“Without Prejudice” - what does it mean?
To the observer, using the words “without prejudice” seems like a simple way to ensure that your letters or documents cannot later be used as evidence in court. However, in the case of Avonwick Holdings Ltd v Webinvest Ltd, the Court concluded that marking a document “without prejudice” was not conclusive evidence of the parties’ intentions. The most important consideration is whether the document is produced with the intention of settling a dispute. Settling the terms upon which a party will pay an agreed liability is not “a dispute” and letters discussing such terms will not attract privilege.
Avonwick Holdings agreed to loan £100 million to Webinvest on terms that were recorded in a loan agreement in April 2010. By April 2012, Webinvest was unable to make repayments on the loan and wrote to Avonwick seeking to alter the terms of the loan and repayments. Avonwick was not prepared to agree to the terms that Webinvest suggested and served demands for the repayment of the outstanding monies. Following discussions between the parties, Avonwick wrote to Webinvest with a draft agreement to restructure the debt. The letter was headed “without prejudice and subject to contract”, as were several exchanges thereafter. The Court was asked to consider whether these exchanges were genuinely “without prejudice” and therefore inadmissible in the main hearing of the dispute as to the terms of the loan.
What is “without prejudice”?
The words “without prejudice” are generally used with the intention of ensuring that a document or letter cannot later be produced in Court. However, the words themselves are not some sort of magic shield: the Court must consider the objective intention for which the document was created. A letter or document will only attract this kind of privilege if it was created with the intention of resolving a dispute. As a result, it does not matter whether a document is marked “without prejudice” or not. The intention of the party who created the document is definitive. The rules was created with the intention of encouraging parties to feel more comfortable initiating and partaking in settlement discussions.
Were Avonwick Holdings and Webinvest resolving a dispute?
Webinvest admitted that it owed Avonwick money. At the time of the “without prejudice” communications, Webinvest simply wanted to renegotiate the terms of the original loan. The Court referred to the case of Bradford & Bingley v Rashid, where the House of Lords stated:
"If the without prejudice rule is to apply not merely to attempts to resolve a dispute about the existence or extent of a liability but also to discussions as to how an admitted liability is to be paid, that would seem to me a very substantial enlargement of its scope."
As a result, the Court was of the view that the documents marked “without prejudice” were produced with the intention of re-negotiating the loan and not for the purposes of resolving a particular dispute. The Court noted that the documents were marked “without prejudice” by an experienced litigation solicitor, who presumably knew the effect and meaning of the words. However, the Court found that it was likely to have been a mistake and the documents were capable of disclosure in the main dispute between the parties.
In light of the above, it is worth remembering that it makes very little difference if you mark your letters “without prejudice” or not. A Court will always consider whether there was a dispute capable of being resolved and whether or not the document in question represented a genuine attempt to resolve such dispute.