It is well-known that discussions with the purpose of genuinely attempting to settle a dispute will be protected by without prejudice privilege (“WPP”). Essentially, this means that admissions or statements made by a party which would be seen as going against their own interests will not be admissible in court. In practice, the entirety of any without prejudice discussions will usually be inadmissible due to the practical difficulties of identifying specific admissions.
The two justifications for excluding potentially relevant evidence in this way are:
- To permit the parties to the dispute to speak freely and explore options that might not be available to them if legal proceedings are continued through to a court judgment (often referred to as the “public policy” justification).
- The parties have an implied agreement that such negotiations will not be relied on in court (i.e. a contractual agreement).
However, the protection of WPP is not absolute and there are a number of exceptions and limitations to the rule which recent case law has highlighted.
"Cloak" for blackmail or other impropriety
In a very recent unreported case in the Chancery Division, Halfords Media (UK) Limited v Ponomarjovs (October 2015), Halfords Media, a gaming company, made an application for a without prejudice email sent by a former employee to be admissible in committal proceedings. The email accused the company of criminal conduct and threatened to publish the company's files if the company did not co-operate with the former employee. Prior to the sending of the email the company had already obtained an injunction against the former employee preventing him from publishing the information.
Following Unilever Plc v Procter & Gamble Co, Mr Justice Newey confirmed the position that the protection of WPP can be lost if it is being used as a "cloak" for blackmail or some other impropriety. It must be noted that this exception will be applied in only the "clearest cases of abuse" of the without prejudice rule but Mr Justice Newey considered this case to be such a case and deemed the former employee's email to be admissible.
WPP is a form of joint privilege belonging to the parties engaged in settlement discussions. Only if both parties agree that WPP can be waived will without prejudice discussions be admissible before the court.
A much-discussed decision this year has been the case of Property Alliance Group Limited v Royal Bank of Scotland PLC  EWHC 1557 (Ch) which assessed various justifications for withholding documents from inspection by the Royal Bank of Scotland (RBS). RBS sought to withhold from inspection documents which evidenced negotiations with the Financial Services Authority (now the Financial Conduct Authority) prior to a Final Notice issued by the FSA on 6 February 2013. RBS claimed that the documents were subject to WPP as they were part of discussions between itself and the FSA in connection with the Final Notice. The Final Notice stated that RBS had, inter alia, "sought to manipulate LIBOR in connection with its own submission of rates that formed part of the calculation of Japanese yen ("JPY") and Swiss franc ("CHF")." The claimant in this case had made allegations against RBS in relation to GBP LIBOR. The Final Notice made no findings in relation to GBP LIBOR.
Mr Justice Birss held that genuine settlement discussions with the FSA (now FCA) could be protected from inspection by something analogous to WPP, but such protection could not be seen to operate in an identical manner to WPP in civil proceedings. The judge gave two examples of when the WPP rule would not operate in an identical manner:
- The WPP-type protection of negotiations does not prevent the FCA from acting on information received in those negotiations
- The WPP-type protection of negotiations cannot be maintained in civil proceedings if the basis on which a Final Notice was decided is itself put in issue in the proceedings.
As RBS had relied in its Defence on the fact of "no regulatory findings of misconduct on the part of RBS in connection with GBP LIBOR", it was held that the content of the settlement discussions had become admissible and had to be produced for inspection subject to a four week grace period that had been requested by the FCA. However, if RBS had not put the basis on which the Final Notice was decided in issue between the parties, the settlement discussions would have been inadmissible.
It was held that, “the FCA could not object to a firm relying on a Final Notice and putting the basis on which it was produced in issue.” This appears to be an interesting exception to the usual understanding of WPP as a joint privilege that cannot be waived unilaterally.
It is also extremely helpful in holding, for the first time, that a protection analogous to WPP can apply to communications with a regulator regarding the settlement of an investigation although care must be taken if seeking to rely on the findings of regulators in civil proceedings. RBS have since obtained leave to appeal the decision and we await the outcome of it with interest.
Discussion of the justifications for WPP
The case of Avonwick Holdings Limited v Webinvest Limited & Anor  EWCA Civ 1436 is an interesting examination of the scope of the two justifications for WPP.
The underlying claim related to a dispute concerning whether the claimant was entitled to repayment of a loan it had made to Webinvest in circumstances where Webinvest alleged there was a collateral oral agreement that Avonwick would not have to be repaid until Webinvest had been repaid by a sub-borrower.
Prior to the issue of proceedings, the parties had engaged in negotiations about restructuring the loan and had marked their negotiations as “Without Prejudice & Subject to Contract” but they did not reach any final agreement. Webinvest only raised the issue of a collateral oral agreement after these negotiations had ended.
Lord Justice Lewison (with Lady Justice Sharp and Lord Justice Burnett agreeing) held that:
- In order for the public policy justification to be engaged to render the negotiations inadmissible there must be a dispute and on the facts of this case there was no dispute regarding Webinvest’s liability at the time of the negotiations; rather, the parties had been engaged in restructuring negotiations.
- In relation to the contractual justification for WPP, parties could agree to extend the ambit of WPP (as long as the usual contractual requirements are met such as the requirement for consideration) so that it was not necessary that a dispute be imminent or in existence as “freedom of contract is a basic principle of English law.” However, on the facts, the parties had not made such an agreement. For example, the fact that the negotiations were marked “subject to contract” did not suggest a binding contract had been reached. It was also discussed that the words “without prejudice” in the context of the parties' negotiations did not necessarily relate to settlement as such words are often used when parties are reserving their rights.
- Communications made when there is no dispute cannot retrospectively become subject to WPP if a dispute subsequently arises. The court considered this is what the defendants were seeking to do.
This case is an important reminder for parties to be clear about the basis on which they are negotiating and consider what the meaning of such words as “without prejudice” and “subject to contract” mean in the context of the particular facts of their case. Unless the parties deliberately agree to extend the ambit of WPP to their contractual negotiations, the court will look at the substance of the negotiations between the parties in order to decide whether WPP should apply to them.
Additional Limitations and Exceptions to WPP
There are a number of other important limitations and exceptions to WPP protection that have not been discussed in this article which parties should ensure they bear in mind, including (but not limited to): (i) where it is in issue whether or not an agreed settlement was reached; (ii) to establish the reasons and merits for delay in certain circumstances; and (iii) to assist the court in making a decision on costs (where correspondence has been marked “without prejudice save as to costs” or an offer is made under Part 36).
What this means for you?
You should consider carefully whether you wish correspondence to be open or to be protected by WPP and should not simply label correspondence as “without prejudice” unthinkingly. On the surface WPP is relatively straightforward to apply but the mere fact a document is labelled 'without prejudice' will not automatically ensure it is withheld from production to the court as the Halfords Media and Avonwick decisions demonstrate. If a party wants communications to be protected, it must consider whether they will fall within the protection and that the protection could still be lost if a relevant exception or limitation applies. And yet, WPP is a privilege which is capable of extension in a number of ways. For example, if properly considered at the start of contractual negotiations even if no dispute is imminent, or in a totally different context, for parties who are in settlement discussions with a regulator. Although the RBS decision is currently the subject of an appeal, the decision of Birss J has been widely welcomed as an extension of the public policy justification for WPP.
Previous Dispute Resolution Essentials briefings:
Update on the Recast Brussels Regulation
CPR Part 36 - significant changes from 6 April 2015