POBEN CONSULTANTS LTD AND OTHERS v. THE LEARWATER BAY GOLF & COUNTRY CLUB

CACV 74/2018

[2019] HKCA 107

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 74 OF 2018

(ON APPEAL FROM HCMP NO 2332 OF 2016)

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J U D G M E N T

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Hon Kwan JA (giving the judgment of the court):

1.  This is an appeal brought by the defendant against an interlocutory order made by Deputy High Court Judge Seagroatt on 24 October 2017. His reasons for the decision were given on 27 October 2017. By his order, the judge dismissed the defendant’s summons to expunge exhibit “CC‑30” in the 1^st affirmation of Cheung Choi Ngor (“Madam Cheung”) filed on behalf of the plaintiffs on 5 September 2016. The application was made on the basis that the exhibit, being a letter dated 30 October 2015 (“the Letter”) marked “without prejudice” from the defendant’s former solicitors Mayer Brown JSM (“JSM”) to the 4^th plaintiff, is protected by without prejudice privilege (“WPP”). Leave to appeal was granted by the Court of Appeal on 27 March 2018.

Background

2.  The relevant background matters may be stated as follows.

3.  The defendant is a private golf, marina and country club.  The 1^st to 4^th plaintiffs were and are part of a larger group of companies and associated companies known as the South China Group.  The 5^th plaintiff, previously known as Man Nin Investment Limited (“Man Nin”), was part of the South China Group between 1991 and 1992.  In 1992, Man Nin was sold to a third party and ceased to be part of the group.  Its name was then changed to its present name Burlingame International Company Limited (“Burlingame”).  The underlying dispute in these proceedings, which were brought by an originating summons issued on 5 September 2016, concerns the plaintiffs’ rights and interests in certain debenture units, marina certificates and berths in respect of the defendant.

4.  By a development agreement dated 15 August 1988 entered into by the defendant with Marina Ventures Hong Kong Limited (“MVHK”), MVHK agreed to complete the development of the defendant’s marina complex at its own expense in return for the right to procure subscriptions of certain debenture units and marina certificates issued by the defendant (“the First Lot Debentures”) and to recoup the development costs from such subscriptions.  The process of procuring the subscriptions is referred to as “activation” of the debentures.

5.  By a side letter dated 10 October 1988 entered into by the defendant, MVHK and Man Nin, Man Nin took over MVHK’s role as financier and acquired the rights and interests to activate the First Lot Debentures in place of MVHK.  Man Nin activated some of the First Lot Debentures from 10 October 1988 to about 20 June 1990.  It paid the defendant $33.5 million odd as subscription monies for the then remaining unsubscribed First Lot Debentures on 29 June 1990.

6.  By a disposal agreement dated 21 December 1991 between Man Nin and the 4^th plaintiff Tek Lee Finance and Investment Corporation Limited (“Tek Lee”), Man Nin granted to Tek Lee a call option to require it to sell the remaining unsubscribed First Lot Debentures, and Tek Lee granted to Man Nin a put option to require it to buy the same.  By an agreement dated 5 February 1993 between Burlingame (Man Nin had by then changed its name) and Tek Lee, Tek Lee exercised its call option and instructed Burlingame by various letters of the same date to hold the unsubscribed First Lot Debentures in favour of the 1^st, 2^nd and 3^rd plaintiffs separately.  The disposal and trust arrangement were not made known to the defendant at the time.

7.  By a power of attorney dated 13 August 1993 and provided to the defendant on 16 August 1993, Burlingame irrevocably appointed, among other persons, Madam Cheung, as its attorney to deal with all of the First Lot Debentures.  Since then, the South China companies have activated without incident some, albeit not all, of the First Lot Debentures.

8.  By a letter from the legal counsel of South China Holdings Limited to the defendant dated 30 October 2012, it was asserted that whilst Burlingame is no longer part of the South China Group as part of the reorganization, the ownership of the First Lot Debentures remains with the group all along.  Corporate documents were provided to the defendant in November 2012 to substantiate this assertion, as well as a letter of confirmation from Burlingame dated 10 December 2012.

9.  Since 2014, there had been potential buyers interested in purchasing debentures units and berths from the South China companies but none of the sales went through because of the defendant’s refusal to acknowledge the rights of those companies in respect of the First Lot Debentures.  By a letter dated 26 September 2014 from Peter Downie, the newly appointed general manager of the defendant, to Madam Cheung of South China Holdings Limited, Mr Downie stated it was not apparent to him on what basis South China would have a right to the First Lot Debentures and indicated his willingness to meet with Madam Cheung’s team “without prejudice to [the defendant’s] position and interest over the relevant debentures and memberships”.

10.  Following a meeting with the defendant on 26 November 2014, by a letter dated 8 January 2015 Madam Cheung provided further documents to the defendant including a copy of the agreement dated 5 February 1993 between Burlingame and Tek Lee.  JSM was instructed by the defendant and took over the correspondence from February 2015.  In Tek Lee’s response by letter dated 13 April 2015, it was stated that JSM’s demand for further documents to prove its ownership to the First Lot Debentures was unreasonable and if its transactions with potential buyers should fall through due to delay in processing its application for activation of the debentures, it would claim against the defendant for all loss and damage with costs.

11.  On 18 May 2015, Gordon Cheung of Tek Lee sent an email to Mr Downie stating that “given the lengthy back and forth unhelpful correspondences exchanged between Mayer Brown JSM and [Tek Lee] in relation to this matter”, Tek Lee would have no alternative but to instruct solicitors to claim against the defendant, and, “with a view to make a final attempt to resolve the matter amicably”, he proposed a meeting to discuss and resolve the issue in relation to Tek Lee’s application for the transfer and activation of the debentures.

12.  Mr Downie responded by email on 21 May 2015 marked “without prejudice”.  He stated that the position of the defendant “is clearly stated in the letters from [its] solicitors, Mayer Brown JSM” and he saw nothing unreasonable in the request for documents to prove Tek Lee’s claim. He agreed to meet “if [Tek Lee] consider it would help in resolving this matter” and put on record that any meeting between them would be a without prejudice basis.

13.  It is not in dispute that a meeting was held on 28 May 2015 and it was on a without prejudice basis.

14.  On 6 August 2015, an email[1] was sent by Gordon Cheung to Mr Downie and Jerry Mo of the defendant referring to that meeting and enclosing copies of two documents said by the defendant to be important but were not provided to it, being the disposal agreement dated 21 December 1991 and a supplemental deed dated 13 January 1992.  The documents were sent to the defendant on a “strict confidential basis” and it was asked to confirm if there was any other outstanding matter in relation to the plaintiffs’ right and entitlement of the relevant debentures.  Gordon Cheung concluded with saying that there could be another meeting to discuss if necessary.

15.  This was followed by the Letter of 30 October 2015 marked “without prejudice” from JSM to Tek Lee, which the defendant sought to expunge from the evidence.  Paragraph 1 of the Letter referred to the without prejudice meeting on 28 May 2015 and the two further documents supplied by Tek Lee under cover of the email dated 6 August 2015.  In paragraph 2, JSM stated on instructions that based on the information Tek Lee provided to the defendant so far, the defendant “would have difficulties in accepting [Tek Lee’s] claim to the title and ownership of the Relevant Debentures”.  The rest of the Letter set out in some detail the defendant’s reasons for refuting Tek Lee’s claim.  It was stated that the defendant “is not satisfied that the right of Burlingame to procure subscription of the [First Lot Debentures] has not yet lapsed, or that such right can still be exercised or enforced”, and, in any event, Burlingame remained liable to the defendant for damages for loss of membership fees and other charges due to the breach in failing to procure all the subscriptions by 30 November 1989 pursuant to a side letter dated 11 January 1989 between Burlingame and the defendant.  Unless such breach was remedied and the defendant properly compensated, the defendant’s stance was that it would not entertain any claim under or pursuant to the side letters.  The Letter concluded with a reservation of rights that nothing in it would amount to or be treated as an admission of any content of any agreements or documents which Tek Lee had provided or shown to the defendant, in particular as to the authenticity and validity of the agreements.

16.  In March 2016, the plaintiffs engaged solicitors to write to JSM to discuss the logistics of sales to potential buyers for the debentures.  On 24 March 2016, JSM stated they had instructions to accept service of legal proceedings.  The originating summons was issued on 5 September 2016 seeking a declaration that the plaintiffs hold the legal and beneficial title to the First Lot Debentures.  Madam Cheung made a supporting affirmation in which the Letter was produced as an exhibit.  Mr Downie made an affidavit in answer on 8 December 2016 alleging that Burlingame has no basis to bring the claim because its right to activate the First Lot Debentures has always been recognized by the defendant and that Tek Lee and the 1^st to 3^rd plaintiffs could not have acquired any rights in the debentures because they are not privately transferable under the defendant’s articles of association.  No objection was taken at the time to the admissibility of the Letter (by then the defendant had changed its legal representation to the present solicitors) until the defendant issued this summons to expunge the Letter on 25 April 2017.

The decision below

17.  The judge noted that although the Letter was marked “without prejudice” and it made reference to the without prejudice meeting of 28 May 2015, the Letter contained “not one word” “which could remotely be construed as negotiation, offer or tentative agreement”.  Rather, “the whole content of [the Letter], viewed comprehensively and paragraph by paragraph”, was a rejection of the plaintiffs’ contentions and an assertion of the defence.

18.  Having considered a number of authorities on the well‑established principles on this topic (including Rush & Tompkins Ltd v Greater London Council [1989] AC 1280 at 1299; Cutts v Head [1984] Ch 290 at 306; Williams v Hull [2009] EWHC 2844 (Ch) at §§17 to 23; Buckinghamshire County Council v Moran [1990] Ch 623 at 635); Unilever plc v Procter & Gamble Co [2004] 1 WLR 2436 at 2448H to 2449B), the judge was “absolutely clear” that the Letter is in no way properly to be regarded as a without prejudice communication and it was inappropriate to be so marked.  He therefore dismissed the application to expunge the Letter from the evidence.

This appeal

19.  Three broad grounds of appeal were raised and they are as follows:

(1)   The judge erred in focusing solely on the contents of the Letter and he ignored relevant considerations such as the fact that the Letter was part of a continuing negotiation conducted on a without prejudice basis.

(2)   He erred in taking into account the irrelevant consideration of whether the admission of the Letter occasioned “actual prejudice” to the defendant.

(3)   He erred in “dissecting” the Letter into different parts so as to withhold protection of WPP from those parts of the Letter which did not deserve protection.

20.  We will consider the grounds of appeal in the above order.

Submissions on ground (1)

21.  Mr Horace Wong, SC, who appeared for the defendant here and below[2], submitted that it is apparent from §§2 to 4 and 16 to 19 of the Reasons for Decision (“the Reasons”) that the judge had focused solely on the contents of the Letter.  He criticized the judge for making the erroneous assumption that a communication would only be protected by WPP if words like “negotiation”, “negotiating stance”, “offer”, “tentative agreement”, “compromise” or “potential settlement” were used.

22.  He cited Williams v Hull at §38 for the proposition that “the rule [of WPP] applies to documents which form part of negotiations, whether or not they are themselves offers”, and this means that the circumstances leading to the Letter are just as important, if not more important, than its contents.  He referred to “the process of negotiation” which began with the suggestion of a meeting by Tek Lee in its email of 18 May 2015 to resolve the parties’ disputes; the defendant’s email in answer of 21 May indicating its willingness to a meeting held on a without prejudice basis; the undisputed without prejudice meeting held on 28 May; Tek Lee’s email of 6 August sending the documents mentioned at that meeting which had not hitherto been provided and indicating its willingness to meet again if necessary; and ending in the Letter marked “without prejudice” which must be regarded as a follow‑up on the without prejudice meeting, as it sought to explain why the defendant was not satisfied with Tek Lee’s claim notwithstanding the additional documents provided.

23.  Mr Wong submitted that throughout the entire process described above, there is no evidence to suggest that either party had intended to turn the basis of the negotiation into an “open” one amidst the existence of an ongoing “without prejudice” basis.  Had the judge paid proper regard to the events which preceded the Letter, he should have held that the Letter was part of a “continuing sequence of without prejudice negotiations”, in which case WPP would continue to apply unless and until the plaintiffs prove that the basis of the communication had changed to an “open” one in that such change was brought home to the mind of a reasonable man in the position of the recipient of that information, citing Dixons Stores Group Ltd v Thames Television plc [1993] 1 All ER 349 at 351g; Cheddar Valley Engineering Ltd v Chaddlewood Homes Ltd [1992] 1 WLR 820 at 825H to 826B.

24.  A further point was made that an assertion of rights in the Letter is not necessarily inconsistent with WPP.  As stated by Arnold J in Williams v Hull at §37, “it is commonplace for without prejudice communications to include assertions of the strength of that party’s case” and “the question is whether the communication merely asserts rights or whether it asserts rights as part of a negotiation with a view to settlement”.  Mr Wong submitted that the present case should fall into the latter category.  He distinguished Buckinghamshire County Council v Moran as it was concerned with the question whether the relevant letter was in the nature of an “opening shot” in negotiations, and it was not preceded by any without prejudice negotiation (see 634G to 635D).

25.  Lastly, Mr Wong submitted if WPP is withheld in this instance, this would undermine the underlying objective of giving protection to the parties, as they cannot speak freely about all issues when seeking compromise at a without prejudice meeting if they must constantly monitor every sentence (Unilever plc v Procter & Gamble Co at 2449A to B).

Analysis of ground (1)

26.  Mr Abraham Chan, SC, who appeared for the plaintiffs on appeal[3], submitted that ground (1) rests on an “unsustainably narrow and distorted view” of the judge’s analysis.  He contended that it is “abundantly clear” the judge was “aware of” the surrounding circumstances and did not focus solely on the contents of the Letter, as the judge had made reference to the without prejudice meeting of 28 May 2015 in §§2, 20 and 21 of the Reasons.

27.  The judge was certainly aware of the without prejudice meeting.  The difficulty we have was whether he had considered that meeting and the other circumstances which preceded the Letter.  There was no mention in the Reasons of what significance, if any, should be attached to the meeting and the other preceding circumstances.  We note it was at the forefront of the defendant’s submissions below that the Letter should be regarded as “part of a continuum of genuine negotiations aimed at settlement”[4].  Even though the judge was “absolutely clear” in his objective assessment that the Letter is in no way properly to be regarded as a without prejudice communication, it is prudent to mention in the Reasons that he had considered those preceding circumstances relied on by the defendant.  And if he did not think they are of any significance or that they should pale into significance in light of the whole contents of the Letter, he should say so and explain why.

28.  It is not necessary for elaborate reasons to be given in a judgment.  It has been emphasized on many occasions in the past that reasons should be “adequate”.  Regrettably, we cannot regard the reasons given by the judge as adequate as he did not deal with the major arguments made to him, even if he had formed a clear view that they were of little or no substance and should be rejected.

29.  For the above reasons, we are unable to agree with Mr Chan it is “abundantly clear” that the judge did not focus solely on the contents of the Letter.  We think it is fair to say it is not entirely clear if he had focused only on the contents of the Letter, as contended by Mr Wong.  In the present circumstances, we ought to give the complaining party the benefit of the doubt.  We will look at the matter afresh and make our own assessment, taking into consideration the relevant background matters set out earlier and all the matters urged upon us.  For this exercise, we leave aside for the time being Mr Chan’s alternative argument[5] that the defendant’s voluntary disclosure of the email of Tek Lee dated 6 August 2015 would mean that WPP has been impliedly waived by the defendant as to the whole series of communications including the Letter.

30.  The purpose of the exercise is to ascertain whether or not a communication (the Letter in this instance) is bona fide intended to be part of or to promote negotiations.  This is to be assessed objectively as at the date of the communication having regard to all the relevant factual circumstances.  The court has to work out what, on a reasonable basis, the intention of the author was, and how it would be understood by a reasonable recipient (Williams v Hull at §19, quoting Schering Corp v Cipla Ltd [2005] EWHC 2597 (Ch) at §14)[6].

31.  Evidence of the actual intention of the author is not relevant.  The test is objective, subject to consideration where appropriate of the factual matrix and other matters that are properly and normally admissible in connection with the construction of a written document (Pearson Education Ltd v Prentice Hall India PTE Ltd [2005] EWHC 636 (QB) at §§15 to 22).  Evidence of subsequent events, and in particular the response of the recipient to the communication, is admissible (Williams v Hull at §20).

32.  Tek Lee and the defendant had been engaged in correspondence since 2012 about Tek Lee’s claim of entitlement to activate the First Lot Debentures, and Tek Lee had been providing documentation and explanation to the defendant as and when requested in order to substantiate its claim.  We think there was a perceptible change with the first letter from Mr Downie in September 2014, in which he stated plainly there was no basis that the South China companies would have a right to those debentures.  The defendant then engaged JSM to act for it in February 2015.  Another round of correspondence followed and further documents were supplied by Tek Lee to support its claim.  Tek Lee found the lengthy correspondence with JSM “unhelpful”, and proposed a meeting with the defendant directly in a “final attempt to resolve the matter amicably”.  The defendant agreed to a without prejudice meeting.

33.  The communications at the meeting of 28 May 2015 are clearly protected by WPP, as the meeting was held in an attempt to resolve the disputes between the parties.  Thereafter, there was one communication from Tek Lee (the email dated 6 August 2015) and the Letter from JSM (dated 30 October 2015).  After the Letter, there was a gap of four months (as we were given to understand by Mr Wong) until March 2016, when Tek Lee engaged solicitors to write to the defendant, and this further round of correspondence ended in JSM’s letter of 24 March 2016 stating that they had instructions to accept service of legal proceedings.

34.  Mr Wong contended that once a communication was regarded as protected by WPP, WPP would continue to apply to the communications that followed unless and until it was clearly brought home to a reasonable recipient that the basis of the communication had been changed from without prejudice to an open basis.  But each case depends on its own facts.  The proper approach to be adopted in a particular case must depend on the context of the particular situation.

35.  Here, a without prejudice meeting was held in an attempt to resolve the disputes between the parties.  As the communications at the meeting are protected by WPP, the court is unable to gauge whether the communications evinced a genuine desire to negotiate.  We do have two communications after the without prejudice meeting.  In none of them can one discern any indication of willingness to negotiate.  On Tek Lee’s part, it supplied further documents that the defendant said were important at the meeting but had not been provided.  On the defendant’s part, it stood its ground firmly and clearly and by the Letter issued by its solicitors gave a comprehensive rebuttal of the salient documents provided by Tek Lee in support of the latter’s claim.  The sequence of communications came to a stop until it was resumed some four months later.  Other than the fact that the meeting of 28 May 2015 was held without prejudice, and that the Letter was marked “without prejudice” (it is well established that the marking of a communication as “without prejudice” is not conclusive and does not mean it must be protected by WPP), we can discern no indication at all of a bona fide attempt to engage in or continue with negotiation or a genuine desire to reach a compromise.

36.  Taking the whole of the circumstances into account, we are firmly of the view that a reasonable recipient of the Letter would not have understood it to be a negotiating document.  Rather, the Letter merely asserted the rights of the defendant and could not reasonably be regarded as part of a negotiating process.  The judge is correct in holding that the Letter was inappropriately marked “without prejudice” as it bears “no relationship to any negotiating stance, or offer, or compromise” and it would not be protected by WPP.

37.  In light of our conclusion, it is not necessary to consider Mr Chan’s alternative argument that there was implied waiver of WPP by the defendant’s voluntary disclosure of the email of 6 August 2015, which is premised on the email and the Letter being protected by WPP.  We make no comment on Mr Wong’s assertion that the disclosure of this email, which was produced twice, was due to “oversight”.

Grounds (2) and (3)

38.  We propose to deal with these grounds briefly, as we do not think they add anything of substance to the defendant’s case on appeal.

39.  We agree with Mr Chan that on a fair reading of §§19 to 22 of the Reasons, the judge did not actually hold that the Letter was not covered by WPP on the basis that “actual prejudice” was not shown by the defendant.  Mr Chan rightly observed that this is reinforced by the judge’s observation in §22 that how essential the contents of the Letter are to the plaintiffs’ case was not a matter for him to assess.

40.  Nor do we think the judge had “dissected” the Letter into different parts so as to withhold WPP from those parts which did not deserve protection.  The order made by the judge involves no dissection of the Letter in any way.  The defendant’s application to expunge the Letter from the evidence was simply dismissed in toto.  In any event, the invitation made by the judge to remove the reference to the without prejudice meeting in the Letter was declined by Mr Wong, it had no bearing at all on the order made.

The respondent’s notice

41.  The contentions in the respondent’s notice were made on the premise that WPP prima facie applies to the Letter and one or more of the exceptions would apply to exclude the Letter from the protection of WPP (namely, unambiguous impropriety, the issue is unconnected with the truth or falsity of anything stated in the negotiations, and the defendant has put its own conduct in issue).

42.  As we have held that the Letter is not covered by WPP, it is unnecessary to deal with the exceptions to WPP in the respondent’s notice.

Conclusion and costs

43.  We dismiss the defendant’s appeal.  We have heard submissions on costs.  There is no dispute that costs should follow the event.  We order the defendant to pay the plaintiffs’ costs of this appeal, with a certificate for two counsel.