State Government Insurance Commission v Peter Cathirina Thissen and Hannelore Elsa Thissen No. SCGRG 93/337 Judgment No. 4105 Number of Pages 11 Discovery and Interrogatories (1993) 60 Sasr 444

[1993] SASC 4105

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA OLSSON J

CWDS
Discovery and interrogatories - discovery and inspection of documents - Appeal against interlocutory order requiring discovery - claim of legal professional privilege - documents related to insurance claim for house fire - practice of appellant to routinely investigate all fires - sole purpose test - material must have been brought into existence for sole purpose of obtaining legal advice or for use in actual or anticipated legal proceedings - question of act when considering documents. Grant v Downs (1976) 135 CLR 674 and National Employers' Mutual General Insurance Association Ltd v Waind and Anor
(1979) 141 CLR 648, applied. Nickmar Pty Ltd and Anor v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 44 and Trade Practices Commission v Sterling
(1978) 36 FLR 244, discussed.

HRNG ADELAIDE, 9 August 1993 #DATE 18:8:1993
Counsel for appellant:     Mr M Steele
Solicitors for appellant:    Ward and Partners
Counsel for respondent:     Ms J Grundy
Solicitors for respondent: Thomsons

ORDER
Appeal allowed for the limited purpose of excluding it from the order now appealed against.

JUDGE1 OLSSON J This is an appeal by the plaintiff in an action in the District Court against an interlocutory order made by the Chief Judge. By that order the learned Chief Judge declared that privilege did not attach to certain documents identified in the appellant's list of documents and directed that they be produced for inspection by the solicitors for the respondents, who are the defendants to the action. 2. The relevant background facts are not complex. The respondents, who were the owners of a residential property situated at 13 McEwin Avenue, Plympton ("the insured premises"), effected a policy of insurance in respect of it and its contents with the appellant on or about 25 May 1989. The term of the policy was twelve months from 23 May 1989. 3. It is not disputed that, on 12 February 1990, the insured premises were damaged by fire and some of the contents were also destroyed or damaged. 4. On 22 February 1990 the defendants claimed $48,947 under the policy in respect of damage or loss said to have been sustained as a consequence of the fire. In so doing they represented to the appellant that the fire had been caused by persons unknown; and not by or at the instigation, or connivance, or with the knowledge of either of them. It appears to be common ground that the fire was a clear case of arson. 5. The respondents received a payment of $35,300 from the appellant on 15 March 1990 as a result of their claim. A dispute exists as to whether this was only a part payment of a greater liability, or whether it was paid and received in full satisfaction of the claim. Certainly, the appellant's own documentation reveals that the contents claim was separately being assessed and that some items related to the fabric of the house itself were still under discussion. 6. On 15 June 1992 the appellant instituted the present action against the respondents claiming a return of the payment made and/or damages, on the basis of payment by mistake of fact and fraudulent misrepresentation and/or deceit. In essence the appellant pleaded that the relevant fire had, in fact, been lit by, at the connivance or instigation of, or with the knowledge of the respondents, who had falsely represented to the appellant that such was not the case. The respondents subsequently filed a defence and counterclaim denying those allegations and asserting that further moneys were owed to them under the relevant policy. 7. As required by the rules of court, each party to the action filed a list of documents by way of discovery. The appellant expressly claimed legal professional privilege in relation to certain documents. 8. On 19 October 1992 the respondents made application for further and better discovery. An order was made in their favour in general terms and the appellant filed a supplementary list of documents on 19 November 1992. 9. It became apparent from that list that there were a number of specific documents in respect of which privilege was claimed and as to which the appellant refused inspection. These included correspondence passing between one Winter, a senior staff solicitor in the employ of the appellant, and the solicitors for the appellant between 18 July 1990 and 27 October 1992 and various internal reports; and related documents generated between 12 February 1990 and 24 May 1990 with reference to investigations conducted by or on behalf of the appellant as to the circumstances of the fire. 10. The learned Chief Judge pointed out that many of these latter documents related to the investigative activities of one Hayes, a former police detective, who was an employee of the appellant directed to investigate the fire. It was, at relevant times, the practice of the appellant routinely to investigate all fires which could give rise to a potential claim. In pursuance of that policy Hayes received routine instructions to look into the circumstances on the very day of the fire and prior to the appellant receiving any claim from the respondent. Hayes had actually compiled an initial report and taken photographs prior to any claim being lodged by the respondents. It was known by him from the outset that the fire had resulted from an act of arson. 11. A separate assessment of quantum of damage was sought from one Simmons a loss adjuster. 12. A perusal of the documentation in issue in this case reveals that, as of the time of payment of the sum of $35,300 to the respondents, the appellant did not at any stage suspect, or have reason to suspect, that they were implicated in the relevant act of arson. 13. The learned Chief Judge concluded on the material before him that, in mid to late March 1990, Hayes received certain information which caused him to pursue further enquiries. He interviewed the respondent on 11 April 1990 and also spoke to other persons. Notes were made of the various interviews. 14. Hayes then discussed the matter with Winter, who instructed him to pursue additional enquiries. On 3 May 1990, Hayes, on the latter's instructions by memorandum dated 1 May 1990, submitted a further report to Winter. Subsequently, and before the present action was initiated on 15 June 1992, further notes were made and photographs taken by Hayes. 15. It has at all times been the contention of the appellant that all of the material related to the activities of Hayes as above described, from the inception of his enquiries, ("the Hayes' material") is privileged. 16. In the course of the action the respondents made application to the learned Chief Judge for an order directing production of the Hayes' material to and inspection of it by their solicitors. 17. Having heard argument from the parties the learned Chief Judge concluded that, as all but two of the documents comprising the Hayes' material had not been shown to have been brought into existence for the sole purpose of use in actual or anticipated legal proceedings, then, subject to those exceptions, they were not privileged and had to be produced for inspection by the solicitors for the respondents. 18. In the course of reasons for decision published by him and after consideration of the decided authorities relevant to the question, the learned Chief Judge dealt with the various documents as follows:-
    "As the cases underline, it is a question of fact in the case
    of each individual document. I turn, therefore, to examine the
    facts with respect to each of the documents in respect of which
    the disputed claim to privilege is made.
     Item 3.1:- The claim to privilege in respect of this document is
    not established. It was created after Mr Hayes' report of the
    22nd February, 1990 had been written and submitted to Mr Parker.
    It is a formal office record which does not satisfy the sole
    purpose test.
     Item 3.2:- Although dated the 1st June, 1990, which was after Mr
    Winter had been asked to advise the plaintiff in respect of the
    defendants' claim, it is also an internal office memorandum which
    has not been shown to satisfy the sole purpose test.
     Item 3.3:- This document is not dated, but it is clearly a
    standard form used in the processing of claims made against the
    plaintiff by persons insured with it. Again, the sole purpose
    test is not satisfied.
     Item 3.4:- This document is clearly a standard office
    memorandum. The sole purpose test is not satisfied.
     Item 3.5:- This is the report dated the 22nd February, 1990,
    delivered by Mr Hayes to Mr Parker, and to which reference has
    previously been made. It is headed "Private and Confidential -
    for the use of S.G.I.C.'s legal advisers only." Notwithstanding
    that heading, it was produced at Mr Parker's request and delivered
    to Mr Parker long before Mr Winter, or any other legal adviser,
    had been asked to consider the matter. As the evidence shows, and
    as I have previously recorded, it is the practice of the plaintiff
    to investigate every fire which may give rise to a claim. This
    has every appearance of being a standard office report in the
    consideration of a claim. The evidence falls far short of
    satisfying me that the sole purpose test has been met.
     Item 3.6:- This document is obviously an inter-office memorandum
    produced in the ordinary course of the plaintiff corporation's
    business. The claim to privilege is not sustained.
     Items 3.7 and 3.8 can be considered together. At about 9.20
    a.m. on the 11th April, 1990, Mr Hayes had an interview with the
    defendants. Mr Simmons was present at that interview. Item 3.7
    is Mr Hayes' notes of that discussion, whilst item 3.8 is his
    notes of a telephone conversation that he had with the female
    defendant a little later the same morning. These conversations
    also took place before any legal adviser had been consulted. I
    infer from the evidence before me that Mr Hayes had not had any
    further instructions in the matter other than his original
    instructions from Mr Parker. He had acted on his own initiative
    as a result of having received further information, the nature of
    which is not disclosed in his affidavit. In these circumstances,
    I consider that these notes fall into the same category as his
    original report. They were no doubt made in order that Mr Hayes
    himself might refer to them again later, but it has not been shown
    that they were made for the sole purpose of referral to a legal
    adviser.
     Item 3.9:- This report was submitted by Mr Hayes to Mr Winter as
    a result of Mr Winter's instructing Mr Hayes to make further
    enquiries. It is clear that by the time that this report was
    written, Mr Winter had been asked to advise the plaintiff in
    respect of the matter of the defendants' claims, and that the
    report was sought by Mr Winter in order that he might better
    advise the plaintiff. I am satisfied that the claim for privilege
    in respect of this document is established.
     Item 3.10:- This item comprises handwritten notes written by Mr
    Hayes prior to his receiving instructions from Mr Winter. So much
    appears from paragraphs 11 and 12 of Mr Hayes' affidavit. That
    being the case, they fall, in my opinion, in the same category as
    items 3.7 and 3.8, and have not been shown to be privileged from
    production.
     Item 3.11:- According to paragraph 11 of the affidavit of Mr
    Hayes, these statements were obtained prior to Mr Winter
    instructing him to make further investigations. They appear,
    therefore, to be in the same category as the previous item. I
    note, however, that the actual list of documents appears to
    indicate that some of the statements were taken on the 24th May,
    1990. If that were to be true, I would regard them as privileged.
    Unfortunately, the documents do not speak for themselves in the
    matter and, as matters now stand, the plaintiff has not discharged
    the onus of establishing any claim. Indeed, quite the reverse. I
    did call the application back on to give the plaintiff the
    opportunity to provide further evidence and to produce for my
    inspection certain of the documents that had not been included in
    the bundle originally provided to me, but that did not change
    matters.
     Item 3.12:- This item comprises a number of photographs. It is
    apparent from p.2 of Mr Hayes' first report that some, at least,
    of these photographs were taken at the stage of his initial
    enquiries. Some were taken later as described in paragraph 13 of
    his affidavit. The photographs have now been produced for my
    inspection and they are labelled as to the dates upon which they
    were taken. Those labels show those that were taken in order to
    form part of Mr Hayes' original report and those that were taken
    subsequently to Mr Hayes receiving instructions from Mr Winter to
    prepare a further report for him. The former are not privileged
    whilst the claim is sustained in respect of the latter. There
    will, therefore, be an order that privilege does not attach to the
    documents numbered 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.10,
    and 3.11 and to the first series of photographs comprising portion
    of document numbered 3.12 in the supplementary list of documents
... " 19. By its notice of appeal the appellant seeks to challenge the correctness of the legal test applied by the learned Chief Judge and also his characterisation of documents related to its so-called "fraud investigation file" upon which the Hayes' material existed. In his reasons for decision the learned Chief Judge took, as his commencement point, the reasoning of the High Court in Grant v Downs (1976) 135 CLR 674, as later confirmed in National Employers' Mutual General Insurance Association Limited v Waind and Anor
(1979) 141 CLR 648. 20. He took as his touchstone the following dictum in the joint judgment of Stephen, Mason and Murphy JJ at page 688 of the report:-
    "All that we have said so far indicates that unless the law
    confines legal professional privilege to those documents which are
    brought into existence for the sole purpose of submission to legal
    advisers for advice or for use in legal proceedings the privilege
    will travel beyond the underlying rationale to which it is
    intended to give expression and will confer an advantage and
    immunity on a corporation which is not enjoyed by the ordinary
    individual. It is not right that the privilege can attach to
    documents which, quite apart from the purpose of submission to a
    solicitor, would have been brought into existence for other
    purposes in any event, and then without attracting any attendant
    privilege. It is true that the requirement that documents be
    brought into existence in anticipation of litigation diminishes to
    some extent the risk that documents brought into existence for
    non-privileged purposes will attract the privilege but it
    certainly does not eliminate that risk. For this and the reasons
    which we have expressed earlier we consider that the sole purpose
    test should now be adopted as the criterion of legal professional
    privilege." 21. He also pointed to the dictum of Jacobs J in the same case to the effect that:-
    "I think that the question which the court should pose to
    itself is this - does the purpose of supplying the material to the
    legal adviser account for the existence of the material? I use the
    word purpose here in the sense of intention - the intended use.
    The question is one of fact." 22. The learned Chief Judge further acknowledged the existence of a number of other authorities to which his attention had been invited, but expressed the view that, in reality, they constituted no more than some examples of the application of the primary principle, as enunciated in Grant v Downs. 23. On the hearing of the appeal counsel for the appellant joined issue with that approach. 24. Mr Steele, of counsel for the appellant, contended that, in Grant v Downs the High Court expressly recognised that documents brought into existence after a relevant incident, pursuant to a standing instruction previously given, can be privileged. He further argued that the majority of members of the High Court accepted, that, to sustain privilege, it is not necessary that a relevant document has been brought into existence on the advice of a solicitor, provided that the circumstances are such that a court can subsequently conclude, viewing them and their context objectively, that litigation was reasonably anticipated at the time when the document was prepared. That, he submitted, was precisely the situation in relation to the Hayes material. He also relied upon the separate judgment of Jacobs J, where that learned judge commented (at page 690):-
    "... The first of these two rules is that communications with
    one's legal adviser are privileged from disclosure and that the
    privilege extends not only to communications actually made but to
    material prepared for the purpose of communication thereof to the
    legal adviser. The second of the two rules is that disclosure
    must be made to the other party in litigation of material relevant
    to the legal dispute even though the material has come into
    existence in the course of confidential exchanges between the
    party to the dispute and another person such as employee,
    co-employee, agent, partner or expert adviser, not being his legal
    adviser. Both rules have been regarded as very important in the
    administration of justice." and (at page 692):-
    "I think that the question which the court should post to
    itself is this - does the purpose of supplying the material to the
    legal adviser account for the existence of the material? I use the
    word purpose here in the sense of intention - the intended use.
    The question is one of fact. In some cases a mere general
    description of documents in an affidavit of discovery may indicate
    an affirmative answer without any need further to examine the
    documents or the circumstances in which they came into existence:
    Westminster Airways Ltd v Kuwait Oil Co Ltd. In other cases both
    an examination of the documents and of the surrounding
circumstances may be necessary." 25. He also sought to draw comfort from dicta of Wood J in Nickmar Pty Ltd and Anor v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 44 and Lockhart J in Trade Practices Commission v Sterling (1978) 36 FLR 244. 26. In adverting to what fell from Wood J, as reported at page 57 of the former case, when that learned judge said:-
    "It was further submitted that the various reports of the loss
    adjusters (documents 1 to 10) were documents which would have been
    prepared in the ordinary course of the business of their makers,
    for the purpose of providing information to the defendant as to
    whether it should accept or reject claims under a policy of
    insurance. They fell into the category of documents referred to
    by Mason J in National Employers' Mutual General Insurance
    Association ltd v Waind (at 655), so it was submitted, which are
    brought into existence to enable a party 'to make a decision in
    the ordinary course of its business' and are not provided to
    solicitors for use until a decision has been made to decline
    payment.
     The evidence falls short of establishing a uniform practice
    involving the referral of all suspect claims and investigation
    documents to the defendant's solicitors of the kind contemplated
    in the joint judgment in Grant v Downs, and the defendant did not
    advance a sole purpose argument on this basis.
     It is accordingly necessary to decide the present case by
    reference to the nature of the documents and the matters with
    which they deal. In this regard it is important to observe that
    the reports deal with the cause of the fire, and circumstances

    concerning the possible involvement of officers of the plaintiffs
    in arson or suspicious insurance claims. With one exception
    (document 10) they do not concern themselves with matters of
    quantification of the plaintiffs' losses in the event of the
    claims being accepted. Next, it is relevant to state that the
    investigations were far from being of a routine kind, such as
    might be expected to be made in the normal course by underwriters
    examining the merits of a work injury or simple accident. On the
    contrary, they were of a complex nature and called for a full
    technical assessment in order that the solicitors might be fully
    instructed on the scientific material before rendering advice. It
    is not irrelevant that there was no cross-examination directed
    towards showing that the documents were of a routine kind which
    would have been called into existence in any case." 27. Mr Steele claimed that, in the instant case, the Hayes material was not related to routine investigations and was of a special kind which anticipated the need to seek advice as to possible litigation. 28. This line of reasoning did not appeal to the learned Chief Judge and, with respect, it seems to me that his reasoning was beyond exception. 29. It is to be borne firmly in mind that certain propositions were unequivocally established in the majority judgment in Grant v Downs. In my opinion they can fairly be extracted in these terms:
     - the onus lies upon the party claiming privilege, clearly and
    unequivocally to establish the right to it. It is necessary to
    examine the documents (as I have, in fact, now done) and to
    discern, on the evidentiary material available, and on the face of
    them, the purpose for which they were raised.
     - privilege is confined to documents which are brought into
    existence for the sole purpose of their being submitted to legal
    advisers for the purposes of existing litigation or advice or for
    use in circumstances in which, on an objective test basis, the
    court can conclude that litigation could reasonably have been
    anticipated when the preparation of the documentation was
    undertaken. To adopt the phraseology of the majority "the
    privilege requires a combination of dedication to the stipulated
    purpose and reasonable anticipation that litigation will ensue
    before it is attracted". A document which would, in any event,
    have been brought into existence for another purpose is not
    privileged from production. The majority was at pains to stress
    that, in the modern corporate environment, documentation is raised
    for a variety of purposes, not the least of which is to provide
    information to management with which to make decisions in the
    ordinary course. As to this it said at p686:-
    "With the advent of large corporations, documents necessarily
    proliferate; the knowledge of servants of the corporation is, in
    legal theory, the knowledge of the corporation itself but will
    only become so in fact when communicated to that corporation. It
    is in the course of converting legal theory into fact that
    corporations require their servants to furnish to management
    reports of activities known only, in the first instance, to the
    servants. Hence the proliferation of documents. It is difficult
    to see why the principle which lies behind the legal professional
    privilege should justify its extension to material obtained by a
    corporation from its agents with a double purpose. The second
    purpose, that of arming central management of the corporation with
    actual knowledge of what its agents have done, is quite
    unconnected with legal professional privilege; it is but a
    manifestation of the need of a corporation to acquire in actuality
    the knowledge that it is always deemed to possess and which lies
    initially in the minds of its agents. That cannot itself be
    privileged; quite the contrary. If the party were a natural
    person or, more accurately, an individual not acting through
    servants or agents, it would be precisely that knowledge which
    would be discoverable and the party cannot be better off by being
    a corporation. The fact that a second purpose may also be being
    served, a purpose to which the privilege would extend, does not
    cover with that privilege information which would otherwise be
    discoverable." 30. I consider that, given that rationale, there are various fallacies in the argument developed by Mr Steele. 31. First, and perhaps foremost, is the factual circumstance that, on any view, the initial work done and documentation prepared by Mr Hayes was, indeed, carried out as a matter of normal corporate protocol within the appellant's activities. The loss adjuster Simmons was focusing on quantification of the claim and Hayes was dealing with liability. 32. True it was that, from the outset, the fire was known to be arson but, at that stage, on the face of Hayes' own documentation, there was not the slightest suggestion that the respondents were implicated. They had been absent at Mildura at the time and, as Hayes himself reported, the fire and the modus operandi adopted were entirely consistent with a number of fires that had been occurring in the metropolitan area to homes of people who were apparently away on holiday at the time. 33. The only reasonable inference which arises is that, as of 15 March 1990, when the payment was made to the respondents, that payment was made on the dual bases of the quantum assessment of Simmons and the liability report of Hayes dated 22 February 1990 and the supporting documentation (eg relevant photographs) which had been brought into existence at the time. 34. In my view there is not a scintilla of evidence upon which it can be suggested that any relevant proceedings were anticipated at that stage, in the sense contemplated in Grant v Downs. The documentation in question was no more than routine internal reporting in the normal course of business. 35. Even when, in mid March or early April 1990, Hayes received information which tended to arouse in him some suspicions as to the possible bona fides of a claim by the respondents as to certain jewellery said to have been stolen from them in Mildura and the thought that this might signal some question mark as to their nexus with the fire, he merely sought and obtained the permission of the claims manager to pursue some more detailed enquiries with a view to providing management with additional detailed information on which to base future decisions. 36. It was, as the learned Chief Judge appreciated, not until these additional enquiries were pursued and Hayes raised documentation which, he considered, evidenced grave suspicion against the respondents, that he was instructed to place the material before Winter, the senior staff solicitor of the appellant. It is by no means clear to me precisely when that instruction was given. However, it appears that, on 1 May 1990, Winter instructed Hayes to make some additional enquiries. 37. Hayes deposed that, at that time, he received a memorandum from Winter which, inter alia, said:-
    "I have reason to believe that this claim may be fraudulent.
    In this event liability will be denied by SGIC and it is likely
    that legal proceedings will be instituted by the Thissens against
    SGIC to recover their alleged loss. There are also indications
    that the house fire was deliberately lit and that the insureds may
    be implicated." 38. Upon that evidence the learned Chief Judge concluded that, it was only at that point that it could fairly be said that documents were thereafter raised solely in relation to seeking advice as to litigation fairly anticipated and were thus privileged. 39. In my opinion that conclusion is undoubtedly correct and is the only fair inference to be drawn from the material before the court. 40. Accordingly, the present appeal necessarily fails, save to the extent that the declaration of Norah Chaplin, forming portion of the so-called document 3.11 appears, manifestly, on its face, to have been raised after 24 May 1990. 41. The appeal will be allowed for the limited purpose of excluding it from the order now appealed against. Otherwise that order will be confirmed. 42. I will hear counsel as to the question of costs.