Glengallan Inv P/L v Arthur Andersen
[2001] QCA 115
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- Unreported Judgment
- Appeal Determined (QCA)
- Glengallan Inv P/L v Arthur Andersen[2001] QCA 115
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Glengallan Inv P/L v Arthur Andersen[2001] QCA 115
Reported at [2002] 1 Qd R 233
Glengallan Inv P/L v Arthur Andersen[2001] QCA 115
Reported at [2002] 1 Qd R 233
SUPREME COURT OF QUEENSLAND
CITATION: | Glengallan Inv P/L & Ors v Arthur Andersen & Ors; Equuscorp P/L & Anor v Glengallan Inv P/L [2001] QCA 115 |
PARTIES: | GLENGALLAN INVESTMENTS PTY LTD ACN 009 836 364 HGT INVESTMENTS PTY LTD ACN 009 951 080 BARRY THORNTON BRIAN JAMES PRENDERGAST CYRIL WILLIAM ANDERSON EDWIN THOMAS CODD (applicants/appellants) v ARTHUR ANDERSEN (first respondent) EQUUSCORP PTY LTD ACN 006 012 344 RURAL FINANCE PTY LTD ACN 008 584 638 (RECEIVERS & MANAGERS APPOINTED) (IN LIQUIDATION) (second respondents) EQUUSCORP PTY LTD ACN 006 012 344 (first plaintiff/first respondent) RURAL FINANCE PTY LTD ACN 008 584 638 (RECEIVERS & MANAGERS APPOINTED) (IN LIQUIDATION) (second plaintiff/second respondent) v GLENGALLAN INVESTMENTS PTY LTD ACN 009 836 364 (defendant/appellant) |
FILE NO/S: | Appeal No 8963 of 2000 Appeal No 8964 of 2000 SC No 5061 of 2000 SC No 1688 of 1991 |
DIVISION: | Court of Appeal |
PROCEEDING: | General Civil Appeal |
ORIGINATING COURT: | Supreme Court at Brisbane |
DELIVERED ON: | 30 March 2001 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 20 February 2001 |
JUDGES: | McPherson and Williams JJA, Ambrose J Separate reasons for judgment of each member of the Court, each concurring as to the orders made. |
ORDER: | 1. Appeal No 8963 of 2000 dismissed with costs 2. Appeal No 8964 of 2000 dismissed with costs |
CATCHWORDS: | PROCEDURE – DISCOVERY AND INTERROGATORIES – DISCOVERY AND INSPECTION OF DOCUMENTS – PRODUCTION AND INSPECTION – GROUNDS FOR RESISTING PRODUCTION – LEGAL PROFESSIONAL PRIVILEGE - WHAT CONSTITUTES – GENERALLY – whether privilege applies where adviser legally qualified but not admitted to practice – where recipient reasonably believed the communication was privileged – where person giving advice is a chartered accountant who works for an accounting firm EVIDENCE – FACTS EXCLUDED FROM PROOF – ON GROUNDS OF PRIVILEGE – PROFESSIONAL CONFIDENCE – LEGAL PROFESSION – GENERAL PRINCIPLES EVIDENCE – FACTS EXCLUDED FROM PROOF – ON GROUNDS OF PRIVILEGE – OTHER CASES – whether without prejudice privilege applies – privilege only applies to admissions made in the course of negotiating a settlement – appellant had not established that these were settlement negotiations PROFESSIONS AND TRADES – LAWYERS – UNQUALIFIED PERSONS AND DISQUALFIED PRACTITIONERS – IN GENERAL Alfred Crompton Amusement Machines Ltd v Customs and Excise Commissioners (No 2) [1972] 2 QB 102, considered Attorney-General (NT) v Kearney (1985) 158 CLR 500, considered Baker v Campbell (1983) 153 CLR 52, followed Butler v Countrywide Finance Ltd (1992) 5 PRNZ 447, considered Calley v Richards (1854)19 Beav 401, 52 ER 406, considered Chantrey Martin (a firm) v Martin [1953] 2 QB 286, considered Citibank Ltd, Re: [1989] 1 Qd R 516, considered City Realties (Rural) Ltd v Wilson Neill Ltd (1996) 9 PRNZ 562, considered Daintrey, Re: ex parte Holt [1893] 2 QB 116, considered Field v Commissioner for Railways (NSW) (1957) 99 CLR 285, followed Grant v Downs (1976) 135 CLR 674, considered Grofam Pty Limited v ANZ Banking Group Limited (1993) 45 FCR 445, considered GPI Leisure Corporation Ltd v Yuill (1997) 42 NSWLR 225, cited Harrington v Lowe(1996) 190 CLR 311, considered Hong Kong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 512, approved Rodgers v Rodgers (1964) 114 CLR 608, considered Rush & Tompkins Ltd v Greater London Council [1989] AC 1280, considered Trade Practices Commission v Arnotts Ltd (1989) 88 ALR 69, cited Village/Nine Network Restaurants & Bars Pty Ltd v Mercantile Mutual Custodians Pty Ltd [1999] QCA 420; Appeal No 9315 of 1998, 12 October 1999, considered Waterford v Commonwealth (1987) 163 CLR 54, considered |
COUNSEL: | D R Cooper SC, with C L Francis for the appellants in Appeal No 8963 of 2000 and for the appellant in Appeal No 8964 of 2000 J Marschke (sol.) for the first respondent in Appeal No 8963 of 2000 P A Keane QC, with S S W Couper QC for the second respondents in Appeal No 8963 of 2000 and for the first and second respondents in Appeal No 8964 of 2000 |
SOLICITORS: | Lees Marshall Warnick for the appellants in Appeal No 8963 of 2000 and for the appellant in Appeal No 8964 of 2000 Clayton Utz for the first respondent in Appeal No 8963 of 2000 Gadens Lawyers for the second respondents in Appeal No 8963 of 2000 and for the first and second respondents in Appeal No 8964 of 2000 |
- McPHERSON JA: I have read what has been written by Williams JA on this appeal. His Honour's reasons express so completely my own views of the issues that no useful purpose would be served by producing a judgment of my own. I therefore agree with the orders proposed by Williams JA for disposing of both appeals.
- WILLIAMS JA: Two appeals were heard together because the issues were identical. Appeal No 8964 of 2000 was an appeal by Glengallan Investments Pty Ltd ("Glengallan") from an order made in action S1688 of 1991 that it provide further and better disclosure of certain specified documents to the plaintiff in that action (and respondent to the appeal) Equuscorp Pty Limited ("Equuscorp"). Appeal No 8963 of 2000 was an appeal by Glengallan and others against an order made in S5061 of 2000 dismissing an application for an injunction restraining the respondent Arthur Andersen from disclosing to the respondent Equuscorp certain specified documents in its possession. The same documents are in issue in each appeal.
- In S1688 of 1991 Equuscorp (and an associated company) sued Glengallan to recover $363,000 and interest allegedly due and payable pursuant to a loan arrangement. Glengallan counter-claimed for a declaration that nothing was owing or alternatively that the agreement in question was unenforceable. The trial of that proceeding, together with five related proceedings, ran from 21 February to 8 March 2000, resulting in the trial judge reserving his decision. In about May 2000 Equuscorp became aware of the existence of certain documents (admitted for the purposes of the appeal to be relevant to the matters in issue at the trial) which had not been disclosed by Glengallan. In consequence Equuscorp applied to the trial judge for an order that Glengallan provide further and better disclosure. That was resisted on two grounds. Firstly, it was contended that the documents were the subject of a valid claim of legal professional privilege in Glengallan. Secondly, it was contended that disclosure should be refused on the ground that without prejudice privilege attached to the documents thereby protecting them from disclosure. The learned trial judge rejected each contention and Glengallan has appealed; on the hearing of the appeal each of the contentions was again advanced.
- There is also an action pending in the District Court (No 3399 of 1991) between Equuscorp and an associated company as plaintiffs and one K G Schroder as defendant. In that proceeding Equuscorp claims principal and interest pursuant to a loan agreement. Schroder is associated with the group of companies of which Glengallan is one, and gave evidence in the trial in action No S1688 of 1991. The issues raised in the two actions are substantially the same. In the District Court proceeding a Writ of Non-Party Discovery was issued directed to the partners of Arthur Andersen in about February 2000. As a result of that Writ Equuscorp became generally aware of the documents in question. Those documents were going to be produced by Arthur Andersen pursuant to the Writ. Glengallan sought to prevent that from occurring by seeking an injunction in proceeding S5061 of 2000 restraining Arthur Andersen from producing for inspection by Equuscorp or any person on its behalf the documents in question. In support of that application Glengallan relied on arguments that the documents were subject to without prejudice protection and also were not discoverable because of legal professional privilege attaching to them. That application was heard at the same time as the application by Equuscorp for further and better disclosure in action S1688 of 1991. The contentions of Glengallan were rejected, and they are again raised on the hearing of the appeal.
- Solicitors for Arthur Andersen appeared at the commencement of the hearing of the appeal and intimated that their client abided the order of the Court; consequent upon that, those solicitors were given leave to withdraw and took no further part in the hearing.
- As already noted, counsel for Glengallan conceded for the purposes of the appeal that the documents were relevant. The only question therefore was whether Glengallan could establish a ground for resisting disclosure. The only issues raised related to the doctrine of without prejudice protection, and the doctrine of legal professional privilege.
- It appears that the loan funds in question were used by Glengallan to invest in the Red Claw Aquaculture Project, apparently a scheme designed to give taxation benefits to investors. In 1991 the Red Claw project was the subject of an audit being conducted by the Australian Taxation Office ("ATO"). The contention on behalf of Glengallan is that it was concerned to preserve the deductibility for taxation purposes of expenditures incurred in relation to that project. Against that background Glengallan retained the services of Arthur Andersen, a firm of chartered accountants, to take up those issues with the ATO. Information was provided by or on behalf of Glengallan to Arthur Andersen to enable that work to be performed. There followed correspondence and communications between Arthur Andersen and the ATO. The persons in the employ of Arthur Andersen who handled the matter were Messrs Stanfield and Hennessy; each has a degree in law but is not admitted to practice. Stanfield is a partner in the firm Arthur Andersen and therefore clearly practices as a chartered accountant. The submission by counsel for Glengallan is that the documents in question came into existence either for the purpose of obtaining legal advice or as part of the process of giving that advice.
- The learned trial judge characterised the advice as accounting advice. Clearly part of his reason for so doing was that neither Stanfield nor Hennessy was admitted to practice as a lawyer (barrister or solicitor). The first point to be determined on appeal is whether his Honour was correct in so holding.
- The rationale of the doctrine of legal professional privilege was considered by Stephen, Mason and Murphy JJ in Grant v Downs (1976) 135 CLR 674 at 685 as follows:
"The rationale of this head of privilege, according to traditional doctrine, is that it promotes the public interest because it assists and enhances the administration of justice by facilitating the representation of clients by legal advisers, the law being a complex and complicated discipline. This it does by keeping secret their communications, thereby inducing the client to retain the solicitor and seek his advice, and encouraging the client to make a full and frank disclosure of the relevant communications to the solicitor. The existence of the privilege reflects, to the extent to which it is accorded, the paramountcy of this public interest over a more general public interest, that which requires that in the interests of a fair trial litigation should be conducted on the footing that all relevant documentary evidence is available". (my emphasis)
A consequential question which has arisen on a number of occasions in Australia is the extent to which the privilege attaches to communications between an in‑house lawyer and the employer-client. That question was first considered by the High Court in Attorney-General (NT) v Kearney (1985) 158 CLR 500. At least three members of the Court referred to Alfred Crompton Amusement Machines Ltd v Customs and Excise Commissioners (No 2) [1972] 2 QB 102, especially the passage from the reasoning of Lord Denning MR at 129 with approval. In that passage Lord Denning referred to the fact that many "barristers and solicitors" are employed as legal advisers by a single employer. He went on to say they "are regarded by the law as in every respect in the same position as those who practice on their own account . . . They are subject to the same duties to their client and to the court". The observation can be made that the language used strongly suggests that only persons admitted to practice the law were being considered. For example, it is only admitted practitioners who owe a duty to the court.
- In Kearney at 510 Gibbs CJ said he did "not doubt the correctness" of the decision in Alfred Crompton "provided that in giving the advice they are acting in their capacity as legal advisers". Later on the same page that learned judge said:
"The advice will not be privileged if the legal adviser gives it in some other capacity (e.g. as an officer of a non-legal department) and will be privileged only if the lawyer who gives it has been admitted to practice and (I incline to think) remains subject to the duty to observe professional standards and the liability to professional discipline". (my emphasis)
Wilson J at 521-2 gave tacit approval to the reasoning in Alfred Crompton. Dawson J, referring to Alfred Crompton, at 531 indicated willingness to extend the privilege to communications between in-house lawyers and their client "provided that they are consulted in a professional capacity in relation to a professional matter and the communications are made in confidence and arise from the relationship of lawyer and client". Again the use of the phrase "professional capacity" suggests that the position of a lawyer admitted to practice was being considered.
- That question was next considered by the High Court in Waterford v Commonwealth (1987) 163 CLR 54. After referring to Alfred Crompton and Kearney, Mason and Wilson JJ at 62 stated that in their opinion "given the safeguards to which reference is made in the various citations, there is no reason to place legal officers in government employment outside the bounds of legal professional privilege". Brennan J considered the matter at 70; relevantly he said:
"The purpose of legal professional privilege is to facilitate the seeking and giving of legal advice and thereby to ensure that the law be applied and litigation be properly conducted. . . . If the purpose of the privilege is to be fulfilled, the legal adviser must be competent and independent. Competent, in order that the legal advice be sound and the conduct of the litigation be efficient; independent, in order that the personal loyalties, duties or interests of the adviser should not influence the legal advice which he gives or the fairness of his conduct of litigation on behalf of his client . . . As to competence, there is much to be said for the view that admission to practice as a barrister or solicitor is the sufficient and necessary condition for attracting the privilege, but the question was not argued and need not be decided".
The reference to the conduct of the litigation in the early part of that quotation is significant. It is only a lawyer admitted to practice either as a barrister or solicitor who may "conduct litigation" in the sense that expression is used. It follows that, if that be the test, the privilege can only apply where a lawyer admitted to practice is concerned. Later, when his Honour refers to "admission to practice" he is indicating that that is sufficient to satisfy the condition of competence; in other words, one need not consider competence beyond the fact of admission. That highlights the fact that in the view of that learned judge the privilege can only attach where a lawyer admitted to practice is involved.
- That is an aspect also alluded to by Deane J at 81:
"It would, however, seem that Lord Denning's statement that salaried legal advisers are regarded by the law 'as in every respect in the same position as those who practice on their own account' with the 'only difference . . . that they act for one client only, and not for several clients' would not be true of this country unless one restricted the category to persons who, in addition to any academic or other practical qualifications, were listed on a roll of current practitioners, held a current practicing certificate, or worked under the supervision of such a person".
Finally, it should be noted that at 96 Dawson J said that "the legal adviser must be qualified to practice law and, it seems, subject to the duty to observe professional standards and the liability to professional discipline". Again, I read the remarks of both Deane J and Dawson J as indicating that only a person admitted to practice can give advice which would attract the privilege. Professional standards and professional discipline in the relevant sense only apply to lawyers admitted to practice as barristers or solicitors.
- I note in passing that it was held in re Citibank Limited [1989] 1 Qd R 516 that the privilege attached to advice given by an in‑house "solicitor".
- The other significant decision of the High Court in which legal professional privilege was considered is Baker v Campbell (1983) 153 CLR 52. The issue in that case was whether a police officer, armed with a search warrant, could seize documents held by a firm of solicitors. The documents had all been brought into existence for the purpose of obtaining or giving legal advice. In dealing with that issue the members of the Court made some statements which are relevant for present purposes. It is of significance in my view that Gibbs CJ at 66 spoke of the privilege protecting "communications between solicitor and client". Later he referred to advice given to the client "by counsel". The whole passage on that page strongly indicates that Gibbs CJ was focusing upon the administration of justice; it is the role played by barristers and solicitors in the administration of justice through the courts that justifies the privilege. I read the reasoning of Mason J at 75 in the same way. There his Honour was justifying the privilege of "lawyer-client communications made in the aid of litigation". The justification for the privilege is that if it did not exist preparation of cases for presentation in court would be hampered and litigation would be unduly protracted.
- At 113 Deane J again specifically refers to "barrister or attorney" in discussing the limits of the privilege.
- Finally from Baker a passage in the judgment of Dawson J at 128 should be noted; it was quoted by the learned trial judge:
"Whilst legal professional privilege was originally confined to the maintenance of confidence pursuant to a contractual duty which arises out of a professional relationship, it is now established that its justification is to be found in the fact that the proper functioning of our legal system depends upon a freedom of communication between legal advisers and their clients which would not exist if either could be compelled to disclose what passed between them for the purpose of giving or receiving advice. This is why the privilege does not extend to communications arising out of other confidential relationships such as those of doctor and patient, priest and penitent or accountant and client. . . . The restriction of the privilege to the legal profession serves to emphasise that the relationship between a client and his legal adviser has a special significance because it is part of the functioning of the law itself. Communications which would establish and arise out of that relationship are of their very nature of legal significance, something which would be coincidental in the case of other confidential relationships". (my emphasis)
A careful reading of all those passages from Baker v Campbell establishes to my satisfaction that the court was recognizing that the privilege only exists where a barrister or solicitor is involved. To the extent that the expression "legal adviser" is used in the judgment it is clear that it is referring only to admitted practitioners.
- That would seem to be the position also at common law. The following extract from Phipson on Evidence (15th ed, par 20-14) clearly indicates that:
"Attempts have periodically been made to extend the privilege to those who are neither solicitors nor barristers nor their representatives but who nevertheless perform the same or similar function in specific fields. Accountants may advise on tax law and have the right of audience before the Special Commissioners. Architects may advise on planning or building law. The authorities clearly establish that in the absence of statutory provision to the contrary, only lawyers enjoy this privilege. . . . Similarly, in tax departments, the issue is: is this advice sought and obtained from lawyers professionally consulted in that capacity, or from accountants. In the former case it is privileged, in the latter not. (Even though the difference may at times be a narrow one, the court will still ask the question of fact as to whether it is advice from lawyers or accountants)".
(See also Chantrey Martin v Martin [1953] 2 QB 286 at 293-4.)
- Mr Cooper SC for Glengallan endeavoured to circumvent those propositions by submitting that it was sufficient if Glengallan reasonably believed that Stanfield and Hennessy were able to give competent and independent legal advice. In support of that approach he relied on Grofam Pty Limited v ANZ Banking Group Limited (1993) 45 FCR 445. In my view a proper reading of that decision does not support the appellant's contention. There the Commonwealth Director of Public Prosecutions gave legal advice to a government authority unsupported by a power in the Director of Public Prosecutions Act 1983 (C'th) to do so. But as the government authority had a genuine belief that the DPP was entitled to give that advice, then the advice and communications associated therewith were held to be protected by legal professional privilege. There was no doubt in that case that the lawyer giving the advice was admitted to practice and bound by the attendant professional standards and professional disciplines. The final paragraph in the reasons for judgment of the Court (Northrup, Ryan and Beazley JJ) at 456 is important:
"When it is borne in mind that legal professional privilege is essentially concerned with the protection of the client, we consider that as a matter of judicial policy, communications between the client and a lawyer, which would normally be privileged, ought to be protected where the client involved genuinely believed that there was an entitlement to give the legal advice in question".
Such a situation is far removed from that where the communication would not normally be privileged because it was not between a client and legal practitioner, but the client had a belief that because the advice was of a legal nature the communication would be privileged. That latter situation is closer to the situation under consideration here.
- As is supported by the authorities and texts to which I have referred, the privilege does extend to a situation where a non-qualified person, such as an articled clerk, is giving advice subject to the supervision of a practitioner. Such cases do not assist the appellant here. It may well be that if a lawyer had been struck off the roll of practitioners, and the client reasonably believed he was dealing with a practitioner, the privilege would attach. (cf Calley v Richards (1854) 19 Beav 401, 52 ER 406.)
- Counsel for Glengallan also referred to a number of American authorities in support of the submission that the privilege extended to cover advice given by legally qualified persons not admitted to practice, and advice given in circumstances where the recipient believed that the communication was privileged. Given my conclusion that the High Court, in the cases to which I have referred, has clearly limited the privilege to communications involving persons admitted to practice as barristers and solicitors, I am of the view that the American cases referred to are of no assistance on that point. Further, given the reasoning in the High Court cases and Grofam, I cannot accept that the privilege can be extended to cover all situations where the recipient of the advice believed, even on reasonable grounds, that the communication was privileged. In this case Thornton, who it is said made the relevant decisions on behalf of Glengallan, was himself a qualified chartered accountant of many years experience. His evidence is that when he wanted legal advice he went to a firm of solicitors and when he wanted taxation advice he went to Arthur Andersen. That in itself demonstrates that he appreciated the distinction between advice from solicitors and advice from accountants. He knew Stanfield and Hennessy were not solicitors.
- It follows that the judgments appealed from were correct insofar as the conclusion was reached that the documents were not protected from disclosure by legal professional privilege.
- I now turn to consider the other submission, namely that the documents were not subject to disclosure because without prejudice privilege attached to them.
- In order to appreciate the submissions it is necessary to note some dates and events which were not in dispute. In addition to the Red Claw project, Glengallan and its associated companies also invested in the Okari Venture which it was hoped would give the investors taxation advantages. The investors' tax returns for year ended 30 June 1990 claimed deductions with respect to the investments in the Okari Venture. The Okari Venture collapsed in about September 1990 and the ATO began an audit of its affairs. Thornton, on behalf of Glengallan and the other investment companies, retained Arthur Andersen to represent the group in dealings with the ATO with a view to retaining their entitlement to deductions. Negotiations between Arthur Andersen and the ATO continued until August 1992 when a settlement was reached.
- As already noted, Glengallan and associated companies and persons used funds borrowed from Equuscorp to invest in the Red Claw project. Those companies claimed deductions in their tax returns of 30 June 1991 with respect to those investments. The Red Claw venture collapsed in about September 1991 and the ATO commenced an audit with respect to it. Again Thornton instructed Arthur Andersen to represent Glengallan and the other companies with respect to that audit, with a view to retaining entitlements to deductions. For a period the Okari and Red Claw audits overlapped, but actions with respect to the Red Claw audit can be specifically identified. The ATO completed the audit of the Red Claw venture in about June 1993. At about that time Thornton terminated the retainer of Arthur Andersen and finalised negotiations with the ATO himself. It would appear that assessments were issued by the ATO in about March 1994 disallowing the deductions claimed. Notices of Objection were lodged on behalf of the investors. The statement then appears in the chronology furnished by the appellant that in September 1997 "Barry Thornton finalises the negotiations and terms of settlement directly with the Australian Taxation Office obviating legal proceedings between the parties".
- It appears that the documents in question are documents relating to communications passing between Arthur Andersen and the ATO and between Glengallan and Arthur Andersen with respect to the issues involved in the Red Claw audit and the possible impact thereof on tax payable by Glengallan.
- Importantly it must be remembered that Arthur Andersen acted from March 1991 to mid-1993. The amended assessment did not issue until early 1994, and the Notice of Objection thereto was lodged on 1 March 1994.
- The classical definition for Australia of the "without prejudice" doctrine is to be found in Field v Commissioner for Railways (NSW) (1957) 99 CLR 285. There Dixon CJ, Webb, Kitto and Taylor JJ said at 291-2:
"The law relating to communications without prejudice is of course familiar. As a matter of policy the law has long excluded from evidence admissions by words or conduct made by parties in the course of negotiations to settle litigation. The purpose is to enable parties engaged in an attempt to compromise litigation to communicate with one another freely and without the embarrassment which the liability of their communications to be put in evidence subsequently might impose upon them. The law relieves them of this embarrassment so that their negotiations to avoid litigation or to settle it may go on unhampered. This form of privilege, however, is directed against the admission in evidence of express or implied admissions. It covers admissions by words or conduct. For example, neither party can use the readiness of the other to negotiate as an implied admission. It is not concerned with objective facts which may be ascertained during the course of negotiations. These may be proved by direct evidence. But it is concerned with the use of the negotiations or what is said in the course of them as evidence by way of admission. For some centuries almost it has been recognised that parties may properly give definition to the occasions when they are communicating in this manner by the use of the words 'without prejudice' and to some extent the area of protection may be enlarged by the tacit acceptance by one side of the use by the other of these words".
That also appears to be the basic position in the United Kingdom. Lord Griffiths with the approval of the other members of the House of Lords, said in Rush & Tompkins Ltd v Greater London Council [1989] AC 1280 at 1299-1300:
"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. . . . The rule applies to exclude all negotiations genuinely aimed at settlement whether oral or in writing from being given in evidence. . . . 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. . . . 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".
- Those statements of principle appear to establish that the two essential prerequisites for the operation of the rule are (1) a genuine attempt to reach a settlement of a dispute the subject of litigation or which will become so if the dispute is not resolved; and (2) the making of an express or implied admission in so doing. The rule then operates to prevent the use of such admissions in subsequent litigation.
- In Field there was specific reference to the admissions in question being made "in the course of negotiations to settle litigation". But it is clear that the rule operates even where litigation has not yet commenced; so much is made clear by Rodgers v Rodgers (1964) 114 CLR 608 at 614 and Harrington v Lowe (1996) 190 CLR 311 at 323. The statements there would clearly extend the operation of the rule to a situation where litigation was contemplated if the negotiations did not result in a satisfactory resolution of the matters in dispute between the parties. But I am not convinced that the rule applies to negotiations where litigation is not contemplated. Mr Cooper referred to a passage in the judgment of Vaughan Williams J in re Daintrey, Re: ex parte Holt [1893] 2 QB 116 at 119, where it was said:
"In our opinion the rule which excludes documents marked 'without prejudice' has no application unless some person is in dispute or negotiation with another, and terms are offered for the settlement of the dispute or negotiation . . . ".
- It is not clear to me what his Lordship precisely had in mind by adding the term "negotiation" to the term "dispute", but I can see no justification for concluding that the use of the term extended the operation of the "without prejudice" rule beyond attempts to settle a dispute which will result in litigation if not resolved.
- Mr Cooper then referred to two New Zealand cases which he submitted established that the rule applied where there were merely differences between the parties, not a dispute likely to result in litigation: Butler v Countrywide Finance Ltd (1992) 5 PRNZ 447, City Realties (Rural) Ltd v Wilson Neill Ltd (1996) 9 PRNZ 562. However it seems to me that whether one uses the term "difference" or "dispute" to describe the subject of the negotiations, the essential fact in each case was that if the negotiations failed the matter would have to be resolved by litigation. It was for that reason that the "without prejudice" rule was held to apply to the negotiations.
- That brings me to the question whether the protection afforded by "without prejudice" privilege is available to prevent disclosure to a third party – that is someone who was not a party to the dispute which led to the "without prejudice" negotiations.
- This was the main point considered in Rush & Tompkins. The position adopted by the House of Lords can be seen, in my view, from a reading of the following passages from the judgment of Lord Griffiths at 1300-1 and 1305:
"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 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". (my emphasis)
"I have come to the conclusion that the wiser course is to protect 'without prejudice' communications between parties to litigation from production to other parties in the same litigation. In multi-party litigation it is not an infrequent experience that one party takes up an unreasonably intransigent attitude that makes it extremely difficult to settle with him. In such circumstances it would, I think, place a serious fetter on negotiations between other parties if they knew that everything that passed between them would ultimately have to be revealed to the one obdurate litigant". (my emphasis)
The reasoning in those passages is understandable, and though the decision probably results in an extension of the protection not previously recognised by the common law there is no need for this Court now to consider the limits of that extension in this jurisdiction.
- A problem has arisen because after the passages which I have quoted, which clearly limit what was being said to multi-party litigation, Lord Griffiths concluded his reasons by saying:
"In my view the general public policy that applies to protect genuine negotiations from being admissible in evidence should also be extended to protect those negotiations from being discoverable to third parties".
If that was the true ratio of that decision then it would create a new and very broad area of operation of the principle. However, I respectfully agree with Gleeson CJ (Mahoney and Priestley JJA concurring) when he said in Hong Kong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 512 at 523 that the latter passage from the speech of Lord Griffiths is to be read in the light of the earlier sentence limiting the protection from production "to other parties in the same litigation". Gleeson CJ went on:
"The issue that was before the House of Lords, and the issue that was being addressed by Lord Griffiths, was the matter of multi-party litigation. It was in that context that his Lordship referred to the matter of discoverability to third parties. I do not think the case can be taken as authority for a proposition as wide as that for which the appellants need to contend in order to treat the privileges qualifying the rights of examination conferred by s 597".
Pincus JA in Village/Nine Network Restaurants & Bars Pty Ltd v Mercantile Mutual Custodians Pty Ltd [1999] QCA 420 ("Village/Nine") agreed with that approach to what was said by Lord Griffiths. But he went on to say that neither Rush & Tompkins nor Hong Kong Bank v Murphy considered "the very different question whether the privilege protects negotiators against disclosure of their negotiations, in an action between one of the negotiators and a person who was neither involved in negotiations nor a party to the dispute which gave rise to them". Whilst his Honour appears to have concluded that protection should be extended to cover such situations, it was not necessary to go that far in order to answer the question raised by the facts of Village/Nine.
- An agreement was entered into in terms of which Village/Nine was to take a lease of part of a building owned by Mercantile Mutual. Pursuant to that agreement Mercantile Mutual was to have work carried out on the building which would primarily be for the benefit of Village/Nine as lessee. That work was carried out by a construction company. In the action in question Mercantile Mutual contended that it was entitled to rescind the agreement on the ground of prior repudiation by Village/Nine and it sought to recover losses. Included in the losses Mercantile Mutual sought to recover from Village/Nine were extra building costs incurred because of the failure of Village/Nine to carry out the agreement. There had been a dispute between Mercantile Mutual and the construction company as to the amount payable to the latter for the work done. That dispute was referred to mediation and the mediation resulted in a settlement of the matters in dispute. Documents were "generated" for the purposes of that mediation and it was those documents which were the subject of the application for disclosure brought by Village/Nine. The judgment of Pincus JA states: "The documents of which disclosure was sought were generated for the purposes of a mediation . . . which resulted in settlement of a dispute" between Mercantile Mutual and the construction company. Byrne J in his reasons provided some more detail as to the documents in question; he said they "included 'submissions' by the respondent and by [the construction company], correspondence between solicitors, conference minutes written by the mediator, notes and calculations used in producing the submissions, and internal memoranda".
- One can readily see that the facts of Village/Nine were but another example of the type of situation discussed by Lord Griffiths in the passage quoted above from his judgment at 1300-1. The litigation in question was connected with the "same subject matter" of the negotiations (mediation).
- Further, particularly where court supervised mediation is involved there is very good reason to protect communications and documents directly related to that mediation from production in associated litigation.
- The material before the Court in this case is not sufficient, in my view, to establish that any of the documents or communications in question is protected from disclosure because it was made or brought into existence with a view to compromising a dispute likely to result in litigation. Many of the documents in question appear to be communications between Glengallan and Arthur Andersen. Such communications, particularly where there is no clearly defined dispute being compromised cannot attract the protection. So much was recognised by the learned judge at first instance.
- Another major difficulty confronting Glengallan is that there appears to have been no dispute which could have been the subject of a compromise from March 1991 to the middle of 1993, the period of Arthur Andersen's retainer. It is true that during that period the ATO was carrying out a taxation audit, and Glengallan was desirous of retaining the benefit of all deductions it had claimed. But communications stating Glengallan's position or attitude, and arguments in favour of its entitlement to a taxation deduction, would not be communications in the course of negotiating a compromise.
- One could readily accept that once the amended assessment issued in 1994 and Glengallan lodged an objection thereto, that a dispute came into existence which could be the subject of a negotiated compromise. But by then Arthur Andersen was no longer acting for Glengallan. In my view it is not to the point to say, as was submitted by counsel for Glengallan, that the audit may ultimately have resulted in a dispute which if not resolved would lead to litigation. The statements made in response to questions raised by the ATO in conducting the audit would not attract "without prejudice" protection. There was no "proper connexion" between the communications in question here and the ultimate resolution of the amount of tax payable by Glengallan: (Trade Practices Commission v Arnotts Ltd (1989) 88 ALR 69 at 71-2 and GPI Leisure Corporation Ltd v Yuill (1997) 42 NSWLR 225).
- Even if the protection extended to communications which went beyond an admission (a proposition I do not accept, but the question need not be conclusively answered here), that would not avail the appellants here. The appellants fail primarily because they have not established that a situation existed which called the "without prejudice" principle into operation.
- It follows in my view that the decisions reached by the learned judge at first instance were correct and the appeals should be dismissed.
- The formal orders of the Court should therefore be:
- Appeal No 8963 of 2000 dismissed with costs.
- Appeal No 8964 of 2000 dismissed with costs.
- AMBROSE J: I agree with the reasons of Williams JA and with the orders he proposes.