Sphere Healthcare Pty Ltd v Allianz Australia Insurance Ltd (No 2)

[2025] NSWSC 552

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Sphere Healthcare Pty Ltd v Allianz Australia Insurance Ltd (No 2) [2025] NSWSC 552

Hearing dates:

23 May 2025; further written submissions 28 May 2025

Date of orders:

29 May 2025

Decision date:

29 May 2025

Jurisdiction:

Equity - Commercial List

Before:

Stevenson J

Decision:

Plaintiffs have leave to cross-examine employee of the defendant on adequacy of the defendant’s discovery; defendant to give further discovery to plaintiffs

Catchwords:

CIVIL PROCEDURE – discovery – further and better discovery – whether discovery adequate – whether reasonable search undertaken – where limited documents discovered – where defendant earlier indicated that email inboxes are automatically deleted, but then indicated email inboxes are automatically archived – where defendant has not undertaken search of such archives – whether reasonable grounds for being fairly certain other relevant documents have not been discovered

Legislation Cited:

Civil Procedure Act 2005 (NSW)

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Con Ange v Fairfax Media Publications Pty Ltd [2010] NSWSC 1200

Dai v Zhu [2013] NSWCA 412

Preston v Star City Pty Limited [2007] NSWSC 293

Procter v Kalivis [2009] FCA 1518; 263 ALR 461

Proctor & Gamble v Medical Research [2001] NSWSC 183

Category:

Procedural rulings

Parties:

Sphere Healthcare Pty Limited (First Plaintiff/Applicant)
Yes Family Pty Ltd (Second Plaintiff/Applicant)
Allianz Australia Insurance Limited (Defendant/Respondent)

Representation:

Counsel:
E H G Steer (Plaintiffs/Applicants)
C P O’Neill (Defendant/Respondent)

Solicitors:
Herbert Smith Freehills (Plaintiffs/Applicants)
Carter Newell Lawyers (Defendant/Respondent)

File Number(s):

2022/269876

JUDGMENT

1. Between 2013 and 2020, the plaintiffs, Sphere Healthcare Pty Ltd and Yes Family Pty Ltd, held an Industrial Special Risks Policy (the “Policy”) with the defendant, Allianz Australia Insurance Ltd, in relation to a business conducted by Sphere Healthcare on premises owned by Yes Family at Moorebank.

2. The Policy was incepted on 23 March 2020.

3. On 9 July 2020, there was a fire at the Moorebank premises.

4. The plaintiffs have made a claim under the Policy in relation to the fire.

5. Allianz has denied liability to indemnify the plaintiffs on the basis of an alleged material alteration of the risk, being the acquisition and storage of some 60,000 litres of ethanol in plastic barrels at the Moorebank premises and a failure to notify Allianz of that alteration of risk.

6. The claim under the Policy is for a significant amount. I was informed that the amount claimed is in the order of $20 million.

7. On 7 June 2024, after a contested application, Nixon J ordered that Allianz give discovery of the following categories of documents:

“Category	Description	Date range
1	All documents which refer to, record or evidence the Defendant’s consideration, evaluation or assessment of: (a) the fire risk associated with insuring the Premises (including any businesses conducted form the Premises); (b) flammable materials stored at the Premises, including but not limited to the nature of the flammable material and the manner in which it was stored; and (c) Spirits Licences held by occupiers of the Premises.	15 November 2015 to 9 July 2020
2	To the extent they are not captured by Category 1, all documents which refer to, record or evidence the risk assessment procedures, guidelines, matrices, or classifications used by the Defendant for the assessment of risk for policies of insurance issued by it in relation to the Plaintiffs’ occupation and use of the Premises, and the application of said procedures, guidelines, matrices, or classifications as part of the assessment of risk for policies of insurance issued by it in relation to the Plaintiffs’ occupation and use of the Premises, including but not limited to: (a) policies and procedures associated with changes in business activities and/or alternations in risk; and (b) documents recording the Defendant’s underwriting authority levels.	15 November 2015 to 9 July 2020”.

8. Allianz gave discovery verified by an affidavit of Ms Ubaldine Lobo, the Senior Property Underwriter writing the risk in 2020.

9. The nature of the documents that Allianz has discovered was summarised in a letter sent by the plaintiffs’ solicitor to Allianz’s solicitor on 11 February 2025:

“The analysis is as follows.

(a) [Allianz] has discovered a total of 119 documents in respect of the ordered categories …

(b) Of those 119 documents, around 49 documents are referred to in, or exhibited in some form to, the affidavits filed on behalf of [Allianz]. [Allianz] has therefore produced about 70 additional documents on discovery.

(c) In respect of the 2020 policy year, [Allianz] has discovered approximately 44 documents dated or created in February and March 2020 that relate to the underwriting of the Policy. Those 44 documents include emails (both internal and external), notes and reports.

(d) [Allianz] has discovered approximately 77 documents outside the period in February and March 2020, of which:

a. approximately 12 documents comprise policies, procedures or reference materials; and

b. approximately 9 documents post-date the Fire and are therefore unrelated to [Allianz’s] underwriting.

(e) [Allianz] has therefore only discovered approximately 63 documents outside 2020 policy year which might be said to relate to its underwriting for the Premises. Of those 63 documents:

(1) only about 4 comprise a form of communication (internal or external). Of those 4 communications, only two are emails. The other two documents are entirely unrelated to [Allianz’s] underwriting; and

(2) approximately 8 documents comprise a form of internal notation or analysis with respect to [Allianz’s] underwriting; and

(f) Many documents (for example ALZ.0003.0008) do not appear to have been created by [Allianz], yet they [have] been produced as standalone documents without the relevant communication by which [Allianz] received that material. Similarly, internal consideration or analysis of that material has not been produced.”

10. On 2 April 2025, the plaintiffs filed a motion seeking the following orders:

“1. [Allianz] is to provide the Plaintiffs with a verified schedule recording the repositories and searches undertaken by [Allianz] to comply with the Court’s orders for discovery on 7 June and 3 September 2024, within 7 days of these orders.

…

3. In the alternative to order 1 above, the Plaintiffs have leave to cross-examine Ms Ubaldine Lobo as to the adequacy of [Allianz’s] discovery, as verified by Ms Lobo on 13 September 2024.

4. [Allianz] is to provide the Plaintiffs with a copy of the document (or documents) constituting [Allianz’s] document retention policy (or policies), as referred to in paragraph 12 of the letter from [Allianz’s solicitors] to [the plaintiffs’ solicitors] dated 28 January 2025, and as in operation during the period 1 January 2015 to 9 September 2022, within 7 days of these orders.”

11. The plaintiffs also sought an order that Allianz give further discovery in accordance with the following categories:

“Category	Description	Date range
3	All documents that refer to, record or evidence [Allianz’s] assessment of the risk of property damage for policies of insurance issued by it in relation to the Premises.	1 January 2015 and 9 July 2020
4	All documents recording communications between [Allianz] on the one hand and any broker on behalf of the Plaintiffs on the other, about the placement of policies of insurance for the Plaintiffs.	1 January 2015 and [30 March 2020]”.

12. In written submissions, Ms Steer, who appeared for the plaintiffs, identified a number of “apparent defects” in the nature of the discovery given by Allianz.

13. During oral submissions, Ms Steer focused on the small number of emails that Allianz has discovered and, in particular, on the fact that, outside the policy year in which the fire took place, 2020, only two emails have been produced.

14. Ms Steer submitted that emails generated within Allianz, and between Allianz and any insurance broker, concerning the nature of the risk of the activities being undertaken by Sphere Healthcare at the Moorebank premises are likely to be relevant to the assessment that Allianz has now made that there has been a material alteration of the risk of the activities being undertaken at the Moorebank premises.

15. Ms Steer pointed out that the two emails that have been discovered outside the policy year, dated 1 June 2017 and 2 August 2017, appear to be only part of a more extensive email exchange.

16. The solicitors for the plaintiffs and Allianz have exchanged extensive correspondence about the adequacy of Allianz’s discovery.

17. Paragraph 12 of a letter from Allianz’s solicitors to the plaintiffs’ solicitors of 28 January 2025, referred to in order [4] in the plaintiffs’ motion, stated:

“… we are instructed by Allianz that:

(a) Emails received in Allianz employees’ inboxes are generally required to be manually saved (forwarded) to the relevant Teamworks file.

(b) If not saved to a Teamworks file, emails in Allianz employees’ inboxes are automatically deleted by Allianz’s IT systems after three years.

(c) Allianz’s Teamworks file automatically converts and saves emails in PDF format. It does not automatically save attachments.

(d) If an email has an attachment(s), the attachment(s) should be saved by the recipient (Allianz employee) separately as a PDF. However, this does not always occur.

(e) At the time of sending an email, the sender (Allianz employee) should manually save the email to the relevant Teamworks file. Although this is standard practice, it does not always occur.

(f) Attachments to emails sent by an Allianz employee, if selected to occur (forwarded), should automatically be saved to the Teamworks file alongside the email. However, this does not always occur.

(g) Internal documents (such as file notes) recording telephone communications and internal discussions are rarely prepared and/or saved.” (Italicised emphasis added.)

18. As can be seen, Allianz’s solicitors, on instructions, stated that emails of Allianz employees not saved into the “Teamworks” file were “automatically deleted”.

19. However, in an affidavit read by Allianz on this application, one of its Senior Property Underwriters, Mr Sean McCaffrey, deposed that he was familiar with “the way documents are saved in the [Teamworks] Database and how to search for and access documents” and that:

“Allianz employees’ inboxes are automatically archived by Allianz’s IT systems after three years.” (Italicised emphasis added.)

20. Thus, contrary to what Allianz’s solicitors had said in their letter of 28 January 2025, the inboxes of Allianz’s employees are not “automatically deleted” unless saved to the “Teamworks” file but, rather, “are automatically archived” to an IT system after three years.

21. It emerged during argument that there was no evidence that anyone from Allianz had ascertained the identity of persons who hitherto assessed the risk of insuring the plaintiffs’ business or conducted any search of the “archives” to which Mr McCaffrey referred to see if there are any documents relevant to the issues in these proceedings.

22. Mr O’Neill, who appeared for Allianz, agreed to get instructions as to the nature of Allianz’s “archives” and on 26 May 2025 circulated this email:

“Pursuant to his Honour’s direction, those instructing me have been provided the following instructions from Mr Graham Turnock, Head of Property, Technical – Commercial Products and Portfolios at Allianz Australia.

1.    The Archive System is known as [the] Enterprise Vault. Allianz IT manages the Enterprise Vault. Contrary to what I mistakenly understood, this is not operated by a third party.

2.    The Enterprise Vault is located offsite on premises in Macquarie Park, Sydney and in Melbourne at data centres. It is not accessible by Allianz employees without Allianz IT assistance.

3.   Emails in the Enterprise Vault are deleted after 10 years except for those in excluded mailboxes (which are unlikely to be those of relevance here).

4.   The Enterprise Vault consists of over 2 billon [sic] emails and 750TB of data.

5.   The Enterprise Vault may be text searched.

6.   A simple search can take anywhere between hours to a day. More complicated searches take significantly longer. It is not possible to price the inhouse cost until the scope of the search task is known. That is of course before a further review would need to be undertaken for relevance to any discovery category.

7.   Simple searches often generate millions of irrelevant returns and in his experience finding anything is like searching for a “needle in a haystack”.

8.   Underwriters do not have access to the Enterprise Vault for the purpose of undertaking any assessment of risk. That assessment is to be undertaken utilising Teamworks.

9.   Individual employees do not have access to the email inboxes of others (it is blocked by Allianz for privacy reasons) unless they have a reason and usually signed off by the head of HR.

10.   It is not possible for Allianz to identify particular individuals involved with a particular risk. There are often multiple individuals involved with placing a risk – the broker’s initial contact could be with an account manager rather than an underwriter.

11.   If a policy number is searched it will bring up the underwriter who was on the matter when it was signed off/bound – it does not identify others involved.

12.   All communications relevant to an underwriting decision are to be saved on Teamworks.

Mr Turnock is willing to provide affidavit evidence to the above effect.”

23. Mr O’Neill has informed me that Mr Turnock will in fact make such an affidavit. The debate between the parties is now whether I should permit cross examination of Mr Turnock on that affidavit.

24. The general rule is that an affidavit verifying discovery is conclusive on the question of whether there has been proper discovery and that cross-examination of the deponent will not be allowed except in three circumstances:

1. if it can be shown from the pleadings, the verifying affidavit, or some other source, that there are reasonable grounds for being fairly certain that there are other relevant documents which have not been discovered; ^[1]

2. if it can be shown that the discovering party has misconceived its obligation of discovery, in which case it is not necessary to infer the existence of other relevant documents; ^[2] and

3. if the Court in its discretion considers it otherwise necessary for such cross-examination to occur, though such discretion should be exercised with the overriding purpose in s 56 of the Civil Procedure Act 2005 (NSW) in mind, including the goal of avoiding the process of discovery becoming unduly onerous. As to this point, it should be noted that cross-examination provides a tool for finally disposing issues without the drawn-out and seemingly endless process of solicitor correspondence. ^[3]

   1. Dai v Zhu [2013] NSWCA 412 at [124]-[125] (Sackville AJA, Barrett and Leeming JJA agreeing) citing Procter v Kalivis [2009] FCA 1518; 263 ALR 461 at [33] (Besanko J); Con Ange v Fairfax Media Publications Pty Ltd [2010] NSWSC 1200 at [39] (Garling J) citing Preston v Star City Pty Limited [2007] NSWSC 293 at [21] (Hoeben J).

   2. Dai v Zhu (supra) at [124]-[125] citing Procter v Kalivis (supra) at [33]; Con Ange v Fairfax Media Publications Pty Ltd (supra) at [39] citing Proctor & Gamble v Medical Research [2001] NSWSC 183 at [64] (Hunter J).

   3. Dai v Zhu (supra) at [124]-[125].

25. Mr O’Neill accepted that Allianz has not conducted a search of the Enterprise Vault to ascertain whether it contains any documents, in particular emails, relevant to the issues in these proceedings. Mr O’Neill accepted that there has been an “abject lack of emails” discovered but submitted that it was “simply supposition … without any real focus on why anyone could be fairly certain [whether] any further [relevant] documents exist”. But any lack of certainty about that matter is because Allianz has not interrogated its Enterprise Vault.

26. That provides a sufficient reason to permit cross examination of Mr Turnock. Such cross examination is to be confined to the questions concerning the Enterprise Vault and on the basis that the plaintiffs first circulate a list of the particular topics of the proposed cross examination.

27. That cross examination will be in lieu of any cross examination of Ms Lobo.

28. As to the further discovery sought, I allow Category 3 and allow Category 4 deleting the words “about the placement of policies of insurance for the plaintiffs” and substituting “trade or process of manufacture carried out at the Premises by the first plaintiff, and the nature of the occupation of the premises by the first plaintiff”.

29. I will list the plaintiff’s motion for directions in the motions list on 6 June 2025 and grant liberty to apply on short notice so far as concerns the proposed cross examination of Mr Turnock.

30. Thus, I make the following orders:

1. The plaintiffs have leave to cross examine Mr Graham Turnock on his forthcoming affidavit as to the adequacy of the defendant’s discovery.

2. Such cross examination to be confined to the questions concerning the “Enterprise Vault” and on the basis that the plaintiffs first circulate a list of particular topics of the proposed cross examination.

3. The defendant is to give further discovery to the plaintiffs in accordance with Part 21 of the Uniform Civil Procedure Rules 2005 (NSW) of documents falling within the categories listed in Annexure A ^[4] to these orders.

   4. This Annexure is not attached to this judgment.

4. Stand the plaintiffs’ motion over for directions in the motions list on 6 June 2025.

5. Grant liberty to apply on short notice so far as concerns the proposed cross examination of Mr Turnock.

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Endnotes

Amendments

29 May 2025 - Coversheet - parties corrected.

Decision last updated: 29 May 2025