First Plaintiff v First Defendant

1 On 5 November 2010, Efthim AsJ delivered judgment on an application made by the plaintiffs, Biovision 2020 Pty Ltd and SITA Australia Pty Ltd, for orders preventing the defendants from inspecting, using, producing, tendering or otherwise adducing in evidence more than 1,700 documents produced under subpoena by the Australia and New Zealand Banking Group Ltd, AECOM Australia Pty Ltd and Dr PH Townend.

2 The plaintiffs' application was made pursuant to r 42A.08 of the Supreme Court (General Civil Procedure) Rules which enables a party to a proceeding, who has any objection to the inspection by another party of a document identified in a subpoena, to have the objection referred to a judge or an associate judge for hearing and determination.

3 The basis of the plaintiffs' objection was s 131 of the Evidence Act 2008 (Vic), which provides:

(1) Evidence is not to be adduced of -

(a) a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute; or

(b) a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute.

On the evidence before me, there has been a dispute, there has been settlement negotiations in connection with that dispute and the documents all appear to relate to that dispute. I have not seen all of the documents as there are some 1,700 documents and I do not propose to read each and every document. I am satisfied on the evidence of Ms vandePol that the documents relate to the dispute between the parties to the Interface Agreement. The plaintiffs have maintained without-prejudice privilege and there has been no implied disclosure. I will therefore make the orders sought by the plaintiffs.

1. The Defendants not be at liberty to inspect, use, produce, tender or otherwise adduce in evidence the documents that fall within the Original Objected Category (Schedule A) to the Plaintiffs' Supplementary Access Summons Schedule dated 20 September 2010 (Supplementary Access Summons Schedule).
2. The Defendants not be at liberty to use, produce, tender or without leave adduce in evidence:

(a) the 4 documents identified in exhibit MMV-60 (Schedule B) to the Supplementary Access Summons Schedule; and

(b) the documents that fall within the Additional Objected Category (Schedule C) to the Supplementary Access Summons Schedule, as well as the specific paragraphs of the Moreshead Affidavit sworn 31 August 2010 identified in the vandePol First Supplementary Affidavit, sworn 9 September 2010, together with some of the documents that have been exhibited to the Morshead Affidavit, sworn 31 August 2010, in particular SPM 11, SPM 14, SPM 15, SPM 16, SPM 18, SPM 20-25.

1. The Defendants not be at liberty to use, produce, tender or otherwise adduce in evidence any documents currently in their possession or that came into their possession, that are substantially the same as, or contain substantially similar content as any document listed in the Supplementary Access Summons Schedule.
2. The three vandePol Affidavits sworn in support of the Plaintiffs' Summons issued 24 June 2010 be sealed and marked "Confidential and Privileged" and not be made available for inspection by any party, except by order of the Court.
3. Transcript of the evidence given at the hearing of the Plaintiffs' Summons filed 24 June 2010 be sealed and marked "Confidential and Privileged" and not be used, produced, tendered or otherwise adduced in evidence by the parties, except by order of the Court or for the purpose of Appeal or leave to Appeal.

5 The defendants applied for leave to appeal against the decision pursuant to r 77.06 (2.1). For the reasons that follow, leave to appeal was granted, the appeal heard instanter and allowed. The orders of Efthim AsJ are set aside and in lieu thereof there will be an order dismissing the plaintiffs' summons dated 24 June 2010.

6 The dispute over the disclosure of the documents arose in the context of a claim brought by the plaintiffs seeking a declaration that the defendants, who are the plaintiffs' insurers, are liable to indemnify them in respect of claims notified after the failure of a composting facility in Western Australia. The first plaintiff, Biovision, is the owner and operator of the Mindarie Resource Recovery Facility. The second plaintiff, SITA Australia, is the asset manager and the owner's engineer. The facility treats the household waste from seven districts in Perth, by a process that mechanically sorts recyclable ferrous metals, disposes of large compostible items and plastics, and produces commercial grade compost. Community waste is delivered to the facility by garbage trucks. The first part of the treatment process involves individual loads being placed into two large composters. The composters rotate at a constant speed. The waste travels from the inlet of the composter to the outlet over a period of two days. The operation of the composters is critical to the operation of the facility.

7 Construction of the facility was undertaken and completed by a number of contractors. They were, relevantly, RCR Tomlinson Ltd and Conporec Pty Ltd. There was an Interface Agreement, dated 23 November 2007, to which the plaintiffs, RCR, Conporec and others were party. The Interface Agreement set out the relationships of the relevant contracting parties during the construction of the facility to completion ,and established the terms under which disputes would be resolved and liability apportioned. The composters failed, and on 14 October 2009 SITA issued Notices of Determination of a Defect to RCR and Conporec. The defendants were duly notified of claims under the policy of insurance, but have not admitted liability. The plaintiffs commenced this proceeding in this court on 23 February 2010.

8 The role of the ANZ in the affairs of the plaintiffs, and the fall out from the failure of the composters, was obviously important to the plaintiffs' case. Some evidence of the role of the ANZ as financier, and its participation in events after the failure of the composters was before Efthim AsJ. At the rehearing, the plaintiffs applied to rely on additional material. The new evidence was a further affidavit of Mini Menon vandePol, of the plaintiffs solicitors, sworn 3 November 2010. In that affidavit, Ms vandePol sought to better explain the plaintiffs' financing and security arrangements with the ANZ and thus its interest in the failure of the composters. Under r 77.06 (7)(a) the plaintiffs require special leave to rely upon the new material. I refuse that leave.

9 I accept that the ANZ, as the plaintiffs' financier, had a very real interest in the failure of the composters and remedial action to make them operational. I also accept that the bank had a very real interest in the resolution of any dispute between the plaintiffs and their contractors involving the cause of the failure, and the likely impact on any insurance claims. In the end, however, the plaintiffs did not direct the court's attention to any of the documents exhibited to the new affidavit of Ms vandePol as critical to establish some additional or different aspect of the relationship which might assist the plaintiffs' claim. Ultimately, the plaintiffs' reliance on the new material was only faintly pressed. That may be explained by the fact that the real relevance of the bank to the plaintiffs claims was its participation in discussions through Dr Townend.

10 The evidence before Efthim AsJ disclosed that ANZ was Biovision's financier. By letter dated 4 December 2009, the plaintiffs' solicitors wrote to the defendants, informing them of the claim, and noting that,

As a result of the defect notices being issued, both Conporec and RCR are presently attending to the repairs at their own cost as it is a strict requirement of the Interface Agreement that they do so. Neither SITA nor BioVision are required to direct or validate any of the short or long term repair solutions. However, whilst they are not responsible for this work they are seeking to have the relevant contractors demonstrate that the repair plan will provide the original design life for the composters of 20 years. Accordingly, whilst SITA and BioVision are not in a position under the terms of the Interface Agreement to direct any of the works, they are conducting their own investigations and have engaged experts to review and critique the work being conducted by RCR and Conporec. These expenses are ongoing and several letters have been issued by these experts, and provided to RCR and Conporec, for quality control purposes. If you would like copies of these please let us know and we can arrange for copies to be sent to you.

Biovision's financier, ANZ, has also instructed and engaged its own metallurgist at Biovision's expense. We understand that this expert has been assisting to test and critique the repair works proposed by the contractors.

This information was provided by the plaintiffs to the defendants in a context where repair works were already being undertaken by RCR and Conporec.

11 ANZ instructed and engaged AECOM Australia Pty Ltd to investigate the defects and identify the probable cause, review temporary remedial action and the acceptability of a permanent solution proposed by the parties. AECOM, in turn, engaged the services of Dr Townend, a metallurgist, who was retained to provide his expert opinion on welding and structural repairs.

12 An important meeting took place in Sydney on 29 January 2010. The plaintiffs characterised the meeting as "without prejudice". For present purposes it is sufficient to note that the meeting was attended by Dr Townend on behalf of the ANZ. Dr Townend was expected to prepare and circulate a "factual report" on welding samples. Sally Prudence Morshead, of the defendants' solicitor, was also in attendance. In an email from Ken Watt of AECOM to the ANZ on 2 February 2010, he described the meeting as "a marathon 'without prejudice' teleconference". After identifying the participants, Mr Watt said that the "conference was intended to provide an opportunity for all parties to openly discuss the problem and possible solutions for long-term repair". The short-term repairs had been completed.

13 The email made reference to a consensus that Dr Townend should be requested to prepare a second report, "an opinion report detailing his opinion on the cause of the cracks and what would need to be done to overcome the problems in the long-term repair, etc". The email contained an expression of concern that the bank's expert may be drawn into providing input into the potential repair solutions through an "opinion report". On 11 March 2010, the plaintiffs' solicitors were informed that Dr Townend would not be providing an opinion report. In the interim, however, he prepared a report which summarised the facts surrounding the issues, including notes on the causes of cracking, the repairs to cracking and the current stage of progress towards a complete solution.

14 The defendants have a copy of the report of Dr Townend. It was provided by the plaintiffs' solicitors to the defendants' solicitors. Ms vandePol deposed that the report had been provided on a privileged basis. To make good that contention, she referred to an email, sent on Friday 22 January 2010 from Ms Murphy, of the plaintiffs' solicitors, to Ms Morshead, in which she said:

Dear Sally,

Please see attached the privileged report of Dr Townend.

Please note that this report is provided for information purposes only and is a privileged report prepared by Dr Townend for, and on behalf of, the ANZ. Dr Townend is neither SITA nor Biovision's expert and none of the work being undertaken by the ANZ metallurgist has been conducted on SITA/Biovision's behalf.

Neither SITA nor Biovision guarantee the accuracy of any of the information, data, measurements and/or conclusions contained in the report. In other words, SITA and Biovision will not accept liability associated with any reliance on any of the content of the letter and you are required to take all steps necessary to independently verify your information, data, measurements and conclusions.[1]

15 The documents sought by each subpoena were identically described in the following terms:

Copies of all documents including reports (both factual and opinion), correspondence, memoranda, file notes, agreements, contracts, invoices, diagrams, photographs, test results, testing data, maps, plans, drawings and minutes from meetings with respect to the cracking, defect or damage to the Composters located at the Resource Recovery Facility located at 87 Penderic Street, Mindarie, Western Australia.

16 Each party to whom a subpoena was directed complied and delivered documents to the court. Soon afterwards the plaintiffs objected to the defendants' inspection of certain of the documents on the basis that they were subject to "without prejudice" privilege. By an Access Summons Schedule, dated 9 August 2010, the plaintiffs listed documents for which they sought protection against inspection by the defendants. That list comprised 138 documents. Those documents were apparently placed in an envelope marked "Objection by Plaintiffs", while the defendants were permitted to inspect the balance. In her affidavit, sworn 31 August 2010, Ms Morshead deposed to her review of the documents, although it is not clear whether her review included a DVD produced by AECOM. It would appear that the DVD had been quarantined along with other documents to which objection was made.

17 The plaintiffs' summons was returnable on 10 September 2010, and supported by an affidavit of Ms vandePol, sworn 10 August 2010. On 9 September 2010, Ms vandePol prepared two further affidavits, described as the first and second supplementary affidavit respectively. The first supplementary affidavit set out grounds upon which the plaintiffs sought to adjourn the hearing scheduled for the following day. Ms vandePol deposed that there were many more documents which the plaintiff sought to protect, and the process of review would take time to complete. The hearing, scheduled for 10 September 2010, was adjourned to permit the plaintiffs time to complete their review of the documents which concluded with the preparation of the Supplementary Access Summons Schedule, dated 20 September 2010. The hearing resumed on 21 September 2010.

18 Schedule A in the Supplementary Access Summons Schedule replicated the content of the Access Summons Schedule dated 9 August 2010. Schedule B contained four additional documents, which were said to have been unintentionally omitted from the earlier schedule, and had not been placed in the sealed envelope. Those documents formed part of exhibits SPM 11, 14, 15 and 16 to the affidavit of Ms Morshead, and had been employed by the defendants as part of their case for access to the documents in the sealed envelope. The plaintiffs also contended that exhibits SPM 18 and 20-25, to the affidavit of Ms Morshead, were privileged, and that certain paragraphs in the affidavit were objectionable because they referred to the content of the documents. I have reviewed each of those documents. With the exception of a letter from the defendants' solicitors, dated 18 February 2010, the documents comprised correspondence in relation to the proposed report by Dr Townend and do not purport to have been prepared or sent on a "without prejudice" basis. That does not, however, determine the plaintiff's claim.

19 Schedule C contained a further 1,560 documents. These documents were identified following a review of several DVDs, including the AECOM DVD. The second supplementary affidavit of Ms vandePol, also sworn on 9 September 2010, was designed to supplement her evidence in the affidavit sworn 10 August 2010.

20 The basis for the plaintiffs' claim for protection may be summarised as follows. After the failure of the composters, notice was given by SITA to RCR and Conporec pursuant to the Interface Agreement. As a consequence, there was an Interface Dispute. The Interface Agreement contained a dispute resolution procedure. The parties to the dispute engaged in discussions, on a without prejudice basis, in an attempt to arrive at an agreed short-term solution to make such repairs as were necessary to get the composters operational. The plaintiffs characterised the discussions as negotiations towards a settlement of the dispute commenced by the notices. The plaintiffs and the contractors understood that a longer term, or more thorough and final remedial action, would be required. The plaintiffs' financier, the ANZ had a material interest in the operation of the facility. Through Dr Townend, the ANZ participated in discussions at a meeting on 29 January 2010, as did the defendants, through the involvement of Ms Morshead. They entered into what the plaintiffs described as the "magic circle" of negotiations to attempt to settle the dispute. Thus, argued the plaintiffs, all communications and documents prepared in the course of, or for the purposes of, those discussions were protected, including many of the documents produced under subpoena by the ANZ, AECOM and Dr Townend.

21 Ms vandePol, who attended the meeting that took place on 29 January 2010, said that she confirmed to all participants, some of whom attended by telephone, that the meeting was conducted on a "without prejudice" basis. That much seems to be accepted, although the mere employment of those words will not necessarily define the legal character of an occasion, communication or document. In order to resolve an objection, the court must apply the law to all relevant facts.[2]

22 The meeting on 29 January 2010 went for approximately eight hours. The evidence did not make clear how the discussions at the meeting, which were not the subject of any application for protection, assisted the plaintiffs in their claim for protection of the documents produced under subpoena. The relationship between the meeting on 29 January 2010 and the documents was, to some extent, explained by counsel for the plaintiffs in the course of submissions. The plaintiffs submitted that by the time of the meeting the short-term remedial solution had been achieved, and the disputants began to focus on a resolution of their dispute. That is, who was responsible for the breakdown, and no doubt questions of liability and compensation. They submitted that the proposed expert opinion report from Dr Townend, addressing the cause of the cracking in the composters, was part of that resolution process. They submitted that the parties had agreed to be bound by the outcome of that report.

23 It is not clear who advanced the proposal for an opinion report or who agreed to be bound, but the proposal was never implemented. In the meantime, Dr Townend prepared a report for the ANZ. The plaintiffs submitted that had the proposal been implemented it would have involved agreement between the disputants that the report would be protected from use in litigation. No such agreement was, however, ever reached. The plaintiffs now contend that the work of Dr Townend, and the related communications are protected by the privilege, notwithstanding the disputants' failure to agree upon a basis for the use of the material.

24 The plaintiffs' case sought to capture broad categories of documents as having been brought into existence in connection with the discussions concerning the short-term remedial action, the 29 January meeting and Dr Townend's report. In their analysis of the electronic material, for the purpose of preparing their Supplementary Access Summons Schedule, the plaintiffs employed search criteria defined by a commencement date of 14 October 2009, subject matter such as cracking, cause of damage, short-term repair, long-term repair etc., and identified about 18 individuals, firms and entities, including the plaintiffs, RCR, Conporec, AECOM, ANZ and others. The relevance of some of those participants was not explained. There were some additional instructions given to those undertaking the searches, apparently designed to refine categories or eliminate some classes of documents. This protocol gave some insight into the approach taken by the plaintiffs when formulating their broadly scoped claim.

25 The plaintiffs submitted s 131A of the Act extended protection to prevent the defendants from having access to the documents for the purpose of inspection even though the plaintiffs contended that the defendants were brought within the "magic circle" of participants in the negotiations by reason of their attendance at the meeting on 29 January 2010. They acknowledged that the content of each document might inform an inquiry as to its connection with the resolution of a dispute, but submitted that with so many documents it was impractical and unnecessary to adduce evidence in respect of each document. The plaintiffs' evidence was concerned with the nature of the occasion or the context in which the documents were purportedly prepared, rather than why they were prepared and their content.

26 In her second supplementary affidavit, sworn 9 September 2010, Ms vandePol relied upon letters dated October 2009 from SITA to Conporec and RCR, initiating the dispute process, which letters concluded with the paragraph:

Nothing in this notice limits or restricts the rights or remedies of the Company or the Owner's Engineer. All rights of the Company, the Owner's Engineer and the Asset Manager (including without limitation, under clause 12.2 of the Interface Agreement) to recover from Conporec all Losses suffered in relation to, or arising from, the defect are reserved.

27 In order to reinforce the connection between the short-term remedy and the resolution of the dispute, Ms vandePol set out part of a letter dated 5 November 2009 from Biovision to Conporec stating:

We refer to your offer to provide assistance in good faith and without prejudice. We agree that the parties must work co-operatively together to remedy (any) Defect and we remind you of your obligations as set out in clause 6.6 of the Interface Agreement in this regard. BioVision expects Conporec to comply with these obligations.

We do not agree that each party will bear its own costs until responsibility for the Defect is determined. In this regard BioVision specifically reserves all of its rights to recover from Conporec all losses suffered in relation to, or arising from, the Defect.

28 Reliance was placed on other correspondence which made mention of an obligation to provide assistance in good faith and on a without prejudice basis to identify the cause of defects, although no attempt was made to adduce evidence to differentiate between documents which dealt with the provision of assistance to rectify the failure and that which might attribute a cause.

29 Much of the debate between the parties concerned the definition and characterisation of the dispute as the subject-matter of the negotiation. The defendants sought to confine the dispute to the claims made by the plaintiffs under the Interface Agreement, distinguishing the attempts to arrive at a short-term repair solution. They submitted that the documents relating to the short-term repair were not relevantly connected with a resolution of liability.

30 The plaintiffs placed a great deal of emphasis upon the "magic circle", made up of the parties involved in the 29 January meeting, so as to define the range of participants involved in the negotiations. They also submitted that they were inhibited from disclosing documents to the defendants because of their obligations of confidentiality to other parties in the magic circle. There was a curious submission to the effect that the defendants were free to subpoena the same material from third parties, such as the plaintiffs' contractors, rather than call upon the plaintiffs to produce the same documents. I do not understand that submission. That is precisely what the defendants did, having subpoenas issued to the ANZ, AECOM and Dr Townend.

31 The plaintiffs relied on a bundle of documents, exhibit MMV 70 to an affidavit of Ms vandePol sworn 9 September 2010, to establish the nature and scope of the dispute. The bundle contained the initiating letters dated 14 October 2009, a response by RCR, commencing a discussion about how best to proceed with a resolution of issues, further correspondence passing between SITA and RCR, a response from Conporec dated 27 October 2009, further correspondence passing between Biovision and Conporec concerning the notice dated 14 October 2009, and importantly, a letter dated 4 December 2009 from Minter Ellison, solicitors for Conporec, to RCR. In the letter of 4 December, Conporec disputed that it was responsible for any of the defects in the composters, concluding as follows:

Notwithstanding this point Conporec acknowledges that liability for the defects in the Composters will need to ultimately be determined between all parties involved in the Composters including Biovision, SITA, Gardiner & Willis Associates Pty Ltd (GWA), RCR Tomlinson and Conporec. The resolution of the question of liability is also going to involve a number of insurers.

However now is not an appropriate time to start to determine the issue of liability for a number of reasons. Firstly, Conporec considers that the best use of everyone's resources is to fix the defects and have the Composters back on line as soon as possible. Secondly engaging in the dispute resolution process in the Interface Agreement (which involves consensus dispute resolution procedures such as executive negotiation and mediation) with just Conporec is not going to resolve the matter as, as mentioned above, there are other parties with interests in the issue of liability that will need to be involved for the matter to be resolved. Thirdly depending on where the insurers land on this matter, the issue of liability and being involved in dispute resolution procedures may be taken out of Conporec's and RCR Tomlinson's hands. Accordingly embarking on a dispute resolution strategy at this time is both untimely and potentially a waste of time and money.

Conporec proposes that the parties agree to defer any formal dispute resolution process until the Composters are up and running again. Then subject to the issues raised in the preceding paragraph Conporec would propose that a mediation involving all relevant parties take place.

Can you please let us know if you agree with this proposal.

Given Conporec's proposal outlined above we have not provided a detailed response to the allegations contained in your letter. Conporec does not agree with what you have said and disputes that it and GWA have in any way not performed in accordance with their obligations in respect of the project. As mentioned above Conporec holds RCR Tomlinson responsible for the defects in the Composters and will issue a formal Interface Claim in accordance with the Interface Agreement at the appropriate time.

We look forward to hearing from you. If you have any questions please let me know.[3]

32 There seems to be some debate as to whether s 131(1) of the Act was intended to have the same scope of operation as the common law, or extended the existing common law position.[4] It is also possible that the statutory provision limits the existing common law position. It seems generally accepted, however, that the object of the statutory provision was to achieve the public policy objectives which explain and support the "without prejudice" rule at common law. That may be so, although the words of the Act might convey a Parliamentary intention to expand or limit the common law. That possibility may be of particular importance given the elasticity in some aspects and application of the privilege at common law, particularly in relation to disclosure obligations.

33 In Field v Commissioner for Railways NSW,[5] the High Court (Dixon CJ, Webb, Kitto and Taylor JJ) considered the application of the privilege in the context of an examination of a plaintiff by a medical practitioner, nominated by his employer, to whom certain admissions had been made. The question before the court was the extent to which the occasion of the examination was privileged. While the purpose of the examination was to assist a possible resolution of the claim, it was contemplated that evidence may be given should the claim not settle. The High Court said:

As a matter of policy the law has long excluded from evidence admissions by words or conduct made by parties in the course of negotiations to settle litigation. The purpose is to enable parties engaged in an attempt to compromise litigation to communicate with one another freely and without the embarrassment which the liability of their communications to be put in evidence subsequently might impose upon them. The law relieves them of this embarrassment so that their negotiations to avoid litigation or to settle it may go on unhampered. This form of privilege, however, is directed against the admission in evidence of express or implied admissions. It covers admissions by words or conduct. For example, neither party can use the readiness of the other to negotiate as an implied admission. It is not concerned with objective facts which may be ascertained during the course of negotiations. These may be proved by direct evidence. But it is concerned with the use of the negotiations or what is said in the course of them as evidence by way of admission. For some centuries almost it has been recognised that parties may properly give definition to the occasions when they are communicating in this manner by the use of the words "without prejudice" and to some extent the area of protection may be enlarged by the tacit acceptance by one side of the use by the other side of these words. Needless to say, the privilege is a matter to be raised by objection to the admissibility of the evidence.[6]

34 The High Court analysed the connection between the statement made to the medical practitioner and the settlement of the action and concluded that the evidence of the medical practitioner was admissible, because the admission that was made by the plaintiff was made "without any proper connection with any purpose connected with the settlement of the action".[7] Earlier in the judgment the High Court had formulated the test as follows:

The question... depends upon what formed part of the negotiations for the settlement of the action and what was reasonably incidental thereto.[8]

35 The concept of "connection" adopted by the High Court seems to have been embraced by the legislature in its qualification of communications and documents attracting the statutory privilege and protection. That was the opinion of Jacobson J in Korean Airlines Co Ltd v Australian Competition and Consumer Commission (No 3).[9] I respectfully agree. It may also be observed that the High Court in Field emphasised the focus of the protection conferred by the privilege as preventing "the admission in evidence of express or implied admissions".[10]

36 In Rush & Tompkins Ltd v Greater London Council[11] the House of Lords explained the public policy reflected in the "without prejudice" rule as follows:

The 'without prejudice' rule is a rule governing the admissibility of evidence and is founded upon the public policy of encouraging litigants to settle their differences rather than litigate them to a finish. It is nowhere more clearly expressed than in the judgment of Oliver L.J. in Cutts v. Head [1984] Ch. 290, 306:

'That the rule rests, at least in part, upon public policy is clear from many authorities, and the convenient starting point of the inquiry is the nature of the underlying policy. It is that parties should be encouraged so far as possible to settle their disputes without resort to litigation and should not be discouraged by the knowledge that anything that is said in the course of such negotiations (and that includes, of course, as much the failure to reply to an offer as an actual reply) may be used to their prejudice in the course of the proceedings. They should, as it was expressed by Clauson J. in Scott Paper Co. v. Drayton Paper Works Ltd. (1927) 44 R.P.C. 151, 156, be encouraged fully and frankly to put their cards on the table. ... The public policy justification, in truth, essentially rests on the desirability of preventing statements or offers made in the course of negotiations for settlement being brought before the court of trial as admissions on the question of liability.'

The rule applies to exclude all negotiations genuinely aimed at settlement whether oral or in writing from being given in evidence. A competent solicitor will always head any negotiating correspondence 'without prejudice' to make clear beyond doubt that in the event of the negotiations being unsuccessful they are not to be referred to at the subsequent trial. However, the application of the rule is not dependent upon the use of the phrase 'without prejudice' and if it is clear from the surrounding circumstances that the parties were seeking to compromise the action, evidence of the content of those negotiations will, as a general rule, not be admissible at the trial and cannot be used to establish an admission or partial admission. I cannot therefore agree with the Court of Appeal that the problem in the present case should be resolved by a linguistic approach to the meaning of the phrase 'without prejudice'. I believe that the question has to be looked at more broadly and resolved by balancing two different public interests namely the public interest in promoting settlements and the public interest in full discovery between parties to litigation.

Nearly all the cases in which the scope of the 'without prejudice' rule has been considered concern the admissibility of evidence at trial after negotiations have failed. In such circumstances no question of discovery arises because the parties are well aware of what passed between them in the negotiations. These cases show that the rule is not absolute and resort may be had to the 'without prejudice' material for a variety of reasons when the justice of the case requires it. It is unnecessary to make any deep examination of these authorities to resolve the present appeal but they all illustrate the underlying purpose of the rule which is to protect a litigant from being embarrassed by any admission made purely in an attempt to achieve a settlement. Thus the 'without prejudice' material will be admissible if the issue is whether or not the negotiations resulted in an agreed settlement, which is the point that Lindley L.J. was making in Walker v. Wilsher (1889) 23 Q.B.D. 335 and which was applied in Tomlin v. Standard Telephones & Cables Ltd. [1969] 1 W.L.R. 1378. The court will not permit the phrase to be used to exclude an act of bankruptcy: see In re Daintrey, Ex parte Holt [1893] 2 Q.B. 116 nor to suppress a threat if an offer is not accepted: see Kitcat v. Sharp (1882) 48 L.T. 64. In certain circumstances the 'without prejudice' correspondence may be looked at to determine a question of costs after judgment has been given: Cutts v. Head [1984] Ch. 290. There is also authority for the proposition that the admission of an 'independent fact' in no way connected with the merits of the cause is admissible even if made in the course of negotiations for a settlement. Thus an admission that a document was in the handwriting of one of the parties was received in evidence in Waldridge v. Kennison (1794) 1 Esp. 142. I regard this as an exceptional case and it should not be allowed to whittle down the protection given to the parties to speak freely about all issues in the litigation both factual and legal when seeking compromise and, for the purpose of establishing a basis of compromise, admitting certain facts. If the compromise fails the admission of the facts made for the purpose of the compromise should not be held against the maker of the admission and should therefore not be received in evidence.

I cannot accept the view of the Court of Appeal that Walker v. Wilsher, 23 Q.B.D. 335, is authority for the proposition that if the negotiations succeed and a settlement is concluded the privilege goes, having served its purpose. In Walker v. Wilsher the Court of Appeal held that it was not permissible to receive the contents of a 'without prejudice' offer on the question of costs and no question arose as to the admissibility of admissions made in the negotiations in any possible subsequent proceedings. There are many situations when parties engaged upon some great enterprise such as a large building construction project must anticipate the risk of being involved in disputes with others engaged on the same project. Suppose the main contractor in an attempt to settle a dispute with one subcontractor made certain admissions it is clear law that those admissions cannot be used against him if there is no settlement. The reason they are not to be used is because it would discourage settlement if he believed that the admissions might be held against him. But it would surely be equally discouraging if the main contractor knew that if he achieved a settlement those admissions could then be used against him by any other subcontractor with whom he might also be in dispute. The main contractor might well be prepared to make certain concessions to settle some modest claim which he would never make in the face of another far larger claim. It seems to me that if those admissions made to achieve settlement of a piece of minor litigation could be held against him in a subsequent major litigation it would actively discourage settlement of the minor litigation and run counter to the whole underlying purpose of the 'without prejudice' rule. I would therefore hold that as a general rule the 'without prejudice' rule renders inadmissible in any subsequent litigation connected with the same subject matter proof of any admissions made in a genuine attempt to reach a settlement. It of course goes without saying that admissions made to reach settlement with a different party within the same litigation are also inadmissible whether or not settlement was reached with that party.[12]

37 Thus, the House of Lords recognised the limits and flexibility of the privilege, emphasising its objective to encourage settlements and its mechanism, to protect express or implied admissions from introduction into evidence. The House of Lords also recognised the extension of the protection where a different party may be involved in litigation.

38 In First Capital Partners Pty Ltd v Sylvatech Ltd[13] Campbell J held that the phrase "in connection with" in s 131(1)(d) of the Evidence Act 1995 (NSW), a uniform provision, is a very broad expression. I respectfully agree. Provided there is a necessary connection, which is a question of fact, there is no reason why the scope of the provision should not have the same reach as the common law, and every reason to expect that it was so intended by the Parliament.

39 Putting to one side the debate in this proceeding over the use of 'privileged' material by the defendants to resist the plaintiffs' application to avoid disclosure, the issue was whether the privilege extended to protect documents from disclosure, as distinct from admission into evidence. In Rush & Tompkins, the House of Lords had before it a claim for 'without prejudice' privilege employed by a party to resist disclosure through discovery. That issue, and the way in which it was formulated and argued, raised squarely the distinction between adducing in evidence and disclosure in discovery. Lord Griffiths, concluding his opinion, said:

I have come to the conclusion that the wiser course is to protect "without prejudice" communications between parties to litigation from production to other parties in the same litigation. In multi-party litigation it is not an infrequent experience that one party takes up an unreasonably intransigent attitude that makes it extremely difficult to settle with him. In such circumstances it would, I think, place a serious fetter on negotiations between other parties if they knew that everything that passed between them would ultimately have to be revealed to the one obdurate litigant. What would in fact happen would be that nothing would be put on paper but this is in itself a recipe for disaster in difficult negotiations which are far better spelt out with precision in writing.

If the party who obtains discovery of the "without prejudice" correspondence can make no use of it at trial it can be of only very limited value to him. It may give some insight into his opponent's general approach to the issues in the case but in most cases this is likely to be of marginal significance and will probably be revealed to him in direct negotiations in any event. In my view this advantage does not outweigh the damage that would be done to the conduct of settlement negotiations if solicitors thought that what was said and written between them would become common currency available to all other parties to the litigation. In my view the general public policy that applies to protect genuine negotiations from being admissible in evidence should also be extended to protect those negotiations from being discoverable to third parties. Accordingly I would allow this appeal and restore the decision of Judge Esyr Lewis QC.[14]

40 In Glengallan Investments Pty Ltd v Arthur Anderson[15] the Court of Appeal in Queensland undertook a useful analysis of the protection afforded by the privilege to prevent disclosure to a third party. Having reviewed the passages from Rush & Tompkins referred to above, the Court of Appeal observed:

If that was the true ratio of that decision then it would create a new and very broad area of operation of the principle. However, I respectfully agree with Gleeson C.J. (Mahoney and Priestley JJ.A. concurring) when he said in Hong Kong Bank of Australia Ltd v. Murphy (1992) 28 N.S.W.L.R. 512 at 523 that the latter passage from the speech of Lord Griffiths is to be read in the light of the earlier sentence limiting the protection from production "to other parties in the same litigation". Gleeson C.J. went on:

"The issue that was before the House of Lords, and the issue that was being addressed by Lord Griffiths, was the matter of multi-party litigation. It was in that context that his Lordship referred to the matter of discoverability to third parties. I do not think the case can be taken as authority for a proposition as wide as that for which the appellants need to contend in order to treat the privilege as qualifying the rights of examination conferred by s 597."

Pincus J.A. in Mercantile Mutual Custodians Pty Ltd v. Village/Nine Network Restaurants & Bars Pty Ltd [2001] 1 Qd.R. 276 ("Village/Nine") agreed with that approach to what was said by Lord Griffiths. But he went on to say that neither Rush & Tompkins nor Hong Kong Bank v. Murphy considered "the very different question whether the privilege protects negotiators against disclosure of their negotiations, in an action between one of the negotiators and a person who was neither involved in negotiations nor a party to the dispute which gave rise to them". Whilst his Honour appears to have concluded that protection should be extended to cover such situations, it was not necessary to go that far in order to answer the question raised by the facts of Village/Nine.

41 Thus, at common law, the protection from disclosure seems confined to discovery obligations as between parties to a proceeding. Section 131A of the Act provides,

131A Application of Division to preliminary proceedings of courts

(1) If -

(a) a person is required by a disclosure requirement to give information, or to produce a document, which would result in the disclosure of a communication, a document or its contents or other information of a kind referred to in Division 1 or 3; and

(b) the person objects to giving that information or providing that document -

the court must determine the objection by applying the provisions of this Part (other than sections 123 and 128) with any necessary modifications as if the objection to giving information or producing the document were an objection to the giving or adducing of evidence.

(2) In this section, disclosure requirement means a process or order of a court that requires the disclosure of information or a document and includes the following -

(a) a summons or subpoena to produce documents or give evidence;

(b) pre-trial discovery;

(c) non-party discovery;

(d) interrogatories;

(e) a notice to produce;

(f) a request to produce a document under

(g) a search warrant.

42 The defendants submitted that s 131A of the Act provided a complete answer to the plaintiffs' attempt to protect documents produced under subpoena from disclosure, because the plaintiffs did not qualify for protection. They were not "a person(s) required under a disclosure requirement... to produce a document" who "objects to... providing that document." In other words, the plaintiffs had no standing under the Act to object to disclosure, as distinct from the use of a document in evidence.

43 It might be argued that the legislature chose not to adopt more inclusive language, when describing those who may object. The express inclusion of the subpoena and search warrant, as the basis for the requirement to produce a document, may coincide with sound policy considerations in favour of confining the right to object to disclosure in favour of the party compelled to produce, where the claim is for 'without prejudice' privilege. But that does not explain the general application of s 131A to without prejudice privilege and legal advice privilege.

44 Section 118 of the Act confines the identity of the person who may object to the admission into evidence of legal advice, to the client, which has an extended definition under s 117. Thus, if s 131A is to be read as the defendants contend, a third party may be required to comply with a disclosure requirement, while the owner of legal professional privilege is denied an opportunity to prevent inspection. The defendants' contention would, if correct, also render r 42A.08 ineffective to confer on the plaintiffs any right to object to inspection of the material produced under subpoena.

45 I am not required to decide this question in order to resolve this appeal. While the issue is not without doubt, I am inclined to the view that a party claiming a privilege in a document, produced under subpoena, is not precluded from invoking r 42A.08 in circumstances such as these, to challenge the defendants right to inspect.

46 In her oral evidence given at the hearing before Efthim As J, Ms vandePol conceded that she did not personally review all of the documents. She said that her team of lawyers satisfied themselves that there was a basis for the claims in respect of each of them. That did not substitute for evidence of the circumstances in which each document was created by its maker and what it contained.

47 While the plaintiffs suggested that some additional evidence might be forthcoming if given an opportunity, the foreshadowed evidence was no more than a modification of the schedule of documents to add an additional column. They did not seek any opportunity to adduce further evidence to explain why each document was created by its maker and what connected the document with a negotiation to settle a qualifying dispute.

48 Section 133 of the Act authorises the court to inspect any document for the purpose of determining an objection. Even if requested by the parties to inspect the documents, I might have declined to do so. Inspection of more than 1,700 documents, without the assistance of any direct evidence concerning the circumstances in which each document was brought into existence or what it was about the document that established the necessary connection with the settlement of a qualifying dispute, seems to lack utility. It is true that the content of a document may provide an evidentiary foundation, but in my view it would not have been appropriate to request the court to trawl through more than 1,700 documents, unassisted by any direct evidence, to ascertain whether each had the necessary connection.

49 The content and context of a document will usually be crucial in establishing the necessary connection with an attempt to negotiate the settlement of a qualifying dispute. In Seven Network Ltd v News Ltd,[16] Graham J held that for a communication to answer the description of one "in connection with an attempt to negotiate a settlement" of a dispute, there must be a direct connection.[17] His Honour went on to say:

"Connection" does not in the context of s 131(1) of the Act connote a tenuous connection (see GPI Leisure Corp Ltd v Yuill (1997) 42 NSWLR 225 at 226).

Whilst the use of the words "without prejudice" is suggestive of an attempt to negotiate a settlement of a dispute, the use of those words is not conclusive. In Yuill, Young J, as his Honour then was, asked rhetorically what is an "attempt" to negotiate a settlement? His response, at 226-227 was:

... I think really it is a question of nexus. There may be many communications between parties, which one can read between the lines as saying that certain things may happen, and if those certain things happen, the dispute might be settled. I do not consider that generally such a communication would fall within the privilege in s 131(1)(a).

1"> 50 In Korean Airlines Co Ltd v Australian Competition and Consumer Commission (No 3)[18] Jacobson J said,

[72] The statutory requirement that the communication be "in connection with an attempt to negotiate a settlement" reflects the language used by the High Court in Field: at 293. There, Dixon CJ, Webb, Kitto and Taylor JJ contemplated that the privilege extends to cover communications that are reasonably incidental to negotiations.

[73] The effects of the authorities at common law is that the privilege applies to offers to negotiate and expressions of willingness to do so; it is not necessary that there be an offer capable of acceptance: Arnotts at 72-3.

[74] The same position applies under the Evidence Act. It is sufficient that the communication can be described as an "opening shot" in negotiations: GPI Leisure Corporation Ltd v Yuill (1997) 42 NSWLR 225 at 226.

51 The underlying policy of s 131 is, I accept, the policy stated by the High Court in Field. The High Court made it clear that it was concerned with the protection of express or implied admissions made in the course of the settlement negotiations. These characteristics are most commonly revealed in the content of a document or communication when coupled with the context. Such statements must have a proper connection with the settlement of the action.

52 Whether the requirement for the connection is formulated as a 'proper connection' or a 'direct connection', the claimant for privilege must establish the connection by evidence. That will ordinarily require evidence of the circumstances in which the document was prepared and the relevant context. Content cannot be divorced from context. If the underlying policy considerations are to be given effect in the application of s 131(1)(b), there must be evidence to establish the facts to support the claim.

53 The evidence in support of the plaintiffs' application to restrict access by the defendants to the subpoenaed documents was inadequate. It did not address the preparation or content of each document. The plaintiffs assumed that the complexity of the task confronting them, to establish the basis for their claims in respect of each document, somehow relieved them from the usual requirement that a party claiming the privilege make good the basis of the claim.

54 It is true that proof may be advanced in different ways, and may be more or less adequate. Evidence will often be adduced from the participants to negotiations as to the nature of the dispute or disputes, and the scope of the negotiation. That was broadly done by the plaintiffs, although there was disagreement as to the scope of the dispute.

55 In order to invoke s 131(1) of the Act, the plaintiffs must establish, in respect of each document, that it has been prepared in connection with an attempt to negotiate a settlement of a 'dispute'. Sub-section 131(5) provides:

(5) In this section -

(a) a reference to a dispute is a reference to a dispute of a kind in respect of which relief may be given in an Australian or overseas proceeding;

...

56 The defendants submitted that the discussions, communications and work associated with the short-term remedial solution was not a 'dispute', but a contractual requirement or a commercial common sense step taken by the parties in advance of the resolution of their dispute. I agree. Whatever Ms vandePol may have said about the nature and scope of a dispute, the correspondence made it plain that the parties had deliberately put their justiciable dispute about liability and compensation to one side in order to facilitate the recommissioning of the facility. There may have been communications during that period and process, in which things were said that might later be employed as admissions, but the evidence did not identify any such document.

57 Although not asked to inspect any document, I reviewed the affidavit material which included some documents claimed to be privileged. Those documents had been disclosed to the defendants in error. They had not been included within the original schedule, nor placed into the sealed envelope. The plaintiffs said that their error should not prevent future protection.

58 The plaintiffs' attempt to have disclosure of those documents withheld seemed artificial. They also complained about the employment of the documents in evidence on this application. That was a different matter altogether. The fact that the documents were disclosed does not prevent the plaintiffs from objecting to their use in evidence - in this application or at trial.

59 The artificiality of the plaintiffs' complaint, in relation to the documents exhibited to the affidavit of Ms Morshead, was evident from the fact that, upon review, the documents did not seem to have any connection with the resolution of any dispute. The exception was a letter from the defendants' solicitors dated 18 February 2010. That dispute was, of course, the dispute between the parties in this proceeding. My review of the exhibited documents indicated an attempt by the plaintiffs to bring within the net of protection, documents which contained nothing by way of a concession, admission, proposal, offer, counter-offer or other communication relevantly connected with an attempt to negotiate a settlement of any dispute

60 On the assumption that the meeting of 29 January 2010 was the commencement of negotiations to resolve a justiciable dispute - the questions of liability and compensation - I am of the view that communications concerning the procedural steps, agenda and even minutes are not protected unless they evidence a necessary connection with the attempted resolution. It is not every document brought into existence in the process of negotiation that is protected. The qualifying words of s 131 require the necessary connection to be established. None of the documents I reviewed disclosed such a connection. In the absence of detailed evidence to explain how the documents or communication recorded within them qualified for protection, the claim in relation to those documents must fail.

61 The report of Dr Townend deserves separate consideration. The circumstances in which it came to be prepared are unclear. Dr Townend did not give evidence. The evidence revealed that some parties contemplated that he would prepare an opinion report, although the proposal fell through. As the plaintiffs conceded in an email from their solicitor, the report was the property of the ANZ. The ANZ has raised no objection to its production. The evidence did not support the plaintiffs' claim in relation to Dr Townend's report. The defendants were given a copy of the report by the plaintiffs.

62 Should the defendants attempt to introduce the report into evidence at trial, the plaintiffs will have another opportunity to object to its tender. The same may be said of any of the documents to which the defendants might gain access. At trial, the defendants must decide what, if any, of the documents produced pursuant to the subpoenae they wish to introduce into evidence. If the documents already disclosed to the defendants are any indication of what the defendants might seek to tender, there will be very few documents in contention. The plaintiffs will then have an opportunity, presumably with a more complete evidentiary foundation, to argue for the documents exclusion. At trial, an evidentiary foundation to support the plaintiffs' claims may exist. The evidence as it presently stands does not.

63 Even if the plaintiffs were correct, in their scoping of the dispute to incorporate the short-term remedial phase, it was necessary to adduce evidence explaining the purpose for which each document had been prepared so as to demonstrate that it had a direct or proper connection with the attempt to negotiate a settlement of the dispute. The absence of evidence to support the plaintiffs' claim in relation to each document means that the plaintiffs' claim for immunity from production must fail.

64 There is another basis upon which, in my view, the plaintiffs' claim for immunity fails. With the possible exception of some part of the 29 January meeting, I am not satisfied that the evidence, insofar as it went, demonstrated negotiations to settle a qualifying dispute. Once the plaintiffs had locked horns with RCR and Conporec, and sent dispute notices, the disputants deliberately parked that dispute, or put it on hold, while they investigated and implemented a short-term solution to recommission the composters so as to get the plant operational.

65 The evidence, and in particular the correspondence, reveals a context in which the disputants had acknowledged an obligation to fix the composters before contesting liability. If not a contractual liability, there was plainly a commercial imperative. The ANZ had its own interest; it was project financier. The defendants no doubt had an interest in limiting their potential exposure. The short-term, common sense goal was to get the facility operational. In my opinion, the discussions and negotiations around that objective, and the documents prepared for that purpose, were not in connection with an attempt to negotiate a settlement of a qualifying dispute. They were not part of the attempted resolution of the dispute initiated by the delivery of the notices under the Interface Agreement.

66 The parties directed a great deal of time and attention to the question whether leave should be granted to appeal. The defendants submitted that the test for leave adopted by Davies J in Ubertini v Saeco International Group SA[19] should not be followed. In that case, Davies J applied the test in Neimann v Electronic Industries Ltd.[20] The defendants drew a distinction between what was said by Phillips JA in Secretary to the Department of Premier and Cabinet v Hulls,[21] where his Honour referred to a requirement to show that there was "a real or significant argument to be put that error exists". The defendants sought to distinguish that test from the cumulative test applied in Niemann, requiring the existence of sufficient doubt and substantial injustice if the decision was left unreversed.

67 It is unnecessary to revisit the question of what test ought to be applied for the purpose of an application for leave to appeal under r 77.06. For present purposes, I intend to apply the test in Niemann. I am satisfied that there was sufficient doubt concerning the decision to warrant its reconsideration and that the defendants would suffer substantial injustice, in the conduct of their case, if the decision ought to have been set aside, but was left unreversed.

68 While a party in the position of the plaintiffs may have a right to assert privilege in advance of trial under s 131A, preventing even disclosure of documents, the most convenient place to resolve such disputes is at the trial of the proceeding. Only then will each party know what documents they wish to introduce into evidence. But if a party proposes to exercise their apparent right under s 131A of the Act and r 42A.08, to raise objections to the disclosure of material produced under subpoena, in advance of trial, they are not excused from the usual obligation to establish an evidentiary foundation for their claim.

[2] Davies v Nyland (1975) 10 SASR 76, 90-91.

[4] Stephen Odgers, Uniform Evidence Law (8th edition, 2009), [1.3.13860].

[5] [1957] HCA 92; (1957) 99 CLR 285 ('Field').

[9] [2008] FCA 701; (2008) 247 ALR 781, [72].

[11] [1988] UKHL 7; [1989] 1 AC 1280 ('Rush & Tompkins').

[13] [2004] NSWSC 846; (2004) 186 FLR 266.

[14] Rush & Tompkins [1988] UKHL 7; [1989] 1 AC 1280, 1305.

[15] [2001] QCA 115; (2002) 1 Qd R 233.

[16] (2006) 151 FCR 450; [2006] FCA 343.

[18] [2008] FCA 701; (2008) 247 ALR 781 at para 72.

[19] [2010] VSC 161.

[20] [1978] VicRp 44; [1978] VR 431 ('Niemann').

[21] [1993] 3 VR 331.