New South Wales Supreme Court CITATION : First Capital Partners v Sylvatech [2004] NSWSC 846 HEARING DATE(S) : 3 September 2004 JUDGMENT DATE : 3 September 2004 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Section 131 Evidence Act 1995 privilege not confined to settlement negotiations between parties to litigation, and continues after settlement achieved. Numerous rulings. CATCHWORDS : EVIDENCE - facts excluded from proof - section 131 Evidence Act 1995 - whether it applies only to a dispute between parties to the present litigation - whether it continues to apply once the dispute has been resolved - EVIDENCE - client legal privilege - no question of principle - PRACTICE - subpoenas and notices to produce - masking parts of documents - construction - relevance LEGISLATION CITED : Evidence Act 1995 Evidence Act 1995 (Cth) GE Capital Corporate Finance Group Ltd v Bankers Trust Co [1995] 2 All ER 993 Glass v DeMarco [1999] FCA 482 Langford v Cleary (No 2) (1998) 8 Tas R 52 CASES CITED : Law Society of New South Wales v Bruce (1996) 40 NSWLR 77 Lawcover Pty Limited v the Commissioner of Police for New South Wales (Supreme Court of NSW 28 November 1997, unreported) Moran v Moran [No 3] [2000] NSWSC 151 National Employers' Mutual General Association Ltd v Waind & Hill [1978] 1 NSWLR 372 Rush & Tompkins Ltd v Greater London Council [1989] AC 1280 PARTIES : First Capital Partners Pty Limited - Plaintiff Sylvatech Limited - Defendant FILE NUMBER(S) : SC 3097/02 COUNSEL : S A Wells - Plaintiff C Bavin - Defendant SOLICITORS : Lazarus Tomko Lawyers - Plaintiff Hunt & Hunt - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST CAMPBELL J FRIDAY 3 SEPTEMBER 2004 3097/02 FIRST CAPITAL PARTNERS PTY LIMITED v SYLVATECH LIMITED JUDGMENT – Ex Tempore (Revised 7 September 2004) 1 HIS HONOUR: This is the hearing of a Notice of Motion which has been brought by the plaintiff in these proceedings against the defendant. The proceedings are ones whereby the plaintiff claims that the defendant has an obligation to pay it money, arising from the terms of a Heads of Agreement document which was entered by the plaintiff and the defendant and other parties on 6 November 2000. The Notice to Produce 2 The plaintiff has served on the defendant a notice to produce which requires it to produce the following documents: "1. All documents prepared for any meetings of the directors including meeting agendas and minutes of meetings of the Board of Directors of Sylvatech Limited (formerly known as Australian Plantation Group Limited) for the period 6 November 2000 to date in relation to: (a) The agreement titled "Heads of Agreement" dated on or about 6 November 2000, between inter alia Australian Plantation Group Limited, Australian Plantation Timber Limited and First Management Corporation Limited ("the November Heads of Agreement"); (b) negotiations with the Administrator and/or the Administrator's solicitors of Australian Plantation Timber Limited and/or First Management Corporation Limited leading up to the Settlement Agreement dated 10 May 2002." The November Heads of Agreement 3 The November Heads of Agreement document there referred to is a document which, in very broad terms, provides for what could loosely be called a joint venture between various parties including the plaintiff and the defendant, provides for the provision of some finance between certain of those joint venturers, provides for the acquisition of two options to lease land from the Tiwi Aboriginal Land Trust and the Tiwi Land Council, the development of that land by the planting on it of Acacia trees, and the establishment of an investment scheme whereby investors - different people to the joint venturers - could invest in the project. 4 One of the parties to the Heads of Agreement, a company called First Management Corporation Limited, had an obligation under that agreement to provide an interest free loan to the defendant, in the sum of $1.5 million. The Settlement Agreement Dated 10 May 2002 5 First Management Corporation Limited came to be in administration, and that administration led to the entering into of the document referred to in the notice to produce as the settlement agreement dated 10 May 2002. That settlement agreement was described to me by Mr Wells, for the plaintiff, without any dissent from Mr Bavin, for the defendant, as being one whereby the administrator of First Management Corporation agreed to pay an amount of $1,050,000, as an out and out payment, as compensation for not performing the obligation to provide the interest free loan of $1.5 million. Partly Masked Documents Produced 6 Pursuant to the notice to produce, various board minutes of the defendant were produced. The board minutes were set out so that their text appeared in two columns. The first column contained a subject matter heading, the second column contained the material relating to that subject matter. The copies of board minutes which were produced pursuant to the notice to produce were produced so that all the subject matter headings were visible, but some of the text appearing under certain headings was covered. The point of the present notice to produce is to uncover those covered portions. There is no dispute that it is permissible to mask parts of documents produced on a subpoena or notice to produce, if the masked parts are outside the scope of the documents called for by the notice to produce or subpoena, irrelevant to issues in the proceedings, or privileged: cf GE Capital Corporate Finance Group Ltd v Bankers Trust Co [1995] 2 All ER 993. 7 There are two separate bases upon which a right to produce partly masked documents was claimed. Concerning certain paragraphs, the basis was that the material did not fall within the scope of the notice to produce. Concerning those paragraphs, there was a fallback position, whereby, even if as a matter of construction, the material which had been masked fell within the scope of the notice to produce, it was irrelevant to the proceedings, and for that reason should not be produced. 8 Concerning certain other paragraphs, a claim to mask was made on the basis of privilege - sometimes client legal privilege, sometimes the statutory version of without prejudice privilege arising under section 131 Evidence Act 1995. 9 For the purpose of the application, I have examined the originals of the documents, with the consent of the parties. That course is in any event provided for by section 133 of the Evidence Act 1995, regardless of consent of the parties. Construction of Notice to Produce 10 The first task which needs to be performed, is to construe the notice to produce. The expression "in relation to" which governs both paragraph (a) and paragraph (b) of the notice to produce, is a critical one. In Law Society of New South Wales v Bruce (1996) 40 NSWLR 77 at 84 Giles CJ Comm said, "The phrase "in relation to" is wide, satisfied by a connection or association between the two things in question: R v Murphy (1985) 158 CLR 596 at 611. It should not be read down unless there be compelling reason to do so: Fountain v Alexander (1982) 150 CLR 615 at 629. That it may be read down recognises that the context of the phrase or the purpose it serves may require that the relationship be of a particular kind, sometimes described as an appropriate or relevant relationship...". 11 It has been put, by Mr Wells, that paragraph (a) of the notice to produce should be construed as though any document which could be described as one in relation to the Acacia tree project fell within its scope. I think, given the topics dealt with by the November Heads of Agreement, that that is an appropriate reading of it. On that basis, I have formed the view that the editing of the minutes has in some respects been too severe. 12 One significant issue in the litigation is whether a condition precedent, to the obligation of First Management Corporation Limited to pay $1.5 m, has occurred. There is another issue with the proceedings, about whether there should be rectification of the Heads of Agreement document. The Test for Relevance 13 I will deal first with the material concerning which a claim of being outside the scope of the notice to produce, or alternatively irrelevant, is made. Concerning those matters, it seems to me that if any of the text of the minutes relates to the Tiwi project, in a way which might possibly bear upon the matters in issue in the proceedings, then it should be ordered to be produced. In taking that approach, I bear in mind that at the stage of obtaining access to documents produced on subpoena, a very broad test of relevance is used: National Employers' Mutual General Association Ltd v Waind & Hill [1978] 1 NSWLR 372. Application of Principles of Construction and Relevance 14 On the basis of those principles, concerning the board minutes of 19 February 2001, I order that the material appearing under the heading Options Valuation be disclosed, that the material appearing under the heading Capital Raising Update be disclosed, and that the material appearing under the heading Operations Review down to the words in the third paragraph, "And will be submitted to the Board for consideration" be disclosed, but the balance of that paragraph not be disclosed. Concerning the heading Cash Flow, I direct that material under it be disclosed. 15 For the board minutes relating to 17 August 2001, I direct the material under the heading Cash Flow be disclosed, and that the material appearing under the heading 2001 Plantation Development be disclosed. 16 Concerning the minutes of 7 October 2001, I direct that the material appearing under the heading Tiwi 2001 Operations, Tiwi 2001 Marketing Capital Raising be disclosed. 17 Concerning the minutes of 30 November 2001 I direct that the material appearing under the heading Tiwi 2001 Operations, Tiwi 2001 Marketing and Cash Flow be disclosed. 18 Concerning the minutes of 2 March 2002 I direct that the material appearing under the headings Horwath Investigating Accountants Report and Capital Raising be disclosed. 19 Concerning the minutes of 23 April 2002, I direct that the material appearing under the heading Capital Raising be disclosed, and the material appearing under the heading Horwath Corporate Advisory. The material appearing under the heading Operations Update, relating as it does to matters of too fine a detail to possibly affect the issues in the trial, is irrelevant and need not be disclosed. 20 Concerning the minutes of 17 May 2002, the material under the heading Operations Update down to and including the bullet point "Camp upgrade" should be disclosed. The balance of the material appearing under that heading need not be disclosed. The material appearing under the heading Capital Raising, and, Cash Flow should also be disclosed. Client Legal Privilege 21 I now turn to the items concerning which privilege was claimed. The first of them is in the minutes for 23 April 2002, under the heading, First Capital Partners Statutory Demand. The particular privilege which is claimed is one under section 119 Evidence Act 1995, which provides, "Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of: (a) a confidential communication between the client and another person, or between a lawyer acting for the client and another person, that was made, or (b) the contents of a confidential document (whether delivered or not) that was prepared, for the dominant purpose of the client being provided with professional legal services relating to an Australian or overseas proceeding (including the proceeding before the court), or an anticipated or pending Australian or overseas proceeding, in which the client is or may be, or was or might have been, a party." 22 The matter appearing under the heading First Capital Partners Statutory Demand is a report to the board, about an event which could reasonably lead to an anticipation of legal proceedings. However, I see nothing in it which involves any confidential communication between any client and another person, or between a lawyer acting for the client and another person, or the contents of any confidential document. For that reason, it seems to me that the material is not privileged. I order that it be disclosed. 23 In the minutes of 17 May 2002, under the heading FMC DOCA a portion beginning "Advice from Teys was reported on", it seems to me that from those words to the end of that heading fall within the privilege, and I do not require them to be disclosed. 24 In the same minutes, of 17 May 2002, under the heading First Capital Partners Claim is an update for the board on the topic which had been reported on on 23 April 2002 under the heading First Capital Partners Statutory Demand. For the same reasons as I gave concerning that 23 April 2002 entry, I direct that the material appearing in the minutes of 17 May 2002 under the heading First Capital Partners Claim be disclosed. Section 131 Evidence Act 1995 Privilege 25 The privilege under section 131 Evidence Act 1995 is claimed in relation to one item only, namely material appearing under the heading APT in the minutes of 23 April 2002. The final paragraph appearing under that heading, beginning with the words "Proposed DOCA" is not claimed to be or relate to part of a settlement, and so that portion should be disclosed. 26 Concerning the balance, section 131 provides, in subsection 1 that: "(1) Evidence is not to be adduced of: (a) a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute, or (b) a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute." 27 There is a substantial list of exceptions in section 131(2), but none of them is claimed to apply in the present case. 28 There are two legal propositions which Mr Wells put forward in relation to section 131. The first of them was that the privilege created by section 131 applies only in litigation between the people who were in dispute. I do not see any reason to impose that restriction on section 131. The wording of section 131 is comfortably able to bear a broader construction than that, and indeed in its ordinary meaning does bear a broader construction than that. As I read section 131(1), it says that, whenever people are in dispute, evidence of their settlement negotiations cannot be adduced, even in litigation to which someone else is a party, or indeed to which neither of them is a party. 29 As well as this textual consideration, the policy behind section 131 is to encourage the settlement of disputes, and to encourage people to make statements which might be against their interests as part of the process of dispute resolution. If those statements against the interest of the person making them could be availed of by someone who was not a party to the dispute, that could have a tendency to impede settlement discussions. 30 I was referred to Moran v Moran [No 3] [2000] NSWCS 151, where Kirby J, at [15] expressed the view that it was difficult to see how the policy behind section 131 would be placed in jeopardy were the phrase "persons in dispute" to be confined to persons in dispute in the litigation in which the question of privilege arose. His Honour continued: "Nonetheless, one can perhaps imagine that, in respect of litigation which is not yet complete, it may be important to preserve the confidential nature of negotiations, which had been undertaken, but which had been unsuccessful." 31 His Honour's decision was not based on that view, however – rather his Honour allowed the evidence in question to be admitted because it fell within one of the exceptions in section 131(2). Thus, his Honour's view was obiter. Further, while the policy behind legislation is able to be taken into account as an aid to construction when its meaning is in doubt, Kirby J was not saying that he saw any doubt about the meaning of section 131(1) and hence that the view he expressed about the policy would actually have scope to impact on the proper construction of section 131(1). 32 I do not see any room for doubt in what section 131(1) says. Further, in my respectful view, even though allowing evidence of settlement negotiations would cast a greater chill over the negotiations if that evidence could be adduced in litigation about the very dispute which the discussions were aiming to settle, than if it were allowed to be adduced in litigation about some different dispute, even allowing it to be adduced in litigation about some different dispute would have some tendency to inhibit the negotiations. 33 Hodgson J in Lawcover Pty Limited v The Commissioner of Police for New South Wales (Supreme Court of NSW, 28 November 1997, unreported) at 11 said that section 131(1): "… appears to apply to all proceedings (not just those in respect of which a settlement was being negotiated), whenever communications have been made or documents prepared with an attempt to negotiate a settlement of any legal proceedings." 34 Emmett J in Glass v DeMarco [1999] FCA 482 concluded that evidence of a settlement offer by someone not party to the proceedings before him was inadmissible under section 131(1) Evidence Act 1995 (Cth) (which is identical to section 131(1) of the New South Wales Act). I respectfully prefer the views of Hodgson and Emmett JJ. 35 The other proposition which Mr Wells put was that, once the settlement had been concluded, the rationale of the privilege had gone, and so the privilege itself had gone. I do not accept that argument. Under the common law, it was the case that once negotiations had been completed, for a settlement, that did not make the communications which lead to the compromise discoverable, nor remove the privilege attaching to the communications: Rush & Tompkins Ltd v Greater London Council [1989] AC 1280; Langford v Cleary (No 2) (1998) 8 Tas R 52 at 62. There was a limited exception to this, whereby evidence could be given of communications during settlement negotiations which were alleged to constitute an agreement to settle, in proceedings to enforce the alleged agreement to settle, "but admissions of fact, tentative proposals and offers of compromise made during the course of the conference ought be inadmissible in subsequent proceedings": Langford v Cleary (No 2), at 62, per Slicer J. The policy justification for that attitude of the common law was that, if admissions made in the course of negotiations could be used against someone once the negotiations were over, that could have a tendency to impede the successfulness of negotiations. 36 I see nothing in the wording of section 131(1) which requires it to be construed with the limitations which Mr Wells proposes. The policy justification which was there for the common law position, is one which continues to apply. 37 The wording of section 131(1)(b) using as it does the expression "in connection with" uses a very broad expression. The material for which the privilege has been claimed in the minutes of 23 April 2002 is a report to the board about a settlement which has been achieved. It seems to me that such a report is a document "prepared in connection with an attempt to negotiate a settlement of a dispute". I see no reason to confine the words, "an attempt to negotiate a settlement of a dispute" as referring only to an attempt which has failed, or an attempt which has not yet reached fruition. For those reasons, it seems to me that the material under the heading APT in the minutes of 23 April 2002, other than the portion I have already identified, is subject to the privilege, and need not be produced. ********** Last Modified: 09/20/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.