Exploring without prejudice material during costs proceedings

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This article was first published on Lexis®PSL Dispute Resolution on 2 August 2016. Click for a free trial of Lexis®PSL

Dispute Resolution analysis: In the case Gresham Pension Trustees v Cammack, the Court of Appeal had to decide on whether a judge’s exercise of discretion when making a costs order was flawed because he had relied on ‘without prejudice’ material. Gwendoline Davies, partner at Walker Morris LLP, explains the background to the appeal and the implications of the judgment.

Original news

Gresham Pension Trustees v Cammack [2016] EWCA Civ 635

What was the background to the appeal?

The claimant, a former tenant of the defendants, brought a claim for return of overpayment of rent. The defendants counterclaimed for dilapidations. The case was adjourned at a preliminary hearing on 11 October 2013 and the claimant’s counsel prepared a note for his solicitor of what had been discussed in and out of court on that day, including settlement discussions outside the courtroom.

The parties compromised their claims just over one year later, but they could not agree on the issue of costs. The judge was shown the note, which had not been disclosed before, during the subsequent costs hearing. The defendants only received a copy of it on request just over three weeks later. Taking into account the note and its contents, the judge ordered each party to bear its own costs up to and including 11 October 2013, and ordered the defendants to pay the claimant’s costs incurred thereafter. The defendants appealed, arguing that the note was ‘without prejudice’.

What were the legal issues the court had to decide?

The Court of Appeal had to decide whether the judge’s exercise of discretion in relation to costs was flawed, because he had relied on a note which recorded discussions said to be ‘without prejudice’.

Without prejudice privilege is a form of legal privilege. If a written or oral communication between negotiating parties has without prejudice privilege, it will not be admissible in court and cannot be adduced as evidence against the interest of the party that made it. There must be a real issue between the parties and the communication must be, or form part of, a genuine attempt to negotiate a resolution.

The reasoning behind without prejudice privilege is that it is in the public interest for parties to be able to negotiate freely with the aim of resolving their disputes wherever possible, without fear of prejudicing their positions later in court. There is also an implied agreement arising out of what is commonly understood to be the consequences of offering or agreeing to negotiate without prejudice.

The court had to decide whether the note attracted without prejudice privilege, whether it was admissible on the question of costs as an exception to the general rule, and whether the defendants had waived any privilege.

What were the main legal arguments put forward?

The defendants argued that the judge should never have been referred to the note because it recorded a without prejudice exchange. That the judge subsequently relied on it was an error of principle, which effectively invalidated the discretion he had exercised when making the costs order.

The claimant submitted that the note was ‘without prejudice save as to costs’ (such communications may be shown to the court following judgment of the parties’ main dispute, since they can reveal how reasonably a party has conducted itself, which can be highly influential when determining any costs award). Alternatively, that the defendants had waived privilege because:

  • they did not object at the costs hearing, and/or
  • the offer recorded in the note was referred to in a separate document supplied for the hearing

What did the court decide, and why?

The appeal was allowed in full. The note was wrongly put before the judge and the exercise of his discretion on costs was flawed as a result.

There was no doubt the content of the note played an important part in the judge’s conclusion. It was plain beyond argument that the discussions were without prejudice—the parties had been told at the preliminary hearing to attempt to resolve the matter and that is what they tried to do. It was irrelevant that they had not used the words ‘without prejudice’.

Negotiations which have taken place expressly on a ‘without prejudice save as to costs’ basis are admissible on the question of costs as an exception to the general rule. However, parties wishing to exclude the rule must say so, and there was no evidence of that here.

As to waiver, the starting point is that without prejudice privilege can only be waived with both parties’ consent. The defendants had not consented to waive privilege, either in the discussions themselves, or in the note. First, there was no suggestion they wished to refer to the privileged conversations in court. Second, the note was handed to the judge by the claimant’s counsel at the costs hearing before the defendants’ counsel was given an opportunity to read it or object to its admissibility. The defendants had therefore not had the opportunity to consider whether its contents were factually accurate, or to consent to waive privilege in relation to the discussions it described.

The Court of Appeal exercised the discretion in respect of costs afresh and decided that the right order was that there would be no order as to costs. This was the order the judge at the costs hearing would have made, but for the October 2013 ‘offer’.

To what extent is the judgment helpful in clarifying the law in this area?

While the judgment does not establish new law, it provides a very clear and useful reminder of the principles surrounding this important form of legal privilege protection.

What practical lessons can those advising take away from this case?

Practical lessons that can be taken from the case include:

  • communications created in the context of settlement negotiations are privileged regardless of whether the words ‘without prejudice’ are used
  • for a communication to be ‘without prejudice save as to costs’, this latter proviso must be expressed, and
  • without prejudice privilege can only be waived with the consent of both parties

A final point to take away—in its judgment, the Court of Appeal was quick to emphasise the claimant’s failure to exercise the necessary caution before material that was obviously privileged was referred to in court. As a matter of practice, neither side should unilaterally or even orally without notice to the other side refer to the contents of without prejudice communications where privilege has not been waived, for the very good reason that by doing so the state of knowledge of the judge is affected (Stanley Burnton J in Berg v IML London Ltd [2002] 1 WLR 3271, [2002] 4 All ER 87). Practitioners would be wise to ensure that any privilege issues are identified, discussed and addressed well in advance of a hearing.

Interviewed by Alex Heshmaty.