New Cap Reinsurance Corporation Ltd (In Liq) v Renaissance Reinsurance Ltd
41Both parties referred to New Cap as being instructive. The brief facts of New Cap are as follows. New Cap went into liquidation. It was alleged that on about 15 January 1999, New Cap paid the defendant $US8,703,757 and discharged the defendant from liability to pay to New Cap amounts by way of penalty premium and unearned profit commission. It was alleged that at the time of these transactions New Cap was insolvent. Declarations were sought under the Corporations Act 2001 (Cth). The plaintiffs proposed to rely on an expert's report as to New Cap's solvency at the relevant date and the Court made orders for the plaintiffs to file and serve their expert's report on insolvency. The plaintiffs served a list of discovered documents and claimed privilege in respect of 38 documents and also in respect of correspondence between New Cap and its legal advisors. The first 13 of these documents were claimed to be draft reports prepared by the expert. The defendant sought an order that the plaintiffs make the draft reports available for inspection, and also sought an order that the plaintiffs make available for inspection all documents claimed to be privileged that related to instructions from the solicitors in relation to the preparation of the report; record instructions from the solicitors; and constitute notes and/or working papers of the expert's firm relating to the preparation of the report.
42White J in New Cap stated at [34], [52] and [53]:
"[34] Section 119(b) of the Evidence Act extends the privilege to confidential documents, whether communicated or not, provided they were brought into existence with the requisite dominant purpose. The question however is what that purpose is. If an expert prepares a draft report, or notes for the report, with the dominant purpose of a draft report (whether the precise draft then prepared by the expert or an intended later draft) being furnished for comment or advice by the lawyer, then it is privileged. If not, it is not.
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[52] I have also taken into account the observations of Harper J in Linter Group Ltd v Price Waterhouse [1999] VSC 245 at [16] that:
'I accept for these purposes the sworn statement by Mr Sawer that that opinion is a mere draft. As such it would only be of relevance to the first defendant if it could be shown that it differed from Mr Spencer's witness statement, not because Mr Spencer had had a genuine change of opinion but because he was motivated by a desire simply to improve the plaintiffs' case. Such would of course be entirely improper; but an expert is surely permitted, indeed to be encouraged, to change his or her mind, if a change of mind is warranted. ... experts should not be inhibited by fear of exposure of a draft from changing their minds when such change is warranted by the material then before the expert.'
[53] The question is not merely whether it could be said that the privileged materials were used in such a way that they could be said to influence the content of the report, but whether it could be said that they influenced the content of the report in such a way that the use or service of the report would be inconsistent with maintaining the privilege in those materials, such as, where it would be unfair for the party to rely on the report without disclosure of those materials. Where an expert's report is submitted to a party's legal advisers so as to be put into a form which will ensure that it is admissible, it can be said that the privileged communications between the expert and the lawyers have influenced the content of the report, in the sense of its form, although not in the sense of the formulation of the substantive opinions expressed by the expert. Likewise, privileged communications between an expert and the party's lawyers whereby material information is provided to the expert in the form of assumptions or documents may well influence the content of the report. However, an expert's report is required to state what material and assumptions are relied on. Use of a final report, which refers to such materials and assumptions, is not inconsistent with maintaining confidentiality in the communications which produced the final product."
43In Shea v TruEnergy Services Pty Ltd Dodds-Streeton J commented upon New Cap at [60], where his Honour stated:
"[60] Recent persuasive authority, such as New Cap, makes clear that relevant inconsistency may subsist where the draft reports or communications may have influenced the content of the final report in a substantial sense, as in such a case, there would be inconsistency informed by notions of fairness between, on the one hand, withholding the documents or communications while, on the other hand, relying on the final report. If, however, the relevant documents or communications have not influenced the content of the final report, or may have influenced it but in relation only to form or peripheral matters, the inconsistency would be unlikely to be established."
44Homag Australia submitted that the solicitor's May letter provides comments and further instructions to Professor Shafaghi and in some instances seeks to direct, influence and change, with respect to impermissibility, Professor Shafaghi's views. Homag Australia claimed that these have affected the substance of the opinion, going beyond the purely stylistic and formal changes that White J referred to in New Cap.
45Sprayworx submitted that the solicitor's May letter had put forward matters which it asked Professor Shafaghi to consider and be incorporated in the final report if appropriate and consider the barrister's suggested changes which were described as chiefly stylistic. While conceding that in one sense making the report into an admissible form could be said to influence the contents of the report, Sprayworx submitted that such changes would only be in form, not substance. Sprayworx says that on a fair reading of the material produced, any impact on the reports of the communications would be shown to be in regard to form and not substance and that most of the material is routine administrative communications and is privileged.
46Homag Australia submitted that the Shafaghi report refers to information, instructions and materials that are not contained in the report. Another complaint of Homag Australia is that the Shafaghi report stated at [15] that Professor Shafaghi had "help" from the "plaintiff" in the operation the machine, yet it did not state the nature and extent of the "help", or which of the "plaintiffs" rendered him assistance, particularly, as the first plaintiff is a corporation. Further, Homag Australia says that the Shafaghi report at [67], [80] to [84] and [94] stated that Professor Shafaghi had timed the operation of the machine by one and two operators, without disclosing the identity of the operators and the degree and nature of training and experience of those operators. Homag Australia submitted that these communications need to be disclosed. Sprayworx says that it is unable to locate any privileged documents regarding the nature of assistance and the degree of training and experience of those rendering assistance to Professor Shafaghi.
47When the matter is heard, counsel for Homag Australia may ask Professor Shafaghi in cross examination as to the identity of those who assisted him in the operation of the sanding machine. There is no written communication in the Sprayworx camp that identifies who assisted Professor Shafaghi in the operation of the sanding machine. It may be that it was one or both of the natural plaintiffs.
48Sprayworx submitted that this Court should approach the communication documents on the same basis as the draft report. Sprayworx contended that [52] and [53] of New Cap makes it clear that the question is not whether the material might have influenced the content of the report, but whether it influenced the content in such a way that the use of the report would be inconsistent with maintaining the privilege, such that it would be unfair for the party to rely on the report without disclosure of those materials.
49It is common ground that Professor Shafaghi prepared his draft report for the dominant purpose of advice or comment by the lawyer and is privileged (s 119(b)). The solicitor's May letter asked Professor Shafaghi to consider his comments and issues and to amend his report to the extent that he believed was warranted. Professor Shafaghi was also provided with the barrister's suggested changes by way of mark-up, most of which the solicitor describes as "chiefly stylistic". Professor Shafaghi was asked to review the suggested changes and make those changes, suggested by the barrister, where appropriate. While the barrister's suggested changes have not been disclosed, I have inspected them and they involve grammatical and stylistic changes. I have also inspected the two draft reports.
50The import of the solicitor's May letter was to ask Professor Shafaghi to make changes where he [the expert] believed it was warranted and in relation to the barrister's mark-ups, make changes where appropriate. In these circumstances, I cannot and do not draw the inference that those comments by the solicitor could be said to influence the substance of Professor Shafaghi's final report.
51Also after carefully examining the solicitor's comments in the solicitor's May letter that were drawn to this Court's attention and the corresponding paragraphs in Professor Shafaghi's final report, it is my view that it cannot be said that the solicitor's comments influenced the content of the report in such a way that the use or service of the report would be inconsistent with maintaining the privilege in those materials, such as, where it would be unfair for the party to rely on the report without disclosure of those materials. In my view, Sprayworx has not acted inconsistently with the maintaining of its client legal privilege.
52Counsel for Homag Australia's next submission on this topic, is that the communications and drafts are reasonably necessary to understand Professor Shafaghi's final report.
53So far as s 126, loss of client legal privilege is concerned, counsel for Sprayworx referred to ML Ubase Holdings Co Ltd v Trigem Computer Inc [2007] NSWSC 859; (2007) 69 NSWLR 577 and Sugden v Sugden [2007] NSWCA 312; (2007) 70 NSWLR 301.
54In Sugden, the Court of Appeal per McDougall J (with whom Mason P and Ipp JA agreed) at [93] to [96] and [112] to [113] stated:
"[93] Section 126 of the Evidence Act is not cast in terms of either unfairness or inconsistency (or, for that matter, inconsistency informed by notions of unfairness). Thus, the operation of s 126 is to be assessed according to its terms, and not on the basis that in some way it incorporates the pre-existing common law. See Sackville J in Towney v Minister for Land and Water Conservation (NSW) (1997) 76 FCR 401 at 412 and 413-414.
[94] Sackville J said in Towney that the test set out in s 126 is an objective one. I agree. As his Honour says, that follows from the requirement that consideration of the related communication or document 'is reasonably necessary' for the stated purpose.
[95] The stated purpose is to obtain 'a proper understanding of the communication or document' in respect of which one or other of s 121 to s 125 has operated so as, in substance, to override or abrogate client legal privilege. That requires a consideration of the document or communication of which the 'proper understanding' is sought, and of the circumstances in which, and purposes for which, it is required.
[96] In Towney, Sackville J referred at 414 to dictionary meanings of 'proper' and 'understand'. He cited the Macquarie Dictionary definitions of 'complete or thorough' and 'to apprehend clearly the character or nature of' respectively. In my view, that is the approach to be taken to the process of analysis that underpins s 126.
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[112] In truth, I think, the reasonable necessity asserted was not directed to understanding the signed statement (or for that matter the claim form) but, rather, to facilitating the cross-examination of Mr Sugden on possible discrepancies in his accounts of the accident. I do not think that this is within the concept of reasonable necessity contained in s 126.
[113] For these reasons, I conclude that s 126 has no application in the present case."
55In ML Ubase, Brereton J sets out the application of s 126 in relation to an expert report. At [46] and [47] his Honour stated:
"[46] Accordingly, for the purposes of s 126, one starts by looking at the substantive document (made admissible under s 122 or another of the applicable sections) and asking whether, in order to understand it thoroughly, it is necessary to know what is in the associated material.
[47] Mr Jhe's final report does not refer to the associated material. In my view, there is nothing in his report which cannot be understood without reference to the associated material. Counsel was unable to identify any specific part of Mr Jhe's report that the associated documents were reasonably necessary to understand, answering that they were necessary to an understanding of the whole of the report, to understand how the witness had come to the conclusions that he expressed. When asked 'what is there in his report that is not capable of understanding?', the answer was, 'The reasoning and basis behind a variety of the opinions ... it is not set out in the document and it is not obvious and there are no instructions'. I suggested in argument that it would follow from Mr Scruby's argument that every time a witness was interviewed by counsel before being called to give evidence, the other party would be entitled to know everything that went on in that conference, whether the witness was expert or lay. Although Mr Scruby suggested that this was only so in the case of an expert witness, because expert opinions were based on processes of reasoning, it seems to me that there would not be the slightest distinction in the case of a lay witness whose evidence might have been influenced by discussion in conference which explored the witness' degree of certainty about a proposition, or might have prompted a recollection. As has been recognised by Sperling J in Roach v Page (No 17) and by Mansfield J in Tirango Nominees, privilege in the conference is not waived in that situation."
56The final report of Professor Shafaghi can be understood thoroughly without reference to the communications or associated material. The communications and drafts of Professor Shafaghi's report do not need to be provided to Homag Australia.