廖景如 v. 姚黎李律師行及另二人

HCA 8189/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8189 OF 2000

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RULING ON PRELIMINARY ISSUE

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1.  The 1^st Defendant applied for taxation of their bill pursuant to a consent order dated 16^th March 2005 whereby the Plaintiff’s case was dismissed and he had to pay the costs of the 1^st Defendant, to be taxed if not agreed.  There was no agreement and the 1^st Defendant submitted their bill for taxation.

2.  The Plaintiff filed a list of objection and enclosed therewith a number of letters which had been marked “without prejudice”.  The 1^st Defendant objected to their production as evidence and request the document be expunged.

3.  In support of the application, the 1^st Defendant has filed one affirmation.  And the Plaintiff has also filed an affirmation in opposition.

The Law

4.  The 1^st Defendant asked for expunging of the letters on the ground that they are privileged communications.  It is not disputed that whether a letter is privileged does not depend on whether it is label as “without prejudice”.  The true nature of the communication should be considered.

5.  In a judgment by Mr. Justice Seagroatt in Meng Zhu Lin also known as Mong Chu Lam v. Xie Xiao and others HCPI 722 of 2001, at paragraphs 34 and 35, His Lordship said –

“It is clearly established that the heading “Without Prejudice” does not conclusively or automatically render privileged a document so marked.  For example where a letter is so marked, but the contents of which amount not to an offer to negotiate but merely to an assertion of the party’s rights or an attempt to argue that his case is well founded, it is not privileged [see Buckinghamshire County Council v Moran 1989, 2AER 225].  Sometimes a letter contains material relating to the assertion of rights and the strength of its case, as well as an offer in settlement.  The latter aspect can properly be considered as having been made “Without Prejudice” whereas the former material is not so covered.  In fact it would be quite pointless to seek to put it under that umbrella of privilege.

In my view it follows that a letter may be mixed in its content.  Part of it contains what is clearly a “Without Prejudice” offer and part of it is simply concerned with a statement of the issues and an assertion of the rights of the writing party.  If a court were to conclude that the mere use of the term “Without Prejudice” afforded a blanket cover for all material which was unrelated to negotiations with a view to settlement, it would dilute the principle involved – I am conscious that many practitioners unwittingly use the term on letters which either wholly or in part are entirely unrelated to such negotiations.  That practice should be strongly discouraged.”

6.  I agree entirely with the said ruling of Mr. Justice Seagroatt.

7.  Ms. Chan of P.C. Woo & Co., solicitors of the 1^st Defendant, also referred me to the case of Rush & Tompkins Limited v. Greater London Council and Another [1988] 3 WLR 939, at 942, Lord Griffiths stated the reason for exclusion of without prejudice communication:

“The "without prejudice rule" is a rule governing the admissibility of evidence and is founded on the public policy of encouraging litigants to settle their differences rather than litigate them to a finish. It is nowhere more clearly expressed than in the judgment of Oliver LJ in Cutts v Head ([1984] 1 All ER 597 at 605-606, [1984] Ch 290 at 306): "That the rule rests, at least in part, on public policy is clear from many authorities, and the convenient starting point of the inquiry is the nature of the underlying policy. It is that 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 (and that includes, of course, as much the failure to reply to an offer as an actual reply) may be used to their prejudice in the course of the proceedings. They should, as it was expressed Clauson J in Scott Paper Co v Drayton Paper Works Ltd (1927) 44 RPC 151 at 156, be encouraged freely and frankly to put their cards on the table ...  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." The rule applies to exclude all negotiations genuinely aimed at settlement whether oral or in writing from being given in evidence.”

8.  For the general rule that without prejudice communication is to be excluded from evidence, Ms. Chan accepts that there are exceptions.  She rightly refers me to the case of Unilever Plc v. The Procter & Gamble Co. [2000] 1 WLR 2436.  Walker LJ listed out the most important instances of such exceptions –

(1) As Hoffmann LJ noted in the first passage set out above, when the issue is whether without prejudice communications have resulted in a concluded compromise agreement, those communications are admissible. Tomlin v Standard Telephones and Cables Ltd [1969] 3 All ER 201, [1969] 1 WLR 1378 is an example.

(2) Evidence of the negotiations is also admissible to show that an agreement apparently concluded between the parties during the negotiations should be set aside on the ground of misrepresentation, fraud or undue influence. Underwood v Cox (1912) 4 DLR 66, a decision from Ontario, is a striking illustration of this.

(3) Even if there is no concluded compromise, a clear statement which is made by one party to negotiations, and on which the other party is intended to act and does in fact act, may be admissible as giving rise to an estoppel. That was the view of Neuberger J in Hodgkinson & Corby Ltd v Wards Mobility Services Ltd [1997] FSR 178 at 191, and his view on that point was not disapproved by this court on appeal ([1998] FSR 530).

(4) Apart from any concluded contract or estoppel, 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' (the expression used by Hoffmann LJ in Forster v Friedland [1992] CA Transcript 1052). Examples (helpfully collected in Foskett's Law & Practice of Compromise (4th edn, 1996) p 153-154 (para 9-32)) are two first-instance decisions, Finch v Wilson (8 May 1987, unreported) and Hawick Jersey International v Caplan (1988) Times, 11 March. But this court has, in Forster v Friedland and Fazil-Alizadeh v Nikbin (1993) Times, 19 March, warned that the exception should be applied only in the clearest cases of abuse of a privileged occasion.

(5) Evidence of negotiations may be given (for instance, on an application to strike out proceedings for want of prosecution) in order to explain delay or apparent acquiescence. Lindley LJ in Walker v Wilsher (1889) 23 QBD 335 at 338, noted this exception but regarded it as limited to 'the fact that such letters have been written and the dates at which they were written'. But occasionally fuller evidence is needed in order to give the court a fair picture of the rights and wrongs of the delay.

(6) [and others not relevant to this case]

The letters

9.  The case was initiated by the Plaintiff in 2000.  He claimed against 3 defendants.  The 2^nd and 3^rd Defendants had taken proceedings respectively to strike out the claim against them, and succeeded with costs in their favour.  The 1^st Defendant had not applied to strike out the Plaintiff’s claim.  Instead, the 1^st Defendant invited the Plaintiff to settle the case on the basis that the Plaintiff should have the claim dismissed with cost to the 1^st Defendant.  The invitation was set out in a letter dated 30^th May 2001 from P.C. Woo & Co. to the Plaintiff, marked “without prejudice”.  The Plaintiff responded on 4^th June 2001, also marked “without prejudice”.  The 1^st Defendant does not ask to expunge these 2 letters, and they are not relevant to the taxation one way or the other.

10.  The first letter under protest is a letter by P.C. Woo & Co. to the Plaintiff dated 13^th August 2001 (“letter A”).  It is marked “without prejudice”.  The first paragraph refer to a telephone conversation between the Plaintiff with Ms. Ling of P.C. Woo & Co. stating

“ …you indicated that you were prepared to pay our client’s legal costs.  You enquired about our legal costs to date.

We are instructed to inform you that our legal costs (assuming on party and party basis) to date is in the region of $200,000.”

11.  P.C. Woo further stated in the letter that if the case is not settled, the 1^st Defendant might apply for costs on indemnity or solicitor and own client basis at the trial.  No term of settlement was offered.

12.  By a letter dated 18^th August 2001 and marked “without prejudice save as to costs”, the Plaintiff requested P.C. Woo & Co. for a breakdown of the estimated costs of $200,000. 

13.  By a further letter dated 13^th October 2001, also marked “without prejudice save as to costs”, the Plaintiff offered to dismiss the case and pay a sum of $20,000 in settlement of the 1^st Defendant’s costs (“letter B”). 

14.  By a letter dated 8^th December 2001, P.C. Woo & Co responded by refusing the offer of the Plaintiff (“letter C”).  They further stated in the 3^rd paragraph of letter C that the estimated costs incurred by the 3^rd Defendant so far is about $325,000.  A breakdown is attached which set out the number of working hours of 4 fee earners.  It is remarked that disbursement has not been included.

15.  Letter C is also marked “without prejudice” and it is stated expressly in the letter that the breakdown is provided on a strictly without prejudice basis.  The 3^rd Defendant shall not in any way be bound by the estimates provided therein.  Then P.C. Woo & Co. set out the proposed settlement that the 3^rd Defendant would accept a payment of $260,000 in final settlement of the costs.

16.  In reply to letter C, Plaintiff wrote a letter dated 15^th December 2001 (“letter D”).  He refused the offer of settlement proposed by P.C. Woo & Co. and counter-offered $30,000 in settlement of the 3^rd Defendant’s costs.

17.  Later, the Plaintiff continued to negotiate with the 1^st Defendant for settlement; and succeeded with the consent order herein mentioned. 

18.  The 3^rd Defendant filed their bill claiming a sum over $500,000 and the Plaintiff raised objection.  One of the objections is that the amount claimed is much higher than the figures stated in Letter A and C.  There was a letter only shown to me in the hearing by Ms. Chan of P.C. Woo & Co. that the 1^st Defendant would not recover more than $430,865, a sum less than the sum set down for taxation.  I assume that is the amount billed by P.C. Woo & Co.  They said they would let the taxing master know after taxation.  I shall come back to this arrangement later herein.

19.  The undisclosed letter also seeks to explain the difference in costs.  The Plaintiff wrote an open letter dated 20^th September 2005 (“letter E”), commenting on the costs, and referring to, inter alia, the above letters.  The 1^st Defendant also objects to the production of this letter.

20.  In summary, the 1st Defendant asks me to expunge letters A-E.

The Ruling

21.  In all taxation, the taxing master is entitled to direct the production of any document which may be relevant (Order 62 rule 14 (d)).  On the attachment of the letter to the list of objection, I take it that the Plaintiff wishes to produce these letters.  And at the beginning of the hearing, the Plaintiff has confirmed to me that he objects to expunge the said letters.  By agreement of the parties, this is a ruling of a preliminary point, and as such, I have seized of the taxation.

22.  Ms. Chan argues that all the letters are privileged communication and none of these exceptions (stated above) applies to them.  In her affirmation, she explains that the costs figure stated in letters A and C were given in the hope of effecting a quick lump sum settlement on the costs’ issue.  They were purely an estimate and were not intended to accurately reflect the actual amount of professional fees that was then paid and payable by the 1^st Defendant to P.C. Woo & Co.  The costs’ breakdown attached to letter C “was created and furnished to the Plaintiff so as to give a general outline of the nature of work that had been done by the various fee earners of the Firm and the estimated time spent.  To save time and costs as the work was done in the course of settlement negotiations, the costs’ breakdown had not been meticulously prepared as a full bill and so it was not an exhaustive one.”

23.  I first deal with letter A.  The material part of the letter on estimate of costs is set out in pargraph10 above.  These are assertion of the 1^st Defendant’s cost position.  It is a statement of fact and I cannot see how, at least for this part of the letter, it could be argued to be communication for settlement.

24.  Further, letter A was issued at the time when the 1^st Defendant invited the Plaintiff to have the case dismissed with costs to the 1^st Defendant to be taxed.  One would have expected information provided under such circumstance to be correct.  It would be for P.C. Woo & Co. to explain the discrepancy.  By expunging this letter, it would create unambiguous impropriety by allowing the solicitors for the 1^st Defendant to erase what they have stated in writing. 

25.  And for letter C, it again gave an estimate of costs for inviting the Plaintiff to settle.  For the same reason stated in paragraph 24 above, it would be an unambiguous impropriety to expunge this letter.  Further, under the breakdown given under letter C, 75.78 hours of work was done by Mr. Peter Ngai, and 14.85 hours of work was done by Ms. Claudia Ling.  But in the bill for taxation, Mr. Ngai only claims 3 hours 30 mins. of work done but Ms. Claudia Ling claims over 140 hours of work done.  This drastic change in solicitor in charge and the number of hours has to be explained by P.C. Woo & Co.  This by itself would create an impropriety if I remove the breakdown from evidence. 

26.  Letters A & C must fall within the exceptions listed above and may be produced. 

27.  I accept that in letter A, P.C. Woo & Co. only said that costs is in the region of $200,000 and not suggesting that it is $200,000.  And in letter C, P.C. Woo & Co. only said that the estimated costs so far is about $325,000.  By allowing these letters be produced, it does not prevent the 1^st Defendant or his solicitors from explaining the discrepancy.  And I am not, at this stage, suggesting that they are bound by the statement on the letters.

28.  Ms. Chan also refers me to the able judgment of Master de Souza.  I have no disagreement with the rule referred to in his judgment. But each case has to be determined on its own facts.  It is found by Master de Souza that “it is abundantly obvious that the interim bill [in his case] was regarded at all times as a privileged document.”  I have no similar finding here.  And the exceptions as set out in Unilver’s case has not been relied on by the parties in Master de Souza’s ruling.

29.  In conclusion, I would allow the Plaintiff to produce letter A and C.  For letters B, D and E, they should be expunged.  But if Ms. Chan considers that she needs to refer to them to explain the discrepancy, I would allow these letters be produced.  I would hear Ms. Chan again on these letters as I have to call the parties back for submission on a further preliminary point.

Second Preliminary Point

30.  The other matter I have to consider is the way how the bill is drafted. 

31.  According to the confidential letter from P.C. Woo & Co. to the Plaintiff, they said that they only charge the 3^rd Defendant for $430,865 and costs of taxation, such amount calculated up to 30^th June 2005.  But the Bill claims an amount of $493,314.67 and costs of taxation.  This would be more than what the 1^st Defendant is liable to pay to P. C. Woo & Co.

32.  P.C. Woo & Co. argue that the 1^st Defendant is entitled to tax the full amount of costs as if there is no agreement or cap on the solicitor charges.  The ceiling is to be applied at the end of the taxation and they refer me to Hong Kong Civil Practice 2005, para. 62/App/2 & 3. 

33.  By reading the said paragraphs in the Hong Kong Civil Practice, and in particular, an English Court of Appeal case General of Berne Insurance Co. v. Jardine Reinsurance Management Ltd. and others [1998] 2 AER 301, I have reservation on the reasoning of Ms. Chan.  If P.C. Woo & Co. is wrong on this point, the whole bill has to be re-drafted. 

34.  But I would offer an opportunity for them to argue this point, and I wish to have sight of their retainer agreement with the 1^st Defendant which would be relevant.  Hence I would direct the parties to come back for further argument on this second point on a date to be fixed with one hour reserved.

35.  I also grant an order nisi in favour of the Plaintiff for costs of the first preliminary point to become absolute within 14 days, such costs to be taxed if not agreed.