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Stanton, Fiona --- "Ethical negotiation" [2014] PrecedentAULA 36; (2014) 123 Precedent 36


ETHICAL NEGOTATION

By Fiona Stanton

The legal and ethical obligations of lawyers to the court and to their clients apply to the conduct of negotiations, whether formal or informal, both at common law and under the various enactments relating to the practice of law in Australia.

Those obligations include the legal practitioner’s duties to:

• act in the best interests of a client;

• be honest, fair and courteous in dealings with clients, other practitioners and other persons involved in legal matters;

• deliver legal services competently and diligently; and

• avoid compromising the practitioner’s integrity and professional independence.

In Legal Practitioners Complaints Committee and Fleming, the Western Australian State Administrative Tribunal observed the importance of a lawyer’s obligation to be honest and fair in the conduct of negotiations:

‘The public interest is served by practitioners encouraging an early settlement of their client’s dispute. Indeed, practitioners are under a duty to seek such a settlement... But, just as in litigation a practitioner may not use dishonest or unfair means or tactics to hinder his opponent in the conduct of his case (D’Orta – Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1 [McHugh J at 111]), so he ought not do so in other areas of practice. Arguably perhaps, for a number of reasons, the proscription against such conduct is more important in settlement negotiations.

In seeking to settle a matter pursuant to his client’s instructions or the procedures of the Court, the practitioner, in some senses, gives up his ‘adversary’ role in favour of a ‘negotiating’ role. In that co-operative role it is important that practitioners may be relied upon by the other party and his advisers to act honestly and fairly in seeking a reasonable resolution of the dispute. If everything a practitioner says in negotiations must be checked and verified, many of the benefits and efficiencies of a settlement will be lost or compromised.

Honesty, fairness and integrity are also of importance in such negotiations because they are conducted outside the court and are beyond the control which a judge hearing the matter might otherwise exercise over the practitioners involved. Outside the trial process, there is no impartial adjudicator to ‘find the truth’ between the opposing assertions. Dishonest or sharp practice by the practitioner to secure an advantage for his client might go undetected for some considerable time or for all time. A level of trust between the advisers involved is therefore essential.’ [1]

In that matter, the Tribunal was concerned with the conduct of a lawyer who had been instructed not to reveal to his client’s opponents that her deceased husband’s will had not been properly executed. In pursuit of the objective of insinuating to his client’s opponents that a properly executed will existed, Mr Fleming:

• sent draft deeds of settlement to the opposing solicitor referring to a ‘Will’ rather than an ‘informal will,’ and making no mention of a defect in execution which would have entitled the opposing parties to challenge the validity of the informal will; and

• declined to annex a copy of the informal will to the proposed settlement deed despite a request that he do so from the opposing solicitor.

A settlement deed was ultimately executed by all parties which contained a clause requiring the opponents of Mr Fleming’s client to consent to a grant of probate in respect of the informal will and a clause barring those parties from challenging the informal will.

The Tribunal found that Mr Fleming had engaged in a course of conduct intended to mislead the opposing parties as to the existence of a valid will, and that, in doing so, he had conducted the negotiations on behalf of his client in a manner which was dishonest and unfair for the purposes of the applicable Conduct Rules. The Tribunal also noted that this conduct was calculated to induce and foster a mistake in a fellow practitioner, contrary to those Rules.

The Tribunal found that a lawyer could mislead the opposing party in negotiations by:

• making an affirmative statement without qualification where qualification was required;

• stating a partial truth;

• omitting relevant information; or

• failing to correct a statement which was true when made but had become false during the course of negotiations.

Mr Fleming was legally and ethically required to advise his client that he could not avoid giving a copy of the informal will to the opposing parties or say or do anything which suggested that a valid will had been made by his client’s husband, and that, if she would not instruct him to conduct the negotiations in an ethical and honest manner, he must cease to act. The Tribunal commented that it would be expected that if a client rejected such advice and went elsewhere, they would be faced with the same response from another lawyer.

Advising a client of the legal and ethical obligations which arise in respect of negotiations serves a client’s best interests. Subject to certain exceptions referred to below, a misleading assertion made during the course of without prejudice negotiations will not be protected by the without prejudice privilege and, if discovered, may expose the client to further litigation. In addition, a misleading statement made during negotiations, if left uncorrected, gives rise to a possibility that the opposing party will become aware of the inaccuracy and lose the necessary trust and confidence to continue negotiating. It is rarely in the interests of a client to jeopardise the prospect of settlement by causing the opposing party to withdraw from negotiations.

THE WITHOUT PREJUDICE PRIVILEGE

The ‘without prejudice’ privilege has long been recognised in relation to negotiations conducted orally or in writing[2] which occur prior to[3] or during the course of litigation. The without prejudice privilege facilitates the settlement of matters by negotiation by enabling parties to communicate with one another without the risk of those communications being put into evidence.[4] The privilege extends to cover admissions or concessions made in the course of negotiations being adduced as evidence at any hearing. In Austotel Management Pty Ltd v Jamieson, Burchett J explained that:

‘The negotiating room is a private room where those who enter it do not speak to any outside audience, but when they have shut the door they speak to each other and are heard in secret.’[5]

WAIVER OF THE WITHOUT PREJUDICE PRIVILEGE

The without prejudice privilege is a bilateral or jointly held privilege.[6] Accordingly, the privilege cannot be waived by one party without the consent of the other. In respect of without prejudice communications occurring in the context of a mediation conference, the privilege binds the mediator but cannot be waived by any unilateral agreement between one party and the mediator.

If a matter arises during the course of negotiation about which a lawyer wishes to conduct enquiries that would necessarily reveal the content of the privileged discussion to an outside party, consent to reveal the content of the without prejudice negotiation for such a purpose should be sought from the opposing party.

LIMITS ON THE WITHOUT PREJUDICE PRIVILEGE

The common law limits on the application of the without prejudice privilege are as well established as the privilege itself.[7] In Field v Commissioner for Railways for New South Wales,[8] the High Court stated that the without prejudice privilege ‘is directed against admission in evidence of express or implied admissions... It is not concerned with objective facts which may be ascertained during the course of negotiations’.[9]

Communications which will not be protected by the ‘without prejudice’ privilege as a matter of policy include:[10]

• misrepresentation;

• threats of insolvency or bankruptcy;

• threats of blackmail;

• threats of perjury;

• suborning evidence; and

• flight from the jurisdiction.

Minor or inconsequential inconsistency between without prejudice statements and open statements will not be sufficient to overcome the privilege; there must be unconscionability, unambiguous impropriety or reliance upon the privilege for an improper purpose.[11]

The without prejudice privilege may not be relied upon where to do so would enable a party to mislead a court.[12] In McFadden v Snow,[13] evidence was given on behalf of one party that no reply had been received to a letter in an effort to establish an admission through silence. The court allowed the admission of without prejudice correspondence in order to establish that a reply had been provided, his Honour Justice Kinsella finding that:

‘The privilege that may arise from the cloak of “without prejudice” must not be abused for the purpose of misleading the Court.’[14]

A court cannot be asked to speculate as to the detriment to one party or the other arising from without prejudice negotiations – the only proper way in which to ask the Court to make a finding or draw an inference as to the effect of without prejudice negotiations is to seek to adduce the evidence from these negotiations on the basis that it is necessary to do so in order to prevent the court from being misled.[15]

Williams & Ors v Commonwealth Bank of Australia[16] dealt with the provision of unsigned witness statements on a without prejudice basis for the purpose of mediation. One of the witnesses in respect of whom a statement was provided by the bank for the purpose of mediation had advised the bank’s solicitor that he was unwilling to sign the statement because he regarded it as incomplete. In an appeal against a decision enforcing the settlement which had been reached following that mediation conference, the court considered the nature of the evidence that the witness would have given at trial, and compared it with the effect of the evidence provided on a without prejudice basis. The court found that the additional evidence was critical to an analysis of the merits in the matter. The court observed that the lawyer for the bank knew that the witness was unhappy with the draft statement and that the witness had refused to sign it, but failed to communicate that matter to the mediator or the other party participating in the mediation. The court found that this conduct could potentially result in a finding of fraud or be found to be misleading or deceptive.

The common law limits on without prejudice communications are reflected in s131 of the Evidence Act 1995 (Cth) which expressly allows the admission of communications made in connection with an attempt to negotiate the settlement of a dispute if:

• the parties consent to the evidence being adduced; or

• there has been partial disclosure necessitating full disclosure in order to properly understand the partially disclosed evidence; or

• the privilege has been waived; or

• the evidence should be adduced in order to contradict or qualify evidence that has already been admitted; or

• the evidence relates to an action for specific performance in relation to a settlement; or

• without the evidence being adduced the court is likely to be misled; or

• the communication is relevant to determining liability for costs; or

• the communication affects a right of a person; or

• the communication was made in furtherance of a fraud or the commission of an offence rendering a person liable to a civil penalty; or

• the communication was made in circumstances in which the maker knew or ought to have known that it was made in furtherance of a deliberate abuse of a power inferred by an Australian law.

Lawyers should be mindful of the exceptions to the without prejudice privilege when advising clients in respect of mediation conferences or other conferences conducted on a without prejudice basis. During a conference, discussion may necessarily become free flowing, and the lawyers’ task in managing a client in order to avoid any statement that might attract the exclusions to the without prejudice privilege might be difficult. Questions may be put directly by an opposing party and answered by a client before that party has sought legal advice in relation the answer. Clients participating in mediation should be advised not to respond to questions or volunteer comments in the course of a mediation conference in a manner which is threatening, and not to make any statement which is untrue or misleading.

Where a threat is made by a client, the client should be advised of the illegality associated with the threat (and where applicable, the lack of any privilege in respect of the threatening statement) and advised to withdraw it.

Where a misleading statement is made by a client, or a lawyer acting on instructions, the client should be advised to instruct the lawyer to correct the statement without delay. A refusal to so instruct will necessitate the lawyer refusing to continue to act in the matter and may oblige the lawyer to correct or qualify the statement, even without instructions, in order to protect the lawyer from action for misleading and deceptive conduct.

Mediators should be aware of the exceptions to the without prejudice privilege and be able to discuss these at the outset and during a mediation conference, but a lawyer cannot rely on a mediator to discharge the lawyer’s obligations in this regard.

LEGISLATIVE PROVISIONS RELATING TO MEDIATION CONFERENCES

Legislative provisions that override the exceptions which the common law imposes upon the without prejudice privilege are not uncommon. An example is s53B of the Federal Court of Australia Act 1976 (FCA) which provides:

‘Evidence of anything said, or of any admission made, at a conference conducted by a mediator in the course of mediating anything referred under s53A is not admissible:

(a) in any court (whether exercising federal jurisdiction or not); or

(b) in any proceedings before a person authorised by a law of the Commonwealth or of a state or territory, or by the consent of the parties, to hear evidence.’

In Pinot Nominees Pty Ltd v Commissioner of Taxation,[17] Siopis J found that s53B of the FCA operated to exclude reference to without prejudice communications, which were relevant to the Court’s disposition of the issue of costs. But for the application of s53B of the FCA, the evidence would have been admissible having regard to section 131 of the Evidence Act 1995 (Cth). Siopis J found that s131 of the Evidence Act applied to without prejudice communications other than those which occurred during the course of a mediation conference to which s53B applied.

Statutory provisions that amount to a blanket prohibition on adducing evidence of anything said in the course of mediations convened pursuant to those statutes have been the subject of concern, and it has been suggested that a single code should apply to all mediations convened by courts, commissions and tribunals.[18]

In the not uncommon scenario in which negotiations in a matter occur both at a mediation conference convened pursuant to legislation that overrides the exceptions to the without prejudice privilege and by way of surrounding or subsequent informal communications which may not be captured by that legislation, complexity can arise as to the application of the limits of the without prejudice privilege. The blanket prohibition on adducing evidence of anything said at mediation has the potential to erode confidence in formal mediation conferences as the best forum in which to negotiate the settlement of disputes.

The ‘without prejudice’ privilege ought not prevent the examination of the conduct of lawyers in disciplinary proceedings brought against them in order to uncover unprofessional conduct in the course of negotiation. In Fleming,[19] the Tribunal stated:

‘There is no room for unfairness or deception in negotiations for the compromise of litigation...Where an allegation of unprofessional conduct is made in relation to conduct taking place in the course of without prejudice negotiations, the public interest demands that those allegations be properly considered and dealt with. A solicitor is not entitled to be shielded from the allegations simply by asserting the existence of without prejudice privilege.’

Legislative provisions which contain an absolute prohibition on the admission of evidence of anything said during the course of a mediation conference could, arguably, impede disciplinary action being taken against a legal practitioner by preventing such evidence being adduced in a Court or a Tribunal[20]. It may be that misleading conduct by a lawyer during mediation would be found to be so antithetical to the obligations which apply in the context of mediation that the conduct would fall outside of the mediation conference, and therefore outside of the scope of such a provision. This difficulty is no doubt an unintended consequence of statutory provisions which override the common law exceptions to the without prejudice rule in absolute terms.

Fiona Stanton was admitted to practice in WA in 1991 and is a director of MDS Legal in Perth. Fiona practises in administrative law, employment law and general litigation and has extensive experience in representing clients in pre-trial and mediation conferences convened by courts, commissions and tribunals. She is a member of the Ethics Committee of the Law Society of Western Australia. EMAIL fstanton@mdslegal.com.au.


[1] Legal Practitioners Complaints Committee and Fleming [2006] WASAT 352 at para [74]- [76].

[2] Paddock v Forrester and Anor 3 MAN. & G. 904. at 1411.

[3] There is no doubt that the privilege extends to negotiations when litigation has not yet commenced: Rodgers v Rodgers [1964] HCA 25; Harrington v Lowe [1996] HCA 8.

[4] Field v Commissioner for Railways (NSW) [1957] HCA 92.

[5] Austotel Management Pty Ltd & Austotel Pty Limited v Hugh H Jamieson & Ors [1995] FCA 1284 at [17].

[6] CMA Assets Pty Ltd (formerly known as CMA Contracting Pty Ltd) v John Holland Pty Ltd (No.4) [2013] WASC 77 at [9].

[7] In Walker v Wilsher (1889) 23 QBD 325 at 338, Lindley LJ noted that letters written on a ‘without prejudice’ basis may be taken into consideration in proceedings on questions of delay where a failure to admit the evidence would otherwise lead to the court being misled.

[8] See above n4.

[9] Ibid at [291].

[10] Brown v Commission of Taxation [2001] FCA 596 at [18], Quad Consulting Pty Ltd v David R Bleakley & Associates Pty Ltd [1991] 27 FCR 86 at [93] and Rosebanner Pty Ltd v EnergyAustralia (2009) 223 FLR 460 at [411]-[415].

[11] See, for example, Hodgkinson & Corby Limited and Anor v Wards Mobility Services Limited [1997] CHD 178, Newburger J at 191.

[12] Pitts v Adney [1961] NSWR 535; McFadden v Snow [1951] 69 W.N. NSW 8 at 10.

[13] McFadden v Snow. See above n12.

[14] Ibid.

[15] Lohar Corporation Pty Ltd v Dibu Pty Ltd (1976) 1 BPR 177 at 9183 per Hutley JA and at 9185 per Glass JA.

[16] Williams & Ors v Commonwealth Bank of Australia [1999] NSWCA 345.

[17] Pinot Nominees Pty Ltd v Commissioner of Taxation [2009] FCA 1508.

[18] Alan L Limbury, ‘Should Mediation be an Evidentiary “Black Hole”?’ [2012] UNSW Law JournaI 38; [2012] UNSWLawJl 38; (2012) 35(3) University of New South Wales Law Journal 914.

[19] Ibid.

[20] Section 53B of the Federal Court of Australia Act 1976 (FCA) prevents evidence of anything said during a mediation being referred to in a proceeding. The FCA defines a proceeding to include a proceeding in a Tribunal.


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