If there is no dispute, simply marking correspondence “without prejudice” will not protect it from disclosure in later legal proceedings. The parties may however agree that that should be its effect.

It is therefore important in the early stages of negotiation to decide whether that is intended and, if so, specifically to agree that the negotiations will proceed on that basis.

Last week, we reported that the High Court had allowed documents marked “without prejudice” to be used in Court because there had been no dispute at the time they were created. This went straight to the Court of Appeal which upheld that decision, but has not yet published its full reasons.

Nonetheless, the Court of Appeal has said that it is open to the parties to agree that material may be used in proceedings, even if there is no dispute.

Avonwick lent US$100M to Webinvest which defaulted. It did not dispute the loan but wished to reschedule and early correspondence about this was marked “without prejudice and subject to contract”. Avonwick argued that those documents should be admissible even though they had marked them as being “without prejudice. David Richards J decided, even though marked “without prejudice", the correspondence was admissible because the "without prejudice" privilege only applied if there was a dispute at the time.

Webinvest immediately appealed. The Court of Appeal confirmed that “without prejudice” privilege only arises where there has been a dispute, although the term “dispute” may be construed widely and can include the "opening shot".

But the Court of Appeal went on to give a very important clarification (although this will need to be confirmed once the full judgement is available). It decided the parties are free, subject to obvious limitations, to contract as they see fit and it followed from this that parties could agree that communications between them may not be referred to in subsequent proceedings, even if, at that time, no dispute existed. However, in order to have that effect, it would be necessary for the parties to agree that specifically.

In this case, the Court of Appeal decided that there was no such agreement and the unilateral act of one party to the correspondence in marking its letter “without prejudice”, particularly given that it had also marked it “subject to contract”, indicated that the intention was simply to reserve rights in relation to the commitment to reschedule.