Heron Wood Pty Ltd v Ampol Petroleum

11. Whether the issues in the first proceeding were slightly different from the issues in the present proceeding has no significance. Clearly the issues in both proceedings relate to the same subject matter.

14. In due course the first proceeding was settled out of court.

17. As part of the settlement negotiations in respect of the first proceeding, there were certain without prejudice communications both written and oral between the solicitors for the parties.

20. Documents 8 and 10 of the disputed documentation are without prejudice letters passing between the solicitors for the parties; documents 14, 15 and 18 are file notes concerning without prejudice conversations between the solicitors for the parties.

23. Counsel for the present plaintiff contends that the communications in question are privileged from production and that the Master was in error in making the order he did relating to production of them.

26. Counsel for the defendant contends that whilst the documents may have been protected from production in the first proceeding they are not protected from production in a fresh proceeding between one of the parties to the first proceeding and a third party.

29. In support of his contention counsel for the defendant placed reliance (inter alia) upon the following passage in the 13th Edition of Phipson on Evidence. At paragraph 19-11 of Chapter 19 the author says:

"The protection applies only in the same action, and between the same parties, and not between them and third persons, but letters and negotiations between solicitors are inadmissible against themselves as well as against their clients."

33. The authority relied upon for that proposition is Teign Valley Co. v. Woodcock, The Times, 22 July 1899.

36. The passage to which I have referred was considered by Bailey and Evans in Discovery and Interrogatories, Australia, published in 1997. In paragraph 29,380 the authors say:

"'Without prejudice' communications and third parties If A and B enter into 'without prejudice' communications for the bona fide purpose of negotiating settlement, will they be also privileged in an action brought by C against A? Phipson, Evidence (12th ed.) p.680 states that '... the protection applies only in the same action, (Stretton v. Stubbs, The Times, 28 February 1905) and between the same parties, and not between them and third persons (Teign Valley Co. v. Woodcock, The Times, 22 July 1899)'. The cases relied upon however, are hardly of great weight. The former, was not a considered judgment on this point and in the latter, the point was only acceded to with considerable hesitation by a judge alone. There is no direct Australian or English authority of weight on this point but the Canadian decision, I. Waxman & Sons Ltd. v. Texaco Canada Ltd. (1968) 67 DLR (2d) 295 per Fraser J., provides valuable assistance. The facts of that case were exactly those of the problem posed above. After an extensive review of the cases, the learned judge said:

... a party to a correspondence within the 'without prejudice' privilege is, generally speaking, protected from being required to disclose it on discovery or at trial in proceedings by or against a third party.

In my opinion the privilege as so often stated, is intended to encourage amicable settlements and to protect parties to negotiations for that purpose. It is in the public interest that it not be given a restrictive interpretation. I. Waxman & Sons Ltd. v. Texaco Canada Ltd. (1968) 67 DLR (2d) 295 at 309.

In other words he gave effect to the rationale behind the rule's very existence. This carefully considered decision was affirmed by the Ontario Court of Appeal. I. Waxman & Sons Ltd. v. Texaco Canada Ltd. (1968) 69 DLR (2d) 543."

43. In his decision in the High Court in Waxman, Fraser, J. considered a large number of decisions touching upon the matter and said at p.309:

"Having regard to the statement of the rule applicable in the two Ontario cases, to which reference has been made, to the statement of its purpose in those cases and in the numerous English judgments cited, I am of opinion that in this jurisdiction a party to a correspondence within the 'without prejudice' privilege is, generally speaking, protected from being required to disclose it on discovery or at trial in proceedings by or against a third party. In my opinion the privilege as so often stated, is intended to encourage amicable settlements and to protect parties to negotiations for that purpose. It is in the public interest that it not be given a restrictive application."

47. In the Ontario Court of Appeal the Court said little more than that it agreed with the conclusions reached by Fraser, J. and also with his analysis, in the main, of the very numerous decisions referred to in his reasons for judgment.

50. One English decision which I consider does shed light on the problem is that of the House of Lords in Rush & Tompkins Ltd. v. Greater London Council and Another [1988] UKHL 7; (1989) 1 A.C. 1280.

53. In that case their Lordships held that in general the 'without prejudice' rule made inadmissible in any subsequent litigation connected with the same subject matter proof of any admissions made with a genuine intention to reach a settlement: and that admissions made to reach settlement with a different party within the same litigation were also inadmissible whether or not settlement was reached with that party.

56. Lord Griffiths who delivered the substantive judgment of their Lordships said at p.1299:

"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." (The emphasis is mine)

64. It was argued by counsel for the defendant that Rush & Tompkins' case is distinguishable from the present case in that it concerned "without prejudice" correspondence in litigation to which the person seeking disclosure of the correspondence was also a party.

67. In my opinion, whilst those were the facts in Rush & Tompkins, nevertheless Lord Griffiths did not confine his remarks to admissions made to reach settlement with a different party within the same litigation. That much is clear from the passage in his Lordship's judgment which I have emphasised.

70. In my opinion, and if I could adopt the words of Fraser, J. in Waxman, the privilege attaching to "without prejudice" communications is intended to encourage amicable settlements and to protect parties to negotiations for that purpose. It is in the public interest that it not be given a restricted application.

73. The appeal from the orders of the Master made on 25 February 1999 is allowed and the orders are set aside.

76. I order that the defendant pay the plaintiff's costs of the application to the Master and its costs of the appeal.

79. I grant to the defendant the appropriate certificate pursuant to the provision of the Appeal Costs Act in respect of its costs of the appeal and the costs of the appeal it is required to pay the plaintiff.

82. I order that the defendant's summons filed 12 March 1999 be dismissed.