HQ Insurance Pty Limited v Stonehatch Risk Solutions Limited

BACKGROUND 16 The background may be briefly stated. 17 HQ is an Australian bloodstock and livestock insurance broker which specialises in equine insurance. HQ holds an AFSL which authorises it to advise in relation to, and deal in, general insurance. Stonehatch is a United Kingdom (UK) based insurance broker specialising in bloodstock insurance. It does not hold an AFSL. 18 Ausure (Upper Hunter) Pty Ltd trading as Ausure Insurance Solutions (NSW) was an insurance broker based in New South Wales. It brokered equine thoroughbred insurance through Stonehatch as its wholesale broker in the UK where the equine risks were underwritten by various Lloyd's syndicates. 19 On 25 September 2018, HQ completed its purchase of Ausure's client book of insurance policies. HQ transferred the insurance files to their own wholesale broker, Integro Brokers Limited, in the UK, on 18 October 2018. 20 The agreement between Ausure and HQ required Ausure to transfer files concerning various specified insureds, in line with the various policies identified in a "Transfer of Files Agreement". One of the insureds was Go Bloodstock. The Go Bloodstock Policy which HQ acquired from Ausure's client book ran from 28 March 2018 to 28 March 2019. The tax invoice issued to Go Bloodstock for the Go Bloodstock Policy acquired by HQ identified Stonehatch as the "insurer". 21 After the transfer of files to HQ, Go Bloodstock used HQ to place additional insurance on 27 September 2018 and then throughout 2018 and early 2019. Where newly purchased bloodstock was acquired by Go Bloodstock and insured through HQ, it was "short-dated" to 28 March 2019 so that the various insured risks would renew at the same time, namely immediately after the policy expired on 28 March 2019. 22 In early 2019 discussions were held between Mr Stuart Doughty for HQ and Go Bloodstock's General Manager, Mr Steve O'Connor, in anticipation of Go Bloodstock's insurance policy being renewed in March 2019. On 28 March 2019, despite the negotiations which had occurred between them, Mr Doughty was informed by Mr O'Connor that Go Bloodstock would not be insuring through HQ. Go Bloodstock had secured better terms elsewhere. 23 Go Bloodstock sent to HQ a letter dated 27 March 2019 which indicated that Go Bloodstock had appointed Stonehatch its "exclusive insurance broker of record". 24 It is not known precisely how Go Bloodstock came to appoint Stonehatch. However, two possibilities are obvious. First, as mentioned, Stonehatch was identified as the "insurer" on the tax invoice issued to it by Ausure and I infer that Go Bloodstock at all material times was aware that the insurance brokered through Ausure was placed through Stonehatch. It is not unlikely that Go Bloodstock approached Stonehatch, either because it knew it was the wholesale broker used by Ausure or because it conducted a search of possible insurers for what was an expensive policy. HQ had advised Go Bloodstock on 27 March 2019 that the maximum premium would be $820,000. A second possibility is that Stonehatch approached Go Bloodstock. That is no more than speculation. The evidence as it presently stands is not sufficient to give rise to an inference that Stonehatch approached Go Bloodstock. It is this second possibility that motivates HQ to bring the present application. 25 HQ says that it considers that, if Go Bloodstock had not placed its insurance through Stonehatch, it would have renewed its policy with HQ. That conclusion is reasonable. 26 It was submitted that HQ: (1) "is concerned that unlawful operations by Stonehatch permitted it to compete with AFSL holders without the need to expend the necessary resources to comply with applicable regulations" which gives "Stonehatch the ability to interfere unfairly with HQ Insurance's business in Australia"; (2) believes that "Stonehatch may have been and/or may continue to be actively dealing in the equine thoroughbred insurance industry within Australia without an AFSL or an exemption". 27 When these proceedings were commenced, the only evidence relied upon by HQ was contained in an affidavit of Mr Aldridge, HQ's managing director. Amongst other matters, this evidence addressed the loss of Go Bloodstock to Stonehatch. HQ's evidence was twice supplemented: (1) First, shortly before the hearing on 22 June 2020 an affidavit of Ms Buckley was filed, evidently intended to meet a criticism raised in Stonehatch's written submissions that the only significant conduct complained of related to Go Bloodstock. Ms Buckley's affidavit disclosed further information known to HQ about Stonehatch's ongoing activities, being events that had occurred since the proceedings were commenced. (2) Secondly, the hearing was adjourned during closing reply submissions and a second affidavit of Mr Aldridge was filed. This stated that all information had been put before the Court. It also disclosed further information relating to activities in which Stonehatch had been involved, including activities which had occurred before HQ's application was filed. 28 The further evidence is discussed below.

Rule 7.23(1)(a) 29 HQ claimed it may have a right to relief in the form of an injunction under s 1324(1) of the Act and damages under s 1324(10) and s 1325. It also claimed it may have a right to relief on the basis that Stonehatch had committed a tort of unlawful interference with trade or commerce, which it described by reference to the minority decision in Northern Territory v Mengel (1995) 185 CLR 307 as "embryonic" or "emerging". 30 Section 1324 of the Act includes: 1324 Injunctions (1) Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute: (a) a contravention of this Act; or (b) attempting to contravene this Act; or … the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first‑mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing. … (6) The power of the Court to grant an injunction restraining a person from engaging in conduct may be exercised: (a) whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind; and (b) whether or not the person has previously engaged in conduct of that kind; and (c) whether or not there is an imminent danger of substantial damage to any person if the first‑mentioned person engages in conduct of that kind. … (10) Where the Court has power under this section to grant an injunction restraining a person from engaging in particular conduct, or requiring a person to do a particular act or thing, the Court may, either in addition to or in substitution for the grant of the injunction, order that person to pay damages to any other person. 31 Stonehatch submitted that relief claimed under s 1324(10) and s 1325 of the Act must fail, and that the tort of unlawful interference in trade or commerce would also fail. In reply, HQ accepted it was unlikely to obtain relief under s 1325. 32 It is sufficient for present purposes if HQ can demonstrate a reasonable belief that it may have a right to obtain injunctive relief under s 1324(1) of the Act. HQ made it clear in its written reply submissions that injunctive relief under s 1324(1) was the primary relief which it sought. 33 A person who carries on a "financial services business" in Australia must hold an AFSL: s 911A. A "financial services business" is a business providing "financial services" which includes the provision of financial product advice or dealing in a financial products: s 761A; s 766A(1). Dealing in a financial product includes applying for or acquiring, issuing, varying, or disposing of an insurance contract. "Dealing" also includes circumstances where a person is arranging to engage in dealing in a financial product: s 766C. Contracts of insurance issued in respect of thoroughbred bloodstock are financial products under the Act. 34 The parties were agreed that arranging for the issuing of an insurance contract falls within the meaning of "financial services business" and requires an AFSL unless an exemption applies. 35 There are two relevant exemptions to the requirement to hold an AFSL: (1) ASIC Corporations (Foreign Financial Service Providers - Limited Connection) Instrument 2017/182 provides that a person who is carrying on a financial services business in Australia only because of the deeming provision in s 911D of the Act does not require an AFSL in respect of dealings with wholesale clients; and (2) Reg 7.6.02AG(2A) of the Corporations Regulations 2001 (Cth) exempts a person providing the services from holding an AFSL if they are not in this jurisdiction and do not engage in conduct that is intended to induce people in this jurisdiction to use the service, or is likely to have that effect. 36 The parties were agreed that, if HQ were to bring a claim against Stonehatch in relation to operating without an AFSL, HQ would only establish that Stonehatch was engaging in unlawful conduct if it established that Stonehatch was: (1) carrying on a financial services business in Australia according to the common law; and (2) engaging in conduct that was: (a) intended to induce people in Australia to use its services; or (b) likely to have that effect. 37 In its written submissions, Stonehatch submitted that: (1) HQ had no viable cause of action against Stonehatch as there were no grounds to seek injunctive relief for conduct which was alleged to have occurred, in relation to Go Bloodstock, over 12 months ago. The Go Bloodstock policies with Stonehatch were entered into well over a year ago, in March 2019, and the originating application was filed nine months later, in December 2019. (2) HQ had led no evidence of any ongoing behaviour in contravention of the Act. 38 As to the first matter, the timing of the alleged conduct in March 2019 does not prohibit a claim for injunctive relief being brought or granted. The circumstances may be such that relief would be withheld as a matter of discretion, but it all depends on the circumstances as proved at trial. The Court has a discretion to grant an injunction to prevent future conduct which would contravene the Act, whether or not it appears to the Court that the person intends to engage again, or continues to engage, in conduct of that kind. That discretion is expressly provided for in s 1324(6). 39 As to the second matter: (1) There was evidence in Mr Aldridge's first affidavit which indicated that HQ had information that Stonehatch employees or representatives travelled to Australia from London at least once a year to promote their broker services and meet Australian clients. As discussed below, the detail of this information has not been disclosed. (2) In response to Stonehatch's written submission, HQ filed an affidavit of Ms Buckley, HQ's Operations Manager. This affidavit established that, in April 2020, HQ had come to learn that Stonehatch had insured a stallion named 'Hellbent' and that Hermitage Thoroughbreds Pty Ltd had also taken up policies with Stonehatch. 40 Stonehatch submitted that it was only an "unduly suspicious mind" which would come to a belief that Stonehatch may have engaged in unlawful conduct. 41 The question is not whether the Court or some hypothetical reasonable bystander would hold the belief that HQ may have a right to relief. Rather the question is whether: (a) the belief is in fact held by HQ; and (b) the belief is "reasonable": Pfizer at [120]. A belief might be shown not to be reasonable, for example, if it is untenable, irrational or baseless - cf: Pfizer at [69] (Allsop CJ). Those are not the only ways in which a belief might be shown not to be reasonable. 42 I am satisfied that HQ holds the belief that it may have a right to relief. The combination of circumstances known to HQ is objectively sufficient for HQ's belief to be reasonably held. Those circumstances include: the known visits to Australia by Stonehatch employees; the issuing of policies to entities in Australia; the fact that Go Bloodstock transacted with Stonehatch in March 2019; the absence of any circumstance to suggest that Go Bloodstock would not have renewed its insurance through Stonehatch in March 2020; the fact that Stonehatch is likely to issue further policies or modify existing policies to accommodate additional horses, whether purchased or born; the fact that Stonehatch would have a commercial interest in maintaining policies issued to entities in Australia. 43 Whilst I accept HQ holds the belief that it may have a right to relief, it may readily be seen that another person, acting reasonably, may not have come to that view. The fact that another person might reach a different or opposing conclusion does not mean that HQ's belief is not reasonable. 44 Stonehatch also submitted that rule 7.23(1)(a) was not satisfied because HQ had already concluded that it did have a right to relief. In particular, Stonehatch submitted (footnotes omitted): 49. Over the last two years, HQ has sent numerous emails to Lloyd's in relation to its various complaints about Stonehatch's conduct. For example, in an email to Chris Mackinnon of Lloyd's on 23 May 2018, Mr Aldridge stated that his belief was "that Australian risks underwritten/supported by Lloyd's can only be initiated by and placed through an Australian licensed intermediary". He further explained his view that: "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 Australian from London at least once a year to promote their broker services and meet their Australian clients, with whom Stonehatch transact directly." 50. Mr Aldridge went on to state that: "We are having difficulty understanding how a London based broker [i.e. Stonehatch], not licensed with ASIC and without an AFSL, can actively target and deal with/in Australian risks, using Lloyd's security? It is our understanding that it is unlawful for an intermediary broker to deal with Australian clients/risks unless that intermediary holds an AFS licence…" … 52. On 25 May 2018 Tracey Bryan of Lloyd's responded to Mr Aldridge's email, noting that there were some exemptions from the requirement for an AFSL and attaching some information in this regard. Almost a year later on 28 March 2019 Mr Aldridge wrote to Ms Bryan asserting that it was his belief that: "Chris Williamson [of Stonehatch] & his team happen to visit Australia regularly, where they are seen to interact with Australian clients with whom they transact directly". … 54. Further, Mr Aldridge stated in the same email that having read certain financial services legislation provided by Lloyd's: "…The literature goes on to say that when a non-Australian Lloyd's broker visits Australia, they need to ensure that they should not be seen as either providing a financial service (i.e. advising and/or dealing), or carrying on a financial services business in Australia. In our opinion, based on observations, Stonehatch certainly fail the advice component, and may very well be dealing to boot, and as such are considered to be operating unlawfully in Australia. The Board of HQ considers the activities of Stonehatch to be improper, and are calling for an investigation". 45 The material referred to by Stonehatch, set out above, demonstrates that HQ was putting forward the view that Stonehatch was operating unlawfully and explains why HQ considered that to be the case. The expression of that view, in the commercial context in which it was made, does not lead to the necessary inference that HQ had a belief that it was in fact entitled to relief. 46 A fair reading of the material, in context, does not indicate that HQ has concluded that it does have a right to relief. I do not conclude that HQ is attempting to use pre-suit discovery to enhance and strengthen a case it has already decided to bring. 47 It was not submitted that HQ's belief for the purposes of r 7.23(1)(a) was unreasonable because of a failure to make reasonable inquiries under r 7.23(1)(b). For the reasons set out below, I am not satisfied that HQ has made reasonable inquiries or that it has sufficiently disclosed information in its possession material to its decision whether to start a proceeding. For that reason, I conclude that the discretion under r 7.23(2) should not be exercised. It is not necessary to consider whether the belief under paragraph (a) of r 7.23(1) is not reasonable because of a failure to make reasonable inquiries as required by paragraph (b) of r 7.23(1). This question was not addressed by the parties. 48 I am satisfied, for the purposes of r 7.23(1)(a), that HQ reasonably believes that it may have the right to obtain an injunction under s 1324(1).

Rule 7.23(1)(b) 49 Rule 7.23(1)(b) contains two principal matters about which the Court must be satisfied before the discretion provided by r 7.23(2) to order discovery may be exercised in a prospective applicant's favour: (1) first, the Court must be satisfied that reasonable inquiries have been made; and (2) secondly, the Court must be satisfied that having made reasonable inquiries, the prospective applicant does not have sufficient information to make a decision whether to start a proceeding to claim the relief to which the prospective applicant considers it may be entitled. 50 Stonehatch submitted that the Court should not be satisfied that either of these matters existed. 51 The question whether reasonable inquiries have been made such as to satisfy the first matter in r 7.23(1)(b) is to be objectively assessed. The question whether or not an applicant has sufficient information to make a decision to start a proceeding in the Court, such as to satisfy the second matter in r 7.23(1)(b), also requires an objective assessment: Matrix at [15]. 52 In Poole v Australian Pacific Touring Pty Ltd [2017] FCA 424, Bromwich J emphasised that r 7.23 is concerned not just with reasonable belief as to the possible right to relief, but also with whether the cost and risk of litigation is worthwhile. That is because r 7.23(1)(b) directs attention to whether, after reasonable inquiries, the prospective applicant has "sufficient information to decide whether to start a proceeding in the Court to obtain that relief". His Honour stated at [39(6)]: The notion that an order for preliminary discovery is no longer appropriate once a prospective applicant has sufficient information to meet the threshold of "a bare pleadable case" is fundamentally inconsistent with the purpose of the rule, which is concerned not just with reasonable belief as to the possible right to relief, but also with whether the cost and risk of litigation is worthwhile: Optiver at 443 [35]-[36]. It follows that the question posed by r 7.23(1)(b) is not whether the applicant has sufficient information to decide if a cause of action is available against the prospective respondent, but rather whether the applicant has sufficient information to make a decision whether to commence proceedings in the Court.

The adjournment and Mr Aldridge's evidence 53 Before turning to whether the matters in r 7.23(1)(b) have been satisfied, it is relevant to note that, during closing oral submissions in reply, HQ applied for and was granted an adjournment to permit HQ to file further evidence. This ultimately resulted in a further affidavit from Mr Aldridge. 54 The reasons for granting an adjournment may be found in HQ Insurance Pty Limited v Stonehatch Risk Solutions Limited [2020] FCA 871. In its written submissions filed before the hearing during which the adjournment was sought, Stonehatch had submitted that the evidence did not disclose whether the applicant had put before the Court all the information presently available to it. At that time, it was only Mr Aldridge's first affidavit and the affidavit of Ms Buckley which had then been filed. Stonehatch referred to the observation of Yates J in Reeve v Aqualast Pty Ltd [2012] FCA 679 at [65(f)]: While a respondent to an application for preliminary discovery is entitled to remain passive, the applicant must place before the Court all of the evidence already available to it relevant to the sufficiency of the information it possesses to enable a decision to be made whether to commence a proceeding. The applicant must not hold back information. This obligation on the applicant to be forthcoming arises from the special and intrusive nature of preliminary discovery and the fact that ordinarily the respondent will not know, or be in a position to expose, the full extent of the information already available to the applicant. 55 During HQ's oral reply submissions during which it sought an adjournment, the Court observed that the issue was significant because it was not logically possible to assess whether a prospective applicant has "sufficient information" to make a decision whether to start a proceeding without knowing what information the prospective applicant already has. The issue is also significant because the extent of discovery allowed would ordinarily be limited to that which is necessary to overcome the insufficiency in the information already possessed by the prospective applicant after the making of reasonable inquiries. 56 The fact that r 7.23(1)(b) requires, in effect as a precondition to the exercise of the discretion under r 7.23(2) to order discovery, that a prospective applicant has first made reasonable inquiries, reflects the common sense position that a prospective respondent should not be put to the expense and inconvenience of formal discovery unless a prospective applicant has first taken reasonable steps to inform themselves about whether to start proceeding. As Yates J observed in Reeves, an order for preliminary discovery under r 7.23 is intrusive. Ordinarily, a person is not entitled to access another person's documents to facilitate the former making a decision as to whether to commence proceedings against the latter. The appropriateness of the matters or conditions in r 7.23(1) is made particularly obvious in a context, such as exists here, where the parties are competitors and the material which the prospective applicant wishes to access are likely to contain commercially sensitive information. 57 As mentioned, the adjournment resulted in the filing of a further affidavit from Mr Aldridge. At the resumed hearing, HQ applied for leave to re-open. Leave to re-open was not opposed on the basis that leave would also be granted to cross-examine Mr Aldridge. Leave was granted on that basis. 58 Before turning to the alleged deficiencies in the inquiries made by HQ and the information placed before the Court, two observations should be made about Mr Aldridge's evidence and the submissions which were advanced on HQ's behalf. 59 First, it was evident from Mr Aldridge's evidence, and the submissions advanced on HQ's behalf, that HQ proceeded on the basis that it only needed to disclose "evidence" which it possessed, and that this was something different to "information". For example, it was submitted that Mr Aldridge had put before the Court all the evidence "apart from [material] which would clearly be inadmissible such as … hearsay" or material which is "of no evidentiary value at all". The prospective applicant sought to draw support for its position by reference to the decision of Lindgren J in Glencore International AG v Selwyn Mines Ltd (2005) 223 ALR 238 at [15], where his Honour said (prospective applicant's emphasis): [W]hile a respondent to an application for preliminary discovery is entitled to remain passive, the applicant must place before the court all of the evidence already available to it relevant to the sufficiency of the information it possesses to enable a decision to be made whether to commence a proceeding. The applicant must not hold back information in aid of satisfying para (b). This obligation on the applicant to be forthcoming arises from the special and intrusive nature of preliminary discovery; the fact that ordinarily the respondent will not know, or be in a position to expose, the full extent of the information already available to the applicant; and the tension between paras (a) and (c) of O 28 r 6 referred to above. 60 The prospective applicant submitted that Lindgren J made it clear that a prospective applicant must place before the court "all of the evidence already available to it", not information, referring to the emphasised part of the passage above. The prospective applicant submitted that the material which needed to be placed before the Court on an application for preliminary discovery was "evidence that's actually actionable". Precisely what HQ meant, or where HQ drew the line, was not made clear. The reliance on the emphasised passage of Lindgren J's decision is misplaced. First, it ignores the balance of the sentence. It is "evidence … relevant to the sufficiency of the information it possesses" about which his Honour was speaking. Secondly, the submission ignores the next sentence where his Honour made it clear that a prospective applicant "must not hold back information". 61 It may be accepted that some information might be so unreliable as to be immaterial to the question whether to start a proceeding and that such information would not need to be disclosed. However, having regard to the submissions advanced, I am not satisfied that HQ approached the task in that way. It appears that HQ excluded information by reference to considerations such as whether the material available to it could be considered to be "admissible" or "actionable" evidence. Not only does that approach depart from the language of r 7.23(1)(b) but it misunderstands a principal object of the rule. One purpose of the rule is to facilitate the obtaining of "documents" through discovery where a prospective applicant does not have sufficient "information" to make a decision whether to commence proceedings: r 7.23(1)(c); "document" is broadly defined in the Dictionary to the FCR. By HQ confining itself to disclosing only the "evidence" rather than "information", the Court cannot assess whether the "information" already available to HQ is objectively sufficient for HQ to make a decision whether to start a proceeding. 62 Secondly, it was apparent from Mr Aldridge's evidence, and the submissions advanced on HQ's behalf, that HQ proceeded on the basis that it only needed to disclose "evidence" where that evidence concerned events which had in fact induced a client of HQ to insure with Stonehatch. It was denied in submissions that information in the possession of HQ relevant to whether Stonehatch was engaged in (a) a financial services business in Australia or (b) conduct which was intended to induce people in Australia to use Stonehatch's services needed to be disclosed, unless the information concerned circumstances where HQ had lost a client. As is explained further below, this position is wrong and it is inconsistent with the fact that the second and third categories of discovery which HQ sought can only be justified by the relevance of those documents to such issues. 63 By reason of these matters, I am not satisfied that HQ has proceeded with this application with the correct understanding as to: (a) what inquiries were relevant to make; or (b) what "information" already in its possession was necessary or appropriate to put before the Court. Together with the matters referred to below, this has left the Court without an actual persuasion that reasonable inquiries have been made by HQ or that there has been a full disclosure of information already in the possession of HQ material to HQ's decision whether to start a proceeding. 64 Before turning Stonehatch's arguments about: (a) contended reasonable inquiries which were not made; and (b) why it should be concluded that all of the material information available to HQ has not been disclosed, it is convenient to set out the inquiries which HQ did make.

Inquiries which have been made 65 First, the evidence demonstrated that HQ instructed its solicitors to perform searches in order to ascertain whether Stonehatch held an AFSL or was an authorised representative of an AFSL holder. Those searches indicated that Stonehatch did not hold an AFSL nor was it an authorised representative of an AFSL holder. 66 Secondly, on 7 April 2019 HQ wrote to Stonehatch seeking answers to certain questions: So that we can understand your position, could you please confirm the following to us urgently: 1. Whether Stonehatch holds an AFSL entitling it to conduct insurance business in Australia? 2. If not, whether Stonehatch acts as an authorised representative for an AFSL holder in conducting insurance business in Australia? and, 3. Whether Stonehatch is exempt from section 911A and/or 911 B of the Corporations Act 2001 (Cth) requiring an entity to hold an AFSL licence in carrying on a financial services business in Australia by advising and dealing in respect of insurance contracts with Go Bloodstock? 67 Stonehatch did not reply to this communication. 68 Thirdly, HQ lodged a complaint with the Australian Securities and Investments Commission (ASIC). By a letter dated 20 June 2019, ASIC informed HQ that, having made its own inquiries, it had determined not to take any further action in relation to the concerns which had been raised by HQ. 69 Fourthly, HQ Insurance sought information from Lloyds with respect to Stonehatch's activities in Australia. These inquiries did not reveal significant information as to whether Stonehatch was carrying a financial services business in Australia or whether it engaged in conduct intended to induce people in Australia to use Stonehatch's services or in conduct having that effect.

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).

Rule 7.23(1)(c)(i) 109 Paragraph (c)(i) of r 7.23(1) requires that the prospective applicant reasonably believes the prospective respondent has, or is likely to have, documents in its control which are directly relevant to the question whether the prospective applicant has a right to obtain relief. 110 HQ has established it believes that Stonehatch has documents in its control which are directly relevant to the question whether HQ has a right to obtain relief. That belief is objectively reasonable because Stonehatch is the most likely entity to have the documents and the documents are directly relevant to whether Stonehatch was or is: (a) carrying on a financial services business in Australia; and (b) engaging in conduct that was or is intended to induce people in Australia to use its services or which was or is likely to have that effect.

Rule 7.23(1)(c)(ii) 111 I am satisfied that HQ believes that inspection of the documents would assist it in making the decision whether to commence proceedings. That belief is objectively reasonable.

Rule 7.23(2) 112 Rule 7.23(2) provides the Court with a discretion to grant discovery, assuming satisfaction of the matters contained in r 7.23(1). There is normally little scope to refuse relief if the conditions of r 7.23(1) are satisfied: Optiver Australia Pty Ltd v Tibra Trading Pty Ltd [2008] FCAFC 133 at [45] (Heerey, Gyles and Middleton JJ). 113 The discretion cannot be exercised in HQ's favour because the Court is not satisfied about the matters mentioned in r 7.23(1)(b).

Conclusion 114 The application must be dismissed. I certify that the preceding one hundred and fourteen (114) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Thawley.