Animax Pty LImited v Simlogic Pty Limited & Bohemia Interactive Australia Pty Limited,

LEGISLATION CITED: Evidence Act 1995 ss 131(1), 131(2)(g)

Bloss Holdings Pty Ltd v Brackley Industries Pty Ltd [2005] NSWSC 756 Brown v Commissioner of Taxation [2001] FCA 596; (2001) 187 ALR 714 CASES CITED: Korean Air Lines v Australian Competition and Consumer Commission (No 3) [2008] FCA 701 Moran v Moran (No.3) [2000] NSWSC 151 Mulkearns v Chandos Developments Pty Ltd (No.4) [2005] NSWSC 511 Pitts v Adney (1961) 78 WN (NSW) 886

Animax Films Pty Limited, Plaintiff PARTIES: Simlogic Pty Limited, First Defendant Bohemia Interactive Australia Pty Limited, Second Defendant

COUNSEL: Mr J Sleight for the Plaintiff Mr M McHugh for the First and Second Defendants

SOLICITORS: Neville & Hourn Legal for the Plaintiff Blueprint Law Pty Ltd for the First and Second Defendants

1 Counsel for the first and second defendants, has tendered a letter dated 7 May 2008 from Blueprint Law to TressCox lawyers. The letter is MFI 1. The letter was written by the lawyers acting on behalf of the first and second defendants and is headed "Without Prejudice save as to costs."

2 Mr McHugh, counsel for the first and second defendants, waived any privilege in the letter.

3 Mr Sleight, counsel for the plaintiff, objects to the tender. The basis of the objection is the prohibition, contained in section 131 of the Evidence Act 1995 (NSW) on adducing evidence of a communication that is made between persons in dispute in connection with an attempt to negotiate the settlement of the dispute. Clearly MFI 1 falls within this description.

4 In response, Mr McHugh relied on the provisions of sections 131(2)(g) of the Evidence Act to the effect that section 131(1) does not apply if evidence that has been adduced in the proceeding is likely to mislead the court unless evidence of the communication or document is adduced to contradict or to qualify that evidence. It is submitted on behalf of the defendants that the evidence in MFI 1 is admissible in order to contradict or qualify evidence already adduced in these proceedings, namely, a letter dated 10 July 2008 from Blueprint Law to the plaintiff, which is exhibit A.

5 In order to understand this submission it is necessary to briefly refer to one of the main issues in this case. That issue relates to the terms of the contract between the plaintiff and the first and/or second defendants. The plaintiff alleges that the agreement was a written agreement entered into in November 2007 containing a term that the first defendant would pay $100,000 for the production of a short film in the nature of a trailer - referred to in these proceedings as a teaser. The plaintiff alleges that part payment of $82,500 was made and that some $28,527.50 is still owing.

6 The first and second defendants do not dispute that there was an agreement but assert that the agreement was made between the first defendant and the plaintiff in June/July 2007. The defendants allege that it was a term of the agreement that a fixed price of $100,000 was to be paid in two instalments of $50,0000, one to be paid prior to shooting and the other after completion.

7 The relevant passage from exhibit A is as follows: "Simlogic has never disputed that it was agreed between Animax and Simlogic that Animax would produce the Teaser and other related materials for the fixed price of $100,000 (ex GST) and remains willing to pay to Animax the outstanding balance of this fixed price in respect of the production of the Teaser and other related materials, being the amount of $27,500 (inc. GST). This dispute can be resolved if Animax agrees to accept this final payment on the terms of a settlement agreement to be finalised in good faith between the parties once agreement on this full and final payment is reached."

8 The relevance of this passage was outlined in opening by the plaintiff's counsel. He said it constituted an admission "which couldn't be in more straightforward terms" of the agreement alleged by the plaintiff. Mr McHugh submits that without reference to the "without prejudice" letter, MFI 1, the letter of 10 July 2008 is likely to be misleading.

9 Section 131(2)(g) has been considered in a number of cases.

10 In Brown v Commissioner of Taxation [2001] FCA 596; (2001) 187 ALR 714, the Commissioner of Taxation sought to adduce evidence of certain statements made by the taxpayer at a meeting with officers of the tax department. His Honour found that the statements were made in a connection with an attempt to settle the dispute. The Commissioner contended that unless he was permitted to adduce evidence of communications made by the taxpayer at the relevant meeting certain evidence already adduced in the proceedings on behalf of the taxpayer would be likely to mislead the court.

11 At paragraph 179 Emmett J said: "The Commissioner says, in effect, that the approach to be taken in applying section 131(2)(g) is to determine whether, assuming the evidence that has been adduced in the proceeding is accepted at face value, the evidence sought to be adduced, if accepted at face value would contradict or qualify the evidence already adduced."

12 This is in essence the submission made on behalf of the defendants.

13 At paragraph 182, his Honour went on to say: "The construction advanced by the Commissioner affords little meaning to the concept of the likelihood of the adduced evidence misleading the court. The Commissioner's construction is tantamount to allowing an exception to the exclusionary rule in section 131(1) in any case where the evidence sought to be adduced simply contradicts or qualifies the evidence already adduced. I do not consider that the paragraph should be given such a broad construction."

14 At paragraph 185, his Honour concluded as follows: "It is not appropriate to attempt an exhaustive exposition of the effect of section 131(2)(g). However, I consider that it will not be attracted simply because evidence to which section 131(1) applies contradicts or qualifies evidence that has already been adduced. Section 131(2)(g) will apply where the court would be likely to be misled as to the existence or contents of an excluded communication or document, where those matters are in issue in the proceeding."

15 In Bloss Holdings Pty Ltd v Brackley Industries Pty Ltd [2005] NSWSC 756 reliance was sought to be placed on a 'without prejudice' letter said to constitute an offer to settle the differences between the parties. There had been an agreement January 2002, the effect of which was in issue in the case. The defendant's case was that upon its true construction the agreement removed any entitlement by the plaintiff in the shares in the first defendant or to a share of profit. The 'without prejudice' document made an offer that, amongst other things, gave an entitlement to receive shares and profit.

16 Hamilton J rejected the tender of the 'without prejudice' offer for two reasons. The first was that the 'without prejudice' document did not contain any acknowledgment of the existence of the entitlements rather than the making of a without prejudice offer to honour the entitlements as part of an overall settlement. This meant that the evidence sought to be tendered did not even qualify evidence that had already been adduced or inferences that might arise from it. Secondly, however, Hamilton J found that even if the document did have that quality, Brown v Commissioner of Taxation emphasised that it was not enough that the evidence sought to be tendered simply contradicted or qualified evidence that had already been adduced. There had to be established the special circumstance that there was a risk that the court would be likely to be misled as to the existence or contents of an excluded communication or document where those matters were in issue in the proceedings.

17 Although cases such as Moran v Moran (No.3) [2000] NSWSC 151 and Mulkearns v Chandos Developments Pty Ltd (No.4) [2005] NSWSC 511 have arguably taken a broader view of s 131(2)(g) than Brown those cases are very different to the present case. In both Moran and Mulkearns the privileged communication tendered was directly relevant to an issue in the proceedings. In Moran without the privileged communication the jury may have been misled as to the state of mind of a person in the days before his death. This was an issue which had been given some prominence in the case. I note that Jacobsen J in Korean Air Lines v Australian Competition and Consumer Commission (No 3) [2008] FCA 701 at [83] considered that the document in Moran was admitted in accordance with s. 131(2)(g) because the jury would have been misled without it. In Mulkearns the fact that the defendant had made an offer of settlement was relevant for without it the Court could have been misled into thinking that the defendant was a greedy defendant not prepared to give an inch. This fact was relevant to the exercise of the Court's discretion.

18 Counsel for the defendants relied on Pitts v Adney (1961) 78 WN (NSW) 886. In my view Pitts v Adney differs from the present case for the reason set out by Emmett J in Brown at [184]: "I consider that s. 131 (2) (g) is designed to deal with the sort of circumstances that arose in Pitts v Adney (1961) 78 WN (NSW) 886. Evidence of a "without prejudice" communication was admitted in that case in order to prove the fact of and the nature of the communication. It was not tendered in order to contradict evidence as to the matters in issue, or as an admission."

19 In my view the letter tendered by the defendants is not admissible. Firstly, all that the letter shows is that in May 2008 an offer to settle proceedings was made on certain terms. The terms of such an offer do not, in my view, qualify or contradict the term of an open letter written some two months later. I make no comment at this stage as to whether the open letter constitutes an admission of the kind asserted by the plaintiff's counsel in his opening. That will be a matter for later argument - for there is no issue in this case concerning the contents of MFI 1.

20 Secondly, Brown v Commissioner of Taxation requires that there be established the special circumstances that there is a risk that the court would be likely to be mislead as to the existence or contents of the excluded communication, that is to say MFI 1. That is clearly not the present case.

21 For these reasons I reject the tender of the letter.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.