It is well established that what is commonly referred to as “without prejudice” privilege is not limited to protecting offers of settlement per se. Communications between parties that are genuinely aimed at resolving a dispute will also be protected, that is, they will not be admissible in evidence. In New South Wales, without prejudice privilege is provided for in section 131 of the Evidence Act 1995 (NSW) (“the Act”).

There is however a number of recognised exceptions to without prejudice privilege, both at common law and contained in section 131(2) of the Act. In Unilever plc v The Procter & Gamble Co. [2000] 1 WLR 2436 at 2444, Walker LJ referred to one exception as follows:

"… One party may be allowed to give evidence of what the other said or wrote in without prejudice negotiations if the exclusion of the evidence would act as a cloak for perjury, blackmail or other "unambiguous impropriety" … But this court has … warned that the exception should be applied only in the clearest cases of abuse of a privileged occasion."

This has been referred to as the "unambiguous impropriety" exception to without prejudice privilege. Not surprisingly, it has rarely arisen in the case law. The Federal Court of Australia decision of Dataquest (Australia) v Dataquest Inc [1996] FCA 1685 provides one example.

Approximately 7 days after the applicant commenced proceedings against the respondents (for, amongst other things, alleged misuse of the applicant’s confidential information), a letter was sent by the solicitors for the applicant offering a compromise if certain moneys were paid. The letter stated that the applicant would undertake not to issue a media release enclosed with the letter, relating to the statement of claim filed by the applicant and the allegations contained therein, in order to enable instructions to be obtained regarding the offer. The respondents filed a notice of motion to restrain the applicant from issuing the media release. The judge (Tamberlin J) commented that although the settlement offer letter was marked “without prejudice”, he considered it necessary to consider the contents “because the basic contention is that the letter evidences an abuse of process or could arguably amount to a contempt of court by bringing undue pressure to bear on the respondents to settle the proceeding”.

The Court found that the language of the proposed media release was “fair and temperate” and no case had been made out as to it being in contempt of court, defamatory, or otherwise unlawful. It concluded that:

“In all negotiation there is an element of bargaining and leverage which takes place. In the present case, I do not consider that reference to the proposed media release can be said in any way to amount to unfair or improper bargaining”.

Ferster v Ferster [2016] EWCA Civ 717

In July 2016 the England and Wales Court of Appeal (Civil Division) delivered a judgment which provides an example of a case falling on the other side of the line, that is, of the Court not countenancing a communication expressed to be “without prejudice” to be a cloak for "unambiguous impropriety".

Two sets of “hotly contested” proceedings were on foot. Interactive Technology Corporation (“the company”) at the instigation of Stuart Ferster and Warren Ferster were suing a number of defendants including their brother Jonathon Ferster for, amongst other things, breach of fiduciary duty in the management of the company. Jonathon brought proceedings claiming that the manner in which the affairs of the company were being conducted were unfairly prejudicial to the interests of the members or some of them, including Jonathon.

In the course of the proceedings Jonathan had made disclosure of his assets pursuant to a court order. Mediation took place during which Stuart and Warren had offered to sell their shares in the company to Jonathan for a specified sum. No agreement was reached. Following the mediation, Stuart and Warren made a revised offer to sell their shares to Jonathon as part of a global compromise of the two sets of proceedings. The offer included the following messages (which were conveyed by email from the mediator):

• Stuart and Warren had increased their offer because they had become aware of further wrongdoings by Jonathan. Jonathan knew the extent of his wrongdoings and Stuart and Warren believed that Jonathan was in very serious trouble which would also have serious implications for Jonathan's partner by reason of Jonathan's actions.

• Stuart and Warren had information that Jonathan did not only hold bank accounts in England (as per his affirmation) but also that various additional offshore accounts were held by him or on his behalf (by his partner).

• Mr Watts (the partner dealing with the matter on behalf of Jonathan) was expected to take his client's instructions as a matter of urgency as a settlement would obviate the need of further steps such as committal proceedings being issued.

• If Jonathan had sworn false evidence Mr Watts would be aware that Jonathan would face charges of perjury, perverting the course of justice and contempt of court and was likely to be imprisoned. If Jonathan’s partner was implicated he would likewise be investigated and/or charged.

• In the above circumstances, Jonathan's credibility and reputation would be destroyed. He will also have no prospect of succeeding in this case.

Jonathon sought to amend his petition to refer to the contents of the above email (with proposed settlement figures redacted). The judge held that the contents of the email showed that it fell within the "unambiguous impropriety" exception to that privilege, and thus was available for use in the proceedings brought by Jonathon. Stuart and Warren appealed to the England and Wales Court of Appeal (Civil Division) from the judge’s ruling.

Counsel for Stuart and Warren submitted amongst other things that the judge erred in stating that the increase in price in his clients’ revised offer to Jonathon had nothing to do with any increase in the value of the shares or of the company's business. Counsel distinguished between demanding more money than a claim is worth, and demanding an increased sum which still remained a discount compared to what the claim is worth. He submitted that the present case was a case in the latter category whereas the judge had treated it as one in the former category.

The Court of Appeal rejected this submission on the basis that it would have been entirely possible for Stuart and Warren to make an increased offer for the sale of their shares by reference to what they regarded as their increased value (once the contents of the undisclosed bank account had been allowed for), or because of what they perceived to be the increased prospects of the company succeeding in its action. On a fair reading of the email that was, however, not the offer which they chose to make. The Court of Appeal said that:

“In the end … what is involved here is an evaluation of whether the threats unambiguously exceeded what was "permissible in settlement of hard fought commercial litigation”.

The Court of Appeal concluded that it agreed with the judge that the threats here did amount to "unambiguous impropriety", and thus were admissible in the litigation, essentially for the reasons the judge gave which included:

  1. The threats went far beyond what was reasonable in pursuit of civil proceedings, by making the threat of criminal action (not limited to civil contempt proceedings).
  2. The threats were of immediate publicity being given to allegations of extreme severity against Jonathan and his partner within a short timescale. This placed quite improper pressure on Jonathan.
  3. There was no attempt to make any connection between the alleged wrong and the increased demand.

Take home points

• The Courts recognise that litigation is often hard fought and emotions are often high. There is also a strong public policy in parties being encouraged to settle their disputes out of Court and, to that end, being able to negotiate and exchange their positions frankly and without fear that anything said may be used against them. However, reasonable bounds still apply.

• In particular, conduct which crosses the line of "unambiguous impropriety" provides a recognised exception to without prejudice privilege. Exerting unfair pressure on the other party to accept an offer, or statements made not with a view to seeking compromise but rather in the nature of an ultimatum to the other side, may depending upon the circumstances meet this test of "unambiguous impropriety".

• Conduct on a without prejudice basis which amounts to “unambiguous property” could even (depending upon the circumstances) give rise to a charge of contempt of court or even the criminal offence of blackmail.

• Practitioners and clients need to be cognisant of the above matters and in particular need to be aware that without prejudice privilege is not absolute and has a number of exceptions, not limited to the one discussed in this article.