Muller & Anor v Linsley & Mortimer

The without prejudice rule protects admissions made in genuine settlement negotiations. Its foundations may be public policy encouraging settlement, an implied agreement arising from customary usage, or both. The public-policy privilege is directed to the use of communications as admissions. It does not prevent their use where relevance depends on the fact or conduct of the negotiations rather than the truth of what was said. Where a claimant relies on a settlement as reasonable mitigation of loss, the negotiation documents may therefore be produced to assess that reasonableness. A party who puts settlement conduct in issue cannot withhold material needed to evaluate it. Disclosure of settlement documents may also waive privilege over other relevant negotiation documents.

The plaintiffs sued their former solicitors in negligence, alleging that negligent advice about a share transfer precipitated the first plaintiff’s dismissal and loss of valuable shares. They relied on their prosecution and settlement of earlier proceedings as reasonable mitigation of damage and gave credit for the settlement proceeds.

The plaintiffs disclosed the earlier pleadings, letter before action and settlement agreement, but claimed privilege over the negotiations leading to the settlement. Master Hodgson refused production and Bell J affirmed that decision. The defendants appealed, arguing that the documents were relevant independently of any admissions, fell within an exception to privilege, or had been disclosed by waiver. The central issue was whether the negotiations could be examined to assess the reasonableness of the settlement.

The appeal was allowed unanimously, although the judges expressed overlapping reasons.

1. Foundations of the rule. Hoffmann LJ explained, drawing on Cutts v Head [1984] Ch 290 and Rush & Tompkins Ltd v Greater London Council [1989] AC 1280, that the rule may rest on public policy, implied agreement, or both. Public policy encourages settlement by protecting admissions made in negotiations. The convention-based branch depends on customary usage and is not immutable.
2. Scope. The public-policy rationale concerns the use of communications as admissions. It does not exclude communications whose relevance lies independently in the fact that they were made or in the conduct of the negotiations. The examples included settlement correspondence used to prove an agreement or a threat, and the principle illustrated by Re Daintrey [1893] 2 QB 116.
3. Application. The defendants were not parties to the earlier negotiations, so there was no separate implied-agreement basis for privilege against them. The documents were relevant to whether the plaintiffs had acted reasonably in settling the earlier action, not to establish the truth of admissions. They therefore fell outside the relevant scope of privilege.
4. Waiver. Swinton Thomas LJ held that the plaintiffs had waived privilege by putting the reasonableness of their conduct in issue. Leggatt LJ agreed with Hoffmann LJ’s analysis and added that, even if privilege existed, reliance on the settlement and partial disclosure waived privilege over all documents relevant to the settlement issues. This reasoning was supported by Lillicrap v Nalder & Son [1993] 1 WLR 94.
5. Order. Production of the documents was ordered. The appeal was allowed with costs in the Court of Appeal, the defendants’ costs below were costs in the cause, and leave to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): allowed the appeal, ordered production of the documents, made costs orders and refused leave to appeal to the House of Lords; [1994] EWCA Civ 39.
• Queen’s Bench Division, Bell J: affirmed Master Hodgson’s refusal to order production.
• Master Hodgson: refused the defendants’ application for production of the without prejudice documents.