As litigation becomes increasingly expensive, District Judge Pal Sanghera outlines the pros and cons of without-prejudice correspondence

In any well-organised war, there has to be an arrangement whereby a dialogue can be opened without fear of being shot. In litigation, the flag of truce is the without-prejudice discussion. This enables the parties to discuss potential settlement without the risk of having any offers and proposals being used against them in court. In a world where going to court is becoming increasingly expensive, there are material benefits in addition to clear public policy reasons for encouraging the resolution of disputes outside court.


In virtually all cases where a dispute is under discussion, letters will be headed 'without prejudice', the writer thereby making his intention clear. While at first sight this means that the letter is inadmissible in any subsequent court proceedings, it is not conclusive and the contents of the letter might show otherwise.


The words on their own do not themselves provide protection. It is necessary to consider the intention of the writer and what a reasonable recipient might understand to determine the purpose behind the letter. Where one party wants to rely on what is said in without-prejudice negotiations to their advantage, the onus is on that party to show that the public interest in allowing such evidence outweighs the public interest in avoiding litigation.


In Schering Corporation v Cipla Ltd & Anor [2004] All ER (D) 161 (Nov), Mr Justice Laddie, after considering the letter in question, held that it had been an invitation to negotiate and the 'without prejudice' heading reinforced that message. Therefore, it was inadmissible.


In the early case of Re Daintrey, ex parte Holt [1893] All ER 209, the conditions for the application of the without-prejudice rule were narrowly expressed as requiring 'that some person be in dispute and negotiation with another, and that terms are being offered for settlement'. The question of whether a particular document fulfils these conditions can only be decided by the judge looking at the document.


However, this definition has been widened somewhat by later decisions. All negotiations must start somewhere. A first letter may not necessarily contain an offer but still be within the protection of the rule. The Court of Appeal so held in South Shropshire District Council v Amos [1986] 1 WLR 1271. All documents that form part of the negotiations are prima facie not admissible in evidence if marked without prejudice, even though they may not contain an offer.


It is important to remember that all discussions, provided they are part of negotiations, can be covered by the rule and it is not necessary that they be in writing with the particular words endorsed. It is the intention of the parties and the twin requirement of a dispute and negotiations that are the factors that determine admissibility.


Where a meeting, agreed as being without prejudice, is held but the aim is not a compromise on the actual matters in dispute, the details of that meeting are not privileged against disclosure. This was the decision in an Employment Appeal Tribunal case, BNP Paribas v A Mezzotero [2004] IRLR 508, but the principle is of general application. In this case, the employee had complained about sex discrimination. She was invited to a without-prejudice meeting where a severance package was discussed.


The tribunal decided that making a formal complaint as part of internal grievance procedures did not imply that the parties were in dispute. Furthermore, the discussion about termination of employment was not a genuine attempt to settle the actual complaint. The details of the meeting were, thus, admissible. Just as in the case of correspondence, it is necessary for the judge to consider the actual evidence that it is sought to admit to decide whether it is protected by the rule or not.


This then raises the question of whether that judge should be disqualified from hearing the case further if the evidence is in fact excluded. The safe course would be for the particular application not to be made before the trial judge. Where this is not possible, it will be necessary to assess whether a fair-minded impartial observer would feel that there had been a fair hearing. Article 6 of the Human Rights Act 1998 clearly comes into play.


The decision of Judge Grenfell sitting in the Technology and Construction Court in Specialist Ceiling Services Northern Limited v ZVI Construction (UK) Ltd [2004] Lawtel 4 December, offers some welcome assistance. That case concerned an adjudication in which a surveyor for one of the parties had referred to a without-prejudice offer. The adjudicator took the view that he was perfectly aware that parties to a dispute make offers to settle, sometimes on a commercial basis. The fact that this had happened in this case did not affect his impartiality. His decision was upheld. The decision has obvious parallels when the civil court is assessing damages following judgment.


The difference between simply marking a settlement offer without prejudice and one to which the words 'save as to costs' are also added is no longer of any real consequence.


The so-called Calderbank letter was to enable one party to make a specific offer to settle the litigation and then produce such an offer on arguments as to costs.


Rule 44.5(3)(a)(iii) of the Civil Procedure Rules 1998 requires the court, when assessing costs, to have regard to the efforts made, if any, before and during the proceedings to try and resolve the dispute. without-prejudice correspondence is admissible on the question of costs once the entire dispute to which that correspondence relates has been concluded. Of course, if there are still issues unresolved in which the position of a party could be prejudiced, such correspondence remains protected by the rule (see Reed Executive plc & Another v Reed Business Information Ltd & Others [2004] EWCA Civ 887).


As soon as a dispute has been identified, protect rather than prejudice the client's position. There is the positive force of part 36, which has added material cost benefits to the other benefits of early dispute resolution. If that is not enough, the courts have made adverse costs orders against a party that refuses to negotiate.


Seriously consider genuine negotiations. Even when it is first necessary to explore the extent of the dispute, marking the initial letter without prejudice should be carefully considered. Are you opening negotiations or just stating a position? Only use the words if it is the former.


District Judge Pal Sanghera sits at Coventry County Court