Dadu Ltd v Barrowfen Properties Ltd [2008] EWHC 90110 (Costs)

“BY CONSENT IT IS ORDERED THAT 1. The proceedings be stayed but for the purpose of enhancing the terms of the schedule herein for which parties have liberty to apply. 2. The Defendants do pay the Claimant’s costs up to and including 01.05.07 to be subject to a detailed assessment if not agreed. 3. The Defendants do make an interim payment towards the Claimant’s costs of £20,000 (inclusive of VAT) to be paid to the Claimant’s solicitors within seven days of receipt of the rent payable by the Claimant on 24.06.07. 4. Except as set out above there be no order as to costs. SCHEDULE 1. The Defendant will grant to the Claimant and the Claimant will take a new lease of the ground floor premises 192-198 Upper Tooting Road, London SW17 7AG to commence on 14.08.07. 2. The new lease will be in the form of the draft appended hereto, save that: (a) The term will be 15 years. (b) The rent will be £86,000 per annum (subject to review as provided in the draft lease). (c) The lease will contain the landlord’s rolling break clause in the terms set out in the rider to paragraph 3 of schedule 1 of the draft. (d) The existence of the said rolling break clause is a matter to which regard must be had on any rent review. 3. There is no interim rent payable by the Claimant.”

“Preliminary Issue 1: Costs Estimate The Claimant’s claim for a new lease was disposed of during negotiations at the hearing on 14 May 2007 wherein it was ordered (by consent) that the Defendant would grant a new lease of the property subject of the proceedings for a term of 15 years, the lease containing a landlord’s redevelopment break clause. The Defendant also agreed to pay the Claimant’s costs up to 1 May 2007. During the course of the negotiations at Court on 14 May 2007, discussions were entered into in relation to the level of the Claimant’s costs. The Claimant’s representative provided a written estimate of the Claimant’s costs up to 1 May 2007 as follows: Solicitors £28,000.00 Expert £5,000.00 Counsel £3,500.00 Disbursements £1,750.00 Total £38,250.00” “On the basis of the sums advised by the Claimant, the Defendant agreed to pay the Claimant’s costs up to and including 1 May 2007, to be subject to a Detailed Assessment if not agreed, as part of the settlement agreement, enshrined within the Consent Order dated 14 May 2007. The Claimant’s Bill of Costs served by way of Notice of Commencement dated 28th December 2007 totals £70,393.65, a discrepancy of in excess of 84% more than the estimate provided on 14 May 2007. Despite the discrepancy in respect of the costs claimed, the Claimant has failed to provide an explanation, as required by CPR 43 PD 6.5A(1). In accordance with CPR 43 PD 6.6(2), where there is a difference of 20% or more between the costs claimed by a party and the costs shown in an estimate filed by that party; and the receiving party has not provided a satisfactory explanation for that difference; or the paying party reasonably relied on the estimate of costs; the Court may regard the difference between the costs claimed and the costs shown in the estimate as evidence that the costs claimed are unreasonable or disproportionate. It is the Defendant’s submission that it is clear that the estimate provided by the Claimant was relied upon. The estimate was requested during the course of negotiations and was considered together with the negotiated level of the rent payable under the new lease. To dispose of all matters between the parties and on the basis of the estimate provided the Defendant agreed to pay the Claimant’s costs up to and including 1 May 2007, to be subject to a Detailed Assessment if not agreed. If necessary, reference will be made to the Defendant’s notes of the negotiations that took place at Court of 14 May 2007 upon attendance at the Detailed Assessment hearing. Reference is also made to the decision of Master Gordon-Saker in Tribe –v- Southdown Gliding Club & Ors LTL 14/8/2007, which deals with the application of CPR 43 PD 6. It is submitted that on the facts, a reasonable reliance upon the estimate provided by the Claimant is clear. In the absence of any explanation in respect of the discrepancy, and in any event given that it is apparent in the circumstances that the Defendant reasonably relied upon the estimate provided, the Claimant should be restricted to the amount estimated.”

“The Claimant’s Solicitor refutes entirely the idea that the figures given for profit costs, Counsel and Experts were anything other than some very rough figure provided at the Defendant’s insistence. The figures (sic) given was not an Estimate provided under Section 6 of the Costs Practice Direction. It was not an Estimate in the required form of precedent H and the Defendant’s advisors knew that the figure could not be relied upon as the Claimant’s Solicitor had advised them that he did not have an accurate figure of the costs to date nor could he be expected to do so as he was simply asked to provide some rough figures whilst at Court and it would have been impossible to have accurately costed the file. The Defendant’s advisors were well aware of this. “Had the parties intended that the figures reluctantly provided by the Claimant’s Solicitor should be binding and form part of the settlement then the figures would have been incorporated in the Consent Order. It is noteworthy that the Consent Order provides for the costs to be assessed if not agreed. At the doors of the Court if the Defendants had genuinely sought to place reliance upon the figures provided by the Claimant’s Solicitor which they knew to be figures provided in the absence of the file being costed, then they would have asked for those costs figures to be incorporated into the Consent Order. They did not, they consented to an Order for Costs to be assessed if not agreed. Reference to Section 6 of the Costs Practice Direction by the Defendants is meaningless given the circumstances in which the costs figures were given to them during negotiations at the door of the Court. The directions given in Section 6 and the Judgment of Master Gordon-Saker in Tribe –v- Southdown Gilding Club &Others relate to proper Estimates of Costs given at allocation, listing or at any other stage as ordered by the Court and have no relevance to some handwritten figures for costs given at the doors of the Court when both parties to the negotiations knew that the figures provided were at best guesswork. Even where an Estimate is provided in precedent form H in accordance with the Practice Direction it cannot in any event act as a cap as the Defendants are suggesting. The Claimant refers to Leigh –v- Michelin Tyres [2003] EWCA Civ 1766 and also to the Tribe –v- Southdown Gliding Club case which the Defendants quote. Further and in the alternative if the Court is minded to accept the Defendant’s position that the costs figure given by the Claimant’s Solicitor amounted to an Estimate under Section 6 of the Practice Direction the Defendant is put to proof as to precisely how it relied upon the Estimate and how the litigation would have been conducted differently had the Claimant’s Solicitor been in a position to be able to provide accurate costs details. The figure given for costs as the door of the Court was, as has been previously stated, a rough hand-written figure given without the benefit of having the file professionally costed and all parties were aware of this. This amounts to a satisfactory explanation of the discrepancy between the figure given and the figure in the Bill even if the Court concludes that the Estimate given was one which the Defendants were entitled to rely upon and that they did indeed rely upon it.”

“1. As Counsel who was instructed on behalf of Dadu Limited I have been asked to give my recollection of the discussions in relation to costs outside Court on 14th May 2007. Those discussions were held between Mr Rosenthal of Counsel, who was Counsel instructed on behalf of Barrowfen Properties Limited, and Mr Elliott of my Instructing Solicitors, and myself. 2. I have had my memory refreshed by a document headed “WITHOUT PREJUDICE [ROUGH ESTIMATE]”, and which was handed to Mr Rosenthal outside Court. I recall that, in response to my request that it should be a term of any compromise that Barrowfen Properties Limited should pay Dadu Limited’s costs in relation to the action, Mr Rosenthal’s client wanted an estimate of costs which had been thus far incurred by Dadu Limited. That is why the document bears the heading which it does. 3. The document was prepared, as best as he was able, by Mr Elliott, from the files which he had at Court. These were incomplete: he did not, for example, have time ledgers with him, but he did have some invoices, albeit not all. I did not myself have any input into the preparation of the document. 4. I certainly did not agree that Dadu Limited’s costs were to be capped in the amount contained in the document. Furthermore, I do not have any recollection of there being any suggestion to this effect in the discussions with Mr Rosenthal. If there had been any such suggestion, and consequent agreement, I would have expected an express provision to this effect to have been insisted upon by Barrowfen Properties Limited in the terms of the compromise. But to my recollection there was no such insistence. Rather, Barrowfen Properties simply wanted a “rough estimate” of costs incurred, and this is what was provided.”

“Conference with Counsel The Conference started with a discussion as to whether we should be liable for the Claimant’s costs. It was agreed in January 2007 that a break clause would be given. Therefore we should not have to pay the Claimant’s costs from that time onwards. It was agreed that we needed a rough idea of the Claimant’s costs since January 2007. It was decided that if we were to reach a settlement it would be worth making an offer in respect of a portion of the claimant’s costs. It may be worth making a payment in order to secure the break clause. It was also decided that consideration should be given to the implication of this matter on the Kastoori case to be heard in June. BR and AR discussed the planning process. BR confirmed that they would be applying for detailed planning permission. GP said that he believed that the Claimant’s costs were in the region of £60-£70K to date. AR explained that he thought their costs went beyond reasonable several months ago. AR emphasised the need to balance our payment towards the Claimant’s costs against the amount that we would lose if the development was delayed by two and a half years. It was decided that the cost attributable to such a delay would be in the region of £55-£60K per unit per annum. The professional team would also have to be delayed which would also incur further costs. AR estimated that the costs of the delay would ultimately be a few hundred thousand pounds. It would therefore potentially be worth paying the Claimant £40K in costs as this would be a commercial decision. It was suggested that we could agree to pay the Claimant’s cost up to 31 January 2007 subject to a detailed cost assessment hearing. The Claimant, however, wanted costs to date. It was also suggested that we might consider splitting the two offers of rent i.e. our offer and the claimant’s offer. HH explained that there was a risk that if we waited 2½ years the hotel market might have changed and they would lose the Travelodge. AR left the room to speak to Claimant’s Counsel (“CC”). When he returned he explained that he had told them that we would not accept their second condition regarding the Temple and that we would want vacant possession. He had told them that we would forego interim rent. AR explained that making an offer towards their costs might entice them to agree with our request. AR explained that the first time the Claimant’s [sic] had mentioned a break clause was in their skeleton argument. As they had accepted that they would need to have the break clause included they were clearly now trying to claw out everything they could financially. AR explained the Claimant’s figures on costs. Up to 31 January 2007 these were £28,500; up to 1 May 2007 these were £38,250 (cumulative). Since 1 May 2007 to date £42,000. AR said that they are looking for their costs to the point at which we gave them our final disclosure, this being the latest batch of current plans. AR suggested a break clause subject to a resolution of the local authority. It was agreed that they wanted certainty as opposed to the risk of a court case. AR suggested two propositions to be made to the Claimant: 1 £82,500 for rent and costs to the end of January; or 2 £85,000 for rent and costs to the end of February. The rent on the new lease would take effect three months from today and would be payable for 1½ years. BR suggested that reducing costs would be preferable to a reduction in rent. GP commented that he thought that sounded acceptable. AR commented that we would want certainty by June. He advised that we could not be 100% certain that the judge would award a break clause as the judge was not a property specialist. AR left the room to put the offers to CC. AR returned and said that the other side were discussing the situation but AR thought that there was a deal to be done. AR left the room to speak with CC. AR returned to the room and advised that the other side were prepared to do a deal but were digging their heels in and wanted £85,000 on rent and costs to 1 May of £38,000 [as opposed to £25,000]. GP suggested that we meet them in the middle. AR suggested that in that case we could offer costs to 1 March in order to get the costs aspect down. [HH commented that an additional £2,500 on rent would result in £4,500 in our pocket]. AR explained that if we pay them £31,000 for costs we will be £7,000 down on costs but £4,000 up on rent resulting in a difference of £3,000. A midway point on the costs would be £31,250. AR advised that the other side might move if we go back with something else. He also advised that each side was very close as to what they want so we could hopefully meet in the middle. It was discussed that the conditions we would want were a rolling break clause from December 2008 and that we would serve notice in June. AR left the room to speak with CC. AR returned and advised that he had offered costs to 1 March as a midway point. We had therefore offered £85,000 for rent and £31,000 for costs. The Claimant had said they would agree to £85,000 for rent but wanted £38,000 for costs. AR advised that we would therefore be receiving more in rent but that we would be losing £7,000 due to the additional costs. AR advised that we would need a bottom line that we would go to. GP advised that he was happy with the figures. BR commented that a days [sic] expenses would be lost. AR advised that if we offered costs to 1 May then we should claim £86,000 rent rather than £85,000. AR advised that the Claimant also wanted an interim payment of £20,000 in respect of costs. He advised that it is normal at the end of a trial to make such a payment when you know that the final figure would be more than £20,000.”

“1. I have been asked to provide a Note setting out my recollection of the discussions at court with the claimant’s counsel and solicitors on 14 May 2007 leading to the consent order between the parties of that date. 2. I understand that having agreed to pay the Claimant’s costs down to 1 May 2007, the Defendant disputes the level of those costs, as claimed in the subsequent detailed assessment. 3. At the outset of the negotiations at court, the Claimant’s counsel made it clear that the Claimant required a contribution towards its costs. Without an idea of the level of costs claimed, the Defendant was unable to form a view as to whether it should agree to this requirement. My first suggestion to the Claimant’s counsel was that we agree the actual costs payable to avoid the need for a detailed assessment. The Claimant’s solicitors, however, were not prepared to do so as they had not produced a detailed bill. 4. I told their counsel that the Defendant needed an idea of the costs which might be payable so that an informed decision could be made as to whether to agree to pay a proportion of those costs and if so, what that proportion should be. Although the Claimant’s solicitors could not provide a precise figure, I asked for an estimate and the Claimant’s solicitors agreed to provide this. 5. The estimate was hand-written on a document, headed “without prejudice – rough estimate”

“6. Prior to the date of the hearing, namely 14 May 2007, there had been an exchange of without prejudice correspondence between the respective parties’ solicitors, which had considerably narrowed the issues, but Barrowfen were not able to agree the proposed new rent or payment of the Claimant’s costs. 7. At the hearing on the 14May 2007 a further attempt was made by the parties to agree terms of settlement Barrowfen were seeking a new lease with a Landlord’s rolling redevelopment break clause, at a new rent in the sum of £91,000 per annum. 8. Adam Rosenthal, the Barrister representing Barrowfen suggested Barrowfen should endeavour to agree costs, as to lose the right to redevelop would result in a substantial loss to Barrowfen. On this basis it was agreed that Barrowfen would offer to pay costs up to the 31 January 2007, the approximate date when a new lease with a redevelopment break clause was offered to the Claimant. The Claimant was insisting that all its costs were paid. 9. There was a considerable amount of discussion between the parties’ legal representatives at Court. As a result, Adam Rosenthal obtained an estimate from the Claimant as to the Claimant’s total costs as at the 1st May 2007, an additional figure for costs between the 1st May and 14 May 2007 and a costs figure up to 31st January 2007. 10. Barrowfen were extremely reluctant to pay any costs, as evidenced by the e-mail dated 15 April 2008 sent to Barrowfen’s solicitors by William Radmore who was in attendance at Court on the 14 May 2007 [Exhibit GDP1]. Barrowfen had previously refused to make any contribution towards costs as Barrowfen considered that it had every prospect of obtaining a new lease with a Landlord’s rolling redevelopment break provision as all the information for the development. Development finance was available as well as prospective tenants for the development. Barrowfen was persuaded to make a contribution towards the Claimant’s costs to have certainty as to the outcome. Barrowfen also agreed to forego interim rent. 11. Based on the ‘estimate’ received and the fact that the costs of the Claimant as at 1 May 2007 were in the region of £38,250 (which costs were to be subject to a detailed assessment and would represent less than one quarter’s rent) Barrowfen agreed to a reduced level of rent being payable under the terms of the new lease in addition to foregoing the interim rent and to pay the Claimant’s costs up to the 1 May 2007. 12. If Barrowfen had known that the Claimant would be seeking costs in excess of £70,000 then Barrowfen would have proceeded to a full hearing. The claimant knew that Barrowfen was relying on the figures given as ‘estimates’. Without some indication as to the potential costs figure, Barrowfen would not have reached any form of agreement, or have reduced the level of rent, to reach terms of settlement. I, on behalf of Barrowfen, was considerably influenced by the figure put forward. I had to form a commercial decision at the time of the hearing and that commercial decision was taken based on the cost estimate. 13. My understanding of the ‘estimate’ was that this was not an exact figure but a close approximation of the claim for costs that would be made in the assessment. I anticipated that this figure may vary by a small degree but would be subject of assessment in any event. I envisaged that any potential increase in the figure for costs would be small or moderate and would be subject to reductions on assessment in any event. I therefore treated the sum of £38,250 as the maximum figure that would be payable. I cannot accept that a claim for costs for approximately double the estimate given can be either proportionate or reasonable. 14. Barrowfen has been prejudiced by the erroneous information given. I would therefore ask this Honourable Court to direct that the Defendant is entitled to rely on the ‘estimates’ at the detailed assessment hearing and that the Costs Judge should have regard to the level of fees quoted in these estimates in the conduct of the Detailed Assessment and as evidence that the costs claimed are disproportionate and unreasonable.”

“25. The resolution of any issue as to the true construction of a consent order is to be conducted by reference to the ordinary principles governing the construction of contracts, subject only to the additional consideration that, because the consent order purports to be an exercise of the court’s jurisdiction, any construction which appears to exceed that jurisdiction is prima facie to be avoided: see Foskett on Compromise 96th edition) at para 5-36. 26. Since the decision of the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, the court is permitted to have regard for the purpose of construction to relevant background facts known to the parties when they made their bargain, whether or not the contract in question discloses a patent ambiguity. But that material excludes the parties’ negotiations, for the reasons set out by Lord Wilberforce in Prenn v Simmons [1971] 1 WLR 1381 at 1834-5. 27. To this there is or may be a limited exception of uncertain extent, generally known as the ‘private dictionary principle’, first identified in The Karen Oltman [1976] 2 Lloyds Rep 708, and the subject of a number of inconclusive subsequent authorities including Chartbrook Ltd v Persimmon Homes Ltd [2008] EWCA Civ 183, on appeal from a judgment of mine at [2007] EWHC 409 (Ch).”

“3. In brief the Claimant’s position is as follows: a. That estimate was expressly given on a without prejudice basis. b. It is in any event not a formal estimate within the meaning of CPR 43 PD 6 and is manifestly not of a kind to be relied upon at all by the Defendant. c. If the effect of the estimate is to be considered by the Court then Tribe v Southdown Gliding Club & Ors [2007] EWHC 90080 (Costs) (Master Gordon-Saker) applies, and the estimate is certainly not to be applied as a cap as the Defendant contends.” “4. The estimate is expressly and clearly marked ‘rough estimate without prejudice’. It was prepared by the Claimant during the course of negotiations outside court. 5. It is no part of the Defendant’s pleaded case that the estimate led to any concluded and enforceable agreement as to costs in any relevant sense other than the agreement embodied in the consent order. The Defendant does not contend that there was a concluded agreement that the costs be capped at the level in the estimate, nor that any precise figure was agreed in respect of costs. It is the clear evidence of Timothy Elliott, solicitor for the Claimant, that he would not contemplated (sic) any such agreement, not having before him accurate details of the Claimant’s costs. Nor does the Defendant seek to contend that there was a concluded agreement that the Defendant would pay a stated proportion of the Claimant’s costs. 6. Nonetheless the Defendant now seeks to restrict the Claimant’s costs to the level set out in the estimate (or rather on the Defendant’s construction of that estimate). 7. The Defendant does not seek to say that the negotiations outside court were not without prejudice. It could not sensibly do so. How then does it seek to have admitted a document produced during the course of those negotiations and itself expressly marked ‘without prejudice’? 8. The Court is reminded of the distinction between ‘without prejudice’ and ‘without prejudice save as to costs’. Negotiations which take place on the latter basis are of course admissible on the question of costs, because the parties have by express or implied agreement decided that they should be. But generally parties who have negotiated on a wholly ‘without prejudice’ basis have always done so in the faith and expectation that what they say cannot be used against them even on the question of costs (Reed Executive v Reed Business Information Ltd [2004] EWCA Civ 887). ‘Without prejudice’ means that the information provided is only provided for the purposes of negotiations during the course of which it is given.” a. That estimate was expressly given on a without prejudice basis. b. It is in any event not a formal estimate within the meaning of CPR 43 PD 6 and is manifestly not of a kind to be relied upon at all by the Defendant. c. If the effect of the estimate is to be considered by the Court then Tribe v Southdown Gliding Club & Ors [2007] EWHC 90080 (Costs) (Master Gordon-Saker) applies, and the estimate is certainly not to be applied as a cap as the Defendant contends.”

“39. Given my finding that the Claimant relied, and reasonably relied, on the low estimate given by the First and Third Defendants in their Allocation Questionnaire and that those defendants have not satisfactorily explained the difference between that estimate and the costs now claimed, should the claim for costs be limited to the estimate? The Court of Appeal stressed in Leighthat an estimate is not a ‘cap’. Rather the appropriate approach is that set out in paragraph 32 of the judgment of Dyson LJ: ‘If, applying the guidance given in this judgment, the court is satisfied that the costs claimed should be reduced having regard to the costs estimate, the question remains: by how much should the costs be reduced? This will always depend on the circumstances of the individual case. It is a matter for the judgment of the court to decide what reduction to make.’” ‘If, applying the guidance given in this judgment, the court is satisfied that the costs claimed should be reduced having regard to the costs estimate, the question remains: by how much should the costs be reduced? This will always depend on the circumstances of the individual case. It is a matter for the judgment of the court to decide what reduction to make.’”

“Without prejudice communications: general In Rush & Tompkins v Greater London Council [1989] AC 1280, 1299, Lord Griffiths said, ‘The “without prejudice” rule is a rule governing the admissibility of evidence and is founded upon the public policy of encouraging litigants to settle their differences rather than litigate them to a finish. It is nowhere more clearly expressed than in the judgment of Oliver LJ in Cutts v Head [1984] Ch.290, 306: “That the rule rests, at least in part, upon public policy is clear from many authorities, and the convenient starting point of the inquiry is the nature of the underlying policy. It is that parties should be encouraged so far as possible to settle their disputes without resort to litigation and should not be discouraged by the knowledge that anything that is said in the course of such negotiations (and that includes, of course, as much the failure to reply to an offer as an actual reply) may be used to their prejudice in the course of the proceedings. They should, as it was expressed by Clauson J in Scott Paper Co v Drayton Paper Works Ltd [1927] 44 RPC 151, 156, be encouraged fully and frankly to put their cards on the table … The public policy justification, in truth, essentially rests on the desirability of preventing statements or offers made in the course of negotiations for settlement being brought before the court of trial as admissions on the question of liability.” “The rule applies to exclude all negotiations genuinely aimed at settlement whether oral or in writing from being given in evidence.” ‘This well-known passage recognises the rule as being based at least in part on public policy. Its other basis or foundation is in the express or implied agreement of the parties themselves that communications in the course of their negotiations should not be admissible in evidence if, despite the negotiations, a contested hearing ensues. ‘In the course of counsel’s clear and well-researched written and oral submissions a general issue arose as to whether the “without prejudice” rule should be seen as a rule of very wide scope which does however on occasion have to yield to some more powerful principle with which it comes in conflict (such as the need to prevent a litigant deceiving the court with perjured evidence); or whether that wide view represents a failure of proper analysis of the true foundation and purpose of the rule. The most forthright passages in support of the wide view are to be found in Walker v Wilsher (1889) QBD 335, in passages from the judgments of Lord Esher MR, Lindley LJ and Bowen LJ conveniently set out in the judgment of Oliver LJ in Cutts v Head [1984] Ch 290, 302-4. The clearest statement of the need for analysis is in the judgment of Hoffmann LJ in Muller v Linsley (30 November 1994, 139 SJ LB 43) where Hoffmann LJ said, ‘Some of the decisions on the without prejudice rule show a fairly mechanistic approach, but the recent cases, most notably the decisions of this court in Cutts v Head [1984] Ch 290, [1984] 1 All ER 597 and the House of Lords in Rush & Tompkins Ltd v Greater London Council [1989] AC 1280, [1988] 3 All ER 737 are firmly based upon an analysis of the rule’s underlying rationale.” ‘Cutts v Head shows that the rule has two justifications. First, the public policy of encouraging parties to negotiate and settle their disputes out of court and, secondly, an implied agreement arising out of what is commonly understood to be the consequences of offering or agreeing to negotiate without prejudice. In some cases both of these justifications are present; in others, only one or the other. So, in Cutts v Head the rule that one could not rely upon a without prejudice offer on the question of costs after judgment was held not to be based upon any public policy. It did not promote the policy of encouraging settlements because as Oliver LJ said: “As a practical matter, a consciousness of a risk as to costs if reasonable offers are refused can only encourage settlement …” “It followed that the only basis for excluding reference to a without prejudice offer on costs was an implied agreement based on general usage and understanding that the party making the offer would not do so. Such an implication could be excluded by a contrary statement as in a Calderbank offer [see Calderbank v Calderbank [1976] Fam 93].”

“The second argument raised by the plaintiffs is that it would be wrong for the defendant to be able to hide behind the cloak of the correspondence being ‘without prejudice’ in circumstances where the defendant put forward suggestions or statements upon which the plaintiffs relied and reasonably relied in acting as they did. As a matter of principle, it seems to me that, even where a party can in principle rely upon correspondence being ‘without prejudice’ on contractual as well as public policy grounds, the court will not allow him to do so if it is satisfied that it would be unconscionable. So far as the public policy grounds is concerned, it seems to me self-evident that, just as much as it is in the public interest that parties should feel completely free to negotiate under the cloak of ‘without prejudice’, so it is in the public interest that they should not be able to use the protection of ‘without prejudice’ for the purpose of ‘unambiguous impropriety’ (an expression to be found in two unreported decisions of the Court of Appeal, Forster v Friedland and Fazil-Alizadeh v Nikbin both helpfully summarised in Foskett and Hodge on The Law and the Practice of Compromise (4th ed., at 154-56). Equally, so far as the contractual ground is concerned, a contractual right to ‘without prejudice’ privilege should not be upheld or enforced where it is invoked for an improper purpose. However, mere inconsistency, in the absence of dishonesty will not do – see Independent Research Services Ltd v Catterall [1993] I.C.R. 1. By analogy with this line of authority, there is, to my mind, a powerful argument for saying that if a clear and unambiguous statement is made by one party in ‘without prejudice’ correspondence, and the statement is acted on, and reasonably acted on, by the other party, an objection by the first party to the correspondence being put in evidence by the second party in order to justify the step taken by the second party would be plainly unconscionable and would not be upheld by the court. There is another reason for reaching that conclusion. In Tomlin v Standard Telephones & Cables Ltd [1969] 1 W.L.R. 1378, it was held that ‘without prejudice’ correspondence could be looked at by the court to see if the negotiations therein contained resulted in a settlement. Although, of course, contract and estoppel are quite separate concepts, it appears to me logical and consistent that, if ‘without prejudice’ correspondence can be looked at to see if it gives rise to a contract, then such correspondence can also be looked at to see if it gives rise to an estoppel. However, I do not suggest that there is an absolute rule to that effect … … In order to justify an estoppel, the plaintiffs have to establish that in some way the defendant’s conscience would be affected if he insisted on its strict legal rights. In the present case, I must ask myself whether it would be unconscionable for the defendant to rely upon the second part of the rule in Henderson in relation to the plaintiffs’ attempt to raise the copyright issue in light of the ‘without prejudice’ correspondence in July 1993 and the plaintiffs’ alleged reliance upon it. For the reasons I have attempted to give, I consider that it would not be unconscionable.”

“Whatever may have been the position in 1889, it is, I think, clear that there can now no longer be said to be any reason in public policy why, where offers have been made and refused of everything which could be obtained by the proceedings, that fact should not be brought to the court’s attention in the argument as to costs. I say that in the light of the matters which are referred to below. If this is right, then is there any logical reason why, in appropriate circumstances, the conventional meaning of the phrase should not be modified so long as this intended modification is clearly expressed and brought to the attention of the recipient? Is there, to put it another way, any policy of the law which prevents a party to litigation from putting forward an offer of compromise on the footing that it shall be treated as ‘without prejudice’ on the issue of liability only? … … … In the end I think that the question of what meaning is given to the words ‘without prejudice’ is a matter of interpretation which is capable of variation according to usage in the profession. It seems to me that, no issue of public policy being involved, it would be wrong to say that the words were given a meaning in 1889 which is immutable ever after, bearing in mind that the precise question with which we are concerned in this case did not arise in Walker v Wilsher, 23 QBD 335, and the court did not deal with it. I think that the wide body of practice which undoubtedly exists must be treated as indicating that the meaning to be given to the words is altered if the offer contains the reservation relating to the use of the offer in relation to costs.”

“Nevertheless there are numerous occasions on which, despite the existence of without prejudice negotiations, the without prejudice rule does not prevent the admission into evidence of what one or both of the parties said or wrote. The following are among the most important instances. (1) As Hoffman LJ noted in the first passage set out above, when the issue is whether without prejudice communications have resulted in a concluded compromise agreement, those communications are admissible. Tomlin v Standard Telephones and Cables [1969] 1 WLR 1378 is an example. (2) Evidence of the negotiations is also admissible to show that an agreement apparently concluded between the parties during the negotiations should be set aside on the ground of misrepresentation, fraud or undue influence. Underwood v Cox (1912) 4 DLR 66, a decision from Ontario, is a striking illustration of this. (3) Even if there is no concluded compromise, a clear statement which is made by one party to negotiations, and on which the other party is intended to act and does in fact act, may be admissible as giving rise to an estoppel. That was the view of Neuberger J in Hodgkinson & Corby v Wards Mobility Services [1997] FSR 178, 191, and his view on that point was not disapproved by this court on appeal. (4) Apart from any concluded contract or estoppel, one party may be allowed to give evidence of what the other said or wrote in without prejudice negotiations if the exclusion of the evidence would act as a cloak for perjury, blackmail or other ‘unambiguous impropriety’ (the expression used by Hoffmann LJ in Foster v Friedland, 10 November 1992, CAT 1052). Examples (helpfully collected in Foskett’s Law & Practice of Compromise, 4th ed, para 9-32) are two first-instances decisions, Finch v Wilson (8 May 1987) and Hawick Jersey International v Caplan (The Times 11 March 1988). But this court has, in Foster v Friedland and Fazil-Alizadeh v Nikbin, 1993 CAT 205, warned that the exception should be applied only in the clearest cases of abuse of a privileged occasion. (5) Evidence of negotiations may be given (for instance, on an application to strike out proceedings for want of prosecution) in order to explain delay or apparent acquiescence. Lindley LJ in Walker v Wilsher (1889) 23 QBD 335, 338, noted this exception but regarded it as limited to ‘the fact that such letters have been written and the dates at which they were written’. But occasionally fuller evidence is needed in order to give the court a fair picture of the rights and wrongs of the delay. (6) In Muller (which was a decision on discovery, not admissibility) one of the issues between the claimant and the defendants, his former solicitors, was whether the claimant had acted reasonably to mitigate his loss in his conduct and conclusion of negotiations for the compromise of proceedings brought by him against a software company and its other shareholders. Hoffmann LJ treated that issue as one unconnected with the truth or falsity of anything stated in the negotiations, and as therefore falling outside the principle of public policy protecting without prejudice communications. The other members of the court agreed but would also have based their decision on waiver. (7) The exception (or apparent exception) for an offer expressly made “without prejudice except as to costs” was clearly recognised by this court in Cutts v Head, and by the House of Lords in Rush v Tomkins, as based on an express or implied agreement between the parties. It stands apart from the principle of public policy (a point emphasised by the importance which the new Civil Procedure Rules, Part 44.3(4) attach to the conduct of the parties in deciding questions of costs). There seems to be no reason in principle why parties to without prejudice negotiations should not expressly or impliedly agree to vary the application of the public policy rule in other respects, either by extending or by limiting its reach. In Cutts v Head Fox LJ said (at p.316) ‘what meaning is given to the words “without prejudice” is a matter of interpretation which is capable of variation according to use in the profession. It seems to me that, no issue of public policy being involved, it would be wrong to say that the words were given a meaning in 1889 which is immutable ever after. (8) In matrimonial cases there has developed what is now a distinct privilege extending to communications received in confidence with a view to matrimonial conciliation: see Re D [1993] 2 AER 693, 6907, where Sir Thomas Bingham MR thought it not ‘fruitful to debate the relationship of this privilege with the more familiar head of “without prejudice” privilege. That its underlying rationale is similar, and that it developed by way of analogy with “without prejudice” privilege, seems clear. But both Lord Hailsham and Lord Simon in D v National Society for the Prevention of Cruelty to Children [1977] 1 All ER 589 at 602, 610 [1978] AC 171 at 226, 236 regarded it as having developed into a new category of privilege based on the public interest in the stability of marriage.’ That hybrid species of privilege is not in point in this case.”