Mercantile Mutual Insurance (NSW Workers Compensation) Ltd v Murray
[2004] NSWCA 151
•11 June 2004
Reported Decision:
(2004) 13 ANZ Insurance Cases 61-612
Court of Appeal
CITATION: MERCANTILE MUTUAL INSURANCE (NSW WORKERS COMPENSATION) LTD v MURRAY [2004] NSWCA 151 HEARING DATE(S): 18 December 2003 JUDGMENT DATE:
11 June 2004JUDGMENT OF: Mason P at 1; Handley JA at 72; Brownie AJA at 73 DECISION: 1. Appeal allowed; 2. Order of the District Court is set aside. Documents produced to the Court to be returned to the appellant; 3. Liberty to apply within six weeks in relation to the costs orders concerning the abortive hearing in the District Court in November 2002; 4. Respondent to pay appellant's costs of the appeal and to have a certificate under the Suitors Fund Act if qualified. CATCHWORDS: Insurance - legal professional privilege - joint privilege - common interest privilege - fiduciary duties - whether solicitor-client relationship formed between insured and insurer-appointed lawyer - whether privilege could operate between insured and insurer - claims assessor's report - whether privileged and whether privilege belonged to insurer and/or insured. (D) LEGISLATION CITED: Workers Compensation Act 1987
Evidence Act 1995 (NSW), ss118, 119, 122(5), 138
District Court Rules, Pt 28 r18(2)).CASES CITED: ACN 007 838 584 Pty Ltd v Zurich Australian Insurance Ltd (1997) 69 SASR 374
Brown v Guardian Royal Exchange Assurance plc [1994] 2 Lloyd's Rep 325
Bulk Materials (Coal Handling) Services Pty Ltd v Coal and Allied Operations Pty Ltd (1988) 13 NSWLR 689
C I & D Industries Pty Ltd v Keeling, NSWSC, unreported, Abadee J, 26 March 1997
Esso Australian Resources Ltd v Commissioner of Taxation of the Commonwealth of Australia (1999) 201 CLR 49
FAI General Insurance Co Ltd v ACN 010 087 573 Pty Ltd [2000] 11 ANZ Ins Cas 61-464
Farrow Mortgage Services Pty Ltd (in liq) v Webb (1996) 39 NSWLR 601
Garry F S Boyce t/as Hunt and Hunt Lawyers v Goodyear Australia Ltd, NSWCA unreported, 16 September 1996
Groom v Crocker [1939] 1 KB 194
Kennedy v Cynstock Pty Ltd (1993) 3 NTLR 108
Marshall v Adamson [1936] 4 DLR 383
Nicholson & Ors v Icepak Coolstores Ltd [1999] 3 NZLR 475
Re Konigsberg (a bankrupt), ex parte the Trustee v Konigsberg [1989] 3 All ER 289
State Government Insurance Commission (SA) v Paneros (1988) 48 SASR 349.
TSB Bank plc v Robert Irving & Burns (a firm) (Colonial Baltica Insurance Ltd, third party) [2000] 2 All ER 826
Verson Cleaning International v Ward (1996) 9 ANZ Ins Cas 61-352PARTIES :
Mercantile Mutual Insurance (NSW Workers Compensation) Ltd (Appellant)
Phillip Reginald Murray (Respondent)
FILE NUMBER(S): CA 40111/03 COUNSEL: J D Hislop QC/N A Confos (Appellant)
M J Joseph/D Stanton (Respondent)SOLICITORS: Moray & Agnew (Appellant)
Gells (Respondent)
LOWER COURTJURISDICTION: District Court LOWER COURT FILE NUMBER(S): DC 9513/01 LOWER COURT
JUDICIAL OFFICER :Coorey DCJ
CA 40111/03
Friday 11 June, 2004MASON P
HANDLEY JA
BROWNIE AJA
BACKGROUND
This appeal concerned a dispute between an insurer (the appellant) and its insured (the respondent) as to the insurer’s right to use statements provided by the insured to a claims assessor commissioned to investigate a workplace injury.
On 9 May 2000 proceedings were commenced by Mr Lorraway (the plaintiff) against the respondent claiming damages for injuries sustained when a ladder collapsed from under him. The respondent notified the insurer seeking indemnity under a policy issued under the Workers Compensation Act 1987. The insurer arranged for claims assessors to conduct a full factual investigation, during the course of which the respondent provided information to the assessor. The insurer retained P & W Turk & Associates (Turks) to file a defence in the proceedings and to advise the insurer as to liability, quantum and recovery. A copy of the assessor’s report was provided to Turks and to the insurer. On 11 July 2000, a Notice of Grounds of Defence was filed by Turks on behalf of the respondent.
It was common ground that the assessor’s report was subject to client legal privilege. However, a dispute erupted between the insurer and the respondent as to the identity of the client(s) entitled to invoke the privilege. On 21 December 2000, the insurer advised the respondent that it would not indemnify him, on the basis that the plaintiff was not a deemed worker within the Act. Gells Lawyers then filed, on behalf of the respondent, a cross-claim against the insurer seeking indemnity. The respondent objected to Turks continuing to act for the insurer now that indemnity was being disputed. The insurer retained Moray & Agnew to take over the proceedings. Despite Gells requests not to do so, Turks forwarded to Moray & Agnew the full contents of their file, including the assessor’s report. On the first day of the trial Gells sought production from the insurer of various documents which it claimed represented privileged communications. It is this claim of privilege which lies at the heart of the appeal.
At trial Coorey DCJ held that the respondent was the sole client of Turks and that privilege in the relevant documents was that of the respondent alone. Accordingly the insurer was ordered to produce to the court all copies of the assessor’s report.
HELD: per Mason P (Handley JA and Brownie AJA agreeing) allowing the appeal:
1. Turks became the respondent’s solicitor when they filed a defence in the proceedings, however, they were also solicitor for the insurer and remained so, at least until a conflict arose.
- • An insurer-retained lawyer assumes a solicitor-client relationship with the insured, but not necessarily to the exclusion of a similar relationship with the insurer.
• The solicitor will owe the insured duties of confidentiality and undivided loyalty, unless policy conditions clearly override such an obligation.
2. There was joint privilege in the report when commissioned. There was no breach of privilege or fiduciary duty when the insurer obtained its copy of the report.
- • Turks were acting for both insurer and insured in the early stages before any conflict of interest arose.
• The report was commissioned by the insurer, inter alia , for its own purposes.
ORDERS:
1. Appeal allowed.
2. Order of the District Court set aside. Documents produced to the Court to be returned to the appellant.
3. Liberty to apply within 6 weeks in relation to costs orders concerning the abortive hearing in the District Court in November 2002.
4. Respondent to pay appellant’s costs of the appeal and to have a certificate under the Suitors’ Fund Act if qualified.
********
CA 40111/03
Friday 11 June 2004MASON P
HANDLEY JA
BROWNIE AJA
JUDGMENT
1 MASON P: This appeal involves a dispute between an insurer and its insured as to the insurer’s right to use statements provided by the insured to a claims assessor commissioned to investigate a workplace injury. The assessor was engaged in the interests of both parties in defending proceedings by an injured person claiming to have been the worker of the insured. The dispute about access to the documents arises in the context of the insurer later having denied cover. It spans issues of client legal privilege, fiduciary relationships and matters of procedure in the District Court.
2 At the conclusion of argument the Court granted leave to appeal.
3 The appellant (hereafter referred to as the insurer) is the respondent’s insurer pursuant to a policy issued under the Workers Compensation Act 1987 (the Act). In brief, the policy indemnified the respondent against liability to pay compensation under the Act or “common law” damages for injuries suffered by a “worker”. “Worker” was defined as in the Act, including the extended meaning it has because of Schedule 1 (Deemed employment of workers).
4 On 29 September 1999, Mr Lorraway (the plaintiff) was seriously injured when a ladder collapsed from under him. Thereafter workers’ compensation was paid voluntarily by the insurer on the assumption that the plaintiff was deemed to have been the respondent’s worker.
5 On 9 May 2000 proceedings for damages were commenced in the District Court by the plaintiff against the respondent. The respondent was sued as the occupier of the premises where the accident occurred and alternatively, on the basis that he had “engaged” the plaintiff to perform building work in circumstances giving rise to a duty of care.
6 The respondent promptly notified the insurer seeking indemnity under the policy.
7 On 12 May 2000 the insurer wrote to Gaskin & Oliver Pty Ltd, insurance claims assessors. The heading in the letter referred to a “Workers’ Compensation Claim”, and to the respondent as the “Employer”. The insurer asked the assessor to arrange for a “full factual investigation into the circumstances of the above claim”. An attachment listed the information sought, indicating that the focus was that of ascertaining the exposure of “our insured” to compensation and damages. The assessor was instructed to obtain statements and to assess “any Common Law potential”.
8 By letter dated 25 May 2000 the insurer retained P W Turk & Associates (Turks) solicitors in the following terms (emphasis added):
- Please find attached Statement of Claim filed in the District Court at Lismore by Short Flynn & Co solicitors on behalf of the plaintiff Christopher Lorraway together with a copy of our complete file.
- We advise that Mercantile Mutual Insurance (New South Wales Worker’s Compensation) Ltd insured the Defendant from 29/3/99 to 29/3/00.
- We instruct you to file a defence to these proceedings to protect our interests and those of our Insured.
- Enclosed is a complete list of all payments made to, and on behalf of the plaintiff by our company for your perusal.
- A full factual investigation will be required in this matter and we instruct you to arrange for Apex Investigations to conduct all necessary enquiries.
- We instruct you to arrange for the plaintiff to be medically examined by the appropriate specialists.
- We look forward to your advice with respect to liability, quantum and recovery, if any in the near future.
9 The heading of the letter referred to the respondent as the “Employer” and to the plaintiff as the “Employee”.
10 The claims officer who wrote the letter was apparently unaware that the insurer had already engaged Oliver & Gaskin to conduct the “full factual investigation”. A Turks’ file note records a telephone call on 1 June 2000 from the officer telling the solicitor that the insurer had already appointed Gaskin & Oliver and therefore did not require the solicitor to proceed to retain Apex Investigations.
11 The same file note contains the entry:
- ? Contractor or worker.
12 The nominated claims assessor wrote to the respondent on 25 May 2000 confirming that “we have been appointed by your workers compensation insurer … to look into the circumstances of the above claim”. Arrangements were made to interview the respondent and a Mr Fairbairn who appears to have been a witness to the accident. One of the issues flagged for discussion was: whether the respondent considered that the plaintiff was an employee and a worker entitled to workers compensation benefits or was he considered to be a sub-contractor or contractor?
13 There was obviously early awareness of the possibility that the plaintiff might not be a “worker” under the Act.
14 The claims assessor completed its report by 2 June 2000 and submitted it to the insurer. Its annexures include witness statements signed by the respondent and another person who was on site at the time of the accident. These are the documents at the heart of the present dispute.
15 The assessor also sent the respondent insured a copy of his statement, asking him to sign it and return it to the assessor. Presumably this happened. The assessor’s letter (dated 6 June 2000) also informed the respondent:
- We have also returned the documents you provided, which we have photocopied and forwarded to our client, Mercantile Mutual Insurance (NSW Workers Compensation) Limited.
16 On 11 July 2000 the assessor wrote to Turks advising completion of enquiries “on behalf of our mutual client”, enclosing a copy of its report together with all annexures. The letter stated:
- We have now been instructed that [the insurer] have appointed yourselves to provide your advises [sic] in general and they have requested that we forward to you a copy of our report.
17 On 10 July 2000 the insurer wrote to Turks informing the solicitor that Gaskin & Oliver would be forwarding directly a copy of their report. The letter continued:
- I look forward to receipt of your initial advice on quantum and liability in the near future.
18 On 11 July 2000 Turks filed a Notice of Grounds of Defence on behalf of the respondent. Among other things, it invoked various statutory caps on damages under the Act.
19 It was common ground that the dominant purpose of the assessor’s report was investigation with a view to providing information concerning the pending common law claim. Mr Turk gave evidence to this effect (Tr p99). As such, the report (including annexures) was undoubtedly subject to client legal privilege.
20 However, a dispute has erupted between the insurer and the insured as to the identity of the client or clients entitled to invoke the privilege. In particular, the question has arisen whether the insurer can have access to the report and its enclosed statements in defence of the cross-claim referred to below.
21 On 21 December 2000 the insurer advised the respondent that it would not indemnify him, on the basis that the plaintiff was not a deemed worker within the Act. On 27 February 2001 the respondent filed a cross-claim against the insurer seeking indemnity against the plaintiff’s claim. By that stage the respondent had engaged Gells, Lawyers as his solicitor. The insurer filed a defence to the cross-claim that, among other things, denied that the plaintiff was a “worker” within the Act. That pleading was filed by Turks on behalf of the insurer.
22 The proceedings were listed for hearing in the District Court on 22 April 2002. They were adjourned when the respondent objected to Turks representing the insurer. The next day, Gells wrote to Turks asking that they ensure “when briefing alternate [sic] legal representatives for your principals, that you do not disclose to them the confidential information you and your client obtained from our client both prior to and during the time you acted for him”. Turks replied on 10 May 2002 denying possession of any confidential information that could be used against the respondent’s interests to further the interests of the insurer. They also advised that a complete copy of the file would be forwarded to the insurer’s new solicitors, Moray & Agnew. Some time later this was done.
23 The trial of the proceedings came on for hearing on 11 November 2002 before Judge Coorey.
24 There was a five day estimate for the hearing, including proceedings on the cross-claim. On the morning of the first day the respondent served on the insurer a Notice to Produce issued pursuant to Pt 28 r18 of the District Court Rules. The Notice (as amended later that day) required production of the following:
- 1. Any documentation obtained on behalf of Mercantile Mutual Insurance (NSW Workers Compensation) Limited or the Defendant prior to 21 December 2000 concerning the claim, the subject of these proceedings, including:
- (a) any factual investigation report;
(b) any legal advice;
(d) all other documents
- 2. all correspondence between T W Turk & Associates and Moray & Agnew, including any annexures.
25 Senior counsel for the respondent informed the trial judge that the object of the Notice was to wrest from the insurer documents that represented or evidenced privileged communications, the privilege being exclusively that of the respondent.
26 I think it regrettable that the respondent chose this mechanism for testing his claim to privilege or confidentiality vis-à-vis the insurer. He was on notice from as early as 10 May 2002 that Turks were about to forward to Moray & Agnew a file relevant to the defence of the cross-claim that included the claims assessor’s report. As it appears to have done at the earlier hearing, the respondent waited until the last moment before springing upon the insurer, its legal representatives and the Court the complex factual and legal issues which lie at the heart of this appeal. The unfortunate plaintiff would have been prejudiced and, in the upshot, has been considerably delayed while this appeal has been prosecuted. That may have had to have occurred in any event given the plaintiff’s interest in having an insured defendant, but the issue should have been brought to a proper resolution much earlier.
27 The privilege issue was debated for the next two days as the plaintiff and his lawyers stood on the sideline. Eventually the substantive hearing was abandoned when the trial judge (entirely appropriately) decided to reserve his decision on the issue concerning access to documents.
28 The application was argued and decided on the basis of common law principles (cf Esso Australian Resources Ltd v Commissioner of Taxation of the Commonwealth of Australia (1999) 201 CLR 49 ). The primary judge’s attention was not drawn to those parts of the District Court Rules that incorporated the Evidence Act regime concerning privilege (incl Pt 28 r18(2)).
29 On 10 February 2003 the learned judge delivered his reserved decision.
30 His Honour held that there was a solicitor-client relationship between Turks and the respondent from 25 or 26 May 2000, ie by the time that the report (and its contents) came into existence on 2 June 2000. He rejected the insurer’s submission that the insurer and insured had joint privilege. There was, he held, a single client (the insured). That client’s privilege had never been waived. The judge ordered all copies of the report and its contents to be produced to the Court. A consequential costs order was made.
Submissions in the appeal
31 The parties adopted an array of alternative submissions both as to the definition of the issues and as to their resolution.
32 The appellant insurer submitted that, if the report was the subject of client legal privilege, the privilege was not solely that of the insured. The report was commissioned by the insurer independently of the retention of lawyers to defend the claim against the insured. And it was commissioned for a purpose that included the provision of informed legal advice to the insurer.
33 It was submitted that if there was joint privilege or common interest privilege, this provided no basis for the insured to use the processes of the District Court to compel the insurer to give up its copies of the report. The report had been commissioned by the insurer and supplied to it in the ordinary course of its enquiries. Mr Hislop QC, representing the appellant submitted that it would be unworkable for insurers if privilege vested solely in the insured in circumstances like the present.
34 The respondent insured submitted that the order under appeal was properly made because (a) the report was privileged solely in his favour; alternatively, (b) even if common purpose privilege was engaged, for the insurer to use it in defence of the cross-claim would involve a breach of confidence and/or fiduciary duty. Section 138 of the Evidence Act applied because the report was evidence “obtained improperly” in the hands of the insurer and its current solicitors, Moray & Agnew. The respondent’s rights were said to be unaffected by Turks having handed over its file (including the report) to Moray & Agnew, because both firms of solicitors knew at the time that the insured’s consent was withheld and that this action was contrary to the insured’s interests.
35 Section 138 was invoked principally in support of a submission that the District Court could use its control over the documents produced to it under the Notice to preclude the insurer using the report in circumstances involving breach of privilege and/or fiduciary obligation.
36 The alternative claim not based on client legal privilege is said to have sprung up after the report was created, triggered by the insurer’s decision to change position on holding its insured covered with respect to the particular claim. This alternative basis for belief was raised below, but it was unnecessary for Coorey DCJ to deal with it, because he held that the insured had sole privilege in the report. It was not the subject of a notice of contention in this Court, a point taken by the insurer.
37 Mr Joseph SC, representing the respondent, emphasised that the report was obtained when the insurer was holding itself out as acting in the insured’s interests. There was no conflict of interest at the time. If necessary the respondent would:
- … embrace common interest privilege but what we won’t embrace is that we’ve ever waived our right to insist that that information, those documents, only be used in our interests” (CA Tr p22).
38 This appeal potentially raises the following issues in relation to the undoubtedly privileged report:
1. Was the report subject to client legal privilege when first created? If so, who was or were the client(s)?
2. If the insured was the client, or one of them, did it waive its privilege generally or vis a vis the insurer ?
3. Regardless of the answers to 1 and 2, did Turks have a duty not to hand over the copy of the report in that firm’s file when the file was passed to Moray & Agnew? If so, does this matter given the District Court’s limited equitable jurisdiction and/or the fact that the insurer had it’s own copy of the report, received directly from the assessor on about 2 June 2000? [This issue was discussed during the hearing. It is unnecessary to decide it and also undesirable, in the absence of the solicitor having been made a party.]
4. Could the insurer hold and use the report in its own interests after it decided to decline cover?
Discussion5. Were the processes of the District Court properly invoked when Judge Coorey effectively ordered the insurer to produce to the court all copies of the report in its possession or power for the purpose of depriving the insurer of the capacity to use the report in its defence of the insured’s cross-claim?
39 It is common ground that the report (including its supporting statements) attracted client legal privilege. The assessor’s investigation elicited confidential communications that were made for the sole or dominant purposes of obtaining legal advice and services in relation to defending the plaintiff’s claim (cf Evidence Act 1995 (NSW), ss118, 119; District Court Rules, Pt 28 r18(2)).
40 Client legal privilege reposes in the client or clients who were seeking legal advice and/or services when the report was commissioned. Identification of the client(s) in relation to the report is not however necessarily the same issue as identification of Turks’ clients. The assessor’s report was commissioned by the insurer before it retained Turks on behalf of the insured and itself.
41 If two persons join in a legal enterprise, the privilege is their joint privilege. From this it follows that the privileged communication may be disclosed to each without breach of privilege, because each client shares an interest in the subject matter of the communication. Joint clients may not maintain privilege against each other (Re Konigsberg (a bankrupt), ex parte the Trustee v Konigsberg [1989] 3 All ER 289 at 297). The parties are together entitled to maintain their privilege against the rest of the world, and this means that waiver by one is insufficient to affect the other’s privilege (see generally Farrow Mortgage Services Pty Ltd (in liq) v Webb (1996) 39 NSWLR 601 at 608A-D and Evidence Act, s122(5)).
42 Joint privilege is distinct from shared or common interest privilege. In the latter situations, disclosure amongst persons with the common interest need not result in a waiver of privilege by the party making it. The party or parties entitled to assert the privilege may still assert it against strangers.
43 An insured and insurer may have a shared or similar interest in advancing a claim on behalf of the insured or in defeating a claim against the insured and this may give rise to a shared or common interest privilege (Bulk Materials (Coal Handling) Services Pty Ltd v Coal and Allied Operations Pty Ltd (1988) 13 NSWLR 689, Farrow Mortgage Services at 608F).
44 But it does not follow that insurer and insured are incapable of jointly retaining a lawyer in circumstances giving rise to a joint privilege. Whether they have done so, or whether the acts of one should merely be seen as in its own interests or merely as agent for the other, depend on the particular facts. These will include the terms of the insurance policy, in particular the terms of any clause dealing with the insured’s duty to assist the insurer.
45 Several cases have considered the question of identifying the client when an insurer appoints a solicitor to defend a claim by a third party against the insured. Many of them were reviewed in Nicholson & Ors v Icepak Coolstores Ltd [1999] 3 NZLR 475 (High Court of New Zealand, Penlington J), a decision that illustrates the overlapping of issues of privilege and fiduciary duty that lies at the heart of the respondent’s case on appeal.
46 In Nicholson, an insurer declined indemnity on the basis that the insured had breached a condition of its public liability policy prohibiting the making of admissions. The insurer had previously accepted liability under the policy and had instructed solicitors in the defence of the plaintiff’s claim for damages. After the insurer purported to decline cover the insured filed third party proceedings seeking indemnity under the policy.
47 The insurer sought to adduce evidence from the solicitor who had previously acted in the proceedings to justify declinature of indemnity. That evidence related to communications from Mr Van Eden, the principal of the insured, that were said to be in breach of a condition requiring the insured to assist the insurer. The insurer submitted that the solicitor was solely its lawyer at the relevant time. The insured took the opposite position, contending that the solicitor was its alone.
48 Penlington J first referred to the rationale of client legal privilege. He then addressed the terms of the policy. The insurer had the right to take over and conduct, in the name of the insured, the defence of the claim. This is what had happened when the insurer chose the solicitors and assumed responsibility for their fees. The solicitors later advised the plaintiffs that they were acting for the insurer and the insured. Later they filed a defence in the name of the insured, asserting that they were the solicitor on the record for the insured.
49 His Honour cited a comprehensive article by Chris Chapman and Jillian Mallon, “Conflicts of Interest Faced by Solicitors Instructed by Insurers to Conduct Litigation on Behalf of Insureds” (1996) 26 VUWLR 679. He also discussed English, American, Australian and Canadian cases.
50 The cases support the view that the insurer-retained lawyer assumes a lawyer-client relationship with the insured, but not necessarily to the exclusion of a similar relationship with the insurer (Groom v Crocker [1939] 1 KB 194 at 202-3, 226-7, Brown v Guardian Royal Exchange Assurance plc [1994] 2 Lloyd’s Rep 325 (CA) at 330, State Government Insurance Commission (SA) v Paneros (1988) 48 SASR 349.
51 In the present case, there is nothing in the policy to exclude a solicitor-client relationship as between the insured and the solicitor retained at the request of the insurer. Nor were there any conditions in the insurer’s favour reserving the insurer’s rights or stipulating against the possibility of the insurer having waived its rights to decline cover (cf Sutton, Insurance Law in Australia 3rd ed (1999) p1107). Such stipulations may have offended Part 7 of the Workers Compensation Act. In any event, the litigation of any issue as to waiver lies in the future.
52 Situations of conflict of interest may arise that can impact upon the insurer’s duty and/or the lawyer’s duty. Thus, if the client insured discloses confidential information to the lawyer, there may be circumstances where the lawyer must keep it confidential. These issues do not directly arise in the present case because no one suggests that the loss assessor assumed any fiduciary or professional obligation towards the insured that could equate with a solicitor-client relationship. Furthermore, the insurer already had its own copy of the assessor’s report by the time that Turks sent its file to Moray & Agnew.
53 In Nicholson, Penlington J held that a solicitor-client relationship existed (between the insured and the lawyer) because the insurer instructed the lawyer to represent the insured in the plaintiff’s proceedings. The lawyer therefore faced a conflict of interest when the insured confidentially divulged information to him that was potentially adverse to its position under the policy. The solicitor’s intended evidence about these matters was held inadmissible because legal professional privilege attached to what he was told by Mr Van Eden, his insured’s principal. He should have declined to act further and he should not have disclosed to the insurer the information which he gleaned from the insured.
54 This reasoning did not deny that a solicitor-client relationship existed as between the insurer and the lawyer in Nicholson. Indeed, the Australian case law generally accepts that the insurance defence lawyer may have two clients, although this may not be the case in situations where statutory policies under compulsory third party legislation are involved (Chapman & Mallon, op cit; Geraldine Gray “Conflicts and Waiver of Privilege in the Insurance Relationship” (1988) 10 Ins LJ 75 at pp76-78). Cases recognizing that solicitors retained by the insurer may have both insured and insurer as client (at least until a situation of conflict arises) include Verson Cleaning International v Ward (1996) 9 ANZ Ins Cas ¶61-352 (FCSA) at 76,905-6, Kennedy v Cynstock Pty Ltd (1993) 3 NTLR 108, C I & D Industries Pty Ltd v Keeling, NSWSC, unreported, Abadee J, 26 March 1997 and Garry F S Boyce t/as Hunt and Hunt Lawyers v Goodyear Australia Ltd, NSWCA unreported, 16 September 1996. Generally, see Sutton op cit at §15.101.
55 It does not follow that everything disclosed to a solicitor by one client can be divulged by the solicitor to the other client. The policy condition about the insured’s duty to assist its insurer was closely examined in Nicholson on the basis that strong language would be required before rights of confidentiality and undivided loyalty owed by the solicitor to the insured client and the client-legal privilege touching that relationship could be ousted (see at 499). Penlington J cited with approval the remarks of McTague J in Marshall v Adamson [1936] 4 DLR 383 at 385 where he said:
- Even in the circumstances of this case, the insured is entitled to assume that his communications to the solicitor, who is the solicitor for the insurance company, will be accorded the same treatment as his communications to his own personal solicitor. The company may have a right (I do not even say it has a right) to allege that it is not liable as a result of disclosure so made, but it should not be permitted to attempt to prove non-liability by the evidence proposed to be adduced here. To hold otherwise would be to open the door to a great deal of abuse in insurance cases. It must be held that such evidence is not admissible.
56 Penlington J rejected the submission that both the insured and insurer had a common interest in the information given by Mr Van Eden to the lawyer.
57 This framework of analysis is consonant with other Australian cases that were not considered in Nicholson. In my view, there is no doubt that Turks became the respondent insured’s solicitor when, on instructions from the insurer, they filed a defence in the plaintiff’s proceedings (see also Garry F S Boyce t/as Hunt and Hunt Lawyers, C I & D Industries, FAI General Insurance Co Ltd v ACN 010 087 573 Pty Ltd [2000] 11 ANZ Ins Cas ¶61-464). It follows that any information divulged confidentially by the insured to the solicitor would attract client-legal privilege whether or not the insurer was also a client. On top of that, the solicitor would have been under duties of confidentiality and undivided loyalty to the insured client not to divulge that information to the insurer without permission to the extent that the information was adverse to the insured’s interests, unless of course the policy conditions clearly overrode any such obligation (see esp FAI and TSB Bank plc v Robert Irving & Burns (a firm) (Colonial Baltica Insurance Ltd, third party) [2000] 2 All ER 826. See also ACN 007 838 584 Pty Ltd v Zurich Australian Insurance Ltd (1997) 69 SASR 374).
58 But what is the situation with regard to the claims assessor’s report in the present case? There are several vital distinctions between the present case and cases such as Nicholson where information disclosed by the insured to a solicitor revealed a breach of the policy entitling the insurer to avoid cover. The assessor collected information relevant to the defence of the plaintiff’s claim inter alia from the insured or employees of the insured. No conflict of interest had arisen by that stage, and there is no suggestion that the assessor was secretly working in the insurer’s interest (contrast TSB Bank at 834-5). The assessor disclosed to the insured that it had reported to “our client, Mercantile Mutual” in its letter of 6 June 2000. There was no breach of fiduciary duty on the assessor’s part when it forwarded its full report to both the insurer and Turks. That was what the assessor had been retained to do. Its instructions came from the insurer, but were in conformity with the insurer acting in defence of the plaintiff’s claim in its and its insured’s interests.
59 The information gathered by the assessor was subject to client legal privilege at least as regards the insured, but not exclusively so.
60 The claims assessor was undoubtedly retained by the insurer and in its interest (not to the exclusion of the insured’s interest). The assessor visited the insured’s premises and interviewed the insured and others who knew the circumstances of the accident. Information was freely given which was relevant to assessing the nature of the plaintiff’s claim. This included such of the information as related to the issue of whether the plaintiff was a deemed worker, because that had a bearing on the extent of the statutory caps on damages recoverable against the insured and insurer if the insured was liable as an employer.
61 The relevant Employer’s Insurance Policy provided the respondent with insurance as required by Part 7 of the Act. Some of the Policy’s terms and conditions were mandatory. This included the scope of cover, extending to workers who were deemed employed because of Schedule 1 to the Act. Conditions 5 and 6 were in compliance with s159(2) of the Act. These stipulated that the insurer was directly liable to a worker and the worker’s dependents to pay compensation under the Act or any other amount independently of the Act for which the employer/insured was liable and indemnified under the policy (cl 5); and that the insurer was bound by and subject to any judgment given against the employer/insured in respect of any liability for which the insurer was liable to indemnify (cl 6). Clause 11 entitled the insurer to use the name of the employer/insured in respect of anything indemnified under the policy, including the bringing, defending, enforcing or settling of legal proceedings for the benefit of the insurer. The clause also required the employer insured to comply with all reasonable requests by the insurer for information, assistance and documents to enable the insurer to settle or resist a claim.
62 These provisions of the policy reinforce my conclusion that Turks were the solicitor for the insurer as well as the insured, at least until a situation of conflict arose. This was not an isolated matter in which Turks were retained by the insurer. There was an ongoing relationship in which particular matters were referred from time to time (cf Mr Turk’s evidence at pp103, 106-7). In my view, the terms of the letter of 25 May 2000 that have been emphasized above put the matter beyond dispute. Turks were retained (by the insurer) to file a defence “to protect our interests and those of our Insured”. And Turks were retained to forward to the insurer “advice with respect to liability, quantum and recovery, if any in the near future”. The solicitor was told that the assessor would be conducting “all necessary enquiries”. (Nothing turns on the mistaken reference to Apex Investigation.) The assessor’s letter to the insured of 6 June 2000 has already been referred to.
63 The question whether the insurer was in some way estopped from denying indemnity by reason of its earlier conduct is not the present issue.
64 In my view, Coorey DCJ erred when he held that the insured could invoke legal client privilege as against the insurer with the consequence that the insurer could be compelled to hand over all copies of the assessor’s report, even the copy sent directly to it on about 2 June 2000. Turks were acting for both insurer and insured in the early stages of the litigation, before any conflict of interest arose. But in any event, the report was commissioned by the insurer, inter alia for its own purposes. When the assessor sent a copy directly to the insurer this involved no breach of duty on the assessor’s or insurer’s part.
65 Since the insurer obtained a copy of the report legitimately, ie without breach of privilege or any fiduciary duty, the processes of the District Court should not have been used to wrest the report from it.
66 Although I disagree with the primary judge’s conclusion and would hold that there was a joint privilege in the report when commissioned, I should indicate that there would undoubtedly have been common interest privilege if (as Coorey DCJ held) the insured was the sole client. The consequence would have been that the privilege would not have been lost merely because copies of the report were sent to the insurer and its solicitor (Moray & Agnew). Nothing however turns upon this, because there is no third party seeking access to the privileged material. Loss of privilege through waiver is not in question.
Costs
67 Detailed costs orders were made by the primary judge on 10 February 2003. Some related to proceedings in the District Court on 22 April 2002. Some were in favour of the plaintiff and the first cross defendant to the second cross claim neither of whom are parties to these appellate proceedings. Some if not all of the costs were ordered to be paid forthwith and presumably have been paid. The difficulties raised by these matters are such as to make it inappropriate for this Court to make fresh costs orders referable to the proceedings in the District Court of November 2002 without receiving submissions from the parties. Hopefully the parties can agree on the matter without the need for orders to be made.
68 Coorey DCJ ordered the defendant (ie the respondent in this Court) to bear his own costs in relation to the proceedings in November 2002 because he did not serve his notice to produce until the morning of the first day of the hearing, 11 November 2002. There is no reason why this order should be varied.
69 However, the present appellant was ordered to pay the costs of the plaintiff and of the cross defendant to the second cross claim on an indemnity basis. In light of the outcome of this appeal the burden of those orders should now be thrown upon the respondent. The appellant should receive its costs thrown away by the abortive November 2002 proceedings.
70 It may be expected that the parties to this appeal can agree upon appropriate amendments to the costs orders consonant with these reasons. In case I prove to be wrong, I would reserve liberty to apply within six weeks.
Orders
71 I propose the following orders:
- 1. Appeal allowed.
2. The order made in the District Court on 10 February 2003 requiring the appellant to produce documents to the Court is set aside. If the documents have been produced to the Court they are to be returned to the appellant.
3. Liberty to apply within six weeks in relation to the costs orders that should be made concerning the abortive hearing in the District Court in November 2002. If this liberty is taken up by either party then that party is to file written submissions within the time limited setting out its proposed orders and submissions in support of them; and the other party is to file responsive submissions within 21 days of service of the other party's submissions.
4. Respondent to pay appellant's costs of the appeal and to have a certificate under the Suitors Fund Act if qualified.
72 HANDLEY JA: I agree with Mason P.
73 BROWNIE AJA: I agree with Mason P.
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