Somatra Ltd v Sinclair Roche & Temperley (Sinclair Roche & Temperley v Somatra Ltd)

A party who deploys without-prejudice material on the merits of an interlocutory application cannot later rely on the without-prejudice rule to exclude the same communications when the merits are tried. The rule protects genuine settlement discussions, including the matters disclosed or discussed, but it is not absolute where fairness requires disclosure. Reliance on such material to obtain a freezing order is a repudiatory breach of the parties’ implied agreement and engages the public-policy basis of the rule. The opposing party may therefore adduce relevant admissions and other material from the same without-prejudice process at trial, without first applying to discharge the order. The court also upheld legal professional privilege for documents recording communications in which a solicitor-partner was exercising professional skill and judgment for the firm.

Somatra sued its former solicitors, Sinclair Roche & Temperley, alleging negligence and breach of duty in connection with an earlier marine insurance claim. The solicitors counterclaimed for unpaid fees. During settlement discussions, which were without prejudice, Somatra made covert recordings of meetings and telephone conversations.

Sinclairs later relied on an account of those discussions in an affidavit supporting an ex parte application for a Mareva injunction securing their counterclaim. The Commercial Court held that the conversations remained inadmissible and ordered Somatra to remove the recordings from its supplemental list of documents. Somatra appealed. The issues were whether Sinclairs’ reliance on the discussions entitled Somatra to use them at the trial on the merits, and whether documents relating to the discussions were protected by legal professional privilege.

1. Appeal allowed in part. The contents of the meetings and telephone conversations were admissible at trial because Sinclairs had deployed them in paragraph 29.4 of the affidavit supporting the Mareva injunction. Sinclairs were not entitled to rely on the without-prejudice status of the discussions to exclude Somatra’s evidence. The respondents’ claim to privilege over specified documents was upheld.
2. The without-prejudice rule is principally an admissibility rule founded on the policy of encouraging settlement. Its contractual basis is an implied agreement that communications made during genuine settlement negotiations will not be used to advance either party’s case on the merits at a contested hearing. The protected material extends beyond admissions to matters disclosed or discussed in the same discussions, as explained in Unilever PLC v The Proctor and Gamble Company.
3. The rule is not absolute where justice requires reference to the material. Authorities concerning privilege establish that a party deploying protected material cannot select an advantageous fragment while preventing the other party from placing the remainder in context. That principle applies where without-prejudice material is deployed on an interlocutory application dealing with the merits, not merely where it is deployed at trial.
4. Sinclairs’ affidavit presented the proposed apology as unrelated to any admission of fault and as the product of personal hostility. That account was misleading or potentially misleading. The material was deployed to support Sinclairs’ case on the merits in obtaining the freezing order. It would therefore be unjust to permit Sinclairs to obtain that advantage while preventing Somatra from using the same discussions to advance its case at trial. Somatra was not required first to apply to discharge the injunction, and admissibility could not ordinarily be confined to selected parts of the conversations.
5. The same conclusion followed contractually. Sinclairs’ use of the discussions was a repudiatory breach of the implied agreement. Somatra was entitled to accept that breach and adduce relevant parts of the conversations. The conclusion also followed from public policy, because the fairness of permitting one party to deploy the material on the merits applies equally when the other party seeks to do so in a later stage of the litigation.
6. On privilege, documents recording communications between Mr Leach and other partners were protected by legal professional privilege. Although Mr Leach acted as managing partner in attempting to settle the dispute, the evidence that he was also exercising professional skill and judgment as a solicitor for the firm was accepted. It was unnecessary to decide litigation privilege separately.
7. Waller LJ agreed. He emphasised that the merits are relevant to a freezing injunction and that the cross-undertaking in damages reinforced the unfairness of allowing one party to use without-prejudice material to obtain the injunction while excluding it from the trial. The order allowed the appeal in part, dismissed it in part, awarded Somatra 80 per cent of its appeal costs and Sinclairs 70 per cent of the application costs, and refused permission to appeal to the House of Lords.

• Court of Appeal: Appeal from the Commercial Court, where Mr Justice Timothy Walker held that the recorded without-prejudice conversations were inadmissible and ordered an amended supplemental list of documents. The Court of Appeal allowed the appeal on admissibility but upheld the claim to legal professional privilege over specified documents.