Jess v McNiven, in the matter of McNiven

MCKERRACHER J: 1 In this proceeding the respondents (the McNivens) assert 'without prejudice' privilege over a series of communications between their representatives and the applicant Trustees of the McNivens' bankrupt estate between 31 March 2016 and 6 December 2017. While a trial between the parties has commenced, there has been referral to me for the purpose of s 192A of the Evidence Act 1995 (Cth) to make an advance ruling on a question arising as to whether there should be an exception to the maintenance of the 'without prejudice' privilege in the circumstances which follow. 2 It is unnecessary to refer to the specific content of the disputed documents to which I was taken in detail in the course of the hearing, other than to explain in broad terms why I consider that 'without prejudice' privilege cannot be maintained. It is enough to record that the disputed documents comprise a series of correspondence and internal documents incidental to that correspondence, concerning the administration of the bankrupt estate. The issue at the heart of the substantive proceeding is attempts by the Trustees to realise two properties in discharge of their duties. The McNivens claim that the Trustees are estopped from doing so on the basis that the Trustees made certain representations by their silence that they would not realise the properties, before serving notices to vacate on the McNivens in March 2018. The Trustees seek to adduce the disputed documents to meet that claim. 3 Central to my reasoning is that the McNivens have put in issue the following matters: (a) allegations of silence and inaction by the Trustees in the context of an earlier alleged representation by the Trustees in relation to the possible sale of two properties; (b) allegations that the McNivens therefore reasonably believed that the Trustees did not intend to realise the properties, that any intent to realise the properties had been abandoned, and the McNivens were entitled to keep the properties; and (c) allegations that the McNivens relied on the alleged representations and silence in incurring various expenses and expending effort to improve the properties. 4 In addition to advancing these pleadings, the McNivens have also deposed to various matters in their trial affidavits in support of these allegations. They have not yet gone into evidence but it is common ground that this issue should be determined as if the evidence had already been led. 5 Section 131 of the Evidence Act provides relevantly as follows: 131 Exclusion of evidence of settlement negotiations (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. (2) Subsection (1) does not apply if: … (g) evidence that has been adduced in the proceeding, or an inference from 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; … 6 The Trustees accept that all the documents fall within the scope of s 131(1) such that they attract 'without prejudice privilege', so it is unnecessary to explore that question. Indeed both parties appropriately approached the issue on the basis that either all the documents were privileged or none were, depending on the applicability of the exception to the privilege at s 131(2)(g). 7 The primary contention for the Trustees is that the privilege was abrogated by the McNivens because they themselves put in issue the silence and reliance allegations and have adduced evidence in respect of them. 8 The argument is that the evidence of the McNivens as to the Trustees' silence and intentions is likely to mislead the Court on a central issue in the proceeding if the Court is unable to consider the communications because the existence of the communications would be likely to contradict the evidence from the McNivens that: (a) there had been no relevant communications from the Trustees from March 2016 until shortly before the commencement of the proceeding in 2018; and (b) the McNivens had relied on such silence to incur expense and expend effort during that period. 9 The McNivens on the other hand contend that the exception in s 131(2)(g) of the Evidence Act does not operate to abrogate the 'without prejudice' privilege in this case. They place reliance on what has been referred to in the cases discussed below as the 'narrow construction' of that section. 10 The Trustees argue that whether the narrow construction or the broader construction of s 131(2)(g) is applied, the exception to the exclusionary rule applies to these circumstances such that the privilege cannot be maintained. I accept that the exception applies for the reasons that follow. 11 The McNivens rely on the decisions of this Court in Brown v Commissioner of Taxation (2001) [2001] FCA 596 per Emmett J and Barrett Property Group Pty Ltd v Dennis Family Homes Pty Ltd (No 2) (2011) 193 FCR 479 per Bromberg J. They rely upon them in support of their submission that the disputed documents do not fall within s 131(2)(g) of the Evidence Act on the basis of the narrower interpretation of that provision. 12 It is common ground that for the section to apply, the party seeking to avoid the privilege must prove that the Court is likely to be 'misled' in the relevant sense by evidence (or an inference from evidence) led in the proceeding if the documents are not adduced into evidence. 13 Emmett J in Brown observed (at [185]): It is not appropriate to attempt an exhaustive exposition of the effect of s 131(2)(g). However, I consider that it will not be attracted simply because evidence to which s 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. The fact of, or the contents of, the communications, of which the commissioner now seeks to adduce evidence are not directly relevant in the proceeding before me. I do not consider that s 131(2)(g) is applicable in relation to the objected material. (Emphasis added.) 14 In Barrett, Bromberg J followed Emmett J's decision, his Honour observing that Emmett J examined that the source of exceptions to the exclusionary principle recognised under the general law are concerned with reprehensible behaviour and impropriety and his Honour went on to say (at [54]-[56]): 54 A number of decisions of courts in New South Wales have adopted a broader construction of s 131(2)(g) than that applied in Brown: Moran v Moran (No 3) [2000] Aust Torts Reports 81-556; DTC No 1 Pty Ltd v Matthew [2009] NSWSC 1280; Kalambaka Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 [2009] NSWLEC 57; and Mulkearns v Chandos Developments Pty Ltd (No 4) (2005) 12 BPR 22,993 at [66]-[67]. Other than Mulkearns none of those decisions appear to have considered Brown. Whilst Young J referred to Brown in Mulkearns at [66]-[67], it is not apparent whether and if so why, the construction applied in Brown was not followed. 55 I respectfully agree with the analysis of Emmett J at [185] in Brown and his Honour's conclusion that s 131(2)(g) is not attracted simply because evidence to which s 131(1) applies, contradicts or qualifies evidence that has already been adduced. I would respectively add that s 131(2)(g) is only attracted where the exclusionary rule in s 131(1) would operate to allow a party which has adduced evidence, to use the exclusionary rule as an instrument for misleading the court. 56 That construction serves the policy objectives which s 131 seeks to protect. Nothing could be more calculated to undermine settlement discussions, than the prospect of statements made in the course of those discussions being used to discredit evidence adduced at trial, should settlement negotiations fail. The construction contended for by the applicants, would replace the exclusionary cloak of s 131 with a thin veil behind which little would ever be said or done in pursuit of the amicable settlement of a dispute, (Emphasis added.) 15 The McNivens accept, at least for the purposes of this argument, that the evidence which they propose to lead may be contradicted or qualified by the disputed documents. They say that they accept that if the broader construction of s 131(2)(g) is followed, the privilege cannot be maintained. However they contend that under the narrow approach, the exception to the exclusionary rule is not established. They argue that it is not the case that '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'. This is said to be because they 'are not proposing to lead any evidence at all of the existence or contents of those excluded communications or documents or in relation to them.' In my respectful view, the latter may well be correct, but that does not answer the question arising in Barrett (at [55]), because in my view the exclusionary rule would still operate to allow the McNivens to use it as an instrument to mislead the Court. Put another way, contrary to the McNivens' contention, I consider that the Court would be likely to be misled as to the existence or contents of an excluded communication or document, where those matters are clearly in issue in this proceeding. The McNivens have squarely put in issue, allegations of silence by the Trustees on the relevant issue of their intentions. 16 It may be accepted as a matter of general principle that tendering 'without prejudice' communications into evidence is contrary to the purpose of the privilege which such communications attract because it would hamstring sensible and highly desirable negotiations between parties and/or practitioners. Although the McNivens argue that this is not a case in which the exclusionary rule in s 131(1) 'would operate as an instrument of deception and harbour … mischief', to cite language used in Barrett (at [57]), I respectfully disagree. Nor do I consider that there is any hurdle for the Trustees when considering the observations of Einstein J in Atlas Financial International Ltd v Nortbale Pty Ltd [2011] NSWSC 815, where his Honour said (at [86]): In this case, there is no justification for departing from Bromberg J's position that section 131(2)(g) is not attracted simply because evidence to which section 131(1) applies, contradicts or qualifies evidence that has already been adduced. The provision is only attracted where the exclusionary rule would operate to allow a party, which has adduced evidence, to use the exclusionary rule as an instrument for misleading the Court. In this case, the exclusionary rule is not being employed as a tool to mislead the Court; the exclusionary rule is properly being relied upon to protect privileged communication. This privilege should not be displaced simply because the communication contains evidence which may contradict or qualify evidence that has otherwise been adduced. Should this not be the case, parties may be hesitant to make any admissions or concessions in settlement negotiations less it prejudice them in litigation. This would clearly undermine the policy objectives of the "without prejudice" rule. 17 The McNivens also rely upon this passage, but it seems to me entirely acceptable, with respect, that the privilege is not to be displaced simply because the communication contains evidence which may contradict or qualify evidence that has otherwise been adduced. But that is not this case. The applicability for the exception in s 131(2)(g) in this instance is not simply for that reason, but also for the reason that the Court is likely to be misled on the very pleading raised by the McNivens themselves. I do not consider that this case is in the same position as Brown and Barrett, assuming for the purposes of argument that the narrow approach to s 131(2)(g) of the Evidence Act is to be applied. 18 The summary by Flick J in Apotex Pty Ltd v Les Laboratoires Servier (No 5) (2011) 199 FCR 62, is also helpful with respect, where his Honour said (at [42]-[44]): Misleading the Court - section 131(2)(G) 42 It was common ground that the maintenance of a claim for privilege founded upon "without prejudice" communications cannot be the occasion for the Court being misled. 43 The common law recognises that the privilege cannot be relied upon if to do so would mislead the Court: Pitts v Adney [1961] NSWR 535 at 539. Walsh J there concluded: "It is of importance that the rule protecting from disclosure, discussions taking place in an endeavour to put an end to pending litigation should, in general, be applied. But it is, after all, a rule based upon public policy. It cannot be permitted to put a party into the position of being able to cause a court to be deceived as to the facts, by shutting out evidence which would rebut inferences upon which that party seeks to rely. In McFadden v. Snow (1951), 69 WN (N.S.W.) 8, evidence was given on behalf of one party that no reply had been received to a letter. Thus it was sought to establish an admission by silence as to a relevant fact. Kinsella, J., admitted a letter headed 'without prejudice' tendered in disproof of that evidence. He said: 'The privilege that may arise from the cloak of "without prejudice" must not be abused for the purpose of misleading the court'. With respect, I state my emphatic agreement with that observation." These observations have been said to be "the likely origin" of s 131(2)(g): Barrett Property Group Pty Ltd v Dennis Family Homes Pty Ltd (No 2) (2011) 193 FCR 479 at [48], per Bromberg J. 44 For the purposes of s 131(2)(g) it has been said that "two requirements" must be satisfied: Korean Air Lines [(2008) 247 ALR 781] at [76]-[77]. Jacobson J there observed: "Section 131(2)(g) of the Evidence Act [76] Two requirements must be satisfied for an otherwise privileged communication to fall within the exception stated in s 131(2)(g). First, other evidence must have already been adduced which would be likely to mislead the court unless evidence of the without prejudice communication is adduced. [77] The second requirement is that the evidence of the without prejudice communication must contradict or qualify the evidence that has been adduced." These "two requirements" in effect dissect the terms actually employed in s 131(2)(g). (Emphasis added.) 19 On a slightly different note, the Full Family Court of Australia in Phe v Leng [2019] FamCAFC 17 (Alstergren CJ, Strickland and Watts JJ) recently considered the contest between what has sometimes been described as the narrow view and the broader view in some detail. The Full Court specifically rejected the narrow view after reviewing the competing authorities with some care, including the decisions in Brown and Barrett. As to the applicable principle, the Full Family Court observed (at [48]): We note, given both parties were unrepresented, that we have not heard any argument, fulsome or otherwise, in relation to the interpretation of s 131(2)(g). However, recognising that another court on receiving that argument may decide otherwise, we are nevertheless of the view, in this case, that the broader interpretation of the meaning and operation of s 131(2)(g) of the Evidence Act, based as it is upon the ordinary words of s 131(2)(g), is to be preferred to its narrower construction. (Emphasis added.) 20 The broad view is simply to rely upon the text of the provision so as to allow 'without prejudice' communications to be adduced where other evidence in the proceeding is likely to mislead the Court, unless evidence of the communication is adduced so as to contradict or qualify that evidence. The narrow view requires, according to Barrett, 'a causal connection between a party's reliance upon the privilege and the Court being misled': (at [50]). 21 That additional requirement is said to be originally sourced from Pitts v Adney [1961] NSWR 535, particularly the passage referred to above in Apotex. 22 As noted above though, the Court in Pitts cited McFadden v Snow (1951) 69 WN (NSW) 8 which has some significant similarities to the present situation where in each instance, silence is asserted. 23 As indicated, whether the broad view or the narrow view is taken, in my view, the exception is applicable in these circumstances. It would also, I consider, fall within the approach taken by Riordan J in Cargill Australia Ltd v Viterra Malt Pty Ltd (No 14) [2018] VSC 541, where his Honour said (at [24]): The adducing of evidence is likely to mislead the Court if: (a) the circumstances are such as to give rise to a reasonable expectation on the part of the Court that, if some other relevant fact existed, it would have been disclosed;[39] or (b) the adducing of certain evidence by a party impliedly represents that the without prejudice communication does not exist. (Citations omitted, emphasis added.) 24 In Cargill, as in Brown, it was held that the materials sought to be adduced did not contradict or qualify the evidence actually adduced. In Barrett, it was held that reliance on the exception would not have operated as an 'instrument of deception'. 25 In the present case, it is the very existence and nature of the communications which, if they were not in evidence, would be likely to mislead the Court. That is principally because the McNivens have foreshadowed positive evidence to the effect that they were not aware until March 2018 of any intention by the Trustees to exercise rights to sell the relevant properties when they received notices to vacate. Of course that is but one aspect of the case and the McNivens may well have other answers to the apparent contradiction, but it is clear that the requisite factors for the exception in s 131(2)(g) have been established. 26 The McNivens also pressed a line of argument to the effect that it was the Trustees who elected to communicate with the McNivens on a 'without prejudice' basis. They say that no reason has been advanced by the Trustees as to why they did not make any 'open' claims or communications prior to March 2018 when the notices to vacate were served. They argue correctly that an open claim could have been made in conjunction with the 'without prejudice' communications to preserve the Trustees' position. Having chosen to conduct all communication in the relevant period on a 'without prejudice' basis, the McNivens say the Trustees should not now be permitted to rely on privileged communications as if they were open ones. It is said to be self-evident that the McNivens would not have made the concessions they did in the privileged communications unless they had thought they were being protected by the privileged conferred by s 131(1) of the Evidence Act. 27 While there is merit in this submission, I am unable to accept it in the particular context of this case. On any view of s 131(2)(g) the paramount consideration is whether the Court is likely to be misled by the maintenance of the privilege. In my view, it is fatal to the McNivens' maintenance of privilege over the communications that they, not the Trustees, plead, and propose to lead positive evidence of, silence and inaction by the Trustees. That is now a directly relevant issue in the proceeding. 28 A plea of silence to support an estoppel or reliance claim necessarily implies an absence of communications to substantiate the alleged representations on which the McNivens relied to their detriment. In those circumstances, it is not just the content of privileged communications which are relevant, but the very fact of the existence of the communications as well. There is no real dispute that the content of the communications contradicts the respondents' assertions. 29 This is not simply a case where the content of the privileged communication is sought to be adduced to contradict a party's position. For instance, this is not a case where a party seeks to adduce evidence of a settlement offer or an admission of liability from the privileged communication to counter or discredit a position advanced by that party before the Court. Here, the relevance and centrality of the issue on which the Court is likely to be misled is critical. An essential element of the pleaded defence requires a finding that the Trustees made certain representations by their silence. To disallow the admission into evidence of the privileged communications, the very fact and existence of which go to the basis of the pleaded case, would be to allow the Court to be misled. 30 There are other matters which were raised in argument and set out in the Trustees' written submissions in reply which also fall into the description of matters raised by the McNivens which would be likely to mislead the Court absent reference to the 'without prejudice' material. It is unnecessary to address them in further detail in light of the conclusion I have reached. 31 On a final note, I reserved my decision on this issue following the hearing on 29 January only in the hope of better understanding the distinction between the so-called narrow and broad constructions of s 131(2)(g). That quest has been fruitless. After a consideration of the authorities, I am unable to discern any true difference in the approaches taken by the courts. In my view, properly understood, each case has applied the text of the statute in full, with due regard to its context and purpose. For example, the maintenance of privilege over a document that goes to facts or issues not directly relevant to the proceeding will be much less likely to mislead the Court. That is so even where the document may qualify or contradict evidence that is to be led. I cannot see that any of the cases have approached the matter in a manner other than applying all of the words in s 131(2)(g). It follows that rather than preferring a broad or narrow approach, I have simply sought to apply the words of the statute.

CONCLUSION 32 For the foregoing reasons, I make orders in terms of the Trustees' minute provided to the Court on 28 January 2021. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McKerracher.