Without prejudice (“WP”) privilege protects a party’s genuine attempt to settle a dispute by preventing communications made in that connection from being admitted as evidence in court. However, WP privilege may sometimes be inadvertently waived and lost by parties. It is well established that openly disclosing WP materials will result in loss of the privilege, but the situation is less clear where a party merely refers to WP materials without exhibiting them in open documents or correspondence. In Sarah Tanya Borwein Olsen v Market Dragon Ltd and Another [2024] HKCFI 516, the Hong Kong Court of First Instance considered such a scenario, and found that WP privilege can be lost where a party refers to WP material in open correspondence or documents.
Background
The decision arose from a shareholder dispute. The minority shareholder (the Petitioner) applied for a buyout order against the majority shareholder (the Respondent) for unfair prejudice. Prior to that, the parties engaged in open and WP (expressly marked as such) correspondence in an attempt to resolve their dispute.
The Petitioner filed a supporting affirmation for the petition in which she exhibited one of the open letters (the “Open Letter”) in its entirety without any redaction. The Open Letter contained references to and paraphrases of some of the letters marked WP.
Subsequently, the Respondent filed her witness statement, as well as the Open Letter and the WP materials.
The Petitioner then applied to (i) expunge the WP materials altogether and (ii) either expunge or redact references to the WP materials in the Open Letter and the witness statement, relying on WP privilege. The Respondent resisted this application, arguing that the Petitioner had waived WP privilege when exhibiting the Open Letter which encapsulated the essential elements of several prior WP letters.
Legal principles
The Court reaffirmed that WP materials are inadmissible unless a party can establish an exception or waiver. Furthermore, “waiver is concerned with justice and with protection of the privilege itself”, and this assessment will therefore usually be highly fact specific.
In deciding whether there has been a waiver, the Court distinguishes between two types of “deployment”. If a party deploys the content of WP negotiations as evidence on the merits, it waives the privilege. In contrast, if the WP materials were deployed in other ways – for example, if references are only made to the fact of their existence – the Court must then consider whether it would be unjust for the deploying party to still insist on the protection of the privilege, having regard to the purpose of the WP privilege rule.
Decision
The Court agreed that the Open Letter essentially summarised the contents of some of the parties’ WP correspondence by way of paraphrasing and direct references.
Applying the legal principles summarised above, the Court then considered whether there was “deployment” of the WP material by the Petitioner, which might result in waiver. The Court found that the Petitioner did not proffer any satisfactory answer of why it was necessary to exhibit the Open Letter in its entirety if not to support her case on merits. Having considered the evidence, the Court found that the Petitioner must have known that the Open Letter contained WP material when she exhibited it in support of the Petition. The Court also noted the Petitioner failed to seek expungement of the WP materials until one year thereafter. On balance, therefore, the Court was satisfied that the Petitioner deployed the WP material as evidence to assist her case on merits.
The Court also addressed the Petitioner’s argument that it was incumbent on the Respondent to show that it would be unjust for WP privilege to be maintained. The Court held that this was a particularly fact-sensitive question and the Court had to objectively evaluate the Petitioner’s conduct in deciding the same. In this case, the Court held that it would be unfair to deny the Respondent the right to adduce evidence in relation to the WP negotiation given that the Petitioner had expressly pleaded the settlement offer made in WP negotiation.
In view of the foregoing, the Court dismissed the Petitioner’s application for expungement and/or redactions of WP materials.
Comment
This decision serves as a reminder of the vigilance needed for handling not only privileged materials, but also any document referring to them. References, quotations, and paraphrases in open correspondence and/or documents may amount to deployment of WP materials leading to a loss of WP privilege. Furthermore, the Court will also consider whether the deploying party promptly seeks expungement and/or redaction of such references to determining whether the WP privilege should be maintained.
Notably, the Court has in this case appeared to have assumed exhibition of materials referring to WP materials without redaction is intended to advance one’s case on merits in the absence of cogent explanations to the contrary. Therefore, parties should exercise caution when exhibiting or otherwise disclosing documents referring to WP materials. In appropriate cases, parties should also consider applying redactions to avoid any inadvertent waiver of WP privilege.
For further information, please contact:
Rachael Shek, Partner, Herbert Smith Freehills
rachael.shek@hsf.com
