KOSCIUSKO THREDBO PTY LIMITED v STATE OF NEW SOUTH WALES & ORS; ALPINE LEISURE PTY LIMITED v STATE OF NEW SOUTH WALES & ORS; GUNYANG SKI CLUB CO-OPERATIVE LIMITED v STATE OF NEW SOUTH WALES & ANOR; LEATHERBARREL LODGE CO-OPERATIVE LIMITED v STATE OF NEW SOUTH WALES & ORS; TEH v STATE OF NEW SOUTH WALES & ANOR; RARIDA PTY LIMITED T/AS THE WINTERHAUS LODGE v STATE OF NEW SOUTH WALES & ORS; KOSCIUSKO ALPINE CLUB LIMITED v STATE OF NEW SOUTH WALES & ORS

COUNSEL : Mr D Hammerschlag SC with Mr D R Stack (Applicants to the Motions) Mr J A Maconachie QC with Mr S Gregory (State of NSW interests) SOLICITORS : Various as noted CATCHWORDS : Abuse of process - evidenced by settlement discussions - whether discussions admissible - whether abuse of process is "deliberate abuse of a power" within s 131(2)(k) Evidence Act 1995 - whether evidence of settlement discussions adduced on voir dire is a disclosure within s 131(2)(b) - mere hope for commercial advantages not inappropriate motive for litigation. LEGISLATION CITED : Evidence Act 1995 Liability Act 1991 Idoport Pty Limited v National Australia Bank Limited (unreported, 2 April 2001 NSWSC, Hodgson CJ in Eq) CASES CITED : Jermyn v Spargos Mining Pty Limite (unreported, 20 March 2001 WASC, Anderson J) Williams v Spautz (1991-2) 174 CLR 509 DECISION : Notice of Motion dismissed with costs.

THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20349/00 - KOSCIUSKO THREDBO PTY LIMITED v STATE OF NEW SOUTH WALES & ORS 20362/01 - ALPINE LEISURE PTY LIMITED v STATE OF NEW SOUTH WALES & ORS 20355/00 - GUNYANG SKI CLUB CO-OPERATIVE LIMITED v STATE OF NEW SOUTH WALES & ANOR 20126/01 - LEATHERBARREL LODGE CO-OPERATIVE LIMITED v STATE OF NEW SOUTH WALES & ORS 20007/01 - MARGARET JEAN TEH v STATE OF NEW SOUTH WALES & ANOR 20650/00 - RARIDA PTY LIMITED TRADING AS THE WINTERHAUS LODGE v STATE OF NEW SOUTH WALES & ORS 20704/00 - KOSCIUSKO ALPINE CLUB LIMITED v STATE OF NEW SOUTH WALES & ORS

1 HIS HONOUR: A landslide at Thredbo in the State of New South Wales which occurred on 30 July 1997 gave caused substantial loss of life and damage to property. As investigations proceeded it appeared that it might be that the landslide was not mere happenstance but was caused or contributed to by the negligence of various persons and corporations. Lend Lease Corporation (LLC), both directly and through a number of entities, had been connected over a number of years and in varying ways with the operations of Thredbo Village. 2 Litigation was commenced in this Court in 1998 and through various vicissitudes, with the variation of parties and refining of causes of action and particulars, has now reached the stage where it is expected that the trial will commence within a relatively short time. Indeed, Grove J is due to commence hearing the actions on 15 April next, although it may well be that there will be some time spent on ensuring that all matters are ready to go forward. Having regard to the numbers of parties and the complexities of the issues it may be that this will not be a short process. 3 Because of the urgency of the present applications, however, I consider that I should give my judgment immediately, although my summary may not do justice to the arguments addressed to me by counsel on both sides which, if I may say with respect, have been notable for the candour and reasonableness with which they have been respectively advanced. Some of the factual matters are complex but I consider I have sufficiently understood them to enable me to give this judgment without a necessity to reserve. 4 The applications by these cross-defendants are, in essence, that the cross-claims brought against them should be stayed or struck out as constituting an abuse of process. The cross-claimants are the State of New South Wales and a number of other State entities, which have been referred to conveniently during argument as the "State interests". 5 The relevant cross-claims (including one against LLC) were filed in this Court in February this year. The cross-defendants were informed (although whether this occurred before or after the cross-claims were filed the evidence does not disclose) that the prospect of proceeding against them had been discussed between Mr Peter Garling SC (acting for the State interests) in a conversation in early March 2001 with Mr Geoffrey McClellan, a partner in the litigation group of Freehills who represented LLC. 6 How this conversation came to the knowledge of the cross-defendants is not known but it seems reasonable to infer that they were informed either by LLC or its solicitors. I need scarcely add that both Mr Garling SC and Mr McClellan were very experienced litigators operating at very high level of skill and expertise. 7 It is convenient that I should refer to some matters that occurred in the conversation between them and I use as my starting point the affidavit of Mr McClellan. He says that Mr Garling, no doubt after some irrelevant conversation, said - "In respect of a number of the civil claims Lend Lease has not been joined, in particular in respect of the KT2 and Brindabella claims, which are probably the two claims where there was real damage. The current timetable involves defences and cross-claims being filed on or by the 10th of April. The Government needs to decide whether it is going to seek to cross-claim against Lend Lease and create an issue in the proceedings in relation to the geo-technical matters. Obviously questions which are relevant are not only whether the Government will bring those cross-claims in those proceedings but also whether they will seek to cross-claim for contribution in relation to the existing proceedings." 8 Mr Garling then said: "I wanted to explore with you whether this can be avoided and whether we can agree to some...arrangement whereby it isn't necessary for the Government to join Lend Lease."

Mr McClellan responded by saying amongst other things - "With respect to the civil claims, Lend Lease will take all points."

After making reference to the possible basis of liability he added - "The other difficulty I see in any arrangements that you are proposing, is who are you going to sue? Lend Lease Corporation simply is not liable on any view." 9 Mr Garling then replied that Mr McClellan or, more precisely, his client should consider three matters. The first of them was the possibility that a subsidiary company (called KT1) of LLC which had since been wound up should be restored to the register, to which Mr McClellan responded in effect that that had nothing to do with Lend Lease. Mr Garling then said that the individuals allegedly responsible for the installation could be sued, and LLC would then need to consider whether or not it would "abandon them", pointing out that he did not think that "Lend Lease will want to be seen from an employee policy point of view as not meeting any liability of those individuals". 10 There was a third matter relating to what might be in the commercial interests of LLC, which it is unnecessary for me to set out here but which is contained in a confidential exhibit marked GAM1. I think it fair to say, however, that this consideration was an obvious one that any commercial enterprise involved in substantial litigation would need to consider. 11 As I have mentioned, in February 2002 cross-claims were filed against the parties mentioned in the conversation between Mr Garling SC and Mr McClellan. To very briefly summarise the cross-claim, the State interests sue LLC and the cross-defendants for negligence. LLC's liability arises from the allegation, in substance, that the cross-defendants, who are said to be directly negligent, were the agents of LLC through its subsidiary KT1 which, it is alleged, was also LLC's agent. 12 The parties are agreed that I should consider this matter in the context of the allegations in the statement of cross-claim. For present purposes, I do not think it significant that KT1 is interposed in the sequence of liability between LLC and the cross-defendants. The unmistakable case made in the cross-claim is that the State interests are entitled to judgment against the cross-defendants for their own alleged negligence in respect of which LLC is jointly liable one way or another. 13 The case for the cross-defendants is that the real motive for joining the cross-defendants in the litigation is to force LLC's hands because there is no real or substantial case capable of being proved against LLC. Mr Hammerschlag SC for the cross-defendants, did not seek to establish, apart from mere assertion, that there was no liability in LLC although he appeared to suggest that the terms of the conversation between Messrs McClellan and Garling indicated that was the case since the latter did not positively state that LLC was believed to be liable nor did he contradict Mr McClellan 's assertion that LLC was not liable. Alternatively, (though I am not quite sure that Mr Hammerschlag SC for the cross-defendants articulated the argument in quite this way) the cross-defendants were joined so that, if the case against LLC failed, it would nevertheless be morally bound to indemnify the cross-defendants to avoid embarrassment and possible public obloquy. 14 The cross-defendants put at the forefront of their case the conversation between Mr Garling SC and Mr McClellan which I have outlined above. Objection was taken at the outset by Mr Maconachie QC, for the Government interests, that the evidence of Mr McClellan as to this conversation could not be adduced having regard to the provisions of s 131 of the Evidence Act 1995. The conversation was tendered on the voir dire for the purpose of my considering whether, indeed, it amounted to a communication within the meaning of s 131 (1)(a) of the Act. 15 It was submitted by the cross-defendants that the conversation demonstrated, together with other evidence as to the financial means of the cross-defendants, that the proceedings against them were an abuse of process designed to force LLC's hand. 16 I think it is reasonable to infer that Mr Garling SC was acting on instructions for the State interests but I do not consider that I should infer that he either sought or was given instructions to put the precise matters which he did in the conversation to Mr McClellan. The reality of negotiations in cases of this kind is that on some occasions a client will have given specific instructions on a negotiating stance whilst in others the client will leave those matters to counsel entrusted with the brief. There is no evidence one way or another about this matter and I would not think it right or fair to infer that Mr Garling was doing any more than putting to Mr McClellan possibilities which were evident or, indeed, self-evident in the context of this litigation. That he confined himself to what I may describe as commercial and tactical considerations is not surprising. There would be scarcely any point in his giving Mr McClellan a lecture on the law of negligence. I do not think that I should infer that he accepted as accurately reflecting the legal position Mr McClellan's brushing aside of the possibility of LLC's liability. The uncertain character of vicarious and principal/agency liability in the law of negligence makes it difficult to predict with a comfortable degree of certainty in many cases whether someone alleged to be a principal will be liable for the negligence of the alleged agent. Where the corporate veil is an added factor the difficulties are increased, although it by no means concludes the matter. I would not read, therefore, Mr Garling's omitting to have a legal argument with Mr McClellan as an acceptance of Mr McClellan's perhaps rash or at least optimistic assertion about the risk to LLC, let alone as justifying the inference that he did not think there was an arguable case against LLC. There may have been good reasons, furthermore, why Mr Garling would not wish to give an advice on evidence to LLC and to explain in detail the way in which it was hoped to make it liable in the circumstances. 17 The cross-defendants have not argued, nor could they, that LLC had, in fact, no risk of an adverse judgment, although this appeared to be what was initially being submitted on their behalf. Rather, they submitted that they were only brought along to put pressure on LLC to settle or, in the event of a verdict against the cross-defendants but favourable to Lend Lease, to put pressure on Lend Lease to pay the verdict. 18 What is disclosed above of the conversation between Mr Garling and Mr McClellan is enough to demonstrate that indeed it was "an attempt to negotiate a settlement of the dispute" within the meaning of s 131 (1)(a). Unless the evidence comes within one of the exceptions in s 131 (2) it is not to be adduced. 19 To determine this matter it is necessary to briefly refer to the course of evidence before me. Mr McClellan's affidavit was read on the voir dire. It is obvious that there must be an evidentiary basis to permit the application of s 131 to be determined. In reply, and tendered only on the voir dire, was an affidavit of Mr Garling. However, most of what he said about the conversation in question was not read. What was read of that conversation was the following: "I want to explore with you the question of whether your client and the Government can reach an agreement either for the resolution of these claims or alternatively on a method by which they can proceed which will avoid a lengthy argument in Court about the geotechnical issues which occupied a lot of the Coroner's time. It seems to me, that since Lend Lease is the principal party concerned with defending the construction and installation of the water main, and the Government is the principal party concerned with propounding that as the cause of the landslide, if some arrangement can be reached between us it is unlikely that these issues would need to be litigated." 20 It will be seen that there is some difference between the deponents as to the precise language used but I do not need to determine this question for present purposes. This is especially so since I consider that, in substance, Mr McClellan's affidavit does not differ from the part of Mr Garling's affidavit which was read. 21 Mr Hammerschlag SC submits that the State interests, having tendered that part of Mr Garling's affidavit, have consented, either expressly or impliedly, to the disclosure of that material for the purpose of the substantive hearing and that Mr McClellan's evidence as to the balance of the conversation is admissible under s 131(1)(2)(g) because, without it, Mr Garling's evidence, self-evidently incomplete, would be likely to mislead the Court. 22 This argument must be rejected. The material was tendered on the voir dire in circumstances where there was no public disclosure and it being clearly understood that confidentiality orders would be made in respect of the material. If Mr Hammerschlag's submission were made good the contradictor would never be able to litigate an issue under s 131, except on the terms of the person seeking to adduce the evidence. I consider that s 131(2)(g) refers to evidence adduced in the substantive proceedings, not just on the voir dire and the disclosure to which s 131(2)(b) refers is a disclosure other than on the voir dire but in circumstances which make it unnecessary or (possibly) unfair to maintain the confidentiality which the section is designed to protect. 23 More substantively reliance is played on s 131(2)(k) which is in the following terms. "(2)(k) [The privilege does not apply where ] one of the persons in dispute, or an employee or agent of such a person, knew or ought reasonably to have known that the communication was made, or the document was prepared, in furtherance of a deliberate abuse of power." 24 There is no evidence before me that permits the conclusion that Mr Garling was acting "in furtherance of a deliberate abuse of power". I have already said that there is no reason to think that Mr Garling was acting otherwise than in terms of a general retainer, as distinct from at the instance of particular instructions. I note in this regard that in Idoport Pty Limited v National Australia Bank Limited (unreported, 2 April 2001 NSWSC, Hodgson CJ in Eq) his Honour, considering the phrase "a deliberate abuse of a power" in s 125(1)(b) of the Act said: "That phrase must have the same meaning in s 131(2)(k). A deliberate abuse of power is not alleged in this case except insofar as an abuse of process might fall within that description."

With respect to his Honour I would give the phrase the same meaning as his Honour did. The result is that, as what has been alleged here to be an abuse of process only, I do not think that the exception in s 131(2)(k) applies. However, Mr Hammerschlag has brought to my attention s 11 of the Act, which states as follows: "11 General powers of a court (1) The power of a court to control the conduct of a proceeding is not affected by this Act, except so far as this Act provides otherwise expressly or by necessary intendment. (2) In particular, the powers of a court with respect to abuse of process in a proceeding are not affected." 25 I am uncertain as to the application of this provision in the present context. However, I have no doubt that the explicit and comprehensive language of s 131 would exclude, either expressly or by necessary intendment, any exception which fell short of s 131(2)(k) amounting only to an abuse of process. The meaning of s 11 (2) is uncertain but I think that does not mean that the powers of a Court with respect to abuse of process in a proceeding are not affected at all by anything in the Act. But this is a particular example of "the power of a Court to control the conduct of a proceeding" within the meaning of s 11(1), so that the powers of a Court with respect to abuse of process in the proceeding are unaffected, unless the Act provides otherwise expressly or by necessary intendment. 26 Accordingly, I am satisfied that the conversation sought to be adduced by the cross-defendants is inadmissible. Even so, as I have heard full argument on the substantive matter, I think it desirable that I should state my conclusions in relation to it against the event that I am wrong in upholding the objection. I do not propose, having regard to the character of this judgment, to set out the passages in the authorities to which I have been taken by both counsel setting out the nature of an abuse of process constituted by the commencement and maintenance of proceedings for a collateral and improper purpose. I respectfully adopt as a pertinent preliminary observation the remarks by Anderson J in the Full Court of the Supreme Court of Western Australia in Jermyn v Spargos Mining Pty Limited (unreported, 20 March 2001) at para 14 - "In my opinion, the court should not be quick to find that bona fide settlement negotiations fall within one or other of the exceptions, such as that the communications contained a threat of some kind It would not be at all unusual for robust settlement negotiations to be capable of yielding a threat if the content of the negotiations is raked over later." 27 I do not think that anything in the conversation between Mr Garling and Mr McClellan could be regarded as an improper threat. Mr Garling did no more, in my opinion, than state certain rather obvious commercial considerations and tactical likelihoods which are common in one way or another to many substantial actions of the kind envisaged here. 28 In the end, cross-defendants can point to little more than the fact that they allege that their finances are so exiguous as to make it unreasonable to infer that judgment against them could seriously be sought and hence that they are mere makeweights to force LLC either to settle or indemnify them. There were sound and legitimate forensic reasons where agency is alleged to sue both principal and agent. This was especially so here given Mr McClellan's warning that LLC would, in effect, fight the action tooth and nail, including taking every technical point. 29 It is notorious, and generally regarded as sound practice in this State, for plaintiffs to sue both principal and agent even when the latter is known to be a person of straw. Otherwise complicated questions of liability and difficult issues of evidence may arise at a time when it is too late to join the agent. 30 In my opinion for the State interests to join the cross-defendants in this case, having regard to the way in which the case is put in the statement of cross-claim, is to exhibit no more than compliance with that reasonable and proper practice. It may be that it is hoped that doing so will induce LLC one way or another (if it should be successful) to indemnify the cross-defendants should they be unsuccessful, but I do not consider that to be an improper purpose. I do not see how, on the evidence, it can be inferred that the State interests do not intend to obtain a judgment and, for that matter, to enforce it and the mere fact that the cross-defendants assert their relative impecuniosity, even if true, cannot justify such an inference. 31 To my mind the distinction adverted to by Brennan J in Williams v Spautz (1991-2) 174 CLR 509 at 577 is pertinent. His Honour said: "For these reasons, I would hold that an abuse of process occurs when the only substantial intention of a plaintiff is to obtain an advantage or other benefit, to impose a burden or to create a situation that is not reasonably related to a verdict that might be returned or an order that might be made in the proceeding." 32 Even if the cross-defendants were joined in the hope of procuring them to seek indemnity from LLC upon the basis, say, that at the end of the day they might be thought to be employees within the meaning of the Employers' Liability Act 1991, this would not make the cross-claims against them an abuse of process. It does not follow that the cross-claimants did not have the substantial intention of obtaining and enforcing judgments against the cross-defendants. However this might be, in the end, the cross-defendants have failed to establish the presence of any inappropriate ulterior purpose in, let alone an abuse of process by, the State interests in undertaking the proceedings against the cross-defendants, that included a potential commercial (as distinct from forensic) advantage, even if it is reasonable to infer, as I do, that there were real advantages which might well arise from suing the cross-defendants as well as LLC. 33 Accordingly, the notice of motion must be dismissed with costs. The affidavits of Geoffrey Alan McClellan, Stephen Howard Klotz and Peter Richard Garling are confidential affidavits and together with Exhibit GAM1 and Exhibit B are to be placed in a sealed envelope and not to be opened without order of the Court.

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