CRANE WORLD ASIA PTE LTD v. HONTRADE ENGINEERING LTD

HCMP 1405/2016

AND CACV 137/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 1405 OF 2016

(ON AN INTENDED APPEAL FROM HCA NO 109 OF 2014)

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 137 OF 2016

(ON APPEAL FROM HCA NO 109 OF 2014)

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REASONS FOR JUDGMENT

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Hon Lam VP (giving the Reasons for Judgment of the Court):

1. This urgent appeal was brought about in the following circumstances. The subject matter of the appeal is the admissibility of parts of the evidence in a second witness statement of Yau Ming [“Yau”] of 6 April 2016 filed by the Plaintiff in HCA 109 of 2014. Such evidence refers to an offer of 26 November 2015 in a letter from the solicitors for the Defendant to Yau in respect of another set of proceedings in which the Defendant advanced claims against Yau. One of the terms of the offer was that Yau had to agree not to prepare any witness statements for the Plaintiff in the present action. That offer was not accepted by Yau. The Plaintiff wishes to put forward evidence of this offer at the trial.

2. The Defendant challenged the admissibility of such evidence and contended that it was inadmissible by reason of the without prejudice privilege [“WPP”].  The Plaintiff contended that the case comes within an exception to WPP, viz that the attempt to proscribe Yau from giving a witness statement to the Plaintiff is an unambiguous impropriety which cannot be protected by WPP.

3. On 20 May 2016, B Chu J [“the Judge”] ruled in favour of the Defendant.  The Plaintiff sought leave to appeal and leave was refused by the Judge on 2 June 2016.

4. As said, the matter came before us by way of urgent application.  The urgency lies in the fact that the trial of the action is scheduled to commence on 13 June 2016.  It is of great significance to the parties (and also the trial judge) that the admissibility of the evidence relating to the offer of 26 November 2015 is resolved before the trial.

5. We should also mention that there has been a direction for speedy trial.  Hence, it is in the interest of justice that this matter should be heard by this court on an urgent basis before the trial commenced.

6. Soon after the refusal of leave by the Judge, counsel for the Plaintiff applied to this court for urgent leave to appeal and rolled-up hearing of the appeal.

7. The court gave directions to facilitate urgent consideration of the matter.  After reading the written submissions lodged in the leave application, it was directed that there shall be a rolled-up hearing on 10 June 2016, viz we shall hear the appeal immediately after giving leave (if leave is granted) at the hearing.  The court also required an undertaking from the Plaintiff to file and serve the Notice of Appeal as soon as practicable assuming leave is granted.  Solicitors for the Plaintiff gave such undertaking by fax on 8 June 2016.

8. On 10 June 2016, after hearing counsel, we gave leave. We proceeded to hear submissions on the substantive appeal.  Having considered the submissions of counsel, we allowed the appeal and ruled that the evidence is admissible.  We now give reasons for our decision.

9. In light of the pending trial, we shall not repeat the factual background of the disputes between the parties which has been fully set out by the Judge in the judgment of 20 May 2016.  It suffices to note that similar issues arose in the action between the Defendant and Yau (HCA 655 of 2013, in which the Defendant was the plaintiff, suing Yau for breach of fiduciary duties to the Defendant) and the present action.  However, Yau is not a party to the present action and the Plaintiff was not a party to the settlement negotiation in the letter of 26 November 2015.

10. It is also clear from the evidence filed in interlocutory proceedings that Yau is a material witness in the present action.  The Defendant and those advising it were clearly aware of the significance of Yau’s evidence in this action when the offer was made in the letter of 26 November 2015.

11. Thus, according to the approach in Moriarty v London Chatham & Dover Railway Co (1870) LR 5 QB 314,the attempt by the Defendant to suppress the evidence of Yau is relevant at the trial.  At p.319, Cockburn CJ said:

“ The conduct of party to a cause may be of the highest importance in determining whether the cause … is honest and just; just as it is evidence against a prisoner that he has said one thing at one time and another at another, as shewing that the recourse to falsehood leads fairly to an inference of guilt. … So, if you can shew that a plaintiff has been suborning false testimony, and has endeavoured to have recourse to perjury, it is strong evidence that he knew perfectly well his cause was an unrighteous one. I do not say that it is conclusive; I fully agree that it should be put to the jury, with the intimation that it does not always follow … but it is always evidence which ought to be submitted to the consideration of the tribunal which has to judge of the facts …”

12. In the modern setting, this approach was applied by the British Columbia Court of Appeal in Greenwood v Fitts (1961) 29 DLR (2d) 260.

13. It is unfortunate that the Judge was not referred to these authorities and she erroneously held that the evidence relating to the offer could not be relevant at the trial.

14. Before us, Mr Khaw (leading Mr Leung, appearing for the Defendant) did not advance any effective submissions against the above analysis.  Instead, counsel focused on the protection by WPP.  Mr Khaw submitted that the offer, albeit conditional upon Yau not giving any witness statement to the Plaintiff, could not be regarded as unlawful and as such the exception to WPP is not applicable.

15. For the Plaintiff, Mr McCoy SC (who did not appear before the Judge at the hearing of the summons, now appearing with Mr Chan and Mr Lok) submitted that it is a clear case of abuse of the privilege afforded by WPP.  Counsel contended that the impropriety lies in the attempt to preclude Yau from giving evidence for the Plaintiff.  In this respect, there is no material difference between a bar against the giving of witness statement to the Plaintiff and bar against testifying for the Plaintiff.

16. For present purposes, we can take the modern law on WPP from the judgment of Robert Walker LJ (as he then was) in Unilever Plc v Procter & Gamble Co [2000] 1 WLR 2436.  The following propositions can be derived from that judgment:

(a) WPP is a rule that rests upon public policy: parties should be encouraged so far as possible to settle their disputes without resort to litigation and should not be discouraged by the knowledge that anything that is said in the course of such negotiations may be used to their prejudice in the course of the proceedings (per Lord Griffiths in Rush Tompkins Ltd v Greater London Council [1989] AC 1280 at p.1299);

(b) Another basis for the rule is the express or implied agreement of the parties that communications in the course of their negotiations should not be admissible in evidence if a contested hearing ensues, Unilever Plc v Procter & Gamble Co, supra p.2442D and 2448H;

(c) The rule is not absolute and there are established exceptions when it is in conflict with other more powerful principles, p.2442E, 2444C to 2445G;

(d) The modern approach is to examine the rule with a proper analysis of the true foundation and purpose of the rule, see Hoffmann LJ (as he then was) in Muller v Linsley & Mortimer [1996] PNLR 74 at 77 to 80.  And the public policy aspect of the rule was explained by Hoffmann LJ in these words:

“ … the privilege operates as an exception to the general rule on admissions … that the statement or conduct of a party is always admissible against him to prove any fact which is thereby expressly or impliedly asserted or admitted. The public policy aspect of the rule is not in my judgment concerned with the admissibility of statements which are relevant otherwise than as admissions, i.e. independently of the truth of the facts alleged to have been admitted. Many of the alleged exceptions to the rule will be found on analysis to be cases in which the relevance of the communication lies not in the truth of any fact which it asserts or admits, but simply in the fact that it was made….”

(e) One exception (which is the pertinent for this appeal) is put by Robert Walker LJ at p.2444F to H as follows:

“ … one party may be allowed to give evidence of what the other said or wrote in without prejudice negotiations if the exclusion of the evidence would act as a cloak for perjury, blackmail or other ‘unambiguous impropriety’… this court has, in Foster v Friedland and Fazil-Alizadeh v Nikbin … warned that the exception should be applied only in the clearest cases of abuse of a privileged occasion.”

(f) Notwithstanding the core rationale for the public policy underpinning the rule, the protection of WPP is not confined to admissions, see p.2446B to C and Robert Walker LJ further explained at p.2448H to 2449 C,

“ …They show that the protection of admissions against interest is the most important practical effect of the rule. But to dissect out identifiable admissions and withhold protection from the rest of without prejudice communications (except for a special reason) would not only create huge practical difficulties but would be contrary to the underlying objective of giving protection to the parties … Parties cannot speak freely at a without prejudice meeting if they must constantly monitor every sentence, with lawyers or patent agents sitting at their shoulders as minders.”

(g) Ultimately, the test was stated by Robert Walker LJ at p. 2449C,

“ … even in situations to which the without prejudice rule undoubtedly applies, the veil imposed by public policy may have to be pulled aside, even so as to disclose admissions, in cases where the protection afforded by the rule has been unequivocally abused.”

17. Foskett on Compromise, 8^th Edn, paragraph 19-55 had this to say on the approach of the court:

“ … The court will doubtless have to adopt a pragmatic approach, balancing the primary consideration of ensuring protection for parties involved in true settlement negotiations against the need to ensure that the privilege afforded by the rule is not abused.”

18. The “unambiguous impropriety” exception and the kind of abuse that the court should have regard to was further explained by Rix LJ in Savings & Investments Bank Ltd v Fincken [2004] 1 WLR 667 at paragraph 57:

“ In my judgment that philosophy is antagonistic to treating an admission in without prejudice negotiations as tantamount to an impropriety unless the privilege is itself abused. That, it seems to me, is what Robert Walker LJ meant in Unilever when he repeatedly spoke in terms of the abuse of a privileged occasion, or of the abuse of the protection of the rule of privilege: see at 2444G, 2448A and 2449B. That is why Hoffmann LJ in Forster emphasised that it was the use of the privileged occasion to make a threat in the nature of blackmail that was, if unequivocally proved, unacceptable under the label of an unambiguous impropriety. And that is why Peter Gibson LJ in Berry Trade suggested, without having to decide, that talk of "a cloak for perjury" was itself intended to refer to a blackmailing threat of perjury, as in Greenwood v Fitt, rather than to an admission in itself. It is not the mere inconsistency between an admission and a pleaded case or a stated position, with the mere possibility that such a case or position, if persisted in, may lead to perjury, that loses the admitting party the protection of the privilege (see the first holding in Fazil-Alizadeh, described in para 47 above). It is the fact that the privilege is itself abused that does so. It is not an abuse of the privilege to tell the truth, even where the truth is contrary to one's case. That, after all, is what the without prejudice rule is all about, to encourage parties to speak frankly to one another in aid of reaching a settlement: and the public interest in that rule is very great and not to be sacrificed save in truly exceptional and needy circumstances.”

19. It is also important to highlight what was said in two earlier English Court of Appeal authorities cited by Robert Walker LJ in terms of the exception only applies in the clearest cases of abuse, lest what we shall say in this judgment be mistaken as a relaxation of the protection afforded by WPP.  We must emphasize that we whole heartedly adhere to these observations of their lordships.  Since those were unreported judgments, it may be helpful if we can take the relevant dicta from the judgment of Rix LJ in Fincken:

“ 46.  Forster v Friedland (10 November 1992, unreported) was the first of a series of cases in this court which discussed the exception, but held that it did not apply.  The defendant admitted that he considered himself honour bound by an agreement, but said that if it came to litigation he would deny any legal obligation.  On the facts, this was held to be "very far from blackmail".  On the law, Hoffmann LJ described Greenwood v Fitt and Hawick Jersey v Caplan as examples of cases which show that a party cannot use the without prejudice rule "as a cloak for blackmail".  He pointed out that in the former case the defendant had said that unless the claim against him was withdrawn, he would give perjured evidence and would bribe other witnesses to perjure themselves.  Having reviewed these cases, he said:

‘ These are clear cases of improper threats, but the value of the without prejudice rule would be seriously impaired if its protection could be removed from anything less than unambiguous impropriety. The rule is designed to encourage parties to express themselves freely and without inhibition. I think it is quite wrong for the tape recorded words of a layman, who has used colourful or even exaggerated language, to be picked over in order to support an argument that he intends to raise defences which he does not really believe to be true.’

47.  Fazil-Alizadeh v Nikbin (CA, 19 March 1993, unreported) was the second of the series of cases in this court.  Again there were secret tape recordings of without prejudice meetings: the litigation was as to who owned the beneficial interest in a house.  Two matters were sought to be put in evidence, the first an admission of payment of £10,000 as a deposit for the purchase of a flat in the house by the plaintiff – who claimed to be entitled to the beneficial interest in the whole house irrespective of such a purchase; the second was the alleged revelation of forgery of the terms of a previous settlement agreement.  The alleged vice of the first admission was that the claimant continued to deny such payment on his pleadings.  The alleged vice of the second admission was the continued cover-up of a past crime.  As to the first, this court held that even if the admission was established, it could not be held against him "despite his continued denial of such payment on the pleadings".  As to the second, it held that the test of unambiguity had not been met.  But Simon Brown LJ continued:

‘ I add only this. There are in my judgment powerful policy reasons for admitting in evidence as exceptions to the without prejudice rule only the very clearest cases. Unless this highly beneficial rule is most scrupulously and jealously protected, it will all too readily become eroded. Not least requiring of rigorous scrutiny will be claims for admissibility of evidence advanced by those (such as the first defendant here) who have procured their evidence by clandestine methods and who are likely to have participated in discussions with half a mind at least to their litigious rather than settlement advantages. That distorted approach to negotiation to my mind is itself to be discouraged, militating, as inevitably it must, against the prospects of successful settlement.’ ”

20. In Hong Kong, it can be seen from our Mediation Ordinance Cap 620 that a similar policy is adopted in relation to disclosure of mediation communications as set out in Sections 8 to 10 of that Ordinance.  As submitted by Mr McCoy, mediation is a form of neutral assisted without prejudice negotiation.  Before the enactment of the ordinance, mediation communications were protected by WPP, see Chu Chung Ming v Lam Wai Dan [2012] 4 HKLRD 897.  The Ordinance provides generally for two different broad categories of permitted disclosure of mediation communications: (a) Section 8(2) provides for permissible disclosure without leave of the court; and (b) Section 8(3) provides for disclosure with the leave of the court.  In the present context, it is relevant to note that under Section 8(3)(c) that the court may grant leave for a purpose that it considers justifiable in the circumstances of the case.  Under Section 10(2), in considering whether leave should be granted, the court must have to regard to the matters set out in that sub-section.  For our purposes, it should be noted that one of the relevant matter is set out in Section 10(2)(b): whether it is in the public interest or the interests of the administration of justice for the mediation communication to be disclosed or admitted in evidence.

21. In the application of that particular criteria under Section 10(2)(b), bearing in mind the affinity of mediation communication and WPP, we agree with Mr Khaw that the court must have regard to the public policy considerations pertaining to WPP.  The public interest and the interests of the administration of justice in upholding confidentiality of mediation communication and WPP is the same.  Likewise, the exception for disclosure in respect of unambiguous impropriety under common law should also inform the court in deciding whether there should be disclosure of mediation communication in a similar context when it consider an application under Section 10 of the ordinance.  Like the WPP rule, the court will not permit mediation confidentiality to be used as a cloak for unambiguous impropriety when it is clear that the cloak of confidentiality was abused.  At the same time, the court must also have regard to observations of Hoffmann LJ, Simon Brown LJ and Rix LJ in the authorities cited above on the need to exercise caution and leave should only be granted in the clearest type of cases so that the primary policy of upholding confidentiality will not be undermined. 

22. The key issue in the present appeal is whether the Defendant’s attempt to preclude Yau from giving a witness statement to the Plaintiff in consideration of the settlement of HCA 655 of 2013 is an unambiguous impropriety.

23. Mr McCoy referred to some authorities showing that it is improper to bind a witness from giving evidence by contract (Harmony Shipping Co v Saudi Europe [1979] 1 WLR 1380 at p.1386D to E; Versloot Dredging BV v Hdi Gerling Industrie Versicherung AG [2013] EWHC 581 (Comm) and that a solicitor acts improperly if he tries to prevent a witness from making a statement for the other side (The Hong Kong Solicitor’s Guide to Professional Conduct 3^rd Edn, paragraph 10.12 proposition 5).

24. The following passages from these authorities are pertinent in the present context:

“ Neither one side nor the other can debar the court from ascertaining the truth either by seeing a witness beforehand or by purchasing his evidence or making communication to him. In no way can one side prohibit the other side from seeing a witness of fact, from getting facts from him and from calling him to give evidence or from issuing him with a subpoena … ”

(per Lord Denning MR in Harmony Shipping, supra)

“ What a solicitor is not entitled to do, or indeed a party, is to order or instruct a witness or a potential witness not to attend an interview with the opposing solicitor or to tell him that he has no real choice in the matter, or to put pressure on him not to comply. Nor must he make it appear that the witness can only be interviewed if the solicitor or his principal consents.”

(per Christopher Clarke J in Versloot Dredging, supra)

25. We agree with Mr McCoy that in the context of modern litigation practice, an attempt to prohibit a witness from giving a witness statement to the other side is effectively an attempt to prevent such person from giving evidence for that opponent.  Such an attempt clearly infringes the stricture imposed in these authorities.  As illustrated by Connolly v Dale [1996] QB 120, a deliberate attempt to prevent the opposing party from having full and unimpeded access to a potential witness, even with a benign intent, is improper conduct.

26. In this connection, we respectfully disagree with the Judge in her reasoning that as it was up to Yau to decide whether to accept the offer, he was not prohibited from giving a witness statement to the Plaintiff and the terms of the offer did not have a tendency of preventing the witness from making a free and voluntary choice.  With respect, the question is not whether the letter in fact achieved what the Defendant set out to do.  The question is whether the terms in the offer were an attempt to oblige Yau to refrain from giving a witness statement to the Plaintiff as the price for settling HCA 655 of 2013.  In our judgment, the answer to this question is in the affirmative.  It does not matter that the Defendant failed to achieve that outcome in the end.  

27. The Judge devoted parts of her judgment to the consideration of the law on attempt to pervert the course of justice and discussed some of the cases on the topic.  Before us, Mr Khaw submitted that the unambiguous impropriety which triggers the exception to WPP must be some unlawful acts.

28. Whilst blackmail and threats can amount to criminal conducts, we do not think the Plaintiff needs to establish that the Defendant was guilty of the offence of perverting the course of justice or other offence before it can satisfy the requirement of unambiguous impropriety.  The Canadian case of Greenwood v Fitts, supra was cited by Hoffmann LJ in Forster v Friedland as an example of unambiguous impropriety.  In that case, during pre-trial settlement negotiations, the defendant told the plaintiffs if they brought action against him he would perjure himself, induce others to do so and would leave the country to defeat judgment.  The British Columbia Court of Appeal held that such statement was admissible as evidence and WPP did not give protection to it.

29. Mr Khaw was unable to demonstrate what legitimate interest the Defendant had in preventing Yau from giving a witness statement to the Plaintiff.  There is no property in witnesses.  If the Defendant thought Yau’s version was in its favour, it could have asked Yau to give a witness statement to it to support its defence against the Plaintiff. Alternatively, if it envisaged that Yau’s version would be inconsistent with the defence case, it was lawful for the Defendant to show Yau its evidence and ask Yau to reconsider his evidence in light of that.  However, what the Defendant could not lawfully do was to obtain a blanket promise from Yau not to give a witness statement to the Plaintiff in consideration of the settlement of HCA 655 of 2013. 

30. The Judge took the view that the other terms in the offer were a legitimate offer for settlement and as such the offer was not made with the purpose to interfere with the Plaintiff’s attempt to elicit evidence from Yau and the terms of the offer could not constitute improper pressure.  With respect, we cannot accept this analysis.  The Judge failed to ask the more pertinent question: whether the Defendant had any legitimate interest in including this particular term as a term of settlement.  If there is no legitimate interest, and we have held there is none, the offer is improper irrespective of the legitimacy of the other terms.  In this connection, in HKSAR v Wong Chi Wai (2013) 16 HKCFAR 539 at paragraph 33(f), Ribeiro PJ said:

“ In contrast, if the object of the approach is to get the witness to … refrain from telling the truth, the offence [of attempting to pervert the course of justice] is committed even if the means used involve no more than exercising or threatening to exercise a legal right …”

31. The Defendant did not explain in its evidence filed in support of its summons why it saw fit to include such a term in its offer.  It is not for us to say in this appeal whether the conduct of the Defendant amounted to an attempt to pervert the cause of justice.  All we need to say is that we have no doubt that on the evidence before us the Plaintiff satisfied us that this is a case of unambiguous impropriety.  Therefore the Defendant cannot preclude the admissibility of the evidence on account of WPP. 

32. For these reasons, we differed from the conclusions reached by the Judge.  We allowed the appeal accordingly.