Ensham Resources Pty Limited v AIOI Insurance Company Limited [2012] FCA 710

Legal Directions

The recent Federal Court of Australia decision of Ensham Resources Pty Limited v AIOI Insurance Company Limited [2012] FCA 710 revisits the principles relevant to deciding whether legal professional privilege applies to an expert report.

Background

Briefly, the applicant, Ensham Resources Pty Ltd owns and operates a mine in Emerald. Heavy rainfall in January 2008 led to the mine’s earth levies being breached causing property damage, in particular the flooding of mine pits. The applicant notified the respondent, AIOI Insurance Company Limited of a potential claim under its industrial special risk insurance policy.

The respondent retained a loss adjustor, Mr Greg Bickle of Crawford & Company (Australia) Pty Ltd prior to instructing its solicitors, King and Wood Mallesons (Mallesons). After being retained, Mr Peter Stockdale of Mallesons spoke with Mr Bickle, who raised a number of issues including that:

ê        The levy bank was not recorded on the asset register of the insured property

ê        The timing of the breach of the levy bank was in issue

ê        The cost of dewatering the mine pits and removing debris would likely be in the order of $60 million, yet only $5 million was likely recoverable under the policy

ê        Any reporting in the matter should be subject to privilege.

Subsequently, Mr Stockdale recommended the respondent terminate the loss adjustor’s retainer. It did. Mallesons then directly retained the loss adjustor and instructed Mr Bickle to provide a report, on a privileged and confidential basis and in anticipation of future litigation.

The requested report was to deal with the circumstances giving rise to the claim, the damage suffered, the respondent’s potential exposure and the extent to which the insurance policy may respond.

Mallesons indicated that the circumstances appeared to give rise to a significant claim and that they anticipated a number of issues would likely give rise to a dispute over the scope of the policy, which would likely be litigated.

The loss adjustor produced 10 reports in total; 9 were addressed to Mallesons.

Interlocutory application

On 6 July 2012 Justice Cowdroy dismissed the applicant’s interlocutory application seeking access to various reports of the loss adjustor. Upon reviewing the reports, the Court was satisfied that they had been prepared for the dominant purpose of providing advice in relation to litigation.

Legal professional privilege

The decision confirms that:

ê        An objective test applies to assessing whether litigation is reasonably contemplated;[1] and that the question is not judged by reference to subjective statements of a party[2]

ê        The party claiming privilege must also establish that the documents were created for the dominant purpose of providing assistance or advice in relation to anticipated proceedings.[3]

The latter is judged with respect to the state of mind of the solicitor, not the loss adjustor and not the insurer.[4]

 

The Court noted that where solicitors state that they are instructed to advise an insurer on liability, indemnity and quantum upon receipt of a report from a third party, it is open to conclude that the dominant purpose of the report was for the use in the preparation of confidential legal advice.

In the present case, Cowdroy J noted there had been a deliberate attempt by the respondent’s solicitors to attract legal professional privilege to the loss adjustor’s reports, though those written communications were not persuasive. Rather, objectively, the Court considered that by the time the loss adjustor had prepared the reports (from March 2008) there existed a real prospect of litigation, in light of the catastrophic consequences of the flood, the very real possibility that remedial measures would well exceed the applicable policy limits, and to a lesser extent, the absence of the levy bank being recorded on the asset register.

The Court accepted and agreed with Mr Stockdale’s evidence that the possibility of litigation was clearly evident from the time of Mr Stockdale’s discussion with Mr Bickle in February 2008.

Authored by Tsharna Stewart, Lawyer, Brisbane.

 


[1] Nickmar Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 44 at 55.

[2] Australian Competition and Consumer Commission v Australian Safeway Stores (1998) 81 FCR 526 at 558.

[3] Esso Australia Resources v Federal Commissioner of Taxation (1999) 201 CLR 49 at [62].

[4] Hartogen Energy Ltd (in liq) v Australian Gas Light Co (1992) 36 FCR 557 at 568.


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