Setting aside “without prejudice” settlement/mediations for false and misleading statements

 Pihiga Pty Ltd v Roche [2011] FCA 240

The parties agreed to participate in a mediation which culminated in a settlement deed that the applicants (“Pihiga”) would sell their shares to the respondent (“Roche”). Pihiga sought an order declaring the settlement deed void, setting it aside or rescinding it on the basis that the Roche made false and misleading representations during the negotiations which induced Pihiga to enter into the settlement deed.

Roche sought a motion, which was in effect an injunction seeking the restraint of use of documents brought into existence for the mediation. Roche failed in excluding the mediation documents on the common law exceptions in Unilever plc v Procter & Gamble Co 1 WLR 2436 .

Roche further argued that section 53B of the Federal Court of Australia Act 1976 (Cth), provided that anything said during court-ordered mediations cannot be admitted subsequently as evidence, without exception. His Honour drew the distinction that the mediation was not court ordered. Roche’s argument under sections 131 (exclusion of evidence of settlement negotiations) and 135(a) of the Evidence Act 1995 (Cth), also failed because Pihiga had brought an application for enforcement of an agreement.

Lander J

85.

In Oceanbulk Shipping and Trading v TMT Asia [2010] 3 WLR 1424, Lord Clarke said at [27]:

The without prejudice rule is thus now very much wider than it was historically. Moreover, its importance has been judicially stressed on many occasions, most recently perhaps in Ofulue’s case [2008] EWHC 438; [2009] 3 All ER 93, [2009] AC 990, where the House of Lords identified the two bases of the rule and held that communications in the course of negotiations should not be admissible in evidence. It held that the rule extended to negotiations concerning earlier proceedings involving an issue that was still not resolved and refused, on the ground of legal and practical certainty, to extend the exceptions to the rule so as to limit the protection to identifiable admissions.

The speeches of the majority contain a number of references to the importance of the rule which are relied upon on behalf of Oceanbulk. I take some examples. Lord Hope said at [12]:

… The essence of [the rule] lies in the nature of the protection that is given to parties when they are attempting to negotiate a compromise. It is the ability to speak freely that indicates where the limits of the rule should lie. Far from being mechanistic, the rule is generous in its application. It recognises that unseen dangers may lurk behind things said or written during this period, and it removes the inhibiting effect that this may have in the interests of promoting attempts to achieve a settlement. It is not to be defeated by other considerations of public policy which may emerge later, such as those suggested in this case, that would deny them that protection.

In para [2] Lord Hope had said that where a letter is written without prejudice during negotiations conducted with a view to a compromise, the protection that these words claim will be given to it unless the other party can show that there is a good reason for not doing so.

86.

The law has developed so that there are now two bases underpinning the without prejudice rule, namely the public interest in promoting the settlement of disputes without calling in aide the Courts; and an express or implied agreement between the parties that their communications will be kept confidential.

87.

Moreover, the rule is not restricted simply to an offer made and not accepted but includes communications of all kinds which are genuinely entered into for the purpose of trying to reach a compromise. The second aspect of the rule is to encourage the free and frank exchange of views between the parties.

88.

However, the rule is not absolute and admits of exceptions. Lord Justice Robert Walker identified those exceptions in Unilever plc v Procter & Gamble Co 1 WLR 2436 where he said at 2444-45:

(1) … when the issue is whether without prejudice communications have resulted in a concluded compromise agreement, those communications are admissible …

(2) Evidence of the negotiations is also admissible to show that an agreement apparently concluded between the parties during the negotiations should be set aside on the ground of misrepresentation, fraud or undue influence. Underwood v Cox (1912) 4 DLR 66, a decision from Ontario, is a striking illustration of this.

(3) Even if there is no concluded compromise, a clear statement which is made by one party to negotiations, and On which the other party is intended to act and does in fact act, may be admissible as giving rise to an estoppel. That was the view of Neuberger J in Hodgkinson & Corby Ltd v Wards Mobility Services Ltd [1997] FSR 178 at 191, and his view on that point was not disapproved by this court on appeal ([1998] FSR 530).

(4) Apart from any concluded contract or estoppel, one party may be allowed to give evidence of what the other said or wrote in without prejudice negotiations if the exclusion of the evidence would act as a cloak for perjury, blackmail or other “unambiguous impropriety” … But this court has, in [Forster v Friedland [1992] CA Transcript 1052 and Fazil-Alizadeh v Nikbin (1993) Times, 19 March, warned that the exception should be applied only in the clearest cases of abuse of a privileged occasion.

(5) Evidence of negotiations may be given (for instance, on an application to strike out proceedings for want of prosecution) in order to explain delay or apparent acquiescence. Lindley LJ in Walker v Wilsher (1889) 23 QBD 335 at 338, noted this exception but regarded it as limited to “the fact that such letters have been written and the dates at which they were written”. But occasionally fuller evidence is needed in order to give the court a fair picture of the rights and wrongs of the delay.

(6) In Muller’s case (which was a decision on discovery, not admissibility) one of the issues between the claimant and the defendants, his former solicitors, was whether the claimant had acted reasonably to mitigate his loss in his conduct and conclusion of negotiations for the compromise of proceedings brought by him against a software company and its other shareholders. Hoffmann LJ treated that issue as one unconnected with the truth or falsity of anything stated in the negotiatons, and as therefore falling outside the principle of public policy protecting without prejudice communications. The other members of the court agreed but would also have based their decision on waiver.

(7) The exception (or apparent exception) for an offer expressly made “without prejudice except as to costs” was clearly recognised by this court in Cutts v Head, and by the House of Lords in the Rush & Tompkins case, as based on an express or implied agreement between the parties. It stands apart from the principle of public policy (a point emphasised by the importance which the new Civil Procedure Rules, Pt 44.3(4), attach to the conduct of the parties in deciding questions of costs). There seems to be no reason in principle why parties to without prejudice negotiations should not expressly or impliedly agree to vary the application of the public policy rule in other respects, either by extending or by limiting its reach. In Cutts v Head Fox LJ said:

“… what meaning is given to the words ‘without prejudice’ is a matter of interpretation which is capable of variation according to usage in the profession. It seems to me that, no issue of public policy being involved, it would be wrong to say that the words were given a meaning in 1889 which is immutable ever after …” (See [1983] EWCA Civ 8; [1984] 1 All ER 597 at 613, [1984] Ch 290 at 316.]

(8) In matrimonial cases there has developed what is now a distinct privilege extending to communications received in confidence with a view to matrimonial conciliation …

94.

In any event I do not need to attempt any resolution of that issue, if the issue needs to be resolved, because I think the respondents are entitled to take advantage of the second, third and fourth exceptions to which His Lordship referred: Oceanbulk Shipping and Trading SA v TMT Asia Ltd 3 WLR 1424.

95.

In this proceeding the claim is that the respondents have contravened a number of sections of the Corporations Act, the ASIC Act and the TPA. The alleged contravention is in misrepresenting to the applicants the value of real estate; the extent to which the valuation could be relied upon; and whether the opinion held by the respondents who were responsible for providing those valuations was honestly held. The case against the respondents is that the applicants were misled into reaching a settlement which they would not have concluded if they had been advised of the true position.

96.

It can be seen that in the second exception Robert Walker LJ said that the evidence of without prejudice negotiations would be admissible to show that an agreement concluded by the parties during the negotiation was procured by “misrepresentation, fraud or undue influence”. That statement has been approved in the authorities to which I have referred. Mr Sullivan contended that the Canadian authority to which Robert Walker LJ referred did not support the proposition stated. I do not think that there is any ambiguity in His Lordship’s reasons. He said, with the later approval of the House of Lords and the Supreme Court, that the rule provided for an exception where application was made to set aside the agreement for a misrepresentation. He must have meant something less than fraud because of the context in which he spoke.

97.

In my opinion, the common law without prejudice rule does not prevent the applicants from adducing the evidence referred to in the notice of motion in circumstances where the applicants claim that a concluded compromise agreement has been reached in circumstances where they were misled.

98.

That conclusion follows on the Australian authorities to which I now turn

99.

In Quad Consulting Pty Ltd v David R Bleakley & Associates Pty Ltd (1990) 27 FCR 86, Hill J was called upon to consider the without prejudice rule where the allegation was that during a without prejudice meeting between the respondent and a corporation, misleading and deceptive representations were made on behalf of the respondent which resulted in damage to the applicant. The applicant was not present at the meeting. The applicant sought the respondent’s notes of the meeting which the respondent opposed on the ground that the notes recorded without prejudice discussions in a meeting held in a genuine attempt to resolve a dispute between the respondent and the corporation.

100.

His Honour referred to the rule and to the rule not being absolute. He referred to Cutts v Head [1984] Ch 290 and rejected the respondent’s contention that once the Court has found that a meeting was held to negotiate a legal dispute, which was conducted on a without prejudice basis, anything said or done in the meeting was privileged. He rejected that submission citing Walker v Wilsher 23 QBD 335 and other authorities which he said allowed for a party who was seeking to enforce a settlement arrived at such a meeting to tender without prejudice letters or records of the conversations so as to prove the agreement.

101.

He said at 93 that the rule was subject to limitations and could not protect a party “if the matter in dispute in proceedings, unrelated to the matter the subject of the negotiation, is whether particular words were uttered by one of the parties to the negotiation”.

102.

He said at 93:

It seems to me that if, in the course of “without prejudice” negotiations, a party to those negotiations engages in conduct which is misleading or deceptive or likely to mislead or deceive contrary to s 52 of the Trade Practices Act and as a result the other party to the negotiations relying, for example, upon the misleading or deceptive conduct suffers loss, proof of the negotiations should not be rendered impossible by the “without prejudice” rule. There is, in such a case, no longer the same subject matter in dispute between the parties as was in dispute at the time of the negotiations. A fortiari where the party suffering damage was not at all a party to the negotiation. The public policy to be found in Part V of the Trade Practices Act is not to be rendered nugatory by permitting a party to hide behind the fact that his or her conduct, which is misleading or deceptive conduct, occurred during the course of “without prejudice” negotiations. A party cannot, with impunity, engage in misleading or deceptive conduct resulting in loss to another under the cover of “without prejudice” negotiations.

103.

Two propositions arise out of his Honour’s reasons. First, the without prejudice rule does not extend to a proceeding which does not concern the same subject matter of the dispute which was the subject of the without prejudice communication. Secondly and in any event, the without prejudice rule does not extend to protect conduct which is misleading or deceptive and a contravention of s 52 of the TPA.

104.

Quad Consulting Pty Ltd v David R Bleakley & Associates Pty Ltd 27 FCR 86 was followed by Ward J in Rosenbanner Pty Ltd v Energy Australia [2009] NSWSC 43; (2009) 223 FLR 406 who said at 412 after referring to Quad Consulting Pty Ltd v David R Bleakley & Associates Pty Ltd 27 FCR 86 that:

It surely cannot be the case that a discussion with a view to resolving a dispute at the least possible cost to a corporation and with what must have been a view to the continued and efficient conduct of the business, a corporation would be free to engage in misleading and deceptive conduct without recourse by a party suffering loss in reliance thereon.

105.

Justice Hill’s reasons are consistent with Robert Walker LJ’s reasons in Unilever plc v Procter & Gamble Co 1 WLR 2436 and, in my opinion, are directly relevant to the issues before me. Indeed, Mr Sullivan conceded that he could not distinguish Quad Consulting Pty Ltd v David R Bleakley & Associates Pty Ltd 27 FCR 86 from this proceeding. That concession was rightly made.

106.

I should, of course, follow a previous decision of this Court unless I am convinced that it is plainly wrong. In this case I am not so convinced and, indeed, in my opinion, the decision is plainly right as the High Court has implicitly held in Harrington v Lowe (1996) 190 CLR 311. That case was concerned with a provision of the Family Law Act 1975 (Cth) and Rules of Court made under that Act. After referring to the provision and the rule, the majority (Brennan CJ, Dawson, Toohey, Gaudron, McHugh and Gummow JJ) said of a without privilege communication:

That privilege is concerned with the admissibility of evidence at trial after the failure of negotiations and even then does not provide a legal norm which is absolute in nature. Thus, in a proceeding in which the ordinary rules of evidence apply, “without prejudice” material will be admissible if the issue is whether or not the negotiations resulted in an agreed settlement. So also where what is in issue is the entry into the impugned agreement as a consequence of engagement in misleading and deceptive conduct by another party.

107.

In respect to the last mentioned matter, the High Court cited Quad Consulting Pty Ltd v David R Bleakley & Associates Pty Ltd (1990) 27 FCR 86.

108.

I am bound to follow the decision in Quad Consulting Pty Ltd v David R Bleakley & Associates Pty Ltd 27 FCR 86 which is consistent with the decisions of the House of Lords, Supreme Court and Court of Appeal in England and Wales and which has been cited with apparent approval in Harrington v Lowe 190 CLR 311 and, for those reasons, reject the respondents’ argument that they are entitled to an injunction based upon the common law qualified privilege rule.

109.

The second ground for the application for an injunction relied upon the mediation agreement and, in particular, the provisions to which I have referred.

110.

That argument fails, in my opinion, for the same reasons as the first ground which relied upon the common law without prejudice rule. It is recognised for the reasons I have given earlier that the without prejudice rule relies upon the public interest to which I have referred and the express or implied agreement of the parties to keep information confidential.

111.

I have rejected the respondents’ claim for an injunction based upon the common law qualified privilege rule which is based upon the existence of an express or implied contract of the parties to keep the communications confidential. It would follow that insofar as the respondents’ application relies upon the express terms of the mediation agreement the application would fail for the same reasons. Clause 8 of the mediation agreement makes the communications without prejudice. Clause 10 identifies the documents and communications which will attract the without prejudice protection. That protection is in my opinion no greater than that given by the common law and if the without prejudice privilege is lost because of the exceptions at common law it cannot be maintained under the mediation agreement.

112.

A party is not entitled to avoid the consequences of the Corporations Act, the ASIC Act and the TPA by relying on a contractual exclusionary provision. Although Henjo Investments Pty Ltd v Collins Marrickville Pty Limited (No 1) [1988] FCA 40; (1988) 39 FCR 546 was concerned with an exclusion clause, the reasoning in the decision is apposite when a party seeks to rely on a contractual term of confidence to defeat a claim of a contravention under the relevant statutes. Lockhart J dealt with some decisions which held that an exclusion clause could not defeat a claim under s 52 and said at 561:

There are wider objections to allowing effect to such clauses. Otherwise the operation of the Act, a public policy statute, could be ousted by private agreement. Parliament passed the Act to stamp out unfair or improper conduct in trade or in commerce; it would be contrary to public policy for special conditions such as those with which this contract was concerned to deny or prohibit a statutory remedy for offending conduct under the Act.

See also the dicta of the Full Court in IOOF Australia Trustees (NSW) Ltd v Tantipech [1998] FCA 924; (1998) 156 ALR 470 at 479.

113.

In those circumstances, the second ground does not support the making of an injunction.

 

Brisbane Barrister – David Cormack

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