In Crane World Asia Pte Ltd v Hontrade Engineering Ltd the Court of Appeal held that there was no legitimate interest in having a provision in a settlement letter between the defendant and a material witness which (among other things) precluded the witness from giving a witness statement to the plaintiff.(1) Therefore, the settlement letter was not 'without prejudice' and could be referred to in a witness statement for the plaintiff.
The rationale for the without prejudice protection of things said or written in a genuine attempt to settle a dispute is well understood in common law jurisdictions, as are the general principles. However, while traditionally construed as a wide form of protection by the courts in Hong Kong, the protection is not absolute. There are a number of exceptions. The exceptions are not rigid and they evolve.
One such exception is 'unambiguous impropriety'. This applies where (for example) there is no legitimate interest in the communication, such that the protection of without prejudice is lost and the communication is admissible in evidence at trial.
The defendant wrote a settlement letter to the witness in an attempt to settle separate court proceedings between the defendant and the witness. One of the terms required that the witness agree not to prepare a witness statement for the plaintiff in its case against the defendant. The settlement contained other comprehensive terms. The witness was a material witness. No settlement was reached.
As events transpired, the witness did give a witness statement to the plaintiff and that statement made references to the settlement letter. The defendant applied to strike out those parts of the witness statement on the basis that they referred to without prejudice communications as between the defendant and the witness and therefore were confidential as between the defendant and the plaintiff.
At first instance, the judge upheld the defendant's objections and ordered that parts of the witness statement be struck out as inadmissible at trial. The judge considered that the defendant's settlement letter was without prejudice and the protection was not lost because of the provision that the witness refrain from giving a statement to the plaintiff. The judge considered that the provision should be seen in the context of the overall settlement proposals.
In short, the judge did not consider that the unambiguous impropriety exception applied.
The plaintiff applied for and obtained permission to appeal to the Court of Appeal. The appeal succeeded. The Court of Appeal took a very different approach.
In its judgment, the Court of Appeal noted that the unambiguous impropriety exception applies only in the clearest of cases where the protection of without prejudice may be said to be abused – therefore, genuinely exceptional cases.
However, the Court of Appeal considered that there was no legitimate interest in having a provision in a settlement that purported to preclude a witness from giving evidence for another party. As such, the settlement letter was not without prejudice and the witness could refer to it in his witness statement for the plaintiff. The other provisions in the settlement letter did not alter this conclusion.
For the purposes of Hong Kong law, there can now be added another example of the unambiguous impropriety exception (besides other more familiar examples, such as blackmail, criminal intimidation and perjury) – namely, an attempt as part of a settlement to prevent a witness from giving a statement to another party.
The case is an illustration of the point that the unambiguous impropriety exception is perhaps easier to understand by reference to examples than it is to describe. The exception would appear to be wider than perverting the course of justice and there is no finding in the case that anyone was attempting to pervert the course of justice. Clearly, the ambit of the unambiguous impropriety exception is not straightforward – which may help to explain the different conclusions reached by the appeal court and the judge.
Parties in dispute engage in without prejudice communications on a routine and regular basis, either through their lawyers or directly. Such communications are often robust or strategic.
However, as the case demonstrates, a without prejudice communication must not be used for an improper purpose – otherwise, there is a risk that it will be admissible in evidence at trial.(2) Depending on the contents of the communication, such an outcome could be prejudicial to a party's interests or give a negative impression to a court or tribunal.
For further information on this topic please contact Jessica Wong or Jonathan Cary at Smyth & Co in association with RPC by telephone (+852 2216 7000) or email (firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.
(1) CACV 137/2016, June 20 2016.
(2) For another useful example, see the recent English appeal judgment in Ferster v Ferster  EWCA Civ 717 – an interesting case concerning a communication in a mediation context involving improper threats allegedly made to obtain an increased settlement amount. Such threats are more likely to come within the unambiguous impropriety exception, rather than (for example) unequivocal admissions made in a settlement context which a party later seeks to resile from in its formal case.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.