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Privileged, Without Prejudice, and Without Prejudice Save As to Costs documents.

Key Words:

Arbitration, Arbitrator, Calderbank, Calderbank v Calderbank, Civil Procedure Rules, Claimant, Court of Appeal, Defendant, Legal professional privilege, Litigation, Litigation privilege, Muller v Linsley & Mortimer, Privileged, Reed and Reed v Reed and Reed and Totaljobs.com, Respondent, Rush & Tompkins v Greater London Council, Unilever v Proctor & Gamble, Walker v Wilshire, Without Prejudice, Without Prejudice Save As to Costs,

Introduction.

There is often some confusion regarding the difference between “Privileged”, “Without Prejudice” and “Without Prejudice Save as to Costs” documents.

The purpose of this article is to briefly explain what each of the above noted terms mean and to illustrate what effect those terms have upon the documents in question.

Privileged documents.

“Privileged” documents are those that a party is not obliged to disclose during the disclosure and inspection process of an arbitration or litigation action, and generally (but not always) relate to communications between a party and its legal advisors (e.g. legal professional privilege or litigation privilege).

“Privilege” is defined in the Glossary to the Civil Procedure Rules (CPR) as “The right of a party to refuse to disclose a document or produce a document or to refuse to answer questions on the ground of some special interest recognized by law”.

That “Privilege” normally attaches to the right of a single party, and therefore, although that party may have documents which are protected because of legal professional privilege (for example), that same party can waive that privilege if they so wish and can disclose the documents in question.

Without Prejudice.

“Without Prejudice” documents (which are also “Privileged” documents) are those documents that relate to all negotiations genuinely aimed at a settlement between the parties.

Any communications which are intended to be part of a genuine settlement attempt should be clearly marked “Without Prejudice” at the top of the letter.

The courts have held, however, that the principle of “Privilege” can protect subsequent and even previous letters in the same chain of correspondence. Strictly speaking, therefore, it is not necessary that every letter be marked “Without Prejudice” if it is clear that the communication is intended to be part of the settlement negotiations.

The converse of this being that, just because documents are marked “Without Prejudice”, unless they are intended to be part of a genuine settlement attempt they will not actually enjoy “Privileged” status and they will not be protected from disclosure.

“Without Prejudice” correspondence remains “Privileged” even after a compromise has been reached and is generally inadmissible in any subsequent litigation on the same subject matter whether between the same or different parties. However, where the negotiations are successful and the “Without Prejudice” correspondence constitutes a binding contract the correspondence may be produced to prove that such a contract has been entered into (if, say, one party does not comply with the terms of the settlement, and the other wishes to enforce it). (Ref: Rush & Tompkins v Greater London Council (Court of Appeal) 21 December 1987).

Although it is often considered that the “Without Prejudice” rule is founded on the public policy of encouraging litigants to settle their differences rather than litigate them to a finish, in the case of Muller v Linsley & Mortimer [1996] 1 PNLR 74, Hoffmann LJ stated that the justification of the “Without Prejudice” rule was an implied agreement between the parties “arising out of what is commonly understood to be the consequences of offering or agreeing to negotiate without prejudice, not the public policy of encouraging parties to negotiate and settle”.

The rule applies to exclude “Without Prejudice” documents from being given in evidence, and the purpose of the rule is to protect a litigant from being embarrassed by any admission made purely in an attempt to achieve a settlement (Ref: CPR Rule 31).

In the recent Court of Appeal case of Reed and Reed v Reed and Reed and Totaljobs.com (14 July 2004) the question was raised as to whether the Court could compel the parties to disclose the detail of “Without Prejudice” negotiations (or documents) when dealing with the question of costs.

As long ago as 1889 the Court of Appeal held, in Walker v Wilshire (23 QBD 335) that “Letters or conversations written or declared to be “without prejudice” cannot be taken into consideration in determining whether there is a good cause for depriving a successful litigant of costs”, and, in respect of the question posed in the “Reed” case, the Court of Appeal found that parties who have negotiated on a wholly “Without Prejudice” basis have always done so in the faith and expectation that what they say cannot be used against them even on the question of costs.

The Court of Appeal found that the rule established in Walker v Wilshire remains good law and the Court therefore cannot order the disclosure of “Without Prejudice” documents against the wishes of one of the parties.

In other words, “Without Prejudice” documents effectively have “Privileged” status for both parties, and therefore, even when only the matter of costs is being considered, it needs both parties to waive their rights to non-disclosure, if the document is to be disclosed.

Without Prejudice Save as to Costs.

Because the Courts cannot order disclosure of “Without Prejudice” negotiations (or documents) against the wishes of one of the parties of those negotiations, this obviously will mean that in some instances the Court, when it comes to the question of costs, cannot decide whether one side or the other was unreasonable in its actions.

Although, as noted in Unilever v Proctor & Gamble [2000] WLR 2436 at p2445, there are exceptions to the general rule of non-admissibility of “Without Prejudice” documents, there is no general exception of non-admissibility when it comes to the question of costs.

However, the application of the non-admissibility rule in respect of “Without Prejudice” documents can easily be avoided in the arbitration context by the simple expedient of using the Calderbank formula (Calderbank v Calderbank [1976] Fam 93) of negotiating “Without Prejudice Save as to Costs”.

In respect of litigation, where a Defendant believes that there is some merit in the Claimant’s claim, but not as much as the Claimant claims, then the Defendant can make a payment into Court of the amount he thinks the claim is genuinely worth, and must notify the Claimant of this action. If the Defendant sets the payment into court at the right level, this gives him some protection from liability for the Claimant’s legal costs assuming that the amount eventually awarded to the Claimant by the Court does not exceed the amount paid into Court.

It is not possible to pay money into Court in Arbitration, however in the Arbitration context, the Defendant (known in Arbitration as the Respondent) writes to the Claimant offering the amount he thinks is properly due, marking the letter “Without Prejudice Save as to Costs”. This letter is otherwise known as a “Calderbank” offer letter.

The Arbitrator will not be told about this offer until after he has made his decision on liability. If the amount he awards the Claimant is less than or equal to the amount included in the Respondent’s “Without Prejudice Save as to Costs” (Calderbank) offer, then the general rule is that the Claimant should pay the Respondent’s legal costs (and his own) from the date the offer is made. The logic behind this is that the Respondent has correctly assessed the justified level of the Claimant’s claim, and the Arbitration from that date on was a waste of time and money.

Conclusion.

“Privileged” documents are those that a party is not obliged to disclose during the disclosure and inspection process of an arbitration or litigation action. “Privilege” normally attaches to the right of a single party, and, therefore, that party can waive that “Privilege” if it so wishes and can disclose the document in question.

“Without Prejudice” documents are also “Privileged” documents but these relate specifically to all negotiations genuinely aimed towards a settlement between the parties. Genuine “Without Prejudice” documents do not necessarily need to be marked “Without Prejudice” to retain their “Privileged” status (although it is always safest to mark the letter “Without Prejudice” in any event), but documents that are not genuine “Without Prejudice” documents but are (irrespective of that) marked “Without Prejudice” do not have “Privileged” status. Other than with the agreement of both parties, “Without Prejudice” documents cannot be disclosed even in respect of the consideration of costs.

“Without Prejudice Save as to Costs” documents are “Privileged” but these documents can be disclosed to an Arbitrator after he has made his decision on liability. A “Without Prejudice Save as to Costs” offer letter (otherwise known as a “Calderbank” offer), if set at the correct level, can provide cost protection for a Respondent within an Arbitration action.

Author: Alway Associates

Date: October 2004

Alway Associates

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