Yokogawa Australia Pty Ltd v Alstom Power Ltd - [2009] SASC 377

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
YOKOGAWA AUST PTY LTD & ORS v ALSTOM POWER LTD
[2009] SASC 377
Judgment of The Full Court
(The Honourable Justice Duggan, The Honourable Justice Sulan and The Honourable Justice Kourakis)
11 December 2009
PROCEDURE - DISCOVERY AND INTERROGATORIES - DISCOVERY AND INSPECTION OF DOCUMENTS - PRODUCTION AND INSPECTION - GROUNDS FOR RESISTING PRODUCTION - LEGAL PROFESSIONAL PRIVILEGE
Appeal against decision of single judge refusing application seeking production of documents for inspection - whether documents in Kadlunga list privileged on basis of legal professional privilege, without prejudice privilege or both - whether description of documents adequate - scope of without prejudice privilege - whether internal communications protected by without prejudice privilege - whether post-settlement communications protected by without prejudice privilege - whether without prejudice privilege extends to protect negotiations in earlier settlement between the plaintiff and another party from disclosure in this action between appellants and respondent - whether without prejudice privilege protects earlier negotiations pleaded in this action between plaintiff and defendants - whether without prejudice privilege restricted to admissions made in course of settlement negotiations - whether waiver of without prejudice privilege on part of respondent by putting state of mind and in particular the reasonableness of its state of mind in issue - whether waiver of legal professional privilege on part of respondent - whether sufficient evidence to support claim of privilege on part of respondent - whether single judge erred in conducting inspection of documents.
Held: Appeal dismissed - single judge did not err in upholding claim for privilege - litigation had connection with same subject matter as negotiations - not appropriate to confine without prejudice privilege to admissions - without prejudice privilege applies irrespective of whether settlement reached - single judge correct in finding that documents subject to without prejudice privilege were prepared during the course of negotiations - considerations relating to waiver of legal professional privilege applicable to without prejudice privilege - respondent had not waived privilege by putting state of mind in issue - objective reasonableness of settlement different enquiry in present circumstances from reasonableness of state of mind - single judge did not err in conducting inspection of documents.
Trade Practices Act 1974 (Cth) s 51AA; Evidence Act 1929 (SA) s 67C; Supreme Court Rules 1987 (SA) R 59; Insurance Contracts Act 1984 (Cth) s 28(3), referred to.
Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603; Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314; Mann v Carnell (1999) 201 CLR 1; Benecke v National Australia Bank (1993) 35 NSWLR 110; Adelaide Steamship Co Ltd v Spalvins (1998) 81 FCR 360; DSE (Holdings) Pty Ltd v Intertan Inc [2003] FCA 384; BNP Paribas v Pacific Carriers Ltd [2005] NSWCA 72; Sarkis v Summitt Broadway Pty Ltd trading as Sydney City Mitsubishi [2006] NSWCA 358; Pickering v Edmunds (1994) 63 SASR 357; Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd & Ors (1995) 37 NSWLR 405; Commonwealth of Australia v Temwood Holdings Pty Ltd [2002] WASC 107; Cutts v Head [1984] Ch 290; Hong Kong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 512; Rush & Tompkins v Greater London Council [1989] 1 AC 1280; Village/Nine Network & Ors v Mercantile Mutual [1999] QCA 276; Glengallan Investments Pty Ltd v Arthur Anderson [2001] QCA 115; Re Turf Enterprises Pty Ltd [1975] Qd R 266; Walker v Wilsher (1989) 23 QBD 335; State of Western Australia v Southern Equities Corporation Ltd & Ors (1996) 69 FCR 245; Muller & Linsley v Mortimer [1996] PNLR 74; Ofulue v Bossert [2006] 2 WLR 749; Field v Commissioner for Railways for New South Wales (1957) 99 CLR 285; Grant v Downs (1976) 135 CLR 674; Barnes v Commissioner of Taxation [2007] FCAFC 88, considered.

YOKOGAWA AUST PTY LTD & ORS v ALSTOM POWER LTD
[2009] SASC 377
Full Court: Duggan, Sulan and Kourakis JJ

DUGGAN J: The respondent, Alstom Power Ltd (“Alstom”), is the plaintiff in an action against three defendants who are parties to a joint venture known as YDRML Augusta Joint Venture (“YDRML”). The joint venturers are the appellants in the present appeal.
In March 2002 Alstom entered into a contract (“the head contract”) with companies carrying on business in South Australia under the business name of Flinders Power Partnership (“FPP”). FPP operates the Playford B power station at Port Augusta. Under the contract Alstom undertook to carry out refurbishment works at the power station.
By a contract entered into by at least 24 February 2003 (“the subcontract”) Alstom subcontracted to YDRML electrical work required as part of the refurbishment.
Alstom claims that there were delays caused by YDRML which resulted in Alstom being exposed to potential liability to FPP. In particular, Alstom was prevented from meeting certain requirements which were to be fulfilled by 15 September 2003. According to the amended statement of claim (“the ASC”) Alstom negotiated with FPP about the consequences of the delays. This resulted in a settlement entered into between Alstom and FPP in September 2003 (“the 2003 settlement”). The terms of settlement were incorporated into a deed.
It was a term of the deed that FPP would not apply liquidated damages due under the head contract against Alstom for delay between 15 September 2003 and 31 October 2003. FPP applied liquidated damages against Alstom for the period 31 October 2003 to 20 February 2004 in the amount of approximately $11,000,000. The time for completion of certain stages of the work was extended. Alstom claims that YDRML benefited from the 2003 settlement by reason of the non‑application of liquidated damages against Alstom, thus avoiding a follow-on claim against YDRML by Alstom.
Alstom claims that YDRML was responsible for further delays after the 2003 settlement. These delays resulted in a dispute between Alstom and FPP which led to a further settlement (“the 2005 settlement”). Alstom and FPP executed a deed incorporating the terms of the 2005 settlement. It was a term of the deed that Alstom pay FPP the sum of $20,500,000 by way of liquidated damages.
Subsequently, Alstom commenced the present proceedings against YDRML. The relief sought by Alstom includes a claim for the sum of $20,500,000 which Alstom became liable to pay FPP pursuant to the terms of the 2005 settlement. There is also a claim against FPP for damages for negligence.
The appeal to this Court is against the decision of a single judge of the Court who upheld a claim of privilege by Alstom and refused to order the production by Alstom to YDRML of documents discovered by Alstom. The documents were created in connection with the 2003 and 2005 settlements. The appeal raises issues of legal professional privilege and without prejudice privilege. Alstom claims that the documents in question are protected by one or other or both of those privileges. YDRML has put forward a number of arguments against Alstom’s claims of privilege. At the forefront of those arguments is the assertion that there was an implied waiver of privilege arising from the manner in which Alstom has pleaded its case.
Shortly stated YDRML’s case is that Alstom’s claim for damages is based in part on the liability which Alstom incurred to pay damages to FPP under the 2005 settlement and, further, that it is Alstom’s case that this settlement was reasonable. According to YDRML it follows that any legal advice which Alstom may have been given during the settlement process is relevant to the issues which will arise at the trial. The same reasoning is said to apply to without prejudice communications which took place in the course of the settlement negotiations. According to the argument, Alstom has impliedly waived privilege in respect of this advice and these communications.
There is a further basis relied upon by YDRML to support its claim that Alstom has waived privilege. YDRML has pleaded in its defence and counterclaim that Alstom’s conduct was, in certain respects, unconscionable. YDRML claims that, by joining issue on this averment, Alstom has put into issue its state of mind. According to the argument, any legal advice which might have been given to Alstom is relevant to its state of mind and the same can be said for without prejudice communications. It is argued that these circumstances should also result in an order for the disclosure of the negotiation documents and any legal advice Alstom received.
Alstom has discovered and produced the two settlement agreements. It was pointed out during the course of argument on the appeal that, for present purposes, the 2003 settlement is subsumed under the 2005 settlement. The focus in relation to the reasonableness of settlement is on the 2005 settlement with the 2003 settlement providing part of the background to the later settlement.
The pleadings
The ASC sets out the details of the delays which Alstom claims were caused by YDRML prior to September 2003. Alstom pleads that in about September 2003 when it became apparent to it that, by reason of these delays it would be unable to complete certain works in the time specified in the head contract, it entered into negotiations with FPP to obtain an extension of time (ASC [96]). Alstom alleges that there were discussions between it and YDRML about these negotiations and that it was agreed between Alstom and YDRML that the latter would obtain the benefit of any agreement between Alstom and FPP in respect of the non-application of liquidated damages (ASC [98]).
According to the ASC, the agreement which resulted in the 2003 settlement included a term that FPP would not seek liquidated damages against Alstom for the period 15 September 2009 to 31 October 2003 (ASC [168]).
Alstom claims that because of further delays caused by YDRML after the 2003 settlement there was a failure to comply with the time limits on other stages of the work. Alstom pleads that as a consequence of YDRML’s breaches of contract Alstom was exposed to a potential liability to FPP of up to the contract price of $148.5 million under the head contract (ASC [184]).
It is unnecessary to detail the various stages identified in the head contract which were not completed by the stipulated times. Suffice to say that Alstom pleads that the delays continued up to 24 February 2005 necessitating further negotiations with FPP which led to the February 2005 settlement. As has been pointed out, this settlement acknowledged that Alstom was liable to FPP in the sum of $20,500,000 by way of liquidated damages. This amount is now central to Alstom’s claim against YDRML.
Alstom pleads that as a consequence of the delays and in order to mitigate its loss Alstom entered into the 2005 settlement on 24 February 2005. After pleading breaches of contract and negligence by YDRML, Alstom sets out its claim for damages in the ASC. Alstom pleads that, by reason of the failure by YDRML to complete each of the stages in time, FPP made claims against Alstom for liquidated damages due under the head contract. In ASC [191] Alstom pleads that it is entitled to claim from YDRML the sum of $20,500,000 being the amount paid by Alstom to FPP in respect of Alstom’s potential liability to FPP.
In ASC [190] Alstom pleads as follows:
But for YDRML’s breaches of contract and duty, the plaintiff [Alstom] would have completed the power station refurbishment works in accordance with the Head Contract (or, alternatively, substantially in accordance with the Head Contract) and would not have been exposed to the potential liability to FPP as pleaded in paragraph 184 above or at all. In the circumstances, the plaintiff’s actions in resolving potential further dispute with FPP were prudent and reasonable.
In its defence and counterclaim YDRML denies that it breached the subcontract entered into with Alstom and claims that the relevant delays were caused by Alstom. YDRML pleads that Alstom’s reactions to the delays caused it to act in various ways which were contrary to YDRML’s interests and that Alstom’s actions constituted unconscionable conduct under the Trade Practices Act 1974 (Cth).
Proceedings before the single judge
On 4 February 2008 the single judge ruled on an application by YDRML for further discovery of various classes of documents.[1] They included documents relevant to the 2003 and 2005 settlements. In his ruling the judge ordered that a Kadlunga list of these and other documents be prepared.
[1] [2008] SASC 15.
On 12 September 2008 YDRML’s solicitors wrote to Alstom’s solicitors and advised that, in their view, Alstom had waived legal professional privilege and without prejudice privilege in relation to the documents associated with the two settlements. The letter stated in part:
The defendants’ position is that Alstom has waived privilege, by voluntarily pleading into issue its state of mind and importantly, that its state of mind was reasonable. In this regard we refer to paragraphs 183 to 191 of the Amended Statement of Claim. In addition, Alstom also puts in issue the February 2005 settlement agreement in paragraphs 127, 281 and 282 of the Amended Statement of Claim. It is clear that these pleadings constitute a waiver of privilege.
On 4 November 2008 YDRML filed an application for specific directions which sought an order that:
The Plaintiff produce to the Defendants copies of the documents described in the Kadlunga List served by the Plaintiff pursuant to the Orders made by Justice Anderson on 4 February 2008.
This application was heard on 28 November 2008. The submissions included arguments on the issue of waiver of privilege. The single judge delivered reasons on 19 December 2008.[2] He noted that the Kadlunga list had been filed and that it listed 290 documents. He observed that the list asserted the type of privilege claimed and the basis of that privilege.
[2] [2008] SASC 356.
His Honour then dealt with a complaint by counsel for Alstom about the nature of the matters to be argued at the hearing:[3]
[3] [2008] SASC 356 at [35]-[38].
Mr Harris argued that the only area of dispute signalled by YDRML prior to this hearing was that any claim for privilege had been waived by virtue of the allegations in the statement of claim by Alstom relating to its corporate state of mind.
Mr Harris argued that he was therefore entitled to believe that the only issue raised in this interlocutory hearing relating to production was the question of waiver of privilege. I allowed him to file a written response to Mr Wells’ oral argument on privilege generally and on the onus of proof. Mr Harris submitted that the matter had been dealt with at all stages by the respective solicitors only in relation to the question of waiver following the production of the Kadlunga list.
Alstom claimed that YDRML were not entitled to inspection of the documents in the Kadlunga list. That response was met with this application for production of the documents contained in the list.
As is pointed out in the written reply, there was no challenge to the claim for privilege in the normal way in respect of the documents in the list other than the question of the alleged waiver.
His Honour observed that, in his view, “generally adequate descriptions” had been given of the documents in the Kadlunga list.[4] He declined to order production of any documents in the list but went on to deal with the argument on waiver of legal professional privilege and without prejudice privilege. He noted that the argument that privilege had been waived related to the 2003 and 2005 settlements. He continued:[5]
The principle upon which Mr Wells relies for this claim is that by its pleading Alstom has put into issue its state of mind so that there is an inconsistency in claiming the state of mind and at the same time maintaining a claim for privilege so that the state of mind cannot be explored.
From the correspondence exchanged, and in particular a letter of 12 September 2008, YDRML’s solicitor’s are relying on the pleadings by Alstom in three parts, namely, paragraph 127, paragraphs 183 to 191 and paragraphs 281 and 282, to support their submission.
Mr Harris argues that when those pleadings are analysed, the argument put by YDRML cannot be sustained. In paragraph 127 he points out that there is no reference to any legal advice, and it is not necessary to infer that any such advice was given to influence the relevant belief of the officers of Alstom. I agree with that submission.
Paragraphs 183 to 191 involve an agreement between Alstom and FPP. Again it is pointed out that the state of mind referred to relates to Alstom’s officers in relation to their assessment of their ability to meet the requirements of the head contract. There is no necessary connection between that state of mind and any legal advice. It would seem to me that it is more likely that the state of mind arose as a result of engineering and associated matters and involved the expertise and judgment of the officers of Alstom. Again I agree with the submission put by Alstom.
Paragraphs 281 and 282 do not exist. It was not suggested in argument that the reference was other than an error but I was not referred to any other paragraphs in lieu of those two.
In my view, there is no implied waiver of privilege in Alstom’s pleadings. YDRML’s claim for production should be dismissed, for the reasons given as to the documents related to the settlements in respect of which the waiver argument was advanced, and generally for the reasons I expressed as to the Kadlunga list.
YDRML’s claim for production was then dismissed.
[4] [2008] SASC 356 at [43].
[5] [2008] SASC 356 at [47]-[52].
It is apparent from His Honour’s remarks that the basis put forward by counsel for YDRML for waiver of privilege was that Alstom had put its state of mind in issue and, in particular, the reasonableness of its state of mind. As will appear later in these reasons, there are a number of cases which deal with waiver of privilege where a party’s state of mind as such is put in issue. In my view, however, it was not apt to place the present case in that category. Alstom’s pleadings raised the question of the objective reasonableness of the 2005 settlement and not the state of mind of Alstom. Although YDRML submitted to the single judge that Alstom had put in issue the question whether its state of mind was reasonable, this is not the same concept as an enquiry into the objective reasonableness of the settlement.
One of the criticisms of the single judge was that he failed to appreciate the extent to which Alstom’s state of mind was relevant to the issue of reasonableness on the pleadings. However, as earlier observed, YDRML raised that consideration but in a somewhat different context arising from YDRML’s plea of unconscionability. I respectfully agree with the single judge that some of the pleadings to which he was referred raised the issue of Alstom’s state of mind in relation to aspects associated with the assessment of Alstom’s ability to meet the requirements of the head contract.[6] However, none of these references could form the basis of a waiver of privilege. The only obvious pleading in the ASC relevant to the argument on waiver is in ASC [190][7] where it is asserted that:
In the circumstances, the plaintiff’s actions in resolving potential further dispute with FPP were prudent and reasonable.
This pleading does raise the reasonableness of the settlement and it is conceded by Mr Harris that reasonableness in this context will be an issue in the case.
[6] [2008] SASC 356 at [50].
[7] See these reasons at [17].

At the hearing of the appeal YDRML based its claim of waiver on Alstom’s assertion that the 2005 settlement was reasonable. It was argued that the assertion of reasonableness is relevant to causation in relation to Alstom’s claim that it suffered loss as a result of the conduct of YDRML.
Although Mr Harris QC, for Alstom, conceded that his client intends to establish the reasonableness of the settlement with FPP, he made it clear that Alstom’s intention was to establish reasonableness by reference to the objective circumstances of the two settlements and that no reliance would be placed on any legal advice which Alstom may have received in order to prove such reasonableness.
Mr Wells QC, for YDRML, argued that the issue of reasonableness was relevant to the question of causation. In his submission Alstom cannot prove causation against YDRML without establishing the reasonableness of the settlement. According to the submission, the plea of reasonableness by Alstom should lead to a finding that legal professional privilege and without prejudice privilege have been waived.
The relevance of the reasonableness of a settlement
I propose to discuss each of these privileges in turn. However before doing so, it is convenient to refer to Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd[8] a case in which it was necessary to establish the reasonableness of the settlement of an action in related proceedings. The plaintiff requested an insurance broker to arrange an industrial special risks policy for his premises. The broker negligently failed to disclose the insured’s claims history fully to the insurer. The insured’s premises were damaged by fire. The failure to make full disclosure of the previous claims history entitled the insurer to reduce its liability under the policy to nil.[9] The insured commenced proceedings against the insurer and the broker. The action against the insurer was settled when the insurer agreed to pay a lesser sum to the insured by way of compromise. The insured claimed the balance from the broker. Brennan CJ, McHugh and Hayne JJ (Gummow and Kirby JJ dissenting) held that the insured was entitled to rely on the settlement in establishing damages. However, the majority held that it was necessary to prove that the settlement was reasonable. It was held that the reasonableness of the settlement was relevant to causation. If the settlement was reasonable then it was appropriate to attribute it to the broker’s negligence.
[8] (1998) 192 CLR 603.
[9] Insurance Contracts Act 1984 (Cth) s 28(3).
Brennan CJ observed that:[10]
The critical question is whether the insured’s acceptance of a sum less than a full indemnity should be regarded as a result of breach of contract or of negligence. If the sum accepted in settlement were a reasonable sum to accept in settlement of the insured’s claim for an indemnity against the insurer, a shortfall in the amount of the indemnity is, as a matter of common sense and experience, the result of the broker’s negligence. But if the sum accepted were unreasonably low, the insured could not establish that the entire shortfall was the result of the broker’s negligence. As the insured was obliged to act reasonably to mitigate any loss suffered by reason of the broker’s breach of retainer or negligence, the loss incurred by the acceptance of an unreasonably low sum in settlement could not be attributed to the broker’s wrongful conduct, either because the acceptance of such a sum was not a reasonable step to take in mitigation of the insured’s loss or because it was not foreseeable that the insured would act unreasonably.
(Footnotes omitted)
[10] (1998) 192 CLR 603 at [3].
As part of its case the plaintiff led evidence of the fact that his legal advisers, including senior counsel, had advised him to settle the action against the insurer for a particular sum. The question arose whether such evidence was relevant.
After noting that the test of reasonableness was objective Brennan CJ said:[11]
Evidence of the advice which the insured received to induce it to accept the settlement is not proof in itself of the reasonableness of the settlement advised. The factors which lead to the giving of the advice are factors relevant to the reasonableness of the settlement but the only relevance of advice given by the insured’s legal advisers to settle is that it tends to negative the hypothesis that the insured acted unreasonably in accepting the settlement.
[11] (1998) 192 CLR 603 at [6].
McHugh J referred to the relevance of reasonableness to causation in the following passage:[12]
Once the trial judge found that the settlement was reasonable, the difference between the indemnity and the settlement sum plainly resulted from the broker’s breach. Both as a matter of logic and common sense, the difference resulted from the failure of the broker to disclose the prior claims to the insurer. If the broker had not breached its duty, the insured would not have been placed in a position where it had to decide whether or not to accept the insurer’s offer. As long as the decision of the insured to accept the settlement was reasonable, the act of the insured in accepting the settlement was directly connected with the broker's breach of duty.
(Footnote omitted)
[12] (1998) 192 CLR 603 at [23].
As to the relevance of legal advice to the issue of the reasonableness of the settlement, McHugh J disagreed with an opinion expressed by Somervell LJ in Biggin & Co Ltd v Permanite Ltd[13] that the evidence of legal advisers is not ordinarily relevant or admissible in establishing reasonableness in this context. McHugh J said:[14]
With great respect, I am unable to accept that the evidence of the legal advisers is not normally relevant or admissible in such a case. On the contrary, in most cases where the settlement is made on legal advice, the evidence of the relevant legal advisers is vital. This is because the risk involved in the litigation and the reasoning which led to the settlement are the factors that will determine whether or not the settlement was reasonable. If an unreasonable settlement is made on bad legal advice, the innocent party's remedy is against the legal adviser, not the contract breaker.
[13] [1951] 2 KB 314 at 321.
[14] (1998) 192 CLR 603 at [35].
Hayne J reached the conclusion that:[15]
[15] (1998) 192 CLR 603 at [128].
… the damages recoverable by the insured should be fixed as the difference between what the insured recovered under the settlement (if it was reasonable) and what would have been recovered under the policy which the broker ought to have arranged (together, no doubt, in an appropriate case, with any other costs or expenses incurred by the insured as a result of the broker’s breach and taking account of any extra premium that would have been payable).
His Honour continued:[16]
Whether the compromise of a claim was reasonable must be judged objectively, not subjectively. Thus whether a party to litigation has received advice to settle may be important in deciding whether that person’s conduct in settling the case was reasonable but, standing alone, the fact that a litigant was advised to settle at a particular figure reveals little or nothing about whether the settlement reached was reasonable. This is not to say that evidence may not be led that such advice was given and adopted; it may. But evidence of that kind does not conclude the issue. What will usually be much more important is the reasoning that supported the advice that was given for that will ordinarily reveal why it was thought reasonable to compromise the claim as it was.
His Honour returned to the question of legal advice later in his judgment:[17]
How, then, is the reasonableness of the settlement to be established? The Court of Appeal in Biggin & Co Ltd held that it was relevant for the client that had compromised to give evidence that this step had been “made under advice legally taken”, but Somervell LJ went on to suggest that the advisers would not “normally” be relevant as admissible witnesses. It may be that calling legal advisers to give evidence about the settlement may present some question about legal professional privilege but I do not accept that the evidence of the advisers would be irrelevant or inadmissible. Often it is the advisers who will be best placed to give evidence about the matters that were taken into account in deciding to settle the case and it is they who may well be able to deal with such matters as what investigations had been made or why particular investigations had not been pursued. Sometimes there may be questions about the course of negotiations: why was this offer accepted; why was no counter offer made? Sometimes that course of negotiations may reveal why a settlement was reached when it was reached and that, in turn, may bear upon whether it was reasonable. Again, it will be those who conducted the negotiations, often the legal advisers, who will be able to speak of these matters.
Considerations of legal professional privilege are not the only considerations that may affect the evidence that may be led. If the settlement has been reached at a mediation, the rules under which the mediation was conducted, whether rules of court or privately agreed rules, may restrict what may be revealed about what occurred at the mediation. But that may mean only that the reasonableness of the settlement reached may have to be demonstrated without resort to that material.
(Footnotes omitted)
[16] (1998) 192 CLR 603 at [129].
[17] (1998) 192 CLR 603 at [135]-[136].
In the present case Alstom has put the reasonableness of the settlement with FPP in issue. The next question is whether, by doing so, it has waived legal professional privilege and without prejudice privilege.
Waiver of legal professional privilege
It is well established at common law that legal professional privilege may be waived by implication. The circumstances in which such a waiver can arise were referred to by the majority of the High Court in Mann v Carnell.[18] Their Honours said:[19]
At common law, a person who would otherwise be entitled to the benefit of legal professional privilege may waive the privilege. It has been observed that “waiver” is a vague term, used in many senses, and that it often requires further definition according to the context. Legal professional privilege exists to protect the confidentiality of communications between lawyer and client. It is the client who is entitled to the benefit of such confidentiality, and who may relinquish that entitlement. It is inconsistency between the conduct of the client and maintenance of the confidentiality which effects a waiver of the privilege. Examples include disclosure by a client of the client’s version of a communication with a lawyer, which entitles the lawyer to give his or her account of the communication, or the institution of proceedings for professional negligence against a lawyer, in which the lawyer’s evidence as to advice given to the client will be received.
Waiver may be express or implied. Disputes as to implied waiver usually arise from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. When an affirmative answer is given to such a question, it is sometimes said that waiver is “imputed by operation of law”. This means that the law recognises the inconsistency and determines its consequences, even though such consequences may not reflect the subjective intention of the party who has lost the privilege. Thus, in Benecke v National Australia Bank, the client was held to have waived privilege by giving evidence, in legal proceedings, concerning her instructions to a barrister in related proceedings, even though she apparently believed she could prevent the barrister from giving the barrister’s version of those instructions. She did not subjectively intend to abandon the privilege. She may not even have turned her mind to the question. However, her intentional act was inconsistent with the maintenance of the confidentiality of the communication. What brings about the waiver is the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large.
(Footnotes omitted)
[18] (1999) 201 CLR 1.
[19] (1999) 201 CLR 1 at [28].
The rationale for imputing waiver is illustrated in the following passage from the judgment of Gleeson CJ in Benecke v National Australia Bank,[20] a case in which the appellant claimed that a settlement facilitated by her legal advisers was not authorised by her:[21]
The law permits the search for the truth in legal proceedings to yield, in certain circumstances, to the public interest in preserving the secrecy of communications between lawyer and client. In the present case, however, the appellant herself lifted the veil of secrecy by giving her version of the communications. Thereafter, there was no reason in principle why the pursuit of the truth should not take its course, or why the court should be inhibited in seeking to ascertain the true facts concerning those communications.
[20] (1993) 35 NSWLR 110.
[21] (1993) 35 NSWLR 110 at 111-112.
In the present case, as in the case of Benecke, it is argued that the circumstances give rise to “issue waiver”. In such cases the conduct of a party who is otherwise entitled to a claim of privilege, impliedly waives it by putting the advice in issue. In Adelaide Steamship Co Ltd v Spalvins[22] examples of a waiver of this nature appear from the joint judgment of the Full Court of the Federal Court:[23]
The usual type of case said to illustrate issue waiver at common law is one in which, in order to establish a particular right, claim, or defence a party who previously has been legally advised, or has provided advice, needs to show that the advice so given did, or did not, have a particular character, for example that it was or was not negligent where the claim is for professional negligence against the adviser: see Kershaw v Whelan [1996] 1 WLR 358; that it was not based on full information or was not meaningful, in an undue influence claim: see Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 at 130‑131; see also Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30 and Brusewitz v Brown [1923] NZLR 1106 or that it did not address or properly address a matter which, if addressed or properly addressed, would defeat or call into question the right or claim asserted as in claims where the applicant has to demonstrate he or she acted with or without adequate knowledge of a matter: see Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347; Hongkong Bank of Australia Ltd v Murphy [1993] 2 VR 419; Pickering v Edmunds (1994) 63 SASR 357. In other words the cases are ones in which, in the substantive proceeding brought, the privilege holder has put in issue the very advice received.[24]
[22] (1998) 81 FCR 360.
[23] (1998) 81 FCR 360 at 371.
[24] See also Southern Equities Corporation Ltd (In Liq) v Arthur Andersen & Co (1997) 70 SASR 166.
The unfairness referred to in the cases is not assessed by having regard to general considerations of fairness, but rather involves a consideration of the unfairness which arises because of the inconsistency in the particular circumstances of the case of putting the legal advice in issue but attempting, at the same time, to exclude its proper examination by maintaining a claim of legal professional privilege.
The question of waiver has arisen in some of the reported cases which required assessment of the reasonableness of a settlement relevant to the litigation. It has been pointed out on a number of occasions[25] that whether a waiver of privilege is to be imputed depends very much on the particular circumstances of the case. Questions of degree may be involved.
[25] See for example Goldberg v Ng (1995) 185 CLR 83.
In Adelaide Steamship the Court, after referring to cases in which waiver has occurred as cases in which “in the substantive proceedings brought, the privilege holder has put in issue the very advice received” went on to say:[26]
We observe in passing that it is questionable whether advice can properly be said to be in issue in a proceeding merely because it may be relevant to an issue in it: see Rhone‑Poulenc Rorer Inc v The Home Indemnity Company (3rd Cir 1994) 32 F (3d) 851 at 863; save, perhaps, where the proceeding is between client and legal adviser and the advice is relevant to the adviser’s defence of that proceeding: see Lillicrap v Nalder & Son [1993] 1 WLR 94; 1 All ER 724.
[26] (1998) 81 FCR 360 at 372.
As Allsop J said in DSE (Holdings) Pty Ltd v Intertan Inc (“DSE”):[27]
The act of mere denial by the respondents of an assertion by the applicants is not an act by the respondents which expressly or impliedly makes an assertion about the contents of any privileged communication or which necessarily lays any such communication open to scrutiny. There is no act of the respondents inconsistent with the maintenance of the confidentiality. There is a joinder of issue on a question of fact to which the privileged communication can be seen as relevant. That is insufficient in my view for it to be concluded that there exists the necessary inconsistency enunciated by Mann v Carnell.[28]
[27] [2003] FCA 384 at [115].
[28] See also [2003] FCA 384 at [72], [73].
Mr Wells drew the attention of the Court to cases in which the relevance of legal advice in settlement cases was discussed. He referred to the judgment of Handley JA in BNP Paribas v Pacific Carriers Ltd where His Honour said:[29]
The judgments in Unity Brokers confirm that the onus is on the plaintiff to prove that the settlement was reasonable and also establish that the test of reasonableness is objective and evidence from the legal advisers involved in the negotiations is admissible and will ordinarily be essential. McHugh J held (618) that reliance on the fact that the settlement was entered into on legal advice, disclosed or otherwise, is a waiver of legal professional privilege.
It is important to have regard to the context in which McHugh J made this comment. His Honour was referring to the waiver of privilege which occurred in that case when the plaintiff led evidence of the view of his legal advisers as to the settlement. His Honour’s comments do not necessarily apply to a case such as the present where Alstom does not rely on legal advice to establish that the settlement was reasonable.
[29] [2005] NSWCA 72 at [14].
In Sarkis v Summitt Broadway Pty Ltd trading as Sydney City Mitsubishi,[30] Handley JA referred to his comments in BNP Paribas. In Sarkis the Court was dealing with a claim under s 151Z of the Workers Compensation Act 1987 (NSW). The section addresses the situation where an injury for which compensation is payable under the Act was caused in circumstances creating a liability in some person other than the worker’s employer to pay damages in respect of the injury. The section provides that if the worker has recovered compensation under the Act, the person by whom the compensation was paid is entitled to be indemnified by the other person liable to pay those damages.
[30] [2006] NSWCA 358.
The proceedings against the employer in the case were compromised and in the application under s 151Z the reasonableness of the settlement became relevant. The Court of Appeal held that it must be assumed the Compensation Court approved the compromise. This was sufficient to dispose of an argument that the reasonableness of the settlement had not been proved. After reaching this view, Handley JA said:[31]
This conclusion makes it unnecessary for the Court to consider whether the Judge erred in ruling that legal professional privilege had not been waived, and in refusing to direct that the file of the solicitors who acted for the employer in the Compensation Court be produced for inspection by the legal advisers for the defendant. I would emphasise however that in my opinion a party who seeks to prove that a settlement of a disputed claim is reasonable waives legal professional privilege in relation to that settlement: BNP Paribas v Pacific Carriers Ltd [2005] NSWCA 72 para [14].
[31] [2006] NSWCA 358 at [15].

The reliance on BNP Paribas was in reference to Handley JA’s own comments in that case which are set out above. In BNP Paribas he relied on the statement of McHugh J in Unity Insurance for the proposition which he stated. In the passage from the judgment of McHugh J relied upon by Handley JA, His Honour said:[32]
By relying on what it had been told by its lawyers, the insured waived its legal professional privilege.
[32] (1998) 192 CLR 603 at [40].
As previously observed, the leading of the contents of its legal advice by the plaintiff in Unity Insurance was a clear case of waiver. The plaintiff could not put forward evidence of the content of the advice and, at the same time, prevent the defendant from exploring the issue further. However it is again necessary to point out that McHugh J’s comments were made in a case in which the plaintiff, as part of its case, relied on legal advice which it had been given.
It is important to have regard to the context in which reasonableness is said to arise in the present case. Alstom claims that it was prudent and reasonable to attempt to reduce further dispute by negotiating with FPP. This is not challenged by YDRML in its pleadings. Nor is it in dispute on the pleadings that there were delays and that they were the reason for the negotiations. The central issue raised on the pleadings is who caused the delay, Alstom or YDRML.
As previously stated, in the case of the 2005 settlement, the main focus of the submissions before this Court was on the agreement by Alstom to pay $20,500,000 described in the ASC as “being the total amount paid to FPP in respect of the plaintiff’s potential liability to FPP”.[33] This is the amount which Alstom claims from YDRML. It appears that the amount was arrived at in the 2005 settlement against the background of Alstom’s liability for liquidated damages which were provided for in the head contract. Alstom has pleaded that, as a result of YDRML’s delays, Alstom faced a potential liability to FPP of $148.5 million. The effect of the 2005 settlement was to significantly reduce that liability. It is not pleaded by YDRML that the amount for which the dispute was settled in the 2005 agreement was unreasonable.
[33] ASC [191].
On the pleadings the issue of reasonableness would appear to fall within a narrow compass. If there were delays and Alstom was liable to pay liquidated damages under the head contract for those delays, which is not contested, the reasonableness of the settlement should be able to be determined by reference to the head contract, the 2003 and 2005 settlements and the fact of the delay.
However, having regard to the fact that Alstom does not intend to rely on legal advice to assist its claim of reasonableness it is difficult to conclude that there is an inconsistency in the conduct of Alstom which would require the conclusion, as a matter of fairness, that legal professional privilege had been waived.
In Unity Insurance Brennan CJ held that the only relevance of the advice given by the plaintiff’s advisers to settle was that it tended to negative the argument that the settlement was unreasonable.
Kirby J was in dissent as to the ultimate question whether the issue of reasonableness had been properly tried by the trial judge. However, His Honour saw no relevance in the evidence of legal advice to settle a case on the terms ultimately accepted. He said:[34]
As to the suggestion that a settlement between the insured and the insurer must bind the broker (although it did not know of, or participate in, the negotiations) because the insured was so advised by senior counsel, I would answer with the response to a like proposition given by Devlin J in Biggin. The decision on settlement falls to be made at one point of time. The case against the broker falls to be determined on the facts available at a later point of time, when more and different information may be available to the court. Why should the broker be bound in law by the judgment of counsel not appearing in its interests? Why should a court of law deciding the claim against the broker be bound by counsel’s views? I make no reflection on counsel advising in this case. But the proposition must be tested as one of universal application. What if counsel advised the settlement because of problems with other commitments? What if counsel were a timorous soul who found the burdens of trials irksome? What if counsel’s mind had not fully grasped the new regime introduced by s 28 of the Act but continued to address the problem of non-disclosure on assumptions resting on the common law rather than the novel provisions of the Act?
(Footnote omitted)
[34] (1998) 192 CLR 603 at [99].
Hayne J was not prepared to hold that evidence of legal advice was irrelevant and inadmissible.[35] However, His Honour saw the value of such evidence in putting before the Court the matters which were taken into account in deciding to settle. He said the legal advisers may be in the best position to give that evidence.
[35] (1998) 192 CLR 603 at [135].
McHugh J expressed the view that in most cases where a settlement is recommended by legal advisers, their evidence is vital to the issue of reasonableness.[36] He said this was because the risk involved in the litigation and the reasoning which led to the settlement are the factors which will determine whether it was reasonable.
[36] (1998) 192 CLR 603 at [35].
Again, it is important to bear in mind that these remarks were made in a case where the plaintiff had led evidence of legal advice recommending the settlement and where it was used to support the assertion of reasonableness. And as Hayne J pointed out, if a plaintiff decides not to call evidence of legal advice, the issue will have to be determined without resort to that material.[37] His Honour added:
If that is a problem it affects the party contending that the settlement is reasonable; it is not a problem that causes any injustice to the party against whom the evidence of the settlement is to be led.
[37] (1998) 192 CLR 603 at [136].
As observed, the issue of reasonableness is to be determined objectively. If Alstom is able to prove that the settlement was reasonable, irrespective of the legal advice it received, it is highly unlikely that evidence of legal advice against such a settlement will support a finding that the settlement was unreasonable. If the plaintiff failed to prove that the settlement was reasonable on the evidence called by it, then the issue would be decided in the defendant’s favour and there would be no unfairness by reason of the fact that it was not made privy to the advice received by the plaintiff.
As Allsop J pointed out in DSE,[38] a conclusion that the necessary inconsistency exists does not necessarily arise simply because there is a joinder of issue on a question of fact to which a privileged communication is relevant.
[38] [2003] FCA 384 at [115].
I would reject the argument that inconsistency sufficient to found a waiver arises from Alstom attempting to establish reasonableness without resort to its legal advice.
The plea of unconscionable conduct
There is a further basis upon which YDRML claims that legal professional privilege was waived by Alstom. This submission arises out of a claim by YDRML in its defence and counterclaim that Alstom engaged in conduct in trade and commerce which was unconscionable and in contravention of s 51AA of the Trade Practices Act 1974 (Cth). In its reply and defence to counterclaim Alstom denies such conduct. According to the argument, the claim of unconscionability involved an assertion as to Alstom’s state of mind and that, by putting this assertion in issue in reply, Alstom waived privilege.
The assertion of unconscionability is set out in para 298 of the defence and counterclaim. It includes claims that Alstom failed to certify claims made by YDRML on the completion of certain work by YDRML, altered milestone dates pursuant to the 2003 settlement so as to favour Alstom, required YDRML to engage in rectification work knowing that it had no entitlement so to do and misled FPP as to the extent of delays. It is pleaded that Alstom was not acting honestly or impartially in the above respects and that its conduct was unconscionable under the Trade Practices Act.
By its reply Alstom denies such conduct and claims that, at all times, it acted in accordance with the requirements of the subcontract with YDRML.
According to the submission made on behalf of YDRML, Alstom, by joining issue on these assertions, put its state of mind in issue. It is argued that this in some way constituted a waiver of privilege by Alstom in relation to legal advice which might have affected its state of mind.
There are many examples of a party putting in issue its state of mind in circumstances where it is likely that legal advice had an effect on that state of mind. In Pickering v Edmunds[39] the plaintiffs put in issue their state of mind as to the legal effect of a deed. This was held to constitute a waiver of privilege in relation to the legal advice which they received concerning the effect of the deed.
[39] (1994) 63 SASR 357.
In Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd & Ors,[40] Allied Mutual Holdings Pty Ltd (“Allied”) and GPG Nominees Pty Ltd (“GPG Nominees”) alleged that they had purchased unsecured convertible notes in the belief induced by Ampolex that the notes were convertible on the basis set out in a trust deed entered into between these entities and endorsed on the notes. It was claimed that Allied and GPG Nominees had thereby waived legal professional privilege in relation to the transaction. Giles CJ Comm D said:[41]
The principle to which Ampolex appealed has recently been affirmed and applied in Benecke v National Australia Bank (1993) 35 NSWLR 109. It is ultimately founded on the fairness considered in Attorney-General for the Northern Territory v Maurice (1986) 161 CLR 475. Confining attention to the allegation made by GPG and Allied (the alternative of the allegation made by Ampolex may raise other considerations, and I prefer to put it aside), having exposed to scrutiny their corporate states of mind, being states of mind to which their legal advice is likely to have contributed, GPG and Allied can not withhold the advice from their opponent. I emphasise that the legal advice is likely to have contributed to the states of mind of GPG and Allied, as was plain from the dates of and descriptions of the documents: were that not so, the principle may not have applied.
[40] (1995) 37 NSWLR 405.
[41] (1995) 37 NSWLR 405 at 411.
However, assuming that the conduct which is alleged by YDRML in its defence and counterclaim was accompanied by a particular state of mind or particular states of mind, it is hardly likely that any such state of mind was formed or affected by legal advice. The principal states of mind alleged are acting without honesty, independence or impartiality. YDRML’s written submissions describe them compendiously as mala fides. If Alstom asserted that it acted bona fide on legal advice then the privilege might well have been waived. However, a mere denial of unconscionability cannot put in issue any legal advice that Alstom may have received.
There is the further consideration referred to by Wheeler J in Commonwealth of Australia v Temwood Holdings Pty Ltd:[42]
…a party may necessarily put its state of mind in issue in the proceedings by, for example, pleading reliance upon some representation or other or by seeking rectification of the contract for mistake; or a state of mind may be put in issue by some evidentiary assertion which is clearly relevant to the issues between the parties. In these latter types of case, fairness clearly requires the waiver of the privilege in relation to legal advice which may have contributed to that state of mind. It is to be noted, however, that it is the conduct of the party who possesses the privilege which is capable of waiving it. It is not apparently open to another party to litigation to force waiver of a party’s legal professional privilege by making assertions about, or seeking to put in issue, that party’s state of mind.[43]
[42] [2002] WASC 107 at [10].
[43] Allsop J agreed with these remarks in DSE at [121].
In my view the allegations of unconscionability and Alstom’s denial in its reply that it was acting in the manner alleged, but rather in accordance with the subcontract, cannot amount to an implied waiver of privilege.
Without prejudice privilege
The next issue relates to Alstom’s objection to the production of certain documents for which without prejudice privilege is claimed. The single judge upheld the claim. YDRML argues that this type of privilege is restricted to dealings between the negotiators (in this case Alstom and FPP) and cannot be relied upon to prevent disclosure to a third party such as YDRML.
The rationale of “without prejudice” privilege was stated by Oliver LJ in Cutts v Head[44] in a passage cited by Gleeson CJ in Hong Kong Bank of Australia Ltd v Murphy:[45]
That the rule rests, at least in part, upon public policy is clear from many authorities, and the convenient starting point of the inquiry is the nature of the underlying policy. It is that parties should be encouraged so far as possible to settle their disputes without resort to litigation and should not be discouraged by the knowledge that anything that is said in the course of such negotiations (and that includes, of course, as much the failure to reply to an offer as an actual reply) may be used to their prejudice in the course of the proceedings. They should ... be encouraged fully and frankly to put their cards on the table ... The public policy justification, in truth, essentially rests on the desirability of preventing statements or offers made in the course of negotiations for settlement being brought before the court of trial as admissions on the question of liability.
[44] [1984] Ch 290 at 306.
[45] (1992) 28 NSWLR 512 at 522. See also Field v Commissioner for Railways for NSW (1957) 99 CLR 285 at 291; Davies v Nyland (1975) 10 SASR 76 at 105.
The question whether the privilege applies to protect settlement negotiations from disclosure to third parties was discussed in Rush & Tompkins Ltd v Greater London Council.[46] In that case the plaintiffs entered into a building contract with the first defendant and engaged the second defendants as subcontractors for some of the works. Subsequently the plaintiffs took action against the first defendant seeking a declaration that the first defendant was required under the contract to pay the plaintiffs in respect of loss and expense for which the plaintiffs were liable to the second defendants, the subcontractors. The plaintiffs and the first defendant settled the action insofar as it related to them. There was a continuation of the action between the plaintiffs and the second defendants. The second defendants sought discovery of documents which were brought into existence for the purpose of reaching the settlement of the action between the plaintiffs and the first defendant.
[46] [1989] 1 AC 1280.
Lord Griffiths, in a speech with which Lord Oliver and Lord Goff agreed, summarised conflicting authorities as to whether third parties were entitled to access to without prejudice communications in such circumstances. He said:[47]
I have come to the conclusion that the wiser course is to protect “without prejudice” communications between parties to litigation from production to other parties in the same litigation. In multi-party litigation it is not an infrequent experience that one party takes up an unreasonably intransigent attitude that makes it extremely difficult to settle with him. In such circumstances it would, I think, place a serious fetter on negotiations between other parties if they knew that everything that passed between them would ultimately have to be revealed to the one obdurate litigant. What would in fact happen would be that nothing would be put on paper but this is in itself a recipe for disaster in difficult negotiations which are far better spelt out with precision in writing.
If the party who obtains discovery of the “without prejudice” correspondence can make no use of it at trial it can be of only very limited value to him. It may give some insight into his opponent's general approach to the issues in the case but in most cases this is likely to be of marginal significance and will probably be revealed to him in direct negotiations in any event. In my view this advantage does not outweigh the damage that would be done to the conduct of settlement negotiations if solicitors thought that what was said and written between them would become common currency available to all other parties to the litigation. In my view the general public policy that applies to protect genuine negotiations from being admissible in evidence should also be extended to protect those negotiations from being discoverable to third parties.
[47] [1989] 1 AC 1280 at 1305.
In Hong Kong Bank of Australia Ltd v Murphy[48] Gleeson CJ commented on the passage in the speech of Lord Griffiths set out above. That was a case in which it was argued that without prejudice privilege extended to evidence given in the course of examinations under s 597 of the Corporations Law. Burns Philp Trustee Co Ltd (“Burns Philp”) was the trustee of a number of unit trusts which were set up to attract investment. Burns Philp was replaced as trustee and the new trustee applied under s 597 for an examination in relation to the affairs of Burns Philp. The examination was conducted by a Registrar of the Supreme Court of New South Wales. An issue arose whether without prejudice privilege could be relied upon to prevent disclosure of information sought during the examination conducted under s 597. Gleeson CJ referred to the speech of Lord Griffiths:[49]
The precise question that arose for determination in Rush & Tompkins is rather different from the issue which is before this Court, and it is argued that the same public policy that was held to protect “without prejudice” negotiations from being discoverable to third parties should also protect witnesses in s 597 examinations from being questioned about them.
The appellants also argue that the decision of the House of Lords demonstrates that McLelland J [the judge at first instance] took too narrow a view of the policy underlying the privilege.
The last sentence in the passage from the speech of Lord Griffiths quoted above is to be read in the light of the first sentence in the same passage. The issue that was before the House of Lords, and the issue that was being addressed by Lord Griffiths, was the matter of multi-party litigation. It was in that context that his Lordship referred to the matter of discoverability to third parties. I do not think the case can be taken as authority for a proposition as wide as that for which the appellants need to contend in order to treat the privilege as qualifying the rights of examination conferred by s 597.
(Emphasis added)
[48] (1992) 28 NSWLR 512.
[49] (1992) 28 NSWLR 512 at 523.
Counsel for YDRML argued that the doctrine of without prejudice privilege restricts the privilege to the parties to the negotiations and that Lord Griffiths and Gleeson CJ were referring to an extension of the privilege which was restricted to multi‑party litigation.
The effect of these two decisions was discussed in the reasons of the Queensland Court of Appeal in Village/Nine Network & Ors v Mercantile Mutual.[50] The plaintiff (“Mercantile Mutual”) made an agreement with the defendant (“Village/Nine Network”) pursuant to which Village/Nine Network leased a portion of a building in central Brisbane. Subsequently, Mercantile Mutual purported to rescind the agreement and commenced an action against Village/Nine Network and its guarantors to the agreement.
[50] [1999] QCA 276.
Concrete Constructions Group Pty Ltd (“Concrete Constructions”) had contracted with Mercantile Mutual to do work on the building. The work was contemplated by the contract between Mercantile Mutual and Village/Nine Network. A dispute arose over payment for the work and Concrete Constructions and Mercantile Mutual took part in a mediation which led to a settlement of their dispute. In its action against Mercantile Mutual, Village/Nine Network sought disclosure of documents which had been prepared in relation to the mediation between Mercantile Mutual and Concrete Constructions. The latter company was not a party to the litigation in which Village/Nine Network and Mercantile Mutual were engaged. The judge at first instance refused to order disclosure and the appeal against his order was dismissed by the Court of Appeal.

The main point in issue was whether without prejudice privilege could prevent disclosure to a third party which had not been involved in the mediation and settlement.
Pincus JA referred to Gleeson CJ’s observations in Hong Kong Bank which are set out above. Whilst agreeing with Gleeson CJ, Pincus JA said:[51]
But from the proposition that negotiations between A and B, to settle their part of a dispute involving A, B and C, are not discoverable at the instance of C, it does not follow that C is entitled to have discovery of the negotiations if they relate only to a dispute between A and B. All that had to be solved in Rush & Tompkins Ltd was the former problem; the latter did not arise in that case, nor did it in Hong Kong Bank of Australia v Murphy. There the issue was whether in an examination of persons connected with a corporation, to be made under s 597 of the Corporations Law, questions could be objected to on the ground of “without prejudice” privilege. In support of claims to privilege attention was directed to the expression “discoverable to third parties” in the second sentence quoted from Rush & Tompkins Ltd. The view expressed in Hong Kong Bank of Australia v Murphy does not provide an answer in the present case, where the issue is not whether material has to be disclosed in a statutory examination under the Corporations Law, but the very different question whether the privilege protects negotiators against disclosure of their negotiations, in an action between one of the negotiators and a person who was neither involved in negotiations nor party to the dispute which gave rise to them.
After considering the purpose of the privilege, Pincus JA said:[52]
One can understand rational arguments being advanced, as a matter of policy, against too great an extension of the privilege, one being that it can be a cloak for dishonesty. But that can be so whether or not the person damaged by application of the privilege is a party to the negotiated dispute. There is no sound basis for holding that the basic purpose of protecting negotiations is sufficiently served if one allows the negotiators to be exposed to the risk that what they privately say, to settle their dispute, may be broadcast to the world at the instance of any person who can make use of it in litigation, unless that person is a party to the dispute being negotiated.
Byrne J reached the same conclusion. He said:[53]
There is a privilege protecting against production through a civil court’s compulsory process of communications made for the purpose of compromise negotiations (including, of course, those facilitated by a mediator); and it affects strangers to the negotiations. There are, it is true, passages in the speech of Lord Griffiths which refer to protection against disclosure to other parties to extant litigation. These should be understood in context: viz that a party to the litigation had sought access to the documents. This is the impression of the British Columbia Court of Appeal, which treats the speech as showing that communications in settlement negotiations are, in general, “privileged” “both from production to other parties to the negotiations and strangers”. The same view has been taken in England: Hobhouse J considers that the House of Lords decided that the privilege “affects not only the party who received the communication but also any other party” to subsequent litigation. This must be correct. The policy that underpins the privilege is not served only where access is sought by another party to pending litigation in which the negotiators happen to be parties. To restrict its reach to parties to litigation would be to render the privilege capricious in operation. Its availability would then depend upon such inconsequential variables as whether proceedings were already on foot and the identity of the particular parties who had been joined when the negotiations took place.
(Footnotes omitted)[54]
[51] [1999] QCA 276 at [17].
[52] [1999] QCA 276 at [20].
[53] [1999] QCA 276 at [35].
[54] See also Heron Wood Pty Ltd v Ampol Petroleum (VIC) Pty Ltd [1999] VSC 83 where Beach J expressed the view that it was in the public interest that the without prejudice privilege should not be given a restricted application. He applied it so as to deny disclosure to a third party who had not been privy to the earlier settlement of litigation.
In Glengallan Investments Pty Ltd v Arthur Anderson[55] the Queensland Court of Appeal referred to the discussion in Rush & Tompkins and Gleeson CJ’s comments in Hong Kong Bank. Williams JA (McPherson JA and Ambrose J concurring) agreed with Gleeson CJ’s view of Lord Griffiths’ analysis and added that if Lord Griffiths was suggesting that the protection be extended to all third parties it would create a new and very broad area of operation for the privilege.[56]
[55] [2001] QCA 115.
[56] [2001] QCA 115 at [34].
Turning his attention to the earlier Queensland Court of Appeal decision in Village/Nine Network, Williams JA said:[57]
One can readily see that the facts of Village/Nine were but another example of the type of situation discussed by Lord Griffiths in the passage quoted above from his judgment at 1300-1. The litigation in question was connected with the “same subject matter” of the negotiations (mediation).
Further, particularly where court supervised mediation is involved there is very good reason to protect communications and documents directly related to that mediation from production in associated litigation.
[57] [2001] QCA 115 at [36], [37].
In Village/Nine Network there were two separate actions. The parties were not common to both actions. However, there was a connection between the subject matter of the two actions in that Mercantile Mutual undertook to have work carried out on the building in anticipation of its occupation by Village/Nine Network. Mercantile Mutual engaged Concrete Constructions to perform the work and there was a subsequent dispute between them over payment for the work. This connection was sufficient for Williams JA to observe that the litigation between Mercantile Mutual and Village/Nine Network was connected “with the same subject matter” as the negotiations which took place during the mediation involving Mercantile Mutual and Concrete Constructions.
In my view the present case is stronger in this respect. Here the work involved in the subcontract was for the benefit of FPP. According to the ASC Alstom was contractually bound to ensure that the various stages of the work were completed within a fixed time and YDRML was contractually bound to Alstom to complete its component of that work within time limits fixed by reference to Alstom’s obligations to FPP. If Alstom had not settled the disputes with FPP, a joinder of the matters in dispute between all three parties in the one action would have been appropriate.
It is unnecessary to decide in the present case whether the privilege is wide enough to prevent disclosure to all third parties except in cases of fraud or other recognised exceptions. However, it is my view that the privilege should apply in a case such as the present where the litigation has a connection with the same subject matter as the negotiations.[58]
[58] cf Glengallan Investments Pty Ltd v Arthur Anderson [2001] QCA 115.
In such a case the result should not turn on the question whether all concerned are joined in the same action. The rationale for without prejudice privilege which is relied upon in authorities such as Rush & Tompkins, is equally applicable in cases where the negotiations and the litigation arise out of the same subject matter and the negotiations and settlement (if achieved) are of potential relevance to subsequent litigation between one of the parties to the negotiation and a party involved in the litigation.
Joint privilege and waiver
As earlier observed Mr Wells submitted that, if without prejudice privilege can be relied upon to prevent disclosure to third parties, the privilege was waived in the circumstances of the present case. This proposition was challenged by Alstom. In the first place, Mr Harris argued that without prejudice privilege is a joint privilege and waiver by one party is insufficient. As I understand the argument it is that Alstom could not unilaterally waive the privilege which existed and that this would defeat a claim of either express or implied waiver in the circumstances of the present case.
Mr Harris relied on the following statement from Cross on Evidence:[59]
As part of an attempt to settle a dispute, the parties frequently make statements “without prejudice”. When this is done, the contents of the statement cannot be put in evidence without the consent of both parties, the case being one of privilege.
This statement is obviously true in the case of litigation which follows a failed attempt at settlement. The privilege would be worthless if one of the parties could waive it in subsequent litigation.
[59] JD Heydon, Cross on Evidence (7^th ed, 2007) 857-858.
The case cited for the proposition in Cross is Re Turf Enterprises Pty Ltd.[60] H Pty Ltd (“H”) was the petitioner seeking the winding up of T Pty Ltd (“T”) on the ground that T was unable to pay its debts. The Court found that without prejudice conversations took place between the solicitor for H and the solicitor for T. Subsequently T’s solicitor sought to lead evidence of the communications at the winding up hearing. Dunn J said:[61]
It appears from paragraph 6 of Mr Lippiatt’s [T’s solicitor] affidavit that he is of the opinion that the instructions of his clients to disclose the “without prejudice” conversation authorized its disclosure. This is not correct. Both parties to such negotiations as these must consent to disclosure of the contents of the negotiations notwithstanding that one only uses the expression “without prejudice”. See, for instance Walker v Wilsher (1989) 23 QBD 335.
[60] [1975] Qd R 266.
[61] [1975] Qd R 266 at 267.
In Walker v Wilsher[62] a trial judge admitted without prejudice communications between the parties which were tendered by one of the parties on an application for costs. The Court of Appeal held that the material should not have been admitted. Lord Esher MR said:[63]
It is, I think, a good rule to say that nothing which is written or said without prejudice should be looked at without the consent of both parties, otherwise the whole object of the limitations would be destroyed.
[62] (1989) 23 QBD 335.
[63] (1989) 23 QBD 335 at 337.
These cases involve negotiators who are, or who become, parties to litigation. One of the parties cannot unilaterally waive the privilege. It is in this sense that the circumstances are said to give rise to a joint privilege. This is the most common example of the application of the rule. However, these authorities do not assist in a matter such as the present where the issue is whether there can be implied waiver in subsequent proceedings involving one of the parties to the without prejudice communications and a third party. There is authority to the effect that unilateral waiver can occur in such a situation.
In State of Western Australia v Southern Equities Corporation Ltd & Ors[64] French J pointed out that the concept of implied waiver as a result of pleading into relevance material protected by legal professional privilege would apply, by analogical reasoning, to without prejudice material. In the case before him the State of Western Australia (“the State”) commenced an action for damages against a number of parties involved in the attempted financial rescue of Rothwells Ltd. There had been negotiations to settle disputes between the State, NAB and Rothwells’ liquidators. The State objected to the production of communications which took place during the negotiations. It was claimed that the communications were protected by without prejudice privilege.
[64] (1996) 69 FCR 245.
French J held that there was a sufficient basis to order production of the documents containing the communications. He said:[65]
In my opinion the State has, on its pleadings, raised the issue of the reasonableness of its settlement. The documents generated in the lead up to that settlement may have some relevance to that question. There is no suggestion that the National Australia Bank would be affected or prejudiced in any way by the production of these documents for inspection. It is not a party to the proceedings. Nor is there any basis upon which it has been suggested that the production of the documents would affect the rights of the State and the National Australia Bank inter se. The documents may support a line of inquiry concerning the causal connection between the alleged conduct of which the State complains and the ultimate formation of the settlement agreement which is the basis of its loss.
[65] (1996) 69 FCR 245 at 250.
In Muller v Linsley & Mortimer,[66] the first plaintiff was a director and shareholder of a company. He became concerned that his fellow board members would dismiss him. The company’s articles required a person leaving the company to sell his shares. The first plaintiff’s solicitors advised him to transfer his shares to his wife in order to avoid the requirement that he sell them. He accepted the advice, but the solicitors failed to submit a properly stamped transfer to the board. The first plaintiff was subsequently dismissed and forced to sell his shares.
[66] [1996] P.N.L.R. 74.
The plaintiffs took action against the other shareholders for the loss of the shares and the claim was settled. The plaintiffs then took action against the solicitors for negligence. The statement of claim asserted that the settlement was a reasonable attempt to mitigate the loss. The defendants disputed this assertion and applied for discovery of the documents relating to the settlement. The plaintiffs claimed that the documents were protected by without prejudice privilege.
The Court of Appeal held that the plaintiff was required to disclose the documents. Hoffmann LJ held that the privilege was restricted to admissions and as a consequence, the correspondence in issue fell outside its scope.
Swinton Thomas and Leggatt L.JJ held that the plaintiffs had put the reasonableness of the attempt to negotiate in issue by relying on the fact of the settlement and its reasonableness. In the circumstances there had been a waiver of the privilege.
These cases are authority for the proposition that the unilateral actions of one of the negotiating parties can impliedly waive privilege in litigation involving a third party. I respectfully agree with the views expressed in the two cases on this issue.
Confining without prejudice privilege to admissions
Mr Wells argued that without prejudice privilege was restricted to admissions made in the course of settlement negotiations. He relied upon the following remarks in the judgment of Hoffmann LJ in Muller v Linsley:[67]
[67] [1996] P.N.L.R. 74 at 79.
The public policy basis of the rule is therefore to prevent anything said in without prejudice negotiations being relied upon as an admission. This appears from the passages which I have cited from Oliver L.J.:
“... the desirability of preventing statements or offers in the course of negotiations for settlement being brought before the court of trial as admissions”.
and Lord Griffiths himself:
“... the underlying purpose of the rule is to protect a litigant from any admission made purely in an attempt to reach a settlement”.
If one analyses the relationship between the without prejudice rule and the other rules of evidence, it seems to me that the privilege operates as an exception to the general rule on admissions (which can itself be regarded as an exception to the rule against hearsay) that the statement or conduct of a party is always admissible against him to prove any fact which is thereby expressly or impliedly asserted or admitted. The public policy aspect of the rule is not in my judgment concerned with the admissibility of statements which are relevant otherwise than as admissions, i.e. independently of the truth of the facts alleged to have been admitted.
This view was repeated by His Lordship in Bradford & Bingley plc v Rashid.[68]
[68] [2006] 1 WLR 2066.
In Ofulue v Bossert[69] Lord Walker refused to follow this line of reasoning. He stated that he would not restrict the without prejudice rule in this way unless justice clearly demanded it.[70]
[69] [2009] 2 WLR 749.
[70] [2009] 2 WLR 749 at [57].
Lord Rodger referred to the practical difficulties in separating out admissions from the rest of the material. He went on to say:[71]
[71] [2009] 2 WLR 749 at [43].
Despite the difficulties, I would be prepared to assume that the law could make the distinction favoured by Lord Hoffmann. But should it do so? His argument, that it should, really depended on his view that the main purpose of the privilege is “to prevent the use of anything said in negotiations as evidence of anything expressly or impliedly admitted…”: Bradford & Bingley plc v Rashid [2006] 1 WLR 2066, 2072, para 16. While that may well be the commonest application of the rule in practice, its rationale appears to be wider: it is that parties and their representatives who are trying to settle a dispute should be able to negotiate openly, without having to worry that what they say may be used against them subsequently, whether in their current dispute or in some different situation. If that is right, then there is no obvious justification for drawing a line between admissions and acknowledgments. In the words of Robert Walker LJ in Unilever plc v The Procter & Gamble Co [2000] 1 WLR 2436, 2448-2449, the modern cases
“show that the protection of admissions against interest is the most important practical effect of the rule. But to dissect out identifiable admissions and withhold protection from the rest of without prejudice communications (except for a special reason) would not only create huge practical difficulties but would be contrary to the underlying objective of giving protection to the parties, in the words of Lord Griffiths in the Rush & Tompkins case [1989] AC 1280, 1300: ‘to speak freely about all issues in the litigation both factual and legal when seeking compromise and, for the purpose of establishing a basis of compromise, admitting certain facts.’ Parties cannot speak freely at a without prejudice meeting if they must constantly monitor every sentence, with lawyers or patent agents sitting at their shoulders as minders.”
Lord Neuberger was of the same view:[72]
Before considering these arguments, it is worth quoting a passage from Robert Walker LJ’s invaluable judgment in the Unilever case [2000] 1 WLR 2436, which, in my opinion, makes a point which should always be borne in mind by any judge considering a contention that a statement made in without prejudice negotiations should be exempted from the rule. After considering a number of authorities, Robert Walker LJ said, at pp 2448-2449, that the cases which he had been considering:
“make clear that the without prejudice rule is founded partly in public policy and partly in the agreement of the parties. They show that the protection of admissions against interest is the most important practical effect of the rule. But to dissect out identifiable admissions and withhold protection from the rest of without prejudice communications (except for a special reason) would not only create huge practical difficulties but would be contrary to the underlying objective of giving protection to the parties … to speak freely about all issues in the litigation … Parties cannot speak freely at a without prejudice meeting if they must constantly monitor every sentence, with lawyers … sitting at their shoulders as minders.”
This approach is entirely consistent with the approach of your Lordships’ House in Rush & Tompkins [1989] AC 1280, and with that of the courts in the 19th century, mentioned by my noble and learned friend, Lord Walker of Gestingthorpe, in para 57 of his opinion, which I have had the benefit of seeing in draft.
[72] [2009] 2 WLR 749 at [89].

Many of the cases on without prejudice privilege are concerned with admissions, no doubt because this is most often the basis for admission of the communications into evidence. However, the difficulties of confining the principle to such cases, particularly in relation to the production of documents, is plainly to be seen. The restrictive view of the privilege expressed in Muller’s case has not been followed in Australia and, for the reasons referred to in the above extracts from the case of Ofulue v Bossert, I do not think it would be appropriate to confine it in this way.
The scope of without prejudice privilege
The appellant argued that without prejudice privilege did not apply to what were referred to as “post settlement” communications.
The rule applies whether or not a settlement is reached.[73] It is concerned with things said and done by the parties in the course of negotiations. It is my view that, in the present case, the single judge’s inspection of the documents and his comments thereafter provide an appropriate answer to the argument which has been advanced. He said:[74]
During the course of the hearing I ruled that documents which I considered to be within the general ambit of the settlement were covered by the privilege. I found that documents post-settlement were all “reasonably incidental” to the negotiations for settlement and therefore, on the authority of Field,[75] should be protected by the privilege.
Many of the so-called ‘post-settlement’ documents are examples of fine tuning and amendments to numerous draft settlement agreements which were being exchanged between the solicitors. It is inevitable that in such a complex commercial matter there will be numerous alterations and variations before the matter is finally signed off. So that, whereas the settlement date might be nominated, it would be flying in the face of commonsense and reality to have a cut-off point and say that anything that happened beyond that was not covered by privilege. I have found that each of these documents were “reasonably incidental” to the negotiations for settlement.
[73] Rush & Tompkins [1989] 1 AC 1280 at 1299.
[74] [2009] SASC 100 at [38], [39].
[75] Field v Commissioner for Railways for New South Wales (1957) 99 CLR 285.
The effect of His Honour’s findings was that the documents in respect of which he upheld the claim for without prejudice privilege were prepared in the course of negotiations, a process which continued during the formulation of the settlement documents. In my view His Honour was correct in this analysis.
It was further argued by the appellant that the privilege could not apply to internal communications within Alstom. In my view this cannot be accepted as a general rule. The determination as to whether a particular communication is privileged:[76]
… depends upon what formed part of the negotiations for the settlement of the action and what was reasonably incidental thereto.
The privilege is not restricted to the actual communications with the other party. If this were so a recommendation by an officer of a party to his superior that a claim should be settled on a particular basis would not be privileged, whereas a communication of an offer to settle on that basis to the other party would attract the privilege.
[76] Field v Commissioner for Railways for New South Wales (1957) 99 CLR 285 at 292.
In my view the single judge was correct in making the following observations in his reasons:[77]
Unless public interest concerns and a commonsense application of the rule prevail, the narrow interpretation contended for by Mr Wells would make a nonsense of the rule. That would be so because, in my view, if a party could not internally discuss freely matters raised in negotiations with another party without the fear of losing the privilege of the inter-party discussions, the object of the protection would be lost. Having seen the documents, it is now possible to say how that narrow interpretation sought by Mr Wells would render the negotiation process between the parties liable to exposure if internal communications were outside the rule. That, in my view, would indirectly defeat the object of the exercise. I therefore reject the narrow interpretation contended for by Mr Wells.
[77] [2009] SASC 100 at [31].
Was there a waiver of without prejudice privilege?
I have expressed the view that a party can impliedly waive without prejudice privilege in subsequent proceedings involving a third party. There are cases in which a waiver has been implied by pleading which put in issue the reasonableness of a settlement.[78] The question arises whether there has been such a waiver in the present case.
[78] State of Western Australia v Southern Equities Corporation Ltd & Ors (1996) 69 FCR 245; Muller v Linsley & Mortimer [1996] P.N.L.R. 74.
I can see no reason why most of the general considerations relating to waiver of legal professional privilege should not apply also to without prejudice privilege. The ultimate question is whether there is an inconsistency in raising an issue but attempting at the same time to prevent a proper examination of the issue by maintaining the privilege. An assessment has to be made as to whether there is unfairness as a result of the inconsistency and, if so, the extent of that unfairness.
I have referred to the way in which Alstom intends to put its case on reasonableness. I do not regard the limited scope of Alstom’s case on this issue as resulting from a tactical attempt to prevent access to without prejudice communications. I attempted to point out earlier in these reasons that the circumstances of the case enable Alstom to argue its case on the reasonableness of the settlement by reference to its contractual obligations to FPP, the fact of delay, the legal consequences of its failure to meet its obligations to FPP and, against that background, the settlement which was arrived at.
If Alstom attempts to expand its case beyond these circumstances at trial so as to rely on the course of negotiations, the trial judge could be invited to consider a fresh application for disclosure. However, as the matter presently stands, I am of the view that there has been no waiver of this privilege.
Inspection of documents
On the hearing of the appeal Mr Wells submitted that the single judge erred in inspecting the documents. He said that the judge was attempting to cure the defects of the descriptions in the documents and the absence of any evidence by Alstom as to the basis for the privilege claim. It was said that there was a breach of procedural fairness in that the judge heard submissions from Alstom and not YDRML during the inspection process.
The discovery process in these proceedings is governed by the Supreme Court Rules 1987. Rule 59.04 provides as follows:
Where an application for production is objected to, the Court may inspect the document for the purpose of deciding the validity of the objection.
Rule 59.03 states:
An order for the production of any document or copy thereof shall not be made unless the Court is of the opinion that the order is necessary for disposing fairly and expeditiously of the action and is not injurious to the public interest.
In Grant v Downs[79] Stephen, Mason and Murphy JJ, in their joint judgment, said:
It is for the party claiming privilege to show that the documents for which the claim is made are privileged. He may succeed in achieving this objective by pointing to the nature of the documents or by evidence describing the circumstances in which they were brought into existence. But it should not be thought that the privilege is necessarily or conclusively established by resort to any verbal formula or ritual. The court has power to examine the documents for itself, a power which has perhaps been exercised too sparingly in the past, springing possibly from a misplaced reluctance to go behind the formal claim of privilege. It should not be forgotten that in many instances the character of the documents the subject of the claim will illuminate the purpose for which they were brought into existence.
[79] (1976) 135 CLR 674 at 689.
In my view the single judge did not err in the exercise of the discretion to inspect the documents. The inspection was not undertaken because of inadequate descriptions of the documents; the judge found the descriptions to be generally adequate. The judge gained a fuller understanding of the documents by inspecting them.
It is true that most of the submissions made in relation to the material came from the party claiming privilege. That is common when this procedure is followed. In my opinion the submissions which were made did not result in an unfair process.
I would reject the submission that the inspection occasioned procedural unfairness.
Propounding the privilege
It was also argued on appeal that Alstom did not provide sufficient evidence to support the claim of privilege. Reliance was placed on the following passage from the judgment of the Full Court of the Federal Court in Barnes v Commissioner of Taxation:[80]
The authorities emphasise the need for focused and specific evidence in order to ground a claim for legal professional privilege. In Kennedy v Wallace (2004) 142 FCR 185 at 189, Black CJ and Emmett J reiterated the principles that verbal formulae and bare conclusory assertions of purpose are not sufficient to make out a claim for privilege: see also National Crime Authority v S (1991) 29 FCR 203 at 211 (per Lockhart J); Grant v Downs (1976) 135 CLR 674 at 689 (per Stephen, Mason and Murphy JJ). Where possible the Court should be assisted by evidence of the thought processes behind, or the nature and purpose of advice being sought in respect of, each particular document. The fact that generalised evidence is not challenged in cross-examination does not mean that such evidence must be accepted, particularly when it is as manifestly inadequate as it is in this case. As in Kennedy v Wallace, mere general assertions of the purpose of creation of the documents are insufficient to discharge this onus. Even though in that case some evidence as to the purpose of particular records was adduced, Allsop J at 216 considered that the onus had not been discharged because the evidence did not permit a conclusion to be drawn as to the dominant purpose of the creation of any particular document or entry in a document. Simply to show that one purpose for creation of the document was to obtain legal advice or assistance is not good enough.
[80] [2007] FCAFC 88 at [18].
It has been pointed out that the single judge found the descriptions of the documents to be adequate. He did not say in his reasons that the lack of affidavit or other evidence prevented him from ruling on the claims of privilege made in respect of the documents, but he did observe that an inspection of the material was the most expedient way of disposing of the matter.[81]
[81] [2009] SASC 100 at [12].
In any event, the judge inspected the documents and was thereby placed in the best position to rule on them. It is to be noted that in Barnes v Commissioner of Taxation the Full Court reached the conclusion that the evidence provided by the appellants was manifestly insufficient and did not establish any basis for the claim of privilege. However, their Honours decided to inspect the documents and were thus placed in a position to rule on them. In the present case, even if the descriptions had been inadequate causing the judge to inspect the documents, the procedure thus adopted could not be criticised.
Evidence Act 1929 (SA) s 67C
Finally, Mr Harris drew attention to s 67C of the Evidence Act 1929 (SA). This section excludes from evidence communications made in connection with an attempt to negotiate a settlement of civil dispute in documents prepared in connection with such negotiations. The section then provides for a number of exceptions.
According to the argument, the situation created by the section is a matter to be taken into account by the court in deciding whether there should be an order for production in a particular case.
There appears to be some support for this proposition in Esso Australia Resources Ltd v Federal Commissioner of Taxation.[82] However, I do not think it has any practical application in the present case and, in the light of my view as to the ultimate resolution of the issues on appeal, it is unnecessary to express any view on the argument.
[82] (1999) 201 CLR 49 at [33].
I would dismiss the appeal.
SULAN J: I would dismiss the appeal. I agree with the reasons of Duggan J.
KOURAKIS J: I agree that the appeal should be dismissed for the reasons given by Duggan J.
On the question of waiver I wish to make the following additional observations on the differences between the issues joined on the pleadings in this case and the issues which arose for consideration in Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd.[83] The appellant’s reliance on some passages from the reasons given in Unity Insurance Brokers and several other authorities is misplaced because of the particular way in which the respondent’s claim is framed.
[83] (1998) 192 CLR 603.
Alstom’s case is primarily framed on the basis that breaches of contract by YDRML resulted in delays which exposed it to a liability under the terms of its contract with FFP.[84] On proof of that case, Alstom would be entitled to compensation for the contractual liability it had incurred. It is not an element of any part of Alstom’s case, so framed, that the settlement was reasonable. The legal advice Alstom received is therefore irrelevant to the issues raised on the claim framed in that way. The resolution of those issues depends exclusively on findings of fact about the delays in the work at the power station and a determination of the legal effect of those facts against the contractual relationship of the parties. If, on such an analysis, a finding is made that YDRML’s breach of contract left Alstom contractually liable to FFP for an amount exceeding the settlement sum, Alstom will be entitled to a compensatory award for the amount of the settlement sum. On this premise, YDRML can only benefit from any reduction of the liability flowing from the settlement negotiated by Alstom; YDRML cannot complain that any settlement sum less than the actual liability Alstom incurred was not caused by its breach because, on this premise, the amount paid by Alstom discharged an even greater, proven, liability which had been caused by YDRML’s breach. If it is at all open for YDRML to put a case that Alstom could have negotiated a more advantageous settlement, it is by way of a defensive contention that Alstom could reasonably have done more to mitigate its loss; but that would be a case on which YDRML carried the persuasive burden. YDRML cannot unilaterally deny Alstom its legal professional, or without prejudice, privilege over the settlement communications by pleading such a case, even though the privileged communications may be very relevant to the issues joined over the alleged contractual breaches.
[84] I gratefully adopt the abbreviations used in the reasons of Duggan J.
The reasonableness of the settlement sum, as an element which Alstom must prove, does, however, arise on the alternative formulation of Alstom’s claim. The alternative formulation is that YDRML’s breaches of contract contributed to delays which exposed Alstom to a risk of contractual liability to FFP which reasonably required Alstom to resolve that potential liability by reaching the settlement which it did. On Alstom’s claim so formulated, proof that payment of the settlement sum resulted from YDRML’s breaches of contract does depend on the reasonableness of the settlement. YDRML’s liability for that loss, which I shall refer to as the weaker of the alternative formulations of Alstom’s claim, depends on a finding that the settlement was reasonable because only a reasonable settlement can be said to be the natural or probable consequence of exposure to a risk of liability; it might also be said that the loss caused by an unreasonable settlement of a risk is too remote.[85] On the weaker formulation of Alstom’s claim, the reasonableness of the settlement must be determined by an objective assessment of the strengths and weaknesses of the evidence of the progress of the work at the Playford Power Station against the competing constructions of the applicable contractual provisions which are arguably open and determining a settlement position which the parties, with reasonably competent legal and other advice, would have reached. However, leaving aside the special circumstances to which I shall shortly refer, Alstom’s legal advice and the way in which settlement negotiations in fact proceeded is irrelevant.
[85] Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603 at 608, [3] per Brennan CJ.
The special circumstances to which I refer are found in those cases where the plaintiff, as a primary or secondary position, seeks damages on the basis that even though the settlement was, on an objective analysis, unreasonable, he or she acted reasonably in accepting legal advice to effect the settlement.[86]
[86] I am here addressing only the way in which a plaintiff frames its claim. Where a plaintiff claims a settlement sum paid to discharge a risk of liability, a defendant may plead a failure to mitigate by failing to negotiate a more favourable settlement. Even though the plaintiff’s legal advice and settlement communications are very relevant to that defensive plea, the defendant cannot rob the plaintiff of those privileges by its plea alone.
The plaintiff in Unity Insurance Brokers framed its case in precisely that special way. Rocco Pezzano Pty Ltd (Pezzano) engaged Unity Insurance Brokers Pty Ltd (Unity), an insurance broker, to procure insurance against fire for its industrial premises. Unity did so, but in arranging the insurance negligently failed to disclose Pezzano’s prior claims history. The industrial premises was destroyed by fire, resulting in a loss of $1,720,000. The insurer refused to indemnify Pezzano on the ground that it had failed to disclose its prior claims history. Pezzano brought proceedings against the insurer under the policy and against Unity in negligence. The insurer’s contractual right to refuse to indemnify was restricted by s 28(3) of the Insurance Contracts Act 1984 (Cth), which provided that, in the case of inadequate disclosure, an insurer’s liability was reduced to the amount that would place the insurer in a position in which it would have been if there had been full disclosure. Pezzano settled with the insurer for $900,000 and sued Unity for the balance of its loss.
The trial Judge found that Pezzano would have obtained insurance on substantially the same terms even if the prior claims history had been disclosed. That finding necessarily entailed a further finding that Pezzano had failed to prove that Unity’s negligence had destroyed or reduced the value of the insurance it had purchased. Nonetheless, the trial Judge found that Unity was liable for the difference between the settlement sum of $900,000 and the total loss of $1,720,000 because the settlement was reasonable in the circumstances known at the time. In particular, the trial Judge relied on the evidence of the principal of Pezzano, Mr Rocco Pezzano, that his lawyers had advised him to take the settlement offered by the insurer. Mr Pezzano’s evidence was not challenged at trial nor was disclosure of the legal advice sought.
The issue before the High Court, and on which it divided, was whether Pezzano had to establish that it would not have recovered against the insurer, or more particularly would not have recovered more than $900,000 from it, or whether it was sufficient to show that the sum of $900,000 was a reasonable settlement of its claim against the insurer having regard to the risk that the claim might be successfully defended.

Gummow and Kirby JJ, in dissent, limited the rule that a reasonable settlement could be recovered as a head of damage to those contracts, like contracts of indemnity, in which such a loss is contemplated, either expressly or by necessary implication. They would have held that in all other cases the actual loss caused by the wrongful conduct has to be proved; it is not sufficient to show merely that the wrongful conduct created a risk of loss which was mitigated by a compromise. On the principle enunciated by Gummow and Kirby JJ, where an actual loss is proved, a settlement for less than that proved loss will nonetheless operate as an upper limit to the damages that the plaintiff can claim even if it be established the actual liability or loss caused by the defendant’s negligence was greater. The trial Judge’s finding that insurance on the same terms could have been obtained established that Pezzano would have recovered the whole loss from the insurer. At the very least, Pezzano had failed to show that its claim against its insurer was worth no more than the settlement sum. For that reason, Gummow and Kirby JJ would have dismissed the appeal.
The majority, consisting of Brennan CJ, McHugh and Hayne JJ, held that it is a natural and probable consequence, and a foreseeable result, of a breach of any contract, made in a context where a failure to perform in accordance with its terms may adversely affect the rights or obligations of one or more of the parties to other persons, that an innocent party will attempt to compromise any liability or potential loss to which it has been exposed by that breach. The majority held that a reasonable settlement is, in those circumstances, recoverable as a head of damage even if the plaintiff cannot show conclusively that a valuable right was lost or diminished, or a liability incurred.
From the perspective of the majority, the trial Judge’s finding that similar insurance could have been procured even if the prior history had been disclosed raised a real question as to the reasonableness of the settlement. However, the majority decided, for the reasons given by McHugh J, not to interfere with the concurrent findings below that the settlement was reasonable. In particular, that finding was supported by the unchallenged evidence of Mr Pezzano that his lawyers had recommended the settlement. In the words of Brennan CJ, that evidence operated to “negative the hypothesis that the insured acted unreasonably”.[87]
[87] Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603 at 609 per Brennan CJ.
In Unity Insurance Brokers it was put against the general proposition that a reasonable settlement should be recognised as a head of damages without proof of an actual liability, or loss of a valuable chose in action, that legal professional privilege would hinder the proper and fair adjudication of such claims.
Moreover, as I have already observed, on the formulation of its case against Unity, Pezzano had unequivocally elected to rely on the legal advice given to Mr Pezzano to support its claim against Unity. In so doing, Pezzano elected between inconsistent positions and had thereby necessarily waived its privilege even though Unity, for whatever reason, failed to take advantage of that waiver at trial.
It was in that legal and factual context that McHugh J referred to the relevance, and production, of the legal advice on which a party relies to justify the reasonableness of a settlement in these terms:
One further point should be made about the Court of Appeal’s judgment in Biggin. Somervell LJ expressed the opinion that, while the client can prove that the settlement was made as the result of legal advice, the evidence of the advisers is not ordinarily relevant or admissible. With great respect, I am unable to accept that the evidence of the legal advisers is not normally relevant or admissible in such a case. On the contrary, in most cases where the settlement is made on legal advice, the evidence of the relevant legal advisers is vital. This is because the risk involved in the litigation and the reasoning which led to the settlement are the factors that will determine whether or not the settlement was reasonable. If an unreasonable settlement is made on bad legal advice, the innocent party's remedy is against the legal adviser, not the contract breaker.[88] (emphasis added)
[88] Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603 at 616, [35] per McHugh J.
In my respectful opinion, the emphasised words in that passage show that McHugh J was addressing cases where the plaintiff’s legal advice is relied upon to establish the causal chain between the risk caused by the defendant’s conduct and the compromise the plaintiff made. That passage has no application to claims framed on the basis that the plaintiff will prove the actual loss of a valuable right or that a liability has in fact been incurred by reason of the defendant’s wrongful conduct. Nor is that passage applicable where the plaintiff relies only on the objective circumstance of the defendant’s conduct in the context of the plaintiff’s contractual or statutory relationship with another to prove that the settlement was reasonable.
On the question of the scope of the settlement privilege I agree, for the reasons given by Duggan J, that it extends to those cases where the subject matter of the settlement discussions is substantially the same as the subject matter of the legal proceedings. Where the subject matter is not substantially the same, the communication is unlikely to have had a direct connection with the settlement discussions. Moreover, it is unlikely that so limiting the privilege will inhibit settlement negotiations.
I would prefer to reserve my position on the question of the capacity of a party to unilaterally waive the settlement privilege. In my view, if one party to settlement negotiations threatens to show or disclose settlement communications to a third person, the other party to the negotiations may be entitled in equity to orders maintaining the confidentiality of those communications. Where a party to settlement negotiations asserts facts in judicial proceedings which cannot be properly assessed without disclosure of settlement communications, the better policy resolution of the competing interests involved may be to preclude that party from relying on those facts unless the other party to those negotiations consents to their disclosure. It must be remembered that the question of waiver of the settlement privilege will only arise where there is substantial identity between the subject matter of both the judicial proceedings and the settlement negotiations; the privilege does not extend to negotiations which are unconnected to the judicial proceedings. I would therefore be more cautious about the capacity of one party to unilaterally waive the settlement privilege of the other in judicial proceedings concerned with, substantially, the same subject matter.