LIQUORLAND (AUSTRALIA) PTY LTD v GYG HOLDINGS PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL KIRBY P, HANDLEY and POWELL JJA 27 March 1995, 27 March 1995 [1995] NSWCA 261 PRACTICE AND PROCEDURE — "without prejudice" correspondence — subsequent tender on application for indemnity costs — no reservation of use as per Calderbank v Calderbank [1976] Fam 93 — held: Tender rejected — motion dismissed. COSTS — indemnity costs — offer of compromise in "without prejudice" correspondence — tender of lettters rejected — need to preserve later use as to costs. LEGAL PRACTITIONERS — solicitors practice — use of "without prejudice" correspondence — need to reserve use on costs. PRACTICE and PROCEDURE — "without prejudice" correspondence — tender of in support of application for indemnity costs — no reservation of use in later costs application as per Calderbank v Calderbank [1976] Fam 93 — whether should be received upon the basis that litigation was now concluded relieving the parties of the limitation of "without prejudice" communications — held: (1) The tender of the "without prejudice" correspondence should be rejected. Field y Commissioner for Railways (1957) 99 CLR 285; Calderbank v Calderbank [1976] Fam 93, appld; Permanent Building Society v Wheeler and Ors [No 2] (1992) 10 WAR 569; \AMEV Finance Ltd v Artes Studios Thoroughbreds Pty Ltd (1988) 13 NSWLR 486 (SC); and Lukies v Ripley [No 2] unreported, Supreme Court (NSW), Young J, 30 August 1994, apprvd and followed; Magenta Nominees Pty Ltd v Richard Ellis (Western Australia) Pty Ltd Federal Court (Carr J), 12 May 1994, not followed; (2) Motion accordingly dismissed with costs. COSTS — indemnity costs — proof of offer of compromise — failure to utilise rules of Supreme Court SCR Pt22 and Pt52 or expedient approved in Calderbank v Calderbank [1976] Fam 93 — tender of "without prejudice' letters rejected — motion for indemnity costs fails. LEGAL PRACTITIONERS — solicitors — "without prejudice" communications — the subsequent use in application for indemnity costs — need to reserve subsequent use for costs purposes — Calderbank v Calderbank [1976] Fam 93,; Permanent Building Society vy Wheeler and Ors [No 2] (1992) 10 WAR 569, apprvd. Supreme Court Rules Pt22 and Pt52. ORDERS 1. Motion dismissed; and 2. Claimant to pay opponent's costs of the motion. Kirby P Before the Court is a motion for the enlargement of orders for costs which were earlier made by the Court. On 28 October 1994, the Court delivered its reasons and pronounced its orders in the litigation between the parties. A MOTION TO ENLARGE COST ORDERS TO CLAIM INDEMNITY COSTS Amongst the orders of Powell JA (which became the orders of the Court by the concurrence therein of Handley JA) was an order that the first respondent pay the appellant's costs of the proceedings. 2 UNREPORTED JUDGMENTS When the judgment was handed down, the representatives then present for the claimant, which was the successful party in the appeal, sought and obtained an order from the Court, as then constituted, that the appellant have leave to move the Court for the enlargement of the costs order so that the costs be ordered on an indemnity basis. The appellant was to file any notice of motion to that end within 28 days. This, the appellant did. It is that motion which is now before the Court. It was necessary for the claimant to establish the evidentiary basis upon which it moved the Court for the exceptional costs order. For this purpose the claimant sought to read an affidavit of Mr Anthony Hatzis, its solicitor. To that affidavit were annexed two letters being an exchange of correspondence between the solicitors for respectively the claimant and the opponent. Those letters are clearly marked with the words, "without prejudice". Whilst not opposing the reading of the affidavit, counsel for the opponent opposed the reception into evidence of the "without prejudice" correspondence. The Court permitted the affidavit to be read but reserved the admission of the letters tendered by the claimant. PROTECTION OF "WITHOUT PREJUDICE" CORRESPONDENCE AND EXCEPTIONS. Generally speaking without prejudice correspondence will not be admitted into evidence. The High Court of Australia, in Field v Commissioner for Railways (1957) 99 CLR 285 at 291f has said: "As a matter of policy the law has long excluded from evidence admissions by words or conduct made by parties in the course of negotiations to settle litigation. The purpose is to enable parties engaged in an attempt to compromise litigation to communicate with one another freely and without the embarrassment which the liability of their communications to be put in evidence subsequently might impose upon them. The law relieves them of this embarrassment so that their negotiations to avoid litigation or to settle it may go on unhampered. This form of privilege however is directed against the admission in evidence of express or implied admissions. It covers admissions by words or conduct. For example neither party can use the readiness of the other to negotiate as an implied admission. It is not concerned with objective facts which may be ascertained during the course of negotiations. These may be proved by direct evidence. But it is concerned with the use of the negotiations or what is said in the course of them as evidence by way of admission. For some centuries almost it has been recognised that parties may properly give definition to the occasions when they are communicating in this manner by the use of the words without prejudice and to some extent the area of protection may be enlarged by the tacit acceptance by one side of the use by the other side of these words." That principle has been applied many times in the High Court and in this Court and in other courts throughout the common law world. In Calderbank v Calderbank [1976] Fam 93 a formulation was proposed whereby "without prejudice" correspondence could be received into evidence on the issue of costs. However, the Court of Appeal of England made it plain that, to secure the admission of the evidence, the possible tender of the correspondence on a later costs question would have to be expressly reserved. Counsel for the claimant acknowledged the difficulty of securing the admission of the letters annexed to the affidavit of his solicitor. In those letters, it is plain on their face that no possible tender of the correspondence on a subsequent issue of costs was expressly reserved. Nor did the claimant in this case take advantage URJ LIQUORLAND (AUSTRALIA) PTY LTD v GYG HOLDINGS PTY LTD (Kirby P) 3 of the procedures that are now laid down by the Rules of this Court in Pt22 and Pt52 for an offer of compromise to be made which is not immediately disclosed to the Court but which, following the resolution of the case, can be provided to the Court as a foundation for an indemnity costs order. Such orders are available in this Court as the decisions of the Court have made it plain. See Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 (CA), 726. Therefore, the position is reached that when the motion was opened in this Court, the claimant had neither taken the step that has been established in Calderbank and many times followed in the courts in this State and of other States of Australia; nor had it taken advantage of the special provisions under the Rules of Court. Nonetheless, counsel for the claimant urged that the Court should receive the letters. He did so upon the basis of dicta which he sought to extract from the opinions of Anderson J in the Supreme Court of Western Australia in Permanent Building Society v Wheeler and Others [No 2] (1992) 10 WAR 569. In that case, at 576, Anderson J said, recounting the arguments of the defendant: On behalf of the defendant it is argued that there are no considerations of policy that would operate to prevent the use of that correspondence those communications that behaviour in an application for special costs orders. It is said that the trial is over the merits have been determined liability has been resolved and the risk of prejudice therefore does not exist." Counsel repeated those arguments before this Court although he properly drew attention to the fact that Anderson J did not find them persuasive in the case before him. Indeed, his Honour referred to the failure of the claimant for the special costs order, to make the application prior to, or during, the litigation under the Rules of Court, or to employ the procedures developed in Calderbank and subsequent cases. Counsel then referred to the opinion of Carr J in the Federal Court of Australia in Magenta Nominees Pty Ltd v Richard Ellis (Western Australia) Pty Ltd, unreported decision of 12 May 1994. In that case Carr J suggested that, where a particular offer had been made, the letters, although "without prejudice", might in a proper case be received into evidence in an application for a special costs order. This Court is thus presented with a question of principle as to whether it should permit the tender of the "without prejudice" letters in this case. It was stated by counsel, rightly in my view, that if the letters could not be received into evidence, there would be no evidentiary foundation for the making of the special costs order sought. The motion would have to fail. THE TENDER OF "WITHOUT PREJUDICE" CORRESPONDENCE SHOULD BE REJECTED. There are a number of reasons why I would not permit the tender of the letters and that is notwithstanding the vigorous arguments advanced by counsel for the claimant. First, there is a high public policy in the protection of communications between solicitors to litigation which they mark "without prejudice'. Solicitors themselves know of that public policy. Their clients know of it or can be told of it. It is a simple rule. It is one which the courts should be vigilant to defend. It permits the great utility of communication between solicitors in the sure knowledge both of the lawyers involved and of their clients, that the letters will not - certain immaterial exceptional cases apart - ever thereafter become part of the public record of the courts. 4 UNREPORTED JUDGMENTS Secondly, if in this case the solicitor for the opponent had been asked by his client as to whether the offer which was contained in the subject letters, could ever later come before court by reference to Calderbank the simple principle and the practice of the Court together with the Rules of Court now available, would have given the answer that such letter would not have been available. Such is the state of authority. That would have been a simple answer to a simple question. I believe it would have been an accurate answer. It was therefore a potential consideration that was relevant to the negotiations between the parties (and other parties in a like position) and the way in which the opponent in this case approached the offer which was made. Thirdly, although it may not be clear in this case, there could, in other cases, be sound reasons why a party would not wish any part of "without prejudice" communications to be provided in open court. The fact of making the offer is something private to the parties. Even after the public resolution of their dispute, they might not want the fact that there were negotiations made public. By the simple principles of the protection by the courts of "without prejudice" communications, the parties have that privilege. They reserve it to themselves. It permits them to write to each other as they please. This is a privilege which the Court should uphold. Particularly should they do so because there are at least two procedures available to parties whereby, in "without prejudice" communications, they can reserve their right to permit the issue of costs subsequently to be ventilated. Fourthly, the use of the Calderbank expedient and that now laid down in this Court by the Rules of Court effectively means that the parties keep control of their negotiations. It is not left to the chance consideration of the matter subsequently being considered by a Court weighing the considerations particular to the case and determining whether or not to receive copies of their communications. The applicable rule is very simple. It is known by the legal profession and parties. The occasional utility of breaking it down for suggested justice in the particular facts of a case is not, in my opinion, outweighed by the great utility of holding to the present simple rule. Fifthly, counsel was unable to present the Court with any case in Australia, in England or anywhere else where the foregoing general principle has been, by a holding of a court, qualified. Certainly there is no such decision binding on this Court. The decisions which he referred, including AMEV Finance Ltd v Artes Studios Thoroughbreds Pty Ltd (1988) 13 NSWLR 486 (SC), 487, and Lukies v Ripley (No 2), an unreported decision of Young J, 30 August 1994, indicate that, in the Divisions of the Supreme Court of New South Wales, the simple rule which was also upheld by Anderson J in Permanent Building Society is the rule that is followed. In the principal proceedings I was not myself a party to the majority holding which led to the order for costs. However, I am invited in the motion to accept the letters. I would not do so. I would reject the tender of the letters. THE MOTION FAILS AND SHOULD BE DISMISSED. It being conceded then that the motion must fail as a consequence of this rejection, I would propose that the motion be dismissed. The claimant must pay the costs of the motion. Handley JA I agree that the letters are inadmissible and it follows that the motion should be dismissed with costs. Powell JA I also agree. I would merely wish to add two comments. URJLIQUORLAND (AUSTRALIA) PTY LTD v GYG HOLDINGS PTY LTD (Powell JA) 5 First, far from the position having been reached when the question of policy as to privileged letters has ceased to be relevant, I would merely observe that even in the case of an offer made pursuant to the provision of Pt22 of the Supreme Court Rules, that offer is deemed to be made without prejudice unless the notice of offer otherwise provides, and furthermore, that without the provisions of Pt52 R17 to provide for the consequence of non-acceptance of an offer so made, the offer would not be admissible in evidence and the claim for indemnity costs would fail. Further, even if, contrary to what has occurred in this case, the letters which were sought to be tendered had taken the form of Calderbank letters, it would not have been the necessary consequence of the non-acceptance of any offer contained in them that the claimant would have been entitled to an order for its costs on an indemnity basis. I agree that the application should be dismissed with costs. Kirby P: The orders of the Court are that the motion is dismissed. The claimant must pay the opponent's costs. 1. Motion dismissed; and 2. Claimant to pay opponent's costs of the motion. COUNSEL: Claimant: P Heath Opponent: (First, Second and Third) IA Lawry SOLICITORS: Claimant: A Hatzis Opponent: (First) Collins Cornock and Co (Second and Third) CJ Longman