The strong public policy justification for preventing reliance on without prejudice (WP) communication has recently been confirmed. It applies at any stage, including cost proceedings and to any part of the communications: any response is protected, including simply ignoring an offer.

Bestnet (B) was found liable for its use of confidential information in the development of mosquito nets. An inquiry as to damages then took place and Vestergaard (V) was awarded £385,000 - considerably less than it had claimed. B had made two WP offers to settle; the second for £300,000, but it had not made any Part 36 offer which exceeded the amount awarded. V had given no response whatsoever to either offer1.

At the costs hearing, B argued that V should be penalised in costs because of its failure to respond to the WP offers. V applied to strike out the references to the offers and their failure to respond on the grounds that they were protected by WP privilege.

B argued that the strict WP privilege should not apply in cost proceedings. That argument was decisively rejected.

It also argued the privilege protected communication but not inaction. Once again, this was decisively rejected. The Judge explained that a recipient of an offer was free to make any response, which might be to make a counter-offer, ask for more information, reject the offer or ignore it, all of which would be protected by the privilege.

Finally, B argued that the privilege had been waived. The Judge also held that there had been no waiver, although the precise reasoning is not entirely clear. V sought indemnity costs on the basis that B’s conduct in the litigation was worthy of criticism, apparently because there was no evidence of any relevant offer to settle. B argued that raising this as a matter of conduct brought the existence of all offers into question and so impliedly waived the privilege. The Judge rejected this argument finding that V had merely set out a summary of the findings that it wished the Court to make based on the evidence before it. The Court had no evidence about any offers, so the statement could not be taken as making any assertion about V’s conduct but rather was simply a statement about the state of the evidence2.

Some important points arise:

  • The protection afforded by WP privilege does apply to costs proceedings unless both parties agree to the contrary or the correspondence is carefully marked such that the privilege is lifted. In Vestergaard, some of the letters were marked “wp save as to costs of the detailed assessment”. However, it was common ground that this was a reference to the assessment proceedings to determine the costs of the liability trial and so made no difference to the costs of the inquiry.
  • The distinction apparently drawn by the Judge between a mere description of the absence of evidence of any offer (and therefore no waiver) and a positive statement that there had been no attempt to settle (which would give rise to a waiver) appears to be very narrow and may have turned upon the particular facts. It is by no means clear that another Judge would approach such a submission in the same way and so parties considering an application for indemnity costs in these circumstances will not necessarily be able to safely proceed on the assumption that there will never be a waiver if these arguments are deployed.