Early Negotiations Aimed To Prevent Litigation Are Without Prejudice

The Court of Appeal has recently confirmed that early negotiations prior to the commencement of litigation can be protected by 'without prejudice' privilege.

In Barnetson v Framlington Group, negotiations took place between the parties in relation to an employment contract five months before litigation was commenced and before either party had even threatened litigation. In the litigation one party attempted to rely on the negotiations. The court initially held that the negotiations were not without prejudice because they took place before the commencement of litigation or any basis for litigation. The Court of Appeal overturned this decision and held that they were without prejudice communications and were privileged.

The following principles emerge from the case:

The important feature was the subject matter of the dispute rather than how long before the threat or start of litigation it was aired in negations between the parties. It was crucial to consider whether in the course of negotiations, the parties contemplated or might reasonably have contemplated litigation if they could not reach agreement. The Court found that both parties were conscious of the potential for litigation if the dispute was not resolved. The fact that large sums of money were involved and the way in which negotiations were conducted showed the court that both parties had been very aware that litigation was likely if the negotiations were unsuccessful.

The ambit of the 'without prejudice' rule should not be extended any further than is necessary to promote the public policy interest underlying it. The critical question was where to draw the line between serving the public policy interest and wrongly preventing a party from putting its best case forward; this line will vary from case to case.

If privilege was confined to settlement communications once litigation had been threatened or shortly before it was begun, there would be an incentive on both sides to escalate their dispute with threats of litigation and/or to move quickly to it before they could safely start talking sensibly to each other. That would be a slippery slope to a mutual hardening of positions and...