M&A diligence: marking a document ‘without prejudice’ may not be enough to prevent admission to court
In Avonwick Holdings v Webinvest Limited and Another  EWHC, the High Court allowed Avonwick’s application for certain correspondence to be admissible as evidence, even though it… Read more
In Avonwick Holdings v Webinvest Limited and Another  EWHC, the High Court allowed Avonwick’s application for certain correspondence to be admissible as evidence, even though it had been headed “without prejudice and subject to contract” at the time it was sent. The application was allowed on the basis that, at the time of the relevant correspondence, no genuine dispute existed between the parties. Communications made at a time when there is no dispute cannot, with retrospective consent, be made subject to the without prejudice privilege by subsequently raising a dispute. The decision was upheld by the Court of Appeal on 20 October 2014.
Avonwick agreed to loan US$100 million to Webinvest, to enable Webinvest to advance US$200 million to a sub-borrower. The obligations of Webinvest were guaranteed by the second defendant. Webinvest defaulted, and sent Avonwick a proposal to reschedule its liabilities. However, the parties did not come to an agreement on the rescheduling. On 3 April 2014, Avonwick served demands under the loan agreement and guarantee, followed by statutory demands under the Insolvency Act 1986. On 30 May 2014, Webinvest and the second defendant issued applications opposing the statutory demands, alleging that it had been verbally agreed between the parties that Webinvest’s obligation to repay the loan was conditional on receipt of payments from the sub-borrower. The application was supported by a witness statement made by the second defendant, dated 29 May 2014.
Avonwick sought to have certain correspondence dated between April and May 2014 admissible as evidence in the trial. Webinvest and the second defendant opposed the application on the basis that the relevant correspondence had been marked “without prejudice and subject to contract” when it was sent.
In the judgement the Court explained that the express marking of documents as “without prejudice” was a highly material, but not necessarily conclusive factor. In particular, for a document to benefit from without prejudice privilege, there must be a genuine dispute and a genuine attempt to settle that dispute. On the facts of the case, at the time of the correspondence, the defendants had not raised a dispute about their liability to repay the loan. The defendants’ liability was not disputed until 29 May 2014 (the date of the second defendant’s witness statement). Therefore, during the period of the correspondence, no dispute had existed between the parties. For this reason, the correspondence could not benefit from without prejudice privilege and was admissible as evidence.
Parties to commercial negotiations should be aware of the Avonwick decision, and in particular bear in mind that marking a document “without prejudice” will not necessarily be a conclusive factor when a Court decides whether the document is admissible in evidence.
For more information, please contact Andy Moseby.