New South Wales Supreme Court CITATION : Clyde Industries v HIH Casualty [2000] NSWSC 325 CURRENT JURISDICTION: Equity Division Commercial List FILE NUMBER(S) : SC 55029/1998 HEARING DATE(S) : 14/04/00 JUDGMENT DATE : 18 April 2000 PARTIES : Clyde Industries Limited - Plaintiff HIH Casualty and General Insurance Limited - Defendant JUDGMENT OF : Rolfe J COUNSEL : Mr K. Andronos - Plaintiff Mr T.M. Thawley - Defendant SOLICITORS : Gilbert & Tobin - Plaintiff Moray & Agnew - Defendant CATCHWORDS : Whether certain documents are properly the subject of client professional privilege. LEGISLATION CITED : Insurance Contracts Act 1984 Evidence Act 1999 Esso Australia Resources Limited v Commissioner of Taxation (1999) 74 ALJR 339 Trade Practices Commission v Sterling (1978) 36 FLR 244 at p.246 Capar v Commissioner of Police (1994) 34 NSWLR 715 CASES CITED : Grant v Downes (1976) 135 CLR 674 Nickmar Pty Limited & Anor v Preservatrice Skandia Insurance Limited (1985) 3 NSWLR 44 National Employers' Mutual General Insurance Association Limited v Waind (1979) 141 CLR 648 Commissioner of Australian Federal Police & Anor v Propend Finance Pty Limited & Ors (1997) 188 CLR 501 DECISION : Plaintiff's Notice of Motion filed on 10 September 1999 dismissed with costs. THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CONSTRUCTION LIST ROLFE J TUESDAY, 18 APRIL 2000 55029/1998 - CLYDE INDUSTRIES LTD v HIH CASUALTY AND GENERAL INSURANCE LTD JUDGMENT HIS HONOUR: Introduction (a) The Proceedings 1 By a Summons issued on 9 July 1998, the plaintiff, Clyde Industries Limited, sought a declaration as to the extent to which, on the proper construction of the terms of a professional indemnity insurance policy issued to it by the defendant, HIH Casualty and General Insurance Limited, it and its various divisions is entitled to be indemnified by the defendant against all losses and expenses sustained by it as a result of the negligent acts, errors or omissions of its professional staff in the conduct and execution by it of a certain agreement; an order that the defendant pay it $16,276,378 less any deductible by way of indemnity for the losses and expenses sustained by it as a consequence of such negligence; alternatively damages for the defendant's breach of contract; and consequential orders. 2 By its Defence, which was filed on 24 August 1998, the defendant admitted a number of matters and denied some but, relevantly for present purposes, it pleaded in answer to the whole of the Summons that immediately before 1 April 1992 and 1 April 1993 the plaintiff knew of matters relevant to the defendant's decision whether to accept the risk, and if so on what terms, and that a reasonable person in the circumstances could be expected to know them to be relevant, which matters it failed to disclose to the defendant. The Defence continued that because of that and the operation of s.28(3) of the Insurance Contracts Act 1984, its liability in respect of the claim should be reduced to nil. 3 By its Reply the plaintiff admitted knowledge of certain matters, but denied that the existence of those matters was material for the defendant to know or relevant to its decision to accept the risk, or, if it did, on what terms. (b) The Present Notice Of Motion 4 By a Notice of Motion filed on 10 September 1999, the plaintiff sought an order that the defendant produce to it indices "that were inspected by the Plaintiff's solicitors on 29 July 1999". In support of the Notice of Motion it relied on two affidavits of Andrew Gavin Stewart sworn 10 and 15 September 1999. 5 In his first affidavit Mr Stewart stated that he was assisting the plaintiff's solicitor together with another solicitor employed by him, Ms Tuccia, and that the affidavit was made in support of the motion to seek production for inspection of the indices that "were inspected" by Ms Tuccia and him on 29 July 1999. 6 He continued that on that date Ms Tuccia and he inspected the defendant's documents, which were in a number of folders, and that a detailed index appeared at the front of each. The inspection was supervised by Mr Grenics of LAC Loss Adjusters, ("LAC"), and, towards the end of it, Mr Grenics commenced removing the indices from the folders. Mr Stewart asked Mr Grenics whether he was removing them. Mr Grenics said he was and:- "They are not for you to see." 7 Mr Stewart said that there would be "a fight about the indexes", and the inspection concluded "to allow Mr Grenics to finish removing the indexes from the folders". 8 Thereafter there was correspondence in which it was claimed that client professional privilege attached to the indices. On 23 August 1999 the solicitors for the plaintiff wrote to the solicitors for the defendant asking them when, by who and why the indices were prepared and whether drafts of them existed or, if they had been destroyed, when that happened. 9 On 1 September 1999 the solicitors for the defendant replied that the indices were prepared during 1994, 1995, 1996 and 1997 by various named people "all of LAC Loss Adjusters":- "To assist in the defence of court proceedings which were anticipated as early as late 1993 and/or for the provision of legal advice." 10 A subsequent letter stated that 180 pages of drafts and summaries still existed, the balance of such drafts having been destroyed following completion of the final documents. 11 Mr Stewart annexed to his affidavit of 15 September 1999 a letter from HIH Winterthur to Lowndes Lambert Australia Pty Limited dated 26 September 1996, and a letter from HIH Winterthur to the solicitors for the plaintiff dated 23 May 1997. 12 The first letter stated that LAC had "now reviewed the information provided by Clyde in support of their claim" and, after commenting on it, stated that it was indicated that on the face of it the documents indicated that a claimed circumstance of significant proportions existed prior to the defendant's first involvement in April 1992. The letter invited the plaintiff:- ".. to review these documents and respond with a view to persuading us that material non-disclosure has not occurred." 13 In the letter to the solicitors for the plaintiff it was stated that it was the defendant's intention to rely on all the incidents of material non-disclosure and not only those thereafter detailed in the letter. 14 On behalf of the defendant an affidavit was sworn by Mr Francis Egan, a chartered loss adjuster, qualified solicitor and the principal of LAC, who deposed that on or about 5 April 1994 the defendant retained LAC to investigate the claim. He annexed a copy of the letter of instructions, which stated, amongst other things:- "We would ask that you contact Mr Peter of our Insured's office at Granville with a view to interviewing them and taking possession of sufficient documentation to investigate this matter thoroughly. Clearly we have a multiple claim situation which needs addressing. There may well be a betterment argument which will need to be included in the equation since it attracts additional excesses. Finally we are concerned that since a ten month delay was incurred in fixing up the design problems that there may well have been material non-disclosure associated with the Policy of Insurance in question since that Policy incepted on 1st April, 1993. Please let us have your initial report in due course." 15 Mr Egan deposed that LAC conducted a preliminary inspection of documents in April and May 1994 and found that they were in considerable disarray, and that it was arranged that LAC would, on behalf of the defendant, "copy, collate and review the documents made available by the plaintiff". 16 He continued that after LAC was retained he was present at three meetings attended by a representative of the defendant and of the plaintiff's broker and at the first meeting he heard the former say to the latter that the matter appeared to involve non-disclosure. At the third meeting he heard the defendant's representative say to the broker's representative that it was the worst case of non-disclosure he had seen in the whole of his career, and Mr Egan continued:- "I formed the view very early that the Plaintiff's claim should be disallowed and that there was the prospect of the claim being rejected on the basis of a number of material non-disclosures by the Plaintiff. That led me to believe that litigation by the Plaintiff was inevitable. When I discussed this with Greg Brown, he said to me words to the effect 'Prepare the matter on the basis you think appropriate'." 17 Mr Egan said that each document was numbered and included in an index and its contents were summarised. He concluded:- "7. Having regard to my belief that lawyers would need to be retained, the indices were prepared so that HIH could obtain legal advice as to the Plaintiff's entitlement to indemnity in respect of the claim including whether the alleged material non-disclosures were sustainable. The indices were also to enable lawyers to be retained to act on behalf of HIH in the anticipated proceedings to readily access relevant documentation once those proceedings were commenced." 18 There was no objection to any of the evidence to which I have referred and the deponents were not required for cross-examination. The Issue 19 The issue is whether the indices attract client professional privilege. It was submitted, albeit shortly, that as they were left on the folders during at least some of the inspection there had been a waiver of any such privilege. However, no attempt was made to prove which, if any of them, had been read by either Mr Stewart or Ms Tuccia, and to the extent to which they were read to identify them. There is no doubt on the evidence that all of them were not read. Therefore even assuming there was a waiver, the plaintiff has not proved to which documents it applied. The Submissions For The Plaintiff 20 It was submitted that the indices are documents which list each and every document discovered by the defendant "along with a detailed analysis of the document". The submission was that the test in relation to client professional privilege is the dominant purpose test and that the indices are discoverable and not privileged from production because:- (a) they were not prepared for the dominant purpose of preparing for or for use in existing or contemplated legal proceedings; (b) they do not themselves comprise legal advice, nor were they prepared for the dominant purpose of providing or obtaining legal advice; (c) they were prepared during the period that the defendant was, to the knowledge of the plaintiff, determining whether to accept liability on the plaintiff's claim for indemnity; and (d) they were prepared for the dominant purpose of LAC advising the defendant whether to accept liability. In relation to the matter referred to in (d) reference was made to Mr Egan's affidavit and, presumably, reliance was placed on paragraph 7. 21 The submissions continued that the documents were relevant in the sense specified in Part 23 rule 1(d), in that they comprised part of the analysis by LAC of the plaintiff's claim, and that to the extent to which they support or fail to support the allegations and denials in the pleadings they will be directly relevant. 22 It was also submitted that they would assist in the inspection of the documents. 23 The supplementary submissions continued, purportedly based on Esso Australia Resources Limited v Commissioner of Taxation (1999) 74 ALJR 339, that privilege could only attach to the indices if they were prepared for the dominant purpose of either:- (a) communications and documents passing between the parties' solicitor and a third party if they are made or prepared when litigation is anticipated or commenced, for the purposes of the litigation, with a view to obtaining advice as to it or evidence to be used in it or information which may result in the obtaining of such evidence; or (b) communications passing between the party and a third party (who is not the agent of the solicitor to receive the communication from the party) if they are made with reference to litigation either anticipated or commenced, and at the request or suggestion of the party's solicitor; or even without any such request or suggestion, they are made for the purpose of being put before the solicitor with the object of obtaining his advice or enabling him to prosecute or defend an action. 24 The submission was that these two categories were categories (e) and (f) stated by Lockhart J in Trade Practices Commission v Sterling (1978) 36 FLR 244 at p.246. 25 It was submitted that "arguably" the privilege in relation to the documents referred to in sub-paragraph (b) only attached to documents where there had been a request by a solicitor for their production or a course of dealing between the solicitor and third party. Reliance was placed on the decision of Donovan AJ in Capar v Commissioner of Police (1994) 34 NSWLR 715. The principal point his Honour determined was that legal professional privilege did not apply to documents brought into existence to pervert the course of justice. However, his Honour considered the purpose of the documents and dealt with a submission that it was for provision to solicitors for use in litigation. He said that part of the difficulty in determining that question was the dearth of authority on the question of whose purpose it is when one applies the sole purpose test as set out in Grant v Downes (1976) 135 CLR 674. He was of the view that the purpose must attach in some way to the mind of the creator, and that there was no evidence that the creator's purpose was for the documents to be provided to legal advisers for use in legal proceedings. 26 In Nickmar Pty Limited & Anor v Preservatrice Skandia Insurance Limited (1985) 3 NSWLR 44 Wood J was called upon to consider whether a number of reports from loss assessors addressed to the defendant's solicitors could be made the subject of inspection. He referred to the evidence that the sole purpose in instructing the solicitors was to obtain legal advice once the investigations had been completed, as to the plaintiff's entitlement to indemnity under a policy. 27 His Honour considered the decisions in Grant v Downes and National Employers' Mutual General Insurance Association Limited v Waind (1979) 141 CLR 648, in which latter case it was held that reports obtained by the appellant from a firm of loss assessors did not attract legal professional privilege, they having been procured in the course of the insurer's business, first, to decide whether the insured employer was liable for any claim made upon it, and, secondly, for use in opposing any application that might be made by the employee to the Workers' Compensation Commission. 28 His Honour referred to the portion of the judgment of Mason J, which dealt with the "over-riding purpose" necessary to found a claim for legal professional privilege, and to his Honour's rejection of the submission that it was sufficient to attract privilege if the documents were brought into existence for a dual purpose of deciding what the party would do and for the use in litigation by legal advisers when appropriate, on the basis that that was inconsistent with Grant v Downes. At p.52 Wood J said:- "It follows from Grant v Downes and National Employers' Mutual General Insurance Association v Waind , in my view, that the documents presently in question cannot qualify for a claim to legal professional privilege unless they are confidential and satisfy the sole purpose test. There is no reason why any less stringent test should be applied to documents prepared by agents or representatives of a party, than for the party itself." 29 In Commissioner of Australian Federal Police & Anor v Propend Finance Pty Limited & Ors (1997) 188 CLR 501 it was held, by majority, that legal professional privilege attached to a copy document provided to a lawyer, if it was made solely for the purpose of obtaining legal advice or solely for use in legal proceedings, even where the original document was not privileged. That decision proceeded on the basis that the "sole purpose" test was applicable. Whilst the decision in Nickmar was disapproved, that disapproval, as I understand it, related to the observations in relation to copies of documents. 30 In Esso the High Court held, by majority, that the appropriate test to be applied is not the "sole purpose" but the "dominant purpose" test. It also confirmed that ss.118 and 119 of the Evidence Act are expressed in language which does not address the claim that the appellant was not obliged to make certain written communications available for inspection. 31 It was submitted on behalf of the plaintiff that the dominant purpose was to provide indices and summaries of the documents to assist the defendant and its loss assessors determine what loss, if any, occurred, and that the defendant's evidence only establishes that a privileged purpose was one of the purposes for which the documents were produced, being the second of the two purposes referred to in paragraph 7 of Mr Egan's affidavit. The Defendant's Submissions 32 On behalf of the defendant it was submitted that the plaintiff had to firstly meet the test of relevance set out in Part 23 rule 1(d), which provides:- "(d) A document or matter is to be taken to be relevant to a fact in issue if it could, or contains material which could, rationally affect the assessment of the probability of the existence of that fact (otherwise than by relating solely to the credibility of a witness), regardless of whether the document or matter would be admissible in evidence." 33 It was submitted that the plaintiff must satisfy the Court that the indices could rationally affect the assessment of the probability of the existence of a fact in issue on the pleadings, and that it could not be suggested sensibly that a summary of a document already discovered has any capacity to do so. 34 It was nextly submitted that for a document to be a "privileged document", it is one that could not be adduced in the proceedings over the objection of any person by virtue of the operation of Part 3.10 of Division 1 of the Evidence Act. It was submitted that pursuant to s.117 of that Act a "client" includes an agent of a client. The submission continued that the preparation of the indices constituted the preparation of confidential documents and that client professional privilege applied by virtue of s.118. 35 The question which arises in these circumstances is whether it can be said that the dominant purpose for the production of the indices related relevantly to the litigation. 36 The first issue, however, is whether the material is relevant. On the material before me I have come to the conclusion that the indices are not relevant in so far as they set forth the documentation and seek to characterise it. In due course the documents will speak for themselves and, in so far as matters of interpretation and effect of the documents are concerned, that will be a matter for the Court. In so far as the agent may have commented on the contents that could not be, in my view on the material presently before me, treated as an admission. The inspection would not, therefore, lead to a relevant chain of inquiry, which would not be disclosed by the primary documents. In the result, my present view is that the material is not relevant. 37 I have also come to the view that as the evidence presently stands the dominant purpose test has been satisfied. I have pointed out that there was no objection to the affidavit of Mr Egan and, in particular, there was no objection to the conversations between the representative of the defendant and the representative of the broker. Nor was any attempt made to contradict that evidence. More significantly, in my view, there was no objection or challenge to Mr Egan's expression of opinion that he believed that litigation by the plaintiff was inevitable, that lawyers would need to be retained by the defendant, and that the indices were prepared so that it could obtain legal advice as to the plaintiff's entitlement to indemnity in respect of the claim and to enable lawyers to be retained by the defendant in the anticipated proceedings to readily access relevant documentation once they were commenced. Conclusions 38 It may be, as the litigation progresses, that further material will come to light, which may indicate that the indices are not entitled to client professional privilege. However, in the way in which the matter has been conducted before me, I am of the view that the plaintiff has failed to establish that the documents are relevant; that, in all the circumstances, client professional privilege does not attach to them; and that there has been any waiver of it, such that it is entitled to inspect the indices. In the result the plaintiff's Notice of Motion filed on 10 September 1999 must be dismissed with costs. Order 39 I order that the plaintiff's Notice of Motion filed on 10 September 1999 be dismissed with costs. ****** Last Modified: 09/25/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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