When negotiating a deal, parties often mark correspondence as ‘without prejudice‘, in the belief that by doing so, the correspondence cannot be used in evidence if the matter ends up at Court (i.e. it will not ‘prejudice’ their legal positions). Yet things are not as simple as this, as a recent High Court decision* (confirmed by the Court of Appeal**) makes clear.
In this instance, the claimant loaned $100million to the defendant, so that the defendant could make a loan to a sub-borrower. Under the loan agreement, the loan was to be repaid by the defendant by May 2012. The defendant did not repay the loan by then, and so the claimant issued proceedings for repayment of the loan.
The defendant alleged that the claimant had orally agreed that the loan would only be payable once the sub-borrower repaid its loan to the defendant. There was no written evidence to back this up, but there was correspondence between the parties about re-scheduling the loan. This made no reference to the alleged oral agreement, which suggested that there hadn’t actually been any such agreement. However, the correspondence was marked ‘without prejudice and subject to contract’. The defendant therefore argued that it was inadmissible at Court.
Whilst the Court emphasised that marking a document as ‘without prejudice’ is a strong indication that it is genuinely without prejudice, the real question is whether it is part of a genuine attempt to settle a dispute. If it is, then it is genuinely without prejudice. If, however, it is just part of negotiations as to how and when a liability should be discharged (as opposed to whether there is any liability at all), then it is not genuinely without prejudice. Here, the Court decided that it was the latter, as there was no evidence of there being a dispute as to whether the loan was actually repayable at the time of the correspondence.
Parties should therefore not assume that just because they mark correspondence ‘without prejudice’, then it will not be admissible as evidence at Court. In particular, if it is just part of a negotiation as to how a liability should be discharged, rather than part of a genuine attempt to settle the dispute, then it will probably be admissible as evidence at Court.
*Avonwick Holdings v Webinvest Limited and Another  EWHC 3322
**Avonwick Holdings v Webinvest Limited and Another, Court of Appeal, 17 October 2014 (unreported)