Plaintiff v Defendant

2 During the course of cross-examination of Mr Smith, I admitted, as exhibit D35, a redacted form of three letters from Richard Szental, a legal practitioner, to Garland Hawthorn Brahe, Solicitors, dated 14 April 2005, 14 June 2005 and a later undated letter. Objection to the tender of these documents was taken by counsel appearing for two groups of non-parties, being Mr Simon Parsons, Ms Maxine Holden, and Simon Parsons & Co and Mr Gary Singer, who was separately represented. Mr Smith also supported the objection. I stated that I would later publish my reasons for this ruling and I now do so. In this ruling, unless the context otherwise requires, I shall refer to these persons collectively as the objectors.

3 The objectors relied on s 131 of the Evidence Act 2008, which, broadly speaking protects communications subject to 'without prejudice' privilege. If the letters were not excluded from being adduced in evidence by s 131, the objectors contended the letters were inadmissible by operation of s 69, the hearsay rule.

4 Prior to trial, the defendant, Mr Gould, became aware that Mr Smith asserted that he held title to a property at 6 Avoca Street, South Yarra, as a bare trustee on trust for Mr Gary Singer. In 2005, Mr Gould was contacted by Garland Hawthorn Brahe and learned from that contact that those solicitors were acting for Macquarie Bank Ltd and inquiring on its behalf into the financial affairs of Mr Singer and others. Those inquiries were about beneficial interests in property of which Mr Smith had become the registered proprietor prior to the termination of the relationship between Mr Smith and Mr Gould. Mr Gould contends that a property in which Mr Smith has a beneficial interest acquired prior to the termination of the relationship must be taken into account in this proceeding. Not satisfied with Mr Smith's discovery in relation to 6 Avoca Street, South Yarra, Mr Gould served a subpoena for production of documents to the Prothonotary on Garland Hawthorn Brahe and, on confidentiality undertakings, Mr Gould's legal representatives obtained orders for inspection of those documents from an associate justice.

5 Mr Gould gave notice to the objectors that he intended to tender three letters from the documents produced under subpoena in a redacted form. The application of the objectors was initially raised at the commencement of the trial but was adjourned until the point of tender when the context in which Mr Gould proposed to adduce evidence could be properly understood.

(a) neither Garland Hawthorn Brahe nor its client has objected to the production to the parties, or their inspection, of the documents;

(b) Mr Gould's legal advisers have already enjoyed the benefit of the inspection of the documents and he seeks to tender, and use, a redacted version of the documents.

7 The effect of the redactions proposed by Mr Gould fully protects the interests of Mr Parsons, his wife and his entities in that evidence will not be adduced of a communication, or a document, or any communication by, or affecting the interests of, Mr Parsons and his associates. There has not been any live issue (excluding the issue of costs) that relevantly affects the interests of Mr Parsons or his associates since counsel for Mr Gould identified the proposed redacted form of the letters.

8 Mr Singer, on the other hand, has provided instructions to Mr Szental that are the source of the statements remaining unredacted in these letters. What is less clear is whether the communication of those instructions was made by Mr Szental on behalf of Mr Singer, or on behalf of Mr Parsons and his entities, or both.

9 Mr Gould's attempt to adduce evidence of the communications during cross-examination of Mr Smith arose in the following way. Counsel for Mr Smith opened the plaintiff's case without reference to Mr Singer being called as a witness in the proceeding and it became clear that Mr Smith does not propose to call Mr Singer. The plaintiff's case has now been closed, save in respects that are not presently relevant. An issue in the proceeding is whether a property at 6 Avoca Street, South Yarra, of which Mr Smith became the registered proprietor in April 2004, forms part of the divisible pool of property that existed at the date of termination of the relationship, which is alleged to be June 2004. Mr Smith's evidence is that Mr Singer organised the purchase and paid for the property. Mr Smith held it on trust for Mr Singer because he asked him to do so. Mr Smith could not remember whether the beneficiary was Mr Singer personally or one of his companies, but Mr Smith has no beneficial interest in the property. Mr Smith acknowledged his signature on a declaration of trust prepared by Mr Singer, or his office, but had no recollection whether he signed that declaration of trust at the time of the transaction or in April 2006. The cross-examiner challenged this response by seeking to tender the three letters and then put them to Mr Smith. Mr Gould contends that Mr Singer's admission in the communications that Mr Smith was in 2005 beneficially entitled to one half of this property is admissible to prove that fact.

10 On this application, Mr Singer has not filed an affidavit in support of his reliance on s 131 of the Act. There was ample opportunity to do so as the issue had been before an associate justice prior to trial. Mr Singer relies on an affidavit of Mr Parsons sworn 19 April 2012. Mr Parsons deposes that he makes that affidavit on behalf of his wife, Ms Maxine Holden, his firm, Simon Parsons & Co, and himself. Mr Parsons engaged Mr Szental on behalf of himself and his associates, including his joint interests with Mr Singer. He stated that he was in partnership with Mr Gary Singer in the firm of Simon Parsons & Co until 30 June 2004, at which time Mr Singer retired from the partnership, while remaining a consultant to it until 30 June 2011. Mr Parsons deposed that the matters that were in issue with Macquarie Bank, and in respect of which it instructed Garland Hawthorn Brahe, related to 'the financial accommodation of the partnership, including its service company and the superannuation provisions for its members and staff', in respect of which both Mr Singer and Mr Parsons were liable. The apparent dispute with Macquarie Bank was described as being 'with respect to the commercial arrangements' between the Bank and Parsons' entities and Mr Singer, as well as 'with regard to the enforcement of contractual entitlements'.

11 It never became clear what this explanation of the 'dispute' means. Mr Parsons asserted that the correspondence from Mr Szental to Garland Hawthorn Brahe was for the purposes of bona fide without prejudice statements which touched upon the strengths and weaknesses of the dispute with Macquarie Bank in respect of which Mr Parsons was seeking a compromise. As will become apparent, this statement bears a greater correspondence to the purpose of the 'without prejudice' rule than it does to the communications in issue. I consider Mr Parson's affidavit to be no more than a 'template' recital of an appropriate purpose, regrettably not an uncommon practice when privileges are asserted, that fails to satisfy me that there was a dispute and that bona fide without prejudice statements were made in connection with attempts to settle a dispute. My reasons for this conclusion follow.

12 Mr Parsons says nothing in his affidavit about Mr Singer's position vis-à-vis Macquarie Bank. Mr Parsons has not spoken on Mr Singer's behalf in his affidavit, although I can infer that there was some commonality of interest between Mr Singer and Mr Parsons in the dealings with the Bank. There was no explanation from Mr Singer about the absence of an affidavit from him explaining the context and purpose of the communications which Mr Gould seeks to adduce in evidence. The letters in question have been produced to me in an unredacted form and I have read them. The letters assert that Mr Singer is also Mr Szental's client, notwithstanding that neither Mr Singer nor Mr Parsons has so affirmatively stated in an affidavit, and assert that information provided about Mr Singer's assets and financial affairs are made on his instructions. I am satisfied that the statements made by Mr Szental in the letters about Mr Singer's assets and financial affairs were made on Mr Singer's instructions.

13 To set the context, it is desirable to make some further observations about the course of the evidence to date at trial. The evidence establishes that some property dealings in which Mr Smith and Mr Gould participated during the course of their relationship also included Mr Singer or entities controlled by him, amongst others. There has been evidence that Mr Singer and Mr Smith regularly spent time on Saturdays inspecting properties listed for sale, as both investment and development opportunities. Further, Mr Smith and Mr Singer are now partners in an intimate relationship. Whether that intimate relationship commenced before or after June 2004 is an issue in the proceeding. Mr Smith is not calling Mr Singer to give evidence and counsel for Mr Gould has foreshadowed a strong submission invoking the principles in Jones v Dunkel[1] by reason of his absence from the witness box.

14 In his first letter of 14 April 2005, Mr Szental appears to be responding to a questionnaire from Macquarie Bank, which I have not seen, providing information about ownership, legal and beneficial, and equity in 24 properties, one business, eight private companies, three works of art (none of which appears to be an issue in the present proceeding). The contents of this letter are not consistent with Mr Parsons' statement of the purposes of the 'without prejudice' communication, irrespective of whether one considers the asserted purpose to be that of Mr Parsons and his entities or Mr Singer. On behalf of Mr Singer the purpose of this letter appears to be full disclosure to the Bank of Mr Singer's current financial position, in terms of his assets and liabilities and those of his associated entities. No offer is put, no dispute is referred to and it does not appear from its terms that the letter was prepared in connection with an attempt to negotiate a settlement of a dispute.

15 Although I am satisfied that some form of 'commercial arrangement' existed between Macquarie Bank and the objectors but I have not been provided with evidence about it. It is probable that that arrangement was a banking facility, for their solicitors' practice and the needs of any associated service entities, that was in default resulting in a debt due to Macquarie Bank. If it was some other arrangement, or a disputed claim rather than a debt, either Mr Parsons or Mr Singer could have given evidence about it.

16 Mr Szental's second letter of 14 June 2005, also marked 'without prejudice', provides a response to 'queries' raised in a meeting between a solicitor from Garland Hawthorn Brahe and Mr Szental about 'information provided by me to you in April and May 2005'. The communication in the redacted letter, which Mr Gould seeks to use, is relevant to an issue in the proceeding before me. The observation by Mr Szental is that Mr Singer instructs him that he proves his equity in a property at 6 Avoca Street, South Yarra by reference to the terms of the financial accommodation provided by the mortgage lender. The terms of the financial accommodation for the purchase of 6 Avoca Street are in evidence. However, the statement in the letter from Mr Szental made on Mr Singer's instructions contradicts Mr Smith's evidence about beneficial entitlement in the property and the terms of the declaration of trust prepared by Mr Singer.

17 This letter makes clear that information about the financial position of Mr Singer and his entities is being provided to Macquarie Bank to further negotiations about the quantum of a payment to be made to the Bank. The letter contends that Messrs Parsons and Singer do not have the means to pay the debt due to the Bank although their entities might provide security for an obligation to pay a lesser sum.

18 The third letter, which is undated, is part of the same chain of correspondence following the letters I have already noted. This letter makes an offer to the Bank from which it is clear that the financial position of Mr Singer and related entities has been disclosed in order to persuade Macquarie Bank to accept a lesser sum than is its due.

19 Section 131 of the Act provides that:

(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.

The initial issue is whether the letters, or the communications they make, are 'in connection with an attempt to negotiate a settlement of the dispute'. Mr Gould contended, and I agree, neither the marking of the letters as 'without prejudice' communications, nor the generalised assertions of purpose by Mr Parsons, makes out a connection because there is no identification of a dispute.

20 In Unilever plc v The Procter & Gamble Company,[2] Robert Walker LJ restates the uncontroversial point that 'without prejudice' is not a label which can be used indiscriminately so as to immunise an act from its normal legal consequences, where there is no genuine dispute or negotiation. The strict confinement of the rule to the area of its legitimate utility in the facilitation of dispute resolution is expressly confirmed by s 131(1) where its operation in limiting evidence that may be adduced gives effect to a public policy objective.[3]

21 Mr Gould contends that I should reject Mr Parsons' generalised assertions of the purpose of the communications to be the connection between them and attempts to settle a dispute, submitting that it is conceivable that the information that Mr Singer provided to the Bank was required by contractual obligation. Whether that is so is, on the evidence, speculative. There is a better analysis. Whatever be the purpose of the communications, I am satisfied that they were inappropriately labelled because they were not written in the context of any dispute of the liability for, or quantum of, the Bank's debt, or of any attempt to compromise any such dispute. There is no evidence that Mr Parsons or Mr Singer disputed the quantum of the debt or the Bank's entitlement to recover the debt. The Bank's solicitors have not asserted the privilege, which is a joint privilege.

22 What the letters, when read in unredacted form and in the context of Mr Parsons' affidavit, show is that Mr Singer was not offering any concession. Rather, he was seeking one in respect of an undisputed debt. Mr Singer sought to persuade the Bank to accept a lesser sum to discharge its debt because he lacked the financial resources to settle the debt but could secure the assistance of related entities not liable to the Bank for the debt, if a lesser sum was accepted by the Bank. If there was another, or different, inference to be drawn in the circumstances, Mr Singer has not provided any evidence of it. Mr Gould submits there is a clear motive for Mr Singer's failure to provide an affidavit in support of his claim to exclude the letters, but that is not an issue I need presently consider further.

23 Authority for this conclusion is found in the decision of the House of Lords in Bradford & Bingley plc v Rashid.[4] The circumstances differed from the present tender; the issue was whether a creditor could rely upon communications as an acknowledgment of a debt to avoid a limitation defence. The debtor contended that the communications could not be adduced in evidence to prove the acknowledgment as they were 'without prejudice' communications. The House of Lords held that the communications were not protected by the 'without prejudice' rule, and were admissible as an acknowledgment because there was no dispute to be compromised, since neither an offer of payment nor actual payment of a smaller sum in purported discharge of a larger admitted indebtedness has the effect in law of discharging that indebtedness. The correspondence accepted the debtor's liability and the quantum of the debt as undisputed and dealt only with whether, what, and to what extent, the debtor could meet that liability. The debtor had simply been asking for a concession, not offering one.

24 For these reasons, s 131 of the Act does not apply to exclude evidence being adduced of the communications made on Mr Singer's behalf to the Bank. In argument before me, the objectors focused their attention on an alternative submission put by Mr Gould that s 131 of the Act did not apply by reason of either of s 131(2)(g) or (j), which exclude the exemption from admissibility where the court is likely to be mislead ((2)(g)) or the communication was in furtherance of a fraud or an offence ((2)(j)). Although I received extensive submissions on the operation of these two exceptions, in view of the decision I have reached, it is unnecessary to rule upon the proper interpretation, or application in these circumstances, of these exclusions.

25 The remaining issue is whether the letters are excluded as inadmissible hearsay. Relevance is determined by reference to s 55 of the Act. For the reasons I have already given I am satisfied that the three letters, in redacted form, are relevant. However, the letters are evidence of a previous representation made by Mr Singer that is not admissible, by force of s 59 of the Act, to prove the existence of the matters that Mr Singer intended to assert by the representation made to the Bank, unless an exception to the hearsay rule permits the tender.

26 Mr Gould advanced three grounds for excepting the hearsay rule, relying principally on the business records exception under s 69 of the Act. For s 69 to have application, the document must either be, or form part of, the records belonging to, or kept by, a person, body, or organisation in the course of, or for the purposes of, a business or at any time have been or formed part of such records. The letters are copies of original letters that formed part of the records belonging to and kept by Garland Hawthorn Brahe in the course of and for the purposes of its business. The expression 'business' includes conducting a practice as a solicitor, being widely defined as including a reference to a profession, calling, occupation, trade or undertaking. Next, the letters contain representations made, or recorded, in the course of, or for the purposes of, the business, referring to the professional practice of Garland Hawthorn Brahe. The representations concerning Mr Singer's beneficial interest in Avoca Street are recorded in the letters, which are retained by Garland Hawthorn Brahe for the purposes of enabling those solicitors to identify precisely to their client when providing legal advice the matters that the author of the letter has chosen to record and communicate to them on behalf of the Bank. The letters are documents to which s 69 of the Act applies.

27 The basis for the exception to the hearsay rule is set out in s 69(2). Before turning to that subsection, it is noted that it does not apply if the representation was prepared or obtained for the purposes of conducting, or for or in contemplation of or in connection with an Australian or overseas proceeding. That expression means a proceeding (however described) in an Australian court or a foreign court. There is no evidence that the representation was prepared or obtained for such a purpose.

28 Returning to s 69(2), it provides that the hearsay rule does not apply to the document if the representation was made 'on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact'. This condition is satisfied. In each letter, it is clear from the text that Mr Szental has made the relevant representation on this basis. In the first letter Mr Szental concludes by stating 'This letter gives comprehensive details of the entities in which my clients have beneficial interests'. In the second letter the context reveals that the Bank sought proof about Mr Smith's beneficial interest in 6 Avoca Street and Mr Szental's representation, set out above, is followed by the statement 'That is the only proof that my client is able to provide'. Likewise, it is clear from the context of the undated letter that Mr Szental's clients supplied the information, which is about matters which are or might reasonably be supposed to be sourced from their personal knowledge, that both they, and Mr Szental, were inviting the Bank to accept as accurate. I am satisfied Mr Szental's statements were made on Mr Singer's instructions.

29 For these reasons, the unredacted representations appearing in the three letters are statements in business records and are not excluded from proof by s 59 of the Act, the hearsay rule. Accordingly, I overruled the objections taken to the admissibility of the three letters in their redacted form and accepted their tender into evidence. It is unnecessary to consider the other grounds that were put to me for excepting the operation of the hearsay rule.

[1] [1959] HCA 8; (1959) 101 CLR 298.

[2] [1999] EWCA Civ 3027; [2000] 1 WLR 2436, 2448A.

[3] See the speech of Lord Mance in Bradford & Bingley plc v Rashid [2006] 4 All ER 705, 731 [84]-[86].