Supreme Court New South Wales Medium Neutral Citation: Alderman v Zurich [2011] NSWSC 754 Hearing dates: 21 February; 10 March 2011 Decision date: 21 July 2011 Jurisdiction: Common Law Before: Adams J Decision: Access granted in part. Catchwords: PROCEDURE - subpoena - documents produced - access - legal professional privilege - third party documents - litigation or advice privilege - whether relevant difference Legislation Cited: Evidence Act 1995 Insurance Contracts Act (Cth) 1984 Uniform Civil Procedure Rules 2005 Cases Cited: Australian Competition and Consumer Commission v Australian Safeways Stores (1998) 81 FCR 526 Carbotech-Australia Pty Limited v Yates [2008] NSWSC 1151; Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 D'Apice v Gutkovich - Estate of Abraham (No1) [2010] NSWSC 1136 Esso Australia Resources Limited v Commissioner of Taxation (1999) 201 CLR 49 Mitsubishi Electric Australia Pty Ltd v Victorian WorkCover Authority [2002] VSCA 59; (2002) 4 VR 332 Nickmar Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 44 State of New South Wales v Jackson [2001] NSWCA 279 Sydney Airports Corp Ltd v Singapore Airlines Ltd [2005] NSWCA 47 Waugh Asset Management Pty Limited v Merrill Lynch [2010] NSWSC 197 Category: Interlocutory applications Parties: Neil Gregory Alderman trading as Sydney Filmworks (First Plaintiff) Jeanine Maree Ellis trading as Sydney Filmworks (Second Plaintiff) Peter Jackson Ellis trading as Sydney Filmworks (Third Plaintiff) Zurich Australian Insurance Limited (Defendant) Representation: Counsel G Carolan (Plaintiffs) M J Dawson (Defendant) Solicitors Mason Black Lawyers (Plaintiffs) Vardanega Roberts Solicitors (Defendant) File Number(s): 2009/294876 Judgment Introduction 1The plaintiffs, trading as Sydney Filmworks, are the tenants of premises in Gymea leased from a Mr Angelo Barbaro. They conduct a photographic processing business at the premises. On about 19 February 2005 the premises were flooded by storm water which, it is alleged, escaped from the roof and gutters of the building because the box gutters and downpipes could not cope with the volume of water because they were either blocked with debris or were not big enough. It is also alleged that the building was constructed without adequate flashing of the brickwork and windows to prevent water entering the premises through the wall cavities. The plaintiffs claim a substantial sum for loss of stock, damage to equipment and other material and loss of profits. Unfortunately, Mr Barbaro died on 6 June 2009. There was a contract of insurance between him and the defendant which, it is claimed, provided cover in respect of the liability alleged by the plaintiffs against Mr Barbaro. Pursuant to s 51 of the Insurance Contracts Act (Cth) 1984, they seek to recover from the defendant an amount equal to its liability under the insurance contract with Mr Barbaro. 2The issues in the proceedings, as is evident, include the cause of the flooding of the property and the extent of the plaintiffs' loss, whether the owner was liable under the lease or otherwise for nuisance in respect of the loss and, of course, the defendant's liability under the policy. 3The plaintiffs issued subpoenas against the defendant and its loss assessors, Freemans Insurance Services. Documents have been produced and access is sought. I interpolate that it is evident that production is less than complete. I have assumed for present purposes that this was an oversight. The defendant objects to access being given to the plaintiff of some of the documents as being subject to legal professional privilege. The documents 4The subpoena addressed to the defendant is cast in wide though conventional terms, in substance seeking the production of all documents held in relation to Mr Barbaro's claim for cover under his policy with the defendant, the earlier property damage occasioned in February and March 2005 at the Gymea premises including details of water damage and any problems with the structural integrity of the building, documents in relation to similar matters arising in 1995, 2003, 2004 and 2005. Also sought are any documents concerning communications with or involving Mr Barbaro's real estate agent, who was managing the property, in respect of the property, including but not limited to the state of the building over the specified period, together with, in respect of that period, any documents or materials concerning any complaints about the property. Lastly, any records of communications between the plaintiffs over the specified years is to be provided. The subpoena addressed to Freemans is in much the same terms. 5It is conceded on the part of the defendant that it has in its possession a large number of documents falling within the categories nominated in the subpoenae. It concedes also that, as is obvious at all events, it directed Freemans to undertake an investigation of all matters touching upon its liabilities, directly or indirectly, arising under its insurance policy with Mr Barbaro. It also instructed solicitors to advise it in respect of those liabilities. The scope of the claimed privilege 6So far as its communications with Freemans and its solicitors are concerned, the defendant resists access to any communication from third parties (such as the estate agents) that were collected by Freemans on its behalf. This includes all communications in the possession of the estate agents or other third parties which have been passed on to the defendant through Freemans, as well the estate agents' or third parties' own communications with Freemans, together with all communications between the defendant and Freemans and its lawyers and communications between Freemans and the defendant's lawyers. 7For its part, the plaintiff conceded that all communications between the defendant and its solicitors and Freemans are privileged and does not press a claim for access in respect of them. Nor does it press any claim for reports obtained by experts at the instance of Freemans or the defendant. However, they submit that communications with third parties should be produced, whether they take the form of documents already in existence and copied to Freemans, or are communications directly between the third parties and Freemans. So far as earlier claims made by Mr Barbaro on the defendants in respect of the building is concerned, the plaintiff submits that they are not the subject of legal professional privilege and should be produced, together with any associated documents. 8Aside from the last category, it seems that the material production which is pressed on the one side and resisted on the other comprises documents which were in the possession of third parties and now, as originals or copies, are in the defendant's possession or control. The relevant principle 9Client legal privilege may be sourced in both the common law and the Evidence Act 1995. In respect of the latter, the material provisions are as follows - "s118 Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of: (a) a confidential communication made between the client and a lawyer, or (b) a confidential communication made between 2 or more lawyers acting for the client, or (c) the contents of a confidential document (whether delivered or not) prepared by the client, lawyer or another person, for the dominant purpose of the lawyer, or one or more of the lawyers, providing legal advice to the client." "s119 Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of: (a) a confidential communication between the client and another person, or between a lawyer acting for the client and another person, that was made, or (b) the contents of a confidential document (whether delivered or not) that was prepared, for the dominant purpose of the client being provided with professional legal services relating to an Australian or overseas proceeding (including the proceeding before the court), or an anticipated or pending Australian or overseas proceeding, in which the client is or may be, or was or might have been, a party." 10By the definitions in s 117(1) "client" includes an agent or employee of a client. Here, the client is the defendant and, plainly, Freemans is its agent. In this case, which involves documents, a "confidential document" is defined as - "... a document prepared in such circumstances that, when it was prepared: (a) the person who prepared it, or (b) the person for whom it was prepared, was under an express or implied obligation not to disclose its contents whether or not the obligation arises under the law". 11Although the Evidence Act concerns an objection to adducing evidence in respect of which legal professional privilege is claimed, part 1 rule 9 of the Uniform Civil Procedure Rules 2005 provides that objection to "production" of subpoenaed documents may be taken on the ground that it is privileged which, by the definition in the Dictionary, includes a document that contains information of which evidence could not be adduced over objection. Accordingly, privilege may be claimed in respect of the production of documents on subpoena upon the same basis as that relating to adducing them in evidence. In the present case the documents have been produced by the defendant and objection has been taken to the grant of access to the plaintiff. 12Given the nature of the dispute here, its determination may not ultimately depend on any differences between the Evidence Act and the common law but I should note that, whether access to, as distinct from production of, documents should be provided to the parties does not, it seems, depend upon the Evidence Act (either directly or indirectly via UCPR 1.9) and the question whether privilege attaches to the documents is answered by the common law: Carbotech-Australia Pty Ltd v Yates [2008] NSWSC 1151; Waugh Asset Management v Merrill Lynch [2010] NSWSC 197; D'Apice v Gutkovich - Estate of Abraham (No1) [2010] NSWSC 1336. 13Some of the documents to which objection is taken are copies of originals which are, themselves, not privileged. At common law, such copies, provided to a solicitor for the purpose of obtaining advice, are privileged: Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501. Here, it is clear that there are documents in the hands of, for example, the estate agents, which are not privileged since they were not confidential - or, at least, there is no evidence suggesting that they are confidential. However, applying Propend , copies made by Freemans are privileged providing they were made for the defendant's dominant purpose of seeking legal advice. Where the person who prepared the copy was an employee of the third party, the question arises, if that copy was prepared to send to Freemans, whether it falls into the privileged category since, on one view, "the person for whom it was prepared", was Freemans, which was certainly under an obligation of confidentiality. This, however, is to apply the definition of "confidential document" contained in the Evidence Act and I have some doubt whether it applies at common law. The other view is that the employee is not bound by any confidence of Freemans or the defendant and thus that the copy prepared, as it were in-house, is an original document so far as Freemans and the defendant is concerned, so that if it is produced by Freemans in answer to the subpoena, it is not privileged, but the copy produced by the defendant, if prepared for it by Freemans, is privileged. 14So far as the "dominant purpose" test is concerned, it is not disputed that it is an objective test, although the subjective intention of the person responsible for the document coming into existence is significant: Esso Australia Resources Ltd v Commissioner of Taxation (1999) 201 CLR 49, per Callinan J at [172]. So far as the meaning of the phrase is concerned, Spigelman CJ (Sheller JA and Campbell AJA agreeing) said in Sydney Airports Corp Ltd v Singapore Airlines Ltd [2005] NSWCA 47 - The test of "dominant purpose" has been expressed in terms of "clear paramountcy" (see Waugh v British Railways Board [1980] AC 521, at 543; Mitsubishi Electric Australia Pty Ltd v Victorian WorkCover Authority (2002) 4 VR 332, at 336-337[10]). As the High Court said in a different context: "In its ordinary meaning, dominant indicates the purpose which was the ruling, prevailing, or most influential purpose." Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404, at 416 (Brennan CJ, Dawson, Toohey, Gaudron, Gummow and Kirby JJ). 15The aspect of legal professional privilege relied on by the defendant in the present case has been called litigation privilege and arises, the other necessary factors being present, where the communication is made for the dominant purpose of use in or in relation to litigation (including criminal proceedings) then existing or anticipated or in contemplation: see, for a recent statement of the rule, Mitsubishi Electric Australia Pty Ltd v Victorian WorkCover Authority [2002] VSCA 59; (2002) 4 VR 332 per Batt JA at [8]. So called "advice privilege" is potentially more limited (ibid at [9] and see Nickmar Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 44 though this decision, so far as it related to copy documents, was disapproved in Commissioner of Australian Federal Police v Propend Finance Pty Ltd . 16In Mitsubishi Electric Batt J, following a discussion of the authorities, concluded that so far as the prospects of litigation were concerned, the general rule was that "there must be a real prospect of litigation, as distinct from a mere possibility, but it does not have to be more likely than not": ibid at [19]. This formulation was adopted here by the Court of Appeal which, also, declined to accept the formulation in Australian Competition & Consumer Commission v Australian Safeways Stores Pty Ltd & Ors (1998) 81 FCR 526 at 559 of the test of reasonable probability or likelihood that proceedings would be commenced: State of New South Wales v Jackson [2007] NSWCA 279 per Giles JA (with whom Mason P and Beazley JA agreed) at [67]. The evidence of purpose 17The defendant relied upon the following evidence which I set out briefly below in chronological order. 18Ms Debra Crowe was employed by the defendant in its New South Wales Liability Claims Department as a claims officer in November 2005. In late November 2005 she received a claim submitted on behalf of the late Mr Barbaro under a business insurance policy in respect of losses arising from the damage to the Gymea premises. Ms Crowe said that having regard to the circumstances said to constitute the insured event, she was "concerned to obtain legal advice as to whether or not the indemnity should be granted and whether the policy responded to the claim, for three reasons: non-disclosure; whether the insured had taken 'reasonable care and precautions'; and whether or not the event was an 'occurrence' as provided for in the policy". The first step Ms Crowe undertook was to obtain copies of documents and reports that were already in existence which had been retained, prepared or gathered by "others outside of Zurich". On 14 November 2005 Ms Crowe wrote to Freemans requesting the firm to "investigate the circumstances regarding this claim for the sole purpose of submission to our legal advisors in contemplation of litigation". 19Raising the particular matters which were of concern, Freemans was asked, in relation to non-disclosure, to obtain a copy of a building consultant's report "allegedly obtained by our insured in relation to a previous incident approximately 12 months ago". Ms Crowe noted that the building was constructed in 1970, which gave rise to the likelihood, if it were built incorrectly, that water ingress had occurred earlier and asked why damage had not occurred in the past. Further inquiries of the loss adjustors acting for GIO General Limited, the insurers of the plaintiff, were made, involving a copy of a consultant report alleging defects to guttering and downpipes and valuing the loss, including repairs, in the vicinity of $600,000, requesting that documentation substantiating this loss be provided. Freemans was also asked to enquire of Mr Barbaro about repair works, if any, effected to the building following the incident of February 2005. 20Ms Crowe was cross-examined. She said that the letter was not a standard letter and that, given the fact that she had only been in her role for a few months, it was quite possible that someone had assisted her in respect of it. She said that she had no recollection about the reason for inclusion of the sentence concerning the purpose of the inquiries but surmised, having regard to its terms, that there were significant issues in respect of exclusions or coverage and, considering the claim was for a significant sum, "it was standard practice to be thinking that litigation was going to be the most likely outcome". Ms Crowe was shown the claim form but was unable to point to any matter which might have triggered the possibility of a material non-disclosure and explained that this matter may have been suggested to her by the person or persons who had assisted her in relation to the claim. In the end she said, not unreasonably, that it had been six years since she had been involved with public liability claims "so it may well be that the triggers, if they are in there [meaning the claim form] might have been something I recognised then and may not now". 21The applicant also relied on the evidence of a Mr Peter Fitzgerald who, in December 2005, was employed by the defendant as claims manager in the New South Wales Property Claims Department. He said that, as a result of restructuring the claims handling process, in about December 2005, he took over management of Mr Barbaro's claim. He noted what Ms Crowe had done, and, in due course, instructed solicitors to protect Zurich's position in respect of litigation he anticipated would follow once the requested information had been obtained from Freemans. For this purpose he arranged for documents to be obtained and copied by Freemans and other third parties and, as I understand his affidavit, sent to the solicitors. Legal advice was eventually obtained and Mr Fitzgerald decided that Mr Barbaro should be indemnified in respect of his loss. On the basis of the solicitor's advice and that of counsel, liability to the tenant, that is to say the plaintiff, was denied. This was communicated to the plaintiff in September 2007. In cross-examination he said that his view, when he took over the conduct of the claim, was that proceedings were "quite likely" because of outstanding indemnity issues and the size of the claim, in the order of $500,000. So far as the indemnity question was concerned, it focused on whether there had been appropriate disclosure and whether Mr Barbaro had taken reasonable care and precautions in relation to the maintenance and repair of the building. Mr Fitzgerald said that he could not now recall what information led him to consider that these problems were live issues. It appears that the actual content of the file is not available and that all that Mr Fitzgerald now has to go on in respect of his opinion at the time is the claim form and Ms Crowe's letter to Freemans together with a letter from GIO's loss adjustors of 28 October 2005 which referred to previous ingress of water, inspections by professional building consultants, a report recommending modification to roof and or drainage and changes following the event on 20 February 2005 to the drainage. He described this information as being "a bit of a flag with regard to problems with the building which may have affected our cover". Mr Fitzgerald candidly stated his expectation that sufficient information might become available which would lead to litigation would result from the investigations being undertaken by Freemans and that, before the reports arrived, the possibility of litigation was purely speculative. He summarised the position as follows - "On the one hand you have the policy document, on the other hand you are trying to get facts together to make a judgment call on whether the claim was covered or not and because of the size of the claim it was a situation where they thought there was an issue, we would be thinking we would claim [I think he meant "defer"] indemnity because we would want to get legal advice on that endeavour." 22Mr Fitzgerald agreed that there were a number of purposes for instructing Freemans to investigate and said "I would say the main reason was really about getting information together about legal advice regarding indemnity". What was the dominant purpose? 23Taking first the opening sentence of Ms Crowe's letter to Freemans, it seems to me that this was very much a formula and did not reflect anything more than an acknowledgement that litigation was possible, depending on the advice obtained from the lawyers. At this time it is clear that the issue was one of indemnity of the late Mr Barbaro. Not surprisingly, there was no hint that Mr Barbaro may have had a defence to the plaintiff's claim or that such a claim might be defended, in effect by the present defendant exercising its rights of subrogation. Mr Fitzgerald's evidence, set out above, confirms as it seems to me the probability that the investigation was initially instigated for the purpose of obtaining advice on indemnity. The logic of events supports this interpretation of the facts. The first report by Freemans is dated 23 November 2005 and a number of other reports were subsequently provided. The first document comprising a communication to the defendant's solicitors which appears in the documents produced is a letter of 14 December 2006 from Freemans. It does not appear when counsel was briefed to advise but an advice was provided by Mr Feller SC on 2 April 2007. 24Since it is necessary to determine the purpose for which the communications otherwise than with the lawyers were made and the defendants did not object to my examining the produced documents for the purpose of determining its objection to production, it seems to me that I can state, as counsel stated, that he was "asked to advise on the question of indemnity and the other issues raised in my instructing solicitor's letter dated 21 December 2006 to Zurich". (For some unexplained reason that letter was not included in the production although, prima facie, it is covered by the subpoena.) I would infer that such a letter contained legal advice. There is nothing in counsel's advice which would qualify my view that, at this stage, the prospect of litigation was no more than a possibility. It appears however that some time between early September and early November 2007 the defendant had denied liability, at least in respect of the claim made by the plaintiff. I think it would follow, that from that time there was a very real prospect of litigation although the statement of claim was not filed until 12 June 2009. 25On 22 November 2006 the defendant's solicitors gave certain advice to the defendant. On 22 June 2009 the solicitor's file was closed. On 30 October 2009 Ms Nancy Deville, the senior commercial property claims advisor of the defendant, forwarded a copy of the statement of claim to its solicitors. 26I am satisfied from a perusal of the documents filed that, until the statement of claim was served on the defendant, its communications with parties other than its solicitors related only to the obtaining of advice and not in any substantial or real expectation of proceedings. However, as I presently view the character of the documents to which access is objected, nothing turns on this distinction. Conclusion 27It seems to me that all communications between the defendant and its legal advisors are privileged from disclosure. So to are all communications between the defendant and its loss assessors in connection with considering Mr Barbaro's claim (and, by extension, that of the plaintiffs) as made for the dominant purpose of obtaining legal advice as to the defendant's liability under the contract of insurance. Freemans obtained documents from third parties. It seems to me that where those parties forwarded either original or copy documents, they are not privileged in Freemans' hands. That includes documents forwarded to Freemans in electronic form. Such documents, whether hard copy or electronic, are original documents and liable to be disclosed. So far as the hard copies are concerned, those which were copied and sent to either the defendant or the defendant's solicitors (or counsel) are not subject to disclosure by them. Experts reports commissioned by Freemans are privileged but experts reports that were created, for example, by or on behalf of Mr Barbaro in respect of earlier claims, are not privileged and, if forwarded to Freemans are not privileged in its hands. In other words, if, say, the real estate agent had possession of such reports, they are not privileged in its hands and, if it sent copies (whether electronic or hard copy) to Freemans those copies must be regarded as original documents and are disclosable in its hands. If the loss assessors merely forwarded those documents to the defendant then they are disclosable in the defendant's hands although if the loss assessor made copies which were forwarded to the defendant, those copies would be protected from disclosure. 28Of course, the documents presently in the hands of third parties, such as the real estate agents, are not privileged (at least so far as the evidence presently goes). If it is not possible for them to be produced (for example, because they have been lost) then the copies made by Freemans may be disclosable in discovery: Propend 188 CLR at 509 per Brennan CJ. 29As I read the documents which have been produced by the defendant, it seems to me that these rulings should cover their disposition. However, in the event that there is a dispute about the application of my ruling to any particular document or it appears that some particular document is not covered by this ruling, I give the parties leave to apply for a further ruling on three days notice. 30(I note that a number of the emailed communications, particularly those from Freemans to the defendant contained attachments which have not been produced. In the event of any dispute about the application of my rulings to the defendant's documents, this oversight will need to be rectified.) 31Each of the parties has 14 days in which to file submissions on the question of costs. ********** 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. Decision last updated: 21 July 2011