PUTTING “WITHOUT PREJUDICE” ON LETTERS DOES NOT NECESSARILY MAKE THEM PRIVILEGED: AVONWICK -V- WEBINVEST IN THE COURT OF APPEAL

The case of Avonwick -v- Webinvest has been looked at before on this blog. Mr Justice David Richards held that letters asking for time to pay a debt were not covered by privilege just because they were headed “without prejudice”. The case went to the Court of Appeal on that issue and that judgment has recently become available.

THE ISSUE

The defendant, the guarantor of a loan, was arguing that there was a “pay when paid” agreement between him and the claimant.  In earlier correspondence the defendant’s solicitors had corresponded with the claimant seeking further time to pay. There was no mention of any “pay when paid” agreement in that correspondence, although it was headed “without prejudice”.

At first instance the judge held that this correspondence was not, in fact, without prejudice because at the time it was sent there was no dispute between the parties.

KEY POINTS

  • If there is no “dispute” then the correspondence is not privileged and it can be referred to.
  • There was no contactual agreement between the parties to extend the without prejudice privilege even though there was no dispute.

THE DEFENDANT’S ARGUMENTS

The defendant argued that, even though there was no dispute, the parties had, by agreement, extended the without prejudice privilege.

THE JUDGMENT ON THIS ISSUE

“17. My conclusions are these. There are two bases for the operation of the without prejudice rule. The first rests on public policy and that policy is to encourage people to settle their differences. However, in order for that head of public policy to be engaged there must be a dispute. The concept of dispute is given a wide scope so that an opening shot of negotiations may fall within the policy even though the other party has not rejected the offer. That is the explanation for Standrin. In order to decide whether this head of public policy is engaged, the court must determine on an objective basis whether there was in fact a dispute or issue to be resolved. If there was not then this head of public policy is not engaged. On facts of this case, in my judgment the judge was right to say there was no dispute at the time the communications took place. The other basis for the rule is contractual, that is by contract the parties may extend the usual ambit of the without prejudice rule. In Cutts v Head the dispute was over so the justification was purely in terms of contract. In Unilever the possibility of extending the scope of the rules expressly envisaged and the decision inUnilever is treated as an authoritative exposition.

18. Mr Berry submitted that although the parties could by agreement extend the ambit of a without prejudice rule, they could only do so in circumstances in which there was a dispute either existing or imminent. If that is the case, then it seems to me to be hard to see what it adds to the public policy justification. Freedom of contract is a basic principle of English law. If A and B agree for valuable consideration that their communications will not be used in civil proceedings in court, I find it difficult to see why, as a matter of principle, the court should not uphold their agreement. Confidentiality clauses are the stuff of commercial life. Moreover, it is often open to two parties by agreement to immunise their acts from what would otherwise be their legal consequences. A non-reliance clause in a contract would immunise what would otherwise be a misrepresentation and an entire agreement clause would immunise what would otherwise be a collateral warranty. This must however be done by agreement. One person cannot unilaterally impose a rule on another. That, in my view, is the better explanation for cases such as Daintrey.

19. Mr Berry submits that these kinds of agreements do not preclude evidence being led before a court, they merely deal with the legal consequences of such evidence. That is an over-subtle distinction to my mind and in any event, where there is an estoppel that is a rule of law that precludes evidence from being led, likewise where a contract contains a conclusive evidence clause. The question boils down to this; was there a contract in this case? It is not a good start that the communications are headed, “Subject to contract” which is generally taken to mean that no legal consequences are to flow from the communications. Mr Marshall argued that the subject to contract heading applied only to the heads of terms, but since they were separately headed “Subject to contract”, that does not seem to me to be a strong argument. Mr Berry has pointed to many usages of the phrase, “Without prejudice” apart from the settlement of extant or contemplated disputes. One such usage is that the user of a statement does not mean to give up any right that he may have. In my judgment, that is the way in which the phrase is used in this case.

20. It follows, in my judgment, that there was no contract in this case to the effect that communications would not be used in civil proceedings in court. Accordingly, I would dismiss the appeal against the order of David Richards J.”

WHAT HAPPENED AT TRIAL?

The Court of Appeal decision was given shortly before the trial started. The judgment is available. Things did not go well for the defendant. It is another example of documentary evidence being used alongside oral evidence.

“9. On the central issue whether an oral collateral ‘pay if paid’ agreement was made, this is a case which turns on the credibility of these sets of witnesses.

  1. Having heard the witnesses in person and upon review of the documentation in the case, I was left in no doubt that Mr Gayduk, Mr Kravets, Mr Petrov and Mr Kupchyshyn were credible witnesses who were telling the truth. I was also left in no doubt that Mr Shlosberg and Ms Mutieva were thoroughly dishonest witnesses who gave deceitful evidence about a ‘pay if paid’ agreement which never existed, in an attempt to avoid judgment being given to enforce the Loan Agreement and the Guarantee.
  2. The contemporaneous documentation provides overwhelming corroboration for the evidence of the witnesses for Avonwick. Similarly, the practical dealings between the parties, both in the way the Loan Agreement and Guarantee were negotiated and drawn up and in the way in which they were implemented by both Avonwick and Webinvest and Mr Shlosberg, provide overwhelming corroboration for the evidence of the witnesses for Avonwick. Moreover, the alleged ‘pay if paid’ agreement would have been wildly at odds with commercial common sense in the context of this case.”

The evidence of the Defendant’s witnesses, who had given inconsistent evidence in other proceedings is considered in Witnesses: You are in real trouble if you say one thing in one witness statement and a different thing in another.

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