Lenox Hewitt v Parliament House Construction Authority [1988] ACTSC 68 (2 December 1988)

SUPREME COURT OF THE ACT

LENOX HEWITT v. PARLIAMENT HOUSE CONSTRUCTION AUTHORITY
S.C. No. 70 of 1985
Discovery And Interrogatories

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Miles C.J.(1)

CATCHWORDS

Discovery & interrogatories - legal professional privilege - whether documents came into existence for sole purpose of litigation or contemplated litigation.

Discovery & interrogatories - documents relating to without prejudice negotiations between parties - whether privileged from inspection - whether privilege lost when one party alleges that negotiations have ended in agreement and seeks to enforce agreement.

Discovery & interrogatories - court not bound by statement of department in affidavit of documents that certain documents are privileged.

Grant v. Downs [1976] HCA 63; (1976) 135 CLR 674 at p 688-9

Field v. Commissioner for Railways for New South Wales [1957] HCA 92; (1957) 99 CLR 285 at p 291

Rabin v. Mendoza & Co. (1954) 1 All ER 247

Tomlin v. Standard Telephones and Cables Ltd. (1969) 3 All ER 201

Walker v. Wilsher (1889) 23 QBD 335

HEARING

CANBERRA
2:12:1988

Counsel for the Plaintiffs: Mr S. Walmsley

Solicitors for the Plaintiffs: Freehill Hollingdale & Page

Counsel for the Defendants: Mr G.M. Gregg

Solicitors for the Defendants: Snedden Hall & Gallop

ORDER

Within seven days the defendant allow inspection by the plaintiff's solicitors of the following documents identified in Part 2 of the First Schedule to the affidavit of Gordon Robert Peatey sworn 11 July 1988:
Document numbered 4, documents numbered 6: H-1 to

6: H-6 inclusive, document numbered 7: I-1,
document numbered 7: I-3, document numbered 8:
J-1, document numbered 13 and described as report
K. Whitmore & Co. to underwriters dated
19 September 1983.

DECISION

This is an application by the plaintiff for inspection of documents disclosed by the defendant upon discovery but for which the defendant claims privilege.

2. The plaintiff's claim arises out of damage caused to a block of flats which he owns at the corner of State Circle and Hobart Avenue, Forrest. In his statement of claim of 15 January 1985, the plaintiff made the claim in the following terms:

"The plaintiff's claim is for damages against the
defendant and its servants and agents for the negligent
conduct of high explosive blasting activities in or about June 1981
to in or about March 1982 relating to the construction of Parliament
House on Capital Hill in the Australian Capital Territory which
caused extensive loss and structural damage to the improvements
of the plaintiff erected on the land known as 11 State Circle
Forrest."

3. The defendant filed a defence on 26 June 1985 in the following terms:

"1. The defendant does not admit the allegations contained in
paragraphs 2, 5, 6, 7 and 8 of the Statement of Claim.
2. The defendant does not admit the particulars of special damage or
specifications for remedial work or the other losses and expenses
set forth or referred to in the Statement of Claim."

4. The terms of the defence appear to refer to a document which is not the statement of claim to which I have referred. A memorandum of close of pleadings was filed on 9 July 1985.

5. On 2 November 1987 the defendant filed a notice of intention to proceed.

6. On 11 April 1988 the plaintiff filed an affidavit as to documents and on 12 May 1988 a further affidavit as to documents.

7. On 13 April 1988 the defendant through its Chief Executive, Mr. Gordon Robert Peatey, filed an affidavit as to documents. On 20 June 1988 the plaintiff took out a notice of motion seeking orders that the defendant disclose to the plaintiff certain of the documents set out in Part 2 of the First Schedule of the defendant's affidavit as to documents, and certain other relief. I am concerned, however, only with the application for disclosure which, it is common ground, is an application for leave to inspect.

8. The defendant filed a further affidavit of documents sworn by Mr. Peatey on 11 July 1988 (entitled "Amended Affidavit as to Documents"). This affidavit was intended to be substituted for the previous affidavit of documents sworn by Mr. Peatey on 13 April 1988.

9. On 26 August 1988 the plaintiff amended his statement of claim. The amended statement of claim set out in greater detail the claim for damages and furnished particulars of special damages totalling $46,472.69. In addition to the claim for damages the following additional cause of action was pleaded:

"9. Alternatively, in August and September 1983
the plaintiff and the defendant agreed that,
so far as the plaintiff's claim related to
the cost of remedial work to the improvements
on the plaintiff's land, that part of the
plaintiff's claim would be compromised on
terms that:
(a) the plaintiff would obtain quotations for the
cost of performing on the improvements
rectification work which was identified in a
specification prepared by the plaintiff's
architect and agreed between the plaintiff
and the defendant on 12 September 1983;
(b) the defendant would pay to the plaintiff a
sum equivalent to $2,000 less than the amount
quoted in the lowest of the suitable quotations
so obtained;
(c) in the event that during the performance of
the rectification work extra unforeseen costs
were incurred the defendant would contribute
to those costs to the extent of $5,000;
(d) the defendant would pay to the plaintiff an
amount equivalent to the fees incurred by the
plaintiff on the scale recommended by the
Royal Australian Institute of Architects in
engaging an architect to prepare specific-
ation documents, obtain quotations and
provide supervision for the purpose of the
rectification work."

10. The plaintiff further alleged that, in accordance with the agreement reached, remedial work has been carried out by the building contractor who furnished the lowest suitable quotation and that the defendant is indebted to the plaintiff for the total cost of rectification, $67,382.83.

11. On the hearing of the application before me, the defendant took the threshold point that as the plaintiff had not filed an affidavit verifying the causes of action alleged in the amended statement of claim, then there was no evidence to support the application for leave to inspect the documents in question. No authority was cited to support that submission and I reject it. Whatever factual material was necessary for me to decide the questions of privilege raised by the defendant was sufficiently contained in affidavits filed on behalf of the defendant and in particular the affidavit of Mr. Peatey sworn 12 August 1988, the affidavit of Kenneth John Whitmore sworn 15 August 1988 and the affidavit of John Dunbar Fowler sworn 10 November 1988. It is unnecessary to refer to the material in those affidavits except to say that they show that there were in the period in question negotiations and discussions between the parties and their representatives on the matter of the extent of damage to the plaintiff's building and the proper cost of rectification.

12. There was a further preliminary argument on the part of the defendant that the Court is bound by the statement of the deponent on oath that the documents attract the privilege claimed. The answer to that argument is to be found in the following passage of the majority judgment in Grant v. Downs [1976] HCA 63; (1976) 135 CLR 674 at p 688-9.

"It is well accepted that the court in allowing
production and inspection of documents exercises
a judicial discretion. In so doing it needs to
scrutinize with care claims of privilege made on
the ground now under consideration. It is for
the party claiming privilege to show that the
documents for which the claim is made are
privileged. He may succeed in achieving this
objective by pointing to the nature of the
documents or by evidence describing the
circumstances in which they were brought into
existence. But it should not be thought that the
privilege is necessarily or conclusively
established by resort to any verbal formula or
ritual. The court has power to examine the
documents for itself, a power which has perhaps
been exercised too sparingly in the past,
springing possibly from a misplaced reluctance to
go behind the formal claim of privilege. It
should not be forgotten that in many instances
the character of the documents the subject of the
claim will illuminate the purpose for which they
were brought into existence."

13. The first leg of the claim for privilege is that certain of the documents disclosed in Mr. Peatey's affidavit of 11 July 1988 attract legal professional privilege. Those documents are identified in paragraph 4(f) of the affidavit.

14. The remaining documents for which privilege is sought are identified in paragraph 4(g) of the same affidavit. The claim for privilege for these latter documents is contained in the description of the documents which is in the following terms:

"Documents prepared and made as a result of or in
pursuance of or in respect of or to assist or
facilitate the carrying on of ongoing without
prejudice negotiations between the plaintiff and
his agents and representatives on the one hand
and servants, agents, officers and representatives
of the defendant on the other hand for the
settlement of the claim made by the plaintiff
upon the defendant on or about 29 July 1982 or
the said documents refer to proceedings taken or
things done without prejudice in the said
negotiations and consequently the same are by
reason thereof privileged from production."

15. Having inspected the documents identified in paragraph 4(f) of Mr. Peatey's affidavit, I have little difficulty in concluding that whilst the purposes of anticipated legal proceedings might have been among the purposes for which the documents came into existence, that was by no means the only purpose; indeed all of the documents appear to have as one of their primary purposes the avoidance of litigation by an appraisal of the plaintiff's case which would enable the defendant to negotiate with the plaintiff in order to conclude an agreement to compromise the plaintiff's claim prior to the commencement of legal proceedings. Insofar as the defendant claims legal professional privilege, I reject the defendant's claim. The plaintiff is entitled to inspection of the documents identified in paragraph 4(f) of Mr. Peatey's affidavit except for such documents which are also the subject of the claim for privilege under paragraph 4(g), to which latter claim I now turn.

16. The claim under paragraph 4(g) is that the documents were prepared for the purpose of without prejudice negotiations entered into with the intention of effecting an agreement to compromise the plaintiff's claim against the defendant. Generally speaking, documents prepared for the purpose of such negotiations, whether or not marked "without prejudice", or the content of conversations during the course of such negotiations, are not to be used to the prejudice of either party if the negotiations break down and no agreement is reached. The rationale of the rule and its operation is explained in the following passage from the majority judgment of the High Court in Field v. Commissioner for Railways For New South Wales [1957] HCA 92; (1957) 99 CLR 285 at p 291:

"The law relating to communications without
prejudice is of course familiar. 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 ....."

17. In Field's case the High Court held that a medical report obtained by the defendant after examination of the plaintiff, although obtained after settlement negotiations had been entered into, was made without any proper connection with any purpose connected with the settlement of the action, and that (at p 293) insofar as the report contained an alleged admission by the plaintiff "it was not reasonably incidental to the negotiations that such an admission should be protected". In those circumstances it was held that the report did not attract privilege and was admissible in evidence.

18. The protection afforded to documents which come into existence as a result of an understanding that they are not to be used to the prejudice of either party was applied to an application for production of documents in Rabin v. Mendoza & Co. (1954) 1 All ER 247, a decision of the English Court of Appeal. The document in question was a surveyor's report which was obtained as the result of an express or tacit agreement that it would not be used to the prejudice of either party but in order to further settlement negotiations between them. Denning L.J., as he then was, said at p 248:

"This is not an ordinary case of legal
professional privilege. The documents were not
prepared for the purposes of litigation or for
the purposes of obtaining the advice of the
solicitors. They were prepared in order to avoid
litigation. It is said, however, that apart from
legal professional privilege, there is a separate
head of privilege on the ground that the
documents came into existence on the
understanding that they were not to be used to
the prejudice of either party. "Without
prejudice" does not appear as a head of privilege
in the Annual Practice, but in Bray on Discovery,
p 308, it is said:
"The right to discovery may under very
special circumstances be lost by contract as
where correspondence passed between the
parties' solicitors with a view to an
amicable arrangement of the question at issue
in the suit on a stipulation that it should
not be referred to or used to the defendant's
prejudice in case of a failure to come to an
arrangement."
That proposition is founded on Whiffen v.
Hartwright (1848), 11 Beav. 111, where Lord
Langdale, M.R. (11 Beav. 112), refused to order
the production of letters which passed without
prejudice,
"Observing that he did not see how the
plaintiff could get over this express agreement,
though he by no means agreed, that the
right of discovery was limited to the use
which could be made of it in evidence."
Lord Langdale, M.R., there affirms the undoubted
proposition that production can be ordered of
documents even though they may not be admissible
in evidence. Nevertheless, if documents come
into being under an express, or, I would add, a
tacit, agreement that they should not be used to
the prejudice of either party, an order for
production will not be made."

19. However, where it is alleged that the negotiations have ended in agreement, the documents and records which have come into existence for the purpose of the negotiations lose their "without prejudice" character. If an action is brought to enforce the agreement, and the agreement is denied, they are discoverable because they are relevant to the issues between the parties. Whether or not they are admissible will depend upon whether they offend against some exclusionary rule of evidence such as the hearsay rule.

20. In Tomlin v. Standard Telephones and Cables Ltd. (1969) 3 All ER 201, another decision of the English Court of Appeal, a preliminary issue arose whether there was a concluded agreement between the plaintiff and the defendant that the plaintiff should be compensated to the extent of half the sum which he had claimed as his entitlement in an action for personal injuries for negligence. Danckwerts L.J. referred to Walker v. Wilsher (1889) 23 QBD 335 and said at p 204:

"That statement of Lindley L.J. is of great
authority and seems to me to apply exactly to the
present case if in fact there was a binding
agreement, or an agreement intended to be
binding, reached between the parties; and,
accordingly, it seems to me that not only was the
court entitled to look at the letters although
they were nearly all described as "Without
Prejudice", but it is quite possible (and in fact
the intention of the parties was) that there was
a binding agreement contained in that
correspondence."

21. In the same case Ormrod J., dissenting on the question of whether the correspondence was in fact without prejudice, stated the principles in the following terms at p 205:

"..... the principle which emerges is that the
court will protect, and ought to protect so far
as it can, in the public interest, "without
prejudice" negotiations because they are very
helpful to the disposal of claims without the
necessity for litigating in court and, therefore,
nothing should be done to make more difficult or
more hazardous negotiations under the umbrella of
"without prejudice". I am well aware, coming
from the Division which I do, that letters get
headed "without prejudice" in the most absurd
circumstances, but these letters, in my judgment
are not letters headed "without prejudice"
unnecessarily or meaninglessly."

22. Hence in the present case if the documents in question claim that there was a concluded agreement between the plaintiff and the defendant of the nature of that alleged, the defendant may not, in order to resist the claim for inspection, rely upon the fact that the documents were made for the purpose of without prejudice negotiations which the plaintiff alleges resulted in the agreement sued upon, or that they came into existence incidentally to such negotiations.

23. I have read most of the documents in question. Those which I have not read I have inspected sufficiently to satisfy me of their nature.

24. The particulars furnished in the amended statement of claim restrict the agreement upon which the plaintiff relies to an agreement partly in writing and partly oral. Insofar as the agreement was in writing, the documents comprising the agreement have been made available for inspection and may be disregarded for the present purposes. Insofar as the agreement was oral, the particulars are confined to conversations on 29 July and 31 August 1983 between the plaintiff and Mr. Peatey and on 12 September 1983 between Mr. Coupe on behalf of the plaintiff and Messrs Whitmore and Lewis on behalf of the defendant. It is true, as was submitted on behalf of the defendant, that any documents relating to without prejudice negotiations which fall outside those particular negotiations which the plaintiff relies upon as culminating in the agreement, retain their without prejudice character and should be immune from inspection. There are, for instance, among the documents in question some which evidence ongoing settlement negotiations entered into after 12 September 1983 (the last in time of the conversations relied upon by the plaintiff) and which contain no reference to any of the documents or negotiations which the plaintiff claims constituted the agreement. In my view the plaintiff is not entitled to inspection of documents which fall within that category.

25. As to the remaining documents identified in paragraph 4(g) of Mr. Peatey's affidavit, it was submitted on behalf of the defendant that they all came into existence as part of an attempt to negotiate an out of court settlement with the plaintiff, and that as no settlement has been reached, they are privileged from inspection by the plaintiff. Having inspected the documents for myself, I am in agreement with the first proposition in the submission, which correctly describes the nature of the documents. But the second proposition, in my view, merely begs the question. Whether or not there was a concluded agreement to comprise the plaintiff's claim still remains to be decided and that decision awaits the hearing of the action. The issue of whether there was a concluded agreement or not is not an issue to be decided, as counsel for the defendant submitted that it should be decided, in a provisional sort of way at this preliminary stage. The particular documents to which I am now referring are either communications between officers of the defendant and other officers of the defendant, or between such officers and loss adjusters retained on behalf of the defendant, or between the loss adjusters and consultants or between the loss adjusters and underwriters. There is also some material in the nature of the defendant's file notes. All those documents are, in my view, relevant to the negotiations which the plaintiff alleges led to the agreement upon which he relies. I do not accept the submission made on behalf of the defendant that they relate only to some other without prejudice negotiations which have nothing to do with the agreement upon which the plaintiff relies.

26. I order that within seven days the defendant allow inspection by the plaintiff's solicitors of the following documents identified in Part 2 of the First Schedule to the affidavit of Gordon Robert Peatey sworn 11 July 1988:

Document numbered 4, documents numbered 6: H-1 to
6: H-6 inclusive, document numbered 7: I-1, document
numbered 7: I-3, document numbered 8: J-1, document
numbered 13 and described as report K. Whitmore & Co.
to underwriters dated 19 September 1983.

27. Unless the parties wish to be heard, I propose to order that the defendant pay the plaintiff's costs of this application. I think it desirable that I give directions as to the further conduct of this matter.