Swiss Re Corporate Solutions Ltd v H Sommer

Without-prejudice communications made in genuine settlement negotiations remain protected unless the party seeking disclosure establishes unambiguous impropriety. The exception is exceptional and requires rigorous scrutiny, particularly at a preliminary hearing without oral evidence.

Exaggerated allegations of misconduct may, in principle, evidence dishonesty and justify lifting privilege. But exaggeration alone does not meet the high threshold where the allegations have an arguable factual or legal basis and the decision-maker cannot safely determine the alleging party’s state of mind. References in settlement negotiations to possible criminal, disciplinary or regulatory consequences are not inherently improper, although they may create a risk of improper pressure.

The employee brought Employment Tribunal claims alleging discrimination, equal pay, harassment, victimisation and unfair dismissal. During the employment relationship, the employer’s solicitors sent a letter headed “Without prejudice and subject to contract”. It alleged that the employee’s transmission of work material to personal addresses could amount to serious misconduct, criminal conduct and a breach of regulatory conduct rules, and proposed a settlement.

At a preliminary hearing, the Employment Judge held that the letter was admissible because its allegations and threats amounted to unambiguous impropriety. The employer appealed. The central issue was whether the letter fell within the exceptional unambiguous-impropriety exception to the without-prejudice rule.

1. Appeal allowed. The without-prejudice letter was inadmissible at the forthcoming merits hearing.

2. The Employment Judge had correctly stated the governing legal test. The without-prejudice rule is strongly protected, and its unambiguous-impropriety exception is exceptional. It was also correct that there is nothing inherently improper in referring during settlement negotiations to a potential disciplinary process.

3. The Employment Judge nevertheless erred in applying that test. The employee’s conduct arguably disclosed breach of confidence, breach of contract, a possible breach of Data Protection Act 2018, section 170, and conduct lacking integrity. The finding that there was “no basis at all” for allegations of serious misconduct was therefore not open on the material considered.

4. Exaggeration or baseless allegations can in principle amount to unambiguous impropriety if they evidence dishonesty. However, a tribunal deciding admissibility at a preliminary hearing without oral evidence must rigorously analyse the allegations and can find dishonesty only in a very clear case. The Employment Judge made no such finding and could not safely infer the employer’s purpose from the later delay in communicating the investigation outcome.

5. The threats did not correspond to the improper use of criminal or quasi-criminal proceedings for an unrelated financial advantage considered in Ferster. The allegations were connected with the employment relationship and the ongoing dispute. Although the letter exaggerated the apparent seriousness of the conduct and came close to improper pressure, exaggeration alone did not displace privilege.

• Employment Appeal Tribunal: allowed the employer’s appeal in [2022] EAT 78 and held the without-prejudice letter inadmissible.
• Employment Tribunal: Employment Judge Grewal had held, following a preliminary hearing, that the letter was admissible under the unambiguous-impropriety exception.