CASE REVIEW: East Coast Economic Region v Inai Kiara Sdn Bhd & Anor and

another appeal [2019] MLJU 1251

1.0 INTRODUCTION

This case was held in the Court of Appeal, Putrajaya. The presiding judge in this case
is Abdul Rahman Bin Sebli, Suraya Binti Othman And Stephen Chung Hian Guan JJCA.
This case was reported on 22 March 2019.

2.0 MATERIAL FACTS

The respondent formed a joint venture company to undertake a project known as the
‘Proposed Construction and Completion of Breakwater for the New Deep Water Terminal at
Kuantan Port, Pahang’ for the appellant. The respondent was appointed as the contractor for
the project. By notice in 2016, the appellant terminated the contract and the appellant called
upon Malayan Banking Berhad (Maybank) to pay sum of RM40,416,511.11 under a bank
guarantee as stipulated in the contract. This guarantee had been provided in Clause 51 of the
contract which required the Respondents to provide a performance bond equivalent to 5% of
the total contract sum of RM808,330,222.20 by way of an irrevocable and unconditional bank
guarantee for the due performance and observance of the contract and this was provided via a
Maybank bank guarantee in the sum of RM40,416,511.11. The respondent filed a suit against
appellant for a declaratory order that the contract was reinstated and binding on the parties
and for specific performance and injunctive relief. The respondent applied for an interim
injunction to restrain the Appellant from effecting any claim against the bank guarantee until
the disposal of this suit and was granted an ex-parte injunction.

By an Originating Summons (Enclosure 35), the Respondents applied to expunge

certain letters marked ‘without prejudice’ which were referred to and annexed as exhibits in
the Affidavit of one Arizan bin Arifin, affirmed on behalf of the Appellant, to be used in
Encl.5 and Encl. 10. The learned judge allowed the OS application. The Appellant has filed
an appeal against that decision. This is Appeal No. 1048. By Enclosure 22, the Appellant
applied to stay the proceedings of this suit pending reference of the parties’ disputes to
arbitration. The parties subsequently entered into negotiations through an intermediary to
formulate the terms and conditions to reinstate the contract.
3.0 LEGAL ISSUES

This case had many legal issues relating to various branch of law such as contract law,
arbitration law and evidence law. The issues disputed under the scope of evidence law is on
the admissibility of ‘without prejudice’ negotiations. The legal issue is whether the four
“without prejudice” letters were admissible.

4.0 SUBMISSIONS

In this case, the issue of evidence of admission was raised by the appellant. The
Appellant submitted that the communications within the impugned letters were in fact not for
the purpose of settling a dispute on whether there was a concluded reinstatement agreement;
even if the impugned letters were truly communication made without prejudice, they fell
within the exceptions to the “without prejudice” rule such that they ought to be made
admissible. The appellant also submitted that where the issue is whether there was a
concluded agreement, the ‘without prejudice’ communications could be admitted as evidence
so as to ascertain that. The Appellant also contended that they should be allowed to admit
“without prejudice” communications to correct a wrong assertion of fact; and in all the
circumstances, the Respondents have not shown that the matter was scandalous, irrelevant or
otherwise oppressive.

5.0 RATIO DECIDENDI

In the focus of the issue on the admission of evidence, the court in this case had
mentioned the without prejudice rule. The court ruled that the 4 letters contained genuine
proposals to settle the dispute between the parties, but the parties did not reach any settlement
be it on the termination or purported reinstatement agreement. In addition, the court ruled that
the respondent never consented and/or waived their right to the veil of privilege. The
“without prejudice” rule is a rule governing the admissibility of evidence and is founded upon
public policy to encourage litigants to settle their disputes instead of going to trial as laid
down in Rush & Tompkins Ltd Appellants v Greater London Council and Another
respondents [1989] A.C. 1280. The court further stated that it is settled law that the heading
“without prejudice” does not conclusively or automatically render a document so marked
privileged and to be inadmissible. If privilege is claimed but challenged, the court can look at
the document so headed in order to determine its nature as been laid down in South
Shropshire DC v Amos [1987] 1 All ER 340; Malayan Banking Bhd v Foo See Moi [1981] 2
MLJ 17; CE Ling Shipbuilding Sdn Bhd v Hoe Seng Huat Hardware Co (Pte) Ltd [2004] 6
CLJ 145; N Balasingam v Singapore Airlines Ltd & Anor [1993] 1 CLJ 67.

In this case, the court held that, after reading the series of letters, there was no
intention by the appellant to attempt settlement with the respondent in respect of the contract
even there is a clause for arbitration. For all intents and purposes, the said four letters did not
discuss about the parties trying to settle the dispute in respect of the termination of the
contract or the reinstatement agreement. Instead, they were about returning the monies and
vehicles after the Appellant had terminated the contract and bearing in mind that the
Appellant had in July, 2017 appointed a new contractor to complete the balance of the
contract works. It was obvious that the respondent accepted the fact that the appellant does
not want settlement. Therefore, the without prejudice letters were admissible as evidence and
the learned judge had erred in expunged them.

6.0 ANALYSIS

The purpose of the without prejudice rule is to encourage the disputing parties to
show their efforts in finding the middle ground where both can agree upon. This rule is to
allow the counsel or legal advisers to speak freely and make concessions without worrying
that the statement made during the negotiation process can be used against them in the court,
if it happens that the negotiation failed to achieve settlement.

This rule is known as “without prejudice” negotiation or rule and it is found in

Section 23 of the Evidence Act 1950, which states that, in civil cases no admission is relevant
if it is made either upon an express condition that evidence of it is not to be given, or under
circumstances from which the court can infer that the parties agreed together that evidence of
it should not be given. This law which concerns “without prejudice” communications is
clearly seen in our Malaysian Laws and must be adhered to strictly. This case has become the
leading authority on the issue of ‘without prejudice’ rule.

Generally, all of the cases under the scope of the ‘without prejudice’ rule has been
considered on the admissibility of the admissions during negotiation after negotiation failed
as evidence at trial. However, this rule is not an absolute privileged to the parties that hold
upon it. There are many instances that can waive this privileged from protecting the parties
and render their admissions during negotiations is admissible as evidence in court. There are
number of exceptions to the rule, that had been pronounced and acknowledged by the
Malaysian Court.

This case has become one of the examples that shows the acknowledgement of
exception to the ‘without prejudice’ rule. This case had established the principle that this
privileged can be waived through the conduct of the parties, such as putting ‘without
prejudice’ notice in the letterhead of the letter. Veil of privilege may be waived where both
parties consent to the waiver. Waiver may also be by conduct.

The nature of this rule is such that, in the course of a settlement which is conducted
between Lawyers of the parties involved or the parties themselves, in the course of their
negotiations for their settlements, shall not be disclosed on “without prejudice”
communications basis, which means that impliedly or expressly, anything which is
communicated in whatever medium is not allowed to be disclosed in court or in a trial, unless
both parties consents to it or as will be seen later on, the other exceptions to this rule. It can
be seen that the rationale which can be deduced by this law is such that, it is to protect the
parties rights and interest, whatever is said in confidence by the other party to the opposing
side, will not be used in court against him if the said negotiations doesn’t go as planned.

In analysing the application of the rule in this case, the judge had taken the
consideration that there is no settlement between the parties. This is based on the facts that
after reading all of the letters that clearly shows the appellant had no intention to settle the
dispute. It can be seen that the requirement laid down in the case of Dusun Desaru Sdn Bhd v
Wang Ah Yu & Ors [1999] 5 MLJ 449. Interestingly in this case, Abdul Malik Ishak J has
developed the test to determine the “without prejudice” rule. The judge stated that “To me,
without prejudice communication can be said to be privileged or a better nomenclature
privileged communication. 2 common features must be present…to be activated:

(a) some individuals must be in dispute and that dispute led them to negotiate
with one another, and

(b) the communication between the parties must contain suggested terms that
would finally lead to the settlement of the dispute.”
 It was established that in “without prejudice” rule case must firstly be a case where
the parties in dispute, and the dispute led them to negotiate. Secondly, the communication
between the parties must contain suggested terms that would finally lead to the settlement of
the dispute. By fulfilling these common features, the courts stated that these two conditions
are required for this rule to apply. By applying the rule laid down in this case, therefore, it is
safe for the respondent to admit the letters as admissible evidence as there is no dispute arise
that led them to negotiate. The rule of without prejudice issue raise by the appellant was not
according with the principle laid down as there is no negotiation for settlement.

7.0 CONCLUSION

In conclusion, this case has established the principle that this privileged can be waived
through the conduct of the parties, such as putting ‘without prejudice’ notice in the letterhead
of the letter. However, there must be a settlement between the parties to put the principle into
effect. Therefore, any admissions during negotiations can be used as an admissible evidence
in the court of law. This case had affirmed the exceptions for admissions made during
negotiation settlements.