Supreme Court New South Wales Medium Neutral Citation: Hera Resources Pty Ltd v Gekko Systems Pty Ltd [2019] NSWSC 37 Hearing dates: 1 February 2019 Decision date: 06 February 2019 Jurisdiction: Equity - Technology and Construction List Before: Ball J Decision: (1) Pursuant to s 192A of the Evidence Act 1995 (NSW) (the Act) the Court rules that the admissibility in evidence at the trial of these proceedings of the letter from the defendant to the plaintiff dated 26 October 2016 and the report by Brian Putland of Orway Mineral Consultants (WA) Pty Ltd dated 25 October 2016 is not prevented by any of ss 118, 119 and 131 of the Act; (2) The defendant pay the plaintiff's costs of the motion filed on 12 October 2018. Catchwords: EVIDENCE - Privileges - client legal privilege – without prejudice privilege – whether communications made in connection with attempt to negotiate a settlement Legislation Cited: Evidence Act 1995 (NSW) Cases Cited: Galafassi v Kelly [2014] NSWCA 190 Gladio Pty Ltd v Buckworth [2015] NSWSC 922 Category: Procedural and other rulings Parties: Hera Resources Pty Ltd (ACN 138 992 999) (Plaintiff) Gekko Systems Pty Ltd (ACN 064 618 293) (Defendant) Representation: Counsel: N Kidd SC with J Dooley (Plaintiff) R Dick SC with D McAndrew SC (Defendant) Solicitors: Allens (Plaintiff) Colin Biggers & Paisley (Defendant) File Number(s): 2016/369849 Publication restriction: None Judgment Introduction 1. By a notice of motion filed on 12 October 2018, the plaintiff, Hera Resources Pty Ltd (Hera), seeks rulings pursuant to s 192A of the Evidence Act 1995 (NSW) (the Act) in relation to the admissibility of two documents at the trial of this matter. One document is a letter dated 26 October 2016 from the defendant, Gekko Systems Pty Ltd (Gekko) to Hera (the 26 October Letter). The other is a report dated 25 October 2016 prepared by Mr Brian Putland of Orway Mineral Consultant (WA) Pty Ltd for Gekko (the OMC Report) that was provided to Hera with the 26 October Letter. 2. It is common ground that it would be appropriate for the Court to make advance rulings on the admissibility of the two documents. Gekko contends that neither document is admissible. In the case of the 26 October Letter, it contends that the communication is privileged from production under s 131 of the Act (relating to without prejudice privilege). In the case of the OMC Report, it contends the report is privileged under s 131 or alternatively under ss 118 or 119 (relating to client legal privilege). Background 1. The proceeding concerns a gold processing plant and associated infrastructure that Gekko agreed to design and construct for Hera at Hera's tenement in Nymagee, New South Wales in accordance with an agreement dated 9 May 2013 (the EPC Contract). Hera claims that the plant is defective in a number of respects and claims damages for breach of contract and misleading and deceptive conduct in respect of those defects. 2. Clause 20.2 of the EPC Contract sets out the procedure to be followed by the parties in the event of a dispute. Relevantly, it requires service of a "Dispute Notice" and provides that the parties' managing directors must confer at least once to resolve the dispute within 20 Business Days (as defined) of the receipt of a Dispute Notice. If the dispute is not resolved, the clause requires the dispute to be referred to mediation. If the dispute is not resolved within a further 40 Business Days or the mediation does not take place within that time, either party may give notice referring the dispute to arbitration or may commence court proceedings. 3. On 4 May 2015, Hera sent Gekko a letter identifying what it said were a number of defects with the plant. It sent a further letter on 13 May 2015 identifying some additional defects. 4. Gekko responded to the letter dated 4 May 2015 by letter dated 25 May 2015. The response was stated to be "Without Prejudice". It sought additional information and stated that following the provision of that information it would like to visit the site to ensure that the plant was running in accordance with its recommendations and to obtain an ore sample for testing. 5. Hera replied to that letter in an (open) letter dated 5 June 2015 giving some of the information sought and denying other information was relevant. 6. On 30 June 2015, Gekko sent Hera a "Technical Note" dated 29 June 2015 which was marked "Without Prejudice". The note commented on a number of the defects raised by Hera in light of the additional information Hera had provided. The covering email stated: In relation to your request for a meeting to discuss the outstanding items, we would be willing to meet on a without prejudice basis but we would need to have received all potential defects notices prior to such a meeting … 1. On 16 July 2015, Hera sent Gekko an (open) letter commenting on the Technical Note and stating that the letter also served as a Dispute Notice under the EPC Contract. 2. There was some further correspondence between the parties in July and August 2015. Then, for reasons not explained in the evidence, nothing further happened until May 2016. 3. On 31 May 2016, Hera sent Gekko a letter marked "Without Prejudice". The letter referred to previous correspondence between the parties and stated that Hera maintained its position in relation to Hera's claim. The covering letter concluded: Given the time that has elapsed without satisfactory progress towards resolution (and the impact the defect has and continues to have on the productivity of the plant) Hera is seeking to have the dispute resolved rapidly. Hera is willing to have a final without prejudice meeting with the Managing Director of Gekko in an effort to reach an amicable resolution of the dispute, provided such a meeting takes place by Friday 17th June. In the event that the meeting does not produce a resolution, and in circumstances where Hera has previously given notice under cl 11.4 of the Agreement and issued a Notice of Dispute, Hera reserves the right to recover the defect quantum by commencing proceedings without further notice. 1. Following that letter, there was a discussion between representatives of Hera and Gekko in relation to a number of issues, including the issues the subject of the Dispute Notice. Following those discussions, Hera sent Gekko an email on 24 June 2016 which was expressed to be "Without Prejudice". It relevantly stated: As discussed, Hera has issued Gekko with its final claim and technical support for both the technical basis and quantum of this claim. In good faith, and in the interests of holding meaningful settlement discussions, Hera consents to allow Gekko time to engage with its PI insurers in relation to Area 15 [the subject of the dispute]. However, failing any progress on that front within a satisfactory period of time, Hera reserves the right to commence proceedings as it is otherwise entitled to under cl 20.2. Hera does not agree that the cl 20.2 process only commenced for Area 15 from the time of Hera's letter of 31 May 2016, noting Notice of Dispute concerning Area 15 was first issued on 16 July 2015. 1. Gekko responded to that email on 1 July 2016. Again, the email was marked "Without Prejudice". The email relevantly stated: We are working actively with the insurer to ascertain if the policy will respond to any claims subject to the terms, exclusions and limitations of the policy. For example, any claims resulting from defective workmanship or installation are excluded whereas design related errors are insured. The initial process of agreeing that the policy responds to the claims is likely to take a few weeks, perhaps less. Thereafter, there will be a further, more detailed process, whilst the insurer considers the merits or otherwise of Hera's claims, Gekko's position in relation to these claims, the appropriate quantum of the claims, any expert reports, and the extent to which the policy responds to the claims. We are working on this process in good faith and it is our recommendation that Hera and Gekko keep the channels of communication open. We suggest that Hera refrain from commencing litigation until such time, if any, settlement discussions fall through. Furthermore, as we agreed on the 24th, based on information currently available, it is our view that it is in the best interests of both parties to resolve all outstanding claims in this process. 1. Hera responded to that email on 21 July 2016 stating that its position was that it was free under cl 20.2 to commence court proceedings or arbitration at any time. 2. The 26 October 2016 Letter is a response to Hera's letter dated 31 May 2016. The letter is not marked "without prejudice". As I have explained, it included a copy of the OMC Report. On the basis of that report, the letter took issue with Hera's claims. However, it concluded: Gekko is prepared to conduct a without prejudice meeting with Hera to discuss the possible resolution of the Area 15 dispute. 1. Hera responded to that letter on 27 October 2016. The response is not expressed to be "without prejudice". The response stated that the OMC Report was fundamentally flawed. Under the heading "Next Steps" it states: The managing directors of the parties conferred on 24 June 2016 in an effort to resolve Hera's claim in relation to the Area 15 defect. The outcome of that conferral was that Hera provided Gekko, in good faith and at Gekko's request, with five weeks in order to allow Gekko to engage with its insurers in relation to Hera's claim. That five weeks was extended to nine weeks at Gekko's request with Gekko citing, in part, a delay in its dealings with its insurers. This dialogue led Hera to the belief that Gekko was engaging sensibly with Hera's concerns and would ultimately be seeking to resolve the matter by way of a monetary settlement. On receipt of the Putland Report, it is apparent that Gekko has instead used that nine week period to engage a technical expert in an effort to refute the claim. What Hera finds particularly egregious about this is that, as explained above, the report is flawed in a basic respect and therefore has achieved nothing to resolve the claim but instead caused delay and further wasted expense. Gekko has had nine weeks since the meeting in June to engage with its insurers in relation to the issue in order to avoid litigation. Gekko has also had the PPi report since 31 May 2016 (some five months ago). In all of the circumstances, Hera therefore intends to commence proceedings without further notice failing the receipt of a satisfactory settlement offer within one week of the date of this letter (being 3 November 2016). 1. On 9 December 2016, Gekko made a without prejudice offer. Relevant legal principles 1. The relevant provisions of the Act in relation to client legal privilege are ss 118, 119 and 122. Section 118 of the Act provides: Legal advice 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 made between the client and a lawyer, or (b) a confidential communication made between 2 or more lawyers acting for the client, or (c) the contents of a confidential document (whether delivered or not) prepared by the client, lawyer or another person, for the dominant purpose of the lawyer, or one or more of the lawyers, providing legal advice to the client. 1. Section 119 of the Act relevantly confers client legal privilege on confidential communications between a client and another person or between a lawyer acting for the client and another person for the dominant purpose of legal proceedings. It was not suggested during the course of argument that it raised any substantively different issues to those raised by s 118 in the present context. Consequently, it can be put to one side, on the basis that any conclusion in relation to s 118 applies equally to it. 2. Section 122 of the Act sets out circumstances in which the privilege conferred by s 118 will be lost. It relevantly provides: Loss of client legal privilege: consent and related matters (1) This Division does not prevent the adducing of evidence given with the consent of the client or party concerned. (2) Subject to subsection (5), this Division does not prevent the adducing of evidence if the client or party concerned has acted in a way that is inconsistent with the client or party objecting to the adducing of the evidence because it would result in a disclosure of a kind referred to in section 118, 119 or 120. (3) Without limiting subsection (2), a client or party is taken to have so acted if: (a) the client or party knowingly and voluntarily disclosed the substance of the evidence to another person, or (b) the substance of the evidence has been disclosed with the express or implied consent of the client or party. (4) … (5) A client or party is not taken to have acted in a manner inconsistent with the client or party objecting to the adducing of the evidence merely because: (a) the substance of the evidence has been disclosed: (i) in the course of making a confidential communication or preparing a confidential document, or (ii) … (b) … (6) … 1. Section 131(1) of the Act deals with without prejudice privilege. It relevantly provides: Exclusion of evidence of settlement negotiations (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. 1. As s131(1) makes clear, in order to attract the privilege, a communication or document must be made or prepared "in connection with an attempt to negotiate a settlement". The connection must be a direct one. An indirect connection is not sufficient. However, it is not necessary that the communication itself make an offer or that it be directed at achieving a compromise. It is sufficient if the communication or document is directed at arranging or bringing about a settlement: see Galafassi v Kelly [2014] NSWCA 190 at [115]ff per Gleeson JA. It is not necessary that the communication or document be described as "without prejudice", nor is it conclusive if it is. However, the fact that the parties have described a communication as "without prejudice" is some evidence that it is made in connection with an attempt to settle a dispute: id at [122]. The claim for client legal privilege 1. In my opinion the claim that the OMC Report is the subject of a claim for client legal privilege must be rejected for two reasons. 2. First, it cannot be said that that report was brought into existence for the dominant purpose of obtaining legal advice (or conducting legal proceedings). In a letter dated 8 July 2016 from Gekko to Mr Putland, Gekko describes the purpose of the report in these terms: Gekko is presently preparing its response to Hera's letter 31 May 2016 and the attached report of PPi and seeks your independent expert opinion for this purpose. In the light of that statement, it cannot be said that the dominant purpose of the report was to enable Gekko to obtain legal advice or conduct anticipated proceedings. At least a substantial purpose of the report was to provide an answer to Hera's claim. 1. Second, in my opinion, Gekko waived privilege in the report by voluntarily providing a copy of it to Hera. It may be that disclosure to Hera of the report in the course of settlement negotiations can be described as disclosure "in the course of making a confidential communication" so as to attract the exception to waiver contained in s 122(5)(a)(i) of the Act, even if the report was not prepared in connection with an attempt to negotiate a settlement of a dispute (so as to attract the privilege in s 131). But in that case, maintenance of the privilege stands or falls on whether it can be said that the communication constituted by the 26 October Letter and the OMC Report was made in connection with an attempt to negotiate a settlement of the dispute. Client legal privilege would not provide an independent ground of privilege irrespective of the outcome of the contention that the 26 October Letter attracted without prejudice privilege. The claim for without prejudice privilege 1. In my opinion, there is not a sufficiently close connection between the 26 October Letter and the OMC Report and any attempt to negotiate a settlement of the dispute for the letter and report to attract the privilege conferred by s 131 of the Act. 2. The letter and report were not themselves directed at an attempt to negotiate a settlement of the dispute. Nor were they provided as part of some process agreed between the parties to negotiate a settlement of the dispute. Rather, they were a substantive response to Hera's Dispute Notice and the material that Hera had provided to Gekko in support of its Dispute Notice and the underlying claims that were the subject of that notice. The purpose of the letter and report was to set out Gekko's position in relation to those claims. In doing so, they provided the context in which settlement discussions could occur and settlement offers could be evaluated. They were also no doubt intended to lower Hera's expectations in relation to any settlement. However, they were not themselves directed at achieving a settlement. The fact that they provided a context in which settlement offers could be made and evaluated is not a sufficiently direct connection between the letter and the report and any attempt to reach a settlement in the light of that communication and document to attract the privilege conferred by s 131. 3. That position is not altered by the fact that the parties chose to describe some of their communications leading to the 26 October Letter as "without prejudice". Nor is it altered by the fact that some of the correspondence refers to the possibility of without prejudice discussions once the information had been provided. That does not alter the fact that information was exchanged as a means of crystallising the dispute and providing the context in which the discussion could occur. At most, that part of the correspondence referring to proposals for without prejudice discussions would attract the privilege: see Gladio Pty Ltd v Buckworth [2015] NSWSC 922 at [364] per McDougall J. Orders and Costs 1. It follows that orders substantially in the terms sought by Hera should be made. The claim for privilege as advanced during the course of the argument was somewhat broader than that anticipated by Hera's motion. Gekko's claim for client legal privilege was based on both ss 118 and 119 of the Act; and it made a claim for privilege based on s 131 of the Act in respect of both the 26 October Letter and the OMC Report. The orders I propose to make reflect that. 2. Hera was successful in its application for a ruling that it is entitled to rely on both documents at the trial. There is no reason in those circumstances why it should not have the costs of its motion. 3. It follows that the orders of the Court are: 1. Pursuant to s 192A of the Evidence Act 1995 (NSW) (the Act) the Court rules that the admissibility in evidence at the trial of these proceedings of the letter from the defendant to the plaintiff dated 26 October 2016 and the report by Brian Putland of Orway Mineral Consultants (WA) Pty Ltd dated 25 October 2016 is not prevented by any of ss 118, 119 and 131 of the Act; 2. The defendant pay the plaintiff's costs of the motion filed on 12 October 2018. ********** 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. Decision last updated: 06 February 2019