In the recent case of ‘Avonwick Holdings Ltd v Webinvest Ltd and another’ [2014] EWCA Civ 1436, the Court considered whether or not correspondence marked “Without Prejudice and Subject to Contract” should be admitted in evidence. Despite the “Without Prejudice” label, the Court decided that the correspondence was not privileged, as it was made at a time when there was no dispute between the parties.

The case is a reminder that not all communications marked “Without Prejudice” will be privileged and care should be taken when relying on the “Without Prejudice Rule”.

What is the "Without Prejudice Rule"?

By way of reminder, the “Without Prejudice Rule” or “WP Rule” prevents statements which are made in a genuine attempt to settle an existing dispute from being presented to the Court as evidence of admissions against the interest of the party making the statement. It is sometimes referred to as a form of privilege. In general, both parties to Without Prejudice correspondence must agree before the document can be put before a Court or Tribunal.

The reasoning behind the WP Rule is to encourage the parties to settle their disputes out of Court and arbitration. The WP Rule encourages parties to speak freely and frankly, safe in the knowledge that any admissions made to try to resolve the matter will not be used against them if the settlement negotiations are unsuccessful.

It should be noted that not all communications marked “Without Prejudice” or “WP” will necessarily be within the ambit of WP privilege. In order to attract privilege, the WP communication must be made in a genuine attempt to settle an existing dispute. This was demonstrated in the case of‘Avonwick Holdings Ltd v Webinvest Ltd and another’.

The Facts

The claim related to the repayment of monies said to be due under the terms of a Loan Agreement and an associated Deed of Guarantee. 

The Claimant was seeking to recover monies alleged to be due. The Claimant applied for an order that certain correspondence between the parties and their solicitors should be admissible evidence despite the fact that much of the correspondence was headed “Without Prejudice and Subject To Contract”.

The Claimant loaned US$100 million to the first Defendant in 2010. The first Defendant borrowed the money to enable it to make an advance of its own to a sub-borrower. The first Defendant’s obligations were guaranteed by the second Defendant.

The correspondence in question was initiated by the Claimant’s solicitors in April 2014 and involved a proposal to restructure the loan. The first Defendant indicated that it was in favour of the proposals and asked the Claimant to revert with draft documentation. This correspondence was labelled “Without Prejudice and Subject to Contract”.

The Claimant subsequently decided to take action pursuant to the Loan Agreement and served demands on the Defendants. They later served statutory demands.

In May 2014, the first Defendant commenced proceedings to prevent the Claimant from issuing a winding up petition and the second Defendant applied to have the statutory demand served on him set aside. The Defendants claimed that it had been agreed between the parties at the time during which the loan was made that the obligation of the Defendants to repay the loan was conditional upon receipt by the first Defendant of repayments of the loan made by it to the sub-borrower.

The Claimant alleged that this was the first time that the Defendants had raised a so-called “pay when paid” clause and wished to rely on the WP correspondence regarding the restructuring of the loan, in order to evidence that there was in fact no dispute regarding the liability for the loan to be repaid.

The majority of the evidence was headed “Without Prejudice and Subject To Contract”. The Claimant made an application that certain correspondence between the parties and their solicitors should be admissible in evidence. The Claimant based its argument that the correspondence was not privileged on the fact that no dispute existed at the time of the correspondence.

The High Court, and the Court of Appeal on appeal, held that the correspondence was admissible at trial, as it was made when there is no dispute and it cannot be retrospectively made subject to the WP privilege by a dispute arising subsequently. The Court held that the WP Rule operates on two bases, namely public policy and contract.

Throughout the course of the correspondence in question, there had been no dispute as to the liability of the Defendants. The negotiations involved an attempt to agree a restructuring of an admitted liability. In circumstances where there was no dispute about a liability but rather a negotiation in respect of the discharge of the liability, documentation produced in the course of the discussions was not covered by the WP Rule in the admissibility of relevant evidence.

Learning Points

Parties should be cautious in labelling correspondence as “WP” and relying on this as being privileged. The case shows that whilst the labelling of correspondence as “WP” provides a strong indication that there was a genuine dispute and a genuine attempt to settle the matter, this is far from conclusive.

For a document to be inadmissible on the grounds that it is Without Prejudice, it must form part of a genuine attempt to resolve a dispute. There are two essential elements: (i) There needs to be a genuine dispute to be resolved; and (ii) There must be a genuine attempt to resolve the dispute.

The Court will look objectively at the evidence in considering whether there was a genuine dispute and/or genuine attempt to settle the matter. Put simply, to the extent that there is no genuine dispute and/or genuine attempt to settle, labelling the correspondence as “WP” will not attract privilege.

The Courts’ view clearly remains as stated by Lord Mance in ‘Bradford & Bingley Plc v Rashid’ [2006 1 W.L.R. 2066, “…it is not open to a party or parties to extend at will the reach of the ‘without prejudice’ rule or of the ‘privilege’ it affords as regards admissibility or disclosure”.

Conversely, where a document is not labelled "Without Prejudice", it will not necessarily result in a loss of Without Prejudice protection, provided that the communication is genuinely aimed at settlement.

In light of the above, it is important that caution is exercised in using the Without Prejudice label and relying upon it to offer privilege. It should be remembered that a communication marked “Without Prejudice” does not guarantee privilege from disclosure.

Clearly, the inappropriate labelling of communications can lead to additional steps in litigation as to the admissibility of evidence, which involves incurring costs and time that would otherwise have been saved.