Samenic Limited v APM Group (Aust) Pty Ltd
[2011] VSC 194
•12 May 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. S CI 2009 7466
| SAMENIC LIMITED (formerly Hoyts Cinemas Limited) and another | Plaintiffs |
| - and - | |
| APM GROUP (AUST) PTY LTD and others | Defendants |
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JUDGE: | MUKHTAR AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 29 April 2011 | |
DATE OF JUDGMENT: | 12 May 2011 | |
CASE MAY BE CITED AS: | Samenic Limited v APM Group (Aust) Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 194 | Revised 24 May 2011 |
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PRACTICE AND PROCEDURE ― Legal advice privilege ― Subpoena for document production ― Fire damage to property under construction ― Claim against construction contractors and managers ― Insured loss ― Insurer’s engagement of fire investigator ― Retention of lawyers for advice ― Production of investigator’s report ― Whether report is privileged from production ― Dominant purpose of bringing report into existence ― Evidence Act 2008 (Vic), (No 47 of 2008), s 118.
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APPEARANCES: | Counsel | Solicitors |
| For the second defendant (as subpoenaing party) | Mr M McInnis | Hunt and Hunt |
| For the third defendant (as objector) | Mr P Zappia | Norton Rose |
HIS HONOUR:
The Prothonotary has referred to the Court for hearing and determination an objection to a subpoena for production of documents.[1] The objection involves something which is not uncommon in litigation where insurers are involved, that is, a litigant trying to get hold of an insurance investigator’s report after an insured incident has occurred. The question on this objection concerns legal advice privilege ― not litigation privilege ― under s 118 of the Evidence Act. Does this subpoena result in the disclosure of the contents of a confidential document prepared by another person (the subpoenaed party) for the dominant purpose of the lawyer providing legal advice to the client (the insurer)?
[1]See rule 42A.09
This case was well and thoroughly argued, with a real question for determination. The onus is on the party claiming the privilege. I have little doubt that the documents sought are confidential by nature and provenance. And it is not said lawyers were involved as a perfunctory step to attract the privilege by design, with no real intention to seek or gain legal advice. But I must say I have had my doubts whether the affidavit evidence was of a sufficient strength to establish the dominant purpose was for legal advice where it was also apparent or to be supposed, objectively, that the report was also needed by the insurer for its own ordinary business purposes. It is not clear to me precisely what legal advice was being sought on what legal problem. But the law recognises the concept of legal advice as being wide enough to include what a party should do in a legal context.
All things considered, I cannot assess the objector’s evidence as lacking conviction. Legal professional privilege is an important legal right based on a rule of substantive law, with a renowned public purpose. Erring on the side of protecting that right, for the reasons that follow, my decision is that there is enough to sustain the objection.
The essential facts are as follows. The plaintiffs have sued for loss from a fire which occurred at the Melbourne Central cinema complex years ago on 3 November 2004 at about 3:00 a.m. The cinema complex was under construction. The first defendant was engaged by the plaintiffs to fit out the cinema. The second defendant (who filed the subpoena) was a subcontractor doing the electrical installations work including some temporary lighting. The third defendant (who has objected to the subpoena) was the project manager for the redevelopment of the Melbourne Central site.
The writ was not filed until 30 June 2009. The plaintiffs allege: the fire ignited in Cinema 3 and spread to other areas; the fire was not detected for several hours by which time there was substantial damage; and the fire was not extinguished until about four and a half hours after its detection. They allege that the second defendant installed a temporary halogen floodlight to the rear wall of the cinema, which was inadequately secured. They allege the floodlight fell and caused ignition of the fire. As against the third defendant, the plaintiffs allege that as project manager, it was careless in not installing smoke or fire detectors, and careless in not ensuring that an automatic sprinkler system and fire hoses and reels were operational. As a result, it is alleged the fire was not detected before it caused substantial damage, and that fire fighters were hindered because fire hydrants and reels were not operational.
Neil Stanley Barnes is a forensic consultant specialising in fire and explosion investigations. His organisation is Fire Scene Examination Pty Ltd. The second defendant subpoenaed that company to produce –
All documents…relating to the fire that occurred inside Cinema 3 at Melbourne Central…at approximately 5.03am on 3 November 2004…, including but not limited to:
(a)any correspondence, notes, memorandums, diary notes or photographs; and
(b)any investigation reports prepared in relation to the incident.
In answer to that subpoena, Mr Barnes has produced two documents both of which are confidential exhibits before me, and has sworn an affidavit. How did he come to be involved in the incident and make a report?
Kylie Schulz swears that in November 2004 she was working in Sydney as a senior claims adjuster for a liability underwriter operating out of Lloyds of London. Her role is to manage public liability and professional indemnity claims for Australian insured persons. On 3 November 2004 the third defendant notified her office about the fire. She was soon given responsibility for managing the matter for the insurer. When she took responsibility, she swears “I was aware” that loss adjusters had been appointed by the insurer. The evidence is that loss adjusters then contacted Neil Barnes, told him about the fire and requested him to attend the scene of the fire and investigate the cause. He did so on 3 November 2004. It has to be accepted that in fire cases it is essential that forensic investigations take place as soon as possible.
The following day Kylie Schulz was told by the loss adjuster that an expert (Barnes) had attended the site the previous day to investigate the cause of the fire. She told the loss adjuster “to the effect that I would be retaining …Deacons [lawyers] to advise in relation to [the third defendant’s] potential liabilities and any claims that might be brought against it in relation to the fire.” She told the loss adjuster that Deacons “would formally retain [the loss adjusters] and the expert and that [Ms Nicole Wearne of Deacons] would request reports from him and the expert for the purpose of providing her advice.”
On the next day, Kylie Schulz contacted Nicole Wearne, a lawyer at Deacons. She told her that she was retained by the insurer and the insured to “provide advice in relation to the claim’s circumstances and to advise on any potential liabilities and claims that might be made.” She also told Nicole Wearne that a loss adjuster had been appointed as had a forensic expert. She asked Nicole Wearne to “formally retain” the loss adjuster and to provide “her advice as to the claim’s circumstances and any liability which Bovis Lend Lease might have to third party claims.”
As for Neil Barnes, he swears that after he investigated the scene, he was asked by the loss assessor to prepare a report giving his opinion about the cause of the fire. He was asked to do so for Deacons, the lawyers who were to be appointed by the insurer. That conversation occurred on 3 or 4 November but he is not sure. He says he produced his report (presumably to the loss adjustors) giving his opinion as to the cause of the fire on 5 November 2004. It is dated 5 November 2004. It is expressed to be prepared for the underwriters care of Deacons.
Nicole Wearne has sworn an affidavit. She is a partner of Deacons. In essence she confirms that she received instructions from the insurer to act on behalf of the insured on 5 November 2004. She confirms the conversation with Kylie Schulz in which she was told about the fire and the significant damage. She says:
I considered that the damage caused by the fire was likely to give rise to claims by those who sustained damage including claims against the insured, BLL. For the purpose of advising upon the potential liability of the BLL, I considered it was necessary to undertake an investigation into the circumstances giving rise to the fire.
She was told that the insurer had already retained loss adjusters and that Barnes had been appointed. She then contacted the loss adjusters on 5 November 2004. In that conversation, Wearne says she retained the loss adjusters to investigate the fire and to obtain an expert report from Barnes. She says that she required the report from Barnes for the purpose of her being able to advise the insured in relation to claims that might be made against it.
Pausing there, although this is a narrow passage of time, Mr McInnes for the second defendant seizes upon the sequence up to this point to say that the insurer had before then already retained a loss adjuster, and, the loss adjuster had already retained Barnes. What was occurring, come 5 November 2004, he says was a so called “formal” retainer by the solicitors yet the adjuster and the expert were already on the scene and investigating at the request of the insurer.
I mentioned earlier that the report from Barnes was dated 5 November 2004. He swears that was the date upon which he produced his report. Wearne says that by letter dated 15 November 2004 the loss adjuster sent her a copy of Barnes’ report dated 5 November 2004, which is addressed to the underwriters care of Deacons. The report is a confidential exhibit before me. The contents of that document support the view that that report as exhibited was not produced to Deacons until 15 November 2004. The subpoenaing party is at the unavoidable disadvantage of not seeing that confidential exhibit. It is only fair that I remark that even if there was a previous draft to explain the difference between 5 and 15 November it would not matter for the disposition of this objection and the application of the privilege.
That leads me to make a general comment about the evidence. Mr Zappia acknowledged the brevity of the three affidavits filed in support of the objection but submitted they ought not to be criticised for lacking elaboration or exactitude. He says that is the natural consequence of deponents being asked to state facts and contents of conversations which occurred over six years ago, and the desire to avoid reconstruction. The deponents have, as best as they can he says, exhibited some documentation to give points of reference but otherwise, he submitted, allowances should be made for generalities if they were the result of deponents wishing to conscientiously say no more than they truly could remember after the passage of much time. I think all of that is reasonable. There was no cross-examination on the affidavits.
For the objector, it was submitted the evidence established that the documents as sought were prepared for the dominant purpose of the client obtaining legal advice. The insurer says it commissioned Barnes’ report for that purpose; the author of the report says he prepared it for that purpose; and the solicitor who retained the loss adjuster says she requested it for that purpose. Mr Zappia urges the Court to look to the practical situation at hand, as follows. A major fire had occurred and it was essential for a forensic expert to be engaged straightaway and attend the scene to investigate. Within two days lawyers were engaged as advisors for an event which was of a scale that would call for legal advice and guidance about potential liabilities. Just because the expert was retained urgently to investigate before the insurer retained its legal adviser should not matter if the expert report was to enable the giving of legal advice or conceiving of matters on which advice would be sought. To be preoccupied with the timing would place form ahead of substance. If it was necessary for the insurer to have the best available evidence to assist it to obtain or formulate a precise request for legal advice, or to see were potential problems might lie, then the rationale for the principle of solicitor client privilege was activated and it should apply.
For the second defendant, the essential ground of attack was that a close examination of the evidence leaves unclear what advice was being sought and whether the need for legal advice was the raison d’être of the report. Mr McInnis submits that the documents sought would have been prepared and come into existence irrespective of the intention to obtain professional legal services and it appears the documents were brought into existence in the ordinary course of an insurer’s business of investigating for itself the causes of the fire. He says that there was not yet a legal problem for advice. To that I would add this: if the claim is not for litigation privilege which looks to an apprehension of anticipated litigation, then what was the occasion or legal context for advice?
It is unnecessary for me to survey the various authorities to which the Court was referred on the applicable principles. Those common law principles inform the content of s 118 of the Evidence Act. A very useful and comprehensive exposition of the legal principles was given by Young J in AWB Limited v Cole.[2] Other instructive cases are Pratt Holdings Pty Ltd v FCT,[3] Re Southland Coal Pty Ltd,[4] Meteyard v Love,[5] GSA Industries (Aust) Pty Ltd v Constable,[6] and Mitsubishi Electric Australia Pty v VWA.[7]For a case concerning documents collected by an insurer or its legal advisers see Nickmar Pty Ltd v Preservatrice Skandia Insurance Ltd.[8]
[2][2006] FCA 1234; (2006) 234 ALR 651 at [44].
[3](2004) 207 ALR 217.
[4]59 ACSR 87 at [10]; [2006] NSWSC 899.
[5]56 ACSR 487 at [60]; [2005] NSWCA 44.
[6][2002] 2 Qd R 146; [2001] QSC 180.
[7](2002) 4 VR 332 (CA).
[8](1985) 3 NSWLR 44.
From those cases it is convenient if without specific attribution I reproduce these propositions for present purposes:
(a)The doctrine of legal professional privilege has to be adapted to ensure that the rationale or policy underlying the doctrine is not sabotaged by rigid adherence to form that does not reflect the practical realities surrounding the application of privilege. The complexity of present day commerce means that it is increasingly necessary for a client to have the assistance of experts, in formulating a request for legal advice and in providing legal advisers with sufficient understanding of the facts to enable that advice to be given.
(b)The concept of legal advice is fairly wide. It is understood in a pragmatic sense, and not confined to telling the client the law. It includes advising the client what should be done prudently and sensibly in a relevant legal context.
(c)The existence of legal professional privilege is not established merely by the use of verbal formula or by mere conclusionary assertion that the privilege applies. Such assertions can make it unclear what advice was really being sought or the topics to which the instructions or advice were directed. In the ordinary case of a client consulting a lawyer about a legal problem in uncontroversial circumstances, proof of those facts alone will provide a basis for concluding that legal advice was being sought.
(d)In its ordinary meaning dominant means the purpose which was the ruling, prevailing or most influential purpose. An appropriate starting point when applying the dominant purpose test is to ask what was the intended use or uses of the document which accounted for it being brought into existence. This is a question of fact, to be determined objectively.
(e)A claim for privilege will not succeed if all that emerges is that 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.
Section 118(c) of the Evidence Act looks to protect the disclosure of a “confidential document” prepared not only by the client or lawyer but “another person” for the dominant purpose of the lawyer providing legal advice to the client. Confidential document is defined to mean a document prepared in circumstances where the person who prepared it, or the person for whom it was prepared, was under an express or implied obligation not to disclose its contents.
I think it unnecessary to say much about the complete operation of this section because the question really is whether there was a dominant purpose to provide legal advice. Mr McInnes submitted there was no evidence to suggest that the documents were produced with an express or implied obligation of confidentiality. But an obligation of confidentiality does not in my view mean necessarily a contractually created or evidenced obligation. Confidentiality is a quality that can inhere in the nature of the document, the circumstances of its creation, and the interests it purports to protect. I would hold first, the document here is confidential by its nature and the private interests for which it was commissioned.
The occurrence of insured events and the use of loss adjusters and preparation of expert reports is a very common experience. What activates the Court’s scrutiny of any claim for privilege in circumstances such as the present is the natural apprehension that an investigation report is a normal or routine step that an insurer may take as soon as a claim is made or notified. As I said in Brunswick Hill Apartments Pty Ltd v CGU Insurance Limited [9] documents are not privileged merely because one of their intended destinations is the desk of a lawyer. 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. What the Court is particularly alert to is whether a solicitor has been retained as a device to be interposed between the insurer and the loss adjuster and expert to present an appearance in form of a relationship of privilege, but in substance using the solicitor as nothing more than as a conduit for information: see Nickmar.[10]
[9][2010] VSC 532 at [29].
[10]At [56].
Thus, as a second finding, I am not concerned about the fact that the loss adjuster and Barnes were engaged two days before Deacons were engaged. I accept that for an incident of this nature and magnitude, the insurer had to act very quickly and it is only natural to expect it to have hired loss adjusters and investigators first of all, and then turn its mind to bringing lawyers on board. Indeed, it would have aroused suspicion, for present purposes, if after notification of the fire the first step was to ring the lawyer as if to artificially or shrewdly create the conditions for privilege. Situations can arise as happened in GSA Industries where the evidence showed that a two step process was contemplated of first, asking for a report and secondly, later assessing whether the information contained in it warranted legal advice. But even then, Courts have recognised that intentions can change. A report can start as a routine matter and then assume significance along the way. In that situation, there is support for the view that the relevant time for assessing purpose is when the document is actually produced: see GSA Industries.[11] The various possibilities only serve to emphasize the need to look at the substance of the matter when looking at purpose.
[11][2002] 2 Qd R 146; [2001] QSC 180.
Thirdly, whilst the evidence about the sort of advice that was being sought is not clear, I can accept that on the whole there is sufficient to conclude that lawyers were engaged genuinely and not as a device. There should be no doubt the document would form the basis for advice to be taken. True it is there was yet not a legal problem, but the concept of legal advice as considered by the authorities does not require the stipulation of the problem and the subject matter of the advice. The idea of a “legal context” is unavoidably general but I am willing to accept that in fire cases, certainly one of this magnitude, it is necessary for the insurer to have the best available evidence in order to assist it to obtain or formulate a request for legal advice. It is both plausible and reasonable that the insurer here would engage lawyers at the outset for advice or legal management and strategy according to or depending on the content of the investigator’s report. That is the way of modern litigation.
Fourthly, I would think that the documents may not have been brought into existence for the sole purpose of legal advice because, of course, the insurer needed it for its own business purposes as a loss bearing entity. But the law looks to dominant purpose not sole purpose. For that criterion, the Court can only act on the evidence of the objecting party. There are clients who because of their exposure in trade and commerce will not make a move without legal guidance. And that is what I judge has happened here. In the end, I return to the traditional rationale of the principle as stated in well-known High Court cases such as Grant v Downs[12] and Baker v Campbell.[13]That is, in essence, the fundamental importance in a modern State of full and unreserved communication between client and lawyer and the freedom for client and lawyer to make investigations without being required to divulge the outcome.
[12](1976) 135 CLR 674.
[13](1983) 153 CLR 52.
For those reasons, I would make an order under rule 42A.09 that the third defendant’s objection to the subpoena filed on 6 December 2011 for production of documents by Fire Scene Examination Pty Ltd be allowed. If there is any dispute on costs, then the parties should contact my Associate to make arrangements to deal with that. Otherwise, I ask the objecting party to prepare a minute of order.
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