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Brief Counsel

Revisiting "without prejudice" communications: the New House of Lords decision

25 March 2009

The "without prejudice" rule is a legal concept which is easy to state, but surprisingly difficult to apply in practice. What does the decision in Ofulue v Bossert mean for New Zealand?

We all know that without prejudice communications are used by parties during negotiations with a view to compromising a dispute. The idea is that, if the negotiations are successful, the communications can be used to evidence the eventual settlement; but if not, the communications are inadmissible in legal proceedings. But to which communications does the rule apply – all statements made in the course of the negotiations, or only certain types of statements, such as those which are contentious or which constitute an admission against interest?

On 11 March 2009, in Ofulue v Bossert [2009] UKHL 16, the House of Lords sought to address this question. The case followed two judgments by Lord Hoffmann (Muller v Linsey & Mortimer [1996] PNLR 74 (CA) and Bradford & Bingley Plc v Rashid [2006] UKHL 37) in which his Lordship had forcefully contended that the rule was limited to admissions against interest, and so would not apply to passing comments or to acknowledgements of facts which were undisputed or not relied upon for their truth. By a 4-1 majority, the House of Lords (with Lord Hoffmann not sitting) declined to follow Lord Hoffmann's reasoning and affirmed that the without prejudice rule should be applied in a robust manner.

The case involved a long-running dispute as to the title of a London property. In the late 1970s, the appellant, who was the registered owner of the property, let it to a tenant who sublet it to the respondents. In the late 1980s the appellant sought repossession of her property, which the respondents resisted, claiming fixed tenancy rights. The appellant commenced proceedings against the respondents for trespass, but these were automatically stayed in 2000 when the new Civil Procedure Rules were introduced. In 2003, the appellant commenced fresh proceedings against the respondents. This time the respondents claimed the right of adverse possession resulting from their undisturbed possession of the property "adverse" to the owner, for a period of 12 years. They accordingly contended that the appellant's title was extinguished and new proceedings time-barred. 

The appellant's only viable defence was that the 12-year limitation period had not elapsed by 2003. This is where the without prejudice issue arose. In 1992 (that is, only 11 years earlier), the respondents made a without prejudice offer to purchase the property from the appellant and in doing so implicitly acknowledged the appellant's title to sell the property. The UK Limitation Act 1980 (in a provision equivalent to s 25(1) of the NZ Limitation Act 1950) provides that the 12-year period recommences following any such acknowledgement.

But was the 1992 letter admissible to aid the appellant? No, according to the majority of Lords Hope, Rodger, Walker and Neuberger (who gave the leading judgment). Each explained their reasoning in different terms, but the simplest statement of principle was offered by Lord Hope: "Where a letter is written 'without prejudice' during negotiations with a view to a compromise, the protection that these words claim will be given to it unless the party can show these is good reason for not doing so". 

Lord Scott dissented, on the basis that there was no controversy in the earlier proceedings that the appellant was indeed the owner of the property. In fact, the statement made in the 1992 letter could also be found in the respondents' earlier pleadings. His Lordship sought support from Bradford and Bingley, in which the House of Lords held that a letter sent by a debtor seeking further time to pay was admissible as an acknowledgement of the existence of the debt, because it was not marked "without prejudice" and did not itself dispute the debt. Thus, the existence of the debt could not be said to be the subject of the negotiations. Lord Hoffmann's concurring reasoning in that case, as in Muller, drew a distinction between admissions (to which the without prejudice rule was directed) and mere acknowledgements (to which it was not). Lord Scott did not wholeheartedly embrace Lord Hoffmann's reasoning, but thought that the without prejudice rule should not apply where the statement in question is common ground between the parties.

The majority nevertheless preferred the clarity of a bright-line rule. They did not find it an easy case, however, and Lord Neuberger pointedly left open the question of whether and to what extent a statement made in without prejudice negotiations would be admissible if it was in no way connected with the issues in the subject of the negotiations.

One might ask whether this decision means anything for New Zealand. Arguably not; indeed, it would appear to move English law closer to the New Zealand position. The without prejudice rule for settlement negotiations is now codified in New Zealand by s 57 of the Evidence Act 2006 (although the Act still leaves scope for reference to the common law: see ss 10 and 12). Section 57(1) provides that a party to a civil dispute has a "privilege in respect of any communication between that person and any other person who is a party to the dispute if the communication: ... (b) was made in connection with an attempt to settle or mediate the dispute between the persons" (italics added). Although the Law Commission's 1999 Report indicated that the italicised words were "intended to state the existing law", the provision is arguably in broader terms than previous authority which restricted the privilege to statements "reasonably incidental" to the negotiations (D F Hammond Land Holdings Ltd v Elders Pastoral Ltd (1989) 2 PRNZ 232 (CA)). Section 57 would certainly encompass the facts of Ofulue and probably apply also to the facts of Bradford & Bingley.

The leading New Zealand case is presently Cooper v Van Heeren [2007] NZCA 207, in which the Court of Appeal followed Covington Group Holdings Ltd v Zhong (No 3) (2004) 17 PRNZ 819 (HC) in declining to confine the without prejudice rule to admissions against interest.  Although that decision applied the common law (as the 2006 Act was not then in force), the Court considered the new s 57 and opined that the provision clearly rejected the approach advocated by Lord Hoffmann in Muller and Bradford & Bingley.

Still, the Court of Appeal did not express disagreement with the decision in Bradford & Bingley and conceded that the without prejudice rule "is not impregnable". Perhaps so, but given the clear wording of s 57 and the robust decision in Ofulue, chinks in the application of the rule are likely to be rare. The next likely question for New Zealand courts will be how the words "in connection with" in s 57(1) should be applied. Is it sufficient that a statement is made in the course of settlement discussions, or need it also have some bearing upon the issues being discussed? This issue, also left open in Ofulue, firmly engages the public policy rationale upon which the without prejudice rule is based. The pendulum is presently on the side of an exclusionary rule encouraging full and frank discussion. But pendulums have a way of swinging back.

For now, the best advice is to be frank in settlement discussions, but also to the point: ensure that statements are both pertinent (that is, applicable to the matters in issue) and relevant (that is, worthy of raising in the context of the discussion). One lesson from Ofulue is that comments which seem uncontroversial today may, for reasons which can't readily be anticipated, seem rather unfortunate several years down the track. 

Our thanks to Daniel Kalderimis for writing this edition of Brief Counsel. Chapman Tripp is pleased to welcome Daniel back to the firm as a principal based in Wellington.

Daniel rejoins us after seven years abroad in New York and London. To read more about him, please click here.

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