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Privileged, Without Prejudice and Without Prejudice Save as to Cost Documents - A Brief Guide on the Subject

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Good afternoon fellow Caggers.

 

As the title says, here is a brief on the subject.

 

Arbitration, Arbitrator, Calderbank, Calderbank v Calderbank, Civil Procedure Rules, Claimant, Court of Appeal, Defendant, Legal professional privilege, Litigation, Litigation privilege, Muller v Linsley & Mortimer, Privileged, Reed and Reed v Reed and Reed and Totaljobs.com, Respondent, Rush & Tompkins v Greater London Council, Unilever v Proctor & Gamble, Walker v Wilshire, Without Prejudice, Without Prejudice Save As to Costs,

 

Introduction.

 

There is often some confusion regarding the difference between “Privileged”, “Without Prejudice” and “Without Prejudice Save as to Costs” documents.

The purpose of this article is to briefly explain what each of the above noted terms mean and to illustrate what effect those terms have upon the documents in question.

 

Privileged documents.

 

“Privileged” documents are those that a party is not obliged to disclose during the disclosure and inspection process of an arbitration or litigation action, and generally (but not always) relate to communications between a party and its legal advisors (e.g. legal professional privilege or litigation privilege).

 

“Privilege” is defined in the Glossary to the Civil Procedure Rules (CPR) as “The right of a party to refuse to disclose a document or produce a document or to refuse to answer questions on the ground of some special interest recognized by law”.

 

That “Privilege” normally attaches to the right of a single party, and therefore, although that party may have documents which are protected because of legal professional privilege (for example), that same party can waive that privilege if they so wish and can disclose the documents in question.

 

Without Prejudice.

 

“Without Prejudice” documents (which are also “Privileged” documents) are those documents that relate to all negotiations genuinely aimed at a settlement between the parties.

Any communications which are intended to be part of a genuine settlement attempt should be clearly marked “Without Prejudice” at the top of the letter.

 

The courts have held, however, that the principle of “Privilege” can protect subsequent and even previous letters in the same chain of correspondence. Strictly speaking, therefore, it is not necessary that every letter be marked “Without Prejudice” if it is clear that the communication is intended to be part of the settlement negotiations.

 

The converse of this being that, just because documents are marked “Without Prejudice”, unless they are intended to be part of a genuine settlement attempt they will not actually enjoy “Privileged” status and they will not be protected from disclosure.

 

“Without Prejudice” correspondence remains “Privileged” even after a compromise has been reached and is generally inadmissible in any subsequent litigation on the same subject matter whether between the same or different parties. However, where the negotiations are successful and the “Without Prejudice” correspondence constitutes a binding contract the correspondence may be produced to prove that such a contract has been entered into (if, say, one party does not comply with the terms of the settlement, and the other wishes to enforce it). (Ref: Rush & Tompkins v Greater London Council (Court of Appeal) 21 December 1987).

 

Although it is often considered that the “Without Prejudice” rule is founded on the public policy of encouraging litigants to settle their differences rather than litigate them to a finish, in the case of Muller v Linsley & Mortimer [1996] 1 PNLR 74, Hoffmann LJ stated that the justification of the “Without Prejudice” rule was an implied agreement between the parties “arising out of what is commonly understood to be the consequences of offering or agreeing to negotiate without prejudice, not the public policy of encouraging parties to negotiate and settle”.

 

The rule applies to exclude “Without Prejudice” documents from being given in evidence, and the purpose of the rule is to protect a litigant from being embarrassed by any admission made purely in an attempt to achieve a settlement (Ref: CPR Rule 31).

 

In the recent Court of Appeal case of Reed and Reed v Reed and Reed and Totaljobs.com (14 July 2004) the question was raised as to whether the Court could compel the parties to disclose the detail of “Without Prejudice” negotiations (or documents) when dealing with the question of costs.

 

As long ago as 1889 the Court of Appeal held, in Walker v Wilshire (23 QBD 335) that “Letters or conversations written or declared to be “without prejudice” cannot be taken into consideration in determining whether there is a good cause for depriving a successful litigant of costs”, and, in respect of the question posed in the “Reed” case, the Court of Appeal found 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 Court of Appeal found that the rule established in Walker v Wilshire remains good law and the Court therefore cannot order the disclosure of “Without Prejudice” documents against the wishes of one of the parties.

 

In other words, “Without Prejudice” documents effectively have “Privileged” status for both parties, and therefore, even when only the matter of costs is being considered, it needs both parties to waive their rights to non-disclosure, if the document is to be disclosed.

 

Without Prejudice Save as to Costs.

 

Because the Courts cannot order disclosure of “Without Prejudice” negotiations (or documents) against the wishes of one of the parties of those negotiations, this obviously will mean that in some instances the Court, when it comes to the question of costs, cannot decide whether one side or the other was unreasonable in its actions.

 

Although, as noted in Unilever v Proctor & Gamble [2000] WLR 2436 at p2445, there are exceptions to the general rule of non-admissibility of “Without Prejudice” documents, there is no general exception of non-admissibility when it comes to the question of costs.

 

However, the application of the non-admissibility rule in respect of “Without Prejudice” documents can easily be avoided in the arbitration context by the simple expedient of using the Calderbank formula (Calderbank v Calderbank [1976] Fam 93) of negotiating “Without Prejudice Save as to Costs”.

 

In respect of litigation, where a Defendant believes that there is some merit in the Claimant’s claim, but not as much as the Claimant claims, then the Defendant can make a payment into Court of the amount he thinks the claim is genuinely worth, and must notify the Claimant of this action. If the Defendant sets the payment into court at the right level, this gives him some protection from liability for the Claimant’s legal costs assuming that the amount eventually awarded to the Claimant by the Court does not exceed the amount paid into Court.

 

It is not possible to pay money into Court in Arbitration, however in the Arbitration context, the Defendant (known in Arbitration as the Respondent) writes to the Claimant offering the amount he thinks is properly due, marking the letter “Without Prejudice Save as to Costs”. This letter is otherwise known as a “Calderbank” offer letter.

 

The Arbitrator will not be told about this offer until after he has made his decision on liability. If the amount he awards the Claimant is less than or equal to the amount included in the Respondent’s “Without Prejudice Save as to Costs” (Calderbank) offer, then the general rule is that the Claimant should pay the Respondent’s legal costs (and his own) from the date the offer is made. The logic behind this is that the Respondent has correctly assessed the justified level of the Claimant’s claim, and the Arbitration from that date on was a waste of time and money.

 

Conclusion.

 

“Privileged” documents are those that a party is not obliged to disclose during the disclosure and inspection process of an arbitration or litigation action. “Privilege” normally attaches to the right of a single party, and, therefore, that party can waive that “Privilege” if it so wishes and can disclose the document in question.

 

“Without Prejudice”

docum ents are also “Privileged” documents but these relate specifically to all negotiations genuinely aimed towards a settlement between the parties. Genuine “Without Prejudice” documents do not necessarily need to be marked “Without Prejudice” to retain their “Privileged” status (although it is always safest to mark the letter “Without Prejudice” in any event), but documents that are not genuine “Without Prejudice” documents but are (irrespective of that) marked “Without Prejudice” do not have “Privileged” status. Other than with the agreement of both parties, “Without Prejudice” documents cannot be disclosed even in respect of the consideration of costs.

 

“Without Prejudice Save as to Costs” documents are “Privileged” but these documents can be disclosed to an Arbitrator after he has made his decision on liability. A “Without Prejudice Save as to Costs” offer letter (otherwise known as a “Calderbank” offer), if set at the correct level, can provide cost protection for a Respondent within an Arbitration action.

 

Author: Alway Associates

 

Here is another example:

 

What is the Without Prejudice rule?

 

Correspondence that is Without Prejudice ("WP") are those which are a genuine attempt to settle a dispute. Such correspondence is privileged and therefore cannot be put before the court as or in support of evidence as to admissions against the other party which made the same.

 

On looking at correspondence marked without prejudice Lindley LJ stated in Walker v Wilsher (1889) 23 QBD 335 at 337: "I think they mean without prejudice to the position of the writer of the letter if the terms he proposes are not accepted. If the terms proposed in the letter are accepted a complete contract is established, and the letter, although written without prejudice, operates to alter the old state of things and to establish a new one."

 

Oceanbulk Shipping & Trading SA (Respondent) V TMT Asia Ltd & Ors [2010] UKSC 44

 

Background

 

The dispute in the proceedings concerned a number of freight forward agreements. Parties agreed settlement by written agreement. A dispute arose as to the construction of a term under the agreement.

 

Issues

 

TMT appealed against a decision that evidence of without prejudice communications with Oceanbulk could not be adduced as to assist the court on the construction of the term under the agreement. The issue was whether the court should, as an exception to the without prejudice rule, allow a party to rely on facts shown in the without prejudice communication between parties.

 

Held

 

The court found that there was no reason why such information cannot be adduced to aid the court in the interpretation of the settlement agreement.

 

The court found: "this question should be answered in the affirmative..."

 

Some further information on the subject:

 

One of the main factors behind many settlements of civil claims is that settlement will achieve certainty for the parties. Further, the settlement of civil disputes is encouraged at every stage of the litigation (and pre-action) process. Parties to disputes have also been equipped by the Civil Procedure Rules (CPR) with powerful settlement weapons, in the shape of formal offers under Part 36 of the CPR, with which to apply pressure to their opponents to settle. There has been a series of decisions about the operation of Part 36 since its inception and, in the past 18 months, several cases concerning the validity of offers and purported acceptances have been before the court.

 

The settlement of a claim, whether recorded in a formal settlement agreement or agreed in a telephone conversation is, in reality, simply a contract between the parties and the usual contractual principles apply. However, those principles are of limited effect when the parties attempt to use the provisions of the CPR. The CPR are statutory rules made under the authority of s1 of the Civil Procedure Act 1997 and the boundary between this statutory regime and the common law continues to provide fertile ground for issues to arise in ways that are often not always fully appreciated by parties (or their advisers). Careful consideration of the position is needed when negotiations involve offers under both regimes, as is often the case.

 

The relevant rules of the CPR are:

‘36.3(5): Before expiry of the relevant period, a Part 36 offer may be withdrawn or its terms changed to be less advantageous to the offeree, only if the court gives permission.

 

36.3(6): After expiry of the relevant period and provided that the offeree has not previously served notice of acceptance, the offeror may withdraw the offer or change its terms to be less advantageous to the offeree without the permission of the court.

 

36.3(7): The offeror does so by serving written notice of the withdrawal or change of terms on the offeree.

[…]

36.9(1): A Part 36 offer is accepted by serving written notice of acceptance on the offeror.

 

36.9(2): Subject to rule 36.9(3) a Part 36 offer may be accepted at any time (whether or not the offeree has subsequently made a different offer) unless the offeror serves notice of withdrawal on the offeree.

 

36.9(3): The court’s permission is required to accept a Part 36 offer whenever:

[…]

(d) the trial has started.’

Francis Whistance v Valgrove Ltd; Susan Gibbon v Manchester City Council [2009]

 

These conjoined appeals related to the acceptance and withdrawal of Part 36 offers in personal injury claims, but the points raised apply to all Part 36 offers.

 

Facts

 

In the Whistance claim, the claimant made a Part 36 offer that Valgrove rejected. Once proceedings had been issued, Whistance made an increased Part 36 offer, without expressly withdrawing or even referring to the first offer. Valgrove purported to accept the first, lower Part 36 offer made by Whistance and because Whistance refused to accept this, applied to the court. The deputy district judge hearing the application granted it and Whistance appealed.

 

In Gibbon, the defendant, Manchester City Council (Manchester), had rejected Gibbon’s Part 36 offer and made two Part 36 counter offers of its own, the latter of which was for the same figure as Gibbon’s original offer. Gibbon rejected those offers and invited Manchester to make an increased offer. Subsequently, when it seemed the value of the claim had increased due to further medical evidence, Manchester purported to accept Gibbon’s Part 36 offer. Gibbon asserted this was not possible because the offer had been rejected. Manchester issued an application for a declaration that the claim had been compromised by valid acceptance of Gibbon’s Part 36 offer.

 

Decision

 

HHJ Holman held that the Part 36 regime was not directly analogous to contract law. Parties were to be encouraged to use Part 36 because making a sensible offer could give an offeror significant costs protection. Settlement could be achieved by a variety of routes but, if parties used Part 36, its structure must be applied even where contract law would produce a different result. When considering the CPR, the overriding objective should be borne in mind at all times and caution should be exercised in adopting too technical an approach.

 

Part 36 made it clear that an offer could be withdrawn by notice (CPR 36.3(5) and 36.3(7)) but was silent as to the situation in which a party simply made another Part 36 offer. It would be preferable for a party making a second Part 36 offer to make clear that the previous offer was withdrawn or amended. However, common sense implied that Whistance’s second Part 36 offer necessarily replaced the previous offer and no other interpretation of the second offer was possible. It would be unnecessarily confusing if Whistance’s second offer was held to co-exist with the first offer. Therefore, it was not open to Valgrove to accept Whistance’s earlier Part 36 offer, as it had been impliedly withdrawn. The case therefore continued.

 

In Gibbon, it was held that CPR 36.9(2) made it clear a Part 36 offer may be accepted at any time (whether or not the offeree has subsequently made a different offer) unless the offeror serves notice of withdrawal on the offeree. Further, the CPR required the offeror to serve written notice of withdrawal of the offer on the offeree (CPR 36.3(7), even if the offeree had made a counter-offer. The onus was firmly on the offeror to take the offer out of play. Although it was clear that Gibbon now wanted more than her original offer it would have been easy for her solicitors to make a revised Part 36 offer or to serve notice saying the old Part 36 offer was withdrawn. They had done neither. They had simply rejected the defendant’s counter offer albeit of the same amount. Manchester could therefore accept the old Part 36 offer

 

Sampla & Ors v Rushmoor Borough Council & anor [2008]

 

Facts

 

A claim, which arose out of damage to property owned by Mr Sampla and others, and allegedly caused by paving works undertaken by Mr Crowley (Crowley) for Rushmoor Borough Council (Rushmoor), had been settled after Crowley agreed to pay the claimants £384,500. The only live issue was the respective contributions to this sum by Crowley and Rushmoor.

 

Crowley made a Part 36 offer to Rushmoor that it pay a 25% contribution to the settlement sum, which Rushmoor rejected. Crowley’s better Part 36 offer of only a 20% share was also rejected by Rushmoor. The trial, limited to the contribution issues, began and after two days of evidence there were without prejudice discussions between the parties at court. Rushmoor now wanted to accept Crowley’s 20% offer but Crowley refused to agree to this and also rejected Rushmoor’s offer of a 33.3% contribution but indicated he would accept a contribution of 40%. Rushmoor hit on the idea of making an application to the court for permission to accept Crowley’s last Part 36 offer, of a 20% contribution, out of time.

 

Decision

 

Coulson J held that, as a matter of principle, a party can accept a Part 36 offer, even if they have previously rejected it. There was no direct analogy between Part 36 and contract law signifying that a rejection kills an offer because:

The concept of a rejected offer was not recognised anywhere in Part 36, whereas a withdrawn offer and a changed offer were. This suggested that an initial rejection of an offer does not preclude its subsequent acceptance.

 

CPR 36.9(2) made it clear an offer can be accepted ‘at any time’ and, giving those words their natural meaning, that included when it had previously been rejected.

 

CPR 36.9(2) also expressly allowed an offeree to make a counter offer without that killing the original offer as it would in contract law. No rational distinction could be drawn between a counter offer and a rejection.

 

It would be unwise to conclude that the Part 36 system was entirely analogous to contract law because this would make it less flexible than the pre-CPR regime.

 

Providing they were willing to take the costs consequences, it would be contrary to the overriding objective not to allow a party to change their mind and to settle a dispute.

However, there was a final hurdle for Rushmoor to overcome because the trial had already started. Under Part 36.9(3)(d) they required the court’s permission to accept the offer and this would be a matter of discretion for the court. The court therefore needed to consider whether there had been a sufficient change of circumstances to make it unjust to allow Rushmoor to accept the offer. The judge felt both parties’ perceptions of the likely outcome of the trial had been altered significantly by the two days of evidence. The changes in the parties’ settlement positions was evidence enough of this and therefore it would be unjust to let Rushmoor accept Crowley’s offer out of time.

 

It seems unlikely that these cases will go to further appeal. In Gibbon, the parties attempted to take the point straight to the Court of Appeal under CPR 52.14 but the Court of Appeal sent the case back.

 

What lessons can be drawn from these decisions?

 

Significant thought is usually applied to the decision as to whether to make an offer ‘without prejudice’, ‘without prejudice save as to costs’ or a Part 36 offer. Each of these offers operates in a slightly different way, and each has its pros and cons. A without prejudice offer is more flexible than a Part 36 offer but comes within the ambit of the common law of contracts. In the hurly burly of negotiations with offers and counter offers there is some comfort to be gathered from knowing that, once rejected, previous offers cannot be accepted without specific agreement.

 

However, without prejudice correspondence will not be admissible before the court when dealing with issues of costs. Making correspondence ‘without prejudice save as to costs’ cures this last problem but leaves the impact of the offer on the question of costs entirely within the discretion of the court under CPR 44.3(4)©. It would, of course, still be prudent for parties in ‘ordinary’ without prejudice negotiations to make clear if older offers are withdrawn or to make offers time limited at the outset.

The costs pressure on an opponent is the big advantage of Part 36 and the Part 36 regime is more flexible than the pre-CPR, defendant’s only, payment into court. However, the lesson from these cases is that the Part 36 regime is only analogous to the contractual regime in the true sense of the word, the Oxford English Dictionary definition being ‘similar’ or ‘parallel’. It does not mean that the Part 36 regime is the same and the court was at pains to stress this in each case.

 

If you make a Part 36 offer and then go on to make a further offer, the wise course is to withdraw the earlier offer formally. It was clear in the Whistance decision that the later offer was meant to replace the earlier offer, in more complex proceedings the interpretation question may not be so easy. In addition, parties should keep under review their last Part 36 offer as matters progress and withdraw them if they do not want them accepted late. Although the withdrawal of a Part 36 offer means it will not attract the same costs consequences, the court can consider these offers in relation to costs generally under CPR 44.3.

 

As Mr Crowley and Ms Gibbon discovered, an old un-withdrawn or un-amended Part 36 offer is still capable of acceptance, even though settlement on those terms may no longer be acceptable. In Rushmoor, intervening without prejudice negotiations rejecting the offer did not have the effect of making the last Part 36 offer unavailable for acceptance. In Gibbon, there were intervening Part 36 offers by the other side but these Part 36 offers also did not have the effect of killing Ms Gibbon’s last outstanding Part 36 offer because she had not withdrawn it or made a revised Part 36 offer herself.

It is also notable that Part 36 requires all offers, withdrawals, changes and acceptances to be in writing to be effective.

 

The simple lesson to be drawn from these decisions is to be careful what you say and to be clear what you mean when making settlement offers.

 

A concluded agreement under the contractual regime or an accepted Part 36 offer brings an end to the proceedings. However, the rules as to whether an agreement has been reached differ in each of these parallel but interrelated universes.

 

Information source: Alway Asociates, Bond Pearce LLP and Lawdit

 

Not my own work, but posted here in order to give a greater understanding of the subject to my fellow Caggers, which in turn, should help you avoid any confusion relating to the subject.

 

 

 

Kind Regards

 

The Mould

 

 

 

 

Edited by Andyorch
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