Grego v Great Western Insurance Brokers Pty Ltd - [2006] WASC 284

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: GREGO -v- GREAT WESTERN INSURANCE BROKERS PTY LTD & ANOR [2006] WASC 284

CORAM: BLAXELL J

HEARD: 17 AUGUST, 23 OCTOBER 2006

DELIVERED : 15 DECEMBER 2006

FILE NO/S: CIV 1166 of 2006

BETWEEN: FRANCIS JOSEPH GREGO
Plaintiff
AND
GREAT WESTERN INSURANCE BROKERS PTY LTD
First Defendant
KEVIN WAYCOTT
Second Defendant
(BY ORIGINAL ACTION)
GREAT WESTERN INSURANCE BROKERS PTY LTD
KEVIN WAYCOTT
Plaintiffs by Counterclaim
AND
FRANCIS JOSEPH GREGO
First Defendant by Counterclaim
SANDRA CHERYL GREGO
Second Defendant by Counterclaim
(BY COUNTERCLAIM)

Catchwords:

Practice and procedure - Application to restrain solicitor from continuing to act - Alleged breach of legal professional privilege and conflict of interest - Draft affidavit obtained from opposing party's accountant - Information in draft affidavit provided in breach of accountant's duty of confidence - Whether draft affidavit subject to legal professional privilege - Whether opposing party's solicitor can advise accountant on affidavit

Legislation:

Nil

Result:

Application dismissed

Category: B

Representation:

Original Action

Counsel:

Plaintiff:     Mr R R Cywicki
First Defendant             :     Mr C D Clifton
Second Defendant         :     Mr C D Clifton

Solicitors:

Plaintiff:     Friedman Lurie Singh & D'Angelo
First Defendant             :     Martin de Haas Commercial Lawyers Pty Ltd
Second Defendant         :     Martin de Haas Commercial Lawyers Pty Ltd

Counterclaim

Counsel:

Plaintiffs by Counterclaim         :        Mr C D Clifton
First Defendant by Counterclaim    :        Mr R R Cywicki
Second Defendant by Counterclaim :        Mr R R Cywicki

Solicitors:

Plaintiffs by Counterclaim             :        Martin de Haas Commercial Lawyers Pty Ltd
First Defendant by Counterclaim    :        Friedman Lurie Singh & D'Angelo
Second Defendant by Counterclaim :        Friedman Lurie Singh & D'Angelo

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

A & Ors v Hayden (1984) 156 CLR 532
Grofam Pty Ltd v KPMG Peat Marwick (1993) 43 FCR 396
Mann v Carnell (1999) 201 CLR 1
Parry‑Jones v Law Society [1969] 1 Ch 1
Smith v Clay (1767) 3 Bro CC 639

Case(s) also cited:

Afkos Industries Pty Ltd v Pullinger Stewart (a firm) [2001] WASCA 372
Chapman v Rogers; Ex parte Chapman (1984) 1 QDR 542
Clay v Karlson (1997) 17 WAR 492
ERS Engines Pty Ltd v Wilson (1994) 35 NSWLR 193
Ex Parte Attorney-General; Re Kennedy (1938) 55 WN (NSW) 243
Kooky Garments Limited v Charlton (1994) 1 NZLR 587
National Mutual Holdings Pty Ltd v Sentry Corporation (1892) 22 FCR 209
Nix v Whiteside (1986) 475 US 175
Re Bankruptcy of Markovina [1991] 6 WWR 47
Re estate of the Late Doolan; Shepherd v Doolan [2005] NSWSC 42
Yamaji v Westpac Banking Corporation (No 1) (1993) 115 ALR 235

BLAXELL J: At the time of the events giving rise to this action the plaintiff (Mr Grego) was a fisherman operating his own vessel out of the port of Geraldton. The fishing business was conducted by Mr Grego's family company (Tappani Pty Ltd) of which he and his wife were directors. During 1993 he requested the defendant insurance brokers to effect workers' compensation insurance on behalf of the company.
On 3 August 1994 Mr Grego was ashore on the Abrolhos Islands and he claims to have suffered personal injuries as a result of falling off a rock ledge. Mr Grego arranged for the defendants to claim workers' compensation on his behalf but that claim was rejected by the insurer on the basis that the policy did not nominate him as a "worker" (as required by s 10A and s 160(2a) of the Workers Compensation and Rehabilitation Act 1981).
In 1997 Mr Grego commenced action in the District Court claiming damages from the defendants for their alleged breach of an implied term of the brokerage agreement and/or negligence in failing to obtain adequate insurance cover under the workers' compensation policy. The action was defended, and despite the lapse of nearly 10 years (as well as a great deal of interlocutory activity) it is yet to be resolved.
On 29 May 2000 the defendants filed a chambers summons applying for an order restraining Mr Grego's solicitors from continuing to act in the proceedings. That chamber summons was then adjourned sine die and was not resurrected again until October 2005 when there was an order remitting the application (and the action) to the Supreme Court. The District Court made that order because it lacked jurisdiction to determine the application.
After further delays, the defendants' application came on for hearing before myself. At that hearing (on 17 August 2006) it became apparent that there were defects in the defence which bore upon the merits of the application. Consequently, the hearing had to be adjourned, and I granted Mr Grego leave to apply to strike out portions of the defence. On 23 October 2006 I made orders rectifying the pleadings and also heard the amended submissions of the parties.
I now provide these reasons for decision in respect of the defendants' application to restrain the plaintiff's solicitors from continuing to act.

The grounds for the defendants' application

The circumstances which brought about the present application are very unusual. By way of background it is relevant to note that one of the defences to Mr Grego's claim is that on 3 August 1994 he was not a "worker" within the meaning of the Workers Compensation and Rehabilitation Act 1981, in that he did not receive any "wages, salary or other remuneration" from Tappani Pty Ltd. Furthermore, the defendants have counterclaimed for damages (against Mr Grego and his wife) in respect of an alleged conspiracy "to make fraudulent claims for loss of earnings".
The defendants allege that this conspiracy was put into effect by way of instructions given to Mr Grego's accountant. (Because these are disputed allegations which have the potential to damage the accountant's professional reputation I will not name him but will refer to him as "Mr A"). It is pleaded that following the alleged accident on 3 August 1994 Mr Grego told Mr A that "he wanted wages recorded for himself for the year ended 30 June 1994".
The counterclaim further pleads that Mr A then prepared a "statement of earnings" supported by a declaration by the plaintiff and his wife (as directors of Tappani Pty Ltd) which was forwarded to the Australian Taxation Office. This statement of earnings falsely declared that the plaintiff had been an employee of Tappani on a gross salary of $25,000 for the period 1 July 1993 to 30 June 1994 and that $4,937 in tax had been deducted.
The defendants allege that there were other acts in furtherance of the conspiracy including a false statutory declaration on 30 August 1994, and alterations by Mr A to the accounts and journals of Tappani Pty Ltd which falsely recorded payments of wages to the plaintiff.
The affidavits before me show that the allegations in the counterclaim resulted from a visit by the defendants' solicitor (Mr Mark Clay) to Mr A in Geraldton on 19 April 2000. Mr Clay put various questions to Mr A concerning Mr Grego's accounting records which had been previously discovered in the proceedings. For some unknown reason and even though he was under no compulsion to do so, Mr A co‑operated with Mr Clay in answering these questions as to his clients' financial affairs. Mr Clay spent much of the morning and afternoon with Mr A, and by the end of the day had drafted an affidavit for the latter to swear. According to Mr Clay (in pars 7 and 8, of his affidavit sworn 2 May 2000):
"Once the document was compiled with all annexures, I left it with [Mr A] to consider, notify us of any corrections he might require and sign and return it to us. At no time did [Mr A] request my consent to him delivering or communicating the content of the document to the plaintiff, the plaintiff's solicitor or anyone else."
On the previous day Mr A had advised Mr Grego of the prospective visit by Mr Clay. As a result of that, Mr Grego had left a message (by telephone) with his solicitor (Mr Singh) to the effect that Mr A wished to speak to Mr Singh. However Mr Singh was unable to contact Mr A until approximately 12 noon on 19 April 2000, at which time:
"He explained some 'errors' that Martin De Haas had pointed out in the accounts or taxation returns of the Plaintiff and his company. He said that he had been asked to do an affidavit and wanted to talk to me about it. He said that he would forward the document to me first and thereafter speak to me. I did not request the document or offer any advice." (Par 4 of Mr Singh's affidavit sworn 4 July 2000.)
On 27 April Mr Singh received a letter dated 20 April 2000 from Mr A enclosing the draft affidavit prepared by Mr Clay. That letter simply stated:
"Dear Sukhwant,
RE: FRANK GREGO
Per recent phone contact I enclose for your opinion an affidavit with all annexures. For my involvement the affidavit appears correct; however, I have not signed as yet.
Yours sincerely,
[Mr A]"
Following receipt of this letter Mr Singh made unsuccessful attempts to contact both Mr A and Mr Grego. As Mr Grego was away at sea Mr Singh could only speak to his wife. Mr Singh told Mrs Grego that he would be forwarding a copy of the draft affidavit for Mr Grego's urgent instructions and that he wished to obtain counsel's advice before responding to Mr A. The copy draft affidavit was then sent to Mr Grego by courier.
Later that same day Mr Clay became aware that Mr A had forwarded the draft affidavit to Mr Singh. At 5.16 pm he sent a facsimile to Mr Singh protesting that this had happened and stating:
"It ought to have been abundantly clear that the document is the property of the Defendants and that in its draft form is a privileged document of our client. Our clients have not waived privilege. It should also have been clear to you that you are precluded from advising [Mr A] on the affidavit because of conflicts between the interests of [Mr A], those of your client Mr Grego and your duty not to participate in a breach of our clients' legal professional privilege.
We require that you immediately return the document to our office.
…
In view of the events disclosed above, we are seriously considering making an application to restrain you from continuing to act for Mr Grego in this action."
On 28 April 2000 Mr Singh responded to Mr Clay as follows:
"In our view, [Mr A], our client's accountant, remains his accountant and therefore agent and by sending the affidavit and covering letter to [Mr A], your office obviously waived privilege.
We are seeking our client's instructions to refer your draft affidavit directly to Counsel for an opinion.
As soon as we receive our client's instructions, we will refer to you. Meanwhile, we have indicated to Mr A that we will obtain instructions from our client as to what he should be doing in relation to your document, as our client's agent."
On 1 May 2000 Mr Singh sent copies of the facsimiles between Mr Clay and himself to Mr A. At the same time, Mr Singh confirmed:
" ... that my instructions at this stage are that our client does not authorise you to sign the affidavit unless counsel advises this."
On 3 May 2000 Mr Singh sent a further facsimile to Mr A which included advice to the following effect:
"Whether you wish to execute the affidavit ... is entirely your decision".
On 2 May 2000 the defendants' solicitors applied to the District Court for an injunction requiring the plaintiff's solicitors to deliver up the draft affidavit and to disclose the names of persons who had been given access to it. On 4 May 2000 that application was adjourned sine die by consent as a result of the plaintiff's solicitors agreeing to return the document to the defendants' solicitors.
It is relevant to note that on 9 May 2000, Mr A (at the request of the defendants' solicitors) swore an affidavit in substantially the same terms as the draft prepared by Mr Clay on 19 April. The affidavit did not refer to or contain any admission of fraudulent or other improper conduct on Mr A's part. On the contrary, the general tenor of Mr A's account of the events in question was that they were nothing out of the ordinary and were in accordance with usual accounting practice in respect of small businesses.
In this regard Mr A deposed that Mr Grego's wages for the year ended 30 June 1994 were not recorded in his company's accounts until after year end. As no portion of the plaintiff's drawings had been specifically allocated to wages, the "suggested figure of $500 per week" had been credited against his drawings account. As there were no group certificates, the requirements of the Australian Taxation Office were met by way of a "statement of earnings".
On 29 May 2000 the defendants filed the application presently before me seeking to restrain the plaintiff's solicitors from continuing to act in the matter. The grounds of that application are that Messrs Friedman Lurie Singh:
"2.1wilfully infringed against the legal professional privilege of the defendants in a draft affidavit;
2.2have placed themselves in a position where their duties to the plaintiff and their duties to a material witness necessarily conflict;
2.3by their actions have created a perception that they interfered with a witness in the giving of evidence."
This application was first listed for hearing before a District Court Judge on 10 August 2000 along with approximately five other interlocutory matters including an application by the defendants for summary judgment. The application for summary judgment was then heard over the course of five days, and it would seem that the present application was ultimately adjourned sine die.
The solicitors for the parties differ as to the reasons why the present application was adjourned and there is no fiat or other note on the court file to confirm what occurred. The application then lay dormant until it was relisted for hearing in October 2005. The materials before me do not provide any satisfactory explanation as to why the matter was allowed to languish for so long.

Other relevant matters

Mr Singh was first instructed in the present matter in December 1994 and has continued to act for Mr Grego and his wife ever since. Although the real issues between the parties are relatively simple, the proceedings have become unnecessarily complex, and Mr Singh has deposed that his files and documents comprise some 14 lever arch files. Much of the content of these files comprises handwritten notes in Mr Singh's "personal shorthand" which only he can read. Accordingly, if the present application is granted, Mr Singh will be obliged to spend "hundreds of hours" reviewing and dictating his notes so that they can be rendered into typewritten form.
Mr Grego is now 64 years‑of‑age, retired, and living at Broome. He asserts that he has memory problems, and according to him:
"During my telephone discussions with Mr Singh, he appears to have a better recollection of the facts than I do, and it is only when he mentions a particular fact to me that I recall that fact. I need that background familiarity to assist me and it would not be available from a new solicitor." (Paragraph 4.10 of affidavit sworn 14 August 2006.)
Because Mr and Mrs Grego are of limited means, Mr Singh is still to render any account for his fees in the proceedings. The plaintiff's solicitors have met all disbursements to date including counsel fees, and these are being reimbursed by Mr and Mrs Grego by way of instalments. From time to time, Mr and Mrs Grego have had difficultly in meeting the instalments and have been granted extensions of time by Mr Singh.

Whether there was a breach of legal professional privilege

An extraordinary aspect of the facts in the present matter is that the information in the draft affidavit was provided to Mr Clay in breach of Mr A's professional obligations to Tappani Pty Ltd and Mr Grego. It is well established that the professional relationship between an accountant and client is one which attracts a duty of confidence. As was said by Diplock LJ in Parry‑Jones v Law Society [1969] 1 Ch 1, at 9:
"What we are concerned with here is the contractual duty of confidence, generally implied though sometimes expressed, between a solicitor and client. Such a duty exists not only between solicitor and client, but, for example, between banker and customer, doctor and patient and accountant and client. Such a duty of confidence is subject to, and overridden by, the duty of any party to that contract to comply with the law of the land. If it is the duty of such a party to a contract, whether at common law or under statute, to disclose in defined circumstances confidential information, then he must do so, and any express contract to the contrary would be illegal and void. For example, in the case of banker and customer, the duty of confidence is subject to the overriding duty of the banker at common law to disclose and answer questions as to his customer's affairs when he is asked to give evidence on them in the witness box in a court of law."
In the same case, Lord Denning MR (at 6 ‑ 7) referred to the privilege arising out of the confidence subsisting between solicitor and client, doctor and patient, banker and customer, accountant and client, and went on to state:
"The law implies a term into the contract whereby a professional man is to keep his client's affairs secret and not to disclose them to anyone without just cause (see Tournier v National Provincial & Union Bank of England [1924] 1 KB 461, 479 ‑ 481)."
As to the question of what might constitute "just cause" for the disclosure of confidential information, the law imposes a fairly rigorous test. In A & Ors v Hayden (1984) 156 CLR 532 Gibbs CJ stated at 546 ‑ 547 (in the context of a police investigation):
"It is clear that a person who owes a duty to maintain confidentiality will not be allowed to escape from his obligation simply because he alleges that crimes have been committed and that it is in the public interest that he should disclose information relating to them. He bears the burden of establishing the facts upon which he relies to relieve him of the obligation.
... It would not be enough to justify the disclosure of the confidential information in the present case that the police have requested it. It would be necessary to show, at the very least, that there is reasonable ground to believe that any plaintiff whose identity it is sought to disclose is implicated in the commission of an offence."
Similarly, in Grofam Pty Ltd v KPMG Peat Marwick (1993) 43 FCR 396, Olney J held at 403:
" ... a departure from an obligation to maintain confidentiality for the purpose of providing information to law enforcement authorities is justified only when the information is required in the course of the investigation of an actual or reasonably apprehended breach of the criminal law."
In the present instance Mr A clearly breached his duty of confidence by disclosing information as to his client's private affairs which went beyond that previously revealed in the course of discovery in the proceedings. Although the surrounding circumstances suggest that Mr Clay may not have appreciated that he was inducing such a breach, he was certainly aware of the objective facts from which that conclusion must necessarily be reached.
Given that the contents of Mr A's draft affidavit were already privileged by reason of the duty of confidence that he owed to Mr Grego, the obvious question arises of how that same information could become subject to legal professional privilege in the hands of the defendants. I asked this question of counsel during the course of submissions but they were unable to provide any assistance.
I am not aware of any authorities on the point. However, in my view, if a solicitor obtains a witness statement or draft affidavit from a witness in circumstances where there is an obvious breach of a duty of confidence owed by that witness to the opposing party, then there can be no claim to privilege over the document against that other party. The reason for this is that the solicitor must be taken to know that the statement was made by the witness without the consent of the opposing party. Obviously, there can be no waiver of the pre‑existing privilege without that consent.

Alternatively, and if I am wrong in that view, then I consider that Mr Clay necessarily waived any privilege that the defendants had in the draft affidavit by leaving it with Mr A. That conduct was inconsistent with any privilege being maintained given that Mr A's continuing duty of confidence obliged him to consult with Mr Grego as to the contents of the affidavit before swearing it. In Mann v Carnell (1999) 201 CLR 1, the High Court (at 13) summarised the relevant principles as follows:
"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. It is inconsistency between the conduct of the client and maintenance of the confidentiality which effects a waiver of the privilege. ...
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 through such consequences may not reflect the subjective intention of the party who has lost the privilege." (References to authorities omitted.)
It follows that Mr Singh did not breach any legal professional privilege in the draft affidavit when he received it from Mr A.

Whether there was any other improper conduct

It is nevertheless suggested that Mr Singh placed himself in a position of conflict of interest by allowing Mr A to seek his advice as to whether or not to swear the affidavit. This submission is based upon Mr A's letter of 20 April 2000 which forwarded the draft affidavit and sought Mr Singh's "opinion".
Although I do not have direct evidence from Mr A, it is clear that he initiated the communications with Mr Singh by first contacting Mr Grego. The only reasonable inference is that Mr A's letter to Mr Singh was seeking advice on whether or not he should swear the affidavit.
It also seems obvious, that by taking this step, Mr A was belatedly observing his duty of confidence, which required that he obtain his clients' consent before swearing the affidavit. Accordingly, it was entirely appropriate that Mr Singh (on Mr Grego's behalf) should provide Mr A with advice in this respect.
Mr Singh first obtained counsel's opinion on the question, and this was probably a wise precaution in all of the circumstances. In the end, by advising Mr A that it was entirely a matter for him whether he swore the affidavit, Mr Singh implicitly conveyed Mr Grego's consent for that to happen. If however Mr Singh (on behalf of Mr Grego) had told Mr A that he should not swear the affidavit, then the latter's duty of confidence would have obliged him to comply with that instruction.
Accordingly, Mr Singh's actions in relation to Mr A and the draft affidavit cannot in any way be subjected to criticism. In my opinion, given the extraordinary nature of the circumstances and the suddenness with which they arose, Mr Singh's handling of the situation was impeccable.

Other matters requiring comment

In the course of submissions I enquired of defence counsel what detriment or prejudice the defendants might suffer if Mr Singh continued to act for Mr Grego. In response, counsel said that he "would have to concede that it's difficult to see that there's substantial prejudice" (t/s 25). This concession was properly made given that the conduct alleged against Mr Singh was incapable of having any detrimental effect on the defendants. In this regard the information in the draft affidavit was already available to Mr Singh. Furthermore the swearing of the affidavit removed any problem that the defendants might otherwise have had in proving the facts that it contained. This being so, there was never any reasonable basis for the defendants to seek an injunction against the plaintiff's solicitors. If the defendants' solicitors were genuinely aggrieved by Mr Singh's conduct they should have sent a letter to the Legal Practitioners' Complaints Committee.
However, even if the defendants had been justified in applying for the injunction, it is totally unacceptable that the application was allowed to lay dormant for a period approaching five years. An application for an injunction against an opposing solicitor is a serious matter, and should never be treated as a tactical weapon to be stored away in an armoury for future use if and when required.
Furthermore, it is quite astonishing that the defendants should ever have expected that this Court would grant the injunction in circumstances where they have stood by and allowed the opposing solicitor to continue to act in the proceedings for a lengthy period. Equity only aids the vigilant, and:
"has always refused its aid to stale demands, where a party has slept upon his right and acquiesced for a great length of time. Nothing can call forth this court into activity, but conscience, good faith, and reasonable diligence; where these are wanting, the Court is passive, and does nothing." (Smith v Clay (1767) 3 Bro CC 639, 640.)
Although the delay in this case could never have provided the plaintiff's solicitors with a complete defence, it would have presented a very significant hurdle for an otherwise meritorious application to overcome.

Conclusion

The application to restrain the plaintiff's solicitors from continuing to act is totally without merit and must inevitably be refused.
Pursuant to s 17 of the Supreme Court Act I also order on my own initiative that the action be remitted back to the District Court. I urge that those responsible for the continued case management of this matter ensure that it receive an expedited trial.