Martin John Green in his capacity as liquidator of Arimco Mining Pty Limited (in liquidation) v CGU Insurance Limited

[2008] NSWSC 143

CITATION:	Martin John Green in his capacity as liquidator of Arimco Mining Pty Limited (in liquidation) v CGU Insurance Limited & Ors [2008] NSWSC 143
HEARING DATE(S):	27/02/08
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
EX TEMPORE JUDGMENT DATE:	27 February 2008
DECISION:	Additional category of discovery by first defendant ordered
CATCHWORDS:	Practice and Procedure - Discovery - Notices to Produce
LEGISLATION CITED:	Corporations Act 2001 Law Reform (Miscellaneous Provisions) Act 1946
CATEGORY:	Procedural and other rulings
CASES CITED:	Green v CGU Insurance Limited [2005] NSWSC 254 Portal Software International Pty Limited v Bodsworth [2005] NSWSC 1115 Southern Pacific Hotel Services Inc v Southern Pacific Hotel Corporation Ltd [1984] 1 NSWLR 710
PARTIES:	Martin John Green in his capacity as liquidtor of Arimco Mining Pty Limited (in liquidation) (Plaintiff) CGU Insurance Limited (First Defendant)
FILE NUMBER(S):	SC 50177/04
COUNSEL:	Mr D Davies SC, Mr MS White (Plaintiff) Ms C Needham SC, Mr S Goodman (First Defendant)
SOLICITORS:	Henry Davis York (Plaintiff) Kennedys (First Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Wednesday 27 February 2008 ex tempore
Revised 29 February 2008

50177/04 Martin John Green in his capacity as liquidator of Arimco Mining Pty Limited (in liquidation) v CGU Insurance Limited & Ors

JUDGMENT

The state of the applications before the Court

1 These proceedings are listed for hearing on 14 July 2008 for four weeks.

2 The applications before the Court concern the plaintiff’s endeavours to obtain access to nominate documents and records said to be in the first defendant’s [called defendant for ease of reference] control: such endeavours pursued first by notices to produce and later by an application for leave to add to the categories to be discovered by the defendant.

3 The defendant by an amended notice of motion filed on 15th February 2008 sought to set aside the notices to produce [served by the plaintiff and dated 29 November 2007 and 17 December 2007] and sought alternatively, for nominate orders identified in paragraphs 3 and 4 of that amended notice of motion.

4 The plaintiff had by notice of motion filed on 22 January 2008, sought orders that the first defendant produce the documents the subject of the notices to produce.

5 During the first tranche of the hearing of the notices of motion the respective positions were carefully canvassed and the Court granted leave to the plaintiff to cross-examine Ms Gojak, a legal and claims manager for CGU insurance.

6 Subsequent to that cross examination the amended notices of motion were stood over part heard until today, with the plaintiff being granted leave to file a further notice of motion seeking access to such documents as were still being sought, by the route of seeking an additional discovery category.

7 Suffice it to say that following such further notice of motion being filed by the plaintiff on 20 February 2008 [supported by an affidavit made by Mr Ryan, a solicitor for the plaintiff], the parties have now agreed upon the regime pursuant to which the plaintiff is to obtain a subset of many of the documents which had been sought through the above routes. It is fair to say that it has not obtained an entitlement to have produced to it all of the documents which it had sought in its sundry notices to produce. However there was a deal of correspondence which passed between the respective solicitors concerning those notices to produce and from time to time both parties have relaxed their earlier stances.

The nature of the issues in the proceedings to which the plaintiff’s notices to produce and application for additional discovery categories have gone

8 The plaintiff, Mr Green, is the liquidator of Arimco Mining Pty Ltd. The plaintiff seeks compensation from the directors of Arimco pursuant to section 588M of the Corporations Act 2001 in respect of insolvent trading in February and March 1999.

9 The first defendant, CGU, was the directors and officers (D&O) insurer of the directors for the policy year 31 December 1998 to 31 December 1999. The directors made claims on the policy in 1999 and CGU denied indemnity. The plaintiff joined CGU to the proceedings pursuant to section 6 of the Law Reform (Miscellaneous Provisions) Act 1946: see Green v CGU Insurance Limited [2005] NSWSC 254.

10 It is CGU’s case that if certain matters known to the directors had been disclosed to its underwriters in late 1998 it would only have written the policy on the basis of an insolvency exclusion endorsement which would have excluded the liability of the directors for insolvent trading. In the proceedings CGU has served three affidavits by the underwriters of the directors and officers policy, Ms Patricia Cuthbert and Mr Jun Acance, giving evidence of their underwriting practice in relation to insolvency exclusion clauses, and how they would have reacted to the disclosure of the matters identified by CGU as material to the risk.

The relevance of the documents which the plaintiff has sought to have produced to it

11 The documents sought by the plaintiff have apparent relevance to the issues to be determined and are necessary for a fair disposal of the proceedings: Southern Pacific Hotel Services Inc v Southern Pacific Hotel Corporation Ltd [1984] 1 NSWLR 710 at 720; Portal Software International Pty Limited v Bodsworth [2005] NSWSC 1115 at [20]-[25].

12 The CGU underwriters canvass in their affidavits a series of circumstances which are asserted to be material to the risk and of which disclosure was required by assureds. They give evidence of their underwriting practice. I accept that the plaintiff is entitled to test the assertions of the underwriter witnesses as to their underwriting practice in 1998. I accept that it is important to know the circumstances, if any, when the underwriters wrote D&O business and how and when they applied insolvency exclusions, and whether they varied the premium charged or other conditions in the policy.

13 I accept that in all probability it is only if documents are available to the Court which indicate the underwriters’ actual practice in 1998 that the Court may be in a position to know whether the factors relied on by the underwriters were in fact material and relevant to a proposed D&O risk, whether they would in fact have been likely to respond to those factors by applying an insolvency exclusion and whether a failure to disclose such factors induced them to write the D&O cover for the Arimco directors.

The approach taken by CGU in opposing production at various stages

14 CGU sought to set aside the notices to produce on the basis that they constituted an abuse of process and did not comply with UCPR rule 21.10. Alternatively CGU sought to set aside particular sections of the notices to produce on the basis that they were oppressive and orders limiting production to D and O policies with inception dates in 1998.

The approach taken during the first tranche of the hearing of the notice of motion

15 It was plain enough following the cross examination of Ms Gojak that a number of the matters [which had previously been suggested in terms of the contended for enormous difficulties which would be occasioned to CGU if it were required to produce the documents which had been sought] fell away at least in part, and at least if a particular approach was adopted by the plaintiff to what was required. This is apparent from the following short summary of the material events taken from the plaintiff’s latest written submissions:

i. As at 15 February 2008 through correspondence and discussion the parties had narrowed the categories of documents sought. The notices to produce sought three categories of documents:


(a) CGU policies and proposals for D&O policies written for mining company assureds in the 1998 calendar year (the December notice, paras 1 and 2);

(b) CGU’s underwriting files for those D&O policies written for mining company assureds in the 1998 calendar year to which an insolvency exclusion was applied (the November notice paragraph 2); and

(c) CGU’s underwriting files for those D&O policies written by the two underwriter witnesses in the 1998 calendar year to which they applied an insolvency exclusion.
[The plaintiff contended that if CGU located its underwriting files for D&O policies written for mining company assureds in the calendar year 1998, it would have available for production all the documents sought in (a) and (b) above, and some within category (c). The contention was that CGU would only need to locate in addition to those non-mining company policies which were written by the two underwriter witnesses to which they applied an insolvency clause.]
ii. CGU had already ascertained that it wrote 2,777 D&O policies in the 1998 calendar year. Of these it had already compiled:


(a) policy schedules held on its computer system for D&O policies written for mining company assureds; and

(b) printouts of screens held on the computer which are filled out with information about the policy.

iii. These documents, examples of which are exhibited to Ms Gojak’s affidavit, provided CGU with:

(a) the names of the relevant assureds;

(b) the name if the relevant underwriter,

(c) the capital city in which the policy was written (and therefore where the file is stored); and

(d) where the client has ceased insuring with CGU, the number of the archive box in which all the historical policy documents are stored.

iv. Despite being possessed of this information, CGU maintained in Court that it required to develop a special computer program to extract relevant information and that it would cost it almost $1 million and take, at a minimum, over 2 years to locate and copy the relevant files.
v. Yet, without undue difficulty, it was established by Ms Gojak in cross-examination that there were very simple procedures to be followed by CGU to locate what was in fact a maximum of approximately 300 underwriting files. The steps involved were:

(a) ascertaining from the already compiled policy schedules the names of the relevant mining industry assureds;

(b) looking up the most recent policy schedule for that assured, which indicates whether the assured is a current assured or a cease assured in which case the underwriting file was archived and the archive box number recorded;

(c) if the assured was a current assured, locating its file by assured name and policy number (available from the computer) in the relevant capital city office (the code for which was also available from the policy schedule information); and

(d) if the assured was an archived assured, retrieving the relevant archive box;

(e) the retrieved file will contain all the relevant papers relating to the policy.

vi. While there would be some cost and time involved in this process, Ms Gojak’s affidavit evidence made no attempt to give reasonable estimations given these basic procedures available to CGU.

vii. CGU volunteered through Ms Gojak the apparently enormous cost and time involved in going through the files to see if they fell within the notices (even though the whole file was sought), retrieving potentially every, but at least 1,500, archive boxes to search each one for D&O files, conducting expensive quality checks on the clerks carrying out the work and tracking down missing files without proposing that those files could be omitted and a significant sample of files would still be produced.

viii. It was proposed to CGU on 15 February by the plaintiff that a limited form of production of the documents referred to in paragraphs 14(a) and (b) above be given in the first instance as likely to provide a sufficient sample of files, without the need for tracking down missing files. This proposal was rejected by CGU who responded by reputing its offer of “alternative documents” production made on 29 January 2008.

ix. A similar proposal to the plaintiff’s 15 February proposal was put to CGU by letter from Henry Davis York on 22 February 2008. By letter dated 25 February 2008 the solicitors for CGU advised the plaintiff that, within 10 days of the hearing on 15 February 2008 CGU had ascertained and apparently without the need for a special computer program, CGU advised that it had approximately only 36 relevant underwriting files in the category proposed for production in the first instance on 15 February, which can be produced by 18 April 2008.

The consequential stances taken by the parties during the adjourned application

16 Without now going into the particular detail the position which now obtains is as follows:

i. CGU is now content to produce the documents now sought under the discovery category route;

ii. CGU has taken the Court to what it contends to have been a continual set of reversals by the plaintiff by way of its progressive narrowing of the scope of the notices to produce and of the documents to which it seeks by way of the further categories of discovery;

iii. in consequence CGU seeks indemnity costs of the sundry motions concerning the notices to produce and seeks costs of the notice of motion for discovery.

17 On the other hand the approach taken by the plaintiff is as follows:

i. CGU acted unfairly and inappropriately through the whole of the plaintiff’s endeavours to obtain access to particular documents;

ii. the plaintiff in particular has contended as follows:

a) By notices to produce served on 29 November 2007 (“the November notice”) and 17 December 2007 (“the December notice”) the plaintiff has also sought production of underwriting documents relating to D&O policies written by CGU during the 1998 calendar year. The December notice sought documents which formed a subset of the underwriting files sought in the November notice.

b) Paragraph 1 of the November notice seeks CGU’s underwriting documents provided to the two underwriter witnesses in late 1998. For the present CGU says it has nothing further to produce in that category. CGU also has nothing to produce in response to paragraph 4 of the November notice.

c) By letter dated 4 January 2008 CGU refused to produce the underwriting guidelines sought in category 1 of the November notice on the grounds that they were “commercially sensitive” – not a recognised ground for refusing to produce documents. That response and the lack of production of any documents sought in the notices led the plaintiff to file his motion for production.

d) By letter dated 29 January 2008 CGU offered to produce the “alternative documents” being computer printouts of policy schedules and underwriting screens. The production offered did not include the proposal forms relevant to the policies or any correspondence with the assureds or their brokers. The offer was also conditional on the plaintiff, his legal representatives and expert witnesses providing confidentiality undertakings to undefined “commercially sensitive” information in the documents. The sample “alternative documents” enclosed with the letter were not masked in any way.

e) In a letter dated 1 February 2008 Kennedys stated:

“Our client is continuing with the process of locating and producing the policy schedules and spreadsheets for all D&O policies with inception dates in 1998…”

“The remaining issues between the parties in relation to the notices to produce is whether the physical underwriting files for D&O policies should be produced. Our client is making its best efforts to locate the relevant underwriting files for the 1998 year, so that it may form a view as to the time and cost of producing such files. When it has done so it will reconsider whether your client’s notices to produce are oppressive.”

f) No assertion was made that the documents were not relevant or that the notices to produce were not compliant with the Rules or otherwise an abuse of process.

g) On 12 February 2008 CGU notified the plaintiff for the first time that the grounds for opposing production included non-compliance with Rule 21.10 and abuse of process.

h) As at 15 February 2008 through correspondence and discussion the parties had narrowed the categories of documents sought. The notices to produce sought three categories of documents:

(i) CGU policies and proposals for D&O policies written for mining company assureds in the 1998 calendar year (the December notice, paras 1 and 2);

(ii) CGU’s underwriting files for those D&O policies written for mining company assureds in the 1998 calendar year to which an insolvency exclusion was applied (the November notice paragraph 2); and

(iii) CGU’s underwriting files for those D&O policies written by the two underwriter witnesses in the 1998 calendar year to which they applied an insolvency exclusion.

The ‘premiums’ issue

18 There is one further issue which separates the parties and which has been the subject of recent communications between the parties and address from the Bar table. This is that the defendant has sought an arrangement in terms of the masking of the premium charged by CGU to its clients, from the materials which are to be produced by the defendant under the discovery regime. The contradictor position taken by the plaintiff is to seek precisely that material, although the plaintiff has accepted that any provision of the premiums charged to each side of the Bar table would have to be the subject of a fairly strict confidentiality regime. The defendant’s position is that the particular information is of high significance and that this form of information can, if made available to competitors, prejudice the defendant in high order.

19 Dealing first with this last matter, an appropriate balance requires to be drawn between the clear interests of the plaintiff to obtain access to materials which may assist it in the litigation, as long as the materials are shown to be of sufficient relevance to require production to it, and on the other hand the importance of endeavouring to ensure that the CGU confidential material be disclosed only to those on the plaintiff’s side of the Bar table as have given clear undertakings of confidentiality. To my mind that latter circumstance should be achieved by an appropriate regime which in the first instance, would require to confine access to the so-called premium material to counsel, to the solicitor on the record for the plaintiff and to an in-house legal adviser of the plaintiff, subject to each of those persons signing a form of confidentiality undertaking of the type usually produced to the Court in such circumstances.

Costs

20 Each party seeks costs from the other [the defendant seeking indemnity costs from the plaintiff].

21 This is major litigation. The plaintiff’s claim is for an amount in the order of $22 million.

22 Neither party has conducted itself with perfect propriety in what has occurred. The outcome and the narrowing of the discovery category to now be answered has only been possible following the cross-examination of Ms Gojak. CGU may have had an entitlement to complain at the width of the documents sought but ultimately and plainly a commonsense approach seems to have been taken by both parties who, subject to costs questions, appear to be content with the result.

23 The principled approach to the relevant discretion is to order that costs of the respective motions dealt with in these reasons be costs of the proceedings.

Orders

24 The Court’s orders are:

1. Costs of the first defendant’s amended motion filed on 15 February 2008 and of the plaintiff’s motions filed on 22 January and 20 February 2008 are to be costs of the proceedings.

2. Costs of the external transcription of the hearing of the motions are to be costs of the proceedings.

3. The plaintiff has leave as sought in its motion of 20 February 2008 to extend the categories of discovery subject to a restricted confidentiality regime in terms of that agreed upon and marked Exhibit Conf/29/2/08.

4. The matter will be before the List Judge for directions on 14 March 2008.

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