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Focus: Risky business – legal advice privilege protects investigator's report

21 June 2011

In brief: The Victorian Supreme Court recently considered whether legal advice privilege protected an investigator's report that had been requested by an insurer before retaining lawyers. Partner Dean Carrigan (view CV) and Lawyer Rhiannon Eagles report.

How does it affect you?

  • Insurance companies often obtain expert reports to investigate the cause of, and other circumstances relating to, an insured event, as well as the amount of loss.
  • In claims involving fire, it is particularly important that forensic investigations take place as soon as possible. This means that a loss adjuster and forensic expert are often retained before lawyers.
  • A document will not be privileged if its dominant purpose is to allow an insurer to make a decision, in the ordinary course of its insurance business, whether to grant indemnity.
  • However, an expert report that is requested before lawyers are retained may be privileged, provided it can be proved that its dominant purpose was to enable the giving of legal advice.
  • The courts are alert to situations where expert reports are obtained and lawyers are retained by insurance companies merely so that it can appear the reports are privileged.

Background

In the case,1 the plaintiffs sued for loss from a fire that occurred at the Melbourne Central cinema complex while it was under construction. A subpoena was filed by the second defendant, a subcontractor responsible for electrical installation work on the site. The third defendant was the project manager for the redevelopment of the site and was the party who objected to the subpoena.

The subpoena in question was issued on a forensic consulting company that had prepared for the insurers of the project manager an expert report in relation to the incident. The project manager objected to the subpoena, on the basis that the documents it sought were subject to legal advice privilege, under section 118 of the Evidence Act 2008 (Vic) (the Act).

The circumstances leading to preparation of the expert report were that, immediately after the fire, the project manager's insurer appointed loss adjusters, who contacted the expert, and requested he attend the scene of the fire and investigate the cause. At the insurer's request, the loss adjuster requested the expert prepare a report on the cause of the fire, which, the expert was told, was for the lawyers who would be appointed by the insurer. A few days later, the insurer retained lawyers. The lawyers then contacted the loss adjuster and requested the expert report be prepared so they could advise the insured in relation to claims that might be made against it.

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The decision

Associate Judge Mukhtar found that the report was produced for the dominant purpose of obtaining legal advice and was therefore protected by legal advice privilege under s118 of the Act.

He made the following relevant findings:

  • The report was confidential by its nature and in light of the private interests for which it was commissioned.
  • For an incident of this nature and magnitude, the insurer had to act very quickly, and it was only natural to expect it to hire loss adjusters and investigators before bringing lawyers on board, so the Associate Judge was not concerned that the loss adjuster and expert were engaged two days before the lawyers. The relevant time for assessing the purpose of a document is when the document is actually produced.
  • There was sufficient evidence to find that the lawyers were engaged genuinely and not as a device.
  • Although there was no specific 'legal problem' at the time the report was prepared, it was both plausible and reasonable that the insurer would engage lawyers for advice, or for legal management and strategy according to the expert's report.
  • Although the insurer needed the report for its own business purposes, the law looks at the dominant, not the sole, purpose. The Associate Judge was satisfied that the report's dominant purpose was legal advice. He noted that the insurer was the kind of party who, because of its exposure in trade and commerce, would not act without legal advice.

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Implications

This case was dependent on the facts and it is not yet known whether the decision will be appealed.

In exceptional circumstances, where an expert report is requested before lawyers are retained, the expert report may be protected by legal advice privilege under s118 of the Act.

However, the onus is on the party claiming the privilege to prove that the dominant purpose of the document's preparation is legal advice (or litigation). Where lawyers are retained after an expert report has been requested, it will generally be more difficult to prove to the court that the dominant purpose was the provision of legal advice (or litigation), and not the party's own business or commercial purposes. This increases the amount of evidence a party would need to adduce in support of its privilege claim and also the risk that a court will find the document is not protected by legal advice privilege.

The case is a reminder to insurers intending to claim privilege in expert reports to consider carefully, with respect to each expert report, the timing of, necessity for and purposes for which reports need to be obtained.

Footnotes
  1. Samenic Limited (formerly Hoyts Cinemas Limited) & Anor v APM Group (Aust) Pty Ltd & Ors [2011] VSC 194.

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