FEDERAL COURT OF AUSTRALIA

Kemp v Westpac Banking Corporation (No 3) [2021] FCA 1366

ORDERS

THE COURT ORDERS THAT:

1.    On or before 17 December 2021, the respondents are to give discovery of the categories of documents identified in categories 1, 2 and 3 of Annexure A, together with a list of documents verified in accordance with r 20.17 of the Federal Court Rules 2011 (Cth).

2.    Costs be reserved.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ANNEXURE A

Terms defined in the Statement of Claim have the same meaning when used in these categories.

ANNEXURE B

ANNEXURE C

REASONS FOR JUDGMENT

O’BRYAN J:

Introduction

1    On 25 September 2020, I made orders for discovery to be given by the respondents in this proceeding and published my reasons in Kemp v Westpac Banking Corporation (No 2) [2020] FCA 1392 (Kemp No 2). The background to the proceeding is set out in that decision and will not be repeated here. At that time, the applicant sought discovery in respect of two broad categories of internal emails of employees of the respondents. I declined to order discovery in those categories (see Kemp No 2 at [42]-[57]), but I expressly left open the possibility that, once discovery had been given by the respondents in respect of the other categories ordered, the applicant might renew its application for discovery of emails in a far more targeted way.

2    By interlocutory application filed on 27 September 2021, the applicant has applied for further discovery in respect of four categories of documents, two of which are directed to internal emails of employees of the respondents. The application was supported by an affidavit of Andrew Paull affirmed 27 September 2021. Mr Paull is the solicitor for the applicant.

3    The four categories of further discovery are opposed by the respondents. The respondents rely on an affidavit of Christopher Michael Prestwich sworn 12 October 2021. Mr Prestwich is the solicitor for the respondents.

4    I heard argument on the application at a case management hearing on 18 October 2021.

5    Discovery pursuant to the orders made on 25 September 2020 took longer than initially anticipated. Mr Prestwich gave evidence concerning the scale and scope of the discovery given by the respondents pursuant to those orders. He deposed that the respondents identified a pool of over 1,000,000 documents, manually reviewed over 85,000 documents and produced approximately 23,000 documents to the applicant.

6    On the application, the respondents argued that the application for further discovery should be considered in light of the extensive discovery already given. That submission can be accepted as far as it goes. However, the application must also be considered in light of the amended pleading, which has been refined having regard to the discovery given, and the overarching purpose of civil litigation stated in s 37M of the Federal Court of Australia Act 1976 (Cth).

7    For the reasons that follow, I am satisfied that further discovery should be given in respect of categories 1, 2 and 4 sought by the applicant but modified as referred to in these reasons (with category 4 being renumbered 3). At the case management hearing, I was not persuaded that discovery in category 3 sought by the applicant was required, but gave the applicant leave to file further material from an expert witness in support of that category which will be determined at a later time.

Further Amended Statement of Claim

8    The applicant filed its most recent amended pleading, the further amended statement of claim, on 6 September 2021. A number of significant amendments have been made by that document. Relevantly for the present application, the applicant has made additional allegations that the respondents knew or were aware of various alleged deficiencies with respect to the consumer credit insurance policies in issue in the proceeding (Policies) and the manner of their sale to consumers, including the following allegations (particulars omitted):

33B    At all material times, each of Westpac, Westpac General and Westpac Life knew, or ought to have known, that persons to whom Westpac sought to sell or sold Policies, or alternatively a substantial portion of them, were or were likely to be unfamiliar with consumer credit insurance.

…

47A    Further or alternatively, Westpac representatives knew, or ought reasonably to have known, that there was a conflict between (a) the interests of the Applicant and Advised Group Members (in not incurring liabilities under Policies, about the value of which there were concerns) and (b) the interests of the Respondents (in receiving the premiums on Policies and interest) and/or the interests of the Westpac representatives themselves (in receiving the commissions).

…

49    Further or alternatively, from at least October 2011, Westpac, Westpac General and Westpac Life knew, or ought to have known, that the Policies had no value, or no material value, to, and/or were unsuitable for, or further or alternatively conferred no benefits on, or no material benefits on:

(a)    the Applicant and any Group Members;

(b)    further or alternatively, the Applicant and those Group Members referred to in paragraph 22 above;

(c)    further or alternatively, the Applicant and those Group Members referred to in paragraph 23 above.

49A    At all material times, Westpac General and Westpac Life knew, or ought to have known, that Westpac was selling the Policies in the manner alleged in paragraphs 35-38, 44 and 46-47B above.

…

69A    At all material times, the Respondents:

(a)    were aware that circumstances existed which indicated that the Applicant and Mistaken Group Members were acquiring their respective Policies under one or more of the following mistaken beliefs:

(i)    that the Policy was compulsory, or that they were required to take out the relevant Policy in order to obtain the credit card, flexi loan or personal loan, as the case may be, or that the Policy formed part of (and was not separate to) their credit card, flexi loan or personal loan, as the case may be;

(ii)    that they would be eligible for the Policy cover (in that they were not excluded from one or more of the benefits under the Policy) the relevant Policy had material value to them;

(iii)    that they were liable to, or required to, pay for the Policy;

(iv)    that they had not acquired any Policy;

(b)    chose to leave the Applicant and the Mistaken Group Members under that mistaken belief in acquiring or agreeing to be issued with their respective Policies.

9    By the particulars to the allegations of knowledge in paragraphs 49 and 49A, the applicant alleges that the respondents’ knowledge can be inferred from the knowledge of five personnel: Brian Hartzer, Rebecca Lim, Les Vance, Peter Dennis and Philip Armit. The particulars to the allegations of knowledge in paragraph 69A cross refer to the particulars to paragraph 49A.

10    The allegation of knowledge in paragraph 49A cross-references the allegations in paragraphs 35-38, 44 and 46-47B which are as follows:

(a)    The allegations in paragraphs 35 and 35A relate to the manner of sale of the Policies and state as follows (omitting particulars):

35.    The Applicant and at least some of the Group Members were sold the Policies in the following circumstances:

(a)    without their consent;

(aa)    without having requested the Policies;

(b)    without them being fully or sufficiently informed of the exclusions to the cover applicable to them;

(c)    without them being fully informed that the cover was optional or separate to their credit card, flexi loan or personal loan application;

(d)     without them being provided with an opportunity to first review the terms of the relevant Policy;

(e)    without having been warned that any advice provided to them in relation to the Policy had been prepared without taking account of their objectives, financial situations or needs, so that they should consider the appropriateness of the advice, having regard to their own objectives, financial situation and needs.

35A.    During the Relevant Period, Westpac did not have adequate controls in place to ensure that the Policies were sold only after the relevant customer:

(a)    had requested to purchase the Policy;

(b)    had provided their consent to purchase the Policy;

(c)    had been fully or sufficiently informed of the exclusions to the cover applicable to them;

(d)    had been fully informed that the cover was optional or separate to their credit card, flexi loan or personal loan application;

(e)    had been provided first with an opportunity to review the terms of the relevant Policy; and/or

(f)    had been warned that any advice being provided to them in relation to the Policy had been prepared without taking account of their objectives, financial situations or needs, so that they should consider the appropriateness of the advice, having regard to their own objectives, financial situation and needs.

(b)    The allegations in paragraphs 36 to 38 plead misleading and deceptive conduct and state as follows (omitting particulars):

36.    During the Relevant Period, the Applicant and a proportion of Group Members (Misled Group Members):

(a)    were informed by Westpac, prior to acquiring or agreeing to acquire the relevant Policy, that they needed to take out the Policy, in order to obtain the credit card or personal loan; and/or

(b)    were not informed, sufficiently or at all, prior to acquiring or agreeing to acquire the relevant Policy, that they were acquiring the Policy or that the Policy was optional.

37.    In fact, the Policy was optional.

38.    There was a reasonable expectation that before a person agreed to acquire a Policy, Westpac would disclose, alternatively Westpac was under a duty to disclose, that the Policy was optional.

(c)    The allegations in paragraphs 44 and 46 to 47B plead that inappropriate advice was given to persons who acquired the Policies and state as follows (omitting particulars):

44.    Further or alternatively, the Applicant and some Group Members who acquired the Policy in branch or over the telephone within the six year period prior to the commencement of this proceeding (Advised Group Members) acquired the Policy following a recommendation or statement of opinion by one or more Westpac representatives that they should purchase the Policy, and/or that they would benefit from purchasing the Policy, in circumstances:

(a)    that could reasonably be regarded as being intended to influence them in making a decision in relation to the Policy; and

(b)    where a reasonable person might expect the relevant Westpac representatives to have considered their objectives, financial situation and needs.

    …

46.    By reason of the matters referred to in paragraphs 19 to 24 and 34 above, the Westpac representatives did not act in the best interests of the Applicant and Advised Group Members in relation to the advice, and thereby contravened s 961B of the Corporations Act.

47.    Further or alternatively, by reason of the matters referred to in paragraphs 19 to 24 and 34 above, it would not be reasonable to conclude that the advice provided by the Westpac representatives was appropriate to the Applicant and Advised Group Members, had the Westpac representatives satisfied the duty under s 961B to act in the Advised Group Members’ best interests, and the Westpac representatives thereby contravened s 961G of the Corporations Act.

47A.    Further or alternatively, Westpac representatives knew, or ought reasonably to have known, that there was a conflict between (a) the interests of the Applicant and Advised Group Members (in not incurring liabilities under Policies, about the value of which there were concerns) and (b) the interests of the Respondents (in receiving the premiums on Policies and interest) and/or the interests of the Westpac representatives themselves (in receiving the commissions).

47B.    By reason of the matters referred to in paragraphs 18 to 24, 33A, 33B-34C and 47A above, Westpac representatives failed to give priority to the interests of each of the Applicant and Advised Group Members when giving advice to them, and thereby contravened s 961J of the Corporations Act.

Categories 1 and 2 (emails)

11    Categories 1 and 2 sought by the applicant are as follows:

(a)     Emails sent or received by the employees listed in Annexure B in the Relevant Period, that attach a version of a document listed in Annexure C and any further emails that form part of that same email thread.

(b)    Emails dated 1 July 2009 or onwards, contained in the mailboxes of the employees listed in rows 2, 4 and 5 of Annexure B, relating to:

a.    the decisions to cease offering, on a temporary or permanent basis, any of the Policies;

b.    the existence or absence of value, benefits and suitability of the Policies to customers, or to one or more of the respondents;

c.    deficiencies in the systems for sale and distribution of the Policies by the respondents and third parties (including without limitation Sykes Financial Services Pty Ltd and Peakbound Holdings);

d.    the mystery shops, audits, deep dives, thematic reviews, Deloitte reviews, the Sales Practices Review provided to ASIC in March 2017 and ASIC Reports 256, 361 and 622 which relate to the Policies.

12    The employees listed in proposed Annexure B are Brian Hartzer, Les Vance, Rebecca Lim, Peter Dennis, Philip Armit, James Lee, Daniel Carter and Helen Tilley. As noted earlier, in his further amended statement of claim, the applicant alleges that the knowledge of the respondents as alleged in paragraphs 49, 49A and 69A can be inferred from the knowledge of the first five of those employees (Brian Hartzer, Les Vance, Rebecca Lim, Peter Dennis, Philip Armit). Mr Paull gave evidence, in the form of a table, stating the positions, roles and involvement of each of the eight employees listed in Annexure B within Westpac and its related entity BT Financial Group (BTFG) as best as the applicant has been able to glean from the discovery to date and the affidavit of Mr Prestwich sworn 19 June 2020 (2020 Prestwich affidavit). In his subsequent affidavit sworn 12 October 2021, Mr Prestwich exhibited a spreadsheet which set out the roles held by six of the employees listed in proposed Annexure B during the relevant period. The following table combines Mr Paull’s evidence with information from Mr Prestwich’s spreadsheet:

Category 1

13    Category 1 is emails sent or received by the employees listed in Annexure B in the relevant period that attach a version of a document listed in Annexure C and any further emails that form part of that same email thread. There are 44 documents listed in proposed Annexure C. Each of the documents is referred to in particulars to the further amended statement of claim and it is therefore clear that the documents are relied upon as central elements in the applicant’s case.

14    The applicant submitted that there are two purposes in seeking that category. The first purpose is to prove that the employees whose knowledge is sought to be attributed to the respondents (i.e. Brian Hartzer, Les Vance, Rebecca Lim, Peter Dennis, Philip Armit) received the documents listed in proposed Annexure C. The applicant also seeks the email thread because it is likely to contain communications or comments made by or to those persons in relation to the documents. The second purpose is to provide “a more fulsome picture of the respondents’ conduct over the relevant period”. The applicant submitted that the second purpose extends beyond the allegations of the respondents’ knowledge to proof of the chronological facts relating to the documents (i.e. when the documents were first created and circulated, in so far as that involved the eight named employees). In relation to the three employees whose knowledge is not sought to be attributed to the respondents (i.e. James Lee, Daniel Carter, Helen Tilley), the applicant submitted that they will be likely custodians of relevant email threads having regard to the nature of their employment responsibilities.

15    In opposition to category 1, the respondents advanced the following arguments:

(a)    First, the respondents placed considerable reliance on the reasoning of the Court in Kemp (No 2) when refusing to order discovery of emails in the broad category then sought. However, matters have moved on since then and the discovery now sought by the applicant is far more targeted than on the previous occasion.

(b)    Second, the respondents submitted that the discovery application is based on a misconception as to the seniority of employees whose knowledge is sought to be attributed to the respondents. In my view, that is a question for trial. The applicant pleads reliance on the knowledge of those employees and is, in those circumstances, entitled to discovery in relation to their knowledge.

(c)    Third, the respondents submitted that, as on the previous application, the applicant overstates the significance of their allegations of knowledge in the pleading. That submission cannot be accepted. As set out above, the applicant has amended its pleading in relation to knowledge to a significant extent and the allegations of knowledge now assume a greater prominence in the proceeding.

(d)    Fourth, the respondents submitted that there is no proper basis for the applicant to seek discovery in order to obtain “a more fulsome picture of the respondents’ conduct over the relevant period”. They argued that it is not apparent how emails could provide any better evidence of the alleged conduct than the documents themselves. I do not accept that submission, although I consider that the applicant also overstates the relevance of the documents sought. In my view, email chains by which the named employees received the identified documents may provide relevant evidence concerning the dates on which the respondents had knowledge of facts or matters alleged by the applicant to give rise to the various causes of action pleaded. I consider that the email chains may contain relevant comments on the documents made to or by the named employees, and in that sense the chains are relevant to the facts in issue.

16    I am satisfied that the documents sought by category 1 are relevant to the pleaded allegations and an order for discovery is consistent with the overarching purpose.

Category 2

17    Category 2 refers to emails dated 1 July 2009 or onwards, contained in the mailboxes of the employees listed in rows 2, 4 and 5 of Annexure B (i.e. Les Vance, Peter Dennis and Philip Armit), relating to:

(a)    the decisions to cease offering, on a temporary or permanent basis, any of the Policies;

(b)    the existence or absence of value, benefits and suitability of the Policies to customers, or to one or more of the respondents;

(c)    deficiencies in the systems for sale and distribution of the Policies by the respondents and third parties (including without limitation Sykes Financial Services Pty Ltd and Peakbound Holdings); and

(d)    the mystery shops, audits, deep dives, thematic reviews, Deloitte reviews, the Sales Practices Review provided to ASIC in March 2017 and ASIC Reports 256, 361 and 622 which relate to the Policies.

18    The applicant submitted that he has limited this category to three of the five employees whose knowledge is sought to be attributed to the respondents in the pleading. He has done so cognisant of the Court’s observations (in Kemp (No 2)) about ensuring the costs incurred by all parties in this proceeding are minimised and proportionate to the issues and on the basis that discovery given to date indicates that those persons were intimately involved in decisions relating to, and the day-to-day management of, the Policies. The applicant submitted that emails are sought in respect of specific topics and issues that are relevant to the manner of sale of the Policies and the absence of value and/or suitability of the Policies. Amongst other things, the applicant submitted that discovery will bolster the documentary evidence of those three employees’ knowledge throughout the relevant period.

19    In opposition to category 2, the respondents advanced the following arguments:

(a)    First, the respondents again submitted that the applicant overstates the significance of the allegations of knowledge in the pleading. For the reason given above, I do not accept that submission.

(b)    Second, Mr Prestwich gave evidence that, for the period 1 July 2009 to the present, there are approximately 2,500,000 emails in the inboxes of the three named employees. The respondents submitted that complying with category 2 would necessitate extensive searches and reviews across that large number of emails. There is some force in that submission, although I consider that the discovery task can be narrowed by being framed in a more targeted way.

20    In my view, category 2 is framed too loosely which will increase the likelihood of retrieving irrelevant documents and increase the cost of searching for documents. Given the extensive discovery of key documents that has been given to date, in my view category 2 should be narrowed in two material ways.

21    First, the category should be confined to emails that relate to the pleaded allegations, being:

(a)    the existence or absence of value, benefits and suitability of the Policies to customers as alleged in paragraphs 19 to 24 of the further amended statement of claim; or

(b)    the deficiencies in the systems for sale and distribution of the Policies by the respondents and third parties (including without limitation Sykes Financial Services Pty Ltd and Peakbound Holdings) as alleged in paragraphs 34A to 35A of the further amended statement of claim.

22    In my view, the other topics sought by the applicant, being:

(a)    the decisions to cease offering, on a temporary or permanent basis, any of the Policies; and

(b)    the mystery shops, audits, deep dives, thematic reviews, Deloitte reviews, the Sales Practices Review provided to ASIC in March 2017 and ASIC Reports 256, 361 and 622 which relate to the Policies,

are not sufficiently tied to the pleaded allegations and are too vague to justify discovery.

23    Second, the category should be confined to such emails that are directly relevant, being emails that support the applicant’s case or adversely affect the respondents’ case.

24    The discovery task required by the second category will undoubtedly involve considerable effort. However, I take judicial notice of the fact that litigants now have available to them sophisticated software tools that facilitate the search of large numbers of emails based on keywords and other techniques that greatly reduce the time and cost of such searches. The evidence adduced by the respondents did not persuade me that discovery in category 2 as narrowed would impose an unreasonable burden disproportionate to the likely relevance of the documents.

Category 3

25    By category 3, the applicant sought discovery by way of an export from the respondents’ databases containing detailed information in respect of each policy sold since 1 January 2009. As noted above, at the case management hearing on 18 October 2021, I was not persuaded that discovery in category 3 was required, but gave the applicant leave to file further material from an expert witness in support of that category which will be determined at a later time.

Category 4

26    By category 4, the applicant sought discovery of the following document sets:

(a)    outlier reports, produced monthly;

(b)    exception reports, produced weekly;

(c)    unaccredited sales reports, produced weekly;

(d)    re-instatement reports, produced daily; and

(e)    Peakbound retention reports and covering email, produced weekly.

27    At the case management hearing, the applicant did not press discovery of the exception reports. The respondents agreed to give discovery of the outlier reports.

28    Peakbound provided call centre services to Westpac in connection with telephone sales of the Policies.

29    Mr Paull exhibited copies of a sample of the above reports to his affidavit and gave the following evidence in relation to them:

(a)    The purpose of the outlier reports was to identify potentially anomalous sales behaviour exhibited by bankers, including whether bankers were selling policies to persons who did not meet the age or employment criteria.

(b)    The purpose of the unaccredited sales reports was to identify bankers who had not undertaken mandatory compliance training to sell the policies.

(c)    The re-instatement reports set out the rate of reaccreditation failures (for bankers) and contained notes relating to the reason for failures which are relevant to the allegations such as “key exclusions not provided”, “optional insurance not disclosed”, “PDS not provided or used in discussion”, “interest payable on premium not covered” and “customer consent not obtained”.

(d)    The Peakbound retention reports set out the number of calls received by Peakbound from policyholders seeking to cancel their policy. The reports set out the call outcomes, including whether the policyholder wanted to make a complaint and/or request a refund. In addition, the covering email to the reports set out commentary under the heading “Voice of Customer” which provided commentary on the reasons for complaints or requests for refunds.

30    The applicant submitted that the above reports ought to have been discovered by the respondents under category 5 of the discovery categories ordered on 25 September 2020 and that some, but not all, of these reports during the relevant period have been discovered. I do not accept that submission. Category 5 was headed “high level documents regarding value, suitability, sales practices and complaints” and referred to documents in the nature of investigations, audits, reports, memoranda, actuarial advice or summaries. In my view, the reports now sought by the applicant are in the nature of “day-to-day” management reporting, not high level documents of the kind referred to in category 5.

31    The applicant further submitted that copies of the reports that have been discovered to date reveal the relevance of the documents to the pleaded allegations as they make good the contentions as to the existence of deficient sales practices in relation to the Policies.

32    In opposition to category 4, the respondents submitted that the applicant had failed to demonstrate the relevance of the documents to the pleaded allegations.

33    On the basis of Mr Paull’s affidavit, I am satisfied that the reports in category 4 are likely to contain day-to-day information about the sale of the Policies, and specifically deficiencies in sales practices, that will be relevant to the applicant’s pleaded allegations. The respondents did not adduce any evidence suggesting that discovery of these reports would be unduly costly or burdensome. I infer that the reports will be available in an electronic form and, to the extent that they have been retained by the respondents, can be readily obtained and discovered.

Conclusion and orders

34    In conclusion, I will make orders for further discovery in respect of categories 1, 2 and 4 of the interlocutory application in the terms referred to in these reasons (with category 4 being renumbered 3). By its interlocutory application, the applicant sought discovery of documents in those categories by 3 December 2021. As there has been a short delay in giving this judgment, I will order that discovery be given by 17 December 2021. The respondents will have liberty to apply if there is any difficulty in complying with that timeframe. Each of the parties had a measure of success on the application and the positions adopted by the parties were not unreasonable. In the circumstances, it is appropriate that costs be reserved.

Associate:

Dated:    3 November 2021