FEDERAL COURT OF AUSTRALIA

The Barclay MIS Group of Companies Pty Ltd (ACN 056 321 272) v Australian Securities and Investments Commission [2002] FCA 1606

INSURANCE – whether carrying on insurance business – whether product offered constituted a contract of insurance – whether a discretion to provide facilities where exercised reasonably distinguishes product from contract of insurance – whether providing a financial service – whether misleading and deceptive conduct in relation to financial services

Corporations Act 2001 (Cth) ss 761A, 736C, 736E, 766A, 766C, 911A(1), 1041H, 1311(1)

Insurance (Agents and Brokers) Act 1984 (Cth)

Australian Securities and Investments Commission Act 2001 (Cth) s 12DA

Insurance Act 1973 (Cth) ss 3, 10(1), 21(2)

Australian Health Insurance Association Ltd v Esso Australia Ltd (1993) 41 FCR 450 considered

Prudential Insurance Co v Inland Revenue Commissioners [1904] 2 KB 658 followed

Department of Trade and Industry v St Christopher Motorists’ Association Ltd [1974] 1 All ER 395 considered

Medical Defence Union Ltd v Department of Trade [1980] 1 Ch 82 considered

Re Barrett; Ex parte Young v N M Superannuation Pty Ltd (1992) 34 FCR 508 referred to

New South Wales Medical Defence Union Ltd v Crawford (1993) 11 ACSR 406 referred to

THE BARCLAY MIS GROUP OF COMPANIES PTY LTD (ACN 056 321 272), BARCLAY MIS LANDLORD PROTECTION PLAN (VIC) PTY LTD (ACN 077 964 035), BARCLAY MIS LANDLORD PROTECTION PLAN (NSW) PTY LTD (ACN 076 958 613), BARCLAY MIS LANDLORD PROTECTION PLAN (TAS) PTY LTD (ACN 080 116 276), BARCLAY MIS LANDLORD PROTECTION PLAN (QLD) PTY LTD (ACN 074 152 211), BARCLAY MIS LANDLORD PROTECTION PLAN (SA) PTY LTD (ACN 080 999 275), BARCLAY MIS LANDLORD PROTECTION PLAN (NT) PTY LTD (ACN 089 485 585), BARCLAY MIS LANDLORD PROTECTION PLAN (WA) PTY LTD (ACN 082 879 614), BARCLAY MIS LANDLORD PROTECTION PLAN (ACT) PTY LTD (ACN 096 963 692) v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION AND AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY AND AUSTRALIAN SECURITIES AND INVESTMENTS AND THE BARCLAY MIS GROUP OF COMPANIES PTY LTD (ACN 056 321 272), BARCLAY MIS LANDLORD PROTECTION PLAN (VIC) PTY LTD (ACN 077 964 035), BARCLAY MIS LANDLORD PROTECTION PLAN (NSW) PTY LTD (ACN 076 958 613), BARCLAY MIS LANDLORD PROTECTION PLAN (TAS) PTY LTD (ACN 080 116 276), BARCLAY MIS LANDLORD PROTECTION PLAN (QLD) PTY LTD (ACN 074 152 211), BARCLAY MIS LANDLORD PROTECTION PLAN (SA) PTY LTD (ACN 080 999 275), BARCLAY MIS LANDLORD PROTECTION PLAN (NT) PTY LTD (ACN 089 485 585), BARCLAY MIS LANDLORD PROTECTION PLAN (WA) PTY LTD (ACN 082 879 614), BARCLAY MIS LANDLORD PROTECTION PLAN (ACT) PTY LTD (ACN 096 963 692)

Q 59 OF 2002

DOWSETT J

23 DECEMBER 2002

BRISBANE

THE COURT ORDERS THAT:

1.                  The matter be adjourned to allow the parties to formulate proposed orders in light of these reasons.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

Background

1                     The various applicants provide services to landlords, including access to a tenancy database, location of defaulting tenants and recovery of debts and damages arising out of tenancy agreements.  I will refer to all applicants collectively as “Barclay MIS”.  The case has proceeded upon the basis that the various applicants should be treated collectively.  However it may be necessary, in formulating orders, to be more precise.  Since 1999 Barclay MIS has offered to landlords a series of “plans” pursuant to which they pay annual amounts for various services.  Until relatively recently there were four such plans, the details of which appear from a number of documents.  Prior to 1 July 2001 a brochure was distributed in the form of exhibit 10.  Thereafter, a brochure in the form of exhibit 9 was used.  The major difference between the two brochures is that exhibit 10 offered optional insurance against public liability.  Exhibit 9 did not.  Other differences are mainly cosmetic.  In addition to the brochure, Barclay MIS circulated an explanatory brochure which is exhibit 11.  The various plans were marketed through real estate agents or property managers, using a document which is annexure 3 to the statement of claim delivered by the first respondent (“ASIC”).  I will refer to that document as “annexure 3”.  This document contained advice to property managers, a form of contract to be entered into by Barclay MIS and each landlord who bought a plan and various certificates for issue to landlords, recording participation in the plans. 

2                     Pursuant to the “Barclay MIS Basic” plan (the “Basic plan”), the landlord paid $33.00 per year per property and in return:

… you have access to the following process:

®                 Access to ‘Fast Track’, the Barclay MIS National Tenancy Database that highlights delinquent tenants as well as exemplary ones.

®                 Tracing and location of the defaulter.

®                 Demand letters for those tenants who do not respond to normal requests for payment.

®                 Raising and serving of summons as required.

®                 Obtaining judgment.

®                 Raising and conducting of court/legal examination.

®                 Raising and serving of garnishee summons/order.

®                 Raising and serving of warrant of execution.

®                 Eviction services, ensuring that the process of regaining your property is as stress-free as possible.

®                 Free removal and storage of goods (if applicable).

®                 Recovery of all lost rent.

®                 No other costs involved in the recovery of outstanding rent or damages.

®                 Totally tax deductible.

3                     Pursuant to the “Barclay MIS Rent Guarantee” plan (the “Rent Guarantee plan”), for $110.00 per year per property:

… you receive all the benefits of the Barclay MIS Risk Management Plan including Barclay MIS Basic cover, tenant selection and the monitoring of the tenants performance plus we will pay you for up to 52 weeks of lost rent arising out of -

®                 premises being unfit for occupation caused by malicious or accidental damage by the tenant.

®                 Tenant failing to pay their rent.

®                 Departure of the tenant without notice.

®                 Denial of access by the tenant.

4                     Prior to 1 July 2001, exhibit 10 advised the landlord to:

See your policy document for more details regarding this cover.

Any claim for rent will be pursued under the terms of the Barclay Basic cover.

5                     From 1 July, exhibit 9 advised:

Refer to your Barclay MIS Guarantee Plan Terms & Conditions Certificate.

6                     Under the “Barclay MIS Damage Guarantee” plan (the “Damage Guarantee plan”), the landlord paid $110.00 per year and:

… you receive all the benefits of the Barclay MIS Risk Management Plan including Barclay MIS Basic cover, tenant selection and the monitoring of the tenant’s performance.  In addition we protect you for losses arising out of tenant related…

                        Damage for up to $50,000.00

                        Landlord contents of up to $10,000.00

in the event of –

®                 malicious damage to your premises or contents.

®                 accidental damage to your premises or contents.

®                 losses arising from the theft of your contents or fixtures.

7                     Prior to 1 July 2001, exhibit 10 advised the landlord to:

See your policy document for more details regarding this cover.

Any claim for damages will be pursued under the terms of the Barclay Basic cover.

8                     From 1 July, the wording was similar to that adopted in the case of the Rent Guarantee plan.  Under the “Barclay Total Guarantee” plan (the “Total Guarantee plan”), the landlord paid $176.00 per year and:

… you receive all the benefits of the Barclay Risk Management Plan in relation to tenant selection and the monitoring of the tenant’s performance.  You have absolute peace of mind knowing that your property is covered for the loss of up to 52 weeks rent (as per the Rental Guarantee Section) and all damage caused by the tenant, be it malicious or accidental ( as per the Damage Guarantee Section). 

As a member of Barclay MIS Risk Management Plan, you also have FREE access to Australia’s only true National Tenancy Database of tenants both good and bad. 

9                     Prior to 1 July 2001, exhibit 10 advised:

See your policy document for more details regarding this cover.

10                  From 1 July, the wording was as for the Rent Guarantee and Damage Guarantee plans.

11                  In the course of these proceedings it has emerged that in lieu of these plans, Barclay MIS proposes to offer two different plans, a “Basic Assistance” plan and a “Total Assistance” plan.  Of the Basic Assistance plan it is said that:

If you obtain an Order of a Tribunal for the payment of a monetary sum(s) to you in respect of a Residential Tenancy Agreement dispute, we will, with your consent and in your name, subject to the general conditions, at our expense, commence recovery action and account to you for the proceeds of that recovery action after deduction of our reasonable legal costs.  We are responsible for the legal costs (including any adverse costs order) of any unsuccessful recovery action conducted by us.

12                  Of the Total Assistance plan it is said:

If you obtain an Order of a Tribunal for the payment of a monetary sum(s) to you in respect of a Residential Tenancy Agreement dispute, we will, subject to the general conditions, purchase that Order and the worth of any proceeds of enforcing that order from you for the amount of that Order.

13                  The cost of the Basic Assistance plan is an annual fee of $33.00, presumably per property.  In the case of the Total Assistance plan, it is $176.00.  General condition 2 provides, in the case of each plan:

We will consider a request by the landlord to provide the facilities under this agreement to the landlord when a tenant is in breach of the Residential Tenancy Agreement.  In all cases, the provision of the facilities under this agreement shall be in our absolute discretion provided always that we will exercise our discretion reasonably.

THESE PROCEEDINGS

14                  Barclay MIS became aware that the respondents were interested in its activities and were asserting that such activities might be contrary to the provisions of one or more statutes.  By way of pre-emptive strike, it commenced these proceedings on 22 April 2002, seeking declarations, injunctions and writs of prohibition and mandamus.  The respondents have cross-claimed, seeking to determine that the conduct of Barclay MIS in connection with these various plans was, or will be unlawful and to restrain such conduct.  It has been convenient for the respondents to assume carriage of the proceedings. 

Claims by ASIC

The four plans

Carrying on a financial services business

15                  ASIC claims that Barclay MIS has, in marketing the four plans, breached the provisions of s 911A(1) of the Corporations Act 2001 (Cth) (the “Corporations Act”).  These allegations relate to the period since 11 March 2002 when, as a result of a change in statutory regime, the Corporations Act commenced to regulate the conduct in question.  Previously, the Insurance (Agents and Brokers) Act 1984 (Cth) (the “IAB Act”) had applied.  The current statutory regime is somewhat complex.  Subsection 911A(1) provides:

Subject to this section, a person who carries on a financial services business in this jurisdiction must hold an Australian financial services licence covering the provision of the financial services.

16                  Pursuant to subs 1311(1) of the Corporations Act, it is an offence to do anything which is forbidden by the Act.  There is no suggestion that Barclay MIS holds any relevant licence.  As I understand it, the only matter in dispute is whether it has carried on a financial services business.  In s 761A, the term “financial services business” is defined to mean “… a business of providing financial services”.  Pursuant to par 766A(1)(b) a person who deals in a financial product provides a financial service.  Paragraph 766C(1)(b) provides that a person who issues a financial product deals in a financial product.  The term “financial product” is relevantly defined in par 763A(1)(b) as:

a facility through which, or through the acquisition of which, a person… manages financial risk.  

17                  The term “manages financial risk” is defined in s 763C to include managing:

… the financial consequences to (a person) of particular circumstances happening;

18                  Subsection 763A is said to have effect subject to s 763E which provides:

(1)       If:

(a)   something (the incidental product) that, but for this section, would be a financial product because of this Subdivision is:

(i)  an incidental component of a facility that also has other components; or

(ii)a facility that is incidental to one or more other facilities; and

(b)it is reasonable to assume that the main purpose of:

(i)                 if subparagraph (a)(i) applies – the facility referred to in that subparagraph, when considered as a whole; or when considered  as a whole; or

(ii)               if  subparagraph (a)(ii) applies – the incidental product, and the other facilities referred to in that subparagraph, when considered as a whole;

is not a financial product purpose;

the incidental product is not a financial product because of this Subdivision (however, it may still be a financial product because of Subdivision C).

(2)        In this section:

financial product purpose means a purpose of:

(a)        making a financial investment; or

(b)        managing financial risk; or

(c)        making non-cash payments.

19                  I will refer to Sub-division C at a later stage.

20                  ASIC submits that each of the four plans is a financial product in that each is a facility for managing the risk of a particular circumstance happening, namely tenant default.  However the Basic plan is concerned with more than that.  One of the benefits said to be conferred is “access to … Fast Track, the Barclay MIS national tenancy database that highlights delinquent tenants as well as exemplary ones.”  Further, the words which appear under the heading “Better Than Insurance” at the top of the first inside page of exhibit 9 indicate that an objective of the plan is to avoid tenant default.  Presumably this is to be done by use of the tenant database which, it is hoped, will identify tenants who pose risks.  Fairly clearly, the other services available under the Basic plan are designed to deal with default when it occurs. 

21                  Annexure 3 demonstrates that the advantages of the Basic plan are not quite as clear as is suggested by exhibit 9.  In clause 4 the landlord authorizes Barclay MIS to take various steps on his or her behalf, including the commencement and prosecution of proceedings.  Outlays so incurred are to be borne by Barclay MIS “in consideration of the payment of the subscription and the assignment of any legislative interest that may be applicable to the debt.”  Barclay MIS is entitled to recover fees and outlays, presumably from the defaulting tenant, but outlays may also be deducted from moneys recovered.  They will be reduced pro-rata in the event that the full amount of any debt is not recovered.  Clauses 6, 7 and 10 are of some interest.  They provide as follows:

6.         (Barclay MIS) shall at all times use its reasonable endeavours to recover the whole or part of the sums due and payable by a tenant or other persons liable to pay.  From time to time however the Landlord acknowledges that (Barclay MIS) shall not be liable in respect of its failure to recover the whole of the moneys due from a tenant or other person liable to pay.

7.         The Landlord hereby authorises the managing agent to compromise, settle or otherwise discontinue actions or claims in respect of tenants or other persons liable to pay where, in the reasonable opinion of (Barclay MIS) sums as maybe due and payable by a tenant or other person liable to pay are irrecoverable at law or the cost of recovery would exceed the amount which may reasonably be expected to be recovered upon further steps being taken to recover amounts due and payable.

…

10.       The Landlord will hold and keep indemnified (Barclay MIS) against all actions … which may be taken or made against the said (Barclay MIS) in the course of or arising out of the proper performance or exercise of any of the powers duties or authorities of the said (Barclay MIS) hereunder.

22                  In other words, in the event of default by a tenant:

·                Barclay MIS will seek to locate the tenant and recover any outstanding amount or, in the event that the tenant is still in possession, evict him or her.

·                Barclay MIS will use “its reasonable endeavours” to recover outstanding amounts but is not liable for amounts not recovered.

·                Any action taken by Barclay MIS will be at its own expense, but it may recover outlays from the tenant or (rateably) from any amount recovered.

·                If another party commences proceedings or otherwise claims costs or expenses against Barclay MIS arising out of the performance of its functions, the landlord will indemnify Barclay MIS with respect to such amounts.

·                Should Barclay MIS decide that an amount is irrecoverable or that the cost of recovery would exceed the amount reasonably expected to be recovered, then it may advise the relevant managing agent who is authorized to compromise the matter on behalf of the landlord.

23                  From a practical point of view, it seems that the real purpose of the Basic plan is to avoid default rather than to manage the consequences thereof.  The dubious benefit to the landlord of the recovery services suggests that they are offered more as a guarantee of the efficacy of using the database than as having their own intrinsic value.  Use of the database is obviously a step taken prior to rental, designed to avoid default rather than to manage the consequences thereof.  The recovery services offered by the Basic plan are designed to fulfil that purpose.  Thus the Basic plan offers both a financial product and another product, namely access to the database.  Section 763E may therefore operate.  The Shorter Oxford Dictionary defines “incidental” as:

1.         Liable to happen to; naturally attaching to …

2.         Occurring as something casual or of secondary importance; not directly relevant to; following (up)on as a subordinate circumstance … .

24                  Given the relatively small amount of the annual payment, I am inclined to the view that the real benefit offered by the Basic plan is provision of access to the Fast Track database.  The recovery provisions are a facility incidental to such access.  As I have pointed out, the recovery services do not offer a free service, but rather a service which will be free if no amount is recovered, or if the costs are recovered from the tenant.  The landlord may also be exposed to any costs incurred by other persons which are recoverable from Barclay MIS.  I conclude that the main purpose of the Basic plan, considered as a whole is not managing financial risk or any other financial product purpose prescribed in subs 763E(2).

25                  The other three plans include the Barclay MIS Basic plan but offer additional benefits.  In the case of the Barclay Rent Guarantee plan, rent is guaranteed for up to fifty-two weeks.  In the case of the Damage Guarantee plan, the landlord will be paid for up to $50,000.00 for damage to the premises or theft therefrom and up to $10,000.00 for damage to, or theft of landlord’s contents.  The Total Guarantee plan offers both benefits.  The financial compensation offered under these three plans is substantial, leading me to infer that in each case the principal objective is to minimize the landlord’s financial exposure in the event of default by a tenant.  It would be unreasonable to assume that the main purpose of each of those plans was other than a financial product purpose, namely managing financial risk.  I am therefore satisfied that each of the three guarantee plans involves the issue of financial services and that Barclay MIS was carrying on a financial services business in connection with them.

26                  I have previously referred to Subdivision C.  Subsection 764A(1) provides that certain other facilities are relevantly financial products.  One such facility is a contract of insurance which is not a life policy or a sinking fund policy.  ASIC submits that the four plans are, in effect, contracts of insurance.  That term is not defined in the Corporations Act.  A useful discussion is to be found in the judgment of Sheppard J in Australian Health Insurance Association Ltd v Esso Australia Ltd (1993) 41 FCR 450, especially at 486-491.  His Honour first referred to the classic statement by Channell J in Prudential Insurance Co v Inland Revenue Commissioners [1904] 2 KB 658 at 663 as follows:

That I think is the first requirement in a contract of insurance.  It must be a contract whereby for some consideration, usually but not necessarily for periodical payments called premiums, you secure to yourself some benefit, usually but not necessarily the payment of a sum of money, upon the happening of some event.  Then the next thing that is necessary is that the event should be one which involves some amount of uncertainty.  There must be either uncertainty whether the event will ever happen or not, or if the event is one which must happen at some time there must be uncertainty as to the time at which it will happen.  The remaining essential is that which was referred to by the Attorney-General when he said the insurance must be against something.  A contract which would otherwise be a mere wager may become an insurance by reason of the assured having an interest in the subject-matter - that is to say, the uncertain event which is necessary to make the contract amount to an insurance must be an event which is prima facie adverse to the interest of the assured.  The insurance is to provide for the payment of a sum of money to meet a loss or detriment which will or may be suffered upon the happening of the event. …

A contract of insurance, then, must be a contract for the payment of a sum of money, or for some corresponding benefit such as the rebuilding of a house or the repairing of a ship, to become due on the happening of an event, which event must have some amount of uncertainty about it, and must be of a character more or less adverse to the interest of the person effecting the insurance.

27                  Sheppard J then referred to the following passage from the 7^th Edition of MacGillivray and Parkington:

The purpose of a contract of insurance is to organise the sharing among a large number of persons of the cost of losses which are likely to happen only to some of them (or to happen at an earlier time to some than to others).  It is therefore characteristic of the contract that the amount of the premium is not intended to be equivalent to the value of the insurer’s actual performance (if any) but is calculated in relation to the likelihood that performance will be required (or will be required within a certain time).  This characteristic distinguishes contracts in insurance from certain others.  Thus a contract by which an engineer undertakes to repair a machine whenever it breaks down is clearly not a contract of insurance if the engineer is to be remunerated in accordance with the amount of work done.  If, however, the remuneration is fixed without regard to the amount of work done, it is a consideration of the type of an insurance premium and the contract may be one of insurance.

28                  His Honour also referred to the decision of Templeman J in Department of Trade and Industry v St Christopher Motorists’ Association Ltd [1974] 1 WLR 99, which establishes that the benefit under a contract of insurance need not be payment of money.  In  Medical Defence Union Ltd v Department of Trade [1980] 1 Ch 82, Sir Robert Megarry V-C was concerned with the business carried on by the Medical Defence Union, which included defending proceedings against members arising out of their professional practices and indemnifying them against such claims.  The question was whether or not the Medical Defence Union was carrying on insurance business.  The articles of association provided that a member had no right to require the union to conduct legal proceedings for him or her or to any indemnity, but had a right to have any request for such assistance properly considered by the council or one of its committees.  At 92-3 Megarry V-C observed:

I therefore return to the main point on the footing that the right of a member in relation both to proceedings and to indemnities is merely a right to have his request fairly considered by the council or one of its committees.  Only if the request is granted is the member entitled to have the proceedings conducted by the union and to have an indemnity, subject to the provision of the articles … .  For the purposes of this case I do not think that it matters whether the right is a right to have the request heard and determined ‘fairly’ or ‘in good faith’.  It is common ground that it must not be dealt with by whim or caprice, and it is not contended that such a right is valueless.  As I have indicated, the short point is whether, in the first of the three elements of insurance, it suffices that on the occurrence of the event the assured becomes entitled to ‘some benefit,’ or whether this does not suffice unless it amounts to ‘money or money’s worth’.  The right to have a request relating to proceedings or an indemnity properly considered by the union is plainly a benefit, but equally plainly it is not money or moneys worth.

29                  At 97 his Lordship continued:

Looking at the case as a whole I have no hesitation in rejecting Mr Chadwick’s contention that the union is an insurance company carrying on insurance business within the meaning of the Act of 1974.  I do not have to decide whether ‘money or money’s worth,’ with or without an addition relating to providing services such as I have discussed, is the right phrase to appear in the first of the three elements of a contract of insurance.  I only say that I think that something of that kind is probably on the right lines.  What I do decide is that ‘benefit’ is far too wide an expression, and I reject it. In particular, I reject the contention that the right to have an application properly considered suffices for a contract of insurance. 

30                  ASIC asserts that the various plans are contracts of insurance, and therefore financial products.  As to the Basic plan, I have already pointed out that the major benefit lies in avoiding default rather than in dealing with it.  It is more accurately described as a contract for the supply of access to a database with incidental provisions which offer other services, possibly at a cost.  That is not a contract of insurance.  In my view, the Guarantee plans are primarily designed to ensure that a landlord will, subject to the terms of the relevant plan, be able to recover part or all of any arrears of rent or the amount necessary to repair damage to property.  In each plan the three aspects of the test prescribed by Channell J are satisfied.  The Guarantee plans are contracts of insurance.

Misleading or deceptive conduct

31                  ASIC also asserts that Barclay MIS, in trade or commerce, has engaged in conduct in relation to financial services which is misleading or deceptive, or is likely to mislead or deceive, contrary to the provisions of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (the “ASIC Act”).  The same conduct is said to have been conduct in relation to a financial product or a financial service that was misleading or deceptive, or likely to mislead or deceive, contrary to s 1041H of the Corporations Act.  The first aspect of conduct said so to infringe appears in exhibit 9, under the heading “Better Than Insurance” where the following words appear:

The Barclay MIS Risk Management Plans are not insurance, in fact they are better than insurance.

Insurance is only of any use if you have a claim.  With your Barclay MIS Plans we work with you right from tenant selection to tenant monitoring and if need be, recovery of tenant debt.

32                  It is said that this statement is misleading and deceptive or likely to mislead or deceive because the plans are contracts of insurance.  As I have held that the Basic plan is not such a contract, it is irrelevant for present purposes.  As can be seen from the judgment of Sheppard J in Australian Health Insurance, especially at pp 492-494, there may be differences between legal and everyday usage of words such as “insurance”.  In my view, a reader of exhibit 9 would not necessarily attribute to the word “insurance”, the meaning which it has for the purposes of the legislative provisions with which I have been dealing.  Further, when the impugned words are considered in context, they do not deny that the Guarantee plans are contracts of insurance, but rather assert that they are “better than  insurance” in that they seek to avoid loss as well as to compensate for it after it has occurred.  Any person reading the passage in context would understand it in this way.  Whilst the Guarantee plans are, in fact, contracts of insurance, the relevant passage does not deny that.  Properly understood, it is not misleading or deceptive.

33                  The other conduct which is said to be misleading or deceptive, or likely to mislead or deceive is a certificate, apparently issued in connection with the four plans, which asserts:

This is to certify that your annual subscription has been received and your residential property is thereby fully protected under the terms of the Barclay MIS Landlord Protection Plan, as arranged by your Property Manager and Agent.

The protection of your property has been arranged by your Property Manager, as a service to you.  They do not receive any financial gain, either now or in the future.  This plan has been designed to protect your investment and assist in the recovery of outstanding monies owed to you for default on rent and or damage to your property.

34                 It is not disputed that certificates in this form have been issued in connection with the four plans.  The evidence indicates that Barclay MIS offers real estate agents free access to its services in recovering debts owed to them for commission and auction costs, provided that 90 per cent of their rental portfolio is covered by its plans.  ASIC submits that it is misleading or deceptive, or likely to mislead or deceive to assert that a relevant agent has received no financial gain in connection with the issue of such a plan.  In the course of cross-examination Mr Banks said that the reason for this statement was to show each landlord that the agent had acted in the landlord’s interest rather than his or her own.  I infer that Barclay MIS also wished to enhance the reputation of its products by suggesting that property managers and real estate agents, in selecting them, were uninfluenced by the possibility of personal benefit. 

35                  Although I suspect that there is substance in this complaint, I find it difficult to see how I can do anything useful about it.  Such a statement will only be contrary to law if, in a particular case, the relevant agent has received such a benefit or will or may do so in the future.  Not all agents receive the benefit.  It is necessary that they have 90 per cent plan coverage of their leased properties.  If it were shown that a particular agent was already entitled to such a benefit at the time of the representation, and that the relevant transaction had contributed to such status, then the statement would be misleading or deceptive.  Similarly, if it could be shown that in the future, such a person would, or might become so qualified, then again, the conduct would be misleading or deceptive.  However it cannot be said that in every case, the statement will be misleading or deceptive, or likely to mislead or deceive.  In those circumstances, there can be no declaration or other relief.

Selling insurance

36                 Prior to 1 July 2001 all four plans were offered in conjunction with offers of public liability insurance.  On the front page of exhibit 10 there is a yellow circle with the words “All Plans now come with optional Public/Legal Liability.  See inside.”  Inside the brochure, in a red panel are the words “$10,000,000 Public Liability - ‘The Choice is Yours’ ”.  To provide you with the most comprehensive cover possible we now include for you $10 million Public/Legal Liability for only $22.00 extra, see application form.”  Beneath the red panel is the following statement:

Public Liability - this cover indemnifies you the landlord from any legal liability that may be owed by you to your tenants, (see definition in policy booklet) for loss or damage related to your rental property.

If your rental property is a strata title unit you should have public liability cover as your Body Corporate Liability does not cover inside your unit.

37                  In exhibit 11, the following passage appears under the heading “Section 4 - Legal Liability”:

This section of the Policy only operates where the Premises forms part of a Strata Title, Group Title or Body Corporate Facility.

Legal liability of You (or any member of Your family ordinarily residing with You) up to but not exceeding $10,000,000 in respect of any one accident or series of accidents arising out of one event against such sums as You may become legally liable to pay (excluding aggravated punitive or exemplary damages) in respect of claims made against You arising from bodily injury (which expression includes death and illness) or damage to property (which expression includes loss of property) caused by any accident occurring at the premises.  We will also pay in connection with such sums all law costs, charges and expenses:

(i)        incurred with Our written consent in the settlement or defence of claims or litigation arising there from;

(ii)       recoverable by any claimant from You or from any other person insured by the Policy.

38                  The definitions of “premium” and “insurance company” make it relatively clear that what is being offered is insurance cover with a nominated insurance company, and not insurance with Barclay MIS as insurer.  At the time, involvement of persons in arranging insurance was regulated by the IAB Act which has now been repealed.  Nonetheless ASIC seeks declaratory and injunctive relief concerning alleged breaches of its provisions.  I can see no point in such relief.  It may be that similar provisions are to be found in other legislation, but that is not to the point.  Should ASIC wish to do so, it may make further submissions as to this matter after publication of these reasons.

Proposed plans

39                  ASIC also seeks relief in connection with the proposal by Barclay MIS to offer the new Basic Assistance and Total Assistance plans.  I have previously provided summaries of these plans.  Pursuant to the Basic Assistance plan Barclay MIS will, at its own expense, commence recovery action and account to the landlord for the proceeds of any recovery.  However the landlord must first obtain a tribunal order.  If no recovery is effected, Barclay MIS will be responsible for any costs incurred.  If any amount is recovered, its reasonable legal costs will be deducted from that amount.  Under the Total Assistance plan, Barclay MIS will purchase any tribunal order from the landlord for the amount of the order.  There are conditions attached to these plans.  I have previously referred to general condition 2 which provides:

We will consider a request by the landlord to provide the facilities under this agreement to the landlord when a tenant is in breach of the Residential Tenancy Agreement.  In all cases, the provision of the facilities under this agreement shall be in our absolute discretion provided always that we will exercise our discretion reasonably.

40                  General condition 4 provides:

We have the right to reduce the amount we pay you for any Order (Total Assistance Plan) we purchase from you by:

®                 The amount of any bond that you are entitled to recover from any relevant authority;

®                 The proceeds of any insurance claim you make to relating to any loss to which the Tribunal Order relates (wholly or in part);

®                 The amount of any loss caused by you or your failure to take steps to reduce or minimise the loss referred to in the Order.

41                  The services offered under the Basic Assistance plan are rather less extensive than those offered under the Basic plan.  Under the Basic Assistance plan, access to the Fast Track database is not offered as a benefit, although use of it is a condition precedent to the obligations of Barclay MIS.  Unlike the Basic plan, the Basic Assistance plan focuses upon recovery and not upon avoidance.  The distinction is a narrow one, but it results in s 763E having no application.  If Barclay MIS were to offer the Basic Assistance plan, it would, in my view, be issuing a financial product and therefore carrying on a financial services business.

42                  ASIC also asserts that the Basic Assistance plan is a contract of insurance.  As I have demonstrated, Barclay MIS has a discretion to decide whether to provide facilities under the plan, although the discretion is to be exercised reasonably.  In the Medical Defence Union case, it was conceded that the discretion could not be exercised “by whim or caprice”.  The present obligation to act reasonably is not a sufficient basis for distinguishing that decision which has stood for a long time.  Although the relevant aspect of the decision appears not to have been specifically considered, the case has been referred to with apparent approval by von Doussa J in Re Barrett; Ex parte Young v N M Superannuation Pty Ltd (1992) 34 FCR 508 at 523 and by Sheller JA in New South Wales Medical Defence Union Ltd v Crawford (1993) 11 ACSR 406 at 456.  The proposed Basic Assistance plan would not be a contract of insurance.

43                  As to the Total Assistance plan, the thrust of it is that Barclay MIS will acquire the value of any tribunal order.  In other words, it agrees to acquire a future chose in action.  The first question is whether or not this is a facility to manage the financial consequences to the landlord of particular circumstances happening, namely default by the tenant.  It seems to me that it is.  It could not be anything else.  For reasons given in connection with the Basic Assistance plan, s 763E has no operation.  It is submitted by ASIC that the plan is a contract of insurance.  For the reasons given in connection with the Basic Assistance plan, namely the discretionary nature of the obligations placed upon Barclay MIS, I am of the view that it is not.  In any event, it looks rather more like an agreement to acquire a future chose in action than a contract of insurance.

ClaimS by Australian Prudential Regulation Authority (“APRA”)

44                  APRA seeks relief in connection with alleged breaches of the Insurance Act 1973 (Cth) (the “Insurance Act”), subs 21(2) whichprovided prior, to 1 July 2002 that:

Subject to this Act, a body corporate that carries on insurance business without being authorized under this Act to do so is, in respect of each day during which it so carries on insurance business (including the day of the conviction under this subsection or any subsequent day), guilty of an offence punishable on conviction by a fine not exceeding 200 penalty units.

45                  With effect from 1 July 2002, subs 21(2) was repealed and replaced by subs 10(1) which provides as follows:

            A body corporate (other an a Lloyd’s underwriter) commits an offence if:

(a)               the body corporate carries on insurance business in Australia; and

(b)               the body corporate is not a general insurer; and

(c)                there is no determination in force under subsection 7(1) that this subsection does not apply to the body corporate (the effect of which is to exempt the body corporate from being authorised under the Act to carry on insurance business).

Maximum penalty: 60 penalty units.

46                  APRA seeks a declaration that certain conduct or proposed conduct by Barclay MIS was, or would be in breach of the relevant section.  Broadly speaking, the relevant conduct is the marketing and supply of the four original plans and the proposal to market the Basic Assistance plan and the Total Assistance plan. 

47                  Section 3 of the Insurance Act defines “insurance business” as follows:

‘insurance business’ means the business of undertaking liability, by way of insurance (including reinsurance), in respect of any loss or damage, including liability to pay damages or compensation, contingent upon the happening of a specified event, and includes any business incidental to insurance business as so defined … .

48                  Recourse is necessary to the meaning of the term “insurance” according to the general law.  Thus, the considerations relevant to ASIC’s application, are again relevant.  There was no suggestion that the outcome should be any different.  I have already given my reasons for concluding that the basic plan was not a contract of insurance and that the three guarantee plans were contracts of insurance.  I have also concluded that the Basic Assistance plan and the Total Assistance plan are not contracts of insurance. 

Orders

49                  After publication of my reasons I will adjourn the matter to enable the parties to formulate and propose appropriate orders.

Associate:

Dated:              23 December 2002