Chun Lee Engineering Co Ltd v. Hopewell Construction Co Ltd

HCA006997/1988

1988, No. A6997

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H E A D N O T E

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The statements in India Rubber v. Chapman [1926]20 BWCC 184 that the "chain of without prejudice" may be cut or broken (expressly or by implication) apply to oral discussions as well as to correspondence.

However, the Court must always be slow to deprive communications - whether written or oral - of the protection of being conducted without prejudice. This is so because the policy purpose of the without prejudice rule is to encourage settlements through full and frank exchanges.

1988, No. A6997

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Bokhary, J. in Chambers

Date of hearing: November 3, 1989

Date of delivery of judgment: November 3, 1989

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J U D G M E N T

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1. This is an appeal by the defendant from an Order made by Master Jennings on July 24, 1989, ordering that the defendant pays the plaintiff $401,045.50 by way of interim payment.

2. The background to the case, shortly stated, runs thus. The defendant was the main contractor for plumbing and drainage works at a Housing Authority project in Yuen Long. By various agreements, those works were subcontracted to the plaintiff. The plaintiff's claim is for: $246,668.97 in respect of retention money in regard to plumbing works; $622,631.78 as the balance said to be due and owing for labour provided and materials used in respect of plumbing works; $156,862.10 in respect of retention money in regard to drainage works; and $1,464,088.47 as the balance said to he due and owing for labour provided and materials used in respect of drainage works.

3. A dispute arose between the plaintiff and the defendant; and the matter came into the hands of solicitors: Messrs Woo, Kwan, Lee & Lo for the defendant and Messrs Masons & Marriott for the plaintiff.

4. Certain correspondence between the solicitors in regard to a proposed meeting ensued. The correspondence appears to have culminated and a letter dated August 18, 1988, and marked "without prejudice" from Masons & Marriott to Woo, Kwan, Lee & Lo. In that letter, Masons & Marriott enclosed what they described as a "Proposed Agenda for Without Prejudice Meeting to he held between Chun Lee Engineering Ltd and Hopewell Construction Ltd". The meeting took place on September 7, 1988. At that meeting, it would appear that certain documents were produced by the defendant and handed over to the Plaintiff for - as it was put - checking and agreement.

5. It is the plaintiff's case that those documents, properly analysed, constitute an admission that $401,045.50 is due and owing to the plaintiff, even ignoring retention money. It is on the basis of such admission - if admission it be - that the plaintiff applied for, and succeeded in obtaining, the interim payment against which the defendant now appeals.

6. For the defendant, Mr Denis Yu, in the course of his able submission, contended that there was in truth no admission at all and that, even if there were, the admission would have been made in the course of a without prejudice meeting and is therefore inadmissible. He drew my attention to a number of authorities. The basic position, as far as the law is concerned, may be summarised in this fashion: The contents of communications made without prejudice (which means made in without prejudice correspondence or at meetings conducted on a without prejudice basis) are generally not admissible. They are admissible to prove an agreement if one has been reached. Possibly, they are admissible as admissions of matters not connected with the merits of the dispute. Otherwise, it is clear that they cannot be relied upon as admissions. The question of without prejudice communications was considered quite recently by the House of Lord in Rush & Tompkins Ltd v. Greater London Council [1938]3 WLR 939. There, at p.942, Lord Griffiths stated that:-

"The [without prejudice] rule applies to exclude all negotiations genuinely aimed at settlement whether oral or in writing from being given in evidence."

The learned Law Lord continued, on the same page, to state that:-

"... the application of the rule is not dependent upon the use of the phrase 'without prejudice' and if it is clear from the surrounding circumstances that the parties were seeking to compromise the action, evidence of the content of those negotiations will, as a general rule, not be admissible at the trial and cannot be used to establish an admission or partial admission."

At page 943, he stated that :-

"... the underlying purpose of the rule [was] to protect a litigant from being embarrassed by any admission made purely in an attempt to achieve a settlement."

He then referred to exceptional situations, but made it clear, at the same page, that these:-

"... should not be allowed to whittle down the protection given to the parties to speak freely about all issues in the litigation both factual and legal when seeking compromise and, for the purpose of establishing a basis of compromise, admitting certain facts. If the compromise fails the admission of the facts made for the purpose of the compromise should not be held against the maker of the admission and should therefore not be received in evidence."

7. Now, from what I have said so far - which includes the fact that the letter of August 18, 1988, from Masons & Marriott was marked "without prejudice" and the fact that the agenda enclosed therewith was described as one for a without prejudice meeting - it might be difficult to understand how it could be argued that communications made at that meeting were other than without prejudice.

8. However, the principal point taken by Mr Lewis, in the course of his able submission on behalf of the plaintiff, is that even if it had been contemplated up to the time of that letter that the meeting was to be without prejudice, something happened to change all that. He says that Masons & Marriott contemplated that lawyers would be present at the meeting and their intention that the meeting be without prejudice was predicated in that premise. Looking at the letter of August 18, 1988, it is clear that they did contemplate that their Mr Clement Fan would be present at the meeting.

9. For the purpose of this submission, Mr Lewis relies on the decision of the Court of Appeal in India Rubber v. Chapman [1926] 20 BWCC 184. In that case, at p.188, Lord Hanworth, M.R. said this:-

"... It is quite open to one of the parties, as Lawrence, L.J., suggested in the course of the argument, and I agree with his view, to cut the chain of without prejudice by giving definite notice that a particular letter is written to break the chain and in order that the matters contained in it may be brought before the Court without objection being taken."

At p.139 Lord Justice Atkin said:-

"I agree with [counsel for the respondent] that it may very well happen that after letters are written without prejudice there may be such a plain break, such as a withdrawal of the negotiations, and that event is treated on the ordinary footing, so that a stage in the correspondence which was conducted without prejudice becomes normal and without that protection, and I think that that may happen even although the parties do not take the very reasonable and proper course of giving express notice that they are intending to write without that protection."

10. I accept that what was said in that case was said about letters. But on principle those statements must hold good for meetings as well. Was there in the present case a "cut" in the "chain of without prejudice", to use the Master of the Rolls' expression, or "a plain break" thereof, to use Lord Justice Atkin's?

11. In considering that question, something said by the Master of the Rolls a little earlier on in his judgment is material. At pp. 187 to 188, he said:-

"... the Court ought not to be careful to try to distinguish what is written without prejudice from what may possibly have unnecessarily been covered by that term. The Court ought to maintain the confidences of the parties, and in that sense give a liberal interpretation to what is written without prejudice."

12. Again that is directed to letters; but the principle which underlies it necessarily applies also to meetings. And the principle, it seems to me, is that the Court should be slow to deprive negotiations - whether by correspondence or discussions - of the protection of privilege. That this should be so is consistent with the policy purpose of encouraging settlements through full and frank exchanges.

13. In Scott Paper Co. v Drayton Paper Works Ltd 44 R.P.C. 151, Mr Justice Clauson said, at p.156, that:-

"... The principle seems to depend upon this, that the Court has always taken the view that every facility is to be given to persons who are in litigation, or anticipate litigation, to come together fully and frankly, to use a popular expression, to place their cards upon the table with a view to coming to some arrangement, and, if that is the position, statements and admissions made under those circumstances will not be treated as admissions against the parties."

14. At p.157, dealing with the negotiation with which he was concerned, the learned Judge said:-

"... these were negotiations for the settlement of pending litigation, each party hoping by these frank communications to prevent the anticipated litigation. It would, I think, be lamentable if admissions or statements made at an interview of that character were admissible."

15. If that is the thinking behind the rule - and I think it is - then the Court must be slow to deprive communications - whether written or oral - of the protection of being conducted without prejudice. Looked at that way, I do not think that the material before me supports the notion that the "chain of without prejudice" had been cut or broken plainly or at all. All that happened was that the defendant adhered to its position that there should be no lawyers at the meeting and, as a result of such attitude, not only was it not present by a lawyer but Mr Fan of Masons & Marriott did not turn up either. That did not break the chain.

16. I feel bound to say that even if I were to approach this matter without any reluctance to allow the chain easily to be broken, my decision would be the same. Looking at the matter without any predisposition either to maintain or to remove the protection of privilege, I do not think that, on these facts, it would be consistent with common sense to hold that the meeting was without prejudice after all, even though at one stage it most certainly had been contemplated that it would be.

17. Mr Lewis pointed out that meetings to arrive at final accounts are common in the building industry and that it might cause consternation in the industry if it were to hold that all such meetings were automatically without prejudice. It may well cause consternation in the industry if any Court were to hold that. But I do not hold anything of the sort. This is not a situation where, without any dispute having arisen, the parties merely got together for a working meeting to evolve a set of final accounts. The matter had already been put in the hands of solicitors. And from what I have already said, it can he seen that the solicitors played a very important role in setting up the meeting.

18. In the course of the argument, I raised with Mr Yu various ways in which the plaintiff might be able to discover more in regard to what the defendant's case is as to whether it owes the defendant anything and, if so, what it owes. Since I have not heard full arguments on those matters, I will not say anything about them in this judgment.

19. Coming back to the matter at hand, it is my view that the admission upon which interim payment was sought and obtained - if it is an admission at all - was made without prejudice and therefore inadmissible. That is sufficient to dispose of this appeal in favour of the defendant. I should add, however, that looking at the whole of the material, I am doubtful as to whether an admission had been made at all. There are factors which support the notion that admission had been made; but there are countervailing considerations also.

20. In any event, the appeal must be, and is, allowed. The order for interim payment is set aside. The only remaining matter is the question of costs.

[Submissions on Costs]

21. Mr Lewis has not suggested that the consequence of my decision is otherwise than that the costs here and below must be paid by the plaintiff to the defendant. I so order. A certificate for counsel is not necessary for the appeal. I see that in the court below the learned Master certified the matter fit for counsel. Unless it is suggested to me chat I should take a different view, I will let that certificate stand.

22. [Mr Lewis indicates that he does not so suggest.] The certificate will stand.

Representation:

Mr Kevin Lewis (instructed by Masons & Marriott) for the plaintiff

Mr Denis Yu (instructed by Woo, Kwan, Lee & Lo) for the defendant