CIVIL PROCEDURE - pleadings - amendment - hearing date imminent - case proposed to be substantially expanded - inadequate justification and explanation
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CIVIL PROCEDURE - pleadings - amendment - hearing date imminent - case proposed to be substantially expanded - inadequate justification and explanation
Judgment (3 paragraphs)
[1]
The application to set aside the subpoena
On 20 and 24 March 2020, the Insurer caused subpoenas to produce to be issued to:-
1. Australian Restructuring Insolvency and Turnaround Association ("ARITA");
2. CPA Australia Ltd;
3. Chartered Accountants Australian and New Zealand; and
4. Commissioner - New South Wales Police Force
The relevant test has been stated in many cases. The question is whether the documents sought by the subpoena have an apparent relevance to, or could possibly throw light on the issues in the proceedings, or whether it is "on the cards" that the documents would "materially assist" prosecuting or defending the proceedings: Trade Practices Commissioner v Arnotts Ltd (No 2) (1989) 21 FCR 306; 88 ALR 90; Alister v The Queen (1984) 154 CLR 404 at 414 (Gibbs CJ); R v Saleam (1989) 16 NSWLR 14; Portal Software International Pty Ltd v Bodsworth [2005] NSWSC 1115 at [20]-[24] (Brereton J).
The first three subpoenas seek production of material said to be relevant to the professional conduct of one of the liquidators, Mr Kassem.
Thus, on 16 April 2020, the Insurer's solicitor wrote to the solicitors for ARITA:
"Noting that relevance is a low bar, our client notes that:
• There is evidence to connect Mr Kassem, a subject of the relevant subpoena, to the late Mr Alex Taouil who is alleged to have been involved in criminal dealings (prior to his appointment as liquidator of the Second Plaintiff in these proceedings).
• It is known that Mr Kassem has been expelled from ARITA for refusing to comply with a penalty applied as a result of ARITA Disciplinary Proceedings. His previous behaviour is relevant to any potential impropriety resulting in his appointment in this matter.
• The circumstances of his appointment, in light of the above evidence, is relevant to the issues in the proceedings."
I do not agree that the Insurer is "entitled to undertake the types of enquiries called for by the subpoena". I fail to see what connection any professional misconduct on Mr Kassem's part (and I make no finding that he has engaged in any misconduct) could possibly have to the issues in the proceedings.
The subpoena addressed to the Police Commissioner calls for the criminal records of 11 individuals named as having had some connection with EPH.
As I have refused to grant the Insurer leave to amend its Response, such criminal records could not "materially assist" the Insurer defend the proceedings.
As was submitted on behalf of the Liquidators, this subpoena has all the hallmarks of a "fishing expedition".
[2]
Orders made
For those reasons I ordered that the Insurer's notice of motion of 9 April 2020 be dismissed with costs.
In relation to the Liquidators' notice of motion of 2 April 2020, I ordered that the subpoenas to which I have referred at [53] be set aside and that, to the extent that any of the subpoenaed parties have produced documents pursuant to the subpoenas, the Insurer not be granted access to them.
[3]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 23 April 2020
Parties
Applicant/Plaintiff:
Jason Tang and Ozem Kassem in their capacity as joint and several liquidators of Elite Plant Hire P/L (in liq)
The Insurer's application to amend its Commercial List Response was made by notice of motion filed on 9 April 2020 and relates to its contention that EPH failed to comply with its duty of disclosure under ss 21 and 28 of the Insurance Contracts Act 1984 (Cth).
In its letter of 10 March 2015 to the Liquidators in which it declined indemnity the Insurer said, under the heading "Material non-disclosures" and referring to ss 21 and 28 of the Insurance Contracts Act:
"A reasonable person in the position of the insured would in the circumstances (especially having regard to the questions asked in the proposal form) be expected to know that the following facts were relevant to [the Insurer's] decision whether to accept the risk and if so on what terms:-
(i) [EPH] and the other insured companies were in financial difficulties.
(ii) They had been placed into administration in about August 2013.
(iii) In June 2013 Mr Vincent Santoro [the husband of the only director of EPH, Ms Rene Santoro] was being audited by the Australian Tax Office."
Further, under the heading "Moral hazard" the Insurer said:
"Furthermore, in the course of our Investigations into this matter, Mrs [sic] Santoro has provided us with two Affidavits sworn by him on 7 July 2014 and 7 August 2014 respectively which have been filed in Federal Court proceedings brought by Rab's Plumbing Services Pty Ltd.
The affidavits attest to the Santoro family having had links with known criminal organisations prior to renewal of the contract of insurance."
On 29 March 2017 the Insurer's solicitor particularised the allegation that EPH was "in financial difficulties" by stating that EPH "had been under external administration since 20 August 2013"; thus confining the allegation of "financial difficulties" to that alleged fact (which the Liquidators dispute).
In the same letter, the Insurer's solicitor also stated that the Insurer did not assert that any director of the EPH had been charged with or convicted of a criminal offence or have been declared bankrupt; a matter which becomes relevant when considering the proposed amendment to the Response.
In its current Commercial List Response, filed on 21 February 2019, the Insurer dealt with the question of non-disclosure by including, as one of the "Issues Likely to Arise":
"B2 (f). Whether [EPH] failed to disclose material facts pertaining to, at least, its financial instability, involvement with known criminal individuals and enterprises and its involvement in civil litigation as required by s 21 of the Insurance Contracts Act 1984 (Cth) and, consequently, whether the insurer can reduce to nil, or otherwise, any liability, pursuant to s 28".
The Insurer did not, in its Response, advance any formal contentions about EPH's alleged non-disclosure.
In particular, the Insurer did not specify in the Response the "material facts" concerning EPH's "financial instability", or its "involvement with known criminal individuals or enterprises" or its "involvement in civil litigation" that it alleged that EPH had failed to disclose.
The Insurer did refer to its letter of 10 March 2015, but only to admit that it:
"…declined the Claim by way of letter dated 10 March 2015".
The Response did not purport to particularise EPH's alleged non-disclosure by reference to that letter.
It was not satisfactory that the Insurer's allegation of material non-disclosure was made only in the course of reciting the Issues Likely to Arise.
The Liquidators drew attention to this shortcoming in their Reply as follows:
"As to paragraph 2(f), insofar as it is put as a positive contention (rather than an issue that is likely to arise between the parties), the contention is devoid of particularity and is embarrassing if it was so pleaded and for avoidance of doubt the Plaintiffs deny any positive allegation stated therein. Insofar as those matters are taken to be adequately pleaded (which is not accepted by the Plaintiffs), the Plaintiffs do not admit the factual matters and deny that section 28 of the Insurance Contracts Act 1984 (Cth) allows the insurer to avoid the Policy."
In the meantime, the Liquidators, through their solicitor, sought particulars of the alleged non-disclosure.
On 27 May 2019 the Insurer's solicitor particularised the allegation implicit in paragraph B2(f) of the Response (set out at [17] above) as follows:-
"[EPH] obtained finance and engaged in contracts for services and labour with known criminal individuals and enterprises including Alex Taouil (aka Little Alex) and outlaw motorcycle gangs including but not limited to the Telopea Street Boys, Comanchero's Outlaw Motorcycle gang, Notorious Outlaw Motorcycle gang and the Hells Angels Outlaw Motorcycle Gang."
In the same letter, the solicitor confirmed that the reference to "EPH's alleged 'financial instability'" in paragraph B(2)(f) of the Response was a reference to the alleged fact that EPH was "placed into external administration on 20 August 2013" (an allegation which, as I have said, the Liquidators dispute).
In September 2019 the Insurer served its lay evidence comprising affidavits by three of its employees, Mr Simon Marr, Mr Glenn Ross and Mr Ross Webster.
Those affidavits were directed to the question of what steps the Insurer would have taken had certain matters been disclosed (a matter relevant to the operation of s 28 of the Insurance Contract Act). The affidavits were not directed to the question of what "material facts" were in fact undisclosed by EPH.
The proposed amendments to the Insurer's Response are substantial.
To begin with, para B2(f) is proposed to be amended to contend that an Issue Likely to Arise is not merely whether EPH itself failed to disclose material facts, but whether "other named insureds to the Policy" also failed to disclose material facts concerning their "financial instability", "involvement with known criminal individuals and enterprises" and "involvement in civil litigation".
The other "named insureds" are Elite Civil Management Pty Ltd, SSI Recruitment Pty Ltd, Elite Civil Group Pty Ltd and Mr Vincenzo Santoro.
Each of those companies is in liquidation. The liquidator of two of the companies is a person other than the Liquidators. The proposed amendment would thus require the Liquidators to make enquiries of the liquidator of those other companies about the matters now proposed to be raised.
As to Mr Santoro, as I have mentioned at [13] above, he is the husband of the sole director of EPH, Ms Rene Santoro.
The insurer has recently served on the Liquidators a notice pursuant to s 67 of the Evidence Act 1995 (NSW) of its intention to adduce evidence of representations allegedly made by Mr Santoro in affidavits filed in proceedings in the Federal Court of Australia.
Evidently, these are the affidavits to which the Insurer referred in its letter of 10 March 2015 (see [14] above). I was informed that there is pending in the Federal Court a recently filed application for leave to use those affidavits in these proceedings. There is no indication of when that application will be heard.
In the s 67 notice, the Insurers assert that Mr Santoro is "unavailable" for the purposes of the Evidence Act because he is "subject to a NSW Police Protection Order" and because his "current whereabouts and contact details are not known to the [Insurer]".
It seems inevitable that Mr Santoro will be equally "unavailable" to the Liquidators with the result that they will not be able to get instructions from him about the material non disclosures now proposed to be alleged against EPH.
The proposed Amendment then includes paragraphs 11 to 14. Those paragraphs occupy some three pages of the proposed Response and are in the following terms:
"11. The Defendant contends that the Company failed to disclose matters that the Company and related Named Insureds knew were relevant to the decision of the Defendant insurer as to whether it would accept the risk and if so, on what terms, within the meaning of section 21(1)(a) of the Insurance Contracts Act 1984 (hereafter the 's 21(1)(a) non-disclosures').
Particulars of Named Insured(s)
a. The Company (from 15 February 2013);
b. Elite Civil Management (from 15 Februry 2013);
c. SSI Recruitment Pty Ltd (from 13 March 2013);
d. Elite Civil Group Pty Ltd (from 17 May 2013); and
e. Vincenzo Santoro (from 13 June 2013).
Particulars on non-disclosures
a. On or about 14 February 2013, Rene Santoro completed an insurance proposal form (the Proposal Form) for the Defendant insurer on behalf of the Company that answered 'no' to questions, when it ought to have answered 'yes' (and provide details), calling for disclosure of information regarding:
(i) Whether any of the directors, office holders or major shareholders had an insurer decline any claim, decline any Proposal to Insure, cancel any insurance policy or impose special terms to an insurance policy;
(ii) Whether any of the directors, office holders or major shareholders had been charged with or convicted of any criminal offences; and
(iii) Whether any of the directors, office holders or major shareholders had been declared bankrupt, insolvent, had a liquidator appointed or been a defendant in a civil court case;
b. On or about 14 February 2013, Rene Santoro completed an insurance proposal for the Defendant insurer on behalf of 'Elite Civil Group Pty Ltd', which resulted in that entity being joined to the Policy as a named insured. That proposal answered 'no' to questions, when it ought to have answered 'yes' (and provide details), calling for disclosure of information regarding:
(i) Whether any of the directors, office holders or major shareholders had an insurer decline any claim, decline any Proposal to Insure, cancel any insurance policy or impose special terms to an insurance policy;
(ii) Whether any of the directors, office holders or major shareholders had been charged with or convicted of any criminal offences; and
(iii) Whether any of the directors, office holders or major shareholders had been declared bankrupt, insolvent, had a liquidator appointed or been a defendant in a civil court case; and
c. On or about 24 January 2014 the Company, by its Insurance Broker, provided the Defendant with a Contractors Plant Insurance Declaration in order to renew the policy for all Named Insureds for a further 12 months. On or about 15 February 2014 the Policy was renewed for the period 14 February 2014 to 15 February 2015. The Defendant contends that the Company, and the named insureds, were under the same Duty of Disclosure as at the time the Policy was initially entered into and should have made full disclosure of any information of the kind called for in the Policy Form at the time of renewal and failed to do so.
d. As the Company, or those acting on its behalf, had actual knowledge of Proposal Form, it was aware of its duty to disclose information to the Defendant of the kind called for by the Proposal Form. The Defendant contends that the Company, or those acting on its behalf, failed to disclose to the Defendant information called for by the Proposal form when required. The Defendant contends that the Company failed in its obligation to disclose this information in relation to itself and any Named Insured when: it sought insurance for itself, from time to time when it sought to join the Named Insureds to the Policy when it renewed the Policy.
12. The Defendant contends that at all material times the Company failed to disclose matters [known to the insured] that as a reasonable person in the circumstances could be expected to know to be a matter relevant to the decision of the Defendant insurer as to whether it would accept the risk and if so, on what terms, within the meaning of section 21(1)(b) of the Insurance Contracts Act 1984 (hereafter 'the s 21(1)(b) non-disclosures').
Particulars of material times
a. On or about 14 February 2013, being the date the Company completed its initial policy proposal.
b. On or about 15 February 2013, when a request is made to extend insurance to cover Elite Civil Management Pty Ltd and Elite Civil Group Pty Ltd as Named Insured.
c. On or about 3 March 2013, when a request is made to extend insurance to cover SSI Recruitment Pty Ltd as a Named Insured.
d. On or about 9 April 2013, being the date Rene Santoro completed a proposal form to join 'Elite Civil Group Pty Ltd' to the policy as a Named Insured.
e. On or about 6 June 2013, when a request was made to add Vincenzo Santoro as a Named Insured.
f. In or about January and February 2014 when the company renewed the Policy for all Named Insured for the further period of 15 February 2014 to 15 February 2015.
g. Any other time it sought to amend or vary the policy.
Particulars of non-disclosures
a. The Company was experiencing financial difficulties and instability.
b. The Company had significant debts and was likely trading insolvent.
c. The other named insureds were experiencing financial difficulties, including being placed into administration.
d. The Company was being extorted by criminal individuals or enterprises thereby causing the Company financial instability.
e. Mr Vincenzo Santoro was being extorted by criminal individuals or enterprises.
f. The Company and/or its Named Insured including respectively their office holders, servants and agents were associated with known criminal individuals or enterprises.
g. The Company hired or employed individuals who were known associates of known criminal individuals or enterprises.
h. In or about June 2013, Mr Vincenzo Santoro was being audited by the Australian Tax Office.
13. The Defendant contends that had matters raised in the s 21(1)(a) non-disclosures and/or the s 21(1)(b) non-disclosures been disclosed [to] the Defendant Insurer, the Defendant Insurer would not have offered, entered into, or renewed a contract of insurance with the Company or other Named Insureds on any terms.
14. In response to the entirety of the Plaintiffs' claim, the Defendant contends that due to the s 21(1)(a) non-disclosures and/or the s 21(1)(b) non-disclosures any liability it owes to the Plaintiffs (which is denied) ought to be reduced to nil, or otherwise, in accordance with section 28(3) Insurance Contracts Act 1984."
Those proposed amendments expand, very substantially, the ambit of the Insurer's case as currently pleaded.
In paragraph 11 allegations are made as to matters that EPH, and also the "related Named Insurers" knew to be relevant for the purpose of s 21(1)(a) of the Insurance Contracts Act. Included in the allegations are propositions that Ms Santoro should have given an affirmative answer to questions relating to whether any director of EPH had been convicted of a criminal offence or had been declared bankrupt; allegations hitherto eschewed by the Insurer's solicitor (see [16] above).
Proposed paragraph 11 does not, however, set out the particular matters that the Insurer says should have been disclosed but were not disclosed.
Paragraph 12 contains allegations as to what matters known to EPH a reasonable person would be expected to be known to be relevant.
The particulars to paragraph 12:
1. expand the allegation concerning "financial difficulties" beyond the alleged fact that EPH was placed into administration but to now allege knowledge of insolvent trading;
2. expand the allegation of "involvement with known criminal individuals and enterprises" to allegations that EPH was being "extorted" by "criminal individuals or enterprises thereby causing the Company financial instability"; and
3. introduce a new allegation that EPH "hired or employed individuals who were known associates of known criminal individuals or enterprises".
The belated expansion of the Insurer's case in a manner proposed by the amendment called for an explanation of and justification for the delay: for example see Karl Suleman Enterprizes Pty Limited v Pham [2013] NSWCA 93 at [22] (Meagher and Barrett JJA).
The justification offered was that the amendments did no more than cause the pleadings to conform with the evidence already served.
Thus the Insurer's solicitor, Mr McMahon, said in an affidavit made on 9 April 2020:
"The purpose of the proposed amendments is to assist the Court by causing the pleadings to accord with, and reflect, the served evidence, and to more fully particularise the contentions that have always been part of the [Insurer's] case and the substance of which was set forth in the declinature letter dated 10 March 2015".
In my opinion, the proposed amendments go a lot further than simply causing the pleadings to conform with the evidence to date. They would have the effect of expanding, to a considerable degree, the ambit of the Insurer's case.
As was submitted on behalf of the Liquidators, the Insurer's position "is effectively that it has had these matters in mind for years, because it said so in its [letter of 10 March 2015]; and that the plaintiffs should have understood that this was all in issue in [the] proceedings commenced years later, even though it did not put them in issue".
Such explanation as is proffered for the belated application to amend was set forth in the Insurer's "Supplementary Position Paper" dated 19 April 2020 as follows:-
"(2) The defendant's Commercial List Response was drafted by its former junior counsel without reference to senior counsel.
(3) On 2 March 2020 former junior counsel returned his brief.
(4) The defendant's current junior counsel was briefed on 16 March 2020.
(5) On 31 March 2020, junior counsel advised that the Commercial List Response should be amended, because (inter alia) in his view, it did not conform with NSW Supreme Court Practice Note (SC EQ 3).
(6) Junior counsel subsequently prepared the draft Amended Commercial List Response which the defendant now seeks to file, which was settled by senior counsel on 7 April 2020."
I am not persuaded that these matters adequately explain or justify the proposed amendment.
Further, the Liquidators' solicitor has given unchallenged evidence that the Liquidators will not be in a position to meet the proposed amended case by 18 May 2020 and that, were the amendment granted, the 18 May 2020 date would have to be vacated. I accept that evidence, particularly in the light of the matters set out at [30] to [37] above.
My conclusion was that it would not be fair to the Liquidators to force this position upon them. For those reasons I concluded that the Insurers' application should be dismissed with costs.