High Court decision potentially extends exceptions to without prejudice protection

In a recent decision, the High Court has found that documents relating to negotiations in respect of the costs that were recoverable in litigation had to be disclosed to a third party (the claimant in the present action) who had an interest in the outcome of the negotiations: EMW Law LLP v Halborg [2017] EWHC 1014.

The documents could normally have been withheld on the basis of the without prejudice ("WP") rule, which (in general) prevents negotiations genuinely aimed at settlement from being admitted in evidence in proceedings. However, the judge found that exceptions to the WP rule applied in this case, essentially on the basis that justice clearly demanded that an exception be made as there was a live issue as to whether the negotiations had led to a concluded settlement and that issue could not be determined without access to the documents.

The decision may be seen to expand existing exceptions to the WP rule. Although there is a recognised exception where documents are relevant to whether a concluded agreement has been reached, in previous cases it had been one of the parties to the litigation who alleged that an agreement had been reached. Here that question was put in issue by a stranger to the negotiations. The judge was also prepared to craft a new exception by analogy to the (much-criticised) exception established in Muller v Linsley & Mortimer [1996] 1 PNLR 74, where the WP communications were relevant to whether a party had reasonably mitigated his loss in negotiating a compromise of separate proceedings.

Interestingly, the judge in the present case also considered whether a party to WP correspondence can properly show that correspondence to a third party without the consent of the counterparty. The judge confirmed that there is nothing to prevent him doing so. The fact that WP protection can only be waived with the consent of both parties does not mean one party cannot voluntarily provide it to someone else if he so chooses, at least if there is a legitimate reason for doing so. This is an issue that sometimes arises in practice, and so it is helpful to have this clarification.

Background

The claimant, EMW, and defendant, Mr Halborg, were both solicitors. Mr Halborg was instructed to act for his parents and a family company (the "Clients") in litigation against a firm of architects. Mr Halborg engaged EMW as its solicitor-agent under a CFA which provided that EMW would receive payment only if its fees and/or disbursements had been recovered from the opponents in the litigation (the "Opponents"). 

The underlying litigation was settled in August 2010 when the Clients accepted a Part 36 offer from the Opponents, which meant the Opponents were liable to pay the Clients' costs. Mr Halborg entered into negotiations about costs with the Opponents' solicitors. He served a bill of costs which sought a total of nearly £1.4 million of which £123,590 related to EMW's fees (including success fee and VAT).

In September 2014, having received no payment, EMW brought proceedings against Mr Halborg seeking damages for breach of implied terms in the CFA which , it alleged, meant that it had failed to recover its fees. In his defence, Mr Halborg admitted that he had declined to give EMW information in respect of the costs position between the Clients and the Opponents, or authority to negotiate with the Opponents in respect of EMW's fees, but denied that EMW had any entitlement to either. 

EMW sought specific disclosure of various categories of documents including all correspondence between Mr Halborg and the Opponents' solicitors in relation to the costs position. Mr Halborg withheld these as subject to privilege on the basis of the WP rule. The Master held that Mr Halborg was not entitled to withhold the documents on that basis. Mr Halborg appealed.

Decision

The High Court (Newey J) upheld the Master's decision, which meant the documents had to be disclosed.

The judge outlined a number of principles relating to the WP rule, which is based both on the express or implied agreement of the parties and on the public policy of encouraging litigation to settle their disputes. The rule continues to apply even after a settlement has been reached, so that negotiations leading to the settlement remain protected in any subsequent litigation. It applies not only as between the original parties to the negotiations, but also renders the negotiations inadmissible in litigation against a different party. The privilege can be waived only with the consent of both parties to the communications.

There are, however, exceptions to the rule, a number of which were listed in Unilever plc v Procter & Gamble Co [2000] 1 WLR 2436. These include:

  • where the issue is whether WP communications have resulted in a concluded settlement agreement; and
  • the Muller exception, where the WP communications were relevant to the question of whether the claimant had acted reasonably to mitigate his loss in negotiating a compromise of separate proceedings. 

The judge noted that the list of exceptions to the WP rule is not closed. He referred to comments by the House of Lords in Ofulue v Bossert [2009] UKHL 16 and the Supreme Court in Oceanbulk v TMT Asia [2010] UKSC 44 that it was open to the courts to create further exceptions to the rule where "justice clearly demands it".

Ultimately, the judge concluded that both of the exceptions referred to above, or modified forms of them, applied in the present case.

Concluded agreement exception

The judge said it did not matter that Mr Halborg was adamant that no agreement had been reached with the Opponents. There was nevertheless an issue between the parties as to whether or not an agreement had been concluded.

He said it was a more serious objection that no one involved in the WP correspondence was alleging that an agreement had been reached, unlike in previous cases relying on this exception. He noted the submission on Mr Halborg's behalf that this would have remarkable consequences, as it would mean a stranger to WP negotiations could obtain the privileged communications by asserting that there had been a settlement. 

On balance, however, the judge accepted that the concluded agreement exception applied, as it would be impossible to decide whether there was a concluded agreement unless one looked at the correspondence. Further, although a party to WP negotiations is entitled to assume that the negotiations cannot generally by deployed in court proceedings without his consent, he can have no absolute assurance of that. He continued:

"On any view, the concluded agreement exception means that [a party to WP negotiations] runs the risk of the correspondence becoming admissible because his opponent alleges that the negotiations resulted in an agreement. The extent of the risk arising from the exception does not seem to me to be significantly increased if it is understood as allowing not merely a party to the negotiations, but someone else with a legitimate interest in their outcome, to rely on it."

Implications of the Muller case

It was submitted on behalf of Mr Halborg that the Muller exception must be confined to cases where the content of the WP communications was put in issue by one of its owners – as in Muller itself where one of the parties to the settlement had pleaded the reasonableness of the settlement. In contrast, here Mr Halborg was not advancing a positive case about the negotiations and none of the parties entitled to the WP protection were even a party to the present proceedings. Nonetheless, the judge concluded that:

"justice clearly demands that an exception to the without prejudice rule (whether that encompassing the facts of the Muller case or another, comparable, exception) should apply even aside from the question of whether an agreement has been reached…".

His reasons included the following:

  • Mr Halborg had himself made reference in his defence to the negotiations with the Opponent's solicitors; the defence stated that he informed EMW that the Opponent "ascribed no value at all" to EMW's work.
  • It was hard to see how EMW's claim could be determined without disclosure of the negotiations.
  • He could see no likelihood that recognising that an exception to the WP rule applied would deter parties from seeking to settle, given that parties to settlement negotiations would already be aware that the rule will not apply if there was a dispute about whether they had reached agreement or if the other party to negotiations chose to put forward a case about the negotiations in litigation with a third party.
  • Although not parties to the CFA, the Clients agreed to Mr Halborg engaging EMW under a CFA. There was, the judge said, a persuasive argument that if a client authorises his solicitor to employ an agent on the basis that the agent's remuneration depends on what (if any) agreement as to costs is reached with the other side, the client can hardly complain if the relevant negotiations are susceptible to being revealed to the agent.
  • Some of the reasoning on which Mr Halborg's case was based might suggest, not merely that a solicitor-agent could be prevented from seeing and using WP communications, but that the same could be true of a solicitor whom a client had himself instructed under a CFA. That would be an even odder result.
  • If needed, the court could consider making an order (as the Master did) under CPR 31.22(2) to prohibit or restrict the use of documents and/or excluding the public from part of a hearing.

2 Comments

Filed under Privilege

2 Responses to High Court decision potentially extends exceptions to without prejudice protection

  1. Litigation team

    It appears from the Court of Appeal case tracker system that an application for permission to appeal has been lodged in this case.

  2. Litigation team

    The appeal in this matter is due to be heard on 18 January 2018.

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