KIND RESPECT LTD v. APEX LOGISTICS LTD

DCCJ 502/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 502 OF 2004

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JUDGMENT

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1.  This is the Defendant's application by way of Summons dated 11^th April 2006 (“the Summons”) to strike out paragraphs 18, 19 and 21 and exhibit marked “AH-10” (“the Objected Contents”) of the witness statement of Hou Jui Mei [侯瑞美] (“Hou's Witness Statement”) dated 13^th January 2005, which was filed by the Plaintiff on 26^th January 2005.

2.  The basis of the Defendant's application is that the Objected Contents contain and/or are related to without prejudice settlement negotiations between the Plaintiff and the Defendant.

3.  The Plaintiff opposes the application on the ground that the Objected Contents do not contain such without prejudice negotiations.

4.  The issue before me is thus a simple one:  whether the Objected Contents contain without prejudice negotiations between the parties, which are protected by privilege.

Background

5.  To put this judgment into its proper context, I believe it is necessary for me to set out a brief background in relation to the dispute between the parties.

6.  The Plaintiff was named as the shipper under 2 bills of lading respectively numbered 2003100012 (“the Mexican Bill of Lading”) and 2003100024 (“the USA Bill of Lading”) in relation to certain goods to be shipped to a port respectively in Mexico and the USA. 

7.  There is no dispute that the Defendant signed and issued the Mexican and USA Bills of Lading, although it is the Defendant's case that it signed them as agent for the carrier. 

8.  After their arrival, the goods (“the USA Goods”) under the USA Bill of Lading were apparently released without the production of the original bill of lading.

9.  In relation to the goods (“the Mexican Goods”) under the Mexican Bill of Lading, they were detained by the Mexican Authority and stored in a warehouse thereat.  The reason of their detention is not relevant for the present purpose.

10.  In this action, the Plaintiff claims against the Defendant the sum of US$19,150.00, being the unpaid price for the USA Goods and the Mexican Goods. 

11.  The Defendant in its Defence denies its liability on various basis, including that:

(1) it was never a party to the contract of carriage of the goods since it acted only as a freight forwarder on the Hong Kong side in the transactions, responsible for arranging for the transportation of the goods and in any event had never been in possession of the goods;

(2) the goods had been duly delivered respectively to the ports in Mexico and the USA.  Thus, even if there was any breach of duty and/or conversion as alleged by the Plaintiff, it was the freight forwarders respectively in Mexico and the USA (collectively “the Overseas Freight Forwarders”), but not the Defendant, who were in breach of the said duty and/or who had committed the said conversion as alleged by the Plaintiff;

(3) further, insofar as the Mexican Goods is concerned,  it is the Plaintiff who has failed and/or refused to engage another carrier or freight forwarder to arrange the return of the same back to Hong Kong, and thus any loss alleged to have been suffered by the Plaintiff is caused by the Plaintiff's own default.

12.  The parties exchanged their respective witness statements on 26^th January 2005. 

13.  After the Plaintiff's refusal to expunge the Objected Contents from Hou's Witness Statement at the Defendant's invitation through correspondence, the Defendant took out the Summons.

Applicable principles

14.  In general, the without prejudice rule applies to exclude all negotiations, whether oral or in writing, genuinelyaimed at settlement from being given in evidence.  The purpose of the rule is to protect a litigant from being embarrassed by any admission made purely in an attempt to achieve a settlement:  Hong Kong Civil Procedure 2006, para 24/5/41.

15.  Both parties also accept that the principles applicable to the determination as to what constitutes without prejudice privileged negotiations for settlement are those set out in Re Jinro (HK) International Ltd [2002] 4 HKC 90 by Kwan J at para 13, p. 95C-G.  These principles can be summarized as follows:

(1) A party claiming without prejudice privilege on communication would have to show that the communication was made (a) at a time when there was an existing dispute between the parties; (b) legal proceedings in relation to the dispute had commenced or were contemplated; (c) the communication was made in a genuine attempt to further negotiations to settle the dispute, and (d) the communication was made with the intention that, if negotiations failed, it could not be disclosed without the consent of the parties.

(2) Further, it was not necessary for a “without prejudice” stamp to be expressly applied to the negotiations if it was clear from the surrounding circumstances that the parties were genuinely seeking to compromise the dispute.

The present case

The Objected Contents

16.  At paragraph 18 of Hou's Witness Statement, she refers to various emails all dated 30^th January 2004 (collectively “the Emails”) sent by one Mr. Roger Lin (“Mr. Lin”) of the Defendant to her suggesting to pay the Plaintiff US$1,695 as compensation for the release of the USA Goods without the production of the original bill of lading.  The Emails are exhibited as exhibit “AH-10” to the witness statement.

17.  At paragraphs 19 and 21 of Hou's Witness Statement, she refers to 3 telephone conversations between Mr. Lin and her respectively on 18^th, 25^th and 26^th February 2004 (collectively “the Telephone Conversations”), whereby Mr. Lin allegedly admitted the Defendant's fault and agreed to pay the Plaintiff US$5,650, which was subsequently increased to US$7,000, to compensate the Plaintiff's loss. 

18.  It is important to note that in referring to the Telephone Conversations, Ms. Hou says in her witness statement that the Defendant was raising or proposing  “settlement” [“和解”] with the Plaintiff.  

The parties' contentions

19.  Not surprisingly, Mr. Lam for the Defendant now submitted that the Emails and the Telephone Conversations referred to at paragraphs 18, 19 and 21 were all without prejudice communications negotiating for settlement of the dispute between the parties.    They should be excluded from the evidence.

20.  Mr. Lin at paragraph 9 of his affirmation dated 9^th April 2006 also deposed to the effect that in making these “offers” as set out in the Emails and through the Telephone Conversations, his intention “was that if our negotiation failed, such communication could not be disclosed without the Defendant's consent because it would be highly prejudicial to the interest of the Defendant.”

21.  Mr. So, counsel for the Plaintiff, however submitted that these should not be excluded as they did not constitute without prejudice communication with a view to settle an existing dispute.  His reasons in so submitting can be summarized as follows.

22.  Exhibited to Hou's Witness Statement as “AH-7” are various emails (“the Defendant's Emails”) exchanged between the Defendant and the Overseas Freight Forwarders on 18^th and 19^th December 2003.  Mr. So submitted that the Defendant had never disputed in the Defendant's Emails the Plaintiff's right to claim against the Defendant but only tried to seek indemnity or compensation from the Overseas Freight Forwarders.  In the premises, so further submitted by Mr. So, when the Emails and the Telephone Conversations were read together with and in the context of the Defendants' Emails, there was simply no dispute in extant (i.e., there was no dispute as to the Plaintiff's right to claim against the Defendant) at the time of the Emails and the Telephone Conversations.  Therefore, these communications under the Emails and the Telephone Conversations could not and did not constitute any or any genuine negotiations between the parties for the settlement of “a dispute”, as there was simply no dispute on the Defendant's liability to the Plaintiff at the material time.  As such, these communications at best only represented the Defendant's requests for the Plaintiff's accommodation in how compensation could be made to the Plaintiff, but no more.

23.  Mr. So went on to submit that, as it was the Defendant who had provided copies of the Defendant's Emails to the Plaintiff at the material time, it showed that the Defendant had always been prepared to and did “put all their cards on the table” before the Plaintiff.  In the circumstances, even if the Emails and the Telephone Conversations amounted to the Defendant's genuine attempt to negotiate for settlement, it was not and could not have been the Defendant's intention that they should not be disclosed if the negotiations failed. 

24.  For the following reasons, I do not agree with Mr. So's submissions.

25.  I should however also mention that at the hearing, Mr. So indicated that he would not be making submissions on the ground (albeit this was stated at paragraph 7 of Ms. Hou's affirmation dated 10^th May 2005 filed in opposition to the Summons) that, even if such communications were protected under without prejudice privilege, they should however not to be excluded from the evidence as the said exclusion would act as a “cloak of perjury or unambiguous impropriety”.  I therefore would not consider the merit, if any, of this ground in this judgment.

Discussions

Was there a dispute in extant?

26.  In my view, the Defendant's Emails properly read in their context do not support what Mr. So contended.  First, the Defendant's Emails were communications between the Defendant and the Overseas Freight Forwarders but not with the Plaintiff.  It was thus not necessary for the Defendant to deny or dispute the Plaintiff's right to claim against the Defendant.  In that context and circumstance, the absence of such denial in the Defendant's Email does not unequivocally or clearly support the Plaintiff's contention that there was no dispute by the Defendant of its liability to the Plaintiff.

27.  Secondly, on a proper reading of the Defendant's Emails, the Defendant was in effect contending with the Overseas Freight Forwarders that it was the Overseas Freight Forwarders who were in default in releasing the USA Goods.  As rightly pointed out by Mr. Lam, even the Plaintiff itself came to the same reading of the Defendant's Emails, as in referring to the Defendant's Emails, Ms. Hou says at paragraph 16 of Hou's Witness Statement that, in copying to the Plaintiff the Defendant's Email, the Defendant “was trying to shed its responsibility” […“並把電郵副本發給原告人，企圖推卸被告的責任”]. 

28.  I therefore do not accept that the Defendant's Emails show objectively that the Defendant was at that time not disputing the Plaintiff's right to claim against the Defendant as submitted by the Plaintiff.

29.  Further, by 2 letters both dated 19^th January 2004 and issued by the Plaintiff's solicitors to the Defendant, the Plaintiff respectively formally demanded the Defendant to (a) arrange for the return of the Mexican Goods, and (b) to deliver the USA Goods or pay the Plaintiff US$13,650 as damages within 7 days.  In the letter concerning the USA Goods, the Plaintiff's solicitors further stated that if the Defendant failed to return the goods or pay damages, legal proceedings would be instituted against the Defendant without further notice.

30.  In reply to the Plaintiff's said demand letters, by a fax dated 20^th January 2004 (“the Defendant's Fax”) and sent to the Plaintiff's solicitors, the Defendant stated that it was only acting as agent of the Overseas Freight Forwarders and:

(1) In relation to the USA Goods, it did not handle any of the cargo release operation;

(2) In relation to the Mexican Goods, there was no evidence that the Plaintiff had already received the price of the goods from the consignees and that the Mexican agent was prepared to ship the goods back provided that the Plaintiff guaranteed to pay all charges incurred.  The Defendant further provided to the Plaintiff's solicitors in this letter the information of the lawyers representing the Mexican agent for contact purposes.

31.  In my view, the Defendant's Fax in substance amounted to a denial of its liability to the Plaintiff, especially read in the context of the Plaintiff's aforesaid demand letters.  In answering my question, Mr. So fairly (and in my view rightly so) accepted that the gist of the Defendant's Fax was a denial.  On the other hand, Mr. So maintained that this did not affect his submissions that, in light of the Defendant's Emails, at the material times there was in fact no denial on the part of the Defendant of the Plaintiff's right to claim.

32.  However, for the reasons set out in paragraphs 26 and 27 above, I do not believe Mr. So's said submissions could be sustained.

33.  In any event, even if the Defendant's Emails did amount to a non denial of liability at the time of those communications as submitted by the Plaintiff, by the time when it came to the Plaintiff's demand letters and the Defendant's Fax, there was obviously a denial on the part of the Defendant of its liability to the Plaintiff in relation to the USA and Mexican Goods.  This is important, as the Emails and Telephone Conversations (which constituted the Objected Contents) only came after these demand letters and the Defendant's Fax.  In my view, it was this period of time which is most relevant to the determination as to whether there was a dispute in extant to render these subsequent communications without prejudice negotiations.

34.  In the premises, for the reasons set out in paragraphs 30 to 31 above, I conclude that at the time of the Emails and the Telephone Conversations, there was already an existing dispute between the parties as to the Defendant's liability to the Plaintiff.   Further, as demonstrated by the Plaintiff's aforesaid demand letters, the parties by then also contemplated legal proceedings in relation to the said dispute.

Were the communications made with a genuine attempt to negotiate for settlement?

35.  On a proper reading of the Emails in their totality (and read in light of the Defendant's Fax), it is also my view that they were made by the Defendant with a genuine attempt to negotiate to settle the Plaintiff's potential claim.  This is also no less demonstrated by the fact that (a) in the Emails and in proposing to pay compensation to the Plaintiff, Mr. Lin stated that in return of such compensation if accepted, the Plaintiff was to “cancel the legal action to [sic] [the Defendant]”, and (b) the proposed compensation was significantly less than the amount of damages claimed by the Plaintiff.

36.  The Telephone Conversations were communications following up the Emails.  Further, as set out in paragraph 18 above, even Ms. Hou herself described these telephone communications as the Defendant's attempt to “settle” the matter (albeit allegedly also admitting guilt in so doing). 

37.  In these circumstances, I have no difficulty in also concluding that the Telephone Conversations constitute a genuine attempt on the part of the Defendant to negotiate to settle the dispute.

Were the communications made with the intention that it would not be disclosed without the Defendant's consent?

38.  As I said above, Mr. Lin has deposed to the effect that it was his intention that these communications were not to be disclosed if negotiations for settlement failed.  Further, in light of (a) the Defendant's Fax in denying liability and the closeness of the time between the said fax on the one hand, and the Emails and the Telephone Conversations on the other hand, (b) the contemplation of legal proceedings at that time, and (c) the statement in the Emails that if the offer for compensation was accepted, the Plaintiff should cancel the intended legal action, I accept that objectively looking at the circumstances, they support the Defendant's case that it was the Defendant's intention (through Mr. Lin) not to have these communications disclosed without its consent, if such negotiations for settlement failed.

39.  I do not accept the Plaintiff's contention, as set out in paragraph 23 above, that the Defendant's Emails demonstrated that there was no intention on the part of the Defendant not to disclose these communications under the Emails and the Telephone Conversations.  I cannot see logically how the fact that the Defendant was copying the Defendant's Emails to the Plaintiff shows that the Defendant was also willing to disclose any settlement negotiations communications to other people, including the Court:

(1) First, as I conclude above, the Defendant's Emails do not show that the Defendant was not denying its liability towards the Plaintiff.  They were also not part of any negotiation for settlement.  Thus, the fact that they were copied to the Plaintiff is neither here nor there to the question of whether the Defendant had intended that any settlement negotiation communications should not be disclosed without consent.

(2) Secondly, the Defendant's Emails were made before the Plaintiff's formal demands against the Defendant and the Defendant's denial of liability under the Defendant's Fax.  As such, the Defendant's Emails in any event have little relevance or bearing on the question of whether the Defendant had the intention that any settlement negotiation communications subsequent to the said denial of liability should not be disclosed if negotiations failed. 

40.  In the premises, I am satisfied that there is sufficient evidence to show that it was the Defendant's intention that, if the negotiations for settlement failed, the Emails and the contents of the Telephone Conversations should not be disclosed without the Defendant's consent.

Conclusion

41.  For the above reasons, I am of the view that the Objected Contents contain and/or are related to without prejudice communications between the parties which are privileged, and that they should be expunged from the evidence. 

42.  I therefore allow the present application under the Summons, and order that paragraphs 18, 19 and 21 and exhibit marked “AH-10” of Hou's Witness Statement be struck out.

43.  I further make an order nisi that costs of the Summons, including costs of the hearing and any reserved costs made thereunder, be to the Defendant, to be taxed if not agreed.