Realcover Insurances Pty Ltd v Arthur J Gallagher [2015] NSWSC 1986 | Case summary

Supreme Court of NSW|2015-12-18|Before: Arthur J, Stevenson J

Solicitors: William James Law (Plaintiff) Sparke Helmore Lawyers (Defendants) File Number(s): SC 2015/302083

Introduction

This is an application for preliminary discovery of documents under Uniform Civil Procedure Rules 2005 (NSW) r 5.3(1).
That rule is in the following terms: "(1) If it appears to the court that: (a) the applicant may be entitled to make a claim for relief from the court against a person (the prospective defendant) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and (b) the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and (c) inspection of such a document would assist the applicant to make the decision concerned, the court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief."

Background

The plaintiff ("Realcover") provides professional indemnity insurance to real estate agents and real estate agencies in Australia. Realcover's business was established by the Real Estate Institute of New South Wales, which is Realcover's majority shareholder.
The first defendant ("Gallagher") is an insurance broker. Its parent company, Arthur J. Gallagher & Co, is based in Illinois in the United States of America. In Australia, the Gallagher group comprises nine operating companies, including Gallagher and the second defendant ("Gallagher Australia").
Gallagher Australia was formerly known as OAMPS Insurance Brokers Ltd and was, until June 2014, a member of the Wesfarmers Insurance Broking group of companies. That group of companies was acquired by the Gallagher group in June 2014.
Effective from 1 September 2015, the assets of Gallagher were acquired by Gallagher Australia. All the broking business formerly carried on by Gallagher is now transacted by and through Gallagher Australia. For the sake of simplicity, I will refer to both defendants as "Gallagher" unless the context otherwise requires.
Between 30 November 2009 and 13 April 2015, Gallagher was Realcover's agent for the purpose of arranging and entering into contracts of professional indemnity insurance for real estate agents and agencies.
For that purpose, Realcover made available to Gallagher a list of its existing and potential customers which, so far as concerned existing customers, included: 1. the name of the customer; 2. relevant contact details (including telephone numbers and email addresses); 3. the insurance product purchased by the customer; 4. the current premium being paid by the customer; and 5. the renewal date for each customer's existing insurance product.
There is no dispute that Gallagher has retained a copy of that customer list (as updated to the time when the agency agreement terminated in April 2015).
The current Chief Commercial Officer of Gallagher Australia, Mr Glenn Hanna, gave evidence that: "Gallagher continues to retain this information on the basis that it has an obligation at law to retain client information so that it is able to respond to claims made under the various policies taken out with Gallagher."
Mr Hanna also said: "To the extent Gallagher has retained information concerning Realcover and Realcover customers, access by Gallagher to that information has been necessary for Gallagher to assist Realcover in the transition to Realcover's new broking agent JLT [Jardine Lloyd Thompson] following termination of the Agency Agreement with Gallagher, and on numerous occasions to respond to queries and claims by Realcover customers that have arisen from time to time since termination."
Mr Hanna gave a number of examples, and said: "In each of these cases, the Realcover information retained by Gallagher was used to provide an audit trail of Gallagher's dealings with those Realcover customers during the period in which it acted as Realcover's agent, in responding to requests from Realcover to assist it in the transition of its business. I believe that, without that information, Gallagher would not have been able to respond to assist Realcover in this way, nor would Gallagher have been able to defend itself from the allegations levelled against it by Realcover in some of the correspondence I refer to above."
Gallagher is now selling insurance products in competition with Realcover.
Thus, Mr Hanna said: "Gallagher now sells a professional indemnity policy specifically designed for real estate agents by Gallagher. The product is offered under a binder agreement with an Australian-based insurer."
It is common ground that many real estate agents and agencies that formerly obtained their professional indemnity cover through Realcover now do so through Gallagher.
Realcover apprehends that Gallagher is using information from Realcover's customer list to solicit professional indemnity work from those customers.
Thus, Realcover's Chief Operating Officer, Mr Anthony Grainger, gave this evidence: "I suspect that [Gallagher] and/or [Gallagher Australia] used the information contained in this customer list to contact [Realcover's] customers and offer them insurance products offered by persons other than [Realcover], with the result that those customers did not renew their insurance policies with [Realcover] and [Realcover] has consequently suffered loss."
Realcover's apprehension that Gallagher is behaving in this way arises primarily from the fact that Realcover has suffered what Mr Grainger described as: "…a sudden, significant and unprecedented decline in premiums since the end of April 2015, which is the same time that [Gallagher] ceased acting as the broking agent of [Realcover]…".
Mr Grainger said that the decrease in premiums was caused by an "unprecedented fall in the rate of renewals of [Realcover's] insurance contracts".
Thus, there has not only been a downturn in premiums received by Realcover (which might be explained by softening of the professional indemnity insurance market), but also a fall in the actual rate of renewals.
Further, according to Mr Grainger, a "significant number of [Realcover's] former customers have purchased alternative insurance products sold to them by [Gallagher]".
Gallagher denies that it is using Realcover's customer list to approach Realcover's customers. Gallagher's position is that it has developed a superior product, and is using a "lead list" that it purchased from Forrest Marketing Group Pty Ltd in January 2015 together with customer lists maintained by Gallagher Australia, when it was known as OAMPS, in its Wollongong and Parramatta offices.
Mr Grainger gave evidence that Realcover is not able to decide whether or not to commence proceedings against Gallagher, despite the circumstances set out above, because: 1. Gallagher has asserted that it has only contacted former customers of Realcover using the customer list purchased from Forrest Marketing Group and the lists from OAMPS's Wollongong and Parramatta offices; 2. Realcover does not have access to a number of documents (I will return to this below); and 3. Realcover is not able to quantify the damages it would likely be awarded "without at least knowing the volume and types of insurance products sold by [Gallagher] to the New Gallagher Customers, the amounts of premiums paid by the New Gallagher Customers under those insurance products and the amounts of any claims paid out under those insurance products".
As developed in final submissions by Mr Cook, who appeared for Realcover the critical documents that Realcover contends it needs in order to make a decision as to whether to commence proceedings against Gallagher are as follows: "Telephone records, including mobile phone records, that record calls made or received by Gallagher's officers, employees and/or agents, on or after 13 April 2015, with any customer identified in any version of the Realcover Customer Lists or to any phone number contained on the Gallagher Customer Lists. All emails, letters and/or other communications sent or received by any officer, employee and/or agent of Gallagher: on or after 13 April 2015, to…any customer identified in any version of the Realcover Customer Lists; and/or during the period from 1 February 2015 to 12 April 2015 inclusive, to…any customer identified in any version of the Realcover Customer Lists in relation to or in connection with insurance products with a period of insurance cover commencing on or after 13 April 2015."
Mr Cook submitted that the telephone records were of particular significance because they may show whether Gallagher's "cold calling" of Realcover clients coincided with the renewal date of Realcover policies. Such renewal dates are recorded on Realcover's client lists, but not on any of the lists that Gallagher claims it is using to contact Realcover clients. Thus, Mr Cook submitted, if Gallagher's calls to some or all of Realcover's clients coincided with those clients' renewal dates, that would suggest that, as Realcover suspects, Gallagher is using Realcover's list.

The relevant tests

Before an order for preliminary discovery of documents can be made, it must "appear to the court" (that is, there must be reasonable cause to actually believe, beyond mere assertion, suspicion or conjecture) that: 1. Realcover "may" be entitled to make a claim for relief against Gallagher; 2. Realcover has made "reasonable inquiries" about that matter; 3. nonetheless, Realcover is "unable to obtain sufficient information" to decide whether to commence proceedings; 4. Gallagher "may" have possession of documents which "can" assist in determining whether Realcover is entitled to make such a claim for relief; and 5. inspection of those documents "would" assist Realcover to make that decision (see Hatfield v TCN Channel Nine Pty Ltd [2010] NSWCA 69; 77 NSWLR 506 at [46] - [52]).
There was debate before me as to whether consideration of the first element set out above (that is, whether Realcover may be entitled to make a claim for relief against Gallagher) depends upon whether there is reasonable cause to believe that, in fact, Gallagher is using Realcover's client list to solicit Realcover's clients (as Mr Gregory, who appeared for Gallagher submitted) or whether (as Mr Cook submitted) the correct question is, assuming that Gallagher is using Realcover's client lists, whether there is reasonable cause to believe Realcover "may be entitled to make a claim for relief".
In my opinion, Mr Cook's submission is to be preferred. As he said, the real question here is whether Gallagher is using Realcover's customer list. If it is not, Realcover has no case. If it is, then it must follow that Realcover "may" be entitled to relief.
However, I do not need to decide that question, as my conclusion is that Realcover's application must fail for a separate reason; namely, on the basis that Realcover has not made "reasonable inquiries" as called for by UCPR r 5.3(1)(a).
In the circumstances of this case, the object of the "reasonable inquiries" that Realcover must show it has made is to determine whether Gallagher is using Realcover's client list to solicit business from Realcover's clients.
As Mr Cook said in his opening submissions: "There are two possible sources of the information that [Realcover] requires: its customers and [Gallagher]."
Realcover has made inquries of Gallagher. It denies it is using Realcover's customer list.
As to seeking information from Realcover's customers, Mr Cook submitted that: "[This] is neither attractive nor feasible. It is not attractive for [Realcover] to interrogate its customers as to why they have not renewed their insurance with [Realcover]…It is not feasible because the information clients are able (and, even assuming, willing) to provide is likely not to be sufficiently reliable to make the decision that must be made".
The only evidence given by Mr Grainger about this is as follows: "In my opinion, it would be unreasonable to seek to obtain from the former customers of [Realcover] any of the documents identified in Schedule A or Schedule B to the Summons which are likely to be in their possession. The basis for my opinion is that this would be impractical (given the large number of former customers which would need to be contacted) and would also likely destroy the relationship with those customers and any likelihood of those customers obtaining insurance products from [Realcover] in the future."
But that evidence is directed to obtaining from Realcover's customers the documents which Realcover now seeks by way of preliminary discovery. There are other inquiries Realcover could make.
Mr Grainger attached to his affidavit a schedule prepared by Jardine Lloyd Thompson (who succeeded Gallagher as Realcover's agents) setting out details of communications with customers of Realcover who had not renewed their insurance policies with Realcover since Realcover's arrangements with Gallagher terminated on 13 April 2015.
The list contains the following details of those former customers: 1. the name of the former customer; 2. the state in which the former customer is located; 3. the renewal date for the former customer's insurance policy; 4. the outcome of the renewal; 5. the "reason" for Realcover's failure to renew the customer's insurance policy; and 6. "comments" made by the relevant officer from Jardine Lloyd Thompson setting out the "key details" of conversations between the Jardine Lloyd Thompson employee and the former customer.
There are several hundred entries in the list. During argument, I was taken to a selection of those entries.
The entries to which I was taken contained a note by a Jardine Lloyd Thompson employee that the particular former customer of Realcover had renewed their insurance with Gallagher. Many cited cheaper premiums as the reason for the former customer's decision to insure with Gallagher rather than Realcover.
The list records details of the steps taken by Jardine Lloyd Thompson employees to follow up with the relevant Realcover customer. However, none of the entries to which my attention was drawn recorded any inquiry by a Jardine Lloyd Thompson employee as to the circumstances in which the customer was contacted by Gallagher. I invited Mr Cook to take me to any entry in which such an inquiry was made. He said that his instructing solicitor would look through the list to see if there was any such entry. I heard nothing further. I assume from this that there is none.
As Jardine Lloyd Thompson employees were actually on the telephone with each of Realcover's former customers, there seems to me to be no reason why those employees could not have made inquiries directed to the critical questions: how did Gallagher get the relevant contact details and did Gallagher make contact at about the time the customer's policy fell for renewal.
I do not see that there would be a need for Jardine Lloyd Thompson employees to "interrogate" former customers. But well phrased, polite inquires may well have elicited from some, if not most, of these customers valuable intelligence as to how and why Gallagher made contact when it did.
No explanation was given by Realcover as to why this did not happen. I do not regard Mr Grainger's statement set out at [34] above as providing an explanation. As I have said, Mr Grainger's observations are directed to a quite different matter.
I do not see the relevance of speculation as to the reliability of any answer given in response to such enquiries. For example, enquiries directed to former customers of Realcover may well have revealed that some were approached shortly before the renewal date of their policies. That would surely assist Realcover to decide whether to commence proceedings, regardless of whether it was "feasible" to call those customers to repeat in Court what they said on the telephone. Such responses might give Realcover confidence that Gallagher's records (including the telephone and email records sought on this application) would provide objective confirmation of what the former customers had said.
But such inquiries were not made. What would have been revealed cannot be known.
It follows, in my opinion, that Realcover has not shown that it has made reasonable inquiries. For that reason, its application for preliminary discovery should be dismissed.
I order that the Summons be dismissed with costs.

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: 24 December 2015

Realcover Insurances Pty Ltd v Arthur J Gallagher

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