Orica Australia Pty Ltd v Limit (No2) Limited
[2008] VSC 247
•25 July 2008
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
No. 8028 of 2006
| ORICA AUSTRALIA PTY LTD | Plaintiff |
| v | |
| LIMIT (No. 2) LIMITED | Defendant |
---
| MASTER | Evans | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20 June 2008 | |
DATE OF JUDGMENT | 23 July 2008 | |
CASE MAY BE CITED AS: | Orica Australia Pty Ltd v Limit (No. 2) Limited | |
MEDIUM NEUTRAL CITATION: | [2008] VSC 247 | |
---
PRACTICE AND PROCEDURE – Discovery – Subpoena – Objection to inspection – Legal Professional Privilege – Advice privilege – Communications with third parties – Litigation privilege - whether litigation reasonably anticipated or contemplated – Waiver if reference to contents of Privileged document for sole purpose of maintaining privilege in other documents
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms K Stynes | |
| For the Defendant | Mr H N G Austin |
MASTER:
In this proceeding the Plaintiff (‘Orica’) seeks damages and a declaration that it is entitled to indemnity from the Defendant and the Underwriter’s represented by it (‘the London Underwriters’) under a Charterers’ Liability Insurance Policy in respect of certain liabilities it has incurred as a result of the cargo of a ship chartered by it shifting during the voyage on 21 December 2004 (‘the incident’). The Master of the ship considered that the ship and its crew were in danger and put into the nearest port of refuge. The ship was detained there until the cargo could be safely stowed. Orica incurred liabilities to the owner of the vessel and the costs of disposing of part of the cargo.
The cargo had been purchased by Orica from Orica Canada Inc which had engaged a stevedore (‘Logistec’) to load it on board the ship at a Canadian port.
The Objection
By Subpoena filed on 21 February by the Defendant pursuant to Order 42A Marsh Pty Ltd (‘Marsh’) was required to produce certain documents to the Prothonotary. The Plaintiff objected to the Defendant inspecting any of those documents ‘on the basis of legal professional privilege’. The objection is now confined to some only of those documents and the Defendant is satisfied that one of the other documents is not relevant to this proceeding.
The circumstances in which the disputed documents were created
When Orica’s Group Manager, Risk Financing, one Peter Sterry, was informed of the incident on 21 December 2004, he contacted Marsh Pty Ltd (‘Marsh’), Orica’s global Claims Manager in relation to (inter alia) potential insurance claims. Marsh had a retainer from Orica to act as its agent in relation to communications with its insurers and (inter alia) the conduct of matters that might reasonably lead to litigation to which it might become a party. Marsh had its authority to instruct external service providers including its solicitors in this proceeding on its behalf in relation to the conduct of potential insurance claims and any anticipated litigation to which it might become a party.
On the same day, Sterry instructed someone at Marsh that Marsh was to act as its agent to preserve its interests in relation to its potential claim for indemnity under its insurance policies, a potential dispute between it and the disponent owners of the ship in relation to the charterparty and any potential claim that it might have against Logistec in respect of the stowing of the cargo.
Sterry also asserts in an Affidavit that ‘Marsh was instructed by the Plaintiff’ to notify the London Underwriters of the incident and of a request by Brian Devaraj (‘Devaraj’), Orica’s Manager of Global Shipping that a Marine Surveyor be engaged to inspect the ship on behalf of Orica in order to investigate what might have caused the cargo to shift and provide Orica with an opinion.
Sterry’s understanding of the purpose of that request was to enable Orica to obtain legal advice from Clayton Utz in relation to any potential claim that it might have against Logistec. That understanding was based on his previous experience with marine incidents and claims, upon which he does not elaborate, and his discussion with Brian to which he had not previously referred in his affidavit.
He then asserts that Marsh arranged for an independent surveyor to attend the vessel.
Counsel for the Defendant did not, as he might have done, seek to exclude this evidence as at best hearsay and not properly introduced as such. It is of negligible weight but it does not seem to be in dispute insofar as it deals with the factual matrix in which the documents were created. To that extent and to the extent that it contains statements against interest I will rely on it.
It seems that is not in dispute that on 29 December 2004, Ewig International Marine Corporation (‘Ewig’) was retained as Marine Surveyors to prepare a report for Orica. In a letter (‘the claims submission’) dated 15 April 2005 to the solicitor for the London Underwriters from Clayton Utz in which they made a claim submission in relation to the incident, it is asserted that Clayton Utz formally retained Ewig. Although Sterry states that Marsh arranged for the Marine Surveyor to inspect the ship he then says that he learned from someone at Clayton Utz and/or Marsh that someone at Marsh instructed someone at Clayton Utz to formally engage Ewig and that Ewig’s opinion and any correspondence from it was to be provided to Clayton Utz.
Sterry regularly instructs Clayton Utz in relation to insurance claims and anticipated litigation. On 23 December 2004, he had a telephone conversation with Sumiya Basha of that firm. In it, he told her about the incident, of the demand by the disponent owner that Orica pay demurrage charges and of the possibility that Orica might bring a claim against Logistec. He sought legal advice from her in relation to the following:
(i) the steps that it should take to protects its rights to bring claims under its insurance policies
(ii) how to deal with the disponent owner’s claim
(iii) its rights and liabilities under the charterparty agreement
(iv) its rights against other parties such as Logistec in relation to the incident.
Ms Basha was at that time an employee of that firm working under the supervision of one Hawke, a partner in that firm.
Hawke states in an Affidavit that Basha’s file note of the conversation records that Sterry told her that Orica had made a demand on Logistec. This is hard to reconcile with Sterry’s account of the conversation. He states that he informed Basha that he thought it was possible that Orica ‘might at some stage in the future bring a claim against Logistec’…………… .’
He states that ‘at this juncture’ it was clear to him that it was reasonably foreseeable that litigation might arise out of, or as a consequence of, the incident at the suit of the disponent owner and, at the suit of the Plaintiff, against the London Underwriters and Logistec.
He asserts that on the same day, Marsh instructed Basha ‘formally to engage’ (sic) Ewig to ‘assist in evaluating’ the ship and to ‘render an opinion as to whether Logistec had appropriately secured the cargo’. Assuming that the engagement was intended to be formalised rather than the instruction I take this to mean that Clayton Utz were to confirm the engagement already made by Marsh as the e-mail to Ewig carrying out the instruction from Marsh was not sent until 6 January 2005. By then Ewig’s representative had already inspected the ship (see the claims submission, para 33). The e-mail asked that all correspondence and reports be directed to Clayton Utz.
On a date not specified by Sterry, he received preliminary advice in relation to the incident from Clayton Utz. On the basis of that advice and his experience with incidents of a similar nature, he anticipated, on an unspecified date, that it was likely that litigation ‘might arise at some point in the future’ at the suit of the ship’s owner against the Plaintiff, and at the suit of the Plaintiff against its insurers (including the London Underwriters) and Logistec. He did not elaborate on his experience. There is no evidence as to how commonly incidents of this kind occur. It is the case that very few marine insurance claims are commenced in this court.
Sterry asserts that between 20 January 2005 and 27 July 2005 the shipowner claimed from Orica payment of its loss and expenses incurred as a consequence of the incident. Orica settled and paid those claims by 25 August 2005.
Hawke asserts that between 2 January 2005 and 14 April 2005 correspondence passed between Orica, Marsh, Clayton Utz and the London Underwriters regarding Orica’s potential claim for indemnity under the policy. It culminated in the claim submission by Clayton Utz to the solicitors for the London Underwriters.
On 15 April 2005, the London Underwriters paid part of Orica’s claim but have failed or refused to pay the balance of it.
Though much of Hawke’s evidence appears to be hearsay, it was not properly introduced as such. No objection was taken to it. On that basis, I will proceed on the assumption that except where it appears to be in conflict with Sterry’s evidence, it is not in dispute insofar as it deals with the factual matrix in which the documents in dispute were created.
The evidence as to the actual creation of the documents is, save for the documents originated by Sterry, second hand.
Hawke asserts that the documents originated by Clayton Utz were created for the dominant purpose of providing legal advice to the Plaintiff. I infer from his evidence that he has looked at the documents and bases his assertion on their contents. In consequence, his evidence on the point is of some weight though not properly introduced as hearsay, in the absence of contradictory evidence.
The Plaintiff also relied on the Affidavit of Jane Fenwick, a Senior Associate in Clayton Utz who has the conduct of the proceeding on behalf of the Plaintiff, subject to Hawke’s supervision. She asserts that all documents in dispute were created for the purpose of obtaining legal advice and refers laconically to their subject matter as being connected with the incident. Again, I make the same inference notwithstanding her evidence is not properly introduced as hearsay and conclude that some weight must be given to it in the absence of contradictory evidence.
Notwithstanding the unsatisfactory state of evidence as to the creation of the documents, I conclude that all documents in dispute originating as they did at the time the incident related to it and were created for the dominant purpose of the Plaintiff by itself and its agent, Marsh, obtaining advice in relation to the incident filing or circulating that advice to its agent Marsh or its staff members. At the time Sterry instructed Basha, Orica was about to enter a legal minefield.
The documents in dispute
These are the document listed and described in the table attached to these reasons and numbered 6 – 29, 31, 32 and 34.
Category 1 – Correspondence between Clayton Utz and Ewig – Documents 6 and 9
The Plaintiff contends these communications were created with the dominant purpose of giving legal advice to it in relation to the incident. They are communications between the Plaintiff’s solicitors and a Third Party engaged by the Plaintiff’s agent Marsh at its request as an independent surveyor. I infer from the evidence that they are the ‘formal’ confirmation of that engagement and the acknowledgment of that confirmation by Ewig.
Advice privilege has been confined narrowly to communications between the solicitor and client or an agent of the Plaintiff acting as a conduit for such communications (Wheeler v Le Marchant (1881) 17 Ch D 675 at 681-2; Mitsubishi Electricity Australia Pty Ltd (2002) 4 VR 332 at [8], [9] per Batt JA). Seductive as the reasoning of the Full Court of the Federal Court in Pratt Holdings Pty Ltd v Commissioner of Taxation ((2004) 207 ALR 217 at [29] – [43] per Finn J) may be I am obliged and inclined to follow the long established authority of Wheeler and the clear endorsement of it by the Court of Appeal in Mitsubishi. (I note however, the comment made by Neave JA (obiter) in Spotless Group Ltd v Premier Building & Consulting Group Pty Ltd ((2006) 16 VR 1 at [64] – [68]). This was a case involving litigation privilege.
The evidence establishes that Ewig was engaged not only to report on the facts but to express an independent opinion on the cause of the incident. Thus, its function on any view, went beyond acting as a conduit for the provision of instructions for the purpose of obtaining legal advice for Orica. Accordingly, these communications are not protected by advice privilege.
The Plaintiff is thus confined to reliance on litigation privilege in order to prevent disclosure of these documents. In order to do so, it must establish that at the time the documents were created, litigation was reasonably anticipated or in contemplation in the sense that its initiation is likely or reasonably probable (Mitsubishi at [16], [17] ).
Subjective opinions from clients and lawyers that litigation is likely are of no assistance if the bases for those opinions are not exposed so that the court may evaluate them. Litigation lawyers live in joyful anticipation and contemplation of litigation. Clients bruised by the harsh realities of commerce may be unduly pessimistic. The circumstances at the time of the creation of a document for which privilege is claimed must be evaluated objectively (Mitsubishi, at [22] ).
Neither Sterry or Hawke condescend to setting out the basis upon which they reached the state of anticipation described above. In Sterry’s case, it is not clear when he arrived at it. It is enough to say in each case that the state described by each of them does not conform with that which the court must arrive at to be satisfied that the documents are protected from production.
At the time that these documents were created it was not known what caused the cargo to shift save that it might have been caused in part by the packaging of it, (see Claims Submission, paragraphs 34, 36, 39 and 40.)
As early as 23 December 2004, Orica had agreed with the owner of the ship to pay in the first instance the reasonable costs of the stevedores to restow the cargo (see Claim Submission - paragraph 12). In deciding to have the cargo restowed, Orica had taken into account its likely exposure to liability to the owner under the charterparty (ibid). The owner had at that stage held Orica fully responsible for all costs and consequences of the diversion on the basis that the cargo had been shipped on an F.I.O.S. basis (Claim submission - paragraph 11). There was no evidence that would indicate ‘the bad stow’ was due to the Captain’s dereliction of duty (Claim submission - paragraph 51).
In those circumstances, I cannot conclude that litigation by the owner against Orica was probable at the time those documents were created. Given its likely liability to the owners, Orica were doing everything reasonably prudent to render the institution of such a proceeding unlikely.
There is nothing in evidence to suggest that at that stage, the London Underwriters could or would refuse to indemnify Orica against its liability to the owners. Accordingly, there was no probability that it would be necessary for Orica to sue Logistec to recover any liability not subject to an indemnity.
Accordingly, I conclude that when the documents were created, they were not created in reasonable anticipation or contemplation of litigation for the dominant purpose of use in such litigation.
Category 2 – Communications between Clayton Utz and March (documents 7, 8, 12, 13, 15 and 16)
The Defendant is not now seeking inspection of document 16. The rest of the communications were made during the period 6 January 2005 and 13 January 2005 and concerned the incident according to the solicitor who has the conduct of the proceeding on behalf of the Plaintiff. As I have already indicated, I infer that she has read the documents and is familiar with their contents. At all material times, Marsh was Orica’s Claims Manager and Agent in relation to claims or potential claims arising out of or in relation to Orica’s insurance programme including the Charterers Liability Insurance Policy. Clayton Utz had been engaged on 23 December 2004 to advise Orica in relation to the incident and in particular its rights and obligations under the Policy.
Marsh had already been instructed to notify the London Underwriters of the incident and act as the Plaintiff’s agent in relation to the potential claims arising out of it.
I am satisfied that these communications were in relation to the giving and receiving of that advice and that Marsh was receiving and making the communications on behalf of Orica.
Documents 7 and 8 were both created by Marsh Pty Ltd and were communications to Clayton Utz, but a copy of each was circulated to Ewig. There is no evidence that these e-mails contained any legal advice received from Clayton Utz but I can infer that the disclosure to Ewig was for the purpose of Ewig carrying out its retainer and to enable Clayton Utz to provide its advice. Disclosure of a privileged communications in those circumstances is not inconsistent with the maintenance of privilege in them (cf. Spotless Group Ltd v Premier Building and Consulting Group Pty Ltd (2006) 16 VR [20] – [31] per Chernov J. A. )
Category 3 – Internal Orica correspondence (documents 10, 11, 31 and 34)
These are internal Orica documents originated by Sterry. Documents 10 and 11 were e-mails from him to a staff member. Both have attachments, being copies of e-mails received respectively from Marsh and Clayton Utz. They were sent to the staff member to ensure that Sterry retained a complete record of the advice and information sought and obtained by him in relation to the incident. He does not explain how these e-mails then found their way into the possession of Marsh. Nevertheless, I accept his evidence.
Each of the attachments is a communication from Orica’s agent or its solicitor in relation to the incident which contains confidential advice and information, itself the subject of the advice privilege. Both attract the advice privilege (Trade Practices Commission v Sterling (1979) 35 FLR 244 at 246 (Category (d)).
Document 31 is an e-mail between Sterry and Devaraj dated 21 January 2005 attached to which is Clayton Utz’ advice in relation to the incident. Sterry was simply a conduit of that advice to the person within the Orica organisation charged with the responsibility of responding to the shipowner’s demands. It attracts advice privilege as a document falling into the same category.
Document 34 is an e-mail sent on 24 January 2005 from Sterry to Devaraj relating to the incident attached to which is a copy of a communication between Clayton Utz and Ewig. For the reason set out above, in relation to documents 6 and 9, this document does not attract advice or litigation privilege.
Category 4 – Communications between Orica and Clayton Utz (documents 14, 22 and 23)
These documents all relate to the incident. They came into existence during the period 13 January 2005 to 18 January 2005 and all relate to the incident. I am satisfied that, given the subject matter, the factual matrix in which they were created and the times when they were created, I can infer they were for the purpose of giving instructions and obtaining legal advice in relation to the incident and attract advice privilege.
Category 5 – Communication between Orica and Marsh (document 26)
I have concluded above ( [24] ) that all documents in dispute were brought into existence for the dominant purpose of the Plaintiff obtaining legal advice in relation to the incident and that Marsh was its agent in this process. The document is privileged from production.
The Notice to Produce
By a Notice to Produce served by e-mail on 27 May 2008, the Defendant required Orica to produce to the court on the hearing of the application, two documents from the file of Clayton Utz, both dated 23 December 2004 and document 6.
Orica referred in its evidence to the contents of these in general terms referring to their purpose and subject matter as part of the narrative in relation to the engagement of Clayton Utz and Ewig in order to establish that the documents production of which is in issue in this application were the subject of privilege. It was argued on behalf of the Defendant that the extent of the reference to them was such as to result in the waiver of any privilege in them.
It suffices to say that the reference to these documents was solely to enable Orica to discharge it onus to establish that the documents in issue were privileged and was not inconsistent with the maintenance of any privilege in document 6 (and as I have ruled no such privilege exists in it) and the clearly privileged documents from the file of Clayton Utz.
Accordingly, the Notice to Produce should be set aside.
I will make orders in conformity with these reasons and hear submissions on the question of costs.