With or Without Prejudice? – Supreme Court of Gibraltar determines settlement offer made "without prejudice" amounted to unambiguous impropriety.
The Supreme Court of Gibraltar has this week considered and applied the rarely invoked "unambiguous impropriety" exception to without prejudice ("WP") privilege. In a detailed Judgment, the Court not only dismissed the Defendant's application to amend his defence and counterclaim on the grounds of illegality but also found that certain threats made within a settlement offer for the parties to 'drop hands' were such that the correspondence could not have been protected by WP privilege.
The WP privilege rule is based on the policy consideration 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 during such negotiations may be used to their prejudice in the course of those proceedings. However, as this Judgment shows, the rule is not absolute, with one exception being where a party can show that the exclusion of evidence marked WP would act as a cloak for perjury, blackmail or other "unambiguous impropriety". Such cases however are rare as the requirement for unambiguous proof is a high threshold and applies only in the clearest of cases of abuse of WP privilege.
The Chief Justice found that various statements (which the Claimants considered to amount to threats) made within a letter marked WP, were such that they fell within this rarely invoked exception. In reaching his Judgment the Chief Justice interestingly clarified that settlement offers where no monetary exchange was offered and where both parties simply agreed to "drop hands" (as was the case in the present instance) was perfectly legitimate and would not automatically disqualify a settlement offer from being genuine. The Chief Justice did however consider that the following threats made within the letter squarely fell within the "unambiguous impropriety" exception and could not therefore be protected by WP privilege:
i) a statement of intention to provide the Chief Minister with a
copy of the Draft amended Defence, which included unsubstantiated
allegations of illegality;
ii) Statements which sought to conflate what the Defendants'
perceived to be the possible political interests of one of the
partners of ISOLAS LLP with the settling of the action; and
iii) Seeking to conflate what the Defendants' perceived to be
the broader interests of the jurisdiction with the settling of the
action.
The Judgment serves as a useful indicator of what is and what is not appropriate in settlement negotiations whilst also serving as a useful reminder that WP privilege has its limits. The threat to report wrongdoing or perceived illegality as leverage in settlement negotiations, clearly, goes beyond the realms of acceptability and falls within the "unambiguously improper" exception to WP privilege.
The Court also considered and dismissed the Defendants underlying allegations of illegality for a multiplicity of reasons including that the allegations were based on bare assertions by the Defendant which were not supported by the contemporaneous documents. The Court further noted that no attempt was made by the Defendant to particularise the corporate links between the Claimants and the entities through which the Defendant alleged much of the illegality was conducted (if made out and proved to be illegal)or how that conduct could be attributed to the Claimants
The Judgment is available here
The Claimants, Mansion (Gibraltar) Limited and Onisac Limited were represented by Hodge Malek KC and ISOLAS Litigation Partner James Montado and Associate James Castle.
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