England and Wales Lands Tribunal

[2002] EWLands CON_38_2002 (13 September 2002)

CON/38/2002

LANDS TRIBUNAL ACT 1949

PRACTICE - admissibility of letter marked without prejudice and details of negotiations in an expert report - whether letter an assertion of rights or a negotiating document - held letter and details of negotiation inadmissible under the without prejudice rule.

IN THE MATTER of a NOTICE OF REFERENCE

BETWEEN COLIN MATTHEWS

and

GLENYS MATTHEWS Claimants

and

WALSALL METROPOLITAN Acquiring

BOROUGH COUNCIL Authority

Re: 94 High Road

Lane Head

Willenhall

Before: P H CLARKE FRICS

Sitting at 48/49 Chancery Lane, London WC2

on 6 September 2002

The following cases are referred to in this decision:

Unilever Plc v Proctor & Gamble Co [2001] 1 All ER 783

Rush & Tompkins Ltd v Greater London Council [1988] 3 All ER 737

Cutts v Head [1984] 1 All ER 597

Scott Paper Co v Drayton Paper Works Ltd (1927) 44 RPC 151

South Shropshire District Council v Amos [1987] 1 All ER 340

Buckinghamshire County Council v Moran [1989] 2 All ER 225

Mr Niall Blackie of Manby and Steward solicitors for the claimants

Mr Jonathan Salmon of counsel, instructed by Head of Legal Services, Walsall Metropolitan Borough Council, for the acquiring authority


 


DECISION OF THE LANDS TRIBUNAL

Introduction

1. This is a decision on an interlocutory application regarding the admissibility of evidence in a reference to determine disturbance compensation following the purchase of business premises.
2. The facts can be stated quite shortly. Under a contract of sale dated 31 March 1998 the claimants agreed to sell their carpet shop at 94 High Road, Lane Head, Willenhall to Walsall Metropolitan Borough Council at an agreed price plus "the sum equivalent to the disturbance compensation together with the Vendor's reasonable surveyors costs which would be payable under [section 5(6) of the Land Compensation Act 1961] subject to the Vendor producing adequate evidence to substantiate their claim in this respect." The parties failed to agree this further sum. With the agreement of the council the claimants referred the determination of this amount to the Lands Tribunal as a reference under section 1(5) of the Lands Tribunal Act 1949. Expert reports were lodged by both parties. The report prepared by the council's expert, Mr S J Pugh, contains a section headed "History of negotiations" and makes particular reference to a letter dated 12 June 1998 from the claimants' surveyor to the council. On 25 June 2002 I was selected by the President to determine this reference. I suggested to the parties that it might be expedient to have the basis of disturbance compensation determined as a preliminary issue. The parties agreed and made a joint application for directions. The claimants also asked for the part of Mr Pugh's report referred to above to be struck out. This was opposed by the council.
3. I heard this application at a pre-trial review on 6 September 2002. Mr Niall Blackie, solicitor, of Manby and Steward appeared for the claimants; Mr Jonathan Salmon, of counsel, appeared for the acquiring authority. Both helpfully lodged skeleton arguments before the hearing. At the conclusion of their submissions I ruled that the letter of 12 June 1998 is inadmissible and that paragraphs 6.1 to 6.10 of Mr Pugh's report should be deleted, both decisions on the grounds that this material is inadmissible under the without prejudice rule. The reasons for these decisions are set out below.

Law

4. The relevant law is not in issue and can be conveniently set out before I consider the parties' submissions.
5. The principle underlying the without prejudice rule is clearly explained in the judgment of Robert Walker LJ in Unilever Plc v Proctor & Gamble Co [2001] 1 All ER 783 at 789f:-

"In Rush & Tompkins Ltd v Greater London Council [1988] 3 All ER 737 at 739-740, [1989] AC 1280 at 1299, Lord Griffiths said:

'The 'without prejudice rule' is a rule governing the admissibility of evidence and is founded on 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] 1 All ER 597 at 605-6, [1984] Ch 290 at 306): 'That the rule rests, at least in part, on 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 at 156, be encouraged freely and frankly to put their cards on the table … The public policy justification, in truth, essentially rest 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."

6. Mr Blackie, for the claimants, particularly relies on the decision of the Court of Appeal in South Shropshire District Council v Amos [1987] 1 All ER 340. In this case the council made a discontinuance order under section 51(1) of the Town and Country Planning Act 1971 in respect of premises occupied by Mr Amos. Following confirmation he made a claim for compensation. On 14 October 1981 his agent wrote to the district valuer (acting for the council) a letter advising him of his appointment, referring to a forthcoming meeting and stating that a detailed claim would then be submitted. The letter was not marked without prejudice. At the meeting the claimant's agent produced a 20-page claim with supporting submissions headed without prejudice. This did not lead to agreement or a reference to the Lands Tribunal. After further correspondence the claimant's agent wrote to the district valuer a without prejudice letter on 21 May 1982 enclosing an amended claim also marked without prejudice. Further unsuccessful negotiations followed and the matter was then referred to this Tribunal. The member (W H Rees FRICS) ruled that the two claims should not be admitted in evidence. On an originating summons under section 12(6) of the Arbitration Act 1950, the High Court then ruled that the two documents be admitted. On appeal the Court of Appeal held them inadmissible.
7. Parker LJ (giving the judgment of the court) said (at 344c):-

"Bearing in mind the original expressed intention to negotiate, the fact that there was a dispute in existence, that it is common practice for such claims to be the subject of negotiation before the parties resort to a reference to the Lands Tribunal, and that the document as clearly marked 'Without Prejudice', we have no hesitation in concluding that those words should be given their ordinary effect. The position with regard to document B is in our view plainer. It was clearly written in the course of negotiation and was accompanied by a letter which was itself headed 'Without Prejudice.' Both documents are in our view inadmissible."

He then said (at 344e):-

"In order to avoid any possibility of future unnecessary disputes about such matters we conclude by stating that we agree with the judge (a) that the heading 'Without Prejudice' does not conclusively or automatically render a document so marked privileged, (b) that, if privilege is claimed but challenged, the court can look at a document so headed in order to determine its nature and (c) that privilege can attach to a document headed 'Without Prejudice' even if it is an opening shot. The rule is, however, not limited to documents which are offers. It attaches to all documents which are marked 'without prejudice' and form part of negotiations, whether or not they are themselves offers, unless the privilege is defeated on some other ground …"

8. Mr Salmon, for the acquiring authority, relies on the decision of the Court of Appeal in Buckinghamshire County Council v Moran [1989] 2 All ER 225. Here, the council acquired in 1955 a plot of land for future road works. The land was adjacent to some houses and was treated by successive owners of one of the houses as part of their garden. In December 1975 the council wrote to the owner asking him to supply details of the basis on which he was exercising rights over the plot. He replied in a without prejudice letter dated 20 January 1976 that he understood that he was entitled to use the land until the proposed road diversion was built. In later possession proceedings the admissibility of this letter was in issue. The Court of Appeal held that it was admissible. It was not an offer to negotiate but an assertion of the defendant's rights and could not fairly and properly be read as the opening of negotiations. It was not privileged despite the fact that it was marked without prejudice. The decision in Amos was distinguished.

Claimants' case

9. Mr Blackie said that the negotiations referred to in Mr Pugh's report were on a without prejudice basis. A formal and open claim was submitted to the council in August 2001 and this has now been referred to the Lands Tribunal. This Tribunal has discretion regarding the admissibility of evidence. On the facts the issues in this reference as to admissibility are similar to Amos. This decision should be followed. The decision in Moran can be distinguished on the facts: the letter in that case was not an attempt to negotiate but an assertion of rights. The letter of 12 June 1998 in this reference was clearly part of negotiations and is therefore privileged from disclosure. Mr Blackie also relied on the statements of principle in Unilever. The offending paragraphs in Mr Pugh's report should be removed, wholly or in part. The letter dated 12 June 1998 is inadmissible.

Acquiring authority's case

10. Mr Salmon referred to the contract of sale, particularly clause 2.3 and the requirement that the claimants produced evidence to substantiate their claim for disturbance. This loss must be the natural and reasonable consequence of their dispossession from the acquired property. Thus, if the claimant intended to retire in any event or ceased trading on grounds of ill-health, then the loss would not be caused by the acquisition.
11. There is an evidential basis in respect of this claim. The letter of 12 June 1998 refers to Mr Matthews's health, age and the desire of the claimants to retire. The claimants continued to operate their business from their home address and then extinguished it. It is the council's case that the claimants intended to close, or at least wind down, the business in any event. Also, they could have found alternative premises. Admissions on these matters are in the letter of 12 June 1998 and are referred to in paragraphs 6.1 and 6.2 of Mr Pugh's expert report. At this stage there has been no exchange of facts or disclosure of documents.
12. The council do not rely on offers but merely the factual assertions in the June 1998 letter. The rationale behind the without prejudice rule is to ensure that an offer is not seen as an admission that a particular sum is the appropriate figure for the Tribunal to award. The public policy constraint on the use of without prejudice correspondence should not apply where the cloak of secrecy is used to hide inconsistent factual statements. Mr Salmon referred to Unilever at 792c.
13. In this case the claim is made under contract. The claimants have a duty to produce adequate evidence to support their claim. This is a condition precedent to the payment of compensation. The letter of 12 June 1998 is the evidence upon which the claim is based and the without prejudice heading does not prevent its use at the hearing. This letter meets the requirements of clause 2.3 of the contract of sale. It is an assertion of the claim and the factual basis of that claim. It does not contain any compromise proposals nor does it contain any clear indication of a willingness to negotiate. It merely sets out the claimants' position. It is admissible under the decision in Moran (at 231f). Negotiations had not started when the letter of 12 June 1998 was sent.
14. Mr Salmon referred to Amos and said that the key issue is the application of the rules laid down in that decision to this reference, which has the unusual feature that there is a contractual obligation to provide evidence in support of a claim. The without prejudice label on the letter of 12 June 1998 must carry less weight. Furthermore, this letter is not an opening shot but a setting out of rights and supporting facts. There had been previous discussions with another agent on a different basis of claim. The rationale behind the without prejudice rule cannot be used to allow parties to make inconsistent declarations at different times. The council must be entitled to put before the Tribunal evidence as to the claimants' conduct in seeking alternative accommodation and the running of their business. In order to explore these issues the correspondence of 12 June 1998 ought to be relied upon. The council ought to be able to rely upon the matters of fact recorded in that letter. It would be a travesty of justice if this letter is not admitted.

Decision

15. I deal first with the letter of 12 June 1998. It must be looked at in context. On 10 June 1998 Mr Robinson wrote to Mr Pugh informing him that his firm, Bruton Knowles, had been instructed to act for the claimants. He asked Mr Pugh to contact him "to discuss progressing this claim forward." The letter is headed without prejudice. On 12 June Mr Robinson wrote again to Mr Pugh. This letter is also headed without prejudice. It refers to the letter of 10 June and the instruction of Bruton Knowles. The next two paragraphs are important. The council wish to rely on them as admissions:-

"It is Mr and Mrs Matthews desire to retire and would therefore require Walsall MBC to compensate them on the basis of total extinguishment.

The justification for total extinguishment extends to Mr Matthews' age, he is the principal carpet fitter at 56 years old. In addition, Mr Matthews has had some recent health problems, combinating (sic) heart problems."

The letter then deals with alternative premises for relocation and concludes:-

"We feel a very strong case can be made for the total extinguishment. We would be grateful for your opinion on this matter at your earliest opportunity.

Should you require any further information, then please do not hesitate to contact our Mr R Robinson."

16. Mr Pugh replied on 17 June rejecting total extinguishment as the basis of claim and stating that he was "willing to consider, on a without prejudice basis, an alternative disturbance claim subject, of course, to your clients producing adequate evidence to substantiate their claim in this respect." Further correspondence followed.
17. The important question is the nature of the letter of 12 June 1998. Is it a letter forming part of negotiations, marked without prejudice, and privileged from disclosure, as contended by Mr Blackie, for the claimants? Or is it a claim under clause 2.3 of the contract of sale, an assertion of the claimants' rights, and admissible, as contended by Mr Salmon for the acquiring authority? He particularly relied upon the following passage in the judgment of Slade LJ in Moran (at 231f):-

"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 solicitors' advice unless the council replied in turn recognising his asserted rights. I cannot derive from the letter any indication, or at least any clear indication, of any willingness whatever to negotiate."

18. I agree with Mr Blackie's contention that the letter of 12 June 1998 is a negotiating document. Mr Robinson first wrote to Mr Pugh on 10 June informing him that he was acting for the claimants. He referred to discussions to progress the claim, clearly a reference to negotiations. He wrote again two days later setting out the basis of claim, total extinguishment, asking "for your opinion on this matter." He did not put forward figures, as would be the case with a claim, but asked, in effect, for agreement to the basis of claim as a step in the negotiations. Mr Pugh replied on 17 June rejecting the basis and stating that he would be prepared to consider an alternative claim, subject to proof. In my experience these are typical of the letters which pass between surveyors negotiating a compensation claim. Even if clause 2.3 of the contract of sale requires prior evidence to substantiate a claim as a condition precedent to the right to disturbance compensation (and is not merely an affirmation of the normal rule that a claimant must prove his loss), I do not see the letter of 12 June 1998 as such a claim or evidence to support a claim. There are no figures and little supporting evidence. It is a statement of the basis of claim, total extinguishment, with minimum support, and includes, in effect, a request to the council to agree that basis before proceeding to discussions on amount. Furthermore, I was told there had already been negotiations with another surveyor. The correspondence of 10 and 12 June 1998 and succeeding letters are a continuation of those negotiations. Mr Blackie said that the claim which has now been referred to this Tribunal for determination was submitted to the council in August 2001.
19. The without prejudice rule is subject to exceptions (see Unilever at 791j-793c). Mr Salmon submitted that the rule cannot be used to allow parties to make inconsistent factual statements at different times. No authority was given for this submission and I know of none. In my experience parties to negotiations often change their positions in an attempt to substantiate their claims and reach a settlement. I have not heard it argued that every statement made is immutable and that a change of stance renders it an admission due to the removal of privilege on grounds of inconsistency. This would put an unacceptable fetter on negotiations. It would be wholly contrary to the public policy underlying the without prejudice rule.
20. Mr Salmon also referred to one of the exceptions listed in Unilever, exception (4) at 792c:-

"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' …"

I cannot find in the letter of 12 June 1998 any suggestions which "would act as a cloak for perjury, blackmail or other 'unambiguous impropriety'." The Court of Appeal "warned that the exception should be applied only in the clearest cases of abuse of a privileged occasion" (at 792d). I cannot find the letter of 12 June is an abuse of a privileged occasion. For the reasons given above the letter of 12 June 1998 is not admissible in evidence.

21. The history of negotiations set out in paragraphs 6.1 to 6.10 of Mr Pugh's expert report are also inadmissible under the without prejudice rule. They contain privileged information, details of negotiations which are within the rule as applied in Amos. The facts of this reference are similar to those in Amos and I am bound by that decision that "the rule is, however, not limited to documents which are offers. It attaches to all documents which are marked 'without prejudice' and form part of negotiations, whether or not they are themselves offers, unless the privilege is defeated on some other ground…" (at 344f).
22. In Unilever Robert Walker LJ said (at 796c):-

"… 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 Rush & Tompkins Ltd v Greater London Council [1988] 3 All ER 737 at 740, [1989] AC 1280 at 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."

To allow the history of negotiations to be included in Mr Pugh's report would clearly breach the without prejudice rule in the same way that the admission of the correspondence, etc, referred to would infringe that rule.

23. Mr Salmon said that the inadmissibility of the letter dated 12 June 1998 would be a travesty of justice. I do not agree. All that is excluded in the public interest is the admissions contained in that letter. The council are not prevented from adducing evidence of Mr Matthews's health, or the intentions of the claimants as to retirement or their attempts to find alternative premises. Evidence in proof of these matters may be more difficult to obtain but it is not excluded from consideration by the Tribunal.
24. Mr Salmon asked that he may be allowed to raise this issue again after the exchange of evidence. I do not wish to shut out the Council from ever again raising this matter. Circumstances may change before the hearing is reached. I agreed therefore that Mr Salmon could seek leave to make a further application after the exchange of evidence but he cannot make such application as of right. I will then decide whether the evidence and any change of circumstances make it necessary for me to reconsider this decision.
25. Mr Blackie asked for his costs. Mr Salmon asked me to reserve the costs. The claimants have been successful in their application to exclude the letter of 12 June 1998 and to delete paragraphs 6.1 to 6.10 of Mr Pugh's report. They should have their costs of this hearing, which, in the absence of agreement, shall be the subject of a detailed assessment on the standard basis by the Registrar of the Lands Tribunal.
26. An order has been issued giving effect to this interlocutory decision and the directions subsequently agreed at the pre-trial review.

DATED 13 September 2002

(Signed) P H Clarke