Make it clear whether or not communications are intended to be "without prejudice"

Otherwise there is a risk that the court will find they were intended to be on an open basis: English & American Insurance Co Ltd v Axa Re SA [2006] EWHC 3323 (Comm).

Background

The claimant was an insolvent insurer of a company (Dow) which had made various claims on its policy in respect of liabilities for personal injury claims. The defendant was the claimant's 100% reinsurer.

The claimant and defendant met on a without prejudice basis to discuss the claims. Following the meeting, the defendant sent the claimant two letters which raised various concerns about how the claimant had handled the matter. The letters were not marked "without prejudice" but set out the basis on which the defendant would be prepared to agree a settlement "without prejudice to our right to deny liability for losses arising" from claims by Dow.

The claimant sought to rely on these letters in an application for summary judgment. The defendant applied to strike out the evidence referring to the letters on the basis that they were without prejudice and therefore inadmissible.

Decision

The judge (Gloster J in the High Court) held that, looking at the evidence objectively, it was not appropriate to characterise the letters as without prejudice. At the end of the meeting, a representative of the claimant had asked the defendant to set out its position in writing. The obvious purpose of the request, the judge said, was so that the claimant had a statement on the record of the defendant's position, which implicitly was to be an open statement. Not all correspondence written with a view to settlement is without prejudice. It depends on the parties' intentions, which must be determined objectively.

The judge went on to grant summary judgment, relying in part on the letters as evidence.

Comment

Although this seems on its facts a surprising decision, the Court of Appeal has refused permission to appeal against it. The judgment demonstrates the danger of assuming that all correspondence written in the context of settlement negotiations will necessarily be without prejudice. It depends on the parties' intentions, which must be determined objectively.

The case highlights the importance of making it absolutely clear whether or not correspondence is intended to be without prejudice. Although it is well established that marking correspondence "without prejudice" is not determinative, clearly it will be helpful in establishing, objectively, the intention that the correspondence should be without prejudice. In light of this case it would also be prudent for a party, if asked for written confirmation of its position following a without prejudice meeting, to agree specifically with its opponent whether the confirmatory letter will also be without prejudice.