Trans Tasman Energy Group Pty Ltd v State of South Australia (No 2)

Supreme Court of South Australia
(Civil)
TRANS TASMAN ENERGY GROUP PTY LTD v STATE OF SOUTH AUSTRALIA & ORS (No 2)
[2023] SASC 9
Judgment of the Honourable Chief Justice Kourakis
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - PLEADINGS
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - PLEADINGS - STRIKING OUT
EVIDENCE - ADMISSIBILITY - EXCLUSIONS: PRIVILEGES
The respondents filed an interlocutory application seeking orders that certain paragraphs of the Statement of Claim, which referred to the making and rejection of an offer in the course of settlement negotiations, be struck out.
This Court delivered judgment on the strike out application on 19 August 2022 and made orders striking out certain paragraphs of the Statement of Claim on the basis that evidence of the making and rejection of an offer in the course of settlement negotiations fell foul of s 67C of the Evidence Act 1929 (SA).
The applicant now seeks leave to amend its Statement of Claim, and in particular paragraph [61], by pleading additional communications made in the course of settlement negotiations, which the applicant contends, fall within the exception to the statutory negotiation privilege enacted by s 67C(2)(e) of the Evidence Act 1929. Relevantly, the applicant was not a party to the settlement negotiations nor to the agreement which, on the applicant’s case, was reached during those negotiations.
Held:
1.The applicant’s pleaded claim does not allege or rely on an agreement made between the respondents and SA Power Networks settling the public lighting dispute.
2.On the proper construction of s 67C(2)(e) evidence that an agreement was reached, or showing that it was not reached, is admissible only in proceedings in which the rights or obligations conferred by the agreement alleged to have been made in settlement of a civil dispute are in issue.
3.Paragraph [61], having been particularised by reference to the communications and documents made in connection with an attempt to negotiate the settlement of a civil dispute, is therefore necessarily bound to fail.

4. Permission to amend the Statement of Claim is refused.
5. Paragraph [61] is struck out.
Evidence Act 1929 (SA) ss 67, 67C(2)(e); Evidence Act 1995 (Cth) ss 131(1)(a), 131(2)(f), referred to.
State Bank of South Australia v Smoothdale (No 2) Ltd & Security Pacific Overseas Investment Corp (No 2) (1995) 184 LSJS 254., considered.

TRANS TASMAN ENERGY GROUP PTY LTD v STATE OF SOUTH AUSTRALIA & ORS (No 2)
[2023] SASC 9
Civil
The judgment below has been redacted to preserve confidentiality and/or privileged communications.

KOURAKIS CJ: This judgment should be read together with the judgment delivered on 19 August 2022 (the primary judgment) in which I ordered that all references in the Statement of Claim filed by Trans Tasman Energy Group Pty Ltd (Trans Tasman) to a communication made at a time when the Australian Energy Regulator (AER) was arbitrating a dispute between SA Power Networks (SAPN) and the respondents (the communication) be struck out. The communication was made by SAPN to the respondents (the State, and the Councils) for the purpose of determining reasonable charges for public lighting services provided by SAPN. I made that order because the communication was made by SAPN in the course of without prejudice negotiations with the State and the Councils over its charges for public lighting services. I will refer to the dispute between SAPN and the State and the Councils as the public lighting dispute and to their ‘without prejudice negotiations’ as the public lighting negotiations. Trans Tasman’s claim is for remuneration payable for its consultancy services calculated by reference to savings in public lighting charges achieved by the State and the Councils pursuant to a Deed and Consultancy Agreement respectively.
The interlocutory application brought by the State and the Councils sought, as well, an order striking out paragraph [61] of the Statement of Claim. Paragraph [61] did not refer to the communication and was mentioned only co‑laterally in the course of the argument.
I accept that the question whether or not paragraph [61] of the Statement of Claim should be struck out, because it referred to and relied on without prejudice communications, fell within the interlocutory application brought by the State and the Councils. However, I did not rule on paragraph [61] in the course of my reasons. My order was limited to the references to the communication. On the other hand, I accept that Trans Tasman did not put any submission in support of retaining paragraph [61] at the hearing of the interlocutory application. In particular, Trans Tasman did not put the submission, it now makes, that the allegations pleaded in paragraph [61] fell within the exception to without prejudice communications referred to in s 67C(2)(e) of the Evidence Act 1929 (SA) (the Evidence Act). Nonetheless, there is no good reason to preclude Trans Tasman from now putting those submissions. The action has not progressed far; neither the State nor the Councils has filed a defence.
Trans Tasman seeks leave to amend its Statement of Claim in consequence of the striking out of those paragraphs which referred to the communication. In particular, it seeks leave to elaborate on paragraph [61] by pleading additional communications made in connection with the public lighting negotiations. The State and the Councils oppose the application primarily on the grounds that the facts alleged do not fall within the exception to the statutory negotiation privilege enacted by s 67C(2) of the Evidence Act. They also contend that the pleading is, in any event, bad and would be liable to be struck out. To understand the parties’ respective contentions, it is necessary to place paragraph [61] within the context of Trans Tasman’s pleaded claims.
Paragraphs [57] to [60] of the Statement of Claim, to which no amendments are sought, plead the referral of the public lighting dispute to an Expert Review Panel, which on 9 September 2015, delivered a non-binding recommendation that a post-tax revenue model was an appropriate methodology to determine public lighting charges and made recommendations on some cost inputs into that model. (the AER’s PTRM).
Trans Tasman’s proposed amendments to paragraph [61] pleaded an agreement was made at a meeting between SAPN and the respondents for charges for public lighting services (the meeting).
The writing particularised by Trans Tasman as evidencing the agreement it pleads in paragraph [61.2] comprises photographs of sheets of paper hung over a whiteboard on which notes were written by a facilitator of the public lighting negotiations.
In understanding the evidential implications of this pleading, I can take judicial notice of the nature of a facilitator’s role. Notes on whiteboards may be made to record an agreement but are more commonly made to record issues and the positions taken by the parties as the negotiation proceeds. The legal significance of the notes made on the board could only be evaluated in the context of the testimony of the facilitator and/or other participants who may be called about the statements made in the course of the mediation.
The writing suggests no final agreement and contemplates that the negotiation positions may be reneged on.
Exhibited to affidavits put before me were emails from the participants to the negotiation which refer to the meeting. There was considerable debate before me as to whether they were probative of a final agreement having been reached or not. My assessment is that they were more consistent with the ordinary process of mediation which involves tentative or interim concessions along the road to exploring a final settlement.
The Case Evaluation Agreement entered into between the Local Governments, the State of South Australia and SA Power Networks with Shirli Kirschner at the recommendation of the AER provides by clause 14:
The following will at all times be kept confidential and will be privileged, and the Participants and the Case Evaluator will not disclose nor rely upon them nor issue nor cause to be issued any subpoena to give evidence or to produce documents concerning them in any arbitral or judicial proceedings in connection with the Dispute:
iany settlement proposal;
iithe willingness of a Participant to consider any such proposal;
iiiany statement, admission or concession made by a Participant;
ivany statement made or document prepared by the Case Evaluator or the Participants.
Those conditions are generally understood to apply and would generally be implied in any mediation process. The express agreement of those conditions by the parties renders it improbable in the extreme that SAPN on the one hand, and the State and the Local Governments on the other, entered into a binding agreement by the exchange of proposals and the making of concessions. It is in the very nature of negotiations that proposals will be exchanged and concessions made for the purposes of exploring an ultimate resolution. However, it would be inconsistent with the inherent nature of a mediation, involving as it does the tentative exploration of alternative paths towards a resolution, if the making of a concession were to be irrevocable. If the concessions made on either side do not result in a mutually acceptable final resolution, each of the parties may wish to review the concessions or at least the extent of the concessions, which were made when pursuing an alternative pathway to agreement. In the circumstances of this case, in which there was an express agreement cloaking in privilege and precluding the putting into evidence of settlement proposals and any statements, admissions or concessions, it is most improbable that the parties intended to bind themselves to agreements in respect of discrete issues.
I observe that even though paragraph [61.2] is replete with the use of the word ‘agreed’, it is difficult to identify an offer and acceptance. I acknowledge that commercial negotiations are fluid and that an offer may be accepted by an emerging consensus rather than by clear words. However, the pleading does not rise above the making of bargaining concessions for the purpose of advancing the negotiations in the hope of reaching a settlement. It is notable that no particular words or conduct evidencing an acceptance of an offer are alleged against the State or the Councils and that no agreement of a monetary amount for any public lighting charge is alleged. It is plain from the acceptance, in sub-paragraph (viii)(d) of the further particulars, that other inputs were not agreed that the parties did no more than adopt negotiation positions which might yield an agreed public lighting charge.
Paragraph [62] of the Statement of Claim which, by the primary judgment, was struck out pleaded that the communication ‘reflected the agreement pleaded’ in paragraph [61]. However, as we shall see, the Statement of Claim at that time proceeded on the premise that the communication was an offer from SAPN to the State and the Councils to enter into an agreement for the provision of public lighting services.
No amendment is sought to paragraphs [68] and [69] which plead that the Councils are estopped from denying that the Consultancy Agreement with Trans Tasman was extended to 14 October 2016. Paragraphs [70] and [71] make a similar plea, against the State, that the Deed under which Trans Tasman provided services was extended to 13 February 2017.
Paragraphs [73] and [74] of the Statement of Claim plead an unreasonable failure on the part of the Councils to extend the Consultancy Agreement after 14 October 2016. A similar claim is made by paragraphs [75] and [76] against the State for not extending the Deed pursuant to which Trans Tasman provided consultancy services to the State. No amendments are sought to those paragraphs.
No leave is sought to amend paragraphs [77] and [79] which plead that Trans Tasman provided its services, that the objectives of the Deed and Consultancy Agreement were met and that public lighting charges savings were achieved.
Paragraph [83] of the Statement of Claim claims against the State 20 per cent of its share of savings in public lighting charges for five years from 2011 and five years from 2016 as an ‘Other Savings Performance Payment’. Pursuant to the Deed, an ‘Other Savings Performance Payment’ remunerates Trans Tasman for savings achieved in a way other than pursuant to a written agreement between the State and SAPN. A Performance Payment on the other hand remunerates Trans Tasman for savings reached pursuant to a written agreement.
Item 3.4 of Schedule 3 of the Deed provides that the New Base Price for Street Lighting Services means the price negotiated by Trans Tasman and agreed in writing between the State and SAPN. Attachment 1 to Schedule 3 of the Deed shows that the reference to a New Base Price is the price charged for each type of globe and lamp listed in that attachment multiplied by the number of such globes or lamps in the street lighting services provided by SAPN.
Paragraph [83] therefore cannot be taken to rely on the alleged agreement pleaded in paragraph [61] of the Statement of Claim to support a claim for a Performance Payment. Paragraph [83] can only operate on paragraph [61] to produce an entitlement to an ‘Other Savings Performance Payment’ by relying on SAPN’s change in negotiating position as a cause of the ultimately reduced public lighting charges in the years 2015 to 2020. The making of a binding contract is not an element of that claim.
Paragraph [85] of the Statement of Claim claimed damages for breach by the State of its duty of co‑operation by failing to extend the Deed or otherwise make arrangements to allow Trans Tasman to recover the ‘Other Savings Performance Payments’ claimed by paragraph [83] with respect to the 2011-2015 period, consequent on the favourable determination of the AER subsequently obtained by the State.
The Consultancy Agreement made in 2011 (there is also a 2006 consultancy agreement) between Trans Tasman and the Councils, distinguished between a Contracted Savings Payment and a Base Charge Performance Payment. The latter was payable in respect of annual savings not attributable to a long term contract. A Contracted Savings Payment was payable in respect of a contracted, or otherwise binding, reduction in the Base SLUOS (Street Lighting Use of Service) Charge. Schedule 5 to the Consultancy Agreement like Schedule 3 to the Deed, shows that the charge, is, a final sum payable in respect of each globe or lamp set out in the tables of that Schedule.
Paragraph [86], to which no amendment is sought, pleads that Trans Tasman is entitled to 20 per cent of the Councils’ share of the savings from 1 July 2016 as a Base Charge Performance Payment. It therefore does not rely on paragraph [61] as a written agreement supporting a Contracted Savings Payment. Trans Tasman must show that its services contributed to the changed negotiation position of SAPN to support its claim to a Base Charge Performance Payment. Paragraph [87], also unchanged, claims in the alternative a payment for other savings. Paragraph [88] claims in the further alternative that it was apparent savings would be achieved by 2 November 2015 (the date of the expiry of the Consultancy Agreement) and that the Councils ought to have negotiated in good faith to allow Trans Tasman to obtain a payment for other savings. As best I can discern, a payment for other savings is a payment determined pursuant to Item 4.9.2 of Schedule 3 to the Consultancy Agreement. In any event paragraphs [87] and [88] do not, on their face, rely on the making of an agreement between SAPN and the Councils at the meeting.
Paragraph [89], struck out by the primary judgment, pleaded in the alternative that the unreasonable refusal by the Councils to accept SAPN’s offer denied Trans Tasman a performance payment.
It can be seen from those paragraphs that before my ruling, and the making of the amendments, the effect of paragraphs [54] through to [61] was no more than to plead an agreement on the form of an offer which would be drawn up by SAPN and provided to the respondents. The now struck out alternative pleas, that Trans Tasman ‘would have been entitled to a performance payment’ had the State and the Councils accepted the offer , are inconsistent with Trans Tasman’s position that a binding agreement was made at the meeting. To the extent to which Trans Tasman has a claim to an ‘Other Savings Performance Payment’, a ‘Base Charge Performance Payment’, or a ‘Payment for Other Savings’ it must be founded on the provision of services by which savings were achieved. It is not dependent on the making of any particular agreement at the meeting. Insofar as those services were provided by way of communications made in connection with the negotiation of the public lighting dispute, Trans Tasman cannot lead evidence of those communications.
The facts pleaded in paragraph [61] cannot make out an entitlement to a Performance Payment under the Deed or a Contracted Savings Payment under the Consultancy Agreement. It can only plead a partial agreement as an event which resulted in the achievement of savings between 2016 and 2020. To the extent that there was an agreement, it did not settle the dispute between SAPN, on the one hand, and the State and the Councils on the other. The pleadings do not therefore assert facts which support a finding that there was an agreement for the settlement of a dispute between SAPN, on the one hand, and the State and the Councils on the other.
The Enforcement Exception
Section 67C of the Evidence Act relevantly provides:
67C—Exclusion of evidence of settlement negotiations
(1) Subject to this section, evidence of a communication made in connection with an attempt to negotiate the settlement of a civil dispute, or of a document prepared in connection with such an attempt, is not admissible in any civil or criminal proceedings.
(2) Such evidence is, however, admissible if—
…
(e) the proceeding in which the evidence is to be adduced is a proceeding to enforce an agreement for the settlement of the dispute or a proceeding in which the making of such an agreement is in issue; or
I refer generally to my construction of s 67C of the Evidence Act in the primary judgment. I make the following additional observations.
First, the rule of exclusion in subsection (1) is very wide. The exclusion extends to evidence of a communication made in connection with an attempt to negotiate the settlement of a civil dispute. It follows that it need not be a communication between the parties in dispute. It similarly extends to a document prepared in connection with such an attempt. The rule of exclusion extends to any civil or criminal proceedings.
Secondly, the purpose of subparagraph (e) is clear on its face. If the rule of exclusion were to apply without the exception in subparagraph (e) a person who sought to enforce a contractually binding settlement of a civil dispute made in the course of negotiating that dispute could not lead evidence of the oral agreement, or even a document recording the agreement, in proceedings brought to enforce it. Without subparagraph (e), the very purpose of s 67C of the Evidence Act to encourage negotiated agreements would be defeated because the resulting resolution would be unenforceable. Similarly, a person against whom the proceeding to enforce was brought could not adduce evidence of statements made or documents provided in connection with the negotiation which showed, in context, that no concluded agreement was reached. In short, the purpose of the first limb of subparagraph (e) is to allow evidence relevant to the issue of whether a binding agreement in settlement of a dispute was made in the course of an attempt to negotiate the settlement of that dispute.

Thirdly, it is to be noted that the first limb of subparagraph (e) does not specify or limit in any way the parties to the proceeding in which the evidence is tendered. In the ordinary course it can be expected that the parties to that litigation will be the parties who negotiated the dispute but that may not necessarily be so. The rights under an agreement reached in settlement of a dispute might be assigned. Alternatively, the proceeding to enforce an agreement might be brought by a liquidator of a corporate party, or a successor to a trustee who negotiated the settlement. There are therefore good reasons for the provision not to expressly specify or limit the parties who may adduce the evidence to enforce a settlement; but it does not follow that the failure to specify the parties means that any person may adduce evidence of the negotiations in any dispute.
Fourthly, as to the second limb of subparagraph (e), the first thing to note is the obvious. It appears in the same paragraph as the exception in respect of enforcement of an agreement. The most natural reading of the second limb is that it is the converse of the first. That is to say that just as the first limb allows evidence of communications or documents to be adduced to prove an agreement in order to enforce it, the purpose of the second limb is to allow a person whose rights or interests would be burdened by the alleged agreement to bring proceedings for relief against persons attempting to take the benefit of the agreement. For example, a party who claims to have the benefit of an agreement for the settlement of a dispute might seek to give effect to the agreement on a register of real or personal property, or may simply attempt to enter into possession of land or take personal property in purported reliance on an agreement reached in without prejudice negotiations. The second limb allows a person whose interests may be compromised by the self-help actions of another party to bring proceedings for a declaration that no agreement was reached, or to enjoin the threatened conduct of the other party. The second limb allows the person bringing that action to prove his or her claim by adducing evidence of the communications.
It is also important that subparagraph (e) in its present form was enacted after the decision in State Bank v Smoothdale.[1] In that case, this Court held that the exception created by the predecessor of subparagraph (e) allowed a litigant who was not a party to the negotiated settlement to adduce evidence of communications and documents made or prepared by the parties to the negotiation to prove its case.
[1] State Bank of South Australia v Smoothdale (No 2) Ltd & Security Pacific Overseas Investment Corp (No 2) (1995) 184 LSJS 254 (Smoothdale).
In the second reading speech for the [Evidence (Settlement Negotiations) Amendment Bill] the Deputy Premier said:
… The rationale for the protection of evidence of communications made in connection with an attempt to negotiate the settlement of dispute is founded on the public interest in encouraging those in dispute to settle their differences rather than litigate them to a finish. Settlement negotiations are encouraged by protecting a party from the use against the party of concessions made in the course of such negotiations. Disputing parties should not be discouraged from making concessions by the knowledge that anything said in the course of negotiations might be used to their prejudice.
…
‘In the course of the State Bank of SA v Smoothdale No 2 Ltd & Anor litigation the scope of section 67c(2)(e) came into question. The question was whether the statutory protection survives the settlement of a dispute, so that things said and done in the course of successful negotiations must be revealed, and can be used as evidence, in proceedings involving parties other than, or additional to, the original disputing parties.
The Supreme Court, in a judgment delivered on 13^th December 1995, held that the effect of section 67c(2)(e) is that once a dispute has been settled any claim of privilege for communications or documents in connection with those successful negotiations ends.
Frank negotiations will be discouraged if parties to the negotiations know that communications made in the course of settlement of a dispute made be used in any subsequent litigation connected with the same subject matter.
This bill repeals the existing section 67c(2)(e). It is to be noted that the New South Wales and Commonwealth Evidence Acts provisions, on which section 67c(2)(e) is based, do not have a provision similar to section 67c(2)(e).
The opportunity has also been taken to include a provision which makes it clear that evidence of communications made in the course of settlement negotiations can be adduced in proceedings to enforce an agreement to settle a dispute or proceedings in which the making of such an agreement is an issue. Such a provision reflects the common law and needs to be included in here for completeness. This new provision is inserted in place of the repealed section 67c(2)(e).[2]
[2] South Australia, Parliamentary Debates, House of Assembly, 26 March 1996, 1237.
The mischief identified in the second reading speech is two-fold. First, the legislature identified what it saw as the undesirable consequences of the holding in Smoothdale that all privilege in communications made in the course of negotiations was lost on settlement of the dispute. For that reason, it repealed the former subparagraph (e). The construction for which Trans Tasman contends would breathe new life into that mischief. The second purpose of the legislature was to facilitate the proper and just resolution of litigation over whether an agreement was reached. That mischief was addressed by enacting the present subparagraph (e). On a proper construction that exception is therefore impliedly limited to litigation between parties in respect of rights and obligations conferred or imposed by the negotiated agreement itself.
The reference in the second reading speech to the New South Wales and Commonwealth Evidence Acts is not clear. The point being made seems to be that those Acts did not have an equivalent to the repealed subparagraph (e) but that the new subparagraph (e) is based on a provision in those Acts. The reference to taking the opportunity to include the new subparagraph (e) suggests that the purpose of the amendment was to remove the former subparagraph (e) because it allowed persons other than parties enjoying or burdened by the agreement or alleged agreement to adduce evidence of their communications, but also to allow for communications made in the settlement negotiations to be adduced in proceedings to enforce any resulting agreement or proceedings where the making of the agreement was disputed.
Trans Tasman contends that the second limb of s 67C(2)(e) is not limited to the converse of the first. It relies on a wide reading of the text of the second limb. It contends that the making of the agreement between SAPN and the State and the Councils is in issue in these proceedings because Trans Tasman’s claim for commission is based on its making. I have found that Trans Tasman’s pleadings do not rely on the making of an agreement at the meeting but proceed to consider the proper construction of s 67C of the Evidence Act on the contrary premise. Trans Tasman’s construction is one which gives the second limb a very different and wider subject matter and sphere of operation than the first. That would be surprising. One would expect it to appear in a separate subparagraph if that were the case. Secondly, it would have a sphere of operation which is almost as wide as the construction given to former subparagraph (e) by this Court in Smoothdale. Moreover, if the second limb of subparagraph (e) bore that wide meaning the first limb would be superfluous.
Trans Tasman relies for the purpose of its construction of s 67C(2)(e) on s 131 of the Evidence Act 1995 (Cth) (the Commonwealth Evidence Act).
Section 131 of the Evidence Act provides:
131 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:
…
(f)     the proceeding in which it is sought to adduce the evidence is a proceeding to enforce an agreement between the persons in dispute to settle the dispute, or a proceeding in which the making of such an agreement is in issue.
It is to be noted that s 131(1)(a) of the Commonwealth Evidence Act extends the rule of exclusion expressly to communications between one or more of the persons in dispute and a third party. However, arguably s 67C of the Evidence Act also extends to communications with a third party, if they are made in connection with the attempt to negotiate a settlement.
Subparagraph (f) of s 131(2) of the Commonwealth Evidence Act may be read such that the words ‘between the persons in dispute’ qualify the word ‘proceeding’ such that the first limb reads ‘the proceeding in which it is sought to adduce the evidence is a proceeding between the persons in dispute to enforce an agreement [made by them] to settle the dispute’. On that construction the second limb of the exception might be construed to apply to a dispute between parties about rights and obligations which were not conferred by an agreement settling the dispute. Alternatively, s 131(2)(f) of the Commonwealth Evidence Act is a less elegant form of s 67C(2)(e) and the words between the persons in dispute qualify the word ‘agreement’. I prefer the latter construction of s 131(2) of the Commonwealth Evidence Act but there is little to be gained by way of assistance in the construction of s 67C of the Evidence Act by comparing it to alternative attempts by Parliaments to allow for communications and documents to be used for the purpose of enforcing an agreement made in the course of privileged negotiations.
Conclusion
I hold that Trans Tasman cannot rely on communications made in the course of negotiations between the respondents and SAPN for two reasons. First Trans Tasman’s claim as pleaded does not allege or rely on an agreement made between the respondents and SAPN settling the public lighting dispute for the reasons given in paragraphs [29] and [31]. Secondly, on a proper construction of s 67C(2)(e) evidence that an agreement was reached, or showing that it was not reached, is admissible only in proceedings in which the rights or obligations conferred by an alleged agreement made in settlement of a civil dispute are in issue.
Paragraph [61] of the Statement of Claim, having been particularised by reference to communications and documents made in connection with an attempt to negotiate the settlement of a civil dispute, but which do not fall within an exception, is therefore necessarily bound to fail. I therefore refuse permission to amend the Statement of Claim by further particularising paragraph [61] and strike out the paragraph as pleaded.

[2023] SASC 9

23 March 2023