The English High Court held in Avonwick Holdings Ltd v Webinvest Ltd and Another [2014] EWHC 3322 (Ch) (10 October 2014) that certain correspondence between the parties and their solicitors was admissible in evidence, notwithstanding that most of it was headed "Without prejudice and Subject to Contract".

Inter partes communications made on a "without prejudice" basis, in a genuine attempt to settle a dispute, are inadmissible as proof in pending or subsequent proceedings. The purpose behind the privilege is to encourage parties to settle disputes and avoid litigation.

This case demonstrates that the privilege presupposes the existence of a genuine dispute.   If there is no dispute about liability, but only a negotiation as to how and when it should be discharged, the negotiations, and documents produced in the course of them, are not covered by the "without prejudice" exception to the admissibility of relevant evidence. 

Facts

The claimant had lent the defendants US$100 million, and the defendants defaulted. There was correspondence about re-scheduling repayment. However, no agreement was reached and the claimant served contractual demands, followed by statutory demands, on the defendants. The defendants alleged 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.

The court had to consider whether, at the time of the relevant correspondence, a genuine dispute existed.

Decision

The court held that certain correspondence between the parties and their solicitors should be admissible as evidence at the forthcoming trial, even though it was marked "Without Prejudice and Subject to Contract".

The Judge stated that: "At first blush, 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".  But no dispute existed between the parties, as to the liability of the defendant.

The significance of the correspondence marked "without prejudice" was that it proceeded quite clearly on the basis that there was an admitted liability and the purpose of the proposals was to arrive at an agreed restructuring of that admitted liability.

The judge held that use of the "without prejudice" expression on correspondence by an experienced litigator is not conclusive evidence that the communications are privileged. If, on analysis of the evidence, the court is satisfied that there was no genuine dispute at that time, the only conclusion is that the solicitor made a mistake.

Comment

The decision serves as a warning to parties and their solicitors that marking correspondence "without prejudice" will not prevent its disclosure in subsequent litigation if there is no genuine dispute in existence.  

Irish and UK common law principles concerning the scope of "without prejudice" privilege are similar, and therefore the approach of the UK Courts will be of persuasive value to the Irish courts. Irish case-law shows that in order to rely on "without prejudice" privilege to protect communications from disclosure, it is necessary for a party to show that when the communication was made, there was a dispute in respect of which legal proceedings had commenced or were contemplated, and the communication was made in a genuine attempt to further negotiations to settle that dispute.  The Irish courts have also held the words “without prejudice” possess no magic properties.