Can a settlement agreement stop a witness assisting another party to litigation?

What you need to know 

• When settling a dispute with only one of multiple parties, it is common to include a "non-assistance" clause that restricts the settling party from assisting other parties to the dispute. 
• Recent cases indicate that professional conduct rules, public policy and case management considerations may limit the enforceability of such a clause, especially where it would have the effect of preventing a witness from discussing relevant evidence with remaining parties to the litigation.
• That said, obligations under a settlement agreement that prevent a waiver of legal professional privilege or the voluntary provision of documents to other parties are likely to be upheld by a court.

What you need to do 

When preparing a settlement agreement that includes a "non-assistance" clause, you should carefully consider:  

• the information that the clause is intended to protect;
• the extent of any obligations of confidentiality; 
• whether and to what extent the rights of third parties are affected by the clause; and 
• whether the clause has a tendency to adversely and unnecessarily interfere with the administration of justice (eg preventing or discouraging legal representatives of parties to criminal or civil proceedings from meeting with and interview witnesses or prospective witnesses). 

Background

In the recent decision of Commonwealth v Sanofi [2017] FCA 382, the Federal Court considered an application by the Commonwealth arising out of patent litigation over pharmaceutical products containing clopidogrel bisulphate, an anti-clotting compound claimed in a patent owned by Sanofi.

Pharmaceutical manufacturer Apotex commenced proceedings against Sanofi to revoke Sanofi's patent. Sanofi cross-claimed alleging patent infringement and obtained an interlocutory injunction restraining Apotex from infringing the patent. As a condition of obtaining interlocutory relief, Sanofi gave the usual undertaking as to damages.

After Apotex successfully revoked Sanofi's patent, and Sanofi's infringement claim failed, each of Apotex and the Commonwealth claimed compensation from Sanofi pursuant to the usual undertaking as to damages. In advancing its claim, it became apparent that the Commonwealth would seek to rely on witnesses that were employees of Apotex to be called in support of Apotex's compensation claim.

Apotex later discontinued its compensation claim with Sanofi's consent pursuant to the terms of a settlement deed, leaving the Commonwealth as the sole claimant against Sanofi.

Key terms of settlement

The settlement deed between Apotex and Sanofi contained the following "non-assistance" clause:

The deed also set out a number of confidential matters, and prevented the parties from taking any action to interfere with the performance or undermine the purpose of the settlement deed.

Federal Court decision

Following a number of declined requests to interview Apotex witnesses, the Commonwealth sought a declaration that several clauses of the settlement deed were unenforceable by Sanofi against Apotex and an injunction restraining Sanofi from enforcing those clauses.

Justice Nicholas of the Federal Court declared that clause 6 of the settlement deed had a tendency to interfere adversely with the administration of justice and was unenforceable in so far as it:

• related to the Commonwealth's compensation claim against Sanofi; and
• prevented Apotex from releasing any witness or prospective witness from any obligation of confidence in respect of information relevant to that claim.

In reaching this conclusion, four considerations were particularly relevant: 

• The settlement deed was entered when the Commonwealth's compensation claim was well-advanced, and both parties to the deed would have been aware that the Commonwealth would seek to rely on the evidence of Apotex witnesses.
• The witnesses' evidence was likely to relate to Apotex's confidential business plans, which were directly relevant to the Commonwealth's compensation claim, and Apotex witnesses would likely be unable or unwilling to discuss these matters without Apotex's consent.
  The settlement deed expressly stated that clause 6 was of "fundamental importance" to the deed. 
• The primary purpose of clause 6, in so far as it related to obligations of confidentiality, was to prevent or hinder any attempt by the Commonwealth's lawyers to interview Apotex witnesses and discuss matters relevant to those witnesses' affidavit evidence.  

The Court was not persuaded that the remainder of clause 6 was contrary to public policy, including in so far as it prevented Apotex from waiving legal professional privilege or providing documents to the Commonwealth. The Court also declined to express a view on the enforceability of clause 6(b) in relation to other third party claimants.

The Court reiterated that it is for each Apotex witness to decide whether to consent to be interviewed by the Commonwealth's lawyers, and reminded the parties' lawyers of their professional obligation to comply with Rule 23.1 of the Australian Solicitors' Conduct Rules:

Although this was a first instance decision of the Federal Court, the period within which a notice of appeal must be filed has now expired.

Implications for drafting settlement documents

Although checklists and suites of precedent clauses are very useful, there are a number of common issues to consider when settling complex disputes. These include the scope of the release and any indemnity, the impact of multiple parties or proceedings, the presence of cross-claims or proportionate liability issues, tax implications and the effect on third parties. You should seek to include clauses that effectively deal with any complexities and ensure that your company's interests are adequately protected.

When settling a dispute with only one of multiple parties, it is prudent to seek to include a clause that, to the extent possible, restricts the other side from assisting remaining litigants or third parties in current or anticipated proceedings. However, recent cases indicate that professional conduct rules, public policy and case management considerations may limit the enforceability of such a clause, especially where it has the purpose or effect of unjustifiably preventing the remaining parties from interviewing a witness in relation to the issues in dispute.

While courts will exercise "extreme caution and reserve" before finding an agreed clause void or unenforceable, the authorities delineate the circumstances in which a court might intervene. As Beazley JA helpfully summarised in Richards v Kadian (2005) 64 NSWLR 204, whether an obligation of confidentiality is unenforceable

Recent decisions in the Supreme Court of Victoria demonstrate that this balancing of competing public interests may result in different outcomes, especially during pre-trial stages of proceedings:

• In Johnson v AED Oil Ltd [2011] VSC 94, a settlement deed in proceedings that involved proportionate liability and contribution claims provided that certain defendants would not act against the plaintiff's interests save as compelled by law. Those defendants sought declarations that the settlement deed did not prevent them from participating in a pre-trial conference with lawyers for another defendant excluded from the settlement in order to prepare a witness statement. Justice Sifris held that, while there would be some minimal disruption to the conduct of the trial, it would not adversely interfere with the administration of justice so as to warrant a waiver of the obligation.
• In AS v Minister for Immigration and Border Protection & Ors (Ruling No 6) [2016] VSC 774, the Commonwealth joined Serco Australia as a third party in a class action against the Commonwealth. The plaintiff's lawyers, Maurice Blackburn, applied for an order that a Serco employee be relieved of obligations of confidentiality under his employment contract with Serco for the purpose of conferring with them in respect of the class action proceedings. Justice Forrest held that the administration of justice would be adversely affected if the plaintiff's lawyers were denied access to the Serco witness, and expressly referred to the overarching purpose of the Civil Procedure Act 2010 (Vic) to facilitate 'the just, efficient, timely and cost-effective resolution of the real issues in dispute' (see sections 7, 48 and 49).

When preparing a settlement document, lawyers must also keep in mind their paramount duty to the court to further the administration of justice in relation to any civil proceeding.

Finally, it is worth noting that:

• The right to interview a witness and call evidence in court does not ordinarily permit or require witnesses to breach confidentiality obligations other than in the giving of evidence. Courts will therefore be reluctant to override such obligations during pre-trial stages of litigation.
• Even if a party is unable to enforce clauses that have the purpose or effect of preventing witnesses from giving evidence, the decision in Commonwealth v Sanofi indicates that a court may enforce a clause that prevents witnesses from waiving legal professional privilege and voluntarily providing documents (ie unless compelled by law).

Authors: Angus Ross, Partner; James Clarke, Senior Associate; and Matthew Taylor, Lawyer.