Nest Agreement to any purchaser of the Client Portfolio. The parties did not grapple with the question as to how in those circumstances the purchaser could have obtained the Client Data.

77. Perhaps most important, however, is that under cl 6.4, upon termination of the RIB-Nest Agreement or the Authorisation, Nest is required, if requested by RIB, to provide all reasonable assistance to RIB in the orderly transfer of the authorisation, functions and operations provided in accordance with the RIB-Nest Agreement to another service provider or to RIB itself. Obviously, this includes provision of client information. Such a transfer would be necessary to perform the RIB-Nest Agreement. This clause does not operate congruently with cl 13.1 as Nest would have it construed. Its construction would defeat, rather than achieve, the object the provision is intended to secure.

78. The client information is RIB’s. The clients may have obtained their insurance through Nest, but Nest was acting as RIB’s Authorised Representative and as RIB’s agent. RIB, not Nest, is the broker on the policies.

79. Finally, if, as Nest conceded, RIB was required by law to take steps of the kind it did in relation to the infected policies, it seems to me that it was equally required by law for RIB to take steps to ensure that all the clients in the portfolio were protected. This is what RIB did, by appointing Milestone and giving it the information necessary to do so. It hardly lies in the mouth of Nest or Nguyen to say that RIB was obliged by law to deal with the infected policies (of which it knew) and leave the rest to be dealt with by Nest or Nguyen whether by sale or otherwise. This would not have been a safe course to have taken.

80. I find that, by disclosing the client information (including any client list) to Milestone, RIB did not breach cl 13.1.

81. If, contrary to what I have found, RIB breached cl 13.1, then whether Nest was thereby caused loss and damage depends on there being sufficient connection between the breach and the damage suffered for the latter to be regarded as because of the former. This is essentially a question of fact, to be determined by reference to common sense and experience and one into which policy considerations and value judgments necessarily enter. ^[8]  

    8. March v E & MH Stramare Pty Ltd (1991) 171 CLR 506; Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304.

82. In my opinion, approached in this manner, any loss caused to Nest by impairment of the sale value of the Client Portfolio is properly to be viewed as having been caused by Nest’s own dishonest conduct, not RIB’s steps taken to assuage its effect.

83. It follows that Nest’s claim fails.

84. I will nevertheless deal with quantum, in case I am wrong. I do so on the hypothesis that RIB, by conveying client information to Milestone, breached cl 13.1.

Quantum

85. In its Amended Commercial List Cross-Claim Statement (Cross-Claim), Nest particularised its loss and damage as:

(a) The loss of the value of the business of Nest, including the Client Portfolio, presently calculated in the sum of approximately $3,130,595.38.

(b) The loss of past and future profits from commission and fee revenue that would have been earnt by Nest save for the conduct pleaded above, presently calculated in the sum of approximately $1,095,288.41.

Further particulars may be provided following the filing of expert evidence.

86. In its Amended Commercial List Cross-Claim Response, RIB pleaded, relevantly, that after Nest ceased being its AR, it could not lawfully have provided financial services and advice to the clients.

87. Nest filed an Amended Commercial List Reply to RIB’s Amended Commercial List Cross-Claim Response, in which it changed positions somewhat on damages. It articulated its claim as one for “damages for the loss of its Client Portfolio and equal to the market value of the Client Portfolio as at 19 November 2020”.

88. In its Cross-Claim, “Client Portfolio” is defined as including “the information about the clients of Nest at any given time, including client lists for which the business had brokered insurance policies and, client data and client information in respect of the same”.

89. RIB (with some justification) complained that Nest had changed position. It made the point that Nest’s real complaint is about lost confidentiality of information concerning the relevant insureds. I take this to include Nest’s client list.

90. Notwithstanding that a reply is not the appropriate vehicle for the formulation of a damages claim, I propose to deal with Nest’s claim as finally articulated by Senior Counsel for Nest in closing oral submissions, namely, the loss of the market (that is, sale) value of its entire portfolio because the client list was given to Milestone. I take this to mean the loss by Nest of its ability to sell the portfolio because it had become worthless as a result of Milestone having the client list. I leave out of account any inhibition there may have been upon Nest dealing with the portfolio without being an Authorised Representative.

91. Nest’s final formulation focuses squarely on what is said to have flowed from the client list being published to Milestone, with the attendant loss of confidentiality of its contents.

92. Nest relied on the evidence of a forensic accountant, Mr John McGuiness (McGuiness), who provided a number of reports. RIB relied on the evidence of a forensic accountant, Ms Jennings-Jones (Jennings-Jones), who provided one report. The experts provided a joint report.

93. The questions directed to McGuiness, for his opinion were:

1. What is the market value of the insurance policies brokered by Nest as of 19 November 2020? ^[9]

   9. McGuiness took the insurance policies concerned to mean the same “Client Portfolio” as used and defined in the Cross-Claim.

2. What is the market value of the Client Portfolio less those policies which were “recovered” by Postcode?

3. What is the market value of the Client Portfolio,

1. excluding the infected policies; and

2. excluding those policies not recovered and not infected?

94. The approach taken by McGuiness was to take the annual broking and commission revenue earned by Nest to 19 November 2020 on the defined parts of the portfolio and apply to it a multiplier derived principally by reference to known examples of the sale or transfer of client portfolios for consideration (and presumably at arms’ length). This assumes that the other transactions are relevantly comparable to a sale of Nest’s portfolio.

95. In their joint report, the experts agreed on estimates of market value derived in this fashion. They agreed on a range, the midpoint of which as to the numbered questions above is:

1. $2.33 million;

2. $660,000;

3. (a) $2.2 million; and

(b) $599,422.

96. The Court requested that the parties provide certain further figures. According to McGuiness, the market value of policies recovered is $1,690,000. Jennings-Jones holds the view that although policies were recovered, subsequent differences in the premiums and other factors had the result that their market value was reduced to $1,485,000.

97. They agreed that the market value (that is, the revenue multiplied) of the infected policies is $105,000. However, it was not suggested that a portfolio consisting solely of infected policies actually has a market value.

98. Jennings-Jones was asked to provide an opinion on the value to Nest of the Client Portfolio on the assumptions that the RIB-Nest Agreement and Nest’s authorisation were terminated, and that Nest remained unlicenced to provide financial services and product advice as an Authorised Representative, so that it could not lawfully provide those services. Unsurprisingly, she opined that on those assumptions, the value of the Client Portfolio to Nest is nil.

99. Nest’s approach to quantification of its claimed loss is unsound and cannot be adopted, even though the experts agreed on a market value based on it. Simply valuing an assumed income stream by applying a multiplier says nothing of this case.

100. First, it incorrectly equates loss of confidentiality with the total loss to Nest of the sale value of the Client Portfolio. If Nest was unable to sell the portfolio, it is not because of loss of confidentiality but because of Nest’s discovered misconduct and the termination of its agency and AR status. Subsequent facts show, however, far from the loss of confidentiality eliminating all (or even most) of the value of the Client Portfolio, through Postcode, Nguyen used it to significant commercial benefit, even if this was to the detriment of Nest. It is not necessary to consider whether Nest has some claim against Postcode or Nguyen, or both (for example, for breach of fiduciary obligations). On the experts’ methodology, the sale value of the portfolio after 19 November 2020 would be revealed by applying a multiplier to Postcode’s revenue, entailing the assumption that Postcode could have sold for the resulting amount. That assumption has not been made out. What it does expose, however, is the fallacy in the proposition that RIB’s transmission of the client information to Milestone made the portfolio worthless. Whether it could have been sold is another matter entirely. This reveals the unsoundness of the experts’ approach in equating a multiplied revenue with a market sale price.

96. Second, in selecting a multiplier, the experts did not take into consideration the obvious impact the discovered misconduct of Nest would almost inevitably have had on the assessment by a buyer of what they would be prepared to pay for this Client Portfolio. An honest seller would no doubt have had to disclose the facts. Anyway, market value is determined by reference to a transaction between willing but not anxious parties. ^[10] Excluding from the calculation revenue attributable to the infected policies does not take account of the problem. I do not consider it to have been incumbent on Nest to have demonstrated that it would have sold, but it was incumbent on it to demonstrate that it could have sold and then at what price and on what terms. Such terms may have included a non-compete clause by Nest and Nguyen about which there is no evidence. The Court has no data on which it can make a rational assessment either of, what annual revenue figure for the Client Portfolio should be adopted as legitimate, proper and maintainable as at 19 November 2019, or what multiplier is to be applied in circumstances where a significant part of the portfolio is infected policies and it was managed and procured by someone who did what Nest did, and whose AR status was terminated because of it. It is to be remembered that PSC baulked at the opportunity to buy.

    10. See Spencer v Commonwealth of Australia (1907) 5 CLR 418 at 441.

97. In Troulis v Vamvoukakis [1998] NSWCA 237 at 28 Gleeson CJ (as His Honour then was) (with whom Mason P and Stein JA agreed) said:

The principles governing the approach which a court should take when there has been a failure of proof by a party carrying the onus of establishing the extent of damage suffered as a result of breach of contract or tort were discussed in JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237.

Examples of cases, similar to the present, where courts have declined to substitute guesswork for evidence, and have refused to award damages where no basis for a rational assessment has been laid in the evidence, include Ted Brown Quarries Pty Ltd v General Quarries (Gilston) Pty Ltd (1977) 16 ALR 23and Newark Engineering (NZ) Ltd v Jenkin [1980] 1 NZLR 504.

As Deane J observed in The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 118-119, the limitations of the curial process, or the nature of the subject matter in question, often mean that the task of assessing damages involves a pragmatic exercise of a kind traditionally left to the good sense of a jury. Where, however, what is involved is the valuation of the goodwill of a business, and the plaintiff fails to adduce either reliable evidence of the trading results of the business, or evidence as to how one goes about valuing such a business, then there is an absence of the raw material to which good sense may be applied. Justice does not dictate that, in such a case, a figure should be plucked out of the air.

103. As in that case, in this one, justice does not dictate that a figure be plucked out of the air.

Conclusion    

104. Nest’s cross-claims against Resilium and RIB, and all other claims and cross-claims in the proceedings, are dismissed.

105. The parties are, within seven days, to bring in Short Minutes reflecting this outcome.

106. I provisionally order that Nest is to pay Resilium and RIB’s costs of the proceedings. This order will solidify unless, within seven days of delivery of this judgment, any party notifies, in writing, the opposing parties and my Associate that some other order is sought, specifies what it is and provides brief reasons why. If such notice is given, the order will not take effect and I will make directions for the resolution of costs.

107. The exhibits are to be returned.

**********

Endnotes

Decision last updated: 20 September 2024