Drabsch v Switzerland General Insurance Co Ltd

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3008/93 NEIL GREGORY DRABSCH v SWITZERLAND GENERAL INSURANCE CO LIMITED & 3 ORS 2264/93 NEIL GREGORY DRABSCH & ANOR v SWITZERLAND GENERAL INSURANCE CO LIMITED & 2 ORS 2323/97 MICHAEL JOHN McERLANE v REGINALD EDWARD BROWN & 4 ORS 2324/97 NEIL GREGORY DRABSCH v REGINALD EDWARD BROWN & 4 ORS

JUDGMENT (on question of client legal privilege) HIS HONOUR: 1 Early in 1991 Neil Drabsch (''Drabsch'') was employed by Switzerland General Insurance Co limited (''SGI'') as its Chief Executive Officer (''CEO''). Prior to that time he had been the financial controller of the company. Whilst he was financial controller, Michael McErlane (''McErlane'') was the CEO. In July 1991, Drabsch was summarily dismissed by SGI as its CEO. He has brought proceedings for wrongful dismissal. SGI pleaded justification of the wrongful dismissal and cross-sued Drabsch for damages. Both its defence and the cross-claim were based on alleged misconduct by Drabsch as an employee of SGI. A great deal of the misconduct allegedly took place whilst McErlane was still CEO. To the defence Drabsch replied and to the cross-claim he pleaded that many of his acts alleged as misconduct vis a vis SGI were specifically authorised by McErlane, then his superior. On 24 November 1993 SGI brought proceedings by way of cross-claim against McErlane claiming damages in respect of losses which it allegedly suffered as a result of acts of misconduct by Drabsch which were authorised by McErlane. Before the proceedings were commenced against McErlane, Drabsch's solicitor, Mr Veitch, took instructions from McErlane for a statement for use by Drabsch in the proceedings. Mr Veitch sent a copy of the draft to McErlane. After expansion the statement was approved by McErlane and signed by him on 27 August 1993 (''the McErlane statement''). At that time McErlane was unaware that SGI contemplated a claim against him. Thereafter, a copy of the McErlane statement came into McErlane's possession. McErlane has no recollection of how it came into his possession. Mr Veitch has no recollection of how it was conveyed to McErlane, but did have a practice of sending to witnesses whom he had proofed copies of their statements after signature. Although he has no recollection of doing this, he believes that he sent McErlane a copy of the McErlane statement after execution "for his reference as a potential witness in the proceedings." On the evidence I find that the McErlane statement came into McErlane's possession by being forwarded to him by Mr Veitch shortly after 27 August 1993. No copy of any letter forwarding the statement is in evidence, nor is there evidence of any other communication concerning that event. Thereafter, McErlane consulted Mr Michael O'Dea of Carroll and O'Dea, Solicitors, concerning his position. He gave the McErlane statement or a copy of it to Mr O'Dea. Subsequently Mr O'Dea informed SGI's insurers under a Directors and Officers Policy (''D&O Policy'') of a possible claim upon them by McErlane. In 1994 he furnished them with material concerning this. That material included a copy of the McErlane statement. In 1997, Drabsch and McErlane each instituted separate proceedings against the underwriters claiming indemnity under the D&O Policy. Those insurers in the course of the conduct of those proceedings discovered the McErlane statement and afforded inspection of it. It thereby came into the possession of SGI. SGI now seeks to put portions of the McErlane statement into evidence by cross examination of McErlane. Drabsch objects to this course on the ground that it is precluded by s 119 of the Evidence Act 1995 (''the Act''). 2 The principally relevant provisions of the Act are as follows: ''117(1) In this Division …

"confidential communication" means a communication made in such circumstances that, when it was made: (a) the person who made it, or (b) the person to whom it was made, was under an express or implied obligation not to disclose its contents, whether or not the obligation arises under law;

"confidential document" means a document prepared in such circumstances that, when it was prepared: (a) the person who prepared it, or

(b) the person for whom it was prepared, was under an express or implied obligation not to disclose its contents, whether or not the obligation arises under law …

Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of: (a) a confidential communication between the client and another person, or between a lawyer acting for the client and another person, that was made, or

(b) the contents of a confidential document (whether delivered or not) that was prepared, for the dominant purpose of the client being provided with professional legal services relating to an Australian or overseas proceeding (including the proceeding before the court ), or an anticipated or pending Australian or overseas proceeding , in which the client is or may be, or was or might have been, a party.

122 Loss of client legal privilege: consent and related matters

(1) This Division does not prevent the adducing of evidence given with the consent of the client or party concerned. (2) Subject to subsection (5), this Division does not prevent the adducing of evidence if a client or party has knowingly and voluntarily disclosed to another person the substance of the evidence and the disclosure was not made: (a) in the course of making a confidential communication or preparing a confidential document , or

(d) if the client or party is a body established by, or a person holding an office under, an Australian law - to the Minister, or the Minister of the Commonwealth, the State or Territory, administering the law, or the part of the law , under which the body is established or the office is held.

(3) Subsection (2) does not apply to a disclosure by a person who was, at the time, an employee or agent of a client or party or of a lawyer unless the employee or agent was authorised to make the disclosure.

(4) Subject to subsection (5), this Division does not prevent the adducing of evidence if the substance of the evidence has been disclosed with the express or implied consent of the client or party to another person other than: (a) a lawyer acting for the client or party , or

(b) if the client or party is a body established by, or a person holding an office under, an Australian law - the Minister, or the Minister of the Commonwealth, the State or Territory, administering the law , or the part of the law, under which the body is established or the office is held.

(5) Subsections (2) and (4) do not apply to: (a) a disclosure by a client to another person if the disclosure concerns a matter in relation to which the same lawyer is providing, or is to provide, professional legal services to both the client and the other person, or

(b) a disclosure to a person with whom the client or party had, at the time of the disclosure, a common interest relating to a proceeding or an anticipated or pending proceeding in an Australian court or a foreign court .

(6) This Division does not prevent the adducing of evidence of a document that a witness has used to try to revive the witness's memory about a fact or opinion or has used as mentioned in section 32 (Attempts to revive memory in court) or 33 (Evidence by police officers).''

3 There is no doubt that at one time privilege attached to the McErlane statement in Drabsch's favour. The question is whether that privilege has been lost so as now to permit the proposed use of the McErlane statement. 4 Mr Marshall, of counsel for SGI, contends that the privilege has been lost by reason of one or more of the following events: (a) the provision by Drabsch's solicitor (Mr Veitch) of the statement to McErlane; (b) the provision of the statement by McErlane's former solicitor, Mr O'Dea, to Phillips Fox, the solicitors for the D & O insurance underwriters; (c) the discovery of the statement by the insurance underwriters in proceedings 2324/97, the unfettered inspection of the statement and the taking of a copy during the inspection phase of discovery; and (d) the production of the statement by the insurance underwriters during the trial and the provision of access to SGI in Court without a claim being made for privilege. 5 So far as contention (a) is concerned, Mr Marshall relies on the decision of the Court of Appeal in Newcastle Wallsend Coal Co Pty Ltd v Court of Coal Mines Regulation (1997) 42 NSWLR 351. The circumstances in this case seem to me very similar to those considered by the Court of Appeal. There a coal company threatened with proceedings had a solicitor, Mr Hickey, conduct a record of interview with a potential witness, MacLean. A draft was forwarded to MacLean for correction. At that time he was told that it was forwarded to him on a confidential basis. He made a few minor alterations and signed it. He returned it signed without keeping a copy. Subsequently he asked if he could have a copy and it was sent to him in an envelope marked ''private and confidential''. There was no evidence of any other communication to him at the time this copy was sent. Powell JA (with whom Meagher JA agreed) said (at 389): ''It does not, however, follow that the records of interview prepared by Mr Hickey are not privileged from production. On the contrary, so it seems to me, each of those records of interview was a "confidential document" for the purposes of Div 1 of Pt 3.10 of the Evidence Act 1995, which was prepared for the dominant purpose of the coal company "being provided with professional legal services relating to (a) … proceeding … or (an) anticipated or pending … proceeding, in which the (coal company) … was or might have been a party". This being so, each of those records of interview was, in my opinion, privileged from disclosure unless, relevantly, that privilege had been lost by reason of a knowing and voluntary disclosure by the coal company or its representatives, in the circumstances provided for by s 122 of the Evidence Act 1995.

With respect to those who may be of another view, it seems to me that the mere fact that each record of interview was sent to the person interviewed, or his legal personal representative, solely for the purpose of being checked and, if need, be corrected and then returned to Mr Hickey, the person interviewed, or his legal personal representative, not being entitled to retain a copy of the record of interview, does not amount to a knowing and voluntary disclosure for the purposes of s 122(2) of the Evidence Act 1995. It follows, in my view, that, but for the matters to which I will next refer, each of the records of interview prepared by Mr Hickey was and remains privileged from disclosure.

However, as the coal company, in no longer prosecuting its claim for privilege in respect of the record of the interview with Mr MacLean seems to recognise, the privilege which formerly attached to that record of interview has been lost by reason of the facts: (1) that the copy of that record of interview which was later provided to Mr MacLean was provided to him for his own purposes and was not made subject to any condition as to non-disclosure … '' 6 Mr Shand, of Queen's Counsel for Drabsch, objects that the document is a confidential document, being a witness statement, and that it does not lose its confidentiality by being handed to the witness: "in order to lose the privilege there must be a positive licence or permission given to … the prospective witness, to do what he likes with it." Perhaps another way of putting it is that the communication back to the witness of the document is parallel with his original undoubtedly confidential communication of the material to the solicitor, is therefore itself a confidential communication, and cannot be taken as an implied consent to further communication. Mr Shand spoke in terms of the common law concept of waiver. He sought to distinguish the Newcastle Wallsend case on the basis that there the witness's statement "was particularly provided to him for his own purposes." Mr Shand also sought to bring the matter within the "common interest" exception in sub s (5), but I found it difficult to understand the common interest he sought to rely on. 7 The first thing to be said is that any suggestion that these provisions of the Act should be construed by reference to the common law should be rejected, as it was rejected by the High Court in relation to the hearsay provisions of the Act in Papakosmas v The Queen [1999] HCA 37. The Act lays down a detailed regime as to privilege; those provisions should be applied according to their terms and their construction should not be governed by the pre existing common law principles. Secondly, I cannot see, on an examination of the report of the Newcastle Wallsend case that the facts were significantly different from this case. Nor can I see the basis for the assertion that the statement was in that case "particularly provided" to the witness for his own purposes. Thirdly, the appropriate questions to be asked, as they arise from the terms of the statute, are whether Drabsch knowingly and voluntarily disclosed to another person the substance of the evidence and whether that disclosure was made in the course of making a confidential communication, being a communication made in such circumstances that when it was made the person who made it or the person to whom it was made was under an express or implied obligation not to disclose its contents. 8 In my view, privilege does not attach to the McErlane statement because the communication from Drabsch's solicitor to McErlane of the statement was made knowingly and voluntarily and not in the course of making a confidential communication. The matter seems to me really to be on all fours with the decision of the Court of Appeal in the Newcastle Wallsend case. Furthermore, the decision of the Court of Appeal in Amalgamated Television Services Pty Ltd [1999] NSWCA 97 and particularly what was said by Giles JA at [27] - [29] seems to confirm that the delivery of the statement could not be characterised as a confidential communication. In any event, there being no evidence but that the statement was sent to McErlane without comment and with no restriction imposed on his use of it, it seems to me that the circumstances were not such as to impose an obligation of confidentiality on him. In my opinion, it was a statement made by him, it was given to him without comment, and there was nothing in the circumstances that precluded him from giving it to anyone else as his version of the facts if he chose. If I am correct in this, that concludes the matter. 9 Accordingly, I do not need to determine contention (b). However, I shall add that, in relation to the communication by Mr O'Dea to the underwriters' solicitors, the question that arises under the Act is whether the substance of the evidence has been disclosed with the express or implied consent of the client to another person. Mr Shand submitted that the confidentiality of the witness statement persisted when McErlane handed the statement to Mr O'Dea, "who has no authority at all to rob Mr Drabsch of his privilege," and was not authorised by Drabsch to convey the statement to the underwriters. However, it follows from what I have said above as to the lack of restriction placed on the use of the statement when sent to him and McErlane's freedom to use it as he chose that, when Mr O'Dea as his agent conveyed it to the underwriters, that was done with Drabsch's implied consent and would have destroyed privilege if it still existed. 10 In my view, sub s (5) would not in either case (a) or (b) of the communication of the McErlane statement prevent the operation of sub s (2) or (4). In the case of the disclosure to McErlane, there were at the time actual proceedings against Drabsch, but no actual or anticipated proceedings against McErlane; McErlane could not at that time be regarded as having a common interest with Drabsch in the proceedings against the latter. In the case of the communication to the underwriters, there was no proceeding (actual or anticipated) in which Drabsch had a common interest with them. 11 I have some doubts as to whether privilege, if it still existed, would have been given away by the matters relied on by Mr Marshall in contentions (c) and (d) of his submissions. However, it is not necessary for me to decide that. 12 In short, in my opinion, privilege has ceased to attach to the McErlane statement and s 119 of the Act does not prohibit it being put into evidence, and I so rule. oOo

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