In Sternberg Reed Solicitors v Harrison [2019] EWHC 2065 (Ch) arbitral proceedings had taken place between the law firm and a former partner concerning the calculation of his closing profit share on retirement. 

The former partner challenged the costs decision of the arbitrator following the first award, arguing that the arbitrator should have taken into account the contents of certain correspondence which the law firm asserted was “without prejudice”. These included an initial offer made by the former partner which was not marked “without prejudice” at all and subsequent correspondence that was marked as such, but not “save as to costs”.

The arbitrator held that, when determining questions of costs, he had a discretion to take into account purely without prejudice correspondence between the parties, even though it was not marked as “without prejudice save as to costs”. This was disputed by the law firm.

Decision

On appeal, the High Court concluded that the arbitrator had plainly erred in law in finding that he had a discretion to admit evidence of those communications expressly made “without prejudice”. However, the initial offer, which was not expressed to be made “without prejudice”, was admissible on questions of costs.

Comment

The High Court’s decision that communications made expressly on a “without prejudice” basis are inadmissible should come as no surprise. The court has no general discretion to disapply the rule unless the issue of costs is expressly reserved, commonly done by marking the correspondence “without prejudice save as to costs”.

However, the appeal does raise one apparently novel point of law. As noted, the initial offer was not marked “without prejudice”. It could be inferred that it was by its nature “without prejudice”, since it was concerned with settling a live dispute. The court distinguished this from the other communications, though, and said that there was no reason to impute the parties with an intention that the communication should be treated as impliedly without prejudice for all purposes, nor was there a public policy justification to prevent such communications being referred to on issues of costs.

This is an important distinction since a party corresponding believing that what it says will never be inadmissible, even on questions of costs, may be more frank than would otherwise be the case.

There appears not to be previous authority on this point and it carries a clear practical point: a party should always make their intentions express as to the purpose for which a communication may subsequently be used and not rely on such intentions being implied. While it is well established that the presence or absence of the “without prejudice” label is not determinative, best practice will always be to include it and Sternberg illustrates the risks of not doing so.