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Can documents labelled “without prejudice” be admissible?

Print publication

18/12/2014

The answer is yes, if they were not created as part of a genuine attempt to settle an existing dispute.

The recent case of Avonwick Holdings Limited v Webinvest Ltd [1] illustrates this principle. Avonwick made a loan of US$100 million to Webinvest, which Webinvest used to make a total loan of US$200 million to a third party.

Webinvest made some interest payments but failed to repay the loan in full on the repayment date. Negotiations to re-schedule the repayments failed and on 3 April 2014, Avonwick served a demand on Webinvest in accordance with the loan agreement followed by a statutory demand under the Insolvency Act 1986. Between 3 April 2014 and 29 May 2014, the parties continued to negotiate a restructuring of the loan through correspondence which was marked “Without prejudice & Subject to contract”.

On 29 May 2014, Webinvest made an application to restrain Avonwick from issuing a winding up petition. The application was supported by a witness statement which claimed that it had always been a term of the loan that Webinvest was only required to repay the loan when it received loan repayments from the third party, the “pay when paid” term. Avonwick denied that there had ever been any discussions about such a term and claimed that the issue had only been raised for the first time in the witness statement.

Avonwick sought to rely on the “without prejudice” correspondence as evidence that the pay when paid term had never been discussed. The court held that the correspondence was admissible as in order for the rule to apply, it had to have formed part of a genuine attempt to resolve a genuine dispute. At the time it was created, there was no genuine dispute about Webinvest’s liability to repay the loan, only a negotiation as to how and when it should be discharged. The negotiations and documents produced were therefore not covered by the without prejudice rule. The fact that a dispute about Webinvest’s liability arose later, could not operate to make the correspondence subject to the without prejudice rule retrospectively.

The court noted that although “the express marking of documents as without prejudice is a highly material factor in determining their status…[it] is not conclusive”.

Parties should take care when using the “without prejudice” label to ensure that the communications are being made in a genuine attempt to resolve a genuine dispute. If in doubt as to whether the “without prejudice” rule applies, please speak to Gwendoline Davies orĀ Malcolm Simpson.

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[1] [2014] EWHC 3322 (Ch)

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