High Court rejects without prejudice privilege for audit report produced for purpose of settlement negotiations

The High Court has held that an audit report commissioned by the defendant when the parties were engaged in without prejudice negotiations had to be disclosed as it was not protected by the "without prejudice" (WP) rule: Mornington 2000 LLP (t/a Sterilab Services) v The Secretary of State for Health and Social Care [2025] EWHC 540 (TCC).

The WP rule protects evidence of negotiations genuinely aimed at settling a dispute from being admitted in legal proceedings. There are two accepted bases for the operation of the rule: (i) the public policy in favour of encouraging the settlement of disputes; and (ii) an implied agreement between the parties, which typically arises where correspondence is marked as WP.  

This decision suggests that, if based on public policy alone, the WP rule will protect only what is said during WP negotiations, as opposed to what is done during a WP process. The parties can agree to extend the protection of the rule to cover, for example, a third party report obtained for the purposes of the negotiations, but that will require a clear agreement which can be objectively evidenced. The mere fact that the commissioning of a report is discussed and agreed in the context of WP negotiations will not, in itself, mean the report is protected by the WP rule, and the subjective intentions of the party who commissioned the report will not be relevant.

The decision does not consider whether the audit report might have been protected by litigation privilege on the basis that it was a confidential report obtained for the dominant purpose of obtaining legal advice and/or information or evidence for the conduct of legal proceedings that were then in reasonable contemplation. For these purposes, conducting legal proceedings includes avoiding or settling them (see for example WH Holding Ltd v E20 Stadium LLP [2018] EWCA Civ 2652, considered here). Presumably that was not argued in this case, and in any event such an argument may have been difficult, in light of the judge's findings as to the purposes for which the audit report was commissioned.

Background

The underlying proceedings arose out of a contract for the claimants to supply COVID-19 lateral flow test kits to the defendant Secretary of State. The second claimant had a sub-contract with a supplier of the kits, who in turn had a sub-contract with the manufacturer of the kits in China. The claimants allege various breaches of the public procurement regulations and that the defendant wrongfully rejected 68.4 million test kits.

Following the order and manufacture of the kits, the defendant commissioned a standard Amfori Business Social Compliance Initiative audit of the manufacturer's facility in China, which the defendant said evidenced the manufacturer's failure to comply with required working conditions. A corrective action plan was put in place to identify and help implement areas of improvement.

The claimants objected to the audit findings and the parties began to discuss, on an open basis, ways in which the issues identified could be addressed, including the potential for follow-up audits. Two further audits were commissioned by the claimants, but the defendant refused to accept their findings and instead rejected the test kits.

The defendant's internal documents from around this time evidenced discussions concerning the potential public messaging of the audit results and the fact that a further audit could potentially enable the release of, and payment for, the test kits already supplied by the claimants (which were urgently needed due to the ongoing pandemic).

Subsequently, the parties engaged in mediation and a further WP meeting. During this meeting the parties discussed arrangements for a further audit to be conducted as one of the eight headline proposals for settlement. WP correspondence followed in which the parties discussed the scope and purpose of the proposed audit, including potential dates. With the date of the audit having been agreed between the parties, it was subsequently carried out by Intertek on the instructions of the defendant (who funded the audit). The defendant then refused to disclose the Intertek audit report on the basis that "the audit was produced as part of the confidential and without prejudice process and any documents disclosed in that process, including the Intertek audit report, are covered by without prejudice privilege". The claimants disputed the WP nature of the report but, for the purpose of ongoing settlement discussions, agreed to receive it on a WP basis (albeit reserving their right to challenge its WP status).

In the proceedings which followed, the defendant did not disclose the Intertek audit report. The claimants applied for a declaration that the report and associated documents (which broadly included the defendant's internal documents concerning its instructions to Intertek and subsequent consideration of the report, and documents evidencing communications/discussions between the defendant and Intertek) did not benefit from the protection of the WP rule.

Decision

The High Court (Joanna Smith J) declared that the Intertek audit report and associated documents were not protected by the WP rule and ordered that they be disclosed.

The judge recapped the relevant legal principles, including:

• The WP rule is a rule governing the admissibility of evidence and is founded in the public policy of encouraging parties to settle their disputes outside of the courtroom (Rush & Tompkins Ltd v GLC [1989] 1 AC 1280). Lord Hope in Ofulue v Bossert [2009] 1 AC 990 explained it as follows: "It is the ability to speak freely that indicates where the limits of the rule should lie."
• The WP rule applies "to exclude all negotiations genuinely aimed at settlement whether orally or in writing from being given in evidence" and its purpose is "to protect a litigant from being embarrassed by any admission made purely in an attempt to settle" (Rush & Tompkins).
• The WP rule is not limited to admissions made against a party's interest (although the protection of such admissions is the most important practical effect). WP negotiations will normally be inadmissible in their entirety.
• The WP rule may also arise from the express or implied agreement of the parties. Thus, an agreement between the parties that their communications will not be used in court will be upheld (see Avonwick Holdings Ltd v Webinvest Ltd [2014] EWCA Civ 1436, considered here). However, one party cannot unilaterally impose an extension of the scope of the WP rule – there must be agreement.
• In some cases, both the public policy justification and an agreement between the parties are present. However, "unless the parties agree to narrow or broaden its effect… the scope of the privilege is a matter of general law and is not based on the supposed boundaries of a notional agreement between the parties."
• The WP rule is an important one whose boundaries should not lightly be eroded. There must be a good reason for not upholding the protection of WP privilege.
• The question of whether a document is WP is an objective question for the court – labels are not conclusive.
• WP privilege is a joint privilege which cannot be waived unilaterally.

Public policy justification

The judge did not consider that the Intertek audit report could properly be said to fall within the public policy justification for the WP rule. While there was no doubt that the WP negotiations between the parties included discussions as to the commissioning of an audit report, that did not automatically mean the report was protected by WP privilege. The report was not itself a statement or offer made during negotiations, nor was it a record of negotiations, nor did it have anything to do with admissions. It was an independent report produced by a third party, containing no statements from either party.

Consequently, the judge found it difficult to see (absent agreement) how the Intertek audit report could fall within the underlying purpose and objective of the WP rule of enabling the parties to speak freely. She rejected the defendant's argument that the public policy justification for the WP rule was broad enough to cover what was done (as well as said) in negotiations, relying on Willers v Joyce [2019] EWHC 937 (Ch) in which Andrews J said the rule applies to render inadmissible evidence “of what was said and/or done during the course of negotiations genuinely aimed at settlement: see Rush & Tompkins…”.

The judge in the present case noted that this was plainly intended only as a summary of the principle as set forth in Rush & Tompkins, in which Lord Griffiths expressly referred only to “negotiations genuinely aimed at settlement”. She commented that the public policy justification cannot possibly cover anything the parties do further to discussions at a without prejudice meeting, as that would extend the ambit of the rule too far.

The judge found it "not entirely insignificant" that the defendant had sought to rely on the public policy justification for the WP rule at a late stage in the application, having initially focused its arguments on the existence of an agreement between the parties.

Implied agreement between the parties

The judge agreed with the claimants that it would likely be difficult to identify an implied agreement that a document was to be covered by WP where it was not made solely for the purpose of WP negotiations. However, there was no "sole purpose" requirement before an implied agreement could be found.

The judge held that, ignoring the parties' subjective evidence (which was irrelevant to the question of whether the WP rule applied), it was impossible on the evidence to identify an implied agreement that the Intertek audit report would be subject to the WP rule.

The high point of the defendant's case was that, against the background of the ongoing without prejudice process, the claimant's failure to object to the audit taking place on a particular date amounted to an implied agreement as to the without prejudice status of the report. The judge rejected this argument on several grounds.

The defendant suggested that in allowing Intertek to carry out the report on a particular date, the claimants had accepted that the audit and subsequent report would be subject to the WP process. However, the judge found that an agreement as to the status of an independent report could not be inferred from an agreement as to a WP process. Objectively, there was no evidence before the judge indicating that both parties agreed, or understood, that the Intertek audit would be conducted on the basis that the subsequent report would be WP. There was no evidence that the defendant made a proposal to that effect which was then accepted by the claimants.

Considering the unchallenged evidence (including the background of the COVID-19 pandemic and the urgent need for compliant lateral flow test kits; the commissioning of earlier audit reports on an open basis; open discussions between the parties as to a further audit which overlapped with the commencement of WP negotiations; and the defendant's internal discussions as to the need for, and purpose of, a further audit), the judge commented that there was nothing in the factual context to suggest or support the existence of an implied agreement that the Intertek audit report be WP. To the contrary, the unchallenged evidence strongly suggested that there were various reasons for the commissioning of another audit report, which contradicted the defendant's contention as to the report's sole purpose, and which did not support an implied agreement that the report be WP.

The judge also found nothing in the WP correspondence to suggest that the parties had made clear what the status of the report should be. There was nothing in the correspondence that evidenced an intention that the parties' eventual agreement that the audit take place on a particular date was also an agreement that it be conducted under the guise of WP privilege.

Finally, the defendants sought to rely on correspondence between the parties following the Intertek audit. Applying a conventional approach to construction, the judge was unconvinced that any document created after the audit was admissible for the purposes of determining objectively whether the subsequent report was commissioned on terms that it be WP.