Inquiries which have not been made and disclosure of information
70 Stonehatch referred to a number of inquiries which had not been made and which it contended ought to have been made before making the present application. Stonehatch also submitted that the Court should conclude that all of the material information available to HQ had not been disclosed. It is convenient to deal with these two matters together.
71 The first matter raised concerns a lack of inquiry into the circumstances under which the Go Bloodstock policy was not renewed with HQ in late March 2019. As noted earlier, the relevant negotiations occurred between Mr Doughty (for HQ) and Mr O'Connor (for Go Bloodstock). Mr O'Connor's email of 28 March 2019, communicating the fact that Go Bloodstock would not be renewing its policy with HQ, invited Mr Doughty to call Mr O'Connor to discuss the matters raised in his email and stated that he would be available after 10.00am the next day. Mr Doughty responded to the effect that he would speak to Mr O'Connor the next day.
72 Mr Aldridge agreed in cross-examination that it was likely that Mr Doughty and Mr O'Connor spoke. The probabilities favour that they did speak. It is likely that they would have discussed the reasons why Go Bloodstock had not renewed with HQ. Go Bloodstock had also issued its letter appointing Stonehatch its "exclusive insurance broker of record". It is likely that Mr Doughty and Mr O'Connor also spoke about that matter. So far as the evidence discloses, Mr Aldridge did not ask Mr Doughty what he had learned and nor did any other person.
73 One could approach the matter as HQ:
(1) failing to make a reasonable inquiry of a past employee before the hearing of its preliminary discovery application (Mr Doughty ceased employment with HQ on 4 May 2020); or
(2) not putting forward all the information it had available to it when it commenced its preliminary discovery application because it failed to put before the Court important information known to one of its then employees.
74 The information known to Mr Doughty is likely to have been material. The discussion between Mr Doughty and Mr O'Connor may have been to the effect that Go Bloodstock unilaterally approached Stonehatch and that Stonehatch engaged in no relevant activity other than responding to an inquiry from Go Bloodstock. Go Bloodstock had previously insured through Ausure, which used the underwriting services of Stonehatch. In those circumstances, it may have been obvious for Go Bloodstock to approach Stonehatch directly. On the other hand, the discussion may have been to the effect that Stonehatch actively pursued Go Bloodstock, suggesting it was engaged in activities which might be seen to indicate the carrying on of a financial services business or conduct intended to induce Go Bloodstock to use Stonehatch's services.
75 The information known to Mr Doughty is not before the Court. Mr Doughty was not called to give evidence. An inquiry by HQ of Mr Doughty after he left HQ's employ was a simple and obvious step which should have been taken, particularly in circumstances where the issue of whether all information was before the Court was raised and an adjournment was granted in order further to address the issue. The remedy afforded by r 7.23 is not a substitute for making reasonable inquiries. Rather, reasonable inquiries are a requirement for the discretion to be exercised.
76 Secondly, Stonehatch relied upon the circumstances relating to the Hellbent policy. Ms Buckley, HQ's Operations Manager, gave evidence of a conversation she had with Mr Luke Wilkinson. HQ had given a quote to Mr Wilkinson on a renewal of a share in Hellbent which Mr Wilkinson owned jointly with Mr Andrew Williams. HQ was not successful and Ms Buckley was later informed that Mr Wilkinson had secured better terms from Stonehatch. The conversation was reported by Ms Buckley in the following way:
Me: "What happened with Hellbent, did you get cheaper terms somewhere else?"
Luke: "Yeah. It was $1,000 cheaper than your quote."
Me: "Who through?"
Luke: "Someone Andy Williams knows overseas."
Me: "Was it a company called Stonehatch?"
Luke: "Yeah, that's them."
Me: "Do you know they're unauthorised to operate in Australia?"
Luke: "No I didn't know that at all, I have never even heard of them".
Me: "I'm sorry I can't do anything about it, $1,000 is too low for me to come down."
77 Stonehatch submitted that HQ should have made a further inquiry of Mr Wilkinson as to the circumstances in which the quote from Stonehatch came about. Rather than inquiring whether Mr Williams had approached Stonehatch overseas, or whether there was some activity by Stonehatch to offer their services or secure Mr Wilkinson's or Mr Willams' business, Ms Buckley simply stated to Mr Wilkinson that Stonehatch was "unauthorised to operate in Australia". There is nothing intrinsically wrong with an Australian consumer choosing to insure with a UK based insurer. If that were to occur, that does not have the necessary consequence that the UK based insurer is engaged in business activities in Australia.
78 There is no evidence that HQ made any attempt to inquire further of Mr Wilkinson about the circumstances. Again, this was an obvious inquiry to make. It was a reasonable one to make in circumstances where Mr Wilkinson evidently had a good commercial relationship with Ms Buckley and showed no apparent hesitation in disclosing whatever he knew. If such an inquiry was made by Mr Buckley, the further information obtained has not been disclosed. I might ordinarily have inferred from the absence of evidence of any further inquiry that Ms Buckley did not make a further inquiry. However, I am not confident in drawing that inference in light of HQ's understanding of what information was relevant to put before the Court.
79 Thirdly, Stonehatch referred to HQ's evidence concerning Hermitage, a major client of HQ. Ms Buckley gave evidence that Mr Koolman, Hermitage's Racing and Bloodstock Manager, sent Ms Buckley an email which forwarded an email from Stonehatch to Hermitage which contained "formal confirmation of coverage for the policy we [Stonehatch] have placed on behalf of Hermitage". Stonehatch's email stated that it was sent after a "referral from Arrowfield". The policy related to a group of broodmares which Hermitage and Arrowfield were then jointly purchasing.
80 Stonehatch submitted that Mr Koolman was evidently willing to give information concerning the circumstances in which Hermitage came to enter into policies with Stonehatch but, so far as the evidence revealed, no further inquiry was made. I infer that Mr Koolman was willing to provide information given that his email to Ms Buckley was not sent in response to any inquiry made by her. Mr Koolman's email which forwarded Stonehatch's email to Hermitage states: "Thought this might be of interest".
81 Somewhat unusually, Mr Koolman's email to Mr Buckley does not indicate when it was sent by Mr Koolman. The other emails annexed to Ms Buckley's affidavit, printed out by HQ's solicitor, followed the familiar format of identifying in the first line who the email was "From", then identifying when the email was "Sent" and then identifying who the email was "To", before then identifying other matters such as, if applicable, whether it was copied to others and the "Subject".
82 There is no evidence of any response by Ms Buckley to Mr Koolman's email. The evidence also does not disclose whether any further inquiry was made by Ms Buckley.
83 In a context where HQ was evidently concerned about whether Stonehatch was engaging in a financial services business in Australia or in conduct intended to induce people in Australia to use Stonehatch's services, or conduct having that effect, it was obvious to inquire further of Mr Koolman about the circumstances in which Hermitage and Arrowfield came to insure with Stonehatch. If a further inquiry was made by Ms Buckley or HQ, any further information obtained has not been disclosed.
84 Fourthly, Stonehatch relied on evidence given by Mr Aldridge in his further affidavit concerning Blueblood Thoroughbreds. HQ had brokered insurance for Blueblood since 2013. Mr Aldridge stated in his affidavit that the documents (emails) concerning Blueblood were annexed to his affidavit to ensure that all information was before the Court but stated that the emails were not, and are not, relevant to any consideration by HQ whether to start a proceeding. Mr Aldridge explained that, because HQ had not lost Blueblood as a client, no further inquiries had been made of Blueblood.
85 The email concerning Blueblood, sent on 30 January 2019, indicated that Stonehatch had advised Blueblood that it could match certain terms, I infer terms offered by HQ or which HQ was prepared to offer. The email did not indicate anything about how Stonehatch came to be involved with Blueblood, for example whether Blueblood approached Stonehatch or whether Stonehatch approached Blueblood. The evidence does not disclose that HQ made any further inquiry into the circumstances.
86 It was submitted for HQ that it was not relevant for it to inquire further. It was submitted that Mr Aldridge was correct not to inquire further in any case in which HQ had not in fact lost a client. When asked why Blueblood would not have been able to indicate whether it approached Stonehatch or whether Stonehatch approached Blueblood, it was submitted that Blueblood might have been able to say what had occurred "[b]ut that doesn't ground an action for HQ because Bluebloods stayed as a client of HQ". Later, HQ submitted that it was not relevant to inquire into whether Stonehatch was carrying on a financial services business unless HQ could also establish that its activities induced an existing customer of HQ to insure with Stonehatch. This is not correct. It would be essential to its success in the foreshadowed possible proceeding for HQ to establish that Stonehatch was carrying on a financial services business in Australia. Whether Stonehatch was carrying on such a business is directly relevant to HQ's decision whether to start a proceeding. The Court would not order discovery in respect of that issue unless HQ had first made reasonable inquiries in that respect.
87 As noted earlier, the second and third categories of documents which HQ seeks are only justifiable as being relevant to establishing that Stonehatch was or is engaged in a financial services business in Australia and in conduct intended to induce people in Australia to use Stonehatch's services or in conduct having that effect. At the same time, however, Stonehatch has apparently proceeded on the basis that it does not need to make its own inquiries about those matters or disclose what information it already has concerning such matters, unless HQ in fact lost a client in connection with Stonehatch's activities.
88 Whether or not Stonehatch is engaged in a financial services business in Australia and in conduct intended to induce, or having the effect of inducing, people in Australia to use Stonehatch's services does not depend on whether HQ has lost a client to Stonehatch.
89 In any event, if Stonehatch was or is carrying on a financial services business in Australia and engaging in conduct that was or is intended to induce people in Australia to use its services (or conduct likely to have that effect), then this may be shown to affect HQ's business, irrespective of whether HQ lost a client. This is because, on HQ's case, Stonehatch can offer insurance at a lower cost to the consumer than HQ, because Stonehatch does not pay a commission to an Australian broker. The fact that Stonehatch can offer a lower price means it is more likely that an Australian consumer, whether or not an existing HQ client, might choose Stonehatch in preference to HQ.
90 Leaving this aside, the email concerning Blueblood itself suggests that there was an adverse effect on HQ because HQ was being forced to compromise to match Stonehatch's lower pricing. The email stated: "I am confident that we will keep the business if we can find a way for BlueBloods to have their 5% + GST if there was a claim".
91 Fifthly, Stonehatch relied on evidence given by Mr Aldridge in his further affidavit concerning Widden Stud. The relevant emails were exchanged in December 2018 and show that cover in relation to a horse named "Zoustar", if the business came to be transacted, would be split between HQ and Stonehatch. HQ did not issue a policy with respect to "Zoustar" as a result of the inquiry made in December 2018, although it now has such insurance in place.
92 Again, Mr Aldridge explained that he did not make any inquiries of Widden Stud "because this has not to my knowledge affected HQ". As noted earlier, the inquiry is relevant whether or not HQ was affected. Further, however, the probabilities are that HQ's business in relation to Widden Stud was affected. The inference to be drawn from the emails attached to Mr Aldridge's affidavit is that HQ was not successful in securing Widden Stud's business on that occasion and that Stonehatch was successful. That inference arises because HQ was invited, on 8 May 2020, to express interest in taking over Stonehatch's policy on Zoustar which was expiring the next week. The reason Stonehatch was successful might be explained by a comment made by Mr Aldridge in his email sent on 10 December 2018, where he stated:
Stonehatch [is] better placed though to offer keener rates, because with Widden dealing direct, the Australian broker is cut out, which means that the saving of commission can be rebated to Widden by Stonehatch, either in part or whole - the former I suspect.
93 In addition to asserting that it was not relevant to inquire further because no business had been lost, Mr Aldridge stated in cross-examination that inquiries would not have resulted in any information being provided by Widden Stud. That may or may not be case. Certainly, other clients of HQ were apparently willing to disclose to HQ matters relating to Stonehatch. It is not known whether information would have been obtained from Widden Stud because no inquiry was made.
94 Sixthly, Stonehatch relied upon the failure to make any inquiries of Mr David Long who had been a director of HQ. HQ accepted that Mr Long was a director until 11 December 2019. These proceedings were commenced on 20 December 2019. I infer that consideration in relation to these proceedings was given well before that time, including when Mr Long was a director. Presumably in an endeavour to suggest that the inquiry was not a reasonable one, Mr Aldridge gave evidence that, after Mr Long ceased to be a director, he did not now know where Mr Long was and that it "wouldn't have been easy" to contact Mr Long because he, Mr Aldridge, would have needed to make one or two telephone calls. I think it likely to have been easy to make contact with Mr Long after 11 December 2019.
95 Mr Aldridge annexed to his further affidavit an email from Mr Long to Mr Aldridge sent on 2 May 2019. The "Subject" was: "Evidence of Stonehatch writing business for an existing HQ client Hermitage Thoroughbreds". In the email, Mr Long referred to "our knowledge of how Stonehatch operate". It is not clear what the content of this knowledge was.
96 Seventhly, Stonehatch relied upon evidence given by Mr Aldridge to the effect that he had conversations with London brokers about Stonehatch's activities. It was submitted for HQ that the information revealed in these discussions did not need to be disclosed because what was said was hearsay and of no evidentiary value. As explained at [59] to [61] above, in light of Mr Aldridge's evidence and the submissions advanced, I am not persuaded that HQ has proceeded on a correct understanding of the operation of r 7.23.
97 Eighthly, Stonehatch relied on the following extract of an email sent by Mr Aldridge on 23 May 2018, which was annexed to his first affidavit:
Stonehatch was founded in 2014 (a website reference) and from that time has approached Australian clients and has been successful in procuring Australian risks, that it places into Lloyd's (from its London office), thereby bypassing Australian brokers/intermediaries, who ordinarily would write the business. Representatives of Stonehatch travel to Australia from London at least once a year to promote their broker services and meet their Australian clients, with whom Stonehatch transact directly.
98 Stonehatch submitted that this email revealed that information was held by HQ about Stonehatch approaching Australian clients from 2014. It was submitted that the sources of that information were not disclosed, making it difficult to know whether reasonable inquiries had been made, and that there had not been a full disclosure of the information which led Mr Aldridge to state that Stonehatch had been approaching Australian clients since 2014.
99 Whilst the material filed on this application indicated that Stonehatch had been successful "in procuring Australian risks" the evidence did not disclose any "approach" by Stonehatch to an Australian client. The material did not indicate the identity of the clients who had apparently been "approached" since 2014, what form the approaches took or the results of the approaches referred to. The passage in the email also indicates that representatives of Stonehatch travel to Australia "to promote their broker services". The material before the Court did not disclose who the representatives were, in what way they promoted their services or which Australian clients they met. The underlying information known to HQ on which the conclusions in the email are based is not before the Court.
100 In a similar vein, Stonehatch referred to Ms Buckley's affidavit where she stated:
In Richard Lloyd's email I refer to above he copies in Chris Williamson who is the managing director of Stonehatch. I have known Chris Williamson for many years as he was one of the first London brokers I worked with during my time at Wilburtins and Austbrokers (prior to its merger with HQ). I generally see Chris at least once per year at a horse sale, usually the Inglis Easter Yearling sale held in Sydney.
101 Stonehatch submitted that Ms Buckley had not disclosed what it is she observed Mr Williamson doing. His activities would be relevant to the question whether Stonehatch was carrying on a financial services business in Australia or seeking to induce people in Australia using Stonehatch's services.
102 Returning to Mr Aldridge's email of 23 May 2018, after the paragraph set out at [97] above, he continued with the following paragraph:
Recently we placed a high profile, multi-million dollar stallion, into the London open market via our London/Lloyd's broker Integro UK (formerly Howard Global Insurance Services). The specialist bloodstock syndicates at Lloyd's to support our placement were XL Catlin, Brit, Neon & Kiln. Subsequently, our stallion owner client, who we understand also has direct dealings with Stonehatch dating back several years, decided to cancel cover with us and place it through Stonehatch who had offered a lower rate (also Lloyd's security). Our supporting Lloyd's underwriters were at full capacity and therefore had no room to move.
103 Mr Aldridge accepted in cross-examination that the evidence did not disclose the stallion or the client referred to in that paragraph. The evidence did not disclose any further information concerning these events. Mr Aldridge did not accept that there had been a deliberate decision not to disclose the events, but referred to HQ being his business and stated that he needed to be careful what he disclosed to third parties. The position is that the Court does not know the content of the information known to HQ concerning this particular event or those referred to in the email as having occurred since 2014. That information is likely to be material to a decision whether to start a proceeding. It is not possible to know whether the material is objectively sufficient, when assessed with the other information available to HQ, to make a decision about whether to start a proceeding without knowing the content of it.
104 Ninthly, Stonehatch relied on evidence given in cross-examination by Mr Aldridge that HQ had approximately ten employees who dealt with Australian clients and who might have information concerning Stonehatch's activities in Australia. Mr Aldridge, who made or directed all of HQ's inquiries, did not seek information from these employees, apart from Ms Buckley. In cross-examination, Mr Aldridge sought to explain this by stating that he was copied into every single email, such that he knew everything those employees knew on this topic. Even if one accepted this evidence as accurate, it is unlikely that every client dealing with the relevant HQ employee would also copy Mr Aldridge. However, it is inherently unlikely that Mr Aldridge was copied into every email sent by an HQ employee. Certainly, there were a number of emails in evidence on this application to which Mr Aldridge was not copied. Mr Aldridge justified this on the basis that he might have been blind copied. I am not satisfied that is likely. In any event, Mr Aldridge's explanation does not address the lack of inquiry which might reveal the content of other communications such as telephone calls. An example is furnished by the telephone call likely to have occurred between Mr Doughty and Mr O'Conner referred to at [72] above.
105 Finally, Stonehatch relied on the fact that no search was made for any emails other than those contained in Mr Aldridge's email account. The evidence given above, concerning Mr Aldridge being copied into all emails, was relied upon to suggest that this justified not searching the email accounts of other HQ employees, including the ten who had dealings with clients who might have information concerning Stonehatch's activities.
106 In my view, inquiries should have been made of HQ's employees and of HQ's emails beyond those connected to Mr Aldridge's email account before seeking the relief of having Stonehatch search its records for documents which might support a case against it by HQ.
107 Taking all of the matters referred to above together, I am not satisfied that HQ has made reasonable inquiries or that it has put before the Court all of the information that it has available to it material to its decision whether to start a proceeding. That conclusion is reinforced by the piecemeal disclosure of information only after submissions were made as to the deficiency in disclosure of information (see [27] above) and by the approach adopted by HQ referred to in [58] to [63] above.
108 It may be accepted that one should not take a "pernickety" approach to whether the beliefs in r 7.23(1) have been satisfied - cf: Poole at [60]. The "beliefs" are those in paragraphs (a) and (c) of r 7.23(1). However, nor should the Court grant the remedy to a prospective applicant who has not satisfied the Court that it has made reasonable inquiries or who has not satisfied the Court that all information material to the decision whether to start a proceeding has been put before the Court: r 7.23(1)(b). The objective conditions in paragraph (b) of r 7.23(1) protect against an inappropriate or premature order for pre-suit discovery, notwithstanding the existence of genuinely held subjective beliefs required by paragraphs (a) and (c) of r 7.23(1).