Coastal Service Centres Pty Limited v United Petroleum Pty Limited

[2020] NSWSC 1870

Supreme Court

New South Wales

Medium Neutral Citation:

Coastal Service Centres Pty Limited v United Petroleum Pty Limited [2020] NSWSC 1870

Hearing dates:

14 December 2020

Date of orders:

18 December 2020

Decision date:

18 December 2020

Jurisdiction:

Equity

Before:

Ward CJ in Eq

Decision:

1. Pursuant to s 192A of the Evidence Act, I find that the material exhibited to Mr Szymczak’s affidavit and referred to at [44], other than the third impugned letter, is inadmissible at the final hearing (on the basis that this material is subject to the without prejudice privilege provided under s 131(1) of the Evidence Act and does not fall within the exception under s 131(2) of the Evidence Act.

2.   Order the defendant to pay the plaintiff’s costs of the motion for an advance ruling as to admissibility of evidence and the plaintiff to pay the defendant’s costs of the motion to set aside the notice to produce.

Catchwords:

CIVIL PROCEDURE – advance ruling as to admissibility of evidence – s 192A Evidence Act 1995 (NSW) – whether material contained in defendant’s affidavit evidence is inadmissible under s 131 of the Evidence Act – whether exception in s 131(2) applies – whether impugned material amounted to an admission – held that whether or not material amounts to an admission the rights exception in s 131(2) is not invoked – material held to be inadmissible

Legislation Cited:

Civil Procedure Act 2005 (NSW), s 56

Evidence Act 1995 (NSW), ss 131(1), 131(2)(i), 131(5), 192A

Cases Cited:

Apotex Pty Ltd v Les Laboratoires Servier (No 5) (2011) 199 FCR 62

Australian Competition and Consumer Commission v Allphones Retail Pty Ltd (No 3) (2009) 259 ALR 541

Australian Securities and Investments Commission (ASIC) v Rich [2004] NSWSC 1089

Burg Design Pty Ltd v Wolki (1999) 162 ALR 639 at 646; [1999] FCA 388

First Capital Partners Pty Ltd v Sylvatech Ltd (2004) 186 FLR 266; [2004] NSWSC 846

Galafassi v Kelly (2014) 87 NSWLR 119; [2014] NSWCA 190

GPI Leisure Corp Ltd (in liq) v Yuill (1997) 42 NSWLR 225 at 226-7; Seven Network Ltd v News Ltd (2006) 151 FCR 450; [2006] FCA 343

Hera Resources Pty Ltd v Gekko Systems Pty Ltd [2019] NSWSC 37

ICAP Australia Pty Ltd v BGC Partners (Australia Pty Ltd) [2009] NSWCA 307

Korean Airlines Co Ltd v ACCC (No 3) (2008) 247 ALR 781

Lambert Leasing Inc v Qbe Insurance Australia Ltd [2012] NSWSC 953

Le Meilleur Pty Ltd (subject to Deed of Company Arrangement) v Jin Heung Mutual Savings Bank Co Ltd [2011] NSWSC 1115

Lexcray Pty Ltd v Northern Territory (2015) 292 FLR 447

Liu v Fairfax Media Publications Pty Ltd (2012) 84 NSWLR 547; [2012] NSWSC 1352

NA & J Investments Pty Ltd v Minister Administering the Water Management Act 2000 [2012] NSWLEC 120

Pitcher v Langford (1991) 23 NSWLR 142

Ryder v Frohlich [2006] NSWSC 1324

Sasson & Partners Pty Ltd v Fahevu [1999] NSWCA 400

Seven Network Ltd v News Ltd (2006) 151 FCR 450; [2006] FCA 343

Silver Fox Company Pty Ltd v Lenard’s Pty Ltd (No 3) [2004] FCA 1570; (2004) 214 ALR 621

Sydney Attractions Group Pty Ltd v Schulman [2012] NSWSC 951

Talbot v NRMA Ltd [2000] NSWSC 602

Teoh v Greenway (2015) 297 FLR 398

Texts Cited:

J D Heydon, Cross on Evidence (Online version, LexisNexis Butterworths)

S Odgers, Uniform Evidence Law (Lawbook Co., 2020, 15th ed.)

Category:

Procedural and other rulings

Parties:

Coastal Service Centres Pty Limited (Plaintiff/Applicant on motion)
United Petroleum Pty Ltd (Defendant/Respondent on motion)

Representation:

Counsel:
B Goodyear (Plaintiff/Applicant)
A Harding SC (Defendant/Respondent)

Solicitors:
Elliot & Sochacki Lawyers (Plaintiff/Applicant)
K&L Gates (Defendant/Respondent)

File Number(s):

2019/00373788

Publication restriction:

Nil

Judgment

1. HER HONOUR: Before me for hearing on 14 December 2020 were two interlocutory applications: first, a notice of motion filed on 24 November 2020 by the plaintiff, Coastal Service Centres Pty Limited (Coastal), seeking an order that certain evidence be ruled inadmissible pursuant to s 192A of the Evidence Act 1995 (NSW) (Evidence Act); and, second, a notice of motion filed on 25 November 2020 by the defendant, United Petroleum Pty Limited (United), seeking an order that a Notice to Produce for Inspection served by Coastal on 19 October 2020 (Notice to Produce) be set aside.

2. At the conclusion of argument on the respective motions I set aside the Notice to Produce (for reasons that I will briefly set out in due course). I deferred ruling on Coastal’s notice of motion pending further submissions by Coastal responding to an issue raised in the course of oral submissions by United (as to whether the impugned material fell within an exception to the without prejudice privilege protection, assuming that material was found to be privileged). Those submissions have now been received. For the reasons set out below, save in respect of one document (that in my opinion is on no view of the matter a privileged document), I am of the view that the impugned material should be ruled inadmissible in advance of the final hearing on the basis that it is privileged and that the exception relied upon by United does not apply.

Coastal’s notice of motion

3. The impugned material the subject of Coastal’s notice of motion comprises one paragraph ([44]) of an affidavit sworn 8 October by Mr David Szymczak (the Chief Operating Officer of United) and five letters annexed to that affidavit (being correspondence exchanged prior to the initiation of these proceedings between United’s solicitors (K&L Gates) on the one hand and, variously, the director of Coastal (Mr Luke Roberts) and Coastal’s solicitors (Elliot & Sochaki Lawyers), on the other hand. The impugned paragraph from Mr Szymczak’s affidavit relevantly does little more than annex the impugned correspondence. The first sentence of that paragraph (in which Mr Szymczak deposes that prior to Coastal commencing these proceedings in the Local Court the parties engaged in correspondence “regarding an appropriate rental abatement as a result of the fire” seems to me to be unobjectionable. The fact of such correspondence (and the characterisation of its topic) conveys nothing as to the substance of any communications in an attempt to settle a dispute.

4. The real issue is as to the correspondence exhibited to Mr Szymczak’s affidavit (at pp 48-63 of the exhibit thereto), to which I will refer as the impugned letters, namely: a letter dated 23 July 2019 from K&L Gates to Mr Roberts; a letter dated 8 August 2019 from K&L Gates to Elliot & Sochacki Lawyers; a letter dated 14 August 2019 from K&L Gates to Elliot & Sochacki Lawyers; a letter dated 30 August 2019 from K&L Gates to Elliot & Sochacki Lawyers; and a letter dated 1 October 2019 from Elliot & Sochacki Lawyers to K&L Gates. None of those letters is marked “without prejudice”; and all but the last were sent from United’s solicitors. The impugned letters form part but by no means all of the correspondence between the parties (letters that were marked “without prejudice” having been expressly excluded from the relevant exhibit – no doubt due to an appreciation of the letters having been so labelled).

5. Coastal claims that the impugned letters (the contents of which I will consider in more detail in due course) are without prejudice communications sent in an attempt to settle the dispute between the parties as to a claimed rent abatement prior to litigation within the meaning of s 131(1) of the Evidence Act. Coastal further complains that the letters form part of a broader series of communications and that United has in effect “cherry-picked” the correspondence (by excluding ones that are labelled “without prejudice”). Pausing here, I see some force in that contention although that would be met if the whole of the correspondence were to be included (something that Coastal would vehemently resist).

6. United denies that the impugned letters fall within s 131(1) of the Evidence Act but in any event it says that the exception provided by s 131(2)(i) of the Evidence Act is here applicable.

Notice to Produce

7. The documents sought in the Notice to Produce which I set aside on United’s application were:

1.   The franchise agreement; contract; licence; document prescribing the commission structure; or other agreement or document (or, to the extent there is more than one of the aforementioned, the set of documents) pursuant to which United operates the “Operating Model” as defined in paragraph 7 of the Affidavit of David Szymczak sworn 8 October 2020, insofar as that “Operating Model” concerns the particular “commission agent” that has been in place at the Property during the period July 2017 to August 2020.

2.   The instructions that United gave Joe Phegan at Savills Valuation that led to the “Savills Advice” to which paragraph 36 of Affidavit refers.

8. United opposed production of the above documents on the basis that they are irrelevant to any issue in the proceedings.

Background

9. These proceedings were commenced by Coastal (as adverted to above, initially in the Local Court); Coastal claiming, as a debt, rent unpaid under an unregistered lease dated 7 November 2018 between Whitehorn Estates Pty Ltd, as landlord, and United, as lessee, in respect of a property at North Arm Cove, New South Wales (the Property), on which there was located a large scaled replica of Uluru (known as “the Rock Roadhouse”), a convenience store and service station, operated by United. The lessor’s rights under the lease were assigned to Coastal when it became the registered proprietor of the Property in about July 2019. The commencement date of the lease was 1 July 2016 (albeit that the lease was not executed until November 2018). The commencement rent payable under the lease was $445,253.29 per annum excluding GST.

10. On or about 30 or 31 July 2018, there was a fire on the Property which caused significant damage to the building. Trading from the premises ceased at that time. United reopened its businesses on 21 December 2018 but with reduced hours of operation (reduced from 24 hours a day to between 5:00am and 11:00pm each day). Upon resuming trade, United paid rent at an adjusted rate (a decision that was apparently taken by it unilaterally, on the basis that it claimed an entitlement to an abatement of rent pursuant to a relevant provision of the lease; but following the obtaining by United of an opinion from a valuer as to the rental – referred to in submissions as the first Robertson valuation). Coastal does not accept that United is entitled to an abatement of rent.

11. At issue in the proceedings is thus whether United is entitled to an abatement of rent pursuant to cl 8.2 of the lease, which provides in effect that, if the Property is damaged or destroyed and the useability of the Property diminished due to the damage, the tenant’s liability for rent and outgoings is reduced in proportion to any diminished useability caused by the damage; and, if so, the quantum of any such abatement of rent to which United is entitled. The issue is not, as I understand it, limited solely to quantum – there is an anterior issue raised by Coastal as to whether there is any entitlement to an abatement at all (it being to that issue that United says the impugned material is relevant – as an admission against interest on the part of Coastal that there was an entitlement to a rent abatement by reason of its preparedness to negotiate an adjusted rent).

12. Prior to the commencement of proceedings there was correspondence between the parties in an attempt to agree to a reduction in the amount of rent payable under the lease (this being the correspondence that Coastal says was in an attempt to settle a dispute between the parties as to the claimed abatement of rent and hence which it says is covered by without prejudice privilege under s 131 of the Evidence Act).

13. After United filed its defence and cross-claim, seeking, inter alia, declaratory relief as to an abatement of rent, the proceedings were transferred to this Court. There was no opposition to the transfer of the proceedings to this Court, having regard to the jurisdictional limits of the Local Court in relation to the grant of equitable relief.

14. The status of the pleadings is that, by its amended statement of claim filed on 11 September 2020, Coastal seeks recovery of the balance of the rent under the lease; and, by its amended statement of cross-claim filed on 29 October 2020, United contends that it is entitled to an abatement of rent pursuant to cl 8.2 of the lease. Coastal denies that United is so entitled and denies that the useability of the leased premises has diminished significantly as a result of the fire (see amended cross-claim at [12], defence to amended cross-claim at [12]). Orders have been made as to the service of evidence and it was following the service of United’s evidence that the present issues arose.

Notice to Produce

15. As noted above, I have already ruled on United’s application for the whole of the Notice to Produce to be set aside. I acceded to that application on the following basis.

16. In regard to paragraph 1, United submitted that the central matter of the dispute is whether United is entitled to an abatement of rent and the amount of that adjustment. United contended that those matters would be the subject of expert evidence by valuers who will give evidence (and presumably competing evidence) as to the extent to which, if at all, the useability of the premises has been reduced since the fire. United argued that documents relating to United’s operating model for its service station premises (including at the Property) were irrelevant to that question, and that Coastal had not demonstrated that it is likely that the documentation will materially assist on an identified issue (citing ICAP Australia Pty Ltd v BGC Partners (Australia Pty Ltd) [2009] NSWCA 307 at [9]).

17. As to paragraph 2, United made clear that it did not intend to rely on the impugned valuation reports and argued that therefore the report was not relevant. United maintained that it was difficult to see the relevance or utility in paragraph 2 of the Notice to Produce where Coastal itself submitted that the Savills Valuation was irrelevant to any issue in the proceedings.

18. Coastal argued that the documents referred to in paragraph 1 were relevant to the question of diminished useability. First, Coastal submitted that a central issue in the proceedings was that of causation; that is, whether the fire damage was the cause of the reduction of sales. Coastal maintains, as I understand it, that other factors may have contributed to the useability (such as increase in prices, poor customer services, or defective products).

19. Second, Coastal said that United’s lay evidence included evidence that it operated its business using a commission agent and franchisee model, by which each site is operated by an independent “commission agent” who pays United a licensing fee and in return receives a commission on fuel sales. Accordingly, Coastal claimed that if United alleged that it had suffered a significant reduction of convenience shop and fuel sales; and that by reason of this it was entitled to an abatement, then Coastal was entitled to test those propositions.

20. Third, Coastal argued that if the fuel sales had decreased but the licensing fees paid by the franchisee to United had stayed constant, then United was in fact better off as a result of the reduction of fuel sales. Coastal argues that if United pays less commission for fuel sales to the Franchisee but continues to collect the constant licensing fee then United’s “commercial enterprise” has hardly been “impaired” and may even have been improved. United contends that if the “independent” Franchisee is the one suffering from the drop in sales, then it may be that United is not the proper party raising a claim for relief.

21. Fourth, Coastal claimed that it is entitled to see the Franchise Agreement so as to be informed of the identify of, and arrangement with, the Franchisee so that it may assess whether to obtain evidence from the Franchisee. It is also claimed that the documents are relevant insofar as Coastal seeks a declaration that United is in breach of a contractual obligation to operate its business for 24 hours a day. Coastal says that the franchise agreement is necessary to determine whether the fire caused the reduction in trading hours.

22. In relation to paragraph 2, Coastal claimed that it was entitled to test the legitimacy of the figure derived by the valuer (Mr Joe Phegan) and to be adequately equipped when the valuer is cross-examined.

23. In the course of submissions, United informed me that it will not read the evidence going to its operating model and confirmed that it would not rely on the said valuations. In those circumstances I saw no relevance to the material sought and I therefore set aside the Notice to Produce. This does not preclude Coastal in due course seeking more confined production of material relating to the franchise arrangements in the event that the relevance or potential relevance of that material can be demonstrated.

Coastal’s notice of motion

24. Coastal submits that the impugned material is irrelevant to any issue in the proceedings (including what it says is the central issue in the proceedings, namely, whether United is entitled to an abatement of rent). Coastal argues that the determination of the issue as to entitlement to an abatement of rent will require consideration of the proper construction of the lease and whether there was any damage to the property and the effect of such damage. Coastal says that whether or not it was willing to offer United an adjusted rent prior to the commencement of litigation cannot rationally affect the assessment of the probability of the existence of any fact in issue. (Pausing here, the question of relevance is one that in my opinion should be left to the trial judge and would not here warrant an advance evidentiary ruling.)

25. More pertinent for present purposes is Coastal’s claim that the impugned material falls within the privilege under s 131 of the Evidence Act. Coastal’s position is that the impugned letters form part of communications between the parties in which there was negotiation as to the amount of reduced rent that United might be prepared to pay, and that Coastal might be prepared to accept, in order to resolve the dispute between them as to the claimed abatement of rent.

26. I was taken through the correspondence between the parties in relation to those negotiations, some of which was labelled “without prejudice” and some of which (at least on its face) was open correspondence (that open correspondence relevantly being the five impugned letters).

27. I consider the impugned letters below.

28. At the outset, however, I note that Coastal’s position is that the manner in which the correspondence is labelled is not determinative of the issue as to whether these are privileged communications (a proposition with which I agree); rather, the issue is to be determined by reference to the substance and context of the communication(s) (Coastal here citing Apotex Pty Ltd v Les Laboratoires Servier (No 5) (2011) 199 FCR 62 (at [25]). Further, Coastal says that the subject of these pre-litigation letters is the very dispute that has arisen in the proceedings so that it cannot be said that this is an ancillary or side dispute that is not protected by the privilege claimed (moreover Coastal contends that there is a distinction between negotiations in relation to a proposed reduction of rent and an admission as to an entitlement as to any such reduction). Coastal says that none of the impugned letters falls within any of the exceptions contained in s 131(2) of the Evidence Act (as to which see below).

29. The first of the impugned letters is a letter dated 23 July 2019 from K&L Gates to Mr Roberts (of Coastal), in which reference is made to: the current rent at that time (then $472,369.20); a discounted amount that it is said Coastal was willing to accept (by reference to the first Robertson valuation); and to a lesser amount that United was prepared to pay as an adjusted rent (I do not propose here to set out the detail of this or the later respective offers and counter-offers, for obvious reasons – since that it is the very issue in relation to the claim for without prejudice privilege). Reference is also made in the letter to the need for United’s entitlement to rent abatement to be “measured by reference to the degree to which that commercial enterprise has been impaired”.

24. The second of the impugned letters is a letter dated 8 August 2019 from K&L Gates to Elliot & Sochacki Lawyers. That letter in turn refers to two letters (dated 29 July 2019 and 2 August 2019, respectively) from Elliot & Sochacki Lawyers to K&L Gates, those two letters being marked “without prejudice” (and hence not being included in the exhibited material to Mr Szymczak’s affidavit). The 29 July 2019 letter refers to the parties having been in negotiations and not having reached an agreement and contains a further offer by Coastal to United. The 2 August 2019 letter rejects United’s offer contained in the 23 July 2019 letter and repeats Coastal’s offer made on 29 July 2019.

25. Coastal contends that the reference in the August 2019 correspondence to Coastal’s “without prejudice letter to United of 29 July 2019 and to our without prejudice conversation yesterday” indicates that United’s solicitor was aware that he was engaging in protected settlement discussions around that time.

26. Coastal says that the second impugned letter (i.e., United’s letter dated 8 August 2019), which refers to an “impasse in relation to rent abatement”, makes clear that it is United’s solicitors’ view that a dispute as to rental abatement had manifested itself. Emphasis is placed on a statement contained in that letter to the effect that the relevant question is the amount by which the current rental payable under the Lease should abate and that this is the issue to be resolved. It is noted that the letter suggests a “without prejudice” meeting as “an alternative to what may become a protracted and expensive dispute for both parties”.

27. The third impugned letter is a letter dated 14 August 2019 from K&L Gates to Elliot & Sochacki Lawyers. Prior to this letter being sent, there was a letter dated 12 August 2019 from Coastal’s solicitors marked “without prejudice”, and not included in the exhibited material, responding to the proposal for a meeting. The letter dated 14 August 2019 deals with arrangements for the proposed without prejudice meeting. Coastal argues that it is irrelevant to any fact in issue; and says that, to the extent that it is relevant, this letter is in any event further evidence of the ongoing attempts to settle the dispute. (Pausing here, this letter is one that I cannot see contains any without prejudice communication at all. The fact of an arrangement to meet on a without prejudice basis does not convey the substance of any privileged communications to settle the dispute.)

28. The fourth impugned letter is a letter dated 30 August 2019 from K&L Gates to Elliot & Sochacki Lawyers. In terms of the chronology of events, this letter followed a letter dated 16 August 2019 marked “without prejudice” from Coastal’s solicitors. The fourth impugned letter contains a rejection of an offer from Coastal, the reassertion of a counter-offer from United; and then the statement that if Coastal does not accept the counter-offer, then K&L Gates had “instructions to accept service of process and have the matter determined by the Court”.

29. Pausing here, as to the first four impugned letters, Coastal emphasises that all four were sent by the solicitors acting for United. It maintains that United could not instruct its solicitors to send a letter and “by manipulating that letter’s content, arrogate to itself some right relevant to these proceedings”. Coastal says that the only real argument is thus about the fifth and final letter (and says that this is apparent from the position taken by United in its written submissions opposing the motion which focused on the fifth letter (see at [22(b)]-[23]).

30. The fifth impugned letter is a letter dated 1 October 2019 from Elliot & Sochacki Lawyers to K&L Gates. This letter is not marked “without prejudice” (something Coastal suggests “slipped through the cracks” on the part of its solicitors) but Coastal argues that it was nonetheless plainly sent in an attempt to negotiate a settlement. In this letter, Coastal makes a new offer in relation to the rent and states that if a settlement is not reached then Coastal’s solicitors are instructed to commence proceedings.

31. As to the fifth impugned letter, Coastal analyses this paragraph by paragraph. In summary, Coastal says that: the expression of disappointment in the first paragraph of that letter (that matters have not progressed between the respective clients) does not trigger the abatement clause, nor does it affect any other right of United; that the second paragraph makes clear that the sequence of events (as to execution of the lease some six months after the fire) was something that Coastal had emphasized some time ago (and not a recent invention); that the second paragraph is not any admission against interest (see below), simply a suggestion for a way to resolve the present impasse; that the third paragraph (which refers to a second Robertson Valuation) does not amount to any implied admission and that the valuation in itself has no legal consequences; that the fourth paragraph does not affect any right of United (referring to a view as to repudiation which is not in issue in this case); and that the final paragraph simply expresses a hope that litigation will be unnecessary (and appeals to the parties’ common sense).

32. I note that the second paragraph in this letter includes the following:

Moreover, a fair abatement cannot be determined solely on matters idiosyncratic to your client. An appropriate resolution is by way of a jointly instructed, independent, valuation - something my client has suggested time and time again. Given your client’s continued refusal to engage, our client has been left with no choice but to proceed to obtain an expert valuation of current market rent.

39. Coastal maintains that the paragraphs of the fifth impugned letter do not “affect a right” of United in the relevant sense required to enliven s 131(2) of the Evidence Act (see below).

40. As noted above, Coastal argues (and I agree) that the “without prejudice” label is not determinative on the issue of privilege. Coastal argues that a ruling should be made in advance (pursuant to s 192A of the Evidence Act) to ensure that the settlement negotiations are not put before the trial judge and, in particular, to ensure that the two Robertson rental valuations referred to in the letters are not seen by the trial judge. Coastal argues that it needs to know whether the impugned material will be admitted because, if it is, then it will be required to respond to the figures contained therein. Further, it is argued that if the impugned material is deemed admissible, further lay evidence may be required (including as to the instructions given to the valuer, evidence as to why the “without prejudice” meeting did not occur, or other letters or communications that provide the “full context” to the impugned letters).

41. United argues that an order under s 192A at this stage of the proceedings will lack utility. United says that it does not seek to rely on the impugned valuation reports as expert evidence and hence it says that there will be no need for Coastal to respond to the valuation figures because they do not form part of United’s case.

42. Further, United says that the impugned letters do not contain or disclose any privileged communications. United argues that the impugned letters are directed to working out and agreeing the mechanism for the adjustment of rent pursuant to cl 8.2 of the Lease and the amount of the adjustment. United says that the communications are “typical open communications in which solicitors state their clients’ positions and point out why the other side is wrong”. United contends that there is no element of negotiation or compromise in the proposals that are put in the impugned letters.

43. Further, United submits that the 1 October 2019 correspondence contains an admission against Coastal’s interests (see the statement in the second paragraph extracted above) because it amounts to an admission as to United’s entitlement to a rental abatement (and indeed in oral argument it was submitted that reliance could be placed on the whole of the correspondence in question as an admission against interest), this being the subject of the further submissions in writing by Coastal.

Legal Principles

44. Relevantly, s 192A(a) of the Evidence Act provides that the Court may, if it considers it to be appropriate, give a ruling or make a finding in relation to the admissibility of evidence proposed to be adduced before that evidence is adduced if it considers it appropriate. Appropriateness of relief is the only test specified in the section (Lambert Leasing Inc v Qbe Insurance AustraliaLtd [2012] NSWSC 953 (Lambert Leasing) per Stevenson J at [12]). As noted by Biscoe J in NA & J Investments Pty Ltd v Minister Administering the Water Management Act 2000 [2012] NSWLEC 120 (at [40]) “[w]hether the court should make advance rulings under s 192A is a discretionary case management decision to be made in accordance with the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in dispute” (and see Lambert Leasing at [12]).

45. It has been said that, in exercising the discretion, the Court must be satisfied that there is “some good reason” to warrant so doing but that it is not necessary for the applicant to demonstrate “special circumstances” or that the circumstances are in some way out of the ordinary (see Sydney Attractions Group Pty Ltd v Schulman [2012] NSWSC 951; Lambert Leasing at [13]). The considerations which inform the exercise of the discretion will depend on the circumstances of each individual case (Australian Competition and Consumer Commission v Allphones Retail Pty Ltd (No 3) (2009) 259 ALR 541).

46. As to the privilege here invoked, s 131(1) of the Evidence Act provides that:

131(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.

47. As to the issue whether privilege arises under s 131(1) in respect of a particular communication, what must be determined is whether the communication is “in connection” with an “attempt” to negotiate the settlement of the dispute (see Liu v Fairfax Media Publications Pty Ltd (2012) 84 NSWLR 547; [2012] NSWSC 1352 (Liu v Fairfax) at [78]). The “connection” and “attempt” must be direct, not tenuous (GPI Leisure Corp Ltd (in liq) v Yuill (1997) 42 NSWLR 225 at 226-7; Seven Network Ltd v News Ltd (2006) 151 FCR 450; [2006] FCA 343 at [50]). It is sufficient if the communication or document is directed at arranging or bringing about a settlement (Galafassi v Kelly (2014) 87 NSWLR 119; [2014] NSWCA 190 (Galafassi v Kelly) at [115] per Gleeson JA (with whom Bathurst CJ and I agreed); Hera Resources Pty Ltd v Gekko Systems Pty Ltd [2019] NSWSC 37 at [22]). The privilege does not extend to parts of an otherwise privileged conversation that do not relate to an attempt to settle the dispute (Burg Design Pty Ltd v Wolki (1999) 162 ALR 639 at 646; [1999] FCA 388).

48. “Dispute” is defined in s 131(5) of the Evidence Act. Although there has been some debate in the authorities, it has been said that, while reference to a “dispute” is to a dispute of a kind in respect of which relief may be given in proceedings, a “dispute” in this sense is not confined to one which is the subject of existing proceedings (see Korean Airlines Co Ltd v ACCC (No 3) (2008) 247 ALR 781 at [66]-[71]; [2008] FCA 701; First Capital Partners Pty Ltd v Sylvatech Ltd (2004) 186 FLR 266 at [28]-[37]; [2004] NSWSC 846).

49. The party who claims that the evidence is excluded as a “without prejudice” communication bears the onus of establishing the factual basis of the claim (see Australian Securities and Investments Commission (ASIC) v Rich [2004] NSWSC 1089 at [2]; Liu v Fairfax at [38]).

50. Of relevance also in the present case (as adverted to above) is that there are a number of exceptions to s 131(1) of the Evidence Act (as contained in s 131(2)).

51. So, for example, s 131(2)(g) provides that s 131 does not apply if evidence that has been adduced in the proceeding is likely to mislead the court unless evidence of the communication or document is adduced to contradict or to qualify that evidence (see Galafassi v Kelly per Gleeson JA at [135]ff, his Honour having earlier noted at [116] that the purpose of s 131(1), subject to its exceptions, is to give effect to the policy of ensuring that the course of negotiations are not adduced into evidence “for the purpose of influencing the outcome on the primary matters in issue” – there citing Mansfield J in Silver Fox Company Pty Ltd v Lenard’s Pty Ltd (No 3) [2004] FCA 1570; (2004) 214 ALR 621 at [36]).

52. Relevantly, s 131(2)(i) provides that s 131 does not apply if “making the communication, or preparing the document, affects a right of a person”.

Determination

53. Coastal claims that it is necessary that the Court make this ruling now in order to ensure that the valuation figures referred to in the correspondence are not seen by the trial judge. United’s position is that it does not intend to rely on this valuation material. However, the issue having been argued (and Coastal’s position being that if the evidence is to be admitted it would wish to adduce further evidence) leads me to conclude that it is in the interests of the just, quick and cheap resolution of the real issues in dispute (see s 56 of the Civil Procedure Act 2005 (NSW)) to address this issue at this stage (although I do not consider that letters outlining the parties’ positions prior to proceedings would prejudice Coastal if seen by the trial judge – there being a difference between a jury as the tribunal of fact and a judge). Whether or not United is seeking to rely on the valuation material is not relevant to the determination as to whether the impugned letters disclose communications between parties in connection with an attempt at settlement of a dispute within s 131 of the Evidence Act.

54. Apart from the third impugned letter, which simply proposes or makes arrangements for a without prejudice meeting, I accept that the impugned letters do contain communications in an attempt to resolve a dispute at least as to the quantum of any abatement or rent that might be applicable. The real question to my mind is as to whether any of the exceptions in s 131(2) is applicable.

55. It is clear that the parties were making offers and counter-offers in an attempt to settle the dispute. The fact that such correspondence is akin to negotiations in relation to commercial transactions does not persuade me otherwise.

56. Insofar as Coastal has made a general objection to the impugned material on the ground of relevance, an objection of that kind would best be made before the trial judge as indicated above.

57. Commentary on the s 131(2)(i) exception to without prejudice privilege includes the statement in Cross on Evidence (online Lexis version) at [25395] that this exception “refers to the equivalent doctrine of the common law pursuant to which without-prejudice communications can be referred to if they reveal, for example, an act of bankruptcy or the exercise of an option” and that:

While communications which of themselves have legal consequences for the rights of parties fall within s 131(2)(i), communications which only constitute evidence relevant to the establishment or denial of the parties’ rights do not.

58. Examples of what may enliven this exception (see Odgers’ Uniform Evidence Law (Lawbook Co., 2020, 15^th ed.) include (at p 1228) “defamatory utterances; acts of bankruptcy; threats (constituting a tort or crime); the exercise of an option; a contractual offer; or conduct amounting to an election”.

59. In Liu v Fairfax, Beech-Jones J set out at [73] an extract from the Australian Law Reform Commission Report which noted the rationale for non-disclosure of the content of communications made in an attempt to settle a civil dispute (unless all the parties to the negotiations consent) and which stated that “[t]he embargo would not apply to communications which are of a criminal or tortious nature, or are capable of affecting rights and liabilities (such as acts of bankruptcy, defamatory statements, illegal threats, the election of alternative courses of action); and open offers of settlement”.

60. Beech-Jones J, at [123], having referred at [119] to Ryder v Frohlich [2006] NSWSC 1324 at [7] per Brereton J (as his Honour then was), as his Honour then drew the distinction between communications which of themselves have legal consequences for the rights of parties (potentially falling within the exception) and those “which only constitute evidence which are relevant to the establishment or denial of the rights of the parties” (and which his Honour said do not fall within the exception). His Honour referred also to Talbot v NRMA Ltd [2000] NSWSC 602 at [3] per Hodgson CJ in Eq, as his Honour then was, as to the exception in the former s 121(3) of the Evidence Act as to a communication or document “that affects in some fairly direct way what are the actual rights and perhaps also duties of a person”; and to the statement there by his Honour to the effect that if the only link between the relevant communication and the rights of the person is evidentiary then the exception would “swallow the rule” (see at [126]).

61. At [127] Beech-Jones said that the form of right being adverted to ins 131(2)(i) is not a procedural right but a substantive right (giving the example of the right to enjoyment of a reputation or not to be subjected to tortious statements).

62. In Galafassi v Kelly, to which I have referred already, Gleeson JA considered in obiter the exception in s 131(2) (at [145]-[146]) and said:

145   In JD Heydon, Cross on Evidence (Australian ed, LexisNexis, online) at [25395] the learned author expresses the view that s 131(2)(i) refers to the equivalent doctrine at common law pursuant to which “without prejudice” communications can be referred to if they reveal, for example, an act of bankruptcy or the exercise of an option: see for example Tenstat Pty Ltd v Permanent Trustee Australia Ltd (1992) 28 NSWLR 625 at 633 where McLelland J (as his Honour then was) held that “without prejudice” privilege did not extend to preclude the proof of communications or statements relied on as an objective act having legal consequences, such as a notice of exercise of option. Although this decision was prior to the Evidence Act, the principle underlying it is applicable to s 131(2)(i). A communication relating to the exercise of an option may be properly viewed as affecting the right of the grantee of the option.

146   Here the disputed communications relate to the Vendor’s contractual right to terminate for repudiatory conduct after the institution of the proceedings. Counsel for the Vendor put the matter shortly — one cannot repudiate “without prejudice”. I agree. A communication or document evincing an intention no longer to be bound by a contract affects the right of the promisee to elect between accepting the repudiation and terminating the contract (strictly, its further obligations to perform) or affirming the contract and insisting on further performance.

63. See also Lexcray Pty Ltd v Northern Territory (2015) 292 FLR 447 per Kelly J and Teoh v Greenway (2015) 297 FLR 398 per Burns J. In the latter case, the evidence in question was of a written offer of settlement made in relation to a dispute where reliance was subsequently placed on a limitations defence. It was conceded at first instance that if evidence of the offer were admissible, the offer would constitute a confirmation of the relevant cause of action such that the limitation period had not yet expired. On appeal it was held that the offer had been wrongly admitted. Burns J said (at [37]):

37   … the common law exceptions to the exclusion of evidence of negotiations do not extend to the admission of material that only affects a right to a remedy: see Ofulue v Bossert. To interpret s 131(2)(i) in the manner accepted by the Master would involve a significant extension of the exceptions to the exclusionary rule recognised by the common law. If the exception found in s 131(2)(i) is expansively interpreted as extending beyond those exceptions generally recognised at common law, the exception would potentially swallow the rule and the very important policy considerations underlying s 131(1) would be largely negated. Any admission made in settlement negotiations may be said to affect a right of a party if the meaning of the term “right” is given an expansive interpretation inclusive of the right to a remedy or a remedy of a particular type or quantum. Furthermore, if an admission in negotiations is available to be used as an acknowledgment of a cause of action for the purpose of a “secondary right”, then, a fortiori, it must be available for the purposes of establishing or vindicating a “primary right”, for example by way of proving the plaintiff’s cause of action. I respectfully agree with the majority of the House of Lords in Ofulue v Bossert that no meaningful distinction can, for this purpose, be drawn between an admission and an acknowledgment.

64. Burns J concluded at [38] that the exception in s 131(2)(i) was to be interpreted as extending no further than the common law exceptions to the exclusionary rule, pointing, inter alia, to the very significant and well-recognised policy considerations underlying the common law exclusionary rule and s 131(1); and concluded at [40] that evidence of the settlement offer was not admissible as an acknowledgment of the respondent’s cause of action because it did not create, alter, vary or interfere with any relevant right of the respondent.

65. Coastal maintains that the impugned letters do not contain communications that, in and of themselves, have legal consequences for the rights of parties; rather, at best, the impugned letters might (though this is not conceded) constitute evidence relevant to the establishment or denial of the rights of the parties; and hence it is said that the exception is not enlivened.

66. In this context it is relevant to note that United is seeking to rely on the impugned letters (and maintains they fall within the exception) on the basis that they amount to admissions as to the entitlement to a rental abatement. Coastal’s position (which I consider has much force) is that the making of such an offer of settlement (say, it says, to avoid a protracted dispute) is not an admission of liability as such nor as to any corresponding entitlement. It says that the mere offer to provide an abatement does not affect United’s right (which is disputed) to an abatement.

67. In the present case, the admission sought to be drawn from the impugned letters would seem to be an admission of law, though I accept that an admission or acknowledgement as to the state of the parties’ rights at the time (as contemplated in Sasson & Partners Pty Ltd v Fahevu [1999] NSWCA 400), may involve an admission as to matters of mixed law and fact (see the debate as to whether admissions of matters of mixed law and fact are admissible as evidence – considered in Pitcher v Langford (1991) 23 NSWLR 142 at 160 per Handley JA and discussed in Le Meilleur Pty Ltd (subject to Deed of Company Arrangement) v Jin Heung Mutual Savings Bank Co Ltd [2011] NSWSC 1115).

68. Whether or not the impugned letters amount to an admission, I consider that the authorities referred to above compel the conclusion that the rights exception in s 131(2) is not invoked and having regard to the significant policy considerations underlying the privilege in s 131(1) of the Evidence Act, the impugned letters (other than the third impugned letter which is not of itself privileged) are not admissible. I will order accordingly. I simply add that it may be that United can still adduce evidence of the fact of the making of offers (albeit not their content) in support of an argument that there has been an implied admission as to the entitlement to an abatement but that will be a matter for the trial judge to consider.

Orders

69. For the above reasons, I will order accordingly. I consider that costs should follow the event. I order as follows:

1. Pursuant to s 192A of the Evidence Act, I find that the material exhibited to Mr Szymczak’s affidavit and referred to at [44], other than the third impugned letter, is inadmissible at the final hearing (on the basis that this material is subject to the without prejudice privilege provided under s 131(1) of the Evidence Act and does not fall within the exception under s 131(2) of the Evidence Act.

2. Order the defendant to pay the plaintiff’s costs of the motion for an advance ruling as to admissibility of evidence and the plaintiff to pay the defendant’s costs of the motion to set aside the notice to produce.

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Decision last updated: 18 December 2020