Dispute Resolution Senior Associate, Ben Hartley, looks at the decision in ACCC v Allphones Retail Pty Ltd (No. 3) in which the Federal Court ruled on whether certain documents, created for a dispute resolution process, where admissible in evidence and whether such documents could be ‘used’ in the proceedings.

The Australian Competition and Consumer Commission (the ACCC) commenced three sets of proceedings against Allphones Retail Pty Ltd (Allphones) and in two of those proceedings, against certain executives of Allphones. The ACCC alleged that Allphones had engaged in misleading and deceptive conduct and unconscionable conduct contrary to the provisions of the Trade Practices Act 1974. By notice of dispute dated 29 August 2008 – at which time only when only one of the ACCC’s proceedings had been issued - Allphones commenced a dispute resolution procedure with its franchisees pursuant to the Franchising Code of Conduct. Importantly, Allphones engaged BDO Kendalls (BDO) to prepare investigative accountant’s reports (and calculations) for the purpose of the dispute resolution procedure commenced by it. The ACCC was provided with copies of the material prepared by BDO (two reports and a supporting calculations document), but on a without prejudice basis for the purpose of the dispute resolution procedure commenced by Allphones (with the ACCC having been invited to participate in the mediation). The ACCC was prepared to accept that the documents were provided to Allphone’s franchisees on a confidential and without prejudice basis, but they were not prepared to accept that they were provided to it on that basis. The parties could not agree on the ‘use’ of the documents in the three proceedings and accordingly the ACCC requested that the court make certain rulings on the admissibility and use of the BDO documents.

The ACCC sought to argue that the two BDO reports and the supporting calculations were business records of Allphones and BDO and were therefore admissible pursuant to section 69 of the Evidence Act 1995 (Cth) (the Evidence Act). Further, the ACCC submitted that Allphones had failed to prove that the documents fell within either subsections (1)(a) or (1)(b) of section 131 of the Evidence Act. Allphones rejected these submissions saying that it had proven the facts necessary to engage section 131(1) of the Evidence Act and it was the ACCC that had failed to bring the case within the exceptions to confidentiality found in section 131(2). Relevantly, section 131(1) of the Evidence Act states:

131 Exclusion of evidence of settlement negotiations

  1. Evidence is not to be adduced of:
  1. 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
  2. a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute.

Section 131(2) sets out a number of instances where section 131(1) will not apply, for example, if the substance of the evidence has been disclosed with the express or implied consent of all the persons in dispute.

As the first BDO report was obtained by Allphones for the purpose of negotiating and mediating its disputes with its franchisees Justice Foster held that this document fell within section 131(1) (b) and as such the document was not to be tendered. His Honour referred to the oft quoted joint judgment in the High Court of Field v Cmr for Railways for NSW where their Honours commented on the purpose of without prejudice communications:

The purpose is to enable 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. The law relieves them of this embarrassment so that their negotiations to avoid litigation or settle it may go unhampered.

While the High Court was referring to the common law in its judgment in Field, the rationale underpinning section 131(1) is identical, though use of the words, ‘in connection with’ in this section may in fact extend the privilege over and above the common law. In any event, the ACCC did not invoke any of the exceptions to section 131(1) as set out in section 131(2), choosing instead to argue that the first BDO report was prepared for mixed purposes, namely use in court and not simply for the dispute resolution procedure invoked by Allphones. This submission was rejected by Justice Foster. In addition, his Honour also held that he need not decide whether the first BDO report was a business record on the basis of section 69 of the Evidence Act without the authors of the report being called to prove that document.

In relation to the second BDO report and supporting calculations, the ACCC sought to argue that these documents were provided for the sole purpose of complying with certain undertakings given to the court by Allphones in the proceedings and therefore they could not be privileged by reason of section 131(1) of the Evidence Act. Justice Foster rejected this argument stating that Allphones had committed to providing these documents to its franchisees prior to the undertakings being given, with the undertakings also facilitating provision of the documents to the ACCC. The logical corollary is that the undertakings were not the source or reason for the document’s creation and thus his Honour found that the second BDO report and the supporting calculations were protected by reason of section 131(1)(b). Further, the language of section 131(1) did not encapsulate a sole (or dominant) purpose test. However, as the provision of the second BDO report and the supporting calculations to the ACCC were made under the guise of an order of the court, these documents were subject to an implied undertaking as to confidentiality. Accordingly, as it was likely that that the evidence in one proceeding was to be the evidence in all proceedings, his Honour was prepared, on the basis of the implied undertaking, to grant leave for the ACCC to ‘use’ the second BDO report and the supporting calculations for the purposes of all three proceedings. The concept of ‘use’ was not discussed by his Honour, although it is clear that ‘use’ was to be distinguished from admissibility and as such the documents could be used, provided that their use did not breach the privilege attaching to them.

The decision is important as it demonstrates the importance the court is prepared to place on the public policy rationale underpinning the without prejudice privilege. In this case, the documents created for and on behalf of Allphones for the purposes of a dispute resolution procedure were keep confidential to the extent that they were not admissible in the three proceedings commenced by the ACCC. The decision is also encouraging in circumstances where a commercial party has actively sought to engage a regulator in a dispute resolution procedure and provided it with documents to be used for the purposes of settlement; it would be contrary to the rationale underpinning the without prejudice privilege and codified in section 131(1) of the Evidence Act, for a regulator to subsequently seek to tender those documents as being admissible under the Evidence Act. Had the decision been otherwise, commercial parties would have been discouraged from actively engaging with regulators for the purposes of resolving disputes and at the cost of a greater use of the resources of the court. Finally, the decision underscores the care that needs to be taken when producing documents for the purposes of dispute resolution procedure, more so if the documents are to be provided to a third party.