Australia: Non-assistance clauses in settlement agreements in light of Commonweath v Sanofi

Last Updated: 2 October 2017
Article by Mathew Deighton, Joey McKenzie and Alice Blackburn

IN BRIEF - TAKE CARE WHEN DRAFTING NON-ASSISTANCE CLAUSES

Can a non-assistance clause in a settlement agreement prohibit witnesses from voluntarily assisting other litigants to a proceeding? The recent decision in Commonwealth of Australia v Sanofi (formerly Sanofi-Aventis) [2017] FCA 382 has thrown doubt on to the enforceability of such clauses, particularly in circumstances where the effect of the clause would restrict witnesses from discussing evidentiary matters with the remaining parties to the proceeding.

In multi-party disputes, it is common for a number of parties to settle their dispute prior to trial. Clauses restricting the settling party from assisting other parties to the proceeding are often included in settlement deeds. However, in Commonwealth v Sanofi, the Federal Court of Australia held that a clause contained in a settlement agreement, which prohibited witnesses from assisting another litigant to the proceedings, was unenforceable on the basis that the clause interfered adversely with the administration of justice.

COMMONWEALTH SEEKS DECLARATIONS TO RENDER NON-ASSISTANCE CLAUSE, AMONG OTHERS, UNENFORCEABLE

The proceedings concerned the revocation of a patent held by pharmaceutical conglomerate, Sanofi, relating to the anticoagulant drug, clopidogrel.

Apotex commenced proceedings against Sanofi to revoke the patent. Sanofi cross-claimed against Apotex for patent infringement. Sanofi was successful in its cross-claim and obtained interlocutory injunctive relief restraining Apotex from infringing the patent, until the matter was finally determined. In succeeding in the interlocutory relief, Sanofi was required to provide the usual undertakings as to damages.

Upon final determination of the proceedings, Apotex was ultimately successful in obtaining the revocation of the patent.

Apotex and the Commonwealth respectively sought damages against Sanofi, pursuant to the usual undertaking provided in relation to the cross-claim. However, prior to the hearing to determine damages, Apotex and Sanofi entered into a Deed of Settlement (Deed) discontinuing Apotex's claim for damages and leaving the Commonwealth as the sole claimant.

Following the execution of the Deed, the Commonwealth's attempts to interview Apotex witnesses proved futile. The Commonwealth sought declarations rendering a number of clauses within the Deed unenforceable, including Clause 6, which operated to preclude Apotex witnesses from voluntarily assisting the Commonwealth, in respect of the Commonwealth's claim for compensation.

FEDERAL COURT FINDS NON-ASSISTANCE CLAUSE TO BE UNENFORCEABLE

Clause 6 relevantly provided:

6. ASSISTANCE TO OTHERS
Otherwise than by compulsion of law, the Applicants agree not to voluntarily assist in any way or encourage:
a) the Commonwealth in relation to the Commonwealth Compensation Claim by way of waiving any claim for legal professional privilege that any or all of the Applicants may have, or releasing any third person from any obligation of confidence in respect of information relevant to the Commonwealth Compensation Claim or the Apotex Compensation Claim, or by the provision of documents.

In its submissions, the Commonwealth argued that the clause if enforced, would hinder the Commonwealth's preparations for the final hearing by preventing the Commonwealth's legal representatives from interviewing witnesses who it may wish to call.

Nicholas J held that the clause was unenforceable on the basis that it was contrary to public policy and had a tendency to adversely affect the administration of justice.

In considering the purpose, scope and operation of the clause, His Honour observed that:

  1. a witness is not property,
  2. a party cannot prevent a witness from giving evidence in legal proceedings, and
  3. there is a public interest in allowing legal representatives to meet with and interview witnesses of fact before they are required to give evidence at a trial. A party may be held in contempt if it prevents or hinders the opposite party's attempts to identify and interview potential witnesses.

His Honour held (at [82]) that the clause had a "strong prosperity [sic] to prevent or hinder the Commonwealth's legal representatives' efforts to interview the Apotex witnesses and discuss with them matters relevant to the issues in this proceeding prior to them giving their evidence".

Critically, however, whilst His Honour was satisfied that the clause was unenforceable in so far as it related to the Commonwealth's claim, His Honour was not satisfied that it was contrary to public policy in so far as it prevented Apotex from waiving legal professional privilege or providing documents.

His Honour noted (at [83]) that: "Litigation is usually conducted on the assumption that one party will not assist an opposing party by voluntarily waiving legal professional privilege or voluntarily providing documents unless the first party is of the view that it is in its interests to take either of those steps." His Honour also reiterated that it was a matter for each of the Apotex witnesses to decide whether he or she wished to be interviewed by the Commonwealth's lawyers.

ISSUES TO CONSIDER WHEN DRAFTING NON-ASSISTANCE CLAUSES

This decision highlights the necessary care and consideration that must be taken into account when drafting settlement agreements for proceedings, especially in circumstances where there is more than one claimant.

In multi-party proceedings, where one party wishes to settle prior to the final determination of the proceedings, it is prudent to include a "non-assistance" clause restricting the other side from assisting the remaining litigants. However, the following considerations should be taken into account when drafting:

  1. Will the clause prevent or hinder the remaining litigants' (or their legal representatives) attempts to interview witnesses on evidentiary matters in relation to the issues in dispute?
  2. Are the rights of third parties unnecessarily affected?
  3. Does the clause adversely and unnecessarily interfere with the administration of justice?

Mathew Deighton
Commercial litigation
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Mathew Deighton
Alice Blackburn
 
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