Australia and New Zealand Banking Group Limited v ANZCover Insurance Pty Ltd

[2004] VSC 529

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL LIST

No. 2073 of 2003
F5600

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
(ACN 005 357 522)

Plaintiff

v

ANZCOVER INSURANCE PTY LTD
(ACN 082 275 125) and ORS

Defendants

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JUDGE:	Byrne J
WHERE HELD:	Melbourne
DATE OF HEARING:	6 December 2004
DATE OF JUDGMENT:	17 December 2004
CASE MAY BE CITED AS:	ANZ Bank v ANZCover Insurance Pty Ltd
MEDIUM NEUTRAL CITATION:	[2004] VSC 529

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Practice and procedure – discovery – documents relating to state of mind – waiver of legal professional privilege – relevance issues.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr AC Archibald QC and Ms C Kenny	Clayton Utz
For the Defendants	Ms Wendy Harris	Ebsworth & Ebsworth

HIS HONOUR:

1. Before the Court are a number of applications brought by the plaintiff, ANZ Banking Group Ltd (“the Bank”) relating to discovery.

Documents Relating to Defendant’s State of Mind

1. In this proceeding the Bank sues the defendant, ANZCover Insurance Pty Ltd (“ANZCover”), under a Banker’s Blanket Bond Policy.  The claim under the policy was made in these circumstances which I take from the statement of claim[1].  In 1992 the National Housing Bank of India (“NHB”) drew nine cheques on its account with the Reserved Bank of India in favour of ANZ Grindlays Bank Plc (“ANZ Grindlays”) with a total value of about 50.6 crore of rupees.  ANZ Grindlays provided the cheques to one Mehta or his associates[2].  In due course, Mehta presented the cheques for payment and the proceeds were credited to ANZ Grindlays and were in turn credited to Mehta. 

   [1]Further Amended Statement of Claim filed 8 November 2004

   [2]Paragraph 20

1. For reasons which are not presently relevant, NHB claimed against ANZ Grindlays to recover the value of the cheques and the claim was referred to arbitration in India.

1. On 29 March 1997 the arbitrators published an award in favour of ANZ Grindlays.  This award was set aside on 2 February 1998 by a Special Court in India which ordered that the money be paid by ANZ Grindlays to NHB[3].  On 15 July 1998 ANZ Grindlays filed an appeal in the Supreme Court of India against the decision of the special court.  On 14 December 2001, before the matter was heard by the Supreme Court, ANZ Grindlays compromised with NHB on the basis that 102 crore of rupees were to be paid by it to the NHB[4].

   [3]Paragraph 33

   [4]Paragraph 38

1. In 1992 the Bank notified ANZCover of the NHB claim and sought indemnity under the policy.  The Bank claims an entitlement to recover from the underwriters the amount paid pursuant to the compromised NHB claim.  This claim is resisted by ANZCover.  The Bank in this proceeding puts its claim in alternative ways but I am not concerned with these. 

1. In its defence ANZCover says a number of things including that the terms of the compromise were not reasonable, that the compromise was made in the face of legal advice that ANZ Grindlays would have succeeded in its appeal to the Supreme Court of India[5] and that the amount agreed to be paid under the compromise was excessive.  Further, in paragraph 44, ANZCover denies that the claim of the Bank falls within the insuring clause of the policy for various reasons.

   [5]Paragraph 38(e)(i)

1. On 19 August 2004, I heard argument as to the entitlement of the Bank to have discovery from ANZCover of a number of categories of documents.  These  included those related to legal advice received by it with respect to the NHS claim and the prospects of success of ANZ Grindlays before the Indian Supreme Court. Discovery of these was resisted on the grounds of relevance and privilege. 

1. On 27 August 2004, I determined that ANZCover had by paragraphs 44(h)(iii) and 83 of its defence pleaded into issue its state of mind as to its legal position , so that the documents were relevant to an issue for the purposes of discovery. In the course of the August hearing, ANZCover also agreed to provide certain other documents relating to this state of mind. Paragraph 44(h) was concerned with an allegation that the Bank and ANZ Grindlays were obliged to act in good faith towards ANZCover and that the entry into the compromise was a breach of that duty. As a consequence, ANZCover was entitled to refuse indemnity, alternatively, that its indemnity should be reduced to nil pursuant to s. 54 of the Insurance Contracts Act 1984 (C’th).

1. Paragraph 83 of the defence responds to the allegation of the Bank in paragraph 83 of its statement of claim that ANZCover itself breached its duty of good faith owed to the Bank.  What is put is that, prior to the compromise, ANZCover made certain representations which encouraged ANZ Grindlays to settle the NHS claim at a time when ANZCover knew that it might thereafter rely upon the fact of the settlement and its terms to avoid liability under the policy.  In its defence, ANZCover denies this and says further that it was impossible for it to form any view about the reasonableness of the compromise or as to whether it could give rise to a breach of duty of good faith by the Bank “prior to those terms of settlement being entered into and full investigation of [the Bank’s] claim for indemnity”, which  investigation only occurred.

1. The argument before me in August was as to relevance;  questions as to privilege were left to another day.  This is that other day. 

1. The starting point must be that the communications in question fall within the class of privileged communication.  I so find.  The question then becomes as to whether ANZCover has in its pleading waived the privilege.  The applicable principles were not seriously in dispute.  The question for me to determine is whether the issues raised in the defence are such that it would be unfair for ANZCover to advance them at trial and, at the same time, withhold the information in question.

1. Counsel for the Bank relied upon paragraphs 67, 72(n) and (q), 73(b)(vii) and (ix), 79(c)(d)(e)(i), (ii) and (xiv) and 83, all of which, it was said, raise issues not only as to the objective fact of ANZ Grindlays’ good prospects of success of before the Supreme Court of India but as to the belief of ANZCover as to this.

1. In response to this, counsel for ANZCover said that this was not a fair characterisation of her client’s position.  Speaking of paragraph 79(c) of the defence, she contended that the position taken by ANZCover was simply that it could not determine whether the policy responded to the claim until the terms of the settlement were known and that this did not occur until later.

1. Then, she asked rhetorically, why should the underwriter put in issue its state of mind as to the prospects of success of ANZ Grindlays when the true issue was the fact of its prospect rather than the insurer’s belief as to this?  This is a question which has troubled me for I can see no good reason why it should put this in its defence.  The fact remains that it has done so.  I refer in particular to paragraphs 72(q) and 79(d).  These are some of the paragraphs in respect of which ANZCover agreed in August that documents as to its state of mind were relevant. 

1. I conclude that it would be inconsistent with the position adopted by ANZCover in those paragraphs of its defence for it to withhold documents containing otherwise privileged communications which might bear on that state of mind.

Internal Underwriter’s Documents

1. With respect to these documents, the solicitor for ANZCover, Steven Robert Burns, in his affidavit sworn 1 December, says that all non-print internal documents relevant to the issue have been discovered.  Doubtless he will revisit these documents in the light of my ruling as to the waiver of privilege.  Otherwise I am not persuaded to go behind his affidavit.

Documents Relating to Underwriter’s Reserves?

1. It is put on behalf of the Bank that these documents are relevant on the issue as to the belief of ANZCover as to the prospects of success of the ANZ Grindlays’ appeal and upon whether the underwriters were able to make a decision as to indemnity prior to the compromise.

1. I do not agree.  Accepting that the state of mind of the underwriters as to their liability under the policy has been pleaded into issue, the amount of the reserve is not relevant even on the extended definition of relevance for discovery purposes.  There may be many reasons why a reserve is placed on a claim.

Post-Settlement Documents

1. The Bank seeks documents relating to ANZCover’s post-settlement belief as to the reasonableness of the compromise and as to whether this belief put it in breach of its duty of good faith.  The relevance of these documents arises from the allegation in paragraph 83 of the defence to which I have referred, namely, that it was not possible for the underwriter to form as to this a belief prior to the compromise and to performance of a full investigation of the claim for indemnity, which investigation did not occur till later.  It was said that this last clause in the plea puts in issue the later investigation and its outcome.  I do not agree.

1. I accept the submission put on behalf of ANZCover that this plea does not render post settlement documents on this issue relevant.

Electronic Documents

1. I do not understand that any point was taken by any party that documents otherwise discoverable do not have to be discovered because they are in electronic form.

Documents Referred to in Discovered Documents

1. The point here was whether the parties, having submitted to an order to make discovery by categories, are to assess whether any given document falls within the category by reference to the Peruvian Guano test or a more stringent test.  I am of opinion that the test of relevance to a category is that traditionally adopted for discovery – the Peruvian Guano test.  Counsel for ANZCover said that this has been done so that there is nothing further to be said.

Masking of Documents

1. The issue here appeared to turn upon the masked material rather than the right of a party to mask irrelevant or privileged material.  Masking of such material is proper. 

Documents Produced Upon Subpoena

1. Subpoenas were issued by the Bank directed to Allens Arthur Robinson and HIH Insurance (in liquidation).  The documents were produced pursuant to R. 42-10 but objection was taken by ANZCover to their inspection by the Bank.  Furthermore, the liquidator for HIH appeared to claim legal professional privilege for an exchange of correspondence between HIH and the firm of solicitors, Karp & Karp dated 29 November 2000 and 14 February 2001 respectively.

1. I acceded to the request of counsel for ANZCover that these documents be released to her solicitors for them to form a view as to whether objection to inspection should be made. 

1. I will stand the matter over for counsel to bring forward orders, if any are required to reflect the conclusions I have expressed.

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