The "Without Prejudice" rule and the Court's approach to admissibility

The "Without Prejudice" rule and the Court's approach to admissibility

The "Without Prejudice" rule and the Courts approach to admissibility

“Without prejudice” or “WP” is an expression lawyers and non-lawyers alike use regularly. It’s not uncommon to see it used in the wrong context, or not used when it should have been used.

We provide an overview of the “Without Prejudice” rule and then consider the exceptions that apply to the “Without Prejudice” rule after the High Court applied the misrepresentation or fraud exception to the Without Prejudice rule in the recent case of Berkeley Square Holdings v Lancer Property Assets Management Ltd.

“Without Prejudice”

Without prejudice (“WP”) is a common law concept and a form of legal privilege with the aim of enabling parties attempting to settle to negotiate freely. When there is an existing dispute between parties, WP discussions (sometimes referred to as “off the record” discussions) or correspondence can be used in an attempt to reach a resolution. Ordinarily, the “WP” rule prevents statements made in a genuine attempt to settle an existing dispute from being put before the court or tribunal as evidence of admissions made.

Sometimes you may also see the use of the expression “Without Prejudice Save as to Costs”, which means that the correspondence can be shown to the court but this is only at the end of the trial, once the judgment has been given, and only to assist the court when determining liability for costs between the parties.

So if you’re thinking about making an offer, consider whether the offer should be marked ‘without prejudice’ so it cannot be used against you, but be careful as it’s the substance of the communication which counts, not the label you use.

In the recent case of Berkeley Square Holdings and others v Lancer Property Assets Management Ltd and others [2020] EWHC 1015 (Ch), the High Court (Roth J) considered whether statements made in a WP mediation paper should be admissible at trial.

Facts of the underlying dispute

The Claimants (Berkeley Square Holdings and others) engaged the Defendants (Lancer Property Assets Management Ltd and others) to manage its portfolio of valuable properties in Central London. In early 2012, a dispute arose between the parties following the Defendants’ demand that the Claimants pay it a “capital performance bonus” which was contractually due if, “as a direct result of the actions of Lancer, the capital value of a property has been increased”. The parties agreed to mediate their dispute.

Prior to the mediation, each party submitted their position statement identifying the key issues for the mediation. All of the mediation statements were marked “Without Prejudice”. The mediation was held on 24 September 2012 and the dispute was settled, not in the mediation itself, but shortly afterwards. The terms of settlement included the Claimants making a payment of £30 million to the Defendants.

In 2018, several years after the mediation, the Claimants issued proceedings against the Defendants after discovering that from April 2006, the Defendants had been complicit in a substantial fraud perpetrated on the Claimants by their own appointed representative.

It was alleged that the Defendants and the Claimants’ appointed representative had conspired to fraudulently increase payments made to the Defendants, and passed substantial payments to a company controlled by the Claimants’ appointed representative. The Claimants claimed that they did not discover that these payments were being made until 2017. The Defendants sought to rely upon passages from their position statement in the 2012 mediation, which referred to the payments being made as part of the factual background to the dispute.

The Claimants applied to strike out the sections of the Defendants’ defence which referred to the WP statements on the grounds that they were made on a WP basis and were therefore inadmissible. The Defendants argued the WP material was admissible under one or more of the exceptions to the WP rule which we consider further below.

Decision

The Court held that the relevant passages of the WP mediation paper were admissible as they were to be used to rebut allegations of fraud. Roth J commented that there was “a serious risk of the court at trial being misled if the material in question was not admitted”.

In coming to his decision, Roth J considered the (non-exhaustive) list of exceptions to the WP rule which were set out in the case of Unilever Plc v Proctor & Gamble Co [2000] 1 WLR 2436 (and elaborated on in Oceanbulk Shipping SA v TMT Ltd [2010] UKSC 44). These exceptions are when the communications:

  • Demonstrate that a settlement has been concluded
  • Assist as an aid to construing the settlement agreement that was subsequently reached
  • Provide evidence of grounds to set aside a concluded settlement agreement on the basis or misrepresentation, fraud or undue influence
  • Where a clear statement is made in the WP communications, that is relied on by the other party, giving rise to an estoppel
  • Evidence the fact of a delay
  • Evidence of perjury or blackmail
  • Where there is a real risk that the Court will be misled if the WP material was not admitted

Comment

The decision in Berkeley Square Holdings is a potent reminder that the protection afforded by the WP rule is not absolute and parties should take care not to overlook this when participating in WP discussions and correspondence.

Given that, until now, the misrepresentation/fraud exception does not appear to have been applied to a reported English case, the decision is of real interest since it provides clarity on the scope of the misrepresentation/fraud exception. Indeed, it would appear that the scope of this exception may extend slightly further than previously thought.

That said, the WP rule is founded upon the public policy of encouraging parties (or potential parties) to litigation to “settle their differences rather than litigate them to a finish” (Lord Griffiths in Rush & Tomkins Ltd v GLC). It remains clear, therefore, that the court is unlikely to extend the exceptions to the WP rule in an ad hoc manner. Parties can also take comfort from the fact that the exceptions to the WP rule largely arise in circumstances where there is unlikely to be any prejudice arising from the disclosure.

Stevens & Bolton recently held a construction case law update webinar series with a section covering the WP rule, please click here to view.

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