Johannes Albertus Avenhouse and Gerda Avenhouse v The Council of The Shire of Hornsby No. 14473 of 1984 [1995] NSWSC 42 (19 September 1995)

COURT
IN THE SUPREME COURT OF NEW SOUTH WALES
COMMON LAW DIVISION
SPENDER AJ
HRNG
SYDNEY,  22-25 August 1994, 29-31 August 1994,
5-9 September 1994, 12-13
September 1994, 15-16 September 1994, 31 October-4 November 1994, 16 December
1994, 31 January 1995.
#DATE
27:6:1995
#ADD 19:9:1995
ORDER
  Orders made.
JUDGE1
SPENDER AJ:   During the cross-examination of Mr Avenhouse, one of the
plaintiffs,
two questions of evidence arose on which, after argument, I gave
my rulings. When doing so I told the parties that I would give my
reasons
later and in writing, so as not to take up Court time. The questions concerned
the uses that could be made, (a) of a without
prejudice letter written by the
plaintiffs former solicitors to a third party, and (b) of the answer to an
interrogatory made by
the plaintiffs in unrelated litigation.


2.  I now give my reasons.


THE "WITHOUT PREJUDICE" LETTER
3.  A letter dated 18 May 1979
marked "Without Prejudice" written by David J.
Collins and Co., solicitors who then acted for the present plaintiffs, to
Prior and
Phippard, solicitors for a Mr. Carlyle, was referred to during
cross-examination. Questions were put to Mr. Avenhouse on this letter.
The
defendant intended to tender the letter in its case and, absent a ruling to
the contrary, may have wished to put further questions
in cross-examination to
Mr. Avenhouse on it. It appears that this letter had been discovered by the
plaintiffs, perhaps inadvertently.
However, how it came into the hands of the
defendant was not been fully examined. The plaintiffs objected to the tender
of the letter
and did so by written notice given to the defendant. They relied
on the grounds of privilege and relevance. I am only concerned with
the first
of these grounds.


4.  Strictly speaking, it was premature to rule on the admissibility of the
letter until the defendant
entered its case and tendered the letter. However,
I thought it convenient to rule on the letter in light of the defendant's
stated
intention to tender it, the submissions that had been put, and the
possibility that further crossexamination may have been put to
Mr. Avenhouse
in reliance on the letter. In the event, I ruled that the letter was not
admissible in evidence on the ground of legal
professional privilege, nor
should further cross-examination be allowed on the letter itself. I left open
for further debate the
question whether the without prejudice privilege had
been waived by the plaintiffs. See Attorney-General for the Northern Territory
v Maurice [1986] HCA 80;  (1986) 161 CLR 475; Hooker Corporation Limited v Darling Harbour
Authority and Ors.  (1987) 9 NSWLR 538.


5.  The purpose of the without prejudice privilege is well known: to encourage
the negotiated settlement of disputes, and to encourage
in the process of
negotiations communications of the frankest kind. See Field v Commissioner for
Railways for N.S.W. [1957] HCA 92;  (1957) 99 CLR 285 at 291-292, Dixon CJ, Webb, Kitto and
Taylor JJ; Cutts v Head (1984) Ch 290 at 306, Oliver LJ; Hong Kong Bank of
Australia v Murphy
(1992) 28 NSWLR 512 at 522-523, Gleeson CJ, with whom the
other members of the Court agreed. In the course of without prejudice
negotiations,
parties may make concessions which they would not otherwise
make, including concessions on factual issues which they would otherwise
contest, and contest on grounds that they believe to be genuine.


6.  It was submitted by the defendant that the without prejudice
privilege is
limited to the proceedings to which the communication is referrable and does
not extend to other proceedings. Barden
v Barden [1921] NSWStRp 29;  (1921) 21 SR (NSW) 588 (to
which my attention was properly drawn by counsel for the plaintiffs) was
relied on by the defendant. Certainly, that decision
supports the defendant's
proposition; however, the decision itself is merely a statement of the
conclusion reached by the learned
Judge. No detailed reasons were given. The
defendant also relied on Cross on Evidence, 4th Australian Edition (paragraph
25375),
which, somewhat hesitantly, states, the law in these terms:-
    "It seems to follow from the nature of the without prejudice
  
 privilege that the communication which is made by one party
    to another in an endeavour to settle the dispute between
    them
is privileged ... only in respect of that dispute".


7.  The learned authors rely upon Barden v Barden for this conclusion.


8.
 In Hong Kong Bank of Australia v Murphy Gleeson CJ, in considering the
question before the Court (which does not bear on the one
I have to decide)
referred (at 522) to the decision of the House of Lords in Rush and Tompkins
Limited v Greater London Council [1988] UKHL 7;  (1989) AC 1280, which His Honour described as
a decision concerning a novel point of law in relation to the discoverability
of without prejudice
communication. In Rush and Tompkins the plaintiffs'
action against one of two defendants had been settled following an exchange of
without prejudice correspondence. The second defendant remained in dispute
with the plaintiffs, and applied for an order for specific
discovery of the
without prejudice correspondence between the plaintiffs and the first
defendant. The plaintiffs conceded that the
correspondence might be relevant
to the issues between them and the second defendant but refused discovery on
the ground that the
correspondence was privileged. This position was
unanimously upheld by the House of Lords.


9.  In Hong Kong Bank of Australia,
the Chief Justice in considering Rush and
Tompkins quoted (at 522-523) from the speech of Lord Griffiths (at 1305,)
which I now set
out: -
    "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 him 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 the settlement negotiations
    if solicitors thought that 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."


10.  In the Chief Justice's view (at 523):
    "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."


11. 
While the issue before the House of Lords was precisely as the Chief
Justice had described it, I think that which was elsewhere said
in Rush and
Tompkins helps to resolve the question I must decide. At page 1300-1301 Lord
Griffiths said:
    "There are many situations
when parties engaged upon some great
    enterprise such as a large building construction project must
    anticipate the risk of
being involved in disputes with others
    engaged in the same project. Suppose the main contractor in an
    attempt to settle a
dispute with one subcontractor made certain
    admissions it is clear law that those admissions cannot be used
    against him if
there is no settlement. The reason they are not
    to be used is because it would discourage settlement if he
    believed that
the admissions might be held against him. But it
    would surely be equally discouraging if the main contractor knew
    that if
he achieved a settlement those admissions could then be
    used against him by any other subcontractor with whom he might
    also
be in dispute. The main contractor might well be prepared
    to make concessions to settle some modest claim which he would
   
never make in the face of another far larger claim. It seems to
    me that if those admissions made to achieve settlement of a

   piece of minor litigation could be held against him in a
    subsequent major litigation it would actively discourage
    settlement
of the minor litigation and run counter to the whole
    underlying purpose of the 'without prejudice' rule would
    therefore hold
that as a general rule the 'without prejudice'
    rule renders inadmissible in any subsequent litigation connected
    with the
same subject matter proof of any admissions made in a
    genuine attempt to reach a settlement."


12.  In my opinion the views
expressed by Lord Griffiths express the right
balance between the public interest in protecting without prejudice
communications,
and the public interest that all relevant evidence should be
available to a party.


13.  It is common these days to find particular
transactions or related
transactions giving rise to a multiplicity of actions. The parties to one side
of the record may be the same
or they may be different; the parties to the
other side of the record may be the same, or they may be different. The
transactions
which are the subject of different actions may not be identical;
but not infrequently they arise out of the same or substantially
the same or
similar facts. For example, events that occur in the conduct of a commercial
enterprise may give rise to actions against
the directors of the company
controlling that enterprise and senior executives, the auditors to that
company, and outside financial
advisers. It would be in the highest degree
inconvenient and contrary to the policy of the law to encourage settlements if
those
who were parties to one set of proceedings believe that they were unable
to engage in the frankest possible without prejudice communications
for fear
that those very communications would be made available and would be used
against them in proceedings which might then be
separately on foot, or might
be in contemplation, or contingent, or merely a distant but unpleasant
possibility.


14.  The present
case concerns, fundamentally, a dispute between the
plaintiffs and the defendant Council in respect of the sub-division of a
parcel
of land purchased by the plaintiffs from Mr. Carlyle. It was to Mr.
Carlyle's solicitors that the letter of 18 May 1979 was written.
In one form
or another, the underlying subject matter of the dispute, that is to say, the
land itself, has been the subject of four
separate pieces of litigation.


15.  The letter in question was written shortly before the institution of
proceedings against the
plaintiffs by Mr. Carlyle, arising out of the contract
between the plaintiffs and Mr. Carlyle for the purchase by them of 19 Fraser
Road. The subject matter of the without prejudice correspondence was the
alleged termination by Mr. Carlyle of the land sale contract,
and also, the
subdivision of the property. That subdivision is the very issue which is at
the heart of the present proceedings.


16.  In my view it would be contrary to public policy for the defendant
Council to be able to use such correspondence in the present
proceedings. It
is, I think, sufficiently connected with the subject of the present
proceedings as to fall within the general principal
enunciated by Lord
Griffiths.


17.  Therefore, unless the plaintiffs waived their privilege, which I hold
they have not, the document
was not admissible, nor should cross-examination
have been allowed on the document itself.


THE INTERROGATORY
18.  A separate question
arose in respect of cross-examination by the
defendant's Counsel on an interrogatory sworn by the two plaintiffs, together
with a
third person, in a fifth set of proceedings which have nothing to do
with the subject matter of the present dispute.


19.  This
fifth set of proceedings to which each of the plaintiffs was a party
was taken in the Federal Court. For reasons which are not material,
it has
since been abandoned. The file of the Federal Court proceedings was produced
to this Court, with a direction from Mr. Justice
Lindgren, (which I have
confirmed with him) to the effect that leave to inspect, and the use that
might be made of this file, was
to be determined by this Court. The matter
which was the subject of the interrogatory, and of the cross-examination, was
an interrogatory
which dealt with Mr. Avenhouse's work history. It had nothing
to do with the contract between the plaintiffs and Mr. Carlyle, nor
the
subdivision, nor the present proceedings between the plaintiffs and the
defendant Council.


20.  The interrogatory in question
had not been read in open Court; the
proceedings never got to a hearing on the merits. In such circumstances the
question was whether
or not there are reasons why the ordinary rules which
protect that interrogatory from disclosure and use, should not be adhered to.
See generally: Ainsworth v Hanrahan  (1991) 25 NSWLR 155 at 163-168, Kirby P;
Tradestock v TNT  (1983) 81 FLR 91-95, Smithers J, Springfield Nominees v
Bridgelands [1992] FCA 472;  (1992) 110 ALR 685 by Wilcox J, and in The Federal Court, Order
46, Rule 6, which limits the documents on court files which may be inspected
without
the leave of the court or a Judge, such documents including answers to
interrogatories.


21.  In Springfield Nominees v Bridgelands
the issue before Wilcox J was
whether a witness statement made in one set of proceedings should be allowed
to be used in another
set of proceedings. Wilcox J held that such statements
were subject to an implied undertaking that they would not be used otherwise
than for the purpose of litigation to which they were given, unless consent or
leave of the court was obtained, and that the court
would not release or
modify the implied undertaking save in special circumstances.


22.  His Honour gave a detailed analysis of
the basis on which witness
statements, affidavits, discovered documents and answers to interrogatories
were (in general) protected
from disclosure save for the purposes of the
proceedings for which they had been brought into existence. I would adopt what
His Honour
had to say.


23.  In essence, the question is whether special circumstances were made out
which would entitle Counsel for the defendant
to cross-examine Mr Avenhouse on
the interrogatory. That I think is the appropriate test, and I do not think it
has been made out.
In the first place, there was no commonality between the
proceedings in the federal court in which the interrogatory was sworn, and
the
proceedings before me. In the second place, as I have pointed out the answer
to the interrogatory dealt with Mr Avenhouse's work
history. This was I think
too peripheral to the issues between the parties. In the event, it was quite
irrelevant to my reasons for
judgment in the main proceedings. Accordingly, in
the exercise of what is a discretionary judgment, use of the answer to the
interrogatory
in question was denied to the defendant.