VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL
CIVIL DIVISION
BUILDING AND PROPERTY LIST	
vcat reference No. BP359/2017	
CATCHWORDS	
Practice and procedure; application for declaration made by an insurer that legal professional privilege over communications passing between the insurer and its insured had been waived; insurer relies on an express waiver and on issue waiver; Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1; Telstra v BT Australasia Pty Ltd [1998] FCA 901; Mullet v Nixon (Subpoena Application) [2016] VSC 129 Thomason v Council of the Municipality of Campbelltown [1939] NSWStRp 10; (1939) 39 SR (NSW) 347. Benecke v National Australia Bank (1993) 35 NSWLR 110 Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd (1995) 8 ANZ Ins Case 61-235; Walton’s Stores (Interstate) Pty Ltd v Maher (1988) 164 CLR 387, 398 at 428-429 all referred to; declaration made	

APPLICANTs	Owners Corporation PS623721, R & S Knowles Super Admin Pty Ltd (ACN: 124 224 086), Pauline Maragaret Cubitt, Marie Dianne Taylor, Chirstopher Mrakas, Alexander Tolias, Christina T Tolias, Ashely Dale Pty Ltd (ACN: 069 922 121), Adrian Jarvis, Lisa Jarvis, Anthony Eggington, Bernadette Eggington, Phuong Thi Thanh Nguyen, Dat Quang Pham, Christopher Brown, Ann Riad, Steven McCulloch, Annette McCulloch, Michelle Field, 30 Willansby Street Pty Ltd ACN 126 967 388, Harry Kechris, Andrianna Kechris, Kerrie Jane Mott	
FIRST RESPONDENT

SECOND RESPONDET

THIRD RESPONDENT:

FOURTH RESPONDENT

FIFTH RESPONDENT

SIXTH RESPONDENT

SEVENTH RESPONDENT

EIGTH RESPONDENT

NINTH RESPONDENT

TENTH RESPONDENT	Shangri- La Construction Pty Ltd (ACN:130 534 244)
Nicholson Wright Pty Ltd (ACN: 072 393 741)
Mr Jim Tsaganas
Simsco Consulting Pty Ltd (ACN: 099 646 750)
Peter Simenko 

The Silver Arc Pty. Ltd. (ACN 124 207 423)

Total Seal Waterproofing (VIC) Pty Ltd (ACN 138 827 175)
Hurricane Metal Roofing Pty Ltd (ACN 138 827 175)
Mohammad Pacha t/as K & P Rendering Texture Finishing
Hamzaie Hafizullah t/as K & P Rendering Texture Finishing	
FIRST JOINED PARTY	Haiying Jiang 	
SECOND JOINED PARTY	CMM Group Pty Ltd (ACN: 142 132 358) 	
THIRD JOINED PARTY	Insurance Australia Limited (ACN: 000 016 722) (struck out by order made 10 June 2021) t/as WFI 	
FOURTH JOINED PARTY	Arch Underwriting at Lloyd's (Australia) Pty Ltd (ACN 139 250 605)	
WHERE HELD	Melbourne	
BEFORE	Member C Edquist	
HEARING TYPE	Hearing	
DATE OF HEARING	18 June 2021	
DATE OF ORDER	2 July 2021
7 July 2021	
date of written reasons	8 July 2021	
CITATION	Owners Corporation PS623721 v  Shangri- La Construction Pty Ltd (Waiver of legal professional privilege No 2) [2021] VCAT 683	

other matters
A.	The Orders set out below at [40] were published on 2 July 2021.
B.	Because the resolution of the issue referred to in Order 1 was urgently required by the parties, the Tribunal published the Orders without reasons. The Tribunal indicated that reasons would be published separately as soon as possible.
C.	The Tribunal now publishes its reasons for the Orders made on 2 July 2021.

C Edquist
Member			
APPEARANCES:		
For the first respondent:	Dr M Wolff of Counsel	
For the fourth joined party:	Mr D Briggs of Counsel	

Reasons
background
1	This decision concerns an application made by the fourth joined party Arch Underwriting at Lloyds Australia Pty Ltd (Arch) for orders permitting it to add to an existing Tribunal Book a large number of written communications passing between it and the first respondent Shangri-La Construction Pty Ltd (Shangri-La).  Shangri La claims legal professional privilege over the documents. In effect, Arch is seeking a declaration that legal professional privilege over the documents has been waived. If such a declaration is made, Arch will be at liberty to add the documents to the Tribunal Book in this proceeding, BP359/2017 (the Proceeding). 
2	This is the latest ancillary application made in relation to Shangri-La’s endeavour to force Arch to indemnify it under a professional indemnity policy in connection with the claims made against it by the applicants in the Proceeding. The background to the dispute between Shangri-La and Arch has been spelt out in the recently published decision concerning an application made by Arch for security for costs against Shangri-La, which is published at [2021] VCAT 581. It is convenient to set out the introductory paragraphs in that decision.
2 	In the proceeding, the applicants (an owners corporation and a number of individual owners) seek damages from Shangri-La and nine other respondents for damages regarding alleged defects in a major residential development at 26-30 Willansby Avenue, Brighton, Victoria. Shangri-La is a contractor which entered into a major domestic building contract which involves design and construction obligations. The other respondents are contractors or consultants. They include the building surveyor, a fire engineer and the architect. Four joined parties have been brought into the proceeding. Two of these are contractors. The other two are insurers. Arch is one of the insurers.
3 	Particulars of loss and damage recently filed by the applicants indicate that they are seeking damages in excess of $11 million in respect of “fixed costs”. On top of this figure, the cost of alternative accommodation while rectification works are carried out is alleged to run at a cost of at least $81,673 a month. Interest on the award is also sought.
4 	The parties have exchanged pleadings. They raise issues of contribution and apportionment between respondents and the joined parties. Between them, the parties will be calling 11 experts. A Scott Schedule has been prepared which runs for over 100 pages. The proceeding has been fixed for a hearing of 25 days duration, beginning on 7 June 2021. Arch, in its submissions, describes the litigation as “a complex building and construction dispute.” This is an apt description.
5 	Arch issued a professional indemnity policy for the policy year 6 June 2016 -6 June 2017 to Shangri-La. In April or May 2017 Shangri-La notified a claim to Arch under the policy in respect of the applicant’s claim against Shangri-La. (The parties refer to different dates of notification in their respective pleadings). By letter dated 18 July 2017 Clyde & Co wrote to Shangri-La advising that they have been instructed to act on behalf of Arch. Shangri-La contends that in that letter, Clyde & Co advised that they have been instructed “that Arch will grant indemnity to you under the Contract of Insurance in respect of the claim made by the claimants in the proceeding subject to a specific reservation of rights”. Arch admits that Clyde & co-sent the letter of 18 July 2017 and relies on the full wording and effect of the letter.
6 	Shangri-La also alleges that Clyde & Co wrote to it confirming in indemnification on 6 February 2019. Arch admits the letter was sent, but denies that the letter confirmed any confirmation of indemnification. 
7 	Shangri-La also alleges that Clyde & Co wrote to it on 13 September 2019. This letter gave an updated assessment of Shangri-La’s entitlement to cover, but contained “a first partial denial of indemnification”. Arch admits that Clyde & co-sent the letter of 13 September 2019, but relies on the full wording and effect of the letter. 
8 	Shangri-La also alleges that by letter dated 10 October 2019, Arch through its solicitors, Clyde & Co, advised Shangri-La that there was only partial coverage of the claims made against it in the proceeding and that there ought to be an apportionment of amounts for which Shangri-La might be found liable, and defence costs. Arch admits Clyde & Co sent that letter but relies on its full wording and effect. 
9 	Clyde & Co went on the record for Shangri-La in the proceeding in 2017 but went off the record after Arch either withdrew or denied indemnity on 11 June 2020.
10 	At a directions hearing at the Tribunal on 8 April 2021 Shangri-La obtained orders joining Arch to the proceeding. 
11	 In addition to asserting that Arch is, as a matter of construction of the policy, obligated to indemnify it, Shangri-La makes alternative claims. It asserts that Arch made an election to indemnify it and is now is estopped from denying indemnity. It also makes claims that Arch has acted unconscionably.
Arch’s submissions
3	The documents over which privilege is asserted by Shangri-La fall into two categories, namely:
(a) emails and other written communications between Clyde & Co and Shangri-La in the period between 18 May 2017 and 24 June 2020; and
(b) file notes of conversations between Clyde & Co and Shangri-La in the period between 18 May 2017 and 24 June 2020.
4	The first category constitutes a substantial number of documents. Neither party had counted them at the time of the hearing, but they filled 2 lever arch folders. They were all contained in the Clyde & Co file which had been provided to Shangri-La and its former solicitors on 4 June 2020. They were provided again to Shangri-La’s current solicitors Prior Law on 28 May 2021. I was informed at the hearing the handwritten file notes were personal file notes prepared by solicitors at Clyde & Co. There were 21 of them and they ran to 45 pages. They had been provided to Shangri-La only recently. I was informed at the hearing that about 18 of them have been reduced to writing for convenience.
5	It is not disputed by Arch that “the majority of the documents are communications, or evidence of communications, which would ordinarily attract legal professional privilege”. The argument between the parties centres on whether Shangri-La has waived legal professional privilege over the documents.
6	Privilege may be waived under the common law, and under the Evidence Act 2008. The waiver may be express or implied. Arch contends that in the present case there has been an implied waiver arising out of the conduct of Shangri-La. As the High Court pointed out in Mann v Carnell, “it is inconsistency between the conduct of the client and maintenance of the confidentiality which effects a waiver of the privilege.” 
Arch’s arguments as to how Shangri-La has waived legal professional privilege over the communications between it and Arch
7	Arch filed detailed written submissions in relation to its application. It relies on two separate arguments. The first is that Shangri-La signed an Acknowledgement of Waiver before Clyde & Co went on the record in this proceeding as its lawyers on the instructions of Arch. The document had been signed by Mr Naqebullah on behalf of Shangri-La on 24 May 2017. Relevantly the document provided: 
3	Clyde & Co are the solicitors who act for Arch and they have and will continue to advise Arch on all matters relevant to the issue of indemnity.
4	…
5	The company [defined as Shangri-La] irrevocably consents to Clyde & Co communicating to Arch all information, facts, matters, circumstances and documents in relation to the claim notwithstanding that a solicitor/client relationship exists between Clyde & Co and the company.
6 	The company waives any privilege which may exist between Clyde & Co and the company as against Arch in relation to the communications referred to in paragraph (5) herein. The company otherwise maintains any and all privilege which may exist between Clyde & Co and the company.
8	Arch contends that by signing the Acknowledgement of Waiver Shangri-La has waived any privilege it may have otherwise had in the documents as against Arch. Secondly, it submits that the parties have conducted themselves in a manner consistent with the Acknowledgement of Waiver, and in this way the documents have been disclosed to Arch. For these reasons, there has been an express waiver of privilege.
9	Arch’s alternative submission is that an issue waiver arises in respect of the communication between Shangri-La and Arch.
Shangri-La’s submissions in response 
10	Shangri-La did not file written submissions. At the hearing, its counsel, Dr Wolff, relied initially on three arguments, which he labelled “relevance”, “cherry picking” and “legal professional privilege”. He later expanded the bases of rebuttal of Arch’s submissions to include an attack on the effectiveness of the Acknowledgement of Waiver document, and invited the Tribunal to take into account the potential consequences allowing the documents to be placed in the Tribunal Book. I deal with these arguments in turn.
The relevance argument
11	The relevance argument centred on the proposition that Arch was seeking to introduce into evidence in the Proceeding two folders of documents which Arch proposed to use to justify its decision to deny indemnity. Dr Wolff contended that they went to Arch’s state of mind. He said that they could not be looked at for this purpose, because Arch had, just before the start of the hearing, successfully rebutted an attempt by Shangri-La to amend its claim against Arch to introduce allegations concerning Arch’s state of mind.
12	I reject the argument. The application before me concerns the issue of whether the legal professional privilege which Shangri-La claims over the communications passing between it and Arch has been waived. That issue must be resolved before issues of relevance can be considered.
The cherry picking argument
13	Dr Wolff next contended that Arch should not be allowed to “cherry pick” the file notes. This complaint was underpinned by the observation that only some of the file notes had been disclosed. He argued that all the other file notes had to be disclosed as well.
14	There may be something this argument. However, it is an argument which goes to the adequacy of the discovery of Clyde & Co’s file, rather than an argument relevant to the question of whether legal professional privilege has been waived in the communications passing between Shangri-La and Arch. This issue must be dealt with separately.
The legal professional privilege argument
15	Under this heading, I expected Dr Wolff to present a rebuttal of both of Arch’s contentions regarding waiver. He did not do this. Rather, he raised the question of whether waiver of legal professional privilege could occur globally in respect of all communications as distinct from individual documents. 
16	Counsel for Arch, Mr Briggs, responded by pointing out that the authorities established that once waiver of legal professional privilege over a class of documents has occurred, then all documents in the class are discoverable. He referred to Telstra v BT Australasia Pty Ltd. I accept this submission, and find that if privilege has been waived it has been being waived over all the communications passing between Arch and Shangri-La.
17	When Dr Wolff was pressed about whether there was an answer to the argument that legal professional privilege had been waived by the Acknowledgement of Waiver, his only response was that it may not be valid because Shangri La had not had an opportunity to take independent legal advice about it. I observe that it may be that Dr Wolff was seeking to make a case based on the doctrine of unconscionability. However, he made no detailed submissions as to why this doctrine or any other principle had come into play. Furthermore, no evidence concerning the precise circumstances in which the Acknowledgement of Waiver had been signed was tendered by Shangri- La. Accordingly, there is no basis for me to make a finding in favour of Shangri-La regarding this submission. 
Consequences 
18	Towards the end of the hearing Dr Wolff raised what appeared to be a fallback argument, which was that if the Tribunal ruled that privilege in the communications had been waived, there would be consequences for the litigation. In particular, he said that he would be calling for the production of all the file notes and he would be seeking to cross-examine Mr O’Brien and Mr Donley of Clyde & Co and would seek to identify the decision makers within Arch itself.   
19	This point is not relevant to the issue of waiver of legal professional privilege in the documents. I understand that if I rule the privilege has been waived, then there may be consequences for the case. That is not a reason to find that legal professional privilege has not been waived. I must make the decision first, and assess any consequences flowing from the decision later.
Consideration
Express waiver
20	I accept Arch’s first argument based on the Acknowledgement of Waiver. The relevant paragraphs have been set out above. They clearly create an effective waiver of legal professional privilege. Dr Wolff did not actually dispute that they did. On the basis of the Acknowledgement of Waiver alone I consider that legal professional privilege in the communications between Arch and Shangri-La has been waived. 
21	I consider that this is the key point. If an effective waiver was not created by the Acknowledgement of Waiver, the fact that Arch was in possession of communications between itself and Shangri-La would not alone establish waiver.
22	If I am wrong about my conclusion regarding the effectiveness of the Acknowledgement of Waiver, or if the Acknowledgement of Waiver is ineffective because it was procured from Shangri La without that company having been given the opportunity to take independent legal advice, I think that Arch is also entitled to a declaration that legal professional privilege has been waived on the basis of issue waiver.
Issue waiver
General principles
23	The principles relevant to issue waiver were discussed by Forrest J in Mullet v Nixon (Subpoena Application). He said (omitting citations):
42 Issue waiver, like disclosure waiver, falls under s 122 of the Evidence Act and is dependent upon the existence of the requisite inconsistency which makes reliance on the privilege untenable.
43 However, whilst inconsistency is the underlying principle, the considerations in determining whether there has been such a waiver differ from those necessary for disclosure waiver. The test for issue waiver was set out by the Full Federal Court in Commissioner of Taxation v Rio Tinto Ltd applying Mann v Carnell:
The question is whether, by his particulars, the Commissioner made an assertion as part of his case that puts the contents of the privileged scheduled documents in issue, or necessarily lays them open to scrutiny, with the consequence that an inconsistency arises between the making of the assertion and the maintenance of the privilege. To answer this, the relevant assertions must be considered in their proper context.  
24	After referring to the decision of Allsop J (as his Honour then was) in DSE (Holdings) Pty Ltd v InterTAN Inc and Hodgson JA in New South Wales Bar Association v Archer Forrest J went on to say at [47]:
The points that arise out of these decisions are twofold. First, it is necessary that a party maintaining the privilege put in issue an assertion about a confidential communication which relates to a matter to be determined at trial. Second, in determining whether a party has put a matter in issue, the court is not confined to the pleadings. It is entitled to take into account the evidence put in a case, and the steps taken in the conduct of a proceeding. That process enables the court to determine whether there is the relevant inconsistent conduct on the part of the privilege holder. A party’s conduct, aside from the pleadings, ‘necessarily lays them [the contents of the privileged documents] open to scrutiny.’ (Citation omitted)
Arch’s submission on issue waiver
25	Arch relies heavily on Telstra v BT Australasia Pty Ltd, which involved a complex dispute arising out of the management and development of an integrated telecommunications network for the NSW Public Sector. The State relied on the decision of Jordan CJ in Thomason v Council of the Municipality of Campbelltown where in an action for negligence, the defendant pleaded that the plaintiff had, with knowledge of the choice, elected to proceed under workers' compensation legislation and was therefore debarred from suing at common law for negligence. At the trial, the defendant admitted into evidence a statement signed by the plaintiff to the effect that she had been advised by her solicitors. Despite the plaintiff’s objections, the trial Judge permitted the defendant to cross-examine the plaintiff as to what had passed between her and each of the solicitors. One of the solicitors was also called and examined. It was held that the plaintiff’s objections were not well founded since, in the circumstances, the privilege had been waived.
26	Arch also referred to Benecke v National Australia Bank where the plaintiff, in her originating process and in evidence, alleged that prior litigation had been compromised by her lawyers contrary to instructions. It was held that the plaintiff had opened up the question of the authority of the lawyers to act as they did and on grounds of "basic fairness" (at 116), had thereby waived privilege.
27	Thomason and Benecke are cases where the plaintiff was putting in issue legal advice that they had received. The present case is slightly different, because the communications in issue are communications between an insured and its insurer but attract legal professional privilege because they have passed through the medium of a law firm (Clyde & Co) which was on the record for the insured. In my view, this is not an important distinction.  I consider that the authorities establish that provided the state of mind of the client seeking to maintain legal professional privilege over documents is central to an issue in the case, there is scope for an imputed waiver to arise.
28	Arch sets up its submission about issue waiver by noting that Shangri-La’s claim for indemnity against Arch is based on two separate arguments. The first is that Arch is required as a matter of construction of the contract of insurance to indemnify Shangri-La. This is, of course, denied. 
29	Shangri La’s second argument is that Arch has conducted itself in such a way that it has elected to indemnify Shangri-La. An alternative claim is made that Arch, having originally accepted liability under the policy, is now estopped from denying it. As to these allegations, Arch denies that it made an election. It maintains it reserved its rights under the policy and did not make a final decision about indemnity, and if any grant of indemnity was made it was done so conditionally on the basis of the information known and understood by Arch at the relevant time and subject to the terms of the policy. Arch also denies an estoppel has arisen.
30	Arch goes on to contend that Shangri-La in its pleading, its written opening submissions and its affidavit evidence has put in issue two relevant matters, namely:
a.	what, and when, Shangri-La told Arch about its professional business in the circumstances giving rise to the claims in this proceeding; and
b.	what, and when, Arch told Shangri-La about its approach to, and its position on, indemnity.
31	Arch submits, with justification in my view, that “the vast majority of the communications between Arch and Shangri-La were conducted through Clyde & Co. As such, the evidence that establishes the matters subparagraphs (a) and (b) above is to be found in the communications between Shangri-La (and its agents) and Clyde & Co.”
Election
32	In respect of the issue of election, Arch cites the following passage from the judgement of Handley JA in Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd:
The doctrine, in its application to contracts of insurance, prevents an insurer from adopting inconsistent positions under the same policy. An insurer receiving a claim who is entitled to avoid the policy or reject the claim for breach of condition must make an election. In the first case the insurer must either affirm or avoid the policy and in the second it must waive the breach and accept the claim or rely on the breach and reject it. If, having the requisite knowledge of the facts, it asserts rights which would only exist if the policy was in force and covered the claim it will be taken to have elected to treat the policy as valid and applicable to the claim.
33	Arch contends that in order to meet Shangri-La’s case based on election, it must have recourse to not just the communications that Shangri-La has put in issue in its pleadings. It also “must have recourse to other communications between each agent Clyde & Co in Shangri-La in order to demonstrate, in particular, what Shangri-La told Clyde & Co about its professional business and the circumstances giving rise to the claim.”
34	I accept this contention.
Estoppel
35	In relation to the question of estoppel, Arch refers to the judgement of Brennan J in Walton’s Stores (Interstate) Pty Ltd v Maher as authority that an order to establish an estoppel, a party must plead and prove the following matters:
(1)	the plaintiff assumed that a particular legal relationship then existed between him and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; 
(2)	the defendant induced the plaintiff to adopt that assumption or expectation; 
(3)	the plaintiff acts or abstains from acting in reliance on the assumption or expectation; 
(4)	 the defendant knew or intended him to do so; 
(5)	the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and 
(6)	the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. 
36	Arch contends that it must have recourse to the communications passing between Clyde & Co and Shangri La in order to:
a.	test the assertion that Shangri La in fact relied on Clyde & Co’s letter of 18 July 2017; 
b.	give its own version of events; 
c.	test whether Shangri La was in fact induced by Arch to adopt the assumption it says it did; and
d.	if it is found that Shangri La did act in reliance on the alleged representation, determine at what point Arch in fact resiled from that representation.
37	Given that Mr Naquebullah has in a further witness statement foreshadowed that he intends to give evidence about how Clyde & Co prepared his first witness statement, and about his own state of mind when doing so, Arch contends it must be enabled to put its own version of events. 
38	I agree. Basic fairness requires that Arch should be enabled to tender evidence about its version of events. 
39	Furthermore, relevant to the question of whether an estoppel has arisen is the issue of reliance. This puts the state of mind of Mr Naqebullah, as the moving mind behind Shangri-La, in issue. By putting Mr Naqebullah’s state of mind in issue, Shangri-La must be taken to have waived privilege in the communications passing between it and Arch.
Conclusion
40	 For all these reasons I will make the following orders: 
         1.The Tribunal declares that Shangri-La has waived legal professional privilege over all communications passing between it (and its agents) and Arch (including without limitation its agent Clyde & Co) for the period 18 May 2017 - 24 June 2020. Arch is accordingly at liberty to add the documents containing those communications (“the Documents”) to the Tribunal Book in this Proceeding.
2. Nothing in Order 1 prevents any party from raising an objection to the tendering of any of the Documents on any basis.
         3.Arch has leave to make an application for costs in respect of its application for these Orders within 90 days. Any such application for costs should be referred by the Principal Registrar to Member Edquist who will make Orders regarding the manner in which the application for costs is to be determined.

C Edquist
Member