Without prejudice correspondence

In Jones v Tracey [2023] EWHC 2256 (Ch), Master Marsh held that correspondence between lawyers concerning the possibility of alternative dispute resolution (ADR) is to be regarded as ‘open’, regardless of whether that correspondence is marked ‘without prejudice’. He also refused to penalise the successful claimant for failing to engage with mediation. 

Following the determination of the substantive issues in a probate claim, directions were given for the parties to file written submissions on costs. The third defendant sought to reply on a letter dated 7 June 2023 which was sent from her solicitors to the claimant’s solicitors, and which was marked ‘without prejudice’. The third defendant’s solicitors argued that it was clear from the content of the letter that it did not contain an offer to settle and was not written in an attempt to settle the claim and, therefore, was not privileged. However, the claimant’s solicitors contended that the letter remained privileged and was, consequently, inadmissible in respect of the issue of costs.

The master considered the 7 June letter, including letters in which the claimant made a Part 36 offer and a letter marked ‘without prejudice save as to costs’ which contained an offer that was essentially the same as the Part 36 offer. The master found that the letter was not intended to be without prejudice and could, therefore, be relied upon by the third defendant because:

• The court’s starting point was the manner in which the letter was drafted. It will normally be the case that the writer of a letter can be taken to have intended to mark a letter in a particular way or otherwise to have intended to write an open letter. However, if it is clear from the context that a letter was intended to be open or without prejudice, it will be treated as such.
• A letter which is not marked ‘without prejudice’ that falls within a chain of communications in the context of settlement negotiations will be treated as being without prejudice unless the opposite intention is obvious. The converse may also be true.
• The true nature of the communication must be established objectively without regard to evidence of subjective intention, and the right approach is to consider how a reasonably minded recipient would regard the letter.
• Although the 7 June letter was a reply to an open letter which concerned the possibility of ADR, all those communications formed part of a chain of communications which were open and obviously intended to be open. Communications concerning the possibility of engaging in ADR do not need to be ‘without prejudice’ and it will usually be preferable for both parties to be able to reply upon such communications. They are more likely to be open than without prejudice.
• The 7 June letter did not contain an offer and did not relate to communications about a specific offer; it related to the possibility of ADR. It would have been obvious to the reasonably minded recipient that the letter was not intended to be without prejudice.

Relying heavily on the 7 June letter, the third defendant argued that the claimant’s failure to respond to an offer to mediate demonstrated unreasonable conduct which justified a costs order depriving the claimant of its costs (Halsey v Milton Keynes NHS Trust [2004] EWCA Civ 576; PGF II SA v OMSF Co 1 Ltd [2013] EWCA Civ 1288). The master found that, although the claimant’s failure to engage more positively with ADR was ‘surprising’, it was not conduct ‘such as to warrant a deduction from his costs’ because:   

• The claimant had made offers to settle well before the claim was issued to which there was no substantive response from the third defendant and the third defendant’s conduct was also unsatisfactory (e.g. delays in complying with procedural deadlines).
• The claimant raised the question of ADR earlier in the proceedings and, more importantly, the third defendant chose not to engage with the offer.
• The merits of the claim were weighted heavily in favour of the claimant.
• The third defendant expressed a willingness to engage with mediation late in the proceedings.  

Finally, the master concluded that: ‘Although the claimant did not explain his position in April and May 2023, it would not have been unreasonable to have concluded that the additional cost of mediation was not warranted. I do not consider that, on the facts of this case, it can be said that silence on the part of the claimant amounted to a refusal to undertake mediation.’

The decision helpfully illustrates the approach to be taken in circumstances when it is unclear whether correspondence is without prejudice nor not. As explained by Master Marsh, the true nature of the communication must be established objectively, and the approach is to consider how a reasonably minded recipient would regard the correspondence. The decision on the ADR and costs issue is, however, less satisfactory, not least because of the master’s reference to the merits of the claimant’s case (the merits factor) as one of the justifications for not penalising the claimant in costs. The merits factor, taken from the decision in Halsey, is fundamentally flawed and inconsistent with established Court of Appeal authorities (e.g. Thakkar v Patel [2017] EWCA Civ 117) in which parties have been penalised in costs for failing to discharge their ADR obligations, regardless of the strength of their cases (for a detailed critique, see M Ahmed, ‘The Merits Factor in Assessing an Unreasonable Refusal to ADR: A Critique and a Proposal’ (2016), 8 Journal of Business Law, 646-669, and the author’s commentary in the Gazette on Richards & Anor v Speechly Bircham LLP & Anor (Consequential Matters) [2022] EWHC 1512 (Comm), tinyurl.com/2zrurvnu).

It is hoped that the Court of Appeal, in the much anticipated case of Churchill v Merthyr Tydfil County Borough Council, will finally take the opportunity to review and dismiss the merits factor as not being relevant when assessing whether a party has behaved reasonably in rejecting an offer to engage with ADR, as well as provide necessary clarification and guidance on the issue of compulsory ADR within the English civil justice system.

Masood Ahmed is an associate professor at the University of Leicester and a member of the Law Society’s Dispute Resolution Committee