GROSS FORTUNE INTERNATIONAL LTD. v. SET WIN INTERNATIONAL LTD.

CACV 192/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 192 OF 1999

(ON APPEAL FROM HCA 1584/1998)

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. This is an appeal from a decision of Chung, J. given in chambers on 21 June 1999. The judge, disagreeing with the master, found against the plaintiff on an application of the plaintiff for an order against the defendant to delete, from its list of documents, a number of documents (specified in the plaintiff's summons) on the grounds that those documents were privileged communications, and for an order restraining the defendant from using or relying in any manner whatsoever in the action upon those documents, or any information derived from those documents, for the purposes of pleading, evidence, cross-examination or otherwise. The plaintiff now appeals to this court, asking us to make such orders.

The background

2. The background is this. The plaintiff was the vendor of certain shop premises, and the defendant was the purchaser. The defendant failed to pay the balance of the purchase price when due, and the plaintiff sought forfeiture of the defendant's deposit and damages. The defendant, in its defence, referred to discussions between the plaintiff and the defendant as to remedying breaches and/or defects in the construction, finishes and fittings of the premises, and pleaded that, by reason of the parties' conduct in entering into negotiations after the dispute between them arose, there was constituted an agreement between the parties that the plaintiff would not require the defendant to pay the balance of the purchase price until the plaintiff had fully rectified the defects.

3. The documents to which I have referred are documents which refer to these negotiations. The plaintiff says that those documents are covered, by the so-called "without prejudice" rule, from production at the trial of the action, because they would be inadmissible in evidence. The plaintiff adds that the documents do not fall within any of the recognised exceptions to that rule; for example, that such documents may be admitted in evidence to prove that the dispute between the parties has been compromised.

4. The defendant has listed these documents without claiming that they are privileged from production. It says that the documents will be admissible in evidence at the trial. But the plaintiff asserts otherwise, and accordingly it has asked for an order in the terms I have already mentioned.

Conclusion

5. For my part, I have no doubt that the plaintiff's application for an order that the defendant do delete the documents in question from its list of documents is misconceived. The defendant has to give discovery of these documents. It does not have to claim privilege from production of those documents if it does not wish to do so. The issue is not one which really concerns discovery of the documents at all. The issue is one which concerns the admissibility or inadmissibility of the documents at the trial of the action.

6. The authorities do show that, in certain circumstances, the court will in advance of the trial of the action make an order that a party be restrained from using a document at the trial. For example, if the document has been obtained, by the party seeking to adduce it in evidence, by fraud or in breach of confidence, the court will protect the other party by making such a restraining order as has been asked for here.

7. The question which Mr. Y.C. Mok for the plaintiff has asked us to consider is this : Where a party is threatening to use documents written "without prejudice" at the trial of the action, is not that also a suitable case for the making of such a restraining order? Mr. Mok says that the documents here are such documents, not documents falling within any exception to the rule that "without prejudice" documents are inadmissible in evidence. He asked us, in effect, now to rule that these documents will be inadmissible in evidence at the trial.

8. I am satisfied that this court ought not to make such an order. The application actually made concentrates on the form of the defendant's list of documents, and was misconceived. Although the plaintiff has tagged onto its claim for relief in relation to the defendant's list of documents a claim to restrain the defendant from using or relying in any way upon the documents in question, I am of the opinion that it would not be fair to the defendant to decide this claim on the present application.

9. It would have been open to the plaintiff to ask, I suppose, for the trial as a preliminary issue of the question whether these documents would be admissible in evidence or not. That would have involved a full inquiry as to the nature of the documents; whether they were or were not documents written "without prejudice"; and whether they were or were not within one of the recognised exceptions to the rule that such documents are not admissible in evidence. Those issues might have required the taking of oral evidence before they could properly be determined. None of that has taken place. Neither the master, nor the judge, nor we, in this court, have had a proper opportunity to consider the facts which give rise to these issues of fact and law.

Result

10. In these circumstances, I consider that we have no option but to dismiss this appeal.

Ribeiro, J. :

11. I respectfully agree.

12. The relevant principles have recently been authoritatively stated by the House of Lords in Rush & Tompkins Ltd. v. Greater London Council [1989] 1 A.C. 1280. That was a case where the Plaintiff had settled with the 1st Defendant after without prejudice negotiations. The 2nd Defendant fought on and sought discovery of documents containing those negotiations.

13. Lord Griffiths, with whom all the other Law Lords agreed, summarised some of principles relevant to this appeal as follows. At p.1299, his Lordship said:

"The 'without prejudice' rule is a rule governing the admissibility of evidence and is founded upon the public policy of encouraging litigants to settle their differences rather than litigate them to a finish."

He quoted the judgment of Oliver L.J. in Cutts v. Head [1984] Ch. 290 at p.306 where Oliver L.J. stated:

"The public policy justification, in truth, essentially rests on the desirability of preventing statements or offers made in the course of negotiations for settlement being brought before the court of trial as admissions on the question of liability."

However, as Lord Griffiths pointed out:

"...... the rule is not absolute and resort may be had to 'without prejudice' material for a variety of reasons when the justice of the case requires it. ...... Thus the 'without prejudice' material will be admissible if the issue is whether or not the negotiations resulted in an agreed settlement, which is the point that Lindley L.J. was making in Walker v Wilsher (1889) 23 QBD 335 and which was applied in Tomlin v Standard Telephone & Cables Ltd [1969] 1 WLR 1378." (see page 1300)

14. The rule is therefore principally a rule about the admissibility of evidence at the trial. It aims to exclude possible admissions made in the course of without prejudice negotiations, being used against the parties and therefore to encourage free and frank settlement negotiations prior to the trial.

15. The fact that a document may be inadmissible at the trial does not mean that it does not have to be disclosed. As Lord Griffiths put it:

"The general rule is that a party is entitled to discovery of all documents that relate to the matters in issue irrespective of admissibility ......" (at page 1303)

16. However, the without prejudice rule has been extended to protect without prejudice documents against production in the discovery process in certain cases.

17. Thus, in Rabin v. Mendoza [1954] 1 W.L.R. 271, the Defendants obtained a survey report in aid of certain without prejudice negotiations. Those negotiations failed. They disclosed the report in their list but claimed privilege over it. The Plaintiff, who had not seen the report, sought an order for its production and was refused.

18. Lord Griffiths dealing with this authority commented (at page 1304) that it shows that even as between the parties to 'without prejudice' correspondence, they are not entitled to discovery against one another.

19. The point to note, however, is that in extending this protection to discovery, the court was concerned with the prevention of production of privileged documents to persons who were not already in possession of those documents and who were not, for instance, parties to correspondence contained in those documents. At p.1300, Lord Griffiths said:

"Nearly all the cases in which the scope of the 'without prejudice' rule has been considered concern the admissibility of evidence at trial after negotiations have failed. In such circumstances, no question of discovery arises because the parties are well aware of what passed between them in the negotiations."

20. Therefore, in such cases, the rule retains its function as a basis for objecting to admissibility at the trial. However, as in the present case where there are only two litigants involved and both are well aware of contents of the communications passing between them in the without prejudice negotiations, no issue arises on discovery.

21. It seems clear to me that it does not matter in the slightest to the Plaintiff whether the Defendant has listed these documents in their list of documents or whether they have listed them in Part I or in Part II of the First Schedule.

22. If the documents objected to are without prejudice, then they will be inadmissible, whatever they may contain.

23. On the other hand, if they fall within the exception whereby without prejudice negotiations must be examined to see whether they have led to a settlement agreement, then the documents will be admissible for that purpose. The rule is straightforward and has nothing to do with the contents of lists of documents or any other issues concerning the discovery process. They concern matters of admissibility for the trial judge to rule upon.

24. I am therefore of the view that the learned judge was quite right in holding that the proper approach was for such objections to be taken at the trial.

25. Much of Mr. Mok's submissions were directed really at showing that the documents could not or did not fall within the exceptional category where without prejudice documents may be looked at.

26. Again, I agree with Chung J. that if that is the gravamen of the complaint, then the application ought to have been either for striking out of that paragraph of the defence in which the documents in question are mentioned or for a preliminary issue to determine the question of admissibility. That is not asked for either in the court below or in the Notice of Appeal.

27. Mr. Mok argued that the practical consequence of leaving the items on the list of documents was uncertainty as to how to prepare witness statements. With respect, I find it hard to see why that is the case. The issue is plainly a live one as it has been raised on the pleadings on both sides. The point will simply have to be determined in the ordinary way. No doubt the judge will be invited to look de bene esse at the documents and make a ruling. If he finds that they are within the exception he will allow them in. If he does not, he will keep them out. I see no prejudice to the Plaintiff in this matter.

28. Cases like Guinness Peat Properties v. Fitzroy Robinson Partnership [1987] 1 W.L.R. 1027 seem to me to deal with a wholly different situation. They are concerned with the accidental loss of confidentiality in privileged documents and the court restraining the use of such documents where such use is considered to be inequitable.

29. Slade L.J. in that case summarised the principles at p.1045 as follows:

"(1) Where solicitors for one party to litigation have, on discovery, mistakenly included a document for which they could properly have claimed privilege in Part 1 of Schedule 1 of a list of documents without claiming privilege, the court will ordinarily permit them to amend the list under Ord. 20, r. 8, at any time before inspection of the document has taken place.

(2) However, once in such circumstances the other party has inspected the document in pursuance of the rights conferred on him by Ord. 24, r. 9, the general rule is that it is too late for the party who seeks to claim privilege to attempt to correct the mistake by applying for injunctive relief. ......

(3) If, however, in such a last mentioned case, the other party or his solicitor either (a) has procured inspection of the relevant document by fraud, or (b) on inspection, realises that he has been permitted to see the document only by reason of an obvious mistake, the court has the power to intervene for the protection of the mistaken party by the grant of an injunction in exercise of the equitable jurisdiction illustrated by the Ashburton, Goddard and Herbert Smith cases. Furthermore, in my view, it should ordinarily intervene in such cases, unless the case is one where the injunction can properly be refused on the general principles affecting the grant of a discretionary remedy, for example, on the ground of inordinate delay ......."

30. In my judgment, these principles have nothing to do with our case where the privileged document is not confidential as between the parties and where the possession of the Defendant is in no way inequitable but merely came about as a result of correspondence being exchanged between the parties. Mr. Mok invited the court to extend the principle to cases involving without prejudice documents. I am unable to see, with respect, how such an extension could be justified. I, therefore, come to the conclusion with Godfrey J.A. that the appeal must be dismissed.