Avonwick Holdings Ltd v Webinvest Ltd & Anor

Without prejudice protection has two foundations. Public policy protects genuine attempts to settle an objectively existing dispute or issue. The concept of a dispute is broad and can include the opening communication in negotiations.

Separately, parties may contract to extend or restrict the protection beyond its usual scope. A unilateral label cannot create that result; an effective agreement is required. Communications marked both “without prejudice” and “subject to contract” will not ordinarily establish such an agreement where the context shows that the former words merely reserve existing rights.

Without prejudice privilege is jointly held by all parties to the negotiations. One holder cannot waive it without the consent of the others. Privileged negotiations ordinarily remain protected after settlement.

The claimant sought repayment of a loan and enforcement of a guarantee. The defendants alleged a collateral oral term under which repayment depended on payment by a third-party sub-borrower.

Two appeals arose before the imminent trial. David Richards J had ruled that restructuring correspondence marked “without prejudice” and “subject to contract” was admissible because no dispute existed when it was exchanged. Her Honour Judge Walden-Smith had ordered disclosure of negotiations leading to the settlement of an arbitration between the borrower and the third party, holding that privilege had been waived.

The central questions were whether the parties could contractually create without prejudice protection in the absence of an existing dispute, whether they had done so, and whether the joint privilege attaching to the arbitration negotiations had been waived.

1. The appeal from David Richards J was dismissed. Without prejudice protection rests on two distinct foundations. The public policy foundation encourages settlement and therefore requires an objectively ascertainable dispute or issue. The concept of a dispute is interpreted broadly, so the opening communication in negotiations may qualify even before its recipient has rejected the proposal. No dispute existed when the restructuring correspondence in this case was exchanged.

2. The second foundation is contractual. Freedom of contract permits parties, for valuable consideration, to agree that their communications will not be used in civil proceedings. They may thereby extend the usual scope of without prejudice protection beyond communications concerning an existing or imminent dispute. Such protection must arise from agreement: one party cannot impose it unilaterally by applying a “without prejudice” label.

3. No contract excluding use of the correspondence had been made. The additional words “subject to contract” ordinarily indicated that the communications were not intended to have legal consequences. In context, “without prejudice” meant that the sender did not intend to surrender existing rights. It did not establish a mutual agreement excluding the communications from evidence.

4. The appeal from Her Honour Judge Walden-Smith was allowed to a limited extent. Without prejudice privilege in the arbitration settlement negotiations was jointly held by Webinvest and the third party. Mr Shlosberg's evidence that an offer had been made and was considered favourable did not waive the privilege. In any event, the privilege was not his alone to waive, and there was no evidence that the third party had consented.

5. Without prejudice negotiations ordinarily remain privileged after settlement. Muller v Linsley & Mortimer was distinguishable because the plaintiff there had put the reasonableness of the settlement directly in issue. Its distinction between admissions and other negotiating statements had subsequently been disapproved. The order requiring disclosure of the arbitration negotiations was therefore erroneous.

1. Court of Appeal (Civil Division): in [2014] EWCA Civ 1436, dismissed the appeal against David Richards J's admissibility order and allowed to a limited extent the appeal against Her Honour Judge Walden-Smith's disclosure order.
2. High Court, Chancery Division: David Richards J held that the restructuring correspondence was admissible because no dispute existed when it was exchanged.
3. High Court: Her Honour Judge Walden-Smith ordered disclosure of negotiations leading to settlement of the third-party arbitration, having found that privilege was waived.