New South Wales Supreme Court CITATION : Limit (No 3) Limited v ACE Insurance Limited (No 3) [2009] NSWSC 1061 HEARING DATE(S) : 23 February 2009 JURISDICTION : Equity Division Commercial List JUDGMENT OF : Rein J EX TEMPORE JUDGMENT DATE : 23 February 2009 Held there has been no waiver of privilege by the plaintiffs in respect of Documents 2 and 3. DECISION : Defendant's notice to produce seeking Documents 1 and 2 set aside because documents not relevant to any forensic purpose. Leave to rely on Mr Chuah's report of 13 February 2009 refused. CATCHWORDS : EVIDENCE – facts excluded from proof – on grounds of privilege – waiver of privilege over documents containing legal professional advice – whether or not the gist of legal professional advice has been disclosed – whether or not the contents of that advice has any forensic purpose – whether or not privilege has been impliedly waived – whether or not it is 'reasonably necessary' to see advice provided to an expert in order to understand a draft report from that expert - PROCEDURE – application to rely on expert report which was served late – whether or not the expert report is of any forensic value LEGISLATION CITED : Evidence Act 1995 Uniform Civil Procedure Rules 2005 CATEGORY : Procedural and other rulings Benecke v National Australia Bank (1993) 35 NSWLR 110 Dennis v Australian Broadcasting Corporation [2008] NSWCA 37 Landmark Underwriting Agency Pty Limited v Kilborn [2006] NSWSC 1108 Mann v Carnell [1999] HCA 66 (1999) 201 CLR 1 CASES CITED : ML Ubase Holdings Co Ltd v Trigem Computer Inc [2007] NSWSC 859 Nine Films and Television Pty Ltd v Ninox Televisions Ltd [2005] FCA 356 R v Saleam [1999] NSWCCA 86 Shipley v Masu Financial Management Ltd [2008] NSWSC 1187 Sugden v Sugden [2007] NSWCA 312 SVI Systems Pty Limited v Best & Less Pty Limited [200] FCA 1507 Zisis v Knighton [2008] NSWCA 42 Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design and Construction Pte Limited [2008] SGCA 27 Limit (No 3) Limited (First plaintiff) Oak Dedicated Limited (Second plaintiff) PARTIES : The Underwriter Insurance Company Limited (Third plaintiff) GE Frankona Reinsurance Limited (Fourth plaintiff) ACE Insurance Limited (Defendant) FILE NUMBER(S) : SC 50191/05 COUNSEL : Mr S Donaldson SC, Mr J Neal (Plaintiffs) Mr J Simpkins SC, Mr T W Marskell (Defendant) SOLICITORS : Deacons (Plaintiffs) Wotton & Kearney (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Rein J 23 February 2009 50191/05 Limit (No 3) Limited and ors v ACE Insurance Limited JUDGMENT (EX TEMPORE) 1 REIN J: A question has arisen as to whether the plaintiffs have waived privilege over documents containing legal professional advice. There are three documents. The first is an advice referred to in a letter of 8 July 2005 from the first-named Plaintiff, Limit (No.3) Pty Limited ("Limit"), to Aon Risk Services (Australia) Ltd ("Aon"), Aon being the broker acting on behalf of the joint venture between Obayashi McConnell Dowell ("the JV"). I shall refer to that as "Document 1". The second document is comprised of pages 28 to 30 of a report dated 30 March 2004 from Messrs Ebsworth & Ebsworth ("Ebsworths") to Limit being pages forwarded to Dr Peter Redmond, a geotechnical expert ("Document 2"). The third document, which I shall refer to as "Document 3", is an email dated 22 July 2004 from Ms T Hobson, solicitor, Limit's solicitor, to Dr Redman enclosing for his input a list of issues for discussion and list of outstanding issues. 2 So far as Document 2 is concerned, this arose in the context of Dr Redman being retained by Ebsworths to advise them in respect of matters pertinent to the claim brought by the JV upon Lloyds (as I shall refer to the plaintiffs) and Ace. Ms Hobson stated that she provided this document to Dr Redman to assist his understanding of the context in which his advice was required and that she provided him with Document 3 to obtain Dr Redman's technical input into various issues on which he was retained to report: see paragraph 37 of her affidavit of 5 December 2008 and paragraph 5 of her affidavit of 17 February 2009. 3 Once Lloyds had paid the JV an amount agreed to settle the claims of the JV, or all but one of them, and Lloyds instructed Ebsworths to pursue Ace, Ebsworths retained Dr Redman as an expert in these proceedings. All the documents, it is agreed, are documents which attract a claim for privilege. The only issue in this case is whether or not privilege has been waived. 4 Lloyds seeks to set aside the notice to produce issued by Ace's solicitor seeking Documents 1 and 2 on the basis of Uniform Civil Procedure Rule 33.4, because it submits the documents are not relevant to any forensic purpose. 5 Document 1 is a document to which, at least inferentially, reference is made in the letter of 8 July 2005, being a letter from Limit to Aon, it being agreed that in this context, Aon was acting on behalf of the JV. 6 My attention has been drawn to a number of cases in this area: Nine Films and Television Pty Ltd v Ninox Televisions Ltd [2005] FCA 356; SVI Systems Pty Limited v Best & Less Pty Limited [200] FCA 1507; Shipley v Masu Financial Management Ltd [2008] NSWSC 1187; Landmark Underwriting Agency Pty Limited v Kilborn [2006] NSWSC 1108. 7 It is clear that the onus of establishing waiver is on the party asserting waiver and that this important right to keep privileged communications confidential is not to be taken to be waived "unless there is clear conduct or language which evidences an intention to waive the privilege either expressly or by necessary implication" - per Tamberlin J at [5] in Nine Films. 8 In Landmark, Young CJ in Eq pointed out that in forming a view about whether there has been a mere reference to the existence of advice on the one hand, or a situation where the gist or substance of legal advice has been disclosed, there may often be cases where it is not entirely clear on which side of the line the communication falls. In such cases, his Honour said that it would be a matter of impression and that, if in doubt, the privilege should be not viewed as being waived. 9 Mr Donaldson SC, for the plaintiffs, argued here that the author of the letter of 8 July 2005 had referred to the fact of advice, but also had referred to investigations undertaken with the assistance of the JV and as to his own cogitations upon the matter. 10 However, on a fair reading of the letter, in my view, the author is identifying the advice in respect of Special Endorsement 14 and, in my view, he discloses the gist of that advice so that privilege, in respect of so much of the advice as related to Special Endorsement 14, has been waived. 11 I turn now to the question of whether or not the contents of the advice on the operation of Special Endorsement 14 has any forensic purpose or relevance within the meaning of s 55 of the Evidence Act 1995. 12 The Court will obviously have to construe the meaning of Special Endorsement 14 alone and in conjunction with other clauses of the contract. 13 In my view, it cannot be relevant to that determination for the Court to be apprised of what view lawyers engaged by Lloyds took of the clause and its operation, any more than it would be relevant to know what view Ace's lawyers have taken in relation to the interpretation of this clause. 14 There has not been identified any legitimate forensic purpose for which access is sought and it has not been established that it is "on the cards" that the document will materially assist the defendant's case or might reasonably possibly do so: see R v Saleam [1999] NSWCCA 86, and Shipley v Masu Financial Management (supra) at [7] – [31]. 15 Accordingly, in my view, the plaintiff is entitled to have the notice to produce set aside so far as it concerns that document. 16 So far as Document 2 is concerned, the argument advanced by Mr Marskall on behalf of Ace was as follows. Lloyds decided to hand over a number of documents relating to the engagement in 2004 of Dr Redman, but two documents remain which it has refused to hand over. It was said that it was inconsistent conduct by Lloyds to hand over a number of documents, relating to the relationship with Dr Redman as an expert, for which privilege could have been claimed, but selectively holding back two documents, and this made maintenance of privilege inconsistent with that, with the consequence that Lloyds should be treated as having impliedly waived privilege over the remaining documents - see Mann v Carnell, [1999] HCA 66, (1999) 201 CLR 1 at [29]. 17 The second argument was that, having regard to Dr Redman's draft report of 25 August 2005, it was "reasonably necessary" within the meaning of section 126 of the Evidence Act to see the pages of the advice provided by to Dr Redman in order to understand his draft report. 18 At clause 6.2 of his draft report, Dr Redman sets out some assumptions he has made. Mr Marskall argued that it is not possible to properly understand why the expert arrived at those assumptions if the contents of the advice provided to him is unknown. 19 He also submitted that without knowing what is in the letter, it is not possible to know what other pieces of information informed Dr Redman's report. 20 It is important to note that the report to which reference is made is not a report which has been served in the current proceedings. The report was a report prepared for the purpose of assisting Ebsworths. Different considerations may apply where an expert is provided with a document in connection with a report that the party commissioning the expert wishes to rely on in proceedings; although, even in such a case, there appear to be restrictions as to what otherwise privileged communications can be demanded - see ML Ubase Holdings Co Ltd v Trigem Computer Inc [2007] NSWSC 859. 21 Where a party is producing documents in answer to a subpoena or a notice to produce, I do not think that that party is thereby "deploying" those documents, or some of them, by producing those documents in a way that makes it unfair or inconsistent not to produce other privileged documents. Even more so if there are reasons why the privilege in those other documents has been waived. It would be different if the subpoenaed party sought to make use of the revealed documents but would not permit the inspection of the remaining documents - which, in my view, would attract the principles in Mann v Carnell. In the present situation, I do not think that the principles in Mann v Carnell, or similar cases such as Benecke v National Australia Bank (1993) 35 NSWLR 110 have application here. 22 I do not accept that the draft report cannot be understood without being able to read the document containing advice which was given to Dr Redman. 23 At paragraph 6.2, Dr Redman simply sets forth the assumptions he has been asked to make. Whether he has been asked to make those assumptions or has decided himself that he needs to make them in order to comment does not inhibit an understanding of the draft report. 24 If Dr Redman has been told something in the letter, he has, beyond setting out the assumptions, not identified the letter as a source of such information. If the assumptions which he has made in his draft report are not established, the views expressed in that report would not be of any significance. 25 Once again, I could see it as of relevance in the cross-examination of an expert whose report was tendered to inquire how certain assumptions had been made, if the letter of instructions were not made available, as it should be in such a situation. But this is not an expert court report at all. In my view, no basis has been demonstrated to establish that privilege has been waived in respect of Document 2 or that s 126 of the Evidence Act applies. 26 So far as Document 3 is concerned, it was agreed that the application in respect of Document 3 could be put no higher, and indeed was weaker than in respect of Document 2, so that the fate of the application in relation to Document 2 would determine the outcome in respect of Document 3. 27 I note it was suggested that there is a potential difference in approach between that taken in Sugden v Sugden [2007] NSWCA 312 and that taken in the ML Ubase case, to which I earlier referred on the question of what has to be established if s 126 is to operate. The decision in Sugden v Sugden, per McDougall J, with whom Mason P and Ipp JA agreed, is a decision of the Court of Appeal and, accordingly, if there is any divergence of viewpoint - as to which I express no view - I would proceed on the basis that Sugden v Sugden is binding authority as to how s 126 is to operate. 28 In Sugden v Sugden, McDougall J noted that s 126 is not cast in terms of either unfairness or inconsistency, and that the test is an objective one which requires consideration of the related communication or document is reasonably necessary to obtain a proper understanding of the communication or document. As I have indicated in my view, the draft report can be understood and is intelligible without the need to examine the contents of the privileged communication that was provided to Dr Redman. 29 I dismiss the defendant's motion and I uphold the plaintiffs' motion in respect of Document 1 and I order the defendant to pay the plaintiffs' costs on both motions. 30 I now deal with the question of whether the defendant can rely on the report of Mr Christopher Chuah dated 13 February 2009 pursuant to Uniform Civil Procedure Rule 31.28, as it seeks to do. 31 The report was served only last week. The plaintiff objects to any use being made of the report, both on the basis of its lateness and its lack of any forensic value. So far as lateness in dealing with the report is concerned, Mr Donaldson did obtain instructions and he has indicated that the plaintiffs would be able to obtain a report from a Singaporean expert by next week if required to do so. 32 Mr Chuah is a partner in a specialist building and construction law firm in Singapore. The report deals with two questions asked of him: first, whether General Conditions 27(2) and (4) and Special Condition 24 and Appendix B, which are defined as "the conditions and appendix", or clauses of a similar nature are commonly included in construction contracts or design and construction contracts for building projects entered into in Singapore; and, secondly his opinion on the history and origins of "such clauses" (insofar as relevant to their commercial rationale). General Conditions 27(2) imposes on the JV a liability for injury to property unless the damage or loss was not due to the negligence, omission or default of the JV. General Condition 27(4) requires the JV to insure against the risks identified in the claims. Special Condition 24 required insurance "in terms complying with the specimen copies attached hereinafter". 33 The plaintiffs, Lloyds, dispute the relevance of the report. Lloyds also contends that even if, theoretically, evidence of the kind sought might be relevant, Mr Chuah's report does not provide any such support. And to understand how the defendant, Ace, claims that it is relevant and why the plaintiff submits it cannot be relevant, it is necessary to explain the background to this aspect of the case. 34 The question presently relevant is how are Special Endorsement 14 and the professional services exclusion clause 5 in the Ace policy to be read together. Special Endorsement 14 relevantly provides: "The clauses contained in this special endorsement shall not in any way be deleted, altered or amended by other provisions in the policies and any other subsequent endorsement and where contradiction arises, this special endorsement shall proceed: …… (iv) The insurers shall indemnify the insured in respect of loss or damage covered by or in connection with or arising from: ……. (b) loss of or damage to any property or land or building caused by vibration or by the removal or weakening of support (including damage to property occasioned by or resulting from any such loss). (c) any negligent act of the insured, servants or agents of the insured." 35 Clause 5 of the Ace policy is in the following terms: "Professional Indemnity This policy does not apply to personal injury, property damage or advertising injury arising out of the rendering of or failure to render professional services during the policy period by any Named Insured or by any other person for whose acts the Named Insured is legally liable, including: (a) the preparation or approval of maps, plans, opinions, reports, surveys, designs or specifications and (b) supervisory inspection or engineering services." 36 Special Endorsement 14 was sent by JV's broker, Aon, to Ace and it was incorporated by consent. Aon also sent another clause by fax and sought its inclusion but it was not included. That document is found at volume 1 of the Court Book at p1.358. Neither party contends that the clause found at p1.358 of the Court Book was in fact incorporated into the contract or ought to have been. Mr Simpkins informed the Court that Ace would not be calling any evidence from anyone involved at Ace in relation to the arranging of the Ace policy. 37 It is apparent from the material in volume 1 of the Court Book that Aon did send to Ace a copy of a number of pages of PowerGrid's contract with the JV, which I shall call "the PowerGrid contract". Those pages included clauses of the PowerGrid contract which required the JV to effect insurance, including General Condition 27(2) which required the JV to effect insurance to insure the JV against (inter alia) the risk of liability in the contractor for: "liabilities, losses, claims, demands, proceedings, damages, costs, charges and expenses whatsoever in respect of any injury or damage to any property real or personal arising out of or in the course of or by reason of the execution and maintenance of the works unless it is shown to the satisfaction of [PowerGrid] or the Engineer that such injury, damage or loss was not due to any negligence, omission or default of the contractor, his servants or agents or of any subcontractor, his servants or agents." 38 In addition to what was required by General Condition 27 to the PowerGrid contract, the JV was required to effect insurance in terms "complying with the specimen copies attached hereinafter". 39 Sub-clause 24(3) of the Special Conditions to the PowerGrid contract provided: "The specimen insurance is the minimum requirement stipulated. The contractor shall satisfy himself of the adequacy of the insurance therein and shall increase the coverage if he deems it necessary." 40 Appendix A to the PowerGrid contract (see volume 2.1 of the Court Book at p 2.1333) was not forwarded to Ace, nor ever sought by Ace. 41 There is also an Appendix B to the PowerGrid contract entitled "Special endorsement of public liability policy". It is found at pp 2.155-158 of volume 2.1 of the Court Book. That document was forwarded to Ace and it is identical in wording to what became Special Endorsement 14. 42 Appendix A to the PowerGrid contract contained various policy wordings. Included in those policy wordings was a wording headed "Non-Negligence RIBA 19(2)A". That was a cover for "expenses, liability, loss, claim or proceedings by reason of damage to property caused by collapse, subsidence, vibration, weakness or removal of support or lowering of groundwater", which I shall refer to as "the RIBA cover clause", but it excluded, inter alia, cover when the contractor was negligent, which exclusions I shall refer to as "the RIBA exclusions". 43 Aon, seeking inclusion of the RIBA cover in the Ace policy, on behalf of the JV, sent to Ace the RIBA cover clause but not the RIBA exclusions. As I have said, no explanation has been provided by either side as to why the RIBA cover clause was not included in the Ace policy. 44 At T466 to T470, Mr Simpkins outlined the basis upon which it is said that the evidence of Mr Chuah was relevant. I shall set this out paraphrasing it for convenience and subdividing it into numbered sections: (1) The first question he said is whether the parties to the Ace policy knew or ought to be taken as knowing that the origin of Special Endorsement 14 was the PowerGrid contract; (2) The answer to (1) he submitted may turn on: (a) the content of communications, (b) the actual form of Special Endorsement 14, (c) what information was obtainable from the JV and from the construction industry "about the likelihood of there being provisions in the [PowerGrid] contract dealing with this particular term providing information about its commercial objective"; (3) If the answer to (1) is yes, the next question is what was intended to be achieved by sub-clause (iv) of Special Endorsement 14. (4) It is arguable, he submitted, that one gives Special Endorsement 14 an area of operation consistent with the responsibilities undertaken by the JV pursuant to its arrangements with the principal, i.e. PowerGrid. 45 The latter mentioned point, as I understand it, can be linked to an argument which Mr Simpkins foreshadowed in opening at T145 to T150 which is that Special Endorsement 14, if ambiguous, ought to be read in a narrow way because it was a clause designed to deal with the exclusion from cover in respect of damage caused by negligence of the contractor where subsidence had occurred, i.e. when RIBA cover and RIBA exclusions were utilised. 46 Thus paraphrasing the argument, it is as follows: (1) Appendix B to the PowerGrid contract was a clause commonly included in construction contracts to offset the exclusion of cover contained in the RIBA clauses; (2) Regard should be had to the fact that RIBA policy and Appendix B were both included in the PowerGrid contract as specimen policies; (3) Special Endorsement 14 (Appendix B) should be viewed as qualified because RIBA policies were common and both parties should be treated as having knowledge that Appendix B was only intended as a qualification to RIBA and not to introduce more widespread coverage. 47 Part 31.28 of the Uniform Civil Procedure Rules precludes a party relying on a report not served in accordance with Rule 31.28(1) "except by leave of the Court". Leave is not to be granted unless the Court is satisfied that there are "exceptional circumstances". There was some discussion as to what is meant by "exceptional circumstances" in Part 31.28 and my attention was drawn to the notes in the Practice at 31.28.20 and 31.28.25. 48 I am inclined to think that earlier cases dealing with late service of reports may have less relevance now given the terms of ss 56 to 58 of the Civil Procedure Act 2005 and cases in the Court of Appeal such as Dennis v Australian Broadcasting Corporation [2008] NSWCA 37 and Zisis v Knighton [2008] NSWCA 42, but in view of my conclusion in relation to the other aspects of Lloyd's opposition to reliance on the report, I do not need to here determine the precise ambit of what might or might not constitute "exceptional circumstances". 49 Mr Chuah opines to the view that General Conditions 27(2) and (4) and Special Condition 24 are commonly used in Singapore. Given that clauses 24 and 27 were both sent to Ace and were known to the JV as they were contained in the PowerGrid contract, it is unnecessary and irrelevant to determine whether the clauses were or were not commonly used in construction contracts in Singapore. 50 Mr Chuah stated that he was unable to say whether Appendix B is commonly used in Singaporean construction contracts but he then proceeded to examine parts of it and to compare those parts with other contractual clauses which he identified. He then described clause 19(2)(a) of the SIA contract (Singapore Institute of Architects) which requires insurance for the situation where there is damage to property caused by subsidence and no negligence in the contractor and which is identical to the RIBA policy which he describes as commonly in use. He is thus giving an opinion about an insurance clause, i.e. the RIBA policy, that was not in its entirety forwarded to Ace and not incorporated into the contract. Then using extracts from texts on building law and citations from authority, he seeks to explain why principals in the building construction industry wanted contracts to have cover for damage caused by subsidence even when the contractors were not negligent. 51 The question of how the Ace policy is to be construed, it has been agreed, is to be determined pursuant to Singaporean law, not the law of Australia. The Singapore Court of Appeal in Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design and Construction Pte Limited [2008] SGCA 27 has comprehensively reviewed the law relating to the construction of contracts and its intersection with the parol evidence rule. At [109] to [131], the principles to be applied in Singapore are elucidated and at [132] to [133] the Court (Boon Leong JA, Chan Sek Keong CJ and V Rajah JA) summarised the Singaporean approach. The judgment has wider significance to this case but relevant to the present issue, the Court held that extrinsic evidence is admissible to aid in interpretation of written words and that extrinsic evidence is admissible: "so long as it is relevant, reasonably available to all the contracting parties and relates to a clear or obvious context. However, the principle of objectively ascertaining contractual intention(s) remains paramount. Thus the extrinsic evidence must always go towards proof of what the parties, from an objective viewpoint, ultimately agreed upon": see [132(d)]. 52 I assume for present purposes that the fact that the Ace policy was obtained because of the terms of the PowerGrid contract was a part of the relevant commercial context in which the Ace policy needs to be viewed. I will assume too that the terms of the PowerGrid contract relating to insurance requirements, i.e. wordings specified and forwarded to Ace might also be relevant to construction of the Ace policy terms. I have some difficulty at present in seeing how policy wordings specified in an appendix to the PowerGrid contract which were not forwarded to Ace and not requested by Ace could have any bearing on how terms included in the Ace policy should be interpreted and even more particularly, (a), when what was sent was not the RIBA policy but only the RIBA cover clause and, (b), when it is recognised that what was specified by PowerGrid was minimum cover leaving it open to the contractor to obtain more comprehensive cover if it wished. 53 Returning to Mr Chuah's report, the fact that the PowerGrid contract contained General Conditions 27(2), (4) and Special Condition 24 is readily established from volume 1 of the Court Book. The fact that the PowerGrid contract specified the minimum cover required through specimen policy wordings is also similarly established. 54 If it be relevant that General Conditions 27(2), (4) and Special Condition 24 and Appendix B were known to Ace, that is established by reliance on the material in the Court Book. I cannot see how Mr Chuah's opinion that clauses 27(2) and (4) were commonly utilised in the construction industry in Singapore, if it be correct, assists the Court to construe Special Endorsement 14 and clause 5.1 of the Ace policy. Mr Chua does not say that Appendix B is commonly used, nor that Appendix B is always or commonly used with the RIBA policy. 55 So far as the history of the RIBA clauses is concerned, it does not seem likely to be of any relevance unless it were linked to Appendix B but in any event, assuming that the defendant establishes that it is relevant, all of what Mr Chuah says in that second part of his report is taken from texts and cases and would not need to be admitted as an expert report. It would be possible to receive that part of the report as a convenient form of submission as to what is contained in the cases and texts to which he refers but I do not think that it has the character of an expert report. 56 Accordingly, in my view, the leave should not be granted to the defendant to rely on Mr Chuah's report. ******** 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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.