The underlying policy behind the “without prejudice” rule governing the admissibility of evidence is well known. We are encouraged to settle our disputes without fear that statements made during settlement negotiations will be admitted as evidence on questions of liability, rather than litigating our disputes to a final hearing. For this reason, the without prejudice rule generally excludes written evidence and oral statements made in a genuine attempt to settle disputes. The purpose of the without prejudice rule is quite nicely explained by Oliver LJ (as he then was) in Cutts v Head [1984] Ch. 290, 386:
“Parties should be encouraged so far as possible to settle their disputes without resort to litigation and should not be discouraged by the knowledge that anything that is said in the course of that negotiation (and that includes, of course, as much a failure to reply to an offer as an actual reply) may be used to their prejudice in the course of proceedings. They should … be encouraged fully and frankly to put their cards on the table … The public policy justification, in truth, essentially rests with the desirability of preventing statements or offers made in the course of negotiations for settlement being brought before the Court of trial as admissions on the question of liability.”
Calling your communications “without prejudice” or “off the record” is not necessarily decisive, although it is good practice to do so. The without prejudice rule will ordinarily apply providing it is clear that you are genuinely trying to compromise a dispute without resort to litigation. This means that negotiations genuinely aimed at the settlement of a dispute will ordinarily trigger the without prejudice rule.
The flip side of the coin means that your business counterpart cannot rely upon the without prejudice rule to seek your agreement to negotiate or compromise an undisputed liability or debt. In other words, there must be a real dispute in existence that is “capable of settlement in the sense of compromise (rather than in the sense of simply payment or satisfaction.)”1
The without prejudice rule does not solely extend to settlement offers and admissions against interest. It applies to the exclusion of all oral and written negotiations genuinely aimed at settlement, and prohibits them from being given as evidence. While this is true most of the time, it is not true all of the time. There are recognised exceptions to the without prejudice rule that can, and often do, arise in practice. This means that you or your business counterpart may, in certain instances, rely upon without prejudice communications as evidence, even where the communications were genuinely aimed at settlement. Some of the exceptions are listed in the table together with an example of how each may arise in practice.
In the future, it is likely that we will continue to see the courts recognise exceptions to the without prejudice rule and possibly the recognition of new exceptions where there is good reason to do so. For that reason, it would be sensible for us to remember that the without prejudice rule is a general rule, not an absolute one.
EXCEPTIONS TO THE WITHOUT PREJUDICE (WP) RULE
Exception:
- Rectification2
Example : X may rely upon WP communications with Y to show a term of their settlement agreement requires correction as it has been misstated.
- Existence of Settlement Agreement3
Example : X may rely upon WP communications with Y to show a binding settlement was concluded if Y claims the opposite.
- Perjury, Blackmail or other Unambiguous Impropriety4
Example : Y makes a false statement when testifying. X may rely upon WP communications with Y as evidence of Y’s perjury.
- Misrepresentation, Fraud or Undue Influence5
Example : Y tells X US$100,000 will be accepted as a final settlement of a US$250,000 claim. In reliance upon Y’s representation, X pays Y US$100,000. Y brings a claim against X for the US$150,000. X may rely upon WP communications with Y.
- Reasonableness6
Example : Y seeks to set aside his settlement agreement with X. X may rely upon WP communications with Y as evidence of the reasonableness of the settlement.
- Estoppel7
Example : Even where there is no concluded settlement agreement, Y makes a clear statement in WP communications upon which X reasonably relies. This may be admissible as evidence of estoppel.
- Delay8
Example : Y files an application to dismiss X’s claim for want of prosecution. X may rely upon the fact that WP communications occurred and the relevant dates as evidence to explain the delay.
- Costs9
Example : X prevails in his claim against Y. Y may rely upon WP communications save as to costs as evidence for the Court or tribunal to consider when assessing costs.
1Bradford & Bingley Plc v Rashid [2006] 1 WLR 2066.
2Butler v Countrywide Finance Ltd [1992] 5 PRNZ 447.
3Faraday Capital Ltd v Copenhagen Reinsurance Co Ltd [2006] EWHC 1474 (Comm).
4Forster v Friedland and Fazil-Alizadeh v Nikbin [1993] CAT 205.
5Underwood v Cox [1912] 4 DLR 66.
6Muller v Linsley & Mortimer [1996] P.N.L.R. 74.
7Hodgkinson & Corby Ltd v Wards Mobility Services [1997] FSR 178, 191.
8Walker v Wilsher [1889] L.R. 23 Q.B.D. 335.
9Cutts v Head [1984] Ch. 290.
We are grateful to Jacqueline Zalapa, Senior Associate at Reed Smith LLP for this article.
Additional articles on this subject on the Steamship Mutual website include:
http://www.steamshipmutual.com/publications/Articles/Oceanbulk0210.html
http://www.steamshipmutual.com/publications/Articles/LiaOil0407.html
