Discussion
39 It is common ground that the report (including its supporting statements) attracted client legal privilege. The assessor's investigation elicited confidential communications that were made for the sole or dominant purposes of obtaining legal advice and services in relation to defending the plaintiff's claim (cf Evidence Act 1995 (NSW), ss118, 119; District Court Rules, Pt 28 r18(2)).
40 Client legal privilege reposes in the client or clients who were seeking legal advice and/or services when the report was commissioned. Identification of the client(s) in relation to the report is not however necessarily the same issue as identification of Turks' clients. The assessor's report was commissioned by the insurer before it retained Turks on behalf of the insured and itself.
41 If two persons join in a legal enterprise, the privilege is their joint privilege. From this it follows that the privileged communication may be disclosed to each without breach of privilege, because each client shares an interest in the subject matter of the communication. Joint clients may not maintain privilege against each other (Re Konigsberg (a bankrupt), ex parte the Trustee v Konigsberg [1989] 3 All ER 289 at 297). The parties are together entitled to maintain their privilege against the rest of the world, and this means that waiver by one is insufficient to affect the other's privilege (see generally Farrow Mortgage Services Pty Ltd (in liq) v Webb (1996) 39 NSWLR 601 at 608A-D and Evidence Act, s122(5)).
42 Joint privilege is distinct from shared or common interest privilege. In the latter situations, disclosure amongst persons with the common interest need not result in a waiver of privilege by the party making it. The party or parties entitled to assert the privilege may still assert it against strangers.
43 An insured and insurer may have a shared or similar interest in advancing a claim on behalf of the insured or in defeating a claim against the insured and this may give rise to a shared or common interest privilege (Bulk Materials (Coal Handling) Services Pty Ltd v Coal and Allied Operations Pty Ltd (1988) 13 NSWLR 689, Farrow Mortgage Services at 608F).
44 But it does not follow that insurer and insured are incapable of jointly retaining a lawyer in circumstances giving rise to a joint privilege. Whether they have done so, or whether the acts of one should merely be seen as in its own interests or merely as agent for the other, depend on the particular facts. These will include the terms of the insurance policy, in particular the terms of any clause dealing with the insured's duty to assist the insurer.
45 Several cases have considered the question of identifying the client when an insurer appoints a solicitor to defend a claim by a third party against the insured. Many of them were reviewed in Nicholson & Ors v Icepak Coolstores Ltd [1999] 3 NZLR 475 (High Court of New Zealand, Penlington J), a decision that illustrates the overlapping of issues of privilege and fiduciary duty that lies at the heart of the respondent's case on appeal.
46 In Nicholson, an insurer declined indemnity on the basis that the insured had breached a condition of its public liability policy prohibiting the making of admissions. The insurer had previously accepted liability under the policy and had instructed solicitors in the defence of the plaintiff's claim for damages. After the insurer purported to decline cover the insured filed third party proceedings seeking indemnity under the policy.
47 The insurer sought to adduce evidence from the solicitor who had previously acted in the proceedings to justify declinature of indemnity. That evidence related to communications from Mr Van Eden, the principal of the insured, that were said to be in breach of a condition requiring the insured to assist the insurer. The insurer submitted that the solicitor was solely its lawyer at the relevant time. The insured took the opposite position, contending that the solicitor was its alone.
48 Penlington J first referred to the rationale of client legal privilege. He then addressed the terms of the policy. The insurer had the right to take over and conduct, in the name of the insured, the defence of the claim. This is what had happened when the insurer chose the solicitors and assumed responsibility for their fees. The solicitors later advised the plaintiffs that they were acting for the insurer and the insured. Later they filed a defence in the name of the insured, asserting that they were the solicitor on the record for the insured.
49 His Honour cited a comprehensive article by Chris Chapman and Jillian Mallon, "Conflicts of Interest Faced by Solicitors Instructed by Insurers to Conduct Litigation on Behalf of Insureds" (1996) 26 VUWLR 679. He also discussed English, American, Australian and Canadian cases.
50 The cases support the view that the insurer-retained lawyer assumes a lawyer-client relationship with the insured, but not necessarily to the exclusion of a similar relationship with the insurer (Groom v Crocker [1939] 1 KB 194 at 202-3, 226-7, Brown v Guardian Royal Exchange Assurance plc [1994] 2 Lloyd's Rep 325 (CA) at 330, State Government Insurance Commission (SA) v Paneros (1988) 48 SASR 349.
51 In the present case, there is nothing in the policy to exclude a solicitor-client relationship as between the insured and the solicitor retained at the request of the insurer. Nor were there any conditions in the insurer's favour reserving the insurer's rights or stipulating against the possibility of the insurer having waived its rights to decline cover (cf Sutton, Insurance Law in Australia 3rd ed (1999) p1107). Such stipulations may have offended Part 7 of the Workers Compensation Act. In any event, the litigation of any issue as to waiver lies in the future.
52 Situations of conflict of interest may arise that can impact upon the insurer's duty and/or the lawyer's duty. Thus, if the client insured discloses confidential information to the lawyer, there may be circumstances where the lawyer must keep it confidential. These issues do not directly arise in the present case because no one suggests that the loss assessor assumed any fiduciary or professional obligation towards the insured that could equate with a solicitor-client relationship. Furthermore, the insurer already had its own copy of the assessor's report by the time that Turks sent its file to Moray & Agnew.
53 In Nicholson, Penlington J held that a solicitor-client relationship existed (between the insured and the lawyer) because the insurer instructed the lawyer to represent the insured in the plaintiff's proceedings. The lawyer therefore faced a conflict of interest when the insured confidentially divulged information to him that was potentially adverse to its position under the policy. The solicitor's intended evidence about these matters was held inadmissible because legal professional privilege attached to what he was told by Mr Van Eden, his insured's principal. He should have declined to act further and he should not have disclosed to the insurer the information which he gleaned from the insured.
54 This reasoning did not deny that a solicitor-client relationship existed as between the insurer and the lawyer in Nicholson. Indeed, the Australian case law generally accepts that the insurance defence lawyer may have two clients, although this may not be the case in situations where statutory policies under compulsory third party legislation are involved (Chapman & Mallon, op cit; Geraldine Gray "Conflicts and Waiver of Privilege in the Insurance Relationship" (1988) 10 Ins LJ 75 at pp76-78). Cases recognizing that solicitors retained by the insurer may have both insured and insurer as client (at least until a situation of conflict arises) include Verson Cleaning International v Ward (1996) 9 ANZ Ins Cas ¶61-352 (FCSA) at 76,905-6, Kennedy v Cynstock Pty Ltd (1993) 3 NTLR 108, C I & D Industries Pty Ltd v Keeling, NSWSC, unreported, Abadee J, 26 March 1997 and Garry F S Boyce t/as Hunt and Hunt Lawyers v Goodyear Australia Ltd, NSWCA unreported, 16 September 1996. Generally, see Sutton op cit at s15.101.
55 It does not follow that everything disclosed to a solicitor by one client can be divulged by the solicitor to the other client. The policy condition about the insured's duty to assist its insurer was closely examined in Nicholson on the basis that strong language would be required before rights of confidentiality and undivided loyalty owed by the solicitor to the insured client and the client-legal privilege touching that relationship could be ousted (see at 499). Penlington J cited with approval the remarks of McTague J in Marshall v Adamson [1936] 4 DLR 383 at 385 where he said:
Even in the circumstances of this case, the insured is entitled to assume that his communications to the solicitor, who is the solicitor for the insurance company, will be accorded the same treatment as his communications to his own personal solicitor. The company may have a right (I do not even say it has a right) to allege that it is not liable as a result of disclosure so made, but it should not be permitted to attempt to prove non-liability by the evidence proposed to be adduced here. To hold otherwise would be to open the door to a great deal of abuse in insurance cases. It must be held that such evidence is not admissible.
56 Penlington J rejected the submission that both the insured and insurer had a common interest in the information given by Mr Van Eden to the lawyer.
57 This framework of analysis is consonant with other Australian cases that were not considered in Nicholson. In my view, there is no doubt that Turks became the respondent insured's solicitor when, on instructions from the insurer, they filed a defence in the plaintiff's proceedings (see also Garry F S Boyce t/as Hunt and Hunt Lawyers, C I & D Industries, FAI General Insurance Co Ltd v ACN 010 087 573 Pty Ltd [2000] 11 ANZ Ins Cas ¶61-464). It follows that any information divulged confidentially by the insured to the solicitor would attract client-legal privilege whether or not the insurer was also a client. On top of that, the solicitor would have been under duties of confidentiality and undivided loyalty to the insured client not to divulge that information to the insurer without permission to the extent that the information was adverse to the insured's interests, unless of course the policy conditions clearly overrode any such obligation (see esp FAI and TSB Bank plc v Robert Irving & Burns (a firm) (Colonial Baltica Insurance Ltd, third party) [2000] 2 All ER 826. See also ACN 007 838 584 Pty Ltd v Zurich Australian Insurance Ltd (1997) 69 SASR 374).
58 But what is the situation with regard to the claims assessor's report in the present case? There are several vital distinctions between the present case and cases such as Nicholson where information disclosed by the insured to a solicitor revealed a breach of the policy entitling the insurer to avoid cover. The assessor collected information relevant to the defence of the plaintiff's claim inter alia from the insured or employees of the insured. No conflict of interest had arisen by that stage, and there is no suggestion that the assessor was secretly working in the insurer's interest (contrast TSB Bank at 834-5). The assessor disclosed to the insured that it had reported to "our client, Mercantile Mutual" in its letter of 6 June 2000. There was no breach of fiduciary duty on the assessor's part when it forwarded its full report to both the insurer and Turks. That was what the assessor had been retained to do. Its instructions came from the insurer, but were in conformity with the insurer acting in defence of the plaintiff's claim in its and its insured's interests.
59 The information gathered by the assessor was subject to client legal privilege at least as regards the insured, but not exclusively so.
60 The claims assessor was undoubtedly retained by the insurer and in its interest (not to the exclusion of the insured's interest). The assessor visited the insured's premises and interviewed the insured and others who knew the circumstances of the accident. Information was freely given which was relevant to assessing the nature of the plaintiff's claim. This included such of the information as related to the issue of whether the plaintiff was a deemed worker, because that had a bearing on the extent of the statutory caps on damages recoverable against the insured and insurer if the insured was liable as an employer.
61 The relevant Employer's Insurance Policy provided the respondent with insurance as required by Part 7 of the Act. Some of the Policy's terms and conditions were mandatory. This included the scope of cover, extending to workers who were deemed employed because of Schedule 1 to the Act. Conditions 5 and 6 were in compliance with s159(2) of the Act. These stipulated that the insurer was directly liable to a worker and the worker's dependents to pay compensation under the Act or any other amount independently of the Act for which the employer/insured was liable and indemnified under the policy (cl 5); and that the insurer was bound by and subject to any judgment given against the employer/insured in respect of any liability for which the insurer was liable to indemnify (cl 6). Clause 11 entitled the insurer to use the name of the employer/insured in respect of anything indemnified under the policy, including the bringing, defending, enforcing or settling of legal proceedings for the benefit of the insurer. The clause also required the employer insured to comply with all reasonable requests by the insurer for information, assistance and documents to enable the insurer to settle or resist a claim.
62 These provisions of the policy reinforce my conclusion that Turks were the solicitor for the insurer as well as the insured, at least until a situation of conflict arose. This was not an isolated matter in which Turks were retained by the insurer. There was an ongoing relationship in which particular matters were referred from time to time (cf Mr Turk's evidence at pp103, 106-7). In my view, the terms of the letter of 25 May 2000 that have been emphasized above put the matter beyond dispute. Turks were retained (by the insurer) to file a defence "to protect our interests and those of our Insured". And Turks were retained to forward to the insurer "advice with respect to liability, quantum and recovery, if any in the near future". The solicitor was told that the assessor would be conducting "all necessary enquiries". (Nothing turns on the mistaken reference to Apex Investigation.) The assessor's letter to the insured of 6 June 2000 has already been referred to.
63 The question whether the insurer was in some way estopped from denying indemnity by reason of its earlier conduct is not the present issue.
64 In my view, Coorey DCJ erred when he held that the insured could invoke legal client privilege as against the insurer with the consequence that the insurer could be compelled to hand over all copies of the assessor's report, even the copy sent directly to it on about 2 June 2000. Turks were acting for both insurer and insured in the early stages of the litigation, before any conflict of interest arose. But in any event, the report was commissioned by the insurer, inter alia for its own purposes. When the assessor sent a copy directly to the insurer this involved no breach of duty on the assessor's or insurer's part.
65 Since the insurer obtained a copy of the report legitimately, ie without breach of privilege or any fiduciary duty, the processes of the District Court should not have been used to wrest the report from it.
66 Although I disagree with the primary judge's conclusion and would hold that there was a joint privilege in the report when commissioned, I should indicate that there would undoubtedly have been common interest privilege if (as Coorey DCJ held) the insured was the sole client. The consequence would have been that the privilege would not have been lost merely because copies of the report were sent to the insurer and its solicitor (Moray & Agnew). Nothing however turns upon this, because there is no third party seeking access to the privileged material. Loss of privilege through waiver is not in question.