Compton v Wilson

[2007] NSWDC 67

CITATION:	Compton v Wilson [2007] NSWDC 67
HEARING DATE(S):	02/04/07-04/04/07
EX TEMPORE JUDGMENT DATE:	4 April 2007
JURISDICTION:	Civil
JUDGMENT OF:	Goldring DCJ
DECISION:	Order Colonel Seymour to attend for cross examination in relation to compilation and contents of lists of discovery
CATCHWORDS:	Evidence - legal professional privilege - waiver
LEGISLATION CITED:	Evidence Act (1995), ss118,122
CASES CITED:	Mann v Carnell (1999) 201 CLR 1 Esso Australia Resources Limited v The Commissioner of Taxation (1999) HCA 67 201 CLR 49 Seven Network Limited v News Limited (Number 10) (2005) FCA 1721 Unity Insurance Brokers Pty Limited v Rocco Pezzano(1998) 193 CLR 603 Telstra Corporation Limited v BT Australia Pty Limited (1998) 85 FCR 153 Fruehauf Finance Corporation Pty Limited v Zurich Australian Insurance Limited (1990) 20 NSWLR 359
PARTIES:	Carl Anthony Compton (Plaintiff) Lawrence Allan Wilson (First Defendant) Salvation Army (Cross Claimant/Respondent) Zurich Australian Insurance Limited (Cross Defendant/Applicant)
FILE NUMBER(S):	13889/01
COUNSEL:	J.N. West QC with J.E. Lazarus (Cross Claimant/Respondent) P. Webb QC with B. Hull (Cross Defendant/Applicant)
SOLICITORS:	Corrs Chambers Westgarth Lawyers (Cross Claimant/Respondent) George Mallos Lawyer (Cross Defendant/Applicant)

JUDGMENT

1 HIS HONOUR: This application arises out of a matter in which I made a number of orders for discovery and inspection in September 2005. Since that time, the cross claimant, the Salvation Army, henceforth called “The Army”, has produced an extensive list of documents.

2 The cross claim was brought because The Army claims to have been insured under a policy issued by one, or possibly two, insurers, of which the cross defendant Zurich, is the successor. The Army claims that some actual or threatened court proceedings, “the proceedings”, which it settled, were in relation to matters which fell within the cover of a public liability policy issued by Zurich’s predecessors.

3 The proceedings were originally commenced by four people, including the plaintiff in this matter, who claimed to have been abused by officers or soldiers of The Army when they were young. The Army settled each of the proceedings and entered into a deed of release with each plaintiff, who each filed a notice of discontinuance. In these proceedings, The Army commenced the cross claim against Zurich claiming damages for wrongful repudiation of contract, because Zurich refused to indemnify The Army against the payments it had made in pursuit of the settlements.

4 In order to succeed in the cross claim, The Army must show that its actions, including the settlement of the proceedings, were reasonable.

5 In this application, Zurich seeks

1. an order that a number of documents discovered by The Army in respect of claims for legal professional privilege have been made, be produced to the court;
2. an order that the court inspect those documents and determine whether the claim for privilege is justified or not;
3. an order requiring Lieutenant Colonel Seymour, the representative appointed by The Army, to attend for cross examination in relation to the affidavits verifying the list of documents and the claim for privilege and
4. an order requiring The Army to serve a verified list of documents in the categories specified by me on 29 September 2005, and provide discovery of those documents which are in the possession or control of the territorial commander of the southern Australian territory of The Army.

6 I want to deal first with legal professional privilege. Zurich has put into evidence a part of The Army’s list of documents in respect of which there is a claim for privilege. It is obvious from the description of the documents contained in the list that they are communications between The Army and, in some cases, lawyers who have acted for it in these proceedings. Zurich does not challenge the claim for privilege in respect of those documents. However, there are other documents, for example, letters from officers of The Army or solicitors who have acted at various times for The Army, to other solicitors, and communications between Army officers. Zurich has queried the claim for privilege in respect of such communications. That gives rise to the application for orders 1 and 2, namely that The Army produce such documents to the court and the court determine any claim for privilege in respect of them. Zurich also wishes to cross examine Colonel Seymour about privilege in respect of these documents.

7 Zurich also asserts that in commencing these proceedings, The Army has waived any legal professional privilege in documents in its possession. This submission is couched in general terms, but Mr Webb, of Queen’s counsel, has submitted that this relates really only to matters giving rise to these proceedings and, he emphasises, similar proceedings.

8 The argument that supports this submission goes as follows, as I understand it.

1. It is an element of The Army’s claim against Zurich that it acted reasonably in settling the proceedings.
2. In order to show it acted reasonably, The Army needs to disclose the legal advice, which led it to settle the proceedings.
3. Maintenance of its claim for privilege in respect of such documents is inconsistent with the need for it to make the disclosure of the document.

Therefore, privilege has been waived.

9 As I understand Mr Webb, he also makes a similar series of arguments in relation to his assertion that The Army also needs to prove that it did not act for an ulterior motive, an expression which I will explain shortly.

10 The starting point for any modern consideration of waiver of legal professional privilege, must be the judgment of the High Court in Mann v Carnell (1999) 201 CLR 1. The majority of the court first set out the relevant provisions of the Evidence Act, sections 118 and 122, and they say this,

“[19] The circumstances in which legal professional privilege may apply are not limited to the adducing of evidence in the course of a hearing in a court. The privilege may be invoked and its application may be of importance in pre trial proceedings such as the discovery and inspection of documents. Documents may be discoverable even though they may not be admissible in evidence. Their importance may be, for example, that they indicate a useful line of investigation, or that they contain information which could affect the manner in which a party may decide to conduct proceedings. Furthermore, in Baker v Campbell , this court held that the application of legal professional privilege is not confined to judicial or quasi-judicial proceedings. Deane J said,
“‘Once one recognises that the principle underlying legal professional privilege is that a person should be entitled to seek and obtain legal advice without the apprehension of being prejudiced by subsequent disclosure of confidential communications, and that the privilege is not confined to such communications as are made in the course of or in anticipation of litigation, but extends generally to confidential communications of a professional nature between a person and his lawyer, made for the purpose of obtaining or giving legal advice. Common sense points to a conclusion that the principle should not be seen as restricted to compulsory disclosure in the course of such proceedings.
[20] Thus the ambit of the common law doctrine of legal professional privilege exceeds that of sections 118 and 122 of the Evidence Act”.

11 In Esso Australia Resources Limited v The Commissioner of Taxation (1999) HCA 67 201 CLR 49, the High Court held that the Evidence Act section 118, is limited to the adducing of evidence and does not apply to discovery of confidential communications made between lawyer and client.

12 In Seven Network Limited v News Limited (Number 10) (2005) FCA 1721, Sackville J at para [28] concluded that section 122 was similarly confined. He said, “It follows that in the absence of legislation or rules of court, common law principles govern waiver of legal professional privilege at any stage prior to the adducing of evidence”.

13 So it follows that the rules that determine when the privilege is waived are not necessarily to be found in the provisions of the Act but may be part of the common law.

14 In Mann v Carnell, the majority dealt with the matter in the following way:

[28] “Waiver of privilege at common law . At common law, a person who would otherwise be entitled to the benefit of legal professional privilege may waive the privilege. It has been observed that “waiver” is a vague term used in many senses, and that it often requires further definition according to the context. Legal professional privilege exists to protect the confidentiality of communications between lawyer and client. It is the client who is entitled to the benefit of such confidentiality and who may relinquish that entitlement”.

15 The following sentence is particularly important, in my view.

“It is inconsistency between the conduct of the client and maintenance of the confidentiality which effects a waiver of the privilege. Examples include disclosure by a client of the client’s version of a communication with the lawyer which entitles the lawyer to give his or her account of the communication or the institution of proceedings for professional negligence against the lawyer, in which the lawyer’s evidence as to advice given to the client will be received.

[29] Waiver may be express or implied . Disputes as to implied waiver usually arise from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. When an affirmative answer is given to such a question it is sometimes said that waiver is “imputed by operation of law”. This means that the law recognises the inconsistency and determines its consequences even though such consequences may not reflect the subjective intention of the party who has lost the privilege”.

I omit some words.

“What brings about the waiver is the inconsistency which the courts, where necessary informed by considerations of fairness, perceive between the conduct of the client and maintenance of the confidentiality, not some overriding principle of fairness operating at large”.

16 Applying those principles to the circumstances of this case, it does appear that where an insured must establish some pre-conditions to enforcing an obligation, as The Army must in these circumstances, it must establish that it acted reasonably in settling the proceedings, it waives legal professional privilege in any information necessary to establish its claim.

17 Zurich argues that the maintenance of confidentiality in relation to legal advice The Army may have received is not consistent with the assertion of the rights The Army claims against Zurich.

18 The Army has referred me to a subsequent High Court decision which considered this question. In Unity Insurance Brokers Pty Limited v RoccoPezzano Pty Limited (1998) 193 CLR 603, McHugh and Hayne JJ considered the circumstances in which legal professional privilege might be waived in the context of a situation where the court had to consider whether the settlement of litigation was “reasonable”. McHugh J at para 40 said, “While relying on what it had been told by its lawyers, the insured waived its legal professional privilege”. Without more this brief statement does not seem to convey much, but I interpret it as conveying a wider proposition, namely that when a party seeks to prove its conduct in settling litigation is reasonable, and relies on legal advice which it has been given to support the reasonableness of such action, then it waives the legal professional privilege that it has in that advice.

19 Hayne J at para [135], says a little more.

“How then is the reasonableness of the settlement to be established? The Court of Appeal in Biggin and Co Limited held that it was relevant for the client that it compromised to give evidence that this step had been “made under advice legally taken”. But Somervell LJ went on to suggest that the advisors would not “normally” be relevant as admissible witnesses. It may be that calling legal advisors to give evidence about the settlement may present some question about legal professional privilege but I do not accept that the evidence of the advisors would be irrelevant or inadmissible. Often it is the advisors who will be best placed to give evidence about the matters that were taken into account in deciding to settle the case. And it is they who may well be able to deal with such matters as what investigations had been made or why particular investigations had not been pursued. Sometimes there may be questions about the course of negotiations. Why was this offer accepted? Why was no counter offer made? Sometimes the course of negotiations may reveal why a settlement was reached, when it was reached and that in turn, may bear upon whether it was reasonable. Again, it will be those who conducted the negotiations, often the legal advisors, who will be able to speak of these matters.
[136], Considerations of legal professional privilege are not the only considerations that may affect the evidence that may be led. If the settlement has been reached at a mediation, the rules under which the mediation was conducted whether rules of court or privately agreed rules, may restrict what may be revealed about what occurred at the mediation. But that may mean only that the reasonableness of the settlement reached may have to be demonstrated without resort to that material. If that is a problem, it affects the party contending that the settlement is reasonable. It is not a problem that causes any injustice to the party against whom the evidence of the settlement is to be led.”

20 Mr West, senior counsel for The Army, says that this statement must lead to the conclusion that whether or not there is a waiver of privilege can only be decided at the trial in the light of all the evidence about whether or not the settlement is reasonable.

21 With respect, I do not read anything in the judgment of Hayne J to contradict the proposition that bringing an action of this type effectively waives some legal professional privilege, and that, I think, is recognised because The Army has said that any documents relating to the settlement of the proceedings, will not be the subject of any claim for legal professional privilege, and I understand those documents have in fact been produced.

22 It is possible to gain further assistance from the judgment of Sackville J in Seven Network Limited v News Limited Number 10, to which I have already referred, where his Honour said at para [48],

“It follows that on this approach the waiver of legal professional privilege on the grounds of implied consent, will involve questions of degree. As Optus said in their submissions in reply, the court will have to take a number of factors into account. These include the centrality or otherwise to the proceedings of the issue to which the privileged communications are said to relate if the issue involves a state of mind or belief, the likelihood that legal advice played a significant part in the foundation of that state of mind or belief, and whether there is any apparent inconsistency between the position taken by the party claiming privilege, whether at the trial or earlier, and the likely contents of the privileged communications”.

23 It is understandable that Zurich could think that the circumstances of other settlements might be relevant to the reasonableness of The Army’s action in settling the proceedings. True it is for The Army, not for Zurich, to establish that the other conduct was reasonable. It is also true that it is for The Army to disclose the existence of these documents.

24 If The Army seeks to establish that, in relation to settlement of the proceedings, it acted reasonably, it may not be able to do so without disclosing the legal advice it received in relation to the settlement of other claims. It is therefore a matter for The Army as to whether or not it chooses to disclose the nature and content of the legal advice at this stage.

25 Failure to waive privilege may result in The Army’s failure to obtain a substantive remedy, because it would be unable to establish an essential element in its case.

26 It is not clear that any document in respect of which privilege is claimed, could be said to be central to these proceedings. Neither Zurich nor the court knows what is in any such document. That may be one reason why Zurich wishes the court to decide the issue of privilege. If The Army had not conceded that it has waived or would waive privilege in the documents relating to the settlement of the proceedings, I would be entitled to agree with Zurich’s submissions in relation to those documents. However since the concession has been made, I do not need to make any further or other orders in respect of those documents.

27 At this stage, I do not think it can be said or demonstrated that the documents relating to the settlement of any claim, other than those which are part of the proceedings, would be said to be central to an issue in this case.

28 In his submissions, Mr West took up a phrase which derived originally I think from the decision of the Full Court of the Federal Court in Telstra Corporation Limited v BT Australia Pty Limited (1998) 85 FCR 153. That phrase was “state of mind”. I make it clear that I do not consider that the state of mind of any person is clearly or necessarily relevant to the issue of whether The Army’s action at any stage could be described as “reasonable”. That is an objective question and does not depend on any state of mind. The phrase occurs in a passage from the judgment of Branson and Lehane JJ at p 167, which emphasises what the proper consideration of the court should be. That passage reads,

“Within that framework the conduct of a party which leads to the implication of consent to the use of otherwise privileged material, or to an implied waiver of such privilege in undue influence cases, legal professional negligence cases and in my view, the “state of mind” cases, is that of raising for determination in legal proceedings as an element of cause of action relied upon, an issue incapable of fair resolution without reference to that material”.

This is not in my view, a state of mind case but in two ways, it may be a case where the conduct of The Army is that “of raising for determination in legal proceedings as an element in the cause of action relied upon, an issue incapable of fair resolution without reference to that material”. The issue of reasonableness of conduct may, when that issue is raised, be one.

29 There may be another issue which would make legal advice in relation to other settlement, centrally relevant to The Army’s cross claim, in a way that would be inconsistent with The Army’s legal professional privilege in certain communications relating to settlements other than those which are the subject of the proceedings. That is the requirement that The Army show that it was not acting for an “ulterior motive”. In this context, the word ulterior does not connote any moral turpitude or wrongdoing. It is a word that suggests the actions of say an insured in settling claims, show that that insured has acted for a motive which is inconsistent with commercial practice.

30 The submissions in which Zurich deals with this question rely on documents, which disclose that The Army chose not to enforce limitation periods in respect of some claims made by former inmates of its institutions. It is possible that this policy decision may have been made from a desire to protect the identities of the claimants or to further their welfare. It is also possible that the motive The Army had in making this policy choice was to protect The Army from adverse publicity, whether that be from a desire to protect the reputation of The Army or whether it be from a belief that to do so, would further the religious and welfare objectives of The Army.

31 In either case, Zurich argues the actions of The Army might constitute actions that are not appropriate to an insured under a policy of insurance. In that sense, The Army might be said to be acting from an ulterior motive.

32 It would be incumbent on The Army, in order to succeed against Zurich, to demonstrate that it was not acting from such a motive. To do so, it would be a necessary element in the case it must prove against Zurich. These propositions might or might not be supported by evidence which also goes to the reasonableness of The Army’s action.

33 But this question goes beyond the reasonableness of The Army’s actions. The contention of Zurich that, in commencing the cross claim against it, The Army has impliedly waived its privilege and legal advice relating to those settlements, is in my view stronger because the absence of an ulterior motive is something which The Army must prove and which is a condition precedent for the liability of Zurich and it may not be possible to do that without disclosing legal advice The Army has received.

34 Again, however, it is not clear to me that Zurich is entitled to examine this material before the hearing of the substantial issues commences. It is again a forensic choice that The Army must make as to whether to assert that it did not act from an ulterior motive, and, if it does so, the burden of proof rests upon it. Without disclosing the legal advice which it received relating to the settlements, it is difficult to envisage how this could be done. If it does intend to rely on the material in consequence of a forensic choice, then of course that material must be disclosed to Zurich in exactly the same way as material upon which The Army proposes to rely, to establish the reasonableness of its actions.

35 That leads me to the question of whether at this stage it is necessary for Zurich to be able to cross examine Colonel Seymour, first, in relation to various claims for privilege, or otherwise, in relation to the documents.

36 Zurich contends that it has a difficulty because it does not and cannot know of the content of the many documents in this case in respect of which privilege has been claimed. The Army argues that once a claim for privilege has been made, on the basis of a certificate given by a legal practitioner, the powers of the court are limited. It argues that, in any event, I should not make any order requiring the officer for cross examination.

37 I have no doubt that the court does have the power to determine questions of privilege. But I should give some considerations to the submissions on the nature and extent of the power and the circumstances in which it is to be exercised.

38 The existence of the power is clear from what a number of Justices said in Esso Australia Resources Limited v The Commissioner of Taxation (1999) HC 67. Gleeson CJ, Gaudron and Gummow JJ said at p 52,

“Although it has no direct bearing on the issue now under consideration, reference should be made to a point emphasised both in the joint judgment in Grant v Downes and by Cooke J in Guardian Royal Exchange Assurance of New Zealand v Stuart. A claim for privilege is not conclusively established by the use of a verbal formula. A court has power to examine documents in cases where there is a disputed claim and it should not be hesitant to exercise such a power. In appropriate cases, there is also a power to allow cross examination of a deponent of an affidavit claiming privilege”.

39 This statement indicates that what Giles J said in Fruehauf FinanceCorporation Pty Limited v Zurich Australian Insurance Limited (1990) 20 NSWLR 359 is a statement of general application only, despite the rule laid down in the English cases, which his Honour considered in great detail.

40 At p 365 to 366, his Honour recognised that there may be exceptions to the rule but he went on to say this:

“It is not necessary in this case to consider the precise extent to which an affidavit of discovery is conclusive or the ways by which it may be challenged. The immediate question is whether or not it may become an omission by cross examination of the maker of the affidavit”.

I then omit some words.

“The affidavit of discovery is generally conclusive not only in relation to the amplitude of discovery but also in relation to any claim to protection from inspection of a discovered document including a claimant for legal professional privilege, and in particular cross examination of the affidavit will not be permitted”.

41 This passage may represent the law as it stood in 1990 when it was made, and it may represent a principle of general guidance to the courts, but it cannot stand with the dictum of the High Court which I have quoted.

42 In any event, it seems to me that the reasoning behind the High Court’s dictum is preferable, as a matter of principle. Any assertion made to a court should be capable of being tested.

43 I am asked to order that Colonel Seymour be available for cross examination, not only in relation to claims for privilege but also because it appears that the process of discovery has revealed the existence of a number of documents, or even classes of documents, whose nature and existence was not previously known to Zurich. That is a natural consequence of the process of discovery. But it does indicate that certain committees, for example, were established by The Army and that these committees have minutes and other records. Those committees were established well before the matter came before me in 2005, although I understand at that time the process of compiling lists of documents and indeed of ascertaining what records were in the possession and control of The Army was still in progress. I am assured by counsel for The Army that that process is now largely complete.

44 The fact that certain committees were established by The Army particularly to deal with complaints of sexual and other abuse by inmates of Army institutions is important. I am rather surprised that the evidence relating to such committees was not given by Colonel Street in 2005 or referred to in any of the material then before the court.

45 It does not surprise me that Zurich’s curiosity has been aroused by the disclosure of these documents. It leads me to the conclusion that there may be a number of unanswered questions about the process by which the list of documents was compiled. These are matters that are properly the subject of cross examination of the responsible officer and on that basis, I will order her to be available for cross examination in relation to those matters. This is one of the proper exceptions to the general rule that an affidavit of documents is conclusive.

46 The parties have indicated that they will attempt to reach agreement on the question of which documents, in respect of which privilege has been claimed, may be the subject of further inquiry by Zurich. That process may eliminate the need for me to consider further the question of whether there is any necessity at this stage for an order for further and better discovery, or indeed, for an order that any documents in respect of which The Army claims privilege, should be produced to the court and for the court to decide whether or not the claim for privilege is justified in each case.

47 In this case, however, I am not at this stage satisfied that it is necessary for The Army’s representative to be cross examined on questions of privilege. That may become necessary as the case develops or if it becomes clear from other material discovered, that the claims of privilege, or any of them, may be spurious.

48 At this stage, it would not be appropriate for me to exercise my discretion to order Colonel Seymour to appear for cross examination in relation to the question of privilege. As I have indicated, the exercise of that discretion may become necessary as the case develops.

49 I turn now to southern Australian territory documents. When the matter was before me in 2005, evidence was given about the organisation of The Army. In Australia, for that purpose, the continent is divided into two territories, each of which has an administration separate from the other, and each of which answers directly to the headquarters of The Army in London. The eastern and southern territories are administratively separate but co-operate with each other in a number of ways.

50 After hearing evidence from Colonel Street, I decided that on the evidence before me at that time, and I quote para 18 of my judgment,

“In my view, though some aspects of Zurich’s application might be seen as a fishing expedition, and thus within the principle established in Commissioner for Railways v Small , documents relating to complaints of physical and sexual abuse of children in institutions operated by The Army in all of its eastern Australian territory, during the period from 1950 to 1980, and investigations and actions taken in consequence of such complaints, at any time, are such as may be capable, such as (a) may be capable of assisting Zurich’s case or damaging The Army’s case, and (b) to the extent that such documents exist, could be located and listed by The Army, not without any expense but without such expense and effort as would be oppressive”.

51 The last order sought in this application by Zurich seeks in effect to re-open the issue that I decided in that paragraph. It does so because, in support of this application it has produced some insurance documents which indicate that the relevant policy of insurance was issued by its predecessor to cover the whole of Australia and Papua New Guinea, that is, both the eastern and southern territories. Zurich argues that because a single policy covers the activity of The Army in both territories, any activities on the part of The Army in any territory that might give rise to a claim on the policy, are relevant. I do not doubt the correctness of this assertion. However, Zurich also argues that when the matter was before me on the last occasion, I was persuaded to accept certain assumptions about the structure of The Army in Australia and Zurich now argues that if I had not made those assumptions I would not have reached the conclusion that I did. No evidence has been placed before me, on this occasion, which convinces me that any finding I might have made about the organisation of The Army would have led me to a different conclusion.

52 It is even more clear in my mind that some of the material sought by Zurich, if it exists, would certainly assist Zurich’s case or harm The Army’s case. Nevertheless, the evidence about the organisation of The Army was not challenged, in the course of this application and there is nothing in any of the evidence placed before me to convince me that my conclusion on the last occasion, namely, that the effort required to produce relevant documents in the possession or control of the territorial commander of the southern Australian territory of The Army would not constitute an oppressive burden on The Army, such that I could not make the order.

53 There is one caveat to this proposition. If, in order to prove either that it has acted reasonably, or that it has not acted with an ulterior motive, The Army needs to rely on evidence of settlement of claims made by former inmates of Army institutions who claim to have been abused, and documents relating to those claims and settlements are within the control or possession of the commander of the southern Australian territory, it would be appropriate for Zurich to apply to this court again for further and better discovery or inspection. If The Army proposes to rely on such documents, it should disclose this to enable Zurich to make the necessary application.

54 I make these comments because if The Army proposes to rely on such information, it would be incorrect to say that to locate and identify such documents would be oppressive, and the reasoning that I adopted in September 2005 would no longer apply.

55 So where that leaves me, I think is that I will order Lieutenant Colonel Seymour to attend for cross examination in relationship to the compilation of the lists of discovery and the contents of those lists. But I will not make the other orders that you seek, at this stage, Mr Webb.

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