HQ Insurance Pty Limited v Stonehatch Risk Solutions Limited (No 2) [2020] FCA 1010 (16 July 2020): application for preliminary discovery, rule 7.23 Federal Court rules, claim for relief under s 1324(1) Corporations Act, reasonable enquiries

July 22, 2020 |

In HQ Insurance Pty Limited v Stonehatch Risk Solutions Limited (No 2) [2020] FCA 1010 the Federal Court per Thawley dismissed an application for preliminary discovery on the grounds that the applicant failed to establish that reasonable inquiries were made.


The dramatis personae are:

  • HQ,  an Australian bloodstock and livestock insurance broker specialising in equine insurance. It holds an AFSL which authorises it to advise and deal in general insurance [17].
  • Stonehatch,  a United Kingdom (UK) based insurance broker specialising in bloodstock insurance. It does not hold an AFS [17]]
  • Ausure (Upper Hunter) Pty Ltd trading as Ausure Insurance Solutions (NSW),  an insurance broker which brokered equine thoroughbred insurance through Stonehatch as its wholesale broker in the UK where the equine risks were underwritten by various Lloyd’s syndicates [18].

On 25 September 2018, HQ completed its purchase of Ausure’s client book of insurance policies. HQ transferred the insurance files to their own wholesale broker, Integro Brokers Limited, in the UK, on 18 October 2018 [19].

Under the agreement between Ausure and HQ Ausure was to transfer files concerning various specified insureds one of the insureds was Go Bloodstock. The Go Bloodstock Policy which HQ acquired from Ausure’s client book ran from 28 March 2018 to 28 March 2019. The tax invoice issued to Go Bloodstock for the Go Bloodstock Policy acquired by HQ identified Stonehatch as the “insurer” [20].  After the transfer of files to HQ, Go Bloodstock used HQ to place additional insurance on 27 September 2018 and until early 2019. For newly purchased bloodstock acquired by Go Bloodstock and insured through HQ, it was “short-dated” to 28 March 2019 so that the various insured risks would renew at the same time [21].

On 28 March 2019, Mr Stuart Doughty for HQ was informed by Mr O’Connor, Go Bloodstock’s General Manager, that Go Bloodstock would not be insuring through HQ having secured better terms elsewhere [22].

Go Bloodstock wrote to HQ on 27 March 2019 that Go Bloodstock had appointed Stonehatch its “exclusive insurance broker of record” [23].

The Court posited two obvious ways as to how Go Bloodstock came to appoint Stonehatch:

  •  Stonehatch was identified as the “insurer” on the tax invoice issued to it by Ausure so Go Bloodstock was aware that the insurance brokered through Ausure was placed through Stonehatch.  Go Bloodstock could have  approached Stonehatch. HQ had advised Go Bloodstock on 27 March 2019 that the maximum premium would be $820,000.
  • Stonehatch approached Go Bloodstock. [24]

HQ alleges that Stonehatch approaches Bloodstock and that if Go Bloodstock had not placed its insurance through Stonehatch, it would have renewed its policy with HQ [25] and that .

  • the unlawful operations by Stonehatch permitted it to compete with AFSL holders without the need to expend the necessary resources to comply with applicable regulations”  giving “Stonehatch the ability to interfere unfairly with HQ Insurance’s business in Australia”; and
  •  “Stonehatch may have been and/or may continue to be actively dealing in the equine thoroughbred insurance industrywithout an AFSL or an exemption”[26].

The evidence relied on was

  • affidavit of Mr Aldridge, HQ’s managing director. Amongst other matters, this evidence addressed the loss of Go Bloodstock to Stonehatch. HQ’s evidence was twice supplemented:
  • an affidavit of Ms Buckley intended to meet a criticism raised in Stonehatch’s written submissions that the only significant conduct complained of related to Go Bloodstock, setting out further information known to HQ about Stonehatch’s ongoing activities, being events that had occurred since the proceedings were commenced [27].

A person who carries on a “financial services business” in Australia must hold an AFS with a “financial services business” being a business providing “financial services” which includes the provision of financial product advice or dealing in a financial products.   Dealing in a financial product includes

  • applying for or acquiring, issuing, varying, or disposing of an insurance contract.
  • circumstances where a person is arranging to engage in dealing in a financial product [33]

Contracts of insurance issued in respect of thoroughbred bloodstock are financial products under the Act [33].

It was not in issue that  arranging for the issuing of an insurance contract falls within the meaning of “financial services business” and requires an AFSL unless an exemption applies where are relevantly:

(1) ASIC Corporations (Foreign Financial Service Providers—Limited Connection) Instrument 2017/182 provides that a person who is carrying on a financial services business in Australia only because of the deeming provision in s 911D of the Act does not require an AFSL in respect of dealings with wholesale clients; and

(2) Reg 7.6.02AG(2A) of the Corporations Regulations 2001 (Cth) exempts a person providing the services from holding an AFSL if they are not in this jurisdiction and do not engage in conduct that is intended to induce people in this jurisdiction to use the service, or is likely to have that effect. .

It was common ground that HQ would only establish that Stonehatch was engaging in unlawful conduct if it could show that Stonehatch was:

(1) carrying on a financial services business in Australia according to the common law; and

(2) engaging in conduct that was:

(a) intended to induce people in Australia to use its services; or

(b) likely to have that effect.

Rule 7.23 provides:

(1) A prospective applicant may apply to the Court for an order under subrule (2) if the prospective applicant:

(a) reasonably believes that the prospective applicant may have the right to obtain relief in the Court from a prospective respondent whose description has been ascertained; and

(b) after making reasonable inquiries, does not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief; and

(c) reasonably believes that:

(i) the prospective respondent has or is likely to have or has had or is likely to have had in the prospective respondent’s control documents directly relevant to the question whether the prospective applicant has a right to obtain the relief; and

(ii) inspection of the documents by the prospective applicant would assist in making the decision.

(2) If the Court is satisfied about matters mentioned in subrule (1), the Court may order the prospective respondent to give discovery to the prospective applicant of the documents of the kind mentioned in subparagraph (1)(c)(i).

HQ did make inquiries in:

  •  performing searches in order to ascertain whether Stonehatch held an AFSL or was an authorised representative of an AFSL holder. Those searches indicated that Stonehatch did not hold an AFSL nor was it an authorised representative of an AFSL holder.
  •  on 7 April 2019 HQ wrote to Stonehatch seeking answers to certain questions:

So that we can understand your position, could you please confirm the following to us urgently:

1. Whether Stonehatch holds an AFSL entitling it to conduct insurance business in Australia?

2. If not, whether Stonehatch acts as an authorised representative for an AFSL holder in conducting insurance business in Australia? and,

3. Whether Stonehatch is exempt from section 911A and/or 911 B of the Corporations Act 2001 (Cth) requiring an entity to hold an AFSL licence in carrying on a financial services business in Australia by advising and dealing in respect of insurance contracts with Go Bloodstock?

Stonehatch did not reply to this communication [67].

  • HQ lodged a complaint with the Australian Securities and Investments Commission (ASIC) who did not to take any action [68].
  • seeking information from Lloyds with respect to Stonehatch’s activities in Australia. [69]

HQ sought discovery of the following category of documents:

(1) all documents recording or referring to communications between Stonehatch and Go Bloodstock Australia Pty Ltd (Go Bloodstock) in respect of thoroughbred insurance from 25 September 2018 to 28 March 2019;

(2) all policies and broking files for policies placed by Stonehatch for clients located in Australia without the use of an insurance broker which held an Australian Financial Services Licence for the calendar years 2017, 2018 and 2019; and

(3) travel and customs documentation of any Stonehatch employees or representatives who travelled to Australia in 2017, 2018 and 2019, including any diary entries for any meetings those employees or representatives attended while in Australia [11].


The Court set out the principles, quoting, at [4], from Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd  where Perram J stated:

(i) the prospective applicant must prove that it has a belief that it may (not does) have a right to relief;

(ii) it must demonstrate that the belief is reasonable, either by reference to material known to the person holding the belief or by other material subsequently placed before the Court;

(iii) the person deposing to the belief need not give evidence of the belief a second time to the extent that additional material is placed before the Court on the issue of the reasonableness of the belief. That belief may be inferred;

(iv) the question of whether the belief is reasonable requires one to ask whether a person apprised of all of the material before the person holding the belief (or subsequently the Court) could reasonably believe that they may have a right to obtain relief; and

(v) it is useful to ask whether the material inclines the mind to that proposition but very important to keep at the forefront of the inclining mind the subjunctive nature of the proposition. One may believe that a person may have a case on certain material without one’s mind being in any way inclined to the notion that they do have such a case.

[121] In practice, to defeat a claim for preliminary discovery it will be necessary either to show that the subjectively held belief does not exist or, if it does, that there is no reasonable basis for thinking that there may be (not is) such a case. Showing that some aspect of the material on which the belief is based is contestable, or even arguably wrong, will rarely come close to making good such a contention. Many views may be held with which one disagrees, perhaps even strongly, but this does not make such a view one which is necessarily unreasonably held. Nor will it be an answer to an application for preliminary discovery to say that the belief relied upon may involve a degree of speculation. Where the language of FCR 7.23 relates to a belief that a claim may exist, a degree of speculation is unavoidable. The question is not whether the belief involves some degree of speculation (how could it not?); it is whether the belief resulting from that speculation is a reasonable one. Debate on an application will rarely be advanced, therefore, by observing that speculation is involved.

His Honour set out 3 circumstances where discretion to order preliminary discovery would not be ordered where applicant has not sufficient revealed the material information that the applicant has already obtained, being:

(1) First, if the Court does not have before it all of the material information a prospective applicant already has, it is not possible for the Court to assess whether the prospective applicant does not have information sufficient for the prospective applicant to make a decision whether to start a proceeding.

(2) Secondly, without the information being disclosed, it is not possible for a prospective respondent to dispute the prospective applicant’s contention that it does not have sufficient information.

(3) Thirdly, without knowing what information a prospective applicant already has, it is not possible to fashion an order for discovery which goes no further than remedying the particular deficiency in information. The Court must be able to identify the deficiency in information with sufficient precision to permit an appropriate order for discovery [8].

It was not enough for an applicant to assert that insufficient information is held.  The court must be satisfied to that effect [9].

The court noted that the applicant’s claim is based on:

  • an injunction under s 1324(1) of the Act, which was the primarily relief sought;
  • damages under s 1324(10) and s 1325; and
  • a tort of unlawful interference with trade or commerce [29].

The Court was satisfied, for the purposes of r 7.23(1)(a), that HQ reasonably believes that it may have the right to obtain an injunction under s 1324(1) [48].

Regarding Rule 7.23(1)(b) the court set out the 2 principal matters which must be satisfied as being:

1) first, the Court must be satisfied that reasonable inquiries have been made; and

(2) secondly, the Court must be satisfied that having made reasonable inquiries, the prospective applicant does not have sufficient information to make a decision whether to start a proceeding to claim the relief to which the prospective applicant considers it may be entitled.

In considering whether reasonable enquiries have been made the court noted:

  • it is an objective test; [51]
  • prospective respondent should not be put to the expense and inconvenience of formal discovery unless a prospective applicant has first taken reasonable steps to inform themselves about whether to start proceeding [56].

The court was critical of the application because:

  • HQ proceeded on the basis that it only needed to disclose “evidence” which it possessed, and that this was something different to “information” [59].  The court was of the view that  HQ excluded information by reference to considerations such as whether the material available to it could be considered to be “admissible” or “actionable” evidence [61];
  • HQ proceeded on the basis that it only needed to disclose “evidence” where that evidence concerned events which had in fact induced a client of HQ to insure with Stonehatch [62].
  • a lack of inquiry into the circumstances under which the Go Bloodstock policy was not renewed with HQ in late March 2019 [71] which the court pithily described as HQ:

(1) failing to make a reasonable inquiry of a past employee before the hearing of its preliminary discovery application (Mr Doughty ceased employment with HQ on 4 May 2020); or

(2) not putting forward all the information it had available to it when it commenced its preliminary discovery application because it failed to put before the Court important information known to one of its then employees [73].

  • of a failure to make inquiries regarding  the circumstances relating to the Hellbent policy. HQ’s Operations Manager gave evidence of a conversation about quotes from Stonehatch from ex clients [76] – [78]
  • a failure to follow up an email which raised issues about  Stonehatch engaging in a financial services businessand the circumstances in which parties came to insure with Stonehatch [83] – [90]
  • a failure to follow up with other clients of HQ who were willing to disclose to HQ matters relating to Stonehatch. It is not known whether information would have been obtained from Widden Stud because no inquiry was made [91] – [93].
  • a failure to make any inquiries of previous director of HQ who claimed to have knowledge how Stonehatch operated [94] – [96] as well as the 10 employees of HQ who had dealt with Australian clients and might have information about Stonehatch [104].
  • a failure to disclose information about events referred to in a HQ email resulting in the Court not knowing the content of the information known to HQ which is likely to be material to a decision whether to start a proceeding. The court was unable to know whether the material is objectively sufficient [97] – [104];
  • a failure to undertake a comprehensive search of HQ’s emails [105] – [106]


Setting out a cause of action in detail can be a challenge without all of the relevant documentation however the burden is not particularly high and it is generally possible to outline in sufficient detail the basis for the claim.  The more difficult task, as HQ found, was satisfying the court that sufficient inquiries had been made.  In this regard HQ had significant details.  It is worth noting that the bulk of the criticisms were based on gaps in HQs affidavit material.  That highlights the importance of having careful and thorough affidavit material. In this case the factual material was quite extensive and complex which lent itself to an attack by the respondent when the issues were not canvassed thoroughly enough.     

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