1                     The trial of this proceeding commenced on Tuesday, 15 March 2011 and it is estimated to take some four to six weeks.

2                     This proceeding and cross-claim concern a settlement deed executed by the parties to this proceeding on 25 October 2009. The applicants seek an order declaring the deed to be void ab initio and an order setting aside or rescinding the deed. The applicants rely upon s 1325 of the Corporations Act 2001 (Cth) (Corporations Act), s 12GM of the Australian Securities and Investment Act 2001 (Cth) (ASIC Act), s 87 of the Trade Practices Act 1974 (Cth) (TPA), s 72 of the Fair Trading Act 1987 (NSW) (NSW FTA) and s 85 of the Fair Trading Act 1987 (SA) (SA FTA) for the relief sought. The first, second, fifth and sixth respondents seek the specific performance of the deed. The third respondent seeks an order for damages against the applicant for the applicant’s failure to comply with the terms of the deed.

3                     The settlement deed was entered into by the parties following upon a mediation on Wednesday, 21 and Thursday, 22 October 2009 that had been convened by some of the parties to resolve disputes that had arisen in a group of companies described by the parties as the ADC/EDC Group (the group) of which the applicants and the respondents, with the exception of the seventh, eighth and ninth respondents, are shareholders.

4                     The settlement deed provides for the sale by the applicants of their shares in the companies in the group to the second respondent, Justin Proprietary Ltd (Justin).

5                     On 10 March 2011, five days before the commencement of the trial, the respondents filed a notice of motion which they sought to have specially returnable before me at the commencement of the trial in which they sought the following orders:

2. That the Second and Fourth Applicants, whether by themselves, their agents, servants or otherwise be restrained from introducing as evidence or relying on in this action any documents brought into existence for the mediation between the Second Applicant, Fourth Applicant, Second Respondent and Third Respondents which commenced on 21 October 2009 (the mediation), any documents discussing the events within the course of the mediation and any of the oral exchanges within the mediation including but not limited to:

2.1 “Position Paper prepared on behalf of Berenwode Proprietary Limited, Lisa Proprietary Limited and Farnsworth Proprietary Limited – ADC/EDC Group” dated 20 October 2009; 

2.2 “Without Prejudice Position Paper” – Justin Pty Ltd (Justin) dated 20 October 2009; 

2.3 Annexure A to the Amended Statement of Claim in this action dated 15 September 2010; 

2.4 paragraphs 14 to 45 and Annexures B and C of the Affidavit of Grae McKenzie in this action sworn 19 November 2010; 

2.5 paragraphs 12 to 65 of the Affidavit of Guy O’Loghlen Reynolds in this action sworn 22 November 2010; 

2.6 paragraphs 3, 5, 10, 11, 40 to 44 of the Affidavit of Guy O’Loghlen Reynolds in this action sworn 31 January 2011; 

2.7 paragraphs 16 to 42, 44 to 50 and Annexure A of the Affidavit of Robert Dean King sworn 22 November 2010; 

2.8 paragraph 14 of the Affidavit of Robert Dean King sworn 24 December 2010; 

2.9 paragraphs 6 to 15 of the Affidavit of Josephine Lepetit sworn 22 November 2010; 

2.10 paragraphs 6 to 8 of the Affidavit of Mark Tucker sworn 22 November 2010; 

2.11 paragraphs 4 to 8 of the Affidavit of Guy Darrell sworn 22 November 2010; and 

2.12 paragraphs 4 to 9 of the Affidavit of Simon Reynolds sworn 22 November 2010; …

(Emphasis in original.) 

6                     When the trial commenced the parties’ counsel, Mr Myers QC for the applicants and Mr Sullivan QC for the respondents, informed the Court that the parties wished to present their arguments in respect to the orders sought in the notice of motion immediately after Mr Myers had completed the applicants’ opening. I was told that I would also be asked to rule on the admissibility of the evidence referred to in the notice of motion if I were of the opinion that the injunction sought in paragraph 2 should not be made.

7                     Here follows my reasons for refusing the respondents’ application for an injunction and for ruling that subject to any other objections apart from those relating to s 131 and s 135 of the Evidence Act 1995 (Cth) (Evidence Act), the evidence referred to in the notice of motion is admissible in the proceeding.

8                     The group was established by John David Keith Roche (JDKR) in 1922 and managed thereafter by him until his death. The assets of the group comprise mainly real estate, being a number of properties located in South Australia and Western Australia. The business of the group is to hold real estate as an investment and for the purpose of development of residential estates.

9                     JDKR had six children, two sons and four daughters. His children acquired interests in the group. Two of his daughters, Diana Frost and Judith Buckingham, disposed of their interests to their siblings in 1990 and played no further part in the affairs of the group after that time. On 5 March 1990, at the time that the two daughters disposed of their holdings in the group, the other of JDKR’s children and entities they controlled entered into a deed entitled Deed with Remaining Family Members (DRFM).

10                 Until recently, the group has been owned by the remaining four of JDKR’s children and/or interests associated with each of those children.

11                 The second applicant, Farnsworth Pty Ltd (Farnsworth) is a company associated with the Jennifer Reynolds family. Mrs Reynolds died on 15 July 1997. The second applicant represents the interests of her estate and her children’s interests, and at the relevant time owned one-sixth of the group. The third applicant is the trustee of the Reynolds Family Trust. The sixth applicant, Guy Reynolds SC, is a son of the late Mrs Reynolds. Collectively, they represent the Reynolds family.

12                 The fourth applicant, Lisa Proprietary Ltd (Lisa) represents the interests of Josephine Lepetit, who was also a daughter of JDKR. They own one-sixth of the group. The fourth and fifth applicants represent the Lepetit family.

13                 The six applicants collectively own one-third of the group.

14                 Justin represents the interests of the late John Roche, who was a son of JDKR. It holds one-third of the shares in the group. Mr John Roche died in mid 2010. The first respondent and the sixth respondent are daughters of Mr John Roche. Ms Fiona Roche was appointed Managing Director of the group in 1995 and has been Chairman of the group since 2008.

15                 The third respondent, Berenwode Proprietary Limited (Berenwode) is associated with the fourth respondent, Mr David Roche, who was also a son of JDKR. The fifth respondent, Heroc Pty Ltd (Heroc), is the trustee of the Ochre Unit Trust. They held, at the relevant time, one-third of the shares in the group and collectively represent the David Roche family.

16                 The seventh respondent is a chartered accountant who has acted as an adviser of the Justin interests. He is also a director of some of the companies in the group. The eighth respondent is a solicitor who acted for and advised David Roche. He is also Mr David Roche’s alternate director in some of the companies in the group. The ninth respondent is an adviser to Mrs Josephine Lepetit and has attended the executive meetings of the group since 1998, and was appointed an alternate director to Mrs Lepetit in 2009. He is also a Chartered Accountant.

17                 Thus it is, at the relevant time when the settlement deed was entered into, the applicants owned one-third of the group and the respondents, with the exception of the professional advisers, owned two-thirds of the group.

18                 Since this proceeding was commenced, Mr David Roche and the interests associated with him, sold on 11 January 2010 their one-third interest in the group to the Justin interests. Justin now holds two-thirds of the shares in the group. I think I can infer that Mr David Roche, Berenwode and Heroc sold their shares to Justin in accordance with the terms of the deed of settlement. Although as a result Berenwode, Heroc and Mr David Roche are no longer interested in the relief sought by the applicants, because they have sold their shares, Berenwode (which as I have said is now owned by the Justin interests) has cross-claimed against the applicants for damages in the sum of $221,003.53 for the applicants’ failure to settle in accordance with the terms of the settlement deed.

19                 However, the only parties interested in the relief sought by the applicants are the Justin interests and the only parties interested in the relief sought by the Justin interests on the cross-claim are the applicants (the non-Justin interests).

20                 A number of disputes arose which led to a mediation. It is necessary to have some understanding of the disputes which gave rise to the mediation.

21                 Prior to the mediation, Berenwode, Farnsworth and Lisa sought to have significant structural changes made to the group in order to give their interests greater say in the management and control of the group. By the terms of the DFRM, which was amended on 24 June 2000, the four children of JDKR agreed that Mr John Roche or the Justin interests should be entitled to have 50% of the shareholder votes in certain companies in the group and the remaining members of the family, which at that time and all relevant times thereafter held two-thirds of the group, should have between them 50% of the shareholder votes.

22                 In addition, the John Roche interests were entitled to appoint one half of the directors of those companies in the group, and the interests of the other three JDKR children were entitled to appoint the other half of the directors, each director having only one vote. The Chairman of each of the companies in the group had a deliberative vote but no casting vote. Any deadlock was to be resolved by arbitration.

23                 Mr John Roche was the Executive Chairman of the group until 1995 and the Non-Executive Chairman of the Board until 2008. On his retirement as Executive Chairman, his daughter Fiona Roche became the Managing Director of the group and, as I have said, in 2008 became also the Chairman of the Board.

24                 Paltara Pty Ltd (Paltara) is a member of the group but is not a company to which the DFRM deed applied. Paltara owns substantial real estate assets.

25                 The directors of Paltara were Mr David Roche (whose alternate was Mr David Munt), Ms Fiona Roche, Mrs Josephine Lepetit (whose alternate was Mr Robert King) and Mr Graham Walters (whose alternate was Ms Deborah Hamilton). Mr Walters and his alternate Ms Hamilton are nominees of Justin. Thus it was that Paltara, like the companies subject to the DFRM, had directors, 50% of whom were nominees of Mr John Roche or the Justin interests and 50% of which were nominees of the remaining three families.

26                 Some time in 2009 the non-Justin interests decided that Mr Guy Reynolds should be appointed as a director of Paltara. Consequently, on 10 July 2009, Mr David Roche and Mrs Josephine Lepetit signed a circular resolution to appoint Mr Reynolds as a director of Paltara which they forwarded to Ms Fiona Roche seeking the agreement of the other two directors to that appointment. Although the articles of Paltara would have permitted the directors to appoint an additional director by circular resolution, the Paltara directors, Ms Roche and Mr Walters refused to sign the circular resolution.

27                 Consequently, on 26 August 2009, the non-Justin interests, the majority shareholders in Paltara, requisitioned a General Meeting of Paltara pursuant to s 249D of the Corporations Act to consider a resolution either to remove Ms Fiona Roche as a director of the company and appoint Mr Reynolds in her stead or, alternatively, to remove Mr Graham Walters as a director of Paltara and appoint Mr Reynolds in his stead.

28                 The Corporations Act required Paltara to issue a Notice of General Meeting to shareholders for a meeting to be held not later than 27 October 2009.

29                 The non-Justin interests made it clear that they intended to vote in favour of the resolution at Paltara’s General Meeting to secure the appointment of Mr Reynolds as a director.

30                 On 13 October 2009 Justin’s lawyers wrote to the non-Justin’s lawyers asserting that the proposed resolution to be put at Paltara’s General Meeting would be contrary to the conventional basis upon which Paltara and the other group companies had been conducted for the period since the DFRM and inconsistent with representations by words and conduct of representatives of the non-Justin interests. In that same letter, Justin’s lawyers threatened legal proceedings.

31                 In the non-Justin interests’ position paper prepared for the mediation, those interests claimed that because Paltara was not a group company for the purpose of the DFRM Justin would be unlikely to prevail in any proceedings it foreshadowed in its lawyer’s letter of 13 October 2009.

32                 Earlier in 2009 the group management sought and obtained finance approval to borrow $12 million from the ANZ Bank. It was proposed that the borrower would be EDC Finance Pty Ltd (EDC) as trustee of the EDC Finance Trust. EDC is a group company which, like its beneficiary, has no assets.

33                 It was proposed that Paltara would provide the security for the borrowing by Paltara granting a guarantee to the ANZ Bank which was to be secured by first ranking mortgages over the real estate held by Paltara and a fixed and floating charge over all of Paltara’s assets.

34                 In late July 2009 Mr David Roche advised Ms Fiona Roche that the non-Justin interests considered that the ANZ Bank facility should proceed on the basis that the security provider, Paltara, should also be the borrower which would enable Paltara to determine what part of the borrowings would be provided to which other group companies and on what terms.

35                 On 20 August 2009 at a Board Meeting of EDC and Paltara, the Board failed to resolve the financing issue because it was deadlocked on the issue as to which company, EDC or Paltara, should be the borrower of the ANZ facility.

36                 On 3 September 2009 the companies within the group wrote to shareholders, including the non-Justin interests, seeking financial support in terms of a draft letter of financial support which would have provided unlimited financial support for an unlimited time.

37                 On 25 September 2009 the non-Justin interests lawyers wrote to the Justin interests lawyers confirming that the non-Justin interests would give financial support to the group provided that the Justin interests did so on the same terms, including a term that the total funding support to be provided by all contributing shareholders would be $5 million and that the support would be repayable on 90 days’ notice.

38                 On 1 October 2009 the Justin interests lawyers wrote requesting the non-Justin interests to provide a bank guarantee to the group by way of security and to agree to a term that the offer of financial support be withdrawn in the event of a change in composition of the Board of a borrowing company.

39                 The non-Justin interests objected to that proposal for two reasons. First, there was no reason to require a lender to provide security. If security was required it should be the borrower who provided security. Secondly, they objected to the further term which would have meant that the offer of financial support would be withdrawn in the event of the change in composition of the Board which they saw as being imposed for the purpose of defeating, or at least inhibiting, the proposal for Mr Reynolds’ appointment to the Board.

40                 The competing parties remained deadlocked in relation to this issue with the non-Justin interests preferring that Paltara should borrow the necessary amount from the ANZ Bank and control the distribution of that advance within the group.

41                 Justin is not only a shareholder of the group but is independently a property developer and carries on that business. The group provides services to Justin in relation to Justin’s own business activities for which it imposes a charge. It does not provide any similar service to any of the non-Justin interests. In a report dated 8 October 2009, Ms Roche wrote that in late October EDC would receive $1,071,879 from Justin for services provided. She proposed that EDC would keep that money to meet its working capital requirements including payroll, tax and employee entitlement obligations.

42                 On 8 October 2009 companies within the group, including Paltara, advised that a Board Meeting was to be held on 14 October 2009.

43                 The business which was to be transacted at those meetings included consideration of the financing requirements mentioned above, the shareholder letters of support and the replacement and reorganisation of certain internal group company loan accounts.

44                 The non-Justin interests advised Justin’s lawyers and Ms Roche that the business to be conducted should be delayed until after Paltara’s General Meeting when they expected Mr Reynolds to be appointed as a director.

45                 That proposition was rejected and the Board meetings took place, but no resolutions were passed because the directors were deadlocked.

46                 On 16 October 2009 Ms Roche called a further meeting of the boards of certain group companies to be held on 19 October 2009 to consider the funding requirements and the replacement of certain internal loans. Again, the non-Justin interests’ lawyers advised the Justin lawyers and Ms Roche that the proposed meeting should be adjourned until after the mediation which was to occur on 21 October 2009. That proposal was rejected and the meeting proceeded but no resolutions were passed because the directors were again deadlocked.

47                 The respondents read an affidavit of Michael Durrant, a member of Kelly & Co (Justin’s lawyers), sworn on 9 March 2011. The mediation was conducted by the Hon Ian Callinan AC QC who was first approached by Justin’s lawyers on 9 October 2009. On that day Mr Callinan provided Mr Durrant with a precedent mediation agreement. Mr Durrant sent that document to Mr Grae McKenzie of Speed & Stracey Lawyers, the non-Justin interests lawyers. On 19 October 2009 the respective lawyers agreed upon the mediation agreement and the description of the dispute which was to be the subject of the mediation.

48                 Schedule 1 of the mediation agreement required a brief description of the dispute which was identified as “The future of ADC/EDC Group”.

49                 The relevant provisions of the mediation agreement are:

2. The mediation will be conducted in private. Only the parties to the dispute and their legal representatives may attend, unless all parties and the Mediator agree otherwise. All parties, including the Mediator, will keep confidential all things said or done during the mediation. 

… 

5. The parties must co-operate in good faith with the Mediator and each other during the mediation. 

… 

8. Every aspect of the communications which take place as part of the mediation is to be without prejudice. 

… 

10. None of the documents brought into existence for the mediation or documents discussing the events within the course of the mediation and none of the oral exchanges within the mediation can be introduced as evidence or relied on in any arbitral or judicial proceedings or otherwise used in any way for or against any party to the mediation. 

11. Information, whether oral or written, disclosed to the Mediator by a party in the absence of the other party or parties shall not be disclosed by the Mediator to the other party or parties unless the party from whom that information was received informs the Mediator to the contrary. 

… 

19. In any event that the Dispute is settled, either party will be at liberty: 

(a) to enforce the terms of the settlement agreement by judicial proceedings; 

(b) in any such proceedings, to adduce evidence of an (sic) incidental to the settlement agreement including from the Mediator and any person engaged in the mediation. 

50                 As I have already said, the parties provided position papers in relation to the mediation. The non-Justin interests in their position paper identified the issues for mediation which I have broadly addressed above as:

(1) the financing issue; 

(2) composition of the Board of Paltara; and 

(3) management and future of ADC/EDC Group.

 51                 In their position paper, the Justin interests, after addressing the matters identified by the non-Justin interests wrote:

16. Whatever the result of the actions taken by the parties and the litigation which will ensue, it is highly likely that the common management of all the entities and assets of the Group will not continue. The current Managing Director, Fiona Roche will not work with the Board of Paltara as it is proposed to be composed. Of course, this will be academic anyway unless financing for EDC (1948) is resolved as a matter of urgency. A formal insolvency appointment to that entity will otherwise be required. 

17. On any view, there has been an irretrievable breakdown in relations and the separation of interests is required. The issue for mediation is how best that is to occur, without further destruction of the shareholder value. 

18. The current economic environment means that many of the entities are cashflow negative (including Paltara) and therefore an expeditious finalisation of development projects and distribution of capital by way of dividends is not feasible. This highlights the difficulty occasioned by the oscillating nature of the remaining shareholders. Their position has at one stage been to support an orderly sell down but oppose the injection of capital for that purpose. 

19. The heart of this dispute, and what dispute (if any) there is in relation to the management or direction of this Group, is what Berenwode, Farnsworth and Lisa seek to achieve from this process and their investment in the Group. 

20. Attempts to elicit clarification of what Berenwode, Farnsworth and Lisa seek to achieve have been entirely unsuccessful. 

21. Justin approaches this mediation in good faith with a view to avoiding litigation and with a desire to achieve an orderly separation of Justin’s interests from those of the other shareholders. 

22. It is impossible for any successful mediation to occur without understanding what the parties seek to achieve from their investment in the Group. The future financing of the Group and its future management, cannot be addressed without an understanding of the shareholders (sic) view as to the future of the Group. Justin has made its position clear in that respect. Berenwode, Farnsworth and Lisa have not. 

52                 At the mediation conducted by Mr Callinan, the non-Justin interests were represented by Mr Guy Reynolds, on behalf of Farnsworth, Robert King on behalf of Lisa, David Munt and Michael Shearer on behalf of Berenwode and Mr Grae McKenzie of Speed & Stracey Lawyers for Farnsworth, Lisa and Berenwode. The Justin interests were represented by Ms Fiona Roche, Ms Deborah Hamilton, Mr Graham Walters and Mr Durrant.

53                 As I understand it from Mr Myers’ opening, some time late on the first day someone representing the Justin interests indicated that Justin would consider making an offer to buy all of the shares of the non-Justin interests. The meeting adjourned to enable the Justin interests to consider their position in relation to that offer. Some time before midday the next day, the meeting resumed and at that meeting the participants were supplied with a document which is Annexure A to the statement of claim (Annexure A). That document identified each of the separate companies in the group and that company’s assets. In the case of 14 members of the group, the asset was real estate. In the case of other members of the group, the assets included cash, shares, a debt and a tax refund.

54                 The only relevant assets for the purpose of this proceeding were constituted by the real estate owned by the separate group companies.

55                 Against each of the companies which were said to hold real estate assets, there was a column headed “ANZ Finance Values” which had a figure against all of the real estate assets of the separate group companies. In this column no value is put upon the non-real estate assets. To the right of that column, is a column headed “Valuation” which had a figure again against each of the companies which had real estate assets but which in all respects was a lower figure than that under the column headed “ANZ Finance Values”. I am told that the figures under the heading “Valuation” represent undeveloped land.

56                 To the right of that column is a column headed “List Price” which has a figure as against five separate holdings relating to four separate companies and I am told those figures represent land which has been developed and which is on the market for sale. In that column the non-real estate assets are given a value. To the right of that column is a column headed “Oldacres at Valuation” which contained only one figure and that related to real estate owned by a company in the group, Wandina Pty Ltd, called “Oldacres” which was valued both in the “ANZ Finance Values” column and in the “Oldacres at Valuation” column at $24,500,000. I am told that that development is somewhat problematic because of some planning issues.

57                 To the right of the “Oldacres at Valuation” column is a column headed “Total” which comprises the total of the three columns to the left of that column, being the columns “Valuation”, “List Price” and “Oldacres at Valuation”. The total of that column is $111,479,651 which is to be contrasted with the total under the “ANZ Finance Values” of $123,946,710.

58                 I am told that after that document was provided to the participants Mr Graham Walters made a presentation in which he spoke to that document. At the conclusion of his presentation he made an offer on behalf of the Justin interests to the non-Justin interests. The offer comprised $30 million cash for the non-Justin interests in the undeveloped land in the “Valuation” column plus a share of the proceeds of the sale of the List Price assets and Oldacres when those assets were realised. That offer was rejected and a counter-offer was made by the non-Justin interests by Grae McKenzie on behalf of his clients which only differed from the Justin offer by $6 million in relation to the cash component. That offer was rejected by the Justin interests. A further offer was made by the non-Justin interests which represented a cash component of $42 million for both the undeveloped land (Valuation) and the developed land (List Price) and 65% of the sale proceeds of Oldacres after tax and development costs. That offer was rejected by the Justin interests who put a counter-offer in the same terms, except that the cash component was $41 million. That offer was accepted and eventually the agreement was reduced into writing and is now reflected in the settlement deed.

59                 It is not necessary to identify the terms of the settlement deed which are not in dispute.

60                 The applicants’ statement of claim asserts that Annexure A to the statement of claim contained “valuation representations” of the various properties. Alternatively, the applicants claim that Justin, Ms Roche and Ms Hamilton represented that the valuations contained in Annexure A were based on reasonable grounds; were the product of exercise of due care and skill and the application of proper valuation methodology; were well-founded; and were safe to be relied upon by the applicants. The applicants also claim that Justin, Ms Roche and Ms Hamilton represented that Annexure A presented an accurate statement of the financial position and value of the group; the assets of the companies in the group; that the amount offered was fair and reasonable; that each of them had reasonable grounds for believing that the amount offered was fair and reasonable; and that the valuations were a reasonable basis for the applicants to decide whether to agree to enter into the deed. The applicants also claim that Justin, Ms Roche and Ms Hamilton represented that the valuations were based upon valuations procured by the group for the purpose of obtaining finance from the ANZ Bank; that the figures were derived from valuations provided by an external valuer or valuers; and there were no other matters known to them that would substantially affect an assessment by the applicants which had not been disclosed to the applicants.

61                 It is claimed that the representations are false and that as a result the conduct in making the representations was misleading or deceptive and contravened a number of provisions of the ASIC Act, the SA FTA, the NSW FTA, the Misrepresentation Act 1972 (SA) and the Corporations Act.

62                 The applicants claim that they were induced to enter into the settlement deed and they are entitled to have the Court rescind the settlement deed.

63                 The respondents admit in their defence that the parties participated in a mediation pursuant to the mediation agreement and plead in paragraph 28 of the defence the terms of the mediation agreement, including clauses 5, 6, 8, 10 and 19 although in respect of clause 10 of the mediation agreement the respondent add some words.

64                 The respondents deny that the Annexure A amounted to representations of the kind pleaded by the applicant. In the alternative, they plead that if any representations were made any representation was no more than a representation that any opinion contained in Annexure A was genuinely held or that any opinion was based on reasonable grounds.

65                 There are two cross-claims, but for the purpose of this application it is the cross-claim of the Justin interests which is relevant. In that cross-claim the Justin interests plead that the applicant entered into the settlement deed but notwithstanding notice requiring them to nominate a date for completion within the terms of the deed they failed to complete. The respondents claim that they are ready, willing and able to complete and seek orders for specific performance of the settlement deed and, in particular, the execution and delivery to Justin of transfer forms in respect of the shares identified in the cross-claim.

66                 In their defence to the cross-claim the applicants plead that the settlement deed is void or void ab initio pursuant to various provisions of various Acts and liable to be rescinded under those statutes. They rely upon their pleas in the statement of claim as to why the Court should decline to order specific performance. The enforceability of the settlement agreement is an issue on the cross-claim.

67                 It is not necessary to address the other cross-claim brought by Berenwode.

68                 The notice of motion seeks permanent relief relying upon the common law and the provisions of the mediation agreement.

69                 There is nothing in the cross-claim which would support the relief which is sought on the notice of motion. If I had been of the opinion that the orders sought should have been made, it would have been on the condition that the respondents apply for and obtain leave to amend the cross-claim to identify a claim of the kind in the notice of motion. The respondents could not have been entitled to permanent relief of the kind sought without seeking a declaration or an injunction in the cross-claim. I raised this issue with Mr Sullivan who responded by saying that should it be necessary his clients would seek to amend those pleadings to raise the issue. Mr Myers did not seek to have the notice of motion dismissed because of this procedural defect. He sought to have the orders sought in the notice of motion considered on their merits.

70                 As it is, even though I will dismiss the application, the respondents should, if they wish to take this matter further, seek leave to amend their cross-claim to reflect the claim for a permanent injunction in the notice of motion.

71                 The respondents could have raised this matter before they filed their defence. There was never any doubt on the applicants’ statement of claim that the applicants would need to rely upon Annexure A and the evidence of what Mr Walters said in addressing Annexure A to make out the representations in order to prove the misleading and deceptive conduct which was relied upon. The respondents could have raised the issue at an early stage by making an application under O 11 r 16 of the Federal Court Rules to dismiss the proceeding as an abuse of process if as they contend the application relies upon inadmissible evidence: Walton v Gardiner (1993) 177 CLR 378. No satisfactory explanation has been given by the respondents for their failure to raise this issue at an early stage which, on their contentions, would have been a complete answer to the applicants’ case because the applicants would have been left without evidence.

72                 When this matter was first raised in the trial I pointed out that if this were to be a matter of admissibility I could make a ruling on admissibility which would govern the course of the trial. That ruling would be not able to be challenged until the trial had completed and orders made finally disposing of the matter. However, because there was not only a challenge to the admissibility of the evidence in the trial but an anterior application for an injunction to restrain the use of the evidence in the trial, any order I made in respect of the notice of motion would be an interlocutory order from which an appeal could be brought if I granted the permanent injunction by the applicants as of right and if I refused the application by leave from an interlocutory order: s 24 of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act).

73                 Mr Sullivan answered by saying that his clients would want the Court to give reasons in relation to the applications so that his clients could consider their position. Mr Myers deferred to the Court as to the disposition of the application.

74                 After I had heard the parties I reserved my decision in relation to the application and adjourned the trial for a day and a half so that I could write these reasons.

75                 The respondents’ claim for an injunction rests upon two separate grounds. First, they rely upon common law without prejudice privilege. Secondly, they rely upon the mediation agreement as the source of the injunction.

76                 In respect of both, the respondents say they are entitled to restrain the applicants from “introducing as evidence or relying on … any documents brought into existence for the mediation … any documents discussing the events within the course of the mediation and any of the oral exchanges within the mediation …”. In particular, they seek to restrain the use of the parties’ position papers and Annexure A, but not the settlement deed. They also seek to restrain witnesses identified in the notice of motion from giving the oral evidence mentioned in each of the paragraphs of the notice of motion being evidence directed to what was said and done at the mediation.

77                 The applicants deny that the respondents are entitled to the injunctions sought asserting that neither the common law rule nor the terms of the mediation agreement could prevent the applicants adducing the evidence referred to in the notice of motion. The applicants do not claim that the respondents have in these proceedings done or said anything from which it could be construed that the respondents have waived whatever privilege may have existed. The question therefore is whether there is an entitlement at common law or because of the terms of the mediation agreement to the injunction.

78                 In the alternative, as I have said, the respondents claim that if the applicants are entitled to tender the evidence the tender should be rejected because the evidence is inadmissible by reason of the provisions of s 131 and s 135(a) of the Evidence Act.

79                 The applicants claim that s 131(1) of the Evidence Act does not apply because of the provisions of s 131(2) of that Act and they assert that s 135(a) does not apply in circumstances where their claim is for contraventions of the statutes to which I have referred. Although I will deal in these reasons as to the admissibility of the evidence that part of these reasons is as I have said a ruling on evidence and not strictly relevant to the order which I will make dismissing the notice of motion.

80                 In Walker v Wilsher (1889) 23 QBD 335 at 357, Lindley LJ identified the meaning of the words “without prejudice” in the following limited way:

I think they mean without prejudice to the position of the writer of the letter if the terms he proposes are not accepted. If the terms proposed in the letter are accepted a complete contract is established, and the letter, although written without prejudice, operates to alter the old state of things and to establish a new one. 

81                 Subsequent decisions have shown that the rule is not so limited: Ofulue v Bessert (2009) 1 AC 990 per Lord Rodger of Earlsferry at 1010, [43]. Later authority shows that the rule protects not only admissions in the form of an offer to settle, but also communications between the parties generally in respect to issues in the dispute including assertions made of the strength and weaknesses of a party’s case or an opponent’s case: Unilever plc v Procter & Gamble Co [2000] 1 WLR 2436 at 2449; Rush & Tomkins Ltd v Greater London Council (1989) 1 AC 1280; Ofulue v Bessert 1 AC 990.

82                 The rule rests partly upon public policy, being to encourage parties to settle the dispute without recourse to the Court in circumstances where the parties can exchange their positions frankly and freely and without fear that anything said may be used against them. In Cutts v Head [1984] Ch 290, Oliver LJ said at 306:

That the rule rests, at least in part, upon public policy is clear from many authorities, and the convenient starting point of the inquiry is the nature of the underlying policy. It is that parties should be encouraged so far as possible to settle their disputes without resort to litigation and should not be discouraged by the knowledge that anything that is said in the course of such negotiations (and that includes, of course, as much the failure to reply to an offer as an actual reply) may be used to their prejudice in the course of the proceedings. They should, as it was expressed by Clauson J. in Scott Paper Co. v. Drayton Paper Works Ltd. (1927) 44 R.P.C. 151, 156, be encouraged fully and frankly to put their cards on the table. … The public policy justification, in truth, essentially rests on the desirability of preventing statements or offers made in the course of negotiations for settlement being brought before the court of trial as admissions on the question of liability. 

83                 The rule however is not based only upon public policy but has as another foundation being the express or implied agreement of the parties that their communications between themselves should not be admissible in evidence if those communications do not lead to a settlement.

84                 In Unilever plc v Procter & Gamble Co [2000] 1 WLR 2436, Robert Walker LJ said at 2448-49:

… they make clear that the without prejudice rule is founded partly in public policy and partly in the agreement of the parties. They show that the protection of admissions against interest is the most important practical effect of the rule. But to dissect out identifiable admissions and withhold protection from the rest of without prejudice communications (except for a special reason) would not only create huge practical difficulties but would be contrary to the underlying objective of giving protection to the parties, in the words of Lord Griffiths in Rush & Tompkins Ltd v Greater London Council [1988] 3 All ER 737 at 740, [1989] AC 1280 at 1300: “to speak freely about all issues in the litigation both factual and legal when seeking compromise and, for the purpose of establishing a basis of compromise, admitting certain facts.” Parties cannot speak freely at a without prejudice meeting if they must constantly monitor every sentence, with lawyers or patent agents sitting at their shoulders as minders. 

85                 In Oceanbulk Shipping and Trading v TMT Asia [2010] 3 WLR 1424, Lord Clarke said at [27]:

The without prejudice rule is thus now very much wider than it was historically. Moreover, its importance has been judicially stressed on many occasions, most recently perhaps in Ofulue’s case [2009] 3 All ER 93, [2009] AC 990, where the House of Lords identified the two bases of the rule and held that communications in the course of negotiations should not be admissible in evidence. It held that the rule extended to negotiations concerning earlier proceedings involving an issue that was still not resolved and refused, on the ground of legal and practical certainty, to extend the exceptions to the rule so as to limit the protection to identifiable admissions. 

The speeches of the majority contain a number of references to the importance of the rule which are relied upon on behalf of Oceanbulk. I take some examples. Lord Hope said at [12]: 

… The essence of [the rule] lies in the nature of the protection that is given to parties when they are attempting to negotiate a compromise. It is the ability to speak freely that indicates where the limits of the rule should lie. Far from being mechanistic, the rule is generous in its application. It recognises that unseen dangers may lurk behind things said or written during this period, and it removes the inhibiting effect that this may have in the interests of promoting attempts to achieve a settlement. It is not to be defeated by other considerations of public policy which may emerge later, such as those suggested in this case, that would deny them that protection. 

In para [2] Lord Hope had said that where a letter is written without prejudice during negotiations conducted with a view to a compromise, the protection that these words claim will be given to it unless the other party can show that there is a good reason for not doing so. 

86                 The law has developed so that there are now two bases underpinning the without prejudice rule, namely the public interest in promoting the settlement of disputes without calling in aide the Courts; and an express or implied agreement between the parties that their communications will be kept confidential.

87                 Moreover, the rule is not restricted simply to an offer made and not accepted but includes communications of all kinds which are genuinely entered into for the purpose of trying to reach a compromise. The second aspect of the rule is to encourage the free and frank exchange of views between the parties.

88                 However, the rule is not absolute and admits of exceptions. Lord Justice Robert Walker identified those exceptions in Unilever plc v Procter & Gamble Co 1 WLR 2436 where he said at 2444-45:

(1) … when the issue is whether without prejudice communications have resulted in a concluded compromise agreement, those communications are admissible … 

(2) Evidence of the negotiations is also admissible to show that an agreement apparently concluded between the parties during the negotiations should be set aside on the ground of misrepresentation, fraud or undue influence. Underwood v Cox (1912) 4 DLR 66, a decision from Ontario, is a striking illustration of this. 

(3) Even if there is no concluded compromise, a clear statement which is made by one party to negotiations, and On which the other party is intended to act and does in fact act, may be admissible as giving rise to an estoppel. That was the view of Neuberger J in Hodgkinson & Corby Ltd v Wards Mobility Services Ltd [1997] FSR 178 at 191, and his view on that point was not disapproved by this court on appeal ([1998] FSR 530). 

(4) Apart from any concluded contract or estoppel, one party may be allowed to give evidence of what the other said or wrote in without prejudice negotiations if the exclusion of the evidence would act as a cloak for perjury, blackmail or other “unambiguous impropriety” … But this court has, in [Forster v Friedland [1992] CA Transcript 1052 and Fazil-Alizadeh v Nikbin (1993) Times, 19 March, warned that the exception should be applied only in the clearest cases of abuse of a privileged occasion. 

(5) Evidence of negotiations may be given (for instance, on an application to strike out proceedings for want of prosecution) in order to explain delay or apparent acquiescence. Lindley LJ in Walker v Wilsher (1889) 23 QBD 335 at 338, noted this exception but regarded it as limited to “the fact that such letters have been written and the dates at which they were written”. But occasionally fuller evidence is needed in order to give the court a fair picture of the rights and wrongs of the delay. 

(6) In Muller’s case (which was a decision on discovery, not admissibility) one of the issues between the claimant and the defendants, his former solicitors, was whether the claimant had acted reasonably to mitigate his loss in his conduct and conclusion of negotiations for the compromise of proceedings brought by him against a software company and its other shareholders. Hoffmann LJ treated that issue as one unconnected with the truth or falsity of anything stated in the negotiatons, and as therefore falling outside the principle of public policy protecting without prejudice communications. The other members of the court agreed but would also have based their decision on waiver. 

(7) The exception (or apparent exception) for an offer expressly made “without prejudice except as to costs” was clearly recognised by this court in Cutts v Head, and by the House of Lords in the Rush & Tompkins case, as based on an express or implied agreement between the parties. It stands apart from the principle of public policy (a point emphasised by the importance which the new Civil Procedure Rules, Pt 44.3(4), attach to the conduct of the parties in deciding questions of costs). There seems to be no reason in principle why parties to without prejudice negotiations should not expressly or impliedly agree to vary the application of the public policy rule in other respects, either by extending or by limiting its reach. In Cutts v Head Fox LJ said: 

“… what meaning is given to the words ‘without prejudice’ is a matter of interpretation which is capable of variation according to usage in the profession. It seems to me that, no issue of public policy being involved, it would be wrong to say that the words were given a meaning in 1889 which is immutable ever after …” (See [1984] 1 All ER 597 at 613, [1984] Ch 290 at 316.] 

(8) In matrimonial cases there has developed what is now a distinct privilege extending to communications received in confidence with a view to matrimonial conciliation … 

89                 That statement of the law was approved by the Lord Ridges of Earlsferry and Lord Newberger of Abbotsbury in Ofulue v Bessert 1 AC 990.

90                 In Oceanbulk Shipping and Trading SA v TMT Asia Ltd 3 WLR 1424, Lord Clarke, with whom Lord Phillips P, Lord Rodger, Lord Walker, Lord Brown, Lord Mance and Sir John Dyson agreed, said in his judgment in the Supreme Court at [31]:

This issue must be put in the context of the exceptions which have already been permitted to the rule. In this connection I again turn to the illuminating judgment of Robert Walker LJ in the Unilever case. Having set out the general principles ([2001] 1 All ER 783 at 791, [2000] 1 WLR 2436 at 2443-2444 (quoted above)), which included the general working assumption that the rule has a wide and compelling effect, he said ([2001] 1 All ER 783 at 791, [2000] 1 WLR 2436 at 2444) that there are nevertheless numerous occasions on which the rule does not prevent the admission into evidence of what one or both parties said or wrote in the course of without prejudice negotiations.

91                 His Lordship cited the whole of the extract from Robert Walker LJ’s judgment extracted above.

92                 I am not sure, notwithstanding the dicta in the House of Lords and the Supreme Court, that the point made by Robert Walker LJ is not too widely expressed.

93                 In Rush v Tompkins v Greater London Council (1989) 1 AC 1281, Lord Griffiths with whom Lord Bridge, Lord Brandon, Lord Oliver and Lord Goff agreed, said on this issue at 1300-1301:

I cannot accept the view of the Court of Appeal that Walker v. Wilsher, 23 Q.B.D. 335, is authority for the proposition that if the negotiations succeed and a settlement is concluded the privilege goes, having served its purpose. In Walker v. Wilsher the Court of Appeal held that it was not permissible to receive the contents of a “without prejudice” offer on the question of costs and no question arose as to the admissibility of admissions made in the negotiations in any possible subsequent proceedings. There are many situations when parties engaged upon some great enterprise such as a large building construction project must anticipate the risk of being involved in disputes with others engaged on the same project. Suppose the main contractor in an attempt to settle a dispute with one subcontractor made certain admissions it is clear law that those admissions cannot be used against him if there is no settlement. The reason they are not to be used is because it would discourage settlement if he believed that the admissions might be held against him. But it would surely be equally discouraging if the main contractor knew that if he achieved a settlement those admissions could then be used against him by any other subcontractor with whom he might also be in dispute. The main contractor might well be prepared to make certain concessions to settle some modest claim which he would never make in the face of another far larger claim. It seems to me that if those admissions made to achieve settlement of a piece of minor litigation could be held against him in a subsequent major litigation it would actively discourage settlement of the minor litigation and run counter to the whole underlying purpose of the “without prejudice” rule. I would therefore hold that as a general rule the “without prejudice” rule renders inadmissible in any subsequent litigation connected with the same subject matter proof of any admissions made in a genuine attempt to reach a settlement. It of course goes without saying that admissions made to reach settlement with a different party within the same litigation are also inadmissible whether or not settlement was reached with that party. 

94                 In any event I do not need to attempt any resolution of that issue, if the issue needs to be resolved, because I think the respondents are entitled to take advantage of the second, third and fourth exceptions to which His Lordship referred: Oceanbulk Shipping and Trading SA v TMT Asia Ltd 3 WLR 1424.

95                 In this proceeding the claim is that the respondents have contravened a number of sections of the Corporations Act, the ASIC Act and the TPA. The alleged contravention is in misrepresenting to the applicants the value of real estate; the extent to which the valuation could be relied upon; and whether the opinion held by the respondents who were responsible for providing those valuations was honestly held. The case against the respondents is that the applicants were misled into reaching a settlement which they would not have concluded if they had been advised of the true position.

96                 It can be seen that in the second exception Robert Walker LJ said that the evidence of without prejudice negotiations would be admissible to show that an agreement concluded by the parties during the negotiation was procured by “misrepresentation, fraud or undue influence”. That statement has been approved in the authorities to which I have referred. Mr Sullivan contended that the Canadian authority to which Robert Walker LJ referred did not support the proposition stated. I do not think that there is any ambiguity in His Lordship’s reasons. He said, with the later approval of the House of Lords and the Supreme Court, that the rule provided for an exception where application was made to set aside the agreement for a misrepresentation. He must have meant something less than fraud because of the context in which he spoke.

97                 In my opinion, the common law without prejudice rule does not prevent the applicants from adducing the evidence referred to in the notice of motion in circumstances where the applicants claim that a concluded compromise agreement has been reached in circumstances where they were misled.

98                 That conclusion follows on the Australian authorities to which I now turn

99                 In Quad Consulting Pty Ltd v David R Bleakley & Associates Pty Ltd (1990) 27 FCR 86, Hill J was called upon to consider the without prejudice rule where the allegation was that during a without prejudice meeting between the respondent and a corporation, misleading and deceptive representations were made on behalf of the respondent which resulted in damage to the applicant. The applicant was not present at the meeting. The applicant sought the respondent’s notes of the meeting which the respondent opposed on the ground that the notes recorded without prejudice discussions in a meeting held in a genuine attempt to resolve a dispute between the respondent and the corporation.

100              His Honour referred to the rule and to the rule not being absolute. He referred to Cutts v Head [1984] Ch 290 and rejected the respondent’s contention that once the Court has found that a meeting was held to negotiate a legal dispute, which was conducted on a without prejudice basis, anything said or done in the meeting was privileged. He rejected that submission citing Walker v Wilsher 23 QBD 335 and other authorities which he said allowed for a party who was seeking to enforce a settlement arrived at at such a meeting to tender without prejudice letters or records of the conversations so as to prove the agreement.

101              He said at 93 that the rule was subject to limitations and could not protect a party “if the matter in dispute in proceedings, unrelated to the matter the subject of the negotiation, is whether particular words were uttered by one of the parties to the negotiation”.

102              He said at 93:

It seems to me that if, in the course of “without prejudice” negotiations, a party to those negotiations engages in conduct which is misleading or deceptive or likely to mislead or deceive contrary to s 52 of the Trade Practices Act and as a result the other party to the negotiations relying, for example, upon the misleading or deceptive conduct suffers loss, proof of the negotiations should not be rendered impossible by the “without prejudice” rule. There is, in such a case, no longer the same subject matter in dispute between the parties as was in dispute at the time of the negotiations. A fortiari where the party suffering damage was not at all a party to the negotiation. The public policy to be found in Part V of the Trade Practices Act is not to be rendered nugatory by permitting a party to hide behind the fact that his or her conduct, which is misleading or deceptive conduct, occurred during the course of “without prejudice” negotiations. A party cannot, with impunity, engage in misleading or deceptive conduct resulting in loss to another under the cover of “without prejudice” negotiations. 

103              Two propositions arise out of his Honour’s reasons. First, the without prejudice rule does not extend to a proceeding which does not concern the same subject matter of the dispute which was the subject of the without prejudice communication. Secondly and in any event, the without prejudice rule does not extend to protect conduct which is misleading or deceptive and a contravention of s 52 of the TPA.

104              Quad Consulting Pty Ltd v David R Bleakley & Associates Pty Ltd 27 FCR 86 was followed by Ward J in Rosenbanner Pty Ltd v Energy Australia (2009) 223 FLR 406 who said at 412 after referring to Quad Consulting Pty Ltd v David R Bleakley & Associates Pty Ltd 27 FCR 86 that:

It surely cannot be the case that a discussion with a view to resolving a dispute at the least possible cost to a corporation and with what must have been a view to the continued and efficient conduct of the business, a corporation would be free to engage in misleading and deceptive conduct without recourse by a party suffering loss in reliance thereon. 

105              Justice Hill’s reasons are consistent with Robert Walker LJ’s reasons in Unilever plc v Procter & Gamble Co 1 WLR 2436 and, in my opinion, are directly relevant to the issues before me. Indeed, Mr Sullivan conceded that he could not distinguish Quad Consulting Pty Ltd v David R Bleakley & Associates Pty Ltd 27 FCR 86 from this proceeding. That concession was rightly made.

106              I should, of course, follow a previous decision of this Court unless I am convinced that it is plainly wrong. In this case I am not so convinced and, indeed, in my opinion, the decision is plainly right as the High Court has implicitly held in Harrington v Lowe (1996) 190 CLR 311. That case was concerned with a provision of the Family Law Act 1975 (Cth) and Rules of Court made under that Act. After referring to the provision and the rule, the majority (Brennan CJ, Dawson, Toohey, Gaudron, McHugh and Gummow JJ) said of a without privilege communication:

That privilege is concerned with the admissibility of evidence at trial after the failure of negotiations and even then does not provide a legal norm which is absolute in nature. Thus, in a proceeding in which the ordinary rules of evidence apply, “without prejudice” material will be admissible if the issue is whether or not the negotiations resulted in an agreed settlement. So also where what is in issue is the entry into the impugned agreement as a consequence of engagement in misleading and deceptive conduct by another party. 

107              In respect to the last mentioned matter, the High Court cited Quad Consulting Pty Ltd v David R Bleakley & Associates Pty Ltd (1990) 27 FCR 86.

108              I am bound to follow the decision in Quad Consulting Pty Ltd v David R Bleakley & Associates Pty Ltd 27 FCR 86which is consistent with the decisions of the House of Lords, Supreme Court and Court of Appeal in England and Wales and which has been cited with apparent approval in Harrington v Lowe 190 CLR 311 and, for those reasons, reject the respondents’ argument that they are entitled to an injunction based upon the common law qualified privilege rule.

109              The second ground for the application for an injunction relied upon the mediation agreement and, in particular, the provisions to which I have referred.

110              That argument fails, in my opinion, for the same reasons as the first ground which relied upon the common law without prejudice rule. It is recognised for the reasons I have given earlier that the without prejudice rule relies upon the public interest to which I have referred and the express or implied agreement of the parties to keep information confidential.

111              I have rejected the respondents’ claim for an injunction based upon the common law qualified privilege rule which is based upon the existence of an express or implied contract of the parties to keep the communications confidential. It would follow that insofar as the respondents’ application relies upon the express terms of the mediation agreement the application would fail for the same reasons. Clause 8 of the mediation agreement makes the communications without prejudice. Clause 10 identifies the documents and communications which will attract the without prejudice protection. That protection is in my opinion no greater than that given by the common law and if the without prejudice privilege is lost because of the exceptions at common law it cannot be maintained under the mediation agreement.

112              A party is not entitled to avoid the consequences of the Corporations Act, the ASIC Act and the TPA by relying on a contractual exclusionary provision. Although Henjo Investments Pty Ltd v Collins Marrickville Pty Limited (No 1) (1988) 39 FCR 546 was concerned with an exclusion clause, the reasoning in the decision is apposite when a party seeks to rely on a contractual term of confidence to defeat a claim of a contravention under the relevant statutes. Lockhart J dealt with some decisions which held that an exclusion clause could not defeat a claim under s 52 and said at 561:

There are wider objections to allowing effect to such clauses. Otherwise the operation of the Act, a public policy statute, could be ousted by private agreement. Parliament passed the Act to stamp out unfair or improper conduct in trade or in commerce; it would be contrary to public policy for special conditions such as those with which this contract was concerned to deny or prohibit a statutory remedy for offending conduct under the Act. 

See also the dicta of the Full Court in IOOF Australia Trustees (NSW) Ltd v Tantipech (1998) 156 ALR 470 at 479.

113              In those circumstances, the second ground does not support the making of an injunction.

114              There is one last matter I should mention. The respondents’ counsel took me to s 53B of the Federal Court Act which applies when an order of the Court has been made for a mediation by the Court under s 53A. It has no direct application on this proceeding. He also referred me to State legislation which is in like terms. Section 53B provides that evidence of anything said or any admission made at a mediation is not admissible in any Court whether exercising federal jurisdiction or not in any proceedings authorised by a law of the Commonwealth. It is in absolute terms and admits of no exceptions. He said that the section and the corresponding State legislation indicated the various Parliaments policy to the confidentiality of a mediation. He said that it would be curious if different rules applied depending upon whether the mediation was ordered by the Court or not. This is not the time to embark on a construction of s 53B which, as I have said, does not govern the situation.

115              He also said the common law should be developed by reference to the policies evidence in the legislation enacted by those Parliaments and in the Evidence Act. Having regard to the state of the authorities to which I have referred, that is a matter for the High Court not for a Judge of this Court.

116              The notice of motion must be dismissed.

117              The respondents, as I have said, otherwise argue that in the trial I should refuse the tender of the evidence contained in the notice of motion because of the provisions of s 131 and s 135(a) of the Evidence Act. What follows is my reasons for ruling that the evidence would not be inadmissible because of those provisions. Whether there are any other objections which would impact upon a part or parts of that evidence will need to be resolved when the evidence is led.

118              Section 131 of the Evidence Act provides:

131 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. 

(2) Subsection (1) does not apply if: 

(a) the persons in dispute consent to the evidence being adduced in the proceeding concerned or, if any of those persons has tendered the communication or document in evidence in another Australian or overseas proceeding, all the other persons so consent; or 

(b) the substance of the evidence has been disclosed with the express or implied consent of all the persons in dispute; or 

(c) the substance of the evidence has been partly disclosed with the express or implied consent of the persons in dispute, and full disclosure of the evidence is reasonably necessary to enable a proper understanding of the other evidence that has already been adduced; or

(d) the communication or document included a statement to the effect that it was not to be treated as confidential or

(e) the evidence tends to contradict or to qualify evidence that has already been admitted about the course of an attempt to settle the dispute; or 

(f) the proceeding in which it is sought to adduce the evidence is a proceeding to enforce an agreement between the persons in dispute to settle the dispute, or a proceeding in which the making of such an agreement is in issue; or 

(g) evidence that has been adduced in the proceeding, or an inference from evidence that has been adduced in the proceeding, is likely to mislead the court unless evidence of the communication or document is adduced to contradict or to qualify that evidence; or 

(h) the communication or document is relevant to determining liability for costs; or 

(i) making the communication, or preparing the document, affects a right of a person; or 

(j) the communication was made, or the document was prepared, in furtherance of the commission of a fraud or an offence or the commission of an act that renders a person liable to a civil penalty; or 

(k) one of the persons in dispute, or an employee or agent of such a person, knew or ought reasonably to have known that the communication was made, or the document was prepared, in furtherance of a deliberate abuse of a power. 

(3) For the purposes of paragraph (2)(j), if commission of the fraud, offence or act is fact in issue and there are reasonable grounds for finding that: 

(a) the fraud, offence or act was committed; and 

(b) a communication was made or a document was prepared in furtherance of the commission of the fraud, offence or act; 

the court may find that the communication was so made or the document so prepared. 

(4) For the purposes of paragraph (2)(k), if: 

(a) the abuse of power is a fact in issue; and 

(b) there are reasonable grounds for finding that a communication was made or a document was prepared in furtherance of the abuse of power; 

the court may find that the communication was so made or the document was so prepared. 

(5) In this section: 

(a) a reference to a dispute is a reference to a dispute of a kind in respect of which relief may be given in an Australian or overseas proceeding; and 

(b) a reference to an attempt to negotiate the settlement of a dispute does not include a reference to an attempt to negotiate the settlement of a criminal proceeding or an anticipated criminal proceeding; and 

(c) a reference to a communication made by a person in dispute includes a reference to a communication made by an employee or agent of such a person; and 

(d) a reference to the consent of a person in dispute includes a reference to the consent of an employee or agent of such a person, being an employee or agent who is authorised so to consent; and 

(e) a refernce to commission of an act includes a reference to a failure to act. 

(6) In this section: 

power means a power conferred by or under an Australian law. 

119              It was not suggested by the applicants that s 131(1) did not apply but instead they argued that paragraphs (f), (i) and (j) of subsection (2) were engaged and, as a result, s 131(1) did not apply to impede the tender of the evidence.

120              The respondents argued that s 131(2)(f) was not engaged because the applicants’ proceeding was not a proceeding to enforce an agreement between the persons in dispute to settle the dispute, or a proceeding in which the makings of such an agreement is in issue. They argued that a proceeding for a declaration that a settlement agreement is void or should be rescinded is not a proceeding to enforce an agreement between the persons in dispute. I think that argument is right.

121              In Asciak v Australian Secured and Managed Mortgages Pty Ltd (2008) 66 ACSR 298 at 304, Goldberg J said at [31]:

In order for paragraph (f) to apply, the proceeding which the plaintiff proposes to bring in the Family Court must be a proceeding to enforce the settlement agreement between Ms Asciak and himself or a proceeding in which the making of the settlement agreement is in issue. The plaintiff proposes to bring a proceeding to have the consent orders made by the Family Court on 30 August 2006 set aside. To the extent to which those consent orders are based on an agreement reached between the parties, the plaintiff is seeking to set aside that agreement; he is not seeking to enforce it or put in issue the making of it. Accordingly subparagraph (f) is of no assistance to the plaintiff.

 122              That decision was followed in Fermiscan Ltd v James [2009] NSWSC 462. I think the applicants are not entitled to rely upon s 131(2)(f) for the proposition that s 131(1) does not apply. However, that does not mean the paragraph is not engaged because the respondents’ claim is for specific performance of the settlement agreement. In those circumstances, it seems to me, s 131(2)(f) applies in relation to the cross-claim because the cross-claim is a proceeding to enforce an agreement between the persons in dispute to settle the dispute. The question is whether the only evidence which can be adduced in relation to the cross-claim is that which is tendered by the respondents. The respondents contended that only they were entitled to the benefit of s 131(2)(f) and only they could adduce evidence of documents and communications that were otherwise protected by s 131(1).

123              In my opinion, that argument must be rejected for two reasons. First, because s 131(2)(f) is not limited in the way contended for by the respondents. Section 131(2) provides exception to the general rule in s 131(1). Insofar as paragraph (f) of subsection (2) applies, it applies to “the proceeding in which it is sought to adduce the evidence is a proceeding to enforce an agreement between the persons”. If the proceeding is of a kind in s 131(2)(f), then s 131(1) does not apply to the proceeding and, in those circumstances, would not apply to whichever parties wished to tender the evidence of the kind otherwise prescribed in s 131(1). Secondly, in the proceeding to which paragraph (f) of subsection (2) applies the applicants in their defence to the cross-claim assert that the settlement deed is void ab initio or liable to be rescinded. That directly raises the issue of the enforceability of the agreement. Mr Sullivan’s argument would not allow the respondents to be heard on their defence. Further, on an application for specific performance, the Courts are reluctant to make the order if the consequence is undue hardship or undue unfairness to the respondent: Norton v Angus (1926) 38 CLR 523. The Court could not properly decide how it ought to exercise its discretion if one side of the transaction was not entitled to adduce evidence of the factual matrix which led to the settlement contract.

124              What if the terms of the settlement contract which was sought to be enforced were ambiguous? On the respondents’ argument, only one party could lead evidence of the factual matrix which would be relevant for a determination of the objective intention of the parties.

125              Mr Myers said the respondents’ contention had to be rejected because the words which the respondents would want to read into the paragraph are simply not there. I think that is right but I also think, for the reasons which I have given, that the applicants are entitled to rely upon the exception in s 131(2)(f) because the cross-claim is a proceeding of the kind in that paragraph.

126              The applicants also asserted that they were entitled to rely upon the exception in s 131(2)(i) because the communication which was made in an attempt to negotiate a settlement and the document which had been prepared affects the applicants’ rights. The applicants contended that they had a right, whilst engaged in negotiations with the respondents, not to have representations made to them which were false which would amount to misleading and deceptive conduct and, as a result, cause them damage by entering into the settlement deed. The applicants on the other hand contended that paragraph (i) only applied to an existing right at the time of the communication or preparation of the document: Glass v Demarco [1999] FCA 482.

127              In my opinion, the applicants’ contention is to be preferred. Paragraph (i) of subsection (2) does not in its terms refer to an existing right but is engaged if the communication at the time of the negotiations or the document which is prepared in an attempt to negotiate a settlement affects a right of a person. In my opinion, that would include the type of right to which the applicant refers. I think that paragraph applies and that is a further reason why s 131(1) does not apply.

128              Lastly, the applicants relied upon paragraph (j) of subsection (2) by contending that the conduct of which they complain is a criminal offence under s 1041E of the Corporations Act and therefore they are entitled to the benefit of the paragraph.

129              That paragraph however has to be understood by reference to subsection (3) which requires a finding that there are reasonable grounds that the offence was committed and a communication was made or a document prepared in furtherance of the offence.

130              There is no claim in this proceeding that the respondents committed an offence of any kind and it would seem to be inappropriate that the Court inquire into whether the respondents’ conduct amounted to an offence. But in any event the Court cannot carry out that inquiry because subsection (3) is only engaged if the offence is a fact in issue and, because no offence is pleaded, in my opinion, the offence is not a fact in issue.

131              Insofar as the applicants contend that they are entitled to rely upon s 131(2)(k), that contention is rejected. However, the applicants have made out an entitlement to the exceptions in paragraphs (f) and (i) of subsection (2) and, in those circumstances, subsection (1) does not apply.

132              Unless therefore the Court should exercise its discretion under s 135(a) the tender of the evidence of the communications and the documents must be accepted.

133              Section 135 provides:

135 General discretion to exclude evidence 

The court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might: 

(a) be unfairly prejudicial to a party; or 

(b) be misleading or confusing; or 

(c) cause or result in undue waste of time. 

134              That section provides for a discretion in the Court to exclude evidence if any one of the paragraphs is made out. Only s 135(a) is relied upon by the respondents. The exercise of that discretion requires a balancing of an assessment of the probative value of the evidence and whether that probative value would be substantially outweighed by the danger that the evidence might be unfairly prejudicial to a party.

135              “Probative value” is defined in the Dictionary to mean the extent to which the evidence could rationally affect the assessment of the probability of the existence of a fact in issue.

136              Of course, evidence which is prejudicial to a party is not thereby inadmissible. It must be unfairly prejudicial in the sense that the trier of fact may misuse the evidence in a way that will prejudice a party’s fair trial. In this case there is nothing to suggest, in my opinion, that there is any risk that the evidence could be misused in that way and there is no occasion, in my opinion, to exercise the discretion given in s 135(a).

137              For those reasons, the evidence which is referred to in the notice of motion will be admitted, subject to any other exceptions apart from those that relate to s 131(1) and s 135(a).

Associate:

Dated: 17 March 2011