Koolan Iron Ore Pty Ltd v Infrassure Ltd

JACKSON J: 1 The applicant, Koolan Iron Ore Pty Ltd, claims indemnity from the respondent, Infrassure Ltd, under a business interruption insurance policy. These reasons concern an application by Koolan to compel Infrassure to produce certain reports which are mentioned in a witness statement which was annexed to an affidavit filed on behalf of Infrassure. Koolan seeks production pursuant to a notice to produce under r 20.31 of the Federal Court Rules 2011 (Cth), alternatively it seeks discovery of the reports. 2 Koolan owns and operates an open cut iron ore mine on Koolan Island, off the Kimberley coast. There were two pits at the mine, known as the Main Pit and the Acacia East Pit. Until November 2014, a seawall separated the Main Pit from the sea. In October and November of that year, three slumps in the seawall occurred, resulting in the catastrophic failure of the seawall and the inundation of the Main Pit. Mining operations at the Main Pit ceased and operations at the Acacia East Pit were affected. 3 Koolan claimed indemnity under a material damage and business interruption insurance policy. Infrassure, an insurance company, underwrote 7.5% of the liability under the policy. The balance was underwritten by a group of other insurers who, together with Infrassure, are referred to in evidence and submissions as the Market. After an extensive loss adjusting process, Koolan's claim under the policy in respect of the physical damage to the operations has been settled, and all the insurers in the Market have paid out on it. The claim under the business interruption component of the policy has been settled with every member of the Market other than Infrassure. 4 This proceeding concerns the resulting dispute between Koolan and Infrassure about the extent of Infrassure's liability for the business interruption claim. Infrassure disputes a key assumption on which the claim is based, and also requires Koolan to prove the facts and assumptions on which Koolan has calculated the quantum of its claim. 5 Koolan seeks the orders for production or discovery of the reports in an amended interlocutory application dated 25 February 2020. That application also sought various other orders, including leave to rely on certain witness statements, leave to amend the statement of claim, an order requiring Infrassure to identify whether certain facts are in dispute, and an order for a split trial. 6 The trial had been listed to take place on 16 to 20 March 2020. In the course of the interlocutory hearing on 27 February 2020, it became apparent that the matter was not ready for trial and those dates were vacated. Orders dealing with other matters raised by the amended interlocutory application, as well as the further programming of the proceeding and costs, are published with these reasons. But there is no need to give written reasons for those orders. These reasons concern only the question of production or discovery of the reports that are mentioned above. 7 That issue arises in the following way. The interlocutory application was filed on 18 February 2020. It did not seek production or discovery of the reports. On 18 February 2020, Infrassure filed an affidavit of its solicitor, Wen-T'sai Lim, which annexed a witness statement of the company's Chief Executive Officer, William Bachmann. The witness statement concerned Infrassure's knowledge of the loss adjusting process, which process resulted in most of the claims under the policy being settled as described above. That knowledge is said to have been relevant to certain issues raised by the interlocutory application; it is not necessary to explain how. 8 For present purposes, it is relevant to note that Mr Bachmann's statement said that there was a steering committee of the Market to investigate Koolan's claims under the policy, but no officer or employee of Infrassure sat on the steering committee. Certain advisors were appointed by the steering committee to conduct a loss adjusting process which took place between 2015 and 2017. Then the statement says: 8. Infrassure received reports from time to time during the adjusting process but did not itself conduct the loss adjusting process. That was the responsibility of the steering committee.

Production of documents mentioned in an affidavit 9 Rule 20.31(1) of the Federal Court Rules provides that a party may serve on another party (described as the 'second party') a notice in the prescribed form 'for the inspection of any document mentioned in a pleading or affidavit filed by the second party'. Then, broadly speaking, the second party must either make the document available for inspection, or say that it is not in the second party's control and to the best of its knowledge what has become of it, or claim privilege: r 20.31(2). 10 On 20 February 2020 Koolan served a notice under this r 20.31 requiring Infrassure to produce for inspection: 'All of the reports received by Infrassure "from time to time during the adjusting process"' (italics in original). 11 Infrassure says that the notice should be set aside. The short point is that, according to Infrassure, paragraph 8 of Mr Bachmann's statement, reproduced above, does not make the 'direct allusion' to any document that is necessary to activate r 20.31. 12 The term 'direct allusion' comes from a line of authority concerning rules of court similar to r 20.31. One of the principal cases is Dubai Bank Limited v Galadari (No 2) [1990] 1 WLR 731. There, the Court of Appeal held that the phrase 'reference is made to any document', which was found in the relevant rule, can include a compendious reference to a class of documents, as opposed to a reference to individual documents. So here a reference to 'reports' would not necessarily fall outside the rule, even though it does not itemise or otherwise describe any given report with any particularity. 13 In Dubai Bank their Lordships held, however, that this would only apply if the compendious reference was indeed a reference. They held that this does not include reference by inference but rather 'imports the making of a direct allusion to a document or documents' (at 739, original emphasis). The court referred with approval to a judgment of Lawton LJ in Marubeni Corporation v Alafouzos (Court of Appeal Civil Division, Lawton LJ, 6 November 1986), where an affidavit referred to 'outside Japanese legal advice', and counsel for the party had conceded that the advice was almost certainly contained in a document. Despite that, Lawton LJ held that there had been no reference to a document in an affidavit. The Court of Appeal in Dubai Bank then observed (at 739): In our judgment, a mere opinion that on the balance of probabilities, a transaction referred to in a pleading or affidavit must have been effected by a document, does not give the court jurisdiction to make an order under R.S.C., Ord. 24, r. 10, unless the pleading or affidavit makes direct allusion to the document or class of documents in question. 14 In the present case Mr Lim's affidavit goes further than referring to a transaction. It mentions a class of communications, namely 'reports'. It may be accepted that in the present context it is highly likely that at least some of those communications were in written form. 15 Nevertheless, in King v GIO Australia Holdings Ltd [2001] FCA 1487, Moore J declined to order production on the basis of similar references to communications in a pleading. After reviewing authorities including Dubai Bank, and holding that the approach in those authorities should be applied to the predecessor of r 20.31, namely O 15 r 10 of the Federal Court Rules 1979 (Cth), his Honour concluded (at [18]), emphasis added: Applying that approach in the present case, it has the following consequence. In relation to category 1 ['forecasts and budgets'], there is, in my opinion, no reference to a document other than perhaps an implied reference. It is, in terms, a reference to information in the form of forecasts and budgets of future revenues, expenditures and profits. One would suppose that it is, in the context of the pleadings, almost certainly the case that such information would have been contained in documents provided by GIO to the second respondent. However the pleading does not, in my opinion, involve a reference to a document in the way the authorities contemplate. The same can be said of category 2 ['the opinions and judgement of management of GIO Re']. Categories 5, 6, 7 and 8 are slightly different. In each instance there is a description of a process [i.e. 'review', 'audit', 'advice' and ' analysis, enquiry and review'] involving action by either PricewaterhouseCoopers Securities Pty Ltd, PricewaterhouseCoopers Actuarial Services Pty Ltd or the second respondent itself. Again one can assume that the process involved the use of documents and, indeed, so much is seemingly conceded in correspondence between the solicitors for the applicant and second respondent. However the pre-condition to the operation of O 15 r 10 is that the pleading itself referred to a document. It does not in any of these instances. 16 The reference to 'reports' in the present case is indistinguishable in form to 'complaints', which were the subject of Australian Competition and Consumer Commission v Australialink Pty Ltd [2009] FCA 265; (2009) 177 FCR 35. Both are descriptions of communications which in the circumstances are highly likely to include written communications, that is, documents. Spender J, applying King v GIO and Dubai Bank, held that this fact was not enough to mean that the affidavit referring to 'complaints' made reference to any documents for the purposes of the rule. 17 It is true that r 20.31 does not use the terminology of 'reference', but now speaks of a document being 'mentioned' in a pleading or affidavit. However, in Apotex Pty Ltd v ICOS Corporation (No 2) [2017] FCA 589 at [15]-[19], Besanko J proceeded on the basis that the change in wording does not change the meaning of the rule. 18 In my view, Dubai Bank and the authorities in this court to which I have referred compel the conclusion that while it is highly likely that the reports mentioned in Mr Bachmann's statement included documents, the statement, and therefore Mr Lim's affidavit, does not mention any document in the way contemplated under r 20.31. 19 Counsel for Koolan took the court to recent emails from Infrassure's solicitors in which, in response to a request for the 'reports', the solicitors said that the request 'is for a significant body of documents' and in two other places described the reports as, or at least as including, 'documents'. It may be accepted that these emails contain a concession that the reports include documents. However Marubeni Corporation v Alafouzos and the passages from King v GIO which I have quoted shows that is not enough. Evidence outside the pleading or affidavit which establishes that the allusion is to a document will not mean that the pleading or affidavit 'mentions' the document to the necessary level of direct allusion. It is the pleading or affidavit itself which must do so. The notice to produce of 20 February 2020 will be set aside. 20 This confined construction of r 20.31 is consistent with the character of the rule as requiring the production of documents within four days, without the need for further order: r 20.31(2). Although r 20.31(3) contemplates that an order can be applied for, it is a precondition to such application that r 20.31(2) has not been complied with. The automatic nature of the obligation that r 20.31(2) imposes, without further order of the court, suggests that it will only operate in the clearest of cases, and not when further evidence is required to establish that an ambiguous reference in a pleading or affidavit in fact does refer to a specified document or class of documents. 21 The confined construction also reflects the fact that the purpose of r 20.31 and its predecessors is different to the purpose of the rules for discovery of documents. The former purpose is that if a document is mentioned in a pleading or affidavit, the other parties are to be put in the same position as if the document had been set out in the pleading or affidavit: Quilter v Heatly (1883) 23 Ch D 42 at 50; Dubai Bank at 737. That relatively narrow purpose does not detract from the wider purposes of the rules as to discovery of documents which are now contained in Division 20.2 of the Federal Court Rules: see Dubai Bank at 739.

Discovery of the reports 22 Which brings me to the alternative basis of the application, which is for discovery of the reports. Presumably, Koolan makes that application under r 20.21, which entitles a party to apply for particular discovery where the party claims that a document or category of documents may be or may have been in another party's control. Plainly, there is a basis to say that the reports satisfy that criterion. But the document or category of documents must be relevant, directly or indirectly, and the court needs to be satisfied that discovery of the document will facilitate the efficient conduct of the proceedings: Dennis v Chambers Investment Planners Pty Ltd [2012] FCA 63; (2012) 201 FCR 321 at [39] (Barker J). 23 Counsel for Koolan speculated that the reports may be relevant to certain expert reports, but did not really press that point. He relied chiefly on a submission that the reports about the loss adjusting process would be relevant to the question of the time from which interest on the claim must be paid. That is because, under s 57 of the Insurance Contracts Act 1984 (Cth), the period in respect of which interest is payable commences 'on the day as from which it was unreasonable for the insurer to have withheld payment' of the relevant amount. The reports may be expected to reveal when, for example, it became apparent to Infrassure that the other insurers in the Market were going to pay out on the business interruption claim and why. 24 Infrassure resisted this by referring to the originating application, which only claims interest under s 57 from 31 August 2017, which was one and a half months after the rest of the Market paid out on the business interruption claim. The issue is also raised (very briefly) in the statement of claim, which pleads that it became unreasonable for Infrassure to withhold payment by 'at least 31 August 2017'. The reports predate that so, Infrassure submitted, they will not shed any light on the reasonableness of its decision to withhold payment. 25 Be that as it may, conceivably the reports may include reasons why the other insurers, or those advising them, considered it necessary or appropriate to pay out on the claim. They will therefore potentially contain evidence of Infrassure's knowledge of the circumstances surrounding the claim and the other insurers' acceptance of it. If the question of reasonableness of withholding payment was at large, potentially the reports could be relevant. 26 I doubt, however, that it is at large. In Australian Pipe & Tube Pty Ltd v QBE Insurance (Australia) Limited (No 2) [2018] FCA 1450 at [291], Beach J summarised the approach the courts take to the application of s 57 as follows: Under s 57(2), the period in respect of which the insurer is required to pay interest commences on the day on which it became unreasonable for the insurer to refuse to pay the claim. An objectively determined reasonable period is to be given to the insurer to investigate the claim and determine its position. But where that position constitutes a refusal to pay the claim, in circumstances where a court has held that a liability to pay the claim does exist, such refusal cannot relevantly extend this period to the point of adjudication, regardless of whether that position was formed and held bona fide (see Fitzgerald v CBL Insurance Ltd [2014] VSC 493 at [415] and [416] per Sloss J). In short, the award of interest is to be calculated taking into account a reasonable time for completion of the insurer's investigation of the claim. 27 As Bongiorno J explained in HIH Casualty & General Insurance Ltd (in liq) v Insurance Australia Ltd (No 2) [2006] VSC 128 at [9]: Once the court has rejected the insurer's defence to a policyholder's claim, that defence becomes irrelevant as does the fact that the insurer had a bona fide belief in its efficacy. To hold otherwise would put a premium on erroneous advice. Taken to its logical extreme, an insurer which relied upon incorrect legal advice or an inadequate report of a loss adjuster to form a belief as to the possibility of its successfully defending a policyholder's claim would be advantaged by having obtained bad legal or loss adjusting advice. The successful policyholder would be correspondingly disadvantaged by the same irrelevant circumstance. 28 In O'Neill v FSS Trustee Corporation (as trustee of First State Superannuation Scheme) [2015] NSWSC 1248 at [27]-[35], Slattery J discussed these principles in the course of denying an application for pre-action discovery of documents going to an insurer's internal decision making processes. 29 I have not received submissions on the principles applicable in relation to s 57 and how they apply to the present case, so it is not appropriate for me to express a firm view on those subjects. It is enough for the purposes of this discovery application to say that they raise doubt as to how the reports received in the course of the Market's deliberations can be more than peripherally relevant. Prima facie, the question is an objective one of how long a reasonable insurer would have taken to process the claim. On the basis of the material before me at present, I doubt that reports received during the loss adjusting process which in fact took place will shed light on that subject. 30 In light of those doubts, I am not satisfied that discovery of the reports will facilitate the efficient conduct of the proceedings. What Infrassure knew about the claim in 2015 to 2017 is remote from the central issues in the case. Permitting the parties' inquiries to stray into such remote territory will not help put the proceeding on a footing where it can be resolved both justly, and as efficiently as possible. That is especially so in light of my conclusion that substantial further steps are necessary to have the proceeding ready for trial, requiring me to vacate impending trial dates. I will not order discovery of the reports. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jackson.