In any interlocutory application it is open to a party to object to evidence upon which one of the other parties seeks to rely. The general practice in this Court is to deal with those objections at the time of the hearing. Occasionally, in matters of some complexity, objections to the evidence are raised and dealt with prior to the special appointment at which the full application will be considered. It is a matter of judgment as to which course is followed. In this case no criticism can be levelled against the defendants for waiting until the morning of the hearing to raise the question of the admissibility of evidence.

The decision on whether to admit or exclude evidence must, by its nature, be an interlocutory decision. Even when, as here, the decision is made as part of a wider interlocutory application it is a discrete decision which gives rise to a right of appeal: see O63A. It is however open to question whether, if I were to go on and deal with the application for summary judgment as a whole and were I to dismiss that application, any right of appeal either as to the admissibility of the evidence or otherwise would exist. After all there is no right to appeal against a dismissal of an application for summary judgment: see Supreme Court Act s60. That makes the decision on the admissibility of evidence an important decision in its own right. I therefore took the view that if, after seeing my reasons for reaching a decision to exclude the evidence, the plaintiff wished to appeal, it should be entitled to do so before I dealt with the summary judgment application as a whole.

The dispute as to the evidence arises in this way. In support of its application, the plaintiff filed an affidavit of Chris Lazidis ("Lazidis") sworn 3 August 1998. Annexed to this affidavit are two reports from a loss adjuster and a letter from the defendant's solicitors to the plaintiff's solicitors. These documents appear as, respectively, Annexures "CL1", "CL2" and "CL3" to the Lazidis affidavit. The letter from the defendant's solicitors to the plaintiff's solicitors was headed "Without Prejudice". Lazidis deals with this aspect of the evidence at para 25 of his affidavit. Although, strictly speaking, it is not evidence, it represents a convenient summary of the position adopted by the plaintiff. The paragraph is in the following terms:

"I am advised by the Plaintiff's solicitors that although the said letter accompanying the reports is marked 'Without Prejudice' it is not properly a privileged communication and further by the paragraphs Schoombee has, on behalf of the defendant waived any privilege to which the defendant may have been entitled in respect to the letter and the reports."

Anette Margret Ilse Schoombee ("Schoombee") is a partner in the firm of solicitors representing the defendant. She, too, has filed an affidavit sworn 1 September 1998. At para 38 of her affidavit she deals with the letter and the reports. This paragraph is in the following terms:

"I deny that the two reports from the loss adjuster attached to Chris Lazidis' affidavit as annexures 'CL1 and CL2' are not subject to a without prejudice exchange of documents. The covering letter to the plaintiff's solicitor, annexure 'CL3' to Chris Lazidis' affidavit, clearly states that these reports are supplied on a without prejudice basis. Although no offer of settlement was made in this letter, the reports were provided to the plaintiff in a bona fide attempt to initiate a settlement of the amount to be paid to the plaintiff in respect of the permanent repair costs, as is clearly indicated in the penultimate paragraph of this letter. I also deny that the defendant has waived 'any privilege' or any right to rely on the fact that the reports were exchanged on a without prejudice basis. It is not clear on what basis the plaintiff makes this allegation and what paragraphs it refers to."

The cloak of privilege which attaches to statements made without prejudice, while a singularly important area in practice, is surprisingly undeveloped in the cases. In Cross on Evidence, 5th ed, the learned author states the principle in the following terms:

"Obviously it is in the public interest that disputes should be settled and litigation reduced to a minimum, so the policy of the law is in favour of enlarging the cloak under which negotiations may be conducted without prejudice. This policy is carried out by means of a rigorous insistence on the absence of any magic in the form of words used by the parties, everything being made to depend upon their intention ... "

In support of this proposition the learned author refers, in particular, to Rabin v Mendoza & Co [1954] 1 WLR 271 and Rogers v Rogers [1964] HCA 25; (1964) 114 CLR 608 at 614. Perhaps the most instructive of these cases is Rabin v Mendoza & Co. This is a decision of the Court of Appeal which was cited without disapproval in Rush & Thompkins Ltd v Greater London Council [1989] 1 AC 280. The facts of the case were set out by Denning LJ in the following terms:

"Before the action was commenced, the plaintiff's solicitor called on a partner of the defendant firm (who has since died) and told him that the plaintiff had had trouble with the survey which the defendants had made, because a building society had refused to lend money on the house. The interview was without prejudice. At that interview an understanding was reached that the defendants would make enquiries as to the possibility and the cost of obtaining insurance cover with a view to an insurance company giving an indemnity against any possible risk of defects developing in the house so that any litigation could be avoided entirely. After that interview the defendants instructed another firm of surveyors to make a report, with a view to putting up a proposition to the insurers so as to obtain cover. The report was obtained but no settlement was reached. The question is whether the defendants are bound to produce the documents passing between this firm of surveyors and the defendants, particularly the report.

The question for us to decide is whether that claim for privilege from production is a good claim. This is not an ordinary case of legal professional privilege. The documents were not prepared for the purposes of litigation or for the purposes of obtaining the advice of solicitors. They were prepared in order to avoid litigation. It is said, however, that apart from legal professional privilege, there is a separate head of privilege on the ground that the documents came into existence on the understanding that they were not to be used to the prejudice of either party."

His Lordship then goes on to quote from the text Bray on Discovery. The passage quoted by his Lordship is in the following terms:

"The right to discovery may under very special circumstances be lost by contract as where correspondence passed between the parties' solicitors with a view to an amicable arrangement of the question at issue in the suit on the stipulation that it should not be referred to or used to the defendant's prejudice in a case of a failure to come to an arrangement."

It is to be noted that this formulation of the principle seems to owe much to contract. It seems based on an agreement between the parties to the effect that if negotiations take place then certain documents, which are either generated for the purposes of, or used in the course of, negotiations will be privileged. That element of agreement was not referred to by the court in Rogers v Rogers. Insofar as a statement of principle can be distilled from this case, it is in the following terms (at 614):

"In spite of the arguments of counsel for the appellant we are satisfied, as was the learned trial Judge, that agreement was never reached between the parties and that their negotiations in an effort to reach agreement must be taken to have been without prejudice. That they were not expressed to be without prejudice is of no consequence; it is sufficient that the wife's first petition was then pending, that claims had been made upon the husband, and that negotiations took place bona fide with a view to compromise."

The 1996 amendments to the Supreme Court Rules place a heavy emphasis on negotiation between parties to a dispute. Order 59(9) for instance requires consultation between parties before any application is made. Order 29A r14 dealing with non-compliance with case management directions also anticipates discussions between the parties when and if it is not possible to comply with a case management direction. While none of this has a direct bearing on the principles applicable in this application, the role of negotiation in preventing actions being commenced and disposing of them as expeditiously as possible is not to be underestimated. Care must be taken not to undermine any incentive the parties may have to negotiate a settlement without resort to the courts.

Applying all of this to the present case, it must first be acknowledged that the evidence from Schoombee is to the effect that she intended the reports to be supplied to the plaintiff on a "without prejudice" basis. That is clear from the paragraph of her affidavit which I have quoted above. Secondly, the letter of 20 April 1998 makes it abundantly clear that the assessor's reports were supplied for the purposes of negotiation. The penultimate paragraph of this letter reads (in part):

"We propose a meeting be arranged as soon as possible so that SDR can explain to us and the loss adjuster why it would have incurred twice the costs of Tank Degassing for doing the same work, even when an allowance is made for overtime work by SDR and the fact that the repairs to the first few tankers may have been more time consuming than those to the remainder of the tankers because the procedures were being worked on and finalised."

To my mind the position is clear. The defendant's solicitors were making bona fide attempts to find a way to negotiate a settlement of the dispute between the plaintiff and the defendant. For this purpose the defendant's solicitors provided copies of the assessor's reports. If they were not acting in good faith, if they had no intention of settling the dispute, they would not have produced these reports. To adapt the test in Rogers v Rogers to this case, a claim had been made by the plaintiff against the defendant, the negotiations took place bona fide and with a view to compromise. It therefore seems to me that the assessor's reports are privileged.

It was submitted by the plaintiff that, to allow privilege to attach to these reports, would be to allow the defendant to mislead the court. The essence of this argument was that the assessor's reports disclosed that there was a certain amount due and payable to the plaintiff and about which there could be no argument. This being the case, it is said that to allow privilege to attach to these documents would be to allow the doctrine to operate to enable a party to mislead a court. It has long been established that the principle does not operate if this would be the effect: see Pitts v Adney (1961) 78 WN (NSW) 886; McFadden v Snow (1951) 69 WN (NSW) 8; J A McBeath Nominees Pty Ltd v Jenkins Development Corporation Pty Ltd [1992] 2 Qd R 121. In my view, such a principle does not apply in this case. The letter of 20 April makes it plain that the defendant was ready to attempt to negotiate a settlement. This was a complex dispute involving a number of different aspects. In any negotiated settlement there are trade-offs. A party may compromise on amounts which it is surely owed to gain an advantage in other areas of the claim. This might well have been the case in these negotiations. I am not satisfied that it would be proper to approach the claim to privilege in the piecemeal fashion proposed by the plaintiff. Rather, as the assessor's reports were provided in an attempt to negotiate a global settlement they should be regarded as privileged for all purposes.

For these reasons I ruled that the assessor's reports could not be relied upon by the plaintiff and that I would strike out the offending parts of the affidavit. I will hear counsel further as to the orders to be made in relation to this matter.