House of Lords ruling on 'without prejudice'

The ruling of the House of Lords in Ofulue v Bossert [2009] UKHL 16 highlights the wide protection provided by the without prejudice rule to parties who engage in genuine settlement negotiations. It also emphasises the importance of the public policy objective underlying the rule, to encourage parties to speak freely during those negotiations.

Context

"Without prejudice" privilege is a rule governing the admissibility of evidence. It has been said to counter the general rule that parties' admissions against their own interests are admissible as evidence against them, thereby providing parties with a safe framework within which they can negotiate resolutions openly and honestly, free from the concern that such admissions will be used to their counterparties' advantage, subject to certain exceptions. It is essential that there is a dispute to compromise (Bradford & Bingley plc v Rashid [2006] 4 All ER 705, HL) and the test is objective.

As identified by Robert Walker LJ in Unilever v Procter & Gamble [2000] 1 WLR 2436, CA, the basis of "without prejudice" privilege lies in both public policy and an implied agreement between the parties to exclude evidence of their negotiations for this purpose. The former especially protects the parties who make the "opening shot" and also helps to guard against third party use of without prejudice material; the latter comes more into play between parties once negotiations have started.

Unilever is important for Robert Walker LJ's opinion that when considering the admissibility of "without prejudice" material there should be no dissection of admissions from other types of statement, so as to give protection only to the admissions, as this would create huge practical difficulties. Given the importance of the policy objectives, exceptions to the privilege are confined and restricted to specific situations where justice requires an exception. The eight "most important instances" were identified by Robert Walker LJ in Unilever and include where the issue is whether without prejudice communications have resulted in a concluded compromise agreement, or whether such an apparently concluded agreement should be set aside on the ground of misrepresentation, fraud or undue influence, or where the exclusion of the evidence would act as a cloak for perjury, blackmail or other "unambiguous impropriety". Even then, the exceptions only apply in the clearest cases of abuse of the privilege.

Background: Ofulue v Bossert

Mr and Mrs Ofulue bought a house in 1976 and subsequently let the property to tenants. Ms Bossert was permitted to occupy the property by one of the tenants in 1981. The Ofulues brought proceedings for possession of the property in 1989. Ms Bossert admitted the Ofulues' title to the property in her defence, but contended that she had acquired an equitable lease or tenancy. The parties entered into without prejudice negotiations, during which Ms Bossert made two offers to purchase the property, which were rejected. The latter of these offers was made in a "without prejudice" letter dated 14 January 1992 (the January letter). Negotiations failed, but the Ofulues did not pursue their claim, which ultimately led to it being struck out in April 2002.

In September 2003, Mrs Ofulue commenced fresh proceedings seeking possession of the property. Ms Bossert counterclaimed that she had acquired a proprietary right over the property by virtue of the law of adverse possession under section 15 of the Limitation Act 1980, for which a period of 12 years' uninterrupted occupation in possession "adverse" to the owner had to be shown. In turn, Mrs Ofulue relied on section 29(2)(a) of the Act, which states that if the occupier of property acknowledges the title of the owner, in writing and signed, the time for the purposes of section 15 only accrues from that point forward. Mrs Ofulue argued that Ms Bossert's defence, served in 1990, was a continuing acknowledgment of her proprietary right. This was rejected by the courts below. Mrs Ofulue also sought to rely on the January letter as an effective acknowledgement of title under section 29(2)(a). Ms Bossert challenged its admissibility, relying on the protection of "without prejudice" privilege. The trial judge and Court of Appeal agreed that the January letter was inadmissible. Mrs Ofulue was granted leave to appeal to the House of Lords.

Their Lordships rejected the argument that the defence was a continuing acknowledgment of Mrs Ofulue's proprietary right. (In their opinion it constituted an acknowledgment of title on the date it was served but the acknowledgment did not continue beyond that date.)

Mrs Ofulue's arguments for why the January letter constituted an acknowledgement of title were essentially fourfold. Firstly, she argued that the case was outside the scope of the without prejudice rule as her title to the property was not in issue in the earlier proceedings but had been specifically admitted in the defence (the independent fact argument). Secondly, the letter was sought as evidence of Ms Bossert's acknowledgment of Mrs Ofulue's title, rather than as an admission that she actually had title (the evidential distinction argument). To the extent that the without prejudice rule applied, Mrs Ofulue maintained that her case fell within certain exceptions. Her third argument was that acknowledgments for the purposes of section 29 should be admissible, as an exception to the without prejudice rule. Finally, her fourth argument was that Ms Bossert's conduct entitled Mrs Ofulue to override the without prejudice rule. (These latter two arguments are referred to for convenience as the exceptions arguments.)

The House of Lords' decision on without prejudice privilege

The majority of the House of Lords (Lord Scott dissenting) found that the January letter could not be relied on as an effective acknowledgement of title as it was subject to without prejudice privilege and therefore inadmissible. It therefore dismissed the appeal and upheld the lower court's order that Ms Bossert was now the registered proprietor of the property.

The independent fact argument

Lords Hope, Walker and Neuberger took a narrow view as to when a statement of fact might be considered "unconnected" with a case, considering that the statement upon which Mrs Ofulue sought to rely was connected, even if it was not directly in issue in those proceedings. Lord Neuberger expressly left open the question of whether, and if so the extent to which, a statement made in without prejudice negotiations would be admissible if it was "in no way connected" with the issues in the case which was the subject of negotiations. Lord Rodger went further, opining that excluding independent facts from protection would undermine the public policy considerations behind the rule. Parties would not be able to negotiate freely if they and their legal advisors had to analyse their conversations to make sure they do not state any "independent facts". Lord Scott (dissenting) suggested that policy did not prevent the admission into evidence of a statement of a fact which had not been at issue in the negotiations. The implied agreement basis did not support this application of the without prejudice rule, because the parties could not reasonably be supposed to have agreed that a statement of a commonly accepted fact would benefit from its protection.

The evidential distinction argument

The majority saw it as too impractical and subtle to implement in practice a distinction between whether an admission made in without prejudice negotiations was being relied on to establish a matter of fact (rendering it admissible) or the truth of the admission (rendering it inadmissible). The uncertainty created would require negotiations to be more closely monitored and the policy objective of allowing free and frank negotiations would be undermined. Lords Walker and Neuberger doubted whether any meaningful distinction could be drawn between admissions and acknowledgments. In this case especially, the effect would be the same – the admissibility of the letter would have been fatally prejudicial to Ms Bossert's case. Lord Scott, on the other hand, construed the policy objective of encouraging parties to speak freely narrowly, limiting it to the protection of admissions against interest. He opined that there should be a balance between the policy objective of the without prejudice rule and the policy in the Limitation Act.

The exceptions arguments

No new exception to the without prejudice rule was created for the purposes of section 29. Lord Neuberger saw no significant public policy element beyond the public policy inherent in any statutory provision. Lord Walker considered that the recognition of an exception would "whittle down the protection to the parties to speak freely".

Mrs Ofulue's argument that Ms Bossert's conduct should exclude the application of the without prejudice rule also failed. Lord Neuberger accepted that the rule could not be used "as a cloak for perjury, blackmail or other 'unambiguous impropriety'", but this argument was "misconceived" in circumstances where Ms Bossert's conduct in claiming the benefit of the rule might only be called unattractive, rather than improper.

Comment

Ofulue re-emphasises English law's vigorous development of the without prejudice rule, confirming that its key objective lies in the general encouragement of compromise negotiations, not simply in preventing the use of admissions made during such negotiations. Whilst their Lordships all recognised the dual bases of the rule, founded on both public policy and the implied agreement between the parties, the judgments of the majority highlight the fundamental importance of the public policy basis. Interestingly the dissenting Lord Scott placed more emphasis on the implied agreement basis for his opposing opinion.

The decision will arguably make it difficult for new exceptions to the rule beyond the well-established examples summarised by Robert Walker LJ in Unilever. It is clear from this ruling that they would be subject to rigorous examination.

Finally, Ofulue confirms that without prejudice protection applies to any statements made in negotiations which are connected to the matters in dispute, regardless of whether they are admissions of fact or acknowledgments, or (logically) some other kind of statement. It remains to be seen whether statements made in a without prejudice context that are "in no way connected" with issues in a case will be protected and, if so, to what extent. Whilst not expressly disapproving of this 'independent fact' exception, the majority's opinions make it difficult to see in what context such an exception will be allowed. Ofulue makes it clear that the public policy objective of the rule is not to be undermined by the legal and practical uncertainty of having to distinguish between different types of statement. Parties sometimes use "unconnected" facts in their negotiations to facilitate settlement. The principles confirmed in Ofulue make it unlikely that counterparties could successfully seek to use such statements to the prejudice of the party which made them.