Without Prejudice

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Without Prejudice
This guide examines the issues that parties to a dispute should consider when seeking to negotiate terms of settlement. In particular it covers: What without prejudice is and other, related, terms When without prejudice material can be used Whether without prejudice material has to be disclosed to other parties in the litigation Objecting to the use of without prejudice material

This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions. For more information please contact us at Ashurst LLP, Broadwalk House, 5 Appold Street, London EC2A 2HA T: +44 (0)20 7638 1111 F: +44 (0)20 7638 1112 www.ashurst.com Ashurst LLP and its affiliates operate under the name Ashurst. Ashurst LLP is a limited liability partnership registered in England and Wales under number OC330252. It is a law firm authorised and regulated by the Solicitors Regulation Authority of England and Wales under number 468653. The term "partner" is used to refer to a member of Ashurst LLP or to an employee or consultant with equivalent standing and qualifications or to an individual with equivalent status in one of Ashurst LLP's affiliates. Further details about Ashurst can be found at www.ashurst.com. Ashurst LLP 2010 Ref: 9092355 November 2010

Without Prejudice

Without Prejudice
The purpose of the without prejudice rule is to encourage parties to a dispute to try and reach a settlement by allowing them and their legal advisers to speak freely and make concessions knowing that their words cannot be used against them later in court if the negotiations fail to achieve settlement. However, the protection is not absolute and there are exceptions. "Without prejudice" or "WP" is a term most familiar to the litigation lawyer but is also frequently used by noncontentious lawyers and by lay persons. It is commonly misused and seems to engender a degree of mystique and confusion. This guide aims to clarify the meaning and effect of the term "without prejudice", when it should be used, and the circumstances in which the protection it gives will not apply.

1.

What is "without prejudice"?

A communication (whether written or oral1) must be made in the context of genuine settlement negotiations to be "without prejudice". Simply labelling a document "without prejudice" will not suffice. The surrounding circumstances must be looked at to decide whether the protection should apply. "Without prejudice is not a label which can be used indiscriminately so as to immunise an act from its normal legal consequences where there is no genuine dispute or negotiation".2 Even if communications are not expressly labelled "without prejudice" the protection will not be lost provided the negotiations are genuinely aimed at settlement. Pre-action letters sent by a defendant's insurers have been deemed to form part of compromise negotiations and therefore protected even though they were not headed "without prejudice".3 However, it is advisable to preface relevant correspondence or communications with the expression. This approach also extends to cases involving a chain of communication. What if the words "without prejudice" are used initially by the parties but they fail to repeat them in subsequent exchanges? Where the protection is deemed to apply to the first exchange of communication, all subsequent communications will be covered, provided that they form part of the same set of genuine negotiations.4 However, if there is evidence that the chain of communication has been broken such that the following communications are clearly intended to be on an open basis (the opposite of without prejudice), then the protection will fall away from that point. Without prejudice protection is generally accepted to extend to any dispute whether the subject of litigation, arbitration, tribunal proceedings5 or alternative dispute resolution (ADR).

2.

Other, related, terms

Privileged
Without prejudice correspondence should not be confused with privileged information. There is a distinct difference, not least because privileged information is normally information only one party has and is seeking to withhold from being disclosed to the other, while without prejudice correspondence is information that has passed between both parties in the course of negotiations and is therefore known to both parties. Without prejudice correspondence is more akin to a quasi privilege as it could be classified as belonging to the laws of contract based on an implied agreement between the two parties to protect communications from disclosure.6

1 2 3 4 5 6

Rush & Tompkins Ltd -v- Greater London Council [1989] AC 1280. Unilever Plc -v- Proctor & Gamble Co [2001] 1 All ER 783. Belt -v- Basildon & Thurrock NHS Trust [2004] EWHC 783 (QB). Cheddar Valley Engineering Ltd -v- Chaddlewood Homes [1992] 1 WLR 820. Independent Research Services -v- Catterall [1993] I C.R. 1. The Court of Appeal in Somatra -v- Sinclair Roach & Temperley [2000] 1 Lloyd's Rep 311 described the "without prejudice" principle in this way in its transcript of 26 July 2000.

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"Without Prejudice" Discussions in English Law

"Off-the-record" and "confidential" communications

While there are circumstances (discussed above) where correspondence not expressly stated to be "without prejudice" can still be so, it is generally advisable to state clearly when a party intends its correspondence to be without prejudice. Phrases such as "off-the-record" and "confidential" are sometimes erroneously used instead of "without prejudice". There is no authority on the status of the words "off-the-record", although the ordinary principles of contract and confidentiality may govern the situation, i.e. the parties have agreed that the words are to be kept confidential. However, this in itself will not promote the correspondence to the level of privileged7 so caution must be exercised in using the words "off-the-record" and "confidential". Parties should avoid the use of these two expressions if what they actually mean is without prejudice. More importantly, a "confidential" or "off-the-record" exchange (if not protected by any other means) may well be discloseable and may be used before a court.

Subject to contract
"Subject to contract" is used to denote that an agreement is not yet binding. A document labelled "subject to contract" will not, in the ordinary course, be subject to without prejudice protection. However, in circumstances where you are in negotiations and therefore want the without prejudice protection, but want your offer of settlement to be the subject of further discussion as opposed to being fully binding on acceptance, you should also head the letter "subject to contract". That is a clear indication to the other side that any settlement offered or discussed is still subject to the drawing up of formal, written, agreed terms. But these two labels achieve completely different things and should not be confused.

"Open" communications
"Open" communications are the opposite of without prejudice communications and can be referred to and relied on at trial.

3.

When can without prejudice material be used?

There are certain exceptions to the without prejudice rule: "the rule is not absolute and resort may be had to without prejudice material for a variety of reasons when the justice of the case requires it."8

Acceptance of a without prejudice settlement offer

The ordinary principles of contract law apply to agreements reached as a result of without prejudice negotiations and so as soon as an offer is accepted a binding contract comes into being. If the existence and terms of a settlement are disputed, the content of the negotiations is admissible for the purpose of determining whether a settlement agreement has been concluded and on what basis.9

Waiver by mutual consent

The without prejudice rule is a joint protection. This means that it can only be waived jointly by all of the parties to the relevant without prejudice communication. A situation where without prejudice protection was lost arose out of a failed mediation10. The defendants brought a second action alleging that the first claimant had told a third party that threats had been made against him during or after the mediation. The question was: could the threats be referred to in the main action or were they covered by without prejudice protection? The court held that ordinarily without prejudice protection applied to allegations of threats made in mediation. However, in these circumstances both parties would be deemed to have mutually consented to waive without prejudice protection ordinarily ascribed to the mediation because the
7 8 9

Santa Fe International Corp -v- Napier Shipping S.A. [1985] LT 430. Rush & Tompkins op cit. It was unclear as to whether the courts would permit evidence of without prejudice exchanges to be relied on where there is a dispute as to the proper interpretation of the settlement agreement. The decision of the Supreme Court in Oceanbulk Shipping & Trading SA -v- TMT Asia Limited and 3 others [2010] UKSC 44 has now confirmed that without prejudice evidence will be admissible in such circumstances. Hall & Another -v- Pertemps [2005] EWHC 3110.

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Without Prejudice

defendants had denied in their pleadings that any threats had been made. This is of particular concern to the defendant party as any response to publicly-made allegations arising out of protected subject matter may be interpreted as consent to waive that privilege. If they had simply submitted that anything said in the mediation was covered by the without prejudice protection, they would not have waived the without prejudice protection.

Impropriety
Protection will not be afforded to supposedly without prejudice communications which, if revealed, would show that a party was pleading patently untrue facts or making false statements. If the words used demonstrate that the party is pursuing a dishonest case or committing a criminal or fraudulent act, then the communication will be admissible as evidence.11 However, the courts treat the without prejudice veil with some respect and the principle made clear in recent Court of Appeal judgments12 is that in order to lift it "unambiguous impropriety" must be shown. This involves conduct which is in some way "oppressive, or dishonest, or dishonourable" 13 . The courts recognise that, in practice, negotiations often involve a certain amount of posturing and accept that a party may adopt a position in without prejudice discussions which is inconsistent with its open position. However, there is a line to be drawn and using the without prejudice label will not give a party "carte blanche" to be dishonest.

Without prejudice save as to costs

Communications can be marked "without prejudice save as to costs". The label means that the standard without prejudice protection applies until the court delivers judgment. Once that has occurred, the court will turn to the question of awarding costs. The English courts have a wide discretion to order one party (the paying party) to pay the legal costs of its adversary (the receiving party). The English courts operate on a "loser pays" principle; typically, the receiving party will be the party which succeeded at trial. However, the court is entitled to look at the content of without prejudice save as to costs communications for the limited purpose of deciding the extent of the costs order it makes. Accordingly, without prejudice save as to costs correspondence may be used by a party to apply costs pressure on the other side as, if it puts that party in a favourable light, it can use it to support an argument for a more favourable costs award. So, for example, even if a defendant loses at trial, evidence of an offer as or more favourable than that awarded by the court to the claimant may result in the defendant being awarded a portion of its costs notwithstanding the claimant's success at trial. This device is closely associated with, but different from, CPR Part 36 offers which have their own procedural requirements.

Evidence as to the reasonableness of a settlement

Where one party (Party A) settles a dispute with another and then tries to recover all or a portion of the settlement monies paid from another party (Party B), Party B will almost inevitably argue that, whatever the merits, Party A has settled at an unreasonably high figure. In those circumstances, the substance of without prejudice discussions may be held to be admissible as evidence in subsequent proceedings to establish the extent to which Party A had discharged its duty to mitigate its losses.14

Delay
Evidence of without prejudice negotiations could be given in order to explain delay in progressing the litigation or apparent acquiescence, for example when defending an application to strike out for want of prosecution.15

11 12 13 14 15

See for example Hawick Jersey International Ltd -v- Caplan Times, 11 March 1988. e.g. Unilever Plc -v- Proctor & Gamble op cit. Unilever Plc -v-Proctor & Gamble, at 796. Muller -v- Linsley & Mortimer [1996] PNLR 74. Unilever plc -v- The Proctor & Gamble Co [2000] 1 WLR 2436.

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"Without Prejudice" Discussions in English Law

4.

Length of time between the unsuccessful negotiation and the start of litigation: how long can it be?

The without prejudice rule prevents statements made in a genuine attempt to settle an existing dispute from being put before the court. But if there is a long period after failure of negotiations and the start of litigation, does this prevent the parties claiming that the negotiations were without prejudice because it can not be said at that time that there was an "existing dispute"? How close to commencement of litigation do the failed negotiations have to be? The Court of Appeal was asked to consider this question in Framlington Group Limited and Axa Framlington Group Limited v- Barnetson.16 There was no previous authority on the point. At first instance it had been held that the disputed communications were not without prejudice as, when they had taken place, there had been no dispute between the parties because no litigation had been commenced or threatened. The Court of Appeal disagreed, finding that the critical feature was the subject matter of the dispute, rather than how long before the threat, or start of litigation, it was aired in negotiations between the parties. It was crucial to consider whether, in the course of negotiations, the parties contemplated or might reasonably have contemplated litigation if they could not reach agreement. The court will therefore look at the purpose of the negotiations, rather than their proximity to the commencement of any proceedings, in order to answer this question.

5.

Does without prejudice material have to be disclosed to other parties in the litigation?

Suppose A, B and C are all parties to the same litigation with A being the claimant and B and C being codefendants. If A settles with B but continues the claim against C, can the without prejudice communications leading up to the settlement between A and B be referred to in evidence in the continuing litigation between A and C? The answer is found in the House of Lords' judgment in Rush & Tompkins -v- GLC17. Rush & Tompkins (a firm of building contractors) was involved in a dispute with the GLC and a second defendant and eventually reached settlement with the GLC through without prejudice negotiations. The House of Lords held that the content of those negotiations was not discloseable to the second defendant. To hold otherwise would deter parties in multi-party disputes from attempting genuine settlement in the first place. Lord Griffiths declared: " as a general rule the without prejudice rule renders inadmissible in any subsequent litigation connected with the same subject matter proof of any admissions made in a genuine attempt to reach settlement. It of course goes without saying that admissions made to reach settlement with a different party within the same litigation are also inadmissible, whether or not settlement was reached with that party".

6.

Objecting to the use of without prejudice material

If an opponent attempts, improperly, to use without prejudice material, objection should be raised as soon as possible. In practice, it is normal for parties to agree in advance of trial the bundle of material to be put before the court. This means that a party should receive advance notice that its opponent intends to rely on without prejudice material and can contest this.

16 17

[2007] EWCA Civ 502. Rush & Tompkins Ltd -v- Greater London Council op cit.

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Ashurst Quickguides
Ashurst's Quickguides are a regularly updated mini-library of short legal summaries on a range of key issues relevant to businesses. For a full list of current titles and the most up-to-date versions, please visit the publications section of our website (www.ashurst.com). If you would like further information on this guide, please speak to your usual contact at Ashurst or one of our contacts listed below. Simon Bromwich Dispute resolution managing partner T: +44 (0)20 7859 1572 E: simon.bromwich@ashurst.com David Capps T: +44 (0)20 7859 1397 E: david.capps@ashurst.com Mark Clarke T: +44 (0)20 7859 1562 E: mark.clarke@ashurst.com Tom Connor T: +44 (0)20 7859 1638 E: tom.connor@ashurst.com Lynn Dunne T: +44 (0)20 7859 3242 E: lynn.dunne@ashurst.com Ronnie King T: +44 (0)20 7859 1565 E: ronnie.king@ashurst.com James Levy T: +44 (0)20 7859 1810 E: james.levy@ashurst.com Angela Pearson T: +44 (0)20 7859 1557 E: angela.pearson@ashurst.com Tim Reid T: +44 (0)20 7859 1548 E: tim.reid@ashurst.com Edward Sparrow T: +44 (0)20 7859 1573 E: edward.sparrow@ashurst.com Ben Tidswell T: +44 (0)20 7859 1593 E: ben.tidswell@ashurst.com Iain Travers T: +44 (0)20 7859 1618 E: iain.travers@ashurst.com