Alstom Power Ltd v Yokogawa Australia Pty Ltd (No 3)

[2009] SASC 100

SUPREME COURT OF SOUTH AUSTRALIA

(Civil: Application)

ALSTOM POWER LTD v YOKOGAWA AUSTRALIA PTY LTD & ORS (No 3)

[2009] SASC 100

Judgment of The Honourable Justice Anderson

9 April 2009

PROCEDURE - DISCOVERY AND INTERROGATORIES - DISCOVERY AND INSPECTION OF DOCUMENTS - PRODUCTION AND INSPECTION

PROCEDURE - DISCOVERY AND INTERROGATORIES - DISCOVERY AND INSPECTION OF DOCUMENTS - PRODUCTION AND INSPECTION - GROUNDS FOR RESISTING PRODUCTION - LEGAL PROFESSIONAL PRIVILEGE

DOCUMENTS RELATING TO NEGOTIATIONS REGARDING SETTLEMENT - WITHOUT PREJUDICE PRIVILEGE

Defendants seek orders for production of documents for inspection - whether documents in Kadlunga list are privileged on the basis of legal professional privilege, without prejudice privilege, or both - whether description of documents is adequate - whether internal communications are protected by without prejudice privilege - whether post-settlement documents are protected by without prejudice privilege - whether without prejudice privilege extends to protect negotiations in an earlier settlement between the plaintiff and another party from disclosure in this action between plaintiff and defendants - whether without prejudice privilege continues to protect earlier negotiations that have been pleaded in this action between plaintiff and defendants.

Held:  Privilege as claimed upheld for majority of documents - descriptions of documents are generally adequate - public policy and commonsense require that internal communications should be protected by without prejudice privilege - post-settlement documents are reasonably incidental to the negotiations for settlement and therefore protected by without prejudice privilege - without prejudice privilege extends to protect settlement negotiations from subsequent disputes involving third parties - without prejudice privilege does protect earlier negotiations that have been pleaded in this action between plaintiff and defendants - no orders for production of documents, except in one instance.

Supreme Court Rules 1987 r 59; Evidence Act 1929 (SA) s 67C, referred to.
Muller v Linsley & Mortimer [1996] PNLR 74, distinguished.
Field v Commissioner for Railways for NSW (1957) 99 CLR 285; Rush & Tompkins Ltd v Greater London Council [1989] AC 1280; Glengallan Investments Pty Ltd & Ors v Arthur Andersen & Ors [2002] 1 Qd R 233; Village/Nine Network Restaurants & Bars Pty Ltd v Mercantile Mutual Custodians Pty Ltd [1999] QCA 276; Heron Wood Pty Ltd v Ampol Petroleum (Vic) Pty Ltd [1999] VSC 83; Ofulue v Bossert [2009] UKHL 16, discussed.
Alstom Power Ltd v Yokogawa Australia Pty Ltd & Ors [2008] SASC 15; Alstom Power Ltd v Yokogawa Australia Pty Ltd & Ors (No 2) [2008] SASC 356; Cutts v Head & Anor [1984] Ch 290; Harrington v Lowe (1996) 190 CLR 311; Unilever plc v The Proctor & Gamble Co [2000] 1 WLR 2436, considered.

ALSTOM POWER LTD v YOKOGAWA AUSTRALIA PTY LTD & ORS (No 3)
[2009] SASC 100

Civil

ANDERSON J.

Introduction

1. I have previously made orders in this matter with published reasons in Alstom Power Ltd v Yokogawa Australia Pty Ltd & Ors [2008] SASC 15 and in Alstom Power Ltd v Yokogawa Australia Pty Ltd & Ors (No 2) [2008] SASC 356.

2. I will not repeat the background which is contained in those earlier reasons. I will again refer to the parties as “Alstom” and “YDRML”.

3. Following the publication of my reasons in Alstom (No 2) on 19 December 2008, there were further discussions regarding the question of production of documents. I said at [43] of those reasons:

   In Kadlunga the description of the documents was held not to be sufficient. In this matter, on the face of the Kadlunga list, it seems to me that generally adequate descriptions have been given. Mr Wells spoke only in general terms as to the documents in the Kadlunga list. If there are any specific documents upon which it is asserted that the descriptions are inadequate, I will consider whether to hear counsel further on this matter and deal with those documents individually.

4. As a result, I was asked to hear the matter further in relation to arguments advanced by YDRML as to deficiencies in the Kadlunga list which was provided.

5. YDRML is seeking orders for the production of documents for inspection pursuant to r 59 of the Supreme Court Rules 1987.

6. It is necessary to revisit the orders which I made on 4 February 2008, which provide:

   1.That Alstom, within 28 days, provide discovery of the following categories of documents:

   1.1     Drafts, correspondence, notes, internal assessments, minutes of meetings and other documents created in connection with the settlement agreement in February 2005 between the plaintiff and FPP.

   1.2     That any documents discovered as privileged within the categories identified in paragraph 1.1 be specifically identified in an amended list and the basis for the claim for privilege in each case be identified.

   1.3     Drafts, correspondence, notes, internal assessments, minutes of meetings and other documents created in connection with the settlement agreement in September 2003 between the plaintiff and FPP.

   1.4     That any documents discovered as privileged within the categories identified in paragraph 1.3 be specifically identified in an amended list and the basis for the claim for privilege in each case be identified.

   (My emphasis)

7. Mr Frayne for Alstom has pointed out that the term “in connection with”, as used in those orders, is very wide. He submits that the list which has been provided is to comply with the scope of that order and therefore includes documents even if they are, on the face of it, only marginally relevant to these proceedings.

8. Mr Wells QC for YDRML has argued that the description of documents within the Kadlunga list is inadequate. He submitted that this applies both to documents in respect of which a claim for legal professional privilege has been made and also for documents in respect of which a claim is made on the basis of without prejudice or settlement privilege. He has asked that a further and better description of each document be provided.

9. The objection to the claim for legal professional privilege for the documents in the Kadlunga list is based on the suggested inadequate description whereas the objection to the claim based on without prejudice privilege is much broader. The latter objection has expanded and further developed as the argument has proceeded.

10. As a result of the position taken by those advising YDRML, effectively all of the documents in the Kadlunga list, some 290 of them, have been challenged in one way or another.

11. I should also add that in Alstom (No 2) I dealt with an argument in which it was claimed by YDRML that any privilege, if it did exist, had been waived by Alstom because it had pleaded its state of mind and therefore waiving any privilege. YDRML has sought permission to appeal from that earlier decision, including my decision in relation to waiver. I held in Alstom (No 2) that there was no implied waiver of privilege in Alstom’s pleadings. This ruling was based on my analysis of the pleadings: see [48] to [50] of those reasons.

    Procedure adopted at the hearing

12. Mr Wells wished to argue in turn, first the question of the inadequate description and then the question of legal professional privilege and without prejudice privilege. Mr Frayne proposed, and I agreed, that against the argument of Mr Wells I should proceed to examine the documents. It was my view that this was the most expedient way of disposing of this matter. Whether the description was sufficient or not would be revealed by an inspection of the documents. Likewise it would reveal, on their face, whether they were privileged documents. As I have indicated in my previous reasons, it was my view that the descriptions generally were sufficient.

13. Mr Wells submitted that although the court has the power to inspect documents to determine a claim for legal professional privilege made in relation to them, inspection should only take place where there is good reason to do so. He submitted that the hearing should be able to proceed upon evidence describing the documents and the circumstances of their creation and should not unnecessarily pay regard to material which cannot be known to YDRML. As I have indicated, I chose the course that I considered to be most efficient and proceeded to inspect the documents. The course suggested by Mr Wells would have wasted much time and resources, neither of which is desirable in the interlocutory argument stage.

    Observations of the documents

14. Apart from being only marginally relevant at best, there are many documents which in the normal course would not be included in any list for discovery but I can see why they were included to come within the terms of the broad order that I made. There can be no criticism of Alstom for complying with the order.

15. I have found from inspecting the documents that in relation to my order the descriptions are, as I envisaged them to be, generally adequate for the purpose of identifying the privilege claimed. With some minor exceptions, the descriptions are sufficient.

16. More importantly, my examination of the documents has demonstrated in nearly every case that the claim for privilege was correctly maintained, either on the basis of legal professional privilege, without prejudice privilege, or both.

17. Some of the documents descend into unnecessary detail in relation to irrelevant matters but nevertheless are related in a broad way to the settlements and therefore, in my view, were correctly included in the list as being “in connection with” the settlements.

    Rulings made during the hearing

18. While inspecting the documents during the hearing I made rulings on the first 139 documents in the Kadlunga list. Those rulings were as follows:

    (i)In respect of the documents over which legal professional privilege only is claimed, I upheld the claim of privilege for the following documents: 3, 4, 6, 7, 10, 13, 15, 23, 25, 29, 33, 35, 37, 38, 39, 41, 42, 43, 44, 46, 49, 50, 51, 52, 53, 54, 56, 57, 58, 61, 62, 64, 65, 70, 73, 75, 79, 85, 88, 94, 96, 97, 98, 99, 100, 101, 102, 103, 104, 124,125, 131, 135.

    (ii)In respect of the documents over which without prejudice privilege only is claimed, I upheld the claim of privilege for the following documents: 12, 16, 17, 19, 21, 22, 24, 26, 30, 31, 34, 36, 40, 48, 63, 66, 67, 72, 76, 77, 78, 107, 126, 127, 128, 132, 133, 134, 136, 138.

    (iii)In respect of the documents over which both legal professional privilege and without prejudice privilege are claimed, I upheld the claim of privilege for the following documents: 1, 5, 8, 9, 20, 27, 28, 32, 55, 60, 68, 69, 71, 74, 80, 81, 82, 83, 84, 86, 87, 89, 90, 91, 95, 105, 108, 109, 110, 111, 112, 113, 114, 117, 118, 119, 122, 123, 129, 130, 137, 139.

19. YDRML did not object to the claim of privilege over document 2. Mr Frayne brought my attention to the fact that document 45 on the Kadlunga list is incorrectly described, in that it has been listed twice. Document 45 and document 63 are the same, however the date listed for document 45 is incorrect. Accordingly, the reference to document 45 should be amended. I ruled that on the face of document 14, it is not privileged. Finally, I ruled that documents 92 and 93 are irrelevant and should be removed from the Kadlunga list.

20. In respect of the balance of the documents which I did not rule on at the hearing, I was invited by both parties to inspect those documents and rule on them later. The rulings in respect of the balance of the documents, that is, documents 140 to 290, are as follows:

    (i)In respect of the documents over which legal professional privilege only is claimed, I uphold the claim of privilege for the following documents: 149, 158, 166, 185, 186, 187, 189, 190, 193, 194, 198, 223, 226, 233, 243, 244, 256, 260, 262, 263, 265, 267, 269, 271, 272, 273, 274, 275, 276, 277, 278, 281, 284, 286, 287, 289.

    (ii)In respect of the documents over which without prejudice privilege only is claimed, I uphold the claim of privilege for the following documents: 144, 145, 146, 147, 148, 157, 164, 165, 168, 169, 170, 171, 172, 173, 175, 176, 178, 179, 182, 191, 197, 199, 201, 202, 203, 204, 207, 208, 209, 216, 217, 220, 227, 228, 229, 230, 231, 232, 234, 236, 239, 241, 242, 245, 248, 249, 250, 251, 253, 254, 255, 257, 258, 261, 264, 266, 268, 270, 279, 280, 283, 285, 290.

    (iii)In respect of the documents over which both legal professional privilege and without prejudice privilege are claimed, I uphold the claim of privilege for the following documents: 140, 141,142, 143, 150, 151, 152, 153, 154, 155, 156, 159, 160, 161, 162, 163, 167, 174, 177, 180, 181, 183, 184, 188, 192, 195, 196, 200, 205, 206, 210, 211, 212, 213, 214, 215, 218, 219, 221, 222, 224, 225, 235, 237, 238, 240, 246, 247, 252, 259, 282, 288.

21. Therefore, in short, I have ruled that the claim of privilege by Alstom should be upheld in respect of all 290 documents, except documents 14, 92, and 93.

    Reasons for rulings

22. I will now provide brief reasons for my rulings on both aspects of the privilege claimed.

    (1)    Legal professional privilege

23. The privilege claimed by Alstom became quite apparent from my inspection of the documents. I did no more than what a Master of the Court would do in forming an opinion as to whether, on their face, the documents were covered by legal professional privilege.

24. Mr Wells’ principle argument against the documents for which legal professional privilege is claimed is that these documents have an ‘inadequate description’ in the Kadlunga list. He submitted that the descriptions are “very terse” and that the descriptions provide no basis for the privilege. He submitted that a proper description needs to set out the facts which show that a document is privileged. Accordingly, Mr Wells sought production of all documents over which legal professional privilege alone is claimed. In addition to the objection of inadequate description, some documents were described as having an “insufficient description of communication to establish privilege”.

25. On my inspection of the documents, I found the descriptions to be generally adequate and, in any event, my inspection of the documents showed that the claim of legal professional privilege was correctly maintained. In short, my rulings are based upon my inspection.

    (2)    Without prejudice or settlement privilege

    (a)     Internal communications

26. A number of documents in the Kadlunga list were documents exchanged internally within Alstom but nevertheless discussing the negotiations and raising aspects of the negotiations for consideration by those involved in the decision making process.

27. Mr Wells submitted that at common law, the privilege protects communications, and not the documents containing them. He submitted that a document will only be protected by without prejudice privilege if it relates to an offer or statement put in the course of advancing negotiations. He relies primarily on the decision of Field v Commissioner for Railways for NSW (1957) 99 CLR 285, in particular the joint judgment of Dixon CJ, Webb, Kitto and Taylor JJ at 291 in support of this proposition. Mr Wells submitted that at common law the privilege does not protect internal communications between persons who are employees or agents of one of the negotiating parties. Accordingly, Mr Wells submitted that those documents that are stated to be protected only by without prejudice privilege in the Kadlunga list, should immediately be ordered to be produced if they are internal communications.

28. Mr Frayne submitted that Mr Wells’ interpretation of the rule was far too narrow. He referred to the joint judgment in Field but referred to page 292 where their Honours say:

    The question however does not depend altogether on the expectations of the parties. It depends upon what formal part of the negotiations for the settlement of the action and what was reasonably incidental thereto.

    (My emphasis)

29. He submitted that the privilege covered “all communications between the parties for the purpose of settling the dispute”. Mr Frayne submitted that without prejudice privilege not only covers documents which constitute offers but also documents which form part of the discussion regarding offers.

30. In support of that broader proposition Mr Frayne also referred to the texts Law of Privilege, Suzanne B. McNicol, Law Book Co, 1992, Chapter 8 at 435 and 445; and Cross on Evidence, J.D. Heydon, 7^th edition, LexisNexis Butterworths, 2004 at [25350]. The latter text expresses the rationale for without prejudice privilege as follows:

    To dissect out identifiable admissions and withhold protection from the rest of the communications containing them would not only create huge practical difficulties, but would fail to enable the parties to speak freely about all issues in the course of seeking compromise.

31. Unless public interest concerns and a commonsense application of the rule prevail, the narrow interpretation contended for by Mr Wells would make a nonsense of the rule. That would be so because, in my view, if a party could not internally discuss freely matters raised in negotiations with another party without the fear of losing the privilege of the inter-party discussions, the object of the protection would be lost. Having seen the documents, it is now possible to say how that narrow interpretation sought by Mr Wells would render the negotiation process between the parties liable to exposure if internal communications were outside the rule. That, in my view, would indirectly defeat the object of the exercise. I therefore reject the narrow interpretation contended for by Mr Wells.

    (b)     Inadequate description of the documents

32. Mr Wells complained that “numerous other” documents contain an inadequate description. He submitted that the descriptions made it unclear who the parties to the communication are, and therefore whether they are internal Alstom communications or not.

33. Mr Wells also objected to the description of certain documents as “Communications made as part of a process to compromise a dispute”. He submitted that unless a communication contains an offer, or a statement of the strength or weakness of a party’s position, then it cannot be covered by privilege.

34. Mr Frayne disputed the latter submission. He referred to the policy basis for without prejudice privilege, that is, that it is there to encourage the settlement of disputes. He referred to Cutts v Head & Anor [1984] Ch 290 at 306 per Oliver LJ; Harrington v Lowe (1996) 190 CLR 311 at 323 (referring to Field at 291) and Rush & Tompkins Ltd v Greater London Council [1989] AC 1280 at 1300.

35. I agree with Mr Frayne’s submission and refer to my earlier comments regarding the commonsense application of without prejudice privilege. As for Mr Wells’ complaint about the inadequacy of the descriptions, I do no more than repeat the comments I made earlier regarding legal professional privilege. Those comments apply equally to this objection.

    (c)     Post-settlement documents

36. Mr Wells submitted that post-settlement documents are not protected by without prejudice privilege and that the privilege only applies to so much of the document as might contain express or implied admissions and if suitably redacted, the rest of the document should otherwise be produced. He relied on Glengallan Investments Pty Ltd & Ors v Arthur Andersen & Ors [2002] 1 Qd R 233 at 248-249 per Williams JA for this contention.

37. Mr Frayne repeated his submission that the privilege covers “all communications between the parties made for the purpose of settling the dispute” and not just express or implied admissions.

1. During the course of the hearing I ruled that documents which I considered to be within the general ambit of the settlement were covered by the privilege. I found that documents post-settlement were all “reasonably incidental” to the negotiations for settlement and therefore, on the authority of Field, should be protected by the privilege.

2. Many of the so-called ‘post-settlement’ documents are examples of fine tuning and amendments to numerous draft settlement agreements which were being exchanged between the solicitors. It is inevitable that in such a complex commercial matter there will be numerous alterations and variations before the matter is finally signed off. So that, whereas the settlement date might be nominated, it would be flying in the face of commonsense and reality to have a cut-off point and say that anything that happened beyond that was not covered by privilege. I have found that each of these documents were “reasonably incidental” to the negotiations for settlement.

3. Mr Frayne noted that Alstom has claimed without prejudice privilege in relation to all communications that refer to the proposed terms of settlement or the content of negotiations leading up to the settlement, but not the actual settlement deeds, which have been produced to YDRML. Alstom has also claimed without prejudice privilege in relation to all the “ancillary negotiations” following the settlement deeds and in particular the negotiation of the terms of the release which is required as a condition precedent to the settlement deeds. YDRML has not been left in the dark regarding the details of the settlement but only as to the negotiations pre-settlement and then post-settlement regarding the finalisation of the deed of release.

   (3)    Additional arguments

4. Two further arguments developed late in the course of the hearing and spread into new territory as they proceeded. In this respect the additional arguments by YDRML were well outside the original parameters of the argument and introduced at a late stage of the hearing.

5. YDRML’s original written submissions were filed on 17 February 2009. The hearing was originally listed for 20 February 2009, however this was adjourned to 24 February 2009. An updated version of the YDRML’s original written submissions was emailed on 20 February 2009, which corrected references to the Kadlunga list. Alstom emailed its written submissions on 23 February 2009. The argument proceeded on 24 February 2009 and later that day Mr Wells intimated that he wanted to make a further submission. The argument continued on 25 February 2009 and it was on this occasion that Mr Wells produced supplementary written submissions which he spoke to. Mr Frayne was granted leave to file a response, which he did on 11 March 2009. By email dated 18 March 2009, YDRML sought, and were granted, leave to file and serve submissions limited to the application of one decision, in response to Alstom’s submissions dated 11 March 2009. Those further submissions were received on 26 March 2009. Later again further written submissions were received from both parties on 30 March 2009.

6. The two further propositions that Mr Wells advanced on 25 February 2009 were, first, that the privilege claim does not extend to cover negotiations between Alstom and FPP (also referred to as NRG) in this action between Alstom and YDRML. FPP is the Flinders Power Partnership which owned the power station: see Alstom (No 1) at [3].

7. Mr Wells’ second proposition was that the privilege does not cover settlement negotiations between Alstom and FPP when Alstom has pleaded those negotiations in this action against YDRML. Mr Wells conceded that there was no authority for his second proposition at the time he first argued it.

8. However, Mr Frayne properly referred to a decision of the English Court of Appeal potentially against his interests, and Mr Wells then sought to rely on that authority. Mr Frayne later referred to a more recent House of Lords decision which cast doubt on the earlier authority. I will deal with those authorities shortly.

   (a)     Are negotiations between Alstom and a third party covered?

9. In relation to the first proposition the question is simply does privilege between negotiators in another matter, namely, Alstom and FPP, extend to protect the detail of those negotiations in the action between Alstom and YDRML who were not privy to the earlier negotiations?

10. The rationale for the privilege has been explained in the decisions referred to earlier in these reasons. It was said in Harrington at 323 as to the extent of the privilege, that it was “to encourage compromises by sparing the parties the embarrassment which might be caused to them if the negotiations fail and later their communications are liable to be put in evidence”.

11. In Village/Nine Network Restaurants & Bars Pty Ltd v Mercantile Mutual Custodians Pty Ltd [1999] QCA 276 the Court of Appeal in Queensland considered the matter. Pincus JA at [20] said:

    ... There is no sound basis for holding that the basic purpose of protecting negotiations is sufficiently served if one allows the negotiators to be exposed to the risk that what they privately say, to settle their dispute, may be broadcast to the world at the instance of any person who can make use of it in litigation, unless that person is a party to the dispute being negotiated.

12. Byrne J said at [34]:

    The recognition of such a privilege depends on a conviction, necessarily essentially intuitive, that the effectiveness of compromise negotiations will commonly be jeopardized if the participants apprehend that strangers might, through compulsory process in later litigation, gain access to the confidences exchanged and use them to the participants’ disadvantage.

13. The third member of the court, McMurdo P, agreed with both of the other members of the court.

14. Mr Wells submitted that both of the statements above stemmed from a misunderstanding of the statement made by Griffiths LJ in Rush & Tompkins at 1305, namely:

    ... 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.

15. In Heron Wood Pty Ltd v Ampol Petroleum (Vic) Pty Ltd [1999] VSC 83 Beach J considered the same issue. He said that the privilege should not be given a restricted interpretation. His Honour referred to Rush & Tompkins and set out the relevant parts of the judgment of Griffiths LJ which was given on behalf of their Lordships. He interpreted the remarks of Griffiths LJ in a similar way to that of the Queensland Court of Appeal in Village/Nine.

16. Mr Wells acknowledged that a narrow interpretation of without prejudice privilege does cause some prejudice to FPP, in that its negotiations would now be exposed to the view of YDRML. Mr Wells submitted that in spite of this potential for prejudice, the importance of the administration of justice in being able to get to the truth of matters that are in dispute outweighs any prejudice that might be brought upon the other negotiating party. Mr Wells submitted that the interests of FPP can be appropriately protected by the court through confidentiality rules.

17. It is my view that there are strong public policy considerations which support the conclusions drawn both by Beach J in Heron and by the Court of Appeal in Village/Nine. It is also my view that the interpretation of the words of Griffiths LJ in Rush & Tompkins by both Australian courts is correct.

18. When considering rules about production and inspection of documents, it is important that the public policy considerations prevail unless there is an obvious injustice to those seeking production or inspection. It is my view that those considerations require that rules of production, where privilege is claimed, should not be confined to only the parties to the negotiations but should extend to protect communications in subsequent disputes involving third parties.

19. It if were otherwise, the public policy of protecting the parties’ negotiations would be defeated and unreasonable restraints placed upon the negotiators with the concern that details of the negotiation could be revealed in later litigation.

    (b) Section 67C of the Evidence Act

20. Mr Frayne made a further submission that, in any event, it is not necessary to determine the common law position in relation to the scope of without prejudice privilege, because the documents are also covered by s 67C of the Evidence Act 1929 (SA), which enacts a statutory privilege with respect to communications in connection with a negotiation. He submitted that the general public policy that applies to protect the negotiations from being admissible in evidence also protects the negotiations from being discoverable by way of production to third parties. In response to this argument, Mr Wells submitted that s 67C applies at the stage of admission of a document into evidence and not at the earlier stage of discovery or production. He submitted that the common law without prejudice privilege applies to that earlier stage.

21. Mr Frayne submitted that the usual position in relation to without prejudice privilege at common law is that it is a rule about admissibility, but in the case of multi-parties involving a third party or parties in the same litigation or litigation arising out of the same circumstances it is a rule about inspection or production. In his written submissions, he submitted that, “In multi-party litigation without prejudice correspondence remains privileged and is inadmissible in any subsequent litigation between the same or different parties concerning the same subject matter”.

22. It is not necessary to decide this point at this stage of the proceedings. I indicated during the hearing that I did not uphold the claim for privilege for any document on this ground unless it was specifically noted by me. As it transpires, I have determined the question of privilege in each case without having to resort to any consideration of s 67C.

    (c)     The pleading of the settlement

23. This was the last of the arguments advanced by YDRML. Mr Wells submitted that when negotiations and the resulting settlement between Alstom and FPP are pleaded by Alstom in this matter, the privilege is lost. As I have indicated, Mr Wells could not initially point to any authority for his proposition.

    (i)     Submissions regarding Muller v Linsley

24. As I have indicated, Mr Frayne referred, quite properly, to a decision against the proposition he contended for. This was Muller v Linsley and Mortimer [1996] PNLR 74. In that matter, Hoffmann LJ held that the public policy considerations of preventing disclosure did not apply in the case of deciding the reasonableness of a plaintiff’s mitigation of its losses. This proposition is contrary to the later decision in Unilever plc v The Proctor & Gamble Co [2000] 1 WLR 2436. Mr Frayne submitted that it is an unsatisfactory decision which has no foundation in any previous decision and therefore should not be followed.

25. In Muller, without prejudice correspondence before settlement of an action for damages brought by the plaintiffs against the first plaintiff's former employer was not privileged in the plaintiffs' subsequent action for negligence against solicitors who had advised the first plaintiff before his employer had dismissed him. The plaintiff took action against solicitors for professional negligence and pleaded that the settlement of the earlier action had represented a reasonable attempt to mitigate his loss. The solicitors then sought discovery of the without prejudice documents that had led to the settlement.

26. The Court of Appeal allowed the solicitors’ appeal and ordered production of the documents. As stated earlier, Hoffman LJ based his decision on an analysis of the public policy considerations. He held that the privilege did not apply because the plaintiffs asserted in their statement of claim that the settlement was an attempt to mitigate loss caused by the alleged negligence and because the defendants did not seek to show that admissions made in the course of the correspondence were true. The issue raised by the statement of claim was whether the conduct of the Mullers in settling the claim was a reasonable attempt to mitigate their damage. The without prejudice correspondence was said to form part of that conduct – it was relevant in establishing whether the Mullers acted reasonably in concluding the ultimate settlement, and not in its admissibility to establish the truth of an express or implied admission.

27. Mr Frayne submitted four criticisms of the reasoning of Hoffman LJ. First, the reasoning of Hoffman LJ was based on the premise that without prejudice privilege is confined to admissions, which Mr Frayne submitted is contrary to the majority of authorities, such as Field and Unilever. Second, the exception is not based on any concept of waiver of privilege. Third, His Honour did not consider how the protection of without prejudice privilege is lost by reason of subsequent events. Fourth, the decision creates unacceptable uncertainty as to the extent and coverage of without prejudice privilege, and undermines the public policy upon which the privilege is based.

28. Mr Wells submitted that there is an unfairness in a party asserting a position in the pleadings and then hiding behind a public policy in order to prevent that position being challenged. He points to the judgment of Leggatt LJ (at 81) in support of this proposition.

29. Mr Wells also submitted that the Muller exception would not create uncertainty, as appropriate steps can be taken at trial to protect the confidentiality of FPP if Alstom seeks to lead any of the documents. He submits that the admissibility of the documents at trial will be governed by s 67C of the Evidence Act 1929 (SA); and in the event that that section does not exclude a document, then its admissibility will be determined after considering the purpose for which it is being tendered. If the purpose is to prove the settlement was unreasonable, then it may be tendered for that purpose.

30. Mr Wells submitted that the reasoning of Hoffman LJ should be applied, because in this case, Alstom has pleaded the negotiations and the resulting settlement as a loss caused to it by YDRML, and therefore, has pleaded into issue the circumstances of the settlement. Mr Wells submits that the reasoning of Hoffman LJ should be applied because the without prejudice communications are relevant to establishing the reasonableness of Alstom’s conduct, and not to establish the truth of any admissions.

31. In addition to his criticism of the reasoning of Hoffman LJ, Mr Frayne, in his written submissions, asked me to consider the relevant parts of Alstom’s Amended Statement of Claim. The relevant without prejudice documents are in connection with the two settlement agreements in September 2003 and in February 2005.

32. The 2003 settlement agreement with FPP relates to stage 1 of the works and is pleaded at paragraph 99 of the Amended Statement of Claim:

    99.In reliance on the September 2003 agreement with YDRML, the plaintiff on 16 September 2003 entered into an agreement with FPP which included terms that FPP would not apply Liquidated Damages against the plaintiff for delay in achieving Provisional Acceptance until 31 October 2003, and the plaintiff also would not seek delay costs.

33. Mr Frayne submitted that the agreement pleaded in paragraph 99 and subsequently the damages claimed from paragraph 166 onwards, gives a benefit to YDRML and is not a claim for damages based on the agreement with FPP. That is so to the extent of the moratorium period agreed to by FPP and the further agreement that there would be no delay costs sought. In any event it is not, in my view, a situation within the contemplation of the statement of Hoffman LJ. It is not a plea in mitigation and it is not related to the negotiations which led to the settlement.

34. The 2005 agreement relates to Stage 2 of the works and is pleaded in paragraphs 127-128:

    127.By 24 February 2005 the plaintiff was still unable to meet the requirements of Acceptance of Stage 2, and the officers of the plaintiff reasonably did not expect to be able to meet those requirements within a reasonable period of time.

    128.As a consequence of the matters referred to in paragraph 127, and in order to mitigate its loss, the plaintiff entered into a confidential agreement with FPP dated 24 February 2005 as set out in paragraphs 187 to 189.

35. Alstom then pleads various claims against YDRML commencing at paragraph 143 and then the consequences of the various breaches alleged in paragraph 152. At paragraph 152.7 Alstom pleads the loss and damage that it suffered as a result of the delays, including the amount paid to FPP (which is set out in paragraphs 187-188). The agreement with FPP is pleaded at paragraph 183 and following. Mr Frayne particularly highlights paragraph 186, which addresses the question of mitigation:

    186.As a consequence, and in order to mitigate its loss and to limit potential loss to or claims against its subcontractors, the plaintiff, together with its ultimate parent company, Alstom Holdings, entered into a confidential agreement with FPP on or about 24 February 2005.

36. At paragraph 190, Alstom pleads that its actions were reasonable:

    190.But for YDRML’s breaches of contract and duty, the plaintiff would have completed the power station refurbishment works in accordance with the Head Contract (or, alternatively, substantially in accordance with the Head Contract) and would not have been exposed to the potential liability to FPP as pleaded in paragraph 184 above or at all. In the circumstances, the plaintiff’s actions in resolving potential further dispute with FPP were prudent and reasonable.

37. Alstom then claims damages for breach of contract and breach of duty, including the total amount paid to FPP, in paragraph 191.

38. Mr Frayne submitted that the documents related to the negotiations have no relevance to the current proceedings against YDRML and that there is no unfairness to the defendants which outweighs the public interest in promoting negotiated settlements. He submitted that the negotiations would not be relevant to the issue of whether or not the plaintiff had reasonably mitigated its loss, as the question of whether the agreement was reasonable would be determined at trial in the light of the overall factual situation. As Mr Frayne points out, this is largely an objective determination.

39. Although the plea in relation to the second settlement agreement does raise mitigation and reasonableness, the detail of the actual negotiations, in my view, is not relevant to these proceedings and in particular is not relevant to whether the agreement reached was reasonable.

    (ii)     Submissions regarding Ofulue v Bossert

40. After the submissions just referred to, further argument was required following a later decision handed down by the House of Lords on 11 March 2009 in Ofulue v Bossert [2009] UKHL 16.

41. Mr and Mrs Ofulue were the registered proprietors of a property in London. Lord Neuberger at [61] in Ofulue takes up the narrative:

    Thereafter, they went to Nigeria, and let the property to tenants. In 1981 Mr Bossert and his daughter were permitted to occupy the property by one of those tenants. In 1989, the Ofulues began possession proceedings against the Bosserts.

42. As Lord Neuberger says at [62]:

    In their Statement of Claim, the Ofulues asserted that they were “the owners and entitled to possession of the property”, and that the Bosserts were trespassers.

43. In their Defence and Counterclaim the Bosserts admitted the Ofulues’ title, but denied their right to possession.

44. In two without prejudice letters to the Ofulues in 1991 and 1992 the Bosserts made an offer to purchase the property. This offer was rejected. Some ten years later, in 2003, the Ofulues issued fresh proceedings for possession of the property against Ms Bossert. Ms Bossert asserted that she had obtained title to the freehold of the property by adverse possession. In answer to this contention, the Ofulues claimed that Ms Bossert had acknowledged their title in the without prejudice letter of 1992.

1. The House of Lords considered the admissibility of the without prejudice letter and whether it could be relied on as an acknowledgement because it was written with a view to settling earlier proceedings. The majority found the letter to be inadmissible and that it did not come within any exception to the without prejudice rule.

2. It appears that their Lordships had concerns in following the reasoning of Hoffman LJ in Muller. Lord Neuberger considered the application of the without prejudice rule. Lord Hope of Craighead, Lord Rodger of Earlsferry and Lord Walker of Gestingthorpe all agreed with Lord Neuberger.

3. Lord Neuberger considered the Unilever decision and referred to the difficulty in a practical way of attempting to separate admissions from the balance of communications in negotiations between parties. His Lordship said at [95]:

   Despite the very great respect I have for any view expressed by Lord Hoffman, and the intellectual attraction of the distinction which he draws, I am inclined to think that it is a distinction which is too subtle to apply in practice.

4. The distinction that Lord Hoffman draws in Muller is between without prejudice statements that are relevant otherwise than as admissions, that is, independently of the truth of the facts alleged to have been admitted, on the one hand, and without prejudice statements that are being relied on to establish the truth of the admission, on the other hand.

5. Lord Hope of Craighead said at [2]:

   The court should be very slow to lift the umbrella unless the case for doing so is absolutely plain. ... If by converting offers of compromise into admissions of fact prejudicial to the person making them were to be permitted, no attempt to compromise a dispute would ever be made.

6. His Lordship said further at [11]:

   The argument that the acknowledgment can, following Hoffman LJ’s reasoning in Muller v Linsley and Mortimer and in Bradford and Bingley v Rashid, be viewed simply as a fact independently from any admission that can be spelled out of it faces the same difficulty ... The protection which the rule gives to that admission must apply equally to the acknowledgment. They are two sides of the same coin.

7. Lord Hope went on to say at [12]:

   The essence of it lies in the nature of the protection that is given to parties when they are attempting to negotiate a compromise. It is the ability to speak freely that indicates where the limits of the rule should lie. Far from being mechanistic, the rule is generous in its application. It recognises that unseen dangers may lurk behind the things said or written during this period, and it removes the inhibiting effect that this may have in the interests of promoting attempts to achieve a settlement. It is not to be defeated by other considerations of public policy which may emerge later, such as those suggested in this case that would deny them that protection.

8. Mr Frayne submitted that the majority did not follow Hoffman LJ’s reasoning in Muller. The majority regarded his view as too narrow. Mr Frayne submitted that as the decision of Hoffman LJ in Muller was not approved by their Lordships, it should not be followed.

9. Mr Wells submitted that Ofulue is not on point with the case at bar. He pointed out that the case relates to the question about the admission of a document into evidence and not a question on production or discovery. He also sought to distinguish Ofulue on the basis that it was a case between the negotiating parties themselves, as opposed to a case involving negotiations with a third party. He submitted that those parts of the reasoning in Muller upon which doubts were cast in the House of Lords decision are not relevant to this matter. He submitted that his earlier submissions regarding the applicability of Muller to the facts of this matter are unaffected by the decision in Ofulue. Mr Frayne conceded that “Ofulue does not deal directly with the exception propounded by Hoffman LJ in Muller in relation to mitigation of loss”. However, it is my view that it certainly deals directly with the relevant public policy considerations that underlie without prejudice privilege.

10. It is my view that the ‘exception’ raised by Hoffman LJ is not relevant and should not be applied in this case. The decision in Ofulue casts considerable doubt on the practicalities of the approach taken by Hoffman LJ. The public policy considerations of freedom of discussion in negotiations between parties is obvious from the reasoning of the members of the House of Lords.

11. Although the House of Lords does not consider the position of a plea of mitigation in the context of the without prejudice rule, the majority does indicate a strong view that the public policy of protecting without prejudice negotiations should be preferred to developing exceptions to the rule. The approach of Hoffman LJ in creating an exception to the rule would discourage settlement negotiations. Public policy considerations are persuasive in protecting settlement negotiations by the without prejudice privilege.

12. It is therefore my view that the reasoning of Hoffman LJ in Muller should not be followed and that Ofulue is good authority for adopting practical or pragmatic considerations in not extending the rule in the way contended for by Mr Wells. In my view, to allow Mr Wells’ submission in this case would be, as Lord Neuberger said at [95] (as set out earlier), “a distinction which is too subtle to apply in practice”.

    Conclusion

13. I therefore decline to make any orders for production of the documents in the Kadlunga list as sought by YDRML except document 14.