THE NATURE AND SCOPE OF THE “WITHOUT PREJUDICE” RULE

• Date: 01 December 2003
• Author: HO HOCK LAI
• Published date: 01 December 2003
• Citation: (2003) 15 SAcLJ 419

Sinojaya Sdn Bhd v Metal Component Engineering Pte Ltd 1

1 A rule of evidence that is particularly important to lawyers engaged in civil practice2 is the rule relating to “without prejudice” negotiation.3 This rule came under the scrutiny of the High Court recently. In Sinojaya Sdn Bhd v Metal Component Engineering Pte Ltd,4 the plaintiff (“Sinojaya”) applied for summary judgment against the defendant (“MCE”) for the price of goods sold. The case for MCE was that they had made the agreement as the undisclosed agent for a company (“Hoyo”) which was a third party to the action. MCE alleged that the agency was disclosed soon after the agreement was made and that Sinojaya and Hoyo dealt directly with each other in carrying out the agreement.

2 In the affidavits filed by Sinojaya in support of their application, references were made to what had been said at a meeting between representatives of all three companies. No lawyer was present at the meeting and it was not expressly stated to be “without prejudice”. The purpose of the meeting was to work out a satisfactory arrangement in settlement of their dispute. The proposal, essentially, was that MCE should pay Sinojaya what was allegedly owed to them in instalments, the schedule of which was to be agreed, and that MCE should look to Hoyo for reimbursement. Minutes of the meeting were prepared by a representative of MCE and circulated to the other two parties. A copy of the minutes was exhibited in one of the affidavits filed on behalf of Sinojaya.

3 MCE applied to strike out those paragraphs of the affidavits filed on behalf of Sinojaya which referred to the discussion at the meeting and also to strike out the exhibit of the minutes. The basis for MCE’s application was that the communication made at the meeting was

protected by the “without prejudice” privilege. At the first hearing, the claim of privilege was dismissed by the Deputy Registrar. An appeal was made to the High Court. Woo JC allowed the appeal.

4 The arguments revolved around three issues. The first concerned the significance of the fact that nothing was said at the meeting, or in the minutes of it, that the meeting was conducted on a “without prejudice” basis. The judge held that a communication may be privileged even if it was not expressly stipulated to be “without privilege”.5 This is undoubtedly right at common law.6 But is the position the same under the Evidence Act?7 As the judge noted, the “without prejudice” rule “is given expression in … s 23” of that Act.8 Section 23 comes into operation in two situations. The first is where there was “an express condition that evidence of [the negotiation] was not to be given” and the second is where the court can, from the circumstances, “infer that the parties agreed together that evidence of it should not be given”. Since the second limb of section 23 makes it clear that an agreement for the purpose of that provision may be implied from the circumstances of the case, it must be right that the failure to stipulate expressly that the meeting was “without prejudice” was no bar to the application of section 23.

5 The second issue was whether the meeting had resulted in a concluded agreement. Why should this matter? It seemed to have been assumed that the privilege ceases to protect a communication once it results in an agreement.9 But that would not be an accurate statement of the common law position. The “proposition that if the negotiations succeed and a settlement is concluded the privilege goes” was rejected by Lord Griffiths in Rush & Tompkins Ltd v GLC.10 It is true that, in Walker v Wilsher,11 Lindley LJ said, in a dictum:12

“If the terms proposed in the letter are accepted a complete contract is established, and the letter, although written without

prejudice, operates to alter the old state of things and to establish a new one. A contract is constituted in respect of which relief by way of damages or specific performance would be given.”

6 This dictum was applied in Tomlin v Standard Telephones.13 The plaintiff claimed against his employers for damages for personal injuries. His claim was grounded in an agreement allegedly reached with the defendants14 under the terms of which the latter agreed to pay compensation on the basis of 50 percent liability. The defendants denied that such an agreement was ever reached. To prove that there was such an agreement, the plaintiff sought to admit in evidence “without prejudice” correspondence between the parties. The Court of Appeal held by a majority that the letters were admissible. According to Danckwerts LJ, “the letters were admissible, because the point was whether there had been a concluded agreement of any kind between the parties in accordance with that correspondence and it would be impossible to decide whether there was a concluded agreement or not unless one looked at the correspondence.”15

7 It should be noted that in Tomlin v Standard Telephones, the plaintiff based his claim on the agreement which he said was reached in the without prejudice negotiation. But this was not the case in Sinojaya v Metal Component Engineering. As Woo JC pointed out: “The reference to the minutes was not to establish a fresh cause of action based on the alleged concluded agreement but to use them to assist Sinojaya to obtain summary judgment under the original cause of action”.16 Evidence of what transpired at the meeting assisted Sinojaya in their application for summary judgment only insofar as it showed an admission by the defendant (MCE) of liability to the original cause of action.

8 In Tomlin v Standard Telephones, on the other hand, the plaintiff did not rely on the “without prejudice” communication as an admission of liability but to prove the fact that an agreement was reached.17 That fact was relevant because the claim was based on the agreement. The

existence of an agreement can be relevant in other ways. For example, in Bentley v Nelson,18 the lessees applied for an interim injunction to restrain the lessors from entering onto the premises. A “without prejudice” agreement, which spelt out the terms of an “amnesty” between the parties pending final resolution of the dispute by the court, was held not to be privileged. The fact that there was such an agreement was material on the issue of whether to grant the injunction (since it affects the need for it) and ought to have been disclosed by the applicant. The general principle underlying such cases was so formulated by Hoffmann LJ in Muller v Linsley & Mortimer:19

“Many of the alleged exceptions to the rule will be found on analysis to be cases in which the relevance of the communication lies not in the truth of any fact which it asserts or admits, but simply in the fact that it was made. Thus, when the issue is whether without prejudice letters have resulted in an agreed settlement, the correspondence is admissible because the relevance of the letters has nothing to do with the truth of any facts which the writers may have expressly or impliedly admitted. They are relevant because they contain the offer and acceptance forming a contract which has replaced the cause of action previously in dispute.”

9 If this is right, the question to ask is whether the party seeking to admit evidence of the negotiation is using it as evidence of an admission of liability (in which case it is inadmissible) or as evidence of the fact that a settlement agreement was struck (in...