Richmond Valley Council v JLT Risk Solutions Pty Ltd

1. [1]

   HIS HONOUR: On 3 December 2018, the plaintiff (or Richmond) started a representative proceeding (or class action) under Part 10 [1] of the Civil Procedure Act 2005 (NSW) (the Act) on its own behalf and on behalf of a group of twelve New South Wales local councils [2] against the defendant (JLT). JLT carries on business, amongst other things, as an insurance broker. Where it is not necessary to distinguish between Richmond and the group members, I shall refer to them collectively as the group. References to sections are references to the Act unless the context indicates otherwise.

2. [2]

   The proceedings are fixed for their initial trial commencing on 11 October 2021 on an estimate (perhaps a little generous) of 25 days.

3. [3]

   There are before the Court two motions, each dated 9 December 2020:

4. [4]

   The principal thrust of the declassing motion is that Richmond has not identified a substantial common question of law or fact to which the claims of Richmond and the group members give rise, as is required by s 157(1)(c). Section 157(1) [3] provides:

5. [5]

   As a secondary argument, JLT puts that an order should be made under s 166 that the proceedings no longer continue under Part 10 because it is in the interests of justice as envisaged by s 166(1) [4] , which provides:

6. [6]

   It argues that because there are no, or substantially no, common issues of law or fact to be determined, the maintenance of the proceedings as a class action can only delay and stymie the progression of the claims of group members because it makes it necessary to await the determination of Richmond’s claim and the hearing of any appeals in relation to that determination, whereas if the proceedings are declassed now, the group members’ claims could be efficiently progressed now.

7. [7]

   The secondary argument can be disposed of briefly. It is premised on the absence of any substantial common issue of law or fact. If there is at least one such issue, the secondary argument fails. If there is no such issue, the declassing motion must succeed. It was not suggested that if there is at least one such issue it would be appropriate to declass the proceedings.

8. [8]

   The questions motion and the declassing motion are, of course, related. If JLT is correct that there is no substantial common question of law or fact to be determined at the trial, the questions motion falls away. If JLT is wrong, the question arises whether the Court should, at this point, make an order in accordance with the questions motion. JLT’s position is that even if s 157(1)(c) is satisfied, the Court should decline at this stage to make any order identifying what issues will be determined in the trial.

9. [9]

   For the reasons which follow, the declassing motion is to be dismissed.

10. [10]

    I propose to make a Merck order. It is desirable and appropriate at an early stage to identify common questions to be determined at the trial without prejudice, of course, to any amendments, refinements, additions or subtractions which may emerge later to be appropriate.

11. [11]

    At the outset the following observations are appropriate:

    1. (1)

       The subject matter of representative proceedings of the kind authorised by Part 10 of the Act is a claim which gives rise to common questions of law or fact, but it is not necessary that the representative proceedings resolve or are likely to resolve the claims of all group members: Timbercorp Finance Pty Ltd (in liq) v Collins; Timbercorp Finance Pty Ltd (in liq) v Tomes (2016) 259 CLR 212, 234-235 [47]-[49].

    2. (2)

       The word “substantial” in s 157(1)(c) of the Act means that the common issue should not be merely trivial but of weight and significance. It does not indicate that which is large or of special significance or which may have a major impact on the litigation: Wong v Silkfield Pty Ltd (1999) 199 CLR 255, 266 [27] and following.

    3. (3)

       The orderly conduct of a Part 10 proceeding requires that prior to an initial trial starting, there is specificity in what common questions are being determined: Merck at [6]; Ethicon Sàrl v Gill [2021] FCAFC 29 at [57].

    4. (4)

       Although careful compliance with the requirements of s 157(1)(c) is important (see: Bright v Femcare Ltd (2002) 195 ALR 574), the gateway requirements to commencing a class action are deliberately undemanding. Whether a class action meets the requirement laid down in s 157(1)(c) requires a binary assessment and does not call for the exercise of any discretion. Having passed through the gateway, further common questions may become evident: ISG Management Pty Ltd v Mutch (2020) 385 ALR 146, 148 [4]-[12].

12. [12]

    The efficient disposition of a trial of common issues will be assisted if the common questions are articulated in a manner that requires as little reference to documents (including the pleadings) outside of the document in which the questions are set out as the circumstances will permit. The questions document should, as far as possible, be freestanding to avoid the reader having to have regard to documents to which she, he or it may not have ready access. This will also protect against the possibility that questions, which are framed by reference to the pleadings, change if the pleadings change, with potential unintended consequences. Some of the proposed questions articulated by Richmond are framed by reference to an affidavit served by JLT which obviously has not yet been read in the proceedings. This is an added reason why the questions should not be framed by reference to a paragraph in the affidavit. If there are uncontested facts and a question is asked based only upon those facts, they should be set out.

13. [13]

    By Deed made on 22 March 1994 (the Deed) between JLT and a number of councils (members), there was established a scheme, known as the NSW Local Government (Jardines) Liability Scheme (commonly referred to as Statewide), for the purposes of purchasing for the members of Statewide insurance for public liability (including personal injury, damage to property and product liability) and professional indemnity, and to provide for indemnity for them in respect of liability not covered by such insurance. On an annual basis, contributions are collected from the members out of which, for each year, an Annual Fund is established. This is used to provide the discretionary indemnity to claiming members who have suffered liability in that particular year.

14. [14]

    Statewide arranges primary insurance for its members but also provides a discretionary indemnity cover out of the members’ collective funds for loss or liability of members not covered by the primary insurance for liability (liability cover) and property damage (property cover).

15. [15]

    The Deed provides for the establishment of a Board of Management and a Claims Committee.

16. [16]

    Under the Deed, the members engage JLT to assist in the management of the scheme and to provide the most efficient way of organising their insurance requirements. Under the Deed, JLT is, relevantly, appointed to provide representatives to the Board of Management and Claims Committee, advise members in relation to loss prevention and risk minimisation techniques, organise a budget for each Annual Fund for each year, advise in relation to the required contributions, advise on and effect primary insurance on the instructions of the Board of Management, and manage the handling of claims.

17. [17]

    JLT is entitled to be paid fees and/or commission for its services.

18. [18]

    The Statewide arrangements also facilitate group insurance purchasing for other lines of cover, such as motor vehicle cover and councillors & officers cover.

19. [19]

    Statewide is not a legal persona. It is a contractual arrangement under which JLT holds, administers and manages funds (as a trustee) from which the discretionary cover is paid and other expenses are met.

20. [20]

    Thus, strictly Statewide (or for that matter JLT) is not an insurer, but the arrangements may be thought to mimic insurance.

21. [21]

    Although it will add to the length of this judgment, it is necessary to deal in some detail with the pleaded case and the pleaded defence.

The Claim

1. [22]

   Richmond’s claim is pleaded in its Second Further Amended Commercial List Statement (CLS) filed on 5 March 2020. It is that during the period 1 January 2009 to 3 December 2018 (the Relevant Period):

The Response

1. [23]

   JLT responds by way of its Further Amended Commercial List Response (CLR) filed on 10 September 2020.

2. [24]

   Initially JLT did not admit Richmond’s allegation (CLS [6]) that at all material times it carried on business as an insurance broker. Its answer (CLR [6]) was that from time to time it provided insurance broking services to some clients but otherwise did not admit the allegation. During the hearing of the motions, no doubt to remove from the playing field the obvious substantial common issue of whether JLT carried on business as an insurance broker, JLT unconditionally admitted the allegation. However, the admission does not extend to one that JLT acted as an insurance broker in its dealings with Richmond and the other group members, or that it had the duties to them which they assert.

3. [25]

   JLT does not admit Richmond’s allegation (CLS [7]) that it held itself out as one the largest insurance brokers in Australia and the world, possessed of the expertise to deliver the most comprehensive range of insurance and risk solutions products and services available to local government authorities across Australia, and capable of ensuring that councils would receive a well-designed insurance programme at a competitive premium cost (CLR [7]).

4. [26]

   JLT admits that it subscribed to the Code of Practice of the National Insurance Brokers Association and admits that it held itself out to Richmond as a subscriber to it (CLR [8]). JLT particularises its position by reference to its Financial Services Guides dated March 2014, December 2015, and December 2017. It otherwise does not admit Richmond’s allegation. This entails a non-admission that it held these matters out to the other group members.

5. [27]

   JLT denies that it provided insurance broking services to Richmond and the group members as alleged (CLR [9]). It pleads that its role and functions are defined and circumscribed by the provisions of the Deed and that these did not make it their insurance broker. It says that Statewide was not an insurer, and denies that it was the case or that it was possible for insurance to be arranged or placed with the Statewide scheme. It admits that from time to time it provided insurance broking services to Richmond, directly and individually, outside the Statewide scheme in relation to certain lines of insurance that did not include liability cover, professional indemnity or property cover, and otherwise denies CLS [9].

6. [28]

   JLT admits that it had knowledge of the market for cover but does not admit that Richmond or group members lacked knowledge of the market. It says that in any event, the members of Statewide appointed the Board of Management to receive advice and issue instructions for the purchase of primary insurance (CLR [12]).

7. [29]

   JLT’s response to Richmond’s allegation (CLS [11]) that it and each of the group members followed JLT’s recommendations and instructed or authorised it to place or arrange their cover is that in accordance with its appointment under the Deed, it effected certain primary insurance for Richmond and the group members on the instructions of the Board of Management and otherwise denies Richmond’s allegations (CLR [11]).

8. [30]

   JLT’s answer to Richmond’s allegation of separate Broking Services Contracts is that its contractual relationship with Richmond and the group members in respect of the provision of insurance broking services was governed by the Deed and that there was no scope for any separate contract to be implied from conduct. It otherwise denies Richmond’s allegations (CLR [14]). It denies the implied term pleaded by Richmond (CLR [15]).

9. [31]

   It denies, for reasons which are pleaded but are not necessary to recount for present purposes save to state that they include the contention that cover under Statewide is not fairly comparable with conventional insurance, that Richmond and each group member overpaid for the insurances obtained through Statewide and that the rates exceed those which were reasonably available in the market or exceeded the contribution rates that were available from or could be negotiated by JLT with Statewide (CLR [16]).

10. [32]

    It denies the existence of the fiduciary duties pleaded by Richmond. It pleads that the relationship between JLT and Richmond and the group members was governed and regulated by the terms of the Deed (CLR [21]).

11. [33]

    It denies the existence of a conflict between JLT’s financial interests and the interests of Richmond and the group members (CLR [22]) and it denies any breach of such a duty (CLR [23]). It pleads informed consent, which it says was given pursuant to the Deed (CLR [18]). It denies that by reason of its conduct Richmond or any of the group members suffered loss or damage (CLR [25]).

Summary

1. [34]

   From the foregoing analysis, it will be seen that stripped to its bare essentials, the pleaded case is:

2. [35]

   And stripped to its bare essentials, the substance of JLT’s defence is:

3. [36]

   From the foregoing analysis of the pleadings and this brief (and perhaps oversimplified) summary, it will readily be appreciated that these proceedings are entirely appropriate to be brought as a class action.

4. [37]

   JLT’s business practices, in the context of Statewide, were the same with respect to Richmond as they were with respect to each member of the group. After all, it was operating in the context of the Deed, to which it and each of the group is a party. The operation of the Deed is at the heart of the case. JLT’s position is that one of the effects of the Deed is to undermine the suggested existence of the duties or obligations it is said to have breached, including those under the implied term. Whether this is so, is on its own, a common question of significance. As well, JLT used the same type of instrument in its dealings with Richmond and the group.

5. [38]

   The parties (in particular Richmond) appear to place importance on whether JLT is appropriately to be described as having been the group’s “insurance broker” or having provided “broking services”. In my view, the accuracy of these descriptors is not the real issue. What will be material is whether, having regard to the way JLT conducted itself (in respect of which there seems to be little dispute), the terms of the Broking Services Contracts (if established), and the effect of the Deed, JLT owed to the group the obligations and duties which they assert.

6. [39]

   In this context, it is not suggested that there is any relevant difference between JLT’s position vis-à-vis Richmond and its position vis-à-vis any other member of the group.

7. [40]

   Initially, Richmond proposed a series of common questions which were not sufficiently precisely articulated or targeted to be of utility. It requested a further opportunity to articulate common questions. It provided these on the second occasion.

8. [41]

   I will deal with the proposed questions in groups (where appropriate) in turn.

9. [42]

   JLT argues that these are not questions common to the claims of the group because Richmond does not plead any such practice. The submission overlooks the particulars now given of the Broking Services Contracts.

10. [43]

    During the hearing of the motions, JLT made the following admissions in respect of these questions:

    1. (1)

       at all material times during the Relevant Period, JLT had a practice of issuing “Insurance Declarations” to Richmond and group members in a template or common form within a particular year;

    2. (2)

       at all material times during the Relevant Period, JLT had a practice of issuing “Renewal Reports” to Richmond and group members in a template or common form within a particular year; and

    3. (3)

       the template or common form documents referred to in the two preceding subparagraphs were used by JLT in carrying out the practice described in paragraph [211] of the Affidavit of Demer, dated 18 January 2020.

11. [44]

    The admissions in respect of questions 1 and 2 were qualified in the respect that the template or common form documents in question, varied in respect of the terms of the coverage to be taken up by the group. The documents circulated by JLT were in common form within particular years. Of course, precise coverage would vary from council to council but that does not affect the commonality of the questions. However, in the light of JLT’s admissions they are not appropriate to be the subject of a Merck order.

12. [45]

    The substantial question which remains, however, is whether JLT’s practices, which were common to JLT’s method of doing business across the group, gave rise to the Broking Services Contracts between JLT and each group member with whom JLT did the relevant business, as Richmond alleges in CLS [14].

13. [46]

    This question is a common one, not least of all because the documents said to give rise to the Broking Services Contract in each case are relevantly indistinguishable. The question is covered by question 9 (set out below) which is appropriate to go to trial as a common one subject to redrafting so as to make it freestanding.

14. [47]

    This question (which contains three sub-questions) is common, not least of all because it calls for an assessment of the import of the same words used in JLT documents distributed across the group. Given JLT’s non-admission of the holding out, it is appropriate to go to trial as a common question.

15. [48]

    This question is common. It calls for an assessment of the import of the same words used in JLT publications distributed to the group. The holding out is admitted by JLT but with respect only to Richmond. In the absence of an admission by JLT with respect to the other group members, it is appropriate to go to trial.

16. [49]

    These questions are circular, lack utility and are not appropriate to go to trial as common ones. In effect, each question asks whether the practice described by Demer falls within the definitions of broking services and recommendations, which definitions are creatures of the CLS itself.

17. [50]

    This question is circular, lacks utility and is not appropriate to go trial as a common one. It relies on acceptance of a definition created by the CLS itself and asks whether the Deed displaces the defined matter.

18. [51]

    Question 9 on its own lacks utility. However, taken together with questions 10 and 11 the following substantial common question, which is appropriate to go to trial, can be articulated:

19. [52]

    If this question is intended to be answered on the footing of a set of uncontested facts (which appears to be the intention behind its original framing), those facts should be set out and it made clear that the question is asked with respect to them.

20. [53]

    The question accommodates JLT’s contention (which raises the common issue) that the Deed undermines the existence of any such contract or implied term.

21. [54]

    These questions, as framed, are not appropriate to go to trial as common ones.

22. [55]

    The real issue here is whether (as pleaded in CLS [16]) the amounts that the group were required to pay to obtain their insurance through Statewide either exceeded the premium rates that were reasonably available from alternative underwriters or providers in the market, or exceeded the contribution rates that were reasonably available from or could be negotiated by JLT with Statewide. Determination of what was available to Australian local councils or NSW local councils in general will not answer these questions. It may be possible to articulate precise questions that have utility but these are not them.

23. [56]

    As framed this question has difficulties which make it inappropriate in its current form to go to trial as a common one. Leaving aside that it is premised on answers to Questions 12 and 13, it too relies on the broking services definition. I consider it possible to articulate an appropriate question directed to what a person in the position of JLT would have done.

24. [57]

    This series of questions is directed to the common issues of whether JLT had fiduciary duties and breached them. These issues comprehend the effect of the Deed for which JLT contends.

25. [58]

    They are unsatisfactory in this form. They depend on answers to earlier questions and are not specifically related to the group members. They rely on the definitions of broking services and recommendations.

26. [59]

    It is possible to articulate, with precision, questions which ask whether JLT owed the fiduciary duties pleaded and breached them, along the following lines:

27. [60]

    The final question is:

28. [61]

    This question is not satisfactorily framed. It does not distinguish between commissions and consideration received by JLT generally in respect of its functions under the Deed and individual commissions received for arranging policies for individual members of the group. What is the amount of individual commissions received by JLT is not a common question.

29. [62]

    The declassing motion is dismissed.

30. [63]

    To enable the parties to have a degree of certainty at an early stage, I will make a Merck order in respect of questions which these reasons contemplate would, subject to refinement, be presently appropriate to go to trial. For convenience, a preliminary Schedule of questions is attached.

31. [64]

    Within 21 days of delivery of these reasons, Richmond is to circulate the proposed final form of the questions which these reasons contemplate are appropriate, if properly formulated, to go to trial. Within 14 days after receiving Richmond’s proposals, JLT is to provide its response with respect to the formulations.

32. [65]

    I provisionally order that JLT is to pay Richmond’s costs of the declassing motion (reflecting Richmond’s success) and that the costs of the questions motion will be costs in the cause of the proceedings (reflecting that each side was partially successful and partially unsuccessful). If either party seeks some other order, it is to notify the other party and my Associate within 21 days as to what other order is sought and briefly state why. If some other order is sought, the relevant provisional order will not take effect and I will give directions with respect to the resolution of the issue.

33. [66]

    I will stand the matter over for directions to 28 May 2021 (or to some other mutually convenient date if the parties notify my Associate of it) to be dealt with, initially, in accordance with the COVID protocol earlier sent to the parties.

34. [67]

    I propose to reserve to the trial judge (if indeed that is necessary) the final determination of the questions that are to go to trial.