The Hong Kong Court of Appeal has confirmed the position that correspondence marked "without prejudice" may not in fact be inadmissible before the court notwithstanding the label. In Secretary for Justice v Wong Lai Yin  1 HKLRD 258, G Lam and Chow JJA noted that the weight and significance of the label should depend on the facts of the case though as a starting point, the use of the label might prompt a reasonable observer to consider that the correspondence should not be disclosed in litigation.
The dispute concerned a strip of unleased government land which adjoined a piece of land (the lot) co-owned by the first defendant, Wong Lai Yin and two other co-owners.
Following disputes among the co-owners, one co-owner complained to the District Lands Office (the DLO), that the first defendant and the other co-owner had unlawfully occupied the government land. Investigation results by the DLO suggested that the land was occupied by an extension of a building erected on the lot, and the DLO wrote to the co-owners demanding rectification, and to the first defendant demanding that the unlawful occupation cease.
The first defendant's solicitors then sent a letter marked "without prejudice" to the DLO, stating that the first defendant's family had occupied the government land for many years, requesting suspension of any prosecution, and inviting the DLO to consider granting a tenancy to the first defendant at nominal rent (the first letter). The DLO rejected these requests by a subsequent letter that was not marked "without prejudice" (the second letter).
Subsequently, the Secretary for Justice, as the plaintiff, commenced an action against the first defendant and other unnamed occupiers for recovery of the government land. The first defendant applied to strike out parts of the statement of claim which made references to the first and second letter, arguing that they were without prejudice communications. This was refused by the Master. The first defendant's appeal to the Judge was dismissed.
The first defendant then applied to the Court of Appeal for leave to appeal on the grounds that the Judge had amongst other things wrongly held that a reasonable observer would conclude that there was no extant dispute between him and the government at the time of the first letter, failed to take account of the subsequent events and conduct of the parties, and erred in disregarding the importance of the "without prejudice" label on the first letter.
The Court referred to the principles for a claim that the without prejudice rule applies to succeed as set out in the case Avonwick Holdings Ltd v Webinvest Ltd  4 HKC 90. In essence, the claiming party must establish that the communication in question was made:
- In a bona fide attempt to settle a dispute between the parties.
- At a time where a dispute existed between the parties in respect of which legal proceedings had commenced or were contemplated.
- In a genuine attempt to further negotiations to settle the dispute.
- With the intention that, if negotiations failed, the communication could not be disclosed without the consent of the parties.
The fact that a communication concerns a dispute between the parties alone is not sufficient. The communication must be made in furtherance of the settlement of the dispute.
In considering whether there was an existing dispute between the parties, the subjective thinking of the parties or their solicitors is irrelevant. The court has to determine, on an objective basis, that both parties realized or must or should have realized that they were seeking at the time to compromise a dispute. All relevant circumstances will be taken into account in reaching a conclusion.
For example, attempts to resolve a dispute over the existence or extent of a liability will be privileged, whilst mere discussions as to how an admitted liability is to be paid is not. Furthermore, the mere fact that a person is seeking a concession does not give rise to the rule.
In this case, the first defendant did not dispute the government's right to the government land in the first letter - it merely suggested that the government was not in an urgent need to recover the government land. The first defendant's suggestion of a tenancy at a nominal rent was a request for a concession, and the court could not infer from this in all the circumstances that the first defendant was disputing the government's right to recover the government land.
Significance of a "without prejudice" label
As a starting point, a "without prejudice" label will at first sight prompt a reasonable observer to consider the possibility that the communication in question would be related to negotiations between the parties, that the parties might have intended the communication should not be disclosed in the litigation.
However, the use of a "without prejudice" label is by no means conclusive evidence that the without prejudice rule applies.
The contents of the communication may show that there is no existing dispute, hence, the communication will not necessarily be protected by the privilege. The ultimate weight and significance of the "without prejudice" label depends on the facts of each case.
Label not conclusive
This case is a good reminder that a "without prejudice" label alone does not necessarily mean that communications are inadmissible as evidence.
For the without prejudice rule to apply, parties must prove, among others, that any such communication was made in a bona fide attempt to settle a dispute between the parties, and with the intention that if negotiations failed, the communication may not be disclosed without the consent of the parties.
Whether there was an existing dispute is a question of fact, and it is necessary that both parties realized or must or should have realized that they were seeking at the time to compromise a dispute. All relevant circumstances will be taken into account by the court in reaching a conclusion.
Authored by Byron Phillips, Nigel Sharman, and Vanessa Kwok.