As is well known, communications made “without prejudice” between disputing parties in attempts to achieve an out of court settlement of their dispute are not generally admissible evidence if they fail to reach a settlement and the matter goes to trial. The reason, of course, is that it is important public policy to encourage parties to negotiate and settle disputes out of court. But does this public policy apply when an out of court settlement has been reached?
This was the question which recently faced the High Court. It decided that the general rule did not apply where a settlement agreement had been reached but the parties have then gone to court to resolve a separate dispute about what a clause in the agreement meant. The High Court decided that the interests of justice in such a situation warranted an exception to the general rule. As will be seen from what follows below, that decision has now been overruled.
Those conducting negotiations on a “without prejudice” basis need to be aware that there are long-standing exceptions to the general rule. However the exceptions apply only in very limited circumstances. The main “traditional” exception is where exclusion of what was communicated would act as a cloak for perjury, blackmail or other “unambiguous impropriety”.
In the case referred to above, the High Court held that an exception applied even though it did not come within any of the “traditional” categories. Two companies had been arguing over a disputed invoice and eventually came to an out of court settlement. It then transpired that they had different interpretations of what a particular clause in the settlement agreement meant. One sued the other, effectively to get a final determination as to what the clause really meant. The High Court recognised that evidence concerning the negotiations leading to the settlement would help it come to a just decision but the negotiations had been conducted on a “without prejudice” basis. So there was a preliminary problem as to whether evidence of what was said during the negotiations was admissible.
In the event the High Court concluded that the interests of justice required that evidence of the “without prejudice” exchanges should be admissible to the extent that it would be admissible had the exchanges not been “without prejudice”. By a two to one majority, the Court of Appeal has now overruled the High Court (Oceanbulk Shipping & Trading SA v TMT Asia Ltd  EWCA Civ 79). At least on the facts of this case, the Court of Appeal took the view that the public interest policy of protecting without prejudice communications is stronger than the policy of providing a judge with the means to arrive at a just solution.
Another recent case shows that judicial suggestions that the “without prejudice” rule should be less strictly applied in discrimination cases than in commercial cases should not be taken too far. Santander (then the Abbey National) had dismissed a Mrs Woodward. She brought proceedings against Santander in the employment tribunal alleging victimisation, sex discrimination and detrimental treatment for whistleblowing and attempted to introduce as evidence letters written on a “without prejudice” basis by Santander. The employment tribunal refused to allow her to do so.
On appeal, the EAT agreed with the original tribunal (Woodward v Santander UK Plc, EAT on 25 May 2010). The EAT pointed out that, as noted above, exceptions to the general rule are rare because of the important principle that “parties should not be discouraged from settling their disputes by a fear that something said in the course of negotiations may be used to their prejudice in subsequent proceedings“.
So the message from these two cases is that “without prejudice” negotiations in attempts to settle disputes can generally be safely made without fear of them later coming to light in a court or tribunal.