Update, 9 August 2010: See also Forsyth v Sinclair (No 2)  VSCA 195 where Justices of Appeal Neave and Redlich and Acting Justice of Appeal Habersberger held that the Evidence Act, 2008‘s ‘relevant to costs’ exception to the s. 131 rule that without prejudice communications are inadmissible is trumped by the Supreme Court Act, 1986 provision that anything said or done at a Court-ordered mediation may not be adduced in evidence. So, one party’s counsel said to another at the mediation that the very costs consequences which the Court ended up making would flow if the other party did not accept an offer. That was relevant to the question of costs, but it was inadmissible because of s. 24A of the Supreme Court Act, 1986.
Original post: In Alexander v Australian Community Pharmacy Authority (No 2)  FCA 467, a judge of the Federal Court in Melbourne admitted a ‘without prejudice’ letter (which was not expressed to be ‘without prejudice except as to costs’) into evidence at a post-trial costs hearing. His Honour noted that the parties paid no attention in argument to the Evidence Act, 2005 (Cth) which governed the issue, and that communications which otherwise attract negotiation privilege are admissible if they are relevant to costs. Victorian lawyers are obviously going to have to get used to the new regime, because the Evidence Act, 2008 (Vic.) is to the same effect. Based on this decision in relation to legal professional privilege (now called ‘client legal privilege’ at least in those circumstances where the Evidence Act, 2008 applies), it is likely that the new regime will apply to the adduction even of letters written prior to the commencement of the new Act. Treat every without prejudice letter as a Calderbank letter, in other words.
The Evidence Act, 2008 and its Commonwealth correlate applies to the adduction of evidence in courts and tribunals which are bound by the rules of evidence. VCAT is not such a tribunal, and so the Evidence Act, 2008 does not govern whether objection may be made successfully to the adduction into evidence at VCAT of a communication which is said to be protected by negotiation (or ‘without prejudice’) privilege, or legal professional privilege (referred to as ‘client legal privilege’ in the Evidence Act, 2008). VCAT, supposedly that paragon of modernity, misses out on the hyper-modernity of the new Evidence Regime’s tweaking of the law of privilege by virtue of the fact that it is not bound by the laws of evidence. And if a regulator like the Legal Services Commissioner is compelling the production of documents, it is the common law privileges which fall for analysis, not their Evidence Act, 2008 equivalents.
Hiding away in the Evidence Act, 2008 is an exception to the codified version of without prejudice privilege in s. 131(1). Sub-section (2)(h) provides that the privilege does not apply if ‘the communication or document is relevant to determining liability for costs’. Of course it has long been accepted that parties may communicate on a ‘without prejudice except as to costs’ basis. Offers other than formal rules of court offers written on such a basis are referred to as ‘Calderbank offers’ or ‘Calderbank letters’ after the case of Calderbank v Calderbank  2 All ER 333. But is there a distinction between plain old ‘without prejudice letters’ and ‘without prejudice except as to costs’ communications in so far as s. 131 of the Evidence Act, 2008 governs whether the communication can be adduced into evidence in a court or tribunal bound by the laws of evidence?
An application for administrative law review failed, and there was a hearing on costs. The unsuccessful applicant had written a without prejudice letter to one of the respondents. It was not expressed to be ‘without prejudice except as to costs’. Unusually, the recipient of the letter sought to adduce it into evidence on the costs hearing. The unsuccessful applicant had referred to the letter in submissions, not provided a copy to the Court, but set out selectively a passage for what it said was a permissible purpose, namely establishing that the a particular argument had been foreshadowed before trial. In doing so, the unsuccessful applicant had not disclosed what offer had been made by the letter. The respondents sought to have the Court read the whole letter. The applicant objected. Justice Tracey said:
’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  FCA 1605 at . 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 .
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)  FCA 1294 at – ; 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 …: see ss 55 and 56 of the Act. [The Court] is not constrained from examining and having regard to the full contents of the letter by any “without prejudice privilege”.’
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