Privilege is a fundamental common law right. It allows a party to withhold certain evidence from being disclosed to others. The purpose of this right to confidentiality is to allow parties unfettered communication where it is in the interests of the administration of justice. On the whole, privileged communications take the form of documents but they extend beyond anything written on a page - such as verbal communications and electronically stored material.

Two of the most commonly relied upon types of privilege are legal professional privilege (LPP) and without prejudice privilege (WPP). In this article, we look at how the present state of these two main types of privilege, and review some recent developments - including the recent judgment of the European Court of Justice, deciding the appeal in the oft-debated Akzo case.

Legal Professional Privilege (LPP) and Akzo

LPP is the right to preserve confidentiality in any communications relating to legal advice or matters between a lawyer and his (or her) client. Given the range of situations in which lawyers give legal advice, the courts have further divided LPP into legal advice privilege and litigation privilege. As the names suggest, legal advice privilege applies to general legal advice and communications passing between client and lawyer (so ‘non-contentious’ matters), whereas litigation privilege applies to "all documents brought into being for the purposes of litigation".1

Legal advice privilege has been in the spotlight recently as a result of the European Court of Justice ruling in the Akzo appeal. The Court’s final judgment, handed down on 14 September 2010, has now determined that an organisation's internal communications with its in-house lawyers are not privileged for the purpose of investigations by the European Commission into violations of European competition law.

In Akzo, a search took place at the UK offices of Akzo and Akros during a competition law investigation by the European Commission. During the raid, Commission officials located a number of internal documents that had been communicated to in-house lawyers. Akzo claimed privilege over those. The Commission insisted on seeing the documents, regardless. The European Court of First Instance (now the General Court) had to be called on to decide, and it said the documents were not privileged.

The parties in Akzo agreed that litigation privilege was not applicable to the documents in this case so the focus of the arguments in the appeal was on legal advice privilege. The Court’s conclusion is that an organisation's internal communications with its in-house lawyers cannot be privileged as, under European law, legal advice privilege applies only to lawyers who are independent of their clients. The judges found that this requirement for ‘independence’ precluded, and was fundamentally inconsistent with, any relationship of employment - quite irrespective of rules of professional conduct that might apply to any particular in-house counsel. The inhouse lawyer’s “economic dependence and the close ties with his employer” meant that he or she could not “enjoy a level of professional independence comparable to that of an external lawyer”2. The Court rejected the notion that this would infringe a party’s fundamental right of defence.

After Akzo, there can therefore be no privilege in any advice which a business received from its in-house lawyers, at least for the purposes of a Commission investigation. Privilege in actions before the English courts is unaffected, and domestic competition law investigations would still be governed by the Competition Act 1998. The Act expressly provides for communications with legal advisers to be privileged, and that would be interpreted consistent with the general English law so as to preserve privilege in internal communications where it existed before.3

Under English law generally, communications between an organisation and employed counsel can remain privileged. For the purposes of LPP, the English courts will treat communications with qualified in-house advisers the same way as communications involving an external lawyer. However, extra caution is still needed: the roles of many in-house lawyers extend to advising on general business affairs. Any communications not relating to legal advice will not be protected by LPP. Consequently, it is advisable to separate any communications relating to legal advice from general business advice to avoid a potential loss of privilege.

Finally, whilst LPP extends to communications of a legal nature between organisations and their in-house lawyers, it does not extend beyond the legal profession. In Prudential v Special Commissioner of Income Tax4 an attempt was made to widen the scope of LPP to include legal advice given by accountants on tax law issues. This was roundly rejected by the court, which reinforced that LPP is only ever available to lawyers.

 Without Prejudice Privilege - WPP

WPP protects any communications between parties aimed at a genuine settlement of a dispute between them. WPP is meant to facilitate resolving disputes by giving the parties a safe framework within which they can negotiate compromises freely, without concern that their efforts or any concessions they might be prepared to put on the table will damage them in proceedings.

WPP applies to oral and written communications. A document must be a true ‘negotiating document’ in order to be given without prejudice status. The courts have accepted that where a letter is marked "Without Prejudice", "This prima facie means that it was intended to be a negotiating document."5 and "…if a letter is expressly stated to be "without prejudice" that gives rise to the rebuttable presumption that the communication is a without prejudice communication within the meaning of the rule unless it is clear that the expression has been used with some other meaning or purpose."6 Of course, this still means that if a document is marked "Without Prejudice" and it is not actually a true ‘WP’ document, then it will not be privileged. Conversely, if a document is not marked "Without Prejudice" and it is in truth a negotiating document, the court may still allow it privileged status.

It is of course best to avoid any doubt and properly mark all negotiating documents as being "Without Prejudice". To determine whether a document is WP, the court will consider whether the document is part of settlement discussions by taking into consideration, “…what, on a reasonable basis, the intention of the author was and how it would be understood by a reasonable recipient.”7 In practice, "settlement discussions" extends to the "opening shot"8 in negotiations and is not limited to offers, but extends to all documents "which form part of negotiations, whether or not they are themselves offers". On the other hand, the court has held that communications must be a negotiating document and not merely an assertion of a party's rights.9

The protection accorded to WP communications is based in part on a public policy of encouraging the settlement of disputes, but also on an implied agreement between the parties themselves to attempt to settle. Parties may also enter into an express agreement. An implied agreement between the parties generally arises out of what Lord Justice Hoffman described in Muller v Linsley10 as, "what is commonly understood to be the consequences of offering or agreeing to negotiate without prejudice." The most common form of express agreement is a "without prejudice save as to costs" provision which allows WP communications so marked to be admissible to the court on the question of costs after the matter has been decided.

These agreements stand apart from the principle of public policy, as the courts have deemed that there is no reason in principle why parties to WP negotiations should not expressly or impliedly agree to vary the application of the public policy rule in other respects either by extending or by limiting its reach.

Exceptions to WPP

The courts place great importance on the right and need for parties to be able to communicate freely when discussing possible settlements.11 As a result, with few exceptions, WP negotiations are inadmissible as evidence. Those few exceptions were set out, in what has now become the definitive list, by Lord Justice Walker in 1999 in the Court of Appeal’s decision in Unilever.12

In Unilever, Procter and Gamble (“P&G”) had a European patent relating to a method of washing household laundry in a machine. Unilever developed a new product and needed to know whether this new product constituted an infringement of the patent. Consequently, Unilever and P&G agreed to have a WP meeting to discuss the issues.

Later on, it was alleged that at the meeting, P&G threatened to commence an action in England against Unilever for patent infringement. Unilever claimed that these threats fell foul of the Patents Act 1977 which provides a remedy for groundless threats of patent infringement proceedings. The question, in essence, was whether the protection afforded to WP discussions had to yield to the provisions of the Patents Act. The Court of Appeal held that it did not.

The Court identified the eight exceptions where WP discussions may be admissible:

  1. Where there is a dispute as to whether WP communications have resulted in a concluded settlement;
  2. Where it is alleged that a settlement should be set aside on the grounds of misrepresentation, fraud or undue influence;
  3. Even if there is no concluded settlement agreement, a clear statement which is made by one party, and on which the other party is intended to act and does in fact act, may be admissible as giving rise to an estoppel;
  4. Where the exclusion of the statement would act as a cloak for perjury, blackmail or "unambiguous impropriety";
  5. To explain delay or apparent acquiescence;
  6. To establish mitigation of loss in the conduct and or conclusion of a settlement;
  7. Where there is an express saving, for example, "without prejudice save as to costs"; or
  8. In matrimonial cases, there is a separate category of privilege where communications are received in confidence with a view to matrimonial conciliation.

“Unambiguous Impropriety”

In practice, the most contentious exception to the WP rule has been the "unambiguous impropriety" exception. The expression "unambiguous impropriety" was used by Lord Justice Hoffman in Foster v Friedland,13 in which he emphasised the sanctity of WP privilege, saying, “… the value of the without prejudice rule would be seriously impaired if its protection could be removed from anything less than unambiguous impropriety." The Court of Appeal warned that "unambiguous impropriety" should be applied only in the clearest cases of abuse of a privileged occasion.

An example of the narrow scope of this exception can be seen in Fazil-Alizadeh.14 In a taped WP conversation, the claimant admitted to making a payment of £10,000 although he continued in his pleadings to deny such payment. The court held that this was "a mere inconsistency" and the conversation was inadmissible.

A more recent challenge to the scope of WP privilege under the "unambiguous impropriety" exception came in 2009, in Williams v Hull.15 Williams was an appeal from the county court and concerned a property dispute between former cohabiting partners. Williams' case was that there had been an agreement as to how, in the event of separation, the joint property would be divided up. Hull disputed this. However, despite the fact that Hull disputed that there was an agreement between the parties, in WP correspondence, he referred expressly to "the financial agreement of our cohabitation at the outset". Williams sought to have the WP correspondence admitted in evidence. In the county court it was held that the correspondence could be admitted as the correspondence in question was not WP and if it was, it would fall within the "unambiguous impropriety" exception. Hull appealed. His appeal was allowed on the basis that the letters were legitimately within the umbrella of "without prejudice", given that they were in fact a negotiating documents.

The High Court disagreed that the "unambiguous impropriety" exception applied. In reaching its conclusion, the High Court was critical of the fact that the WP letter had been "dissected", treating parts of it as being covered by privilege, but not others. This was held to be the wrong approach. The High Court cited Lord Justice Walker's conclusion from Unilever that "to dissect out identifiable admissions and withhold protection from the rest of without prejudice communications (except for a special reason) would not only create huge practical difficulties but would be contrary to the underlying objective of giving protection to the parties".16 The High Court ultimately found that (even) a serious and substantial risk of perjury (on the part of Hull) was not enough to warrant admission of WP documents and the inconsistency between Hull's letter and his pleaded case were not sufficient to amount to an "unambiguous impropriety".

The decision in Williams v Hull demonstrates the courts' policy of protecting WP communications. This same concern was at play in the Court of Appeal’s decision in Savings & Investment Bank Limited v Fincken.17 Lord Justice Rix concluded that privilege had to be abused before it was lost. It was not enough for there to be "… merely an inconsistency between an admission and a pleaded case or position…".

Recent attempts to make inroads into WPP

The courts' policy has not, however, deterred further recent attempts to challenge the scope of the WP principle and widen the list of potentially admissible WP communications.

In 2009 the House of Lords decided Ofulue v Bossert.18 Their Lordships had to rule on whether it was permissible for a property owner (Ofulue) to rely on a WP offer made by a squatter (Bossert) to purchase the property from the owner in previous proceedings as an acknowledgment of the owner’s title in subsequent proceedings. The House of Lords held that Ofulue could not rely on the previous WP statement and did not extend the eight exceptions set out in Unilever. Lord Neuberger held that it would be impractical to weed out, from obviously WP communications, individual statements which taken in isolation might not technically qualify for protection. Whilst Lord Scott dissented on the grounds that the facts Ofulue sought to rely on were common ground and as such did not need to be protected, at present the courts appear to be following the position set out in Unilever quite strictly.

Can WPP shed light on the interpretation of a subsequent written settlement agreement?

In the recent case of Oceanbulk Shipping v TMT Asia Limited,19 the Court of Appeal again refused to extend the eight Unilever exceptions. The Court of Appeal was asked to decide whether evidence of WP communications and discussions can be admitted if there is a dispute about the interpretation of a subsequent written settlement agreement. This would, if accepted, be an extra exception to the eight in Unilever.

 At first instance Mr Justice Andrew Smith said that this exception ought to exist. He relied in part on Chartbrook Limited v Persimmon Homes20 which held that in general contract law, evidence of negotiations might be given to establish that a fact which may be relevant as background was known to the parties. However, a split Court of Appeal disagreed.

Justice Longmore and Lord Justice Burnton were of the opinion that no reliance could be placed on the WP correspondence for the purpose of interpreting a subsequent written settlement agreement.

That conclusion did not sit well with Lord Justice Ward, who was moved to a powerful dissent, asking: "you can use the antecedent negotiations to prove the agreement, to rescind it, or to rectify it, why on earth can you not use the negotiations to establish the truth of what the concluded agreement means? Not to do so would strike my mother as "barmy". Perhaps I should simply say it strikes me as illogical".

The majority in the Court of Appeal observed this tension between on one hand allowing the court to have before it the best and most useful evidence available and on the other hand protecting the fundamental purpose of WP privilege to promote settlements. The Court of Appeal concluded that in light of the decision in Ofulue, WP privilege should take precedence.

The Court of Appeal in Oceanbulk did distinguish two situations in which WP correspondence is admissible: as an aid to construction including claims for rectification and situations where a settlement agreement incorporates a WP document. The latter situation arose in an earlier case, Admiral Management Services Limited v Para Protect Europe Limited21 which had also been decided by Justice Stanley Burnton (as he then was). In Oceanbulk Lord Justice Burnton agreed with Lord Justice Longmore's interpretation of the limitations of his own earlier judgment and ultimately concluded that the documents were inadmissible.

In Lord Justice Ward's dissenting judgment, he noted the contrast between the decision in Oceanbulk and in the earlier Admiral Management case. Lord Justice Ward said he preferred "the instincts of the youthful Justice Stanley Burnton before he became corrupted by the arid atmosphere of this court". It proved he went on "what every good old fashioned county court judge knows: the higher you go, the less the essential oxygen of common sense is available to you." This is may have been a light hearted comment but it underlines the fundamental issue that there is a clear conflict between the position of a party such as Williams, in Williams v Hull, who is prevented from relying on statements despite the fact that those statements seem to have been verified in WP discussions negotiations and the public interest in keeping confidential any communications made in settlement negotiations.

At present, the Oceanbulk decision is the subject of an appeal to the Supreme Court and a decision is expected soon. Based on the Court of Appeal's decision in Oceanbulk and the current case law, it appears that the courts continue to prefer the policy of protecting the confidentiality of WP communications. Unless a contrary decision is handed down by the Supreme Court, this looks set to continue. The eight exceptions set out in Unilever remain the definitive list of exceptions to the admissibility of WP communications and the "unambiguous impropriety" exception has been construed extremely narrowly by the courts. This means that parties can continue to rely upon the confidentiality of any communications made in settlement negotiations.


While the rules of privilege remain fairly well settled under English law (subject to the decision of the Supreme Court in Oceanbulk), the judgment in the Akzo appeal has thrown the spotlight once more on the need to ensure that any legal advice that raises European competition law issues be sought from external counsel, if privilege is to be maintained in a Commission investigation. The view taken by the European Court of Justice has been criticised as undermining the ability of in-house counsel to review and ensure compliance in the first instance. However, despite submissions from a number of interested parties (including the International Bar Association), the Luxembourg judges were adamant that, for the purposes of privilege in European competition law matters, in-house counsel and external lawyers were simply in a fundamentally different position. In-house lawyers, in this regard, are not viewed as independent