White Oak Commercial Finance Europe (Non-Levered) Limited v Insurance Australia Limited

Introduction 1 On 21 December 2022 I made orders granting the second respondent (BCC) leave to apply under s1782 of Title 28 of the United States Code in the United States District Court for the District of Delaware and the United States District Court for the Western District of Virginia for the production of certain documents by Bluestone Resources Inc, Bluestone Coal Sales Corporation and Blackstone Energy Ltd (Bluestone). What follows are my reasons for doing so. 2 In these proceedings, the applicant (White Oak) asserts that it is entitled to be indemnified for claims made under a trade credit insurance policy issued by the first respondent (IAL) to Greensill Bank AG (GBAG) and Greensill Capital Pty Limited ACN 154 088 132 (GCPL) (together, the Insureds) and pursuant to which White Oak is endorsed as a "Loss Payee" to whom payment of insurance proceeds is to be made directly. 3 The Insureds were part of the Greensill group of companies (being the Insureds and Greensill Capital (UK) Ltd (GCUK)), that provided supply chain financing and securitising future guarantee cash flows for industrial companies. The relevant policy of insurance provided coverage for the risk of non-payment in relation to the financing that Greensill provided. The policy is said to contain express terms to the effect that IAL agreed to indemnify the Insureds for the Insured Percentage of all Loss suffered in respect of an Insured Cause, being, relevantly, losses suffered where an Eligible Customer failed to make payment of an Eligible Debt on or before a certain date. In this proceeding, White Oak alleges that it has sustained losses arising from defaulted Eligible Debts and that IAL is in breach of the relevant policy of insurance for failing to indemnify it. 4 GCPL, GCUK and GBAG entered into administration in March 2021. In addition to the present proceedings, there are three other proceedings on foot in this Court, which are being case managed together, in which judgment is sought against IAL in connection with amounts alleged to be payable under various insurance policies arising out of unpaid debts owed to Greensill (together, the Greensill Federal Court Proceedings). 5 BCC was IAL's underwriting agent for trade credit insurance. The third respondent, Mr Brereton, was the Head of Trade Credit at BCC and the person who signed the relevant insurance policies on IAL's behalf. Both BCC and Mr Brereton are respondents to each proceeding constituting the Greensill Federal Court Proceedings. 6 White Oak, and the applicants in the other Greensill Federal Court Proceedings, bring claims against BCC alleging misleading and deceptive conduct and the making of false or misleading representations in contravention of the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission Act 2001 (Cth) and/or the Competition and Consumer Act 2010 (Cth), Schedule 2 (Australian Consumer Law), and breach of warranties of authority under the general law in issuing the relevant policies, in the event that IAL is not bound by the policies. 7 In defence to the claims made against it, BCC alleges that the applicants have not suffered any loss or damage because: (a) the relevant policies are liable to be avoided for fraud under s 28(2) of the Insurance Contracts Act 1984 (Cth) (ICA); (b) alternatively, the insureds' right of indemnity is liable to be reduced to nil under s 28(3) of the ICA; or (c) in the further alternative, the applicants are not entitled to indemnity by reason of a breach by Greensill of its contractual duty of fair presentation and the operation of the terms of the relevant policies. 8 The basis for these defences is a series of alleged misrepresentations and non-disclosures made prior to the inception of the relevant policies by Greensill. BCC alleges that it was induced to enter into the relevant insurance instruments by reason of those non-disclosures and misrepresentations as to the underlying risks being presented to it for trade credit insurance. BCC pleads that it would not have entered into the relevant policies or bound the risks the subject of the applicants' claims (or would not have done so for the same premium or on the same terms and conditions) if it had been informed of the alleged misrepresentations and non-disclosures. 9 The alleged misrepresentations and non-disclosures are said to relate to financing facilities between Greensill and Bluestone. 10 It appears that Bluestone was involved in litigation in the United States District Court for the Southern District of New York, being civil action no. 1:21-cv-02253 (Bluestone Proceeding), against Greensill entities and related persons: GCUK, Lex Greensill and Roland Hartley-Urquhart (the US Defendants). It is documents concerning the relationship between Bluestone and Greensill and the Bluestone Proceeding that are the subject of the present interlocutory application.

The interlocutory application and evidence 11 On 6 October 2022, BCC filed an interlocutory application in this Court seeking orders that leave be granted to file two applications under s1782 of Title 28 to the United States Code for relevant United States Courts to order the production of certain specified documents by Bluestone that are said to be relevant to BCC's defence of this proceeding. For the avoidance of doubt, BCC's interlocutory application was filed only in relation to the present proceeding rather than in each of the Greensill Federal Court Proceedings. 12 s1782 of Title 28 of the United States Code authorises the District Court of a federal district to order a person who resides or is found in that district to, relevantly, produce documents for use in a foreign proceeding. 13 BCC's interlocutory application was supported by an affidavit affirmed by Matt James Andrews on 6 October 2022, who is the solicitor on the record for BCC and was authorised to make the affidavit on BCC's behalf. 14 Mr Andrews deposed, inter alia, to the following matters: (a) his awareness that Bluestone owned a coal mine in West Virginia, that Greensill entered into a supply chain finance facility with Bluestone Resources Inc on 14 June 2018 and an accounts receivable financing facility with Bluestone Coal Sales Corporation and Blackstone Energy Limited on 28 September 2018, and that Greensill procured trade credit insurance from BCC in respect of debts under those facilities; (b) that Bluestone made allegations regarding non-disclosures and misrepresentations in the Bluestone Proceeding by way of an Amended Complaint filed on 4 June 2021, including that: (i) the Bluestone accounts receivable financing facility contemplated financing based on the purchase by GCUK from Bluestone of "prospective receivables", which were receivables, which did not exist at the time when GCUK "purchased" them, from prospective buyers who were not existing customers of Bluestone; (ii) the list of account debtors (i.e. the prospective buyers) from whom the "prospective receivables" underlying the Bluestone accounts receivable financing facility were generated was created by the US Defendants, who also determined in their discretion the amount of each "prospective receivables" purchase, the credit amount of each account debtor, the "maturity date" and additional terms relating to each "prospective receivable" purchase under the Bluestone accounts receivable financing facility. The US Defendants understood that most of the account debtors were not existing customers of Bluestone; (iii) from the inception of the Bluestone accounts receivable financing facility, when amounts became due, GCUK would "roll" amounts owed by Bluestone. This initially was effected by Bluestone paying maturing debt using monies that GCUK had paid to Bluestone to purchase new receivables, which meant that Bluestone's payment to GCUK was effectively only for the portion of the payment relating to interest (as the other portion consisted of monies which GCUK had provided to Bluestone). This moved to a "cashless roll" in July 2020, which meant that Bluestone only had to pay GCUK the portion of the amount due representing interest; and (iv) GCUK advanced USD 850 million to Bluestone, of which approximately USD 108 million was paid back directly in cash to GCUK in the form of fees and GCUK received at least another USD 100 million in prospective equity value through warrants. All amounts paid to GCUK by Bluestone were from funds borrowed by Bluestone from GCUK and from Bluestone operations; (c) that solicitors acting for BCC have been in contact with the lawyer acting for Bluestone, a Mr Steven Ruby of Carey Douglas Kessler & Ruby PLLC, and have confirmed that: (i) Bluestone has retained all relevant documents concerning its dealings with Greensill and concerning the Bluestone Proceeding; (ii) Bluestone does not intend to voluntarily comply with any request for documentation and information and that Bluestone will only produce documents if compelled to do so by an appropriate court; and (iii) letters have been sent to Mr Ruby from the solicitors acting for BCC formally requesting the voluntary production of documents and informing Mr Ruby that if Bluestone did not voluntarily provide the documents then BCC would take steps to file applications under 28 USC s1782, to which no response has been received; and (d) that the Bluestone Proceeding was dismissed by the District Court for the Southern District of New York on 1 July 2022 by reason of the plaintiffs' entry into a settlement agreement. 15 The documents sought by BCC are set out in the form of draft s1782 applications exhibited to Mr Andrews' affidavit. The documents sought may generally be described as communications between Bluestone and Greensill and other documents created in connection with the financing facilities entered into including records of sales and reports. Although the call for documents may be viewed from one perspective as relatively broad ("Any and all Documents which support or Relate to"), the categories of documents sought are narrowed by reference to specific allegations made in the Amended Complaint filed in the Bluestone Proceeding, and in some instances documents are specifically identified by document type and date, such as "The letter sent by GCUK to Bluestone dated March 6, 2021, referred to at paragraph 135 of the Bluestone Complaint." 16 With respect to why the production of documents is sought, Mr Andrews said the following: They [the documents] are centrally relevant to the Bluestone Misrepresentations and Bluestone Non-Disclosures pleaded in Annexure A to BCC's Defences as those misrepresentations and non-disclosures relate to the same conduct and dealings between Greensill and Bluestone that is the subject matter of the allegations in the Amended Complaint. 17 At a case management hearing conducted by me on 16 December 2022, the other parties to the present proceeding indicated that BCC's interlocutory application with respect to s1782 of Title 28 to the United States Code was not opposed. On 19 December 2022, I indicated to the parties by way of email from my associate that I was minded to grant the orders sought in BCC's interlocutory application on the papers, without need for a substantive hearing. No submissions were received that I should not adopt that course.

Relevant principles and disposition 18 This Court has broad and discretionary powers concerning the making of orders. Section 23 of the Federal Court of Australia Act 1976 (Cth) (the Act) empowers the Court, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, as the Court thinks appropriate, and r 1.32 of the Federal Court Rules 2011 (Cth) (the Rules) affirms the Court's power to make any order that the Court considers appropriate in the interests of justice. Although not enlivened in this particular case, the Court is specifically empowered by r 20.23 of the Rules to order discovery from a non-party if certain conditions are met. 19 This Court has an interest in the prudent case management of civil cases. Section 37M(1) of the Act provides that the overarching purpose of the Court's civil practice and procedure provisions is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. 20 In applying for leave, BCC asks the Court to endorse by way of order its proposal to apply to seek orders from courts of the United States. That endorsement is necessarily narrow: it does not speak to the ultimate outcome of the applications in the United States courts, which is a matter properly for the learned judges of the courts in which the applications are made. Rather, BCC asks this Court for its leave to take this procedural step in these proceedings, having regard to the Court's role in the just and efficient management of the cases before it. 21 The Court has considered an interlocutory application of this nature before. In Lavecky v Visa Inc [2017] FCA 454, Justice Perram considered an application for orders approving the applicants' proposed making of applications under s1782 of Title 28 to the United States Code seeking orders for the production of certain documents. In determining the application, Justice Perram said the following: [18] …it follows that endorsement will generally be granted on ordinary case management principles; that is to say, given the circumstances of this case, would it be useful from a case management perspective to permit the Applicants to apply for the documents they wish to obtain in the Southern District? If so, what conditions should be imposed? [19] Whilst it is unwise to be definitive about these matters in advance, the following matters are likely to be germane to a consideration of whether to endorse an application made under procedures such as s1782: (1) What is the importance of the material to be sought under the procedure to the applicant's case? (2) Are there other methods available for obtaining it? (3) Does the material sought impinge upon or undermine some important procedural limitation in this jurisdiction such as, for example, the unwillingness of the Court to permit fishing expeditions or, perhaps, the general unwillingness of this Court to order depositions? (4) What is the cost involved in the process for the parties before this Court? (5) Is that cost a proportionate burden having regard to the significance of the material? (6) Is the proposed proceeding under s1782 in the District Court frivolous or obviously doomed to fail? (7) How long might the applications take to resolve and what impact might they have upon the timely preparation of the matter before this Court for trial? (8) Is there any need to impose conditions upon the endorsement so as to address any issues arising from (1)-(7) above? 22 In granting the requested endorsement in that case, it was influential for Justice Perram that the material sought pursuant to the proposed s1782 application was important for the disposition of the proceeding in this Court (see [21] and [25]), that there was no other way in which the material could be brought before the Court (see [26]), and that the evidence indicated that the documents sought to be obtained were documents that were in existence (see [24]): the applications were not "a stab in the dark hoping to connect with some unknown target, but rather a directed strike at a perceived and visible forensic reality" (at [25]). 23 I am satisfied that the present application for leave before me should also be granted. The material that BCC proposes to seek pursuant to the proposed s1782 applications has direct relevance to material issues in the present proceeding and may have evidentiary importance to the substantiation of BCC's defence to the claims made against it given that the conduct complained of in the Bluestone Proceeding is said to be connected to the alleged misrepresentations and non-disclosures sought to be established in this proceeding. I am satisfied that, having investigated the matter, BCC is not able to obtain these documents other than by way of s1782 applications. Although additional costs may be incurred (both by parties to these proceedings and by Bluestone) and despite the fact that the bringing of the applications may take time to effect and resolve, it is significant that BCC's interlocutory application was not opposed by any party to these proceedings and that BCC has made enquiries to confirm that the documents it seeks exist and are capable of being produced. Given the targeted formulation of the requests for production of documents in the proposed applications by reference to the Amended Complaint filed in the Bluestone Proceeding, the proposed applications cannot be said to amount to a fishing expedition. 24 I also consider that the orders proposed by BCC regarding the service on the applicant and other respondents of a copy of any s1782 application ultimately made and regarding the provision of these reasons to the United States District Court are appropriate to preserve the interests of all parties to this proceeding and to assist in potentially reducing the costs of, and time associated with, the disposition of the proposed s1782 applications. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Chief Justice Allsop.