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“Without prejudice” save as to costs?

15 May 17

Scots and English law differ markedly on the scope of protection imported by the label “Without prejudice”, though in the author's experience the difference is regularly lost sight of

by John MacKenzie

“Without prejudice”. Probably one of the most overused and misunderstood “tags” in legal correspondence. Originally a reasonably straightforward reservation of a party’s legal position, the author has been on the receiving end of a number of attempts to import English jurisprudence into the law of Scotland. This article considers whether that is good, or bad.

The Scottish position

The Scottish position was discussed in the case of Daks Simpson Group plc v Kuiper 1994 SLT 689. In that case it was argued that because a letter was written without prejudice, the contents could not be looked at and could not be held to constitute an admission. The English case of Cutts v Head [1984] Ch 290; [1984] 2 WLR 349; [1984] 1 All ER 597 was referred to. That case was concerned with the English concept of written without prejudice save as to costs, but certain observations were made as to the general nature of without prejudice letters. The general principle was stated by Oliver LJ as follows:

“That the rule rests, at least in part, upon public policy is clear from many authorities, and the convenient starting point of the inquiry is the nature of the underlying policy. It is that parties should be encouraged so far as possible to settle their disputes without resort to litigation and should not be discouraged by the knowledge that anything that is said in the course of such negotiations (and that includes, of course, as much the failure to reply to an offer as an actual reply) may be used to their prejudice in the course of the proceedings. They should, as it was expressed by Clauson J in Scott Paper Co v Drayton Paper Works Ltd (1927) 44 RPC 151, 156, be encouraged fully and frankly to put their cards on the table… The public policy justification, in truth, essentially rests on the desirability of preventing statements or offers made in the course of negotiations for settlement being brought before the court of trial as admissions on the question of liability.

“It was expressed thus by Romilly MR in Jones v Foxall (1852) 15 Beav 388, 396: ‘I find that the offers were in fact made without prejudice to the rights of the parties; and I shall, as far as I am able, in all cases, endeavour to repress a practice which, when I was first acquainted with the profession, was never ventured upon, but which, according to my experience in this place, has become common of late – namely, that of attempting to convert offers of compromise into admissions of acts prejudicial to the person making them. If this were permitted, the effect would be that no attempt to compromise a dispute could ever be made.'”

In Daks Simpson, Lord Sutherland said: “The general principle underlying the rule is that if offers, suggestions, concessions or whatever are made for the purposes of negotiating a settlement, these cannot be converted into admissions of fact. I do not read Oliver LJ's statement as saying anything beyond that… 'Without prejudice' in my view means, without prejudice to the whole rights and pleas of the person making the statement. If, however, someone makes a clear and unequivocal admission or statement of fact, it is difficult to see what rights or pleas could be attached to such a statement or admission other perhaps than to deny the truth of the admission which was made. I see no objection in principle to a clear admission being used in subsequent proceedings, even though the communication in which it appears is stated to be without prejudice. I would adopt what is said by Lord Wylie in Watson-Towers and the Canadian view expressed in Kirschbaum.”

In Watson-Towers Ltd v McPhail 1986 SLT 617, Lord Wylie simply said: “These terms do not, in my view, infer a hypothetical admission or concession for the purpose of securing a settlement but are a statement of fact. The use of the expression 'without prejudice' does not in my view protect the letter from subsequent use as an admission of fact.”

Lord Sutherland’s reasoning in Daks Simpson was expressly approved by Lord Johnston in the Inner House case of Richardson v Quercus 1999 SC 278.

So far as the question of without prejudice correspondence and expenses is concerned, the Scottish courts appear to have had little difficulty in referring to such correspondence. In O'Donnell v A M & G Robertson 1965 SLT 155 Lord Hunter said: “I may remark in passing that correspondence of the same character… was taken into consideration by the Inner House in Critchley v Campbell (1884) 11 R 475, and I notice that Lord President Inglis, at p 480, said with regard to the correspondence in that case: 'The meaning of the parties, I think, was that the offers were not in any way to prejudice their rights in regard to the question between them, and not that they might not be referred to as affecting the question of expenses'.”

See also Pearce & Co v Owners of SS “Hans Maersk” 1935 SC 703.

In summary, it would appear that the without prejudice protection in Scotland covers correspondence, concessions or statements made with a view to trying to achieve a settlement, but that does not prevent that same correspondence being referred to either where there is a clear admission or statement of fact, or in relation to expenses.

The English position

The English position is different. The difference in principle was mentioned by Lord Hoffmann in the House of Lords case of Bradford & Bingley v Rashid [2006] 1 WLR 2066 at para 13, when discussing the Scottish exception to the without prejudice rule: “This limitation on the scope of the without prejudice rule, confining it to admissions which can be construed as made hypothetically rather than without qualification, is not limited to the use of these admissions as acknowledgments under s 29(5) or its Scottish equivalent. It is entirely general. As such, I think that, with all respect to the Scottish judges, including my noble and learned friend Lord Hope, it goes too far. There is nothing in the modern English authorities to encourage a dissection of correspondence or, still worse, conversations, to ascertain whether admissions of fact were made hypothetically or without qualification. It has frequently been said that the purpose of the rule is to encourage parties engaged in settlement negotiations to express themselves freely and without inhibition. It is well established that the rule applies to any genuine attempt at negotiation, whether or not the communications are expressly said to be without prejudice, and I think it would be most unfortunate if the law introduced a new requirement that the parties should preface anything they said with a standard disclaimer that any admissions of fact were to be taken to be hypothetical and solely for the purposes of the negotiation.”

The law in England is usefully summarised in a passage in the long running case of Vestergaard Frandsen A/S v Bestnet Europe Ltd [2015] 1 Costs LR 85 by lain Purvis QC, sitting as a Deputy Judge of the Chancery Division. He said:

“[24] The law on without prejudice privilege is well-established and it is unnecessary to set it out at any length in this judgment. The rule rests on two foundations:
(i) The public policy of 'encouraging litigants to settle their differences rather than litigate them to a finish' [Lord Griffiths in Rush & Tompkins Ltd v Greater London Council [1989] AC 1280 at 1299];
(ii) The express or implied agreement of the parties that communications in the course of negotiations marked 'without prejudice' should not be admissible in evidence if, despite the negotiations, a contested hearing ensues. See Robert Walker LJ in Unilever v Procter & Gamble [2000] 1 WLR 2436 at 2442.

“[25] It has been said that the reason 'without prejudice' negotiations are not admissible on the question of costs is based on the agreement of the parties and not on public policy… However, since the judgment of Robert Walker LJ in Unilever v Procter & Gamble [2000] 1 WLR 2436, it is now well established that the public policy principle is not so limited. The House of Lords in Ofulue v Bossert [2009] AC 990 firmly rejected any attempt to treat the public policy as having such a narrow scope. Lord Hope at para 12 said as follows: 'It is the ability to speak freely that indicates where the limits of the rule should lie. Far from being mechanistic, the rule is generous in its application. It recognises that unseen dangers may lurk behind things said or written during this period, and it removes the inhibiting effect that this may have in the interests of promoting attempts to achieve a settlement. It is not to be defeated by other considerations of public policy which may emerge later, such as those suggested in this case, that would deny them that protection.'

“[26] In the light of this modern approach, confirmed more recently by the Supreme Court in Oceanbulk Shipping [2011] 1 AC 662, I would respectfully suggest that there is a strong public policy justification for denying the ability to rely on a without prejudice communication at any stage in the proceedings, including in the assessment of costs. The correct position as a matter of public policy is that originally stated by Bowen LJ in Walker v Wilsher: 'It is most important that the door should not be shut against compromises, as would certainly be the case if letters written without prejudice and suggesting methods of compromise were liable to be read when a question of costs arose.”…

“[28] Ultimately, the distinction between the two bases of protection is probably irrelevant for the purpose of this application. The courts have consistently stated that the 'without prejudice' correspondence is not admissible when considering costs because to do so would subvert the implicit agreement under which such correspondence takes place. This was recognised by the Court of Appeal in Cutts v Head and in Walker v Wilsher, and again, most recently, in Reed Executive v Reed Business Information [2004] EWCA Civ 887. At para 21 Jacob LJ noted that: 'parties who have negotiated on a wholly “without prejudice” basis have always done so in the faith and expectation that what they say cannot be used against them even on the question of costs'.”

The without prejudice protection goes beyond the first letter, and extends to any response and any actions taken in that context. In addition, it is a privilege that cannot be waived without the consent of both parties. As Iain Purvis QC went on to say:

“[31]... Once a party has made a without prejudice offer, the recipient of the offer is plainly free to make a without prejudice response. The response may be to make a counter-offer, it may be to ask for more information, or it may be simply to reject the offer outright. He may even choose to ignore the offer completely. All those responses are protected by the privilege.

“[32] If authority were needed for this proposition, there is plenty of it. In a well known passage in Cutts v Head in which Oliver LJ made clear that the privilege protected all communications, which included 'of course, as much the failure to reply to an offer as an actual reply'. If it covers the failure to reply to an offer, it obviously must include the rejection of an offer. In Walker v Wilsher Bowen LJ stated that 'it would be a bad thing, and lead to serious consequences if the courts allowed the action of litigants, on letters written to them without prejudice to be given in evidence against them or to be used as material for depriving them of costs' (my emphasis). In Reed the defendants were seeking to open up without prejudice correspondence to demonstrate that the claimants had unreasonably rejected out of hand a proposal to go to ADR. The Court of Appeal refused to allow this, noting at [34] that it was a necessary consequence of the without prejudice rule that 'in some cases the court when it comes to the question of costs cannot decide whether one side or the other was unreasonable in refusing mediation'.

“[33] Even without this authority, it is in my view plain from first principles that a rejection of a without prejudice offer (without making a counter-offer) is not admissible in evidence. No such rejection could be given in evidence in isolation, that is to say without also providing the initial offer as well (indeed the entire chain of correspondence). See for example Somatra v Sinclair Roche [2000] 1 WLR 2453. So in this case, the defendants could never have put in evidence Fieldfisher's letter of 16 January 2012 without also putting in evidence their own letters of 10 November 2011 and 3 January 2012. Mr Wilson accepted this proposition. Yet the letters of 10 November and 3 January are on the defendants' own case plainly privileged under the 'without prejudice' rule, a privilege which cannot itself be waived without the consent of both parties. See Lord Esher MR in Walker v Wilsher (1889) 23 QBD 335. It logically follows that it can never be open to one party who has made a genuinely 'without prejudice' offer to disclose the response to that offer without the consent of the offeree.”

English law has a reasonably developed line of jurisprudence on offers that can be taken into account. Jacob LJ in Reed Executive plc v Reed Business Information Ltd [2004] 1 WLR 3026 explained at para 20: “Negotiations or offers which have taken place expressly on the 'without prejudice save as to costs' basis are of course admissible on that question. So much was decided in the family law context in Calderbank v Calderbank [1976] Fam 93 and in the general civil litigation context by Cutts v Head [1984] Ch 290. Such offers go by the name 'Calderbank offers'.”

In that case without prejudice offers could not be taken into account when considering the conduct of one party in allegedly unreasonably refusing to go to mediation.

In England the rule appears to be that the court will not consider any communications marked “without prejudice” or made in a without prejudice context, and at a hearing on costs, communications will only be considered if they have been marked “Without prejudice save as to costs”.

Distinction without a difference?

The practical importance of a wider protection was explained by Iain Purvis QC in the Vestergaard case. He said, after noting the mechanisms for open offers such as Calderbank offers and CPR Part 36 offers, that there was a: “public policy value in a parallel process by which discussions can take place 'without prejudice' without the need to be concerned about later costs consequences. Such a process enables the parties to be entirely honest and open with one another. Thus, for example, solicitor A may be prepared to explain on a 'without prejudice' basis to solicitor B that his client is somewhat irrational about a claim and has told him that he is only prepared to settle it if he receives a personal and public apology from his protagonist (something he was not entitled to as a matter of law). This disclosure might well facilitate settlement, since at least solicitor B now knows the problem which he has to solve. But one can imagine that solicitor A would not be prepared to be so candid about the position if he knew that the communication could be relied on when it came to costs, when it would be said that his client had taken an intransigent and unhelpful position.”

It is easy to see the attraction of the public policy arguments in favour of the broad protection offered to without prejudice communications under English law. The courts in both jurisdictions seek to encourage settlement; the courts are seeking to encourage and facilitate open discussion. Equally, if a clear statement of fact is made, it would appear on the face of it unjust if that could not be taken into account at a contested hearing. For the moment, as the law currently stands, the position in Scotland and England is quite different. Practitioners need to be careful to ensure that when they are advising in Scotland the protection is on the face of it limited, and when dealing with English law the protection is broad.

Should Scottish practitioners adopt the English “without prejudice save as to costs”? On one view there is no harm in doing so. It would make it clear that the correspondence will be referred to in the event there is a motion for expenses. But it is not difficult to see that it might be argued that the adoption of the English formulation amounts to an agreement that the English policy approach governs the parties' relationship and, apart from costs, the correspondence may not be referred to even if there is an admission or statement of fact.

John MacKenzie is a solicitor advocate and partner with Shepherd & Wedderburn LLP

 

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