Federal Court of Australia

Thomas v Commonwealth Financial Planning Limited [2021] FCA 665

ORDERS

THE COURT ORDERS THAT:

1.    Within 7 days of the date of these orders the applicants file and serve minutes of proposed orders and submissions (limited to 3 pages) concerning consequential orders and costs.

2.    Within 7 days of receipt of such minutes and orders the respondents file and serve responding minutes and submissions (limited to 3 pages).

3.    Liberty to apply.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BEACH J:

1    In this group proceeding, the applicants seek leave to further amend their originating application and statement of claim. The respondents seek to strike out the existing pleadings. For the moment it is sufficient just to rule on the applicants’ application. That result will readily inform the disposition of the respondents’ application.

2    The essence of the claims made by the applicants for themselves and on behalf of group members is that they were given advice from financial advisers associated with the first respondent, Commonwealth Financial Planning Ltd (CFP), and the second respondent, Financial Wisdom Ltd (FW), to acquire or renew insurance policies in circumstances where the premiums for those policies were greater than they ought to have been and were on comparable insurance policies. These policies, which I will refer to as the CBA life products, were issued by the third respondent, Colonial Mutual Life Assurance Society Limited (CommInsure). Various breaches of duty are alleged. CFP and FW are subsidiaries of the Commonwealth Bank of Australia; CommInsure was such a subsidiary but is no longer.

3    The losses claimed are essentially the difference in the premiums paid between the CBA life products and the comparable products.

4    Significantly for present purposes, in respect of each applicant the trustees of their superannuation funds owned the CBA life products and paid the excess premiums. So as the applicants have framed it, their alleged losses stem from the diminution in value of the trust funds from which the premiums were paid. As for group members generally, the definition thereof is sufficiently broad to encompass those that paid the excess premiums personally and those that paid through the vehicle of their superannuation funds.

5    The present dispute requires me to address:

(a)    first, the standing of the applicants;

(b)    second, the group definition;

(c)    third, the adequacy of the pleas concerning the existence and scope of the fiduciary duties said to be owed by CFP and FW to the applicants and the class;

(d)    fourth, the nature of relief sought concerning the statutory claims; and

(e)    fifth, the adequacy of the plea concerning the knowing receipt case against CommInsure.

6    Let me turn to the first question.

Standing

7    The respondents say that the applicants lack standing to bring the claim on two bases.

8    Their first complaint is that the relevant trustee(s) should be the named applicant(s), given that in the case of each applicant the policies were owned by the trustee of their superannuation funds such that the trustee is the person that paid the premiums out of the corpus of the trust funds.

9    It is said that beneficiaries do not have a general right to take proceedings with respect to trust property. As long as the trustee is ready to take the proper proceedings against a third party, the beneficiaries cannot maintain a suit against the third party. Beneficiaries may only sue in their own name with the trustee added as a respondent where there are special circumstances, such as insolvency of the trustee or where the trustee has without good cause refused to take action. There must be a failure by the trustee in the performance of its duty owed to the beneficiary to protect the trust estate or the interests of the beneficiary.

10    It is said that in the present case there are no special circumstances. There is no allegation against any trustee for want of due administration of the trust or other breach of duty. The claims levied are against strangers to the trust for alleged conduct that improperly caused a reduction in value of the corpus of the trust.

11    Let me address the second related complaint. It is said that there has been no actionable loss suffered by the beneficiaries.

12    It is said that where a member of a trust fund has not yet achieved the qualifying characteristic stipulated in the benefit provision of the trust deed, such as retirement at a certain age, the benefit has not accrued, and is at best an inchoate right in the process of accrual but subject to various contingencies. It is said that the precise form in which the inchoate right may ultimately vest depends on the terms of the trust deed and the contingency that occurs, for example, retirement, injury, death or qualifying age.

13    Now the applicants claim that they have some equitable proprietary interest in their respective superannuation funds. But it is said that their interest can rise no higher than the interest just described.

14    Further, it is said that the applicants’ description of their right as vested in interest but not yet vested in possession is of dubious relevance. In any event, the distinction between a right vested in interest and a contingent right is premised on two conditions being met: first, that the beneficiary’s identity be established, and second, that his right to the interest as distinguished from his right to possession must not be contingent on the occurrence of some event.

15    It is said that the applicants do not plead any circumstances that confer a beneficial interest that has accrued. Absent such a pleading it is said that I could not be satisfied that the applicants have any right beyond a beneficial interest that may mature to take a particular form depending on future events. But this is not enough to confer standing in respect of the present causes of action against the respondents.

16    In this context, reference was made to Shimshon v MLC Nominees Pty Ltd [2020] VSC 640.

17    In Shimshon, it was held that the beneficiary of a superannuation trust whose superannuation account had been diminished by reason of a trustee’s breaches had not suffered actionable loss. His Honour held (at [125]):

…The plaintiff does not, and cannot, allege a present entitlement to an interest in either superannuation fund and must be treated as a member whose interest remains contingent upon the occurrence of a future event. Put another way, the plaintiff’s interest has not yet vested in him…

18    His Honour observed that a fund member’s interest in a superannuation fund is often described as an expectancy. He also observed (at [133] to [134]) that:

…what consistently emerges from these authorities is the emphasis on a fund member’s interest being contingent upon particular events occurring in the future, such that the fund member otherwise has no present or immediate right to payment. A fund member, on the basis of the analysis preferred in the cases, cannot be said—prior to the occurrence of a contingency event—to have an interest in an identifiable portion of the superannuation fund.

A member’s account is an accounting allocation of that member’s entitlement to a share of the trust assets in accordance with the governing rules. It is an expression of a legitimate expectation to an interest in trust property…

19    Further, the terms of the Superannuation Industry Supervision Act 1993 (Cth) did not lead to a different conclusion. Whether in equity or under the Act, it was concluded that it was the trustee, who was the owner of the trust property that had been allegedly diminished, that had suffered actionable loss or damage.

20    Generally, the respondents say that not only is the trustee(s) the proper applicant(s) to these proceedings against the third party advisers as no special circumstances exist that allow the beneficiaries to take action, but it is also the case that the beneficiaries have suffered no actionable loss.

21    Further, it is said that the applicants’ contention that they must have standing because the trustee(s) cannot pursue these specific causes of action should also be rejected. If trust property has been diminished by way of damage by third parties, the trustee(s) is empowered and indeed required as a component of the duty to get in trust property to vindicate that damage.

22    Now the applicants take issue with these points.

23    The applicants say that they have suffered loss even if the excess premiums were paid by a superannuation fund in which they were a member. It is said that their loss in terms of excess premiums paid from their superannuation funds is an injury to their beneficial interest in the trust.

24    They also say that the loss is claimable even where the precise form and quantum of the beneficial interest may be contingent on a prescribed event. They say that a member of a superannuation fund has an equitable proprietary interest in the fund notwithstanding that it did not carry with it an immediate right to payment. It is said that the beneficiary holds a present and certain right to enjoy payment of their superannuation benefit in the future. This right may be described as vested in interest but not yet vested in possession. But the beneficiary’s interest is not a contingent interest or a mere expectancy.

25    The applicants say that Shimshon was wrongly decided. It was said that there was error in finding that a member’s interest is a mere contingency. Further, it was said that there was an error in finding that prior to becoming eligible to a benefit in accordance with the governing rules of a regulated superannuation fund, a member has no proprietary interest in the assets out of which the benefit is to be paid. I should say now that I do not need to decide any of this for the moment.

26    Further, the applicants take issue with the relevance of various authorities cited by the respondents for the proposition that where a member of a trust fund has not yet achieved the qualifying characteristic stipulated in the benefit provision of the trust deed, the benefit has not accrued, and is at best an inchoate right in the process of accrual but subject to a variety of contingencies. I agree with the applicants that none of these cases support the respondents in the present context.

27    First, Macoun v Federal Commissioner of Taxation (2015) 257 CLR 519 was not about a trust fund. Irrelevantly to my context it was a case about a pension, and whether an office-holder’s right to a pension was a “vested right” during the period he held office.

28    Second, Commonwealth Bank Officers Superannuation Corp Pty Ltd v Beck (2016) 334 ALR 692 held that a person who was entitled to consideration by a trustee under a discretionary benefits scheme did not have an accrued benefit. But again that is not my context. I am not dealing with a discretionary scenario.

29    Third, Finch v Telstra Super Pty Ltd (2010) 242 CLR 254 rather supports the applicants than the respondents. At [30], the Court stated:

The Trustee was trustee of a trust. It had a duty to distribute to those who fell within the definition of “Total and Permanent Invalidity” and a duty not to distribute to those who did not. That affected its role in relation to the forming of its opinion under limb (b). Forming that opinion was not a matter of discretionary power to think one thing or the other; it was an ingredient in the performance of a trust duty. That duty was owed to the Members, including the applicant. The applicant was not the object of a discretionary power of appointment. He was the beneficiary of a trust, and although the precise form and quantum of his beneficial interest was contingent on particular events, he did have a beneficial interest.

30    Fourth, in Walsh Bay Developments Pty Ltd v Federal Commissioner of Taxation (1995) 130 ALR 415 Jenkinson, Beaumont and Sackville JJ stated at 427 that a vested interest is one where the holder has an immediate fixed right of present or future enjoyment. The Court went on to say:

…In relation to land, an estate is vested in possession where there is a right of present enjoyment, as where A has a life estate or fee simple estate in the land. An estate is vested in interest where there is a present right of future enjoyment. Thus where T holds in trust for A for life and then in trust for B in fee simple, B’s equitable fee simple estate is vested in interest during A’s lifetime. The estate will vest in possession on A’s death.

(citations omitted)

31    But there is no suggestion that these principles are limited to interests in land. Moreover, the Court was just explaining one instance were the concepts of “vested in interest” and “vested in possession” apply.

32    But the applicants also have another answer. The applicants claim an account of profits. It is said that it is not necessary to suffer loss in order to claim an account of profits. The purpose of an account of profits is to prevent the unjust enrichment of the respondent instead of compensating the applicant for loss. In my view there is considerable force in that point. In my view the applicants may be able to focus on an account of profits, whether in terms of the statutory claims or the fiduciary claims, thereby getting around the indirectness of their asserted loss, being the diminution in value of their superannuation fund(s) flowing from their trustee(s) paying the excess premium.

33    Further and in any event, perhaps they could reformulate their loss thesis as detriment flowing to them in giving a direction to their trustee(s) to pay the excess premium which direction they would not otherwise have given but for the respondents’ conduct. So, funds in which they had a beneficial interest were given away so to speak.

34    Further, I agree with the applicants that the trustees do not have a right to the pleaded causes of action. The claims advanced in this proceeding depend on either the giving of personal advice to a retail client in the context of the statutory claims or otherwise the breach of a fiduciary duty that arose by virtue of an undertaking to give advice and the receipt of advice. So, it is the recipient of the advice who holds those claims. The trustee(s) of the superannuation fund(s) do not have these causes of action. Let me elaborate.

35    As to the claims based on ss 961B, 961J and 961L of the Corporations Act 2001 (Cth), the trustee(s) is not “the client”, to use that statutory term, and so has no cause of action. The trustee(s) did not receive advice. Rather, the applicants and group members received advice which included advice to use their superannuation funds as the vehicle to pay premiums. The obligation in s 961B(1) is that “[t]he provider must act in the best interests of the client in relation to the advice”. As such, the obligation in s 961B only extends to the client, who is the person who receives the advice. The trustee is generally not the person who received the advice.

36    Further, I note that the relief provision of s 961M, which I will return to later, refers in s 961M(1) to the client suffering loss or damage and having standing under s 961M(3)(c).

37    As to the claims based on breach of fiduciary duty, any trustee who did not receive advice has no cause of action for breach of fiduciary duty because there is no undertaking to give advice and no advice was provided to the trustee. Further, there is no suggestion that any individual sought advice as agent for their trustee.

38    In my view all of these points are reasonably arguable to say the least.

39    Now the respondents’ arguments slide over the point that the trustee has no actionable claim against the respondents. Of course it may be accepted that equity will permit a beneficiary who can establish special circumstances to sue on a cause of action against a third party which belongs to the trustee, if the trustee fails to sue to protect the trust property. But this is only in respect of a cause of action which the trustee has. But in the present case the trustee(s) has no cause of action. Moreover, the reason for the usual restriction is the avoidance of the vexation of the third party by multiple suits. But there is little risk in the present case that any trustee could or would commence a parallel action.

40    Further, it is arguable that principles of reflective loss are inapposite in the context of a trust relationship. Now when a company suffers loss caused by a breach of duty owed to the company, no action lies at the suit of a shareholder to make good a diminution of the value of the shareholder’s shareholding where that loss merely reflects the loss suffered by the company. But it is arguable that such a principle does not apply in the context of the relationship of trustee / beneficiary. But in any event such a principle does not prevent the shareholder suing for a loss suffered from a breach of duty owed to him where the loss is separate and distinct from the loss suffered by the company. It is arguable that this is the case here by analogy. Anyway, I do not need to further develop these points.

41    Now the respondents’ arguments on the question of standing are not completely devoid of merit. And indeed at one stage I gave consideration as to whether I should deal with the matter within a more formal summary dismissal framework under s 31A of the Federal Court of Australia Act 1976 (Cth). But in my view there is a better practical solution rather than making a definitive ruling now one way or the other.

42    First, I will direct that the applicants apply to join a third applicant who has the relevant claims and paid the excess premium(s) personally rather than through a trustee of a superannuation fund. This direction has several advantages. For the moment it will not matter if the present applicants are later said not to have standing. Further, leaving the present applicants in place allows me to form any necessary sub-group under s 33Q with one or both of them as the head(s) of such a sub-group to deal with the points raised.

43    Now I had considered whether to proceed by way of substitution rather than addition, and indeed to invoke s 33T. But that would require me to finally decide the point now which I do not need to do.

44    Further, my solution avoids the need to linger on s 33D in terms of having or not losing standing.

45    Second, I will not require the named applicants to join the trustees of their superannuation funds. But instead I will require them to undertake that if they receive any money award referable to the excess premiums paid by their trustees that they will disgorge any such amount to their trustees to restore the fund(s). Of course I could achieve this by a more direct order after trial in any event.

Group definition

46    The respondents say that it is necessary to amend the group member definition to narrow the nature of the advice in criterion (a) and to introduce a damages element.

47    The proposed group definition currently put forward by the applicants is:

The Applicants and the persons who they represent in this proceeding (Group Members) are persons who on or after 21 August 2014:

(a)    were advised by an Adviser of CFP or FWL [in relation to] life cover, including terminal illness, total & permanent disability cover, income protection and trauma cover (CBA Life Products), that was issued by CommInsure;

(b)    obtained, renewed or otherwise retained CBA Life Products, that were issued by CommInsure; and

(c)    are not a Justice, Registrar, District Registrar, or Deputy District Registrar of the High Court of Australia or the Federal Court of Australia.

48    Now at an earlier case management hearing I raised the following concern:

When I looked at that group definition, and you haven’t raised this as a point and perhaps nobody wants to, but normally with a group member definition you would have the elements of the claim. I mean, it’s not just somebody who was advised in relation to [the CBA life product]. It’s somebody who took it or renewed it and paid, in essence, the excess premium. That’s what the claim is, isn’t it?

49    Following that hearing, the respondents proposed that the group definition be struck out and replaced with the following definition:

The Applicants and the persons who they represent in this proceeding (Group Members) are persons who on or after 21 August 2014:

(a)    were advised by an Adviser of CFP or FWL to obtain, renew or otherwise retain in relation to life cover, including terminal illness; total & permanent disability cover; income protection; and trauma cover (CBA Life Products), that was issued by CommInsure;

(b)    obtained, renewed or otherwise retained CBA Life Products, that were issued by CommInsure; and

(c)    paid Excess Premiums (as defined in paragraph 23 below) to CommInsure in respect of those CBA Life Products obtained, renewed or otherwise retained; and

(d)    are not a Justice, Registrar, District Registrar, or Deputy District Registrar of the High Court of Australia or the Federal Court of Australia.

50    As to the relevant principles concerning group definition, in J Wisbey & Associates Pty Ltd v UBS AG [2021] FCA 36 I observed (at [13] to [16]) concerning s 33H(1)(a) that:

Section 33H(1)(a) of the Federal Court of Australia Act 1976 (Cth) requires that an application commencing a representative proceeding describe or otherwise identify the group members to whom the proceeding relates. But no unduly narrow or technical approach should be taken to this requirement. It should be construed and applied bearing in mind the function that it is intended to perform under Pt IVA.

Group members must be described or identified so that they can be notified of the proceeding and can decide whether to opt out pursuant to s 33J. Another function of s 33H(1)(a) is so that the Court can identify who is bound by any judgment for the purposes of s 33ZB.

The pleading must not be so vague or uncertain that potential group members cannot reasonably ascertain whether they are members of the group. A group definition should not give rise to significant uncertainties or ambiguities in this respect.

Some practical questions may be posed. Is the description such as to reasonably enable a person, with the assistance of a legal adviser if necessary, to ascertain whether he is a group member? And if the description incorporates a reference to conduct alleged in the pleadings, can a person or his adviser, by reading the description and the relevant portion of the pleadings, reasonably determine whether he is a group member? If the answer is no to either or both questions, the definition is unlikely to satisfy s 33H(1)(a). But clearly, the fact that inquiries might need to be made by a person who is uncertain of whether they are a group member does not deprive the description of objective criteria by reference to which membership can be established. And the fact that potential group members may need to make inquiries to ascertain whether they fall within the group definition does not render that definition inadequate for the purposes of s 33H(1)(a).

51    Now in respect of the change to criterion (a) proposed by the respondents, the applicants do not consider this change to be necessary. The applicants’ position is that criterion (b) adequately constrains the definition. It is said that when the two clauses are read together, group members are those who received advice in relation to CBA life products from an adviser and obtained, renewed or otherwise retained such products.

52    Further, in respect of the proposed new criterion (c), the applicants oppose the incorporation. They say that group members have suffered loss or damage even if the premium is paid by the applicants’ superannuation fund. Further, the applicants’ primary claim for relief is an account of profits and it is unnecessary to plead or prove loss to claim an account.

53    I reject the positions of both the applicants and the respondents in respect of their competing definitions.

54    Without lingering further on my reasons, in my view the group definition should be altered to read the following (with my amendments underlined):

The Applicants and the persons who they represent in this proceeding (Group Members) are persons who on or after 21 August 2014:

(a)    were advised by an Adviser of CFP or FWL to obtain, renew or otherwise retain (by themselves or through their superannuation funds as members) life cover, including terminal illness, total & permanent disability cover, income protection and trauma cover (CBA Life Products), that was issued by CommInsure; and

(b)    on the basis of such advice obtained, renewed or otherwise retained (by themselves or through their superannuation funds as members) CBA Life Products, that were issued by CommInsure; and

(c)    by reason thereof and in paying what are claimed to be any excess premiums on such CBA Life Products (by themselves or through their superannuation funds as members):

(a)    suffered loss or damage; or

(b)    claim an account of profits

(d)    are not a Justice, Registrar, District Registrar, or Deputy District Registrar of the High Court of Australia or the Federal Court of Australia.

55    First, the change to criterion (a) is necessary to narrow the nature of the advice.

56    Second, the inclusion of the words “(by themselves or through their superannuation funds as members)” in criteria (a) and (b) put beyond doubt that the group member definition includes members who acquired policies through their superannuation funds.

57    Third, the inclusion of criterion (c) satisfies any requirement to incorporate an element of the relief that is sought by group members.

58    I have redrafted the definition as in my view the Court has an interest, as well as the parties, in ensuring that the group definition suits the occasion and is workable. What I will impose satisfies such conditions so far as I am concerned and is consistent with what I said in Wisbey.

Existence and scope of fiduciary duty

59    Let me turn to the next criticism.

60    The respondents complain about the pleading concerning the fiduciary claims and say that leave to replead should be refused given their vagueness.

61    The relevant principles are not in doubt. I stated in Wisbey (at [115]) that:

[L]eave to replead should not be granted if the proposed pleading or a significant part thereof:

(a)    is unintelligible or vague in material respects;

(b)    does not fulfil the basic function of identifying the issues and disclosing a reasonably arguable cause(s) of action;

(c)    is too general with an absence of sufficient particularity; or

(d)    is otherwise in a form that may prejudice, embarrass or delay the fair trial of the proceeding.

62    The respondents made the following points.

63    The respondents point out that the relationship between a financial adviser and his client is neither invariably nor presumptively subject to fiduciary duties. It is not an established category of fiduciary relationship.

64    Further, they say that outside of the established categories of fiduciary relationships, a factual inquiry is required to determine the existence, content and scope of any duty. And such a factual inquiry involves ascertaining whether there was the requisite undertaking by the adviser to act on behalf of or in the interests of the client, whether the adviser held himself out as an expert on financial matters and undertook to advise the client, and whether the relationship involved reliance or vulnerability on the part of the client. They also assert that it is necessary to establish that the adviser led the client to believe that he was acting in the client’s best interests.

65    They also say that the scope of the duty will involve considering the course of dealings between the parties and the terms of any express instrument entered into by them. This will include analysis of the particular task that the financial adviser had agreed to undertake, including what requests for advice were made, the contractual relationship and the individual circumstances of the client.

66    The respondents complain that the applicants have failed to plead the requisite indicia in respect of their own claims. Further, they say that the pleading is deficient in respect of the group members generally.

67    But in my view the pleading is satisfactory for the moment, albeit that there is inadequacy concerning the particulars of the applicants’ claims which will need to be remedied.

68    The allegations at [47A] and [47B] put the respondents on notice of the general case that they are required to meet. Such allegations include an undertaking to provide personal financial advice, the giving of personal financial advice and the holding out as having expertise in providing financial advice.

69    Further, the matters referred to by the respondents that are said to be missing are not a mandatory checklist suitable for every occasion.

70    The significant feature of a fiduciary relationship, which has been pleaded, is that the fiduciary undertakes to act for or in the interests of another person in the exercise of a power which will affect the interests of that other person.

71    Now it may be accepted that the other factors identified by the respondents may be relevant to the question of whether there is a fiduciary duty. But the applicants are not under an obligation to plead those features.

72    Moreover, if the respondents wish to say that other features are relevant to and negate any such duty, it is open to them to do so in their defence.

73    Further, on any view it is not appropriate to strike out the claims of group members in this context. If it is accepted that the factors pleaded in [47A] and [47B] support an arguable fiduciary duty, then whether a group member satisfies [47A] and [47B] cannot be determined until after the initial trial. Of course the legal question of whether those matters can give rise to a duty may possibly be able to be determined as a common issue, although I will leave such a question for later consideration.

74    But so far as the applicants’ individual cases are concerned, there should be a greater level of detail given as to the particulars of their claims on the fiduciary duty question. Moreover, I would prefer that cross-referencing to earlier paragraphs is not used. The detailed particulars for each applicant should be free standing. Moreover, desirably although not essentially they should address some of the points made by the respondents.

Statutory claims

75    The respondents also complain about the pleading of loss concerning the statutory claims. They say that the applicants’ claims and that of group members for statutory relief must be premised on loss, rather than on an account of profits.

76    Now relief is claimed under s 961M(2) and (4) of the Corporations Act. But the threshold requirement of the provision is that “this section applies if the client suffers loss or damage because of a contravention of a provision of this Division” (s 961M(1)).

77    Let me set out ss 961M(1) to (4):

(1)    This section applies if the client suffers loss or damage because of a contravention of a provision of this Division.

(2)    A Court may order that one or more of the following persons compensate the client for the amount of the loss or damage:

(a)    if the person who contravenes the provision is a financial services licensee—that licensee;

(b)    if the person who contravenes the provision is a representative of a financial services licensee, or 2 or more financial services licensees—the, or a, responsible licensee in relation to the contravention.

(3)    The Court may make the order under this section:

(a)    on its own initiative, during proceedings before the Court; or

(b)    on the application of ASIC; or

(c)    on the application of the client.

(4)    In determining the damage suffered by the client, the Court may include profits resulting from the contravention that are made by:

(a)    if the person who contravenes the provision is a financial services licensee—the licensee; or

(b)    if the person who contravenes the provision is a representative of a financial services licensee, or 2 or more financial services licensees:

(i)    the representative; and

(ii)    where the Court’s order under subsection (2) relates to a financial services licensee that is the, or a, responsible licensee in relation to the contravention—the licensee.

78    The respondents say that anything approaching an account of profits does not arise unless the threshold requirement of loss has been met. It is said that it is only then in s 961M(4) that “[i]n determining the damage suffered by the client, the Court may include profits resulting from the contravention”.

79    But in my view it is reasonably arguable that such a provision empowers the Court to order an account of profits made from a contravention without proof of a corresponding loss.

80    In this respect I take comfort from what has been said in relation to an analogous provision, namely, s 1317H, albeit that it uses the expression “damage suffered” as compared with the s 961M(1) language of “suffers loss or damage”, although s 961M(4) does use the same language of “damage suffered”. It was said in V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd (2013) 296 ALR 418 at [53] and [54] by Emmett, Edmonds and Rares JJ that:

Normally, the victim of a breach of fiduciary duty must elect between the remedy of equitable compensation or damages, on the one hand, and the remedy of account of profits, on the other. The Corporations Act has now introduced an additional remedy, being compensation under s 1317H. As indicated above, the primary judge in effect assimilated the statutory remedy of compensation under s 1317H with the equitable remedy of account of profits. That approach was doubtless prompted by the strange language of s 1317H.

The language of s 1317H is singularly inelegant. Section 1317H(1) provides that the court may order a person to compensate a corporation for damage suffered by the corporation, if the damage resulted from a contravention of relevant provisions of the Corporations Act by that person. Section 1317H(2) then appears to direct the court determining the damage suffered by the corporation to include, as damage, profits made by any person resulting from the contravention. That appears to refer to profits made, irrespective of whether there was countervailing damage suffered by the corporation. That is to say, the effect of s 1317H(2) is definitional, in the sense that it brings into the compensatory scheme of s 1317H the capacity for the court to order that the compensation include profits, even though there was no corresponding loss on the part of the corporation: Grimaldi v Chameleon Mining (No 2) (2012) 200 FCR 296; 287 ALR 22; 87 ACSR 260; [2012] FCAFC 6 at [630]–[631]. That scheme involves a conflation of the concepts of equitable compensation or damages, on the one hand, and account of profits, on the other.

81    Accordingly, it is reasonably arguable that the applicants do not need to demonstrate that damage or loss, in the traditional sense, was suffered.

82    For the moment, the respondents’ criticisms on this aspect have little attraction.

Claim against CommInsure

83    It is alleged in [60] that each time CommInsure received the excess premiums, it knew the material facts giving rise to the existence of the fiduciary duties owed to the applicants and group members and the material facts giving rise to the alleged breaches of those duties.

84    But the respondents say that the knowing receipt claim against CommInsure is defective.

85    Now the pleading makes some attempt to identify these alleged material facts and the basis of CommInsure’s alleged knowledge, but the respondents say that the attempt falls short.

86    The respondents point out that liability by way of knowing receipt is knowledge of the existence of the fiduciary duty and its breach. But it is said that the proposed pleading pleads conclusions, absent the material facts necessary to properly formulate a claim of knowing receipt.

87    It is said that the proposed particulars inadequately address CommInsure’s alleged knowledge of CFP, FWL and the advisers undertaking to provide advice, the giving of the advice, and CFP and FWL holding the advisers out as having expertise in providing financial advice. It is said that they do not indicate any basis for CommInsure’s knowledge of breach of fiduciary duty. And nor do they include any other particulars of CommInsure’s alleged knowledge that would be required to substantiate knowledge that a fiduciary duty existed.

88    Further, it is pointed out that [62] asserts that by reason of the matters in [60] and [61], CommInsure is liable to account for the benefits, profits and gains it derived by its receipt of the excess premiums, but it is said that as that allegation relies on the knowledge asserted in [60] and [61], that paragraph cannot stand. Further, it is said that the unsubstantiated assertion of “benefits, profits and gains” is vague. Moreover, it says that the identification of premiums paid does not answer the description of “benefits, profits and gains”.

89    Further, it is pointed out that [63] and [64] together assert that because CommInsure knowingly received the excess premiums, it is liable to account for profits or pay equitable compensation to the applicants and group members. But it is said that the asserted knowledge remains, as for [60] and [61], conclusory, and the alleged benefits, profits and gains unsubstantiated.

90    For the moment I do not accept the respondents’ criticisms although I do accept that after discovery the applicants will have to give full particulars of this claim and the requisite knowledge.

91    In Webster (Trustee) v Murray Goulburn Co-Operative Co. Limited (No 2) [2017] FCA 1260 at [6] I said:

Of more specific relevance to the present context, leave to replead a cause of action ought not to be given if there is an absence of proper particulars to support any necessary plea of a condition of mind such as knowledge or belief. Moreover, if it is necessary to plead that a party ought to have known some matter, then particulars of the facts and circumstances from which it is said that party ought to have known that matter must be given. Of course, particularising the knowledge of another person has its difficulties. One does not know what is in the mind of that other person. But there may be an admission or communication that establishes or manifests such a state of mind. Further, such knowledge may also be able to be inferred from other facts and circumstances. In that scenario, particulars identifying the inferences and the facts and circumstances from which such inferences arise may be sufficient, providing that the inferences are reasonably arguable. Now such particulars may shade into evidence that is not usually required to be pleaded or particularised. But the fact that particulars of that type may have that duality is no excuse for not providing them where knowledge is sought to be established inferentially. I would make one other point. Given information asymmetry as between the parties concerning the state of mind of one of them, where the pleadings are at an early stage and before discovery, so long as some particulars of knowledge are given so as to demonstrate that the plea of knowledge is not wholly speculative, it may be appropriate to allow a plea of knowledge to go forward on the basis that full particulars of knowledge will be provided after discovery, reserving to the other party the right to seek a strike out or summary dismissal of the pleaded cause of action relying upon that knowledge at that later stage if that turns out not to be the case.

92    Applying these observations, I will allow the proposed pleading to go forward. But I will require full particulars of relevant aspects of this claim under the first limb of Barnes v Addy after discovery has been completed.

Other matters

93    The parties also made submissions about the form of the common issues, but at this stage it is premature to drill down on their drafting.

94    First, the proposed amended form of the statement of claim has not yet been finalised.

95    Second, there is an advantage in leaving their formulation fluid until I make trial orders. At that stage, my usual practice is to set down for trial all issues for the named applicants’ individual claims and all other issues, save and except for any individual group member issues on liability or relief. By such an exclusion, all common issues will necessarily remain, whatever they are, which can in part be articulated in a non-limiting way in an annexure to the trial order, recognising that they are likely to require later modification and then answer for the purposes of s 33ZB. In essence, such a practice provides the necessary flexibility that the rigidity of Merck orders often lack.

Conclusion

96    I will allow the applicants to replead in the form proposed subject to:

(a)    a third applicant being added who paid the excess premium(s) personally with any necessary consequential amendments;

(b)    an undertaking being given on behalf of the present applicants concerning the disgorging to their trustees of any moneys received from the respondents referable to the excess premiums;

(c)    the group description being modified as I have indicated; and

(d)    proper particulars being given by the named applicants of their fiduciary claims.

97    Further, for the moment I will allow to go forward the proposed reformulation of the common issues in the proposed amended originating application.

98    I will hear further from the parties as to the necessary orders.

Associate:

Dated:    18 June 2021