Hugh Corporation Pty Ltd v TAL Life Ltd [2015] NSWSC 315

Supreme Court New South Wales

Medium Neutral Citation: Hugh Corporation Pty Ltd v TAL Life Ltd [2015] NSWSC 315 Hearing dates: 27 February 2015 Date of orders: 26 March 2015 Decision date: 26 March 2015 Jurisdiction: Equity Division Before: Robb J Decision: Parties to confer and bring in short minutes to implement the conclusions reached in these reasons for judgment Catchwords: PROCEDURE – notice of motion – whether paragraphs of the defendant's cross claim be struck out– whether the defendant should be ordered to answer interrogatories – whether the plaintiff's notice to produce should be complied with Legislation Cited: Insurance Contracts Act 1984 (Cth) Cases Cited: The Owners Strata Plan SP 69567 v Baseline Constructions Pty Ltd [2012] NSWSC 502 Category: Procedural and other rulings Parties: Hugh Corporation Pty Ltd (plaintiff) TAL Life Ltd (defendant) Representation: Counsel: H Insall SC (plaintiff) S J Walsh (defendant)

Solicitors: Hugh & Associates (plaintiff) Mills Oakley Lawyers (defendant) File Number(s): 2014/219854 Publication restriction: None

Judgment 1. By its statement of claim, the plaintiff, Hugh Corporation Pty Ltd, sues the defendant, TAL Life Ltd, under a trauma diagnosis insurance policy dated 5 March 1996 between the parties, in respect of Mr Robert Duncan Hugh, the life insured. 2. The plaintiff claims that Mr Hugh was diagnosed as suffering from basal cell carcinoma on 12 November 2013, which it alleges falls within the definition of "cancer" in the insurance policy, so that the plaintiff is entitled to be paid a benefit of $827,634. 3. The issue in the proceedings is whether or not basal cell carcinoma was excluded from the definition of "cancer", because the documents that gave rise to the insurance policy included a two sided single page document titled "Trauma Diagnosis Insurance Definitions" (the "Definitions"), which was inserted in the inside sleeve of the policy document booklet. The plaintiff's position is that it was not given the Definitions before the commencement of the policy of insurance. 4. The defendant has filed a cross-claim in which it seeks a declaration that the Definitions form part of the contract of insurance, and in the alternative, an order rectifying the contract to include the Definitions. 5. On 12 December 2014, the plaintiff filed a notice of motion by which it sought various procedural orders. I heard argument on the notice of motion on 27 February 2015. This is a claim where the plaintiff seeks to recover a benefit that it alleges is payable under an insurance policy. It is desirable that the proceedings be heard as soon as possible. It appeared to me during the course of the argument that the preferable course was to deal with the issues raised by the notice of motion on a case management basis, with a view to attempting to put in place procedural arrangements that allowed both parties to prepare their respective cases for hearing in a proper but expedited way. 6. It is not necessary to deal with the claim made in par 1 of the notice of motion, which sought an order that a number of paragraphs of the statement of defence be struck out. The defendant accepted that the defence should be amended, and I made orders at the hearing that gave leave to the defendant to file an amended defence. 7. By par 2 the plaintiffs sought an order that pars 17 to 25 of the defendant's statement of cross claim be dismissed or struck out pursuant to Rule 13.4, or in the alternative, Rule 14.28 of the UCPR, or the Court's inherent jurisdiction. In those paragraphs the defendant pleads a claim for rectification of the contract of insurance if the Court finds that the Definitions were not sent to the plaintiff and incorporated in the policy. The defendant pleads an entitlement to rectification on two alternative bases; first, common mistake and, alternatively, unilateral mistake. 8. In order to understand the first attack that the plaintiff made on the way the cross claim is pleaded, it is necessary to know that the plaintiff initially entered into a contract of insurance with a company called Lumley Life Ltd, which is no longer in existence. The defendant pleads in pars 12 and 13 of its cross claim that, on 1 May 2005, the Federal Court made an order, as I understand it by way of a scheme of arrangement, that PrefSure Life Ltd became the responsible insurer in respect of life insurance policies issued by Lumley, and on 2 April 2007, the Federal Court made another order that the defendant became the responsible insurer for those policies. The defendant is, therefore, a party to a contract of insurance with the plaintiff by reason of the effect of those Federal Court orders. 9. In substance, the defendant alleges in par 18 of its cross claim, as part of its common mistake case, that, at the time of the contract, Lumley Life and the plaintiff intended that the Definitions would form part of the contract of insurance. In par 22 the defendant alleges, as part of its unilateral mistake case, that, at the time of the contract, Lumley Life intended that the Definitions would form part of the contract. 10. Then, in respect of both alternative claims, in pars 20 and 22, the defendant alleges, in substance, that the relevant intention "was a continuing intention on the part of Lumley Life, subsequently Prefsure and the [defendant]". 11. The plaintiff submitted that the pleading of the defendant's rectification claim was defective in so far as it relied upon the allegations in pars 20 and 22, because it was absurd for the defendant to allege as a fact that the original intention held by Lumley Life continued to be held by the companies that became successively the responsible insurer. That may well be true in fact. No particulars are included in the cross claim as to how the subsequent insurers actually had the same intention as the original insurer. For example, it was not said that an employee of Lumley Life, who was responsible for causing Lumley Life to enter into the contract of insurance, had the relevant intention, and that employee had continued employment with Prefsure and the defendant. 12. In submissions the defendant pointed to aspects of the Federal Court's orders that appear to have the effect that, as a consequence of the schemes of arrangement, the subsequent insurers stand in the shoes of Lumley Life, and have the benefit of all of its rights and the burden of all of its obligations. As the issue before the Court is one of pleading, it is not necessary or appropriate for me to decide this question. 13. Strictly, the resolution of the defendant's rectification case depends upon relevant intentions during the time leading up to the creation of the contract of insurance. The intention of any parties after that time is irrelevant. Paragraphs 20 and 22 of the cross claim appear, with respect, to be misconceived. The real point is that the defendant alleges that the plaintiff and Lumley Life in the common mistake claim, and Lumley Life in the unilateral mistake claim, had the relevant intention for a period leading up to, and at the time the contract of insurance was made. It does not matter at all whether or not that common or unilateral intention continued after the date of the contract. All that matters is that the defendant claims that the effect of the sequential Federal Court orders is that the defendant stands in the shoes of Lumley Life. 14. I do not think that parties are to be encouraged to take pleading points of this nature. It may be, as I have suggested, that the way the defendant has pleaded this aspect of its rectification claim is somewhat misguided, but it is tolerably clear what is intended. It is also highly likely that the effect of the Federal Court orders was that the rectification claim must be decided by the Court as if it were a claim made by Lumley Life against the plaintiff. If Lumley Life would have been entitled to rectification immediately after the contract was made, then the defendant will be entitled to the same rectification orders. 15. I do not propose to make a formal order that any part of the rectification claim in the cross claim be struck out on the basis of this argument. However, as I propose to strike out some aspects of the cross claim for a different reason, and as the plaintiff has raised the complaint that it has raised, I would expect the defendant to plead the issue properly when it amends its cross claim. 16. There is, as I have foreshadowed, a more substantial deficiency in the way the defendant has pleaded its rectification claim. It must be remembered, as I have mentioned above, that the defendant has pleaded its rectification claim on the assumption that the Definitions were not sent to the plaintiff, and were not incorporated in the policy. Nonetheless, in par 18, the defendant pleads, in substance, that at the time the policy was issued Lumley Life and the plaintiff intended that the Definitions would apply to define the ailments that fell within the meaning of "cancer". 17. The defendant therefore has made a bare pleading that the plaintiff had an intention that the Definitions were to be included in the policy, in circumstances where the defendant had not delivered the Definitions to the plaintiff before the date of the contract of insurance. The defendant has not pleaded any objective facts and circumstances that could possibly found a claim that the plaintiff had the alleged intention, when it did not have the Definitions before the date of the contract. 18. There may be many factual circumstances whereby Lumley Life informed the plaintiff that it would only enter into the contract of insurance if the Definitions, or the terms contained in the Definitions, were included in the contract. However, if such factual circumstances existed, they are material facts which must be pleaded in the cross claim. The plaintiff is entitled to know what the defendant's claim is in that regard, before it is required to serve its evidence. 19. As par 18 is pleaded at present, it is defective, and I principle should be struck out. 20. I do not think the defect is corrected by the terms of par 19 of the cross claim. The defendant there alleges that the common intention pleaded in par 18 "was accompanied by an outward expression of accord". The defendant's particulars first repeat the allegations in pars 3, 4, 6 and 7. Those paragraphs merely plead a number of uncontroversial steps in the process whereby Lumley Life first issued a contract of insurance to Mr Hugh, and then at his request reissued the same insurance to the plaintiff. Then the defendant gives as particulars an allegation that Mr Hugh had been diagnosed with basal cell carcinoma on four separate occasions before the 12 November 2013 diagnosis, yet he made no claim under the policy. In my view the reliance by the defendant on the four earlier paragraphs of the cross claim is immaterial to the alleged existence of an outward expression of accord. Even if the plaintiff's subsequent conduct is admissible, as to which I make no comment, it is not capable of establishing an outward expression of accord between the parties concerning what they intended as at the time the contract of insurance was made. 21. I am inclined to doubt that the defendant has an arguable claim for rectification that can properly be pleaded. It is probable that, if the objective facts justify a finding that Lumley Life adequately made it known to the plaintiff that it would only accept risk under the contract of insurance if the Definitions, or the information contained in them, were incorporated into the contract, then the Definitions will be so incorporated, and the defendant will be entitled to succeed on its defence. I say that because the defendant's case is, as I understand it, that the Definitions should have been part of the contract because the document was physically included in a sleeve in the policy document. The Definitions were not incorporated into the contract by means of any reference to them in the policy document. Accordingly, the probability is that the basis upon which Lumley Life would enter into a contract of insurance was either sufficiently brought to the plaintiff's intention before the date of the contract, or it was not. However, I may well be wrong in this suspicion, and the defendant should be given an opportunity to plead the material facts that found its claim for rectification on the ground of common mistake, on the assumption that the Definitions were not provided to the plaintiff before the date of the contract. 22. Similarly, in par 22 the defendant alleges that, at the time the contract of insurance was made, Lumley Life unilaterally had the intention that the Definitions were to be included in the policy, and it was operating under the mistaken belief that the Definitions had been, or would be, sent to the plaintiff before the date of the contract. 23. The defendant then alleges in par 24 that, in various ways, the plaintiff, through Mr Hugh, knew, or was recklessly indifferent as to whether, the intended definition of the meaning of "cancer" contained in the Definitions had been omitted from the documents that were intended to constitute the contract of insurance. 24. The only particular of this allegation that the defendant gives is to repeat the claim that Mr Hugh had been diagnosed with basal cell carcinoma on four earlier occasions, but had not made a claim under the policy. That particular is given only in respect of the allegation in par 24(c) that the plaintiff did not, prior to 6 March 2014, hold an actual belief that the benefit was payable in the event that he was diagnosed with basal cell carcinoma. 25. In my view the pleading of the unilateral mistake case for rectification is subject to the same deficiency in substance as the common mistake claim. It is pleaded on the assumption that, by a unilateral mistake, the Definitions were not provided to the plaintiff before the date of the contract of insurance. Yet it is said that the plaintiff knew, or was recklessly indifferent as to whether, a mistake had been made. The factual basis for that claim is not pleaded in the cross claim. It should be pleaded before the plaintiff is required to serve its evidence. 26. I propose to deliver these reasons for judgment to the parties, and then ask them to confer as to the appropriate procedural orders that should be made. I will appoint a date for a directions hearing to deal with that matter. I would prefer to give the defendant an opportunity to suggest how it might amend its cross claim, and the time that will be necessary for that to be done, rather than for the Court simply to strike out parts of the cross claim. However, if necessary I will make appropriate orders to strike out the relevant parts of the cross claim. 27. Then, the plaintiff seeks a number of procedural orders in pars 3 to 5 of its notice of motion, which are directed at enabling the plaintiff to test the authenticity of the Definitions, and in particular whether the Definitions were in existence at the date the contract of insurance was made. 28. The plaintiff seeks in par 3 an order that the defendant produce to the plaintiff the original and all versions of the Definitions, including electronic versions, during 1995 and 1996. 29. Paragraph 4 seeks an order that the defendant permit the plaintiff to examine, test and copy the original electronic and hard copy of the Definitions, and any hard copy and electronic amendments to the Definitions, and to examine and test the defendant's electronic records, computers or other electronic devices recording the creation, receipt or amendment of the Definitions. 30. Paragraph 5 seeks an equivalent order to par 4, but in respect of the plaintiff's expert, rather than the plaintiff itself. 31. Paragraph 6 seeks an order that the defendant provide verified answers to the interrogatories contained in Annexure A within 28 days. That annexure contains 13 interrogatories. Interrogatories 1 to 7 seek detailed information concerning the creation of the Definitions, how the document was created by Lumley Life (including the identification of the computer upon which the document was first created), the form in which the document was when first located by the defendant for the purposes of these proceedings, the detailed circumstances in which the document was located by the defendant, and the date upon which it was located. Interrogatories 8 to 13 require detailed answers to questions as to the circumstances in which the Definitions were provided to the plaintiff, if that occurred. 32. In essence, the plaintiff sought to justify the making of these procedural orders concerning the circumstances in which the Definitions came into existence, and were provided to the plaintiff, if that occurred, by relying upon evidence that the first time the plaintiff learned of the existence of the Definitions was when it was served with the defence in this matter, which relied upon the Definitions. According to the plaintiff, before that time, there had been a considerable amount of communications between the parties, some of which indicated that the defendant would accept liability, without a word being breathed about the existence of the Definitions. The plaintiff submitted that these circumstances gave rise to a justifiable suspicion that the Definitions did not exist at the date the contract of insurance was made. The plaintiff submitted that the effect of the Court's making the orders sought would be, so to speak, to short-circuit the process of the defendant putting on its evidence, and the plaintiff then having to make an application for procedural orders to enable it to test the provenance of the Definitions. 33. The defendant resisted the making of the orders sought by the plaintiff, principally on the ground that the parties have not yet served their evidence, and the making of the orders at this time would subvert the application of Practice Note Eq 11. The defendant relied upon a number of previous decisions of this Court, being The Owners Strata Plan SP 69567 v Baseline Constructions Pty Ltd [2012] NSWSC 502; Re Mempoll Pty Ltd, Anakin Pty Ltd and Gold Kings (Australia) Pty Ltd [2012] NSWSC 1057; Graphite Energy Pty Ltd & Anor v Lloyd Energy Systems Pty Ltd & Ors [2014] NSWSC 1326; and Bauen Constructions Pty Ltd v NSW Land and Housing Corporation [2014] NSWSC 684. 34. The submissions made by the defendant in opposition to the orders sought by the plaintiff led me to understand that the defendant aspires to be able to serve evidence that will establish that the practice of Lumley Life was in some way invariably to deliver the Definitions in a manner that made that document a contractual document, so that the Court should infer that, as a matter of fact, the Definitions were provided to the plaintiff by Lumley Life, even if Mr Hugh's recollection is that he did not receive the document. The nature of the evidence that the defendant hopes to serve was not explained fully, or clearly, and it may be that it has not yet been prepared. 35. Having regard to the authorities referred to above concerning the application of Practice Note Eq 11 in procedural circumstances that do not strictly involve orders for discovery, and for the practical considerations that I will now mention, it is in my opinion premature for the Court to make the orders sought by the plaintiff. The practical considerations are that, in my view, the orders sought would impose a substantial burden on the defendant that may well be oppressive in some cases. The orders would impose an obligation on the defendant to give to the plaintiff access to computers and electronic records that were the property of Lumley Life; a company that no longer exists. The orders would also require the defendant to verify answers to interrogatories that would require knowledge of matters probably known only to Lumley Life. 36. The situation now is that the defendant, by means of the application made by the plaintiff, and the justification given by it for the making of the orders is now under consideration, is on notice that the plaintiff puts in issue the provenance of the Definitions, and in particular whether the document existed at the time of the contract of insurance. It seems to me that, in any event, if the defendant aspires to make a case based upon some customary conduct of Lumley Life, it will have to provide evidence that supplies at least the substance of the information that the plaintiff now seeks by means of the orders for which it has applied. It is true that, after the defendant has served its evidence, the plaintiff may be unsatisfied about the veracity of that evidence, and so it is possible that the plaintiff may be able to make a good case for procedural orders to enable it to test the evidence served by the defendant. In my view the most efficient and inexpensive course is for the Court to require the defendant to serve its evidence, before the Court considers whether it should make orders that facilitate any further investigations that the plaintiff may then wish to pursue. The orders that the plaintiff has sought in its notice of motion are extremely comprehensive, and there is a high probability that, if the defendant were at this stage required to comply with those orders, a considerable amount of work and cost would be involved. That assumes that it is actually possible for the defendant to comply with the orders sought in all respects. In my view it would clearly be preferable for the plaintiff to make a tailored application for appropriate orders after, and in the light of, a consideration of the evidence served by the defendant. 37. As the issue is principally one of timing, and it remains possible that it will be appropriate for the Court to make some or all of the orders sought by the plaintiff in pars 3 to 6 of its notice of motion, I have decided (as I advised the parties during the course of the hearing) that I would not at this stage dismiss that aspect of the plaintiff's application, but would stand that aspect of the notice of motion over, so that it could be dealt with after the defendant has served its evidence. 38. The plaintiff is entitled to a practical level of expedition, in the sense that both it and the defendant should be encouraged to get on with the process of completing and serving their evidence. The plaintiff has had a considerable period in which to prepare its evidence; save that it has not had the benefit of a properly pleaded rectification claim. I can see no reason why the plaintiff should not, in the customary way, be required to serve its evidence first. A timetable should be ordered that provides for the defendant to amend its cross claim, and then for the plaintiff to serve its evidence a relatively short time thereafter. I will need to hear the defendant as to the time that it will require to serve its evidence, but I would expect that the time would not be unduly great, as the defendant has also had considerable time for preparation since these proceedings were commenced on 25 July 2014. 39. The final issue to be addressed is the fate of a notice to produce that the plaintiff served on the defendant. 40. In pars 12, 17, 20 and 21 of its statement of claim the plaintiff pleads the effect of a series of conversations that the plaintiff alleges took place between Mr Hugh on behalf of the plaintiff, and Ms Martina Byrne on behalf of the defendant. The defendant admitted in pars 9, 13 and 15 of its defence that the conversations occurred. The plaintiff was unsatisfied by the terms in which those admissions were made, and accordingly it sought by order 1 of its notice of motion for those paragraphs of the defence to be struck out. I have already recorded that the defendant has agreed that it should re-plead those paragraphs. 41. In its statement of claim, the plaintiff alleges the substance of the statements that were made on behalf of the defendant. I will not set out the paragraphs of the statement of claim in detail. Most significantly, the plaintiff alleges that on a number of occasions Mr Hugh was told that the defendant could not deny the claim. 42. The allegations in the plaintiff's statement of claim, concerning the information that was provided to it by the defendant during the course of the plaintiff's pursuit of its claim under the policy, have been made to support the plaintiff's claim, in the statement of relief claimed, for a declaration that the defendant has breached its duty of good faith owed to the plaintiff pursuant to s 13 of the Insurance Contracts Act 1984 (Cth). 43. By its notice to produce the plaintiff seeks production by the defendant of any transcript or recording of any of the conversations. 44. The plaintiff submitted that, as there is evidence that the conversations were recorded, Mr Hugh should not be required to swear any affidavits as to the substance of those conversations, relying upon his memory, when evidence exists that would be incontrovertible, and would clearly establish what was said. 45. The defendant resisted any order that it produce any transcript or recording of the conversations, because that would involve a form of disclosure, and would be contrary to the intent of Practice Note Eq 11. 46. There is much to be said in relation to a commercial dispute that the case should not be turned into a memory test in relation to the substance of conversations, if it is known that the conversations were recorded in a way that can conveniently be put into evidence. However, in the present case the plaintiff has pleaded a claim based upon an alleged breach of the defendant's duty of good faith that is separate from the plaintiff's claim for breach of the contract of insurance itself. It is not clear to me how the breach of duty of good faith claim will avail the plaintiff, if it fails on its claim under the policy. However, it is a matter for the plaintiff to choose the claims that it wishes to pursue in its statement of claim, and the plaintiff has pleaded a separate claim for breach of the defendant's duty of good faith. The plaintiff has pleaded the substance of the conversations in the various paragraphs of its statement of claim. It must be presumed that the plaintiff did so either on the basis of Mr Hugh's memory, or of notes made by him. As the plaintiff has pleaded a separate cause of action based upon the conversations, it would not be appropriate for the Court to order the defendant to produce to the plaintiff any transcript or recordings of the conversations, before the plaintiff is required to serve its evidence in support of the allegations that it has made against the defendant. 47. I accordingly would not order the defendant to comply with the plaintiff's notice to produce in relation to transcripts or recordings of the conversations. 48. I note that the plaintiff's notice to produce also seeks production of the documents described in pars 3 to 5 of the notice to produce. These documents appear to me to be much less contentious than records of the conversations. I am not sure what the contest is in relation to these three documents, and I will ask the parties to address this issue at the directions hearing that I propose to hold. 49. I will hear the parties on the issue of the costs of the notice of motion. On one view of it, the defendant has lost on the pleading issues, and the plaintiff has lost – at least provisionally – on the disclosure issues. It may be preferable for the question of costs to be deferred until the time when the notice of motion is disposed of finally.