It is often thought that heading a letter "without prejudice" will protect it from being disclosed later in proceedings, but as a recent case reminds us that will not always be correct. Rod Cowper and Clare Toomer consider the recent decision in Avonwick v Webinvest.
The without prejudice rule
The without prejudice rule generally prevents statements made in a genuine attempt to settle a dispute being used as evidence against the party that made them.
In Rush & Tompkins Ltd v Greater London Council and others  UKHL 7, Lord Griffiths stated that: "the contents of the without prejudice correspondence ... will not be admissible to establish any admission relating to the [party's] claim."
The rule is not absolute.
No retrospective without prejudice privilege
In Avonwick Holdings Ltd v Webinvest Ltd and another  EWHC 3322 (Ch), the Court allowed correspondence to be used in evidence, even though marked "without prejudice and subject to contract".
Avonwick had lent a substantial sum (US$100 million) to Webinvest which defaulted. There was early correspondence about re-scheduling repayment. However, no agreement was reached and on 3 April 2014, the claimant served contractual and statutory demands. They were followed by further correspondence marked “without prejudice and subject to contract”. Webinvest issued applications, supported by a witness statement from the second defendant dated 29 May 2014, relying on those exchanges to show that there was an oral "pay when paid" agreement, whereby the defendants only had to repay the claimant on receipt of repayment from a particular sub-borrower.
David Richards J recognised that:
"one might assume that communications expressly marked "without prejudice" between parties starting on the same date as the service of a contractual demand and continuing after the service of statutory demands, would attract the privilege".
However, he held that it was clear that no dispute existed at that time. The Defendants did not dispute liability until service of the witness statement on 29 May 2014. Indeed, the significance of the without prejudice correspondence was that it proceeded on the basis that there was an existing liability and it sought an agreed restructuring of that liability.
Avonwick isn’t entirely new law. In Bradford & Bingley V Rashid  Lord Mance held, albeit in relation to documents not actually marked up, that:
“The existence of a dispute and of an attempt to compromise it is at the heart of the rule whereby evidence may be excluded as “without prejudice” … the rule does not of course depend upon disputants already being engaged in litigation. But there must as a matter of law be a real dispute capable of settlement in the sense of compromise (rather than in the sense of simple payment or satisfaction).”
- Parties should be aware that while the express marking of documents as without prejudice remains a highly material factor in determining their status, it is not conclusive.
- There must be a genuine dispute at the time when the correspondence is taking place. A later dispute cannot retrospectively make the correspondence without prejudice.
- A party may be called upon to explain its use of the “without prejudice” title in correspondence if it is later alleging that the letters were not in fact without prejudice.
Other exceptions to the without prejudice rule
Without prejudice communications have also been admitted in evidence in the following circumstances:
- Where the issue is whether the without prejudice communications have resulted in a concluded settlement agreement.
- As evidence of misrepresentation, fraud or undue influence.
- Where a statement may have given rise to an estoppel.
- As evidence of perjury, blackmail or other unambiguous impropriety.
- To explain delay.
- As evidence about the reasonableness of a settlement.
- On the question of costs when the parties have written “without prejudice save as to costs” offers.
- Where communications are received in confidence with a view to matrimonial conciliation.
In Unilever  Walker LJ described the above eight examples as "among the most important" occasions on which, despite the existence of without prejudice negotiations, the without prejudice rule did not prevent the admission into evidence of what one or both of the parties said or wrote.
- Adducing evidence of the relevant terms of a settlement agreement; and
- On certain types of without notice application.
- An additional exception was created by the Supreme Court in Oceanbulk Shipping & Trading SA v TMT Asia Ltd and others  UKSC 44, known as the "interpretation exception". The Supreme Court held that evidence of facts, communicated in the course of without prejudice negotiations and those that are part of the factual matrix or surrounding circumstances, are in principle admissible on the true construction of a settlement agreement that resulted from those negotiations. Justice clearly demanded that the "interpretation exception" should be recognised
as a new exception to the without prejudice rule.