Trade Practices Commission v Arnotts Ltd

[1989] FCA 403

Re: TRADE PRACTICES COMMISSION
And: ARNOTTS LIMITED; ARNOTT'S BISCUITS LIMITED; FLEDSPAC PTY. LIMITED
and THE DICKENS CORPORATION PTY. LIMITED
No. G1316 of 1988
FED No. 403
Evidence

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Beaumont J.(1)

CATCHWORDS

Evidence - privilege in aid of settlement - context and character of statement made in course of discussions - whether privilege waived.

HEARING

SYDNEY

#DATE 27:7:1989

Counsel and Solicitors B.C. Oslington Q.C. and
for Applicant: D.G. Staehli instructed by the

Australian Government Solicitor

Council and Solicitors C.A. Sweeney Q.C. and P. Comans
for the first and instructed by Messrs Clayton Utz
second respondents

ORDER

Rule that the document formerly marked "RMA 2" should be admitted in evidence.

Order that, up to and including 1 August 1989, the publication of reasons for judgment be restricted to the parties and their representatives.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

The Trade Practices Commission has tendered a note, discovered by Arnotts, summarising a conference held in October 1988 between representatives of Arnotts and of the Commission. Arnotts objects to the tender, claiming the privilege in aid of settlement.

1. The background to the conference held on 12 October 1988 is as follows. By letter dated 4 October, the Chairman of the Commission, Professor Baxt, wrote to Mr. McComas, Solicitor for Arnotts, concerning the proposed acquisition of the Nabisco biscuit business by Arnotts, saying that, after consultation with counsel, "it is our view that there would be serious questions raised by the proposed purchase." Professor Baxt then inquired whether Mr. McComas would be prepared to "meet with" representatives of the Commission and Mr. Gyles Q.C. "to discuss these matters." In the meantime, by para. 4 of its letter, the Commission requested an undertaking from Arnotts that it would not enter into the proposed agreement to acquire Nabisco without giving the Commission five days' notice of its intention.

2. By letter dated 4 October, Mr. McComas indicated that he was prepared to meet with the representatives of the Commission and Mr. Gyles. Mr. McComas said that he would "address your paragraph 4 then."

3. The note now tendered is as follows:
   "12/10/88
   Bob McComas, Charles Sweeney QC - Arnotts and Bob Baxt,
   

Roger Gyles QC - TPC meeting last Friday. TPC enquiries still not complete.

At this stage Arnotts have not made offer to divest any

part of business.

Roger Gyles raised matter of Arnott's dominance in

crackers if acquisition approved - worried about lack of competition.

Advised by Bob McComas that Arnotts are not prepared to

divest this segment and that crackers cannot be regarded as a market under TP Act. Bob Baxt did not pursue this course only Gyles.

Bob McComas has notified TPC in writing that we expect

to sign option agreement on Monday 24/10/88 and also notified him that we would advise when FIRB approval had been received.

Purpose of letter is to show that we are not throwing

down the gauntlet to TPC but are ready to co-operate and assist TPC in their enquiries. (Purpose to prevent ex-parte injunction). So far no requests from TPC for additional information.

TPC taken aback by support by Coles, Woolworths, Davids

and Westons." (Emphasis added)

(Although Mr. Sweeney is recorded as being present at the conference, it is common ground that he was not there.)

1. The Commission has indicated that, if the note is admitted into evidence, the Commission will rely upon the statement attributed to Mr. McComas that "crackers cannot be regarded as a market under TP Act" as an admission by Arnotts to that effect.
   Is the note privileged?

2. On behalf of Arnotts, it is submitted that the discussions recorded in the note were part of a genuine attempt to resolve a dispute and thus inadmissible by virtue of the privilege in aid of settlement.

3. The nature and purpose of the privilege were described by the High Court in Field v. Commissioner for Railways for NSW (1957) 99 CLR 285 (at pp 291-2) as "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...(I(t is concerned with the use of the negotiations or what is said in the course of them as evidence by way of admission." The extent of the protection of the privilege depends, not so much upon the (subjective) expectations of the parties, but upon the (objective) considerations of what formed part of the negotiations for the settlement of the action and "what was reasonably incidental thereto" (Field's Case at p 292). To attract the privilege, a "proper connexion with any purpose connected with the settlement of the action" must exist (Field's Case, at p 293).

4. The rule excludes proof of any admissions made with a genuine intention to reach a settlement. In Rush & Tomkins Ltd. v. Greater London Council (1988) 3 WLR 939, Lord Griffiths, after stating that the rule is a rule governing the admissibility of evidence, and is founded upon the public policy of encouraging litigants to settle their differences, rather than litigate them to the finish, said (at pp 942-3):
   "The rule applies to exclude all negotiations genuinely
   

aimed at settlement whether oral or in writing from being given in evidence. A competent solicitor will always head any negotiating correspondence 'without prejudice' to make clear beyond doubt that in the event of the negotiations being unsuccessful they are not to be referred to at the subsequent trial. However, the application of the rule is not dependent upon the use of the phrase 'without prejudice' and if it is clear from the surrounding circumstances that the parties were seeking to compromise the action, evidence of the content of those negotiations will, as a general rule, not be admissible at the trial and cannot be used to establish an admission or partial admission....(the)... authorities...illustrate...the underlying purpose of the rule which is to protect a litigant from being embarrassed by any admission made purely in an attempt to achieve a settlement."

1. The rule excluding documents marked "without prejudice" has no application "unless some person is in dispute or negotiation with another, and terms are offered for the settlement of the dispute or negotation" (In re Daintrey. Ex parte Holt (1893) 2 QB 116 at p 119). In that case, a written notice by a debtor to his creditors that he had suspended payment of his debts, although expressed to be written "without prejudice", was admitted to prove an act of bankruptcy. By similar reasoning, the rule does not exclude "objective facts which may be ascertained during the course of negotiations" (see Field's Case at p 291). Thus, in Waldridge v. Kennison (1794) 170 ER 306, it was held that an admission of a handwriting made by a party in the course of a without prejudice "treaty" (negotiations) was admissible. Lord Kenyon said (at pp 306-7):
   "...certainly any admission or confession made by the
   

party respecting the subject-matter of the action, obtained while a treaty was depending, under faith of it, and into which the party might have been led by the confidence of a compromise taking place, could not be admitted to be given in evidence to his prejudice; but he added, that the fact of a hand-writing being a person's or not stood on a different foundation; it was matter no way connected with the merits of the cause, and which was capable of being easily proved by other means. He was therefore of opinion that such evidence was admissible, and accordingly received it."

1. Similarly, in Thomson v. Austen (1823) 1 L.J. (O.S.) KB 99, the plaintiff proved his case for a large demand; the defendant then called a clerk of his attorney to show that the plaintiff had admitted to him that he owed the defendant the sum of 800 L., being a larger sum than that proved by the plaintiff to be due to him; the clerk stated that, in a conversation which he had had with the plaintiff, he said, that he wished "to get rid of law and to settle the matter"; and as an inducement to settle, he authorized the witness to tell him that he, the defendant, would admit that he had received 800 L. on account of the defendant. It was objected, that, as this was a confidential communication, made with a view to compromise, it could not be received in evidence. But it was held, on appeal, that the communication was admissible. The Court said (at p 99):
   "...the evidence...was not indicative of any intention
   

to make a compromise, for if it had been so, he would have offered some concession, some sacrifice for the sake of peace; but he simply wishes the matter ended, and then makes an unqualified admission."

1. In Davies v. Nyland (1974) 10 SASR 76, Wells J. held (at p 91) that an admission made in a "without prejudice" conversation was admissible because it was not "hypothetical, conditional nor tentative" but was an "unqualified" admission. Wells J. approved the following passage from Wigmore on Evidence, 3rd ed. (1940) Vol. 4, p 29:
   "So it is apparent that the occasion of the utterance is
   

not decisive; that is, it may or may not have been accompanied by a reservation or an injunction of secrecy; and it may or may not have occurred during negotiations for a settlement or a compromise. What is important is the form of the statement, whether it is explicit and absolute. If, making all implications from the context and the circumstances, the statement assumes the adversary's claim to be well-grounded for the mere purpose of discussing a settlement which will avoid litigation, and expresses nothing as to the terms of the specific claim, it is not an admission; nor is the party making it in any the worse condition for having omitted the phrase 'without prejudice', or for having offered the full amount of the claim without any pretence of compromise. If on the other hand, the statement is explicit and absolute so far as appears, it is not saved by any cabalistic phrase, nor by its occurrence in the course of compromise-negotiations."

(See now Chadbourn Rev. 1972 at pp 41-2).

1. On appeal in Davies v. Nyland, Zelling J. (at p 105) thought that Wigmore's approach was too restrictive. Zelling J. cited Kekewich J. in Kurtz & Co. v. Spence & Sons (1887) 57 LJ. Ch 238, (at p 241) as follows:
   "I shall not attempt to define the words 'without
   

prejudice' - but what I understand by negotiation without prejudice is this: The plaintiff or defendant - a party litigant - may say to his opponent: Now you and I are likely to be engaged in severe warfare; if that warfare proceeds, you understand I shall take every advantage of you that the game of war permits; you must expect no mercy, and I shall ask for none; but before bloodshed let us discuss the matter and let us agree for the purpose of this discussion we will be more or less frank; we will try to come to terms, and that nothing that each of us says shall ever be used against the other so as to interfere with our rights of war, if unfortunately war results. That is what I understand to be the meaning, not the definition, of 'without prejudice'."

1. In Buckinghamshire County Council v. Moran (1989) 3 WLR 152, it was held that a letter, marked "without prejudice" but asserting a claim of adverse possession, was not privileged. Slade L.J. said (at p 161):
   "I think the judge was right to regard the relevant
   

question as being whether or not the letter of 20 January 1976 could properly be regarded as a negotiating document. But I respectfully disagree with his conclusion that it could. As the judge himself said, and as the letter itself indicated, the defendant was writing the letter in an attempt to persuade the council that his case was well founded. As I read the letter, it amounted not to an offer to negotiate, but to an assertion of the defendant's rights, coupled with an intimation that he contemplated taking his solicitor's advice unless the council replied in terms recognising his asserted rights. I cannot derive from the letter any indication, or at least any clear indication, of any willingness whatever to negotiate.

If, as is my view, the letter of 20 January 1976 cannot

fairly and properly be read as an 'opening shot' in negotiations, the attribution of the protection of 'without prejudice' privilege to it would in my opinion go beyond the bounds of that privilege established by existing authority and would not in my opinion be justifiable. The public policy on which the privilege rests does not in my judgment justify giving protection to a letter which does not unequivocally indicate the writer's willingness to negotiate."

1. The privilege is not absolute. In Pitts v. Adney (1961) 78 WN 886, Walsh J. said (at p 889):
   "It is of importance that the rule protecting from
   

disclosure, discussions taking place in an endeavour to put an end to pending litigation should, in general, be applied. But it is, after all, a rule based upon public policy. It cannot be permitted to put a party into the position of being able to cause a Court to be deceived as to the facts, by shutting out evidence which would rebut inferences upon which that party seeks to rely. In McFadden v. Snow...evidence was given on behalf of one party that no reply had been received to a letter. Thus it was sought to establish an admission by silence as to a relevant fact. Kinsella J. admitted a letter headed 'without prejudice' tendered in disproof of that evidence. He said...: 'The privilege that may arise from the cloak of 'without prejudice' must not be abused for the purpose of misleading the court.' With respect, I state my emphatic agreement with that observation."

1. The general position is summarised by Ligertwood, Australian Evidence (1988) (at p 176) as follows:
   "The privilege may arise although no formal proceedings
   

have begun in relation to the dispute between the parties,...but any admissions made during negotiations will be privileged only if they have been made bona fide for the purpose of inducing settlement of the existing dispute. Thus negotiations to settle must have begun and the use of the words 'without prejudice' will be strong evidence of this...But only evidence. It is not a precondition to the application of the privilege that these words be used, and if used a court is still entitled to look to all surrounding circumstances to determine whether settlement negotiations are bona fide taking place. And negotiations begin with the first bona fide overture, whether or not this is accepted as a commencement of negotiation by the opponent...But even if settlement negotiations have begun the privilege only extends to admissions made during those negotiations with a view to inducing settlement."

1. The question whether privilege attaches to the statement made by Mr. McComas that "crackers cannot be regarded as a market under the TP Act" is essentially a matter of the proper characterisation of the statement in its true context.

2. The context in which the statement was made was a discussion with senior counsel retained by the Commission, which discussion was, in my opinion, initiated by the Commission with the apparent object of resolving a potential dispute between the parties if this were possible. The Commission's letter dated 4 October spoke of "serious questions raised by the proposed purchase." The request for the undertaking in para. 4 of the letter suggested that litigation was possibly contemplated. The only point in holding the meeting was to explore the possibility of settlement of the dispute which had apparently arisen. In my view, the context in which the statement was made was in the course of a genuine attempt by the parties to negotiate a settlement. The Commission had indicated that this was its intention and it should be inferred that Arnotts responded to the Commission's invitation in the same spirit. Prima facie, Mr. McComas' statement was privileged. It was made in the course of a discussion embarked upon bona fide for the purpose of achieving settlement of a potential dispute.

3. But was the character of Mr. McComas' statement such as to deprive it of the protection of the privilege? In other words, was what he said an unqualified admission concerning objective facts? In my opinion, the statement did not have that character.

4. It will be recalled that it was Mr. Gyles who raised the "matter of Arnott's dominance in crackers if (the) acquisition (was) approved." Mr. McComas' response was to state (a) that Arnotts were not prepared to divest "this segment"; and (b) that "crackers cannot be required as a market under TP Act." What Mr. McComas was doing was engaging in an argumentative exchange with representatives of the Commission on a controversial and complex question of mixed fact and law, namely market definition under the Trade Practices Act in the context of the biscuit industry against the background of discussions aimed at settling a dispute which had apparently arisen. In my view, for Mr. McComas to express a legal opinion on such a contentious, and difficult, question was hardly the kind of unqualified admission of objective fact which can fall outside the scope of the protection given by the privilege.

5. In my opinion, the statement was privileged.
   Did Arnotts waive the privilege by discovering the document in which the statement was made?

6. The document was discovered by Arnotts without any claim for privilege in aid of settlement being made. Did Arnotts thereby waive its right to claim privilege to prevent the document going into evidence?

7. As has been said, the privilege in aid of settlement is available on the question of admissibility. On the other hand, it is well established that the right to discovery and production of documents does not depend upon the admissibility of the documents in evidence. But it has been held that "without prejudice" correspondence is not discoverable. In Rabin v. Mendoza & Co. (1954) 1 WLR 271, Denning L.J. said (at pp 273-4):
   "...production can be ordered of documents even though
   

they may not be admissible in evidence. Nevertheless, if documents come into being under an express, or, I would add, a tacit, agreement that they should not be used to the prejudice of either party, an order for production will not be made."

1. Romer L.J. said (at p 274):
   "It seems to me that it would be monstrous to allow the
   

plaintiff to make use - as he certainly would make use - for his own purposes as against the defendants of a document which is entitled to the protection of 'without prejudice' status."

1. This reasoning was approved in Rush & Tompkins Ltd. v. GLC, supra, at pp 946-7.

2. It follows, in my opinion, that it was open to Arnotts to claim the privilege in aid of settlement in respect of this document.

3. Arnotts, by discovering the document, waived their right to object to its production for the purposes of discovery. But did Arnotts, thereby, also waive their right to object to its admissibility into evidence? In other words, although Arnotts expressly waived their privilege in respect of discovery of the material, did they also, by implication, waive their right to object to its admission into evidence?

4. Guidance in this area may, I think, be found in the judgments of the High Court in Attorney-General for the Northern Territory v. Maurice (1986) 161 CLR 475 dealing with waiver of legal professional privilege. It was there held that where there is no intentional waiver of privilege the question whether waiver should be imputed depends on whether it would be unfair or misleading to allow a party to refer to or use material and yet assert that the material, or material associated with it, is privileged from production.

5. Mason and Brennan JJ. said (at p 488):
   "...the implied waiver inquiry is at bottom focused on
   

the fairness of imputing such a waiver. On this principle, an American court refused to imply a waiver when the person entitled to the privilege, who had been subjected by court order to an exceptional accelerated discovery process, accidentally disclosed some protected communications: Transamerica Computer Co. Inc. v. I.B.M. Corp....Likewise, a waiver was not implied beyond actually disclosed material when the person entitled to the privilege, in a spirit of co-operation, disclosed some confidential communications to opposing counsel, not to the court, and the partial disclosure did not prejudice the opposing litigant: Weil v. Investment/Indicators, Research & Management....As the court in Champion International Corp. v. International Paper Co....asked rhetorically, 'Can the disclosure of a very slight amount of privileged material, produced in a spirit of openness in discovery, be the basis for a waiver of a large amount of other privileged material?"

1. In the present case, there is not, of course, any question of partial disclosure of the document. The whole document has been discovered and the question is whether, as a matter of fairness, waiver at the anterior stage of discovery should be imputed at the later stage of reception of evidence at the trial itself. It is not suggested that the discovery of the document was by an oversight.

2. In my opinion, fairness dictates that the waiver at the anterior stage of the proceedings should be treated as extending to all subsequent stages of the litigation. To limit the waiver to the discovery process would, in my view, lead to an artificial situation in which the Commission lawfully obtained the document on discovery but cannot use it in evidence. This would lead to an unfair result.

3. It follows, in my view, that, by discovering the material, Arnotts should be taken to have waived their right to object to its reception into evidence. I propose to rule that the document be admitted in evidence.
   Did Arnotts also waive their privilege by use of the document in the Commission's application to amend its statement of claim?

4. The Commission presented an alternative argument of waiver. I have already found for the Commission on its primary waiver argument. However, because the alternative submission was fully argued, I will deal with it.

5. On behalf of the Commission, it was submitted that Arnotts also waived their privilege by making use of the document in an application made by the Commission to amend its statement of claim. Reliance is placed, by the Commission, upon the decision and reasoning in Johnston v. Jackson (1880) 6 VLR (1) 1 (see also the discussion in Ligertwood, op. cit., at p 177). In Johnston v. Jackson, the defendant's wife made an offer of compromise in a letter marked "without prejudice". The defendant, in an affidavit in support of an application to set aside a verdict obtained in his absence, relied on the fact of this offer. The letter was received into evidence at a subsequent trial over the defendant's objection. It was held that the letter was properly admitted into evidence. The Court said (at p 2):
   "The defendant used this letter to sub-serve his own
   

purpose in making an application to this Court. By so doing, he has deprived himself of the right to say now that his offer was a privileged communication; if he has been allowed to use this letter for his purpose, it would be unjust if the plaintiff was not also to be at liberty to use it for his."

1. In the present case, the document was tendered in the interlocutory application by the Commission, not by Arnotts. No "use" was made of the document by Arnotts. The material was used by the Commission only and Johnston v. Jackson is accordingly distinguishable.

2. Nor, in my view, does fairness, in the sense explained in Maurice's Case, require that waiver of the privilege be imputed here. As has been said, the Commission tendered the document in the interlocutory application. The fact that Arnotts did not object to its tender in a separate, interlocutory application did not waive their privilege for other purposes. The position here may be distinguished from that arising as a result of the discovery of the document. The discovery took place in the course of the principal proceedings and it is only fair that the Commission should be entitled to use the document for any purpose in the main litigation.

3. I propose to make the following orders:
   l. Rule that the document formerly marked "RMA 2" should be
   

admitted in evidence.

2. Order that, up to and including 1 August 1989, the

publication of the reasons for judgment be restricted to the parties and their representatives.