FEDERAL COURT OF AUSTRALIA

Alexander v Australian Community Pharmacy Authority (No 2) [2010] FCA 467

THE COURT DECLARES THAT:

1.                   The letter from Harris Legal to Rotstein Lockwood Reddy dated 22 January 2010 is relevant and admissible evidence on the question of costs in the proceeding.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
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REASONS FOR JUDGMENT

1                     The Applicants brought this proceeding under s 5 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) (“the ADJR Act”) in order to challenge a decision of the Australian Community Pharmacy Authority (“the Authority”).  On 25 February 2010 Bromberg J ordered that the application be dismissed:  see Alexander v The Australian Community Pharmacy Authority [2010] FCA 189.  His Honour further ordered that the parties file and serve submissions as to costs.

2                     In submissions dated 11 March 2010 the Applicants contended that the justice of the case required that the Court should order that the Authority pay some of the costs of the Applicants and the Second, Third and Fourth Respondents (“the Chemist Warehouse Respondents”). 

3                     The Chemist Warehouse Respondents then filed submissions dated 15 March 2010.  The submissions contained the following passages under the heading “Calderbank Letter”: 

“22.      On 27 January 2010 RLR acting on behalf of the 2^nd – 4^th Respondents, sent a “without prejudice save as to costs” letter to Harris Legal acting on behalf of the Applicants.  A copy of the “without prejudice save as to costs” letter is annexed as “Annexure B” to these submissions.  The Calderbank letter was served prior to the Applicants amending their Application.

23.        The Calderbank letter explained to the Applicants that at the time the 2^nd – 4^th Respondents made an application to the 1^st Respondent for approval under section 90 of the Act to supply pharmaceutical benefits at the Premises there were at least thirty (30) commercial establishments other than the supermarket at the Shopping Centre.

24.        The Calderbank letter submitted on behalf of the 2^nd – 4^th Respondents set out the reasons why the Applicants’ case would fail and offered the Applicants the following compromise to settle the proceeding:

“Notwithstanding the strength of our clients’ case, in the interests of avoiding further costly and time consuming litigation, our clients are prepared to resolve this matter on the following basis:

1.             Your clients consent to the proceeding being dismissed.

2.             Your clients pay 75% of our clients’ party/party costs of the Proceeding.  Please note that given the complexity of the matter and its importance to our clients, they have briefed Senior Counsel experienced in this area to represent them in the Proceeding.

3.             The above offer is open for acceptance by your clients by 4:00pm, Wednesday, 3 February 2010”.

25.        The letter also contained the following paragraph foreshadowing an application for indemnity costs in the event the Applicants did not accept the offer by the time limited:

“In the event that your clients do not accept the above offer by the time limited and on a determination of the Proceeding our clients achieve a result that is no less favourable to them than the terms of the offer made to your clients herein, this letter will be produced to the court in support of an application that your clients pay our clients’ costs of and incidental to the Proceeding on an indemnity basis in accordance with the well established principles applied in Calderbank v Calderbank (1975) 3 ALL ER 333 and in Cutts v Head (1984) 1 ALL ER 597”.

26.        The Applicants did not respond to the “Calderbank offer”.”

4                     In submissions dated 18 March 2010 the Applicants replied to the Chemist Warehouse Respondents’ submissions.  In dealing with the Calderbank Letter the Applicants said that:

“6.        On 22 January 2010, the solicitors acting for the Applicants, Harris Legal (HL) caused a “Without Prejudice” letter to be sent to the solicitors for the Second-Fourth Respondents, Rotstein Lockwood Reddy (RLR) (the HL Letter).  The HL Letter, inter alia, particularised the deficiencies of the Second-Fourth Respondents’ application to the Delegate of the Secretary of the Department of Health and Ageing for approval to supply pharmaceutical benefits at Shops 29-31, Gisborne Village Shopping Centre, 22 Brantome Street, Gisborne pursuant to section 90(1) of the National Health Act 1953 (Cth) (the Second-Fourth Respondents’ Application).

7.         The HL Letter further contended that the First Respondent failed to take relevant considerations into account (being those deficiencies as referred to in the HL Letter) when determining the Second-Fourth Respondents’ Application, and which is evidenced by the deficiencies in the First Respondent’s Statement of Reasons referred to by His Honour in his judgment dated 5 March 2010.  As such, the Applicants maintained that upon the evidence at hand, they would succeed in this proceeding.’

8.         Since the HL Letter was without prejudice we do not attach a copy.  We provide an extract from the HL letter as we seek to prove the objective fact that the point that was ultimately run at trial was raised in the HL Letter and not contradicted in the Calderbank letter received from RLR.  That point is relevant to the issue of whether the non-acceptance of the Calderbank offer by the Applicants was reasonable.  Without prejudice privilege does not attach to a communication where its production seeks to prove an objective fact relevant to an issue in the proceeding.  See Tenstat Pty Ltd v Permanent Trustee Australia Ltd (1992) 28 NSWLR 625 at 633, Austotel Management Pty Ltd v Jamieson (1995) 57 FCR 411 at 416 and Cross on Evidence 7^th Edition 864-865.

9.         We provide the following passage from the HL letter to illustrate the points made to RLR:

In any event, there was no evidence in the Application that the two Centres were under single management, other than the mere assertion by a Centre Manager who wants the Application to succeed.  We specifically warned ACPA against relying only on such a mere assertion in our submission, and to seek further evidence of the objective facts required to establish each of the matters set out above in the definition of “single management” in the Rules.  ACPA failed to do so, again in breach of s.5(2)(b).

Further, the two Centres bear no physical relationship whatsoever to each other, and the lease extracts further evidence that the two centres are not under single management, but rather, are 2 distinct and very separate shopping centres.  On the lease extracts alone, the 2 centres are not “encouraged to be used as a single integrated facility” as referred to in sub-clause (a)(ii) in the definition of “single management” above.  ACPA failed to address that point at all in the Statement of Reasons.

Having considered both the material that was before ACPA when determining the Application, including our submission which was not addressed at all in the Statement of Reasons, the Court will find that ACPA erred in its decision to recommend approval of the Application on 27 November 2009.

Given all of the material that was before it, ACPA should nothave been satisfied that:

1.      The Gisborne Village and Market Centre were under single management;

2.      There were the required number of 30 commercial establishments:

At the very least, ACPA should have deferred the making of the decision to its next meeting and sought further objective evidence in respect of each of the above issues.  As stated, details of the rental in respect of new tenancies would have been merely a starting point.

10.        On 27 January 2010, RLR caused a letter to be forwarded to HL in response to the HL Letter.  This letter is the Calderbank Letter as first referred to in paragraph 22 of the Second-Fourth Respondents’ Submission and attached as Annexure B to that submission (the Calderbank letter),

11.        The Calderbank Letter attempted to argue that the applicants would be unsuccessful in the proceeding by merely repeating the content of the Second-Fourth Respondents’ Application.  In the Applicants’ view, the Calderbank Letter failed to contain any persuasive or compelling arguments that the Applicants’ claim was flawed, or on the contrary, any strengths of the Second-Fourth Respondents’ position with respect to the Applicants’ claim.  In fact, it failed to deal with the matters raised in the HL letter at all, particularly not the claim that the First Respondent had failed to take a relevant consideration into account.

12.        In response to paragraph 23 of the Second-Fourth Respondents’ Submission, the Applicants submit that the Calderbank Letter did not “explain” to the Applicants that at the time of the Second-Fourth Respondents’ Application there were at least 30 commercial establishments other than a supermarket at the subject Shopping Centre.

13.        The Court is referred to paragraph 6 of the Calderbank Letter which simply lists the documents contained in the Second-Fourth Respondents’ Application to the First Respondent.  The Applicants contend that a one paragraph list of the material submitted to the First Respondent, being a list of material of which the Applicants were by that date already aware in any event, is not an “explanation”.”

5                     On 23 March 2010 the Chemist Warehouse Respondents made further written submissions.  They contended that the Applicants had waived privilege over the without prejudice letter dated 22 January 2010 from the Applicants’ solicitors to the solicitors for the Chemist Warehouse Respondents.  The Chemist Warehouse Respondents said:

“3.     In paragraph 9 of the Applicants’ Reply, the Applicants selectively extract a passage (the “Selected Passage”) from a “without prejudice” letter dated 22 January 2010 sent by Harris Legal (“HR”) on behalf of the Applicants to Rotstein Lockwood Reddy Lawyers (“RLR”) on behalf of the 2^nd – 4^th Respondents (“Without Prejudice Letter”).

4.       The Applicants do not attach a copy of the Without Prejudice Letter to the Applicants’ Reply.  They contend that the Selected Passage was not a “without prejudice” communication as it proves an objective fact relevant to an issue in the Proceeding, being “that the point that was ultimately run at the trial was raised in the Without Prejudice Letter”.

5.       The 2^nd – 4^th Respondents submit that by disclosing the Selected Passage, the Applicants have waived privilege over the entire contents of the Without Prejudice Letter, for the following reasons:

(a)        The Selected Passage must be read in context and as part of an overall communication sent by the Applicants under cover of a letter headed “Without Prejudice”.  The Without Prejudice Letter when read in its entirety is an attempt by the Applicants to persuade the 2^nd – 4^th Respondents to pay a sum of money to the Applicants in exchange for the Applicants withdrawing from the Proceeding,

(b)        The Applicants have disclosed a passage in the Without Prejudice Letter in a way which would make it unfair to the 2^nd – 4^th Respondents to allow the Applicants to withhold the entire contents of that communication.

(c)        By disclosing the Selected Passage, the Applicants have acted in a manner inconsistent with the confidence preserved by the Without Prejudice Letter.

6.       The 2^nd – 4^th Respondents submit that unless the Selected Passage from the Without Prejudice Letter quoted in the Applicants’ Reply is read in the context of the entire contents of the Without Prejudice Letter, substantial injustice will be caused to the 2^nd – 4^th Respondents.”  (Footnotes omitted).

6                     On 25 March 2010 the Applicants’ solicitors wrote to Bromberg J’s associate.  They complained that leave had not been granted to the Chemist Warehouse Respondents to file the submissions dated 23 March 2010.  They denied that the Applicants had waived privilege over the without prejudice letter of 22 January 2010 and contended that Bromberg J should not read the copy of the letter which had been attached to the Chemist Warehouse Respondents’ submissions.

7                     Bromberg J considered that it would be inappropriate for him to rule on the competing claims for privilege and waiver of privilege.  To do so may have required him to read a privileged document.  He referred this issue to me for determination.

8                     The Applicants’ solicitors did not elaborate on the claim they made for privilege or why it was that Bromberg J should not read a copy of the letter.  The solicitors referred to what they described as “the without prejudice privilege” which they contended attached to the letter.  By this I understand them to be relying on the common law privilege which attached to “without prejudice” communications which were engaged in an attempt to resolve, compromise or settle an existing dispute:  see Rodgers v Rodgers (1964) 114 CLR 608 at 614.

9                     No attention was given to the provisions of the Evidence Act 1995 (Cth) (“the Act”).  Section 131(1) of the Act provides:

“(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.”

It may be accepted that the 22 January 2010 letter fell within either or both of these paragraphs.

10                  The Act, however, provides a number of exceptions to the operation of s 131(1).  Section 131(2) provides that the preceding sub-section does not apply if “the communication or document is relevant to determining liability for costs …”:  see s 131(2)(h).

11                  Section 131(1) gives effect to a significant public interest in enabling “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.”:  see Field v Commissioner for Railways (1957) 99 CLR 285 at 291.  The exceptions which are provided for in s 131(2) (including the exception provided for in paragraph (h)), acknowledge the existence of some competing public interests.  One such public interest which is advanced by the exception in para (h) is the encouragement of acceptance of reasonable offers of compromise:  see ACCC v Black on White [2002] FCA 1605 at [6].  If a party has had the opportunity to settle a matter before trial on terms which were more favourable than those obtained following trial, but has not done so, it is well established that such a failure or refusal might have costs consequences.  Once the trial is over the interests which are protected by s 131(1) no longer weigh as heavily as those which are recognised in the exceptions contained in s 131(2).

12                  The exceptions do not, of themselves, render the evidence of the making of the offer admissible.  They do, however, mean that the proscription contained in s 131(1) does not apply, thereby leaving it open to the Court to have regard to the documentary evidence of what passed between the parties during settlement negotiations:  ACCC v Black on White at [6]. 

13                  The Court has, on a number of occasions, admitted such evidence and had regard to it for the purpose of determining appropriate costs orders:  see, for example, Marks v GIO Australia Holdings Ltd (No 2) (1996) 66 FCR 128 at 135; ACCC v Australian Safeway Stores Pty Ltd & ors (No 3) [2002] FCA 1294 at [17]-[19]; Pinot Nominees Pty Ltd v Federal Commissioner of Taxation (2009) 181 FCR 392 at 397-8.

14                  The letter of 22 January 2010 reviewed the facts of the case and then made a detailed settlement proposal which, had it been accepted by the Chemist Warehouse Respondents, would have meant that no trial which involved those parties would have been necessary.  The contents of the letter would clearly be relevant in determining the extent (if any) of the parties’ liability as to costs.  It follows, in my view, that the letter is admissible on the costs issue which remains to be determined by Bromberg J: see ss 55 and 56 of the Act.  His Honour is not constrained from examining and having regard to the full contents of the letter by any “without prejudice privilege”.  It is not necessary to consider the arguments relating to waiver of privilege.

15                  I will declare that the letter from Harris Legal to Rotstein Lockwood Reddy dated 22 January 2010 is relevant and admissible evidence on the question of costs in the proceeding.

Associate:

Dated:         14 May 2010