Parties seeking to reach a compromise or settlement frequently mark correspondence “without prejudice” with the intention that such correspondence be off the record and not used in evidence in any legal proceeding. As one judge has stated, ” I have no doubt that busy practitioners are acting prudently in making the general working assumption that the rule (marking correspondence “without prejudice”), if not sacred, has a wide and compelling effect”1.
The Court of Appeal has revisited the subject of “without prejudice” marking in its judgment in Avonwick Holdings v Webinvest2.
Background – Privilege and disclosure
The underlying issue is the extent to which documents marked “without prejudice” should be considered privileged and thus not liable to disclosure as evidence in legal proceedings. Under the rules of procedure applicable in the English Courts the parties to litigation have a duty to disclose all relevant documents in the pre trial process known as discovery. However certain categories of materials may be considered as privileged and thereby not subject to such disclosure. For example advice given by a lawyer to its client may be privileged (legal advice privilege) as may be documents prepared in connection with actual or contemplated litigation (litigation privilege).
Correspondence marked “without prejudice ” is generally considered as being privileged but as indicated by the Court of Appeal this is not always the case.
It should be noted that privilege is a right arising under the law of evidence and is not the same as a duty of confidentiality arising under the law of confidence.
Avonwick Holdings v Webinvest
Avonwick and Webinvest were respectively lender and borrower under a loan agreement. Webinvest defaulted on the loan. Various correspondence passed covering possible restructuring. The correspondence was marked “without prejudice and subject to contract”. The issue was whether such correspondence had to be disclosed as evidence in later legal proceedings or whether it was to be considered as privileged.
The judgment of the Court of Appeal
The court concluded that there were two legal bases for the “without prejudice” rule.
- The first basis was one of public policy that was to encourage people to settle their differences. However in order that this apply there first had to be a dispute. The court had to decide on an objective basis whether there was a dispute or issue to be resolved. Only if there was a dispute would the “without prejudice” rule apply.
- The second basis was contractual in that the parties could contract to extent the normal ambit of the “without prejudice” rule. As stated in the judgment:
Freedom of contract is a basic principle of English law. If A and B agree for valuable consideration that their communications will not be used in civil proceedings in court, I find it difficult to see why, as a matter of principle, the court should not uphold their agreement. Confidentiality clauses are the stuff of commercial life. Moreover, it is often open to two parties by agreement to immunise their acts from what would otherwise be their legal consequences. A non-reliance clause in a contract would immunise what would otherwise be a misrepresentation and an entire agreement clause would immunise what would otherwise be a collateral warranty. This must however be done by agreement. One person cannot unilaterally impose a rule on another.
On the facts of Avonwick the court held that there was no dispute at the time when the correspondence marked ” without prejudice” passed nor was there any agreement between the parties on this subject and thus such correspondence was not privileged from disclosure.
Comment
Use of “without prejudice” correspondence remains a valuable means of trying to resolve disputes. However in order to ensure that such correspondence is privileged from disclosure in any future legal proceedings it needs to be clear that such communication was about the resolution of an issue that existed at the time it passed. Random marking of correspondence “without prejudice” against the possibility of a future dispute is unlikely to be effective.
Outside of the existence of a dispute, the application of “without prejudice” privilege is likely to only be effective when there is clear agreement between the parties and will not arise unilaterally.
“Without prejudice” marking does not impose a duty of confidentiality. If parties wish to keep materials confidential (e.g. in commercial discussions) this should be agreed between them and, where appropriate, such materials should be marked “confidential” rather than “without prejudice”.
1 Unilever Plc -v- Procter & Gamble Co [2001] WLR 2436 Robert Walker LJ at 2443
2 Avonwick Holdings v Webinvest [2014] EWCA Civ 1436
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