In brief - NSW Supreme Court allows disclosure of privileged documents prepared for the purpose of settlement negotiations
The recent decision in Martin Patrick Dowling v Ultraceuticals Pty Ltd  NSWSC 386
to allow disclosure of privileged documents prepared for the purpose of settlement negotiations in subsequent proceedings illustrates a situation where the Court did not find a sufficient connection between the subject matter of the original dispute and the subsequent dispute so as to warrant the preservation of the privilege.
Privilege extends where a sufficient connection between the original and subsequent disputes exists
As a matter of policy, the law excludes from evidence admissions by words or conduct made by parties in the course of negotiations to settle litigation (also known as "without prejudice privilege"). The purpose of this is to enable parties engaged in an attempt to settle litigation to communicate freely with each other and without the prejudice that might be caused to them if the negotiations fail and their communication is later used in evidence against them.
As Lord Griffiths stated in Rush & Tompkins Ltd v Greater London Council  UKHL 7
, to abolish "without prejudice privilege" would "place a serious fetter on negotiations between other parties if they knew that everything that passed between them would ultimately have to be revealed to the one obdurate litigant" (1989 AC 1280, at ).
"Without prejudice" privilege extends to prevent disclosure of communications to third parties in a subsequent dispute, provided that there is a sufficient connection between the subject matter of the original dispute and the subsequent dispute. This can include cases where:
- the litigation has a connection with the same subject matter as the negotiations
- the negotiations and the litigation arise out of the same subject matter and the negotiations and settlement are of potential relevance to subsequent litigation
- the subject matter of the settlement discussions is substantially the same as the subject matter of the legal proceedings
- the subject matter of the negotiation does not differ from that of the proceedings
Ultraceuticals' subpoena produces documents relating to earlier dispute
In the course of the subject proceedings, a defendant, Ultraceuticals Pty Limited, issued a subpoena to Star Car Wash Café Holdings Pty Limited (Star) for the purpose of obtaining documents said to be relevant to Ultraceutical's cross-claim. The documents the subject of the subpoena included those that were prepared for the purpose of settlement negotiations of an earlier dispute involving Mr Dowling (the plaintiff and cross-defendant), Ofer (a company associated with Mr Dowling) and Star. That dispute related to alleged irregularities in loan accounts maintained between Mr Dowling and Star.
Mr Dowling sought to avoid production of the documents on the grounds that they were the subject of without prejudice privilege.
Justice Hammerschlag found that the subject matter of the dispute between Mr Dowling and Ultraceuticals was sufficiently different to the dispute between Star, Ofer and Mr Dowling so as to vitiate the operation of any without prejudice privilege that might otherwise have inhered in the documents. Ultraceuticals was a third party, involved in different litigation – litigation which did not have a sufficient connection with the subject matter of the original settlement negotiations.
Does the party resisting disclosure have a legitimate expectation of privilege?
In reaching this conclusion, his Honour stated that the Court, when confronted with such a situation, must assess (amongst other things) whether the party resisting disclosure would have had a legitimate expectation that the material brought into existence for the purposes of settling the earlier dispute would not be used against it in the later dispute.
His Honour relevantly stated:
Dowling and Ofer could have had no legitimate expectation of protection from disclosure of material which becomes relevant to the second dispute, only because it is alleged that it falsifies statements separately made by them in a different context. Extending protection in such circumstances would encourage dishonesty, not candour, in settlement discussions.
Judge finds that documents were sought to establish dispute's objective facts
Additionally, Justice Hammerschlag referred to the High Court decision in Field v Commissioner for Railways (NSW)  HCA 92
in which the High Court observed that without prejudice privilege is not concerned with objective facts that may be ascertained during the course of negotiations. Instead, it is concerned with the use of the negotiations or what is said in the course of them as evidence by way of admission.
In this regard, his Honour found that the documents were sought to establish the objective facts of the Star dispute and not the correctness of either parties' stance. Therefore it can be inferred that his Honour did not consider the documents to be the subject of without prejudice privilege even in the context of the earlier dispute.
Important points about without prejudice communications and settlement negotiations
- The onus of establishing without prejudice privilege rests on the party claiming it.
- Without prejudice prevents admission into evidence of settlement negotiations between parties when litigation between them is in contemplation.
- The policy underlying without prejudice privilege is to enable free communication without the embarrassment that might be imposed if the communication was subsequently put into evidence.
Without prejudice privilege extends to cover disclosure to third parties in a subsequent dispute, provided there is sufficient connection between the subject matter of the disputes.
In such circumstances, the Court must assess not only the nature of the connection of the disputes to determine whether the criteria for maintaining the privilege will be served by protecting disclosure, but also whether the party resisting disclosure would have had a legitimate expectation that the material brought into existence for the purposes of settling the earlier dispute would not be used against it in the later dispute.
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