Nest Insurance Consult Pty Ltd v Resilium Insurance Broking Pty Ltd

1. [1]

   BELL CJ: I agree with Mitchelmore JA.

2. [2]

   MITCHELMORE JA: The appellant, Nest Insurance Consult Pty Ltd (Nest), appeals from the dismissal of its claim for damages for breach of a term of a written contract that it entered into with the respondent, Resilium Insurance Broking Pty Ltd (RIB). RIB held an Australian financial services licence (AFSL) under the Corporations Act 2001 (Cth) authorising it to deal in and advise on general insurance products. Between 2016 and 2020, Nest provided insurance brokerage services as an authorised representative of RIB, under RIB’s AFSL. In November 2020, RIB discovered that Nest had engaged in misconduct and terminated its contract with Nest, as well as revoking Nest’s status as its authorised representative.

3. [3]

   Nest did not take issue with the basis on which RIB terminated the contract. However, it alleged that RIB breached the contract in disclosing information about Nest’s clients to another authorised representative, Milestone GI Pty Ltd, t/a Australian Consolidated Insurance Services (ACIS). Nest relied in this respect on a term of the contract that required each party to keep confidential and not use or disclose “the other party’s Confidential Information” except as necessary to perform the agreement or as required by law. Nest sought damages, contending that by disclosing its client portfolio information to ACIS, RIB had deprived it of the opportunity to sell that portfolio at market value.

4. [4]

   The primary judge, Hammerschlag CJ in Eq, dismissed Nest’s claim. His Honour concluded that Nest had not established that the information concerned was Nest’s “Confidential Information” as defined in the contract. In any event, his Honour concluded that RIB was entitled to use and disclose the client portfolio information because RIB was required by law to do so. His Honour also concluded that Nest was the cause of any loss that it suffered and, further, that it had not established that it suffered loss by reason of RIB’s conduct or the amount of any such loss.

5. [5]

   By its appeal, Nest challenges each of the primary judge’s conclusions, and in order to disturb his Honour’s orders Nest must succeed as to each of them. For the following reasons Nest has not discharged that burden. It follows that I would dismiss the appeal.

Background to the issues on the appeal

1. [6]

   The parties were not in dispute about the background in which the contractual dispute arose. The following summary comes primarily from the reasons of the primary judge.

2. [7]

   A person who carries on a financial services business must hold an AFSL covering the provision of the relevant financial services: Corporations Act, s 911A. As the primary judge noted at [9], Div 4 of Pt 7.6 of the Corporations Act provides for a person to apply to the Australian Securities and Investments Commission (ASIC), and for ASIC to grant, an AFSL to fit and proper persons in order to provide the financial services covered by the licence: ss 913A, 913B.

3. [8]

   Each of RIB and its parent company, Resilium Pty Ltd (Resilium), held an AFSL authorising it to deal in and advise on general insurance products. As the holder of an AFSL, s 912A of the Act imposed a series of obligations on RIB, and Resilium, including to do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly: s 912A(1)(a). ASIC may suspend or cancel an AFSL if, relevantly, the AFSL holder has not complied with their obligations under s 912A: s 915C(1)(a).

4. [9]

   Section 911A(2)(a) of the Corporations Act exempts a person from the requirement to hold an AFSL if the person provides the service as a representative of a second person who carries on a financial services business and holds an AFSL covering provision of the service. Section 916A(1) provides that an AFSL holder may give a person (an “authorised representative”) a written notice authorising the person, for the purposes of Ch 7, to provide a specified financial service or services on behalf of the AFSL holder.

5. [10]

   Division 6 of Pt 7.6 addresses the liability of AFSL holders for their authorised representatives, and applies to any conduct of a representative that relates to the provision of a financial service on which a third person, the “client”, could reasonably be expected to rely and on which the client in fact relied in good faith: s 917A(1). Section 917B provides that an AFSL holder is responsible, as between them and the client, for the conduct of the representative “whether or not the representative’s conduct is within authority”. An AFSL holder is also liable to the client in respect of any loss or damage suffered by the client as a result of the representative’s conduct: s 917E.

6. [11]

   The primary judge observed that after the events giving rise to the proceedings, s 912EA was enacted, providing 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. The obligation to do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly is a core obligation. His Honour recognised that the section did not apply in the present case, but considered it was reflective “of RIB’s general obligation to those for whom it acts as broker under its AFSL”: at [14].

7. [12]

   Nest was incorporated by Mr Kien Nhat Nguyen, who has at all material times been its sole director: at [3]. Between 2008 and 2012, Mr Nguyen worked for GIO as a service consultant and a member of its general 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: at [15].

8. [13]

   Until 2016, RIB was part of an authorised representative network within the Suncorp Group, the ultimate holding company of which was AAI Limited which traded as GIO: [16]. In 2016, the authorised representative network was restructured, with a view to the authorised representatives owning the insurance broking portfolios they respectively ran and carrying on business in their own right. The restructure effectively made in-house advisers at GIO redundant, including Mr Nguyen. However, the advisers were offered the opportunity to join the Resilium network as authorised representatives of Resilium: at [18].

9. [14]

   On 14 July 2016, Mr Nguyen incorporated Nest. On or around 20 July 2016, Resilium and Nest entered into a written referral and allocation agreement, under which Nest agreed to pay an allocation price of $510,431 (including GST), in 60 equal monthly instalments, as consideration for Resilium referring to Nest for renewal particular clients and identified policies that were recorded on a register that Resilium maintained. Resilium would then allocate to Nest, within the register, all such policies where the client elected to renew with Nest: at [19]. In accordance with this agreement, Resilium provided Nest with a list of client insureds together with information about them and their policies: at [20].

10. [15]

    On 28 July 2016, Nest and Resilium entered into an Authorised Representative Deed of Agreement (Corporate), by which Resilium authorised Nest to provide financial services on its behalf for the purposes of Ch 7 of the Corporations Act: at [21]. On the same date, Nest and RIB entered into an Authorised Representative Agreement (Corporate) on similar terms: at [22].

11. [16]

    On 1 June 2019, Resilium ceased to be a member of the Suncorp Group and Suncorp ceased offering corporate policy renewals from Resilium, which would henceforth be offered via Vero (another GIO brand name): at [23]. From that time, practically speaking, RIB took the place of Resilium with respect to the authorised representative relationship with Nest: at [24].

12. [17]

    On 30 June 2020, RIB and Nest entered into the Authorised Representative Agreement (Corporate) (the RIB-Nest Agreement). As described by the primary judge, the RIB-Nest Agreement implemented “the business model under which Nest would have ownership of, and the goodwill in, its own business”: at [25].

13. [18]

    The “Background” section of the RIB-Nest Agreement noted that RIB (the “Licensee”) was a general insurance broker with an AFSL authorising it to provide general and personal financial product advice in relation to general insurance products, and to deal in such products. It also noted that RIB wished to authorise Nest (the “Authorised Representative”) to provide financial services on its behalf on the terms and conditions set out in the agreement.

14. [19]

    In cl 1.1, RIB authorised Nest, under s 916A of the Corporations Act (cl 1.3), to provide the following financial services “on its behalf”, which were defined collectively as the “Authorised Financial Services”:

15. [20]

    Clause 1.5 provided:

16. [21]

    Clause 1.6 limited the scope of Nest’s appointment to providing only the Authorised Financial Services, stating that it was not authorised to provide any other financial services on behalf of RIB. Clause 1.8 prohibited Nest from acting as an authorised representative of another licensee without RIB’s written consent (to be given or refused at RIB’s “absolute discretion”).

17. [22]

    Clause 3.1 required Nest to provide the Authorised Financial Services in accordance with: the requirements of the “Relevant Law”, the conditions of RIB’s AFSL, and the terms and conditions of the RIB-Nest Agreement. The term “Relevant Law” was defined to mean “all legislation and regulation that relates to the Authorised Financial Services and Licensee’s AFS Licence, including but not limited to, the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001 (Cth)”. Clause 3 also contained the following provisions that are relevant to the arguments the parties advanced on the appeal:

18. [23]

    Clause 4 of the RIB-Nest Agreement dealt with remuneration. As the primary judge summarised at [29], the Agreement provided for an 80/20 split of the broking commission and fee income earned from the portfolio in favour of Nest (cl 4.1 and Schedule 3, Item 1). Nest was also required to pay an Annual Licence Fee to RIB (cl 4.3), which Item 2 of Schedule 3 explained as being “for access to the Broker Management System and ongoing training and support provided by the Licensee”. In his affidavit of 24 February 2022, Mr Nguyen gave evidence that RIB had two broker management systems, called “Insight” and “Sunrise”, both of which Nest used to obtain insurance quotes and which required a range of client information to be provided in order to provide a quote.

19. [24]

    Clause 5.1 provided that Nest’s authorisation commenced “upon receiving notification from the licensee and continues until revoked in accordance with this agreement”. In relation to revocation, cl 5.3 relevantly provided:

20. [25]

    Clause 6 dealt with termination of the agreement, by Nest or RIB:

21. [26]

    Significantly for present purposes, cl 6.7 did not include a reference to cl 8, which was headed “Ownership of Business”. The term “Business” was defined in cl 16.2 to mean “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”. Clause 8.1 provided:

22. [27]

    Clause 8.2 dealt with “Client Data”, which was also defined in cl 16.2 to mean “the information held by the Licensee on the Licensee’s broker management software relating to the Authorised Representative’s Business”. It provided:

23. [28]

    Clause 13 of the RIB-Nest Agreement, headed “Confidential Information”, is central to these proceedings. Confidential Information was defined in cl 16.2:

24. [29]

    Clause 13 provided:

25. [30]

    On 18 November 2020, in a meeting with Vero, RIB became aware that Nest, as its authorised representative, had engaged in conduct that RIB considered to constitute acts of dishonesty or serious misconduct: at [32]. Nest had knowingly given false information to insurers (including Vero) when applying for commercial (mostly motor vehicle) insurance policies, providing wrong or false post codes as to where vehicles were garaged and false information about the age of the youngest driver: at [33].

26. [31]

    The primary judge found that this conduct, which Nest admitted, infected at least 74 insurance policies: at [33], [35]. As his Honour stated, “[t]he seriousness of the implications of this behaviour by an Authorised Representative for an AFSL holder, the client and the insurer is obvious”: at [36]. The clients whose policies were infected were imperilled and the insurers potentially defrauded, while RIB was responsible under the Corporations Act for Nest’s behaviour and liable to the clients for any loss or damage suffered thereby: at [37].

27. [32]

    Nest accepted that RIB was entitled immediately to terminate the RIB-Nest Agreement and Nest’s status as an authorised representative: at [38]. At the time, Nest had 754 clients with 1,095 policies: at [39].

28. [33]

    On 19 November 2020, Drue Castanelli, RIB’s Director of Operations and Compliance, and Benjamin Hastie, RIB’s Managing Director, had a telephone conversation with Mr Nguyen: at [40]. The same day, Mr Castanelli sent an email file note to Adrian Kitchin, the Executive Director of RIB: at [41]. The email included the following:

29. [34]

    Mr Kitchin sent an email to Mr Nguyen that same day, providing some examples of what Vero had found on its review of a number of motor vehicle policies and referring to cl 5.3 and cl 6.3.3 of the RIB-Nest Agreement. Noting that Mr Nguyen had not denied any of the conduct in his call with Mr Castanelli and Mr Hastie, Mr Kitchin informed Mr Nguyen that RIB regarded the discrepancies as a failure of Nest to perform its duties efficiently, honestly and fairly, which if they had not been uncovered would represent conduct that was likely to bring Resilium into disrepute. Mr Kitchin confirmed termination of Nest’s status as an authorised representative and that Nest’s access to Insight and Sunrise had been revoked.

30. [35]

    The following day, 20 November 2020, Mr Kitchin sent Mr Nguyen a further email. In this email, Mr Kitchin covered some of the same ground as his email of the previous day as well as making a number of further points. Relevantly, Mr Kitchin wrote:

31. [36]

    Later that day, Mr Hastie sent an email to Mr Nguyen, confirming a phone conversation between them after Mr Nguyen received Mr Kitchin’s further email. According to Mr Hastie’s email, Mr Nguyen queried why the business had to be transferred to ACIS and said his preference was for it to be transferred to Blaze Insurance Solutions. Mr Hastie recorded in the email that he told Mr Nguyen “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”. Mr Hastie also recorded that he had told Mr Nguyen that “[a]s licensee we have an obligation to ensure client’s needs are met and the appropriate level of advice is given”.

32. [37]

    On 22 November 2020, Mr Nguyen sent an email to Mr Kitchin asking that RIB 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” while Nest sought urgent legal advice. Mr Nguyen also referred to cl 6.6 of the RIB-Nest Agreement and asserted that a termination/transfer deed needed to be signed before any client data was released. In his reply, Mr Kitchin stated that RIB was exercising its contractual rights on termination as it was entitled to do, and that Mr Nguyen’s reliance on cl 6.6 was mistaken as RIB had not required the execution of any transfer deed: at [46].

33. [38]

    In an email to a RIB staff member dated 24 November 2020, Mr Castanelli gave instructions as to the “next steps”, which included transferring Insight access to the Nest database and practice details from Nest to ACIS, disabling current staff and activating all ACIS staff, and beginning “the process of renewals for December/January”. Mr Castanelli also referred to writing to Nest’s clients to advise them that Nest was no longer authorised to act under RIB’s licence and to introduce the clients to ACIS.

34. [39]

    In the standard email sent to Nest’s clients, RIB advised that Nest was “no longer authorised to act under our [AFSL]” and that consequently, “Nest will no longer be managing your general insurance policies”. The email also stated that effective 27 November 2020, the clients’ general insurance policies would be managed by ACIS, although clients could opt to use another broker. Under the heading “Next Steps”, the email stated:

35. [40]

    The primary judge observed that RIB’s original intention was to sell the Nest portfolio to ACIS for 50% of a year’s net income earned from it. However, RIB ultimately gave ACIS access to the client portfolio information on RIB’s broker management software, which ACIS used as RIB’s authorised representative: at [49].

36. [41]

    Nest no longer operates as an insurance broker. Instead, Mr Nguyen set up a separate entity, Postcode Insurance Pty Ltd (Postcode). On 24 December 2020, Mr Nguyen and Postcode became authorised representatives of another insurance broker: at [53]. Postcode has been able to recover a large part of the client portfolio that Nest held at RIB: at [56].

The proceedings below

1. [42]

   Resilium filed a statement of claim in the Local Court for an action in debt, seeking the amount that Nest allegedly owed under the 2016 referral and allocation agreement. The proceedings were transferred to the Supreme Court when Nest filed a cross-claim against Resilium and RIB which pleaded causes of action in contract, equity, and under statute, as well as a quantum meruit/unjust enrichment claim. Resilium’s action in debt and Nest’s claim for quantum meruit/unjust enrichment were settled during the hearing and Nest ultimately did not press the pleaded causes of action in equity or under statute. This left Nest’s claim in contract against RIB.

2. [43]

   The primary judge summarised Nest’s position at [63]:

3. [44]

   Nest relied on the evidence of Mr Nguyen and evidence of a forensic accounting expert, Mr McGuiness. Although RIB served lay evidence, it did not call any of its lay witnesses. RIB did rely on an expert witness, Ms Jennings-Jones, who prepared a report and then a joint report with Mr McGuiness. There was no cross-examination of any of the witnesses: at [60].

4. [45]

   In rejecting Nest’s first contention, the primary judge concluded that “the client information (including any client list – which no doubt could be generated from the information held on RIB’s computer system)” that RIB disclosed to ACIS was not, on the proper construction of cl 13.1 and cl 16.2, “Confidential Information in the hands of RIB qua Nest”: at [72]. Rather, his Honour held that both the definition in cl 16.2 and the obligation in cl 13.1 were directed “to protecting information which relates to one party from being disclosed by the other party who learns of it”: at [73]. Having regard to the provisions of the RIB-Nest Agreement in relation to client information, his Honour concluded that even though clients may have obtained their insurance through Nest, Nest was acting as RIB’s agent and the client information was RIB’s: at [78].

5. [46]

   In rejecting Nest’s second contention, the primary judge found that even assuming that Nest’s client portfolio information was Confidential Information, RIB was required by law to take steps of the kind it did to ensure that the clients in the portfolio were protected: at [79]. In this context, his Honour referred to a concession he considered Nest made during the hearing (which Nest disputes on appeal) that RIB was required by law to take steps of the kind it did in relation to the infected policies and was not in breach of cl 13.1 in relation to those policies. His Honour considered that the reasoning that underpinned that concession applied equally to all clients in Nest’s portfolio, meaning that RIB was required by law to take steps to ensure that all clients were protected: at [79]. His Honour had earlier referred to RIB’s statutory obligation to act efficiently, honestly and fairly as well as its responsibility to clients for Nest’s misconduct. Having terminated Nest’s authorisation for good cause, his Honour stated that “RIB had no choice but to act to protect those insureds”. How it did so was, in his Honour’s opinion, “a matter for it”: at [64].

6. [47]

   Turning then to Nest’s contentions about loss and damage, and assuming against his Honour’s conclusions on the first two issues, that RIB breached cl 13.1 of the RIB-Nest Agreement, his Honour found that it was Nest’s dishonest conduct that caused its loss, and not the steps RIB took to assuage the effect of that conduct: at [82]. Further and in any event, his Honour was not satisfied that Nest had established any loss, finding its approach to quantification unsound even though the experts agreed on a market value based on that approach: at [99]. This was so for two reasons. First, his Honour considered that valuing an assumed income stream by applying a multiplier “incorrectly equates loss of confidentiality with the total loss to Nest of the sale value of the Client Portfolio”: at [100]. Apart from the role of Nest’s misconduct in its inability to sell the portfolio, subsequent facts showed that its portfolio was still valuable because Mr Nguyen was able to use it to the advantage of his new brokerage company, Postcode: at [100]. This exposed “the fallacy in the proposition that RIB’s transmission of the client information to [ACIS] made the portfolio worthless”: at [100].

7. [48]

   Secondly, in selecting a multiplier, the experts did not consider “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”: at [101]. His Honour stated at [101] (footnotes omitted):

8. [49]

   His Honour considered that justice in the present case did not dictate that a figure be plucked out of the air: at [103].

The appeal

1. [50]

   Nest did not address the grounds of appeal individually in its written or oral submissions, instead grouping them by reference to the primary judge’s conclusions. I will adopt the same approach.

2. [51]

   Nest submitted that the primary judge erred in finding that the client portfolio information that RIB provided to ACIS was not Nest’s “Confidential Information” within the meaning of cl 16.2 of the RIB-Nest Agreement.

3. [52]

   Nest submitted in writing that RIB had admitted that Nest’s client portfolio information met this definition, in its defence to the amended commercial list cross-claim. It is the case that RIB admitted, without qualification, a subparagraph of the amended commercial list cross-claim that summarised the definition in cl 16.2 and then added, by way of amplification, “which would include that information that made up the Client Portfolio”. However, as senior counsel for RIB submitted orally on the appeal, the proper characterisation of Nest’s client portfolio information as within or outside the scope of that definition was very much in issue in the trial. In circumstances where Nest was unable to refer this Court to where it had raised this admission in the court below, I reject Nest’s reliance upon it on the appeal.

4. [53]

   Nest otherwise submitted that in accordance with cl 3.14 of the RIB-Nest Agreement, upon commencement of the arrangement it had provided the details of its existing clients to RIB to facilitate their upload onto its broker management software, Insight. Then, as it grew its business, Nest provided the details of new clients to RIB which were also uploaded. Nest submitted that the client portfolio information thus satisfied the terms of the definition of “Confidential Information” in cl 16.2, as “information”, or “data”, “relating to a party, or … customers … of which [RIB] [became] aware in … performing this agreement … and arranging or issuing policies of insurance”. It followed, Nest submitted, that the client portfolio information was “Confidential Information” of Nest that RIB was required by cl 13.1 to keep confidential. By contrast, on the primary judge’s analysis, as soon as Nest provided the client portfolio information to RIB it was free to use it as it wished, including to share it with other authorised representatives.

5. [54]

   Nest submitted that the construction of cl 13.1 for which it contended was supported by the surrounding contractual context, in particular cl 8.1. Nest submitted that if the information in question was not Confidential Information to which the obligation in cl 13.1 applied, Nest’s goodwill in relation to the Business would not be protected despite cl 8.1. Nest also relied on the regime for dealing with client information in cl 6.6, which contemplated that following termination Nest could continue to service its clients under another AFSL. Nest contended that those clauses could not operate in accordance with their terms unless RIB was otherwise obliged to protect Nest’s right to confidentiality in the client portfolio information.

6. [55]

   The applicable principles of contractual construction were not in dispute. It is sufficient for present purposes to reproduce the primary judge’s summary of those principles at [70], relying on authorities including Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35], and Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [47]-[51]:

7. [56]

   The primary judge identified the primary difficulty with Nest’s construction at [73], namely, that the definition of Confidential Information in cl 16.2 of the RIB-Nest Agreement “is directed to protecting information which relates to one party from being disclosed by the other party who learns of it”. That notion in the definition is given emphasis in the terms of the obligation in cl 13.1 not to use “the other party’s Confidential Information” (emphasis added). As the primary judge stated, neither the definition in cl 16.2, nor the obligation in cl 13.1, is directed at information which relates to the receiving party or which is that party’s information.

8. [57]

   The surrounding contractual and regulatory context is important in this respect. The RIB-Nest Agreement was the written notice required by s 916A of the Corporations Act, by which RIB authorised Nest to provide the Authorised Financial Services “on its behalf” (cl 1.1, cl 1.3). Ultimately, as the holder of the AFSL, RIB was the broker on the policies that Nest arranged with its clients, and RIB was liable to those clients for Nest’s conduct as its authorised representative, whether or not Nest acted within the scope of its authority. As cl 1.5 stated, the relationship was one of principal and agent.

9. [58]

   Against that background, Nest’s contention, that the information RIB held on its broker management software relating to the financial services that Nest was authorised to provide was Confidential Information of Nest because RIB became aware of that information upon Nest providing it, cannot be sustained. As senior counsel for Nest acknowledged at the hearing, while Nest’s clients may be “customers” as referred to in the definition in cl 16.2, and are customers of Nest because they go to Nest for advice, they might also be described as customers of RIB because RIB has responsibility for them as the licence holder, and RIB is liable to them for all of the actions of Nest. Nest’s obligation in cl 3.14 to provide all necessary assistance to enable Nest’s existing brokered policies to be transferred to RIB at the outset of the agreement reflected the statutory reality that such services as Nest provided were as an authorised representative of an AFSL holder, in this case RIB.

10. [59]

    Clause 6.6 of the RIB-Nest Agreement, on which Nest relied, was also consistent with Nest’s status as an authorised representative, the purpose of the provision (which applied upon termination and only upon request) being to facilitate the transfer of Nest’s client information from RIB to another AFSL holder “to ensure all requirements are met prior to any client data being released”. That information was held on RIB’s broker management software, to which Nest’s access was subject to a licence for which it paid RIB an annual fee.

11. [60]

    It is the case that if Nest gave notice to terminate the agreement under cl 6.2, cl 8.2 required RIB to provide such consents as were reasonable and necessary to enable Nest to obtain an electronic copy of the Client Data from RIB’s software provider. That clause was ancillary to cl 8.1, which declared that Nest retained ownership of the goodwill attaching to its Business, as defined. However, cl 8 did not survive termination of the agreement, and as the primary judge pointed out there was no equivalent requirement in the agreement by which Nest would obtain the client information if RIB terminated the agreement, either on notice or, relevantly for present purposes, immediately for cause. Clause 6.6 did not have that effect, the purpose of the agreement that both RIB and Nest had to sign being to transfer the client portfolio information from RIB to another AFSL holder.

12. [61]

    The absence of an equivalent requirement to cl 8.2 when RIB terminated the RIB-Nest Agreement told against Nest’s contention that, contrary to the primary judge’s finding at [75], the client portfolio information was its information. So also did cl 6.4, which also applied following termination and required Nest, 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 this agreement to another service provider or to [RIB] itself”. As the primary judge stated, “reasonable assistance in the orderly transfer of the … functions and operations provided” would include the provision of Nest’s client portfolio information. Nest submitted in its Reply that the obligation in cl 6.4 was not inconsistent with RIB being required to keep the client portfolio information confidential, but that was not the primary judge’s point. His Honour’s point was that the content of cl 6.4 was inconsistent with that information being Nest’s confidential information: at [77].

13. [62]

    It otherwise did not follow from Nest retaining “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” under cl 8.1 that Nest’s client portfolio information must be Confidential Information. As RIB submitted, cl 8.1 provided protection to Nest by preventing RIB from redistributing Nest’s clients during the currency of the agreement. The clause certainly does not operate to convert what was not otherwise Confidential Information into information of that character.

14. [63]

    His Honour did not err in finding that the information that RIB provided to ACIS regarding Nest’s client portfolio, following its termination of the RIB-Nest Agreement, was not Confidential Information the use and disclosure of which put RIB in breach of cl 13.1 of the RIB-Nest Agreement. The grounds of appeal raising this issue should be dismissed.

The remaining issues arising on the appeal

1. [64]

   The remaining three issues on the appeal were each premised upon the client portfolio information being Nest’s “Confidential Information” which RIB was obliged to keep confidential and not use. My rejection of Nest’s arguments on that issue is thus dispositive of the appeal. However, as all of the issues were the subject of full argument I will deal with them briefly.

2. [65]

   Nest submitted that the primary judge made two erroneous findings in concluding that even if the client information was Confidential Information of Nest, RIB was required by law to take steps to ensure that the clients in the portfolio were protected, and thus did not breach cl 13.1 of the RIB-Nest Agreement. The first finding Nest challenged was that it was “not disputed” that RIB gave Nest’s client portfolio to ACIS to carry out a process of remediating the infected policies: at [55]. The second finding was that Nest had conceded that RIB’s disclosure to ACIS of the client portfolio information was not a breach of cl 13.1 to the extent the disclosure concerned the infected policies: at [64]. These findings were separately the subject of grounds 1(a) and 1(b) of the notice of appeal (ground 1(c) also took issue with an aspect of [64] of the reasons but was not separately addressed in Nest’s written or oral submissions).

3. [66]

   It is the case that in [55] of the reasons, the primary judge described the purpose for which RIB disclosed the identity and policy details of Nest’s insured clients to ACIS as being to remediate the infected policies. Nest contended that remediation was not part of RIB’s pleaded case and indeed that RIB had expressly disclaimed it. Even assuming the correctness of that contention, what his Honour said at [55] about purpose did not relevantly bear on the balance of the reasoning. Rather, what his Honour was emphasising in that paragraph was the absence of any dispute that RIB had given the client portfolio information to ACIS. It is noteworthy in this respect that his Honour made no further reference to remediation in the reasons.

4. [67]

   In relation to the second finding that the primary judge characterised as involving a concession on Nest’s part, RIB pointed to the following exchange between the primary judge and senior counsel for Nest as the source of his Honour’s understanding of Nest’s position:

5. [68]

   Nest submitted on the appeal that it did not make a concession of the nature his Honour found in [64]. Rather, its submission in the above passage, which it maintained on the appeal, was that RIB had not established by its evidence that what it did was required by law.

6. [69]

   In oral submissions, senior counsel for Nest accepted that bearing in mind RIB’s obligations in s 912A of the Corporations Act, providing an authorised representative to clients immediately so as to ensure an orderly transfer might involve the performance of a legal obligation, but it did not follow that it was required by law; and if there were other ways to perform the legal obligation that did not involve contravening the promise in cl 13 then it could not be said that it was “required”. In the present case, where RIB executives had originally invited Mr Nguyen to consider who he wanted to sell the business to, RIB could not establish that the course it subsequently adopted (providing Nest’s client portfolio to another authorised representative) was required by law, absent evidence from one of those executives to the effect that there was no other option.

7. [70]

   I do not accept that argument. On 19 November 2020, RIB revoked Nest’s status as its authorised representative without notice and for cause. It is the case that immediately upon terminating the agreement, RIB offered Nest an opportunity to consider selling in the first instance. However, in that same conversation Mr Castanelli emphasised that RIB could not accept Nest’s behaviour and would not put its AFSL “and all those who depend upon it at risk”; and by the following day RIB had rejected Mr Nguyen’s preferred replacement.

8. [71]

   It did not follow from the initial offer of that opportunity that RIB was not required by law to act in the manner that it did. The email record of the conversation between Mr Nguyen and Mr Hastie on 20 November 2020 (the following day) made clear that RIB, as licensee, had the obligation to “ensure client’s (sic) needs are met and the appropriate level of advice is given”. In circumstances where it was on notice (at that time) of 44 policies that were affected by Nest’s misconduct, and with the process of renewals shortly to start, it was not possible to isolate the “infected policies” from the other policies in terms of RIB’s obligations. As the primary judge stated at [64] in relation to the infected policies, RIB had “no choice but to act to protect those insureds”. That same reasoning applied to other insureds for whom RIB had obtained insurance with Nest as its agent. The grounds raising these issues should be dismissed.

9. [72]

   Nest took issue with the primary judge’s finding at [82] that any loss caused to Nest in terms of the impairment of the sale value of its client portfolio was “properly to be viewed as having been caused by Nest’s own dishonest conduct, not RIB’s steps taken to assuage its effect”. It submitted in writing that this conclusion seemed to arise from his Honour’s finding that in so far as RIB was required by law to remediate the infected policies, the true cause of any loss arising from that remediation was Nest’s conduct. Nest submitted that if it succeeded on grounds 3(a) and 3(b), then this conclusion could not survive as it was premised on that finding. For the reasons given above I would dismiss those grounds. Accordingly, I also reject this argument.

10. [73]

    Nest also took issue with the primary judge’s conclusion that the evidence did not support a finding that the loss of confidentiality caused the loss of the value of its client portfolio. It submitted that this conclusion rested in part on Postcode being able to recover some of Nest’s clients in the period between November 2020 and October 2023, which ignored the following evidence:

    1. (1)

       the initial contemplation of both RIB and Nest that Nest could and would sell its portfolio;

    2. (2)

       the manner in which RIB notified Nest that ACIS would be taking over the portfolio, stating that ACIS would pay Nest 50% of all paid income generated from its client register for 12 months (with RIB withholding all amounts until such time as Nest had paid all instalments under the 2016 referral and allocation agreement); and

    3. (3)

       the cessation of any discussion about Nest being able to sell the portfolio upon RIB giving ACIS access to the client portfolio information on its broker management software (it being understood by everyone involved, Nest submitted, that once ACIS had access to that information Nest could not practicably sell anything).

11. [74]

    Nest submitted that the fact that Mr Nguyen was able to reclaim some of Nest’s former customers said nothing about the loss to Nest in November 2020, when it lost the opportunity to sell the whole portfolio for its market value, as determined by the experts.

12. [75]

    Specifically in relation to the expert evidence, Nest submitted that it was procedurally unfair for the primary judge to reject that evidence at [101] on the basis that Nest had not proved there was a market for a customer portfolio infected by misconduct. This argument was the focus of Nest’s oral submissions.

13. [76]

    As the primary judge noted, Nest’s final formulation of its damages claim focused on “what is said to have flowed from the client list being published to [ACIS], with the attendant loss of confidentiality of its contents”: at [91]. His Honour summarised the questions that Nest asked its expert, Mr McGuinness, as follows at [93]:

14. [77]

    His Honour noted that in answering these questions, Mr McGuinness took the annual broking and commission revenue that Nest earned to 19 November 2020 on the defined parts of the portfolio and applied it to a multiplier “derived principally by reference to known examples of the sale or transfer of client portfolios for consideration (and presumably at arms’ length)”: at [94]. As his Honour observed, “[t]his assumes that the other transactions are relevantly comparable to a sale of Nest’s portfolio”: at [94]. In their joint expert report, Mr McGuinness and Ms Jennings-Jones agreed on estimates of market value “derived in this fashion”, with the midpoint of the agreed range on the scenarios as follows (using the above numbering):

15. [78]

    Senior counsel contended that it was procedurally unfair for the primary judge not to accept the correctness of the approach that both parties’ experts were instructed to use and on the basis of which they prepared a joint report and as to which they were not challenged. Nest relied in this respect on Hull v Thompson [2001] NSWCA 359, in which Rolfe AJA stated (Sheller JA and Davies AJA agreeing):

16. [79]

    The primary judge’s conclusion that Nest’s approach to quantifying its claimed loss was unsound rested on his Honour not being satisfied as to the assumptions that underpinned it, both in terms of what Nest had in fact lost and the impact that its misconduct would “almost inevitably” have had on the market value of the Client Portfolio. That this was the basis of his Honour’s rejection of the expert evidence was apparent from the extract from the reasons of Gleeson CJ in Troulis v Vamvoukakis [1998] NSWCA 237 which his Honour set out at [102]. Gleeson CJ stated at 13-14:

17. [80]

    As RIB submitted, the difficulties his Honour identified did not represent a departure from the views of the experts on the questions for which they had been asked to give an opinion. Rather, as his Honour stated at [101], the Court had “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”. RIB relied on those deficiencies in the approach taken by Nest at trial, and the primary judge was entitled to reject it as he did. I would dismiss these grounds of appeal.

18. [81]

    For completeness, I note that Nest also raised a ground that related to the Master Terms that were incorporated into the 2016 authorised representative agreement between Nest and Resilium. Nest’s written submissions stated that it did not consider it necessary for the Court to reach any view on the proper construction and effect of that agreement, but raised the ground against the possibility that the Court considered the agreement relevant to the issues on the appeal. RIB submitted that there was no basis for the Court to consider the agreement, noting that Resilium was not a party to the appeal. Apart from noting the 2016 agreement as part of the background I did not consider the agreement in reaching my conclusions.

Conclusion

1. [82]

   I propose the following orders:

   1. (1)

      The appeal is dismissed.

   2. (2)

      The appellant is to pay the respondent’s costs of the appeal.

2. [83]

   FREE JA: I agree with Mitchelmore JA.