The authority and notice issues (issues 1 and 2)
34 Section 40(3) of the Insurance Contracts Act provides that:
Where the insured gave notice in writing to the insurer of facts that might give rise to a claim against the insured as soon as was reasonably practicable after the insured became aware of those facts but before the insurance cover provided by the contract expired, the insurer is not relieved of liability under the contract in respect of the claim, when made, by reason only that it was made after the expiration of the period of the insurance cover provided by the contract.
35 Section 40(3) alters the operation of the policies of insurance. Dr Darshn contended that the communications from MDL to Avant about the Scotford and Summers-Hall proceedings between March 2018 and May 2019 (before the policy for the 2018-19 years expired) satisfied the terms of s 40(3).
36 In Newcastle City Council v GIO General Ltd [1997] HCA 53; (1997) 191 CLR 85 at 102-103 s 40 was described as involving "remedial measures passed for the protection of those dealing with insurers" which should not be "construed narrowly or with undue technicality".
37 In Antico v CE Heath Casualty & General Insurance Ltd (1996) 38 NSWLR 681 Kirby P, in dissent in the result, said at 698 that there was no justification to place a gloss on s 40(3) that the insured give notice intending to do so, either objectively or subjectively. The requirement is only that the insured in fact give the notice.
38 In Esined No 9 Pty Limited v Moylan Retirement Solutions Pty Ltd (No 2) [2020] NSWSC 359; (2020) 353 FLR 1 at [534] Slattery J rejected a contention that notice within the meaning of s 40(3) had been given because the required notice is of "facts" that might give rise to a claim, and no facts had been identified in the purported notice. Slattery J also said that "there must be a recognisable correspondence between 'facts that might give rise to a claim' given in writing to the insurer within the insurance period and 'the claim, when made'". At [536] Slattery J said that the "facts that are notified must at least point towards 'a claim', not mere 'bare possibilities'".
39 Avant's argument is that MDL was not authorised to give Avant notice under s 40(3) as agent for Dr Darshn because, as was variously put for Avant: (a) MDL's retainer was "limited to acting for Dr Darshn in respect of the proceedings brought by Ms Summers-Hall and Ms Scotford", (b) MDL "was engaged expressly on Avant's behalf and not as agent for Dr Darshn in his dealings with Avant", (c) MDL was appointed "solely for Avant", (d) "pursuant to the terms of the insurance policy, it was expressly agreed between Dr Darshn and Avant that any lawyer appointed was appointed by Avant in its 'own capacity' and 'not as agent for [Dr Darshn]'", and (e) alternatively, the "retainer of MDL was not for Dr Darshn generally and was not sufficient to authorise MDL to provide any services to Dr Darshn and in particular, did not authorise the giving of a notice to Avant on behalf of Dr Darshn in respect of matters within the purview of section 40(3)".
40 These arguments are unsustainable.
41 The policy provides that if a claim is made Avant will appoint a lawyer to provide "services to us [Avant] for the benefit of you [Dr Darshn]" and that, in so doing, Avant does so in its own capacity and "not as agent for you". That is, the policy does not say that the lawyer will not be acting as an agent for Dr Darshn. It says only that in appointing the lawyer Avant is not the agent of Dr Darshn. The fact that the policy says that Avant appoints the lawyer to provide it (Avant) with services may be accepted. But it must also be accepted that the policy acknowledges that such services are provided for the benefit of Dr Darshn. The policy is otherwise silent about the nature of the legal relationship between the lawyer and Dr Darshn.
42 Avant informed Dr Darshn on 23 March 2018 that it had instructed MDL to act on Dr Darshn's behalf in the Scotford proceeding. MDL informed Dr Darshn on the same day that Avant had appointed it to "represent you in … these proceedings". Similarly, in respect of the Summers-Hall proceeding Avant informed Dr Darshn on 26 March 2019 that it had appointed MDL to act on Dr Darshn's behalf in the Summers-Hall proceeding. MDL entered an appearance and was listed as the solicitor on the record for Dr Darshn in the Scotford proceeding and Summers-Hall proceeding. The idea that MDL was not acting as the legal representative for Dr Darshn in both proceedings is untenable. This is so irrespective of the separate legal relationships between Dr Darshn and Avant (on the one hand) and Avant and MDL (on the other hand).
43 Further, it is not apparent why Avant maintains, in the alternative, that if MDL acted for Dr Darshn then in the course of so acting MDL did not have authority to give Avant, on behalf of Dr Darshn, notice of another potential claim within the scope of s 40(3). The arguments of Avant to that effect are mere assertions that assume the existence of some limit on the scope of MDL's authority to represent Dr Darshn in the Scotford proceeding and Summers-Hall proceeding. The mere fact that MDL's authority was to act as Dr Darshn's lawyer in the Scotford proceeding and Summers-Hall proceeding does not support the implication of any confining term to the effect which Avant proposes. No principled reason has been identified by Avant which would have the effect of placing the communications from MDL to Avant outside the potential scope of s 40(3). To the contrary, it would be an expected incident of the legal relationship between Dr Darshn and Avant (on the one hand) and Avant and MDL (on the other hand) that MDL, as agent for Dr Darshn (even if also as agent for Avant), would inform Avant of facts that might give rise to a claim against Dr Darshn under the policy if MDL came into possession of those facts in the course of acting for Dr Darshn in the Scotford proceeding and Summers-Hall proceeding.
44 This is not to say that Dr Darshn had to intend that MDL give notice to Avant in accordance with s 40(3). Nor is it to say that MDL itself intended to give such notice. As the authorities disclose, intention is irrelevant. The issue is simply whether the insured in fact gave the required notice. If MDL's communications with Avant were part of or an incident to MDL's lawyer-client relationship with Dr Darshn, then those are communications to Avant by Dr Darshn for the purposes of s 40(3). This is so whether or not MDL's communications with Avant were also part of or an incident to MDL's lawyer-client relationship with Avant.
45 The principal problem with Avant's arguments is that they assume that Avant's rights of subrogation operated to exclude the possibility of any legal relationship between MDL and Dr Darshn. Avant has not identified any principle in respect of the doctrine of subrogation which would have that effect. While the doctrine operated so that Dr Darshn had to permit Avant to appoint a lawyer to represent him as the defendant in the Scotford proceeding and Summers-Hall proceeding, it is not apparent why the doctrine would also operate to exclude a lawyer-client relationship also arising as between MDL and Dr Darshn. Authority is to the contrary. In Mercantile Mutual Insurance (NSW Workers Compensation) Ltd v Murray [2004] NSWCA 151; (2004) ANZ Ins Cas ¶61-612 the New South Wales Court of Appeal considered the status of an investigative report commissioned by an insurer and provided to the insurer and insured before the insurer declined indemnity. While the factual context is different from the present case, Mason P (with whom Handley JA and Brownie AJA agreed) identified general principles of relevance as follows:
43 An insured and insurer may have a shared or similar interest in advancing a claim on behalf of the insured or in defeating a claim against the insured and this may give rise to a shared or common interest privilege (Bulk Materials (Coal Handling) Services Pty Ltd v Coal and Allied Operations Pty Ltd (1988) 13 NSWLR 689, Farrow Mortgage Services [Farrow Mortgage Services Pty Ltd (in liq) v Webb [1996] NSWSC 259; (1996) 39 NSWLR 601] at 608F).
44 But it does not follow that insurer and insured are incapable of jointly retaining a lawyer in circumstances giving rise to a joint privilege. Whether they have done so, or whether the acts of one should merely be seen as in its own interests or merely as agent for the other, depend on the particular facts. These will include the terms of the insurance policy, in particular the terms of any clause dealing with the insured's duty to assist the insurer.
45 Several cases have considered the question of identifying the client when an insurer appoints a solicitor to defend a claim by a third party against the insured. Many of them were reviewed in Nicholson & Ors v Icepak Coolstores Ltd [1999] 3 NZLR 475 (High Court of New Zealand, Penlington J), a decision that illustrates the overlapping of issues of privilege and fiduciary duty that lies at the heart of the respondent's case on appeal…
50 The cases support the view that the insurer-retained lawyer assumes a lawyer-client relationship with the insured, but not necessarily to the exclusion of a similar relationship with the insurer (Groom v Crocker [1939] 1 KB 194 at 202-3, 226-7, Brown v Guardian Royal Exchange Assurance plc [1994] 2 Lloyd's Rep 325 (CA) at 330, State Government Insurance Commission (SA) v Paneros (1988) 48 SASR 349).
51 In the present case, there is nothing in the policy to exclude a solicitor-client relationship as between the insured and the solicitor retained at the request of the insurer…
53 In Nicholson, Penlington J held that a solicitor-client relationship existed (between the insured and the lawyer) because the insurer instructed the lawyer to represent the insured in the plaintiff's proceedings…
54 This reasoning did not deny that a solicitor-client relationship existed as between the insurer and the lawyer in Nicholson. Indeed, the Australian case law generally accepts that the insurance defence lawyer may have two clients, although this may not be the case in situations where statutory policies under compulsory third party legislation are involved (Chapman & Mallon, op cit [Chris Chapman and Jillian Mallon, "Conflicts of Interest Faced by Solicitors Instructed by Insurers to Conduct Litigation on Behalf of Insureds" (1996) 26 VUWLR 679]; Geraldine Gray "Conflicts and Waiver of Privilege in the Insurance Relationship" (1988) 10 Ins LJ 75 at pp 76-78). Cases recognizing that solicitors retained by the insurer may have both insured and insurer as client (at least until a situation of conflict arises) include Verson Cleaning International v Ward (1996) 9 ANZ Ins Cas ¶61-352 (FCSA) at 76,905-6, Kennedy v Cynstock Pty Ltd (1993) 3 NTLR 108, C I & D Industries Pty Ltd v Keeling, NSWSC, unreported, Abadee J, 26 March 1997 and Garry F S Boyce t/as Hunt and Hunt Lawyers v Goodyear Australia Ltd, NSWCA unreported, 16 September 1996. Generally, see [Sutton, Insurance Law in Australia 3rd ed (1999)] op cit at s15.101.
46 Contrary to Avant's submissions, no provision of the policy excludes the existence of a lawyer-client relationship as between MDL and Dr Darshn in respect of the Scotford proceeding and Summers-Hall proceeding. And nothing indicates that it was not an ordinary incident of MDL's authority as a result to act on Dr Darshn's behalf in communicating information to Avant objectively capable of satisfying the requirements of s 40(3).
47 Avant's submission that there was no legal right of Dr Darshn capable of being affected by judgments in the Scotford proceeding and Summers-Hall proceeding, so that there was no lawyer-client relationship between MDL and Dr Darshn, takes an unduly narrow view of Dr Darshn's interests in those proceedings and, in any event, involves a non-sequitur. Dr Darshn plainly had interests in both proceedings. There is no reason to conclude that in representing Dr Darshn in those proceedings MDL did not owe him the fiduciary and other obligations which attach to the lawyer-client relationship.
48 The reasoning in IVI P/L v Baycrown P/L [2005] QCA 205 at [33]-[38] does not support Avant's position. That case concerned the implied authority of a lawyer identified as the solicitor for the purchaser in a proposed contract for sale, the terms of which were being negotiated directly between the prospective parties to the contract. In that context, it was held that the nominated lawyer had no authority to receive a notice from the other party. This context, which is transactional, bears no relationship to the circumstances of the present case, which involve litigation. As noted, given the context in the present case, it would be expected that MDL would keep Avant informed of matters relevant to its potential liability under its policies with Dr Darshn in respect of not only the Scotford proceeding and Summers-Hall proceeding, but also the TCI proceeding given the substantial overlap between these proceedings. In so doing, there is no reason to infer that MDL was acting only on Avant's behalf and not also on Dr Darshn's behalf.
49 For these reasons, the primary judge did not err in deciding the authority issue against Avant. Those communications satisfied the condition in s 40(3) "[w]here the insured gave notice in writing". The communications from MDL were communications by Dr Darshn to Avant.
50 It follows that the primary judge also did not err in permitting Dr Darshn to inspect certain communications from MDL to Avant, as privilege in those communications was a joint or common right of both Avant and MDL as the primary judge found. In any event, it is also apparent from the transcript that senior counsel for Avant withdrew the objection to the admissibility of these documents. It is not possible to construe the relevant part of the transcript as nothing more than recording Avant's acceptance of the primary judge's ruling against Avant on the privilege issue.
51 Avant's challenge to the primary judge's conclusion that MDL's communications involved notice "of facts that might give rise to a claim against the insured" is untenable. The MDL communications informed Avant that: (a) the plaintiffs in the Scotford and Summers-Hall proceedings were group members in the TCI proceeding unless and until they opted out of the TCI proceeding, (b) there was a substantial overlap between the Scotford and Summers-Hall proceedings and the TCI proceeding, and (c) the overlap of the causes of action was such that the plaintiffs in the Scotford and Summers-Hall proceedings had to choose whether to continue their proceedings (and opt out of the TCI proceeding) or discontinue their proceedings (and opt in to the TCI proceeding). That is effective notice of facts that might give rise to a claim against Dr Darshn, and those facts correspond to the claim ultimately made when Dr Darshn was joined as a defendant in the TCI proceeding. In no sense was the notice merely incidental. To the contrary, it was obvious from the MDL communications that Dr Darshn was a potential, even a likely, future defendant in the TCI proceeding not only if the plaintiffs in the Scotford and Summers-Hall proceedings did not discontinue their proceedings and opt in to the TCI proceeding, but more generally in respect of BAS performed by Dr Darshn in TCI premises in the manner alleged in the TCI proceeding.
52 Avant's submission that there was no "claim" to which the facts said to have been communicated by MDL could relate, as the communications referred to were in relation to the existing claims of the plaintiffs in the Scotford and Summers-Hall proceedings, suffers from the same approach which undermines Avant's submissions about the authority issue. It may be accepted that there was no claim in the TCI proceeding against Dr Darshn when MDL sent its communications to Avant. That does not mean that in the course of informing Avant about matters relevant to the Scotford and Summers-Hall proceedings MDL could not give Avant notice of potential other claims against Dr Darshn. Section 40(3) only operates if and when there is "the claim … made". If the insured has given the insurer notice in writing "of facts that might give rise to a claim against the insured" as required, and those are the facts giving rise to the claim made, then s 40(3) operates. Unless and until the claim is made, "a claim", as referred to in s 40(3), by definition is unmade and inchoate.
53 It is immaterial that the communications from MDL did not say they involved Dr Darshn giving notice under s 40(3) of the Insurance Contracts Act. Nor is it necessary for the "notice in writing" to be styled as a notice or to use the words "potential claim". All that is required is that the insured give the insurer notice in writing of facts that might give rise to a claim as soon as was reasonably practicable after the insured became aware of those facts and for "the claim" to be made. In the present case it could hardly be doubted that MDL's communications put Avant squarely on notice that Dr Darshn was a potential, even likely, future defendant in the TCI proceeding.
54 For these reasons the primary judge did not err in concluding that MDL's communication gave Avant notice of facts that might give rise to a claim against Dr Darshn so as to engage the operation of s 40(3).