Dubious privilege

The Court of Appeal has recently entertained, and rejected, yet another challenge to the operation of the without prejudice rule (see Solicitors Journal 154/7, 23 February).

The case of Oceanbulk Shipping v TMT Asia Ltd [2010] EWCA Civ 79 was at least the third high-profile decision on the extent and effect of the without prejudice rule in less than 12 months. In the light of these continuing questions about its application, it is worth considering where the rule stands and what its future might be. Is it stronger than ever? Or is it in danger of buckling?

The convenient starting point for any discussion about the scope of the rule in the post-CPR world remains the judgment of Robert Walker LJ in Unilever plc v The Procter & Gamble Co (Court of Appeal, Civil Division, 28 October 1999). This case concerned threats made by the defendant at a without prejudice meeting with the claimant. The particular threats alleged to have been made were concerned with an action for infringement of copyright, which are actionable under section 70 of the Patents Act 1977. The question in essence was whether the without prejudice rule had to yield to the need to treat as admissible in evidence statements which Parliament had expressly declared to be actionable.

Upholding the judge's decision that it did not have to do so, the court identified eight exceptions to the general inadmissibility of without prejudice communications (see box, below).

Despite the plethora of recent attempts to challenge or expand on the Unilever list, it continues to stand pretty firm. In Ofulue v Bossert [2009] UKHL 16, first reported on solicitorsjournal.com on 11 March 2009, a landowner sought to defeat a claim for adverse possession by reliance on various statements made by the occupier in previous possession proceedings which expressly or impliedly acknowledged the landowner's title. One of these statements was made in a without prejudice letter (although there were others, these were held by the House of Lords to have been made before the commencement of the 12-year period relevant under section 29(5) of the Limitation Act 1980). The landowner's argument centred on the fact that, while the letter itself was admittedly a genuinely without prejudice communication, the acknowledgment of ownership within it was not covered by that label, because there had been, in that earlier litigation, no dispute as to ownership. It was therefore not an admission.

Lord Scott would have been in favour of allowing the landowner to rely on the statement. How, he asked rhetorically, can 'protection of common ground facts and matters on the basis of which compromise negotiations are being conducted be seriously thought to be necessary for the encouragement of such negotiations?' Despite this forceful and pithily-expressed dissent, the landowner's argument was rejected by the rest of the law lords. While acknowledging the possibility of extending the Unilever list of exceptions (see, for example, per Lord Rodger at paragraph 39) they considered it undesirable to make the addition contended for by the landlord (namely a statement relied on as an acknowledgement within the meaning of section 29(5)). Further, Lord Neuberger held that it would be impractical to weed out, from obviously without prejudice communications, individual statements which taken in isolation might not technically qualify for protection. He recalled the dicta of Robert Walker LJ in Unilever that:

'To dissect out identifiable admissions and withhold protection from the rest... would be contrary to the underlying objective of giving protection to the parties... to speak freely about all issues in the litigation. Parties cannot speak freely at a without prejudice meeting if they must constantly monitor every sentence, with lawyers... sitting at their shoulders as minders.'

These dicta have also been cited in the two other challenges which have followed Ofulue, and clearly continue to exert a powerful influence on judges asked to find that parts of communications are not privileged. The first of these cases is Williams v Hull [2009] EWHC 2844. Here, the challenge to without prejudice protection arose in a rather more conventional situation than was the case in Ofulue, and one more likely to be familiar to litigators '“ namely, a statement made in negotiations which suggests that an open position is being adopted dishonestly or in bad faith.

'Unambiguous impropriety' exception

Williams, an appeal from the county court, concerned a property dispute between former cohabiting partners. W's case was that there had been agreement as to how, in the event of a separation, the joint property would be divided up. H disputed this.

However, in without prejudice correspondence, H had referred expressly to, for example, 'the financial agreement of our cohabitation at the outset', and had sought to apply a calculation referred to in the unexecuted draft on which W relied.

Allowing the appeal against a decision to admit the letter in evidence, Arnold J held (1) that the offending statements were legitimately within the umbrella of 'without prejudice' and (2) that the 'unambiguous impropriety' exception relied on by W as an alternative ground for relying on them did not apply. In reaching both conclusions, he was critical of the approach taken by the judge, and in particular the fact that she had 'dissected' the letter, treating parts of it as covered by the privilege and parts of it as not so covered. This, Arnold J said, was the wrong approach. He cited the passage in Unilever referred to above, and also recalled the decision of the Court of Appeal in South Shropshire DC v Amos [1986] 1 WLR 1271, to the effect that the protection extends to all documents 'which form part of negotiations, whether or not they are themselves offers'.

Further, in rejecting the argument on the 'unambiguous impropriety' exception, Arnold J reminded himself that 'the narrowness of the exception had often been emphasised'. It is not enough, he pointed out, for there to be a 'serious and substantial risk of perjury'. The exception does not apply 'unless the privilege is itself abused', by, for example, the making of a threat that was in the nature of blackmail. Telling the truth in the course of a negotiation does not amount to an abuse of the privilege, even if the case that is being run is predicated on a different (and therefore necessarily false) premise. Indeed, it is precisely to allow the parties to speak freely, frankly and truthfully about their positions that the privilege exists.

Judicial disagreement

Finally, the recent Court of Appeal decision in Oceanbulk illustrates the difficulty that even experienced judges can have in deciding whether the privilege should apply. Oceanbulk concerned an attempt to adduce without prejudice correspondence as an aid to the construction of a compromise which was subsequently reached. The majority of the Court of Appeal (Longmore LJ, Stanley Burnton LJ) were of the view that no reliance could be placed on the without prejudice correspondence for this purpose.

In reaching this conclusion, the majority rejected as erroneous the commonly-held view that, once a settlement is reached, the without prejudice tag on correspondence leading to the compromise (as opposed to the compromise itself) falls away. They also distinguished a number of situations where without prejudice correspondence is admissible as an aid to construction, including (a) claims for rectification and (b) situations where the without prejudice document in question is referred to in, or itself contains, the compromise agreement. The latter situation had arisen in an earlier case, Admiral Management Services Ltd v Para Protect Europe Ltd [2002] EWHC 233 (Ch), which had also been decided by Stanley Burnton J (as he then was). In Oceanbulk, that judge agreed with Longmore LJ's interpretation of the limitations of his own earlier decision.

It is, however, the terms of the short dissenting judgment of Ward LJ which are arguably the most striking feature of Oceanbulk. If, he said, '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 be permitted to do so, he said, is what his mother would describe as 'barmy'. He concluded by saying, by reference to what he perceived as a tension between Oceanbulk and Admiral, that he preferred 'the instincts of the youthful Stanley Burnton J 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'.

Light-hearted or not, the remarks of Ward LJ might be thought to encapsulate, for many, the problems with the without prejudice rule. Many (including presumably clients like Mrs Williams, who are prevented from relying on statements by their opponents which clearly undermine their own cases) would undoubtedly agree with likely reaction of Ward LJ's mother that its operation is or can be 'barmy'. Yet the courts continue to place a higher premium on (to quote Longmore LJ at paragraph 26 of Oceanbulk) 'the policy of protecting without prejudice communications' than on 'the policy of providing the judge with every conceivable help to arrive at a just solution'.

It is notable that all the cases referred to in this article have involved some degree of judicial disagreement. Ofulue and Oceanbulk were majority decisions; Williams, a successful appeal from a county court judge. In circumstances where the application of the rule so often seems to flout what is considered, by public and (it seems) judiciary alike, to constitute common sense, it is suggested that there remains a strong case for a root-and-branch reconsideration of its scope and extent.