ARC News   •   February 06, 2018

Generally, a “without prejudice” letter is a privileged document that specifically relate to negotiations genuinely aimed at a settlement between parties in a dispute.

 

It is settled law that letters written without prejudice are inadmissible. In the case of Malayan Banking Bhd v Foo See Moi [1981] 1 LNS 95; [1981] 2 MLJ 17, Chang Min Tat FJ (as he then was) in delivering the judgment of the Federal Court held as follows:

 

“It is settled law that letters written without prejudice are inadmissible in evidence of the negotiations attempted. This is in order not to fetter but to enlarge the scope of negotiations, so that a solution acceptable to both sides can be more easily reached. But it is also settled law that where the negotiations conducted without prejudice lead to a settlement, then the letters become admissible in evidence of the terms of the agreement, unless of course the agreement has become incorporated in another document which would then be the evidence of the agreement.”

 

The leading authority on the issue is found in the House of Lord’s decision of Rush & Tompkins Ltd v Greater London Council and Another [1989] 1 AC 1280. It was decided by a strong bench comprised of Lord Goff of Chieveley, Lord Oliver of Alymerton, Lord Bridge of Harwich, Lord Brandon of Oakbrook and finally, the author of the judgment, Lord Griffiths. This portion of his Lordship’s decision is of interest:

 

“The rule applies to exclude all negotiations genuine aimed at settlement whether oral or in writing from being given in evidence. A competent solicitor will always head any negotiating correspondence “without prejudice” to make clear beyond doubt that in the event of the negotiations being unsuccessful they are not to be referred to at the subsequent trial. However, the application of the rule is not dependent upon the use of the phrase “without prejudice” and if it is clear from the surrounding circumstances that the parties were seeking to compromise the action, evidence of the content of those negotiations will, as a general rule, not be admissible at the trial and cannot be used to establish an admission or partial admission. I cannot therefore agree with the Court of Appeal that the problem in the present case should not be resolved by a linguistic approach to the meaning of the phrase “without prejudice”. I believe that the question has to be looked at more broadly and resolved by balancing two different public interests namely the public interest in promoting settlements and the public interest in full discovery between parties to litigation.

 

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 negotiations. These cases show that the rule is not absolute and resort may be had to the “without prejudice” material for a variety of reasons when the justice of the case requires it. It is unnecessary to make any deep examination of these authorities to resolve the present appeal but they all illustrate the underlying purpose of the rule which is to protect a litigant from being embarrassed by any admission made purely in an attempt to achieve a settlement. Thus the “without prejudice” material will be admissible if the issue is whether or not the negotiations resulted in an agreed settlement…”

 

In the High Court decision of Oh Kuang Liang v Associated Wood Industries Sdn Bhd [1995] 2 CLJ 961, Abdul Malik Ishak J heard an application by the Respondent (Associated Wood) to strike out an affidavit affirmed by the Applicant. The gist of it is as follows:

 

“…Tan deposed in his affidavit that the “without prejudice” letters between solicitors are inadmissible as they were said to be privileged. Tan took particular objections to two letters (dated 28 January 1994 and 6 April 1994) which he singled out and which clearly bore the “without prejudice” labels on them; he too took exceptions to the other three letters which equally bore the “without prejudice” tags on them. There was only one letter dated 26 February 1994 which did not carry the “without prejudice” label.”

 

In coming to his decision, Abdul Malik Ishak J stated as follows (at page 965 paragraphs a–f):

 

“I am of the considered view that the “without prejudice rule” applies generally to exclude all negotiations genuinely aimed at settlements whether oral or in writing from being given in evidence. A prudent and competent solicitor will always be on guard and will always label any negotiating correspondence with the words “without prejudice” – to make known and to make clear beyond doubt that in the event the negotiations fell through, they are not to be referred to at the subsequent trial. I think the correct approach to resolve the “without prejudice rule” would be by balancing two different public interests, namely, the public interest in promoting settlements, on the one hand, and the public interest in full discovery between parties to litigation, on the other.

 

I have done some research and I have discovered that nearly all the cases where the scope of the “without prejudice rule” has been considered concern the admissibility of evidence at trial after negotiations have failed. It is quite obvious that in these situations no question of discovery arises because the parties are well aware of what had transpired between them in the negotiations. It is not incorrect to say that the underlying purpose of the “without prejudice rule” is to protect a litigant from being embarrassed by any admission made purely in an attempt to achieve a settlement. Lindley LJ, held in Walker v. Wilsher [1889] 23 QBD 335 at 337, that the without prejudice material will be admissible if the issue is whether or not the negotiations resulted in an agreed settlement and this point seems to have been applied in Tomlin (supra). I must at once sound a warning that Walker v. Wilsher (supra) is not an authority for the proposition that if the negotiations succeed and a settlement is concluded the privilege is thrown to the wind, having served its purpose. On a proper reading of Walker v. Wilsher (supra), I would have thought that there it was held that it was not permissible to receive the contents of a without prejudice offer on the question of costs and no question arose as to the admissibility of admissions made in the negotiations in any possible subsequent proceedings. Cutts v. Head (supra) propounds the principle that in certain circumstances the without prejudice correspondence may be looked at to determine a question of costs after judgment has been given. In Re Daintrey, ex p Holt [1893] 2 QB 116; [1891-4] ALL ER Rep. 209, the Court refused to allow the “without prejudice rule” to exclude an act of bankruptcy and in Kitcat v. Sharp [1882] 48 LT 64, the Court too refused to be bound by the “without prejudice rule” when its purpose was to suppress a threat if an offer is not accepted. I am of the view that the exceptions referred to in these cases should not and must not be allowed to whittle down the protection given to all parties to speak freely about all issues in the litigation both factual and legal when seeking compromise and, for the purpose of establishing a basis of compromise, admitting certain facts. If the compromise fails, the maker should not be held accountable and the admission of the facts made for the purpose of the compromise should not be received in evidence. I am not prepared, to borrow the words of Ormrod J, in Tomlin (supra) to lift the umbrella of “without prejudice” for the applicant. Rain or shine, that umbrella should remain.”

 

Be that as it may, the “without prejudice” rule is not absolute. Throughout the years, there are a number of exceptions to the “without prejudice” rule, that had been pronounced and acknowledged by the Malaysian courts.

 

In the case of MKC Corporate & Business Advisory Sdn Bhd v Cubic Electronics Sdn Bhd & Ors [2015] 11 MLJ 775, Hadhariah Syed Ismail J stated:

 

“[36]   In Unilever’s case the instances given where without prejudice letters were admitted in evidence are:

 

(a)       letters containing a threat is admissible to prove that a threat was made;

(b)       a without prejudice letter containing a statement which amounted to an act of bankruptcy is admissible to prove that the statement was made;

(c)        evidence of the negotiations is also admissible to show that an agreement concluded between the parties during the negotiations should be set aside on the ground of misrepresentation, fraud or undue influence; and

(d)       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.

 

[37]     Applying the law to the facts of this case. The three without prejudice letters wrote by the first defendant is a proposal by them to the plaintiff to replace the tenancy agreement with a new agreement with less area tenanted to the plaintiff. Similar proposal was repeated thrice and was rejected by the plaintiff. There was no negotiation to replace the agreement, to begin with. The negotiations is only on the issue of when full vacant possession can be delivered. These letters show the first defendant had deceit the plaintiff into believing that the tenancy agreement is still exist and valid as late as 18 March 2011. Otherwise, the first defendant could not have asked for replacement. The fact that the first defendant had entered into a sale and purchase agreement dated 3 January 2011 and a tenancy agreement dated 3 January 2011, both with the third defendant and the first defendant also knew that the third defendant had entered into a tenancy agreement dated 3 January 2011 with the fourth defendant clearly show there could not be any negotiation to replace the tenancy agreement. The first defendant’s proposal is a sham. How could there be negotiations when the plaintiff did not even know its rights has been taken away. The first defendant has misrepresented to the plaintiff that 1,234,197 sqft is intact when it is not. It is clear to me that the first defendant cannot use the without prejudice label to hide what they wrote when they have deceit the plaintiff. In the circumstances, I hold the three without prejudice letters dated 1 February 2011; 16 February 2011 and 18 March 2011 are relevant and admissible to prove the deceitful act of the first defendant. I admit these letters as evidence.”

 

The same position is accepted and amplified by the court in the case Gumusut-Kakap Semi-Floating Production System (L) Ltd v Sabah Shell Petroleum Co Ltd [2017] MLJU 877, whereby Lee Swee Seng J stated:

 

“[194] The privilege that may arise from the cloak of without prejudice must not be capitalized to present a picture contrary to what had passed between the parties. McFadden v Snow (1952) 69 WN (NSW) 8 concerned a situation where the claimant had made an incorrect assertion and representation to the Court, and therefore the respondent had to produce and refer the Court to the without prejudice correspondence. An objection was taken to this by the claimant and the Court held against the claimant. At p. 9, col. 2 and p. 10 col.1 it was explained as follows:

 

‘Mr. Hicks strenuously objected to this tender on the ground that the letter was expressed to be without prejudice. It admittedly was not answered by the claimant, Mr. McFadden. It appears to me that I must admit this letter to disprove the statement in the affidavit which I have underlined that the claimant had received no reply to his letter. The alleged failure to receive a reply is highly significant for the purpose of establishing an admission (by silence) on the part of Miss Jobson that she had surrendered her tenancy and that the claimant as landlord had accepted the surrender whereby the tenancy would be extinguished by operation of law.

…

The privilege that may arise from the cloak of “without prejudice must not be abused for the purpose of misleading the court and on that ground I admitted the letter to negative the inference that otherwise might quite erroneously have been raised in claimant’s favour.’

 

[195]   The exception to this rule on “without prejudice” communication founded on public policy was also referred to in Pitts v Adney (1961) 78 WN (NSW) 886 at p. 889, col. 1 as follows:

 

‘It is of importance that the rule protecting from disclosure, discussions taking place in an endeavour to put an end to pending litigation should, in general, be applied. But it is, after all, a rule based upon public policy. It cannot be permitted to put a party into the position of being able to cause a Court to be deceived as to the facts, by shutting out evidence which would rebut inferences upon which that party seeks to rely.’

 

[196]   Likewise in Unilever plc v The Procter & Gamble Co. [2001] 1 All ER 783 at Held: p. 783 j; p. 791 j; 792 c – d the same principle was stated as follows:

 

‘…However even in situations to which the without prejudice rule undoubtedly applied, the veil imposed by public policy might have to be pulled aside, even so as to disclose admissions, in cases where the protection afforded by the rule had been unequivocally abused.

…

Nevertheless, there are numerous occasions on which, despite the existence of without prejudice negotiations, the without prejudice rule does not prevent the admission into evidence of what one or both of the parties said or wrote.

…

Apart from any concluded contract or estoppels, 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’”

 

[197]   Our local authority on this point is the case of MKC Corporate & Business Advisory Sdn Bhd v Cubic Electronics Sdn Bhd & Ors. [2015] 11 MLJ 775 at p. 807 H – I where it was observed as follows:

 

‘It is clear to me that the first defendant cannot use the without prejudice label to hide what they wrote when they have deceived the plaintiff. In the circumstances, I hold the three without prejudice letters dated 1 February 2011; 16 February 2011 and 18 March 2011 are relevant and admissible to prove the deceitful act of the first defendant. I admit these letters as evidence.’

 

[198]   There is no need for the Plaintiff to hit the alarm button as the disclosure and use of the ‘without prejudice’ materials is confined to the sole purpose of the said disclosure, namely, to rebut an erroneous, misleading or false version of events or facts presented to the Court. The disclosure, as evident above, is confined to the materials before the court, and there is no general waiver or enquiry into the wider scope of the ‘without prejudice’ communications.”

 

On the issue of “without prejudice”, the High Court in the Gumusut-Kakap’s case then held:

 

“[201] The Defendant’s position that the Plaintiff was pretty aware of the sum being discussed as the warranty claim for contractor defects was further buttressed by the Plaintiff’s own document exhibited by the Plaintiff themselves in Exhibit SBM-11 in Enclosure 80/81 at p 379. The Plaintiff may not agree with the sum, or that the sum may be subject to further discussions or change, but this does not detract from the fact that the Plaintiff had knowledge of the sum and that parties were not discussing in a vacuum or without reference to amounts claimed. The top left hand corner of the document dated 28.5.2016 is marked as “MISC”, which is the holding company of the Plaintiff. It shows at the top left hand corner the defects warranty amounts being claimed by the Defendant.

 

[202]   Amongst the sums stated therein with regards the defects warranty claims by the Defendant is stated a sum of USD36,200,038.84, which sum corresponds to the sum stated in the Plaintiff’s letter dated 19.8. 2016 at Enclosure 100 exhibit SBM-5 pages 1-3.

 

[203]   I am constrained, in the light of the evidence adduced, to agree with the Defendant that the allegation by the Plaintiff that the call on the Bank with regards the Bond was premature, unjustified and unsustainable is therefore wholly unfounded. Even if one were to accept for the purpose of argument that the Defendant must produce all reasonable and properly documented direct costs incurred in carrying out such remedial works, any dispute as to what is reasonable and what is sufficiently supported by documents are mere contractual disputes that do not come near to unconscionable conduct lacking in bona fides or for that matter, something more sinister as in pricking one’s conscience.

…

[205]   The Plaintiff having agreed to provide a Bond upon the above said terms, is bound thereby. Whilst one may look at the Underlying Contract to ascertain if any conduct of the Defendant may be fraudulent or unconscionable, one must be able to appreciate that mere contractual disputes, not uncommon where remedial works are concerned, should not be elevated to the level of unconscionability and thus denuding it of its commercial currency and efficacy. Neither can the right of the Defendant to make a call on the Bond be dependent upon the Defendant proving conclusively the reasonable and properly documented costs in this case and much less is it dependent on agreement or consent of the Plaintiff as to the Defendant’s defects warranty claims with respect to the defects work.”

 

 

                                                                                                        

Mohammad Afif Daud is a Partner at Messrs. Afif Rahman & Chong.

 

Disclaimer: Every attempt to ensure the accuracy and reliability of the information provided in this publication has been made. This publication does not constitute legal advice and is not intended to be used as a substitute for specific legal advice or opinions. Please contact the author for a specific technical or legal advice on the information provided and related topics.