East Coast Economic Region v Development Council v Inai Kiara Sdn Bhd & Anor and other appeals [2019] 12 MLJ 143

Case: East Coast Economic Region v Development Council v Inai Kiara Sdn Bhd & Anor and other appeals [2019] 12 MLJ 143

Court: Court of Appeal (Putrajaya)

Topic: The Privilege of ‘Without Prejudice’ Letter

Facts 1.     The Appellant appointed the Respondents to carry out a project based on a contract.  As per the contract, the Respondents provided a bank guarantee or performance bond issued by Malayan Banking Bhd (Maybank) in favor of the Appellant.

2.    However, about three years into the project, Maybank appointed a receiver and manager for the First Respondent, which led to the Appellant terminating the contract and demanding payment under the performance bond.

3.    In response, the Respondents applied to the High Court (referred to as the Kuantan Suit) seeking a declaration that the termination was unlawful and an injunction to restrain the Appellant and Maybank from acting on the bank guarantee.

4.     The Appellant, on the other hand, applied to stay on the suit pending arbitration of the dispute between the parties.  The High Court refused to grant the interim injunction but stayed the suit, allowing for arbitration.

5.     Subsequently, the Respondents negotiated with the Appellant to reinstate the contract, but the Appellant insisted that the Respondents to vacate the project site along with their equipment and machinery.  The Appellant then appointed a new contractor to complete the project.

6.     The Respondents, wanting to discontinue the Kuantan Suit and file a fresh lawsuit, applied for discontinuation with liberty to file afresh. However, the Court, upon hearing the Appellant’s objection, struck out the suit instead.

7.     Following this, the Respondents filed another suit against the Appellant (referred to as the Kuala Lumpur Suit).  They sought a declaration that the contract had been reinstated through negotiations and was binding on the parties.

8.     Additionally, the Respondents requested an order for specific performance of the allegedly reinstated contract and an injunction to prevent the Appellant from calling on the performance bond until the suit was resolved.

9.     The High Court ruled in favor of the Respondents, and held that the Appellant’s call on the performance bond was unconscionable because the contract had been terminated solely based on Maybank’s appointment of a receiver and manager, which was subsequently withdrawn.

10.  The High Court granted the injunction sought by the Respondents and dismissed the Appellant’s application to set it aside.

11.  It also allowed the Respondents’ application to expunge certain “without prejudice” letters presented as evidence in the Appellant’s affidavit during the injunction proceedings. The Appellant’s application to stay the proceedings pending arbitration was also dismissed.

12.  Four letters regarding the termination or purported reinstatement agreement were attached as exhibits to Arizan bin Arifin’s affidavit.   The learned judge held that these letters contained genuine proposals to resolve the dispute between the parties.

13.   However, no settlement was reached regarding the termination or alleged reinstatement agreement. The trial judge also ruled that the Respondents did not give consent or waive their right to the privilege associated with the letters at any point in time.

14.   The Appellant however submitted in the appeal as follows:

(a)  The communications in the disputed letters did not aim to settle the dispute about whether a reinstatement agreement had been reached;

(b)  Even if the letters were indeed “without prejudice” communications, they should be considered admissible because they fall under exceptions to the rule;

(c)  When determining whether there was a concluded agreement, the “without prejudice” communications can be admitted as evidence to establish this fact;

(d)  The Appellant argued that they should be permitted to present “without prejudice” communications to rectify a false statement of fact; and

(e)  The Respondents have not demonstrated that the matter is scandalous, irrelevant, or unduly burdensome in any way.

15.  Hence, one of the legal issues regarding to the admissibility of letters marked as ‘without prejudice’ must be determined.

Issue 1.     Whether the privilege of four (4) letters marked as ‘without prejudice’ is applicable in the case?
Ratios 1.     In deciding the issue, the Court of Appeal made a quick reference to the case of  Rush & Tompkins Ltd v Greater London Council and another [1988] 3 All ER 737 where it was held that the “without prejudice” rule meant as a policy-based rule that determines the admissibility of evidence and encourages parties to settle disputes rather than going to trial.

2.     The Court of Appeal also celebrated the local case and made a reference to the case of Malayan Banking Bhd v Foo See Moi [1981] 2 MLJ 17 and CE Ling Shipbuilding Sdn Bhd v Hoe Seng Huat Hardware Co (Pte) Ltd [2003] MLJU 775 where it is a well-settled law that by simply marking a document as “without prejudice” does not automatically make it privileged or inadmissible.  If a claim of privilege is disputed, the Court can examine the document labeled as such to determine its nature.

3.     The material contents in the disputed letters were put under careful scrutiny by the Court of Appeal.  On 26.05.2017, the Respondents sent a letter to the Appellant stating that they did not accept the termination of the contract but proposed mutually agreeing to formally end it.

4.     The Appellant replied on 12.07.2017, reiterating that the contract had been terminated by a notice issued on 25.11.2016 and therefore rejecting the proposal.

5.     On 05.09.2017, the Respondents sent the last letter suggesting for the Appellant to release a sum mentioned in an interim progress claim, return a sum secured by a bank guarantee, and return the Respondents’ vehicles.

6.     In response, the Appellant acknowledged that the proposed terms were similar to the Respondents’ earlier letter but stated that they would forward the proposals to the Ministry of Finance for consideration.

7.     Following the Appellant’s notice on 25.04.2017, demanding the Respondents to remove their equipment and machineries from the site, a series of four letters were exchanged.  On 12.05.2017, the Respondents expressed a surprise reaction that the Appellant sent a final reminder despite agreeing to reinstate the contract.

8.     In response, on 19.05.2017, the Appellant disputed all allegations and maintained that the termination of the contract on 25.11.2016, was valid.  It is worth noting that the three letters, dated 25.04.2017, 12.05.2017, and 19.05.2017, were not marked as ‘without prejudice’.

9.    The Court of Appeal found that upon reviewing the letters, including the Respondents’ letter from 26.05.2017, it became evident that the Respondents had acknowledged the termination of the contract. The Respondents recognized that they could no longer continue under the contract and sought the return of funds and vehicles instead of reinstatement.

10.  The Court of Appeal also made a thorough finding that the focus of the four letters was not on attempt to settle the dispute regarding the contract termination or reinstatement agreement.  Instead, such letters primarily revolved around the return of funds and vehicles following the Appellant’s termination of the contract. It is important to note that the Appellant had already appointed a new contractor in July 2017 to complete the remaining work under the contract.

11.  The Court of Appeal finally held that the Appellant had no intention to settle the contract dispute with the Respondents. The letters also indicated that the Respondents accepted that the Appellant was not interested in reaching a settlement.

12.  Since the letters indicated that the Appellant rejected the Respondents’ claim and had no intention to negotiate, the privilege of the ‘without prejudice’ letters did not apply.

Decision 1.     The privilege of four (4) letters marked as ‘without prejudice’ is not applicable in the case.
Key Take Away 1.     The rule of “without prejudice” letters in Malaysian law is that such letters are afforded a special privilege and protection in legal proceedings.

2.     The “without prejudice” rule aims to encourage parties to engage in settlement negotiations without fear that their offers, admissions, or compromises made during those discussions will be used against them in the Court.

3.     Under the Malaysian law, “without prejudice” letters can be crucial in establishing the intention of the parties during settlement discussions and can significantly impact the outcome of a case.  If it is determined that a communication falls under the protection of “without prejudice,” the Court will generally exclude that evidence from being considered in the proceedings.

4.    However, it is essential to exercise caution and clearly label communications as “without prejudice” to ensure that the privilege applies.  Simply marking a document as “without prejudice” does not automatically guarantee its protection; the substance and context of the communication are crucial factors in determining whether the privilege applies.

5.     What matter is they are made in the context of settlement negotiations.  Thus, it is important to note that for the privilege to apply, there must be a genuine attempt to settle the dispute.

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