AARA and NRMA finally go to court but its not over yet

Despite four days of cross examination, legal argument and courtroom drama, the case between AARA and NRMA is still a way from resolution. A judgement is unlikely to be handed down before mid-year, but the federal court hearing from February 3rd to 6th documented the bitter division between the parties.
On the face of it, and in the words of presiding Justice Lindgren ‘This case is about whether the NRMA is entitled to direct customers to its preferred smash repairers under Section 47 (7) of the Trade Practices Act. And that’s a pretty dry legal argument.’
There was nothing dry, however, about the arguments as they unfolded in cross examination. While the NRMA did not deny that it wanted its policy holders to choose PSRs, the method by which it did that was the subject of quite conflicting evidence. The repairers came away from the hearing believing that, whatever the decision, they had succeeded in exposing an unsavoury side of the NRMA’s PSR system. It was also mooted from both sides that the loser would not be content to let matters rest. Appeals or other suits were likely to follow.
While the matter of costs was not discussed during the hearing, they will play a vital role in any future action between the parties. The NRMA’s deep pockets are pitted against the shallow pockets of the 200 or so members of the AARA ‘ many of whom claim to have undergone financial hardship in funding the case so far. They could find the road ahead to be unbearably long and expensive. One AARA committee member estimated that the total legal representation for both sides just at the four day hearing was in the vicinity of $40,000 a day. The NRMA was represented by a QC, senior counsel and a team of solicitors, while AARA had two senior counsel plus their advising solicitors. And this did not take into account the hundreds of hours spent by the AARA members putting their case together.
When the action began in September 2002 the AARA members were looking for a way to prevent the NRMA from, as they saw it, distorting the marketplace by directing work to its preferred smash repairers at the expense of either associate smash repairers or ‘non-accredited’ (the current NRMA terminology that has replaced ‘unauthorised’) repairers. The AARA also objected to the graduated system within the PSR network whereby those with a higher ranking (running down from gold, silver, bronze to red) received better treatment. Although the AARA would not reveal membership numbers, secretary George Elmassian said that over 35 per cent were PSRs and a further 35 per cent were ASRs, illustrating that this case was not brought by disgruntled non-accredited repairers enviously looking in from outside the NRMA's PSR system. Elmassian himself is an NRMA associate repairer and is still doing some NRMA work.
The action might have been directed against all insurers who choose repairers on behalf of their policy holders, but the NRMA stood out as having the most structured system with its PSRs, coupled with the fact that it dominates NSW car insurance with a 57 per cent market share.
The legal process by which the case ran was cumbersome, to say the least. After the battlefield of section 47.7 of the Trade Practices Act, which refers to exclusive dealing and a refusal to provide services, had been agreed upon by the applicant (AARA), the respondent (NRMA), and the judiciary, there were numerous procedural and directional hearings. The evidence was then submitted in the form of affidavits, leaving the four day February hearing for oral evidence and cross examination. Even then, court time was often spent by counsel objections and legal argument about the meaning of the relevant section of the Trade Practices Act.
Because the main body of evidence had been in the form of affidavits, many containing material of a ‘commercially sensitive nature’ which could not be published, those in the pubic gallery of the court had to piece together the proceeding from the oral evidence and cross examination. Nevertheless, a fascinating story unfolded.
George Elmassian’s evidence suggested two broad categories of objection to the NRMA’s PSR scheme. One was that it misled policy holders by warning them that non-PSRs would take longer to get assessments and job commencements (because an assessor would need to see the job), and that the parts used and repair work would not carry the NRMA lifetime warrantee. Although none of this was true, he said, it lost him many jobs when customers, whose damaged cars were in his workshop, called the NRMA teleclaims centre. The other category of objection was that PSRs gained a commercial advantage by being permitted to self-assess, were paid quicker (24 hours rather than up to 28 days) and were allocated work in favour of other classes of repairer.
Peter Vandurbeer who runs JVB Smash in Kogarah, gave evidence that he had been a gold and then a silver PSR until a week before the hearing when he had been put down to bronze level. He said he thought there was also a ‘red’ status below bronze which was, in effect, a last chance position before being dropped from the PSR system.
He gave the reason for being downgraded to bronze as not being able to meet NRMA’s criteria, 60 per cent of which was based purely on the cost of repairs. He said the way back to gold was by reducing prices and becoming more efficient. On average he repaired 55 cars a month with a staff of seven.
After Vandurbeer’s evidence was concluded, the NRMA set about trying to show that, although it attempted to persuade policy holders to use PSRs, it presented the alternative fairly. The point of contact between policy holders and NRMA was by telephone to the teleclaims centre, where operators read from prepared scripts. NRMA produced written evidence and several witnesses to explain how the scripts were applied by the operators.
When the AARA had previously requested copies of tape recordings of conversations between NRMA teleclaims operators and customers based on the scripts, NRMA said that, for various reasons, they could not be produced. However, at the time of the hearing, a way was suddenly found to produce some recordings which were handed to the judge but not played to the court. Even though the subject of the recordings took up a deal of the proceedings, Justice Lindgren said they were ‘of little weight’.
In his evidence, Paul Pemberton, NRMA national claims manager for the past three and a half years, said that while the NRMA didn’t direct work to PSRs (which brought laughter from the public gallery comprising mostly panel beaters)it was suggested to customers that there were advantages in choosing a PSR. As to delays for approval, Pemberton said there were four time frames used: self assessment (immediate), fast track (a matter of hours), line by line ‘ in which a claim is analysed over the phone (up to a day, depending on the queue), or an assessor visit, which was seldom required. These time frames were not necessarily related to the status of the repairer.
He said that teleclaims operators were trained to present the advantages of using PSRs and were paid a small bonus if they succeeded in doing so. Part of this presentation was to mention the lifetime guarantee that the NRMA offered on PSR repairs.
Although Pemberton agreed with AARA’s counsel that NRMA’s lifetime guarantee went no further than a common law obligation of a repairer to carry out repairs correctly, he was of the opinion that ‘repairers nave no contractual connection with NRMA customers’.
Theo Pittas, an assessor for NRMA’s metro south division, told the court that he’d held meetings of ASRs in February 2003 to present the PSR system to them but denied suggesting it offered faster payment or more work. He was accused by the AARA’s barrister, Bruce Levet, of giving indirect answers and wasting time, which prompted Justice Lindgren to warn the parties that they were, in fact, running out of time. He said: ‘if all the evidence cannot be finished today NRMA would be very disappointed, the repairers would be very disappointed and I would be very disappointed.’
Jarrod Mickele, an NRMA teleclaims operator trainer, told the court that the operators’ scripts were designed to persuade customers to go from ASR’s or below to PSRs but were not misleading. They merely offered the PRR services.
At that point, the evidence was almost concluded. Without the benefit of reading the affidavits, listening to the recorded teleclaims conversations or understanding the intricacies of the Trade Practices Act, a casual observer would have concluded very little. But then the AARA called its last witness and king-hit the NRMA.
Laura Gharivian took the stand. She had been a teleclaims operator for NRMA between June 2001 and February 2002. When she resigned to make a career change, she signed a confidentiality agreement which prevented her from discussing what went on in the teleclaims department. However, she was permitted to give oral evidence in court.
She said that during her work in teleclaims there were progress reviews each week during which recorded conversations were played, the principal aim of which was to train operators to convince customers to use PSRs. The operators were told to be assertive. The words used to convert non-PSR customers to PSR customers were not scripted but she was instructed to say that PSRs would be quicker than non-PSRs and that parts and repairs would not be warranteed if the came from non-PSRs.
Out of every ten calls ‘ the average was 50 to 60 a day - three or four would be from non-PSR repairers complaining that they were having work directed away from them and asking how they could become PSRs. She said she was told by the managers of teleclaims to tell those repairers that NRMA had enough PSR repairers and there was no place for additional ones.
Francis Douglas QC, appearing for NRMA seemed at loss to cross examine Gharivian, apart from a few procedural questions.
In adjourning the case, Justice Lindgren ordered that applicant’s (AARA)submissions would have to be in by March 3rd and the respondent’s (NRMA) by March 15th. He ordered a half day hearing on March 25th for oral collaboration and submissions. After that, he was due to sit in Western Australia to hear a case that may take six months. That would certainly put pressure on his available time to determine the smash repair case.
And so the outcome awaits Justice Lindgren’s finding on whether section 47 (7) of the Trades Practices Act has been breached and, if so, what the implications might be. At the heart of NRMA’s case is that it believes in the legitimacy of selecting smash repairers to carry out its work ‘ and many people would agree with that proposition. While the way it persuades its customers to choose PSRs could be interpreted as deceptive, this question will impact more on NRMA’s reputation than the application of the law. In his evidence, Paul Pemberton did not disagree with the suggestion that the NRMA was considering dismantling the PSR scheme.
George Elmassian said outside the court that if the NRMA is not restrained in its policy and practices regarding PSRs, 30 per cent of smash repairers in NSW will be forced out of business.


At the conclusion of evidence the NRMA issued the following statement
Australia’s leading general insurer, NRMA Insurance, today said its Preferred Smash Repairer (PSR) program, which is the subject of a federal court challenge by the Australian Automotive Repairers Association, operated in the best interests of customers.
NRMA Insurance said: ‘Customers can feel secure that when they choose an NRMA PSR they will receive quality, cost-effective repairs and excellence in customer service.
‘A recent survey found more than 96 per cent of customers are satisfied with the quality of repairs and service they receive under NRMA Insurance’s PSR program.’
The company said it was confident its PSR program complied with all legislation, and it was defending its right to continue delivering the benefits of the program to customers.