England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		19 November 2009

MR JUSTICE ARNOLD :

Introduction

1. This is an appeal by the Defendant ("Mr Hull") against an Order of Her Honour Judge Marshall QC ("the Judge") sitting in Central London County Court on 24 June 2009 that the Claimant ("Ms Williams") has permission to adduce in evidence at the trial of this matter a letter from Mr Hull to Ms Williams dated 19 October 2009 ("the Letter") in the redacted form annexed to the Order notwithstanding that it is expressed to be "without prejudice". The appeal is brought with permission of the Judge. It is right to observe at the outset that the Judge's judgment dated 23 June 2009 was given extempore in somewhat pressurised circumstances.

Background

2. Ms Williams is a solicitor. Mr Hull used to work for a bank, and more recently as a financial consultant through a company he set up called ASH FMC Ltd. They met as a result of their involvement in litigation which Ms Williams' employers were conducting for Mr Hull's employers, and subsequently formed a personal relationship. They are the registered proprietors of 19 The Marches, Kingsfold, Horsham, West Sussex RH12 3SY ("the Property"). They agreed to purchase the Property for £285,000 on 14 March 2000, contracts were exchanged on 2 May 2000 and the purchase was completed on 12 May 2000. The parties lived in the Property together until Mr Hull moved out on 19 October 2007, although their relationship had broken down some time before that date.
3. The claim principally concerns a dispute as to their respective shares in the Property. It is common ground that Ms Williams contributed £200,000 towards the purchase price, Mr Hull contributed £15,000 and they obtained a joint repayment mortgage in the sum of £106,000, giving a total fund of £321,000. After payment of the purchase price and the costs of the transaction, the balance of the fund of about £25,000 was paid into a joint bank account.
4. Ms Williams contends that the Property is held on trust in shares to be determined in accordance with a fourth and final draft of a Deed of Co-ownership prepared in May 2000. The fourth draft Deed contains a formula involving the Original Capital Invested or OCI, the Additional Capital Invested or ACI and the Total Capital Invested or TCI. The effect of this is that Mr Hull began with a 7% interest in the property reflecting his initial contribution, but his interest was to increase over time as the joint mortgage was paid off. Ms Williams' case is that, although the parties never executed the fourth draft Deed, it was agreed between them that they would hold the Property in accordance with its provisions.
5. Mr Hull contends that the property is held in equal shares. Mr Hull's case is that there was no such agreement as Ms Williams alleges. As I understand it, Mr Hull says that it was mutually understood between the parties, although not explicitly agreed, that they would share the Property equally. Mr Hull accepts that two drafts of the Deed were produced in May 2000, and that one of these was shown to him by Ms Williams. He does not admit that the draft relied upon by Ms Williams was produced at that time, and in any event he disputes that it was ever agreed between the parties.
6. It is clear that there is a conflict of evidence between Ms Williams and Mr Hull which will have to be resolved through cross-examination at trial.
7. A key document in the case is the TR1 form executed by the transferor and by the parties as transferees. Clause 11 "Declaration of trust" contains a cross in the third box with the printed words "The transferees are to hold the property (complete as necessary)". After this, it appears that initially the words "as tenants in common with [the shares as set out in the Deed of Trust]" were written in manuscript. It then appears that the words I have put in square brackets were crossed out and the words "unequal shares" written in. To my eyes, the latter words are written in a different hand to the former words; but I may be wrong about that. The alteration is initialled in two places "RHW", which stands for Rodgers Horsley Whitemans, the solicitors instructed by the parties in respect of the purchase.
8. Ms Williams' pleaded case is that, at the time the parties signed the TR1, clause 11 contained the first wording set out above, but that subsequently their solicitors amended it in the manner I have described with the implied authority of the parties in order to register it because the draft Deed had not yet been finalised. Mr Hull's pleaded case is that, when the parties signed the TR1, clause 11 was blank, and that the manuscript additions and changes were made subsequently without his knowledge or consent.
9. Mr Hull's statement of case contains no allegation of fraud on the part of Ms Williams. As counsel for Ms Williams accepted, it is elementary that such an allegation would have to be clearly pleaded and properly particularised. Despite this, counsel for Ms Williams submitted to the Judge and to me that Mr Hull's case necessarily amounted to an implicit accusation of fraud against Ms Williams. Counsel for Mr Hull expressly disavowed any such allegation both before the Judge and before me. Furthermore, he submitted that there were at least two possible explanations as to how the TR1 could have been changed after Mr Hull signed it which did not involve fraud on the part of Ms Williams.
10. The Judge proceeded on the basis that Mr Hull was making an allegation of fraud: see her judgment at [8]. In taking that view she may have been influenced by the fact that she was either misinformed, or wrongly understood, that the amendment to clause 11 had been initialled by both parties: see her judgment at [4]. Either way, I do not consider that she was correct to approach the case on that basis. It is not open to Mr Hull to allege fraud without pleading it, particularly when through his counsel he has expressly disavowed any such allegation and advanced explanations which do not involve fraud. No doubt the cogency of those alternative explanations will require consideration at trial, but even if their cogency were found wanting, that would not compel the conclusion that Ms Williams had acted fraudulently. The right conclusion in those circumstances would be that Mr Hull's version of events could not be correct.

The correspondence

11. The Letter is the second in a sequence of three letters between the parties, although it is clear from the Letter that there were earlier email communications. Rather than attempt to summarise the letters and quote the key passages from each, it is easier to set all three out verbatim even though they are of some length. This also has the advantage that the key statements can be seen in context.
12. The first letter is a letter from Ms Williams to Mr Hull dated 10 October 2007. This reads:

"Thank you for your letter plus attachments of 4^th October. I have already responded on the issue of changing the Alliance and Leicester account into my sole name.

Attached to this letter you will find a cheque for £20,000, along with a partially completed Form TR1.

I would like to resolve matters between us as quickly and as amicably under the circumstances as possible. However, although I started to list out items in the boxes in your paperwork as you requested, I realised what a pointless exercise it was. I am not going to start listing out trivial items of joint property such as the cheese grater, lamp shades and net curtains. These items have no commercial value, it is petty, a waste of time, and beneath both of us. Other items, such as appliances which were purchased when we bought the house 7 ½ years ago, are nearing the end of their useful lives and several need repair already (the leaky fridge, and the tumble drier which makes a racket), and these items have very little commercial value left. Still other items which you have listed as joint property, such as used paint pots in the garage are destined for the tip, so why bother listing them out? Also, once you have ceased payments on the mortgage, which I assume will be this month, I will have the continuing obligation to pay the interest on the money which purchased most, if not all, of such joint property.

This money (and the sums referred to below) is in full and final settlement in consideration of the following:

You agree to execute as soon as possible any and all documents necessary to transfer the ownership of the house into my sole name, and agree to remove yourself from the mortgage and anything else which may still be in joint names. Obviously I will bear any fees incurred in transferring the title. Legally, the ownership of anything attached permanently to the fabric of the house will pass in title to me, and the valuation of the house would take into account any such property, so there is no need for separate valuations or negotiations over these items.

You leave the following items which are yours:

The leather topped desk

The two single beds

The dining table and chairs

The two soft chairs in my bedroom

Cabling in living room

The filing cabinet in your study which I use

I retain possession of all items of jointly purchased property save for the dirt bike and the video camera. However, these are not gifts and my half of these items will count towards any further entitlement you may feel you have. If you wish, you may also keep the large white plates and the large wine glasses which we brought back from Chicago, and the pictures on the walls except for any which are mine. If there is any other joint property which you want, then please let me know. Also, please let me know if there is anything of mine wish you want to keep. I would like to keep my bicycle. I do not know why you would want another lady's bicycle.

Therefore, along with the £20,000 cheque, you will have had at least a further £7,000 which was my share of the joint account, and £3,500 of your mortgage payments during 2001-2002 paid for by me. Whether you call it a gift, a loan, a reciprocal arrangement (which never gets reciprocated) or whatever, the fact remains that I paid this sum, without demur, on your behalf and on your request in order to discharge your mortgage obligations when you were unable to. It is a substantial sum of money and I should not feel obliged to just 'write it off', as you seem to think, and which I made the mistake of thinking as well. But since you feel the need to list inconsequential items like net curtains and rails, lampshades and dried out paintpots, then I now know the basis on which I am dealing, and have changed my mind. I never said it was, or intended it to be, a gift – however, the telescope and bits which cost me £1,000 – that was a gift.

Therefore, you have received from me in excess of £30,000, which is 7% of £428,571.43 (428,571.43 x 0.7 = 30,000). That is more than the equity in the house after redemption of the mortgage, so you are not being 'ripped off'. Any balance remaining from the true value of the house will be the price paid for any 'joint property'. I will also be paying for your final share of the utilities, plus fixing the glass in the study door. You are also being spared the hassle and aggravation of the works being done to the house.

I assume you have lined up another place to live as you knew this was coming, and can move out reasonably quickly. However, if you need to store anything in the house temporarily, that is fine, but you know that everything will be moved out at some point due to the NHBC works and you should remove it by then.

I have attached the cheque and transfer form to show you that I want to settle things between us as quickly and as amicably as possible, that I am serious about this offer and that there are funds available to you, having cleared my account today. I will have to ask for the cheque back however if we cannot agree the terms of this letter by Sunday evening, 14 October 2007."

13. The second letter is the Letter. This reads:

"Subject to Contract and Without Prejudice

I am responding in detail to your letter dated 10^th October 2007 and to previous emails. Firstly and for the record, I would like to deal with your previous emails.

In an email dated 17 September 2007 you said:

Judging from the prices which Bob and Sarah, and Lee and Louse [Louise] paid for their houses (both at the £380K mark) and adjusting upwards for the size of our house but then adjusting downwards for the shitty condition and the works that need doing and the stigma attached to a house having subsidence, made me calculate that our home was worth about £400K. Subtract £85K ish redemption for the mortgage, gave £315K. 93% of that is £292,950 leaving .% at £22,050. Subtract the 7,000 which was MY share of the house fund which you lived off of, that leaves £15,050. I offered you £15K, and I told you up front it was a rough and ready calculation, but you never came back with a counter offer. And now you are saying I was trying to stiff you. How exactly doesn't the math add up?

The math doesn't add up because you are using historic data and false premises to reach your figure. King & Chasemore said there will be no stigma attached to our house following the works. In fact, King & Chasemore looked at the works quite positively, saying they are aware that most houses round here have small cracks due to movement from the clay soil but, following the piling works to our house, it will have a unique selling point i.e. our house will be by far, the strongest in the neighbourhood. It will be the only one not at risk from further movement during extreme dry and wet conditions which are increasing in frequency and which will exacerbate movement in other properties. And as for the condition of our house, it will of course be fully reinstated and redecorated following completion of the works and thus in perfect condition ready to market.

Continuing on, you said:

Those two houses may be on the market for nearly half a million, but gosh, they aren't really flying off the shelf now are they? Those houses, now 8 months after my offer to you (and yes, house prices do go up over time, and guess what, now they are coming down again) aren't going to fetch more than £460K in my opinion. Bob and Sarah's house is in perfect, mint condition and it is still sitting there, months later. They have only had two or three viewings. Kate and Albert had their house on the market for a more realistic £357K and hey, they sold their house in two weeks, and I'm sure they didn't get the asking price, but they were desperate to move.

On the contrary, all houses have sold close to their asking prices and in the case of Bob & Sarah at #18 very close to the asking price. Kate & Albert's house is not a true comparison because it fronts onto a busier road, it is older, not as well designed and, as you say, they were desperate to move. I understand that Brian Francis' son is buying it from them.

Continuing on, you said:

So please stop trying to be inflammatory, eight months on, and saying I was trying to stiff you. I was offering you a quick solution to you're and our troubles, at last February's prices.

As for my pay rise making it possible for me to buy you out, my fabulous rise equals, after tax, to an extra £500 plus change each month. So all that gives me is a bit of breathing room each month. I have £2K in the bank, that's all. I will still, however try to buy you out, but you have not even come back with a figure.

Far from being inflammatory, I have only ever asked to be treated fairly. As you will see from the calculation below, the difference between the £15,000 offered by you and the correct method of calculation below is, to say the least insulting. Furthermore, you clearly state above i.e. in your email dated 17 September 2007 that you have only £2,000 in the bank and yet, without remortgaging the house and less than one month later, your letter dated 10^th October 2007 enclosed a cheque for £20,000 payable to me, meaning you have at least £20,000 available to you in cash. And despite this you try to maintain that your integrity is fully intact? Fortunately, it is all here in writing for anyone to judge for themselves.

Other matters raised in your email dated 17 September 2007 were dealt with in my subsequent emails of the same date.

Turning to your letter dated 10^th October 2007. I would like to reciprocate the desire to resolve matters between us as quickly and as amicably as possible. I would also like to thank you for your detailed offer therein. As you will see however, it falls a long way short of the correct value of my share in this property and in our joint assets and in the other assets you would like to acquire. I returned your cheque to you shortly after you handed it to me for a variety of reasons, one of which was that I would be unable to meet the tight deadline which you requested. That said, I would be happy to accept your cheque in part payment of my share and as a sign of willingness, on your part, to settle this matter. I will wait to hear from you as to whether you are willing to hand over the same cheque on that basis.

Contrary to what you have said, I think it is important to list out our joint assets. Regardless of whether or not some small items have a commercial resale value, they are still assets which need to be paid for, divided up between us or bartered in some other way. I fail to see why you would expect me to give up my share in anything or simply hand it over to you, particularly given the circumstances of our separation and your previous behaviour towards me, which I am quite happy to spell out for the record again if you wish.

It is necessary, for the record, to respond to other comments in your letter dated 10^th October 2007.

I disagree that appliances are nearing the end of their useful lives, that they are in need of repair and that they have 'very little commercial value' left. If you want these items and are unwilling to pay a fair and reasonable value for them then I am quite happy to sell them and split the money between us. Balanced against the cost of replacing these items and the logistics involved in removing/selling and buying/installing new items, you might wish to sit down with me and agree a sensible value for them.

If I am no longer staying at our house and I am no longer classing it as my main residence, I would not expect to pay towards general outgoings but I have not said that I will cease payments on the mortgage. Indeed, I will continue to pay my half of the mortgage & insurance in order to protect my investment and thereby continue to increase my share of the equity in this property against your share. I suggest you consider the calculation in this respect. If you do not understand how my share has increased from the original 7% and is continuing to increase, I will be happy to explain it to you. However, you were certainly in possession of the documents we used to form the financial agreement of our cohabitation at the outset back in 2000.

As to the other assets we own jointly or otherwise I suggest, as above, that we list them and sit down to agree a sensible value for them. Besides which, a list needs to be made so that a proper receipt can be given for the items. Again, I should make it clear that failing agreement on value I will be happy to sell these items and would refer you to my comments in the paragraph above about logistics.

I must also correct a misstatement in your letter. I would like to make it clear that you offered, very kindly, to help me out by contributing to the outgoings of the house while I was struggling with my business earlier this decade. Your kind offer was made without my request and it was made on the basis that repayment was not required – i.e. it was gift. In your letter you state otherwise and recite, as your reason for this volte-face, the fact that I compiled a comprehensive list of joint assets. In this respect, I would remind you that you asked me to provide, and I quite, 'a comprehensive list' in one of your emails dated 17 September 2007. Besides which, I fail to see your complaint about this when I have not even ascribed any values to those small items nor indeed to any of the items on that list.

Again and for the record, the telescope you mention did not cost you £1,000. It cost £499 and why is this relevant when at no time did I ask you to buy me a telescope? The other ancillary items that you bought with the telescope may have added to the cost but if you want it back, I'm happy to swap it with items of equivalent value.

Neither will you be paying for my share of the utilities as you claim. There is more than enough in the Alliance account to pay for accrued bills up the end of this month and beyond. Equally, I have not asked you to pay for domestic heating oil in the outdoor tank which is jointly paid for in advance but we can add that to the list if you like. The cracked glass in the study door was broken accidentally and is likely to be trivial in terms of cost or if not, it can be claimed against the house insurance.

Turning to the value of my share of the house, I was told by King & Chasemore that in between them providing a verbal valuation to me and then confirming that valuation in writing, you had visited their offices unexpectedly and had caused some confusion about their instructions. Their written recommendation, which is attached is now different to what I was told verbally and I have asked you to confirm what exactly it was that you said to them. I am still awaiting a response from you. In the meantime, I will work from their verbal recommendation to me of £530,000.

Therefore, using the OCI, ACI and TCI calculations as originally set out in the documentation mentioned above, the correct calculation of my share of the house is as follows:

£

Original Capital Invested (OCI)

RJW (93%) 200,000

ASH (7%) 15,000

Additional Capital Invested (ACI)

Original Mortgage 106,000

Less: Mortgage redemption figure (Oct 07) 78,000

Total ACI 28,000

= RJW 50% contribution of ACI 14,000

=ASH 50% contribution of ACI 14,000

Total Capital Invested (TCI)

RJW 200,000 + 14,000 (88%) 214,000

ASH 15,000 + 14,000 (12%) 29,000

Value of House 530,000

Less: Mortgage redemption figure (Oct 07) 78,000

Net Equity 452,000

RJW Share @ 88% = 397,760

ASH Share @ 12% = 54,240

Thereafter, if you deduct from my share the £7,000 I borrowed and add it to yours, your share would be £404,760 and mine £47,240 excluding any figures we agree for other assets.

However, I must point out that this does not take into account any adjustment for how the original acquisition costs are proportioned between us. I mention this because it is not really equitable for someone to pay 50% of the acquisition costs when they are originally entitled to only 7% of the benefit. I would like you to give this some thought.

Finally, we would need to discuss the use and storage of furniture for the future. So far as I am concerned, such issues are still up for discussion and I respectfully suggest that we discuss these issues sensibly and agree a way forward, whatever that may be.

I will be back sometime later next week or weekend to collect more things and deal with more outstanding issues. May I suggest that you telephone me on my mobile to arrange when you will be here so that I can arrange to meet you and discuss outstanding issues. May I also suggest that, in the meantime, you complete the list of assets for the rooms which I asked you to do. Regardless of however unpalatable the exercise may be, it is necessary to resolve matters and I have done more than my share in this respect.

I look forward to hearing from you in due course so that we can resolve these outstanding issues."

14. The third letter is a letter from Ms Williams to Mr Hull dated 26 October 2007. This reads:

"WITHOUT PREJUDICE

Please find enclosed two cheques totalling £38,340 one post dated, in full and final settlement of all outstanding liabilities in respect of ownership of 19 The Marches. This is the figure arrived at using 12%, minus £10,500, and after mortgage redemption of £78,000 on a figure of £485,000, which is what King and Chasemore (now that they know the brief) told me was the best achievable price for the house assuming it did not have subsidence, after testing the market at £500,000. I believe that is an accurate reflection of the market value of the house, given that Lee and Louise's 4 bed house was reduced in price to £487,500 – whatever the selling price was, it would not have been over that. Please see attached sales details for their house. That house has the benefit of a conservatory and a newer kitchen than ours as well. I was told by King and Chasemore that Bob and Sarah's sold for £490,000, and their house is immaculate with a brand new kitchen. Therefore, I think if the market value of 19 The Marches has to be tested, the figure I am relying upon is more likely to be believed than the figure you are relying on. King and Chasemore said that you are the one who came up with the figure of £535K, not them.

You will, as soon as is practicable, execute Form TR1 and any other documents necessary to transfer your ownership of the property to me and you will come off the mortgage.

You are free to take any and all joint property you wish to keep for yourself any proceeds of sale to satisfy any further monetary entitlement you believe you have. There is nothing in the house that I can't live without or replace cheaply. I have been looking on Friday Ad, and note, for example, that I can get replacement items for the kitchen very cheaply indeed and attach a printout of prices with items either comparable or newer than ours, circled in pink for your information. You will see there is an ad for a set of brand new washer, dryer, fridge, freezer and dishwasher for £2000, just a few months old. So you can see, seven year appliances are not exactly going to fetch the kind of money I think you are hoping for. Having said all that, and judging from the prices of similar items in Friday Ad, I am prepared to offer you £150 for the following items in the kitchen as follows:

Fridge: £75

W&D: £60

Dishwasher: £50

Curtains and Rod: £45

White Shelves: £50

Baskets: £15

Lampshade: £5

Total: £300, but divide by two because I already own half = £150.

I will also give you £200 for the 3 piece suite, as judging from Friday Ad it wouldn't fetch over £400, and £40 for the coffee table.

If you want to separately negotiate for items which are your property which you don't want (eg, table and chairs, desk, freezer, single beds) and don't want the hassle and expense of moving them out of the house and storing them and then flogging them, then you tell me the price you want for them. The same goes for any property which you don't want.

These cheques represent, save for a couple thousand dollars, my Merrill Lynch retirement fund, which of course was in US dollars. This money was converted at a rather catastrophic exchange rate and is the last of any liquid funds available to me. You imply in your letter that I was lying about only having £2,000 in the bank. I was telling you the truth, only now I'm down to £1500 as I had to pay my accountant for doing my US taxes. I was referring to UK funds, as I had considered it madness and not an option to have to liquidate my dollar retirement fund and exchange it at the current rates. But I have done what I have to do and I would appreciate it if you gave me some credit for trying to get you this money quickly so you could start settling your debts (which must be getting worrisome for you), rather than slagging me off.

The reason for the post dated cheque is that I have to wait for these further funds to clear from the US to Lloyds Bank, and that takes up to a week even with a wire transfer. I don't even know if the funds I've transferred will actually cover the cheque, but I will cover it somehow. You can cash the cheque for £20K, execute the documents which I will then hold to your order, then confirm to you when the remainder of the money is in the account and you can then cash the second cheque and I can deal with the documents.

Not only is this a fair and considered offer, but I have tried to get funds as quickly as possible for you, in order that we can draw a line under this and get on with our lives. If you want to play it otherwise, then I am prepared for that as well."

The Judge's decision

15. The Judge decided that (1) the Letter was not a without prejudice communication, and (2) even if the Letter was a without prejudice communication, it was admissible in evidence on the ground of unambiguous impropriety.

The appeal

16. Mr Hull appeals against the Judge's decision, contending that she was wrong on both issues identified above. Obviously, he must prevail on both issues in order to succeed. As counsel for Mr Hull accepted, the appeal being limited to a review of the Judge's decision, Mr Hull must establish that the Judge made some error of law or principle in reaching her conclusion on each issue.

Issue 1: Is the Letter a without prejudice communication?

The law

17. In Rush & Tompkins Ltd v Greater London Council [1989] AC 1280 at 1299 Lord Griffiths, with whom the other members of the House of Lords agreed, 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 L.J. 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 R.P.C. 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."

18. It is well established that a communication which is not expressed to be "without prejudice" may nevertheless be protected by the rule, and that a communication which is expressed to be "without prejudice" may nevertheless not be protected by the rule. In South Shropshire District Council v Amos [1986] 1 WLR 1271 at 1277 Parker LJ said that, where a letter was marked "without prejudice":

"This prima facie means that it was intended to be a negotiating document."

He went on to make it clear that that did not mean that the marking was conclusive. It may be, in the light of the observations of Lord Mance in Bradford & Bingley plc v Rashid [2006] UKHL 37, [2006] 1 WLR 2066 at [84]-[87], that this slightly overstates the position. Nevertheless, I think it is correct to say that, if a letter is expressly stated to be "without prejudice", that gives rise to a rebuttable presumption that the communication is a without prejudice communication within the meaning of the rule unless it is clear that the expression has been used with some other meaning or purpose.

19. It was common ground between counsel that the question whether a particular communication is a without prejudice communication is a question which must be assessed objectively as at the date of the communication having regard to the relevant factual circumstances. In Schering Corp v Cipla Ltd [2005] EWHC 2597 (Ch), [2005] FSR 25 at [14] Laddie J held that:

"The court has to determine whether or not a communication is bona fide intended to be part of or to promote negotiations. To determine that, the court has to work out what, on a reasonable basis, the intention of the author was and how it would be understood by a reasonable recipient."

20. This is largely a question of construction of the communication in question, but it may not be exclusively so. Thus it is not clear whether evidence of subjective intention is admissible on this question (see the discussion in Hollander, Documentary Evidence (10^th ed) at 16-06), although in the present case neither side relied upon evidence of subjective intention. More importantly, it appears that evidence of subsequent events, and in particular the response of the recipient to the communication, is admissible (in the same way as, for example, the response of the recipient is admissible in determining whether a communication is a threat of patent infringement proceedings within the meaning of section 70 of the Patents Act 1977).
21. In the South Shropshire case the Court of Appeal held that (i) a communication may be protected by the without prejudice rule even if it is the "opening shot" in negotiations and (ii) the rule is not limited to offers, but extends to all documents "which form part of negotiations, whether or not they are themselves offers": see Parker LJ delivering the judgment of the Court at 1277-1278.
22. On the other hand, in Buckinghamshire County Council v Moran [1990] Ch 623 the Court of Appeal held that a communication which is not a negotiating document, but is merely an assertion of a party's rights, is not protected by the without prejudice rule. That case concerned a claim to adverse possession by the defendant to a plot of land owned by the council adjacent to his garden which he had treated as part of the garden. On 18 December 1975 the council wrote to the defendant asking him on what basis he was exercising rights over the plot. On 20 January 1976 the defendant replied in a letter marked "without prejudice" as follows:

"I enclose herewith a copy of the sale agreement between myself and Mr. G. Wall dated 28 July 1971, upon which I have marked the relevant part which I believe relates to the piece of land in question. I also enclose herewith, a copy of a signed statement regarding the piece of land, which I obtained from the vendor at the time of the sale. You will notice from the documents, that the previous owner laid the land to grass in April 1967 and ever since then either the previous owner or myself have occupied the land and it has therefore, been kept as part of the garden for the last 11 years. It was my understanding with Mr. Wall, that he had the right to this ground and that he only lost this right, if and when the Little Chalfont by-pass was built, so much so that as you can see I went to the trouble to get an extra declaration document from him. I notice your enclosed plan is to do with an underground cable and I believe that Mr. Wall was asked for and had given permission for this to be put under the land concerned.

I do not know whether you know the property itself, but the piece of land concerned forms an integral part of the garden and the whole situation of the house itself, in fact, without it, the house I think, would be unbearable to live in. I would reiterate, that it has always been my firm understanding that the land should be kept by the owner of Dolphin Place, if and until the proposed Little Chalfont by-pass was built. Since the owner of Dolphin Place has been the occupier of the land for the last 11 years, I have never had any doubt as to the situation indeed many local functions, mainly Conservative Party ones, which local councillors have attended, have been held there. I have not discussed this matter with my solicitor as yet and I await your reply before doing so."

Slade LJ, with whom the other members of the Court agreed, held at 635:

"I think the judge was right to regard the relevant question as being whether or not the letter of 20 January 1976 could properly be regarded as a negotiating document. But I respectfully disagree with his conclusion that it could. As the judge himself said, and as the letter itself indicated, the defendant was writing the letter in an attempt to persuade the council that his case was well founded. As I read the letter, it amounted not to an offer to negotiate, but to an assertion of the defendant's rights, coupled with an intimation that he contemplated taking his solicitor's advice unless the council replied in terms recognising his asserted rights. I cannot derive from the letter any indication, or at least any clear indication, of any willingness whatever to negotiate."

23. It was also common ground between counsel that, in assessing whether a communication is protected by the rule, it is necessary to consider the communication as a whole. Counsel for Mr Hull submitted, and I agree, that it follows that it is not correct to dissect the communication into parts unless it is concerned with clearly distinct subjects. As Robert Walker LJ (as he then was) said in Unilever plc v Procter & Gamble Co [2004] 1 WLR 2436 at 2448-2449:

"In those circumstances I consider that this court should, in determining this appeal, give effect to the principles stated in the modern cases, especially Cutts v. Head , Rush & Tompkins Ltd. v. Greater London Council and Muller v. Linsley & Mortimer. Whatever difficulties there are in a complete reconciliation of those cases, they make clear that the without prejudice rule is founded partly in public policy and partly in the agreement of the parties. They show that the protection of admissions against interest is the most important practical effect of the rule. But to dissect out identifiable admissions and withhold protection from the rest of without prejudice communications (except for a special reason) would not only create huge practical difficulties but would be contrary to the underlying objective of giving protection to the parties, in the words of Lord Griffiths in the Rush & Tompkins case [1989] AC 1280, 1300: 'to speak freely about all issues in the litigation both factual and legal when seeking compromise and, for the purpose of establishing a basis of compromise, admitting certain facts.' Parties cannot speak freely at a without prejudice meeting if they must constantly monitor every sentence, with lawyers or patent agents sitting at their shoulders as minders."

This passage was cited with approval by Lord Mance in Bradford & Bingley at [91] and by Lord Neuberger of Abbotsbury in Ofulue v Bossert [2009] UKHL 16, [2009] 1 AC 990 at [89]. See also Lord Hoffmann in Bradford & Bingley at [13].

Application to the Letter

24. It appears from the Letter that the parties had begun discussing the value of Mr Hull's share of the Property by 17 September 2007. In the first passage from Ms Williams' email of that dated quoted in the letter, Ms Williams says:

"I offered you £15K, and I told you up front it was a rough and ready calculation, but you never came back with a counter offer."

25. It appears that Mr Hull had still not come back with a counter offer by 10 October 2007. In her letter of that date Ms Williams say in the third paragraph that she "would like to resolve matters between us as quickly and as amicably … as possible". She re-iterates in the final paragraph that she wants "to settle matters between us quickly and as amicably as possible". In the letter she offers Mr Hull a cheque of £20,000 together with "the sums referred to below" "in full and final settlement" to transfer ownership of the Property into her sole name. She also makes proposals with regard to various other matters, and in particular the household chattels. It is clear that she is seeking to reach a comprehensive agreement on all these matters.
26. It is in this context that the Letter must be read. The first point to note is that it is expressly stated to be "without prejudice". As explained above, that gives rise to a presumption that it was intended to be a without prejudice communication, since this is not a case where it is clear that the words "without prejudice" were being used with some other meaning or purpose. That is particularly so given that the author of the letter was a person with some experience of litigation and the recipient was a solicitor.
27. The second point to note is that, when Mr Hull turns to Ms Williams' letter dated 10 October 2007, he says he would like to "reciprocate the desire to resolve matters between us as quickly and as amicably as possible". He goes on to say that he is willing to accept Ms Williams' cheque "in part payment of my share and as a sign of willingness, on your part, to settle this matter". In the final paragraph of the Letter he says that he is looking forward to her reply "so that we can resolve these outstanding issues". Three things emerge from this. First, both parties are saying that there are matters to resolve. Secondly, both parties are talking the language of negotiation. Thirdly, both parties are expressing the desire for a settlement.
28. The third point to note is that, like the 10 October 2007 letter, the Letter is not just concerned with the value of Mr Hull's share in the Property, it is also concerned with other matters. It addresses four main matters other than the value of Mr Hull's share in the Property. These are (i) the disposition of the chattels, (ii) payment of utilities bills, (iii) the £7,000 loan and (iv) the original acquisition costs. Like Ms Williams in her 10 October 2007 letter, it is clear that Mr Hull is saying that he wants to reach agreement on all these matters. Although Mr Hull does not say so in terms, I think it is a fair reading of the Letter that he may be willing to give ground on some of these matters if Ms Williams is prepared to give ground on others.
29. The fourth point to note is that, when comes to the value of Mr Hull's share in the Property, it can be seen by comparing the Letter with Ms Williams' earlier communications that there are two differences between the parties. The first is that Ms Williams is proceeding on the basis that Mr Hull is entitled to a 7% share, whereas Mr Hull says that he is entitled to a 12% share. The second is that Ms Williams is proceeding on the basis that the Property is worth about £400,000 whereas Mr Hull is saying that it is worth £530,000.
30. It is instructive to consider Ms Williams' reply dated 26 October 1997. The first point to note about this is that Ms Williams does not contest Mr Hull's marking of the Letter as "without prejudice", which as a solicitor she might be expected to do if she did not think it was properly so marked. More importantly, her reply is also marked "without prejudice". To my mind this reinforces the presumption arising from the marking of the Letter as "without prejudice", because it shows that the recipient of the Letter understood that communications had moved into the without prejudice realm and was content to proceed on that basis.
31. The second point to note is that Ms Williams makes an offer of £38,380 "in full and final settlement of all outstanding liabilities". She concludes the letter by saying that this is "a fair and considered offer … in order that we can draw a line under this and get on with our lives". Again, therefore, she is talking the language of negotiation and expressing the desire for settlement. Furthermore, she is again looking for an overall agreement on all matters.
32. The third point to note is that it can be seen that the Letter has had the effect of persuading Ms Williams to increase her offer substantially from that contained in her letter dated 10 October 2007. This confirms that the parties were in a process of negotiation.
33. The fourth point to note is that Ms Williams does not take issue with Mr Hull's share of the Property being 12%, but does take issue with the value of house, which she now says is £485,000.
34. Counsel for Mr Hull submitted that the Letter was a negotiating document and therefore was protected by the without prejudice rule.
35. Counsel for Ms Williams submitted that the Letter, and in particular the part relating to the value of Mr Hull's share in the Property, was not a negotiating document, but merely an assertion of Mr Hull's rights. In support of this submission he advanced three arguments. First, he argued that the Letter did not contain any concession or offer of compromise on the part of Mr Hull. Secondly, he argued that, particularly when the Letter was read in the context of the first and third letters, there was no dispute between the parties as to the formula to be applied in ascertaining Mr Hull's share of the Property, but merely a dispute as to the value of the Property which could have been mechanically determined by a third party. Thirdly, he argued that "without prejudice" meant "without prejudice to my open position", but Mr Hull had no open position other than set out in the Letter. Furthermore, he argued that "without prejudice" could not mean "without prejudice to whatever I may later argue", since that would have the effect of widening the ambit of disputes and make the rule unworkable.
36. In my judgment the Letter is a negotiating document protected by the without prejudice rule. Each of the points I have noted in paragraphs 25-33 above supports that conclusion. It is clear that, as at the date of the Letter, there was a dispute between the parties as to the value of Mr Hull's share in the Property and they were negotiating to resolve that dispute. As at that date there were two aspects of the dispute. The first was Mr Hull's interest in the Property, since Ms Williams had not yet accepted that this was 12%. The second was the value of the Property. It is also clear that there were a number of other disputes between the parties that they were negotiating to resolve, and that they were both seeking an overall settlement of all matters in dispute. It is obvious that both parties appreciated that, unless there was a settlement, there was likely to be litigation between them and were attempting to avoid that happening. In those circumstances the public policy justification for the without prejudice rule articulated in Oliver LJ in Cutts v Head, which was endorsed by the House of Lords in Rush & Tompkins and has been re-iterated in numerous subsequent Court of Appeal and House of Lords authorities, firmly supports the conclusion that the Letter is protected by that rule.
37. I do not agree that the Letter is simply an assertion of Mr Hull's rights. It is quite true that the Letter argues Mr Hull's position, particularly with regard to the value of his share in the Property. As Laddie J pointed out in Schering at [19]-[21], however, it is commonplace for without prejudice communications to include assertions of the strength of that party's case. The question is whether the communication merely asserts rights or whether it asserts rights as part of a negotiation with a view to settlement. In my view the Letter falls into the latter category.
38. Nor do I accept any of the three arguments advanced by counsel for Ms Williams. As to the first, I do not consider that it is necessary for a communication to constitute a negotiating document that it contain a concession or offer of compromise. As Parker LJ said in South Shropshire, the rule applies to documents which form part of negotiations, whether or not they are themselves offers. It is sufficient that the communication evinces a genuine desire to negotiate a settlement of an actual or potential dispute, as in the Schering case.
39. As for the second argument, I do not agree that the only difference between the parties at the date of the Letter was as to the valuation of the Property. Furthermore, even if that had been the only disagreement, that would have been enough. In Bradford & Bingley Lord Brown of Eaton-under-Heywood expressed the opinion at [75] that negotiations to resolve issues of quantum would qualify for without prejudice protection even though an acknowledgement of indebtedness would not.
40. So far as the third argument is concerned, I do not agree that "without prejudice" means "without prejudice to my open position". In my view it means "without prejudice to my position in any subsequent proceedings". It is not necessary for a party to have formulated an open position for it to be able to invoke the without prejudice rule, which is why an "opening shot" in negotiations may be protected. Furthermore, imposing such a requirement would be contrary to the public policy behind the rule of encouraging settlement negotiations, since if parties had to state their open positions before they could claim the protection of the rule, that might inflame the negotiations. Finally, this argument is inconsistent with the House of Lords' ruling in Rush & Tompkins that without prejudice communications are inadmissible in any subsequent litigation connected with the same subject matter whether between the same or different parties.

The Judge's judgment

41. In reaching her conclusion that the Letter was not a without prejudice communication, I consider that the Judge made a number of errors. First, she does not appear to have attached any weight to the fact that the Letter was expressed to be "without prejudice". Nor did she attach any weight to the fact that Ms Williams' reply was also marked "without prejudice".
42. Secondly, the Judge dissected the Letter, with the result that she accepted that parts of it were without prejudice. The parts which she accepted were without prejudice related to the valuation of the Property. As a result, she redacted from the Letter the entire passage from "In an email dated 17 September 2007 you said" to "my subsequent emails of the same date". In addition, she redacted the references to the value of the Property later in the Letter, including the figures in the right hand column of Mr Hull's calculation. In my view it is not correct to dissect the Letter in this way. It is a single communication to be assessed as a whole. Although it addresses a number of matters, they are all related to the parties' cohabitation in the Property. Furthermore, it seeks to reach an overall agreement on all of them. These include both aspects of the dispute over the value of Mr Hull's share in the Property.
43. Thirdly, the Judge proceeded on the basis that there was no dispute between the parties as to the formula to be applied in determining Mr Hull's interest in the Property and only as to the application of that formula: see her judgment at [59]. I do not think this is correct: as noted above, it was only in her reply to the Letter that Ms Williams accepted that Mr Hull's share was 12% and thus implicitly accepted the formula he had used to calculate that figure.
44. Fourthly, the Judge held that the passage concerning the application of the formula was a mere assertion of right because it contained no admission or concession by Mr Hull. For the reasons given above, I do not think that that is the right test.

Issue 2: Is the Letter admissible on the ground of unambiguous impropriety?

The law

45. It is well established that there are a number of situations in which a without prejudice communication may be given in evidence. A list of eight such situations was given by Robert Walker LJ in Unilever. Issue 2 concerns the applicability of the fourth in this list, which Robert Walker LJ expressed at 2444 as follows:

"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 L.J. in Forster v. Friedland (unreported), 10 November 1992; Court of Appeal (Civil Division) Transcript No. 1052 of 1992) . Examples (helpfully collected in Foskett's The Law & Practice of Compromise, 4th ed. (1996), para. 9–32) are two first-instance decisions, Finch v. Wilson (unreported), 8 May 1987 and Hawick Jersey International Ltd. v. Caplan, The Times, 11 March 1988. But this court has, in Forster v. Friedland and Fazil-Alizadeh v. Nikbin (unreported), 25 February 1993; Court of Appeal (Civil Division) Transcript No. 205 of 1993, warned that the exception should be applied only in the clearest cases of abuse of a privileged occasion."

He added at 2445-2446:

"It is apparent that none of the exceptions to the public policy rule involves the disclosure of admissions bearing on the subject matter in dispute…."

46. In Berry Trade Ltd v Moussavi [2003] EWCA 715 the Court of Appeal held that statements alleged to have been made by the seventh defendant Mr Ghadimi orally during settlement discussions were not admissible to contradict the defendants' pleaded case. Peter Gibson LJ giving the judgment of the Court considered the unambiguous impropriety exception in some detail. He explained the origin of the expression "unambiguous impropriety" at [35]:

"The term 'unambiguous impropriety' was used by Hoffmann L.J. in Forster v Friedland 10 November 1992 (unreported). That Lord Justice, with whom Neill and Butler-Sloss L.JJ. agreed, referred to two cases, Greenwood v Fitt [1961] 29 DLR 1 and Hawick Jersey International Ltd. v Caplan, The Times, 11 March 1998, which were cases of threats, the impropriety of which was unambiguously admitted in without prejudice negotiations. Thus the British Columbia case of Greenwood v Fitt involved the defendant threatening in those negotiations that he would give perjured evidence and bribe other witnesses to perjure themselves unless the claimants withdrew their claim. Hoffmann L.J. said:

'These are clear cases of improper threats, but the value of the without prejudice rule would be seriously impaired if its protection could be removed from anything less than unambiguous impropriety. The rule is designed to encourage parties to express themselves freely and without inhibition. I think it is quite wrong for the tape recorded words of a layman, who has used colourful or even exaggerated language, to be picked over in order to support an argument that he intends to raise defences which he does not really believe to be true.'"

Having noted that the narrowness of the exception had often been emphasised, he said at [37]:

"This court in Fazil-Aziladeh said that the taped without prejudice conversation might be taken to contain an admission by the claimant of the payment of £10,000 although he continued in his pleadings to deny such payment, but that did not come within the exception to the rule. The exception does not apply to a mere inconsistency (see Kristjansson v R Verney & Co. Ltd., 18 June 1998, and WH Smith Ltd. v Colman, 20 March 2000, both unreported decisions of this court)."

47. He went to consider three cases relied upon by the counsel for the defendants, namely Dora v Semper (an unreported decision of the Court of Appeal dated 15 March 1999), Merrill Lynch, Pierce Fenner & Smith Inc v Raffa [2001] ILPr 31 and Savings & Investment Bank Ltd v Fincken [2003] EWHC 719 (Ch). In relation to the latter two cases, he said:

"46. We do not see that either the Merrill Lynch case or the Savings & Investment Bank case provides much assistance in the determination of the present case because of their different circumstances. In the Merrill Lynch case on the only evidence before the court the defendant admitted in the without prejudice negotiations his involvement in fraud. In the Savings & Investment Bank case again there appears to have been no challenge to the evidence that the relevant simple admission of fact was made by the defendant. Further, Patten J. had distinguished the circumstances of his case from those of other cases, by saying (in para. 39) that the concerns of Lord Griffiths in Rush & Tompkins, of Hoffmann L.J. in Forster and of Robert Walker L.J. in Unilever were:

'largely concerned with ensuring that what may be complicated without prejudice negotiations should not subsequently be scrutinised with a view to constructing admissions which when made, and particularly in the context in which they were made, were never intended to be and were not in truth unequivocal and unambiguous admissions of liability.'

47. We will come back shortly to the circumstances of the alleged admission in the present case. Mr. Zacaroli criticised the decisions in both cases as eroding the protection afforded to admissions made in without prejudice negotiations. It may be doubted whether Robert Walker L.J.'s reference to 'a cloak for perjury' was intended to cover such admissions rather than the threatened perjury in a case like Greenwood v Fitt. However it is unnecessary for us to decide in this case the correctness of the decisions in Merrill Lynch and Savings & Investment Bank in view of their different circumstances."

48. He then turned to the instant case and said:

"48. We start with the judge's self-direction that the court, when considering whether statements made in without prejudice discussions may be admitted in evidence, applies the test of whether there is a serious and substantial risk of perjury. Mr. Marshall does not suggest that that test has been applied before and we can see nothing in the authorities to support it. On the contrary, it seems to us to weaken significantly the requirement of unambiguous impropriety and of the need for a very clear case of abuse of a privileged occasion. Although the judge in the final paragraph of his judgment says that he bears in mind the need to restrict applications to admit without prejudice statements to the clearest cases of abuse, he then applies the test of a serious and substantial risk of perjury. In our judgment that is too low a test and one which would seriously erode the without prejudice rule. The judge should have looked for nothing less than unambiguous impropriety.

49. Does the evidence establish such unambiguous impropriety? We shall consider that question first having regard to the Claimants' evidence, leaving aside the evidence of and for Mr. Ghadimi. The judge was impressed by two points on which heavy emphasis was laid in the Claimants' evidence.

50. One is the absence from what Mr. Ghadimi said in the without prejudice discussions of any reference to an agreement between Mr. Ghadimi and Mr. Moussavi based on the fixed commission of $9 per metric tonne which was later pleaded in the Defence and Counterclaim. There is a plain inconsistency between that omission from the discussions and the pleadings; but a mere inconsistency, as the cases show, is not sufficient to amount to unambiguous impropriety. What has to appear very clearly from the evidence is that Mr. Ghadimi was guilty of perjury in signing the statement of truth as to his belief in the truth of the pleaded facts and in deposing to the sum claimed in the counterclaim as owed to him. We do not see how it can be said that that is shown, still less if account is taken of the explanation by Mr. Ghadimi, supported as it is by Mr. Buss, to which we have referred in paras. 23 and 24 above.

51. The second point is what the judge said in para. 31 of his judgment was 'unambiguously the position adopted by Mr. Ghadimi throughout', viz. 'that the only agreed fee as regards tonnage delivered was $2 per tonne'. We have to say that we respectfully disagree with the judge's assessment that this was the position unambiguously adopted by Mr. Ghadimi throughout. …"

49. Subsequently, in Savings & Investment Bank Ltd v Fincken [2003] EWCA Civ 1630, [2004] 1 WLR 667 the Court of Appeal allowed an appeal against the first instance decision discussed in Berry. In that case the plaintiff sought to rely upon an alleged admission by the defendant during a without prejudice meeting that he owned shares which he had not disclosed in an affidavit of means in earlier proceedings the settlement of which the plaintiff was seeking to set aside for misrepresentation. Rix LJ, with whom Carnwath LJ agreed, having reviewed the earlier authorities, concluded as follows:

"53. It seems to me that there is nothing in these authorities, with the exception of Merrill Lynch, Pierce Fenner & Smith Inc v Raffa, The Times, 14 June 2002, to support the judgment below. All four authorities in this court, while allowing the existence of an exceptional rule to cover cases of unambiguous impropriety, have stressed the importance of the public interest which has created the general rule of privilege and have cautioned against the too ready application of the exception. It is true that in each of those four cases the court was assisted in its proper appreciation of the alleged admissions either by evidence from the party claiming privilege (as in Fazil-Alizadeh v Nikbin 25 February 1993, Unilever plc v The Procter & Gamble Co [2000] 1 WLR 2436 and Berry Trade Ltd v Moussavi (No 2) [2003] EWCA Civ 715), or by full recordings and transcripts of the discussions (as in Forster v Friedland 10 November 1992), or even by both. Only in the Merrill Lynch case and in this case have the defendants submitted no evidence on the issue, so that the evidence against them has gone unchallenged. It was on this very point that in the Berry Trade case Peter Gibson LJ was able to say that these two cases concerned different circumstances which made it unnecessary for him to rule on the correctness of the decisions to be found in them. It may also be that Peter Gibson LJ was told that Patten J had himself given permission to appeal from his judgment in this case, and this too might have made him cautious in its treatment.

…

56. These considerations throw into relief the fact that SIB's evidence has gone unchallenged. How important is that factor in the present context? In my judgment, the courts ought to treat it with considerable caution, for otherwise there is a danger of the exception to the rule displacing the rule by a process of begging the question. If the exception applies, then Mr Fincken is obliged to explain himself or face the consequences, for his admission is in the public domain. The absence of challenge may therefore be critical. If, however, the exception does not apply, then the admission is not in the public domain, the court ought not to know about it, and the absence of challenge is irrelevant. Moreover, there may be many reasons why someone in Mr Fincken's position may at the stage of SIB's application be cautious about responding to an issue (his ownership of the shares) which was not yet even part of the litigation. He is accused of perjury, but not on any formal charge and not on a matter even formally in issue. I can see that the absence of challenge may enable an applicant to establish more easily that an alleged admission is unequivocal. That, however, is not the same thing as an unequivocal or unambiguous impropriety. I would therefore be reluctant to find in the circumstances that an absence of challenge is a critical factor taking this case outside the philosophy of the jurisprudence expressed in the leading authorities cited above.

57. In my judgment that philosophy is antagonistic to treating an admission in without prejudice negotiations as tantamount to an impropriety unless the privilege is itself abused. That, it seems to me, is what Robert Walker LJ meant in the Unilever case [2000] 1 WLR 2436 when he repeatedly spoke in terms of the abuse of a privileged occasion, or of the abuse of the protection of the rule of privilege: see at pp 2444g, 2448a and 2449b. That is why Hoffmann LJ in Forster v Friedland 10 November 1992 emphasised that it was the use of the privileged occasion to make a threat in the nature of blackmail that was, if unequivocally proved, unacceptable under the label of an unambiguous impropriety. And that is why Peter Gibson LJ in Berry Trade Ltd v Moussavi (No 2) [2003] EWCA Civ 715 suggested, without having to decide, that talk of 'a cloak for perjury' was itself intended to refer to a blackmailing threat of perjury, as in Greenwood v Fitts 29 DLR (2d) 260 , rather than to an admission in itself. It is not the mere inconsistency between an admission and a pleaded case or a stated position, with the mere possibility that such a case or position, if persisted in, may lead to perjury, that loses the admitting party the protection of the privilege: see the first holding in Fazil-Alizadeh v Nikbin 25 February 1993, described in para 47 above. It is the fact that the privilege is itself abused that does so. It is not an abuse of the privilege to tell the truth, even where the truth is contrary to one's case. That, after all, is what the without prejudice rule is all about, to encourage parties to speak frankly to one another in aid of reaching a settlement: and the public interest in that rule is very great and not to be sacrificed save in truly exceptional and needy circumstances.

58. It may be said, as indeed Ms Gloster has powerfully argued, that even if the mere possibility of future perjury does not suffice to destroy the privilege, the admission which demonstrates that perjury has been committed in the past, by reference to an existing affidavit, is or should be different and that no authority suggests otherwise. In this way she seeks to support the judge's decision, which was premised on the prospect of future perjury, as was the decision in the Merrill Lynch case The Times, 14 June 2000, by the different route of the impropriety of past perjury. There is indeed a substantial case to be made that the courts should not pass by such proof of perjury with indifference. There is a clear public interest in the discouragement of perjury. Nevertheless, on balance I do not think that the courts should adopt such a position. If they did, the very serious and criminal charge of perjury would fall to be debated, without the protection which should be available to the accused party, on an interlocutory outing (as here) or even at trial, with the potential of derailing the trial by the exposure of without prejudice material to the trial judge. Essentially the same problem would arise in connection with statements of truth, which now apply under the CPR to all particulars of claim or defence: although they cannot give rise to the offence of perjury, they can give rise to the only relatively less serious matter of contempt of court."

50. Counsel for Ms Williams submitted that Rix LJ had been wrong to say at [57] that it was not an abuse of the without prejudice rule to tell the truth, even where the truth is contrary to one's case. I do not accept that submission. First, Savings & Investment Bank is binding upon me. Secondly, I note that in Bradford & Bingley that paragraph of Rix LJ's judgment was cited with approval by Lord Brown, within whom Lord Walker of Gestingthorpe agreed, at [65] and was referred to with apparent approval by Lord Hope of Craighead at [24]. Thirdly, in my judgment Rix LJ's reasoning is supported by earlier authority, in particular Forster, Fazil-Aziladeh, Unilever and Berry.
51. Counsel for Ms Williams also sought to distinguish the present case from authorities such as Berry and Savings & Investments on the ground that this case concerns a written statement, whereas they concerned disputed, or at least not clearly recorded, oral statements. I agree that the fact that the statements were oral statements was an additional factor in those cases, since it potentially gave rise to issues as to precisely what was said, but I do not consider that it was determinative.

Application to the Letter

52. Counsel for Ms Williams submitted that to allow the exclusion of the Letter would act as a "cloak for perjury". This was because the statements in the Letter that "you were certainly in possession of the documents we used to form the financial agreement of our cohabitation at the outset" and "using the OCI, ACI and TCI calculations as originally set out in the documentation mentioned above, the correct calculation of my share of the house is as follows" were flat contrary to Mr Hull's case that there was no such agreement. Accordingly, if Mr Hull gave evidence in accordance with that case, he would be committing perjury.
53. Counsel for Mr Hull accepted, I think, that there was an apparent inconsistency between those statements and Mr Hull's pleaded case. He submitted, however, that that did not mean that Mr Hull would be guilty of unambiguous impropriety for two reasons. First, Mr Hull had an explanation for the inconsistency. This was that, at the time he wrote the Letter, he had been led by Ms Williams to believe, and did believe, that the draft Deed was binding even though it was unsigned. Counsel submitted that it was not possible for the court to conclude that that explanation was false without Mr Hull being cross-examined, since it was not obviously incredible. Accordingly, at worst there was no more than a serious risk of perjury and that was not enough. Secondly, and more fundamentally, counsel submitted that, even if that explanation was not true and so Mr Hull would commit perjury by giving evidence contrary to the statements contained in the Letter, the authorities showed that that would not amount to unambiguous impropriety since it would not involve an abuse of the privileged occasion, that is to say, the sending of the Letter.
54. I accept both those submissions. So far as the first is concerned, I agree that Mr Hull's explanation is not so obviously incredible that it is possible for the court to reject it without him being cross-examined on it. At worst, therefore, there is a serious risk of perjury. Berry is clear authority that that is not enough. As to the second, for the reasons given above I accept that analysis of the law.
55. Counsel for Ms Williams also submitted that Mr Hull should not be able to exclude the Letter from evidence given that he was alleging fraud against her. I have some difficulty in seeing why an allegation by Mr Hull that Ms Williams had acted fraudulently with regard to the TR1 would justify the admission of the Letter in evidence in any event given that the Letter says nothing at all about the TR1. Be that as it may, for the reasons I have explained above I do not accept that Mr Hull is alleging fraud against Ms Williams.

The Judge's judgment

56. Again, I consider that in concluding that the exclusion of the Letter would be a cloak for unambiguous impropriety the Judge made a number of errors. First, even though she accepted that a serious and substantial risk of perjury was not enough, her reasoning shows that that was in fact the test she applied, since she merely held at [64] that there was "a potential abuse" if the Letter was excluded. Furthermore, she did not conclude that Mr Hull's explanation was obviously incredible, but instead held at [65] that it should be tested in cross-examination and accepted that it might be believed.
57. Secondly, she again fell into the error of dissecting the Letter. Thus she held at [69]-[71] that Mr Hull's statements in relation to the £7,000 loan were not sufficiently clearly inconsistent with his case as to justify its admission even though it was an admission against interest. It seems to me that this reasoning is inconsistent with her reasons for admitting the parts of the Letter she did admit.
58. Thirdly and most importantly, she held at [68] in reliance upon the first instance decision in Savings & Investment Bank that inconsistency between the Letter and Mr Hull's pleaded case was sufficient to amount to unambiguous impropriety. So far as I can see, she was not referred to the decision of the Court of Appeal in that case. Nor was she referred to the decision of the House of Lords in Bradford & Bingley. For the reasons given above, I consider that those authorities make it clear, if it was not clear before, that such inconsistency is not enough to justify the admission in evidence of a without prejudice communication.
59. Finally, she held at [66]-[67] that the fact that, on her analysis, Mr Hull was alleging fraud against Ms Williams supported the conclusion that the exclusion of the Letter would be a cloak for unambiguous impropriety. I disagree for the reasons stated above.

Conclusion

60. I conclude that the Letter is a without prejudice communication and its admission in evidence is not justified by the unambiguous impropriety exception to the without prejudice rule. The appeal is allowed.