PUTTING "WITHOUT PREJUDICE" ON LETTERS DOES NOT NECESSARILY MAKE THEM PRIVILEGED: AVONWICK -v- WEBINVEST CONSIDERED

Putting “without prejudice” on inter partes correspondence does not mean that the court will not look at them. This issue was considered by Mr Justice David Richards in Avonwick -v-Webinvest [2014] EWHC 3322 (Ch). The case also contains a short consideration of issues relating to late service of witness statements.

THE FACTS

The claimant had lent the defendants a substantial sum (US $100 million) and the defendants had defaulted on the repayment terms. There was early correspondence in relation to re-scheduling repayment. However the defendants alleged that there was an oral “pay when paid” agreement which meant that payment was not due at all. The matter had been set down for an early trial.

THE JUDGMENT

  1. For a document to be inadmissible on the grounds that it is “without prejudice”, it must form part of a genuine attempt to resolve a dispute. There needs to be both a genuine dispute to be resolved and a genuine attempt to resolve it. If there is no dispute about a liability, but only a negotiation as to how and when it should be discharged, the negotiations, and documents produced in the course of them, are not covered by the “without prejudice” exception to the admissibility of relevant evidence. That was the situation in Bradford & Bingley plc v Rashid [2006] 1 WLR 2066, [2006] UKHL 37. Lord Mance said at [81]:

“The existence of a dispute and of an attempt to compromise it are at the heart of the rule whereby evidence may be excluded (or disclosure of material precluded) as “without prejudice”. … the rule does not of course depend upon disputants already being engaged in litigation. But there must as a matter of law be a real dispute capable of settlement in the sense of compromise (rather than in the sense of simple payment or satisfaction).”

  1. In that case, the relevant correspondence was not marked “without prejudice” and it was common ground that there was no dispute as to the existence or amount of the defendant’s liability. The documents which the defendant sought to have excluded on the grounds that they were impliedly “without prejudice” contained attempts to agree terms as to the repayment of the liability, in other words a restructuring of the defendant’s debt. The House of Lords rejected the submission that the without prejudice exclusion could apply in such circumstances, Lord Brown saying at [72]:

“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.”

  1. It is an important difference from the circumstances in Bradford & Bingley plc v Rashid that in this case the relevant communications were marked “without prejudice”. Moreover, it was Avonwick and its solicitors, the party now saying that they are not properly to be regarded as without prejudice, that first marked the documents “without prejudice“.
  2. The express marking of documents as without prejudice is a highly material factor in determining their status, but is not conclusive. There must be a genuine dispute and a genuine negotiation. SeeSouth Shropshire District Council v Amos [1986] 1 WLR 1271 at 1277 H, Unilever Plc v T V Procter & Gamble Co [2000] 1 WLR 2436.
  3. There was a difference in view between Lord Brown and Lord Mance in Bradley & Bingley plc v Rashid as to the significance of the express marking of a document as “without prejudice”. Both acknowledged its importance but Lord Brown went further when he said at [63] that:

“Generally speaking, such communications will attract the privilege even without the public policy justification of encouraging parties to negotiate and settle their disputes out of court.”

  1. At [87] Lord Mance took issue with this formulation, and expressed his own view at [84]:

“Even where there is a dispute, not every offer of compromise is necessarily intended to be without prejudice, and the express use of the phrase not only puts the matter beyond doubt in a situation where there is an offer to compromise an existing dispute, but is also capable of throwing some light on the answer to the objective question whether such a situation existed. But its use is by no means inclusive. Neither a dispute nor a concession or offer to compromise can be conjured out of mere words.”

  1. This was not of course an issue in that case and I do not consider that any of the other speeches can be read as agreeing with one or other of these formulations.
  2. In common with Arnold J in Williams v Hull [2009] EWHC 2844 (Ch) at [18] and Hollander: Documentary Evidence (11th ed) at 20-04 to 20-06, I take the view that the correct approach is that stated by Lord Mance. Marking a document as “without prejudice” is a strong indication that there is a genuine dispute and a genuine attempt to settle the dispute, but it is not conclusive.
  3. 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. But it is the case of Avonwick that at the time of these communications there was no dispute at all about the liability of Webinvest to repay the loan, and hence no dispute as to the liability of Mr Shlosberg under his guarantee.
  4. I have earlier remarked that there is no evidence of any document or written communication raising any doubt as to the liability of Webinvest until service of Mr Shlosberg’s witness statement of 29 May 2014, alleging the pay when paid term. Tellingly, there is no hint of it in the open correspondence from Webinvest and its solicitors following service of the contractual and statutory demands. This is all the more noteworthy as it is said by the defendants that the demands served on 3 April 2014 came as a major surprise because they were contrary to the pay when paid term. Nor, apart from the evidence of Webinvest’s witnesses that there was an oral agreement to this effect at the time of the Loan Agreement, is there any evidence of any oral discussion of the pay when paid term.
  5. The furthest that the evidence goes is as follows. In the second witness statement of Mr Shlosberg dated 6 October 2014, he states at paragraph 5:

“I recall a telephone call in February or March 2014 from Mr Gayduk in which Mr Gayduk asked for $50 million to be paid. He was not asking Webinvest or me to pay regardless of receipts from the third party. Instead, I understood that he needed this money because the position in the Ukraine was very unstable at the time. I made clear that I would do my best to agree it with the third party but did not offer any more than this. I specifically deny that I ever acknowledged that Webinvest or I had any obligation to Avonwick or Mr Gayduk absent payment from the third party whether during this conversation or at any time before or after. I also explained what Webinvest was doing in attempting to recover payment from the third party and I understood from this call with Mr Gayduk that we still had a common understanding that the payment by Webinvest was dependent on recovery from the third party.”

  1. In the second witness statement of Ms Mutieva dated 6 October 2014, she states at paragraphs 6 and 7

“6. Sometime in March 2104 (sic), I was informed by Mr Shlosberg that Mr Gayduk needed $50 million for Avonwick from the Third Party as soon as possible. I informed Avonwick’s team (Mr Petrov and Mr Kravets) that we were doing all we could to recover from the Third Party. I asked them how we could combine our efforts for their benefit and ours. I definitely stated to them that payment would only be made once we received payment from the Third Party. At this point it was proposed that Avonwick obtain credit from banks if the funds could not be obtained from the Third Party. We were prepared to consider putting up some security to Avonwick’s bank in order to support his friend. It was for that reason that on 28 March 2014 I emailed Mr Petrov with details of the Elms, but this did not go further.

7. The approach of the Avonwick team changed when a formal demand was made of Webinvest and Mr Shlosberg for payment on 3 April 2014. On this date we also received without prejudice proposals from them. Mr Shlosberg then asked me to call Avonwick’s team to discuss the position and why they had changed their position. At that point, it was clear that there was no dispute about the terms for payment agreed between Avonwick and Webinvest and Mr Shlosberg. Further proposals and negotiations with them after the service of the formal demand therefore took place without prejudice to that dispute. I contacted Mr Petrov as requested by Mr Shlosberg. I asked why they had changed their position. He said they could not wait any longer. They appeared clearly to understand that Webinvest would only pay after receiving payment from the third party and we had not changed our position, but they wanted us to pay anyway.”

  1. These paragraphs are notable for not alleging that there was any discussion of the alleged pay when paid term. They state only that it was made clear to Avonwick that Webinvest would be able to repay the loan only when it received repayment from the sub-borrower. In circumstances where it appears that Webinvest’s only asset is its claim against the sub-borrower, this is no more than a statement of the obvious, in the absence of any agreement by its shareholders to provide further funds. This evidence cannot, in my judgment, support the submission that any dispute existed prior to 30 May 2014 as to the existence and amount of the liability of Webinvest to Avonwick.
  2. Reliance is also placed on paragraph 15 of Mr Shlosberg’s witness statement dated 11 July 2014 where he stated:

“15. Mr Gayduk is not correct in saying that the first time that I have raised the matter regarding the actual terms of repayment of the Loan was at the very end of May this year. These matters were discussed between us as I have explained at the time we arranged the Loan in the first place and has been mentioned or understood in numerous discussions since. I agree Mr Gayduk and Avonwick have been otherwise pressing for repayment, because they would of course wish Avonwick to be repaid. No doubt they think that if they put additional pressure on me/Webinvest, that will force Webinvest to turn to bring about payment by the third party sooner.”

  1. The statement that terms of repayment have been “mentioned or understood in numerous discussions since” is in my view so vague as not to provide a proper basis for an allegation of discussions taking place between the date of the agreement and the end of May 2014.
  2. The significance of the correspondence marked “without prejudice”, and in particular of course the correspondence from Webinvest and its solicitors, is that it proceeds quite clearly on the basis that there is an existing liability and that the whole purpose of the proposals is to arrive at an agreed restructuring of that admitted liability. There is no evidence that Avonwick believed, or had reason to believe, that there was any dispute about the liability until receipt of Mr Shlosberg’s witness statement on 30 May 2014.
  3. The issue is whether at the time of the relevant communications there existed a genuine dispute, and in my view it is clear that none existed at that time. Communications made at a time when there is no dispute cannot, with retrospective effect, be made subject to the without prejudice privilege by subsequently raising a dispute.
  4. As I have earlier mentioned, it is of course highly material that the relevant communications were not only marked “without prejudice” but were so marked by Avonwick’s solicitors and indeed by members of its litigation department. I do not have evidence from Avonwick or its solicitors as to why they chose to mark the communications in this way. Mr Berry QC for Avonwick told me that the view was taken, in the light of the observations of Crane J in Pearson Education Ltd v Prentice Hall India Private Ltd [2005] EWHC 636 (QB) at [15] – [22], that the test for determining the purpose of marking documents without prejudice is entirely objective and that the actual intention of the writer is irrelevant. In general, I would agree with that approach. However, in circumstances where the party who has initiated communications as “without prejudice” wishes to say that they are not without prejudice, I would hesitate before saying that evidence from that party as to their reasons for marking the correspondence without prejudice is not admissible. In any event, I must approach this issue on the basis that a litigation solicitor would deliberately use the term “without prejudice” in its usual sense. I do not find particularly convincing the possible explanation that it was intended to mean “without prejudice to the rights of Avonwick”.
  5. But, for the reasons already given, even the use of the expression by an experienced litigator is not conclusive. If on analysis of the evidence the court is satisfied that there was no genuine dispute to which the proposals were directed, the only conclusion, itself not an impossible one, is that the solicitor made a mistake.
  6. I am satisfied on the evidence that throughout the period of the relevant correspondence no dispute existed between the parties as to the liability of Webinvest and Mr Shlosberg. The negotiations were directed entirely at attempting to agree a restructuring of an admitted liability. It follows, in accordance with the authorities to which I have referred, that the relevant communications are not covered by the “without prejudice” privilege and are admissible as evidence at the forthcoming trial.

SUMMARY

  • The use of the “without prejudice” in a letter is material but not decisive.
  • There has to be a “dispute” at the time when the correspondence is taking place.  A later dispute cannot, retrospectively, make the correspondence without prejudice.
  • A party may be called upon to explain its use of the “without prejudice” title in correspondence if it is later alleging that the letters were not in fact without prejudice.

LATE SERVICE OF WITNESS EVIDENCE

As an interesting aside the application also concerned late service of witness evidence. This was dealt with in a single paragraph of the judgment.

  1. Objection had been taken by the defendants to the late service of a further witness statement on the part of Avonwick referring to and giving evidence about these written communications. The defendants have however been able to serve witness statements in reply and Mr Marshall QC on behalf of the defendants did not suggest that the admission of this further evidence would in any way delay or affect the conduct of the trial. In those circumstances, applying the approach of the Court of Appeal in Denton v T H White Ltd [2014] EWCA Civ 906, I shall direct that these further statements may be relied on at the trial.