FAI General Insce v ACN 010 087 573 Pty Ltd and Anor [1999] QCA 524

PROCEDURE - DISCLOSURE - joint legal professional privilege - where insurer took over conduct of defence of insured in earlier proceedings - where information provided to joint solicitor who obtained material for the purpose of joint endeavour - where original action settled yet issue of indemnity as between insurer and insured remains - where each party entitled to access material acquired by joint solicitor in which they showed common interest and joint privilege against others - whether one party may unilaterally waive joint privilege and disclose material to third party during related proceedings in which other party not a party.

PROCEDURE - DISCLOSURE - joint legal professional privilege - confidentiality - whether one party entitled to use materials provided in confidence to joint solicitor by other party - improper purpose.

Ali Shipping Corporation v Shipyard Trogir [1999] 1 WLR 314, cited

Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405, 412-3, cited

Atlanta International Insurance Company v Bell 475 NW 2d 294, cited

Boyce v Goodyear Australia Ltd (Unreported, NSW CA, 16 September 1996), considered

Brown v Guardian Royal Exchange Assurance PLC (1994) 2 Ll Rep 325 at 329, considered

CI & D Industries Pty Ltd v Keeling (Unrep NSW SC, Abadee J, 26 March 1997), cited

Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501, cited

Commonwealth of Australia v John Fairfax & Sons Ltd [1980] HCA 44; (1980) 147 CLR 39, discussed

Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) [1987] FCA 266; (1987) 14 FCR 434, 443, discussed

Coulthard v State of South Australia [1995] SASC 4927; (1995) 63 SASR 531

Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VicRp 17; [1979] VR 167, cited

Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd [1974] HCA 3; (1973-1974) 130 CLR 1, cited

Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10, discussed

Farrow Mortgage Services Pty Ltd (in liq) v Webb [1996] NSWSC 259; (1996) 39 NSWLR 601, cited

Fractionated Cane Technology Ltd v Ruiz-Avila [1988] 2 Qd R 610, cited

Global Funds Management (NSW) Ltd v Rooney (1994) 36 NSWLR 122, cited

Groom v Croker (1939) 1 KB 194, cited

re Crocker [1936] Ch 696, cited

Johns v Australian Securities Commission [1993] HCA 56; (1993) 178 CLR 408, cited

Lister v Romford Ice & Cold Storage Co Ltd [1956] UKHL 6; (1957) AC 555,cited

Lord Ashburton v Pape [1913] 2 Ch 469, cited

Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) [1984] HCA 73; (1984) 156 CLR 414, cited

Murray v Yorkshire Fund Managers Ltd [1997] EWCA Civ 2958; [1998] 1 WLR 951

Oceanic Life Ltd v HIH Casualty & General Insurance Ltd (1999) 10 ANZ Ins Cas 61.438, cited

Rockwell International Corporation v Superior Court of Los Angeles County 32 Cal Rptr 2d 153 (Cal. App. 2 Dist 1994)

SCIC (SA) v Paneros (1988) 5 ANZ Ins Cases 60-857, considered

Telstra Corporation Ltd v First Netcom Pty Ltd [1997] FCA 860; (1997) 78 FCR 132, cited

Thiess Contractors Pty Ltd v Terokell Pty Ltd (1993) 2 QdR 341, cited

Verson Cleaning International v Ward & Partners (1997) 9 ANZ Ins Cases 61-352 at 76, cited

Webster v James Chapman & Co (a firm) [1989] 3 All ER 939, cited

Welfare v Birdon Sands Pty Ltd (1997) 79 FCR 220, cited

Mr P Garling SC, with him Mr P A Freeburn for the appellant

Mr B D O'Donnell QC, with him Mr L F Kelly for the respondent

[1] McPHERSON JA: The trial of this action has been completed and judgment is reserved. In these circumstances I can identify no purpose for which at present access to the documents could legitimately now be required. That being so, I agree with the reasons given by Byrne J for allowing this appeal and setting aside the orders made by the learned judge at trial. I agree with the orders proposed by his Honour.

[2] DERRINGTON J: The appellant ("the insurer") was the insurer of the respondents ("the insured"), who were valuers employed by Interchase Corporation Limited (in liquidation) to value a large inner city development which Interchase wished to, and ultimately did, purchase. The insured consisted of a company ("Colliers") and its employee ("Mr Tidbold"). Interchase also engaged another valuer ("Hillier Parker") for a check valuation and it used its employee ("Mr Waghorn").

[3] Interchase now claims that it paid an excessive price in its purchase as the result of negligent valuations by both sets of valuers and it has brought an action for damages against Colliers as first defendant, Tidbold as second defendant, Hillier Parker as third defendant and Waghorn as fourth defendant. The third and fourth defendants have claimed contribution against the first and second defendants as possible co-tortfeasors.

[4] When the claim was first raised, the insurer would not commit itself to provide indemnity to the insured and the two sides were each represented by separate solicitors. However, for a while the insurer was prepared to undertake the defence of the insured in Interchase?s action but reserved its right ultimately to refuse indemnity. This conflict made it untenable for either side to agree that the other?s solicitors should conduct the defence and so the insurer appointed an independent firm ("Clayton Utz") to act in that behalf while the parties continued to retain their respective solicitors in their continuing dispute as to indemnity.

[5] The insured participated in this arrangement, but there was no final resolution of a difficulty between them as to certain terms. Relevantly, the insurer wanted any material obtained by Clayton Utz to be available to each side for later use against the other, and the insured strictly opposed this[1]. Absent any agreement on that point and because the insurer finally retained Clayton Utz exclusively for the defence of Interchase?s claim, it must follow that as between these parties the material was to have a confidentiality confining its use to the sole purpose for which it was to be generated.

[6] In the course of time, apparently with the mutual approval of the insurer and the insured, Clayton Utz also conducted the defence of the insured against the contribution claim of the third and fourth defendants.

[7] For the purpose of the defence against Interchase?s claim, they engaged independent expert valuers, Mr Kernke and Mr Norris, to provide reports to be used, if appropriate, as evidence. Consistently with their position, they provided copies of the reports to both the insurer and the insured and, pursuant to a practice direction of the court, disclosed further copies to Interchase and the third and fourth defendants as the reports of experts who might be called to give evidence in the trial. This disclosure did not, nor was it required to, include privileged material associated with the solicitors? instructions to and discussion with the valuers about the contents of their reports.

[8] It might be observed here parenthetically that while the insurer was a party to waiving privilege in the report by disclosing it in this way, it did not necessarily waive privilege in the related material. This is discussed in the judgment in the appeal in FAI General Insurance Co Ltd v Interchase Corporation Limited (in liq), [1999] QCA 523; Appeal No 5506 of 1999, 21 December 1999, and will need the determination of the learned trial judge on the principles there set out. If the privilege is lost there, then the consequent publication of the material would defeat it entirely and further discussion is otiose. However, on the real chance that the privilege will be upheld, it is necessary to resolve the issues between the insurer and the insured, which are described below. Meanwhile the narrative of events should be completed.

[9] Subsequently and before the trial, the insurer finally rejected the insured?s claim for indemnity and it discontinued its retention of Clayton Utz who then ceased to act in the matter. On separate advice, the insured then negotiated with Interchase what seems to have been a type of Damron Agreement. The insured, Colliers, admitted liability to Interchase and the damages were to be assessed but limited to $20m and the action against Tidbold was discontinued. Whether as is usual, there was also an assignment to Interchase of the insured?s rights against the insurer in full settlement of the agreed liability is not known, nor is it relevant to these proceedings.

[10] Interchase continued its action against the third and fourth defendants, who continued to claim contribution from the insured; and since there was no longer any issue between Interchase and the insured, Interchase?s solicitors (?Allens?) are now also acting for the insured in their defence of the contribution claim. Because of these developments, the insured have had no occasion to call Messrs Kernke and Norris, but the third and fourth defendants have called them in their defence of the Interchase claim.

[11] While this evidence may be adverse to Interchase, it may be adverse to or benefit the insured depending on whether by relieving the third and fourth defendants from contributing to any damages or diminishing their obligation in that respect, it enlarges or reduces the insureds? contribution in respect of it its liability to Interchase. This would also depend on the provisions of the Damron agreement on the subject of contribution. Conversely any privileged material adverse to the validity of the expert evidence would be favourable to Interchase and, but for the effect of the Damron agreement, possibly unfavourable to the insured. If the latter, it would also be adverse to the interests of the insurer since its possible obligation to indemnify the insured has yet to be decided; and if there is such an obligation, it would not be reduced by any benefit to the insured under the Damron agreement.

[12] There is evidence that in the course of producing his report, Mr Kernke elevated his original valuation by about $30m, and Interchase has sought to subpoena any notes or correspondence he had with Clayton Utz which may have affected his assessment.[2] It is anticipated that some similar action will be taken in respect of Mr Norris when he gives evidence. In answer to the subpoena, Clayton Utz stand ready to abide the decision of the court as to the production of the material. In support of Interchase the insured are prepared to waive their privilege in it but the insurer, though not a party to the action, has appeared by leave and has claimed privilege over it in order to prevent its public disclosure which would effectively defeat any later claim of privilege. The overruling of its claim against Interchase?s subpoena is the subject of the related appeal.

[13] The insured have independently sought an order that Clayton Utz produce the documents for their inspection. The insurer has opposed this particularly since the insured now have common solicitors with Interchase and in the absence of any other apparent reason, the circumstances strongly suggest that their only interest in the documents is to make them available to that party. The learned trial judge?s decision in their favour is the subject of this appeal.

[14] Before this court, the insurer wisely abandoned its primary position taken below, that the insured have no privilege in the material because Clayton Utz were not their solicitors. That was plainly untenable.[3] However, the insured has now taken the opposite and equally extreme position that Clayton Utz were not the insurer?s solicitors so that it would have no privilege in the documents. This is despite the uncontested facts that it engaged them and was responsible for their costs and charges; and that their retainer was to attend to the interests of both the insured and the insurer in defence of the claim. The insurer plainly had a contingent interest in the defence depending upon whether it will ultimately be obliged to indemnify the insured, in which case any judgment against the insured in respect of the insured?s liability and the amount of it would be prima facie evidence of those matters against the insurer.[4]

[15] Because the insurer?s status as a client of the solicitors engaged by it is so plainly established, there has rarely been any specific advertence to that issue, and such general references as have been made to it have implied an unquestioned acceptance of the insurer?s position.[5] The controversy has always been whether the insured were clients of the solicitors and whether that modified the insurer?s rights in any way. For example, in Brown v Guardian Royal Exchange Assurance PLC,[6] Neill LJ said:

?The fact that insurers fund the cost of legal advice and representation and have a common interest in the defeat of the claim against their insured does not necessarily mean that they are entitled to see all the documents passing between the insured and his solicitors. The extent of the insurer?s rights to see documents covered by legal professional privilege will depend primarily on the terms of the policy. ?

[16] The insured rely upon this authority because it held that the insurer?s entitlement to access all the material obtained by the solicitor over the insured?s claim of privilege was the result only of a provision in the policy associated with the conduct of the defence. It provided that generally the insured?s authority to instruct solicitors required the antecedent approval of the insurer, who would then pay the fees and expenses, and that the insurer could require the solicitor?s reports to be submitted directly to it. By clear implication, it follows from the above remarks that, but for that provision, the insured?s legal professional privilege as to the material there in dispute would have operated against the insurer. The insured here would elevate this implication to the proposition that the solicitor was not the solicitor for the insurer in any way, so that all documents the subject of legal professional privilege generated by the solicitor would be privileged against it.

[17] That does not follow. After originally undertaking the defence, the insurer in Brown?s case had reserved its rights upon the basis of an exclusion relating to dishonest or fraudulent conduct. From that time, although the material provided by the insured to the solicitor was primarily related to the defence of the third party?s action, it also touched upon material relevant to the insurance conflict which had developed and was confidential in that respect. It was that material to which Neill LJ referred when he said that in ordinary circumstances and subject to anything in the policy to the contrary, the insurer was not necessarily entitled to access to all the documents provided by the insured. He implied that but for this there would be full access. The disputed material in the present case was generated by the solicitors with the experts and is not of the nature of material confidential to the insured to which Neill LJ was referring as a possible exception.

[18] It is understandable that privilege as to material generated by the joint endeavour of the parties against a common opponent, but which might be adverse to one of them in a separate dispute inter se, should be treated in this way. Generally, each party is entitled to access to all material acquired by their joint solicitor, as to which they had common interest and joint privilege against others.[7] However, their joint retainer cannot be used by one of them to penetrate or defeat the privilege of the other as to confidential material which could otherwise be invoked against the latter. Under the arrangement between them, the quality of confidentiality prevents such use for any ulterior purpose.

[19] Not only does this give efficacy to the joint enterprise which would be seriously impeded without it but, more importantly, it would be unconscionable for either party to abuse the confidence for such an ulterior purpose and there is no reason why this principle should work only one way.

[20] This confidentiality is the essential element in those cases where the privilege of the insured against the insurer has been recognised in respect of material supplied by the insured to their joint solicitor, which the insurer then seeks to discover or use against the insured in the insurance dispute between them.[8] In Paneros,[9] for example, the insured under a compulsory motor vehicle policy admitted to the joint solicitors that he had been intoxicated at the time of the accident in which his wife was injured. The insurer had paid out the damages and was claiming recovery from the insured. The insurer?s interest and rights in relation to the solicitor?s material were not questioned, and the primary issue was whether the insured had any rights. It was found that he was a client of the solicitor, and because his "information was imparted in circumstances importing an obligation of confidence", and he "was doing so in the belief that such information was to be used solely for the purpose of defending the claim brought by his wife against him", which "was known, or should have been known, (by the solicitors) at the time", it was privileged since it was "in confidence for the purpose of defending the action of (the third party)". The joint retainer was expressly recognised, but despite that the limited purpose for which the material was provided in confidence was seen as qualifying the insurer?s rights. The court said:

"Although (the solicitors) to the knowledge of the defendant were the solicitors for both him and the insurer, the privilege was that of the defendant alone because of the potential conflict of interest which existed: Goddard v Nationwide Building Society (1986) 3 All ER 264. The defendant has never waived that privilege."

[21] The same principle was applied in Goodyear Australia Ltd.[10] The joint solicitors had acted for the insurer and the insured in earlier similar claims and had obtained from the insured?s employees information which was to be used by the insurer in the current action to deny that the trigger of the cover had occurred during the policy period. The solicitors were enjoined from continuing to act contrary to the insured?s interests, and were required to discover to it the material that they had collected. Their prior refusal to make that discovery had been based upon their argument that the insured was not their client and had no claim to the material.

[22] The decisions of the primary judge and the Court of Appeal were both ex tempore and dealt with the matter briefly upon the basis that the insured was plainly a client of the solicitors and that they could not withhold or use against their client?s interest any confidential information that they had obtained from it. Giles AJA said:

"But solicitors cannot, having obtained as solicitor for a client information and documents, at least some of which appears to be confidential and related to the facts in issue, seek to use or at least appear to threaten to use that information against the client and claim in some way privilege from production of such documents."

There was no finding that the insurer was not also a client, but insofar as the material became relevant to a dispute between the joint clients, the solicitors were obliged to respect the confidence invested by the client who had provided the information.[11] This principle is extended to bind the insurer when the confidential information has passed into its hands through the joint solicitor.

[23] In these cases, the discussion cites and is interchangeable with discussion in other authorities dealing with a solicitor?s ordinary duty of confidentiality in the use made of information supplied by a client. This broader principle of confidentiality applies to any circumstances where a recipient of information should ordinarily understand that, by reason of its relationship with the other party, the nature of the information and the circumstances of the communication, it is provided in confidence.[12] The present case sits comfortably within that description.

[24] The same essential reasoning applies to the principle that joint legal professional privilege, as distinct from common interest privilege, cannot be waived except by all joint holders.[13] Where the documents that are the subject of joint privilege have been generated for a specific purpose in circumstances where there is an understanding that they are to remain privileged except for that purpose, then the court will restrain the improper use of the material, which in such circumstances has the same character as confidential information.[14] Accordingly, although the insured is otherwise entitled to access to the relevant documents in the hands of the joint solicitor, they are not entitled to use them, or to waive privilege to allow others to use them, for a purpose contrary to the purpose by which they obtained their right of access. That purpose was confined to defending themselves against liability or enlargement of the damages or contribution in this action for which the insurer may ultimately be liable to provide indemnity. The purpose of the insureds? waiver in assisting Interchase is certainly ulterior and perhaps antipathetic to that and is therefore in breach of their duty of confidence.

[25] This impediment would not have applied to the genuine use of the material in the defence of the Interchase claim, which is relevant to their common interest, and it could probably have been used by one party without the approval of the other for that purpose, but that is not the basis of its justification here. Consequently, the insured must not act in a way adverse to that confidentiality, either by disclosure to the plaintiff through inspection by a common solicitor[15] or otherwise, or by waiver of privilege in favour of the plaintiff.

[26] It cannot be said that any breach would be harmless. There is unusual complexity flowing from the insured?s arrangements with the plaintiff (not all of which are known), and the fact that the third and fourth defendants are calling the expert whose evidence the plaintiff seeks to impugn through the privileged material. As the insured?s liability to the plaintiff is fixed, the expert?s evidence cannot affect that. Consequently the original purpose for the use of the material no longer exists; but the liability of the other defendants and its extent may have an effect in different ways on the insured?s liability, and on the insurer?s possible obligation to provide indemnity. Because of the twist of events, it is not clear to what extent the insurer and the insured might have a common interest in having the third and fourth defendants found liable to Interchase and the joint purpose behind the production of this material may well not have included its use to have those parties held to be co-tortfeasors.

[27] Further a total lifting of privilege over the material may affect the insurer?s later defence of the insured?s claim for indemnity. If the insured?s liability and the amount of it are put in issue, then the publication by discovery in this trial of the controversial material may effectively defeat the insurer?s privilege in respect of it so that it could later be used to attack the reports on which the insurer might rely. For all these reasons, any breach of confidentiality cannot be excused as having no harmful effect so that there is not need for it. In any case, since this is not a case of waiver of common interest privilege, prejudice from the insured?s waiver has no relevance. The holder of joint privilege is not required to show prejudice by any waiver in order to preserve it.

[28] The result is that in respect of the material remaining in dispute, the insurer enjoys joint legal professional privilege with the insured; the insured cannot unilaterally waive privilege; the insured are entitled to access to the material held by the joint solicitors; but they must not breach their duty of confidentiality by using it for an ulterior purpose such as divulging it to Interchase. In the present circumstances once the criteria set out by Gummow J in Corrs Pavey Whiting & Byrne v Collector of Customs (Vic)[16] are met, before the court would grant relief to the insured, it would require an undertaking or at least to be assured that they would observe their duty.

[29] Since writing the above, having had the benefit of reading the reasons of Byrne J, I would add the following:

1. The point of the order from which the appeal was brought was the production of limited correspondence between Clayton Utz and the expert then under cross-examination, and the order's effect that was complained of was the disclosure of the confidential material to Interchase through its solicitor whom it had in common with the insured. I agree with Byrne J that, events that remove its purpose having overtaken the order, it should now be set aside and consequently the costs orders should be set aside.

2. This however still permits the insured to have access to the material held by its solicitor whom it shared jointly with the insurer, save as to the insurer's right to invoke confidentiality against disclosure of confidential material, such as material provided by the insurer from its private resources that would help the insured in the dispute over indemnity.

3. The doctrine of utmost good faith would restrain the insured from using such of the solicitor's material as is available to it to the prejudice of the insurer in its defence of its interests against others. Whether this extends to Interchase's action against the insurer pursuant to the insured's assignment of its rights has yet to be considered.

4. While the authorities show that the disclosure and use by one party of material supplied in confidence by the other to the joint solicitor will be restrained, they do not suggest that, apart from the requirements of utmost good faith, that embargo operates in respect of the other material to prevent its use by one partly against the other in respect of the claim for indemnity.

[30] Because the appellant insurer rightly failed below on its plainly untenable argument, and because each party?s success on appeal is limited, there should be no order as to the costs of it.

[31] BYRNE J: Derrington J's account of the background enables me to pass directly to a discussion of the critical issues and pertinent circumstances.

[32] The judge's order required Clayton Utz to provide their former clients, the insured, with access to documents in the solicitors' possession which they had created or received in acting for the insured. The solicitors did not dispute the insured's entitlement[17] to see and copy these documents, which were brought into existence for the purposes of the solicitor-client relationships that existed with Clayton Utz in relation to the defence of Interchase's claims against the insured for damages. But the insurer did oppose such access, contending before the judge that the insured were not Clayton Utz's clients, as well as raising arguments about privilege. The insurer, however, now accepts that a relevant relationship of solicitor and client did subsist between Clayton Utz and the insured. And arguments about privilege are a distraction; for there was no need for an order compelling[18] Clayton Utz to accord access: the solicitors were content to abide the outcome of a judicial determination of the insured's right to access. All this was, in effect, accepted for the insurer during the hearing of the appeal, whereupon the true issue emerged: whether the documents and information retained by Clayton Utz may be used by the insured in prosecuting their claim for indemnity under the policy.

[33] So the contest bears a different aspect from that presented to the judge, who did not decide the use to which the information may lawfully be put. However, the question whether the documents and the information they contain may, if accessed, be used against the insurer in the indemnity proceedings has now been argued, and it has not been suggested that the issue cannot conveniently be decided on the materials and arguments placed before us.

[34] The insured were initially represented by other solicitors. After a time, the insurer asserted its contractual right "to take over and conduct" the defence of Interchase's claim. The insurer appointed Clayton Utz as the insured's solicitors in that regard. When the appointment was made, the insurer had not decided whether to indemnify in relation to the claims agitated in the Interchase litigation. So the insurer retained other solicitors to advise it on the indemnity issue. The insurer then sought the insured's agreement to the terms of Clayton Utz's engagement, proposing terms that would have obliged the insured to provide such information as Clayton Utz requested. The draft also stipulated for an acknowledgment that information and documents received by Clayton Utz during their conduct of the defence would be made available to insured and insurer, who were to "agree that as between themselves no claim for confidentiality will be made ... over any such document or information". This proposal to allow both parties to use the material without constraint was rejected by the insured, whose solicitors contended that "while indemnity has not been confirmed", it "would not be prudent" to do so, no doubt anticipating that the insured might supply information for the defence of the Interchase litigation on which the insurer could rely to decline indemnity.

[35] In view of Interchase's complaints about the quality of the insured's valuation, it must have been apparent that information germane to the defences in the Interchase litigation had every potential to bear upon the extent of the insurer's obligation to indemnify. And it cannot have escaped attention that the proper conduct of the insured's defence probably depended upon adequate disclosure to Clayton Utz of facts pertaining to the making of the valuation. If, therefore, Clayton Utz were retained for both insurer and insured, the latter confronted this dilemma: either candidly to provide Clayton Utz with the information needed to advance the common interests of insurer and insured in resisting Interchase's claims, thereby running the risk that the solicitors would acquire, and disclose to the insurer, information capable of prejudicing the insured's claim for indemnity; or else to relate to Clayton Utz guardedly, risking a response by the insurer that a lack of co-operation afforded grounds for refusing indemnity. This troubling predicament could have been avoided by the adoption of an expedient common in the United States - the insurer's paying for the defence but not becoming the lawyer's client.[19] Unfortunately, that was not to be.

[36] As the negotiations concerning Clayton Utz's appointment proceeded, the insurer continued to contend for an agreed entitlement to receive from Clayton Utz information relevant to Interchase's claim and to be made aware of defences available in the litigation. The insurer also pressed for "a mutual waiver for any claim for confidentiality" in respect of information obtained by Clayton Utz. Still the insured would not agree. They were willing to consider a waiver of "any claim for confidentiality", as it was put in correspondence, but only upon written request specifying "as precisely as possible" the information in question.

[37] In the result, Clayton Utz came to act as the parties' solicitors in circumstances where they all recognized that there was a real chance of conflict on the indemnity question, and that the resolution of such a dispute might be affected by information that the solicitors could expect to receive in the course of defending against Interchase's claims. Alert to the problem, but nonetheless content to assume the obligations of a solicitor to a client in respect of insured and insurer, Clayton Utz wrote to the insured in May 1996 "in order to clarify our position in relation to the conduct of the defence". This letter raised three matters. It recited that the insurer had instructed Clayton Utz not to consider the indemnity issue, noting that insured and insurer had retained their own lawyers in connection with it. Next it recorded that Clayton Utz knew of the existence of a "dispute" about indemnity but not of its detail, asking the insured to "refrain from communicating with us on issues relating to the indemnity dispute". Thirdly, the letter stated that, in conducting the defence against Interchase, Clayton Utz "will act on instructions from FAI and will report openly to both FAI and the insured on all matters arising out of the defence of the claim". The insured acquiesced in this arrangement. Thereafter Clayton Utz, with the insured's co-operation, conducted the defence until October 1996, when the insurer refused indemnity. In the meantime, Clayton Utz generated, or received, information in the form of notes, correspondence and reports. This material is confidential, in the sense that it is not common knowledge.

[38] Throughout the retainers, the insured knew that Clayton Utz would be reporting to the insurer. It was obvious that the solicitors might convey information concerning the defence that carried an incidental potential to apprise the insurer of matters affording possible grounds for declining indemnity. The insurer must also have realized that there was a chance that Clayton Utz would - unwittingly, for the solicitors were anxious not to learn the details of an indemnity dispute - give the insured information that could strengthen their hand. There was, in short, a recognized risk of communications by the solicitors that could advantage one or other of their clients in an indemnity contest, at least if the information could be used for such a purpose. Even so, no consensus was ever expressed on the use the parties might make of information disclosed to or withheld from them by Clayton Utz in the event that the insurer declined indemnity. That prospect has eventuated, and the question is whether the insured is entitled to use the retained information in prosecuting the claim for indemnity.

[39] Ethical problems[20] can confront solicitors who act for both insurer and insured in circumstances where a serious risk exists that the insurer may refuse indemnity on grounds related to matters that will arise in the defence of a third party's claim. And in such circumstances, the dilemma[21] which typically confronts the insured when the insurer defends under a reservation of rights puts at risk the prospect that the tripartite arrangement[22] for the defence of the third party's claim can function satisfactorily. These considerations perhaps suggest that, to give business efficacy[23] to such an arrangement, it might sometimes be necessary to imply into the policy a term that information shared in the common cause of resisting a third party's claims against the insured cannot, without consent, ordinarily be used in an indemnity contest. However, no reliance was placed on such an idea; so it is unnecessary to consider it. Nor, in view of the arguments advanced, need we decide whether duties of the utmost good faith, or provisions of the Insurance Contracts Act 1984 (Cth), might assist.[24] And it is not suggested that the arrangement evidenced by Clayton Utz's letter constituted a contract separate from the policy. In these circumstances, any restriction upon the use to which the insured may put the retained material depends upon equitable concepts.[25]

[40] Material received or created by Clayton Utz was brought into existence, as both insurer and insured appreciated, for the limited purpose of conducting the insured's defence; and, except in proceedings in the Interchase litigation, that information was not to be disseminated beyond insurer and insured. No disclosure of the retained material has occurred yet. Accordingly, that information retains the quality of confidence necessary to attract equitable protection.

[41] Clayton Utz said[26] that they would report "openly ... on all matters arising out of the defence of the claim". So the retained information might have been disclosed to the parties consistently with the arrangement they were content to accept. If, therefore, this apparent assent authorized the use of the material in an indemnity dispute, resort to that information for such a purpose would not conflict with the obligations "in conscience"[27] that derived from the arrangement.

[42] In deciding whether the insured[28] was authorized to use[29] the Clayton Utz information in the indemnity dispute, the retainer negotiations matter. The correspondence reveals the refusal of the insured to accede to the proposal that use of the information be unrestricted. Moreover, after Clayton Utz's letter, neither side foreshadowed an intention to use the information in an indemnity contest. Plainly, no express authority was given to the insured to use the information in a contest between the parties. Is permission to do so to be imputed to the insurer?

[43] Two considerations might be thought to indicate that both parties should be taken to have consented to the use of the information in an indemnity contest. First, problems could attend the notion that it cannot be used for such a purpose: in particular, the indemnity litigation might be bedevilled by skirmishes about whether conduct in those proceedings was influenced by information received from Clayton Utz rather than from another source. Secondly, ramifications of the obligations of utmost good faith assumed by virtue of the policy may have meant that the parties stood to lose little if the Clayton Utz information became susceptible of unrestricted use by them. After all, issues in the Interchase litigation were markedly similar to some of those bound to be presented by an indemnity contest. The insured's responsibility to furnish the insurer with facts pertinent to the Interchase defence may have required them to supply information prejudicial to the indemnity claim. But neither of these matters was mentioned in argument.

[44] The insured's case is that silence on the topic was tantamount to assent to the use of the information in an indemnity dispute. Such an outcome would accord with the insurer's proposals during the negotiations. It is not suggested, however, that the insurer unilaterally manifested assent to the use the insured wish to make of the retained material. The insured's contention is that a tacit consensus is to be inferred from the omission of the parties to advert to the issue during the subsistence of the Clayton Utz retainers. This cannot be right: among other things, such an attribution would mean that the insured's silence evidenced their capitulation to an idea which they had steadfastly resisted. Despite the change of heart since the termination of the Clayton Utz retainers, that is scarcely an appropriate inference here.

[45] "Confidential information", as Lord Millett has said,[30] "shares this characteristic with trust property, that the person who is entrusted with it is bound to use it, if he uses it at all, only for the purpose for which he received it" and not "for an ulterior purpose of his own". Use by the insured of the retained material for the prosecution of the indemnity claim has not been authorized, expressly or impliedly, by the insurer; and it would be an unconscientious exploitation of the information.

[46] The insured have been entitled to see the information for the Interchase litigation, and that use[31] was in prospect when the appeal was heard. Since then, however, all the evidence in those proceedings has been adduced. The retained material has no further significance for that litigation. And apart from the threatened unlawful use, the insured have not suggested that they might wish to put the information to any other use. Until it can be shown, to a judge if need be, that access would serve a beneficial purpose, it is preferable that Clayton Utz withhold the documents rather than that they be revealed accompanied by an injunction restricting use.

[47] In the different circumstances which now obtain,[32] the appeal should be allowed and the judge's orders set aside. No order should be made for the costs of the hearing before the judge or of the appeal, as the primary contentions on both sides have failed: the insured would be entitled to see the documents for a proper purpose, while their use to prosecute the indemnity claim is not such a purpose.

[1] As matters have turned out, it will be seen that the parties are each now arguing contrary to their original position.

[2] Nothing adverse is suggested against Clayton Utz.

[3] In re Crocker [1936] Ch D 696, 701-703; Verson Cleaning International v Ward & Partners (1997) 9 ANZ Ins Cases 61-352 at 76, 905.

[4] Lister v Romford Ice & Cold Storage Co Ltd [1956] UKHL 6; (1957) AC 555; Oceanic Life Ltd v HIH Casualty & General Insurance Ltd (1999) 10 ANZ Ins Cas 61.438.

[5] See Verson Cleaning International v Ward (supra) at 76 905; Thiess Contractors Pty Ltd v Terokell Pty Ltd [1993] 2 QdR 341; Farrow Mortgage Services Pty Ltd (in liq) v Webb [1996] NSWSC 259; (1996) 39 NSWLR 601; Groom v Croker [1939] 1 KB 194, 201; SCIC (SA) v Paneros (1988) 5 ANZ Ins Cases 60-857 at 75, 372.

[6] (1994) 2 Ll Rep 325 at 329.

[7] Farrow Mortgage Services Pty Ltd v Webb (s_upra_ at 608).

[8] Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd [1974] HCA 3; (1973-1974) 130 CLR 1, 31; SGIC (SA) v Paneros (1989) 5 ANZIC Ins Cases 60-940; Boyce v Goodyear Australia Ltd NSWSC (CA) 16 September 1996 BC9607060; CI & D Industries Pty Ltd v Keeling NSWSC (Abadee J) Austlii 97010343.

[9] SGIC (SA) v Paneros (1988) 5 ANZ Ins Cas 60-857.

[10] Boyce v Goodyear Australia Ltd (Unreported, NSW CA, 16 September 1996).

[11] The same approach was taken in CI & D Industries Pty Ltd v Keeling (Unrep NSW SC, Abadee J, 26 March 1997); Commonwealth of Australia v John Fairfax & Sons Ltd [1980] HCA 44; (1980) 147 CLR 39.

[12] Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VicRp 17; [1979] VR 167, 193; Fractionated Cane Technology Ltd v Ruiz-Avila [1988] 2 Qd R 610, 618.

[13] Global Funds Management (NSW) Ltd v Rooney (1994) 36 NSWLR 122; Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405, 412-3; Farrow Mortgage Services Pty Ltd (in liq) v Webb [1996] NSWSC 259; (1996) 39 NSWLR 601, 619.

[14] Lord Ashburton v Pape [1913] 2 Ch 469. The difference between privilege and confidentiality is explained in Webster v James Chapman & Co (a firm) [1989] 3 All ER 939, 943-944, but of course they may overlap.

[15] This is not a criticism of the solicitor=s conduct in acting for both parties.

[16] [1987] FCA 266; (1987) 14 FCR 434, 443.

[17] See In re Crocker [1936] Ch 696.

[18] Cf Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501, 564-566, 570 per Gummow J; A.L.E. Newbold, "Inadvertent Disclosure in Civil Proceedings", (1991) 107 Law Quarterly Review 99, 100, 112, 116, 124.

[19] C. Chapman and J. Mallon, "Conflicts of Interest Faced by Solicitors Instructed by Insurers to Conduct Litigation on Behalf of Insurers", (1996) 26 Victoria University of Wellington Law Review 679, 691-694; R. Cramton and L. Knowles, "Professional Secrecy and its Exceptions: Spaulding v. Zimmerman Revisited", (1998) 83 Minnesota Law Review 61, 91; M. Mills, "Risks and Remedies for Conflicts of Interest - Perspectives of an Insurer's Lawyer", (1999) 10 Insurance Law Journal 167, 168-169; Atlanta International Insurance Company v Bell 475 NW 2d 294, 297, 299, 301 (Mich. 1991); Rockwell International Corporation v Superior Court of Los Angeles County 32 Cal Rptr 2d 153, 158 (Cal. App. 2 Dist 1994).

[20] G. Gray, "Conflicts and Waiver of Privilege in the Insurance Relationship", (1998) 10 Insurance Law Journal 75, 79-82; Brown v Guardian Royal Exchange Assurance PLC [1994] 2 Lloyd's L Rep 325, 328.

[21] To cooperate at the risk of jeopardizing the indemnity claim, or to be less than forthcoming on peril of provoking the insurer to decline indemnity.

[22] Among solicitor, insurer and insured.

[23] Cf Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10, 30; Breen v Williams (1996) 186 CLR 71, 80, 90, 102-103; Ali Shipping Corporation v Shipyard Trogir [1999] 1 WLR 314, 326-327.

[24] See G. Gray, s_upra,_ at pp. 87-90.

[25] See Johns v Australian Securities Commission [1993] HCA 56; (1993) 178 CLR 408, 426-427, 459, 474; cf Coulthard v State of South Australia [1995] SASC 4927; (1995) 63 SASR 531, 534, 545-550; R. P. Meagher, W.M.C. Gummow & J.R.F. Lehane, Equity Doctrines and Remedies, 3rd ed (1992), pp. 866, 872.

[26] To the insured by the May 1996 letter and, presumably, to the insurer as well.

[27] Per Brennan CJ in Breen v Williams at 82; cf Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) [1984] HCA 73; (1984) 156 CLR 414, 438 per Deane J, referring to an "obligation of conscience"; Fractionated Cane Technology Ltd v Ruiz-Avila [1988] 2 Qd R 610, 618 per Kelly SPJ.

[28] Whether the stance adopted by the insured implies that they must be taken to have consented to the insurer's using the information in the indemnity contest is not presently a live issue.

[29] A point not mentioned in Brown v Guardian Royal Exchange Assurance where the critical issue - the use to which discloseable information could be put - was obscured by privilege red herrings.

[30] P.J. Millett, "Equity's Place in the Law of Commerce", (1998) 114 Law Quarterly Review 214, 222; cf Telstra Corporation Ltd v First Netcom Pty Ltd [1997] FCA 860; (1997) 78 FCR 132, 138-139; Murray v Yorkshire Fund Managers Ltd [1997] EWCA Civ 2958; [1998] 1 WLR 951, 957 B-D. A similar burden attaches to information received through curial compulsion: Welfare v Birdon Sands Pty Ltd (1997) 79 FCR 220.

[31] For the defence of the contribution claim.

[32] It is in the interests of justice to proceed by way of re-hearing (see UCPR 765(4) taking account of the changed circumstances. The contrary has not been suggested.