© Carter Newell 2012 www.carternewell. com

By Mark Brookes, Partner and Lauren Rickersey, Solicitor

Are investigation reports subject to legal professional privilege?

Introduction

In Ensham Resources Pty Ltd v Aioi Insurance Company Ltd [2012] FCA 710, the New South Wales District Registry of the Federal Court of Australia considered whether reports provided by a loss adjuster to solicitors (who acted on behalf of an insurer) were subject to legal professional privilege (LPP) and the circumstances which

enabled LPP to arise.

Facts

In January 2008, Ensham Resources Pty Ltd (Ensham) suffered business interruption loss and property damage after the overflow of a river and creek inundated a mine it owned and operated (the Flood). Ensham notified its insurer, Aioi Insurance Company Ltd (the Insurers).

In February 2008, the Insurers engaged solicitors and a loss adjuster to advise on matters pertaining to the Flood. A conversation between the Insurers’ solicitors and loss adjuster highlighted a number of issues and it was agreed that the loss adjuster’s reports should be privileged and that the loss adjuster would therefore be retained by the solicitors rather than the Insurers. The engagement letter from the solicitors to the loss adjuster noted that it was likely that the claim would result in litigation and requested all reports be marked privileged and confidential.

Ensham made claims under its insurance policy with the Insurers between August 2008 and April 2010, which the Insurers declined to pay. In September 2010, proceedings were commenced by Ensham against the Insurers. Ensham sought orders that the loss adjuster’s reports be produced to the Court to determine whether they were subject to LPP and that Ensham be able to access the loss adjuster’s reports.

Ten reports were prepared by the loss adjuster and a number of the reports were voluntarily disclosed by the Insurers, in whole or in part. However, the Insurers claimed the remainder of the reports were subject to LPP.

Principles

LPP arises when:

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� A party and its solicitors engage in confidential communications for the dominant purpose of providing or obtaining legal advice (legal advice privilege); and

� A party, its solicitors and third parties engage in confidential communications for the

1 Commissioner of Taxation v Pratt Holdings Pty Ltd and Another (2003) 195 ALR 717.

dominant purpose of anticipated litigation (litigation privilege).

This case only makes reference to LPP generally, and the distinction between legal advice privilege and litigation privilege was not considered. The decision in this case largely relates to litigation privilege.

The principles with respect to LPP that were considered by Cowdroy J include:

� The confidentiality of legal advice and subsequent communications are protected by LPP;

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� The party who claims LPP must objectively establish that “litigation was reasonably contemplated” when the document was produced;

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� A subjective statement from a party regarding the document having been produced for the purposes of litigation will not of itself make the document subject to LPP;

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� A document may remain subject to LPP if a solicitor anticipated that the claim would be litigated, which requires there to be “a reasonable probability or likelihood” that the claim would be litigated;

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� It may be found that a document is subject to LPP on the basis litigation was reasonably anticipated. The following elements will be considered when determining whether litigation was reasonably anticipated:

� Whether it was likely that the incident would result in litigation;

� Whether the relevant party appointed solicitors at an early stage; and

� Whether the relevant party notified its insurer of the incident;

� The party who claims LPP also has the onus of establishing that the dominant purpose for preparing the documents was to assist or provide advice for the anticipated litigation.

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The solicitor’s state of mind will be considered when determining the dominant purpose,

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which must be the “ruling, prevailing or most influential purpose”

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2 Esso Australia Resources v FCT (1999) 201 CLR 49. 3 Nickmar Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 44. 4 Australian Competition and Consumer Commission v Australian Safeway Stores (1998) 81 FCR 526. 5 Australian Competition and Consumer Commission v Australian Safeway Stores (1998) 81 FCR 526. 6 Esso Australia Resources v FCT (1999) 201 CLR 49. 7 Hartogen Energy Ltd (in liq) v Australian Gas Light Co (1992) 36 FCR 557. 8 Mitsubishi Electric Pty Ltd v Victorian Workcover Authority (2002 4 VR 332.

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The decision

Cowdroy J noted that careful scrutiny should be exercised when considering claims for LPP. He dismissed Ensham’s application because the experience and expertise of the solicitor enabled him to foresee that the circumstances surrounding his appointment were “highly conducive to litigation”, and that the loss adjuster’s reports were prepared “for the dominant purpose of providing advice in relation to litigation.”

Impact

The decision reaffirms that, in circumstances where an insured makes a claim on its insurance policy and solicitors are instructed by the insurer to advise on indemnity once they receive a third party’s report, such a report would be subject to LPP if its dominant purpose is to assist in the provision of legal advice relevant to the prospect of litigation.

When dealing with a claim, a report from a third party is therefore more likely to remain subject to LPP if the client instructs its solicitors to provide advice on receipt of the third party’s report in the first instance, rather than the client obtaining a report from the third party without reference to its solicitors.

However, it must be noted that legislation such as the Personal Injuries Proceedings Act 2002 (Qld) and the Workers’ Compensation Rehabilitation Act 2003 (Qld) impose a legal obligation on parties to disclose investigation reports and such an obligation will not be waived by the decision in this case.

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Authors

Mark Brookes Partner

T (07) 3000 8301 E mbrookes@carternewell.com

Lauren Rickersey Solicitor

T (07) 3000 8483 E lrickersey@carternewell.com

Insurance Elevations

Carter Newell is pleased to announce the elevation of five Associates into its Insurance teams. Milton Latta, Associate, handles all aspects of personal injury and property liability claims. Prior to commencing his legal career, Milton worked in the engineering field in a range of roles including product development and quality service management. Emma Topen, Associate, is an experienced defendant insurance lawyer advising clients with respect to indemnity, liability, quantum and contribution issues. Prior to commencing her legal career, Emma worked as a specialist construction insurance broker for an international broking company. Ryan Stehlik, Associate, has extensive experience in

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