Supreme Court New South Wales Medium Neutral Citation: Azmin Firoz Daya v CX Reinsurance Company Limited [2012] NSWSC 1616 Hearing dates: 24 October 2012 Decision date: 24 October 2012 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Rulings on objections to evidence Catchwords: EVIDENCE - objections to evidence - relevance - Evidence Act, s 55 - plaintiff seeks indemnity under policy of insurance -defendant seeks to avoid policy on ground of material non-disclosure - defendant seeks to tender audio recordings of conversations between corporate officers - whether material could rationally affect the existence of the probability that the plaintiff was aware of certain facts EVIDENCE - objections to evidence - provisional relevance - Evidence Act, s 57 EVIDENCE - objections to evidence - authenticity and provenance - where defendant proposes to adduce transcripts of audio recording of teleconferences - Evidence Act, s 48(1)(c) - where what is being tendered is not the transcript but the audio recording as proved by the tender of the transcript - where prima facie the audio recording is likely to be a business record of at least one of the parties to the teleconference EVIDENCE - objections to evidence - s 135 - whether evidence more probative than prejudicial Legislation Cited: (Cth) Insurance Contracts Act 1984, s 28(2), s 28(3) (NSW) Evidence Act 2005, s 48(1)(c), s 55(1), s 57(2), s 69(3) Cases Cited: Ingot Capital Investments v Macquarie Equity Capital Markets (No 6) [2007] NSWSC 124; (2007) 63 ACSR 1 Ingot Capital Investments v Macquarie Equity Capital Markets [2008] NSWCA 206; (2008) 73 NSWLR 653; (2008) 68 ACSR 595 Category: Interlocutory applications Parties: Azmin Firoz Daya - Plaintiff CX Reinsurance Company Limited - First Defendant Eagle Star Reinsurance Company - Second Defendant Aviva Insurance Limited - Third Defendant Certain Underwriters at Lloyd's - Fourth Defendant Royal & Sun Alliance plc - Fifth Defendant International Insurance Company of Hannover Ltd - Sixth Defendant Representation: Mr J Williams - Plaintiff Mr J Sexton SC and Mr E Muston - First to Sixth Defendants Sparke Helmore - Plaintiff HWL Ebsworth - First to Sixth Defendants File Number(s): 2004/175282 Judgment (ex tempore) 1HIS HONOUR: The Court is presently engaged in dealing with objections to evidence that the defendant insurers have indicated they propose to tender at the hearing of the proceedings. 2In order to adjudicate on the objections to the defendants' evidence, it is necessary to say a very little about the nature of the proceedings and the issues in them. For that purpose, I essentially rely on the 'Statement of the Nature of Dispute' in the plaintiff's Amended Commercial List Statement, from which, as I understand the defendants' response, they do not relevantly differ. Background to the current proceeding 3The defendant insurers are the Directors and Officers Liability insurers ("D&O insurers") of New Cap Reinsurance Holdings Limited ("NCRH") and its subsidiaries. The plaintiff, Mr Daya, was at all material times a director of NCRH, and, relevantly, the Managing Director of New Cap Reinsurance Australia ("NCRA"), one of the subsidiaries of NCRH. As such, he was an insured under International Directors and Officers Liability Insurance Policy number DI-095723 ("the Policy"), issued by the defendants. 4In earlier proceedings in this Court, Ingot Capital Investments Pty Ltd and others claimed against Mr Daya in respect of what is defined as a "wrongful act" within the meaning of the Policy ("the Ingot Proceedings"). Mr Daya sought indemnity from the insurers in respect of the Ingot claim, and at first they paid some of his costs of the Ingot proceedings, but expressly without prejudice, and reserving their position. Subsequently, they refused to meet the remaining costs of those proceedings, which proceeded to a first instance judgment before McDougall J [Ingot Capital Investments v Macquarie Equity Capital Markets (No 6) [2007] NSWSC 124; (2007) 63 ACSR 1], an appeal before the Court of Appeal [Ingot Capital Investments v Macquarie Equity Capital Markets [2008] NSWCA 206; (2008) 73 NSWLR 653; (2008) 68 ACSR 595], and ultimately the refusal of special leave to appeal by the High Court of Australia. 5A further claim, instituted by NCRA and its liquidator, was made against Mr Daya ("the insolvent trading proceedings"). It too is said to be a claim in respect of an alleged "wrongful act" within the meaning of the policy. The insurers have not paid any of Mr Daya's costs in respect of the insolvent trading proceedings, which have subsequently been settled. 6In the present proceedings, the plaintiff seeks: (1)a declaration of his right to indemnity under the Policy, (2)orders for payment of unpaid past defence costs in the Ingot proceedings and the appeals from it, (3)indemnity in respect of his liability to the plaintiffs in the Ingot proceedings, which, as a result of the judgment of the Court of Appeal, is in excess of $30 million, (4)payment of unpaid past defence costs in the insolvent trading proceedings (and a declaration of entitlement as to future defence costs, but that is probably now superfluous), and (5)damages, and alternative relief. 7The plaintiff identified as one of the issues likely to arise, whether the plaintiff failed to disclose a material matter to the defendants at the time the policy was entered into, such that the alleged material non-disclosure would give the defendants a right to avoid the policy as they have purported to do. 8In their Amended Response to the Third Further Amended Summons, the defendants, under the heading Non-Disclosure, ultimately plead that certain matters - identified in paragraphs 28, 38 and 62 to 70 of the pleading collectively - or some combination of them, comprised matters that would have influenced the mind of a prudent insurer in fixing the premium, or in determining whether to take the risk involved in underwriting the policy with Mr Daya as an insured person, and that the plaintiff had a duty to disclose those matters to the insurers or their underwriter prior to binding insurance cover on or about 20 October 1988, and that the plaintiff, in breach of that duty, failed to disclose to the defendants or their underwriter those matters, and that, had any of those matters been disclosed, the underwriters would not have agreed to underwrite the Policy on behalf of the insurers, who are, therefore, entitled, pursuant to the law of Bermuda or, alternatively, the law of England (which the insurers contend is the proper law of the Policy) to avoid the Policy ab initio as against the plaintiff. 9The defendants alternatively say that the same matters entitle them to relief under the (Cth) Insurance Contracts Act 1984, s 28(2), or s 28(3), if, contrary to their primary position, the proper law of the Policy is the law of Australia. 10It is necessary then to look briefly at paragraphs 28, 38 and 62 to 70 of the pleading. Paragraph 28 alleges that, in early 1988, Mr Daya, amongst others, became concerned about the poor trading performance of NCRH, the poor quality of the reinsurance business that had been written by NCRH and its subsidiaries, the poor capital basis of NCRH and its subsidiaries, and the likelihood that NCRH would be in breach of a net worth covenant to a financier (Dresdner Bank Aktiengesellschaft ("Dresdner")) in June 1998. Paragraph 32 alleges that a number of NCRH's directors, including Mr Daya, became concerned that half-year accounts to 30 June 1998 for NCRH could not be signed off as true and fair if the "big stop loss" was purchased and accounted for, on the basis that it contained a requirement that a 'back-to-back catastrophe excess of loss reinsurance' be entered into by NCRH in favour of General & Cologne Re (GCR). Paragraph 38 pleads that Mr Daya knew or should have known that NCRH and the other companies in the New Cap group were in financial difficulty, and, in particular, that to continue trading they were dependent on Dresdner not terminating a US$47M facility. 11Paragraphs 29 to 33 plead attempts to arrange the so-called "big stop loss", and that, ultimately, it was not placed. 12Paragraph 61 pleads in respect of the "big stop loss", as follows: 61. The Plaintiff knew: (a) that Leg One was to be entered into for the purpose of allowing the New Cap Group to make false statements in the 1998 half yearly accounts and the US GAAP 1998 half yearly accounts; (b) that the primary purpose of the GCRA transaction was to achieve a false accounting benefit for the New Cap Group 13Paragraphs 62 through 70 then plead as follows: 62. In causing or permitting NCRA to: (a) enter into the GCRA Transaction in the circumstances set out in paragraphs 39 to 58 inclusive hereof; and (b) account for the GCRA transaction in such a way as to enable the 1998 half yearly accounts and the US GAAP 1998 half yearly accounts to falsely overstate assets and understate loss in the manner described below; the plaintiff was acting in breach of his fiduciary duties to NCRA, pursuant to a dishonest and fraudulent design ("the dishonest and fraudulent design") which was to enable the 1998 half yearly accounts and the US GAAP 1998 half yearly accounts to falsely overstate assets and understate loss, with the result that the 1998 half yearly accounts issued on behalf of the New Cap Group falsely reported that, on a consolidated basis, the New Cap Group had: (i) Net claims incurred of US$6.675 million less than would otherwise have been reported; (ii) an Underwriting Result US$5.675 million better than would otherwise have been reported; (iii) an Accumulated Loss at the end of the period of US$5.675 million less than would otherwise have been reported; (iv) additional retrocession recoveries receivable of US$5.675 million; (v) additional Net Assets of US$5.675 million; and, (vi) the US GAAP 1998 half yearly accounts falsely reported that on a consolidated basis the New Cap Group had additional Net Assets of US$6.5 million in circumstances where: (A) Leg One was not entered into until after 30 June 1998; (B) Leg One and Leg Two were in substance one transaction; (C) the certain loss NCRA accrued under Leg Two was not accounted for; and (D) the existence or intended effect of Leg Two was deliberately concealed from the auditors and external actuary. Particulars of falsity, dishonesty and fraud (I) Because Leg One and Leg Two were, in substance, one transaction, AAS1001 required that they be accounted for according to their substance rather than their form. It was false, therefore, to account for Leg One in the 1998 half yearly accounts without also accounting for Leg Two. (II) Leg One and Leg Two were interdependent and therefore should have been accounted for together. It was false, therefore, to account for Leg One in the 1998 half yearly accounts without also accounting for Leg Two. (III) Because Leg Two was certain to result in a loss to the limit of its cover and because it was part of the same transaction as, or was interdependent with, Leg One, neither Section 1 of Leg One nor Leg Two involved any transfer of risk and hence neither was a reinsurance contract under which the proceeds of any claim could be claimed as reinsurance proceeds. (IV) Because Section 1 of Leg One did not involve any transfer of risk it was false to claim the proceeds under Section 1 of Leg One as an asset (that is, as reinsurance recoveries) when, in substance, those proceeds were an advance with an attached repayment obligation constituted by Leg Two. 63. In all the circumstances the purpose for which the plaintiff caused or permitted NCRA to enter into the GCRA transaction was not a proper purpose of NCRA. 64. The dishonest and fraudulent design was carried out by the plaintiff by: (a) authorising or permitting the entry by NCRA into the GCRA transaction; (b) not disclosing the existence or intended effect of Leg Two to the auditor or the external actuary, in circumstances where the plaintiff was aware that the net present value of the proceeds of Section 1 of Leg One less premium would be accounted for as an asset and included in the 1998 half yearly accounts and the US GAAP 1998 half yearly accounts, but that each of those accounts would deliberately omit to account for the existence of Leg Two; and (c) not disclosing the dishonest and fraudulent design to the external actuaries, the auditor, or Dresdner. 65. The plaintiff acted in breach of his fiduciary duty to NCRA and also in breach of sections 232(2) and 232(4) of the Corporations Law in recommending or procuring NCRA to enter into Legs One and Two in circumstances where: (a) there was no benefit to NCRA in entering into the GCRA transaction; and (b) the primary purpose of the GCRA transaction was: (i) to enable the publication of false 1998 half yearly accounts and US GAAP 1998 half yearly accounts; and (ii) to enable the issue of a Compliance Certificate to Dresdner confirming that the New Cap Group had a consolidated net worth of US$126.1 million. 66. As a result of entry into the GCRA transaction by NCRA (a) the 1998 half yearly accounts contained the false claim that NCRA had reinsurance recoveries receivable of US$5.675 million; and (b) the US GAAP 1998 half yearly accounts contained the false claim that NCRA had reinsurance recoveries receivable of US$6.5 million. 67. As a result of the matters set out in paragraphs 59 to 63 above: (a) a Compliance Certificate was issued to Dresdner falsely claiming that the New Cap Group had a consolidated net worth of US$126.1 million; (b) Dresdner continued negotiations with NCRH for an amended facility which but for the false accounting would have been terminated; (c) NCRH avoided a demand for immediate repayment of the Facility; Particulars (i) Credit Agreement Article IX "Covenants" section 9.2 "Negative Covenants" (A) subs 9.2.2 "Minimum Consolidated Net Worth" (B) subs 9.2.16 "Restrictions on Surplus Relief Reinsurance Agreements" (ii) Credit Agreement Article XII "Events of Default" (A) section 11.1(vi) "non compliance with certain provisions" (B) section 11.2 "effect of event of default" 68. In the premises: (a) the GCRA transaction was a sham in that by entering into the GCRA transaction and referring only to Leg One in its accounts, NCRH intended to create the impression that Leg One took the form of a legally effective transaction with particular legal and/or accounting consequences whereas, by reason of Leg Two not being referred to in the accounts and by reason of the GCRA transaction being entered into after June 1998, Leg One did not have those apparent legal and/or accounting consequences; and (b) the plaintiff knew that, for those reasons, the GCRA transaction was a sham. 69. Notwithstanding that he knew that NCRA would obtain no benefit from entering into Leg One of the GCRA transaction and notwithstanding that he knew that the GCRA transaction was not entered into until after June 1998, the plaintiff was prepared to and did, prior to NCRH entering into the Policy: (a) recommend and/or procure that NCRH enter into the GCRA transaction; (b) recommend and/or procure that NCRH and the New Cap Group publish false 1998 half yearly accounts to the end of June 1998 in that those accounts refer to the GCRA transaction when that transaction was not entered into until September 1998; (c) recommend and/or procure that NCRH and the New Cap Group publish false 1998 half yearly accounts in that the accounts referred to Leg One but did not refer to Leg Two of the GCRA Transaction; (d) recommend and/or procure that NCRH and/or NCRA not disclose those matters to the external actuaries, the auditor or Dresdner; (e) recommend and/or procure that NCRH provide 1998 half yearly accounts to its financier, knowing those accounts to be false, for the intended purpose of avoiding a breach of the revised net worth covenant; and/or (f) recommend and/or procure that NCRH provide a Compliance Certificate to Dresdner confirming that the New Cap Group had a consolidated net worth of US$126.1 million, knowing that certificate to be false, for the intended purpose of avoiding a breach of the revised net worth covenant. 70. In the premises, prior to NCRH entering into the Policy, the plaintiff knew that he was prepared to and knew that he in fact had: (a) acted in a manner which was in breach of his fiduciary duty to a company of which he was a director; (b) acted in breach of sections 232(2) and 232(4) of the Corporations Law; (c) recommended and/or procured that a company of which he was a director enter into a sham transaction; (d) recommended and/or procured that a company of which he was a director knowingly publish false accounts; and/or (e) recommended and/or procured that a company of which he was a director knowingly provide a false certificate to a financier for the intended purpose of avoiding a breach of a net worth covenant. The audio recordings 14The defendants have indicated that they propose to tender transcripts of audio recordings of a number of telephone conferences, involving officers of NCRA, representatives of GCR, General Cologne Re Australia ("GCRA"), and Guy Carpenter, a broker, which took place largely in the period mid-1998 to October 1998. These transcripts are said to evidence acts and knowledge on the part of officers of NCRA, probative of facts that the defendants say were not disclosed to them. 15Mr Daya was party to one, but only one, of these conversations. Some of the others include statements, attributed to other participants, about dealings or conversations that they had had with Mr Daya, which might establish some element of knowledge on his part, but the real issue is with the very substantial parts of each subject teleconference to which Mr Daya was not a party, and which, at least on their face, prove matters known to other officers of NCRA, but not to Mr Daya. Relevance objection 16The first question is whether that material is relevant. The test of relevance is described in (NSW) Evidence Act 2005, s 55(1), to the effect that evidence is relevant if, were it accepted, it could rationally affect, directly or indirectly, the assessment of the probability of the existence of a fact in issue in the proceedings. As has been said, this is an undemanding test that sets the threshold of relevance quite low. The defendants submit that the contents of the teleconferences in question are relevant as, either on their own or with other material, including Mr Daya's office as Chief Executive Officer, they can support an inference that the matters revealed in those conversations were known to Mr Daya. 17It seems to me that the material in question passes the test of relevance on two bases. The first is that in order to make a case of non-disclosure, the defendants have to prove at least three things. First, that a relevant fact or state of affairs existed, secondly, that that state of affairs or fact was known to Mr Daya, and thirdly, that it was not disclosed. The contents of the teleconferences in question go at least to the first of those matters which, as things stand, is a fact in issue in the proceedings. The second is that the contents of the teleconferences in question are at least provisionally relevant. This is, first, on the basis that, while the material in question might not prove the case against Mr Daya, if it not be shown that he had knowledge of it, then the evidence is nonetheless provisionally relevant on the basis that, subject to further evidence being admitted at a later stage of the proceeding, it may make it reasonably open to make a finding that Mr Daya had notice of the contents of the conferences. Moreover, it seems to me provisionally relevant on the basis described in s 57(2), which provides that: (2) Without limiting subsection (1), if the relevance of evidence of an act done by a person depends on the court making a finding that the person and one or more other persons had, or were acting in furtherance of, a common purpose (whether to effect an unlawful conspiracy or otherwise), the court may use the evidence itself in determining whether the common purpose existed. While its primary purpose may be to address the situation of an alleged conspiracy, subsection (2) makes clear by the words "or otherwise" that it has a more extended purpose. In other words, evidence of what other officers of NCRA were doing may be used to determine whether they and Mr Daya shared a common purpose. 18For those reasons, the material the subject of objection passes the relevance threshold. Authenticity and provenance objections 19Objections are also taken as to the authenticity and provenance of the transcripts. At first, it seemed to me that what was being tendered was the written transcript, and questions arose as to whether that transcript was a business record and, if so, whether it was excluded by s 69(3), but I think the correct way of approaching this is that what is being tendered is, in fact, the audio recording. 20This is because Evidence Act, s 48(1)(c), provides that: A party may adduce evidence of the contents of a document in question by tendering the document in question or by any one or more of the following methods ... (c) if the document in question is an article or thing by which words are recorded in such a way as to be capable of being reproduced as sound, or in which words are recorded in a code (including shorthand writing) - tendering a document that is or purports to be a transcript of the words. 21There can be little doubt that what is tendered at least purports to be a transcript of the words recorded in the audio recording. In that way, what the defendants are seeking to adduce is in fact evidence of the audio recording, proved by tender of a transcript. Accordingly, when one comes to consider questions of hearsay, and s 69(3), one is concerned not with the written transcript but with the audio recording, which is proved by tender of what purports to be a transcript of it. 22It seems highly likely - although the evidence on this is silent at this stage, and I would not purport today to resolve this question unless the matter be conceded - that the audio recording, made contemporaneously with the telephone conferences, was a business record of at least one of the parties to that teleconference. It is conceivable that the recordings were unlawful intercepts, and might be inadmissible on that account, but, given that they were apparently routinely made of a series of these conferences, that seems an unlikely scenario. It is also conceivable that they involved the use of a listening device, in circumstances in which that was not authorised, but that seems very unlikely, as the recording would almost inevitably have been made for the protection of the interests of the party to the conference that made the recording, and so be within the scope of permitted recordings. Nonetheless, as I have said, I would not exclude the plaintiff's ability to argue those issues in the future, if he wishes to do so. 23Similarly, if the reliability of the transcript is to be disputed, the plaintiff would be entitled to request the production of the audio recordings for examination. Ultimately, if there were conflict between the audio recordings as heard by the Court - if the Court must hear them - then, to the extent of any inconsistency, the Court would obviously prefer the audio recording to the transcript. 24It does not seem to me that, at least for the most part, the audio recording is tendered for a hearsay purpose. It is tendered in order to prove a state of affairs, or state of knowledge, at the time of the conversation that it evidences, not to prove the truth of what is attributed to the participants in the conversation. General discretion to exclude evidence? 25It was also argued that the material should be rejected under s 135, on the footing that its prejudicial value outweighed its probative value. 26I do not agree with that submission. So far as its probative value is concerned, its reliability is enhanced by the circumstance that these are contemporaneous recordings of what officers of NCRA were doing in their dealings with GCR and Guy Carpenter at the relevant time, and took place before litigation was contemplated. There does not seem to me to be relevant prejudice in their admission against Mr Daya. As I have said, if the accuracy of the transcript is disputed, he can make a request in that respect. I do not think that the truth of what was said on the occasions in question is the essential matter, but the fact that it was said. 27For those reasons, and subject to the reservation I have indicated about the entitlement of the plaintiff to request production of the audio recordings for examination and to dispute the admissibility of the transcripts and the audio recordings on any ground relating to their lawfulness, I propose to admit the documents the subject of this objection. Objections to communications between NCRA and GCR 28Objection is taken to a number of documents, some instances of which are identified in Category 4 of the plaintiff's Category of Objections to Defendants' Documentary Tender. The defendants have withdrawn the documents identified as Volume 2, pages 485, 486, 529 and 602. The plaintiff has withdrawn the objection to the document at Volume 2, page 598. As these documents are instances of a wider class, it is worth making some observations, as this may assist in resolving the fate of that wider class. 29Essentially, the documents to which objection is taken in this class are internal communications of the brokers Guy Carpenter, or communications between Guy Carpenter and GCR, in respect of the proposed big stop loss transaction. It would be open to find on those documents that there was an intention to create a sham transaction, and the documents also tend to show what was done in pursuance of the negotiations for the big stop loss transaction. In some other related documents, to which objection is not taken, there are indicia of some degree of knowledge and involvement on the part of Mr Daya of and in the negotiations in question. That is not to say that there are indicia of knowledge on his part of an intention to create a sham transaction. 30Essentially, there are two possibilities: that the negotiations to establish the sham took place between the underlings and their detail was not revealed or reported to Mr Daya; or that Mr Daya did have notice of them, and in that way was knowingly concerned in them. Whether the first or second conclusion is reached will depend not just on the evidence under objection, but also the communications to which I have referred, identified by Mr Sexton on behalf of the defendants, to which objection was not taken, and the other evidence that will emerge at the trial of the proceedings. In that sense, and consistent with my earlier rulings in respect of the transcripts, it seems to me that the communications within Guy Carpenter, and between Guy Carpenter and GCR, are at least provisionally relevant in the way I have earlier described. Objections to due diligence material 31In Category 5 of the plaintiff's Objections, objection is taken to what is described as "due diligence material for prospectus issue", of which various instances are given, on the grounds of relevance and, in some cases, prejudice. 32The "due diligence material" in question essentially comprises minutes of a due diligence committee constituted for the purposes of a proposed prospectus issue, commencing on or about 10 September 1998, for a prospectus that issued on 18 November 1998. Mr Daya's ultimate liability to the Ingot parties, as found by the Court of Appeal, related to his non-disclosure to the final meeting of the due diligence committee, on 12 January 1999, of information that had been provided to him by Trowbridge & Co, actuaries, in the period 1 to 12 January 1999, which revealed what the Court of Appeal found to be a material deterioration in the claims position of NCRA. The Court of Appeal did not accept that non-disclosure to the due diligence committee of information provided to Mr Daya by Trowbridge in December 1998 was in that category, because that material was thought not to reveal a material, or to be cause for concern that there was a material, deterioration. 33The defendants say that the course of the due diligence examination shows that the materiality to the committee of a deterioration in the claims position was obvious to anyone dealing with the committee, presumably including Mr Daya. The plaintiff more or less accepts for present purposes, without at this stage formally admitting, that at the meeting on 12 January 1999, at which Mr Daya was present and was asked a distinct question on the topic, he would (at least arguably) have been aware that a material deterioration in the claims position was of considerable interest to the due diligence committee. However, the defendants contend - for the purpose, in particular, of their case in respect of exclusion K and exclusion D (see the Further Amended Response to the Third Further Amended Summons, paragraphs 105 to 109, inclusive) - that the deliberate nature of the non-disclosure is proved or reinforced by the whole history of the due diligence investigation. As I understand it, the argument is that, the proposition that Mr Daya might not have acted deliberately in not spontaneously making the disclosure when asked a question on the topic on 12 January, is less easy to accept if one has regard to the whole course of the due diligence enquiry. 34The plaintiff has not taken objection to the minutes of those meetings at which Mr Daya was present, but submits that the minutes of meetings at which he was not present could not contribute to that case against him. However, on the view that I take of provisional relevance, it might be shown by other evidence that minutes of meetings at which he was not present nonetheless came to his attention, or that he was otherwise apprised of the contents of those meetings. 35On that basis, and in the absence of a distinct admission that Mr Daya, throughout the period of the due diligence enquiry, knew that the committee was interested in any material deterioration in the claims position, I think the evidence tendered passes the low threshold test of relevance. It is true that a substantial amount of what is in the minutes and associated material does not bear on that question at all, and I have considered whether that is so burdensome as to make the tender more prejudicial than probative. On the other hand, I cannot help but think that if the masking device had been taken to all those parts of the minutes and material which did not bear on the question, then there would similarly be an objection to the overzealous masking of the material. 36Ultimately, at least now that the basis upon which this material is said to be relevant has been clearly articulated, I think that can sufficiently guide an examination and scrutiny of the material, such that it is not unduly prejudicial. I will therefore admit the material in the category of "due diligence material for prospectus issue". Objection to the Vesta material 37The next category objected to, under category 6, is material related to a claim made on NCRA by Vesta under a policy issued by NCRA, in respect of which NCRA appears to have taken the position that it was entitled to decline indemnity because of relevant material non-disclosure on the part of Vesta (that non-disclosure amounting to inaccuracies described as "bolstering" of its accounts). At first sight, the argument that NCRA's management were astute to take the point that this non-disclosure or artificial inflating of the accounting position entitled them to decline indemnity appears sufficiently analogous to the defendants' allegation in this case as to have relevance. On closer examination, however, the point is well made that the policies in question are quite different, and the essential non-disclosure in question is also different. 38If this were a claim by New Cap Re against GCR on the reinsurance contracts procured by the artificial inflation of NCRA's accounts as a result of the small stop loss transaction, then there would be a very close analogy between that and the Vesta claim. Essentially, what would be said was that, just as management of NCRA realised that overstating its accounting position would be material to a reinsurer (as it asserted against Vesta), so it must have appreciated that it would have been material to its own reinsurer. However, in this case the basis upon which the D&O insurers decline indemnity is quite different. It is not that the accounts were overstated (although that is part of the factual matrix), but that the directors and officers, in particular Mr Daya, established a fraudulent and dishonest construct for that purpose and that Mr Daya deliberately did not inform the due diligence committee of the material deterioration in the claims position. As Mr Williams put it, it was a moral risk that was not disclosed, rather than an overstatement of the financial position. 39To my mind, given the two quite different purposes of the two policies and the difference in the nature of the two alleged non-disclosures, it does not logically or rationally follow from an understanding that NCRA might decline liability to Vesta on the ground it asserted, that the D&O insurers might be entitled to decline indemnity on the grounds on which they rely in this case. It might be said that it would be self-evident in any event to someone in the insurance industry that a D&O insurer would regard such matters as moral risk material, but that is a different question. I do not think the evidence relating to Vesta logically or rationally affects a judgment as to whether Mr Daya knew that the matters of which non-disclosure is alleged against him, would have been material to the D&O insurers. 40Accordingly, I would reject the Vesta material. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 February 2013