Without Prejudice Offers

Settling claims ‘without prejudice to liability’ is an everyday occurrence for most insurers.  But what does it mean?  And are there any pitfalls to be wary of?

A without prejudice offer simply means that you wish to try and settle a part or the whole of a claim without making a formal admission of liability. It must be a genuine attempt at compromise on a dispute. If it is accepted that is the end of the claim.  If it isn’t accepted then it is still possible to successfully defend the claim as liability has not been conceded.

‘I do not agree that without prejudice means without prejudice to my open position.  In my view it means without prejudice to my position in any subsequent proceedings.’   Williams v Hull [2009] EWJC 2844(Ch).  

There does not need to be litigation or a threat of litigation.  The crucial question is whether in the course of negotiation the parties contemplated, or might reasonably have contemplated, litigation if they could not agree terms (Framlington v Barnetson [2007] EWCA Civ 502).  But there must be a genuine dispute.

If an offer is made ‘without prejudice’ it means that the claimant cannot refer to it or show it to a judge at court. It can’t be used as evidence that the defendant accepts they were responsible for the accident (and that applies to both oral and written communications). But be careful.  Whether a document is or is not labelled ‘without prejudice’ is not determinative.  What is important is the content. In Ofulue v Bossert [2009] 1 AC 990 the House of Lords had recommended that a broad view should be taken in assessing whether communications (whether in writing or in a meeting) were without prejudice. This was followed in the Court of Appeal case of Suh v Mace [2016] EWCA Civ 4.

Where one party makes a without prejudice offer, the privilege extends to the response to the offer as well as to the offer itself. Be wary though as once the offer has been accepted it is a final and complete settlement.  In other words, the letter of offer and letter of acceptance can be used to prove that an agreement was made to pay the sums agreed.

There are other limits to the application of ‘without prejudice’.

What does ‘without prejudice save as to costs’ mean?

It is used to identify discussions and offers made to resolve disputes which cannot generally be disclosed to courts or tribunals, except where the issue of legal costs is being determined. Such offers are commonly known as Calderbank offers.

For example, if a defendant wishes to put an offer to an injured claimant, they will not want the claimant to be able to refer to that offer in the event of negotiations breaking down and proceedings being issued.  If the court learned that the defendant had been willing to offer the claimant say £10,000 to settle their claim there is a risk that they might consciously or subconsciously perceive that the defendant had something to hide and that they acknowledged they had been in the wrong.

Equally if during the negotiations the claimant stated they would accept £10,000 to settle their claim they would not want the court to be aware of this.  If the court knew that the claimant was willing to settle at this figure then this could become the benchmark for any award or, particularly if the claim was worth more, they might draw the inference that the claimant knew there were significant weaknesses in their claim.

In many ways a Calderbank offer is more flexible than a Part 36 offer as it is not governed by strict court rules, and you can therefore be more creative with your offer especially when putting forward terms about the length of time the offer remains open, costs and payment terms.  And of course there are some circumstances where a Part 36 offer cannot be made e.g. small claims track.

However if accepted it does create a legally binding contract between the parties.

In making a Calderbank offer you will be hoping to achieve some costs protection if your offer is not accepted. Pursuant to CPR Part 44, the court will have regard to any admissible offer to settle which is drawn to the court's attention and that is not a CPR Part 36 offer (CPR Part 44.2(4)(c)).  Coward –v- Phaestos Ltd [2014] EWCA Civ 1256 provides that the court's approach to Calderbank offers and Part 36 offers is not the same.  CPR Part 44 and Part 36 are separate regimes with separate purposes. The primary consideration when considering costs in light of a Part 36 offer is whether the offeree has improved his position by any amount.  CPR Part 44 allows the court to take an "open-textured" approach and consider "whether the fruit of the litigation was worth the fight".

There are some exceptions to the Without Prejudice Rule and these largely arise in circumstances where there is unlikely to be any prejudice arising from the disclosure (Unilever v Procter & Gamble [2001] 1 All ER 783). These exceptions are when the communications:

• Demonstrate the fact of a concluded settlement agreement
• Assist as an aid to construing the settlement agreement that was subsequently reached
  (Oceanbulk Shipping & Trading SA v TMT Asia Limited and others [2010] UKSC 44)
• Provide evidence of grounds to set aside a concluded settlement agreement on the basis of
  misrepresentation, fraud or undue influence
• Evidence the fact of a delay (usually it is just the existence of the communications that needs
  to be referred to, not the detail within them). In this context, without prejudice communications may be referred to in interim applications.
• Are evidence of perjury, blackmail or other serious and unambiguous impropriety (see
  Halfords Media (UK) Limited v Ponomarjovs (October 2015 – Chancery))
• Where a clear statement is made in the without prejudice communications, that is relied on
  by the other party, giving rise to an estoppel

In Summary: 

1. The rule applies to any negotiation with the genuine intention of settling a dispute.
2. There are exceptions to the rule
3. The label used is not determinative – but a label should be given provided it is applied with thought.
4. Communications are either privileged or not – they can’t be divided into some bits which are privileged and some bits which are not.
5. Take extra care when dealing with litigants in person.

 For more information, please contact Rebecca Woodward.