FAI General Insce v Interchase Corp Ltd

[1] McPHERSON JA: I have read and agree with the reasons of Derrington J and of Byrne J. The appeal should be allowed and the orders made below should be set aside. There should be no order as to costs.

[2] DERRINGTON J: The facts in this matter are fully set out in the related appeal in FAI General Insce v ACN 010 087 573 Pty Ltd & Anor [1999] QCA 524; Appeal No 5507 of 1999, 21 December 1999. This appeal relates to a finding by the learned trial judge in favour of Interchase over the claim by the insurer of the first and second defendants of legal professional privilege in respect of communications between the former joint solicitors of the insurer and the insured and experts who had provided a report to those solicitors, the solicitors? instructions to the experts, and enclosures with the solicitors' instructions comprising copies of the documents sent to the experts.

[3] Because the insurer has finally decided to refuse indemnity and has withdrawn from participation in the defence, the insured have settled Interchase?s claim by an admission of liability for a fixed sum of no more than $20m and Interchase is pursuing the third and fourth defendants who have made a cross-claim against the insured for contribution as co-tortfeasors. In defending Interchase?s action against them, the third and fourth defendants have called one valuer engaged by the former solicitors for the insurer and the insured and propose to call the other, and Interchase has subpoenaed those former solicitors to produce the material referred to above for the purpose of cross-examination. The insured have purported to waive privilege in it, at least as against themselves, but it is not open to one party alone to waive joint privilege. Moreover, they have a duty of confidentiality to the insurer in respect of that material and would be restrained from causing it to be used for an ulterior purpose. It is in respect of the production of that material that the insurer has claimed privilege, and it is against the learned trial judge?s denial of that claim that this appeal is brought.

[4] For the reasons explained in the appeal between the insurer and the insured, their solicitors were jointly retained by them both, and with the insurer?s approval the experts? reports had been disclosed to Interchase by the third and fourth defendants pursuant to a direction of the court. The insurer denies that it waived privilege to the reports because its disclosure was pursuant to the direction of the court. However, that obligation only arose because it elected to place itself in the position of being able to call the expert witness at the trial if it chose to do so; and this defeats any argument against a waiver to that extent.[1] The question that remains is whether it extends to the communications between the solicitors and the experts which have been referred to above.

[5] The principle is stated by Gibbs CJ in Attorney-General (NT) v Maurice [1986] HCA 80; (1986) 161 CLR 475 at 481 as follows:

"The decisions in which this question has been considered seem to me to be particular applications of the rule that in a case where there is no intentional waiver the question whether a waiver should be implied depends on whether it would be unfair or misleading to allow a party to refer to or use material and yet assert that that material, or material associated with it, is privileged from production. Thus it has been held that the privilege in respect of a document is not waived by the mere reference to that document in pleadings (Roberts v Oppenheim (36); Buttes Oil Co. v Hammer [No. 3] (37)) or in an affidavit (Lyell v Kennedy (38); Infields, Ltd. v P. Rosen & Son (39); Tate & Lyle ?International Co. Ltd. v Government Trading Corporation?, The Times, 24 October 1984), although the position will be different if the document is reproduced in full in the pleading or affidavit: Buttes Oil Co. v Hammer [No. 3] (40). These cases may be explained by saying that it is not unfair or misleading to refer to a document in a pleading or affidavit which is not put into evidence but that if the document is set out in full the privilege is waived. A fortiori, of course, privilege in respect of materials used in drawing a pleading or an affidavit and not referred to therein, would not lose their privilege because they had been used in that way."

[6] Although the insurer waived privilege in the report, its disclosure was limited to its purpose at the time, that is, the setting up of the right to call the expert in due course if the insurer/insured chose to do so. In the end the insurer was not a party to calling the witness, so it does not follow that fairness requires the overriding of its privilege in material associated with the preparation of the report. These circumstances could well bring such material within the range described where privilege in it was not necessarily waived.

[7] This conclusion is in conformity with the reasoning in Interchase Corporation Ltd (in liq) v Grosvenor Hill (Qld) Pty Ltd (No 1) [1999] Qd R 141 which however was decided on other grounds. It is also consistent with Clough v Tameside and Glassop Health Authority [1998] 1 WLR 1478, where it was noted that in General Accident Fire and Life Assce Corp v Tanter [1984] 1 WLR 100 Hobhouse J summarised the principles and concluded that service of a statement pursuant to an order of the court would not of necessity have the effect of waiving privilege for connected documents. In Clough, Bracewell J recognised a clear distinction between material supplied to an expert by an instructing solicitor as part of background documentation and, on the other hand, communications between solicitor and expert which fall outside that category. It seems that the controversial documents here may well be of the latter kind, but that could be properly determined by the trial judge?s inspection of them.

[8] In Maurice at 483, Gibbs CJ said that Hobhouse J?s view that waiver came only when the principal material is adduced in evidence was too inflexible, and he reiterated that in a situation such as is present here, the test for the upholding of privilege for the connected material is unfairness. That too will depend on its contents in the context of the related circumstances, including the circumstance that the insurer did not call the witnesses.

[9] The absence of relevant material upon which the expert can be properly cross-examined and tested could amount to prejudice to Interchase in limiting its cross-examination, and the circumstances that have been demonstrated, that is, the expert?s increase of his valuation by some $30m after the relevant communications, would prima facie seem to make it fair that the plaintiff should have a full chance to test the basis of that change. As against that, the normal reasons for privilege in relation to matters disclosed to an expert but not forming part of the stated reasons for his or her opinion may well give rise to questions of prejudice and fairness in the other direction.[2] These too are matters that are properly to be decided by the learned trial judge after inspection of the documents.

[10] The final determination of fairness, which will resolve the issue, can be reached only when all of the relevant considerations have been examined and given proper weight. This is certainly an issue for the learned trial judge who is fully conversant with these things,[3] or will be so after considering them in the light of what has happened in the trial.[4]

[11] Accordingly, the appeal should be allowed and the orders made below should be set aside. When this judgment was first written, I was of the view that the insurer?s claim of privilege should be remitted to the trial judge to proceed according to law. However, as events have proceeded, that is now impractical and no further order should be made.

[12] Because the appellant?s defence of its privilege was based on the plainly untenable ground that it alone had privilege in the material and because the merits remain undetermined, there should be no order as to costs.

[13] BYRNE J: The Interchase trial has concluded. Accordingly, costs aside, this appeal has no significance. But as no application has been made pursuant to UCPR 683, it may as well be decided.

[14] The facts are mentioned by Derrington J. I agree with his Honour's view that the judge's order should be set aside. His Honour's consideration of the facts enables me to proceed to state my reasons for that conclusion.

[15] The argument before the judge, and in this Court, did not always reflect the limited nature of the privilege claim. In particular, contrary to assumptions upon which some of the submissions were constructed, in conformity with Interchase Corporation Limited (In liq.) v Grosvenor Hill (Queensland) Pty Ltd (No. 1)[5], the insurer had not sought to shield the experts' notes and working papers from disclosure. The claim for privilege is restricted to those documents described by Derrington J: in summary, communications between solicitors and experts made for the sole purpose of use in the Interchase litigation. The insurer - one of the clients on whose behalf the solicitors were conducting the insured's defence of Interchase's claims - has not waived its privilege in those communications. The question, therefore, is whether, in respect of those limited communications, and consistently with the principles expounded in Attorney-General (NT) v Maurice[6] and Goldberg v Ng[7], the law imputes such a waiver by reason of some act or omission on the part of the insured such that fairness requires the privilege to cease.

[16] Mr Kernke had been engaged by Clayton Utz. So had Mr Norris, who was to give evidence after Mr Kernke. The insured did not call, or propose to call, those experts to testify; nor, of course, could the insurer.[8] Mr Kernke was called by the other defendants. There was no collusion in this turn of events. This is not a case in which one litigant has, by arrangement, called another party's expert in the shared hope of avoiding compulsory disclosure of working papers. What, then, is the conduct of the insurer demonstrating that it is unfair for it to maintain its privilege in the communications? According to those contending for an imputed waiver, the answer is to be found in a few interlocutory steps.

[17] In May 1996, counsel instructed by Clayton Utz appeared for Colliers at a directions hearing where a judge ordered that Interchase and the defendants exchange any reports on valuation practice destined for use at the trial. There was no objection to that course. At a directions hearing about two months later, with the consent of all parties to the litigation, a new date for the exchange of reports was fixed, and an order was made that the experts confer. In August 1996, Clayton Utz delivered the reports to the other parties in conformity with the order.

[18] The case comes to this: that as the submission to the interlocutory orders and the delivery of the reports may be supposed to have taken place with the insurer's authority, it is unfair for the insurer to maintain the privilege attaching to its solicitors' communications with the experts.

[19] One difficulty the contention confronts is that the insurer could not, and the insured would not, call the experts to testify. In other words, the privilege claimant was not proposing "to refer to or use material and yet assert that that material, or material associated with it, is privileged from production"[9], or taking steps "to create an inaccurate perception of the protected communication"[10], which is the kind of conduct ordinarily to be expected before unfairness emerges to defeat the privilege. If, however, the appellant need show more to succeed, that may be found in considerations concerning the significance of the communications for the accuracy of the fact-finding process at trial.

[20] It is just possible that an inability to explore the content of the privileged communications could have jeopardized the effective examination, or cross-examination, of the experts.[11] But whether that may have been so is something which cannot be determined in the abstract. The nature and extent of controversial aspects of the experts' evidence would influence a determination of that matter. This would have called for a consideration of factors which, in this litigation, could only have been assessed adequately in the light of the course of events at the trial, and on materials which are not available to this Court. As it happens, the trial judge found against the insurer on the basis that the mere delivery of the experts' reports required an imputation of waiver of privilege. So the judge did not decide that maintenance of the privilege could have affected the efficacy of the examination or cross-examination of the experts or otherwise put a fair trial at risk.

[21] In the circumstances, unfairness requiring the privilege to yield was not established.

[22] For these reasons, I agree with Derrington J that the appeal should be allowed, the judge's orders be set aside, and there should be no order as to costs.

[1] Comfort Hotels Ltd v Wembley Stadium Ltd [1988] 1 WLR 872; Calcraft v Guest [1898] 1 QB 759; Webster v James Chapman & Co (a firm) (1989) 3 All ER 939, 943.

[2] See for example, Ritz Hotel Ltd v Charles of the Ritz Ltd (1989) 14 NSWLR 132, 133.

[3] Sevic v Roarty [1998] NSWSC 462; (1998) 44 NSWLR 287 does not take the matter further.

[4] For a discussion of the application of the principle to different circumstances, see Commonwealth Bank of Australia v Cooke [1999] QSC 13; SC No 3868 of 1996, 29 January 1999

[5] [1999] 1 Qd R 141.

[6] [1986] HCA 80; (1986) 161 CLR 475.

[7] [1995] HCA 39; (1995) 185 CLR 83.

[8] Which is not a party to the litigation: s_ee FAI General Insurance Company Limited v Interchase Corporation Limited (in liq)_ (1998) 10 ANZ Ins Cases 61-428.

[10] Maurice at 488 per Mason and Brennan JJ; cf per Deane J at 493.

[11] although subsequent events suggest that the risk was very low. Mr Norris was not called. Mr Kernke's evidence concluded without disclosure of the communications.