Court of Appeal rejects claim to without prejudice or litigation privilege in communications incorporated into settlement agreement

A recent Court of Appeal decision has highlighted the need to exercise caution when referring to privileged material in settlement agreements.

The court held that the claimant was not entitled to withhold from inspection communications that had been incorporated into a settlement agreement with one of five defendants. That was despite the fact that, at the time they were made, those communications had been protected by the without prejudice rule, and potentially also litigation privilege (on the basis that the claimant’s dominant purpose in conducting those communications was to collect evidence against the other defendants): BGC Brokers LP v Tradition (UK) Ltd [2019] EWCA Civ 1937.

The decision is unsurprising in finding that communications incorporated into a settlement agreement thereby lost their without prejudice status. It has long been established that, where a settlement agreement is concluded by the acceptance of a without prejudice offer, the offer ceases to be protected by the without prejudice rule since it forms part of the contract. It seems logical that the same should be true of without prejudice communications incorporated into a settlement agreement. Of course, where a settlement is reached at a mediation (which was not the case here), recording the agreed terms in a settlement agreement will not usually result in loss of the without prejudice protection that applies to the substance of the mediation discussions that constituted the offer and acceptance (as distinct from the agreed terms themselves).  However, this decision highlights that without prejudice communications that are expressly incorporated or referred to in a settlement agreement (by, for example, including warranties that statements made during the mediation were truthful and accurate) may lose that protection.

It is also unsurprising that any litigation privilege in the communications should have been lost as a result of their being incorporated into the settlement agreement. The Court of Appeal’s reasoning on this issue may, however, be seen as more novel. The court accepts that the dominant purpose of the original communications may have been to collect evidence, but says that was not the purpose of incorporating them into the settlement agreement, and therefore litigation privilege does not apply. Ordinarily, though, the rule is “once privileged, always privileged” unless privilege is waived or confidentiality is lost – at least insofar as legal advice privilege is concerned (see this post). The present decision may suggest that the same is not true for litigation privilege. As a practical matter, therefore, parties should exercise caution in using material that is subject to litigation privilege for any purpose apart from its original purpose of obtaining advice or information for use in litigation.

Read more on our Litigation Notes blog here.