Federal Court of Australia

Merhi v SURA Professional Risks Pty Ltd as Agent of Certain Underwriters at Lloyds [2026] FCA 1503

ORDERS

THE COURT ORDERS THAT:

1.    The applicant’s interlocutory application dated 21 September 2026 be dismissed.

2.    The respondent have leave to file an Amended Defence substantially in the form of the proposed amended defence exhibited to Mr Peck’s affidavit of 6 October 2026.

3.    The applicant give discovery as sought by the respondents by 30 October 2026.

4.    The applicant pay the respondent’s costs of the interlocutory application dated 21 September 2026 and the costs of the discovery application.

5.    The respondent pay the applicant’s costs thrown away by reason of the amendment of their defence.

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

REASONS FOR JUDGMENT

Delivered ex tempore

JACKMAN J:

1    By interlocutory application dated 21 September 2026 the applicant, Mr Merhi, seeks an order striking out paras 18 to 30 of the defence filed on 23 July 2026, on the basis that those paragraphs fail to disclose a reasonable defence within the meaning of r 16.21(1)(e) of the Federal Court Rules 2011 (Cth). There is also a dispute over certain categories of discovery sought by the respondents (Insurers), which is largely dependent on the outcome of the strike out application. In addition, the Insurers seek to amend their defence by relying on additional matters by way of misrepresentation.

2    The proceedings concern a SURA Professional Risks Financial Planners Professional Indemnity Policy issued to Financial Services Group Australia Pty Ltd (FSGA) for the period 4 December 2023 to 4 February 2025 at 4pm (Policy). The insureds included, in addition to FSGA, a principal or director of FSGA while acting within the scope of his duties as such. Mr Merhi’s claim for indemnity is based on an extension concerning the costs of legal representation at any inquiry or similar process relating to FSGA’s business affairs which the insured is legally compelled to attend.

3    Mr Merhi was the sole director of FSGA, which held an AFSL and carried on a financial services business.

4    Mr Merhi completed a proposal for the Policy on 30 November 2023 (Proposal). Question 13(b) in the Proposal asked whether there were any circumstances not already notified to insurers which may give rise to a claim against FSGA, or any prior corporate practice, or any of the present or former Principals, to which FSGA answered “No”. Mr Merhi was identified in the Proposal as a Principal of FSGA.

5    Paragraphs 18 to 30 of the defence are directed to a defence under s 28(3) of the Insurance Contracts Act 1984 (Cth) (ICA) to the effect that the negative answer to Question 13(b) was false and amounted to misrepresentation or non-disclosure of matters known to Mr Merhi and FSGA, and which they knew (or a reasonable person in the circumstances could be expected to know) to be relevant to the decision of the Insurers whether to accept the risk, and if so on what terms. The matters allegedly known by Mr Merhi and FSGA before the inception of the Policy (and which are extensively particularised in the defence) are that:

(a)    ASIC had raised concerns with Interprac Financial Services Pty Ltd (Interprac) about poor quality and potentially conflicted advice provided by Mr Merhi;

(b)    Equity Trustees Superannuation Limited (ET) had investigated Mr Merhi and Venture Egg Financial Services Pty Ltd (Venture Egg), an entity of Mr Merhi, which conducted financial services on a similar or identical basis to FCGA, which culminated in ET filing a breach report with ASIC raising serious concerns about the conduct of Mr Merhi and Venture Egg which it considered constituted breaches of the Corporations Act 2001 (Cth) (Corporations Act); and

(c)    ET had suspended any rollovers where the rollover requests had been made pursuant to personal advice given by financial advisers connected with Venture Egg, FCGA or Mr Merhi.

6    The proposed Amended Defence seeks to add a fourth matter, namely that Mr Merhi, and/or entities connected to him, received advice fees from First Guardian Master Fund and/or Shield Master Fund for recommending them to investors, thus placing themselves in a position of conflict of interest although they represented to clients that they had no vested interest in any products they recommended clients invest in.

7    Mr Merhi submits that the relevant background, as proved by an affidavit of Mr Merhi’s solicitor, Mr Drummond, of 28 July 2026 includes that:

(a)    Interprac held an AFSL and carried on a financial services business;

(b)    Mr Merhi carried on a financial services business as an authorised representative and financial adviser of Interprac and provided financial services on behalf of Interprac;

(c)    from 17 June 2016 to 31 May 2025, Ferras Merhi Pty Ltd and United Financial Advice Pty Ltd trading in partnership as Venture Egg carried on a financial services business as an authorised representative of Interprac and provided financial services on behalf of Interprac;

(d)    Venture Egg was never an authorised representative of FSGA and never provided financial services on behalf of FSGA;

(e)    Mr Merhi was never an authorised representative of FSGA and never provided any financial services on behalf of FSGA;

(f)    the financial services business of FSGA, on the one hand, and that of Interprac, Venture Egg and Mr Merhi, on the other hand, were separate financial services businesses; and

(g)    Interprac and FSGA never had any authorised representatives or financial advisers in common at the same time.

8    Mr Merhi relies on the key words “accept the risk” in s 21(1)(a) of the ICA, and the focus of the disclosure required by s 21 on the relevant risk, ie the particular insurance hazard, citing Permanent Trustee Australia Limited v FAI General Insurance Co Ltd (in Liquidation) [2003] HCA 25; (2003) 214 CLR 514 at [32]. Mr Merhi submits that the risk assumed by the Insurers was limited to the indemnification of FSGA and Mr Merhi (as its director) in respect of claims for compensation made against FSGA or Mr Merhi (while acting within the scope of his duties as director of FSGA) in respect of any civil liability incurred resulting from any breach of professional duty in the conduct of FSGA’s professional business practice. Mr Merhi submits that the financial services businesses of Interprac, Venture Egg and Mr Merhi were separate from the financial services business of FSGA, and submits that it was not possible for the matters of misrepresentation or non-disclosure relied upon to give rise to a claim against FSGA or Mr Merhi as the Principal of FSGA.

9    The Insurers submit that the negative answer to Question 13(b) in the Proposal was false in that:

(a)    Mr Merhi was the Principal of FSGA, and the investigations and enquiries regarding Venture Egg and Mr Merhi himself were circumstances that may give rise to a claim against him; and

(b)    Venture Egg was a “prior corporate practice” of FSGA within the meaning of Question 13(b), and it had the same business model as FSGA, relying on the description of Venture Egg’s business model given in an affidavit of Ms Nicola Gunn of 18 February 2025 which is included in Mr Drummond’s affidavit of 28 July 2026. Ms Gunn was an authorised delegate of ASIC and made her affidavit in support of an application to this Court for orders under s 1323 of the Corporations Act to prevent Mr Merhi from dissipating assets.

10    The Insurers contend that Mr Merhi, as the director and principal of FSGA, was aware of circumstances that might give rise to a claim against FSGA and himself because FSGA was operating a substantially identical business model to that which he and Venture Egg had pursued as authorised representatives of Interprac, which had attracted the attention of ASIC, ET and others. The Insurers contend that Mr Merhi’s knowledge is imputed to FSGA. The Insurers submit that, as the insurance effected was professional indemnity insurance in relation to financial planning, the history and antecedents of the business to be insured, and the competence and integrity of the principals behind it, were critical to the risk the Insurers were accepting.

11    The parties are clearly divided on a factual issue as to whether the business of FSGA was relevantly separate from the businesses of Venture Egg, Interprac and Mr Merhi in terms of the risk accepted by the Insurers under the Policy. That is a matter which can only be determined on the basis of the evidence to be adduced and tested at the trial. The factual controversy will involve questions as to the degree of similarity or identicality of the business model adopted by FSGA as compared to the business model of Venture Egg, and the role played by Mr Merhi in the different businesses. I note that Mr Merhi will contend that those matters are not determinative, or perhaps even relevant, however I do regard them as relevant and that is sufficient for present purposes. Against those matters, Mr Merhi submits that the fact that he was not an authorised representative of FSGA is decisive. I do not accept that submission given that Mr Merhi was the sole director of FSGA, and thus presumably played a prominent role in the conduct of its affairs. It is not possible at this stage to conclude that the defence pleaded at paras 18 to 30 of the defence do not have any chance of success. Accordingly, those paragraphs should not be struck out.

12    As to the proposed amended defence, Mr Merhi does not take any additional objection to the amendments over and above the arguments directed to the existing defence.

13    In my view, the Insurers should be granted leave to file an Amended Defence substantially in the form proposed, being the form contained in the exhibit to Mr Peck’s affidavit of 6 October 2026. The Insurers have indicated that they may well wish to amend the way in which the partnership known as Venture Egg Financial Services is pleaded, and I regard a further amendment along those lines as within the scope of the leave which I will grant.

14    As to discovery, the Insurers seek discovery of documents in the following categories:

(1)    All communications between the Applicant (in any capacity) and ASIC between 1 March 2023 and 18 February 2025 relating to ASIC’s concerns about poor quality and potentially conflicted advice provided by the Applicant, Ferras Merhi Pty Ltd and United Financial Advice Pty Ltd, trading in partnership as Venture Egg Financial Services (Venture Egg) or Financial Services Group Australia Pty Ltd (FSGA);

(2)    All communications between Interprac Financial Planning Pty Ltd (Interprac) and Mr Merhi (in any capacity) between 1 March 2023 and 18 February 2025 relating to ASIC’s concerns about poor quality and potentially conflicted advice provided by Mr Merhi or Venture Egg;

(3)    All communications between the Applicant (in any capacity) and Equity Trustee Superannuation Ltd (ET) between 1 March 2023 and 30 November 2023 relating to ET’s investigation of services provided by the Applicant, Venture Egg and FSGA including the suspension of rollovers and lodging of ASIC breach notice;

(4)    All communications between Interprac and the Applicant (in any capacity) relating to ET’s investigation of services provided by the Applicant and Venture Egg and suspension of rollovers.

15    Now that I have dismissed the strike out application, the only objection to those categories is that Mr Merhi contends that the first, second and fourth categories should be limited to the period ending on or about the date when the Policy incepted, namely 4 December 2023. I reject that submission. Documents created after the Policy incepted may well refer to, or otherwise shed light on, the facts in existence before it incepted. Mr Merhi submits that the claim is for $250,000 and that requiring documents created after 4 December 2023 to be discovered would be disproportionate. However, there is no evidence as to the amount of work or expense involved in that additional discovery, and I do not regard the categories as disproportionate to the amount in dispute. Accordingly, Mr Merhi should give the discovery as sought.

Associate:

Dated:    9 October 2026