There is no rule that communications treated as ‘without prejudice’ despite not being labelled as such cannot be referred to when considering costs, the High Court has ruled.
His Honour Judge Hodge QC, sitting as a High Court judge, said he could see “no reason why the law should impute to parties who do not expressly mark their communications ‘without prejudice’ an intention that the communications should be treated as impliedly ‘without prejudice’ for all purposes”.
HHJ Hodge, ruling on a dispute involving a former partner at East London law firm Sternberg Reed, said that where communications were expressly marked ‘without prejudice’, they could not be referred to even after determination of the dispute to decide costs.
“Where, however, communications take place to resolve a live dispute and they are not expressly labelled ‘without prejudice’, then they will be treated as impliedly ‘without prejudice’ on the substantive dispute, and they may not be referred to until after the determination of that dispute, but they may thereafter be referred to on questions of costs.”
HHJ Hodge went on: “Where correspondence is treated as being ‘without prejudice’, not because it is labelled as such, but simply because it is an attempt to compromise actual or impending litigation, there can be no public policy justification for preventing it being referred to on issues of costs as distinct from the issues in the substantive litigation; and I see no basis for implying any agreement that no reference should be made to such correspondence on issues of costs once issues in the substantive litigation have been determined.”
Delivering judgment in Sternberg Reed Solicitors v Andrew Paul Harrison  EWHC 2065 (Ch), HHJ Hodge said the case raised an “interesting and apparently novel, point of law on the true scope of the exclusionary rule which prevents reference to offers made with a view to settling a live dispute”.
The judge said a dispute concerning the extent of Mr Harrison’s entitlements as an outgoing partner on retirement in 2015 went to an arbitration hearing in December 2017.
Sternberg Reed, the claimant in the case, appealed against the arbitrator’s ruling on costs, arguing that he erred in law in admitting as evidence on the question of costs offers made ‘without prejudice’.
HHJ Hodge said: “I am satisfied that the arbitrator (as the claimant submits) plainly erred in law in holding that he had a discretion to admit evidence of ‘without prejudice’ communications.
“However, the arbitrator did note that the defendant’s initial offer in the email of 12 November 2015 was not apparently made ‘without prejudice’, although subsequent correspondence became so.
“It therefore becomes necessary to consider whether that first communication was in fact written on a ‘without prejudice’ basis.”
Sternberg Reed argued that it was “plain from the context of the communications” that it was the parties’ intention that the communications, including the 12 November email were to be treated as ‘without prejudice’.
However, HHJ Hodge ruled that although that email could not have been referred to in the substantive arbitration, there was “no reason” for the arbitrator not to admit the evidence the email contained on the issue of costs.