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Legal Update

"Substance over label" principle reaffirmed in without prejudice communications

3 May 2018
Mayer Brown JSM Legal Update

General Principles

As a general rule, written or oral communications made in a genuine attempt to settle an existing dispute are prevented from being put before the court as they are protected by "without prejudice" privilege.

The rationale for the "without prejudice" rule is based on the public interest of encouraging parties to settle disputes out of court and an implied agreement between parties arising out of consequences of negotiating without prejudice. By negotiating "without prejudice", it means such communication is without prejudice to the position of the person making the statement if the terms proposed are not accepted. The contents of such "without prejudice" communication will therefore be inadmissible to establish any admission relating to a party's claim.

For the rule to apply, it is not necessary for litigation to have actually commenced, provided that the communication was made when the parties contemplated, or might reasonably have contemplated litigation if their negotiations proved to be unsuccessful. Likewise, the rule is not confined to communications between the disputing parties, but can potentially extend further to communications with regulators with regard to settlement of an investigation and other third party communications.

To take advantage of the rule, legal communications (e.g., documents and discussions) are commonly labelled "without prejudice" explicitly to reflect the intention of the party in treating the communication as part of the negotiating process in settling the dispute. Having said that, the presence or absence of the "without prejudice" label is not determinative.

How decisive is the label?

The legal position on "substance over label" in without prejudice communications was recently confirmed in the Court of First Instance case Poben Consultants Limited and others v. The Clearwater Bay Golf & Country Club HCMP 2332/2016 in an application by the Defendant to exclude a letter written by its solicitors to one of the Plaintiffs.

Citing from South Shropshire District Council v. Amos [1986] 1 WLR 1271, the Court noted where a letter was marked "without prejudice", it gave rise to a rebuttable presumption that the communications were on a "without prejudice" basis unless it was clear the expression was used with some other meaning or purpose. The communication should be assessed objectively as at the date of communication having regard to the relevant factual circumstances.

Though the letter in question was marked "without prejudice" and referred to a "without prejudice meeting", the letter did not disclose any details of the meeting or mention any content which could remotely be interpreted as negotiation, offer or agreement. The Court had little difficulty in concluding the letter did not contain any genuine attempt to settle, but was instead a rejection of the Plaintiffs' claims. It was inappropriate for the letter to be marked "without prejudice" and the application was hence dismissed.

Takeaways for employers

Applying the label "without prejudice" does not necessarily afford the communication in question the protection of it being without prejudice. Employers intending to write on a "without prejudice" basis should ensure both that the substance of the communication contains a genuine attempt to settle an issue in dispute as well as the label of “without prejudice” is applied.

Details of the judgment

Authors

  • Duncan A. W. Abate
    T +852 2843 2203
  • Hong Tran
    Partner
    T +852 2843 4233
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