FEDERAL COURT OF AUSTRALIA HQ Insurance Pty Limited v Stonehatch Risk Solutions Limited [2020] FCA 871 File number: NSD 2156 of 2019 Judge: THAWLEY J Date of judgment: 22 June 2020 Legislation: Federal Court Rules 2011 (Cth) r 7.23 Cases cited: Apache Northwest Pty Ltd v Newcrest Mining Ltd (2009) 182 FCR 124 J & A Vaughan Super Pty Ltd v Becton Property Group Limited [2013] FCA 340 Reeve v Aqualast Pty Ltd [2012] FCA 679 Date of hearing: 22 June 2020 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: No Catchwords Number of paragraphs: 14 Counsel for the Applicant: Mr C. O'Neill Solicitor for the Applicant: Esplins Solicitors Counsel for the Respondent: Mr Owens with Mr Jones Solicitor for the Respondent: Ashurst ORDERS NSD 2156 of 2019 BETWEEN: HQ INSURANCE PTY LIMITED Applicant AND: STONEHATCH RISK SOLUTIONS LIMITED Respondent JUDGE: THAWLEY J DATE OF ORDER: 22 JUNE 2020 THE COURT ORDERS THAT: 1. The hearing be adjourned. 2. The prospective applicant pay the prospective respondents' costs thrown away by reason of the adjournment on an indemnity basis. 3. The prospective applicant file and serve as soon as reasonably practicable but in any event no later than 12.00pm on 24 June 2020 any further evidence on its application. 4. The prospective respondent is to inform by email the Associate to Justice Thawley and the prospective applicant by 4.00pm on 24 June 2020 if the prospective respondent is able to proceed with the hearing on 25 June 2020 at 10.15am. 5. If the prospective respondent indicates that it is not available to proceed with the hearing on 25 June 2020 in accordance with order 4, the matter be listed for hearing at 10.15am on 9 July 2020. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (revised from transcript) THAWLEY J: 1 The present proceedings are an application for discovery under r 7.23 of the Federal Court Rules 2011 (Cth). 2 In its written submissions filed on 13 May 2020, the prospective respondent, Stonehatch Risk Solutions Ltd, submitted: Further, HQ has put forward insufficient evidence going to the question of what information it already possesses in regard to Stonehatch's activities and, in light of that, what inquiries HQ has made on the supposed matters of uncertainty. Simply asking Stonehatch to state its own position is inadequate. It is therefore not possible for the Court to conclude that HQ has made "reasonable" inquiries as required by r 7.23(1)(b) or that HQ has placed before the Court all of the evidence already available to it about Stonehatch's activities. It is apparent from HQ's evidence that it has various sources of knowledge about Stonehatch's operations, but it has made no effort in its evidence or submissions to identify and explain those sources of knowledge, and any limitations upon them. 3 This submission was not fully addressed by the prospective applicant, HQ Insurance Pty Ltd, in its written reply submissions. HQ also indicated, on 2 June 2020, that it did not propose to adduce any further evidence. 4 Stonehatch's submission concerning the inadequacy of the evidence as to the information available to HQ was expanded on orally during the course of the hearing today. Stonehatch referred to the observation of Yates J in Reeve v Aqualast Pty Ltd [2012] FCA 679 at [65(f)]: While a respondent to an application for preliminary discovery is entitled to remain passive, the applicant must place before the Court all of the evidence already available to it relevant to the sufficiency of the information it possesses to enable a decision to be made whether to commence a proceeding. The applicant must not hold back information. This obligation on the applicant to be forthcoming arises from the special and intrusive nature of preliminary discovery and the fact that ordinarily the respondent will not know, or be in a position to expose, the full extent of the information already available to the applicant. 5 One of the requirements of r 7.23 is that the prospective applicant "after making reasonable inquiries, does not have sufficient information to decide whether to start a proceeding in the Court to obtain" the relief it reasonably believes it may the right to obtain: r 7.23(1)(b). It is not logically possible to determine whether the information available to a prospective applicant is insufficient for it to decide whether to start a proceeding unless one first knows what information is available. 6 The prospective respondent submitted that the evidence did not disclose whether the applicant had put before the Court all the information presently available to it. In fact, it was submitted, the evidence disclosed that other information was likely to be available but the nature and source of it was not disclosed. By way of example, Stonehatch pointed to the following extract of an email annexed to the affidavit of Mr Aldridge: Stonehatch was founded in 2014 (a website reference) and from that time has approached Australian clients and has been successful in procuring Australian risks, that it places into Lloyd's (from its London office), thereby bypassing Australian brokers/intermediaries, who ordinarily would write the business. Representatives of Stonehatch travel to Australia from London at least once a year to promote their broker services and meet their Australian clients, with whom Stonehatch transact directly. 7 In reply submissions, HQ applied for an adjournment in order to adduce additional evidence further addressing what information is already available to it. Stonehatch says that it would be prejudiced by an adjournment and that it made a forensic decision not to cross-examine. I accept that there is some prejudice to Stonehatch in particular because, as senior counsel for Stonehouse submitted, all of its arguments have been exposed and Mr Aldridge has had the opportunity of listening to those arguments. 8 To the extent that Stonehatch is prejudiced by having made a forensic decision not to cross examine Mr Aldrige, to some extent that can be alleviated by permitting or considering permitting the prospective respondent to cross examine Mr Aldridge, noting that it is anticipated that the further evidence is to be adduced from Mr Aldridge. 9 Further, the application at this point is only for an adjournment in order to allow the relevant evidence to be prepared and the filed. The Court and the parties are proceeding on the basis that HQ will seek leave to reopen when the matter is next listed for hearing, and the extent to which it should be permitted to do so, and any other conditions of it doing so, are to be determined at that time. 10 It would also be appropriate at that time, to bear in mind the prejudice that is potentially suffered by Stonehatch and to make orders which do justice between the parties and seek so far as is possible to remove any such prejudice. 11 To the extent that there is prejudice in the form of costs, that can be remedied by an order that HQ pay Stonehatch's costs thrown away by reason of the adjournment. 12 Stonehatch applies for indemnity costs in respect of the adjournment. It relies upon two matters: (1) first, that there was an acknowledgement by HQ in submissions that it would ordinarily have to pay costs in respect of the application for discovery in any event; and (2) secondly, that Stonehatch had raised the issue in its written submissions and inquired of the prospective applicant whether it would be adducing further evidence. 13 As to the first matter, I am not satisfied that the position is that a prospective applicant is ordinarily ordered to pay costs in respect of an application for discovery under r 7.23. Costs are discretionary and depend on all of the circumstances. As Kenny J said in J & A Vaughan Super Pty Ltd v Becton Property Group Limited [2013] FCA 340 at [16], citing Apache Northwest Pty Ltd v Newcrest Mining Ltd (2009) 182 FCR 124 at [90] per Flick J: "Principle and the authorities indicate that it is not useful to speak of a conventional rule as to costs in cases such as the present". There are other forms of costs orders made in applications of this kind, including that costs be reserved for later consideration, for example, at trial. It does not seem to me that HQ's concession, even if correctly made, is a matter which warrants or particularly supports an order for indemnity costs. 14 As to the second matter, the prospective applicant should have addressed this issue earlier. It has asked for, and been granted, a significant indulgence in circumstances where the discretion could easily have been exercised a different way. The adjournment has caused prejudice to Stonehatch in the form of costs and as to the forensic decisions it has made. As I have indicated earlier, the Court will endeavour to eliminate – and if not eliminate, minimise – the prejudice caused to Stonehatch by reason of the adjournment. One step which should be taken to minimise that prejudice is that the costs thrown away should be paid on an indemnity basis. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Thawley. Associate: Dated: 22 June 2020