Halpin & Ors v Lumley General Insurance Ltd

CATCHWORDS : PRACTICE AND PROCEDURE - application to waive requirement to serve affidavits - whether the principle in Markus v Provincial Insurance Company Limited (1983) 25 NSWCCR 1 still exists - whether such a principle is consistent with the Civil Procedure Act 2005 and the "cards on the table" approach to litigation - whether elements of Markus principle made out - matters to be taken into account by court in exercise of its discretion.

LEGISLATION CITED : Civil Procedure Act 2005 Insurance Contracts Act 1984 (Cth)

Broadwater Taxation and Investment Services Pty Limited v Hendriks (NSWSC, unreported, 9 September 1993, Santow J) Ingot Capital Investments Pty Limited v Macquarie Equity Capital Markets [2004] NSWSC 40 CASES CITED : Kon v AMP Life Limited [2006] NSWSC 957 Markus v Provincial Insurance Company Limited (1983) 25 NSWCCR 1 Ng v Goldberg (NSWSC, unreported, 17 August 1993, Young J) Nowlan v Marson Transport Pty Limited (2001) 53 NSWLR 116

Loretta Halpin - First Plaintiff PARTIES : Michael Halpin - Second Plaintiff Haljen Pty Limited - Third Plaintiff

COUNSEL : Mr D Pritchard SC - Plaintiffs Mr R A Cavanagh - Defendant

SOLICITORS : Henry Davis York - Plaintiffs TurksLegal - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20345/2007 - Loretta HALPIN and Ors v LUMLEY GENERAL INSURANCE LIMITED

JUDGMENT 1 HIS HONOUR: Nature of Application The defendant moves the Court by way of Notice of Motion for the following order: "(1) That the requirement that all affidavit evidence to be relied upon by the defendant be served upon the plaintiff be waived in respect of certain affidavits, on the basis of the discretion discussed in Markus v Provincial Insurance Company Limited (1983) 25 NSWCCR 1" 2 In support of the motion the defendant relies upon two affidavits of Danielle Maree Wallis of 17 June and 6 July 2009. For the purposes of the application, the contents of the affidavit of 6 July 2009 were confidential. Both sides agreed that I should read the affidavit and in particular the annexures to it. 3 The plaintiffs oppose the order sought in the Notice of Motion.

Factual Background 4 The proceedings concern a claim by the plaintiffs against their former home and contents insurer, the defendant, in respect of a theft that occurred on 10 August 2006 from their home at Orchid Hills near Penrith. 5 The plaintiffs allege that the theft involved the removal of a large amount of valuable sporting memorabilia, particularly rugby league jerseys and cricket bats. The items were the subject of Specified Contents cover with the sum insured being $1 million. The plaintiffs made a claim against the defendant under their policy on 13 August 2006. 6 On 30 March 2007 the claim was denied by the defendant under the policy and under s 56(1) of the Insurance Contracts Act 1984 (Cth) (the Act). In its particulars and Defence the defendant does not admit the existence of the goods or that the theft occurred as alleged. It does not plead fraud in respect of the theft. The defendant has alleged fraud "in the claim". In other words, the defendant maintains that the plaintiffs have deliberately provided false information to the defendant for the purposes of inducing the defendant to pay their claim. The defendant says that the false information relates to the (a) existence, (b) ownership; (c) payment; (d) purchase; (e) authenticity and (f) value of the goods. 7 The plaintiffs claim the value of the items under the Specified Contents cover, as well as consequential damages concerning a subsequent uninsured theft. The plaintiffs acknowledge the onus upon them of establishing that the items under the Specified Contents cover were lost and the value of those items. It is clear, however, that the onus of establishing a fraudulent claim for the purposes of s 56(1) of the Act is upon the defendant. 8 In their Reply the plaintiffs rely upon s 56(2) of the Act and will as necessary and if appropriate, adduce evidence of what amounts the defendant should pay, being what is just and equitable in the circumstances. The parties agree that that is an issue in relation to which both sides would be entitled to lead evidence for the purposes of s 56(2). 9 The chronology of these proceedings is as follows: The plaintiffs commenced proceedings on 8 October 2007 by way of Statement of Claim. An Amended Statement of Claim was filed on 28 October 2008. A Defence to that Amended Statement of Claim was filed on 21 November 2008. The plaintiffs' Reply was filed on 2 July 2009. Pursuant to orders of the Court in relation to the service of evidence, the plaintiffs have served 40 affidavits in chief. The defendant has served the following evidence:

(e) Mr Heidenreich, a valuer giving his opinion as to the value of the goods; and

(f) Mr Pailthorpe, a textiles expert giving his opinion on the remnants and recovered jerseys produced by the plaintiffs.

The defendant is currently finalising the balance of evidence to be served by it and the Court was advised that these affidavits would be served within seven days of the hearing of the motion.

Submissions 10 For ease of reference, the defendant referred to the evidence which it wished to hold back under four categories. The following references are to the affidavit of Ms Wallis of 6 July 2009. Category 1 - paras 39 - 56, Category 2 - paras 57 - 63, Category 3 - paras 64 - 71, Category 4 - paras 72 - 74. In case this matter should go further, in the judgment I have used the same categorisation as that relied upon by the defendant. 11 As a preliminary matter the defendant accepted that insofar as Category 4 was concerned, it should serve on the plaintiffs affidavits of Messrs Maher and Harvey which set out conversations between those persons and the first and second plaintiffs. In relation to Category 4, the affidavits which it wished to hold back relate to inquiries and actions taken by Messrs Maher and Harvey following upon those conversations. Messrs Maher and Harvey are loss assessors retained by the defendant to examine and assess the plaintiffs' claim. 12 In support of the motion, the defendant relied upon the statement of principle by Clarke J in Markus v Provincial Insurance Co Ltd (1983) 25 NSW CCR 1: "I return then to the question whether I should order production for inspection of the first document. The defendant has submitted the interests of justice would not be served by producing the document because it contains material which does not advance the plaintiffs' case but which on the other hand would, if the plaintiffs are not genuine, put the plaintiffs on notice of some allegedly suspicious circumstances and enable them to tailor or endeavour to tailor their evidence to meet the circumstances. The plaintiff has been hampered in seeking to answer the submission by the inability to inspect the documents before making his submissions. It accordingly falls on me to endeavour to ensure that I exercise a discretion, which I undoubtedly have (see Kimberley Mineral Holdings ( in liq) & Anor v McEwan , [1980] 1 NSWLR 210) fairly in favour of one or other of the parties. In my opinion the document which contains in the main results of discussions with police officers and other persons together with hypotheses based on those discussions, is of such a nature that its material would not enable the plaintiffs to be in a better position from the point of view of presentation of the case at trial. On the other hand it is clear that the only purpose in my view to be served by letting the plaintiffs see this documentation would be to put them on notice of the allegedly suspicious circumstances. Subject to one matter, I am of the view that the interests of justice are against the requirement that there be production. The one matter which has been urged by counsel for the plaintiffs is the facilitation of settlement. It is said that, if the plaintiffs could assess these matters which are advanced as reasons in part, at least, why the claim is rejected, then the prospect of settlement might be stronger. Bearing in mind the view that I have that the ultimate question is going to be as to the genuineness or otherwise of the plaintiffs, and again in the interests of justice that they may be put on notice at an earlier date of the allegedly suspicious circumstances, I think this factor, to the extent to which it is entitled to consideration, is outweighed by the greater interest of ensuring that the Court gives justice between the parties." 13 The document under consideration in Markus was an investigation report from a loss assessor. In that regard the defendant submits that the Category 4 evidence is of the same kind and should be protected from disclosure to the plaintiffs for the same reasons as in Markus. 14 The defendant also relies upon the statement of principle by Barrett J in Kon v AMP Life Limited [2006] NSWSC 957 as follows: "10 In each of these cases the material in question was withheld. There were two main reasons. The first was that the material was not of a kind that could assist the deprived party in the formulation and presentation of its own case. It was of such a nature that it could be of assistance only to the applicant in meeting the case made by the deprived party and, depending upon what came out in the deprived party's case, it might not even be relied on for that purpose. In other words, the evidence in question might, after the close of the deprived party's case, be seen to be of no use in any event. 11 The second point was that the material was of such a nature that it would, if made available, tend to tempt the deprived party to tailor its evidence or at least to consider doing so. An example of the kinds of material in question and a statement of the rationale for withholding it is given in another unreported decision of 1993, that of Young J in Ng v Goldberg (unreported, NSWSC, 17 August 1993): "The kernel of the documents that fall into this category are those where the defendant has taken pains to prepare material to attack the credit of the plaintiff and had prepared films or other reports on the plaintiff's activities, which if the plaintiff were able to sight them before the trial would deprive the defendant of a legitimate advantage of testing the plaintiff's story using that material."" 15 The case before Barrett J involved a claim by a plaintiff for alleged breach of contract consisting of the defendant's failure to pay benefits which the plaintiff said became payable under an insurance policy being an income continuation policy. Having been ordered to serve its affidavit evidence by a specified date, the defendant sought a dispensation from that order insofar as it affected evidence of matters the substance of which appeared from a bundle of document, which was provided to Barrett J. His Honour upheld the defendant's claim. 16 The defendant submits that when one applies those statements of principle to the evidence comprising the four categories in the affidavit of Ms Wallis of 6 July 2009, the defendant was entitled to the order, which it sought. It submits that the Category 1 - 3 and those relating to the subsequent actions of Messrs Maher and Harvey were not of a kind which could assist the plaintiffs' case and were of such a nature as would tempt the plaintiffs to adjust their evidence to meet the matters raised. 17 It has to be appreciated that the plaintiffs suffered a considerable disadvantage in this motion in that apart from loss assessor reports known to have been prepared by Messrs Maher and Harvey, they were unaware of the nature and extent of the other evidence sought to be withheld by the defendant until trial. In reaching my decision and in considering the exercise of my discretion, I have taken into account this very real disadvantage. 18 The plaintiffs made three primary submissions:

(a) The Markus discretion no longer exists or if it does, it only exists in a very limited and presently irrelevant circumstance.

(b) The Markus discretion has never had any application in circumstances where, as here, the defendant seeking the order is raising a positive defence, namely a fraudulent claim.

(c) Even if the discretion otherwise continues, the necessary elements have not been made out by the defendant and this Court would not in its discretion make the orders sought, even if the elements were present. 19 In relation to the first submission, the plaintiffs argue that the Markus discretion in the manner sought to be relied upon by the defendant no longer has a proper place in litigation in the Supreme Court under the Civil Procedure Act 2005 (CPA). This discretion in the manner sought to be relied upon by the defendant is part of the "sportsman theory" of litigation and forms part of the practice known as "trial by ambush". This discretion has, it is argued, been abandoned in the Supreme Court and for good and proper reasons has been replaced with what has been described as the "cards on the table" approach to litigation. 20 In support of the submission the plaintiffs rely upon such cases as Nowlan v Marson Transport Pty Limited (2001) 53 NSWLR 116 at [27] - [28] and Ingot Capital Investments Pty Limited v Macquarie Equity Capital Markets [2004] NSWSC 40 at [26] - [27]. 21 In Nowlan Heydon JA said: "27 To begin with, if practitioners in personal injury work are accustomed to maintain poker faces, to keep their guard up at all times, and to let opponents who are proceeding in ignorance continue in that course, they should perhaps, as Sir George Jessel used to say, move over to "what is known as the other side of Westminster Hall" to observe what procedures prevail there. 28 Allsop J has valuably expounded the appropriate approach to commercial litigation in the Federal Court in White v Overland [2001] FCA 1333 at [4]: "However, by way of general principle I would simply like to make perfectly plain my view that in the efficient and proper conduct of civil litigation, even civil litigation hard fought between parties, it should always be recognised that in the propounding of issues for trial the parties should take steps to ensure that all relevant parties to the dispute are cognisant of what the issues are. Any practice of quietly leaving footprints in correspondence or directions hearings to be uncovered some time later in an attempt to reveal that a matter was always in issue should be discouraged firmly. Even if something has been said, where it is evident, or indeed suspected, that the other side is proceeding on the basis of a misconception or has not appreciated something, as a general rule, efficiency, common sense and an appreciation of the costs and resources (both public and private) likely to be wasted by confusion in litigation will mandate that a party through his or her representative ensure that the other is not proceeding on a misconception or that the other does appreciate something that has been said. Litigation is not a game. It is a costly and stressful, though necessary, evil. …"" 22 In Ingot Capital Investments Bergin J said: "26 The issues in this application bring into focus the changes that have been made to the way in which the Courts now "manage" cases prior to trial. Gone are the days of the legal practitioner proofing the witness and keeping the intended evidence on the file or in the brief until a witness is called to the witness box and the evidence is extracted viva voce with the aim of the witness "coming up to proof". This form of practice, referred to as "trial by ambush", has been replaced by what has been described as the "cards on the table" approach to litigation: Glover v Australian Ultra Concrete Floors [2003] NSWCA 80 at [60]; Nowlan v Marson Transport Pty Limited (2001) 53 NSWLR 116 at [20] - [36] and [40] - [46]. This change has been effected for a number of sound policy reasons including the aim for more efficiency in the listing and hearing of cases, the reduction in costs by providing the opportunity for a better assessment of the possible strengths or weaknesses of the case, facilitating settlement at an earlier stage and the reduction in delay from commencement to conclusion of proceedings." 23 In further support of the submission, the plaintiffs rely upon the CPA (particularly sections 56 - 58) and the various rules and practice notes associated with those sections. The plaintiffs note that of the cases in this area, only Kon v AMP had been decided after the enactment of the CPA. In that case, however, no submissions were made to his Honour as to the demise or modification of the Markus discretion so as to accommodate sections 56 - 58 CPA. 24 The plaintiffs submit that the making of the orders sought by the defendant would lead to a longer and more expensive trial, a less efficient disposal of the business of the Court and a less efficient use of available judicial and administrative resources. 25 In support of the second submission, the plaintiffs argue that the onus of establishing a proper basis for the making of the order sought is upon the defendant and that the defendant has failed to discharge that onus. They submit that the Markus discretion does not and never had any application in circumstances where the party seeking to resist access to documents or affidavits, has a relevant onus in respect of the evidence contained within the documents. 26 In support of the third submission, the plaintiffs argue that one of the elements which has to be established by the defendant is that the evidence withheld must not be of a kind that could assist the deprived party in the formulation and presentation of its own case. Insofar as the Category 4 evidence is concerned, i.e. the subsequent investigations and inquiries made by Messrs Maher and Harvey, they submit that these are clearly relevant to the plaintiffs' case in reply pursuant to s 56(2) of the Act. 27 The plaintiffs submit that such evidence would be relevant to the following issues:

(i) That if there has been any fraud (which the plaintiffs deny) only a minimal or insignificant part of the claim was made fraudulently.

(ii) That the non-payment of the remainder of the claim would be harsh and unfair.

(iii) The amount that the defendant should pay in relation to the claim, being what is just and equitable in the circumstances. 28 The plaintiffs submit that the defendant has failed to establish that disclosure of the evidence would pose a risk of tailoring or distortion of the evidence by them. They submit that whereas such considerations may be relevant to allegations of fraud at the inception of the policy and/or fraud in relation to the insured event, it is not a material issue in relation to an allegation of fraud "in the claim". 29 In relation to discretionary considerations, the plaintiffs argue that the making of the order sought by the defendant would significantly reduce the possibility of any settlement of the proceedings. They argue that another discretionary matter is the failure on the part of the defendant to provide full and proper particulars of the allegations of fraud in the Defence. A further discretionary consideration referred to by the plaintiffs is the failure on the part of the defendant to comply with the timetable directed by the Court for the provision of evidence, other than that the subject of this application. 30 The final discretionary matter relied upon by the plaintiffs is that this was not a commercial matter but a claim made by the plaintiffs in relation to a residential home and contents insurance policy.

Consideration 31 I do not accept the plaintiffs' first submission that the "Markus discretion" no longer exists. There is nothing in cases such as Nowlan and Ingot Capital Investments which has that effect. Those cases are quite properly concerned with "trial by ambush". The rationale behind the statements of principle in those cases is to enable matters to proceed in an orderly fashion before the courts without the need for adjournments or other delays in the course of a trial. The rationale also has regard to the possibility of settlement if parties know the strengths and weaknesses of their respective cases. 32 In a Markus situation there is no trial by ambush in the sense referred to in those cases. On the contrary, one side clearly indicates to the other that it has information which will not advance that other side's case and which is of such a character that if it were disclosed to the other side, it might tempt that other side to tailor or adjust the evidence. A Markus application signals in the clearest way that such a situation exists. It is also not without significance that Allsop J prefaced his remarks in White with the phrase "by way of general principle". 33 The same rationale lies behind sections 56 - 58 CPA. While the sections emphasise the quick and cheap resolution of the real issues in a case, they also place emphasis upon "the just determination of the proceedings". A just result is, of course, the prime consideration in s 58. Accordingly, I see nothing inconsistent in a court deciding a Markus application in accordance with established principle and sections 56 - 58 CPA. This is because the basis for the exercise of a Markus discretion is that the interests of justice would not be served by producing documents of the necessary kind. 34 In relation to the second submission, I do not accept that the application of the Markus discretion has the rigidity which this submission seeks to give it. The plaintiffs argue that support for the submission is to be found in Ng v Goldberg (NSWSC, unreported, 17 August 1993, Young J) and Broadwater Taxation and Investment Services Pty Limited v Hendriks (NSWSC, unreported, 9 September 1993, Santow J). I do not so read those cases and they do not, in my opinion, provide support for the proposition. 35 In Ng v Goldberg (a case which involved the holding back of documents produced by Mr Goldberg to the Law Society as a result of a complaint made to it) Young J said at p 26 of the judgment: "It follows from what I have said that no claim of privilege continues to exist which would protect the documents from being made available to the Ng's lawyers. However, it yet remains to make sure that it is fair and just that access should be granted in accordance with the principles I considered earlier in these reasons. Authorities such as Markus' case and those referred to in Moffitt P's article in Glass's Seminars on Evidence suggest that the principal reason for denying access to a document which is otherwise relevant is if it would deprive a litigant of a legitimate forensic advantage. This will occur, for instance, in a case where the material only goes to the case of the person on the receiving end of subpoena and not to making the case of the person who issued it. These are very general words and there will be many exceptions. For instance, if a document goes to the defence of laches raised by a defendant a plaintiff may subpoena documents relevant to that issue and have access to them. The kernel of the documents that fall into this category are those where the defendant has taken pains to prepare material to attack the credit of the plaintiff and had prepared films or other reports on the plaintiff's activities, which if the plaintiff were able to sight them before the trial would deprive the defendant of a legitimate advantage of testing the plaintiff's story using that material." 36 In Broadwater Taxation, Santow J quoted with approval the above passage from Ng v Goldberg and said: "In this case, in my judgment, the materials in question are not such as would advance the defendant's case in themselves, insofar as that test applicable to document can be imported into the analogous though slightly different context of affidavits obtained by one side in relation to the testing of evidence that the defendants have advanced. Rather they are in my judgment, designed to test the evidence of the defendants. In the nature of things, it is not possible at this interlocutory stage to test whether the defendants would in fact tailor or endeavour to tailor their evidence to meet the circumstances. That conclusion must depend upon a hypothesis which cannot be prejudged, namely, to quote the words of Markus' case the [defendants in this case] "are not genuine". Rather the test is whether the material would, if known in advance by the other side - being in this case material designed to test the other side's evidence - enable the other side to tailor or endeavour to tailor their evidence to meet the circumstances. This is always on the hypothesis that the other side is not genuine. I am satisfied on that hypothesis that the materials in question fall into that category." 37 In a matter such as this where fraud has been raised, together with s 56 of the Act, and where on particular issues each side carries an onus of proof the sort of rigid distinction sought by the plaintiffs has no place. Such an approach is quite contrary to the principle underlying the exercise of the Markus discretion, i.e. allowing a party to hold back documents if the interests of justice so dictate. 38 It is clear from the affidavit of Ms Wallis of 6 July 2009 that the evidence in Categories 1 - 3 has been prepared specifically to challenge the plaintiffs' case on particular issues. It does not and could not advance the plaintiffs' case. The assessors' reports of Messrs Maher and Harvey, which comprise the Category 4 evidence, are primarily directed at the same object. Without being specific, what they do is to identify what the authors regard as inconsistencies in the information provided by the plaintiffs and to suggest lines of inquiry which should be followed. It is the following of those lines of inquiry which has produced the material which forms much of the Category 1 - 3 evidence. 39 Accordingly, the plaintiffs' second submission has not been made out. 40 In relation to the third submission, the difficulty faced by the plaintiffs is that they have not seen the documents and can only argue hypothetically as to what they believe the documents might contain. Their submissions have a particular focus on what they understand to be a confrontational and hostile approach to their claim by Messrs Maher and Harvey. In that regard it should be noted that the plaintiffs have had access to the first report of those loss assessors and it is the production of their later reports which the defendant seeks to resist. 41 As indicated, my assessment of the affidavits which the defendant seeks to hold back is that they fairly and squarely comprise the sort of evidence described in the authorities as coming within the Markus discretion. The evidence has been specifically prepared to challenge important parts of the plaintiffs' case and the credit of the first and second plaintiffs. Were the affidavits to be made available to the plaintiffs, there would be an inevitable risk of the plaintiffs being tempted to tailor their evidence to meet this evidence. In my opinion, the elements for the exercise of the discretion have been made out by the defendant. 42 In relation to the discretionary matters raised, it is true that the defendant has missed some time limits specified by the Court but those failures have not, in my opinion, been particularly significant. I am not satisfied, on the evidence before me, that there has at this stage been a failure by the defendant to provide proper particulars of its allegations of fraud. 43 The question of whether the withholding of these affidavits will lengthen the trial and discourage settlement is at best equivocal. On the defendant's case the plaintiffs have been dishonest and if this evidence is produced to them that dishonesty will lead to their claim being adjusted to meet it. This would certainly not shorten the trial or promote settlement. On the other hand, if the plaintiffs have been dishonest and they are aware that the defendant has evidence which it believes would establish that proposition, that of itself may be a positive incentive to settlement. 44 It follows that I have not been persuaded that as a matter of discretion the defendant ought not have the order which it seeks. 45 In the course of the proceedings I indicated to the parties that the costs of this motion should follow the event. At the time I gave that indication I had forgotten that the defendant's motion did not seek an order for costs. In those circumstances I do not think it would be appropriate for me to make an order which the defendant did not seek in its motion. Accordingly, the orders which I make are as follows:

(1) I direct that the defendant not be required to serve on the plaintiffs the affidavits referred to in the affidavit of Danielle Maree Wallis of 6 July 2009.

(2) I order that the affidavit of Danielle Maree Wallis of 6 July 2009 and its attachments be placed in a sealed envelope in the Court file and marked "Documents inspected by Court for purposes of Notice of Motion heard on 6 July 2009".

(3) I direct that the sealed envelope to which I have referred in (2) above, be retained on the Court file and not be opened without the leave of a Judge.

(4) I order that the costs of this motion be costs in the cause. **********

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