Courts refuse to order disclosure of insurance and financial documents for use in mediation in class actions

Ask and you will receive? 8 min read

Plaintiffs in class action proceedings often seek court orders that a defendant produce documents – such as insurance or financial documents – for use in the context of mediation. While courts have found they have broad discretionary power to order production of such documents, they have also indicated when they will not be prepared to exercise it.

In this Insight, we consider some decisions in the Federal Court¹ and Victorian Supreme Court² that provide examples of how plaintiffs are framing applications for documents in the context of mediation, and when courts will consider it inappropriate to order their production.

Key takeaways

• Plaintiff firms in class action proceedings continue to make applications seeking to compel production of documents not relevant to any issue in the proceedings, to be used in the context of mediation.
• While the courts have recognised they have broad discretionary powers to grant such orders, they will consider numerous factors when using them, eg where:
  • an asymmetry in bargaining positions would arise
  • the conduct of the party seeking the documents is not acceptable to the court;
  • there are real concerns about the utility of the documents sought
  • the documents sought are not easily accessible
  • the party seeking the document has other, inappropriate, motives for doing so.

Some recent decisions

Courts have long recognised the compulsive nature of discovery means there should be limits on its exercise.³ Similarly, in the context of mediation, while courts have accepted their broad power to order compulsory production of documents, they have also recognised there should be limits on when it should be exercised.

Evans v Davantage

In Evans v Davantage (which we discuss in a previous Insight), the applicant sought insurance documents, including policies and communications concerning the respondent's insurer's indemnity position following a failed mediation.

The applicant sought these documents under section 33ZF(1) of the Federal Court Act 1976 (Cth), which empowers the court to make any order it considers appropriate or necessary to ensure justice is done in the proceeding; and under the overarching purpose provisions 37M and 37P.

Justice Beach denied the application, and found ss 37M and 37P were designed to ensure efficient and fair litigation, but not to 'distort the playing field so as to confer an asymmetric commercial advantage'.⁴ Further, s33ZF(1) did not need to be invoked, given that s23 of the Federal Court Act provided the necessary power to order production of the documents.

Section 23 provides:

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.

Justice Beach found that, in any event, the court should not exercise its s23 powers, because:

• the documents sought were not relevant to any fact in issue;⁵
• in general (apart from specific exceptions such as insolvency), the applicant had no right to elicit information concerning the respondent's financial situation in the context of deciding whether to settle or proceed through to judgment;⁶ and
• production of the documents would confer a tactical advantage to the applicant over the respondent.⁷

The applicant also submitted that its inability to access the documents would preclude the court from being able to approve any agreed settlement under s33V of the Federal Court Act. Section 33V provides that a group proceeding cannot be settled without the court's approval. The court disagreed with this argument, primarily because it has its own methods for satisfying itself that a settlement can be approved.⁸ However, similar arguments in support of applications for orders to produce insurance and financial documents in mediation contexts have been made in Agnello and Watson & Co v Dixon.

The Owners

In February 2023, Justice Wigney applied the findings concerning s23 in Evans v Davantage to other commercial documents sought for the purposes of mediation:

… while the issue concerning power was not fully argued before me, I would be inclined to agree with Beach J that s 23 empowers the Court to order a party to produce documents which would not otherwise be discoverable but which may assist a party to consider and assess potential settlement offers, including a mediation.⁹

In doing so, his Honour provided further guidance on the scope of s23, commenting that the power, when used in the context of mediation, 'should be exercised with a degree of circumspection and caution' especially where the documents sought are commercially confidential documents the respondent does not wish to disclose, given that mediation is 'essentially consensual' and relies on parties' good faith.¹⁰

This judgment arose from a class action commenced by the applicants in connection with allegedly flammable composite cladding panels distributed by the respondent. The applicants had affixed the cladding to buildings they owned. It was in the context of preparing for mediation that the applicants sought certain documents under s23, so that their legal advisers could prepare an estimate of the total value of group member claims to aid in settlement discussions, including:

• the amount of panels sold in a specified period; and
• the panel type, size and quantity of such sales.

While Justice Wigney found the court had the power to order the documents be produced, there were several considerations that ultimately meant the court should not exercise its discretion under s23 to do so, including:

• sound reasons for doubting the documents would actually provide a reliable estimate of group members' recoverable damages;
• doubt that the documents would facilitate the mediation or increase the likelihood of settlement;
• an assumption that the applicants should be able to arrive at a reasonable estimate in any event;
• the application was made at quite late notice; and
• the difficulty in producing the documents, given that they did not exist and would need to be created based on data in the respondent's record keeping system.¹¹

Watson & Co v Dixon

In Watson & Co v Dixon, Justice Lee also accepted the court had power to compel document production under s23, but refused to order the production of documents concerning the financial position of the second respondent.

The applicants sought the documents in the context of a suspended mediation over concerns around the second respondent's financial capacity. The applicants claimed the documents would enable them to form a view on whether settlement of the class action would be in the group members' interests. Similarly to Evans v Davantage, they argued that the court should order production of the documents in light of its 'supervisory and protective role' towards group members. Justice Lee dispensed with this argument, finding that it was not an appropriate time to order production of the documents sought,¹² including because:

• the court was entitled to believe that any representations made in mediation would be accurate and there were numerous ways the applicants could get comfortable with the accuracy of representations made to them in the course of a mediation; ¹³ and
• should the matter proceed to a settlement approval, the court would consider at that stage whether any further enquiries should be made, and has a range of powers to obtain further information.¹⁴

Agnello

There have been similar applications for document production in the Victorian Supreme Court. In Agnello, the defendants successfully resisted an application for discovery of their insurance documents and financial records, which the plaintiffs had sought to use to 'facilitate settlement of the proceeding' and to inform an assessment of any potential outcome of negotiations between the parties.

The plaintiffs relied on s55 of the Civil Procedure Act 2010 (Vic), which provides that a court may make 'any order or give any directions in relation to discovery that it considers necessary or appropriate'.

Justice Keogh found that the authorities support the principle that discovery is limited to documents relevant to a question or fact in issue on the pleadings,¹⁵ which was not satisfied in that case.¹⁶ Further, his Honour said that while he doubted the court has power to order discovery of documents not relevant to issues in dispute,¹⁷ assuming it does, he would not order discovery including because:

• the documents were confidential to the defendants and the insurer, and they should not be obligated to disclose them unless the 'course of justice requires' it. Given there was no right to discovery of the material, the course of justice did not require its disclosure;¹⁸
• producing the documents would result in an asymmetry in bargaining positions between the parties;¹⁹
• the plaintiffs did not provide a principled basis for ordering discovery of this information where it did not relate to facts in issue. If the application was successful, it would be difficult to assess what limits would be placed on the right to discovery;²⁰ and
• the plaintiffs overstated the difficulties they would face in assessing any offers made at mediation without the documents.²¹

In responding to an argument about the utility of the documents to any eventual settlement approval under s33V of the Supreme Court Act 1986 (Vic), Justice Keogh found it was not appropriate to order discovery because the information may be relevant to whether approval was given to settlement of the proceedings. Considerations of what information it is necessary to disclose and whether it can be compelled to be disclosed can only be determined after such an application has been made.²² In any event, there are alternative mechanisms available to the court to compel disclosure for the purposes of s33V.²³

Implications

While courts have broad powers to order production of non-discoverable documents in the context of mediation, there are limits to when they will be prepared to exercise those powers. Respondents should carefully consider whether there are valid bases for resisting such an order.