Communications “Impliedly” Without Prejudice Admissible as to Costs

Given the widespread use of “without prejudice” communications by legal practitioners and their clients, the English High Court’s judgment in Sternberg Reed Solicitors v Harrison [2019] EWHC 2065 (Ch) is of considerable practical importance. The judgment decides that, as a matter of common law, where a communication is found to be impliedly without prejudice it may still be admissible before a court or tribunal for the purpose of determining issues as to costs.

The issue appears to have been a novel one and is described by the court as a point of general importance. Given that the principles that underpin the without prejudice rule are the same in different common law jurisdictions, the judgment should be highly persuasive in
Hong Kong.

In Sternberg Reed Solicitors v Harrison, the communication in issue (a settlement offer) was not marked without prejudice and did not appear to be “expressly” without prejudice. However, the communication was held by the court to be “impliedly” without prejudice, taking into account all the relevant circumstances (including the fact that it was a settlement offer). While the communication was inadmissible with regard to the substantive underlying dispute (that arose in connection with an arbitration), on an appeal on a point of law the court held that the arbitrator was correct to have regard to the communication in determining the issue of costs as between the parties – albeit, the judge did so for different reasons.

The judgment is a useful read for practitioners wishing to understand the general principles that underpin the admissibility (and exclusionary) rule associated with without prejudice communications:

• the main issue of whether an impliedly without prejudice communication is admissible before a court or tribunal in determining issues as to costs appears not to have been decided before;

• besides, apparently, being a novel point, it is also described as being of general importance. However, the court refused permission to appeal because it did not consider that there was any real prospect of success;

• the judgment adopts a classic approach to the principles that underpin the exclusionary rule relating to without prejudice communications. It also makes a clear distinction between communications that are either expressly or impliedly without prejudice. Communications that take place on an express without prejudice basis are inadmissible in the substantive proceedings and for the purpose of determining issues as to costs. However, where a communication is not stated to be expressly “without prejudice”, but is treated as without prejudice by the parties concerned, the exclusionary rule does not prevent the communication from being admissible for the purposes of determining issues as to costs. The following passage from the judgment summarises the point (para. 46):

“… I see no reason why, where the parties have not chosen to label a communication as expressly ‘without prejudice’, the law should imply an agreement that that communication should be treated as ‘without prejudice’ rather than as ‘without prejudice save as to costs’.”

• the judgment disapproves of an attempt to “move on” from the general principles (and restrictions) associated with the without prejudice rule – those principles have been established in landmark cases such as Rush & Tompkins Ltd v GLCCutts v Head, Unilever Plc v Proctor & Gamble Co., and Computer Machinery Co. Ltd v Drescher.

These general principles apply in Hong Kong. They are every bit as important in practice as legal professional privilege. Practitioners and their clients make use of without prejudice communications on a daily basis and in very different circumstances – for example, in meetings, over the telephone, in correspondence or outside court. “Without prejudice” and “without prejudice save as to costs” mean different things and parties and their lawyers should be aware of the distinction and make their intentions expressly clear in practice.

Following on from Sternberg Reed Solicitors v Harrison, communications that are impliedly without prejudice (ie not express) are potentially admissible before a court or tribunal for the purpose of determining issues as to costs. In this context, labels and express statements have rarely (if ever) been more important.

Jurisdictions: 

Senior Consultant, RPC