BIS Industries Limited v Kelso Pty Ltd - [2020] WASC 444

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   BIS INDUSTRIES LIMITED -v- KELSO PTY LTD [2020] WASC 444
CORAM:   MASTER SANDERSON
HEARD:   3 SEPTEMBER & 20 OCTOBER 2020
DELIVERED          :   3 DECEMBER 2020
PUBLISHED           :   3 DECEMBER 2020
FILE NO/S:   CIV 1173 of 2018
BETWEEN:   BIS INDUSTRIES LIMITED
Plaintiff
AND
KELSO PTY LTD
First Defendant
SOUTHCOTT PTY LIMITED
Second Defendant

Catchwords:

Discovery - Legal professional privilege - Documents created during testing by plaintiff's expert - Whether documents discoverable and available for inspection

Legislation:

Rules of the Supreme Court 1971 (WA)

Result:

Second defendant's application granted

Category: A

Representation:

Counsel:

Plaintiff	:	P Mendelow
First Defendant	:	S Moore
Second Defendant	:	K R Lendich

Solicitors:

Plaintiff	:	McCabe Curwood
First Defendant	:	Wotton + Kearney Lawyers (Perth)
Second Defendant	:	Clyde & Co (Perth Office)

Case(s) referred to in decision(s):

Absolute Analogue Inc v Sundance Resources Ltd [2008] WASC 259
CTC Resources NL v Australian Stock Exchange Ltd [1998] WASC 20
Interchase Corporation Ltd v Grovenor Hill (Qld) Pty Ltd (No 1) (1999) 1 Qd R 141

MASTER SANDERSON:

In this action the plaintiff seeks damages for the value of its prime mover which, it alleges, was damaged beyond repair by fire. The plaintiff says the fire was caused by the failure of a fitting manufactured by the second defendant and installed on the prime mover by the first defendant (Fitting). The failure of the Fitting is said to have caused a spray of hydraulic oil igniting a fire in the engine bay and thus destroying the prime mover.[1] One of the central issues for determination is whether the Fitting was manufactured in breach of the Australian Consumer Law or in breach of a duty of care.
[1] Plaintiff's amended statement of claim filed 22 November 2019, [10], [17] – [19].
In March 2020, inspecting and testing of parts of the Fitting took place. During that testing, documents were created. These documents included photographs or images of the Fitting or parts of it, both before and after inspection, cleaning and sectioning. Other documents included images taken during the metallographic examination of the Fitting. They also included documents recording data created by the scanning electron microscopy and energy dispersive X‑ray spectroscopy. These documents are referred to as the 'Images and Data Records'. The plaintiff has refused to provide to the defendants copies of these documents.
On 23 March 2020, the second defendant issued a chamber summons seeking further and better discovery. The second defendant amended the chamber summons on 24 August 2020 and moved on the amended chamber summons at the hearing. The orders sought in the amended chamber summons were as follows:
1 Within 7 days of the date of this order, the plaintiff:
a) disclose the following categories of documents which are or have been in its possession, custody or power. For the purpose of this application the term 'Fitting' has the same definition as that term is used in the Amended Statement of Claim (see paragraph 10 of the Amended Statement of Claim):
i. All photographs which were taken of the Fitting or parts thereof, whether stereographic, metallographic or by scanning electron microscope, by the plaintiff's agents on 4 and 5 March 2020; and
ii. All data, including SEM imaging/data and EDS analysis, produced by the Energy Dispersive X-ray Spectrometer at CSIRO, in respect of the Fitting or parts thereof, on 4 and 5 March 2020.
b) serve an affidavit verifying that list on the second defendant; and
c) serve a copy of each document in that list on the second defendant.
2 In alternative to Order 1 above, within 7 days of the date of this order, the plaintiff take all reasonable steps to obtain from Exceed Consulting or Mssrs Dunning of Exceed Consulting:
a) All photographs which were taken of the Fitting or parts thereof, whether stereographic, metallographic or by scanning electron microscope, by the plaintiff's agents on 4 and 5 March 2020; and
b) All data, including SEM imaging/data and EDS analysis, produced by the Energy Dispersive X-ray Spectrometer at CSIRO, in respect of the Fitting or parts thereof, on 4 and 5 March 2020.
3 The Plaintiff pay the second defendant's costs of this application forthwith, to be taxed if not agreed.
There is no dispute between the parties that the Fitting is central to the proceedings.[2] Around November 2019, an issue arose about the location of the Fitting, which the second defendant sought to inspect and test.[3] A request was made. The plaintiff refused to allow the second defendant's expert access to the fitting for the purpose of conducting inspections and testing.[4] One of the concerns raised by the plaintiff was that the tests would be 'destructive'. That is, the plaintiff stated that the process of inspecting and testing had the potential to damage the Fitting (or parts of it) and to otherwise affect the outcome of any investigations.[5]
[2] Affidavit of Byron Winburn-Clarke sworn 3 April 2020, [9.5] BC5.
[3] Affidavit of Alena Zoric sworn 23 March 2020, [4] AZ-1, [5] AZ-2.
[4] Affidavit of Byron Winburn-Clarke sworn 3 April 2020, [4.1] BC1, [4.5] BC5; Affidavit of Alena Zoric sworn 23 March 2020, [6] AZ‑3.
[5] Affidavit of Byron Winburn-Clarke sworn 3 April 2020, [4.1] BC1, [4.3] BC3; Affidavit of Alena Zoric sworn 23 March 2020, [7] AZ-4.
In early 2020, the plaintiff informed the defendants it intended to carry out its own inspection and testing.[6] Ultimately, after conferral, the plaintiff permitted the defendants' experts to attend the tests. The plaintiff's solicitors specifically stated the defendants' experts were to attend as 'witnesses'.[7] At no stage did the plaintiff invite the defendants' experts to actively participate in the testing or take images or conduct any analysis themselves. They were simply allowed to watch the testing take place.[8]
[6] Affidavit of Alena Zoric sworn 23 March 2020, [7] AZ-4.
[7] Affidavit of Byron Winburn-Clarke sworn 3 April 2020, [4.6] BC6.
[8] Affidavit of Alena Zoric sworn 23 March 2020, [13] AZ-9, [14] AZ-10.
By the time of the testing, the plaintiff was on notice the first defendant objected to any destructive testing until their expert had the opportunity to examine the relevant joint and adjacent surfaces and relevant imaging had been taken. It was also put to the plaintiff that the data records tests or equivalent tests, should also be undertaken on the soot/pyrolyzed material prior to any cleaning.[9] With that notice, the plaintiff proceeded with its destructive testing over the course of two days.[10]
[9] Affidavit of Alena Zoric sworn 23 March 2020, [10] AZ-7.
[10] Affidavit of Alena Zoric sworn 23 March 2020, [16] AZ-12.
The second defendant says it permitted the destructive testing because it assumed that it would be given access to the Images and Data Records created during the testing.[11] The second defendant says this assumption arose because, among other things, the plaintiff did not otherwise permit the second defendant any access to the Fitting and because a mutually acceptable protocol for inspecting and testing was agreed, which involved the creation of the Images and Data Records. The second defendant says it was not until the testing was taking place that it was informed by the plaintiff that the plaintiff would not necessarily produce the documents created during the testing to the second defendant.[12] It must be said, in fairness to the plaintiff, there was not at any time prior to the testing, an unequivocal or even equivocal undertaking by the plaintiff to provide the material now sought. As the second defendant acknowledges, it acted on an assumption that the material would be provided.
[11] Affidavit of Alena Zoric sworn 23 March 2020, [14] AZ-10.
[12] Affidavit of Alena Zoric sworn 23 March 2020, [11].
It is important to note there does not appear to be any dispute that photographs were taken during the course of testing and records were produced. At par 16 of written submissions filed on behalf of the plaintiff on 24 April 2020, counsel has this to say:
The documents in respect of which discover is sought, relate to documents that were created by the Plaintiff's expert for the purpose of compilation of any report to be relied upon by the Plaintiff.
The plaintiff's refusal to hand over the documents sought by the second defendant is on the basis the documents belong to the consultant and are not in the custody, possession or power of the plaintiff. Further, it is the plaintiff's position the documents are privileged. Of course, these two grounds for resisting the application are mutually exclusive. If it is the case that the plaintiff cannot call for production of the Images and Data Records then there is no obligation to give discovery of those documents. On the other hand, if the plaintiff can access the Images and Data Records then it is obliged to give discovery of that material but it can claim privilege and decline to produce the Images and Data Records. The plaintiff cannot have it both ways – it is one or the other.
After hearing the application and on considering the matter further, it seemed to me unclear which of these two mutually exclusive options the plaintiff relied upon. Accordingly I ordered the plaintiff to file an affidavit of discovery, mindful that to file such an affidavit, the deponent would have to make an enquiry and ascertain whether any documents were actually in its control. In other words, it had to request from the consultants the Images and Data Records sought by the second defendant.
That resulted in an affidavit sworn by Rachel Ellen McKenzie on 3 November 2020. Ms McKenzie sets out in her affidavit the background to the testing. She then says:
4.4.The solicitors for the Plaintiff have been provided with a draft expert report headed 'subject to legal professional privilege' dated 9 April 2020 and that report annexes approximately 70 photographs ('draft report'). The balance of any photographs taken by Exceed Consulting, together with the documents referred to in paragraph 4.6 below remain in the custody of and as the property of Exceed Consulting.
4.5.Exceed Consulting prepared a report in respect of another fitting, identical and unused, but otherwise the same as that the subject of the proceedings dated 10 March 2020 which is also headed 'subject to legal professional privilege'. A copy of this report has been provided to the solicitors for the Plaintiff.
5.I verily believe that all of the material created and prepared by Exceed Consulting, is confidential and has been created for the dominant purpose of:
5.1.preparation for this action and for use in this action;
5.2.preparation of an expert report to be utilised by the Plaintiff in this action; and
5.3.communications with McCabe Curwood to enable McCabe Curwood to provide advice to the Plaintiff in respect of this ongoing action.
This material includes the brief, the draft report, the report of 10 March 2020 and annexures, all correspondence between Exceed Consulting and McCabe Curwood, and:
(i)images and scans derived by Exceed Consulting for the brazing and fitting on or about 4 March 2020;
(ii)photographs taken by Exceed Consulting of the brazing and fitting on or about 4 March 2020;
(iii)all documents evidencing analysis of the brazing materials derived by Exceed Consulting; and
(iv)all documents evidencing testing conducted by Exceed Consulting, and the results thereof.
6.Other than the documents referred to in paragraphs 4.4 and 4.5 herein, the Plaintiff and its solicitors do not have any other documents in respect of the testing of the fitting in their possession, custody or power.
With respect, this affidavit seems to be neither one thing nor the other. It appears to claim privilege over the Images and Data Records on the basis of legal professional privilege. On the other hand, it is said the plaintiff does not have power over the Images and Data Records produced by their experts. There is no explanation as to why that should be the case. After all, the plaintiff is paying the expert. The expert has produced certain Images and Data Records consistent with its brief. That suggests the Images and the Data Records should be available to the plaintiff. If that is not the case, then some explanation as to why that is so ought to have been provided.
In his submissions, counsel referred to the decision of Le Miere J in Absolute Analogue Inc v Sundance Resources Ltd [2008] WASC 259. In that case, his Honour was dealing with an application for further and better discovery where documents were said to be held by a consultant. His Honour said:
23Counsel for the plaintiffs referred to Australian Independent Newspapers Ltd v John Fairfax Holdings Ltd (Unreported, FCA (Beaumont J), 22 June 1994) and Holland Stolte Pty Ltd v Princess Theatre Holdings Pty Ltd (Unreported, VSC (Byrne J), 17 March 1993). Neither of those cases is an authority for the proposition that a document is within the power of a party where the document is in the possession of another person and that other person is likely to comply voluntarily with a request to give the party access to the document.
24In Holland Stolte Ltd v Princess Theatre Holdings Pty Ltd, Byrne J said:
The expression 'possession, custody or power' used in the Rules is of respectable antiquity. In the case such as the present I would, in the absence of evidence of some special agreement between consultant and client, draw a distinction between those documents in the hands of the consultant which the client may properly call for to inspect or, upon termination of the consultancy or otherwise, to retain, on the one hand; and those documents which it may, on the other. Generally speaking, in the latter class will fall those private internal documents of the consultant, such as its own time sheets, internal memoranda, calculations, internal drafts and other documents brought into existence for its assistance in the performance of its professional duties. In the former class would fall a consultant's copy of correspondence sent or correspondence received to or from the client or with other persons on behalf of the client.
Byrne J there confirms that documents are within the power of a party if the party has an enforceable right to inspect or obtain possession or control of the document from the person who has physical possession of it.
25There is no evidence that the defendant has failed to give discovery of documents within the class sought by the plaintiffs that are within the physical possession of CIP and which the defendant has an enforceable right to inspect or to obtain possession or control of. The court cannot be fairly certain that there are such documents which the defendant has an enforceable right to inspect or to obtain possession or control of.

It is true there is no direct evidence in this case of any right of the plaintiff to inspect the Images and the Data Records. But it is very difficult to see why that right should not exist. I would accept that documents such as internal memos passing between various members of the firm of consultants would not be within the plaintiff's control. It may be, if asked to do so, the consultant would hand over those documents. But where a party is asked to undertake some form of investigation and provide an opinion based on that investigation, absent any explanation to the contrary, the documents so created should be available to the contracting party. So far as Ms McKenzie's affidavit is concerned, she says in par 6, without elaboration, the documents are not within the power of the plaintiff. In my view, they clearly are within the power of the plaintiff.
To take this point further, Ms McKenzie says a report has been prepared, which is privileged. That may well be so. But the practical effect of delivery of the report to the plaintiff by the consultant is that the plaintiff is in actual possession of the documents the second defendant is seeking. That really means this case turns on whether or not those documents are privileged.
So far as the court record is concerned, the plaintiff has not filed an affidavit of discovery. It would appear that the parties have agreed on informal discovery. Nonetheless, the expert's report, which Ms McKenzie says has been in the hands of the plaintiff's solicitors since March 2020, is a discoverable document. The plaintiff is entitled to claim privilege over that document, so it would not be available for inspection. But there is no doubt that the plaintiff, if required to do so, would be obliged to file an affidavit of discovery describing the documents over which privilege is claimed. This requirement emerges from a series of cases involving CTC Resources NL and the Australian Stock Exchange Ltd. On 9 December 1997, I heard an application by CTC Resources NL for an order for discovery of documents over which the defendant (Australian Stock Exchange Ltd) claimed privilege: see CTC Resources NL v Australian Stock Exchange Ltd [1998] WASC 20. I dismissed CTC's application. CTC appealed. The matter came on for hearing before the Full Court on 25 August 1998. The court allowed the appeal but did not publish reasons for doing so. The orders they made indicated that they took the view, before a question of privilege was determined, an affidavit of discovery ought be filed which described the documents. There were differences between the CTC case and this one. In the CTC case, the claim for privilege was based on public interest immunity. The only way that CTC could get any indication of what the documents they sought to inspect might be and, at least to some extent, what they might contain, was from a description of the documents provided on discovery. Of course, here, the second defendant knows, with some precision, the documents over which privilege is being claimed.
Nonetheless, the principle applied by the Full Court in the 1998 decision holds good. That is, a party seeking privilege must file an affidavit of discovery and properly describe the documents over which privilege is claimed. That was the reason I recalled the parties and ordered an affidavit of discovery be filed. The affidavit filed by Ms McKenzie was not what I had in mind. The prerequisites for determining this application are not in place. But the application has taken so long to determine and consumed so much of the parties' energy that to require strict compliance with proper practice would not be in anyone's interests.
Before dealing with the point at issue, I should mention in passing O 28 r 2 of the Rules of the Supreme Court 1971 (WA). That rule is in the following terms:
2.Inspection of physical objects
(1)Where one party alleges that another party to any cause or matter has in his possession or control some physical object, not in the nature of a document, the inspection of which is material for the proper presentation of his case such first mentioned party may by notice in writing require the other to permit inspection by the party requiring it with, or without, his solicitor or expert adviser.
(2)The party required to permit inspection shall nominate a time and place for inspection. In default of agreement as to the time and place, or if any matter shall arise in relation to such inspection, either party may apply to the Court for an order specifying how and when and where such inspection may be made.
(3)If the Court is of opinion that either party has been unreasonable in relation to the matter it may order that party to pay the costs of the application, and any other costs unnecessarily incurred in consequence.

There is no doubt that the parties could have availed themselves of this Order if they had chosen to do so. Although the rule has been mentioned from time to time in at least two cases in this jurisdiction, it does not appear ever to have been applied. There would not appear to be any impediment to a court making orders under O 28 r 2(2) that the results of any testing conducted during an inspection sanctioned under the Order should be made available to all parties. The rule itself makes no mention of privilege applying to any images produced or data collected during the examination. It is in its terms extremely broad and may, to some limited extent, provide a guide as to the approach to be adopted in cases such as the present.
If expert evidence is to be tendered in this case, it will have to satisfy what is known as the 'basis rule'. That rule provides that an expert opinion is not admissible unless evidence has been, or will be, admitted whether from the expert or from some other source which is capable of supporting findings of primary fact, which are sufficiently like the factual assumptions on which the opinion is based to render the opinion valid. So, for instance, a valuer who is asked to value a particular property and who does so on the basis of comparable sales, must prove the comparable sales data. Two valuers, working off the same data, may come to different conclusions. But the underlying substratum of fact must be proved. Valuation cases provide no difficulty – a data base is maintained by a third party and can be accessed for a fee. No party to an action could or would claim privilege over the publically available material. What the plaintiff is saying here is that the Images and Data Records were prepared by its expert for use by its expert and while representatives of the second defendant were invited to be present, it was only so they could observe the process and be satisfied as to its integrity. The results of the testing were in the possession of the plaintiff and were privileged in the same way the report, based upon that material, was privileged.
There is only limited authority on this question. Perhaps the most definitive statement of the position is found in the judgment of Thomas J in Interchase Corporation Ltd v Grovenor Hill (Qld) Pty Ltd (No 1) (1999) 1 Qd R 141. Pincus JA of the Queensland Court of Appeal stated the essential issue to be (145):
If an expert witness provides a statement of his opinion to one of the parties to an action, are the documents in the possession of the expert, connected with the preparation of the opinion, subject of legal professional privilege?
Thomas J said (162):
I would hold that in general, when an expert is engaged by a solicitor for the purpose of giving evidence in a case, documents generated by the expert and information recorded in one form or another by the expert in the course of forming an opinion are not a proper subject for a claim of legal professional privilege. Privilege may however be claimed in relation to communications between the expert and the solicitor (both ways) when such communication is made for the purpose of confidential use in litigation. Beyond this there is no sufficient reason why any material relevant to the formation of the expert's opinion should be subject to a claim of legal professional privilege. It is as well to add that an expert or solicitor may not artificially manufacture privilege by, for example, the expert sending his or her file to the solicitor.
Relying squarely on the Interchase decision, I am satisfied the Images and Data Records prepared in the course of testing are not the subject of legal professional privilege. Accordingly, they should be available to the defendants. Subject to agreement between the parties, it would now seem to be necessary for the plaintiff to file and serve an affidavit of discovery, which lists all of the relevant documents. However, I will hear from the parties before making final orders. I will also deal with submissions as to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CB
Associate to Master Sanderson
3 DECEMBER 2020