Komatsu Marketing Support Australia Pty Ltd v Marsh Pty Ltd - [2012] NSWSC 163 - NSWSC 2012 case summary — Zoe

NSWNSWSC

Komatsu Marketing Support Australia Pty Ltd v Marsh Pty Ltd

[2012] NSWSC 163

Supreme Court of NSW|2012-01-31|Before: Harrison J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2012-01-31

Before

Harrison J

Catchwords

(2008) 72 NSWLR 236 Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd [1974] HCA 3
(1998) 192 CLR 603 Warren v Coombes [1979] HCA 9

Source

Original judgment source is linked above.

Catchwords

(2008) 72 NSWLR 236 Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd [1974] HCA 3(1998) 192 CLR 603 Warren v Coombes [1979] HCA 9

Judgment (18 paragraphs)

[1]

Judgment 1HIS HONOUR : This is an appeal from the decision of Harrison AsJ in Komatsu Marketing Support Australia Pty Ltd v Marsh Pty Ltd [2011] NSWSC 413, in which her Honour dismissed an application by Marsh pursuant to UCPR 49.19 for a review of the decision of Registrar Bradford published on 10 December 2010. The Registrar had refused to order discovery by Komatsu of certain classes of documents. The background and facts are sufficiently set out in her Honour's judgment and are repeated here only where necessary. A familiarity with her Honour's judgment is therefore assumed. 2Marsh claims that the documents, which it seeks to discover from Komatsu, are necessary for its proper defence of Komatsu's claim for damages against it for professional negligence. The sum that Komatsu sues for is the amount that it contributed to a settlement of other proceedings in the Supreme Court of Western Australia arising out of fire damage to a large piece of mining machinery owned by Kalgoorlie Consolidated Gold Mines. Komatsu is an importer, retailer and servicer of mining and construction equipment manufactured by related companies in Japan and Germany and had supplied the machine and serviced it for Kalgoorlie. Marsh had earlier placed public liability and product liability insurance for Komatsu, which was intended to cover losses of the type that Kalgoorlie sought to recover from Komatsu as a result of the damage to the machine, but the insurer denied liability relying upon certain exclusions in the policy. 3Komatsu alleges that these exclusions did not reflect the pre-contractual negotiations between it and the insurers, Tokio Marine and Nipponkoa, with the result that suitable cover was not effected. In particular, Komatsu contends in these proceedings that Marsh was negligent in arranging cover that included these exclusions and claims that, but for alleged breaches by Marsh, a differently worded policy would have been arranged. Although the insurance companies ultimately contributed to the settlement of Kalgoorlie's claim following a mediation of the Western Australian proceedings, Komatsu was left with a shortfall, representing its own contribution to the settlement, for which it looks to Marsh for payment. Komatsu contends in these circumstances that if the policy had been procured with reasonable care and in accordance with Marsh's retainer, it would not have been open to the insurers to rely upon or invoke the exclusions, and that they would have been obliged to pay the claim in full. It is regrettable that, for some reason that has not been explained, Marsh was not joined to the Western Australian proceedings, and did not take part in the mediation. Such a course would in all likelihood have avoided the dispute that I am now asked to decide.

[4]

Marsh's argument 8Komatsu's liability at the suit of Kalgoorlie in the Western Australian proceedings potentially fell within one or other of two sections of the Broadform liability policy in question, issued to Komatsu by the insurers for the period of 12 months commencing on 30 September 2003. Section A of the policy potentially responded to the negligent servicing claim and was subject to the first and second exclusions referred to in Komatsu's statement of claim. Section B of the policy potentially responded to both the product liability claim and the negligent servicing claim and was subject to the third exclusion referred to in Komatsu's statement of claim. 9Komatsu alleges in these proceedings that each of the exclusions was included in the policy as a consequence of Marsh's breach of duty. Marsh contended on this application that whilst it was possible that Komatsu may either win or lose on all three of the contested exclusion clauses in that context, it was also possible that Komatsu may establish a breach of duty by Marsh in respect of less than all three of the exclusion clauses. 10In the Western Australian proceedings, the insurers, who had declined indemnity, were joined by Komatsu on a cross-claim but Marsh was not joined to the proceedings in any way. Komatsu has only sued Marsh in the current proceedings in the Court. However, several other parties were joined to the Western Australian proceedings. 11In early 2009 the Supreme Court of Western Australia referred the matter to mediation. The orders made included an order that the mediation be conducted on a confidential basis and limited the use that could be made of the mediation communications and documents in other proceedings. At a later point, Komatsu also executed a mediation agreement, in which it agreed to keep mediation related communications confidential, subject to some exceptions, which included disclosure required by law. Marsh contends in this case that the significant impediment to discovery is the specific order of the Supreme Court of Western Australia, rather than the terms of the mediation agreement. 12Marsh made submissions to Komatsu for use by Komatsu in discussions with the insurers at the mediation, to the effect that the first exclusion had not been agreed between it as placing broker and the insurers, that the inclusion of sub-paragraph (b) of the first exclusion was recorded in the issued policy by common mistake, and as to why the insurers would be in breach of s 14 of the Insurance Contracts Act 1984 if they were to rely upon the first exclusion. 13The result of the mediation was that Komatsu settled with Kalgoorlie for a payment to Kalgoorlie of $10M. The settlement deed provides no details of what claims that sum was paid to settle or the amounts in respect of the individual claims. Komatsu also settled with its insurers and the other parties upon the basis of a payment to Komatsu of $5M from the insurers, $2.5M from Komatsu Germany which manufactured the shovel, and nothing from Tyco, a third party that supplied the fire suppression system for the shovel. Although the difference is $2.5M, Komatsu sues Marsh for $2.1M in these proceedings after certain adjustments that are unimportant for present purposes. The sum of $2.1M has been referred to below as the "net contribution". At paragraph 21 of its statement of claim in these proceedings, Komatsu alleges that "the net contribution by [it] to the [settlement] was, in the circumstances ... reasonable". 14Accordingly, the claim for damages brought by Komatsu for damages against Marsh is based upon the principles enunciated by the High Court in Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; (1998) 192 CLR 603. Harrison AsJ referred to this case in her reasons for judgment at [25] - [27] as follows: "[25] Both parties referred to Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Limited (1998) 192 CLR 603. The facts in Unity Insurance are similar. An insurance broker arranged an industrial special risks policy but negligently failed to disclose the insured's claims history fully to the insurer. After the insured's premises were damaged by fire, the insurer refused to pay the full amount which would have been payable under the policy if not for the non-disclosure. The insured brought proceedings against the insurer and the broker in which the insurer paid a lesser sum by way of compromise. The insured claimed the balance from the broker. [26] As to the approach that should be taken in claims against an insurance broker it was outlined by Gummow J at [67] - [68] where his Honour stated: '[67] The primary judge held (in my view, correctly) that it might reasonably be supposed to have been contemplated at the time of the engagement between the appellant and the respondent "that a failure to exercise due care and skill in the course of disclosing the [respondent's] prior claims history of the intended insurer might result in a later refusal, on the part of the insurer, to admit liability in respect of a claim made under a policy of insurance obtained in those circumstances". I also would accept that it was within the reasonable contemplation of the appellant and the respondent that a serious possibility or not unlikely result of the appellant's breach of its obligations with respect to the brokerage of the policy was that, by the operation of s28 of the Act, there would be a shortfall for the respondent in the amount which otherwise would have been recoverable under a secure policy. [68] As I have indicated, the question then becomes one, in the events that have happened, of finding the amount which represents that shortfall. I would not accept that, in the above sense, it was within the reasonable contemplation of both the appellant (as broker) and the respondent (as insured) that, as between them, this amount would be fixed by reference to a settlement, which was reasonable as between the respondent and the insurer, of a claim made upon and rejected by the insurer. The reasonable contemplation spoken of in the rule in Hadley v Baxendale is that of both parties and the time at which that is assessed is the time when they made the contract. Here, as in other fields of law, hindsight may mislead. It was not within the reasonable contemplation of the broker and the insured that the measure of the liability of the broker to the insured would be determined by the conduct of parties over which the broker had no control, namely the insured and the insurer. The broker had not undertaken to indemnify the insured against any shortfall upon a settlement of litigation between the insured and the insurer.' [27] Also Hayne J stated at [128] - [130]: '[128] In my view, however, the several considerations which I have mentioned, especially the need to encourage settlement of disputes, suggest that a settlement of the dispute between insured and insurer should be given more significance as between insured and broker than simply identifying an amount which may limit the amount of damages recoverable by the insured from the broker for the broker's breach of duty. They are considerations that suggest that the damages recoverable by the insured should be fixed as the difference between what the insured recovered under the settlement (if it was reasonable) and what would have been recovered under the policy which the broker ought to have arranged (together, no doubt, in an appropriate case, with any other costs or expenses incurred by the insured as a result of the broker's breach and taking account of any extra premium that would have been payable). Whether such a rule would, or may, work injustice to the broker is much affected by what is meant by a "reasonable" settlement of the dispute between insured and insurer and it is to that subject that I now turn. [129] Whether the compromise of a claim was reasonable must be judged objectively, not subjectively. Thus whether a party to litigation has received advice to settle may be important in deciding whether that person's conduct in settling the case was reasonable but, standing alone, the fact that a litigant was advised to settle at a particular figure reveals little or nothing about whether the settlement reached was reasonable. This is not to say that evidence may not be led that such advice was given and adopted; it may. But evidence of that kind does not conclude the issue. What will usually be much more important is the reasoning that supported the advice that was given for that will ordinarily reveal why it was thought reasonable to compromise the claim as it was. [130] Next, the question whether the settlement was reasonable must be judged by reference to the material the parties had available to them at the time the compromise was reached. It is not to be judged according to whether material which was obtained later shows that the opposite party could or could not have prosecuted or defended the claim successfully but according to the assessment which could properly be made at the time of settlement of the chances of success or failure.' (footnotes omitted)." 15Marsh contended in these proceedings that in terms of the first limb of Pezzano , where one is concerned with a liability said to have been established by the payment of money to settle multiple claims: 1.Where there are a number of claims that have been settled by the payment of money, and where there is a potentially different policy response to each claim, it is also necessary to determine what claim or claims the promise to pay money related to and, if the promise is made to settle multiple claims, precisely how the settlement sum is said to be attributable to each: Enterprise Oil Ltd v Strand Insurance Co Ltd [2007] EWHC 58 (Comm) at [170] - [172]; AIG Europe (Ireland) Ltd v Faraday Capital Ltd [2007] 1 All ER (Comm) 527 at [68] - [71]; Kernaghan v Corrections Corporation of Australia Staff Superannuation Pty Ltd (No 2) [2007] FCA 1040 at [14] - [21]. 2.Following that exercise, it is then necessary to establish that the agreement to make payment by way of settlement is a "relevant" liability for the purposes of the liability insurance. Where liability is sought to be established by an agreement to pay in a settlement, at least where the settlement is reached after the insurer has declined indemnity, it is at least necessary for the insured to prove that the settlement said to give rise to the liability was objectively reasonable: Edwards v Insurance Office of Australia (1934) 34 SR (NSW) 88; BNP Paribas v Pacific Carriers [2005] NSWCA 72 at [13], [187]. 3.The documents to which Marsh sought access were identified in categories described in a letter dated 1 March 2010 from Wotton + Kearney to Baker & McKenzie. Categories 1.4 and 1.5 were the only categories with which her Honour was concerned and were as follows: "1.4 All documents recording, referring or relating to the mediation between the parties to the Western Australian Claim, including the position papers, mediation agreement, settlement terms sheet, etc. 1.5 All documents recording, referring or relating to legal advice received from Komatsu in relation to the Western Australian Claim and the settlement of the claim." 4.Marsh contended that the claim for privilege maintained over documents in these categories pursuant to ss 118, 119 or 131(1) of the Evidence Act had been lost by operation of ss 122(2), 131(2)(g) or 131A of that Act. Specifically, Marsh claimed that:

Category 1.4 documents could be the subject of a claim for 'without prejudice' privilege under s 131(1) and 131A but that s 131(2)(g) operated to defeat the claim. In addition, Marsh contended that to the extent that the orders of the Supreme Court of Western Australia operated as an impediment to Komatsu producing the documents, it was entitled to an order requiring Komatsu to take all reasonable steps to remove the impediment.
Category 1.5 documents could be the subject of a claim for privilege under ss 118 and 119 but that Komatsu had waived the privilege pursuant to s 122(2).

[5]

Category 1.5 - Grounds 1 and 2 16Marsh relied upon issue waiver, relying upon principles enunciated in cases such as Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1; Chen & Ors v City Convenience Leasing Pty Ltd & Anor [2005] NSWCA 297; Council of the NSW Bar Association v Archer [2008] NSWCA 164; (2008) 72 NSWLR 236 at [45] - [50]; Bailey v Director-General Department of Land and Water Conservation [2009] NSWCA 100; (2009) 74 NSWLR 333 at [4], [6] and [135] - [136]. See now also In the matter of Idoport Pty Ltd (in liq) (recs apptd); National Australia Bank Limited (& Ors) v John Sheahan (& Ors) [2012] NSWSC 58 at [7]. 17Marsh contended that her Honour's reasoning was partly accurate in recording that submission at [46] as follows: "[46] Marsh submitted that pursuant to s 122(2), Komatsu Australia has waived legal professional privilege by making the contentions in 3ASC by claiming from Marsh the "net contribution". According to Marsh given the size of the claim, the fact that indemnity had not been granted by the insurers and the competing interests of the various parties to that litigation, the probability is that legal advice was relevant to whatever state of mind Komatsu Australia held at the time of settling at mediation. Therefore, according to Marsh, it is likely to be an important consideration in deciding if Komatsu Australia's agreement to the various components making up the "net contribution" was reasonable and this is plainly of critical significance to the damages case sought to be maintained. Marsh further submitted, that to the extent that the litigation involved a claim for indemnity from the insurers, the legal advice received, or documents related to it, are also likely to record factual matters that have a bearing on Komatsu Australia's reliance and causation claim." 18However, Marsh submitted that her Honour also erroneously recorded arguments deployed by it in respect of the without prejudice privilege claims concerning category 1.4 documents in determining its category 1.5 documents entitlement at [48] - [50] as follows: "[48] Next Marsh drew a distinction between the orders relating to confidentiality and legal professional privilege. I agree that there is a distinction so far as legal professional privilege is concerned and that an undertaking can be made to protect confidentiality. But that is not to the point. Marsh contended that legal professional privilege should be waived because otherwise the evidence that will be adduced at the trial is likely to mislead the Court and relied on the exception contained in s 131(2)(g) of the Evidence Act . While I agree that this section applies to discovery, I cannot see how the Court would be misled. Legal professional privilege has already been waived over the legal advice that Komatsu Australia received in relation to the "net contribution", a fact in issue. [49] In relation to category 1.4 Registrar Bradford stated: '... bearing in mind the wording of category 1.4 and bearing in mind the provisions of s 131 of the Evidence Act , ... I am of the opinion that such material clearly falls within the provisions of that section. The decision to refuse to make the order sought is further reinforced by the orders made by the Supreme Court of Western Australia and clauses 11 and 12 in the Mediation Agreement.' [50] I agree with Komatsu Australia's submissions that for it to disclose these documents would be a breach of Order 8 made by the Supreme Court of Western Australia on 11 February 2009, clauses 11 and 12 of the mediation agreement; and Part VI of the Rules of the Supreme Court of Western Australia. There has been no waiver of legal professional privilege. So far as Category 1.4 documents are concerned, the Registrar's decision is correct." 19Marsh contended that the reasoning contained in these paragraphs indicates that her Honour misunderstood the issues being argued in respect of the different claims for disclosure but that in relation to Marsh's actual argument concerning waiver, her Honour's reasoning appears to be as follows: 1.Komatsu's statement of claim only alleges that the "net contribution" to the Western Australian settlement was reasonable, and not that the Western Australian settlement was reasonable: [29]. 2.Legal professional privilege has already been waived over the legal advice that Komatsu received in relation to the "net contribution": [48]. (Marsh maintains that this is a reference to Komatsu's agreement to waive privilege over any legal advice concerning the insurance claim [53], although the documents referred to in that paragraph have nothing to do with waiver). 3.There has been no waiver of legal professional privilege: [50]. (Marsh contended that this was "shorthand" for the finding at [54], [56] and [57] that the reasonableness of the settlement of the Western Australian claim brought by Kalgoorlie was not a fact in issue). 4.Marsh therefore submitted that the critical issue is one of relevance. It submitted that her Honour erred in determining relevance purely by reference to the form of paragraph 21 of Komatsu's statement of claim, and in failing to consider the relevance of the reasonableness of the settlement to the claim for damages. In particular, Marsh contended that her Honour failed to recognise that the Pezzano test requires consideration of whether the settlement with the third party (Kalgoorlie) was reasonable. 5.Marsh submitted further that her Honour erred in failing to recognise that legal advice related to the Western Australian proceedings, and their settlement generally, could inform what the settlement money was paid for, and therefore how a non-negligently arranged policy could theoretically have responded to the settlement. Marsh submitted that the documents were "plainly relevant" to these issues and that her Honour ought to have found that there had been a waiver by Komatsu under s 122(2) in relation to category 1.5 documents and ought to have granted access to those documents to Marsh.

[6]

Category 1.4 - Ground 3 20Marsh identified the issue argued below as whether Komatsu could refuse disclosure under s 131A on the basis that s 131(1), to the exclusion of s 131(2), applied to the documents related to the mediation. Marsh contended that her Honour erroneously determined that preliminary disclosure issue by applying principles of waiver applicable under ss 118 and 119 of the Act. As well as [48], the relevant paragraphs of her Honour's judgment are said to be the following: "[55] However, Marsh further submitted that these documents fall within an exception under s 131(2)(g) that the evidence that has been adduced in the proceeding is likely to mislead the Court unless evidence of the communication or documents is adduced to contradict or to qualify that evidence. As evidence has not yet been adduced at trial, Marsh then sought to rely upon s 131A. Komatsu Australia submitted that there has been no issue waiver over these additional documents. [56] In relation to category 1.5 Registrar Bradford stated: '... with respect to category 1.5, I am of the opinion that the material sought is privileged under ss 118 and 119 of the Evidence Act . The Defendant submits that there has been waiver of that privilege, due to the contention that the settlement was reasonable. The plaintiff contends that the reasonableness relates to the settlement with the insurers and as such it cannot maintain privilege over documents that contain legal advice about the separate settlement with the insurers. What the defendant seeks in category 1.5 relates to documents with respect to advice on the settlement of KCGM claim against the Plaintiff. That was an agreement agreed to by insurers, who were parties to a deed. I accept the Plaintiff's argument in respect of its issue in these proceedings being whether the Plaintiff's agreement with the insurers to contribute $1.2 million to the $10 million settlement was reasonable. Accordingly, I do not believe that there has been waiver.' [57] So far as order 5, the Registrar decided that there was no waiver and refused to make order 5. I am of the same opinion expressed by the Registrar above. As previously stated, the reasonableness of the $10M settlement has not been put in issue in the pleadings. The net contribution is a fact in issue and Komatsu Australia has waived its claim for privilege over the legal advice it received on that issue. Komatsu Australia has not waived privilege in relation to any other legal advice it has received." 21Marsh contended that these reasons contain error and indicate a misunderstanding of the issues being argued in respect of the various claimed privileges against disclosure. Marsh argued that the following analysis was appropriate and should have been adopted: 1.Section 131A is concerned with the discovery of documents that are of a kind referred to in Division 1, 1A, 1C or 3, which includes s 131. 2.Section 131A(1) requires the application of s 131 "with any necessary modifications as if the objection to...producing the document were an objection to the giving or adducing of evidence". The reference to "with any necessary modifications" calls for adjustment to be made to s 131 so as to ensure, as far as possible, the disclosure required at the discovery stage is the same as that required at the trial stage: TransGrid v Members of Lloyds Syndicate 3210 [2011] NSWSC 301 at [10]. 3.Section 131(2)(g) renders s 131(1) inapplicable where "evidence that has been adduced in the proceeding, or an inference from evidence that has been adduced in the proceeding, is likely to mislead the court unless evidence of the communication or document is adduced to contradict or to qualify that evidence". 4.Her Honour accepted that s 131(2)(g) applied to discovery: see [48]. 5.Her Honour's reasons are silent as to how s 131(2)(g) is to be modified so as to apply to discovery. Marsh submitted below, and her Honour appears to have accepted, that one needs to consider the potential evidence that could be adduced at the trial, so that the words "has been" in s 131(2)(g) are modified to read "could be" for the purposes of the operation of s 131A. 6.Her Honour held that she could not see how the Court could be misled, apparently on the basis that there had been limited waiver over legal advice received in relation to the "net contribution": [48]. In expressing that view, her Honour did not record the potential evidence that could be adduced at trial, and therefore it can be inferred that, in error, she did not consider the possible extent of that evidence. 7.There are a number of factual issues in respect of which evidence adduced has a very real likelihood of being misleading in the absence of evidence of the mediation material. For example, first, the mediation material could assist in determining the break-up of the settlement payment to Kalgoorlie between various causes of action, and therefore the potential application of the two relevant sections of the policy and the specific exclusions applicable to each. Secondly, it could disclose the insurers' then attitude to reliance upon all of the pleaded exclusions, particularly the first exclusion, which had been the subject of submission by Marsh to Komatsu prior to the mediation, and therefore the extent to which any discount could be attributed to one or other exclusion. Thirdly, it will disclose the dealings between Komatsu on the one hand and respectively Kalgoorlie and the insurers on the other hand, which could inform the reasonableness of the steps taken by it in seeking to compromise both the Kalgoorlie claim against it and its claim against the insurers. Fourthly, it could inform the reasonableness of any claimed reliance upon legal advice, on the basis that it will inform the accuracy of the premises upon which such advice was based. 8.Without the mediation materials, the prospects are that whatever ultimately may be the evidence upon which the Court will be invited to draw inferences as to the hypothetical policy response (but for the alleged breach by Marsh), there will be an element of it being misleading because it will not tell the whole picture. 9.None of these matters will be informed by the provision of legal advice that does not disclose or deal with the subject matter of mediation communications. It follows therefore that her Honour's conclusion was in error. Her Honour should have found that, for the purposes of discovery, s 131(1) and s 131A do not preclude Komatsu granting access to the materials to Marsh. 22Marsh identified a second issue concerning the category 1.4 documents arising from the operation of the orders of the Supreme Court of Western Australia, which was the subject of her Honour's review of the Registrar's refusal to grant an order requiring Komatsu to take all reasonable steps to seek to alleviate the potential problem for disclosure created by Komatsu's consent to those orders. Her Honour characterised what Marsh sought at [62] in these terms: "[62] Marsh submitted the Court ought to make orders that minimise the effect of any prejudice to it by virtue of the operation of the Supreme Court of Western Australia order, being an order apparently consensually agreed to by Komatsu Australia, by firstly, staying the proceedings until Komatsu Australia has taken all steps reasonably available to it (as a party to the Western Australian proceedings) to vary those orders in a limited fashion so as to enable it to give proper discovery in the present proceedings. Marsh further submitted that it would represent an appropriate means of attempting to unwind the prejudice to it that has arisen through Komatsu Australia's election to agree to orders without ensuring it was in a position to fully comply with discovery obligations in the present proceedings." 23If such an order were made, the practical effect would be that Komatsu would need to make an application the Supreme Court of Western Australia to vary the orders so as to enable disclosure to Marsh for the purposes of these proceedings only. The Registrar had refused to make such an order because he did not consider it "appropriate" and because other parties had "clearly indicated that they do not consent": cited at [67]. On review, her Honour agreed with the Registrar, for the reasons appearing at [68] as follows: "[68] Counsel for Marsh referred to Sabre Corporation Pty Ltd v Russ Kalvin's Hair Care Company (1993) 46 FCR 428, where Lockhart J ordered that Sabre was required to take steps to obtain certain documents from a third party, Joico Laboratories Inc a United States corporation with which Sabre had a close business relationship. I accept that in 2009 Kalgoorlie Consolidated had a long-standing commercial relationship and jointly expressed a desire to continue that relationship. However, it is my view, that this court should not compel Komatsu Australia to seek to vary orders made by another Supreme Court particularly if the other parties have not consented to that course of action and while those steps are being taken stay the proceedings in this Court. Hence, I agree with the conclusion of the Registrar."

[9]

Category 1.5 documents and s 122(2) of the Evidence Act - Grounds 1 and 2 26Komatsu pointed out that, by definition, this category requires discovery of documents that are privileged under ss 118 and/or 119 of the Act. Marsh has alleged that the relevant privilege has been "waived". Komatsu characterised Marsh's argument as no more than a submission that legal advice is relevant to the issues in the case. Section 122(2) does not apply when documents are relevant. It only applies if the privilege holder has acted in a way that is inconsistent with it objecting to the disclosure of the privileged documents. In this sense, s 122(2) conforms to the common law position as stated in Mann v Carnell , where a waiver of privilege is brought about by an inconsistency between the conduct of the privilege holder and maintenance of the confidentiality, which the privilege is intended to protect. Whilst notions of fairness might inform that analysis, there is no overriding principle of fairness operating at large: see Mann v Carnell at [29]. 27In a case of "issue waiver" it is not sufficient that the legal advice is relevant to the proceedings brought by the privilege holder. What is required is an express or implied assertion about the content of the legal advice: see Archer at [48]; Bailey at [5] and [136]; Federal Commissioner of Taxation v Rio Tinto Ltd [2006] FCAFC 86 at [52] - [54]; DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499 at [95] and [97]. 28In the present case Komatsu has done no more than plead its case against Marsh in the following relevant way. Kalgoorlie made the "Western Australian Claim" against Komatsu. Komatsu's insurers declined to indemnify Komatsu in respect of that claim. Komatsu settled the claim by agreeing to pay $10M to Kalgoorlie. Pursuant to a separate settlement with the insurers and others, Komatsu agreed to make a "net contribution" of $2.1M to the settlement. The "net contribution" was reasonable. Komatsu's loss from Marsh's conduct was, relevantly, the "net contribution". 29Komatsu did not plead that the $10M settlement was reasonable. There was no conduct by it that was inconsistent with it maintaining confidentiality in any legal advice about the Western Australian Claim or its settlement. (Komatsu does not claim privilege over its legal advice about the separate settlement with its insurers and has disclosed such advice.) 30A privilege holder does not act inconsistently with maintenance of confidentiality over legal advice merely by suing for compensation for loss constituted by a settlement of another dispute: Yokogawa Australia Pty Ltd v Alstom Power Ltd (2009) 262 ALR 738. Even if the privilege holder alleges the settlement was reasonable (which Komatsu does not), there is no inconsistency unless reliance is specifically placed on the legal advice in order to prove the reasonableness. However, Komatsu re-emphasised that in any event the reasonableness of the $10M settlement with Kalgoorlie is not relevant to its case against Marsh. 31Komatsu's claim against the insurers was made under a liability policy. A liability may be established by judgment, award or settlement: Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd [1974] HCA 3; (1974) 130 CLR 1 at 26. In the present case, Komatsu's liability was established by the deed of settlement dated 7 July 2009 by which Komatsu became liable to pay $10M. The reasonableness or otherwise of that settlement never arose as an issue between Komatsu and the insurers who consented to it and who were joined as parties to the settlement deed with Kalgoorlie. 32The basis upon which the insurers disputed indemnity was limited to the three policy exclusions for which Komatsu blames Marsh. The insurers did not dispute indemnity upon the basis that the settlement with Kalgoorlie was unreasonable, nor was such a defence open to them following their consent. In those circumstances the principles arising from cases such as Edwards v Insurance Office of Australia (1934) 34 SR (NSW) 88, involving a dispute about the reasonableness of a settlement between the insured and a third party claimant, are completely irrelevant. 33In the present case, Komatsu's settlement of its claim against the insurers, by making the $2.1M "net contribution", was a compromise of the dispute about the three exclusions, not some other dispute about reasonableness. The rights asserted by Komatsu against Marsh in these proceedings will stand or fall regardless of whether or not the settlement with Kalgoorlie was reasonable. Nothing in the Pezzano analysis requires Komatsu to prove the reasonableness of the $10M settlement with Kalgoorlie. The settlement referred to at [128] and [129] of Pezzano is the settlement between the insured and the insurer. 34Marsh does not plead that the settlement with Kalgoorlie was unreasonable, but even if it did it would make no difference to Komatsu's privilege. The conduct that gives rise to the inconsistency must be conduct of Komatsu, not Marsh. 35Furthermore, category 1.5 is not limited to disclosure of legal advice about the settlement of the Western Australian Claim. It also includes legal advice on all aspects of the Western Australian Claim. That claim ran for over three and a half years before it was settled and was concerned with disputes about heavy mining equipment. Legal advice would have been given on numerous aspects of the litigation in the ordinary course of events. There can be no suggestion that there has been a waiver of the full width of legal advice that might have been given. Category 1.5 does not differentiate between the legal advice that is said to be relevant and any that may not be. 36Her Honour accepted the core proposition, and repeatedly stated that the reasonableness of the settlement with Kalgoorlie was not an issue in this case: see [20], [54] and [57]. Her Honour set out the Registrar's finding and conclusion that there was no waiver: see [56]. Even though her Honour's reasoning was intertwined with the matters relating to s 131, her conclusion was correct. Her Honour evidently exercised her discretion under UCPR 49.19 not to interfere with the Registrar's decision and there was no error in the exercise of that discretion warranting intervention on appeal.

[10]

Category 1.4 documents and s 131(2)(g) of the Evidence Act - Ground 3 37Komatsu conceded that her Honour's reasoning was "difficult to follow" but contended that the result at which she arrived was nonetheless correct, namely, that Komatsu cannot be ordered to disclose documents which fall within s 131(1). That was the conclusion reached by the Registrar, set out at [49], with which her Honour declined to interfere. 38Category 1.4 by definition includes documents falling within s 131(1). Unless s 131(2)(g) applies, there is no obligation upon Komatsu to disclose these documents. When the order for discovery was made on 16 December 2009, Komatsu became obliged to prepare and serve a list of documents within the agreed categories and to produce the listed documents for inspection, but not any "privileged documents": UCPR 21.5(2)(a) . Documents within s 131(1) are "privileged documents": UCPR Dictionary . 39In addition to not being obliged to disclose the mediation papers, Komatsu is not entitled to disclose them. For Komatsu to do so would leave it in breach of three separate obligations: 1.An order made by the Supreme Court of Western Australia. 2.Section 71(1) of the Western Australian Supreme Court Act 1935 . 3.Clauses 11(a), 12(b) and 12(c) of the mediation agreement dated March 2009 between Komatsu, Kalgoorlie, the insurers and five other parties. 40Komatsu submitted that it is not correct to say that disclosure is required by compulsion of law, which circumvents the terms of the mediation agreement. Komatsu is compelled by law to make a list, but not to disclose documents within s 131(1). In either event, neither orders made by the Supreme Court of Western Australia nor s 71 is so qualified. 41Section 131A does not operate to require disclosure of documents that may in the future fall within s 131(2)(g). To the extent that her Honour held otherwise, at [48], Komatsu formally contended that she erred. 42According to Komatsu's submission, s 131(2)(g) is enlivened when a specific event occurs, namely when evidence "has been adduced" in proceedings which is likely to mislead the Court. In those circumstances, additional without prejudice evidence may be adduced, but only for the limited purpose of contradicting or qualifying "that evidence", that is to say, the specific misleading evidence that has already been adduced. The modification to s 131(2)(g) that Marsh argues is made by s 131A is to make it apply in circumstances that are not covered by the words of s 131(2)(g). If Marsh's approach were correct, the operation of s 131(2)(g) would depend not upon or by reference to certain evidence that has already been adduced, but upon or by reference to unspecified and possibly speculative evidence that may be adduced in the future. 43Komatsu contended that s 131A was not intended to operate in that way. It only permits "modifications" that do not extend to the extreme degree suggested by Marsh and only permits modifications that are "necessary". In the present context, that would mean necessary for the purpose of applying the wording of the provisions of Part 3.10 to the situation where a disclosure requirement is being complied with, rather than the situation where evidence is being adduced in proceedings. An example of a necessary modification is to read the prohibition on evidence being "adduced" in s 118, s 119 or s 131(1) as a prohibition on giving information or producing documents. 44Komatsu contended that there are some provisions in Part 3.10 that will have no application to discovery, even after necessary modification by s 131A. Section 131(2)(e) is an example. Section 131(2)(g) is said to be another. Section 131A does not require that every provision of Part 3.10 be made applicable to discovery. 45In any event, Komatsu contended that Marsh has not demonstrated that misleading evidence "may be" adduced at the trial of this case, assuming that there is one. Accordingly, s 131(2)(g) has no application even as modified in the way contended for by Marsh. 46In these circumstances Komatsu submitted that the result arrived at by her Honour was correct. There is no basis for interfering with her decision declining to interfere with the Registrar's refusal to order disclosure of the category 1.4 documents.

[11]

The order to compel Komatsu to take unspecified steps 47The order sought is novel. It purports to compel Komatsu to take unspecified steps to have a privilege arising under s 131 given up or surrendered, not only by Komatsu, but also by third parties. Komatsu submitted that there could be no basis for such an order in this case. In any event, the order sought is unworkable and "potentially draconian". What is meant or contemplated by "all reasonable steps" is not specified. Neither Komatsu nor an adjudicating tribunal can have any way of knowing whether or not the order will, or may, have been complied with. 48Komatsu submitted that this Court was being asked to facilitate a futility. The practical effect of the order would be that Komatsu would have to make an application to the Supreme Court of Western Australia to vary its order. However, apart from Komatsu's obligations under the order, Marsh has separate obligations under s 71 and clauses 11 and 12 of the mediation agreement. Even if the Supreme Court of Western Australia were willing to vary its own order, it has no power to relieve Marsh of these other obligations. 49Both s 71 and the mediation agreement will continue to apply unless all the other parties consent. So much is unsurprising given the nature of the privilege in question. In that context, Komatsu contended that it was "improbable" that the Supreme Court of Western Australia would vary its own order without the consent of all parties concerned. Komatsu has sought such consent. Kalgoorlie does not consent. 50Section 61 of the Civil Procedure Act is a general directions making power. Whether or not that provision extends to empower the Court to compel Komatsu to take steps to circumvent the privilege of other parties, the Registrar was correct to hold that such an order is not appropriate. Such a power should not be used to compel a party to obtain documents from a third party unless there is a real likelihood that the third party will consent, as in Sabre Corporation Pty Ltd v Russ Kalvin's Hair Care Company (1993) 46 FCR 428 at 432, where the third party had a common commercial interest with the party that was subject to the Court's order. There is no such likelihood in the present case. 51Komatsu submitted that the Registrar was right to exercise his discretion to decline to make the order sought and her Honour was right not to interfere with that decision upon review.

[13]

Category 1.5 documents - Grounds 1 and 2 53In the case of Idoport , her Honour Ward J had cause to consider the issue of waiver in a related context. At [110] - [111], her Honour said this: "[110] More recently, in Yokogawa, the Court of Appeal in South Australia considered the issue of implied waiver of legal professional privilege in the context where an issue had been raised as to the reasonableness of a settlement (said to have been caused by and properly attributable to the negligence there alleged). [111] Their Honours held that the issue of reasonableness was to be determined objectively, such that if reasonableness could be proved without calling evidence of the legal advice obtained in relation to the settlement, no implied waiver of legal professional privilege would arise by virtue of the inconsistent conduct of the case and that any legal advice received, which might have been relevant to the relevant party's state of mind had not been put in issue merely by denying the unconscionability of the settlement. At [107], it was noted (there in the context of an alleged implied waiver of without prejudice privilege) that "The ultimate question is whether there is an inconsistency in raising an issue but attempting at the same time to prevent a proper examination of the issue by maintaining the privilege. An assessment has to be made as to whether there is unfairness as a result of the inconsistency and, if so, the extent of that unfairness ". There, it was said to be open to the party claiming privilege to argue its case on the reasonableness of the settlement by reference to objective factors (namely, its contractual obligations to a third party, the fact of delay and the legal consequences of its failure to meet its obligations to that third party, against which background the settlement was reached. (In passing, I note that there was a recognition that an implied waiver might still occur during the course of the trial if the case was expanded beyond those circumstances (so as to rely on the course of the negotiations that had taken place in relation to the settlement), see [109].)" 54It is also instructive to consider what was actually said by Duggan J in Yokogawa at the cited passages: "[106] I have expressed the view that a party can impliedly waive without prejudice privilege in subsequent proceedings involving a third party. There are cases in which a waiver has been implied by pleading which put in issue the reasonableness of a settlement. The question arises whether there has been such a waiver in the present case. [107] I can see no reason why most of the general considerations relating to waiver of legal professional privilege should not apply also to without prejudice privilege. The ultimate question is whether there is an inconsistency in raising an issue but attempting at the same time to prevent a proper examination of the issue by maintaining the privilege. An assessment has to be made as to whether there is unfairness as a result of the inconsistency and, if so, the extent of that unfairness. [108] I have referred to the way in which Alstom intends to put its case on reasonableness. I do not regard the limited scope of Alstom's case on this issue as resulting from a tactical attempt to prevent access to without prejudice communications. I attempted to point out earlier in these reasons that the circumstances of the case enable Alstom to argue its case on the reasonableness of the settlement by reference to its contractual obligations to FPP, the fact of delay, the legal consequences of its failure to meet its obligations to FPP and, against that background, the settlement which was arrived at. [109] If Alstom attempts to expand its case beyond these circumstances at trial so as to rely on the course of negotiations, the trial judge could be invited to consider a fresh application for disclosure. However, as the matter presently stands, I am of the view that there has been no waiver of this privilege." 55Ward J also referred to what was said by Beaumont J in his dissenting judgment in Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 at 157-8 as follows: "At this stage, BT has made no use of the legal advice in the proceedings. The advice is not pleaded by BT as an ingredient of its claim. BT does not assert that it relied, or did not rely, on the advice... Questions of degree may be involved, but the advice is not, obviously, central to that issue in the same way as the advice given by the solicitor on the election was, obviously, central to the plea in Thomason, at least as the issues in Thomason had evolved in the course of the trial." 56In the present case Komatsu has pleaded that its net contribution to the Western Australian settlement was reasonable. To the extent that proof of that fact is an essential element in Komatsu's cause of action against Marsh, it would necessarily bear the onus of doing so. However, a bare assertion in its pleading that the contribution was reasonable will not, standing alone, be sufficient either to establish that it was as a matter of fact or to discharge the relevant onus. Komatsu will still be required to prove both that it suffered loss and damage and the quantum of that loss. In that sense, a pleading that its contribution to the settlement was reasonable is neither an essential nor the only ingredient of its claim, and is probably redundant. The quantum of any loss that Komatsu may become entitled to recover from Marsh will have to be established regardless of its assertions concerning the reasonableness or otherwise of any sum it chose to contribute to the settlement of the Western Australian proceedings. Adopting the reasoning of Gummow J at [67] in Pezzano , it was not within the reasonable contemplation of Marsh and Komatsu that the measure of Marsh's liability to Komatsu would be determined by the conduct of parties over whom Marsh had no control, namely Komatsu and the insurers. Marsh had not undertaken to indemnify Komatsu against any shortfall upon a settlement of litigation between it and the insurers 57In the Western Australian proceedings, Komatsu was potentially uninsured to the extent that its insurers could successfully rely upon the relevant exclusion clauses. It was prudent in the circumstances, therefore, for Komatsu to take such steps as it could to limit the potentially uninsured liability that it faced at the suit of Kalgoorlie. Termination of the Western Australian proceedings was a step that had this effect and was consistent with such obligation as it had to mitigate its loss. 58However, Komatsu does not in terms or by implication plead that it took any particular step in the Western Australian proceedings relying upon legal advice or that any element of its cause of action against Marsh can be established by proving that it did so. Nor can it be said that any such pleading arises by inference. As I have indicated, Komatsu presently remains confronted with the not inconsiderable task of establishing the quantum of the loss that it would have been required to bear itself if the insurers had been able successfully to rely upon the exclusion clauses to deny or avoid indemnity to Komatsu in whole or in part. Any legal advice that it may have received concerning those issues is wholly beside the point as the pleaded case against Marsh now stands. 59It would be different if Komatsu sought originally or at some later stage by amendment to pray in aid the advice that it received either to justify or support some particular course of action that it may have taken in the Western Australian proceedings. At one level such advice would be irrelevant because, "standing alone, the fact that a litigant was advised to settle at a particular figure reveals little or nothing about whether the settlement reached was reasonable": per Hayne J at [130] in Pezzano . 60It is not until a party acts inconsistently concerning the effect of the advice received that the privilege will have been waived. This is no more and no less than an application of principles that preclude the approbation of the fact of reliance upon legal advice to advance a party's case with a simultaneous reprobation of attempts by an opponent to scrutinise its content. As this matter presently stands it is no part of Komatsu's pleaded case that the legal advice it received, or even the fact that it received legal advice at all, is a link in the chain of proof leading to the quantification of its loss. Consistently with the authorities, if Komatsu sought to utilise the advice, or the fact that it had received advice, for such a purpose it would then have waived any privilege attaching to it. I agree that it is not sufficient that the legal advice may be relevant to the proceedings brought by Komatsu as the privilege holder. What is required is an express or implied assertion about the content of the legal advice, which assertion Marsh cannot verify or contradict without access to the very documents that contain it. 61In my opinion there has been no waiver. Her Honour did not err in coming to that conclusion.

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Category 1.4 documents - Ground 3 62I also consider that Komatsu cannot be required to disclose documents that fall within s 131(1) of the Act. Section 131(2)(g) of the Act does not operate in this case to oblige Komatsu to do so. This is for the following reasons. 63The touchstone for determining whether or not s 131(2)(g) of the Act has been engaged in a particular set of circumstances must first be the identification of the evidence that it is suggested is likely to mislead the Court. The ordinary application of s 131(1), corralling evidence of a communication or a document in connection with attempts to negotiate a settlement of a dispute, will only be avoided if the Court is likely to be misled if evidence of the communication or document is not adduced "to contradict or to qualify that evidence ". In the course of a trial, " that evidence " will be capable of identification without difficulty: it will be evidence "that has been adduced in the proceeding". It will readily provide the factual context within which the question of whether or not the Court is likely to be misled can be determined. 64In the present circumstances, that particular, and necessarily certain, context is not apparent. The only proffered context that is capable of guiding the inquiry is the pleadings. Marsh's contention requires the Court to hypothesise or, more accurately, to speculate from the way the case against it is configured, that a misleading evidentiary picture will inevitably, or at least arguably, emerge if the documents to which the s 131(1) exclusion applies are not produced. That would require the section to be read as applying not only to evidence that "has been adduced" but also to evidence that will be or may be adduced at some as yet unreached stage in the course of the proceedings. That does not seem to me to be either an adequate or sound basis upon which to subvert the sanctity of settlement negotiations recognised by the exclusion for which s 131(1) provides. 65In any event, an examination of the pleadings does not suggest that any part of Komatsu's case is directly or indirectly based upon anything that transpired at, or arose out of, the mediation of the Western Australian proceedings. It seems to me that Marsh's argument that Komatsu's case is based upon what transpired or arose out of the mediation is the product of a misapprehension about the task that confronts Komatsu in this litigation. That task involves the objective demonstration that it has suffered loss as the result of the alleged breaches by Marsh. The break up of the settlement payment to Kalgoorlie between various causes of action does not go to an objective assessment of its recoverable loss but to subjective assessments made by Komatsu or its advisers. That will not bind Marsh and Komatsu has not pleaded that it does. 66The same applies to the insurers' attitude to reliance upon the pleaded exclusions. It is obviously not unknown for an insurer to take and to maintain a position about the meaning and effect of clauses in an insurance policy that does not ultimately carry the day. Komatsu will be required to establish what application the exclusion clauses have or would have had in fact, not what the insurers maintained they had for the purposes of adopting some particular position at mediation. Any discount of Komatsu's claim to be indemnified that may be attributable to the perceived strength or weakness of the insurer's reliance upon one of other of the exclusions will also not bind Marsh in this litigation. 67As appears above, Marsh has submitted that the mediation material could inform the reasonableness of any claimed reliance by Komatsu upon legal advice and the accuracy of any underpinning premises for such advice. However, as I have already observed, Komatsu does not claim reliance upon legal advice as part of its case. The proposition that such an approach somehow provides the certain context for evidence that may be called in the future that, unless contradicted or qualified, would be likely to mislead the court, has no foundation in this case. The assessment of the current topic would call for review in the future in the event that Komatsu did decide to claim reliance upon legal advice as part of its case. 68I also accept that in addition to not being obliged to disclose the mediation papers, Komatsu is not entitled to disclose them. So much flows from the orders made by the Supreme Court of Western Australia, s 71(1) of the Western Australian Supreme Court Act 1935 and specified clauses of the March 2009 mediation agreement. Marsh sought relief below to the effect that Komatsu should be ordered to take proceedings in its capacity as a party to the Western Australian proceedings to seek an order varying orders made by the Supreme Court of Western Australia in those proceedings in the following terms: "8. Every mediation shall be conducted on a confidential basis. The parties shall not tender in evidence in any proceedings or disclose to any party who did not attend the mediation anything said or done, any communication (whether oral or in writing), or any document made or created in the course of or for the purpose of the mediation except: ... (c) with the express written authority of the mediator or with the express written consent of all of the parties to the mediation." 69There are six parties to the Western Australian proceedings. Her Honour's reasons (at [68] of her Honour's judgment) for refusing to make an order in the terms sought have been recited earlier in these reasons. In addition to her Honour's concerns, it seems to me that no basis has been suggested or identified that would realistically induce, far less compel, the Supreme Court of Western Australia in a contested application to revoke or rescind orders that it had previously made with the consent of all six parties when the consensual variation of or release from the terms of the orders is specifically contemplated by the orders themselves. In other words, if Komatsu cannot broker the consent of all parties to the setting aside of the order in question by directly approaching the parties concerned, what possible juridical basis could there be for Komatsu to obtain the orders if one or more of the parties to the Western Australian proceedings opposed it. The order that is sought is either futile or unnecessary. I would decline to make it on that ground alone. Her Honour's refusal to do so was not erroneous. 70I consider that her Honour's conclusions were correct. There is no basis for interfering with her Honour's decision declining to interfere with the Registrar's refusal to order disclosure of the category 1.4 documents.

Komatsu Marketing Support Australia Pty Ltd v Marsh Pty Ltd

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