Plaintiff v Defendant

Supreme Court of Victoria|2010-11-24|Before: MUKHTAR AsJ

DISCOVERY AND INSPECTION - Litigation privilege - Claim for indemnity under insurance policy - Appointment of assessor by insurer - Whether litigation was contemplated - Whether contemplation of litigation accounts for documents having been made - Question of fact - Test to be applied - Order for inspection made.

1 The plaintiff owns land on which it engaged a builder to construct a 5 storey block of apartments. As the builder was excavating the land near a boundary, the soil collapsed and damaged some of the adjoining private and public property. The builder, now in liquidation, had taken out a Contract Works and Public Liability Policy with the defendant. The plaintiff says it was also covered under the policy. It has sued the defendant for indemnity.

2 On 3 August 2010, a claims consultant of the defendant, Robert Winnel, swore an affidavit of documents. He listed 41 documents in a schedule which he said were privileged from production on the ground of legal professional privilege or client legal privilege. He says the documents:

Came into existence and were made in contemplation in view of this litigation for the sole and/or dominant purpose of obtaining and furnishing to the Defendant's solicitors evidence and information as to the evidence which would be obtained, and otherwise for the use of their solicitors to enable them to conduct this proceeding, and otherwise advise the Defendant.

In the usual omnibus way that claims for privilege are made in such affidavits, he also says that they are privileged because they constitute communications between the defendant's solicitors and a third party and were made when litigation was anticipated or commenced. But as I shall show later, it was no part of the evidence that the documents in question were procured by the defendant's lawyers. Indeed, there is no evidence that lawyers for the defendant were involved at the relevant time.

3 Out of the 41 documents for which privilege was claimed, the plaintiff seeks inspection of all but 12 of them. Judging by the descriptions given, the documents are communications between the insurer and an assessor, Technical Assessing (Vic) Pty Ltd. They are mainly e-mails and assessment reports.

4 In this application, the plaintiff contends that the communications between the defendant and its assessor appear to have come into existence for the purpose of the insurer conducting investigations into the facts of the case to properly inform itself. Therefore, it seeks an order requiring the defendant to give inspection of the documents for which privilege has been claimed.

5 I conclude the defendant has not discharged its onus of showing that there was a real prospect of litigation at the relevant time. It has been asseverated, but to my mind, it has not been shown that the communications were conducted for the dominant purpose of obtaining material for submission to legal advisors in apprehended litigation. The more evident purpose was to enable the insurer to ascertain facts or investigate the matter. Any possible use in possible litigation was secondary or contingent. Just because an insurance company is not unaccustomed to being on the receiving end of litigation, or, just because the matter may one day end up on the desk of a lawyer does not make documentation privileged.

6 This requires an examination of the evidence that was adduced explaining the coming into existence of the documents.

7 The plaintiff is the owner of land at 10-12 Breese Street, Brunswick. It engaged a builder, Buckner Construction Group to construct a five-storey apartment block on the premises. The contract value of the works was $7 535 000. Under the terms of the building contract, the builder was obliged to obtain insurance to cover a number of risks including loss and damage to the project site, cost of rectification and damage to any other property. It was claimed that the builder over-excavated on the site and caused damage to the land, to adjoining premises and to a concrete laneway and footpath belonging to the local council.

8 One of the issues on the pleadings is whether the plaintiff truly is a beneficiary under the policy. Without descending into details, the plaintiff contends that the benefit of the policy extends to it as "the Principal" of the works. The defendant contends that only a "Named Insured" has the benefit of the policy and as the plaintiff is not a named insured, then it is not entitled to any indemnity. There are other defences, and exclusions under the policy to which I need not refer.

9 The starting point is correspondence dated 15 December 2008 from the plaintiff's project manager, Charter Kreck Kramer, to the builder. The letter stated that the plaintiff made (thereby) a "contract works and liability claim" against the builder for damage caused to an adjoining dwelling during underpinning works, damage to a concrete lane in Little Breese Street when a section of the road base was washed away, and damage to the footpath in Breese Street. That letter is dated the same day on which the builder was placed into liquidation. The letter is a little odd as it purports to make a claim against the builder under a insurance policy and asks for notification of the appointed assessor.

10 This was soon followed up on 15 January 2009 by a letter from the plaintiff's project manager to the defendant. The letter referred to the insurance policy held by the builder and said that: "We confirm a claim has been made against this policy". It attached a copy of the earlier letter to the builder. It asked for a claim number and the name of the person responsible for handling the claim at the insurance company.

11 Between those two letters, on 18 December 2008, the Moreland City Council had issued to the builder an Emergency Order under the Building Act requiring certain works to be carried out to support the excavation face to ensure that there was no further collapse to the soil and to ensure the excavation face could support the surcharge loads from the adjoining roadway. That work was carried out to the satisfaction of the council by 29 December 2008.

12 The next event was correspondence between the defendant and the liquidator's office. That occurred on 30 January 2009. The letter said where relevant:

We have recently received a demand (letter) from [the plaintiff's project manager] who was alleging that [the builder] is legally liable for damages sustained to their property.

Unfortunately, we have no record of any advice of a claim from yourselves, therefore we are unable to, in any way, respond to the demand received.

If you wish to report this incident, within the terms of your client's Annual Contract Works and Legal Liability policy, then we invite a submission of full and complete details of the incident. Please note, you may be responsible for any costs incurred, be they legal or otherwise, as a result of late notification.

...

13 The liquidator's office responded. On 25 February 2009, the liquidator told the defendant that the company may be liable for damages to the adjoining property, and attached a complete claim report prepared by the building company's director. The liquidator disclaimed, as liquidator, any liability in relation to the claim or any associated costs or damage to the adjoining property.

14 There is no need to refer to the builder's claim form in any detail. The defendant relies on a statement in paragraph 9 of that claim form in which the builder says that the person responsible for the damage was the consulting engineer who attended the site and, according to the claim form, confirmed that the engineer's drawings were incorrect. The form says that excavation took place according to the engineering drawings.

15 Messrs Ginnakopoulos, solicitors, then became involved as a correspondent on behalf of the plaintiff. On 5 March 2009, they told the insurer that they acted on behalf of the plaintiff, referred to the liquidator's claim report on behalf of the builder, and stated that the plaintiff was a beneficiary under the policy as "the Principal". They referred to a claim made by the owners of the adjoining property against the plaintiff for damage done as well as damage caused to the concrete laneway and the footpath. The letter stated:

It appears clear to us that the damage suffered is a type of public liability claim covered by the policy and for which CGU is required to indemnify our client as named insured party; and ...

Accordingly, our client submits its claim (and supporting document) to you for losses that had been sustained to public and adjoining property.

16 The claim form referred to an estimated cost of repair of $150 000 but said that was provisional because there were other costs for remedial works which were yet to be priced. The claim form also referred to expected consultants fees and legal costs for administering the claim.

17 In an e-mail to the plaintiff's project manager on 12 March 2009, the defendant's claims consultant, Keira Warren, gave a claim number, acknowledged receipt of previous correspondence and confirmed that CGU was the public liability insurer of the builder. I note that in this e-mail the defendant identifies itself as the insurer for the builder, without acknowledging the plaintiff as an insured person. The date of 12 March 2009 is significant because it is from that date that the defendant claims that litigation was in contemplation and accordingly seeks to justify its claim for privilege. The e- mail said

Please be advised we have appointed Technical assessing to provide a factual report, on a without prejudice and no admission of liability basis. In the meantime, kindly supply your specific allegations of negligence against out client.

18 On the following day, the assessor, Mr Paul Hacche, contacted the plaintiff's project manager by e-mail saying:

Further to our telephone conversation this afternoon, I confirm that I act for CGU Insurance in regard to the above matter. Could you please forward copies of the claim form and correspondence in relation to the incident in December 2008. I will contact the owners of 8 Breese St. [the adjoining private property] and arrange a time to inspect and advise you so we can meet on site to discuss the circumstances of the two incidents and the claims arising.

19 This request for documentation was repeated on 16 March 2009.

20 The evidence shows that site meetings occurred in March and May 2009 as well as meetings at the adjoining premises to inspect the damage. A significant communication occurred from the assessor to the project manager on 9 April 2009. It said:

Further to our telephone conversation today, I can confirm that the insurer, CGU Insurance, will indemnify the Insured under the policy, subject to the terms and conditions of the policy. There are effectively three claims that need to be treated separately.

[my emphasis]

21 The e-mail went on to refer to the claim by the owners of 8 Breese Street, the undermining of the concrete pavement in Little Breese Street and the damage to the footpath and road in Breese Street. The assessor also requested access to the consultant engineer's site instructions and drawings "as there may be some grounds for seeking recovery on the basis that the contractor was incorrectly advised and/or directed."

22 There seemed to be some question in the exchanges whether the owners of the adjoining property ought to pursue their claims with their own insurers, which they were not willing to do. There was also a question whether CGU would be liable for alternative accommodation for the owners until such time as the rectification works could occur. At all events, the evidence shows that by late May 2009 the assessor was still investigating the cost of rectification works and looking to report to the insurer "in relation to a progress payment to the principal". Come 8 July 2009, the plaintiff's project manager had submitted a table of costs associated with the insurance claim against the builder. The total was $989 621 which included $3 850 for legal costs, explained to be the works carried out by Messrs Ginnakopoulos on the insurance claim and the lodging of the claim to the insurer.

23 The claims consultant of the defendant, Keira Warren, has sworn two affidavits. The first of those, sworn 16 November 2010, asserts that the documents for which privilege has been claimed "have been created in anticipation of legal proceedings." She confirms that on 12 March 2008 an assessor was engaged "to make factual enquiries, assess the claim and provide their report in anticipation of legal proceedings." That affidavit is inadequate in my view. It is bereft of facts or an explanation of circumstances to show objectively how that anticipation was created.

24 Her second affidavit, sworn the following day, states that at the time the assessor was engaged "it was clear in my mind and therefore in the mind of CGU that legal proceedings would be issued arising out of the claims that had been made by that date [12 March 2009]". The affidavit states the following matters as having lead to that conclusion:

(a) She describes the letter from the plaintiff on 15 December 2008 as a "letter of demand". The reference in that letter to damage to municipal property and the adjoining property led to an anticipation that this would be a "growing claim" with legal proceedings to be anticipated by the neighbours and the local council. The service of the Emergency Notice by the local council "was another factor in further support of my firm view that the issue of legal proceedings, were imminent, ... "

(b) She says that putting the builder's liquidators on notice that they would be responsible for any legal costs incurred by reason of a late notification of the claim also shows that legal proceedings were anticipated.

(c) The reference in the claim form that the engineers were to blame "only confirmed and strengthened the conviction of my view that legal proceedings would be issued arising out of this matter" as a result of which she asked for details of the allegations of negligence.

(e) The fact that the insurer had received on 5 March 2009 correspondence from the plaintiff's solicitors "where they claim that CGU was required to indemnify the plaintiff as a named insured". She says that as the plaintiff is not a named insured "my view was that legal proceedings arising out of the subject occurrence would be issued by the plaintiff, who was already represented by a solicitor." Further, there was reference to "legal costs" of the insurance claim.

(g) There were relevant exclusions in the policy and "on this basis I also believed that legal proceedings should be issued by or on behalf of [the builder] with a claim made for indemnity under the insurance policy".

25 What does the law look to in an application such as this?

26 We are here concerned with the aspect of professional privilege known as litigation privilege. The law will regard as privileged from production the confidential communications that pass between the defendant and third parties that are made for the dominant, if not sole, use in litigation that is then existing or might reasonably be expected, anticipated or reasonably in contemplation: see Esso Australia v FCT[1] and see s 119 Evidence Act 2008 (Vic). The underlying rationale of the common law of legal profession privilege was stated in Baker v Campbell[2] and reaffirmed in Esso Australia Resources and FCT.[3] That is, a person is entitled to seek legal advice in the conduct of his affairs and legal assistance for the purpose of conducting actual or anticipated litigation without being prejudiced by having to disclose those communication But against that, there lies the policy and the desirability in the interests of justice in obtaining access to the facts relevant to the issues in order to get to the truth of the matter. Thus, claims for privilege ought to be carefully examined to ensure the integrity of the discovery process.

27 Thus, there are two questions to be asked. First, was litigation either pending or in contemplation? Secondly, did the communication or documentation come into existence for use in or in relation to pending or contemplated litigation? These are questions of fact.

28 The Victorian Court of Appeal's decision in Mitsubishi Electric Pty Ltd v Victorian WorkCover Authority[4] establishes or confirms that in its ordinary meaning "dominant" indicates the purpose which was the ruling, prevailing or most influential purpose. The Court also considered the variety of expressions used in the cases to describe the degree of apprehension ― not that such a matter is capable of formulaic evaluation, or a matter of mere verbiage for a deponent. Two propositions emerged. First, a mere vague apprehension of litigation is insufficient. Secondly, litigation is reasonably anticipated or in contemplation if its initiation is likely or reasonably probable.[5] The Court held there must be a real prospect of litigation, as distinct from a mere possibility, but (not adopting the test posited by Goldberg J in ACCC v Australian Safeway Stores[6]) it did not have to be more probable than not.

29 Whilst the anticipation or apprehension of litigation is a state of mind whereby someone considers that something was likely to happen, there must be some objective basis to show a likelihood or a prospect of the litigation happening. When it comes to corporations or large organisations such as an insurer who might be said is a loss bearing entity and for whom litigation is not uncommon as a target, a number of considerations arise. First, as I said at the outset, documents are not privileged merely because one of their intended destinations is the desk of a lawyer: see Esso Australia Resources v FCT.[7] Nor is it enough that reports are commissioned or steps are taken because of established corporate or bureaucratic procedures and the report is made as a result of instructions being followed. Nor is it enough that reports are commissioned merely because litigation is a contingent possibility.

30 Of particular relevance in insurance claims are reports and documents which owe their existence to an insurer looking to investigate the facts about a particular incident or event. Where the purpose of such a report is for the insurer to satisfy itself about the facts in order to understand its exposure or whether the event fell within the terms of the policy or fell within any exclusions, great care must be taken to ensure that the investigative purpose is not then ex post facto turned into an assertion that the dominant purpose was for use for confidential legal advice or in apprehended litigation.

31 In that regard, the decision of Goldberg J in ACCC v Australian Safeway Stores[8] is instructive. There, the ACCC appointed an investigator to gather evidence to enable the Commission to decide whether proceedings should be instituted against a corporation for a contravention of laws against restricted trade practices. That was the dominant purpose. The documents in that case were prospective witness statements prepared by the investigator. Such documents have the natural aura of a use in litigation. Yet, the documents owed their existence to the investigative task and not to a time when legal proceedings were reasonably anticipated. The point is: when the investigator prepared the witness statements he was reporting the facts for the Commission's consideration and it was for the Commission to eventually determine if proceedings were to be instituted. Thus, a process of investigation may be regarded as being logically anterior to, and a precursor to, the point at which it may be said that proceedings are prospective or reasonably anticipated.

32 In my view, the evidence tends to establish that litigation was not reasonably in contemplation as at 12 March 2009. I am afraid to say the affidavit of Keira Warren strikes me as containing much by way of mere assertion, and the facts relied on do not convincingly establish the asserted apprehension. I think the natural effect of the evidence is that the assessor was engaged to look into the facts, more so I would think because the building company was in liquidation. At no time throughout any of the correspondence put before the Court was there any threat or insinuation of litigation, and involvement of solicitors for the insurance company from whom advice may be sought about disputes that were apprehended as looming.

33 I think it is unconvincing for the defendant to seize upon expressions within ordinary correspondence such as "legal" or "legal costs" or "negligence" as if they necessarily aroused an apprehension of litigation. In their context, those expressions did no such thing. It was a case of the insured claiming the costs that incurred in getting solicitors involved in lodging the claims; the insurer telling the liquidator that legal costs would be incurred by the defendant if the notification was late; and "negligence" not in the context of an adversarial allegation by someone, but understanding what had happened.

34 Nor is it correct, I think, to characterise the plaintiff's solicitors letter on 5 March 2009 as being a letter of demand as if it were a precursor to litigation. Nothing in the letter could be characterised as a "demand", nor is it otherwise expressed in threatening or minatory tones. The letter is doing no more than lodging a claim form and stating some relevant facts. At no stage was there a threat of litigation or facts to show that one party was ready to pursue litigation. At no stage did Messrs Ginnakopoulos intensify the claim or threaten litigation, nor is there evidence that the defendant had retained solicitors protectively or for advice throughout the course of the investigations.

35 I will accept that ordinarily an insured would not need the offices of a lawyer to lodge a claim form unless it was to add force. But there was, so I perceive, affairs to be managed as the builder was in liquidation and as there was the need to deal with the neighbours and the Council. The involvement of those other parties, without more, does not establish or intensify the apprehension of litigation.

36 The same can be said I think about the blame that the builder was levelling at the engineer, according to the claim form. That is as far as it went. Of itself that is something that the assessor would have to investigate. Building cases are notorious for proliferating and bringing in many participants to account such as engineers, architects and contractors once litigation has started. But here, it was a claim for indemnity by the plaintiff. In any event, the claim had not advanced to the point of claims or threatened claims amongst alleged contributing wrongdoers.

37 Such matters as I have referred to, at most, might have created complications which necessitated the insurer to get an assessor involved. But that does not mean litigation was "imminent" as Keira Warren deposes. What might be inferred from the careful correspondence from the insurer was a question whether the plaintiff was insured under the policy. But that was a matter of legal construction or analysis and not an investigation into the excavation of the land or the damage to adjoining land.

38 Nor do I think the involvement of the local council alters anything. Just because other interests are affected when an event occurs over which other claims are made does not therefore mean there will be litigation. The Council's Emergency Order was satisfied. Litigation will be apprehended when, over the usual course of things, a request is made, investigations then occur, controversies arise, differences or disputes then arise, attempts to consider or resolve those disputes do not advance, and the disputes then become implacable and there is then resort to litigation. They are the stages that normally occur.

39 For those reasons, I allow the application. I propose to order that, within a time to be agreed between the parties, the defendant produce for the inspection of the plaintiff the documents identified in the summons.

At a glance

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Judgment (59 paragraphs)

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Cases Cited (5)