Liu v Fairfax Media Publications Pty Ltd

[2012] NSWSC 1352

Supreme Court

New South Wales

Medium Neutral Citation:	Liu v Fairfax Media Publications Pty Ltd [2012] NSWSC 1352
Hearing dates:	22 October 2012
Decision date:	09 November 2012
Jurisdiction:	Common Law
Before:	Beech-Jones J
Decision:	Appeal allowed in part.
Catchwords:	APPEAL - interlocutory decision of Associate Judge - practice and procedure - defamation - production of evidence of settlement negotiations - scope of statutory exclusion in s 131(1) of the Evidence Act - whether restricted to excluding admissions - scope of s 131(5)(b) of the Evidence Act - whether negotiations concern criminal proceedings - whether negotiations affect the right of a person - scope of s 131(2)(i) of the Evidence Act.
Legislation Cited:	- Australian Securities and Investments Commission Act 2001 (Cth) - s 93A, s 93AA - Corporations Act 2001 (Cth) - s 1041E, s 1041G - Defamation Act 2005 - s 25 - Director of Public Prosecutions Act 1983 (Cth) - Evidence Act 1995 - s 121(3), s 131, s 131A - Trade Practices Act 1975 (Cth) - s 52 - Uniform Civil Procedure Rules 2005 - r 21(2)(a)
Cases Cited:	- Airtourer Co-operative Ltd v Millicer Aircraft Industries Pty Ltd [2004] FCA 948 - Alexander v Australian Community Pharmacy Authority (No 2) [2010] FCA 467 - Australian Competition and Consumer Commission v Allphones Retail Pty Ltd (No 3) [2009] FCA 1075; 259 ALR 541 - Aytugrul v R [2012] HCA 15; 86 ALJR 474 - Biovision 2020 Pty Ltd v CGU Insurance Ltd [2010] VSC 589 - Bradford v Bingley plc v Rashid [2006] 1 WLR 2066; 4 All ER 705 - Brown v Federal Commission of Taxation [2002] FCA 318; 119 FCR 269 - Carbotech-Australia Pty Ltd v Yates [2008] NSWSC 540 - CJ Redman Constructions Pty Ltd v Tarnap Pty Ltd [2006] NSWSC 173 - Collins Thomson Pty Ltd (in liq) v Clayton [2002] NSWSC 366 - Commissioner of Australian Federal Police v Propend Finance Pty Ltd [1997] HCA 3; 188 CLR 501 - Cornwell v R [2007] HCA 12; 231 CLR 260 - Em v R [2007] HCA 46; 232 CLR 67 - Evans v R [2007] HCA 59; 235 CLR 521 - Field v Commissioner for Railways (NSW) [1957] HCA 92; 99 CLR 285 - First Capital Partners Pty Ltd v Sylvatech Ltd [2004] NSWSC 846; 186 FLR 266 - GPI Leisure Corp Ltd (in liq) v Yuill (1997) 42 NSWLR 225 - Green v AMP Life Ltd [2005] NSWSC 95 - Komatsu Marketing Support Australia Pty Ltd v Marsh Pty Ltd [2012] NSWSC 163 - Lawcover Pty Limited v The Commissioner of Police for New South Wales [1997] NSWSC 590 - Liu v Fairfax Media Publications Pty Ltd [2012] NSWSC 900 - Moran v Moran (No 3) [2000] NSWSC 151; Aust Torts Reports 81-556 - Muller v Linsley [1996] PNLR 74 - Ofulue v Bossert [2009] 2 WLR 749; 3 All ER 93 - Quad Consulting Pty Ltd v David R Bleakley & Associates Pty Ltd (1990) 27 FCR 86 - R v Shawn Darrell Richard [2011] NSWSC 866 - Ryder v Frohlich [2006] NSWSC 1324 - Silver Fox Co Pty Ltd v Lenard's Pty Ltd (No 3) [2004] FCA 1570; 214 ALR 621 - Talbot v NRMA Ltd [2000] NSWSC 602 - Yokogawa Australia Pty Ltd v Alstom Power Ltd [2009] SASC 377; 262 ALR 738
Category:	Interlocutory applications
Parties:	Eugene Liu (Plaintiff) Fairfax Media Publications Pty Ltd (Defendant)
Representation:	Counsel: M.F. Richardson (Plaintiff) T.D. Blackburn SC (Defendant) Solicitors: Kennedys (Australasia) Pty Ltd (Plaintiff) Johnson Winter & Slattery (Defendant)
File Number(s):	2010/350215

Judgment

1. The is an appeal by the plaintiff, Mr Eugene Liu, pursuant to r 49.8 of the Uniform Civil Procedure Rules, from a judgment of Harrison AsJ granting the defendant, Fairfax Media Publications Pty Ltd ("Fairfax"), access to certain correspondence between Mr Liu and the Australian Securities Investment Commission ("ASIC") (Liu v Fairfax Media Publications Pty Ltd [2012] NSWSC 900). Harrison AsJ rejected Mr Liu's claim that the documents should not be produced because they fell within s 131(1) of the Evidence Act 1995.

1. In the principal proceeding Mr Liu sues Fairfax for allegedly defaming him in two articles published in the Sydney Morning Herald.

1. An appeal from an Associate Judge to a single Judge of this Court is governed by the same principles as those which govern an appeal from a single Judge to the Court of Appeal (Komatsu Marketing Support Australia Pty Ltd v Marsh Pty Ltd [2012] NSWSC 163 at [6]). Before he can succeed, Mr Liu must establish an appellable error of law or fact by her Honour (Carbotech-Australia Pty Ltd v Yates [2008] NSWSC 540 at [3]).

Background

1. The matters set out below (at [5] to [24]) are taken from her Honour's judgment. None of these findings were contested by the parties.

1. Trio Capital Ltd ("Trio"), previously known as Astarra, was responsible for a number of managed investment schemes and trustee for a number of superannuation funds.

1. On 15 February 2006, a Product Disclosure Statement ("PDS") was issued for the Astarra Strategic Fund ("ASF"). Trio was the responsible entity for ASF.

1. Trio appointed Astarra Asset Management Pty Ltd ("AAM") as the manager of the scheme. In providing financial services to ASF and Trio, AAM was doing so as an authorised representative of Wright Global Investments Pty Ltd (WGI). WGI held an Australian Financial Services License issued by ASIC.

1. Mr Liu was a director of AAM along with a Mr Shawn Richard. Mr Liu was also AAM's Chief Investment Strategist. He and Mr Richard were members of AAM's Investment Committee.

1. ASF was a managed investment scheme, which purported to invest in offshore hedge funds, via a Deferred Purchase Agreement ("DPA"). Under the terms of the DPA, ASF moneys would be invested with a special purpose vehicle, EMA International Limited ("EMA"). EMA would then place ASF monies in the underlying hedge funds. The DPA did not give ASF any proprietary interest in the investments made with the underlying hedge funds. The DPA merely gave ASF a contractual right as against EMA.

1. As the investment manager for ASF, AAM was responsible for selecting underlying hedge funds into which ASF monies would be invested by EMA. The PDS stated that AAM was to make investments in underlying hedge funds managed by "best performing managers".

1. On 16 December 2009 administrators were appointed to Trio.

1. On 22 December 2009 a liquidator was appointed to AAM.

1. On 19 March 2010 the Court ordered that ASF be wound up.

1. On 22 June 2010 liquidators were appointed to Trio.

1. On 20 August 2010, an administrator was appointed to WGI. On 23 September 2010 it was placed in liquidation.

ASIC's Investigation and the position of Mr Richard

1. On 2 October 2009, ASIC commenced an investigation into the affairs of Trio and ASF. It focused on possible misconduct by Mr Richard and Mr Liu.

1. On 16 March 2010 ASIC commenced inquiring into the management of the "ARP Growth Fund" being another fund managed by Astarra/Trio.

1. ASIC's interest in Mr Richard has now come to an end. In December 2010, Mr Richard entered into an Enforceable Undertaking with ASIC. He undertook not to provide financial services in Australia permanently.

1. On 4 February 2011, Mr Richard appeared in this Court and pleaded guilty to two offences arising from a breach of s 1041G of the Corporations Act 2001 (Cth) (dishonest conduct in the course of carrying on a financial services business). Mr Richard also admitted a third offence which was included on a schedule, being a breach of s 1041E of the Corporations Act (making false statements in relation to financial products). He was sentenced to a term of imprisonment: R v Shawn Darrell Richard [2011] NSWSC 866.

1. Her Honour summarised the circumstances giving rise to these offences and the Enforceable Undertaking as follows. Mr Richard was said to have knowingly put into effect instructions of a Mr Flader from July 2004 onwards relating to the operation of a scheme whereby Mr Richard used his positions in respect of AAM, Trio, WGI and Astarra Funds Management Pty Ltd ("AFM"), to arrange the transfer of Australian investors' monies from managed investment schemes and superannuation funds for which Trio was responsible to overseas funds controlled by Mr Flader. This was done in order to purchase shares in US companies from foreign companies controlled by Mr Flader at prices which realised significant profits.

1. In order to facilitate the scheme Mr Richard is said to have represented himself to investors as being the controller of Trio, WGI and AAM. He is said to have known that these representations were false in that Mr Flader was the ultimate controller of these entities.

1. AAM received over $5.3 million from the operation of the scheme and Mr Richard received over $1.3 million. The payments to Mr Richard were in addition to his disclosed net annual salary of $113,426.00 paid to him by AFM.

1. Further, Mr Richard was said, in the course of carrying on a financial services business as a director of AAM, to have made materially misleading statements in the PDS for the ASF and in questionnaire responses relating to the ASF. At the time Mr Richard made these statements Mr Richard knew that these statements were likely to induce Australians to apply for financial products, namely units in the ASF.

Investigation concerning Mr Liu

1. According to her Honour, in the course of the ASF Investigation, ASIC has pursued lines of inquiry pertaining to Mr Liu. In particular, ASIC is said to have focussed on possible criminal offences arising from:

(a)   undisclosed payments (approximately $120,000.00) that Mr Liu is alleged to have received directly from Global Consultants and Services Ltd ("GCSL"), another company involved in the Scheme;

(b)   undisclosed payments (approximately $240,000.00) that Mr Liu is alleged to have received from AAM that were funded by GCSL; and

(c)   statements that Mr Liu included in the PDS for ASF and in a response to a questionnaire.

1. In her judgment at [23], her Honour found:

"In January 2011, ASIC entered into discussions with Mr Liu's solicitors about a possible guilty plea to charges of contraventions of the Corporations Act (Cth). To date ASIC has been unable to reach an agreement with Mr Liu in this respect and is therefore focusing on finalising its investigations. The negotiations stalled in July 2011 and recommenced in May 2012. It is important to note that the settlement negotiations have not been finalised as yet. To date no similar proceedings to those involving Mr Richard have been commenced in relation to Mr Liu."

1. To an extent Mr Liu disputes this characterisation of his dealings with ASIC in 2011 and 2012.

The proceedings

1. On 21 October 2009, Fairfax published two articles in The Sydney Morning Herald concerning ASIC's investigation into the ASF. The articles referred to both Mr Richard and Mr Liu.

1. Mr Liu alleges that he was defamed in both articles. In 2010 he commenced proceedings against Fairfax. In his further amended statement of claim he pleads a number of imputations arising out of both articles. Paragraph 4 particularised three imputations said to arise from the first publication, as follows:

"(a)   The plaintiff was the subject of criminal charges, filed against him by ASIC, in October 2009;

(b)   the plaintiff behaved in such a way as to warrant ASIC filing charges against him in the Equities [sic] Division of the NSW Supreme Court in October 2009; and

(c)   the plaintiff was suspected by ASIC of running a Ponzi scheme."

1. Paragraph 6 particularised two imputations as arising from the second publication, as follows:

"(a)   The plaintiff was the subject of criminal charges, filed against him by ASIC, in October 2009;

(b)   the plaintiff behaved in such a way as to warrant ASIC filing charges against him in the equities [sic] division of the NSW Supreme Court in October 2009."

1. Paragraphs 10 and 11 of the further amended defence plead that the imputations in subparagraphs 4(b), 4(c) and 6(b) were substantially true (s 25 of the Defamation Act 2005). Further, paragraphs 12 and 13 of the defence plead a defence of "contextual truth"; i.e. that the publications carried additional contextual imputations concerning Mr Liu that were substantially true, and that the pleaded defamatory imputations do not further harm his reputation. A number of particulars are provided of both the defence of substantial truth ("justification") and contextual truth.

1. For present purposes, it suffices to note that both the defence of justification and the contextual imputations pleaded by the defendant raise questions as to whether or not ASIC suspected, or believed on reasonable grounds, that the plaintiff had engaged in various forms of conduct contrary to the Corporations Act.

1. In April 2012 Mr Liu's solicitors provided to Fairfax's solicitors an amended supplementary list of documents which maintained a claim of privilege over certain documents described as "documents passing between the plaintiff and ASIC". In July 2012 Mr Liu's solicitors served a further supplementary list of documents which again listed as a class of privileged documents "documents passing between the plaintiff and ASIC" and asserted that they were the subject of "without prejudice privilege".

1. On 19 July 2012, the matter came before Harrison AsJ. Fairfax applied for an order requiring that Mr Liu produce those documents for inspection. It was this application that her Honour determined.

Her Honour's judgment

1. Her Honour identified the documents the subject of Fairfax's application for production as falling within two groups, so-called Group A documents and Group B documents.

1. Group A documents consisted of correspondence passing between ASIC and Mr Liu's legal representatives. They are to be found in Confidential Exhibits RRG-4 and RRG-5 to an affidavit of Rebekah Giles sworn 18 July 2012.

1. Group B documents were documents that were supplied by ASIC during the course of the negotiations, but not documents which comprised or referred to the negotiations themselves. These documents are listed in Confidential Annexure A to an affidavit of Ms Giles sworn 18 June 2012. These documents were an attachment to a letter sent by ASIC to Mr Liu's solicitor on 28 January 2011 (being Confidential Exhibit RRG-5) which constituted the opening communication between ASIC and Mr Liu. I will refer to aspects of this material further below. In doing so I have attempted to maintain a balance between setting out a proper basis for my findings, and preserving the confidential nature of the material the subject of this appeal.

1. Her Honour noted that the obligation to produce documents for inspection set out in r 21.5(2)(a) specifically excluded an obligation to make available "privileged documents". "Privileged documents" is defined in the dictionary to the UCPR as being a document that contains "privileged information" which in turn is defined as "information to which s 131 of the Evidence Act 1995 applies". (Section 131A of the Evidence Act appears to have a similar effect.)

1. Her Honour identified the provisions of s 131 relevant to the appeal as ss 131(1), (2)(i), (5)(a), (b) and (c) which provide:

"Exclusion of evidence of settlement negotiations

(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.

(2)   Subsection (1) does not apply if:

...

(i)   making the communication, or preparing the document, affects a right of a person, or ...

...

(5)   In this section:

(a)   a reference to a dispute is a reference to a dispute of a kind in respect of which relief may be given in an Australian or overseas proceeding, and

(b)   a reference to an attempt to negotiate the settlement of a dispute does not include a reference to an attempt to negotiate the settlement of a criminal proceeding or an anticipated criminal proceeding, and

(c)   a reference to a communication made by a person in dispute includes a reference to a communication made by an employee or agent of such a person, ..."

1. Her Honour found that there was a dispute between ASIC and Mr Liu, namely a dispute concerning "the propriety of his conduct in relation to the entities" that I have referred to above (Harrison AsJ judgment at [41]). Nevertheless, her Honour concluded that the communications were rendered inapplicable by the operation of s 131(1) and (5)(b) because "the documents are properly characterised as an attempt to negotiate the settlement of an anticipated criminal proceeding" (Harrison AsJ judgment at [52]). This finding is the subject of challenge by grounds one to four of Mr Liu's appeal.

1. Her Honour also found that that s 131(2)(i) precluded Mr Liu's claim to resist production of the documents (Harrison AsJ judgment at [57]). This finding is the subject of challenge by ground five of Mr Liu's appeal.

1. Further, on the appeal Fairfax raised two contentions concerning the scope of the operation of s 131(1) which, if accepted, would in the case of the first contention affect significantly Mr Liu's claim and, in the case of the second contention, be a complete answer to his claim. I will address those contentions first.

Fairfax's first contention: Is sub-section 131(1) limited to only excluding admissions?

1. Senior Counsel for Fairfax, Mr Blackburn SC, submitted that her Honour's orders could be upheld, in part or in whole, on the basis that on its proper construction s 131(1) only operates to preclude the adducing of evidence (and consequential production of material) concerning admissions made during the course of settlement discussions and not other statements especially any assertions made by ASIC about Mr Liu's conduct. The forensic significance of this submission was that Fairfax seeks to obtain any material included within the communications which contain assertions by ASIC as to breaches of the law by Mr Liu. Fairfax seeks that material as evidence that ASIC held the opinion referred to in the imputations pleaded by Mr Liu and the contextual imputations pleaded by Fairfax.

1. Mr Blackburn SC's submissions in support of his contention that s 131(1) is only limited to excluding admissions made by a party to the settlement discussions had two steps. First, he contends that was the position at common law. Second, he contends that nothing in the Evidence Act reveals any intention to depart from that position.

1. Mr Blackburn SC pointed to the following passage from the High Court's decision in Field v Commissioner for Railways (NSW) [1957] HCA 92; 99 CLR 285 at 291-292, which described the operation and rationale of the privilege as follows:

"As a matter of policy the law has long excluded from evidence admissions by words or conduct made by parties in the course of negotiations to settle litigation. The purpose is to enable parties engaged in an attempt to compromise litigation to communicate with one another freely and without the embarrassment which the liability of their communications to be put in evidence subsequently might impose upon them. The law relieves them of this embarrassment so that their negotiations to avoid litigation or to settle it may go on unhampered. This form of privilege, however, is directed against the admission in evidence of express or implied admissions. It covers admissions by words or conduct. For example, neither party can use the readiness of the other to negotiate as an implied admission. It is not concerned with objective facts which may be ascertained during the course of negotiations. These may be proved by direct evidence. But it is concerned with the use of the negotiations or what is said in the course of them as evidence by way of admission." (emphasis added)

1. In Field, an injured plaintiff was examined by medical specialists following the instigation of negotiations for settlement between his solicitors and the Commissioner for Railways. The High Court found that statements made by the plaintiff to the doctor as to how the accident occurred which gave rise to his injuries were "not reasonably incidental to the negotiations" and hence the plaintiff could be cross examined on what he had stated (at 293).

1. The outcome in Field is not an example of the principle Mr Blackburn SC asserts. The statements made by the injured plaintiff to the doctor were "admissions" but they were found not to be within the scope of the settlement negotiations. The Court stated the test for determining that scope "depends upon what formed part of the negotiations for the settlement of the action and what was reasonably incidental thereto" (at 292).

1. Mr Blackburn SC also referred me to the judgment of Hill J in Quad Consulting Pty Ltd v David R Bleakley & Associates Pty Ltd (1990) 27 FCR 86. In Quad it was alleged that during "without prejudice" discussions between the respondent and representatives of MLC the respondent had made misleading and deceptive representations to MLC concerning the applicant. The applicant issued a subpoena to MLC seeking copies of its notes of the meeting. Hill J referred to the passage from Field cited above and stated that "[n]othing in that passage suggests that the privilege extends to every word uttered during the course of settlement negotiations" (at 90) and later (at 91.5) "... that the rule applies to the use of statements or offers by way of admission and not by way of assertion." His Honour concluded that the common law rule did not render inadmissible the proof of misleading conduct in settlement negotiations as that would not involve the adducing of evidence of the relevant statement as an "admission" (at 93). This is reflected in the form of production that his Honour ordered namely "... only so much of those notes as concern what was said on behalf of the respondent as to matters touching upon the representations alleged to have been made and not as to matters going to admissions against interest" (at 93).

1. Counsel for Liu, Mr Richardson, disputed that the common law privilege was confined in the manner suggested by Mr Blackburn SC. He referred to a decision of the Full Court of the Supreme Court of South Australia in Yokogawa Australia Pty Ltd v Alstom Power Ltd [2009] SASC 377; 262 ALR 738, especially at [97]-[100] per Duggan J, with whom Sulan and Kourakis JJ agreed. South Australia has not enacted the uniform Evidence Act.

1. In Yokogawa at [97] to [99], Duggan J referred to competing statements in English decisions as to whether the scope of "with prejudice" privilege was restricted to admissions made in the course of settlement negotiations (Muller v Linsley [1996] PNLR 74 at 79 per Hoffman LJ; Bradford v Bingley plc v Rashid [2006] 1 WLR 2066; 4 All ER 705; cf Ofulue v Bossert [2009] 2 WLR 749; 3 All ER 93 at [71] per Lord Rodger and at [72] per Lord Neuberger).

1. Duggan J concluded at [100]:

"Many of the cases on without prejudice privilege are concerned with admissions, no doubt because this is most often the basis for admission of the communications into evidence. However, the difficulties of confining the principle to such cases, particularly in relation to the production of documents, is plainly to be seen. The restrictive view of the privilege expressed in Muller's case has not been followed in Australia and, for the reasons referred to in the above extracts from the case of Ofulue, I do not think it would be appropriate to confine it in this way."(emphasis added)

1. There is considerable room for argument as to whether his Honour was correct in stating that the restrictive view of the scope of the "without prejudice" privilege at common law expressed by Lord Hoffman in Muller's case has not been followed in Australia. The passage from Field extracted above would suggest that the scope of the privilege should not rise above its rationale albeit it covers communications and documents that are "reasonably incidental to the negotiations". Certainly Hill J's analysis in Quad restricted the principle to admissions. The tension between Yokogawa and Quad is highlighted by the passage extracted above at [50] in which Duggan J emphasised the practical difficulty in ordering production of documents if the privilege is restricted to admissions and related statements. The order for production made by Hill J in Quad reflected the very distinction that Duggan J considered difficult to maintain (see [47]).

1. I was also referred to a number of decisions post-dating the enactment of the Evidence Act and its equivalents.

1. Mr Blackburn SC referred me to the judgment of Beaumont J in Airtourer Co-operative Ltd v Millicer Aircraft Industries Pty Ltd [2004] FCA 948. In Airtourer his Honour heard a security for costs application in which the poor financial position of the respondent to the applicant was sought to be established by a statement made during settlement discussions. The parties had engaged in an attempt to discuss a commercial resolution of the proceedings. At one point in the discussions, the respondent pointed to the effect of an order for costs upon the applicant if it lost the proceedings. In response its principal stated that he was not concerned as the applicant had no funds. Beaumont J analysed this discussion as involving two discrete statements, namely (1) there was an attempt by the respondents to compromise the principal proceedings at a figure arrived at as a commercial settlement and (2) a statement by the applicant that because it was insolvent it would not consider such a compromise (Airtourer at [30]).

1. His Honour found that, under common law, the first statement would be privileged in the principal proceedings, but the second would not especially so in an application for security for costs that his Honour was considering (Airtourer at [31]). Beaumont J relied on the discussion in Field, to which I have referred (at [44]). After discussing Field his Honour concluded:

"[35]   In my opinion, applying common law principles, the statements made by Mr Knox as to the solvency of the applicant were not admissions; rather they were objective facts which were ascertained during the course of the negotiations.

[36] The present question is, of course, now governed by s 131(1)(a) of the Act. However, for the reasons given by Young J and by Austin J, there appears to be no basis for assuming, in enacting the Act, a departure from the common law principles considered in Field. I propose to receive the evidence."

1. Thus in Airtourer at [35] Beaumont J analysed the scope of the privilege by reference to whether the various statements made were admissions. With respect the statement made by the principal of the applicant clearly was an admission and was sought to be relied on as such. In any event Beaumont J referred to s 131(1)(a) and stated that there was "no basis for assuming" a departure from common law principles. I return to consider whether there is such a basis below.

1. Beaumont J's reference in the above passage from Airtourer to the decision of Young J was to his Honour's judgment in GPI Leisure Corp Ltd (in liq) v Yuill (1997) 42 NSWLR 225. In GPI Leisure, Young J had construed the necessity for there to be a "connection" in s 131(1) with an attempt to negotiate the settlement of a dispute as requiring a "direct connection". In doing so his Honour referred to the statement in Field that the scope of the privilege "depends upon what formed part of the negotiations for a settlement of the action and what was reasonably incidental thereto" (at p 226). However, Young J did not state that s 131(1)(a) was restricted to only excluding admissions.

1. Beaumont J's reference to Austin J was to his Honour's judgment in Collins Thomson Pty Ltd (in liq) v Clayton [2002] NSWSC 366. Austin J concluded that a letter which responded to some attempts to negotiate a settlement by rejecting the proposition out of hand and then advancing various assertions as to the likely outcome of the proceedings, did not have a "direct" connection with an "attempt to settle a dispute" sufficient to fall within s 131(1) (at [12]).

1. To an extent, Beaumont J's decision in Airtourer assists Mr Blackburn SC's submission in that the passage in Airtourer at [35] directs attention to whether the communications in question contain admissions. However it has its limits. Beaumont J was not referred to the legislative history of the provision. The outcome in Airtourer appears to only be supportable on the basis that the statement made by the principal of the applicant in those proceedings about the applicant's insolvency was not a statement that had a sufficient connection to an attempt to negotiate a settlement of a dispute to fall within s 131(1).

1. GPI Leisure and Collins Thomson are examples of cases in which s 131(1) was interpreted in a manner that is informed by that part of Field which kept the scope of the negotiations within relatively narrow confines. They are not support for a proposition that s 131(1) is confined only to excluding admissions, and not assertions.

1. In written submissions provided after the hearing Mr Blackburn SC referred to various cases that have addressed s 131(1) and considered whether or not it extends the common law position (Biovision 2020 Pty Ltd v CGU Insurance Ltd [2010] VSC 589 at [32] ff; First Capital Partners Pty Ltd v Sylvatech Ltd [2004] NSWSC 846; 186 FLR 266; Alexander v Australian Community Pharmacy Authority (No 2) [2010] FCA 467 at [11] ff per Tracey J; CJ Redman Constructions Pty Ltd v Tarnap Pty Ltd [2006] NSWSC 173 at [6] ff per Campbell J; Silver Fox Co Pty Ltd v Lenard's Pty Ltd (No 3) [2004] FCA 1570; 214 ALR 621; Australian Competition and Consumer Commission v Allphones Retail Pty Ltd (No 3) [2009] FCA 1075; 259 ALR 541).

1. A number of these cases accept the continuing relevance of Field (eg Alexander at [11]; Silver Fox at [33]), but only in the sense accepted in GPI Leisure and Collins Thomson of narrowly interpreting the scope of communications "made in connection with an attempt to settle the dispute".

1. With one exception none of the cases contain any suggestion that s 131(1) is limited to only protecting admissions. The exception is the judgment of Campbell J in CJ Redman. Over objection his Honour allowed the tender of a letter marked without prejudice. It is necessary to set out his Honour's reasoning in full (at [5] to [8]):

"[5]   It will be apparent that the letter alludes to there being settlement discussions on foot, but gives no detail of those settlement discussions, and, most importantly, does not involve the writer of the letter either making an admission on behalf of his client concerning the matter of the settlement discussion, or attributing any admission to the recipient of the letter. While the letter alludes to it having been the addressee of the letter who had 'indicated the possibility of a global resolution to all outstanding matters', I do not see that as involving any admission - it is possible for a person to want to resolve a dispute which he or she regards as totally unmeritorious.

[6]   The letter is one which one would not be within the rationale of the common law concerning legal professional privilege. That rationale is that people should be free to explore settlement of disputes, and make admissions in the course of those discussions, safe in the knowledge that any admissions which they make will not be tendered against them later in Court, if the negotiations break down. The wording of s 131(1) is capable, on one reading of the expression 'in connection with', of extending wider than did the common law. There is, in one sense of it, a connection between this letter and the settlement negotiations, because the letter talks about the settlement negotiations.

[7] ... In the particular context of s 131, it seems to me that the expression 'in connection with' does not extend to any connection of any kind whatever. Rather, the expression needs to be construed by reference to the purpose of the without prejudice privilege. I see no basis for concluding that the rationale of the without prejudice privilege under s 131 of the Evidence Act is any different to the common law. There are some exceptions to the privilege, in s 131(2), which go wider than the exceptions to the privilege at common law, but I see no basis for concluding that the fundamental prohibition contained in s 131(1) has any different rationale to the common law on the topics.

[8] Reading s 131(1) in that way, there is not here the relevant type of connection between the letter and any attempt to negotiate a settlement of the dispute. For that reason I overrule the objection." (emphasis added)

1. Thus Campbell J did not consider that the rationale underlying s 131(1) was any different to the common law. Further his Honour appears to have treated the absence of any admission being made or attributed as determinative of whether the relevant form of connection between the communication and an attempt to settle the dispute had been established.

1. The end result is that there are two post Evidence Act first instance decisions, CJ Redman and Airtourer, which provide substantial support for Mr Blackburn SC's proposition that s 131(1) is directed to excluding admissions and related communications. A number of other decisions support a different proposition, namely that that part of Field which confines the common law rule of exclusion strictly to communications which form part of the negotiations or which are necessarily incidental thereto still informs the interpretation of s 131(1).

1. Finally in reviewing the case I should note that consistent with his professional duties Mr Blackburn SC (and Mr Richardson) referred me to a passage from the judgment of the Full Court of the Federal Court in Brown v Federal Commission of Taxation [2002] FCA 318; 119 FCR 269 at [99] to the effect that s 131(1)(a) appears to extend the scope of the common law privilege. However the question is whether that appearance reflects reality and, if so, how far is it extended? To that I will now turn.

1. Nothing in the text of s 131 supports the proposition submitted by Mr Blackburn SC. Instead, the structure of the provision is to define the scope of the privilege in s 131(1) and (5), and then to build in exceptions in s 131(2). On its face, s 131(1) confers the protection on the entirety of the communications made between the persons in dispute, provided that it answers the description as being made "in connection with an attempt to negotiate a settlement" of that dispute. While this may import an aspect of Field as discussed in GPI Leisure, it does not suggest any restriction of the exclusion to admissions.

1. The structure of the section is best illustrated by considering the outcome found by Hill J in Quad. A misleading statement of, say, fact in settlement discussions that induced a party to enter into an agreement would appear to be made "in connection with an attempt to negotiate" a settlement to the dispute. However, being per se actionable the misleading statement would affect a right (s 131(2)(i)). As I will explain, s 131(2)(i) was specifically included to pick up the very type of case considered in Quad. It is also further addressed below at [118] to [128]. Why then should s 131(1) be narrowly interpreted to accommodate a case such as this if it is addressed by an exception in s 131(2)?

1. The reports of the Australian Law Reform Commission ("ALRC") upon which the evidence acts are based are strongly against Mr Blackburn SC's contention. Sub-section 3(3) of the Evidence Act provides:

"Without limiting the effect of, and subject to, section 34 of the Interpretation Act 1987, material that may be used in the interpretation of a provision of this Act includes any relevant report of a Law Reform Commission laid before either House of the Parliament of the Commonwealth before the provision was enacted."

1. The ALRC published two relevant reports on evidence, an interim report in 1985 (ALRC 26) and a final report in 1987 (ALRC 38). Both of the reports were tabled in the Commonwealth Parliament, the former on 21 August 1985 and the latter on 5 June 1987. On numerous occasions the High Court has considered these reports in construing the various Evidence Acts (see for example Aytugrul v R [2012] HCA 15; 86 ALJR 474 at [47] and [73] per Heydon J; Evans v R [2007] HCA 59; 235 CLR 521 at [64] per Kirby J, and especially at [188] ff per Heydon J; Em v R [2007] HCA 46; 232 CLR 67 at [51] per Gleeson CJ and Heydon J, at [108] per Gummow and Hayne JJ, and at [183] per Kirby J; Cornwell v R [2007] HCA 12; 231 CLR 260 at [31], [58]-[59] and [134] per Gleeson CJ, Gummow, Heydon and Crennan JJ).

1. Chapter 19 of ALRC 26 sets out the ALRC's views on the difficulties with the existing forms of privileges which relevantly included what it described as "without prejudice negotiations". In ALRC at [447] the Commission noted that there had been judicial comment on the various misunderstandings concerning "without prejudice" privilege. It stated at [449]:

"The Protection is too Narrow. Two points may be raised:

- The 'Reasonably Incidental' Requirement. It was argued successfully in Field's case that the plaintiff's statement to the defendant's doctor as to how he was injured was not reasonably incidental to his examination for the purpose of settlement negotiation. This means that care must be taken over what is said or written. It will be dangerous to make any admissions or concessions as is often done for the purpose of showing 'good faith and for smoothing the path to settlement' [citation omitted]. Free and frank discussion becomes dangerous. Parties should carefully consider everything they wish to say. Nice arguments are open to any party that wishes to use what was said in the discussion.

- Limits to Dispute and Parties. The authorities that the protection applies only in the same action or dispute between the same parties may be criticised as too limiting if the rationale of the law is to encourage settlement [citation omitted]." (emphasis in original)

1. This passage suggests that, rightly or wrongly, the ALRC perceived Field to be problematic. It was said to leave open "[n]ice arguments" as to what was covered and what was not.

1. Chapter 38 of ALRC 26 set out the ALRC proposals in respect of privilege which were encompassed in a draft Bill accompanying the report. In Chapter 38 at [890] the ALRC discussed the various rationales for the privilege. It concluded that:

"The public interest in the settlement of disputes is the most satisfactory rationale and is used as the basis for the proposals".

1. The ALRC continued at [891]:

"General Proposals. In view of the desirability of encouraging settlements, it is proposed that evidence may not be given of the content of communications made in an attempt to settle a civil dispute (including where a party's agent or a mediator is involved in the negotiations). Proposals are advanced, however, to meet deficiencies in the law. The general rule of exclusion extends to materials produced for the negotiations. The proposal in terms prevents evidence being 'given'. This formula is to be preferred to other options - e,g, not admissible. The rationale requires non-disclosure by the parties to the negotiations unless all of them consent. The 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." (emphasis added)

1. What are the "deficiencies in the law" that the ALRC's proposal were advanced to addressing? They were set out in ALRC 26 at [447] extracted above; ie the perceived narrowness of the privilege and uncertainty of its operation of which the facts in Field were said to be an example. Moreover, in stating that the rationale of the ALRC's proposal was the "public interest in the settlement of disputes", the ALRC was arguably pitching the matter wider than the common law as stated in Field at p 291 which referred to the policy of the law as excluding "admissions by words or conduct made by parties in the course of negotiations to settle litigation".

1. The proposal being referred to in the above extracts from ALRC 26 was set out in s 111 of the draft Bill that accompanied the report. Subsection 111(1) provided:

"Evidence may not be given of

(a)   the content of the communication made

(i)   between persons in dispute; or

(ii)   between one or more persons in dispute and a third party, being a communication made in connection with an attempt to settle the dispute; or

(b)   the contents of a document that has been prepared in connection with an attempt to settle the dispute, whether or not the document has been delivered."

1. Consistent with the structure of the current section, subsection 111(2) of the draft Bill set out various exceptions which included a proposed sub-section 111(2)(g) which provided that sub-section 111(1) does not apply where "the making of the communication or document affects a right of, or gives rise to right of action by, a person". This exception deals with the circumstances described in Quad that I have referred to above. It picked up in the last part of the quote from ALRC 26 at [891] extracted in [73] (i.e. "not apply to communications which are of a ... tortious nature ...").

1. I refer below to aspects of ALRC 38 and the revised draft Bill that accompanied that report for the purpose of considering other issues raised by this appeal. Suffice to state that nothing in ALRC 38 or that draft Bill affects this issue.

1. In my view, the history and origins of s 131 as revealed by ALRC 26 confirm what is suggested by the text and structure of s 131, namely that it was enacted in an attempt to remove what was perceived to be uncertainty as to the scope of the "without prejudice" privilege. It was intended to embrace all communications which answered the description of being in connection with an attempt to negotiate the settlement of the dispute subject to certain specified exceptions.

1. Neither the words of the section nor its legislative origins support the proposition that s 131(1) only operates to exclude admissions made by a party to such communication whether by words or conduct, express or implied. To the extent that Airtourer and CJ Redman decided to the contrary then I respectfully disagree. It is not necessary nor appropriate for me to state whether I consider that the other decisions that I have referred to above which construe s 131(1) in a manner informed by Field so as to required a direct or close connection between the communication and the attempt to settle the dispute are correct or not. Such an approach may still will be correct even in light of the ALRC's misgivings about Field.

1. I reject Fairfax's first contention.

Fairfax's Second Contention: Parties to the Dispute

1. Although not the subject of a formal Notice of Contention, Mr Blackburn SC also contended that the phrase "persons in dispute" in s 131(1) is confined to persons in dispute in the litigation in which the issue arises. Mr Blackburn SC referred to the judgment of Kirby J in Moran v Moran (No 3) [2000] NSWSC 151; Aust Torts Reports 81-556, at [15], where his Honour, after referring to the general statement of policy in ALRC 26 at [891] which informed the enactment of s 131, stated:

"It is difficult to see how that policy [of encouraging settlements] would be placed in jeopardy were the phrase 'persons in dispute' confined to persons in dispute in the litigation before this Court, since the other litigation has now been concluded. Nonetheless, one can perhaps imagine that, in respect of litigation which is not yet complete, it may be important to preserve the confidential nature of negotiations, which had been undertaken, but which had been unsuccessful."

1. These comments were obiter in that his Honour's decision to admit certain documents arose from a finding that s 131(2)(g) was engaged.

1. The contrary view was taken by Campbell J in First Capital Partners v Sylvatech at [28] to [34], and Hodgson CJ in Eq in Lawcover Pty Limited v The Commissioner of Police for New South Wales [1997] NSWSC 590 at p 11.

1. As noted by Campbell J in First Capital at [28], there is nothing in the text of s 131(1) which seeks to limit the persons that are in dispute to those persons who are in dispute in the litigation in which the question of the applicability of s 131 arises. Further, the reference to negotiate a settlement of "a dispute" in subsection 131(1)(b) points to the contrary.

1. With respect to Kirby J, the policy that informed the enactment of s 131(1) as enunciated by the ALRC would be placed in jeopardy if persons other than those in dispute are able to peer into the exchanges that occurred in the course of settlement negotiations. It is not uncommon that one transaction or set of events can give rise to multiple proceedings involving different parties. The encouragement of the settlement discussions in one piece of litigation would be undermined if one of those parties appreciated that any privilege that would otherwise attach to their confidential settlement discussions would be lost in any other litigation in which they, or a related party, became embroiled in.

1. In Chapter 19 of ALRC 26 at [449] (extracted at [70] above), the ALRC appeared to criticise the authorities limiting the operation of the privilege to "the same action or dispute between the same parties". This appears to be one of the "deficiencies in the law" that were referred to in ALRC 26 at [891] that were addressed in s 111 of the draft bill accompanying ALRC 26. This aspect of s 111 is not relevantly different to s 131. This points strongly against reading down s 131(1) in the manner suggested by Fairfax.

1. I reject Fairfax's second contention.

Grounds two, three and four of Mr Liu's Appeal - Connection with criminal proceedings

1. Grounds one and six of Mr Liu's appeal make a composite complaint of error on the part of her Honour without further elaboration. It is not necessary to address them separately to grounds two to five.

1. Ground two of Mr Liu's appeal alleges that her Honour erred in concluding that criminal proceedings were relevantly "anticipated" at the time of the communications that were the subject of a claim for exemption from production. He submits that the fact that criminal proceedings were or might have been in contemplation by ASIC does not make them reasonably probable or likely. He invited the Court to consider the documents individually against the background of ASIC's function and powers.

1. Grounds three and four contend that, to the extent that any of the documents could be characterised as communications made in connection with an attempt to settle a dispute that involved an existing or anticipated criminal proceeding and a civil proceeding then, as a matter of construction, that would suffice to satisfy s 131(1) but not s 131(5)(b). In effect this amounted to a contention that subparagraph 5(b) only operated to exclude communications concerning disputes which could only be characterised as an attempt to settle a criminal proceeding or an anticipated criminal proceeding.

1. To address these arguments it is first necessary to describe the documents further bearing in mind the admonition noted at [36] about the need to preserve their confidentiality.

1. The documents were created in two distinct time periods, namely January to July 2011 and May to July 2012. The documents from 2011 commence with RRG-5, which is a letter which I have referred to above and which encloses the Group B documents. These documents do not contain any reference whatsoever to the pursuit of civil remedies. The only forms of contraventions being discussed are criminal offences.

1. Mr Richardson accepted that they include reasonably emphatic statements by ASIC about the course that would be taken in relation to the pursuit of criminal charges. Nevertheless, he contends that her Honour erred in characterising these document as involving an attempt to settle anticipated criminal proceedings.

1. First Mr Richardson pointed to the fact that some of the provisions referred to by ASIC in the correspondence give rise to civil remedies as well as criminal sanctions. Without descending too much into the detail of the communications, in my view the context in which they were referred to makes it clear that only criminal sanctions were being considered at that point.

1. Second, Mr Richardson referred to the fact that the body with the relevant responsibility for the prosecution of offences against Commonwealth laws, including the Corporations Act, was the Commonwealth Director of Public Prosecutions (see Director of Public Prosecutions Act 1983 (Cth)) and not ASIC. This is correct, however ASIC has the primary role for the investigation of potential breaches, including criminal breaches, of the Corporations Act. It has a significant input into the approach that is taken by the Director in the exercise of his prosecutorial functions. Moreover, the tone and effect of the correspondence reveal that ASIC asserts for itself a very significant role in bringing prosecutions. I see no basis for second-guessing the statements made in the material concerning ASIC's position. Further, there is reference in the material to ASIC to liaising with the Director's office.

1. Finally, Mr Richardson pointed to the fact that charges have not to date in fact been laid. He also calls in aid what is suggested by the documents from 2012 to which I will refer. There is some force in that but it does not detract from what was clearly stated by ASIC in its correspondence in 2011.

1. The test stated by her Honour as to whether proceedings were "anticipated" for the purposes of s 131(5)(b) was whether there was a "reasonable probability or likelihood" of such proceedings being commenced (Harrison AsJ judgment at [51]). Mr Richardson accepted that test as appropriate but submitted that her Honour misapplied it. I do not agree. To the extent that her Honour's conclusion that I have referred to above at [39] concerned documents created in 2011, then I am not satisfied that her Honour erred in concluding that there were "anticipated" criminal proceedings. Accordingly I reject ground two so far as it concerns those documents.

1. I will return to consider grounds three and four so far as they concern the 2011 documents.

1. The 2012 documents are significantly different to the 2011 documents both in tone and effect. I am able to reveal that they concern negotiations over the form of an enforceable undertaking acceptable to ASIC.

1. Enforceable undertakings are provided for in s 93A and s 93AA of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"). Section 93AA provides:

"Enforcement of undertakings

(1)   ASIC may accept a written undertaking given by a person in connection with a matter in relation to which ASIC has a function or power under this Act.

(2)   The person may withdraw or vary the undertaking at any time, but only with ASIC's consent.

(3)   If ASIC considers that the person who gave the undertaking has breached any of its terms, ASIC may apply to the Court for an order under subsection (4).

(4)   If the Court is satisfied that the person has breached a term of the undertaking, the Court may make all or any of the following orders:

(a)   an order directing the person to comply with that term of the undertaking;

(b)   an order directing the person to pay to the Commonwealth an amount up to the amount of any financial benefit that the person has obtained directly or indirectly and that is reasonably attributable to the breach;

(c)   any order that the Court considers appropriate directing the person to compensate any other person who has suffered loss or damage as a result of the breach;

(d)   any other order that the Court considers appropriate."

1. Section 93A makes similar provisions for enforceable undertakings by the responsible entity for registered managed investment schemes.

1. In evidence before her Honour was Regulatory Guide 100, issued by ASIC concerning enforceable undertakings. The Regulatory Guide describes the enforceable undertaking as "an administrative settlement we may accept as an alternative to civil court action or certain administrative actions". Later, it states that ASIC will not accept an enforceable undertaking "instead of commencing criminal proceedings against a party".

1. The effect of the correspondence is that ASIC appears to regard the negotiation of an acceptable enforceable undertaking as an alternative to it taking some form of action which is not specified. However, given the content of the proposed enforceable undertaking and the regulatory guidelines to which I have referred, it follows that ASIC was considering an enforceable undertaking as an alternative to the instigation of some form of civil enforcement proceedings.

1. In my view, it follows from this that the 2012 correspondence, which was only concerned with whether a suitable form of enforceable undertaking could be negotiated, did not constitute correspondence made between persons in an attempt to negotiate the settlement of a criminal proceeding or an anticipated criminal proceeding. There is nothing in the material or elsewhere to suggest that ASIC departed from the statement in Regulatory Guide 100 that it would not accept an enforceable undertaking as an alternative to commencing a criminal proceeding.

1. It is clear that in some cases ASIC may pursue both criminal action and seek an enforceable undertaking from the person who is prosecuted. Mr Richard appears to be an example of this. However, as I understand the effect of the Regulatory Guide, ASIC's consideration of the appropriate form of enforceable undertaking is a matter separate from the approach to be taken to criminal proceedings. Thus, there may be parallel sets of communication. On one hand, communications between the prosecutor and the defendant about the course of the criminal proceedings and on the other, between ASIC and the defendant concerning putting in place an appropriate enforceable undertaking to avoid civil enforcement action and protect the public.

1. In light of this analysis of the material, it is necessary to consider the proper construction of s 131(5)(b). I have summarised the submission made on behalf of Mr Liu at [90] above. Mr Blackburn SC put the reverse construction. He submitted that where the matter in dispute is whether a particular person has breached a regulatory provision or engaged in conduct which has both criminal and civil consequences, then that in itself is sufficient to warrant the exclusion of all communications about that dispute from the operation of s 131(1) by virtue of s 131(5)(b). Thus, with the correspondence created in 2012, he submits that, if the allegation(s) being made by ASIC in the material amounted to an offence, that would be sufficient to engage s 131(5)(b).

1. Unfortunately for Mr Blackburn SC, the legislative history of s 131 reveals that s 131(5)(b) was meant to be confined solely to discussions about the resolution of criminal proceedings and not wider disputes of which criminal proceedings were a contemplated or even likely outcome. There is textual support for this but it is subtle and needs explanation by reference to the ALRC's reports.

1. I have referred above to that part of ALRC 26 at [891] which described the proposal that became s 131 as the desirability of encouraging settlements by excluding the "content of communications made in an attempt to settle a civil dispute". ALRC 26 at [894] stated:

"Negotiations Relating to Criminal Charges. No proposals are advanced on this topic. It is intimately connected to the topic of plea bargaining. The Commission has already made recommendations urging a need for openness in plea bargaining."

1. The draft Bill that accompanied ALRC 26 simply referred to "persons in dispute", but did not define that phrase further. It was clear that the ALRC intended that negotiations concerning criminal charges were not protected by s 131(1) but its thinking was not more developed than that at that stage.

1. This led to various submissions being made to the ALRC before it released ALRC 38. ALRC 38 at [223] stated as follows (citations omitted):

"223.  Responses and recommendations. The proposals were accepted were accepted in principle and should be implemented subject to the following modifications.

(a)   Limit to justiciable disputes. Literally, the provision in the interim legislation applied to any dispute whether it was likely to result in court proceedings or not (for example, a family argument about pushing toothpaste out from the middle of the tube). In practice this may not matter but the clause could be tightened to confine it to disputes in matters that are justiciable by courts in civil proceedings or administrative tribunals. The proposal should be limited in that way.

(b)   Matters triable in criminal proceedings. The proposal could apply to disputes that relate to matters triable in criminal proceedings. It had been thought that by using the term 'dispute' it would not be interpreted in this way. Whether this view was right or not, the issue has been raised that there are matters that can be tried in both civil and criminal proceedings and thus even if the term 'dispute' were interpreted as expected, it could apply to negotiations of criminal matters. Several options were considered.

(i)   One option would be to provide that the negotiation must be for the settlement of a dispute in which there were civil proceedings or in respect of which civil proceedings were reasonably anticipated. This option, however, is too limiting and inconsistent with the rationale of encouraging settlement.

(ii)   An alternative would be to provide that the rule of exclusion does not operate in respect of settlement negotiation of a dispute in respect of which criminal proceedings were pending or reasonably anticipated. This too would go too far in that it would deny the privilege to things said where there was the possibility of criminal proceedings. It would not, for example, be available in most personal injury dispute negotiations.

(iii)   The underlying policy concern is to encourage settlement negotiation between citizens who are locked in a dispute. What needs to be excluded from the protection of the privilege is the negotiation in respect of criminal proceedings which are current, pending or reasonably anticipated.

It is recommended that the third option be adopted." (emphasis added)

1. The amended draft Bill that accompanied ALRC 38 included in the equivalent of s 131, namely s 113 and a subsection (5) similar to that which was enacted. It provided:

"A reference in this section to

(a)   a dispute is a reference to a dispute of a kind in respect of which relief may be given in a legal or administrative proceeding;

(b)   an attempt to negotiate the settlement of a dispute does not include a reference to an attempt to negotiate the settlement of a criminal proceeding or an anticipated criminal proceeding; and

..."

1. The difference between the second and third options canvassed in ALRC 38 at [223](b)(ii) and (iii) is subtle but significant. With the second option the postulated, but rejected, rule of exclusion was in respect of settlement negotiations of a "dispute in respect of which criminal proceedings were pending or reasonably anticipated". With the third option the postulated and adopted rule of exclusion concerned negotiation "in respect of criminal proceedings which are current, pending or reasonably anticipated". This third option is reflected in the wording of s 131(5)(b).

1. The reference to "personal injury dispute negotiations" in ALRC 38 at [223](b)(ii) appears to be a reference to a circumstance where there is a dispute about whether a provision of road or industrial safety legislation has been contravened and such a contravention can give rise to a private action for damages as well as to criminal proceedings. If, for example, there was a "dispute" between an injured worker and their employer about whether such a provision was breached, and at the same time a criminal prosecution had been launched, then the settlement negotiations concerning the former claim were not meant to lose their protection under s 131(1) by reason of the existence of the latter proceedings.

1. Thus, in proposing the third option the ALRC envisaged that if there was a "dispute" about whether, say, one party had breached a provision which might have both civil and criminal consequences, and even if that meant that criminal proceedings were pending that would not bring the relevant communications within subsection 131(5)(b).

1. In the case of ASIC, if there was a "dispute" between ASIC and a person concerning a breach of a provision of the Corporations Act which had both civil and criminal consequences, the discussions between them would not fall outside the protection of s 131(5)(b) even if criminal proceedings were pending or reasonably anticipated. However, if the subject matter of the negotiation was the criminal proceedings themselves, being current, pending or reasonably anticipated, then negotiations over those proceedings or charges would fall within s 131(5)(b). These conclusions are broadly consistent with the submission made by Mr Richardson.

1. In light of this I return to the grounds of appeal on this point. In my view the documents created in 2011 were only referable to an attempt to negotiate the settlement of an anticipated criminal proceeding within the meaning of s 131(5)((b). Those documents are an example of the third option referred to in ALRC 38 at [223]. It follows that I reject grounds three and four of the appeal so far as they concern the documents created in 2011. Her Honour did not err in ordering their production.

1. However, I have come to a different conclusion in relation to the documents created in 2012. They are an example of documents falling within the first or perhaps the second option referred to in ALRC 38 at [223]. They cannot be characterised as an attempt to negotiate the settlement of an anticipated criminal proceeding and her Honour erred in finding that they were. I uphold grounds two, three and four of Mr Liu's appeal so far as they concern these documents.

Ground five - s 132(1)(i) - the making of a communication or the preparation of a document that "affects the right of ... a person"

1. In addressing Fairfax's reliance on s 131(2)(i), Harrison AsJ quoted from that part of ALRC 26 at [891] which I have extracted above at [73] which referred to the exclusion created by s131(1) as not applying 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."

1. Her Honour then quoted the judgment of Brereton J in Ryder v Frohlich [2006] NSWSC 1324 at [7] that the exception to the privilege created by s 131(2)(i) is "directed to communications which, of themselves, have legal consequences for the rights of parties". His Honour provided as an example of such communications "transactional communications" and accepted that a defamatory communication, even if uttered "without prejudice", might be such a communication as well.

1. Her Honour then reasoned as follows (at [56] to [57):

"The defendant submitted, and I agree, that there is no distinction between the principle that a defamatory statement is excluded from the protection of s 131(1) by virtue of s 131(2)(i), and the principle that the plaintiff cannot bring proceedings in defamation against the defendant, and then seek to invoke the protection of s 131(1) to prevent the production of material which directly affects the defendant's right to defend that claim. The defendant has sought to defend the claim by pleading truth.

I am satisfied that s 131(2)(i) precludes the plaintiff from claiming privilege over the documents."

1. This exception adverted to in the passage from ALRC 26 at [891] referred to by her Honour was reflected in s 111(2)(g) of the draft Bill accompanying ALRC 26. It exempted settlement negotiations where "the making of the communication or document affects a right of, or gives rise to a right of action by, a person".

1. The commentary in ALRC 38 on this provision (at [222] to [223]) did not address this exception. However, the equivalent provision in the draft Bill that accompanied that report, s 113(2)(f), was not relevantly different to the previous clause ("the making of a communication, or the preparation of a document, affects a right of a person"). The ALRC did not state why the phrase "gives rise to a right of action by a person" was dropped from the draft bill accompanying ALRC 26.

1. In my view, there is a clear distinction reflected in s 131(2)(i) between communications which, according to Brereton J, "of themselves have legal consequences for the rights of parties", and communications which only constitute evidence which are relevant to the establishment or denial of the rights of the parties. In broad terms, the former potentially fall within the exception created by s 131(2)(i), whereas the latter do not.

1. In Talbot v NRMA Ltd [2000] NSWSC 602 at [3], Hodgson CJ in Eq rejected a submission that the exception in s 121(3) of the Evidence Act was satisfied, stating:

"Mr Shand has referred me to s121(3) of the Evidence Act, which states that privilege would not prevent the producing of evidence of a communication or document which affects the rights of a person. In my opinion, that cannot mean a communication or document that is relevant to a right of a person because that would virtually eliminate the legal professional privilege as a ground for non-admission of evidence. In my opinion, that must mean a communication or document that affects in some fairly direct way what are the actual rights and perhaps also duties of a person."

1. Section 121(3) provides that Div 1 of Pt 3.10 of the Evidence Act, which concerns client legal privilege, "does not prevent the adducing of evidence of a communication or document that affects a right of a person". If anything, the exception provided for in s 131(2)(i) is even more restrictive in that it only concerns the circumstance where the "making the communication" or "preparing the document" affects a right of a person (cf Green v AMP Life Ltd [2005] NSWSC 95 at [29] per Campbell J). These words can be readily adapted to give effect to the statement made in ALRC 26 at [891] concerning acts of bankruptcy, defamatory statements, illegal threats, etc. For example, in the case of a defamatory statement, the making of such a communication affects a right of a person, namely the right of the person defamed to the enjoyment of their reputation. In contrast, communications passing between parties who are conducting settlement negotiations which only provide valuable evidence to vindicate or disprove the existence of a person's rights do not "affect" any of their rights in the sense that they do not alter, vary or interfere with them.

1. The context in which any consideration of s 131 arises is that the material that is sought to be adduced (or produced) must be first relevant in some sense to the determination of the rights of parties to litigation. Thus in a wide sense the material "affects" the parties' rights. However, as stated by Hodgson CJ in Talbot in the context of s 121(3), if the only link between the relevant communication or document and the rights of a person is evidentiary, then the exception created by s 131(2)(i) would swallow the rule created by s 131(1).

1. In [56] to [57] of her Honour's judgment, her Honour saw no distinction between the exclusion of a defamatory statement by the operation of s 131(2)(i) and the attempt by Mr Liu to invoke the protection of s 131(1) "to prevent the production of material which directly affects the defendant's right to defend that claim". Her Honour interpreted the "affects" in s 31(2)(i) as including evidentiary impacts. Mr Liu is said to be preventing the "production of material" which would assist, in an evidentiary sense, Fairfax's defence to his claim. This misstates the form of affectation that is being considered by s 131(2)(i) and the form of "right" that is being adverted to in s 131(2)(i). It is not referring to procedural rights, but is instead referring to substantive rights such as the right to enjoyment of a reputation or not to be subjected to tortious statements etc.

1. Accordingly, I do not consider that s 131(2)(i) operated to preclude Mr Liu from claiming privilege over the correspondence with ASIC. I uphold ground five of Mr Liu's appeal.

Additional point: Propend Finance

1. A further point that was debated between the parties concerned whether source documents such as bank statements that were copied and then attached to correspondence that fell within s 131(1)(a) were entitled to the protection of the section. Mr Richardson submitted that they would be and drew an analogy with the copies of source documents found to be covered by legal professional privilege in Commissioner of Australian Federal Police v Propend Finance Pty Ltd [1997] HCA 3; 188 CLR 501. Mr Blackburn SC disputed this.

1. It is not necessary for me to decide this point. The only documents that fall within this category are the Group B documents which were sent under cover of the letter dated 28 January 2011. I have upheld her Honour's rejection of the claim for privilege in respect of that letter. Thus, even if this point was resolved in favour of Mr Liu, it would not assist him in resisting production of these documents. That said, it is difficult to see why the plain words of s 131(1)(b) would not extend to protect such documents.

Conclusion

1. It follows from the above that Mr Liu has partially succeeded in his appeal and partially failed. He has not succeeded in overturning that part of her Honour's judgment which found that so much of the Group A and Group B documents as were created in 2011 fell within s 131(1). However he has been successful in demonstrating error on the part of her Honour in so far as her Honour required him to produce documents created in 2012.

1. I will make orders reflecting his partial success on the appeal.

1. In relation to costs, my current view is that, as the overall result of the application and the appeal was that both parties had mixed success, the appropriate order is that each party bear their costs of the application before her Honour and the appeal before me. If either party wishes to make any submission to the contrary, then they should file any submissions to that effect not exceeding four pages within seven days hereof. Failing any such material being filed, I will make the anticipated order.

Orders

1. Accordingly the Court orders:

(1)   Appeal allowed in part.

(2)   Set aside the orders made by Harrison AsJ on 9 August 2012 and in lieu thereof order that:

(a)   the Plaintiff produce to the Defendant the documents described in Schedule A within twenty-one days hereof;

(b)   the Defendant's application for production of documents made on 19 July 2012 be otherwise dismissed.

(3)   The parties file and serve any submissions on costs within seven days hereof, such submissions not to exceed four pages.

Schedule A

 The documents behind tabs 1 to 6 and 22 in confidential exhibit RRG-4 to the affidavit of Rebekah Ruth Giles sworn 18 July 2012.

 The documents in confidential exhibit RRG-5 to the affidavit of Rebekah Ruth Giles sworn 18 July 2012.

 The documents listed in confidential exhibit A to the affidavit of Rebekah Ruth Giles sworn 18 June 2012.

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Decision last updated: 09 November 2012