Legal privilege is currently a fast-moving area in common law jurisdictions, including the Cayman Islands. In March 2020 the Grand Court handed down a judgment on without prejudice privilege in Balls v Shewraj (Hon Justice Carter (Actg), unreported 2 March 2020). This followed in the wake of a recent decision of the England and Wales Court of Appeal (BGC Brokers LP v Tradition (UK) Limited ([2019] EWCA Civ 1937) considering the same subject matter (and of persuasive authority).
What is without prejudice privilege?
Without prejudice privilege attaches to written or oral communications made for the purpose of a genuine attempt to compromise a dispute between parties. The effect of this rule is that such communications are generally not admissible in evidence.
The policy behind this was explained in Cutts v Head ([1984] Ch 290 at 306), where Lord Justice Oliver explained that:
parties should be encouraged so far as possible to settle their disputes without resort to litigation and should not be discouraged by the knowledge that anything that is said in the course of such negotiations… may be used to their prejudice in the course of the proceedings.
The rule aims to encourage parties to be full and frank during settlement negotiations because any statements or offers made by one of the parties cannot (in normal circumstances) be later brought before the court as an admission on the question of liability.
Balls was a personal injury matter relating to a road traffic accident. The plaintiff was the person injured in the accident, the first defendant was another driver and the second defendant was the first defendant's insurer.
The plaintiff had sworn an affidavit which said that the issue of liability was confirmed as having been accepted by the defendants, then exhibited to that affidavit some communications between the plaintiff and the insurer's independent loss adjustor.
The defendants then applied under Grand Court Rules Order 41, Rule 6 for the plaintiff's affidavit to be struck out on the ground that it was "scandalous, irrelevant or otherwise oppressive" as it introduced communications expressly marked 'without prejudice' and which the defendants said were subject to privilege applicable to settlement negotiations (ie, without prejudice).
In the relevant communications, the plaintiff had enquired whether the loss adjustor could confirm that liability for the matter was not in dispute, and the loss adjustor had replied by saying that there was no need to discuss responsibility for the crash, only the extent of the plaintiff's injuries and the value of the claim (ie, quantum rather than liability).
Key issues
There are four notable issues in this case relevant to the discussion of without prejudice privilege.
Was there a concluded agreement on liability such that without prejudice privilege no longer applied? This was the main substantive point considered in the decision. The court was referred to Walker v Wilshire,(1) where Lord Justice Lindley remarked that if a letter is sent making an offer marked 'without prejudice', but the terms in the letter are then accepted, a complete contract is established and the letter, although written without prejudice, "operates to alter the old state of things and [establish a new state]". Therefore, such a communication would go from being covered by without prejudice privilege to not. The policy for this is that a party would be unable to enforce an agreement's terms if such terms could not be disclosed because they were subject to without prejudice privilege. In Balls, the judge also looked at the England and Wales Court of Appeal's Tomlin decision,(2) where there was correspondence from the insurers marked 'without prejudice', including some letters where the insurer's claims manager had referred to an agreement to deal with the claimant's claim on an equal basis as an agreement. In Tomlin, the court held that there was "no suggestion that it [the relevant communication] was merely a step in an eventual settlement to be reached". Therefore, the court held that:
- the letters were admissible because it was impossible to decide whether there was a concluded agreement without looking at the correspondence;
- there was a definite and binding agreement on an equal basis; and
- the plaintiff was therefore entitled to seek damages based on that concluded agreement.
In Balls, the plaintiff had contended that the communication in question (ie, the discussions between the plaintiff and the loss adjustor) demonstrated a concluded agreement on the issue of liability such that any ensuing negotiations would concern only quantum. The plaintiff alleged the presence of a binding argument, so the judge stated that the court's first task was to examine the relevant email exchanges to ascertain, on an objective basis, whether there was a concluded agreement or whether the parties were still involved in negotiations that were genuinely aimed at settling the plaintiff's claims.(3) Having considered that correspondence, the judge concluded that the significant difference between Balls and Tomlin is that Balls' plaintiff could not point to a positive acceptance of liability, so he held that the communications between the loss adjustor and the plaintiff were "genuinely aimed at settlement with a view to the Plaintiff's claim being settled without the need for court action" and were not a concluded agreement on liability.(4) The judge also held that although there was no direct response to the plaintiff's enquiry of whether liability was admitted, that omission was not an unequivocal admission of liability and it was not unreasonable for the loss adjustor to leave liability aside and seek further information on the quantum.(5) Therefore, this did not display evidence of a binding agreement on liability and did not undermine the defendants' assertion of without prejudice privilege.
Settlement of related claim with same parties The plaintiff in Balls had received a damaged vehicle payment from the insurers. The plaintiff relied on this as being evidence of a concluded agreement on liability because the release and discharge agreement in respect of that payment (the release) did not "contain any statement of non-admission of liability for the crash", which the plaintiff stated was consistent with liability (but not quantum) having been accepted. The defendants' submissions on this were that the release included a statement that "injury claims [were] to be settled separately", and so excluded any claims arising out of the plaintiff's injuries and was not conclusive of the defendants' admitted liability over the entire claim. The defendants' evidence in response to this point noted that it is common in the industry for insurers to make such a payment and that the sum involved was "relatively minor and not worth arguing over" and so was a commercial decision by the insurers. The judge agreed that the payment was only a settlement on the separate issue of the vehicle damage, and there was nothing flowing from the release which the court could find as a concluded agreement that the defendants were liable for the plaintiff's injuries.(6) The court found that the final phrase of the release quoted above was conclusive on that point.
Estoppel
The plaintiff also made an estoppel argument (ie, that it was inequitable for the defendants to change their position on liability). The plaintiff argued that these communications were evidence of a concluded agreement on the question of liability and that the plaintiff had suffered detriment by the defendants having resiled from their representation on liability. The judge found that an estoppel did not arise on the facts of the case because she had not found that there had been a concluded agreement.(7)
Without prejudice label not conclusive
Notably, one email within the string of correspondence was not marked 'without prejudice'. The judge held that the presence of one such email did not take away from the nature of the communications being an attempt at settlement.(8) It is well established that the labels used for correspondence are not determinative and that the substance of communications must be examined rather than the form.
Therefore, the conclusion in Balls was that the content of the communications was covered by the scope of without prejudice(9) and was inadmissible and could not be used to establish any admission or partial admission in the case. Therefore, the defendants' application to strike out the relevant parts of the affidavit and exhibit were granted.
Lessons to be learned for parties in settlement discussions
Any parties to settlement discussions in contentious matters should consider the following:
- Care should be taken when settling with one party in multi-party disputes to ensure that there is no inadvertent waiver of without prejudice by disclosing communications to other parties with whom there is no dispute on that issue, such that material that would otherwise be protected by without prejudice with one party becomes discoverable.
- This serves as a reaffirmation of the rule that a 'without prejudice' label on correspondence is not conclusive, such that the courts will look to the substance rather than the form of such correspondence to assess whether it is protected by without prejudice privilege.
- In circumstances where there are multiple claims between the same parties, in any settlement of part of the claims, parties should be cautious and ensure that they use appropriate language in any release or waiver of claims (or aspects of such claims), as the defendants were able to do in Balls.
- These cases are a helpful reminder that once a communication is incorporated into a binding settlement agreement, any without prejudice privilege is lost.
- Parties should be cognisant of the estoppel issues which might arise in a settlement context (although, in Balls, the plaintiff's argument depended on there being a concluded agreement on liability).
This case shows that the protection provided by without prejudice privilege is important, but can be a complicated area to navigate.(10)
For further information on this topic please contact Jennifer Fox or Rebecca Findlay at Ogier by telephone (+1 345 949 9876) or email ([email protected] or [email protected]). The Ogier website can be accessed at www.ogier.com.
Endnotes
(2) Tomlin v Standard Telephones and Cables Ltd [1969] 3 All ER 201.
(10) For more information please see "The right of privilege against self-incrimination: Volaw v Comptroller of Taxes", "Further developments in legal privilege: lessons for Jersey" and "At A Glance Guide to Legal Privilege and Investigations".
