Chan Shu Gar and Others v. Chan Bo Hing

Case No.CACV 23/1969

Court

Court of Appeal

Date04 Dec 1969

Judge—

Case Document

100%Judiciary

CACV000023/1969

IN THE SUPREME COURT OF HONG KONG

APPELLATE JURISDICTION

CIVIL APPEAL NO. 23 OF 1969

(On Appeal from O.J. Action No.1219 of 1966)

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BETWEEN
	CHAN SHU GAR, CHAN SHU PARK and CHAN SHU YUN	Appellants (Plaintiffs)
	AND
	CHAN BO HING	Respondent (Defendant)

Coram: Hogan, C.J. & Huggins, J.

Date of Judgment: 4 December 1969

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JUDGMENT

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Hogan, C.J.:

1. This is an appeal against the refusal by a judge to enter judgment under the provisions of Order 27 rule 3, which enables application to be made by summons for judgment on admissions made by a party to an action.

2. The writ in the case was endorsed with a claim for money said to have been received by the defendant to the use of the plaintiff and for an account. An appearance was entered but before a statement of claim had been filed the application for judgment was made. The reasons for the judge's refusal are expressed in the following paragraph of his decision:-

I think it is clear from the correspondence that at one stage in the negotiations the defendant agreed that she was liable to the plaintiffs for $1.6 million; and, if that had been the whole agreement, this court would not have been precluded from acting upon her admission although the negotiations had been initiated by letters written 'without prejudice'. But I do not think that the defendant's admission of liability for the sum of $1.6 million can be looked at in isolation. From the beginning she made it perfectly clear that any admissions by her could not be used for any purpose in this action. What she agreed to was that the terms of settlement should be embodied in a written agreement and that this action should be withdrawn. I do not think that this is a case in which I should give judgment to the plaintiffs for the specific sum of $1.6 million.".

3. There has been some argument before us as to the precise meaning of this paragraph. Counsel for the defendant says that, on the application for judgment, he argued that the plaintiff was relying on admissions alleged to be contained in correspondence exchanged "without prejudice" and, therefore, that the judge could not refer to or rely on this correspondence for the purpose of entering a judgment under Order 27 rule 3; but that the judge did not rule directly on this submission; instead, he looked at the correspondence in question and, having come to the conclusion that it did not reveal an admission sufficiently clear to justify the entry of judgment at that stage, decided to exercise the discretion conferred upon him by Order 27 and, in the exercise of that discretion, refused the application. On this aspect of the case, Mr. Ching for the plaintiff says that the judge's construction of the correspondence and actions of the parties is erroneous; that there was a clear, unfettered and unconditional admission which would have justified entering judgment and that such judgment should have been entered. Consequently, the defendant has put in the forefront of his arguments the contention that the plaintiff has not begun to show that the discretion of the judge was wrongly exercised and that in the circumstances it is not necessary to go further and uphold his original contention, left undetermined by the judge, that the correspondence relied upon was protected by the usual privilege attaching to negotiations made "without prejudice" and should not have been made the basis of the application in question.

4. Reliance by the defendant, even in the alternative, on his original contention about the exclusion of the correspondence might have been open to the objection that no notice has been given under Order 59 rule 6(2), but it is unnecessary to decide this or to consider the exercise of the discretion conferred on the appellate court by Order 59 rule 6(3), because Mr. Ching, with a characteristic desire to get to the heart of the matter and avoid any unnecessary technicality, agreed to waive the point and to treat the issue as open to the respondent. It seems to me desirable to deal with it both because of its intrinsic importance and because it would otherwise remain open to argument at the trial of the case with the possibility of another appeal on it at a later date.

5. Mr. Ching contends that the ordinary rule precluding reliance on correspondence or negotiations opened "without prejudice" has no application here because the negotiations resulted in a complete agreement, which removes the privilege and enables either party to rely on the agreement, the terms of which can, if necessary, be discovered from the correspondence and negotiations initiated "without prejudice". As part of the argument against that contention, Mr. Mills-Owens maintains that the negotiations proceeded on the basis that the present action should be withdrawn and that this was a condition precedent to the formation of any agreement implying liability by the defendant. Mr. Ching replies that if there was any such condition or term, it was merely that the proceedings would be withdrawn, not prior to the agreement being made and, if necessary, reduced to writing and signed by the parties, but after these steps had been taken; consequently, as the defendant has refused to sign the agreement, the terms of which the plaintiff says were clearly settled and accepted by the legal advisers to the parties, the defendant cannot rely on this term to preclude the plaintiff from entering judgment on foot of the admissions contained in the agreement and correspondence leading up to it, which are now fully admissible because of the existence of that agreement.

6. Counsel says there is not a great deal of authority on the precise scope of the protection afforded by the use of the words "without prejudice", and no case directly covering the point in issue has been quoted to us. However, there are passages in some of the judgments which can assist both in defining the boundaries, and appreciating the purpose, of the privilege accorded to such negotiations. A case frequently mentioned is that of Walker v. Wilsher⁽¹⁾, where the action resulted in judgment by consent for the plaintiff for an agreed sum, and, on an application to deprive the plaintiff of his costs, an attempt was made to introduce letters, etc., expressed to be written "without prejudice". The effect of the judgment emerges aptly from the following passage in the judgment of Atkinson J. in the later case of Stotesbury v. Turner⁽²⁾. Referring to the earlier decision he said:-

The reception of the letters was objected to, but the judge acted on them and deprived the plaintiff of his costs. That decision was reversed in the Court of Appeal where it was stated in the plainest language that matters 'without prejudice' could not be considered. Lord Esher M.R. said: 'The letters and the interview were without prejudice, and the question is whether under such circumstances they could be considered in order to determine whether there was good cause or not for depriving the plaintiff of costs. It is, I think, a good rule to say that nothing which is written or said without prejudice should be looked at without the consent of both parties, otherwise the whole object of the limitation would be destroyed. I am, therefore, of opinion that the learned judge should not have taken these matters into consideration in determining whether there was good cause, and, as that was all that was before him on the point, if that is excluded, it follows that there was no good cause, and that the plaintiff should not have been deprived of his costs.' The statement of Lord Esher that nothing which is written or said without prejudice should be looked at without the consent of both parties is emphasised by the observation of Romilly M.R. in Hoghton v. Hoghton⁽³⁾, where he said that letters written without prejudice 'with a view to an amicable arrangement ought to be held very sacred; for, if parties were to be afterwards prejudiced by their efforts to compromise, it would be impossible to attempt an amicable arrangement of difference.' In Scott Paper Co. v. Drayton Paper Works, Ld.⁽⁴⁾ Clauson J. relied on the above statement when emphasizing the importance of disregarding matters which are stated to be without prejudice.".

7. It is not altogether clear from any of the available reports of this case whether the eventual agreement to a consent judgment emerged from the letters sought to be adduced on the question of costs. If so, the case would seem to weigh strongly against Mr. Ching's contention but even if not, the language used would seem wide enough, if taken literally and without regard to the limitations imposed by the facts of the case and the actual point in issue, to pose a considerable obstacle to the course he is endeavouring to follow. We have already seen the language of Lord Esher. Lindley, L.J. expressed himself in the following terms⁽¹⁾:-

What is the meaning of the words 'without prejudice'? I think they mean without prejudice to the position of the writer of the letter if the terms he proposes are not accepted. If the terms proposed in the letter are accepted a complete contract is established, and the letter, although written without prejudice, operates to alter the old state of things and to establish a new one. A contract is constituted in respect of which relief by way of damages or specific performance would be given. Supposing that a letter is written without prejudice then, according both to authority and to good sense, the answer also must be treated as made without prejudice. That was laid down in the case of Paddock v. Forrester ⁽⁵⁾. In my opinion, in the case of Williams v. Thomas ⁽⁶⁾, to which I have referred, Kindersley, V.C. failed to attribute sufficient weight to that case. When the question of costs was raised a letter written without prejudice was referred to. Objection was taken to this, and the Vice-Chancellor said that he considered that the term 'without prejudice' contained in the letter meant that the writer of it must not be prejudiced by it, but that he did not think it followed that it was not competent to the writer to use it, although it could not be used against him. I cannot help thinking that the Vice-Chancellor overlooked the fact that the object of putting in the letter was to prejudice the opposite party by putting in the answer to it. That case is the only authority that I know of for the course taken by the learned judge, and, when we come to consider the principle on which it was decided, it does not convince me that a judge is entitled to look at letters written without prejudice unless he has the consent of both parties to his so doing.".

8. Taken in isolation the last sentence would establish a very simple rule but presumably would not apply to an action to enforce a later agreement, or at least consent would be assumed in such circumstances. That is, however, somewhat different from an action seeking to enforce the rights of the parties as they stood before that agreement was reached, rights which, in the normal case, would have merged in and been replaced by those arising under the new agreement.

9. Similarly the language of Bowen L.J. seems to weigh against the use of letters written without prejudice for the purpose which the plaintiff is seeking to use them in the present case. He said⁽¹⁾:-

In my opinion it would be a bad thing and lead to serious consequences if the courts allowed the action of litigants, on letters written to them without prejudice, to be given in evidence against them or to be used as material for depriving them of costs. It is most important that the door should not be shut against compromises, as would certainly be the case if letters written without prejudice and suggesting methods of compromise were liable to be read when a question of costs arose.".

10. As an example of cases in which such letters have been let in for the purpose of proving a new agreement we have Holdsworth v. Dimsdale⁽⁷⁾, where the defendant to the action on a bill wrote, 'without prejudice', that he never had any notice of the dishonour of the bill, but, if the debt would be accepted without costs, he would give a cheque. The plaintiff discontinued the action on condition of payment of costs, which had been taxed but not paid when he instituted a new action, relying on the agreement of the defendant in his letter to waive notice of dishonour. Objection to using the letter was taken. Cockburn, C.J., referring to the letter, said:-

"This appears to me to be nothing more or less than a conditional waiver of dishonour. He, in fact, says 'I offer you to waive notice of dishonour if you will agree to forego all the costs in this action. If you will not accept this the waiver of notice of dishonour must not be used to my prejudice, but if you accept, then my conditional offer becomes absolute.' That being so, the plaintiff does what is equivalent to an acceptance, for the action is discontinued, the costs having been given up. The plaintiff, having complied with the condition, is in a position to make use of the letter. The first action was, in effect, discontinued before the present one was begun, the conditional waiver, therefore, became absolute and the letter became admissible in evidence.".

Blackburn, J. said:-

"..... It is, of course, quite right that admissions made without prejudice should not be made use of against those who have given them, but it would be monstrous to say that they cannot be used where they have been made, as here, upon a condition which has been performed. The defendant says, in effect-' I will waive notice of dishonour if you will consent to forego costs. This cannot be used as an admission against me if you do not agree, but if you do it may be so used'.".

11. Mr. Mills-Owens contrasts these statements with the present case where, he says, the prescribed condition was not fulfilled.

12. Turning to his other contention that applications under Order 27 rule 3 are analogous to those under Order 14, that orders depriving a party of an opportunity to defend should not be lightly made, and, when refused at first instance, should not be made on appeal, Mr. Mills-Owens referred us to In re Wright⁽⁸⁾, where the headnote says:-

An order on admissions is not a matter of right but is in the discretion of the court.".

The body of the report states that Kekewich J. referred to the various defences raised by the defendant:-

...... and, having regard to the inconvenience of deciding a question of this kind on motion, his Lordship held that, in the exercise of his judicial discretion, he ought not to make an order for payment into court. The motion must, therefore, be refused and the costs would be reserved.".

13. Counsel went on to mention Papayanni v. Coutpas⁽⁹⁾, where the Court of Appeal said, in dealing with an application under Order 14, that,

Where leave to defend has been given, appeals ought not to be encouraged.".

and Wing v. Thurlow⁽¹⁰⁾, where the headnote says:-

When a Divisional Court has given unconditional leave to defend, the Court of Appeal will not interfere unless special circumstances are shown.".

14. He also referred to Mellor v. Sidebottom⁽¹¹⁾, where the plaintiff sought a decree on admissions in the pleadings. The defendant had admitted an agreement but claimed it was qualified by certain understandings. The plaintiff denied the qualifications. The Vice-Chancellor refused the application and on appeal Jessel, M.R. said:-

We think that this is a case in which the Judge has a discretion, with the exercise of which we ought not to interfere. These applications come on upon an ordinary motion day, and it would be very inconvenient if parties were entitled as a matter of right to interfere with the ordinary motions by bringing on in this form questions which might be better decided on demurrer or at the trial; and we consider that the Judge has a discretion as to whether a case involves questions which cannot conveniently be disposed of on a motion of this kind.".

15. Mr. Ching's argument in support of his claim to use the correspondence is ingenious and has its attractions as an exercise in simple logic. If the privilege of non-disclosure is limited to negotiations which do not end in agreement and if the veil thus placed in front of the negotiations is lifted on reaching agreement, then, he says, that condition has been satisfied in the present case and it is open to his client, as a party to the agreement, to rely on its terms, not merely for the purpose of enforcing a cause of action founded on that agreement but for the purpose of extracting from it admissions which will give him the right to a judgment in this action even though it was filed prior to the agreement.

16. But to say that you can sue on an agreement seems to me quite a different proposition from saying you can rely on the admissions contained in it or which led up to it, as part of the antecedent negotiations, for the purpose of obtaining, in an earlier action, a judgment to which you would not otherwise be entitled under Order 27 rule 3.

17. The difficulty of accepting this argument is enhanced in the present case by the substance of the alleged agreement which contained a provision for the withdrawal of the action, even if the nature and effect of that provision are in dispute. Moreover the alleged agreement provided for payment by instalments whereas the plaintiff in his present application is seeking an immediate judgment for the whole of the capital sum and interest to date so that, if successful, he would be better off than under the terms of the agreement. Mr. Ching seeks to meet this particular difficulty by arguing that since the defendant has not carried out the terms of the agreement she cannot rely on the postponement contained in the provision for payment by instalments but can be saddled with the immediate obligations flowing from the admission in the agreement that she is liable for the amount claimed in this action.

18. But when a plaintiff in seeking to obtain judgment sets up, as an essential link in the chain of events that would give him a right to such judgment, an agreement which requires him to withdraw the action before obtaining judgment he must, it seems to me, slam the door in his own face. One can hardly give him the benefit of an agreement which would be repudiated and broken by seeking and obtaining that very benefit.

19. There is the subsidiary difficulty that the question as to whether there is or is not an agreement and the terms of the agreement will be argued and determined, not in an action filed for the purpose with the appropriate pleadings designed to bring out clearly the points of contention on each side, but merely as an incident to the determination of an earlier action which may make it more difficult to deal in a satisfactory manner with the rival contentions. It is hardly surprising that the judge in the court below when faced with this dispute as to the existence of the agreement, the terms of the agreement and the consequences of those terms, was reluctant to enter judgment under the terms of Order 27 and thereby confer on the plaintiff the somewhat fortuitous advantage which he claims to have acquired from the course of the communications between the parties in the present case. I would agree with the trial judge that if there is, as in the present case, a dispute as to whether there is an agreement and as to the precise terms of the agreement - which comes to the same thing - proceedings under Order 27 rule 3 are not a satisfactory manner of determining the issues. I would be disposed to go even further and say that the defendant's objection to the introduction of the alleged agreement was well founded. To impose on a party to negotiations opened without prejudice when a suit is pending, the hazards and liability suggested by Mr. Ching would tend to make parties more chary of entering into such negotiations and would, to that extent, diminish the value of the "without prejudice" procedure. It is not without significance that Mr. Ching has been unable to produce to us any instance in which either the negotiations or the subsequent agreement had been used in the way in which he is seeking to use them or in which such use has even been canvassed. It may be of course, that counsel elsewhere or in the past have been less ingenious or enterprising than Mr. Ching, or that such instances have occurred but have not reached the law reports, but this seems unlikely.

20. The damage done to the procedure of negotiating without prejudice and the inhibitions thus likely to be imposed on the practice are, of course, enhanced if, as in the present case, the parties are in dispute as to whether there was an agreement or what the terms and effect of that agreement might be. Those who enter into such negotiations in respect of the subject matter of a suit pending against them must foresee and welcome the possibility that these negotiations will lead to an agreement - the creation of a new state of affairs an agreement which can be enforced against either party. This is something very different from foreseeing the possibility that at a stage when he or she intends and believes that no agreement has as yet been reached, the other side, on the strength of a disputed claim that such an agreement exists, will be able to force into the proceedings of the earlier suit the negotiations which, at least in the contemplation of one party, were thought to be proceeding without prejudice. If a party can introduce the whole of such negotiations for the purpose of asking the court to find that, contrary to the contentions of the other side, there was an agreement in the alleged terms, there must be a very real danger that, even if the court should ultimately find against this contention, the mind of the court will nevertheless be influenced by the knowledge thus acquired of admissions made during the negotiations; admissions which the party making them might have been most loath to put before the court unless he was satisfied that a final and complete agreement had been reached.

21. I would dismiss the appeal.

22. After preparing the above judgment, the case of Tomlin v. Standard Telephones and Cables Ltd.⁽¹²⁾ came to my attention. Arguments canvassed in it seem to come closer to the contention advanced by Mr. Ching in the present case than do those in the cases previously mentioned but the majority decision can, I think, be readily distinguished on its facts from the case before us. If, however, the comment on the case in the Solicitors Journal of the 19th September, 1969 accurately reflects professional opinion the implications of the judgment would appear, for reasons somewhat similar to those which I indicated above, to have caused anxiety to the profession.

Representation:

Mr. Charles Ching (Lau Chan & Ko) for the Appellant/Plaintiff

Mr. R. Mills-Owens (Kho & Lo) for the Respondent/Defendant

(1) 23 Q.B.D. p.335, 337.

(2) (1943) K.B.D. p.370, 374.

(3) (1952) 15 Bear. 278, 321.

(4) (1927) 44 Pat. Cas. 151, 157.

(1) 23 Q.B.D. p.335, 339.

(5) 3 Sc. N.R. 715, 734.

(6) 2 Dr. & Sm. 29.

(7) 19 W.R. p.798

(8) (1895) 2 Ch. D. p.747, 750.

(9) 1880 W.N. p.109

(10) 10 T.L.R. p.151

(11) (1877) 5 Ch.D. p.342, 344

(12) 1969(3) All E.R. 201