Yuill & Kyle: Understanding ‘Without Prejudice’

Statutory Demands: ‘Without Prejudice’ and ‘ah that’

Let’s assume your company is owed £100,000 for goods sold and delivered.  Despite your best efforts the debt remains unpaid.  When you start chasing for payment the debtor company states the reason for non-payment is because there was a fault with the goods.  You are satisfied there is no problem because no complaint has ever been received about the quality of the goods before.  You instruct your lawyers to take legal action to recover the £100,000.  In response, the debtor company instructs their lawyers to defend the claim.

On further investigation it does appear there is a very minor issue concerning the quality of the goods sold.  However this is insignificant and certainly does not justify payment of the entire purchase price being withheld.

You take your lawyer’s advice when told that every claim has a ‘discounted value’ and that the cost of litigation and the ‘hassle’ involved means that it may be better to settle the case rather than having to prepare for trial (or ‘proof’ in Scotland).

Accordingly your lawyer writes to the debtor’s lawyer saying you will accept £80,000 provided this is paid immediately.  You are prepared to live with this even although any problem with the goods will have only reduced their value by £5,000.  The letter is marked ‘without prejudice’.  The offer is rejected.  Can the purchaser’s lawyer use the letter as evidence that you have accepted there is a fault with the goods?

What does it mean when a lawyer marks Correspondence ‘Without Prejudice’?

Essentially the UK courts prefer litigating parties to settle their disputes by negotiation rather than the matter going to trial (or ‘proof’).  During the litigation process there will be many opportunities for the parties to negotiate settlement.  Whilst there is an implication that genuine attempts to settle a dispute are ‘without prejudice’ it is usual that communications between the parties are actually marked ‘without prejudice’ in letters, emails or reference to this in phone calls or meetings.

But what does ‘without prejudice’ actually mean?  Broadly speaking if you are negotiating on a ‘without prejudice’ basis any concessions made by the litigating parties cannot be used against the other party in a subsequent trial (or proof).

Can ‘Without Prejudice’ Communications ever be Admissible as Evidence?

In the recent English decision in Avonwick Holdings Ltd v Webinvest the High Court decided that certain correspondence between the parties was admissible in evidence even although it was marked ‘Without Prejudice and Subject to Contract’.

The court stated that the purpose of the ‘without prejudice’ rule was to encourage parties to settle disputes and thus avoid litigation.

The Facts of the Case

Avonwick lent Webinvest US $100 million.  Webinvest defaulted.  Correspondence revealed that there had been attempts to reschedule the loan’s repayments.

Webinvest lost patience and proceeded to serve a Statutory Demand for payment to wind up Webinvest.  Webinvest disputed the demand.  They said an agreement existed that they only required to pay Avonwick once Webinvest had received payment from a sub-borrower.

What did the Court Decide?

The court decided that the ‘Without prejudice’ correspondence between the parties and their solicitors should be admissible as evidence at the forthcoming trial.  This was because the correspondence did not reveal any dispute.

The judge stated:

“At first blush, one might assume that communications expressly marked “without prejudice” between parties, starting on the same date as the service of a contractual demand and continuing after the service of statutory demands, would attract the privilege”.

The significance of the correspondence marked “without prejudice” was that it proceeded quite clearly on the basis that there was an admitted liability and the purpose of the proposals was to arrive at an agreed restructuring of that admitted liability.

The judge held that use of the “without prejudice” expression on correspondence by an experienced litigator is not conclusive evidence that the communications are privileged. If, on analysis of the evidence, the court is satisfied that there was no genuine dispute at that time, the only conclusion is that the solicitor made a mistake.

Comment

The decision serves as a warning to parties and their solicitors that marking correspondence “without prejudice” will not prevent its disclosure in subsequent litigation if there is no genuine dispute in existence.

Questions?

If you have any questions or comments on the above then please do contact me using the details below. As always a selection of articles relating to debt recovery and credit control can be found at www.debtscotland.com/news.cfm.