Citation: QBE Insurance (Australia) Limited v Kalead Etri [2011] NSWSC 510
Court: Supreme Court of New South Wales
Date: 27 May 2011
Judge: Bergin CJ in Eq
Background
Two insurers, QBE Insurance (Australia) Limited and Suncorp-Metway Limited, were caught up in an apparent inadvertent disclosure of mortgage documents. Suncorp-Metway had held mortgages over two properties to secure a loan of approximately $1.2 million. When the borrowers paid around $347,000 to discharge only one of those mortgages, the discharge document for the second property was also mistakenly handed over to the borrowers' agents. Following that error, the unencumbered second property was transferred to the borrower's sister, and a new mortgage over it was registered in favour of a company called Ausgrow Pty Ltd (which was subsequently discharged).
McDougall J had previously made preliminary discovery orders in December 2010, requiring the defendants to produce documents relating to the property transfer and the Ausgrow mortgage. Preliminary discovery is a procedural mechanism under the Uniform Civil Procedure Rules 2005 that allows a prospective plaintiff to obtain documents from potential defendants before commencing substantive proceedings, to help assess whether a claim exists.
The plaintiffs brought a notice of motion seeking leave to cross-examine the three defendants on their affidavits verifying their lists of documents filed in purported compliance with those orders. The third defendant, in turn, sought an order terminating the preliminary discovery process entirely.
Legal Issues
- Whether the evidence established a sufficient probability that additional documents existed beyond those disclosed in the defendants' affidavits of discovery.
- Whether leave to cross-examine the defendants on their preliminary discovery affidavits was appropriate in the circumstances.
- Whether the preliminary discovery process should be terminated, as the third defendant sought.
- Whether allowing cross-examination was consistent with the overriding purpose of the Uniform Civil Procedure Rules, namely the just, quick, and cheap resolution of proceedings.
Decision
Bergin CJ in Eq found that the defendants' affidavits of discovery were strikingly sparse given the nature and scale of the transactions involved. The first and second defendants disclosed only two bank statements and two council rate notices between them. The third defendant disclosed slightly more, but her bank statements revealed large withdrawals (including $300,213.17 and $200,000 on consecutive days in July 2009) from a mortgage-linked account, which pointed irresistibly to the existence of further documents relating to the payment of the purchase price. No contract for sale of the property had been produced.
Her Honour drew the inference that further documents either existed and had not been disclosed, or had existed and were no longer available. Either scenario indicated non-compliance with the preliminary discovery orders. The gap between the purchase price suggested by the documents (around $700,000) and the transactions the plaintiffs had been able to trace (around $500,000) reinforced that conclusion.
Turning to the question of efficiency, Bergin CJ in Eq noted that approximately six months had elapsed since McDougall J made the original orders. Granting leave to cross-examine the defendants on their affidavits was, in her Honour's view, the most efficient course consistent with the overriding purpose of the Rules. The third defendant's application to terminate the preliminary discovery process was dismissed.
Orders Made
- Leave granted to the plaintiffs to cross-examine the first, second, and third defendants on their affidavits verifying their lists of documents filed pursuant to McDougall J's preliminary discovery orders.
- Order 2 sought in the third defendant's Notice of Motion (filed 4 April 2011), seeking termination of the preliminary discovery process, was dismissed.
(Note: The orders section provided with this judgment reproduces the earlier preliminary discovery orders made by McDougall J rather than a formal orders schedule for this decision. The orders above are drawn from the body of the judgment.)
Key Takeaways
- Leave to cross-examine on a preliminary discovery affidavit may be granted where the court draws the irresistible inference from available evidence that further documents must exist, or must have existed, beyond those disclosed.
- Unusual or unexplained banking entries visible within the very documents produced can themselves provide the evidential foundation for concluding that additional, undisclosed documents are likely to exist.
- A significant unexplained gap between a documented purchase price and the transactions actually traceable from produced records can support a finding of non-compliance with preliminary discovery obligations.
- The overriding purpose of the Uniform Civil Procedure Rules (just, quick, and cheap resolution) is a live consideration when selecting between procedural remedies: where time has already passed, cross-examination may be preferable to further rounds of affidavit evidence.
- An application to terminate the preliminary discovery process entirely will not succeed simply because the respondent disputes non-compliance where the court has independently identified gaps in the disclosed material.
Legislation and Cases Referenced
Legislation
- Real Property Act 1900 (NSW), s 42
- Uniform Civil Procedure Rules 2005 (NSW)
Cases
- QBE Insurance (Australia) Limited v Kalead Etri [2011] NSWSC 468 (related earlier decision in the same proceedings)