Techfarm Pty Ltd v AXA Insurance Australia Ltd

[2005] WASCA 151

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT :   THE COURT OF APPEAL (WA)

CITATION:   TECHFARM PTY LTD -v- AXA INSURANCE AUSTRALIA LTD [2005] WASCA 151

CORAM:   WHEELER JA

PULLIN JA

HEARD:   16 MAY 2005

DELIVERED          :   12 AUGUST 2005

FILE NO/S:   FUL 121 of 2004

BETWEEN:   TECHFARM PTY LTD

Appellant

AND

AXA INSURANCE AUSTRALIA LTD
Respondent

ON APPEAL FROM:

Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA

Coram  :MASTER NEWNES

Citation  :TECHFARM PTY LTD -v- AXA INSURANCE AUSTRALIA LTD & ANOR [2004] WASC 166

File No  :CIV 2264 of 2000

Catchwords:

Practice and procedure - Discovery - Appeal from an order for the production of documents for inspection - Legal professional privilege - Turns on own facts

Legislation:

Nil

Result:

Application for leave to appeal granted
Appeal dismissed

Category:    B

Representation:

Counsel:

Appellant:     Mr G R Hancy

Respondent:     Mr R J L McCormack

Solicitors:

Appellant:     Curwood & Co

Respondent:     Srdarov Richards Burton

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

Nil

Case(s) also cited:

Australian Electrical Electronics Foundry & Engineering Union Western Australia Branch v Hamersley Iron Pty Ltd (1998) 19 WAR 145

Brambles Holdings Ltd v WMC Engineering Services Pty Ltd (1995) 14 WAR 239

Comet Products UK Ltd v Hawkex Plastics Ltd [1971] 2 QB 67

Di Pietrantonio v Austin Hospital - Heidelberg [1958] VR 325

Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49

Freehill Hollingdale & Page v Bandwill Pty Ltd [2000] WASCA 150

Grant v Downs (1976) 135 CLR 674

In the Matter of Whitemark Pty Ltd (1992) 7 WAR 54

McIlwraith McEacharn Operations Ltd v CE Heath Underwriting & Insurance (Australia) Pty Ltd (No 2) [1995] 1 Qd R 363

Nickmar Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 44

Re Rothwells Ltd (In liq) (1991) 5 ACSR 462

Sullivan v Henderson [1973] 1 WLR 333

The Southwark and Vauxhall Water Company v Quick (1878) 3 QBD 315

Trade Practices Commission v Sterling (1979) 36 FLR 244

Waterford v The Commonwealth (1987) 163 CLR 54

Wilson v Metaxas [1989] WAR 285

1. WHEELER JA:  This is an application for leave to appeal the order of Master Newnes made 30 July 2004, dismissing the appellant's (plaintiff's) application to a Case Management Registrar for an order for production of documents for inspection.  The respondent (defendant) claims that the documents are the subject of legal professional privilege. 

2. The background to the application is that the appellant claims indemnity under an insurance contract for business loss as a result of damage to orchids which occurred in early May 1997.  The respondent has denied liability in part on the ground that, before the insurance contract was entered into, the appellant failed to disclose material matters that would have influenced its decision whether to accept the risk.  Additionally, the defence pleads that the appellant is not entitled to be indemnified under the policy in any event.  It denies that loss and damage to the plants was suffered and asserts that, if such loss was suffered, it was minimal and was well within the six per cent mortality rate accepted for such plants, and was caused by one or more of a variety of matters in respect of which the appellant would not be entitled to indemnity.

3. The respondent gave discovery of, but refused to produce for inspection, a variety of documents which included expert reports dated from the latter part of May onwards.  It claimed that they were obtained for the dominant purpose of submission to legal advisers for use in contemplated legal proceedings. 

4. In claiming privilege, the respondent relied, inter alia, upon an affidavit sworn by a Ms Dawn Dorotich, a claims manager who had, by 1997, approximately 13 years of experience with insurance claims.  She was engaged virtually on a daily basis in decisions as to whether indemnity would be accepted or declined, including cases in which it was considered circumstances might justify a claim being declined on the basis of material non‑disclosure or fraud.  She deposed that she received a telephone call from the insurance broker engaged by the appellant on about 8 May 1997, in connection with a possible claim for wilting orchids.  As far as she was aware, the respondent did not underwrite risks relating to orchids normally.  She investigated the cover the subject of the inquiry and noted that insurance cover had been granted only relatively recently as interim cover and that the insurer had been "on risk" since 29 April 1997.  She deposed that those matters gave rise to an "alarm bell" for her, given the amount of the potential loss, the short period of the cover and the unusual nature of the risk.  She caused further inquiries to be carried out.  On 16 May 1997, she received a telephone call from a Mr Keith Atkinson, who she had engaged as a senior assessor to conduct immediate investigations. 

5. She deposed that, as a result of that telephone call, she considered that she was justified in having not only suspicions, but very serious concerns regarding the claim, and that it would be necessary to instruct lawyers.  At that time she believed that there was a real issue as to whether there had been non‑disclosure of material facts and she was "fairly sure" that a claim, if made, would be denied and that legal proceedings would in due course issue or be likely to issue.  She did, in fact, engage lawyers and those lawyers co‑ordinated the further conduct of the matter.

6. Before the Master, the submissions of the appellant had a number of strands.  It was submitted that there was nothing in the evidence to suggest that, prior to 16 May 1997, the insurer possessed any evidence which objectively would give rise to a reasonable prospect of litigation.  As to matters occurring on and after that date, the submission was that the correspondence which was in evidence did not refer to any prospect of litigation and was not confined to a particular issue or issues about which there might be a reasonable prospect of litigation.  It was submitted that, after that date, general inquiries were carried out of the kind which would need to be undertaken as part of a process of "claims management" in any event.  It was submitted that there was no reason to consider that the dominant purpose of those inquiries was for use in contemplated litigation (although, as I understand it, it was conceded that some of those inquiries might have contemplated litigation as an additional purpose).  In relation to reports of two nominated experts, being Ms Aileen Reid and Mr Tim Enright, in particular, they were said to be of a type which would have no apparent connection with contemplated litigation relating to issues of non‑disclosure.  Ms Reid was an expert from Agriculture WA, who it was understood was to investigate, inter alia, the number of plants which had died, and was to make suggestions and oversee attempts at recovery of damaged plants.  Mr Enright had somewhat similar functions. 

7. It was submitted to the Master that, in those circumstances, he could not accept at face value Ms Dorotich's assertion that she contemplated legal proceedings and that everything which was undertaken by the experts thereafter had as its dominant purpose use in legal proceedings.  It was suggested that that submission was fortified by the fact that Ms Dorotich had not annexed to her affidavit the note of the telephone conversation of 16 May to which she referred. 

8. The appellant's application before the Master was that Ms Dorotich be made available for cross‑examination.  However, in the course of oral submissions, counsel suggested an intermediate position which was that the Master might well inspect all the relevant documents himself, including the notes which included the file note of Ms Dorotich's telephone conversation.  If he was satisfied that the file note supported Ms Dorotich's claims, then the appellant would be satisfied.  It appears that the suggestion was that if the Master was not so satisfied, the matter should be relisted for cross‑examination of Ms Dorotich.  That is an obviously unsatisfactory way to proceed, but, as the appellant points out, no issue was taken with it at the time by the respondent and the Master did not suggest that he would not be prepared to take that course. 

9. The appellant further invited the Master in any event to inspect the relevant documents for himself with a view to ascertaining whether they did appear to have as their dominant purpose use in contemplated legal proceedings.  The Master did take the opportunity to inspect the documents and said in his reasons that he had done so.  However, he did not expressly refer in the course of his reasons to the contents of the note of Ms Dorotich's telephone conversation of 16 May.  Further, it is submitted that the Master erred in law in finding that every report was privileged, given that he did not expressly state that, viewed objectively, all of the contents of all reports came into existence for the dominant purpose of submission to legal advisers for advice in contemplation of litigation.

10. The Master's findings, relevant, were as follows.  In [28] through to [31] of his reasons he set out the relevant legal principles in a manner which is not in dispute.  He directed himself that a document would be privileged, if it were a communication between a party's solicitor and a third party, if made or prepared with the dominant purpose of use in anticipated litigation, for the purposes of that litigation with a view to obtaining advice as to it, or evidence to be used in it, or information which may result in the obtaining of such evidence.  He noted that the purpose for which documents are brought into existence is a question of fact which may be revealed by inspection of the contents of the documents.  He noted that the Court must look at all the circumstances objectively to determine whether privilege exists, and is not bound by assertions made after the event.  He noted that it is obvious that a document may come into existence for more than one purpose, that being implicit in the principle that the "dominant" purpose must be related to the legal proceedings.  He also accepted, at [53], that, where a document although prepared for such a dominant purpose contained discrete and severable material which did not have that dominant purpose, that part of the document would not be the subject of legal professional privilege and inspection of it should be ordered, unless the non‑privileged material could not readily be segregated from the privileged material.

11. As a finding of fact, he found that, prior to 16 May 1997, he did not consider that the respondent had a reasonable contemplation of litigation, although he accepted that Ms Dorotich had suspicions from the outset.  He did consider that, from 16 May 1997, there was a reasonable contemplation of litigation on the part of the defendant.  At [45] of his reasons, the Master said that in the relevant telephone conversation:

    "Mr Robertson [the name is an error - it was Mr Atkinson of Robertson & Co] informed Ms Dorotich of matters that suggested, among other things, there may have been material non‑disclosure by the plaintiff that would entitle the first defendant to avoid the policy." (Emphasis supplied)

    The Master accepted that, following that conversation, Ms Dorotich believed there was a real issue about material non‑disclosure and that it was likely indemnity would be refused leading to litigation. 

12. A close reading of that paragraph, taken together with Ms Dorotich's affidavit, demonstrates that the Master had, indeed, as suggested by the appellant, taken the opportunity of reviewing Ms Dorotich's note for himself.  Ms Dorotich refers in her affidavit only to the result of the telephone conversation with Mr Atkinson as being that she formed the view that there had been material non‑disclosure.  There is no reference to "other things".  An understanding that there were "other things" could only have come from reading the file note itself. 

13. I should add that not only is that my impression of the reasons when read carefully against the affidavit, but it is also an understanding reinforced by my own reading of the file note.  It seemed to me that, as both parties had agreed that it might be appropriate for us to inspect the relevant document, it was desirable that I should do so in order to confirm the inference suggested by [45] of the Master's reasons.  The file note is to a great extent concerned with material non‑disclosure, but there are "other things" referred to in it which one can see might well, if followed up in a particular way, result in litigation between the appellant and the respondent.

14. As to the contention that the Master was in error in deciding that all of the contents of all the reports were protected by legal professional privilege, the short answer to that ground, in my view, is that the Master directed himself as to the law in terms which are not the subject of any criticism.  He then reviewed the documents, applying those principles and considered that they were privileged. 

15. The appellant criticises [54] of the Master's reasons.  That paragraph notes that the reports are in each case addressed to the defendant's solicitors and deal with matters which, in the Master's view, are relevant to advice in connection with the contemplated litigation.  Of the reports enumerated in par 6 of Pt 2 of the respondent's list of documents, the Master says that they are "in each case addressed to Robertson & Co, as was clearly contemplated by the arrangement that the latter would co‑ordinate the investigation.  The reports are variously referred to and relied upon in the reports by Robertson & Co to the first defendant's solicitors".  The appellant points out, correctly, that it is not the use to which documents may be put which determines whether they are privileged, but rather the dominant purpose for which those reports are brought into existence, and suggests that this paragraph reveals an erroneous approach.

16. However, I would not be prepared to find that the Master erred merely based upon his shorthand description, in [54] of his reasons, of the reports.  It is always difficult for a Court, having inspected privileged documents, to describe them and to give reasons for considering that the privilege is applicable, in terms which do not reveal unnecessarily the privileged contents of the documents.  That is perhaps why courts are on occasion reluctant to inspect such documents.  In my view, in [54] the Master was doing no more than explaining what he saw as the interrelationship between the various documents and endeavouring to make it clear that they all, so far as he could see, dealt with issues which might be relevant in the contemplated litigation.  That explanation does not, in my view, detract from the clear exposition of the relevant principles appearing earlier in his reasons, which it must be assumed he applied during the course of his inspection.

17. It would perhaps have been desirable for the Master to have explained in a little more detail why it was that the reports of Ms Reid and Mr Enright, in particular, were privileged, notwithstanding that they were the sort of reports which, so far as one would understand from a general description of their contents, might well be prepared during part of the ordinary process of claims management in any event.  For that reason, I have taken the opportunity to briefly inspect some of the documents in the solicitor's file which were produced to the Master.  As a result of that

inspection, and as I understand it in amplification of the reasons given by the Master, I would note that Ms Dorotich's file note of 16 May 1997 and the record of discussions with solicitors at about and shortly after that date (and particularly a solicitor's file memorandum of 21 May) make it clear that, while material non‑disclosure was a significant issue which it was contemplated might well result in litigation, there were from an early time also in contemplation issues, of the kind which have found their way into the respondent's defence, relating to the extent and the causes of any loss which may have occurred. 

1. The issues raised by the appellant were of some significance.  The documents were documents which it would have been important for the appellant to see if it could.  While, in my view, the Master's reasons were correct, it seems to me that there were some areas of ambiguity and difficulty arising from the way in which those reasons were expressed; these were, as I have noted, no doubt as a result of the fact that the Master had had the opportunity of viewing certain documents, but was unable to refer in detail to their contents in his reasons.  It therefore seems to me that the appropriate course would be to grant leave, but to dismiss the appeal.

2. PULLIN JA:  I have read some of the documents and like Wheeler JA I consider that Ms Dorotich's file note dated 16 May 1997 and the solicitor's file memorandum of 21 May 1997, reveal that non‑disclosure was a significant issue under consideration on those dates.  Some of the matters raised in the defence are matters which were under consideration on 16 and 21 May 1997.

3. I have read the reasons of Wheeler JA.  I agree with them and I agree with the orders proposed.