Without Prejudice: Threats and Admissions

As noted in the Insights for August 2016 (“Legitimate Interest in Without Prejudice Communications”) there have been some interesting recent common law developments concerning the “unambiguous impropriety” exception to without prejudice privilege.

Communications made in a without prejudice context but for an improper purpose may become admissible in evidence. For example, there is a distinction between, on the one hand, an improper threat (for example, blackmail or criminal intimidation) and, on the other hand, seeking to resile from an unambiguous admission made during settlement negotiations. While the relevant cases turn on their facts, the general principles are reasonably clear.

One important recent English appeal case is Ferster v Ferster & Ors [2016] EWCA Civ 717, which is likely to have been decided similarly in Hong Kong*. In this case, one of the brothers was allowed to amend his unfair prejudice petition so as to refer to a written communication made in the context of a mediation.

The communication (an email) was sent by two of the brothers to the other brother (the petitioner) via the mediator. By that email, the two brothers sought to increase their offer to sell their two thirds of the shares in the company. The reason for the revised offer was stated to be that the two brothers believed that the petitioner had committed certain “wrongdoings”; for example, allegedly failing to disclose (in the context of a freezing injunction) an offshore bank account held by petitioner or on his behalf.

The email alluded to various threats, including the possibility of perjury charges and contempt proceedings. The lower court characterised the threats as an “attempt at blackmail” and the Court of Appeal as “threats affecting [the petitioner’s] liberty, family and reputation”.

As a result, the without prejudice protection was lost because the courts considered that the two brothers had used the email (sent in the context of a mediation) to get more for their shares.

Some takeaway points for practitioners and their clients come to mind:

  • presumably, the two brothers could legitimately have made an increased offer for the sale of their shares based on what they regarded as an increased value (accounting for the alleged undisclosed bank account) or the better prospects of success for the company’s own action against the petitioner (that action having been instigated by the two brothers);
  • while the unambiguous impropriety exception applies only in the clearest cases where the privilege is being abused, it is easier to come within the exception where there is an improper threat as opposed to where a party seeks to challenge an unambiguous admission (para. 11 of Ferster v Ferster); and
  • when writing a without prejudice communication it pays to consider what a neutral third party would make of its content and tone.

* See (for example) s. 10 of the Mediation Ordinance (Cap. 620), Crane World Asia Pte Ltd v Hontrade Engineering Ltd [2016] HKEC 1377 (para. 21) and Hollander QC on “Documentary Evidence in Hong Kong” (para. 18-057).

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