Hera Resources Pty Ltd v Gekko Systems Pty Ltd

By a notice of motion filed on 12 October 2018, the plaintiff, Hera Resources Pty Ltd (Hera), seeks rulings pursuant to s 192A of the Evidence Act 1995 (NSW) (the Act) in relation to the admissibility of two documents at the trial of this matter. One document is a letter dated 26 October 2016 from the defendant, Gekko Systems Pty Ltd (Gekko) to Hera (the 26 October Letter). The other is a report dated 25 October 2016 prepared by Mr Brian Putland of Orway Mineral Consultant (WA) Pty Ltd for Gekko (the OMC Report) that was provided to Hera with the 26 October Letter.

It is common ground that it would be appropriate for the Court to make advance rulings on the admissibility of the two documents. Gekko contends that neither document is admissible. In the case of the 26 October Letter, it contends that the communication is privileged from production under s 131 of the Act (relating to without prejudice privilege). In the case of the OMC Report, it contends the report is privileged under s 131 or alternatively under ss 118 or 119 (relating to client legal privilege).

The proceeding concerns a gold processing plant and associated infrastructure that Gekko agreed to design and construct for Hera at Hera’s tenement in Nymagee, New South Wales in accordance with an agreement dated 9 May 2013 (the EPC Contract). Hera claims that the plant is defective in a number of respects and claims damages for breach of contract and misleading and deceptive conduct in respect of those defects.

Clause 20.2 of the EPC Contract sets out the procedure to be followed by the parties in the event of a dispute. Relevantly, it requires service of a “Dispute Notice” and provides that the parties’ managing directors must confer at least once to resolve the dispute within 20 Business Days (as defined) of the receipt of a Dispute Notice. If the dispute is not resolved, the clause requires the dispute to be referred to mediation. If the dispute is not resolved within a further 40 Business Days or the mediation does not take place within that time, either party may give notice referring the dispute to arbitration or may commence court proceedings.

On 4 May 2015, Hera sent Gekko a letter identifying what it said were a number of defects with the plant. It sent a further letter on 13 May 2015 identifying some additional defects.

Gekko responded to the letter dated 4 May 2015 by letter dated 25 May 2015. The response was stated to be “Without Prejudice”. It sought additional information and stated that following the provision of that information it would like to visit the site to ensure that the plant was running in accordance with its recommendations and to obtain an ore sample for testing.

Hera replied to that letter in an (open) letter dated 5 June 2015 giving some of the information sought and denying other information was relevant.

On 30 June 2015, Gekko sent Hera a “Technical Note” dated 29 June 2015 which was marked “Without Prejudice”. The note commented on a number of the defects raised by Hera in light of the additional information Hera had provided. The covering email stated:

On 16 July 2015, Hera sent Gekko an (open) letter commenting on the Technical Note and stating that the letter also served as a Dispute Notice under the EPC Contract.

There was some further correspondence between the parties in July and August 2015. Then, for reasons not explained in the evidence, nothing further happened until May 2016.

On 31 May 2016, Hera sent Gekko a letter marked “Without Prejudice”. The letter referred to previous correspondence between the parties and stated that Hera maintained its position in relation to Hera’s claim. The covering letter concluded:

Following that letter, there was a discussion between representatives of Hera and Gekko in relation to a number of issues, including the issues the subject of the Dispute Notice. Following those discussions, Hera sent Gekko an email on 24 June 2016 which was expressed to be “Without Prejudice”. It relevantly stated:

Gekko responded to that email on 1 July 2016. Again, the email was marked “Without Prejudice”. The email relevantly stated:

Hera responded to that email on 21 July 2016 stating that its position was that it was free under cl 20.2 to commence court proceedings or arbitration at any time.

The 26 October 2016 Letter is a response to Hera’s letter dated 31 May 2016. The letter is not marked “without prejudice”. As I have explained, it included a copy of the OMC Report. On the basis of that report, the letter took issue with Hera’s claims. However, it concluded:

Hera responded to that letter on 27 October 2016. The response is not expressed to be “without prejudice”. The response stated that the OMC Report was fundamentally flawed. Under the heading “Next Steps” it states:

On 9 December 2016, Gekko made a without prejudice offer.

The relevant provisions of the Act in relation to client legal privilege are ss 118, 119 and 122. Section 118 of the Act provides:

Section 119 of the Act relevantly confers client legal privilege on confidential communications between a client and another person or between a lawyer acting for the client and another person for the dominant purpose of legal proceedings. It was not suggested during the course of argument that it raised any substantively different issues to those raised by s 118 in the present context. Consequently, it can be put to one side, on the basis that any conclusion in relation to s 118 applies equally to it.

Section 122 of the Act sets out circumstances in which the privilege conferred by s 118 will be lost. It relevantly provides:

Section 131(1) of the Act deals with without prejudice privilege. It relevantly provides:

As s131(1) makes clear, in order to attract the privilege, a communication or document must be made or prepared “in connection with an attempt to negotiate a settlement”. The connection must be a direct one. An indirect connection is not sufficient. However, it is not necessary that the communication itself make an offer or that it be directed at achieving a compromise. It is sufficient if the communication or document is directed at arranging or bringing about a settlement: see Galafassi v Kelly [2014] NSWCA 190 at [115]ff per Gleeson JA. It is not necessary that the communication or document be described as “without prejudice”, nor is it conclusive if it is. However, the fact that the parties have described a communication as “without prejudice” is some evidence that it is made in connection with an attempt to settle a dispute: id at [122].

In my opinion the claim that the OMC Report is the subject of a claim for client legal privilege must be rejected for two reasons.

First, it cannot be said that that report was brought into existence for the dominant purpose of obtaining legal advice (or conducting legal proceedings). In a letter dated 8 July 2016 from Gekko to Mr Putland, Gekko describes the purpose of the report in these terms:

Second, in my opinion, Gekko waived privilege in the report by voluntarily providing a copy of it to Hera. It may be that disclosure to Hera of the report in the course of settlement negotiations can be described as disclosure “in the course of making a confidential communication” so as to attract the exception to waiver contained in s 122(5)(a)(i) of the Act, even if the report was not prepared in connection with an attempt to negotiate a settlement of a dispute (so as to attract the privilege in s 131). But in that case, maintenance of the privilege stands or falls on whether it can be said that the communication constituted by the 26 October Letter and the OMC Report was made in connection with an attempt to negotiate a settlement of the dispute. Client legal privilege would not provide an independent ground of privilege irrespective of the outcome of the contention that the 26 October Letter attracted without prejudice privilege.

In my opinion, there is not a sufficiently close connection between the 26 October Letter and the OMC Report and any attempt to negotiate a settlement of the dispute for the letter and report to attract the privilege conferred by s 131 of the Act.

The letter and report were not themselves directed at an attempt to negotiate a settlement of the dispute. Nor were they provided as part of some process agreed between the parties to negotiate a settlement of the dispute. Rather, they were a substantive response to Hera’s Dispute Notice and the material that Hera had provided to Gekko in support of its Dispute Notice and the underlying claims that were the subject of that notice. The purpose of the letter and report was to set out Gekko’s position in relation to those claims. In doing so, they provided the context in which settlement discussions could occur and settlement offers could be evaluated. They were also no doubt intended to lower Hera’s expectations in relation to any settlement. However, they were not themselves directed at achieving a settlement. The fact that they provided a context in which settlement offers could be made and evaluated is not a sufficiently direct connection between the letter and the report and any attempt to reach a settlement in the light of that communication and document to attract the privilege conferred by s 131.

That position is not altered by the fact that the parties chose to describe some of their communications leading to the 26 October Letter as “without prejudice”. Nor is it altered by the fact that some of the correspondence refers to the possibility of without prejudice discussions once the information had been provided. That does not alter the fact that information was exchanged as a means of crystallising the dispute and providing the context in which the discussion could occur. At most, that part of the correspondence referring to proposals for without prejudice discussions would attract the privilege: see Gladio Pty Ltd v Buckworth [2015] NSWSC 922 at [364] per McDougall J.

It follows that orders substantially in the terms sought by Hera should be made. The claim for privilege as advanced during the course of the argument was somewhat broader than that anticipated by Hera’s motion. Gekko’s claim for client legal privilege was based on both ss 118 and 119 of the Act; and it made a claim for privilege based on s 131 of the Act in respect of both the 26 October Letter and the OMC Report. The orders I propose to make reflect that.

Hera was successful in its application for a ruling that it is entitled to rely on both documents at the trial. There is no reason in those circumstances why it should not have the costs of its motion.

It follows that the orders of the Court are: