Silver Fox Co Pty Ltd v Lenard's Pty Ltd (No 3)
[2004] FCA 1570
•3 DECEMBER 2004
FEDERAL COURT OF AUSTRALIA
The Silver Fox Company Pty Ltd as Trustee for the Baker Family Trust (ACN 083 629 225) v Lenard’s Pty Ltd (ACN 010 711 145) (No 3)
[2004] FCA 1570EVIDENCE – mediation agreement provided for confidentiality of communications at mediation – whether examinations at mediation can be adduced in evidence on questions of costs
COSTS – mediation agreement provided for confidentiality of communications at mediation – whether communications at mediation can be adduced in evidence on questions of costs
Federal Court of Australia Act 1976 (Cth) s 43
Evidence Act 1995 (Cth) ss 131(1), 131(2)(h), 135, 138
Federal Court Rules (Cth) O 23, O 35 r 8, O 62 r 19, O 62 r 31
Supreme Court Rules 1987 (SA) Third ScheduleThe Silver Fox Company Pty Ltd as Trustee for the Baker Family Trust v Lenard’s Pty Ltd [2004] FCA 1225 referred to
The Silver Fox Company Pty Ltd as Trustee for the Baker Family Trust v Lenard’s Pty Ltd (No 2) [2004] FCA 1310 referred to
Wheeler v Page & Harris (1982) 31 SASR 1 referred to
Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 referred to
McCormick v Riverwood International (Aust) Pty Ltd [2000] FCA 32 applied
MBP (SA) Pty Ltd v Gogic (1990) 171 CLR 657 referred to
Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 referred to
Field v Commissioner for Railwaysfor New South Wales (1957) 99 CLR 285 referred to
Bruinsma v Menczer (1995) 40 NSWLR 716 considered
Marks v GIO Australia Holdings Ltd (No 2) (1996) 66 FCR 128 considered
Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 3) (2002) ATPR 41 – 90; [2002] FCA 1294 cited
Australian Competition and Consumer Commission v Black on White [2002] FCA 1605 cited
Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 appliedTHE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST (ACN 083 629 225), BRYAN WILLIAM BAKER & BEVERLY ANN BAKER V LENARD’S PTY LTD (ACN 010 711 145), THE POULTRY SHOP LEASING (SA) PTY LTD (ACN 060 052 020), POULET FRAIS PTY LTD (ACN 059 852 265) & RICHARD HAMOOD
SAD 70 OF 2001
MANSFIELD J
3 DECEMBER 2004
ADELAIDE
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
SAD 70 OF 2001
BETWEEN:
THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST
(ACN 083 629 225)
FIRST APPLICANTBRYAN WILLIAM BAKER
SECOND APPLICANTBEVERLY ANN BAKER
THIRD APPLICANTAND:
LENARD'S PTY LTD
(ACN 010 711 145)
FIRST RESPONDENTTHE POULTRY SHOP LEASING (SA) PTY LTD
(ACN 060 052 020)
SECOND RESPONDENTPOULET FRAIS PTY LTD
(ACN 059 852 265)
THIRD RESPONDENTRICHARD HAMOOD
FOURTH RESPONDENTJUDGE:
MANSFIELD J
DATE OF ORDER:
3 DECEMBER 2004
WHERE MADE:
ADELAIDE
THE COURT ORDERS THAT:
1.There be judgment for Bryan William Baker and Beverly Ann Baker jointly against Lenard’s Pty Ltd, Poulet Frais Pty Ltd and Richard Hamood in the sum of $182,800 plus interest fixed in a lump sum of $33,400.
2.There be judgment for Bryan William Baker against Lenard’s Pty Ltd, Poulet Frais Pty Ltd and Richard Hamood in the further sum of $67,200 plus interest fixed in a lump sum of $17,900.
3.There be judgment for Beverly Ann Baker against Lenard’s Pty Ltd, Poulet Frais Pty Ltd and Richard Hamood in the further sum of $40,200 plus interest fixed in a lump sum of $6,600.
4.Lenard’s Pty Ltd, Poulet Frais Pty Ltd and Richard Hamood pay to The Silver Fox Company Pty Ltd as Trustee for The Baker Family Trust, Bryan William Baker and Beverly Ann Baker costs of the proceedings save that Lenard’s Pty Ltd not be liable for the costs of and incidental to:
(a)the notice of motion of The Silver Fox Company Pty Ltd, Bryan William Baker and Beverly Ann Baker dated 2 July 2001; or
(b)the notice of motion of Lenard’s Pty Ltd and The Poultry Shop Leasing (SA) Pty Ltd dated 13 December 2001.
5.There be judgment for Lenard’s Pty Ltd against The Silver Fox Company Pty Ltd, Bryan William Baker and Beverly Ann Baker in the sum of $21,416 plus interest fixed in a lump sum of $5600.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
SAD 70 OF 2001
BETWEEN:
THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST
(ACN 083 629 225)
FIRST APPLICANTBRYAN WILLIAM BAKER
SECOND APPLICANTBEVERLY ANN BAKER
THIRD APPLICANTAND:
LENARD'S PTY LTD
(ACN 010 711 145)
FIRST RESPONDENTTHE POULTRY SHOP LEASING (SA) PTY LTD
(ACN 060 052 020)
SECOND RESPONDENTPOULET FRAIS PTY LTD
(ACN 059 852 265)
THIRD RESPONDENTRICHARD HAMOOD
FOURTH RESPONDENT
JUDGE:
MANSFIELD J
DATE:
3 DECEMBER 2004
PLACE:
ADELAIDE
REASONS FOR JUDGMENT
The principal judgment was given in the matter on 17 September 2004: The Silver Fox Company Pty Ltd as Trustee for the Baker Family Trust v Lenard’s Pty Ltd [2004] FCA 1225 (the first judgment). The applicants succeeded in establishing liability to pay damages as against the first, third and fourth respondents. At the subsequent hearing to address the form of the orders, interest and costs, the applicants sought leave to re-open their case. It appeared that, through a misunderstanding, the respondents conducted their defences on the assumption that a particular claim – for loss of income and superannuation of $143,073 quantified to 31 May 2002 – was not being separately pursued, but had been absorbed into a subsequent global expression of the applicants’ claims, whereas the applicants had proceeded on the assumption that the claim for loss of earnings was not disputed and would simply be allowed as part of their losses. That sum takes into account the actual earnings of the Bakers to 31 May 2002. As that misunderstanding could, in my judgment, be rectified without injustice to the respondents by allowing them to further cross-examine such witnesses as they wished, to call further evidence, and to make further submissions, I permitted the limited re-opening of the applicants’ case: The Silver Fox Company Pty Ltd as Trustee for the Baker Family Trust v Lenard’s Pty Ltd (No 2) [2004] FCA 1310 (the second judgment). That subsequent hearing took place on 22 November 2004.
This judgment therefore deals with the outstanding issues: the amount of the applicants’ loss, interest and costs. I shall use the definitional terms used in the first judgment.
THE LOSS
The claimed loss was confined to the losses of the Bakers. The reformulated claimed loss was $228,705. That claimed loss was recalculated to $228,935 and then detailed in [20] of the second judgment. It was reduced by a liability to CBFC Limited which was not ultimately incurred, and by a small amount for interest paid which may have been incurred on the Bakers’ home mortgage in any event, to arrive at the sum of $182,800. It included $45,446 paid by the Bakers from their own resources to keep Silver Fox operating. I also allowed $10,000 to Mr Baker and $6000 to Mrs Baker for psychiatric illnesses suffered by them.
The additional claim for salary and superannuation foregone is based upon the premise that, but for the Bakers and Silver Fox entering into the Franchise Agreement, they would have maintained their respective employment positions instead of resigning – as they did – on 7 August 1998. The calculation made is to 31 May 2002, simply because that was a convenient date up to the date of Mr Krantz’s report of 13 June 2002. As a matter of arithmetic, there is no issue about the accuracy of the calculation. The Bakers claim that this head of loss increased with the passage of time after that date.
There are three issues which the respondents raised. First it is argued that to allow the loss as claimed would involve some duplication with the sum of $45,446 included in the allowed capital loss of $182,800. Secondly, it is argued that on the evidence the Bakers would be likely to have resigned from their employment at about that time in any event, as they were anxious to start a franchised business of some sort and that it has not been shown that, had they done so in a different franchised business, they would have succeeded. Hence, the argument runs, there is no evidence to quantify any loss under this heading beyond 7 August 1998 in any event. Thirdly, the respondents argue, from the termination of the Lenard’s franchise on 12 July 2000 (or possibly, in the case of Mr Baker, from about September 2001) each of the Bakers had the same capacity to return to work as previously and so suffered no ongoing loss of earnings after that date.
I do not accept that any allowance to the Bakers for loss of earnings or superannuation foregone would involve any duplication of the loss represented by the $45,446 which they applied to Silver Fox from their own resources to keep it operating. That payment diminished their capital resources, and I have found they are entitled to be compensated for it. If they had not entered into the Lenard’s franchise through Silver Fox, their capital resources would not have been so depleted. They would also (subject to the other considerations to be addressed) have continued to earn income and accrue superannuation in their occupations held until they resigned on 7 August 1998. The application of their net income may have enabled them to increase their capital resources, depending upon their personal expenditure. If there were any duplication, it would result from any allowance in the $182,800 for earnings which they may have received or drawn from the Silver Fox business. The sum of $182,800 was arrived at after deducting the wages drawn by the Bakers from that business, so I do not consider there is any duplication of losses in the manner contended for. The sum of $182,800 also included $27,526 for the loss of opportunity to invest the superannuation and termination payments received by the Bakers. Had they not resigned from employment, those payments would not have been received, so the opportunity to invest them would not then have arisen. If an allowance for loss of income and superannuation foregone is to be allowed, in my view that will require some reflection to be made of that factor. On the one hand, the amount of the superannuation and termination payments may have increased (part of the claim for $143,073 to 31 May 2002), but in the meantime there would have been no opportunity to invest those sums. For the reasons which appear below, I consider the claim for superannuation foregone is offset by the benefit of the receipt of the superannuation in August 1998, so that I make no additional allowance for that aspect.
In my judgment, the Bakers would not have resigned from their respective employment positions on 7 August 1998 but for the conduct of Lenard’s, Poulet Frais and Mr Hamood which contravened s 52 of the TP Act. They had planned from some time in 1996 to acquire a business to operate together. They had considered a number of options. They had unsuccessfully sought a franchise from Lenard’s in respect of a shop in the Unley Shopping Centre in 1997. They were apparently in no special hurry to fulfil their plans. I think it is likely they would have continued their respective occupations for some further time whilst they continued to look for what they considered to be a suitable franchise. However, I agree with counsel for Lenard’s and Lenard’s Leasing that, at some point, they would have undertaken an alternative franchised business or some other business they could operate together. It is difficult to form a firm view as to when that would be. I am mindful of their respective ages. In June 1998, they attended the Franchise Expo and spoke with various franchisors and collected extensive pamphlets. I do not consider it would have been too long after August 1998. In my view, they would have resigned and have undertaken a franchised or some other business by about the end of September 1999. Of course, I do not assume that their conduct of such a business would have been unprofitable. It might have been. It might have been quite profitable. But there is no evidence as to the level of profitability they might have expected from such a business, other than the general figures available from the respondents about Lenard’s franchises in South Australia, referred to in the first judgment. In those circumstances, the allowance for loss of earnings or income from October 1999 onwards should be relatively modest.
There is no precise means of reaching an appropriate figure. Having regard to the levels of salary of the Bakers at August 1998, I would allow Mr Baker the sum of $40,000 for loss of income or earnings to 30 September 1999, plus $2500 for superannuation foregone to about the end of September 1999. I would allow Mrs Baker the sum of $27,000 for loss of income or earnings to 30 September 1999, plus $1600 for superannuation forgone to about the end of September 1999. Those figures for superannuation foregone should be reduced by reason of the Bakers having had the use of the respective superannuation sums to invest from 7 August 1998. I think that benefit appropriately affects the amount I would otherwise have allowed for loss of accrued superannuation. Accordingly, I allow no additional amounts for superannuation foregone. I have then increased those loss of earnings figures to $52,500 and $39,500 to cover the period to the end of 2000 to allow for the contingency that the Bakers may have continued employment beyond September 1999 and to allow a modest income from some other business as an alternative contingency.
Subject to allowing for other considerations, I provisionally would allow the loss of earnings claims to 31 December 2000 as follows:
Mr Baker $52,500
Mrs Baker $39,500Those figures should each be reduced by about $5,300 being half of the drawings by the Bakers from the business of Silver Fox to $47,200 and $34,200 respectively.
I am aware that the Franchise Agreement was terminated on 12 July 2000. Thereafter, subject to allowing a period of re-establishment, and to consideration of their respective medical conditions, the Bakers might have resumed employment. In that event, there is no evidence to suggest that their potential employment income would not have been about at the same level (adjusted for the passage of time) as it had been at August 1998. In the case of Mrs Baker, I think the allowance to the end of 2000 is a reasonable one to enable the Bakers to ‘mop up’ from the Lenard’s franchise and to re-establish herself in employment. Given her past work history, and the modest allowance I have made for the earnings losses for the calendar year 2000, I see no reason to further reduce that figure for my further adverse contingencies.
I am not persuaded that Mrs Baker’s psychiatric illness was of such severity as to incapacitate her for work. There is no medical evidence to that effect. Her work history in the financial years 2000 to 2003 shows a diminished level of earnings compared to what she would have earned with Dentsleeve (her employer at August 1998), but I think that is a consequence in part at least of the Bakers’ relocation to Goolwa and in part to her desire to support Mr Baker in his attempts to re-establish himself during those years. She has now been re-employed by Dentsleeve and her earnings in the 2004 financial year suggest she has reverted to the level of earnings she would have enjoyed had she maintained that employment throughout.
For those reasons, I propose to allow Mrs Baker the further sum of $34,200 for loss of earnings.
In the case of Mr Baker, I have found he was more significantly affected by psychiatric illness as a result of the conduct contravening s 52 of the TP Act. I find on the medical evidence that, at least by October 2002, Mr Baker had recovered from that illness. The evidence that he was ‘unable to work’ at least to May 2002 is provided by Dr Czechowicz based upon an interview in May 2002, but his assessment is to some degree diminished by the various part-time employment activities of Mr Baker in the preceding years. In my judgment, based upon the evidence including that of the Bakers, I find that Mr Baker was partially incapacitated for work by reason of his psychiatric illness in the period from 12 July 2000 to about the middle of 2002. I further find that he fully exercised his working capacity during those years. His income was about half what he would have earned with the Australian Taxation Office had he not resigned in August 1998. On the other hand, I have found that by about September 1999 the Bakers would have been operating some other business. The evidence as to their financial prospects in such a business is slight. I propose to make an allowance of $10,000 for his reduced earning capacity to cover the period from January 2001 to June 2002, having regard to his age, what I have found to be his likely work history, the contingency that he may nevertheless have continued working for the Australian Taxation Office, and the general positive and negative contingencies which go into any assessment of damages. From July 2002, I find Mr Baker had resumed his capacity to work and the effects of the conduct of the respondents (other than Lenard’s Leasing) upon him had been spent.
I therefore propose to allow Mr Baker the further sum of $57,200 for loss of earnings.
There will be judgment as follows:
(a) for the Bakers jointly for loss of capital $182,800
(b)for Mr Baker –
(i) for non-economic loss for personal injury $10,000
(ii) for loss of earnings $57,200
(c)for Mrs Baker –
(i) for non-economic loss for personal injury $6,000
(ii) for loss of earnings $34,200
There will be judgment in favour of Lenard’s on the cross-claim against the Bakers and Silver Fox for $21,416.
INTEREST
The items upon which the Bakers seek interest are as follows:
(1)Interest on superannuation, termination payments and inheritance from 1 June 2002 (the formulated claim included interest to 31 May 2002);
(2)Interest on loss of capital as awarded of $182,800 (less the superannuation, termination payments and inheritance of $130,337) from 15 July 2000;
(3)Interest on wages and superannuation foregone, occurring incrementally from 7 August 1998 but claimed from September 1999;
(4)Interest on damages for psychological injuries from 15 July 2000.
In the light of the helpful submissions of counsel, I can deal with those claims quite briefly. I note also that Lenard’s should recover interest on the judgment on the cross-claim, calculated from 15 July 2000. I propose to allow specific sums for interest, and will indicate in general terms how those sums are calculated. I will round off those calculations, rather than calculate precisely to the day the amount of the entitlement. Interest will run on the judgment, when pronounced, in accordance with O 35 r 8 of the Federal Court Rules save that I determine that the applicable rate of interest should be 8.5 per cent I do so having regard to current levels of interest rates and the evidence of Mr Krantz.
For the purposes of calculating interest on the damages assessed to the date of judgment, I have used an interest rate of 6 per cent The applicants have sought interest calculated at 6 per cent. Poulet Frais and Mr Hamood have suggested 5 per cent as a ‘generous’ rate to represent the prevailing rate for secure investments: see Wheeler v Page & Harris (1982) 31 SASR 1 at 6. Lenard’s has suggested a mix of 3 per cent and 4 per cent based upon the fact that the Bakers gave evidence that certain of their funds were held in a low interest bearing passbook account, and so would have produced only a small return on funds. As interest is compensatory, being to recompense for being out of pocket to the extent of the liability (see Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97), I think the rate of interest chosen should have regard to the way in which the Bakers may have applied the capital sum had it been available to them. However, I think it is unlikely that any significant capital sum would have been left dormant in an interest-bearing passbook account. The applicable rate under the Supreme Court Rules 1987 (SA), Third Schedule has been 6.5 per cent to 17 September 2000, then 7 per cent to 22 April 2001, then 6 per cent to 1 August 2004 and 6.5 per cent thereafter. McCormick v Riverwood International (Aust) Pty Ltd [2000] FCA 32 at [11] indicated that such a schedule is an appropriate resource to determine the appropriate rate of interest.
The $182,800 damages awarded for loss of business capital is acknowledged by the applicants as including interest at 6 per cent on $130,337 to 31 May 2002. That is because, at the time of his first report, Mr Krantz identified the source of the sum of $130,337 as superannuation, inheritance and termination payments received by the Bakers and advanced to Silver Fox and included interest on that sum as part of the claim. Interest is therefore claimed on that sum from 1 June 2002 to the present. I allow a lump sum for interest of $19,600, roughly calculated at 6 per cent for that period. I note the calculation presented on behalf of the applicants for this period appears to understate by 365 the number of days in the period. I have made the appropriate adjustment.
In my view, the sum of $52,463 as the balance of the $182,800 should attract interest for the period from 15 July 2000 to the present. I allow a lump sum for interest on $52,463 of $13,800, again roughly calculated at 6 per cent for that period.
I have allowed Mr Baker $57,200 for loss of earnings for the period from 7 August 1998 to June 2002. That loss was largely suffered by September 1999, but the loss was in fact progressively suffered over the period from August 1998 to June 2002. I propose to allow a lump sum for interest to date of $16,200 calculated roughly on $40,000 from September 1999 and on the further sum of $17,200 calculated roughly from March 2001 to the present to allow for the fact that some part of that amount accumulated progressively up to June 2002.
I have allowed Mrs Baker $34,200 for loss of earnings for the period from 7 August 1998 to December 2000. She is entitled to interest on that sum from January 2001, as well as on part of that sum (as it progressively grew) to December 2000. As with Mr Baker, I propose to allow a lump sum for interest to date of $10,500. It is calculated roughly on the full sum of $34,200 from January 2001, plus interest on the sum of $27,000 (the loss to 30 September 1999) between October 1999 and December 2000 plus an allowance for interest on the $27,000 as it accumulated up to September 1999.
I allow a lump sum for interest in favour of Mr Baker for his non-economic losses for his psychiatric illness of $1700, being roughly calculated at 4 per cent (see MBP (SA) Pty Ltd v Gogic (1990) 171 CLR 657) to the present. The starting time for that calculation has regard to the psychiatric illness having commenced probably by the time the Franchise Agreement came to an end, and continued until about the middle of 2002. The figure has been rounded down to reflect the probable progressive onset of the illness. In the case of Mrs Baker, I allow a lump sum for interest for her non-economic losses for her psychiatric illness of $1000, calculated at the same rate on $6000 from the same starting date to the present, but also rounded down to reflect the probable progressive onset of the illness. In her case, I have found her illness resolved somewhat earlier than that of Mr Baker.
Interest on the cross-claim is also allowed in a lump sum roughly calculated from 15 July 2000 to the present at the rate of 6 per cent. I accordingly allow a lump sum of $5600 for interest on the amount of the cross-claim. There will be judgment in favour of Lenard’s against Silver Fox and the Bakers on the cross-claim for $21,416 plus a lump sum for interest of $5600.
The lump sum interest components are therefore:
(a) on the joint judgment of $182,800 $33,400
(b) on the judgment for Mr Baker(i) for non-economic loss $1,700
(ii) for loss of earnings $16,200
(c)on the judgment for Mrs Baker
(i) for non-economic loss $ 1,000
(ii) for loss of earnings $10,000
(d) on the judgment for Lenard’s on the cross-claim $5,600
COSTS
The applicants seek costs on an indemnity basis. The circumstances in which the Court might make such an order in the exercise of its discretion under s 43 of the Federal Court of Australia Act 1976 (Cth) are not to be confined by particular rules. Nevertheless, departure from the ordinary rule that a successful party will generally recover costs on a party and party basis requires some justification. In this instance, the justification is said to lie in the terms of compromise offers made by the applicants and by the respondents at a mediation. It is argued that, in the light of those offers, the justice of the case requires that the applicants have their costs on an indemnity basis. See generally Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 230 – 233. That application is resisted by the respondents.
The second respondent seeks costs against the applicant. The claim against it is to be dismissed.
The first respondent also seeks costs of four separate interlocutory hearings:
(1)the applicants’ notice of motion of 2 July 2001;
(2)the notice of motion of the first and second respondents of 13 December 2001 seeking particulars of the statement of claim;
(3)the directions hearing of 19 December 2002 seeking a particular date for taking the evidence of one witness who was not available to give evidence on the trial dates then fixed; and
(4)the hearing on 17 February 2004 when the applicants sought leave to re-open their case to lead evidence as to the disposition to a third party of the business previously conducted by Silver Fox.
The applicants oppose those orders.
In support of their claim for indemnity costs the applicants relied upon two affidavits of their solicitor sworn on 24 and 27 September 2004. The former of those affidavits referred to a mediation conducted between the parties on 22 February 2001, and sought to disclose the final proposals put by the applicants and by the respondents at the point when the mediation broke down.
Clauses 15 to 19 of the Mediation Agreement deal with confidentiality of the mediation process. Clause 15 imposes a confidentiality obligation upon the mediator. Clause 16 imposes a confidentiality obligation upon any information or document provided during the mediation unless disclosure is required by law or by clauses 17 or 21 of the agreement. Clause 17 permits a party to disclose information or documents to persons ‘within that party’s legitimate field of intimacy’. Clause 18 provides (inter alia) that, subject to clause 21, any settlement proposal made in the course of the mediation will be ‘privileged’ and will not be tendered as evidence in any proceedings relating to the dispute. The dispute is defined to include the present proceedings reflected in the applicants’ claims and the first respondent’s cross-claim. Clause 21 authorises disclosure to enforce any settlement made at the mediation.
Notwithstanding the terms of the Mediation Agreement, the applicants seek to rely upon the communications at the mediation. They contend that the receipt of the evidence of those communications is authorised by s 131(2)(h) of the Evidence Act 1995 (Cth).
In my judgment, the terms of the Mediation Agreement are clear. They do not permit the adducing of evidence of the course of the mediation or what offers were made in the course of the mediation.
It may nevertheless be assumed that the terms of the offers made during the mediation are relevant to determining liability for costs, so that prima facie s 131(2)(h) of the Evidence Act would remove the prohibition in s 131(1) from adducing evidence of communications in an attempt to negotiate a settlement of a dispute. Section 131(1) reflects the long standing principle, recognised for example in Field v Commissioner for Railways for New South Wales (1957) 99 CLR 285 at 291 – 292.
There have been cases where s 131(2)(h) has operated to permit the reception of settlement offers. In Bruinsma v Menczer (1995) 40 NSWLR 716, Santow J admitted such evidence, which was in the form of an offer of compromise made under Part 22 r 6 of the Supreme Court Rules 1970 (NSW), and was not expressed to be ‘without prejudice’. In Marks v GIO Australia Holdings Ltd (No 2) (1996) 66 FCR 128, Einfeld J admitted without prejudice correspondence between the solicitors for the parties exchanged to explore the prospects of settlement of the matter. See also Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 3) (2002) ATPR 41 – 901; [2002] FCA 1294 (Safeway); and Australian Competition and Consumer Commission v Black on White [2002] FCA 1605 (Black on White).
In Safeway, Goldberg J was required to address two arguments advanced to avoid the apparent operation of s 131(2)(h) of the Evidence Act. The first was based upon the public policy of encouraging parties to endeavour to settle disputes without disclosure of communications directed to that end. It was the public policy argument which was unsuccessfully adopted in the other cases referred to. Indeed, in the context of O 23 of the Federal Court Rules, Spender J in Black on White referred to the Court’s policy of encouraging litigating parties to undertake genuine settlement negotiations and to seriously consider offers of settlement, so that a reasonable compromise proposal which was not accepted may provide a basis for other than the usual order as to costs. The other argument was based upon preserving the integrity of the agreement between the parties to negotiations not to disclose those negotiations. Goldberg J at [16] in Safeway determined that the designation of the communications as ‘without prejudice’ did not amount to an agreement that they were not relevant, so as not to be probative evidence, and so his Honour admitted them into evidence on the issue of costs. His Honour concluded:
‘… the policy lying behind s 131 of the Evidence Act is twofold. First, it is to lay down a statutory basis for excluding evidence of communications relating to attempts to settle disputes. Secondly, it is to provide specific exceptions to such exclusion. The exception found in s 131(2)(h) relates to the probative value or probative nature of the contents of the communication and not to the manner in which the communication came initially to be subjected to the protection from being adduced into evidence found in subs (1) of s 131.
Although a consensual arrangement or agreement underlies the basis or part of the basis upon which “without prejudice” communications are protected from admissibility, that consensual aspect does not determine the issue of relevance for the purposes of s 131(2)(h) of the Evidence Act. The relevance there provided for is to be judged and determined by reference to legal principle rather than the decision of the parties.’
I do not consider that the authorities referred to deal directly with the present contention of Lenard’s. The argument put to Goldberg J, based upon the agreement of the parties, was that the agreement was as to the relevance of the communications, rather than directly applying to their admissibility (assuming relevance, as the argument at this point does) by reason of the agreement to preserve confidentiality. Perhaps the argument in those terms was not put because it was thought the clear words of s 131(2)(h) did not allow for it. I think those words are quite clear. Moreover, the relevance to be addressed is relevance to determining liability for costs. Section 131(1), subject to its exceptions, gives effect to the policy of ensuring the course of negotiations – whether private or by mediation – are not adduced into evidence for the purpose of influencing the outcome on the primary matters in issue. Clearly, it is in the public interest that negotiations to explore resolution of proceedings should not be inhibited by the risk of such negotiations influencing the outcome on those primary issues. It is equally in the public interest that negotiations should be conducted genuinely and realistically. The effect of s 131(2)(h) is to expose that issue to inspection when costs issues only are to be resolved. There is no apparent public interest in permitting a party to avoid such exposure by imposing terms upon the communication, whether by the use of the expression ‘without prejudice’ or by a mediation agreement.
In my judgment, s 131(2)(h) on its terms applies to the Mediation Agreement. I propose to receive into evidence the two affidavits referred to. I have not overlooked the arguments based upon ss 135 and 138 of the Evidence Act. I do not consider s 138 applies. The applicants could not be said to be acting improperly by using an enabling provision of the Evidence Act. Section 135 relevantly empowers the Court not to receive certain evidence if its receipt would be ‘unfairly prejudicial’ to a party or parties. I do not regard the terms of the Mediation Agreement per se to demonstrate such prejudice. I would be reluctant to accede to such a general proposition. There may be particular circumstances in which the exposure of the course of settlement negotiations may be unfairly prejudicial to a party. Such circumstances may appear from the facts recorded in the agreement, or from other evidence. No such circumstances have been identified in this matter.
However, I do not regard the final settlement offers by the parties, as revealed in the two affidavits, as providing a proper basis for departing from the normal rule as to costs. The case was not an easy one. Certain of the representations relied upon by the applicants were not made out. The claim based upon s 51AC of the TP Act did not succeed. I do not think the case falls into those where, to put the test at the highest in favour of the applicants, the respondents imprudently refused an offer of compromise. Even though the applicants have succeeded in recovering somewhat more than their final offer of compromise, that does not automatically lead to an order for payment of indemnity costs: Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 per Sundberg and Emmett JJ at [7] and the cases cited therein.
I also bear in mind that the evidence discloses only the final negotiating offers of the parties. It is not clear to what extent evidence which was adduced at the hearing was made available or adverted to at the mediation. Given the timing of the mediation, it is unlikely that all the material led in evidence was then available. Clearly the medical evidence was not. The picture available to the parties at the time of the mediation is not shown to be, and probably was not, the same as that ultimately before the Court.
In my judgment, for those reasons, the respondents’ rejection of the applicants’ offer was not imprudent or plainly unreasonable. Nor was their negotiating position imprudent or unreasonable.
Subject to the issues raised by Lenard’s and Lenard’s Leasing, I consider the appropriate order is that Lenard’s, Poulet Frais and Mr Hamood pay the costs of the applicants to be taxed or agreed.
I have come to the view that there should be no order for costs in respect of Lenard’s Leasing. It was represented by the same counsel and solicitors as Lenard’s throughout. It is not shown that it has incurred costs which would otherwise not have been incurred by Lenard’s in its conduct of the proceedings, except perhaps in some minor respects by some parts of the pleadings and discovery and the limited and essentially documentary evidence about its role. It is hard to see that such evidence would not have been adduced even if it were not a party. I think its conduct of the proceedings is so intertwined with that of Lenard’s that it is not appropriate that it recover separately its costs of the proceedings.
In relation to the four specific matters raised by Lenard’s and Lenard’s Leasing, I make the following rulings:
(1)the orders sought by the applicants’ notice of motion of 2 July 2001 did not directly involve Lenard’s or Lenard’s Leasing, so they should not be liable for those costs;
(2)the notice of motion of Lenard’s and Lenard’s Leasing of 13 December 2001 led to some further particulars being ordered, but it was not entirely successful, so there should be no order for the costs of that notice of motion;
(3)the directions hearing of 19 December 2002 may have been unnecessary if there had been inquiries made earlier as to that witness’s availability, but that is not clearly the case, so the costs of that attendance should follow the event; and
(4)the hearing of 19 February 2004, although resulting in evidence which was somewhat remote from the principal issues, led to evidence about how the CBFC Ltd indebtedness was ultimately dealt with, and led to a significant reduction in the amount of the applicants’ claim, so the costs of that hearing should follow the event.
Finally, the applicants sought and the respondents opposed an order under O 62 rr 19 and 31 of the Federal Court Rules that the case be certified fit for two counsel. As I understood senior counsel for the applicants, he was appointed one of Her Majesty’s Counsel in October 2002 and had acted as sole counsel for the applicants to that time. I do not regard that circumstance as justifying the certification sought. The claim was, at all times, one of modest size. It did not involve complex issues of law, although the facts were in part quite detailed and complex. On the other hand, the documentation was voluminous and parts of the expert evidence were quite technical. In my view, it is appropriate to leave that issue to the taxing officer, although I doubt that the fees of senior and junior counsel would have been appropriate on a party and party basis at least until the immediate preparation for, and during, the hearing. I am also mindful that, in fact, senior counsel for the applicants was absent during certain parts of the evidence, so that junior counsel’s presence during the hearing was significant to the applicants’ case being conducted properly and to the smooth progress of the hearing.
I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield. Associate:
Dated: 2 December 2004
Counsel for the Applicants: PA Heywood-Smith QC with JTW Birchall Solicitor for the Applicants: Lisacek & Co Counsel for the First & Second Respondents: A Lyons Solicitor for the First & Second Respondents: Phillips Fox Counsel for the Third and Fourth Respondents: SH Milazzo Solicitor for the Third and Fourth Respondents: DMAW Lawyers Date of Hearing: 22 November 2004 Date of Judgment: 3 December 2004
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