Often in cases involving property damage, insurers will engage a loss adjuster to provide a report on the cause of the damage. In any subsequent litigation, the contents of these reports can be of significant forensic value.
There have been three (3) recent Victorian Supreme Court cases that discuss when legal professional privilege can be claimed to avoid disclosure of these pre-litigation reports.
Two types of documents can be the subject of legal professional privilege:1
- Communications of a confidential nature between a solicitor and client for the purpose of obtaining legal advice; and
- Documents created for the dominant purpose of anticipated litigation.
A claim for legal professional privilege was upheld in the case of Samenic Limited (formerly Hoyts Cinemas Limited) v APM Group (Aust) Pty Ltd.2 In that case, a fire occurred at a cinema complex in Melbourne that was under construction on 3 June 2004, but legal proceedings were not commenced until 30 June 2009.
On 3 November 2004, the insurer of the project manager for the redevelopment received notification of the fire. The insurer then made contact with a loss adjustor who in turn contacted a fire consultant specialising in fire and explosion investigations to investigate the cause of the fire. The insurer did not retained a legal adviser until 5 November 2004. On that same date, the fire consultant produced his report giving his opinion as to the cause of the fire.
The court had to consider whether the report prepared by the fire consultant was prepared for the dominant purpose of the lawyer providing legal advice to the client. In circumstances such as this, courts are particularly concerned with solicitors being retained as nothing more than a conduit for information as there is a natural apprehension that an investigation report is a normal or routine step that an insurer may take as soon as a claim is made or notified.3
Mukhtar AsJ set out the applicable principles for claiming legal profession privilege:4
- The doctrine of legal professional privilege has to be adapted to ensure that the rationale or policy underlying the doctrine is not sabotaged by rigid adherence to form that does not reflect the practical realities surrounding the application of privilege. The complexity of present day commerce means that it is increasingly necessary for a client to have the assistance of experts, in formulating a request for legal advice and in provide legal advisers with sufficient understanding of the facts to enable that advice to be given.
- The concept of legal advice is fairly wide. It is understood in a pragmatic sense, and not confined to telling the client the law. It includes advising the client what should be done prudently and sensibly in a relevant legal context.
- The existence of legal professional privilege is not established merely by the use of verbal formula or by mere conclusionary assertion that the privilege applies. Such assertions can make it unclear what advice was really being sought or the topics to which the instructions or advice were directed. In the ordinary case of a client consulting a lawyer about a legal problem in uncontroversial circumstances, proof of those facts alone will provide a basis for concluding that legal advice was being sought.
- In its ordinary meaning ‘dominant’ means the purpose which was the ruling, prevailing or most influential purpose. An appropriate starting point when applying the dominant purpose test is to ask what was the intended use or uses of the document which accounted for it being brought into existence. This is a question of fact, to be determined objectively.
- A claim for privilege will not succeed if all that emerges is that the document is a commercial document or has been brought into existence in the ordinary course of business. In the insurance context, there is no privilege if the document was to allow an insurer to make a decision in the ordinary course of its insurance business as to whether or not to grant indemnity.
His Honour upheld the claim for legal professional privilege because:
- The report was confidential by its nature and the private interests for which it was commissioned.5
- It did not matter that the loss adjuster and the fire consultant were retained before the lawyers were retained as, for an incident of this nature and magnitude, the insurer had to act very quickly and it is only natural to expect it to have hired loss adjusters and investigators first before bringing lawyers into the fold.6
- In fire cases, particularly of this magnitude, it is necessary for the insurer to have the best available evidence in order to assist it to obtain or formulate a request for legal advice. It is both plausible and reasonable that the insurer here would have engaged lawyers at the outset for advice or legal management and strategy according to or depending on the content of the investigator’s report.7
- The clients here were of the type who, because of their exposure in trade and commerce, would not make a move without legal guidance.
In other cases, claims for privilege have not been successful.
Brunswick Hill Apartments Case
In an earlier decision by Mukhtar AsJ in the case of Brunswick Hill Apartments Pty Ltd v CGU Insurance Limited,8 His Honour found that litigation was not reasonably in contemplation at the time alleged by the insurer and the insurers claim for legal profession privilege was denied because:
- The adjuster was retained to look into the facts more so because the insured was in liquidation.9
- At no time did any of the relevant correspondence threaten litigation or show that a party was ready to pursue litigation.10
- It was unconvincing for the insurer to seize upon expressions used in ordinary correspondence such as “legal costs” or “negligence” as if they necessarily produce an apprehension of litigation.11
- There had only been a claim for indemnity by the plaintiff, the matter had not advanced to a stage where claims or threatened claims were made amongst alleged contributing wrongdoers.12
His Honour stated that litigation will be apprehended when:13
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 dispute then become implacable and there is then resort to litigation.
Perry v Powercor
The most recent case from the Victorian Supreme Court where a claim for legal professional privilege was denied is the decision of Robson J in Perry v Powercor Australia Limited.14 This case concerned the Black Saturday bush fires in Victoria, in particular as they affected the town of Coleraine. The report was obtained by Powercor, the distributor of electricity in Western Victoria and the operator of the electricity network in and around Coleraine.
In that case, the subject reports were and were intended to be the source of information that Powercor used and intended to use for its normal business purposes including:15
- Obtaining legal advice;
- Providing information to the Royal Commission;
- Providing information to the regulator under the Electricity Safety Act 1998;
- Providing information to the Coroner, if need be;
- Providing information to its insurer;
- Providing information for its internal Powercor Asset Failure Reporting & Investigation procedure; and
- In reviewing its maintenance program and the continued use of the type of equipment that failed at Coleraine.
Robson J denied Powercor’s claim for legal professional privilege because it had failed to:
- Have its CEO give evidence in circumstances where it was central to the establishment of the privilege, thereby giving rise to the inference that his evidence would not have assisted Powercor’s claim to privilege.16
- Explain the variety of uses to which the information would be put and why it was needed in order to establish that the dominant purpose was the privileged purpose.17
The Position in Queensland
The outcome may have been different had the Hoyts case been brought in Queensland. Rule 212(2) of the Uniform Civil Procedure Rules 1999 (Qld) (UCPR) provides that a document consisting of a statement or report of an expert is not privileged from disclosure.
In the case of Century Drilling Limited v Gerling Australia Insurance Company Pty Limited,18 Holmes J stated that documents that emanated from a loss adjuster at the direction of the insurer, and communicated to the insurer’s solicitor for the dominant purpose of obtaining legal advice would be privileged from disclosure, subject to any abrogation by Rule 212(2). Luckily for the insurer in that case, the relevant documents19 were found not to be “a statement or report of an expert” as required by rule 212(2) and the letter and the accompanying documents were therefore privileged.
In the Hoyts case, the subject report was prepared by a forensic consultant specialising in fire and explosion investigations and provided an opinion about the cause of the fire. This might be a “statement or report of an expert”20 and therefore Rule 212(2) would prevent it from being privileged from disclosure.
Personal Injuries Litigation
Rule 555 of the UCPR maintains legal professional privilege in the personal injuries litigation context, subject to the requirements in Rules 548 and 551 of the UCPR to disclose certain types of documents.
Section 30 of the Personal Injuries Proceedings Act 2002 (Qld) also maintains legal professional privilege, except for investigative reports, medical reports and reports relevant to the claimant’s rehabilitation.
The most recent case to consider this section is State of Queensland v Allen.21 In that case the Queensland Court of Appeal held that neither a “report” consisting of an unsigned statement of a witness of fact which recorded the witness’ recollection of the incident and his opinion about it, nor a solicitor’s file note of a conversation with a potential witness, were “investigative reports” for the purpose of Section 30.
For more on legal professional privilege and disclosure in Queensland personal injuries litigation read this article written by David Jesser, a Principal with McInnes Wilson Lawyers.
In any event, these cases demonstrate how an insurer is generally more likely to meet the dominant purpose test than an insured as there will be fewer alternative reasons why it would seek such a report other than for anticipated litigation. This is another good reason for early notification and possible grounds for arguments of prejudice by the insurer for failure to promptly notify.