Introduction

In the case of Ensham Resources Pty Ltd v AIOI Insurance Company Limited [2012] FCA 710 the Federal Court of Australia upheld an insurer’s claim of legal professional privilege over a loss adjuster’s reports irrespective of their being prepared several years before litigation was commenced.  Importantly, this was held to be the case not as a result of the solicitors’ deliberate attempts to label the documentation as privileged but by virtue of an assessment of the context of the creation of the documents, reaffirming the principle that labelling (or failing to label) a document as privileged will not serve to clarify its status.

Background

Ensham Resources Pty Limited (Ensham) owns and operates an open cut coal mine (the Mine) on the flood plain of the Nagoa River in Queensland.  In January 2008 heavy rainfall caused the river and nearby Old Winton Creek to overflow, breaching the levees and flooding a number of the Mine’s pits.

Shortly after the damage Ensham gave notice to its insurer AIOI Insurance Company Limited (AIOI) under its industrial special risk policy (the Policy).  AIOI instructed Crawford & Co (Australia) Pty Ltd (Crawford) to obtain advice on the quantum of Ensham’s claim in late January.  In mid February Crawford held a telephone conference with Mallesons Stephen Jaques (Mallesons), AIOI’s solicitors regarding whether and to what extend the Policy responded, the cause of the damage and limits of cover.  As a result of this conversation Mallesons recommended to AIOI that it terminate its retainer with Crawford and that Mallesons enter onto a new retainer with Crawford. 

The intention of the new retainer was to attract legal professional privilege over reports prepared by Crawford, and the retainer noted that there appeared to be a number of issues which were likely to bring into dispute the extent to which the Policy responded, and that Crawford’s report “should therefore be prepared on a privileged and confidential basis and in anticipation of future litigation.”

AIOI declined the claim in September 2010 on the basis of material non-disclosure.  Ensham commenced proceedings shortly thereafter.  In the course of the proceedings, insurers were ordered to discover reports prepared by Crawford in 2008.  AIOI claimed privilege over a number of the reports on the basis that the reports were prepared in anticipation of litigation.

Decision

The Federal Court dismissed Ensham’s application for access to the remaining reports on the basis that legal professional privilege attached to the reports.

In determining the validity of AIOI’s claim for privilege, Cowdroy J confirmed that in order for the party claiming legal professional privilege to satisfy the burden of proof:

  • litigation must be reasonably in contemplation; and
  • the relevant documents must have been prepared for the dominant purpose of providing assistance or advice with respect of that anticipated litigation.

Cowdroy J confirmed that the test as to whether litigation was reasonably in contemplation is an objective one and falls short of a requirement that a reasonable person in the position of the relevant solicitor would believe that litigation was absolutely certain but requires more than speculation as to the possibility of such proceedings.

Cowdroy J had particular regard to the authority as set out in Mitsubishi Electric Pty Ltd v Victorian Workcover Authority (2002) 4 VR 332that the occurrence of an event which, in common experience, very often leads to litigation may lead to the conclusion that litigation is reasonably anticipated and held that privilege existed at an early stage in the matter as:

  • the consequence of the flood to the Mine were catastrophic;
  • the question as to whether the levee was included as insurable property under the Policy was a contentious issue; and
  • the costs of repairs had the potential to significantly exceed a potentially applicable sub-limit under the Policy.

Taking the above into account, Cowrdoy J stated, following Mitsubishi, that “the circumstances in February 2008 were of the kind that human experience (and the expertise of lawyers) would recognise as being highly conducive to litigation”.  Cowdroy J was satisfied, having reviewed the reports, that they had been prepared for the dominant purpose of litigation, noting that reference was made therein to potential legal issues as between Ensham and AIOI arising from the Policy.

Mallesons’ assertions of privilege

The Court held that the correspondence between Mallesons, AIOI and Crawford revealed “a deliberate attempt by the solicitors for the insurer to attract legal professional privilege to the Crawford reports”, particularly having regard to the “self-serving statements” madebyMallesons early in the matter in advising AIOI that its retainer with Crawford should be cancelled and that Mallesons should retain Crawford specifically for the purpose of attracting privilege.

The Court held that this attempt to pre-emptively assert privilege over the documentation was not persuasive and that it is necessary to objectively assess whether documents are privileged without regard to whether they are labelled as such.  This was set out in Protean (Holdings) Limited v American Home Assurance Company, Supreme Court Victoria, 5 September 1985, where the Court stated: “It is clear that a studious cast of verbiage cannot work the alchemy of transforming what would otherwise be unprivileged into privileged documents”.

Conclusion

To a large degree this case turned on its facts and any claim for privilege over documents will necessarily involve an objective assessment of the circumstances which gave rise to the creation of those documents.  However, the case does give some comfort to insurers that loss adjusters’ reports prepared early in the life of a claim can attract privilege if there are readily identifiable contentious issues as to policy coverage and/or if the circumstances are such that reasonable solicitors in the situation would recognise them as likely to give rise to litigation.

The case has also reaffirmed the principle that labelling documents as privileged, or failing to do so, will not be a decisive factor in the Court’s assessment of any such claim.  It is for the Court to objectively assess the document itself and the circumstances surrounding its creation.

It should be noted that leave to appeal this decision was granted.