Without prejudice rule: High Court emphasises narrow scope of exceptions

The High Court has granted an application to strike out certain passages from defendants' witness evidence on the basis that they were protected by the without prejudice (WP) rule and the defendants had not established that any of the recognised exceptions to that rule applied: Ocean on Land Technology (UK) Ltd v Land [2024] EWHC 396 (IPEC).

The decision highlights that: the burden is on the party seeking to establish that an exception to the WP rule applies; and establishing that an exception applies to some part of the WP negotiations will not necessarily mean that protection is lost for the whole of those negotiations.

The decision also emphasises the narrow scope of the exceptions to the WP rule, including the recognised exception where the rule is used to cloak "unambiguous impropriety". It is well established that the exception will not be engaged merely because there is an inconsistency between statements made on an open and WP basis, even where that might lead to a risk of perjury. But the courts have generally shown themselves more willing to apply the exception where the WP material includes improper threats (see for example this blog post). The present decision is therefore of interest for the decision that the alleged threats went no further than would be expected in negotiations to settle a dispute, and therefore were not caught by the exception. The judgment does not, however, reveal the nature of the alleged threats, and so it is not entirely clear where the boundaries may be found to lie. It is therefore advisable to tread carefully, also bearing in mind solicitors' professional duties.

The judgment also considers the much-criticised Muller exception, established in Muller v Linsley and Mortimer [1994] EWCA Civ 39, which applies where WP communications are relevant to whether a party has reasonably mitigated its loss in negotiating a settlement of separate proceedings, and the party has put the reasonableness of the settlement in issue. The court in the present case did not accept that Muller establishes a broader principle that a party waives WP protection whenever it puts in issue the terms of a settlement agreement. This is not surprising in light of previous Court of Appeal authority as to the narrow ambit of the exception (see this blog post).

Finally, the decision shows that, while there is an exception where WP material is relevant to establishing "factual matrix" for the interpretation of a contract, as established in Oceanbulk Shipping SA v TMT Ltd [2010] UKSC 44 (considered here), that exception will not be applied simply because the material is broadly relevant to the surrounding context.

Background

The underlying claims are for breach of contract and trademark and patent infringement relating to the sale of a company. The contracts alleged to have been breached include a settlement agreement, as well as the share purchase agreements and patent assignment relating to the sale.

The claimants applied for certain parts of the defendants' trial witness statements to be struck out on various grounds, including that they referred to the substance of, and exhibited, WP correspondence.

The defendants accepted that the material was covered by the WP rule but asserted that it was nevertheless admissible because it fell within an exception to that rule, because:

1. the claimants were using the WP rule to cloak "unambiguous impropriety";
2. by putting in issue the settlement agreement, the claimants had waived the protection of the rule for surrounding documents; and/or
3. the material fell within the "interpretation exception" established in Oceanbulk.

Decision

The High Court (Ms Pat Treacy sitting as a judge of the Chancery Division) granted the claimants' application and directed that the defendants prepare amended witness statements in line with the judgment.

The judge rejected the defendants' submission that, if they could establish that an exception applied to any part of the WP material, then all of that material would be admissible in evidence. The defendants argued that, since the WP rule is applied to negotiations as a whole, rather than separating out only admissions (which are the principal concern of the rule) to benefit from the rule, the protection of the rule should similarly be lost for the negotiations as a whole where an exception applies. This did not follow. The approach contended for would mean that parties would be constrained in their discussions, as any slip could lead to the wholesale loss of protection. Accordingly, the judge concluded that "the various exceptions relied on must be applied to the without prejudice materials on their individual merits, subject only to the possibility that a series of related materials may be covered by the same exception".

The judge noted that: (i) as the defendants sought to rely on the exceptions to the WP rule, it was for them to establish that the material fell within an exception; and (ii) given the public policy rationale which underpins the rule, exceptions must be applied narrowly but with regard to the requirements of justice. She also commented that the hearing would have been more productive if the defendant had been clear in advance that it did not maintain its original position contesting the application of the WP rule, and had identified in advance the exceptions it intended to rely on and how.

Unambiguous impropriety

Having reviewed the authorities, the judge agreed with the claimants' submissions on the scope of the "unambiguous impropriety" exception, in particular that:

• As shown by Holyoake v Candy [2016] EWHC 2119 (Ch), an inconsistency between WP and open statements is not sufficient to remove the protection of the rule. Even the possibility of perjury does not suffice. The rule must be being used to cloak wholly improper conduct (for example, the making of unambiguously improper threats which the party seeks to conceal from the court).
• Conduct or statements which do not go beyond the bounds of what is to be expected in negotiation are not within the scope of the exception.

In the present case, the defendants submitted that the exception applied to two passages of the evidence:

1. Certain comments by Mr Cadman (the individual who controlled the claimant companies) when providing the settlement agreement to one of the defendants, which the defendants suggested amounted to unfair threats; and
2. Certain emails (presumably containing statements by Mr Cadman) which the defendants said gave rise to the possibility of perjury during Mr Cadman’s oral evidence.

Having reviewed the relevant material in its context, the judge concluded that none of it fell within the unambiguous impropriety exception, as the materials in (i) went "no further than would be expected when seeking to settle a dispute" and those in (ii) did not satisfy the requirements discussed in Holyoake.

Waiver

The claimants relied on Muller as authority that, where a party has put in evidence a document in order to establish a specific pleaded allegation, that party waives privilege in any WP communications surrounding the document relied on.

The judge rejected the claimants' argument. In Muller a settlement agreement with a third party was deployed as evidence of reasonable mitigation of loss. The court held that the effect was that any documents leading to the settlement had to be disclosed because, otherwise, the WP rule might be used to conceal what happened in the earlier action. In the present case, the judge found that Muller did not establish that a party seeking to enforce the terms of a settlement agreement, and pleading those terms, would waive the WP status of documents relating to the negotiation of the settlement. There would be a waiver only if the claimants had deployed WP material to advance their case on the merits.

Interpretation exception

The parties broadly agreed on the scope of the interpretation exception, which applies when pre-contractual materials would (absent the protection of the rule) be admissible to establish facts known to both parties which form part of the "factual matrix" relevant to interpreting the contract.

Having reviewed the WP material that was said to fall within this exception, the judge agreed that it was broadly relevant to the context surrounding the conclusion of the settlement agreement. However, she held that it did not satisfy the requirements for this exception, which did not permit WP material to be deployed to explore the underlying issues. It was also not clear what additional probative value the material would have, as many of the facts it was said to shed light on were apparent from other evidence.