Bilbarin Holdings Pty Limited T/As David Smash Repairs v Nrma Insurance Limited [1997] ACTSC 7 (7 February 1997)

SUPREME COURT OF THE ACT

BILBARIN HOLDINGS PTY LIMITED t/as DAVID SMASH REPAIRS v. NRMA
INSURANCE LIMITED
No. SC696 of 1996
Number of pages - 11
Practice and Procedure

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY MILES CJ

CATCHWORDS

Practice and Procedure - appeals from decision of the Master to grant preliminary "discovery" pursuant to Order 34A rules 3 and 5 - limited assistance from "newspaper rule" or "public interest privilege" in the application of rule 3 - scope of rules 3 and 5 - issue of "qualified privilege" in a potential defamation action.

Supreme Court Rules, Order 34A rules 3 and 5

John Fairfax & Sons v. Cojuangco [1988] HCA 54; (1988) 165 CLR 346 McGuinness v. Attorney-General (Victoria) [1940] HCA 6; (1940) 63 CLR 73 D. v. National Society for the Prevention of Cruelty to Children [1977] UKHL 1; (1977) 1 All E.R. 589 Alphapharm Pty Limited v. Eli Lilly Australia Pty Limited (unreported, Federal Court of Australia, 24 May 1996)

HEARING

CANBERRA, 29 November 1996 7:2:1997

Counsel for the applicant: Mr. B. Meagher

Solicitors for the applicant: Colquhoun Murphy

Counsel for the respondent: Mr. G. Stretton

Solicitors for the respondent: Abbott Tout Harper Blain

ORDER

THE COURT ORDERS THAT:
1. Both appeals against the Master's orders of 13 September 1996 be allowed. 2. The orders be set aside and the originating notice of motion dated 20 August 1996 be dismissed.

DECISION

MILES CJ
1. This is an appeal from the Master from an order made on originating summons dated 20 August 1996 seeking the production of certain documents to the Court and the production of certain other documents to the applicant pursuant to Order 34A of the Supreme Court Rules. NRMA was the respondent to the application and was the first to file a notice of appeal. The applicant (David) is now the respondent to that appeal and has also filed its own notice of appeal.

2. The orders made on 13 September 1996 were in the following terms: "1. Pursuant to Order 34A rule 3, that the respondent (i) produce to the Court all letters, memoranda, vouchers, dockets, file notes, notes of telephone conversations, reports or any other documents referred to by the respondent in a letter dated 12 July 1996 to Messrs Colquhoun Murphy Solicitors, as constituting "clear evidence that (the applicant) has encouraged the lodgement of fraudulent claims with NRMA Insurance Limited", provided that the identity of the author of the letter to NRMA Insurance Limited dated 23 November 1995 is not required to be divulged. (ii) produce for inspection by the applicant the documents referred to in (i) above. 2. Pursuant to Order 34A rule 5, that the respondent produce to the applicant all documents constituting the respondent's file concerning a claim by Bronwyn Lee Kennedy arising from an accident on 17 April 1996 in which her Toyota motor vehicle was damaged, including without limitation notes of any telephone conversation between Ms. Kennedy and the staff of the respondent including Mr. Rod Douglas."

Nature of appeal 3. The rules relied upon as authorising the making of the orders are rules 3 and 5 respectively. They provide as follows: "Discovery to identify defendant 3(1) If an applicant, having made reasonable inquiries, is unable to ascertain the description of a person sufficiently for the purpose of commencing a proceeding in the Court against that person (in this rule called "the person concerned") and it appears that a person - (a) has or is likely to have knowledge of facts; or (b) has or is likely to have, or has had or is likely to have had possession of any document or thing; tending to assist in the ascertainment, the Court may make an order under this rule. (2) An order may require the person who is the subject of the order or, in the case of a corporation, an appropriate officer to - (a) ..... (b) produce to the Court any document or thing that is, or has been, in the person's possession relating to the description of the person concerned; (c) make and serve on the applicant a list of the documents or things that are, or have been, in the person's possession relating to the description of the person concerned; or (d) ..... Discovery from prospective defendant 5. If - (a) it is reasonable to believe that the applicant has, or may have, the right to obtain relief from a person whose description has been ascertained; (b) having made reasonable inquiries, the applicant has not gained sufficient information to enable a decision to be made whether to institute a proceeding to obtain the relief; (c) it is reasonable to believe that the person - (i) has, or is likely to have; or (ii) has had, or is likely to have had; possession of a document relating to the question whether the applicant has the right to obtain the relief; and (d) inspection of the document by the applicant would assist in making the decision; the Court may order the person to produce the document to the applicant."

4. In essence, rule 3 provides for the identification of a person whom the applicant wishes to sue. Rule 5 provides for the disclosure of documents which would enable the applicant to make a decision about whether to sue a person already identified.

5. Both NRMA and David appeal from the order under rule 3, NRMA contending that it should not have to produce any documents at all, David contending that the documents ordered to be produced should not exclude anything which discloses the identity of the author of the letter referred to.

6. NRMA appeals against the order under rule 5, contending that no order under rule 5 should have been made.

Facts 7. The facts which the Master found established to found the order (and which are unchallenged) were as follows:

8. David (or more precisely, a corporation trading under that name) conducts a motor vehicle smash repair business in Queanbeyan, New South Wales. NRMA is an insurer with a substantial amount of business, particularly in motor vehicle insurance, in the ACT and in New South Wales. It maintains a list or panel of authorised repairers. It was not clear what consequences flowed from a repairer being placed on the panel or taken from it, but the Master considered that the commercial advantages of being on it were substantial. Until about December 1995 David was an authorised repairer on the panel.

9. On 4 November 1995 a car owned by an unidentified person (the informant) and insured with NRMA was damaged in a collision. It was being driven at the time by the informant's 17 year old son, a fact which, if disclosed to NRMA, would have reduced the amount of the costs of repairs recoverable by the informant and increased the premiums payable on any continuation or renewal of the insurance.

10. The informant took the damaged vehicle to David, with a view to David carrying out the repairs and recouping the cost by David processing the claim for insurance with NRMA on behalf of the informant. The informant claimed in a statement dated 23 November 1995 that she was told by a person called "Dave" to claim on the insurance policy by falsely pretending that she and not her son was the driver. The informant also claims that "Dave" told her that he "does it all the time".

11. According to the informant's account, instead of making the false claim, she reported the incident to NRMA. NRMA set in train an investigation. On 15 December 1995 NRMA wrote to David stating that, following consideration of a report on a "series of incidents involving your company", NRMA would suspend authorising David to carry out repairs, "due to the serious nature of the work practices of your business".

12. Discussion ensued between persons representing the NRMA and persons representing David. On 31 January 1996 there was a meeting between representatives from NRMA and solicitors for David. What transpired is not clear, but in later correspondence (24 July 1996) David's solicitors claimed that it was agreed that "the only two matters which formed the basis of the suspension (from the panel) were the altered delivery docket and the audit".

13. There appears to have been no change in the position of the parties until about 17 April 1996. On that date a vehicle owned by a Ms. Kennedy and insured with NRMA was involved in a collision. Ms. Kennedy took the damaged vehicle to David. She was told that David were "not allowed to repair NRMA insured vehicles". She authorised the repairs to be carried out nevertheless and approached NRMA in order to make a claim. On 24 May 1996 she spoke on the telephone to NRMA. First she spoke to an unidentified person on the HELP line. This person told her that David's work was "bad" and "not up to scratch". She rang again and spoke to someone called Kathy on the HELP line who suggested that David's work might be "no good". She next spoke to Sue Hatch, who told her "you cannot get your car fixed by David Smash Repairs". She then spoke to manager Rob Douglas, who said that "(a) person would have to do something real bad to lose his right to do NRMA work". He added, "I am not at liberty to discuss what David did but it was bad".

14. On 11 June 1996 Ms. Kennedy made a written statement about the above. This statement, or a copy of it, was sent by David's solicitors to NRMA's solicitors on 24 June 1996, following a telephone conversation between them on 20 June 1996.

15. On 12 July 1996 NRMA's solicitors wrote to David's solicitors stating, inter alia: "We have clear evidence that your client has encouraged the lodgement of fraudulent claims with NRMA Insurance Limited. This was identified as an issue in discussions between your client and NRMA staff prior to your client's removal from the panel of authorised repairers. ..... Notwithstanding this, we shall review your client's position in December, 1996 and determine by 15 December whether the removal should stand."

16. There was further correspondence between the solicitors in which David's solicitor threatened to bring proceedings for preliminary discovery of all documents which referred to defamatory allegations contained in the "clear evidence" referred to in the NRMA's solicitor's letter of 12 July 1996 and in the telephone conversations between Ms. Kennedy and NRMA staff on 24 May 1996. It is not necessary to refer further to the correspondence which continued.

17. Following the filing of the notice of motion on 20 August 1996, Mr. A.J. Gaukroger in an affidavit sworn on 29 August 1996 and filed on behalf of NRMA said that: "NRMA is reliant on receiving information from its policyholders and members of the public about claims with a fraudulent element, in order to ensure so far as possible that claims are paid only when the policy holder is entitled to cover under the policy and that payments are limited to the amount to which the policy holder is entitled. NRMA regards it as very important to be able to assure persons providing such information that their anonymity will be respected. If it were known that NRMA might disclose whether pursuant to court order or otherwise the identity of an informant to the person to whom the information relates, I fear that this would discourage the reporting of fraudulent behaviour and would increase the likelihood that such fraud would go undetected; resulting in increased fraud and ultimately increased premiums."

18. It is to be observed that Mr. Gaukroger does not depose that the informant in this particular case was given any assurance that his or her anonymity would be respected.

19. The affidavit sworn by Mr. Gaukroger has annexed to it a copy of the statement by the informant dated 23 November 1995, but omitting any reference to the name of the informant. It may be inferred that the statement is the source of NRMA's knowledge of the allegations of the informant that someone at David's advised her to make a fraudulent claim on NRMA in November 1995.

20. It is common ground that at the hearing before the Master on 30 August 1996, counsel for NRMA indicated that if the Master were minded to make an order for production of documents containing or referring to the allegations made by the informant, then NRMA would agree to disclose the name of the informant in order to avoid the need for a formal court order. It is not clear to me why an indication to this effect was made by counsel and I observe that it would have been of little effect unless counsel was prepared to announce the name of the informant then and there in court.

21. In the reasons for his decision handed down on 30 September 1996, the Master dealt first with the issue of the non-disclosure of the name of the informant. This issue was squarely raised by the application under rule 3. The Master considered that it was useful to approach this issue on an analogy with public interest privilege. The Master correctly recognized that the issue was not strictly speaking one of public interest privilege but that it was "appropriate to take account of the public policy argument" in exercising the discretion whether or not to order the production of documents which would, to use the terminology of Order 34A rule 3, tend to assist in the ascertainment of the description of the informant sufficiently for the purpose of commencing a proceeding in the court against that person for defamation. The Master drew on case law relating to the so-called "newspaper rule" in defamation proceedings. The Master recognized, correctly, that the High Court held in John Fairfax & Sons v. Cojuangco [1988] HCA 54; (1988) 165 CLR 346 that the so-called rule, namely that a newspaper defendant to a defamation action will not be required to disclose its sources of information at the interlocutory stage, but only at trial if the issue is relevant and provided that the plaintiff presents evidence of a cause of action against the newspaper which does not constitute a separate category of privilege and does not apply directly to an application for pre-trial discovery. For the purpose of preliminary discovery as to the source of a newspaper's information, the Court said at 357: "What an applicant must show is that the order sought is necessary in the interests of justice; in other words, the making of the order is necessary to provide him with an effective remedy in respect of the actionable wrong of which he complains."

22. The Master also referred to McGuinness v. Attorney-General (Victoria) [1940] HCA 6; (1940) 63 CLR 73 and D. v. National Society for the Prevention of Cruelty to Children [1977] UKHL 1; (1977) 1 All E.R. 589 as further support for his opinion that it was appropriate to take the "newspaper rule" as a guide to the exercise of his discretion in an application for what the Master called preliminary discovery.

23. The Master then stated his conclusions in the following way at p.8: "I decline to exercise my discretion to order the disclosure of the name of the person who informed the respondent of the allegations of fraud. In exercising this discretion, analogous to the "newspaper rule", I am mindful that it does not deprive the applicant of a remedy. The statement of the NRMA officers to Ms. Kennedy are prima facie actionable. I order the release by the respondent of the identities of persons who made these statements, although I note that the respondent has offered to do this in any event. In relation to such other documentation sought by the applicant, other than the identity of the informant referred to in the affidavit of Mr. Gaukroger, I order its release."

"Discovery" to identify defendant 24. Counsel for NRMA submitted in the appeal that the reference by the Master to the release of the identities of the persons who made the statements to Ms. Kennedy confuses the application for an order under rule 5 with the application for the order under rule 3. The submission is well-founded. The identities of two of those persons were already sufficiently established for David to commence proceedings in defamation against them (or against NRMA or both) if it were so minded or advised. The identity of the others, one known only as Kathy, has not been the subject of inquiry on behalf of David. It is the identity of the informant that is in issue not the identity of the persons who spoke to Ms Kennedy.

25. Counsel for NRMA submits that the order made under rule 3 should be set aside completely on the ground that the only documents which are appropriate to be produced pursuant to an order under that rule are documents which go to identify a prospective defendant. Counsel for David submits that there should have been an order that documents to be produced should not exclude those which go to identify the informant.

26. The submission on behalf of NRMA must be upheld on the ordinary meaning of the words used in rule 3. An order under rule 3 cannot be justified unless it be for the purpose of identifying a prospective defendant. The Master's order in contrast specifically excluded those very documents which would go to identification.

27. With respect to the Master, I do not think that the analogy with the "newspaper rule" is of particular assistance in deciding whether or not to exercise the discretion to order that NRMA produce documents which would disclose the identity of the informant. What is involved is a wider issue which encompasses the "newspaper rule" and that is an issue analogous to that of "public interest privilege". The connection between those two issues may be seen by a brief review of the authorities. As Dixon J explained the nature and affect of the "newspaper rule" in McGuinness v. Attorney-General (Victoria) at 104, the foundation of that rule is the special position of those publishing and conducting newspapers. In John Fairfax & Sons Limited v. Cojuangco at 358, the High Court expressed the view that an order for disclosure of sources by a newspaper at an interlocutory stage in a defamation action was inappropriate where the newspaper had identified its sources in a general way, given prominence to them and endowed those imputations with an "aura of authority and authenticity which would be lacking if the imputations rested merely on the newspaper's and the journalist's assertions". The Court went on to express doubt whether the question would arise in the "context of an interlocutory application in a defamation action ... in which malice was in issue".

28. In D v. National Society for the Prevention of Cruelty of Children the House of Lords held, without reference to the "newspaper rule", that by analogy with the rule relating to the immunity accorded to police informants, the public interest required that those who gave information about child abuse to the Society should be immune from disclosure of their identity in legal proceedings since, otherwise, the Society's sources of information would dry up. The public interest required to be protected was seen to be the effective functioning of an organization authorised by Acts of Parliament to bring proceedings for the welfare of children. Whilst the House of Lords acknowledged that public interest, as a ground for non-disclosure of documents or information, was not confined to the effective functioning of a department of central government, it was important to the decision in that case that the Society was seen to be performing a function in the public interest pursuant to statute. As the headnote states, their Lordships shared a common view that the fact that information has been communicated by one person to another in confidence is not of itself a sufficient ground for protecting from disclosure in a court of law the nature of the information or the identity of the informant if either of those matters would assist the Court to ascertain facts which are relevant to an issue on which it is adjudicating.

29. From the above it does not appear to me that much assistance is to be obtained from the cases dealing with the newspaper rule or public interest immunity when deciding an application under Order 34A rule 3. It may be helpful to look at the provisions of the rule itself.

30. First it is to be observed that rule 3 applies only where the applicant is unable to ascertain the description of the proposed defendant after having made reasonable inquiries. In the present case this issue does not seem to have been addressed. No doubt it could be argued that reasonable inquiry can be inferred from the fact that the solicitors for NRMA have refused to divulge the name of the informant. However, the copy of the statement made by the informant is quite specific as to the occasion, location and circumstances of the incident in which the conduct of the member of the staff referred to as "Dave" is alleged to have occurred. There is no evidence as to the size of the David's establishment or the numbers of staff, but it is not to be assumed that David as an organization is so large that it is unreasonable to expect that inquiries might not have been made of members of staff as to the alleged incident. There is no evidence of any inquiry having been made. David has not made out a case on having satisfied the requirement of reasonable inquiry.

31. Next, rule 3 applies only if the applicant is unable to ascertain the identity "sufficiently for the purpose of commencing a proceeding in the Court against that person". There is no evidence from David that it entertains the purpose of commencing a proceeding against the informant once identified. Whilst the solicitors for David have stated what their instructions are, the absence of any evidence on oath on the part of the proposed plaintiff is a matter to be taken into consideration. Indeed, this is a matter not unconnected with that previously mentioned. It would be unreal to suggest that there was any firm intention to commence proceedings against the informant unless the alleged incident had been made the subject of investigation by David among its staff in order to ascertain whether or not the informant's allegations were true, and that the result of such investigation revealed the allegations of the informant to be untrue.

32. A further matter in relation to rule 3 is the question of qualified privilege (as contrasted with public interest privilege) in any proposed action for defamation against the informant. The publication of the informant's statement was by an insured person to an insurer. The reciprocity of interest between the insured and the insurer in relation to the making of fraudulent claims upon the insurer by third parties is obvious and is spelled out in the extract from Mr. Gaukroger's affidavit. In other words, unless David is able to show malice (and at present there is no evidence of malice) the statement by the informant is protected by qualified privilege and any action in defamation by David against the informant is bound to fail.

33. In summary, although the Master was in error in making an order under rule 3, subject to an exception, it was correct in principle to refuse to make an order that NRMA produce documents which went to identify the informant.

"Discovery" from prospective defendant 34. Whether or not the discretion under rule 5 is wider than the discretion under rule 3 (it applies where it is reasonable to believe that the applicant has, or may have, the right to obtain relief), the rule has to be read as a whole. As the Master observed, quoting Lindgren J at 25 in Alphapharm Pty Limited v. Eli Lilly Australia Pty Limited (unreported, Federal Court of Australia, 24 May 1996), who was referring to an almost identical provision (Order 15A rule 6) in the Federal Court Rules; the test of reasonable sufficiency as laid down in para. (b) is objective, but it "..... does not provide a means by which an applicant will be enabled to have available to it every document which would assist it in deciding whether to litigate."

35. David does not need any documents to establish that the words used in the conversations with Ms. Kennedy were, on the face of it, defamatory. However, once again there is no indication from David as to who, amongst the various prospective defendants, including NRMA itself, David intends suing. Furthermore, the rule applies only to prospective defendants. If production of the documents is sought from NRMA, it must be NRMA which is identified as the party to be sued, not the persons who make the statements. The matter of qualified privilege again arises. On the face of it, NRMA and its officers on the one hand and Ms. Kennedy on the other hand had the reciprocity of interest in relation to David's position on or absence from the list of authorised repairers and in relation to the quality of David's repair work for the occasion to attract qualified privilege. No doubt it may well be that David might hope, with the disclosure of relevant documents, to ascertain facts which might show that qualified privilege did not apply, or that the statements by one or other of the speakers, or the conduct of the NRMA itself in some way or other, was malicious, but this is a possibility only, and borders on mere speculation. It is very remote from any real prospect that disclosure of any documents will assist David in deciding whether or not to sue NRMA in defamation.

36. It may be acknowledged that rule 5 is not restricted to documents which would assist in making a positive decision to sue, but extends to documents which would assist in making the decision whether to sue or not to sue. It is notable that Mr. Gaukroger's affidavit is deficient in that it does not condescend to identify particular documents in question and to explain why they should not be disclosed. The provisions of rule 5 are very wide indeed and by their very nature are not restricted to the situation where the documents are required for the purpose of commencing a proceeding. They are required for the purpose of deciding whether or not a proceeding should be commenced. The documents in question in this particular case, if any, must be in the possession of NRMA. It was not reasonable to expect David to make an inquiry of anybody else but NRMA, or its solicitors. But on balance, I think that the rule is not to be exercised to compel a prospective defendant to an action in defamation to produce documents when the evidence prima facie raises a defence of qualified privilege and there is nothing in the evidence to suggest that any documents exist which might go to show malice. The fact that the plaintiff has not presented evidence to prove an intention to sue NRMA for the statements made by its officers to Ms. Kennedy, is a further factor which tends towards refusing production in the exercise of discretion. These were not factors which the Master took into account and for that reason his decision must be reversed.

37. One formal matter is that the appeal by David was lodged out of time, only after notice of appeal by NRMA was filed. There is no provision in the rules for a cross-appeal against a decision of the Master. In the circumstances and on oral application on behalf of David I grant leave to appeal out of time.

38. The orders are: Both appeals against the Master's orders of 13 September 1996 are allowed. The orders are set aside and the originating notice of motion dated 20 August 1996 is dismissed.

39. I note that the Master reserved the question of costs. They should, if possible, be dealt with now. Subject to hearing from the parties, I am minded to order that each side pay its own costs of the appeals and that David pay the costs of the motion before the Master.