New South Wales Solicitors Mutual Indemnity Fund v Hancock Family Memorial Foundation Ltd [No 2] - [2009] WASCA 146

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: THE NEW SOUTH WALES SOLICITORS MUTUAL INDEMNITY FUND -v- THE HANCOCK FAMILY MEMORIAL FOUNDATION LTD [No 2] [2009] WASCA 146

CORAM: McLURE JA
MILLER JA
NEWNES JA

HEARD: 14 MAY 2009

DELIVERED : 20 AUGUST 2009

FILE NO/S: CACV 80 of 2008

BETWEEN: THE NEW SOUTH WALES SOLICITORS MUTUAL INDEMNITY FUND
First Appellant
SYNDICATE 657 D R LOWE
SYNDICATE 683 R J WALLACE
SYNDICATE 839 A M SHARPE
SYNDICATE 376 J H BENTON
SYNDICATE 510 R J KILN
Second Appellants
AND
THE HANCOCK FAMILY MEMORIAL FOUNDATION LTD
Respondent

ON APPEAL FROM:
Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA
Coram  :LE MIERE J
Citation  :THE HANCOCK FAMILY MEMORIAL FOUNDATION LTD -v- FIELDHOUSE [No 2] [2008] WASC 147
File No  :CIV 1802 of 1995

Catchwords:

Practice and procedure - Application for discovery against potential party - O 26A r 4 - Relevant principles - Whether matters necessary to enliven O 26A r 4 are objective or subjective - Whether respondent has sufficient information to make a decision whether to commence proceedings - Whether respondent has already decided to commence proceedings - No substantial injustice if decision not reversed

Legislation:

Rules of the Supreme Court 1971 (WA), O 26A r 4

Result:

Leave to appeal refused

Category: B

Representation:

Counsel:

First Appellant               :     Mr G R Donaldson SC & Mr J L Sher
Second Appellants         :     Mr G R Donaldson SC & Mr J L Sher
Respondent:     Mr C G Colvin SC & Mr A P Hershowitz

Solicitors:

First Appellant               :     Clavey Legal
Second Appellants         :     Clavey Legal
Respondent:     Salter Power Pty Ltd

Case(s) referred to in judgment(s):

Central Exchange Ltd v Anaconda Nickel Ltd [2002] WASCA 94
Echo Tasmania Pty Ltd v Imperial Chemical Industries PLC [2008] FCAFC 58
Matrix Film Investment One Pty Ltd v Alameda Films LLC [2006] FCA 591
McCarthy v Dolpag Pty Ltd [2000] WASCA 106
St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147
Telstra Corporation v Minister for Broadband (2008) 166 FCR 64
The Hancock Family Memorial Foundation Ltd v Fieldhouse [No 2] [2008] WASC 147
Waller v Waller [2009] WASCA 61
Webb v Estate of Darryl Arthur Herbert [2006] WASCA 43

McLURE JA: The second appellants seek leave to appeal and to appeal from an order made by Le Miere J requiring them to give discovery of documents under O 26A r 4 of the Rules of the Supreme Court 1971 (WA) (the Rules).
The background is detailed in the reasons of Newnes JA. For present purposes it is sufficient to note the following. The second appellants are insurers who provided excess professional indemnity insurance to Mr C Fieldhouse, a solicitor who acted for the respondent. In August 1995 the respondent commenced legal action in this court against Mr Fieldhouse for breach of his professional duties (the action).
By a Deed of Release and Indemnity dated 22 September 1998 (Deed of Release) the respondent agreed that in the event of obtaining judgment in the action it shall not seek to enforce any judgment and any costs order made against Mr Fieldhouse 'beyond that paid or payable by Fieldhouse's professional indemnity insurers (including LawCover)'.
Mr Fieldhouse died in November 2007. In June 2008 the respondent sought an order for discovery of documents under O 26A r 4. The primary judge ordered the second appellants to discover the following documents:
(a)the documents that constitute the contract of insurance … between Fieldhouse and the Second Potential Parties in respect of the liability of Fieldhouse;
(b)any documents relating to whether the said contract of insurance … between Fieldhouse and the Second Potential Parties provides cover in respect of the liability of Fieldhouse including any document containing any admission or denial of cover either in full or part;
(c)any schedules or annexure forming part of the contract of insurance referred to in subparagraphs (a) and (b) above; and
(d)the Certificate of Insurance in relation to the said contract of insurance … between Fieldhouse and the Second Potential Parties.
Order 26A r 4 of the Rules provides:
(1)This Rule applies if a person who may have a cause of action against a person whose description has been ascertained (the potential party) wants ‑
(a)to commence proceedings against the potential party; or
(b)to take proceedings against the potential party in the course of an action to which the person is a party,
but the person, after reasonable enquiries, has not been able to obtain sufficient information to enable a decision to be made as to whether to commence or take the proceedings.
(2)If there are reasonable grounds for believing that the potential party had, has, or is likely to have had or to have, possession of documents that may assist in making the decision, the person may apply for an order under this Rule.
(3)The application shall be supported by an affidavit and a copy of both shall be served on the potential party.
(4)On the application the Court may order the potential party to give discovery of all documents that are or have been in the potential party's possession and that may assist the applicant in making the decision.
The parties accept that if the conditions in r 4(1) and r 4(2) are satisfied, there is a discretion in r 4(4) to order discovery.
This appeal raises the novel question of whether and if so to what extent subjective considerations feature in the conditions necessary to enliven the power to order discovery. The second appellants' primary contention is that the court's discretion in O 26A r 4(4) had not been enlivened in this case because the evidence established that:
(a)this particular respondent had sufficient information to enable it to decide whether to commence or take proceedings; and
(b)the respondent had already decided to commence proceedings against the second appellants.
The second appellants claim in the alternative that, if the subjective matters are not conditions necessary to enliven the power, they are relevant in the exercise of the discretion.
The issues raised in the appeal depend upon the proper construction of O 26A r 4. Much reliance is placed below and in the appeal on decisions interpreting and applying the equivalent provision in the Federal Court Rules 1979 (Cth), being O 15A r 6 (the Federal Court rule). The authorities on the construction of the Federal Court rule need to be approached with caution because of textual differences in the respective rules.
Order 26A r 4 has been the subject of appellate consideration in this court on a number of occasions. In McCarthy v Dolpag Pty Ltd [2000] WASCA 106, Anderson and Scott JJ said of O 26A r 4:
There is no doubt that caution must be exercised before making an order and that such orders should not be made as a matter of course. They should only be made when reasonably necessary to achieve the proper administration of justice … It must be remembered that discovery 'constitutes a very serious invasion of privacy and confidentiality [and] the process should not be allowed to place upon a litigant any harsher or more oppressive burden than is strictly required' … and this is a fortiori the position where the discovery is sought before action and is for the purpose of determining whether or not there is an issue to litigate [13].
That statement was approved in Central Exchange Ltd v Anaconda Nickel Ltd [2002] WASCA 94 [82]. Thus, although the power in O 26A r 4(4) is wide enough to permit an order for general discovery such an order would be rare. However, it was accepted by the parties that the court has the power under O 26A r 4(4) to order discovery of particular documents.
In order to enliven the discretion in O 26A r 4(4), the applicant must establish by evidence that:
(1)the applicant may have a cause of action against the potential party;
(2)the applicant wants to commence proceedings against the potential party or to take proceedings against the potential party in the course of an action to which the applicant is a party;
(3)the applicant, after reasonable inquiries, has not been able to obtain sufficient information to enable a decision to be made as to whether to commence or take the proceedings;
(4)there are reasonable grounds for believing that the potential party had or has, or is likely to have had or to have, possession of documents that may assist in making the decision (the decision being whether to commence or take proceedings).
Whether an applicant may have a cause of action against a potential party is an objective question: Waller v Waller [2009] WASCA 61 [75]. So too is the question whether there are reasonable grounds for believing that the potential party has relevant documents.
However, O 26A r 4 contains a mixture of subjective and objective elements. Whether the applicant wants to commence proceedings, the inquiries made by the applicant and the information it has obtained, are all subjective matters. Whether the inquiries are reasonable imports an objective standard. The sufficiency of the information is an objective standard but it is determined by reference to the knowledge and circumstances of the particular applicant.
Sufficient information means no more than that which is reasonably necessary to enable the person to decide whether to commence or take proceedings. That is consistent with the construction of the Federal Court rule: Matrix Film Investment One Pty Ltd v Alameda Films LLC [2006] FCA 591 [16] ‑ [18]. Ordinarily, what is reasonably necessary is unlikely to extend beyond documents constituting or contemporaneously recording the material facts or information necessary to determine the material facts. It should not extend, for example, to the potential parties' subjective evaluation of its potential liability. That would exclude the documents in par (b) of the order made by the primary judge.
It is also necessary to consider the scope and relationship between the requirement that the applicant wants to commence or take proceedings against the potential party and the requirement that the applicant does not have sufficient information to enable a decision to be made as to whether to commence or take proceedings. The first of the two requirements (which has no equivalent in the Federal Court rule) places a limitation on the extent to which an applicant can fish for information. As the applicant must show that it wants to commence or take proceedings against the potential party, it follows that if the missing information supports its claim, proceedings would be commenced or taken. The conditions enlivening the discretion are not met if the applicant requires the information in order to determine whether or not it wants to take proceedings.
Finally, the underlying and unequivocal implication in the language of r 4(1) is that the discretion is only enlivened in circumstances where the applicant has not made a decision to commence or take proceedings. That being the case, the question is whether the respondent had already decided to commence proceedings against the second appellants. The primary judge said the evidence did not establish that the respondent had decided to take proceedings against the second appellants [46].
There is no direct evidence on this issue in the affidavits filed by the respondent in support of its application for discovery. The second appellants rely upon the respondent's continuing conduct of the action against Mr Fieldhouse in the more than 10 years following the agreement to limit the respondent's recovery to the amount paid or payable by Mr Fieldhouse's insurers. The second appellants also rely on a statement made in court by the respondent's counsel on 1 April 2008. At a time before the respondent had been advised of the identity of the appellants, counsel said:
What is now proposed by the [respondent], your Honour, is to bring in insurers directly under the provisions of s 51 of the [Insurance Contracts Act 1984 (Cth)] to join them as defendants to the proceedings.
Counsel subsequently stated that 'if we are told who the insurers are … we may go straight then to an application to join pursuant to the provisions of s 51'.
Some further background is necessary in order to fully appreciate the thrust of the second appellants' claim. Mr Fieldhouse was employed by and worked for the late Mr Lang Hancock and his group of companies, one of which was the respondent [5]. In modern parlance, Mr Fieldhouse was an in‑house solicitor for the Hancock group. There was no evidence as to who assumed responsibility for arranging and paying for Mr Fieldhouse's professional indemnity insurance and who had possession, or an entitlement to possession, of the relevant documents relating to his insurance.
The respondent's action against Mr Fieldhouse involves a claim of around $20 million. It can be inferred that the respondent was aware from September 1998 at the latest that the defence of the action on behalf of Mr Fieldhouse was being conducted by his professional indemnity insurers. It is apparent from the Deed of Release that the respondent was aware that Mr Fieldhouse had insurance pursuant to the compulsory requirements of the Legal Profession Act 1987 (NSW). It would not be difficult to obtain information as to the scope and extent of the compulsory layer. It is not suggested it goes anywhere near the amount claimed in the action. Further, the Deed of Release expressly contemplates that Mr Fieldhouse may have insurance beyond the compulsory primary layer.
Since the execution of the Deed of Release in September 1998 the respondent has engaged in litigation conducted by Mr Fieldhouse's professional indemnity insurers with the maximum potential return from the litigation being the total of the insurance cover. If the respondent succeeded against Mr Fieldhouse (now his estate) and the insurers denied liability under the policies, the respondent would be entitled to be subrogated to Mr Fieldhouse's position and take action against his insurers.
As a result of Mr Fieldhouse's death, the respondent has a right under s 51 of the Insurance Contracts Act 1984 (Cth) to take direct action against the appellants. In order to succeed against the insurers under s 51, the respondent has to establish that Mr Fieldhouse is liable in damages to the respondent and that the contract of liability insurance provides insurance cover in respect of that liability. There is authority to the effect that the insured's liability to the third party and the insurer's obligation to indemnify the insured under the insurance policy can be litigated and determined in the same proceedings: Webb v Estate of Darryl Arthur Herbert [2006] WASCA 43 [15].
Thus, since September 1998 the respondent has continued to take legal action against Mr Fieldhouse, the entire financial success of which depends on his professional indemnity insurance covering the claims. It is inconceivable that the respondent would engage in over 10 years of expensive litigation without having taken some steps to satisfy itself that the insurance responded to the claims against Mr Fieldhouse and the likely extent of the cover. There is no evidence from the respondent as to the information in its possession on these matters. Having regard to the amount of the claim and the very significant legal costs associated with an action of this type I would not, in the absence of evidence from the respondent, conclude that the decision to continue the action after September 1998 related solely to the primary layer of insurance under the compulsory scheme. The respondent's conduct of the action is entirely consistent with the advice from the respondent's counsel to the court in April 2008 that the respondent proposed to take proceedings against the insurers when their identity had been revealed. The information as to the identity of the insurers was provided by letter dated 30 April 2008 from the insurers' solicitors.
Although there is no direct evidence from the respondent that it did want to commence or take proceedings, it was accepted by both parties that that condition was satisfied [34]. Accepting as the parties did that the respondent wanted to commence or take proceedings against the insurers,

the evidence as a whole together with the statements from the respondent's counsel justify the inference that the respondent had already decided to do so. It could now do directly what it had been doing indirectly for over a decade.

The only possible alternative explanation of the evidence is inconsistent with the parties' concession that the respondent wanted to commence or take proceedings. The alternative explanation is that the respondent had not decided whether it wanted to commence or take proceedings against the insurers. The position of the first appellant explains the point. By letter dated 4 June 2008, the first appellant advised the respondent that LawCover had granted indemnity to Mr Fieldhouse in relation to the respondent's claims the subject of the action, subject to an express reservation in respect of any liability brought about by fraud. What point is to be served in taking proceedings if the insurers acknowledge that the policy responds to the claims or the terms of the policy disclose no arguable defence. However, the application for discovery on this basis would also fail because of the failure to establish the necessary preconditions enlivening the discretion.
For these reasons, I am of the opinion that the primary judge was wrong to order discovery under O 26A r 4. However, the decision of the primary judge is interlocutory in which event the second appellants can only succeed if it persuades the court that substantial injustice would occur if the decision remained unreversed. The respondent quite reasonably says that there can be no relevant prejudice as the second appellants' case is based upon the proposition that the respondent had decided to take proceedings against them in which event all the documents the subject of the order would be discoverable in the proceedings. Moreover, there is no challenge to the accuracy of the primary judge's observation that there was no evidence that handing over the documents would cause any commercial or other prejudice to the potential parties. There being no substantial injustice, I would refuse leave to appeal.
MILLER JA: I agree with McLure JA.
NEWNES JA: This is an appeal by the second appellants from a judgment of Le Miere J in which he ordered that the second appellants give discovery to the respondent of certain documents, pursuant to O 26A r 4 of the Rules of the Supreme Court 1971 (WA).

The second appellants require leave to appeal, the decision of the primary judge being an interlocutory decision: Waller v Waller [2009] WASCA 61. On 30 September 2008, Wheeler JA ordered that the question of leave be heard with the appeal.

Background

Prior to his death in 1992, Mr Lang Hancock controlled a group of companies which included the respondent (HFMF) and Hancock Prospecting Pty Ltd (HPPL). Mr Hancock held a share, called the Life Governor's share No 1, in HPPL. That share gave him effective control of HPPL and its board.
Shortly before his death, Mr Hancock sold to HFMF his Life Governor's share in HPPL for $20 million. HFMF alleges that the price it paid for the share was far in excess of its actual worth.
Mr Fieldhouse was a solicitor who had been employed by and worked for the late Mr Hancock and his group of companies since about 1972. On 21 August 1995, HFMF commenced proceedings against Mr Fieldhouse alleging that he was in a position of conflict in acting as solicitor for both Mr Hancock and HFMF in connection with the sale of the Life Governor's share to HFMF. In the action, HFMF asserts that Mr Fieldhouse breached fiduciary and common law duties he owed to it, and acted negligently in advising it. HFMF claims damages for the losses it allegedly suffered.

On 22 September 1998, HPPL, HFMF and Mr Fieldhouse entered into a Deed of Release and Indemnity (the Deed of Release). The Deed of Release dealt with a number of matters but, relevantly, by cl 2.7, HFMF covenanted that in the event of obtaining judgment in the action it would not seek to enforce the judgment or any costs order that may be made against Mr Fieldhouse to recover moneys 'beyond that paid or payable by [his] professional indemnity insurers (including LawCover)' in respect of the judgment.
At the risk of understatement, progress in the action has been slow. It is now almost 14 years since the action was commenced and it is yet to go to trial. On 6 April 2004, on the application of Mr Fieldhouse, Master Sanderson ordered that the action be dismissed for want of prosecution. On 26 May 2005, the Court of Appeal allowed an appeal from that order and ordered that Mr Fieldhouse's application be dismissed. The action has proceeded slowly since that time.
Mr Fieldhouse died unexpectedly on or about 16 November 2007. Following the death of Mr Fieldhouse, it was open to the respondent, pursuant to s 51 of the Insurance Contracts Act 1984 (Cth) (the Act), to bring proceedings against any insurer who was liable under a contract of insurance in respect of Mr Fieldhouse's liability to the respondent.
On 18 March 2008, the respondent's solicitors wrote to the solicitors instructed to act for Mr Fieldhouse. In that letter, the respondent's solicitors said, amongst other things:
As we understand it, these proceedings are being defended by Mr Fieldhouse's insurers, and that your firm obtains instructions from Yeldham Price O'Brien Lusk, a Sydney firm of solicitors, who act on behalf of those insurers.
The identity of those insurers, and the extent of the cover provided by the policy (or policies) of insurance from those insurers, has never been disclosed to our client. Our predecessors, Cocks MacNish, sought on a number of occasions to obtain the identity of Mr Fieldhouse's professional indemnity insurers and the scope of the cover afforded by the policy or policies of insurance by which that indemnity is given. All such attempts were objected to and resisted by your client.
The basis behind those objections was revealed in a letter to Cocks MacNish dated 8 December 2005, in which it was claimed that Mr Fieldhouse had no obligation to discover his insurance details to a stranger to his insurance contract, particularly where there was no issue between Mr Fieldhouse and his insurers, and where there was no direct claim against those insurers and no direct claim to be paid such insurance moneys as might be payable under the policy (or policies). The letter also claimed that the identity of Mr Fieldhouse's insurers and the scope of cover afforded by the policy (or policies) could have no effect on the resolution of the issues likely to arise upon the presentation of our client's case or the consideration of any defence to be advanced by Mr Fieldhouse.
Irrespective of whether those previous assertions were correct, now that Mr Fieldhouse is deceased the extent of cover under his insurance policy (or policies) is directly relevant to our client's position.
…
Prior to electing whether to join the insurers to these proceedings our client wishes to seek discovery of the contract (or contracts) of insurance between Mr Fieldhouse and his insurers so that it can be satisfied that cover is provided in respect of the liability that is owed to our client (s 51(1)(c) of the Act). As you would appreciate, without having reviewed the policy (or policies), our client is effectively in the dark on this issue. Given that the amount of damages claimed against Mr Fieldhouse is well in excess of $20 million, it is appropriate that this issue be addressed at this interval.
The respondent's solicitors also requested details of the identity of Mr Fieldhouse's insurers.
At a directions hearing before Le Miere J on 1 April 2008, counsel for the respondent foreshadowed the possibility of an application being made by the respondent under O 26A r 4 in connection with a possible claim against the appellants under s 51 of the Act. In the course of the hearing, counsel for Mr Fieldhouse informed Le Miere J that the solicitors for Mr Fieldhouse were instructed by LawCover. The exact status of LawCover does not emerge from the evidence but it appears that it manages the Solicitors Mutual Indemnity Fund which is, in effect, the compulsory insurer under the Legal Profession Act 1987 (NSW).
The solicitors for Mr Fieldhouse responded to the letter of 18 March 2008 by a letter dated 30 April 2008. In that letter they reiterated that they acted on instructions from LawCover and said, relevantly:
1.At all material times Mr Fieldhouse held a Certificate of Insurance issued by the Solicitors Mutual Indemnity Fund pursuant to the compulsory requirements of the Legal Profession Act 1987 (NSW).
2.Mr Fieldhouse held excess insurance policies through Underwriters at Lloyds. We're instructed that the full market participation in the relevant policies was as follows:
2.1Syndicate 657 D R Lowe 47.618%;
2.2Syndicate 683 R J Wallace 23.810%;
2.3Syndicate 839 A M Sharpe 19.048%;
2.4Syndicate 376 J H Benton 4.762%;
2.5Syndicate 510 R J Kiln 4.762%.
…
4.Process on all excess insurers in the context of these proceedings may be addressed to their nominee: D R Lowe, Canopius Syndicate 839/Trenwick Underwriting Ltd … However, Mr Lusk is authorised to accept service on behalf of the D R Lowe [Syndicate] and accordingly excess insurers.
On 1 May 2008, a solicitor acting on behalf of the respondent spoke with Mr Lusk of Yeldham Price O'Brien Lusk, the solicitors acting for Mr Fieldhouse's insurers. Mr Lusk said that his clients would not disclose to HFMF details of the contracts of insurance between the late Mr Fieldhouse and Mr Fieldhouse's insurers.
The respondent then applied to the court for discovery against both appellants under O 26A r 4. Relevantly, as against the second appellants the respondent applied for an order that:
1.[The second appellants] give discovery of the following documents:
(a)the documents that constitute the contract of insurance between Mr Fieldhouse and [the second appellants] in respect of the liability of Mr Fieldhouse;
(b)any documents relating to whether the said contract of insurance between Mr Fieldhouse and [the second appellants] provides cover in respect of the liability of Mr Fieldhouse including any document containing any admission or denial of cover either in full or part;
(c)any schedules or annexure forming part of the contract of insurance referred to in subparagraphs (a) and (b);
(d)the Certificate of Insurance in relation to the said contract of insurance between Mr Fieldhouse and [the second appellants].
The application came on for hearing before Le Miere J on 9 June 2008. His Honour delivered judgment on 25 July 2008: The Hancock Family Memorial Foundation Ltd v Fieldhouse [No 2] [2008] WASC 147. His Honour found that the respondent was entitled to the discovery sought against both appellants and made orders accordingly.
I should say that an appeal by the first appellant in respect of the order for discovery made against it was commenced but later discontinued, the issues between the parties in relation to the documents having been resolved in the meantime.

The findings of the primary judge

The primary judge was satisfied on the evidence that there was material which established that the respondent may have a cause of action against the second appellants under s 51 of the Act and that the respondent did not have sufficient information to enable a decision to be made as to whether to take those proceedings. His Honour noted there was no evidence that the second appellants had agreed to indemnify Mr Fieldhouse in respect of the respondent's claim and no information had been provided to the respondent about the nature and extent of the liabilities for which insurance cover has been provided by the second appellants.
In exercising his discretion, the primary judge noted that the respondent had commenced and continued the action for 12 years without knowing the extent of Mr Fieldhouse's insurance cover, and had agreed to limit any recovery to the amount of that insurance cover, but his Honour considered that the position had changed significantly upon the death of Mr Fieldhouse in November 2007. The respondent was now contemplating taking proceedings direct against the second appellants, pursuant to s 51 of the Act. His Honour observed that if the respondent took those proceedings it would risk the legal costs associated with the proceeding, those costs not being at risk while the action was solely against Mr Fieldhouse.
The primary judge was satisfied that the respondent had not decided to take proceedings against the second appellants in any event and that the documents in question were sought to assist the respondent to decide whether it was warranted in taking such proceedings. His Honour noted there was no evidence that the discovery sought would be oppressive or that handing over the documents would cause any commercial or other prejudice to the second appellants. He concluded that the respondent was entitled to the orders sought.

The grounds of appeal

The second appellants rely upon the following grounds of appeal:
1.The learned primary Judge erred in fact and in law in the following respect; having correctly found at [46] of the Reasons that:
1.1The Respondent commenced the action in 1995;
1.2At that time the Respondent did not know the extent of [Mr Fieldhouse's] insurance cover;
1.3In 1998 the Respondent agreed to limit recovery under any judgment against [Mr Fieldhouse] to the amount of the defendant's insurance cover;
1.4From 1998 until the death of [Mr Fieldhouse] (in 2007) the Respondent proceeded with the action against [Mr Fieldhouse] without knowing the extent of that insurance cover;
the learned primary judge erred in concluding that, in the absence of the documents sought in the application pursuant to RSC O26A R4, the Respondent did not have sufficient information to decide to commence the proceeding against the [Second] Appellants in that the learned primary judge ought to have found that the Respondent had decided to take proceedings against the [Second] Appellants in any event.
2.The learned primary Judge erred in the exercise of his discretion in ordering discovery pursuant to RSC O26A R4 when there was no basis at law for the exercise of the discretion in circumstances where:
2.1At the time of the application the Respondent had reached a decision about whether or not to take proceedings and had decided to do so; and
2.2There was evidence, in paragraph 13 of the affidavit of Nicholas Henry Brown sworn 22 May 2008, that the Respondent was seeking discovery of documents relevant only to quantum, to ascertain whether the insurance covered the liability in damages that the Respondent maintains is owing by the (late) [Mr Fieldhouse] to it or the monetary limit, if any, on the cover.

The second appellants' submissions

Senior counsel for the second appellants argued that the information that was necessary to enable a decision to be made by the respondent as to whether to commence proceedings against the second appellants was threefold; first, that there is a contract of liability insurance, secondly, that the contract of liability insurance provides cover for the acts or omissions relied upon for the claim against the insured, and thirdly, that the insured has died.
The last of those is not in doubt. As to the other two, the respondent was informed in the letter of 30 April 2008 that there is a contract of liability insurance and, by implication, that it covers the acts or omissions said to give rise to Mr Fieldhouse's liability to the respondent. If it did not cover the liability, there would have been no point in the existence of the policies and the identity of the insurers being disclosed.
It was submitted that the respondent in fact seeks discovery to ascertain the amount of the cover and whether policy liability has been admitted or denied. That is not information which the respondent requires to enable it make a decision as to whether to commence proceedings.
Senior counsel submitted that the question of whether a party has sufficient information to enable it to make a decision whether to commence proceedings is to be determined objectively, subject to one qualification. That qualification is that, regardless of any objective assessment, if as a matter of fact the party does not require the information in order to make the decision then the requirements of O 26A r 4 are not satisfied. It was submitted that that was the case here. The evidence established that the respondent did not in fact require the information sought because the respondent had already made up its mind to proceed against the second appellants in any event. That was evident from the fact that the respondent had continued the action against Mr Fieldhouse after 1998 without knowing the amount of his cover and whether policy liability was admitted, notwithstanding that his liability to the respondent was limited to his insurance cover.
The second appellants also argued that the primary judge erred in the exercise of his discretion under O 26A r 4(4) in two respects. First, the potential liability of the respondent for the second appellants' costs was irrelevant. The respondent did not know whether policy liability was admitted by the second appellants so the respondent was faced in any event with the prospect of having to incur the costs of subsequent proceedings (through Mr Fieldhouse) against the second appellants if the respondent obtained judgment in the action against Mr Fieldhouse. Secondly, his Honour erroneously concluded that the respondent had not decided to take proceedings against the second appellants in any event and accordingly failed to have regard to the fact that the respondent had so decided.
It was submitted that the decision of the primary judge was clearly wrong and there would be substantial injustice if the orders of the primary judge were not set aside and the second appellants were required to produce the documents.

The respondent's submissions

On the question of leave to appeal, it was submitted that there would be no injustice if leave were refused. It was not suggested that handing over the documents sought would cause the second appellants any commercial or other prejudice. In addition, if, as contended by the second appellants, the respondent intended to commence proceedings against them in any event, then the documents would have to be produced in the course of those proceedings so there could be no injustice to the second appellants in their production at this stage.
It was submitted that in order to bring proceedings against a party under s 51 of the Act it is necessary to identify a contract of insurance and to consider the extent of the cover it provided, including any relevant exclusions or monetary limits upon the claims that may be made under that contract of insurance. The respondent has no information as to the terms of Mr Fieldhouse's insurance with the second appellants or of the monetary limit of that insurance, nor does it have any information as to whether indemnity has been granted under the contract of insurance.
Senior counsel for the respondent argued that the letter of 30 April 2008 did not respond to the request from the respondent's solicitors for information as to whether the contract of insurance between Mr Fieldhouse and the second appellants covers the liability of Mr Fieldhouse in the present action, but simply identifies the second appellants as insurers who have provided professional indemnity cover to Mr Fieldhouse. The letter was conspicuously silent as to the scope and extent of the cover.
It was submitted that the fact the respondent has brought the current proceedings against Mr Fieldhouse does not mean it is willing to bring proceedings against the second appellants without establishing that there is a proper basis for such proceedings. If proceedings were commenced against the second appellants, HFMF would incur prospective liability for substantial costs in the event the claim was unsuccessful. In any event, even if HFMF wished to commence those proceedings it could not do so unless it had a proper basis for them. In the absence of information as to the scope of the cover provided by the contract of insurance, the respondent cannot know whether such a basis exists.

Disposition of the appeal

Order 26A r 4 provides, so far as relevant:
(1)This Rule applies if a person who may have a cause of action against a person whose description has been ascertained ('the potential party') wants -
(a)to commence proceedings against the potential party; or
(b)to take proceedings against the potential party in the course of an action to which the person is a party;
but the person, after reasonable enquiries, has not been able to obtain sufficient information to enable a decision to be made as to whether to commence or take the proceedings.
(2)If there are reasonable grounds for believing that the potential party had, has, or is likely to have had or to have, possession of documents that may assist in making the decision, the person may apply for an order under this Rule.
…
(4)On the application the Court may order the potential party to give discovery of all documents that are or have been in the potential party's possession and that may assist the applicant in making the decision.
In my view, whether an applicant under O 26A r 4 has sufficient information to enable a decision to be made to commence proceedings of the nature it wants to bring is to be determined objectively. It does not depend upon the subjective qualities of the applicant, so that what is sufficient will vary depending upon whether the applicant is unusually cautious or unusually robust, or at what point on such a spectrum the applicant happens to fall. Nor does it depend upon whether the applicant considers that the information he or she has is insufficient to enable the decision to be made.
Where, however, an applicant has already made the decision to bring proceedings against the respondent, O 26A r 4 has no application and no question of the adequacy of the information the applicant has available to it arises. As Tamberlin J pointed out in Matrix Film Investment One Pty Limited v Alameda Films LLC [2006] FCA 591 [19], the purpose of preliminary discovery is not to produce material which will strengthen or enhance a decision to commence proceedings but rather to provide what is reasonably necessary to enable the decision to be made.
What is sufficient information for the purposes of O 26A r 4 must depend upon the circumstances of the particular case and cannot, in the abstract, be reduced to specific documents, or categories of documents, or to information of a particular nature.
In his reasons for judgment, the primary judge cited the following passage (among others) from the decision of the Full Court of the Federal Court in Telstra Corporation v Minister for Broadband (2008) 166 FCR 64, 80:
It is not necessary to resolve such tensions as there are in the decided cases in order to accept that on existing authority an applicant for preliminary discovery may be entitled to discovery in order to determine what defences are available to a respondent and their possible strengths or to determine the extent of the respondent's breach and the likely quantum of any damages award: St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147.
The judgment of Hely J in St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147, referred to by the Full Court, has been applied in a number of other cases in the Federal Court and was approved by the Full Court of the Federal Court in Echo Tasmania Pty Ltd v Imperial Chemical Industries PLC [2008] FCAFC 58 [43].

I do not, however, understand those cases to mean (nor do I understand the primary judge to have suggested) that, in order to make a decision whether to commence proceedings, a party is entitled to discovery of material of the kind mentioned, but rather to mean that in a particular case discovery of one or other of those kinds may be appropriate. As Hely J pointed out in St George Bank, whether an applicant has 'sufficient information' for the purposes of the Federal Court rule requires an objective assessment to be made and the rule contemplates that the applicant is lacking a piece (or pieces) of information reasonably necessary to decide whether to commence proceedings. Whether, therefore, an applicant is entitled to discovery to ascertain the defences available and their strength, or the extent of the respondent's breach, or the likely quantum of damages, or some other information, must depend upon the particular circumstances of the case.
It is necessary, however, to bear in mind that the rule is not intended to enable an applicant to obtain every document that would assist it in deciding to commence proceedings, but to obtain documents which will provide it with sufficient information to enable a decision to be made whether to commence proceedings of the nature it wants to bring. It does not extend beyond what is reasonably necessary for that purpose. The rule is not intended to supplant or duplicate the ordinary process of discovery.
The cause of action which the respondent says it has in contemplation is under s 51 of the Act, which (so far as relevant) is as follows:
1.Where:
(a)the insured under a contract of liability insurance is liable in damages to a person (in this section called the third party);
(b)the insured has died or cannot, after reasonable enquiry, be found; and
(c)the contract provides insurance cover in respect of the liability;
the third party may recover from the insurer an amount equal to the insurer's liability under the contract in respect of the insured's liability in damages.
As I understand it, there are two propositions involved in the second appellants' contention that the primary judge erred in finding that the respondent did not have sufficient information to enable it make a decision as to whether to commence proceedings. First, viewed objectively, the information provided by the second appellants in the letter of 30 April 2008, together with the known fact of Mr Fieldhouse's death, provided the respondent with sufficient information to make a decision whether to sue the second appellants. Secondly, in any event the evidence established that the respondent did not in fact require any more information than it currently had because it has already decided to sue the second appellants - in practical terms it had been doing so since 1998 when the Deed of Release confined the respondent's right of recovery to the extent of Mr Fieldhouse's insurance cover.
I do not accept the first proposition. The letter from the respondent's solicitors of 18 March 2008 specifically sought disclosure of the contracts of insurance between Mr Fieldhouse and his professional indemnity insurers 'so that [the respondent] can be satisfied that cover is provided in respect of the liability that is owed to [the respondent]'. In their reply, the solicitors for Mr Fieldhouse said that Mr Fieldhouse had insurance under the compulsory requirements of the Legal Profession Act 1987 and 'excess insurance policies through underwriters at Lloyds'. They set out the various Lloyds syndicates involved - the second appellants - and their respective proportions of the cover. They did not, however, respond to the request for discovery nor did they say whether the excess policies covered the claim against Mr Fieldhouse.
I do not accept the submission on behalf of the second appellants that it was apparent from the letter of 30 April 2008 that the excess policies covered the claim. If that was what the solicitors intended to convey it is difficult to understand why they did not say so expressly - and why they have apparently not said so expressly since. The fact that Mr Fieldhouse had policies of professional indemnity insurance over and above the compulsory insurance requirements does not of itself indicate that the ambit of cover provided by the excess policies is co‑extensive with the compulsory insurance. Indeed, it is not at all difficult to conceive that a legal practitioner might choose to take out additional insurance narrower in scope than the general cover provided by the compulsory insurance.
The fact that reference was made by Mr Fieldhouse's solicitors to the excess policies in response to the request from the respondent's solicitors carries with it no implication that those policies cover the claim against Mr Fieldhouse. Indeed, the reference in the letter to the excess policies is framed in terms which appear to have been carefully drawn to avoid any suggestion as to their scope. While senior counsel for the second appellants resisted the suggestion in the course of argument that in that respect the letter of 30 April 2008 was rather coy, the fact is that the letter did not address that issue and it remains unexplained.
I also do not accept the second appellants' second proposition. The fact that after the Deed of Release was entered into the respondent continued the action against Mr Fieldhouse is not, in my opinion, evidence of an intention on the part of the respondent to sue the second appellants in any event. When the deed was executed the respondent knew that, at the least, Mr Fieldhouse had a policy of insurance through the first appellant which responded to the claim. The evidence does not disclose the amount of that cover but it was accepted by counsel for the second appellants that it would not be less than $1.1 million. Had it been the case that insurance policies issued by the second appellants were the only known professional indemnity insurance held by Mr Fieldhouse there might have been some substance in the second appellants' contention. But that was not the case. I should add that it appears LawCover has previously notified the respondent that Mr Fieldhouse had been granted indemnity under the compulsory New South Wales scheme in respect of the respondent's claim (subject to a fraud exception in the policy), although it is not apparent when that notification occurred.
In this case, in my respectful opinion, the primary judge correctly found that the respondent did not have sufficient information to enable a decision to be made whether to commence proceedings against the second appellants. There is, as the primary judge pointed out, no information as to whether the insurance cover provided by the second appellants applies to the claim against Mr Fieldhouse. No purpose would be served by proceedings against the second appellants if it is clear that their insurance policy does not respond to the respondent's claim. Nor would any purpose be served by leaving it for the respondent to discover whether the policy responds to the claim through the interlocutory process after it has commenced proceedings against the second appellants. It is circumstances such as those that the rule is intended to avoid.
In my view, what the respondent reasonably requires to make a decision whether to commence proceedings against the second appellants is the contract of insurance and any other documents relating to whether the insurance cover applies to the respondent's claim. I consider that, subject to one exception, the relevant documents are those set out in the orders made by the primary judge.
The exception relates to his Honour's order that the second appellants discover any document containing any admission of cover. I do not, with respect, consider that that is reasonably necessary to enable the respondent to make a decision whether to commence proceedings. What, in my view, the respondent requires are the documents which determine the legal entitlement of Mr Fieldhouse to indemnity in respect of the respondent's claim, not documents which disclose the second appellants' own view as to the effect of those documents.
Turning then to the discretion under O 26A r 4, I do not accept the appellant's contention that the primary judge erred in the exercise of his discretion.
I have already rejected the second appellants' submission that the respondent does not require the information sought because it has already decided to sue the second appellants. I would also reject the submission that the primary judge erred in taking into account that the respondent would be potentially exposed to an order for costs if it commenced action against the second appellants. In my opinion, that was plainly a consideration that his Honour was entitled to take into account. The effect of the contemplated proceedings against the second appellants would be that the respondent would incur a potential liability for costs that it does not have as the action is currently formulated. That point is not met by conjecture as to what might have been the position had Mr Fieldhouse not died or whether, as the action is currently framed, the respondent might subsequently have to take separate proceedings against the second appellants in any event to enforce Mr Fieldhouse's right to indemnity in respect of any judgment obtained against him.
I do not therefore consider that the primary judge erred in ordering discovery, except in respect of documents containing any admission or denial of cover. For the reasons I have given, I consider, with respect, that his Honour erred in ordering discovery of those documents.
However, as the decision of the primary judge was interlocutory the appellants must establish that substantial injustice would occur if the decision in respect of those documents was not reversed. I am not persuaded that it would occur. The primary judge found there was no evidence that handing over any of the documents sought by the respondent would cause prejudice to the second appellants. That finding was not challenged by the second appellants, perhaps not surprisingly in circumstances where, as the respondent pointed out, it was the second appellants' contention that the respondent has already decided to take proceedings against them, in which case the documents would be discoverable in those proceedings.
I would refuse leave to appeal.