AAFC No 1 Corporation (Company No 102083) v Tokio Marine & Nichido Fire Insurance Co Ltd & Anor

The proceedings against the first defendant were commenced on 23 December 2022. The second defendant was joined on 15 February 2024.

On 13 September 2024 Stevenson J, in the Commercial List, gave a number of directions concerning the progress of the litigation. In respect of expert evidence, he directed at Order 6.1 that each defendant provide a:

The first defendant provided its proposal on 27 September 2024. The proposal identified the range of experts, by subject matter, and the scope of the evidence that their expert evidence might cover.

The second defendant also served its proposal on 27 September 2024. It followed the same structure as that of the first defendant but gave more detail of the relevance associated with the proposed expert evidence.

The plaintiffs were unimpressed by the proposals and told the defendants why this was the case, by a letter dated 25 October 2024. Primarily, the plaintiffs said that the reasons given for the relevance of the experts were inadequate. The plaintiffs suggested that the defendants file notices of motion seeking directions under r 31.19 of the Uniform Civil Procedure Rules 2005 (NSW) if they wished to proceed with their intention to call expert evidence.

The plaintiffs’ advice was taken up and respective notices of motion were filed by the defendants on 20 December 2024. All of the parties prepared material for the motions leading to the production of a court book comprising four volumes (Exhibit A).

The purpose of r 31.19 is to give effect to s 56 of the Civil Procedure Act 2005 (NSW), in particular to ensure that expert evidence is not used to defeat the “overriding purpose” of the Act, namely “to facilitate the just, quick and cheap resolution of the real issues in the proceedings”.

I will attempt, for present purposes, to give a brief description of the background to the litigation. The plaintiffs are financiers who acquired debts by assignment, from a number of companies falling under the umbrella of a corporate structure called Rhodium (later changed to Antanium).

The Rhodium companies sold assorted commodities to multiple purchasers, some of whom did not pay for the commodities.

The defendants are insurance companies who issued policies of trade credit insurance to the Rhodium companies. The plaintiffs, to whom the Rhodium debts had been assigned, commenced in October 2020 to demand from the defendants sums arising from the indemnity the defendants had provided under the trade credit policies.

The total of the amounts at stake is large, exceeding $100 million (AUD). The plaintiffs’ case is that these monies are owing as a simple product of the insurance cover that had been provided by the defendants to the Rhodium companies. There are alleged to be 37 commodity trades where there has been a failure by a purchaser to pay, thereby generating the call on the respective insurance policies.

The apparent simplicity of a claim on an insurance policy dissolves in this matter into complexity arising from the number of trades, the different commodities involved and the diverse facts behind each trade. There are various issues of construction of the policies and questions of fact, for example, whether a particular commodity was actually delivered.

In addition, the trading in the commodities was ‘open’, meaning that the commodities could be on-sold from one purchaser to another, even while in transit. A further issue concerns the legitimacy of the plaintiffs’ reliance on copy Bills of Lading as opposed to original Bills of Lading.

All of these complexities were said to give rise to the need for expert evidence. Thus, the first defendant states that experts are needed in respect of:

The second defendant added the need for expert evidence on foreign maritime law, noting the possibility of international customs and rules attending the commodities as they travelled across the globe.

Although they identified the areas of expertise in which opinions were sought, the defendants suggested a general order giving them “liberty to adduce expert evidence” in the proceeding. The plaintiffs, in case they did not succeed on their overall objection to expert evidence, submitted that any orders made should be more specific; stating nominated categories, guarding against duplication, and imposing time limits.

The plaintiffs maintained the position they had adopted in their letter of 25 October 2024, that the areas of expertise nominated by the defendants were simply not relevant to the issues identified by the pleadings. In addition, the plaintiffs said that there was no allegation of fraud made by the defendants and therefore any expert evidence directed towards the establishment of fraud should not be permitted.

Fraud must obviously be specifically pleaded, and it has not been so pleaded. But I do not think the fraud issue is determinative of the motions before me. I think expert evidence should be allowed for two reasons:

Starting with the first of the above reasons, the plaintiffs, in the principal proceedings, filed an affidavit from Mr Cheam Hing Lee dated 1 July 2024.

Mr Lee is the “Chief Executive Officer and Managing Director of Antanium Resources Pte Ltd”. Between paragraphs 5 and 17 of his affidavit Mr Lee sets out his professional background. He is obviously a well-educated and very experienced participant in “trade and trade finance”. Mr Lee has worked in the banking industry in very senior positions; he has been a commodity trader, he has headed the financial services arms of large corporations, and he has worked in companies which have participated in open trading, as I have described above.

Mr Lee might well be described as an expert in the type of trading which is at the core of these proceedings. But for his personal involvement in Rhodium, one could well imagine him being retained to provide expert testimony.

In paragraph 37 of his affidavit Mr Lee begins to describe the types of transactions in which Rhodium was involved. He goes on to give a description of six types of transaction, describing each type by its characteristics. Here are two examples:

Between paragraphs 49 and 52 Mr Lee gives a description about the workings of OA trades:

In paragraph 56 of his affidavit Mr Lee introduces the topic of “netting agreements”. He says:

In paragraph 58 Mr Lee talks about the use of copy Bills of Lading:

In paragraph 67 of his affidavit Mr Lee discusses credit risk. He states:

Mr Lee then goes on to describe the workings of “KYC” checks over a number of paragraphs.

There can be little doubt that Mr Lee is giving expert testimony about a number of topics generally falling under the heads of commodity trading, financial scrutiny and international shipping practices.

The plaintiffs said that Mr Lee’s evidence should not necessarily generate a right to expert evidence in reply because there was no guarantee that Mr Lee’s ‘expert’ evidence would be admitted. Presumably Mr Lee gave this evidence because it was thought to be relevant and admissible on the basis of his expertise, including his vast experience. To suggest that the evidence might not ultimately be admitted is a somewhat strained response to the defendants being able to prepare evidence to counter that of Mr Lee.

It was never suggested by the plaintiffs that Mr Lee’s evidence would not be pressed. It must be assumed that the evidence was put forward because it was considered to be relevant. Equally, a response to opinions made in the evidence will also be relevant.

I think Mr Lee’s evidence is enough to allow the defendants’ motions to succeed. However, turning to the second of the reasons I gave above, I do think the pleadings raise issues which give rise to a need for expert evidence. Here are some examples:

The above are but a few examples of how the pleadings might give rise to a need for expert testimony.

I am satisfied that the defendants are entitled to a direction in respect of expert evidence. The next question that arises is the nature of the order giving them the necessary leave. The plaintiffs said that there should be specific limitations to combat duplication and to ensure speedy compliance.

I was taken to the decision of Black J in NorthWest Healthcare Australia RE Ltd v Australian Unity Funds Management Ltd [2023] NSWSC 86 where his Honour referred to the specificity that was required in order to justify directions that met with the principles set out in ss 56-58 of the Civil Procedure Act.

The defendants responded by referring me to a number of authorities, including Coal Management Operations & Processing Pty Ltd v Resource Pacific Ltd [2009] NSWSC 573, where Brereton J said at [5]-[7]:

At the very least, submitted the plaintiffs, an order similar to that made by Moshinsky J in Greensill Bank AG v Insurance Australia Ltd (NSD1216/2021) 12 December 2024, would be appropriate. The order made was:

I have no difficulty with the intent of the above order but think that a direction to that effect might be premature in the current matter. My preference is that the defendants be able to obtain the expert evidence that they desire but that, once they have served their evidence, the plaintiffs be able to return to court to seek orders limiting the number and scope of the served reports. The defendants informed me that they were cooperating in order to avoid duplication. Hopefully this cooperation will obviate the need for the plaintiffs to return to court.

I am also mindful that a need for expert evidence might arise from the discovery process so that it would be inappropriate to limit the categories of expert evidence at this stage.

I do agree with the plaintiffs that a time limit should be imposed upon the serving of the expert evidence and take up the date suggested by the second defendant of 31 July 2025. I will however include a liberty to seek an extension beyond this date if necessary.

Accordingly, I will make the general order suggested by the defendants but will give the plaintiffs liberty to restore the matter in the Commercial List to seek appropriate limitations on the expert evidence that will be served.

In relation to costs, the defendants have sought the costs of the motions at this stage “because we shouldn’t have had to go to this much trouble and Senior Counsel turn up to argue a fairly simple proposition.”

I think the defendants are entitled to a costs order at this stage, although obviously not payable until the completion of the proceedings, primarily because the giving of expert evidence by Mr Lee should have immediately signalled to the plaintiffs that expert evidence in response would be justified.

I make the following orders in respect of the defendants' motions filed on 20 December 2024: