Jason Tang and Ozem Kassem in their capacity as joint and several liquidators of Elite Plant Hire P/L (in liq) v MECON Winsure Insurance Group P/L

1. [1]

   On 21 April 2020, I refused the defendant’s application to amend its Commercial List Response and ordered that four subpoenas issued at the defendant’s request be set aside.

2. [2]

   These are my reasons for making those orders.

3. [3]

   The second plaintiff, Elite Plant Hire Pty Ltd (in liquidation) (“EPH”) operated a civil construction business involving, amongst other things, site inspection, earthmoving excavation, and clearing and demolition.

4. [4]

   By a contract of insurance made on 31 March 2014 the defendant, MECON Winsure Insurance Group Pty Limited (“the Insurer”) agreed to provide insurance to EPH in relation to a Contractors Machinery & Plant Equipment Policy (“the Policy”).

5. [5]

   On 11 March 2014, the first plaintiffs, Mr Jason Tang and Mr Ozem Kassem (“the Liquidators”) were appointed provisional liquidators of EPH.

6. [6]

   On 4 April 2014, the Liquidators made a claim for indemnity under the Policy for the loss of a number of items of heavy machinery that EPH contended had on 19 February 2014 been stolen.

7. [7]

   On 1 May 2014 the Liquidators were appointed official liquidators of EPH.

8. [8]

   On 10 March 2015 the Insurer declined EPH’s claim the indemnity.

9. [9]

   On 26 November 2018 the Liquidators commenced these proceedings seeking a declaration that EPH is entitled to under the Policy for the loss suffered by reason of the allegedly stolen machinery.

10. [10]

    On 2 October 2019, the proceedings were listed for hearing for four days commencing on 18 May 2020.

11. [11]

    I will deal first with the Insurer’s application to amend its Response.

The proposed amendment to the Response

1. [12]

   The Insurer’s application to amend its Commercial List Response was made by notice of motion filed on 9 April 2020 and relates to its contention that EPH failed to comply with its duty of disclosure under ss 21 and 28 of the Insurance Contracts Act 1984 (Cth).

2. [13]

   In its letter of 10 March 2015 to the Liquidators in which it declined indemnity the Insurer said, under the heading “Material non-disclosures” and referring to ss 21 and 28 of the Insurance Contracts Act:

3. [14]

   Further, under the heading “Moral hazard” the Insurer said:

4. [15]

   On 29 March 2017 the Insurer’s solicitor particularised the allegation that EPH was “in financial difficulties” by stating that EPH “had been under external administration since 20 August 2013”; thus confining the allegation of “financial difficulties” to that alleged fact (which the Liquidators dispute).

5. [16]

   In the same letter, the Insurer’s solicitor also stated that the Insurer did not assert that any director of the EPH had been charged with or convicted of a criminal offence or have been declared bankrupt; a matter which becomes relevant when considering the proposed amendment to the Response.

6. [17]

   In its current Commercial List Response, filed on 21 February 2019, the Insurer dealt with the question of non-disclosure by including, as one of the “Issues Likely to Arise”:

7. [18]

   The Insurer did not, in its Response, advance any formal contentions about EPH’s alleged non-disclosure.

8. [19]

   In particular, the Insurer did not specify in the Response the “material facts” concerning EPH’s “financial instability”, or its “involvement with known criminal individuals or enterprises” or its “involvement in civil litigation” that it alleged that EPH had failed to disclose.

9. [20]

   The Insurer did refer to its letter of 10 March 2015, but only to admit that it:

10. [21]

    The Response did not purport to particularise EPH’s alleged non-disclosure by reference to that letter.

11. [22]

    It was not satisfactory that the Insurer’s allegation of material non-disclosure was made only in the course of reciting the Issues Likely to Arise.

12. [23]

    The Liquidators drew attention to this shortcoming in their Reply as follows:

13. [24]

    In the meantime, the Liquidators, through their solicitor, sought particulars of the alleged non-disclosure.

14. [25]

    On 27 May 2019 the Insurer’s solicitor particularised the allegation implicit in paragraph B2(f) of the Response (set out at [17] above) as follows:-

15. [26]

    In the same letter, the solicitor confirmed that the reference to “EPH’s alleged ‘financial instability’” in paragraph B(2)(f) of the Response was a reference to the alleged fact that EPH was “placed into external administration on 20 August 2013” (an allegation which, as I have said, the Liquidators dispute).

16. [27]

    In September 2019 the Insurer served its lay evidence comprising affidavits by three of its employees, Mr Simon Marr, Mr Glenn Ross and Mr Ross Webster.

17. [28]

    Those affidavits were directed to the question of what steps the Insurer would have taken had certain matters been disclosed (a matter relevant to the operation of s 28 of the Insurance Contract Act). The affidavits were not directed to the question of what “material facts” were in fact undisclosed by EPH.

18. [29]

    The proposed amendments to the Insurer’s Response are substantial.

19. [30]

    To begin with, para B2(f) is proposed to be amended to contend that an Issue Likely to Arise is not merely whether EPH itself failed to disclose material facts, but whether “other named insureds to the Policy” also failed to disclose material facts concerning their “financial instability”, “involvement with known criminal individuals and enterprises” and “involvement in civil litigation”.

20. [31]

    The other “named insureds” are Elite Civil Management Pty Ltd, SSI Recruitment Pty Ltd, Elite Civil Group Pty Ltd and Mr Vincenzo Santoro.

21. [32]

    Each of those companies is in liquidation. The liquidator of two of the companies is a person other than the Liquidators. The proposed amendment would thus require the Liquidators to make enquiries of the liquidator of those other companies about the matters now proposed to be raised.

22. [33]

    As to Mr Santoro, as I have mentioned at [13] above, he is the husband of the sole director of EPH, Ms Rene Santoro.

23. [34]

    The insurer has recently served on the Liquidators a notice pursuant to s 67 of the Evidence Act 1995 (NSW) of its intention to adduce evidence of representations allegedly made by Mr Santoro in affidavits filed in proceedings in the Federal Court of Australia.

24. [35]

    Evidently, these are the affidavits to which the Insurer referred in its letter of 10 March 2015 (see [14] above). I was informed that there is pending in the Federal Court a recently filed application for leave to use those affidavits in these proceedings. There is no indication of when that application will be heard.

25. [36]

    In the s 67 notice, the Insurers assert that Mr Santoro is “unavailable” for the purposes of the Evidence Act because he is “subject to a NSW Police Protection Order” and because his “current whereabouts and contact details are not known to the [Insurer]”.

26. [37]

    It seems inevitable that Mr Santoro will be equally “unavailable” to the Liquidators with the result that they will not be able to get instructions from him about the material non disclosures now proposed to be alleged against EPH.

27. [38]

    The proposed Amendment then includes paragraphs 11 to 14. Those paragraphs occupy some three pages of the proposed Response and are in the following terms:

28. [39]

    Those proposed amendments expand, very substantially, the ambit of the Insurer’s case as currently pleaded.

29. [40]

    In paragraph 11 allegations are made as to matters that EPH, and also the “related Named Insurers” knew to be relevant for the purpose of s 21(1)(a) of the Insurance Contracts Act. Included in the allegations are propositions that Ms Santoro should have given an affirmative answer to questions relating to whether any director of EPH had been convicted of a criminal offence or had been declared bankrupt; allegations hitherto eschewed by the Insurer’s solicitor (see [16] above).

30. [41]

    Proposed paragraph 11 does not, however, set out the particular matters that the Insurer says should have been disclosed but were not disclosed.

31. [42]

    Paragraph 12 contains allegations as to what matters known to EPH a reasonable person would be expected to be known to be relevant.

32. [43]

    The particulars to paragraph 12:

    1. (1)

       expand the allegation concerning “financial difficulties” beyond the alleged fact that EPH was placed into administration but to now allege knowledge of insolvent trading;

    2. (2)

       expand the allegation of “involvement with known criminal individuals and enterprises” to allegations that EPH was being “extorted” by “criminal individuals or enterprises thereby causing the Company financial instability”; and

    3. (3)

       introduce a new allegation that EPH “hired or employed individuals who were known associates of known criminal individuals or enterprises”.

33. [44]

    The belated expansion of the Insurer’s case in a manner proposed by the amendment called for an explanation of and justification for the delay: for example see Karl Suleman Enterprizes Pty Limited v Pham [2013] NSWCA 93 at [22] (Meagher and Barrett JJA).

34. [45]

    The justification offered was that the amendments did no more than cause the pleadings to conform with the evidence already served.

35. [46]

    Thus the Insurer’s solicitor, Mr McMahon, said in an affidavit made on 9 April 2020:

36. [47]

    In my opinion, the proposed amendments go a lot further than simply causing the pleadings to conform with the evidence to date. They would have the effect of expanding, to a considerable degree, the ambit of the Insurer’s case.

37. [48]

    As was submitted on behalf of the Liquidators, the Insurer’s position “is effectively that it has had these matters in mind for years, because it said so in its [letter of 10 March 2015]; and that the plaintiffs should have understood that this was all in issue in [the] proceedings commenced years later, even though it did not put them in issue”.

38. [49]

    Such explanation as is proffered for the belated application to amend was set forth in the Insurer’s “Supplementary Position Paper” dated 19 April 2020 as follows:-

39. [50]

    I am not persuaded that these matters adequately explain or justify the proposed amendment.

40. [51]

    Further, the Liquidators’ solicitor has given unchallenged evidence that the Liquidators will not be in a position to meet the proposed amended case by 18 May 2020 and that, were the amendment granted, the 18 May 2020 date would have to be vacated. I accept that evidence, particularly in the light of the matters set out at [30] to [37] above.

41. [52]

    My conclusion was that it would not be fair to the Liquidators to force this position upon them. For those reasons I concluded that the Insurers’ application should be dismissed with costs.

The application to set aside the subpoena

1. [53]

   On 20 and 24 March 2020, the Insurer caused subpoenas to produce to be issued to:-

2. [54]

   The relevant test has been stated in many cases. The question is whether the documents sought by the subpoena have an apparent relevance to, or could possibly throw light on the issues in the proceedings, or whether it is “on the cards” that the documents would “materially assist” prosecuting or defending the proceedings: Trade Practices Commissioner v Arnotts Ltd (No 2) (1989) 21 FCR 306; 88 ALR 90; Alister v The Queen (1984) 154 CLR 404 at 414 (Gibbs CJ); R v Saleam (1989) 16 NSWLR 14; Portal Software International Pty Ltd v Bodsworth [2005] NSWSC 1115 at [20]-[24] (Brereton J).

3. [55]

   The first three subpoenas seek production of material said to be relevant to the professional conduct of one of the liquidators, Mr Kassem.

4. [56]

   Thus, on 16 April 2020, the Insurer’s solicitor wrote to the solicitors for ARITA:

5. [57]

   I do not agree that the Insurer is “entitled to undertake the types of enquiries called for by the subpoena”. I fail to see what connection any professional misconduct on Mr Kassem’s part (and I make no finding that he has engaged in any misconduct) could possibly have to the issues in the proceedings.

6. [58]

   The subpoena addressed to the Police Commissioner calls for the criminal records of 11 individuals named as having had some connection with EPH.

7. [59]

   As I have refused to grant the Insurer leave to amend its Response, such criminal records could not “materially assist” the Insurer defend the proceedings.

8. [60]

   As was submitted on behalf of the Liquidators, this subpoena has all the hallmarks of a “fishing expedition”.

Orders made

1. [61]

   For those reasons I ordered that the Insurer’s notice of motion of 9 April 2020 be dismissed with costs.

2. [62]

   In relation to the Liquidators’ notice of motion of 2 April 2020, I ordered that the subpoenas to which I have referred at [53] be set aside and that, to the extent that any of the subpoenaed parties have produced documents pursuant to the subpoenas, the Insurer not be granted access to them.