Naughton v GRC Group Pty Ltd (in Liquidation) - [2020] WASC 176

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION:   NAUGHTON -v- GRC GROUP PTY LTD (IN LIQUIDATION) [2020] WASC 176
CORAM:   REGISTRAR WHITBREAD
HEARD:   8 MAY 2020
DELIVERED          :   26 MAY 2020
FILE NO/S:   CIV 1967 of 2019
BETWEEN:   PAUL NAUGHTON
First Plaintiff
BERNADETTE NAUGHTON
Second Plaintiff
AND
GRC GROUP PTY LTD (IN LIQUIDATION)
First Defendant
TIMOTHY RUPERT BARR GOYDER
Second Defendant
QBE INSURANCE (AUSTRALIA) LIMITED
Third Defendant
PHILLIP WARREN SCOTT
First Third Party
QBE INSURANCE (AUSTRALIA) LIMITED
Second Third Party
GRC GROUP PTY LTD (IN LIQUIDATION) (ACN 120 668 000)
Third Third Party

Catchwords:

Practice and procedure – Interlocutory application – Application for leave to cross-examine on production application – Privilege claim by party in possession of loss adjuster documents – Inspection application

Legislation:

Nil

Result:

Application for leave to cross-examine granted

Category: B

Representation:

Counsel:

First Plaintiff	:	No appearance
Second Plaintiff	:	No appearance
First Defendant	:	No appearance
Second Defendant	:	Ms R O'Brien
Third Defendant	:	Mr J C Yeldon
First Third Party	:	No appearance
Second Third Party	:	Mr J C Yeldon
Third Third Party	:	No appearance

Solicitors:

First Plaintiff	:	No appearance
Second Plaintiff	:	No appearance
First Defendant	:	No appearance
Second Defendant	:	Cullen MacLeod Lawyers
Third Defendant	:	Hall & Wilcox (Perth)
First Third Party	:	No appearance
Second Third Party	:	Hall & Wilcox (Perth)
Third Third Party	:	No appearance

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

Australian Competition and Consumer Commission v Australian Safeway Stores (1998) 81 FCR 526
Australian Securities and Investments Commissions v Macks [2018] SASC 132
Brunswick Hill Apartments v CGU Insurance Ltd [2010] VSC 532
Duro Felguera Australia Pty Ltd v Samsung C&T Corporation [2015] WASC 484
Esso Australia Resources Ltd v The Commissioner of Taxation [1999] 201 CLR 49
Grant v Downs (1976) 135 CLR 674
Matthews v SPI Electricity Pty Ltd [2013] VSC 422
Mitsubishi Electric Pty Ltd v Victorian Workcover Authority (2002) 4 VR 332
National Crime Authority v S (1991) 29 FCR 203
Protean (Holdings) Ltd v American Home Assurance Co (unreported, Supreme Court of Victoria, 5 September 1985)
RCI Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2009] FCA 910
Samenic Ltd v APM Group Pty Ltd [2011] VSC 194
Yunghannes v Elfic Pty Ltd [2009] 25 VR 613

REGISTRAR WHITBREAD:

On 29 November 2019, the Second Defendant filed an application for specific discovery from the Third Defendant and Second Third Party (QBE), supported by an Affidavit sworn by Laura Thurston‑Moon on 29 November 2019 (the Thurston-Moon Affidavit). The application seeks the following orders:
1.Pursuant to Order 26 rule 12 of the Rules of the Supreme Court the third defendant and second third party provide specific discovery of:
(a)the correspondence between passing between the third defendant/second third party and any loss adjuster referred to at F3 of the third defendant and second third party's list of discoverable documents dated 1 October 2019;
(b)the loss adjuster reports referred to at F4 and F5 of the third defendant and second third party's list of discoverable documents dated 1 October 2019; and or
(c)any photographs supplied with or contained within the loss adjuster reports referred to at F4 and F5 of third defendant and second third party's list of discoverable documents dated 1 October 2019, or otherwise provided by the loss adjusters, within 7 days.
2.The third defendant and second third party pay the costs of this application.
The 29 November 2019 application, strictly speaking, is probably better categorised as, primarily, an application for production of documents already discovered in QBE's list of discoverable documents dated 1 October 2019 (the Discovery List) but in respect of which QBE asserts privilege. The application for photographs referred to, at 1(c) above, is properly categorised as an application for specific discovery, but that application, in essence, forms part of the production application. Therefore, given that the main purpose of the application is for production of documents, rather than for discovery of documents not already discovered, I will refer to the 29 November 2019 application as 'the Production Application' in these reasons for decision.
QBE relies on the affidavit of its employee Mr Brennan Paul Wilson (Mr Wilson), liability claims officer, affirmed 29 January 2020 (the Wilson Affidavit) in support of its claim for privilege in respect of the documents which form the subject of the Production Application.
On 15 April 2020, the Second Defendant made application, within the Production Application, for the following orders:
1.Pursuant to Order 36 Rule 2 of the Rules of the Supreme Court 1971 (WA) the third defendant and second third party, produce Brennan Paul Wilson for cross examination of his affirmed affidavit of 29 January 2020.
2.Pursuant to Order 26 Rule 12(2) of the Rules of the Supreme Court 1971 (WA) the Court inspect:
(a)the correspondence between passing between the third defendant/second third party and any loss adjuster referred to at F3 of the third defendant and second third party's list of discoverable documents dated 1 October 2019;
(b)the loss adjuster reports referred to at F4 and F5 of the third defendant and second third party's list of discoverable documents dated 1 October 2019; and or
(c)any photographs supplied with or contained within the loss adjuster reports referred to at F4 and F5 of third defendant and second third party's list of discoverable documents dated 1 October 2019, or otherwise provided by the loss adjusters.
Proposed order 1 relates to an application to cross-examine Mr Wilson on parts of the Wilson Affidavit (the Cross-examination Application). Proposed order 2 of the Cross-examination Application relates to an order for the Court to inspect the documents sought on the Production Application (the Loss Adjuster Documents) in order to determine the Production Application (the Inspection Application).
The Second Defendant filed written submissions in support of the Production Application on 6 February 2020 (the Second Defendant's Production Submissions) and in support of the Cross-examination Application on 22 April 2020 (the Second Defendant's Cross‑examination Submissions). QBE filed written submissions in opposition to the Production Application on 11 February 2020 (QBE's Production Submissions) and in opposition to the Cross-examination Application on 22 April 2020 (QBE's Cross-examination Submissions). All of these submissions are relied on by the parties as being relevant to the determination of the Cross-examination Application and the Inspection Application.
The Cross-examination Application and the Inspection Application were heard on 8 May 2020.

A: Factual background to the proceeding

The Plaintiffs are the owners of 22 Saunders Street, Mosman Park, Western Australia (Naughton Property).
The Second Defendant is the owner of 24 Saunders Street, Mosman Park, Western Australia (Goyder Property).
In 2013, the Second Defendant engaged the First Defendant to construct a house on the Goyder Property.
In August 2013, QBE issued contracts of insurance to the First Defendant (GRC) and the Second Defendant for the works associated with the construction of a house on the Goyder Property.
It is alleged by the Plaintiffs that, during the construction of the house of the Goyder Property, damage was caused to the Naughton Property as a result of inadequate piling.
On 22 December 2017, the Plaintiffs' solicitor wrote to QBE advising it of a potential claim against the First Defendant.
On 5 January 2018, QBE commissioned a loss adjuster to attend the Goyder Property and to provide a report.
Two reports were then produced by the loss adjuster. Those reports are dated 26 February 2018 and 12 June 2018; being documents F4 and F5 in the Discovery List (the Loss Adjuster Reports).
On 3 June 2019, the Writ of Summons was filed in these proceedings.

B: The Cross-examination Application; the Wilson Affidavit

The Second Defendant seeks to cross-examine Mr Wilson in relation to two paragraphs of the Wilson Affidavit which relate to, in his submission, key disputed issues of fact.
Paragraphs 7 and 8 of the Wilson Affidavit state:
7.After I read the Wotton Kearney letter, I knew from my experience as a liability claims officer that an informal resolution would be unlikely for a claim of almost $2,000,000 and I therefore expected litigation. For that reason, when I instructed loss adjustors to prepare a report, I foresaw that litigation was reasonably in contemplation between the plaintiffs and QBE and its insured from that point on.
8.At this time, because QBE's insured had not made a claim, and all information at that point had come from Wotton Kearney, QBE was relying on loss adjustors to prepare a report for the dominant purpose of providing assistance or advice with respect to the anticipated litigation.
The evidence in paragraphs 7 and 8 of the Wilson Affidavit is disputed by the Second Defendant on the Production Application. QBE relies on the evidence in those paragraphs to resist the Production Application.
Whilst not addressed in submissions by the Second Defendant, it is relevant that paragraphs 7 and 8 of the Wilson Affidavit refer to 'a report'; the reference to two reports only comes in the conclusionary statement in paragraph 9. The circumstances in which each report was brought into existence are not differentiated, or explained, in the Wilson Affidavit.

C: Applicable principles

Pursuant to O 36 r 2(3) of the Rules of the Supreme Court 1971 (WA) (Rules), the Court has a discretion to permit the cross‑examination of a witness in an interlocutory application.

When will the Court permit cross-examination on an interlocutory application?

It is accepted by both parties that the discretion to allow cross‑examination must be exercised sparingly. However, in some circumstances, the fair resolution of an interlocutory dispute will require a party to have permission to cross‑examine the deponent of an affidavit. In Australian Securities and Investments Commissions v Macks [2018] SASC 132 at [30], Doyle CJ stated:
… there will be some circumstances in which the fair resolution of an interlocutory application requires that a party have permission to cross‑examine the deponent of an affidavit. That may be so, for example, where the credit of the deponent is a matter of importance to the resolution of the interlocutory application; or where there is a proper basis for contesting a particular assertion of fact that is of importance to the resolution of the interlocutory matter.
The Second Defendant's contention as to the basis for the Cross‑examination Application falls into the latter of those two categories.
The Court will permit cross-examination where the interests of justice require it. In Duro Felguera Australia Pty Ltd v Samsung C&T Corporation [2015] WASC 484 at [39], Le Miere J stated:
The court has a discretion to permit cross-examination in interlocutory applications but that discretion will be exercised sparingly. The court will permit cross-examination where the interest of justice require it.
The question is therefore whether a fair resolution of the Production Application requires that, in the interests of justice, the Cross-examination Application be granted in circumstances where the Second Defendant contends that the asserted facts should be tested, in cross-examination, in order to properly resolve the interlocutory dispute.
Prior to the hearing of the Cross-examination Application, I referred the parties to Matthews v SPI Electricity Pty Ltd [2013] VSC 422, (Matthews), which authority clearly sets out the relevant authorities and considerations relevant to determining an application to cross-examine on an interlocutory application. At [28] and [29], Derham AsJ states:
28.An examination of the authorities shows that the variety of circumstances in which it may be appropriate to allow cross‑examination varies according to the nature of the application and the facts of the case. The overriding principle is that of procedural fairness. There are, however, a number of factors that have been found relevant to granting leave to cross‑examine, as follows:
(a)where the credit of the witness is important to resolving the interlocutory application;
(b)the interlocutory application requires the establishment of material facts;
(c)there is a relevant factual dispute which requires cross‑examination for its resolution;
(d)the interlocutory application is unusual and it is difficult to know what issues will eventually be relevant.
29.There are, of course, factors that will exclude or limit cross‑examination, including:
(a)that the application is not made bona fide to test an issue of material fact on the interlocutory application, but rather to engage in a rehearsal of issues relevant to the trial;
(b)the extent to which the pressure of the business of the Court permits cross-examination.
(c)the factors referred above from the decision of Warren J in Yunghanns.
The factors referred to in Yunghannes v Elfic Pty Ltd [2009] 25 VR 613, (Yunghannes), when incorporated into the above list, mean that [29] of Matthews should be read as stating that factors that will exclude, or limit, cross-examination include:
(a)that the application is not made bona fide to test an issue of material fact on the interlocutory application, but rather to engage in a rehearsal of issues relevant to the trial;
(b)the extent to which the pressure of the business of the Court permits cross-examination;
(c)where, insofar as there are inconsistencies in the evidence, or allegations of recent invention, such matters can be dealt with in submissions;
(d)the fact that it is undesirable (except in compelling circumstances) to permit a party to have the opportunity at an interlocutory stage to cross-examine an opposing party upon an issue of fact which goes to the core of the proceeding; and
(e)that the Court would not be assisted by the cross-examination.
Paragraphs [28] and [29] of Matthews, as supplemented by Yunghannes, set out the relevant considerations that I must apply in determining the Cross-examination Application.

What are the applicable principles on the privilege claim?

I proceed to consider the applicable principles on QBE's privilege claim, as an analysis of the legal principles applicable to that application is necessary in order to determine whether a fair resolution of the Production Application requires that, in the interests of justice, the Cross-examination Application be granted.
In order for QBE to establish its claim of privilege over the Loss Adjuster Documents, the parties are agreed (paragraph 6 of the QBE Production Submissions and paragraph 17 of the Second Defendant's Production Submissions) that QBE must satisfy the Court that:
(a)proceedings were in the reasonable contemplation of QBE at the relevant time in relation to the Loss Adjuster Documents; and
(b)the Loss Adjuster Documents were prepared for the dominant purpose of providing assistance or advice with the respect of that anticipated litigation (emphasis added).
There are effectively three consecutive questions to consider in the determination of whether the claim to privilege is established:
(a)was litigation in fact in the contemplation of the party claiming the privilege? (because if litigation was not, in fact, subjectively contemplated, then the following questions can never arise);
(b)if litigation was contemplated, was that contemplation objectively reasonable?
(c)if litigation was reasonably contemplated, were the relevant documents brought into existence for the dominant purpose of the contemplated litigation?
If any of those questions is answered in the negative, no privilege attaches.
The question also arises as to the relevant moment in time when those questions have to be asked in relation to the documents over which privilege is claimed. That will be a matter for submission, and determination, on the Production Application.
In National Crime Authority v S (1991) 29 FCR 203 at 212, Lockhart J stated:
It is not sufficient for the person asserting the claim to merely assert it; or, as Brett J said in Gardner v Irwin(1878) 4 Exch 49 at 52 to have a 'skeleton'.
In Australian Competition and Consumer Commission v Australian Safeway Stores (1998) 81 FCR 526 (Australian Safeway) at 558, Goldberg J stated:
Whether proceedings are anticipated must be determined by reference to objective criteria and not simply by reference to the subjective statements of a participant in the relevant information gathering or litigation preparing process. A document or communication cannot be given protection from production by the creator of the document or the person propounding it in the form of a communication uttering the litany — I brought it into existence for the purpose (be it sole or otherwise) of legal proceedings. Nor is it sufficient, in my view, for the person to say — I anticipated proceedings would be brought at the time I brought the document into existence and the purpose for which I did so was those proceedings.
The test as to whether litigation was reasonably in contemplation is an objective one. In Grant v Downs (1976) 135 CLR 674 at 682 ‑ 683 per Barwick CJ:
It has been accepted that documents brought into existence after an accident pursuant to a standing instruction previously given may be privileged (Collins v. London General Omnibus Co (1893) 68 L.T.831; The Hopper No. 13 [1925] P.25; Ankin v. London and North Eastern Railway Co. [1930] 1 K.B. 527 at p.536; Ogden v. London Electric Railway Co. (1933) 49 L.T.R.542; 149 L.T. 476). Although to sustain the privilege it is not necessary that the document has been brought into existence on the advice of the solicitor, it is essential that the circumstances are such that the court can subsequently conclude, viewing them objectively, that litigation can be reasonably anticipated—see Feuerheerd v. London General Omnibus Co. Ltd.[1918] 2 K.B. 565; Cataldi v. Commissioner for Government Transport [1969] 1 N.S.W.R. 561; [1970] 1 N.S.W.R. 65 at p.68—and this at the time when the preparation of the document is undertaken. However, the fact that the document is brought into existence in anticipation of litigation is not sufficient, without more, to attract privilege; the document must be called into being for use in litigation or for advice and it is the extent to which this purpose is intended to be served by the preparation of the document that is in question.
There needs to be more than a mere possibility of litigation to satisfy this requirement. As was stated in Mitsubishi Electric Pty Ltd v Victorian Workcover Authority (2002) 4 VR 332 at 341 per Batt JA:
In summary, then, as a general rule at least, there must be a real prospect of litigation, as distinct from a mere possibility, but it does not have to be more likely than not.
A number of cases have considered whether loss adjuster reports and associated documents within the possession of an insurer are properly the subject of a claim for privilege. There is no over-arching rule, and each case has ultimately turned on whether in the circumstances of that case the proceedings were in reasonable contemplation and the documents were prepared for the requisite (dominant) purpose.

A claim for privilege will not succeed if the document is a commercial document or has been brought into existence in the ordinary course of business. In the insurance context, there is no privilege if the document was to allow an insurer to make a decision in the ordinary course of its insurance business as to whether or not to grant indemnity: see Samenic Ltd v APM Group Pty Ltd [2011] VSC 194 per Mukhtar AsJ at [20(e)].
As stated in Brunswick Hill Apartments v CGU Insurance Ltd [2010] VSC 532 per Mukhtar AsJ at [29]:
… documents are not privileged merely because one of their intended destinations is the desk of a lawyer: see Esso Australia Resources v FCT (1999) 201 CLR 49 at 67. Nor is it enough that reports are commissioned or steps are taken because of established corporate or bureaucratic procedures and the report is made as a result of instructions being followed. Nor is it enough that reports are commissioned merely because litigation is a contingent possibility.
In Protean (Holdings) Ltd v American Home Assurance Co (unreported, Supreme Court of Victoria, 5 September 1985), at page 10, Marks J found that documents prepared for the purpose of the insurer conducting its insurance business, such as:
… placing an amount in money terms on its contingent liability, formulating its attitude to future business relations with the insured, informing head office to obtain necessary instructions or decisions and complying with reporting requirements
did not attract the privilege. As was also stated by Marks J in Protean (Holdings) Ltd v American Home Assurance Co at page 6:
It is clear that a studious cast of verbiage cannot work the alchemy of transforming what would be otherwise unprivileged into privileged documents ...
The determination of the Production Application will require analysis of the evidence, in its specific context, in order to determine whether QBE has established its claim of privilege. The above referred authorities show that, in relation to loss adjuster documents, this is not always a straightforward question.

D: Are the subject documents relevant to a matter in issue between the parties to the Production Application?

QBE submitted that the Cross-examination Application should not be permitted as the Loss Adjuster Documents cannot be relevant to a fact in issue between QBE and the Second Defendant.
I am cognisant of QBE's contention, in the Production Application, that the Plaintiffs' claim against QBE (as set out in paragraphs 6, 9, 10 and 28 of the statement of claim filed on 3 June 2019) is not known to law. In my view that will be a question for the trial judge to determine if the Plaintiffs' case remains as pleaded at the time of trial. QBE has neither sought summary judgment, nor made a strike out application, in that regard. The pleaded cause of action, as set out in the statement of claim, remains on foot as at the time of determining this application.
I note further that whilst QBE states in the Production Submissions, at paragraph 7, that its contention in relation to the Plaintiffs' case is useful to consider on the Production Application (as between the Second Defendant and QBE as a third party); nowhere in either its written submissions, or oral submissions, on the Cross‑examination Application, has QBE developed how its contention, in relation to the Plaintiffs' case, is relevant to the present applications.
Before I determine whether the Cross-examination Application should be granted, I first have to be satisfied that the documents the subject of the Production Application are likely to be relevant to a matter in issue the proceeding. QBE submits that I also have to be satisfied that such documents are relevant to a matter in issue between the Second Defendant and QBE.
QBE has discovered the loss adjuster correspondence and the Loss Adjuster Reports in the Discovery List. It is not in dispute, between the parties to this application, that these documents are within QBE's power, possession, or control. A claim of privilege is made by QBE in respect of the loss adjuster correspondence and the Loss Adjuster Reports.
It is fair to assume, as is usual, that the Loss Adjuster Reports may contain photographs. The Production Application also seeks photographs supplied to QBE with, as opposed to in, the Loss Adjuster Reports. Any such photographs taken by the loss adjuster (falling within the terms of the Production Application) can be assumed to be within QBE's power, possession, or control. The Production Application only seeks photographs produced by the loss adjuster to QBE.
The Loss Adjuster Documents are prima facie relevant to a matter in issue in the proceedings because it is likely that they will:
(a)refer to, and make comment on, any damage alleged which was visible at the time of the inspections referred to in the documents;
(b)include photographic evidence of the state of repair of the Naughton Property at the time of the photographs; and
(c)make comment on any possible cause of the alleged damage to the Naughton Property; and
(d)make comment on the value of any observed damage.
QBE concedes, in its written submissions, that the Loss Adjuster Reports are relevant, as between the Plaintiffs and QBE, (paragraph 32(b) of the QBE Production Submissions) but QBE maintains a claim of privilege over them. That claim extends to include the associated correspondence and the photographs and therefore there is a claim of privilege over the Loss Adjuster Documents. That claim is properly categorised as a claim for litigation privilege.
The Loss Adjuster Documents are, therefore, prima facie relevant to the proceeding on foot, at least as between the Plaintiffs and QBE as Third Defendant.
QBE contends that the cause of the damage is not a fact in issue as between the Second Defendant and QBE on the third party claim; what is in issue as between those parties is whether QBE is liable to make a payment under any applicable policy.
QBE contends that the matter in issue as between the Second Defendant and QBE is a claim for indemnity under two contracts of insurance. QBE refers to paragraph 36 of the Second Defendant's Amended Third Party Statement of Claim dated 29 November 2019 (the Amended Third Party Statement of Claim), which states:
36.On or about 8 August 2013, QBE entered into a contract of insurance with Goyder with policy number 780047725BWI-6, for Residential Building Work by Builder (Residential Building Work Policy).
QBE also refers to paragraph 38 of the Amended Third Party Statement of Claim which states:
38.Further, on or about 31 October 2013 QBE entered into a contract of insurance with GRC with policy number 32 WOO1672 CAR (Construction Risk Policy) for Construction Risk and Liability Risk, including for legal liability (to a maximum amount of $20,000,000) and vibration, removal, weakening of support (to a maximum of $20,000,000).
QBE argues that the Second Defendant contends that he is an insured under the Residential Building Work Policy and is entitled to an indemnity under the Construction Risk Policy (together the Insurance Policies). The Insurance Policies therefore ground the dispute between the Second Defendant and QBE. Hence, there is said to be no other dispute between those parties other than whether the Second Defendant is entitled to an indemnity under one, or both, of the Insurance Policies. QBE submits that the Wilson Affidavit is not relevant to any matter in issue in that dispute. I take that submission to mean that the Loss Adjuster Documents are not relevant to a fact in issue between the Second Defendant and QBE.
In determining QBE's relevance argument, I refer to the Second Defendant's Third Party Notice dated 14 August 2019 (the Third Party Notice) which states:
5.in the event that it is found that the Residential Building Works at the second defendant's property did destabilise the plaintiffs' property or removed lateral support to the plaintiffs' property (which is denied by the second defendant in the proceedings) (Damage), then the Damage was caused as a result of:
(a)a breach of the contract between the second defendant and the first defendant, which required the first defendant to carry out the Residential Building Works with:
(i)reasonable skill, care and diligence; and
(ii)fit for the specified purpose; and, or alternatively
(b)negligence on the part of the first defendant when it carried out the Residential Building Works;
6.as the first defendant is now in liquidation, the second defendant is unable to:
(a)take advantage of an entitlement to; or
(b)recover under, a remedy for the work from the first defendant;
7.as a result of the above, the second third party is required to indemnify the second defendant in accordance with the First Insurance Contract and, or alternatively, the other insurance policy or policies provided to the first defendant.
I find, for the following reasons, that the Loss Adjuster Documents are prima facie relevant to a matter in issue as between the Second Defendant and QBE:
(a)the Construction Risk Policy will only provide indemnity to GRC and the Second Defendant, the insured, in circumstances confined by the terms of that policy; which terms can, relevantly, be expected to include negligence on the part of GRC and which will, no doubt, be subject to limits on indemnity contained in the Construction Risk Policy;
(b)the cause of the damage is relevant to determining whether the insured was negligent, and therefore whether the Insurance Policies will respond;
(c)the cause, and value, of the damage is in issue as between the plaintiffs and all of the defendants and, consequentially, as between the Second Defendant and QBE. As noted above, the Loss Adjuster Documents would be expected to address the cause, and value, of the damage.
Further, to the extent that the Loss Adjuster Documents indicate any pre-existing damage to the Naughton Property, or any alternate cause of damage, or indicate that the quantum of loss suffered by the Plaintiffs is less than claimed, the Loss Adjuster Documents are relevant to the Second Defendant's defence of the Plaintiffs' claim and, consequently, reduce the quantum of the Second Defendant's claim against QBE.
Paragraph 37 of the Amended Third Party Statement of Claim pleads:
The Residential Building Work Policy included terms to the effect that:
(a)Goyder was the beneficiary of the Residential Building Work Policy;
(b)the Residential Building Work Policy was in respect of Residential Building Work at the Goyder Property;
(c)the Residential Building Work was to be carried out by GRC; and
(d)Goyder would be paid for loss or damage (including consequential loss) arising from the inability to take advantage of an entitlement to, or to enforce or recover under, a remedy for the work but only if Goyder could not recover compensation from GRC or have GRC rectify the loss or damage because of insolvency.
QBE has not admitted liability to indemnify under either of the Insurance Policies. The question of whether the cause of the damage falls within the terms of the indemnity to be granted under either, or both, of the Insurance Policies is therefore a live issue between the Second Defendant and QBE. As such, the Loss Adjuster Documents are prima facie relevant and liable to be produced unless QBE's claim of privilege is upheld on the Production Application.

E: What is the relevance of the Wilson Affidavit to QBE's submissions on the Production Application?

Next I must consider what level of reliance QBE places on the Wilson Affidavit in order to sustain its claim of privilege.
QBE's objections to the Production Application place reliance on the circumstances created by Wotton + Kearney's letter to QBE of 22 December 2017 (the WK Letter); which is annexure BW1 to the Wilson Affidavit.
QBE states that it was notified of the Plaintiffs' claim by the Plaintiffs' lawyers in the WK Letter. The Plaintiffs allege that their claim against the First Defendant arose 'in or about early 2014'. QBE asserts that it is significant that this was the first QBE had heard of the claim; there having been no notification of the claim by the insured, GRC. QBE points out that the claim was notified almost four years after the Plaintiffs' loss and damage is first said to have arisen.
QBE contends that it now faces the claim that was originally detailed in the WK Letter. In paragraph 5 of the WK Letter, QBE was put on notice that the claim against the policy was brought pursuant to section 51 of the Insurance Contracts Act 1984 (Cth); or 601AG Corporations Act 2001 (Cth) given that GRC is under administration and subject to deregistration. A copy of the insurance policy was requested and the nature of the Plaintiffs' claim was set out in the 'Facts' section in paragraphs 7, 8 and 9. The WK Letter also itemised the allegations of damage caused by GRC, in s 10 and s 11, and stated that RK Brine Master Builder was undertaking remedial works following a competitive tender process. It was expected that those works would be completed in April 2018. The Plaintiffs' claim is quantified at $1,960,000 and stated to be likely to increase.
QBE asserts that notification of a claim and notification of prospective proceedings are asserted in paragraphs 23 - 25 of the WK Letter. QBE was therein asked to:
23.Please:
23.1take this letter as notification of a claim by our clients against GRC in relation to damage to the Property as a consequence of the works undertaken by GRC;
23.2provide a copy of any policy which may respond to the claim including for example the relevant Professional Indemnity, General Liability or Construction Works policy.
24.If indemnity is declined under the relevant QBE Policy our client reserves its rights to commence proceedings directly against QBE once GRC is deregistered 601AG of the Corporations Act 1001 (Cth) given that GRC is under administration and subject to deregistration'
QBE therefore submits that the evidence contained in paragraphs 7 and 8 of Wilson Affidavit, in the context of the WK Letter, establishes that the Loss Adjuster Documents were prepared when litigation was reasonably contemplated and for the dominant purpose of litigation. Paragraphs 7 and 8 of the Wilson Affidavit are therefore central, and crucial, to QBE's claim of privilege in respect of the Loss Adjuster Documents.

F: The Second Defendant's submissions on the Cross-examination Application

The Second Defendant submits that cross-examination on the Wilson Affidavit should be permitted for the following reasons. First, he states that QBE bears the onus on the Production Application, to evidence that proceedings were in reasonable contemplation at the time that the Loss Adjuster Documents were created and that those documents were prepared for the dominant purpose of litigation. Courts have been prepared to exercise a discretion to permit evidence to be tested in cross-examination in cases relating to questions of legal professional privilege: National Crime Authority v S (1991) 29 FCR 203 at 211 and 212 (Lockhart J); Esso Australia Resources Ltd v The Commissioner of Taxation [1999] 201 CLR 49 at p.70, [52], and RCI Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2009] FCA 910 at [17] - [18].
Secondly, the Second Defendant refers to the fact that QBE relies upon paragraph 7 of the Wilson Affidavit as the basis for its assertion that the proceedings were in the reasonable contemplation of QBE at the time the Loss Adjuster Documents were created. The Second Defendant asserts that, whilst Mr Wilson deposes that he expected litigation because he 'knew from [his] experience as a liability claims officer that an informal resolution would be unlikely for a claim of almost $2,000,000', no proper basis for that opinion is given as there is no explanation as to what the referenced experience is.
Thirdly, the Second Defendant submits that QBE relies upon paragraph 8 of the Wilson Affidavit as the basis for its assertion that the Loss Adjuster Documents were prepared for the dominant purpose of providing assistance or advice with respect of anticipated litigation. The Second Defendant says that paragraph 8 of the Wilson Affidavit is a formulaic assertion that QBE (not Mr Wilson personally) was relying on loss adjusters to prepare a report for the dominant purpose of providing assistance or advice with respect to anticipated litigation. The reliance was said to arise at that time 'because QBE's insured had not made a claim, and all information at that time had come from Wotton Kearney [the Plaintiffs' solicitor]'.
On the hearing of the Cross-examination Application, counsel for the Second Defendant set out the matters on which Mr Wilson should be cross-examined and the reasons why he should be cross-examined. In particular the Second Defendant refers to the fact that the Wilson Affidavit does not identify what authority Mr Wilson has to speak for the corporation and, in particular, what authority he has to speak for the corporation's purpose in preparing the Loss Adjuster Reports. In support of his contention as to the importance of cross-examination on this point the Second Defendant referred to [54] of Matthews:
In the case of a document produced for a corporation it may be necessary to examine the purpose of the persons in the corporation hierarchy, which may be some person or persons other than the author or indeed the person directly commissioning the document, to determine the purpose for which the document was brought into existence.
In relation to paragraph 7 of the Wilson Affidavit, counsel for the Second Defendant developed the submission referred to at [67] above. She emphasized the fact that the evidence given in that paragraph is said to be based on Mr Wilson's experience, however, no detail is given of the experience on which Mr Wilson relies to be able to determine that litigation, in the subject circumstances, was reasonably likely from the time the WK Letter was received. Absent knowledge of the experience on which his opinion is based, the Second Defendant submits that the Court cannot determine the reasonableness of Mr Wilson's opinion. I note that this submission strays into consideration of the subjective reasonableness of Mr Wilson's contemplation of litigation, rather than the objective reasonableness as required by the passage from Grant v Downs quoted in [35] above.
The time at which Mr Wilson's view was formed is also said to relevant, but unknown. The WK Letter was received on 22 December 2017, and the report was commissioned on 5 January 2018. Counsel for the Second Defendant submitted that, given the likely Christmas shutdown and presumably allowing time, within that short window, for the WK Letter to have been received, processed and allocated to Mr Wilson; a question arises as to who turned their mind to what in the intervening short period of time. The Wilson Affidavit does not state when the WK Letter was received by Mr Wilson, nor does it depose to and how long was it thereafter before he commissioned the report. Such matters are relevant to the reasonableness of his view. Mr Wilson has not said when lawyers were engaged.
In relation to paragraph 8 of the Wilson Affidavit, counsel for the Second Defendant referred to the fact that Mr Wilson states that, because the insured had not made a claim, the only information QBE had was the WK Letter; hence, the dominant purpose for seeking a report was to provide assistance or advice with respect to anticipated litigation. The Second Defendant asserts that this gives rise to areas of factual dispute because Mr Wilson does not give any evidence about his own, individual purpose, or purposes, for commissioning the report. He has stated that this was QBE's dominant purpose without stating what authority he has to make such statements about QBE's purpose. There is no evidence given about his role or the scope, and limitations, of his authority at QBE. The Second Defendant does not know whether there were any other people involved in the relevant decision making process and the QBE discovery affidavit is not sworn by Mr Wilson, so the question arises as to whether Mr Wilson was working to a supervisor who is the ultimate claim supervisor.

The Second Defendant contends that the question remains live as to whether the insurer requested 'the report' (presumably referencing the Wilson Affidavit's reference to 'a report', but see [20] above) to enable it to make a decision which was necessary in its ordinary course of business, for example, about whether, or not, to grant indemnity. If the report was prepared for such a purpose, was that purpose, in fact, the dominant purpose.
The Second Defendant contends there is no practical impediment to the cross-examination of Mr Wilson; that cross-examination would be of short compass, to a confined issue; and that it will not give rise to unnecessary duplication of factual issues relevant to the main action. If cross-examination is not permitted, then the Second Defendant contends that he will be prejudiced on the Production Application as he will be unable to challenge the reasons, and asserted dominant purpose, which QBE asserts as the reason for the Loss Adjuster Documents coming into existence.

G: QBE's submissions on the Cross-examination Application

QBE submits that it has not merely made an assertion of privilege; QBE has met its burden of proof via the Wilson Affidavit which clearly, and concisely, states both that Mr Wilson, on behalf of QBE, reasonably contemplated litigation and that the Loss Adjuster Reports were prepared for the dominate purpose of providing advice with respect to this litigation.
I have already found that the Loss Adjuster Documents are prima facie relevant to the case as between the Second Defendant and QBE so I will not reiterate QBE's argument, in that regard, in opposition to the Cross-examination Application.
In the context of the four criteria listed at [28] of Matthews, QBE submits that Mr Wilson's credit is in not in issue so cross-examination should not be allowed. QBE thereby seems to contend that all of the criteria in [28] of Matthews must be met before the Cross-examination Application can be granted. QBE further submits that the proposed area, or areas, of cross-examination have not been identified with precision.
QBE submits that it is abundantly clear from the Wilson Affidavit that he reasonably contemplated litigation, and that the Loss Adjuster Documents were prepared for the dominant purpose of assistance with that contemplated litigation. Mr Wilson has deposed that, in his capacity as the claims officer for QBE, he, personally, instructed the loss adjuster to prepare the report in that specific context and QBE submits that no other reasonable finding can be made.
QBE submits that the Wilson Affidavit does not require the level of detail contended for by the Second Defendant because the WK letter came out of the blue. QBE did not have a claim from its insured; QBE was facing a claim from someone other than its insured. As such, litigation was reasonably contemplated and the Loss Adjuster Documents therefore can only have come into existence for the dominant purpose of providing assistance or advice with the respect of that anticipated litigation.
QBE contends that the WK Letter puts QBE on notice of a claim brought pursuant to s 51 of the Insurance Contracts Act 1984 (Cth) or s 601AG of the Corporations Act 2001 (Cth). QBE contends that the claim set out in the WK Letter is the claim that is now brought by the Plaintiffs in this proceeding. QBE relies on the letter to evidence, of itself, the reasonableness of the contemplation of litigation when the Loss Adjuster Documents came into existence.
In oral submissions, QBE contended that there is no basis to cross‑examine Mr Wilson as to the indemnity the Second Defendant is able to obtain under contracts of insurance. I do not understand the matters the Second Defendant applies to cross-examine Mr Wilson on to be relevant to, or determinative of, questions as to the scope of the Insurance Policy or potential rights to indemnification thereunder, which are matters to be determined objectively on the terms of the policy and could not be affected by oral evidence from Mr Wilson.
QBE contends that there are no factual disputes on the Production Application that would necessitate the cross-examination of Mr Wilson in order to be resolved. No special case has been established warranting an order that Mr Wilson be cross-examined on the Production Application.

H: Findings

The Cross-examination Application

An examination of the authorities shows that the variety of circumstances in which it may be appropriate to allow cross‑examination varies according to the nature of the application and the facts of the case. The overriding principle is procedural fairness. There are, however, a number of factors, as set out at [28] and [29] of Matthews, which I adopt as the factors relevant to my decision as to whether, or not, to grant leave to cross-examine.
In the context of [28] of Matthews, QBE submits that Mr Wilson's credit is in not in issue so cross-examination should not be allowed. The categories in which cross-examination will be granted, albeit infrequently, are more extensive than that and clearly contemplate an interlocutory application which requires the establishment of a material fact and/or there is a relevant factual dispute which requires cross‑examination for its resolution. The list of relevant criteria set out at [28] of Matthewsdoes not require all of the listed preconditions to be met; there must be a balancing of all of those considerations, when each is weighed against the other, any one of the referred circumstances, if established and of sufficient weight, could, in my view, permit the exercise of the discretion to allow cross-examination.
Mr Wilson's credit is not, of itself, important to resolving the interlocutory application; it is primarily the basis, validity and weight of his assertions of facts, expressed beliefs and opinions that are in issue. Credit is only one of the matters relevant to my decision; alone, it is not determinative of the Cross-examination Application.
A fair, and proper, determination of the Production Application requires the Court to determine whether, at the time the Loss Adjuster Documents were prepared, litigation was in reasonable contemplation, and whether the Loss Adjuster Documents came into existence for the dominant purpose of that litigation. There is a factual dispute between the parties as to whether the Loss Adjuster Documents were prepared both when litigation was in reasonable contemplation and for the dominant purpose of litigation. The Production Application requires QBE to establish both of those material facts, on a balance of probabilities, if QBE is to successfully oppose that application.
QBE asserts that the receipt of the WK Letter by QBE is, of itself, sufficient to evidence that litigation was, from the moment of receipt of that letter, in the reasonable contemplation of QBE. The characterisation of the WK Letter is one of the central issues in the Production Application but it cannot speak to the dominant purpose of the corporation at the time the Loss Adjuster Documents were commissioned or came into existence.
QBE asserts that paragraphs 7 and 8 of the Wilson Affidavit are sufficient to found a proper claim for privilege. However, those paragraphs do not address the matters that the Second Defendant wishes to explore in cross-examination, and I am satisfied that those matters are relevant to determining the reasonableness of, and the weight to be attributed to, the evidence in paragraphs 7 and 8 of the Wilson Affidavit.
The Cross-examination Application is therefore a bona fide application made in order to test the relevant evidence on which determination of the Production Application turns. The issues raised cannot be dealt with in submissions as they go to the weight to be attributed to otherwise untested evidence in the Wilson Affidavit.
The dispute does not relate to inconsistencies in evidence, or matters of recent invention. There is a factual dispute, namely the reasonableness and legitimacy of Mr Wilson's statements, conclusions and opinions.
Whilst the discretion to grant cross-examination on an interlocutory application must be exercised sparingly, there can be no doubt that the Loss Adjuster Documents, absent a successful claim for privilege, would likely be relevant, and informative of, some of the central facts in issue in the proceedings, namely the cause, and value, of the damage to the Naughton Property.
It is an established principle that a party cannot succeed in a claim for privilege by merely asserting it; to a large extent, this is what QBE's evidence, left untested, amounts to. The issue of fact sought to be cross-examined on does not go to an issue at the core of the proceeding. The issue to be cross-examined on goes to the context in which, and the dominant purpose for which, the Loss Adjuster Documents were prepared. That issue is not relevant to the ultimate issue, which is the determination of the cause of, and the consequent liability for, the damage occasioned to the Naughton Property.
In my view it is appropriate, in all of the circumstances of this case, that the basis and reasonableness of Mr Wilson's conclusions and opinions, as to both the reasonable prospect of litigation and the dominant purpose for which the Loss Adjuster Document came into existence, be tested in cross-examination in order that his evidence can properly be weighed on the Production Application. It is in the interests of justice to exercise the discretion to allow the Cross-examination Application to ensure the fair determination of the matter.
The cross-examination of Mr Wilson will be limited to QBE's assertion of privilege and the admissibility of, and weight to be given to, Mr Wilson's evidence.

The Inspection Application

I now turn to the Inspection Application whereby the Second Defendant seeks an order requiring QBE to produce the Loss Adjuster Documents for inspection by the Court. The Second Defendant contends that this is necessary to enable the Court to fairly, and properly, determine the Production Application.
Order 26 r 12(2) of the Rules provides that in determining any objection, on the ground of privilege, to the production or discovery of any document or class of document, the Court may inspect the document.
The rationale for the Court to inspect a document over which privilege is claimed is described in Grant v Downs (1976) 135 CLR 674 at 689 (Stephen, Mason and Murphy JJ):
The court has power to examine the documents for itself, a power which has perhaps been exercised too sparingly in the past, springing possibly from a misplaced reluctance to go behind the formal claim of privilege. It should not be forgotten that in many instances the character of the documents the subject of the claim will illuminate the purpose for which they were brought into existence.
In determining whether to uphold QBE's claim of privilege from discovery in relation to the documents, the Second Defendant submits that the Court will need to make findings as to whether proceedings were in the reasonable contemplation of QBE at the time the Loss Adjuster Documents were created and whether such documents were prepared for the dominant purpose of providing assistance, or advice with respect to, that anticipated litigation. It is further submitted that it is likely that inspection of the correspondence and reports themselves (viewed in context) will assist the Court in making those findings, particularly in circumstances where the evidence in the Wilson Affidavit is limited.
In opposition to that application, QBE submits that despite the observation of the plurality in Grant v Downs, this jurisdiction is used sparingly and to say that something is likely, suggests there is no real force in the Second Defendant's submission that inspection of the Loss Adjuster Documents will assist the Court in determining the Production Application. QBE submits that the Court is entitled to accept Mr Wilson's evidence in the determination of the application unless a special case has been demonstrated for his cross-examination.
Having granted the Cross-examination Application, I intend to defer the determination of the Inspection Application until after Mr Wilson's cross-examination. After that has concluded I will be best informed as to whether to accede to the Inspection Application. To determine the Inspection Application, at this point, would be to determine whether I need to view the Loss Adjuster Documents, in order to properly determine the Production Application, without all of the relevant evidence before me. Further, there is a danger that knowledge of the contents of the Loss Adjuster Documents might impact on my assessment of Mr Wilson's evidence when there remains the possibility that I do not need to view the Loss Adjuster Documents in order to determine the Production Application.
The costs of the Cross-examination Application will be reserved, to be determined after resolution of the Production Application.
The parties are to liaise with my Associate to fix a date for the cross‑examination of Mr Wilson.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
KW
Court Officer
26 MAY 2020