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Court allows AR network to terminate memberís licences

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The NSW Supreme Court has ruled that Community Broker Network (CBN) may terminate a member’s authorised representative licences after a planned sale of the AR’s book led to inquiries into its business conduct.

In March Justice Stephen Robb ordered against immediately ending the licences of Sydney company DWA Insurance, saying the termination letter from the Steadfast-owned AR network did not provide clear grounds or sufficient notice, there were disputes over facts, concerns over impacts to the business, and risks the sale would be jeopardised.

But on April 7 the court was told that DWA had since entered into a binding agreement to sell its insurance portfolio for $3.6 million, with the contract to be completed by next Wednesday. The agreement acknowledged the existence of the dispute.

Justice Robb says in a decision handed down last week that the situation has changed, and maintaining the licences would oblige CBN to continue with a relationship “in circumstances where the conduct of the representatives is liable to put CBN at considerable risk”.

He says that on the face of the evidence, CBN completed a “meticulous and comprehensive investigation” that discovered an “apparent pattern of delinquent conduct by DWA” that falls into three categories.

“First is the obtaining of premium quotations from insurers at a lower rate than is actually appropriate by giving false addresses for the overnight parking of vehicles at places that attract lower premiums,” he said.

“Secondly, there may have been regular non-disclosure of prior claims history. Thirdly, lower premiums may have been obtained on the basis that the client held multiple policies with insurers, when that was not the case.”

In the earlier decision against licence termination, it was asserted that DWA Principal Michael Wasef had not been given a proper opportunity to respond to the issues.

“Mr Wasef’s affidavit created the impression that CBN may have acted precipitously and without due notice, with the possible result that DWA’s business may have been placed in jeopardy,” Justice Robb says.

Evidence was also given that Mr Wasef had been unable to make a substantive response because of the disturbance to DWA’s business caused by CBN’s conduct and the effort needed to re-establish the business after gaining the March court orders.

“Whether or not, in reality, DWA has not been able because of extraneous circumstances to fashion an adequate interlocutory response to the expression of concerns by CBN, the fact is that it has not done so,” Justice Robb says.

“In so far as the balance of convenience is concerned, the court could not continue mandatory and prohibitory injunctions that have the practical effect of requiring CBN to maintain DWA and its employees as CBN’s authorised representatives.”

In the March hearing, the court was told that CBN had a right of first refusal on the sale of the insurance book.

As part of that process, it had sent a letter requesting further information. It had also referred to communications with insurers and underwriters that were “apparently in relation to concerns about the manner in which DWA had conducted its business” and asked for explanations.

That ruling says CBN decided after not receiving the extra information to immediately terminate DWA’s licences and to service the clients itself until the business could be transferred to another licensee or purchaser.

Justice Robb notes in the April decision that Mr Wasef’s affidavit appeared to suggest CBN’s conduct may have been to give it an unfair advantage in the exercise of a first right of refusal.

“It should be recorded that on the comprehensive evidence put before the court, there is no reason at all for it to be thought that CBN’s conduct has involved any bad faith,” he said.

“By its recent letter, CBN has formally indicated that it does not wish to exercise its right of first refusal, and will not stand in the way of completion of the contract for sale of DWA’s portfolio.”

The court decision is here.