Federal Court refuses to order disclosure of class action respondent's insurance policies

In brief 8 min read

In contrast to a previous decision ¹, the Federal Court has refused to order the disclosure of the respondent's insurance policies to the applicant in a class action. 

In Evans v Davantage², Justice Beach held that the court's case management powers and the overarching purpose provisions of the Federal Court Act 1976 (Act) – which have previously been relied upon to order disclosure - did not empower the court to make such an order. 

Despite finding that the court had power under a different section ³, the court considered that the power should not be exercised in this case, recognising the commercial disadvantage that disclosure would cause the respondent.

If this decision is followed, orders for disclosure of insurance policies will be limited to the traditionally recognised circumstances. Until such time as the position is resolved, however, applicants should not assume they will be granted access to a respondent's insurance policies unless factors more commonly accepted by courts are present.

We explore this decision and also highlight the way in which the court's reasoning differed from a prior decision that found in favour of disclosure.

Key takeaways

• This decision conflicts with previous authority and it remains to be seen how an appellate court would resolve the issue. However, if this decision is followed, orders for disclosure of insurance policies will be limited to the traditionally recognised circumstances, such as where:
  • the respondent is insolvent; or
  • the applicant has a statutory cause of action against the respondent's insurers.
• In this case the court held that:
  • the case management and overarching purpose provisions in sections 33ZF(1), 37M and 37P of the Act do not empower the court to make an order for the disclosure of the respondent's insurance policies in class actions⁴.
  • the court has the power under section 23 of the Act to make an order for disclosure if the court deems it appropriate. Section 23 states:

  The court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the court thinks appropriate.

  • the court will not exercise its discretion under s23 to make such an order for the purpose of mediation or settlement approval.

The facts

The class action concerned extended warranties ('discretionary risk products') sold by Davantage Group (trading as National Warranty Company) on second-hand vehicles, which the Federal Court held were mere illusory contractual promises.⁵

The applicant sought the production of all insurance policies held by Davantage and its holding company, McMillan Shakespeare, as well as all communications concerning the insurers' position on indemnity for the claims made in the proceedings. The respondent opposed the making of the order, and the insurers sought leave to intervene in the application.

Making similar arguments to those put forward by the applicant in another recent Federal Court case (Thorn) where disclosure had been ordered⁶, the applicant argued that the documents should be disclosed:  

• to inform the applicant as to whether it is commercially viable to prosecute the proceedings further, as there was a real possibility the respondent might not be able to meet any judgment against it;
• to inform the applicant as to the appropriateness of mediation and the quantum of any proposed settlement;
• as evidence relevant to the approval of the settlement; and
• to determine whether it is necessary to take action against an insurer to obtain a declaration in relation to indemnity.

The applicant relied upon Thorn as authority that s33ZF(1) empowers the court to compel production even if the insurance documents are not relevant to a fact in issue.

The applicant also sought to distinguish the facts from a recent Queensland Supreme Court decision (Mallonland) where the plaintiff's application to seek disclosure of insurance documents was refused, especially regarding the financial position of Davantage.⁷

Justice Beach drew on the High Court reasoning in BMW v Brewster; Westpac v Lenthall and held that s33ZF cannot be used to override the conventional position that insurance documents are not discoverable, nor is it sufficient that such documents may be of some assistance to group members. His Honour reiterated the principle established in the 2009 Federal Court case of Kirby,⁸ that is, the court is reluctant to compel disclosure of a party’s insurance position on the basis that it will not normally be relevant to the proof of any cause of action pleaded against that party.

In contrast to Thorn, Justice Beach held that facilitating an asymmetry in the parties' positions at mediation was not appropriate to ensure that justice was done, stating that s33ZF(1) 'is not designed to put a respondent at an asymmetric commercial disadvantage', and similarly, that the overarching purpose provisions in ss 37M and 37P are 'not designed to distort the playing field so as to confer an asymmetric commercial advantage in favour of one party at the expense of another.'

The judge also held that the documents were not necessary to assist in court approval of a settlement, noting there are many other ways the court can satisfy itself for the purposes of s33V, such as appointing an amicus, a special referee or an independent expert to provide an opinion.

Distinguishing Thorn - where a key factor militating disclosure was that the applicant had been granted leave to bring proceedings against the insurer – the judge held that this reasoning did not apply in the present case. That was because the insurers were not a party.  

Regarding the apparently poor financial position of the defendant, the judge considered that the applicant's desire to inform itself as to its strategy in the proceedings was not a compelling enough reason to order disclosure. However, His Honour recognised insolvency as a scenario where insurance policies may be discoverable.

The similarities and differences on key issues between the reasoning of the judge in Thorn and the current case (Evans) are summarised below:

Implications

There are now conflicting first instance Federal Court decisions regarding the position on disclosure of documents from the respondent concerning its insurance position. 

If Justice Beach's reasoning is followed by other first instance judges, then class action applicants will be unable to successfully seek and obtain documents from a respondent concerning its insurance position for the purposes of informing litigation strategy, mediation, or settlement by relying upon the court's case management powers under s33ZF(1), nor the overarching purposes provisions under ss 37M and 37P of the Act.  

The court may still exercise its broad discretion under s23 to order disclosure, but if Justice Beach's reasoning is followed on that issue, then the court is unlikely to do so for the sake of informing the applicant's commercial judgment or strategy. 

However, the defendant's financial position and ability to satisfy a potential adverse judgment remains a potentially relevant factor in informing the exercise of the court's discretion to order disclosure under s23.

If this decision is appealed, it is unclear how an appellate court will decide the controversy, given the recent trend of Federal Court judges to order disclosure using its case management powers on one hand, and the commentary of the High Court on those powers on the other. In the meantime, applicants should not assume they will be granted access to a respondent's insurance policies unless factors more commonly accepted by courts are present, such as:

• the respondent is insolvent;
• the insurer may be joined as a party to the proceedings, such as by statutory claim under the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW), enabling an application for preliminary discovery; or
• the applicants are shareholders of the respondent company and have a right under section 274A of the Corporations Act to inspect the books and records of a company.