Avonwick Holdings Limited v Webinvest Limited

The Court of Appeal considered two interlocutory orders concerning the admissibility of correspondence marked "Without prejudice" and disclosure of documents arising from without prejudice negotiations that led to an arbitration settlement. The court explained that the without prejudice rule rests on two bases: public policy (to encourage settlement) and the parties' contract. The public policy head requires an extant or objectively identifiable dispute; in the absence of such a dispute the public policy justification does not apply. Parties can, by agreement, extend without prejudice protection, but the court found no binding contract to that effect here, not least because the communications were headed "Subject to contract" and appeared to use "without prejudice" merely as a protective label. Accordingly the judge's order excluding the correspondence from evidence was upheld. By contrast, the judge below was wrong to order disclosure of documents relating to the arbitration settlement: waiver was not established because the privilege is joint and the third party to the arbitration had not consented to waiver, and Muller v Linsley & Mortimer was inapplicable in light of later authority.

Background and parties:

• Avonwick made a loan to Webinvest with the intention that Webinvest would lend on to a third party. Mr Shlosberg guaranteed the loan. Avonwick claimed repayment under the loan and guarantee; Mr Shlosberg alleged a collateral "pay when paid" oral agreement which would condition repayment on receipt by Webinvest of sums from the sub-borrower.

Procedural posture: This is an appeal from the Chancery Division (David Richards J) to the Court of Appeal concerning two interlocutory orders shortly before trial.

Nature of the applications:

• (i) Whether certain correspondence expressly marked "Without prejudice" was admissible in evidence.
• (ii) Whether documents relating to without prejudice negotiations that led to the settlement of arbitration proceedings between Webinvest and the third party should be disclosed.

Issues framed by the court:

• Whether the without prejudice privilege requires an extant dispute to engage the public policy rationale supporting inadmissibility, or whether parties may by agreement confer without prejudice protection in the absence of a dispute.
• Whether privilege had been waived in relation to the arbitration settlement negotiations so as to require disclosure, and if Muller v Linsley & Mortimer justified disclosure where reasonableness of a settlement is put in issue.

Court’s reasoning and conclusions:

• The court identified two bases for the without prejudice rule: public policy (which requires there to be a dispute or issue objectively to be resolved) and a contractual basis (parties may agree to vary the rule's reach).
• The judge below was correct to find that at the time of the challenged correspondence there was no dispute about liability; the allegation of a collateral agreement was made later. Because the public policy head was not engaged, and because there was no binding agreement between the parties to extend without prejudice protection (the communications were also headed "Subject to contract" and the phrase "without prejudice" was used in a protective, non-negotiation sense), the correspondence was admissible and the appeal against that order was dismissed.
• On the disclosure point the Court of Appeal held that privilege attaching to the arbitration settlement negotiations had not been validly waived by Mr Shlosberg alone because privilege is joint and the third party had not consented to waiver. Muller was distinguished and its reasoning in that respect disapproved by later authority; consequently the judge below erred to the limited extent of ordering disclosure and the appeal was allowed on that issue.

Wider comment: The court emphasised that while parties are free to agree the scope of without prejudice protection, unilateral invocation of the label cannot automatically create privilege in the absence of a dispute or a clear mutual agreement.

Appeal allowed in part. The Court of Appeal dismissed the challenge to the judge's decision that the correspondence was admissible because there was no extant dispute engaging the public policy rationale and no contract extending without prejudice protection; but it allowed the appeal against the order for disclosure of documents relating to the arbitration settlement because waiver had not been established and Muller v Linsley & Mortimer was inapplicable in light of later authority.

Appeal from the Chancery Division (David Richards J). The Court of Appeal (Lewison LJ, Sharp LJ, Burnett LJ) delivered judgment in Avonwick Holdings Ltd v Webinvest Ltd & Anor [2014] EWCA Civ 1436 addressing two interlocutory orders made below: one on admissibility of 'without prejudice' correspondence and one on disclosure of documents from arbitration settlement negotiations.