By a writ dated 20 August 1979 and a statement of claim the plaintiffs, Rush & Tompkins Ltd., claimed, inter alia, (a) against the first defendant, the Greater London Council, a declaration that on a true construction of a main contract contained in documents dated 28 December 1971 and 1 April 1977 by which the plaintiffs undertook to carry out and complete the erection of dwellings and ancillary works on a site at the Hanwell Estate, Ealing, West London, the first defendant was bound to pay to the plaintiffs any sum in respect of direct loss and expense for which the plaintiffs were liable to the second defendants, the subcontractors, P. J. Carey Plant Hire (Oval) Ltd. (trading as P. Carey Contractors), save in so far as such loss had been caused by the plaintiffs' default; (b) against the first and second defendants an account and inquiry as to the amount of any direct loss and expense to which the second defendants were entitled under the terms of the subcontract entered into between themselves and the plaintiffs in or about 26 January 1973 for ground works on the site.

On 12 October 1981, following "without prejudice" correspondence, the plaintiffs and the first defendant entered into a compromise agreement whereby the first defendant agreed to pay to the plaintiffs the sum of £1,200,000, the plaintiffs agreeing to be responsible to meet all claims made by the second defendants. The plaintiffs thereafter discontinued their action against the first defendant.

By a summons dated 22 October 1986 the second defendants applied for an order that the plaintiffs be required to provide specific discovery of the documents specified in schedule 1 part 2 of their supplemental list of documents dated 5 September 1986, being correspondence between the plaintiffs and the first defendant brought into existence for the purpose of reaching settlement with the first defendant, which preceded and culminated in the compromise agreement made between those parties and dated 12 October 1981. On 12 February 1987 Judge Esyr Lewis Q.C. dismissed the second defendants' summons.

By their notice of appeal dated 5 March 1987 the second defendants appealed on the ground, inter alia, that the judge ought to have held that, by reason of the fact that the "without prejudice" correspondence led up to a concluded settlement between the plaintiffs and the first defendant, and of the fact that the second defendants were not parties to the correspondence, the documents were not, or alternatively, had ceased to be privileged from discovery at the suit of the second defendants.

The facts are stated in the judgment.

Richard Fernyhough Q.C. for the second defendants. Under the subcontract the second defendants are entitled to recover loss and 1283 expense from the plaintiffs and in the global settlement reached with the first defendant the plaintiffs received moneys on account for the second defendants which they have failed to pay over to them. The "without prejudice" correspondence passing between the first defendant and the plaintiffs is not privileged from discovery on the facts of this case. The privilege accorded to "without prejudice " correspondence rests chiefly on the principle of public policy that parties should be encouraged to settle disputes out of court (see South Shropshire District Council v. Amos [1986] 1 W.L.R. 1271), but once established, the privilege is not absolute and may be defeated in various ways, e.g. to establish whether or not an agreement has in fact been reached or to prove a threat contained in a privileged letter: see Phipson on Evidence, 13th ed. (1982), para. 19-11 and Halsbury's Laws of England, 4th ed., vol. 17 (1976), pp. 151-153, paras. 212-213. Further, the court can and will remove privilege if the circumstances so require it: see Cutts v. Head [1984] Ch. 290. Thus it is apparent that the public policy principle encouraging settlement may give way on occasions to other principles of public policy which will not protect unlawful acts from disclosure. Moreover the privilege is personal to the immediate parties to the correspondence and only binds them. There is no reason in law why it should bind third parties: see Phipson on Evidence and Teign Valley Mining Co. Ltd. v. Woodcock, The Times, 22 July 1899.

I. Waxman & Sons Ltd. v. Texaco Canada Ltd. [1968] 1 O.R. 642, and on appeal [1968] 2 O.R. 452 can be distinguished from the present case. The judge at first instance in a judgment which was affirmed on appeal there considered correspondence which had not led to settlement, and he equated solicitor-client privilege with "without prejudice" privilege, but it is clear that the two heads of privilege are different with different considerations applying. See also Derco Industries Ltd. v. A. R. Grimwood [1985] 2 W.W.R. 137 and Lorne Stewart Ltd. v. William Sindall Plc. (1986) 35 B.L.R. 109.

The facts of the present case are common in building disputes. There are therefore good public policy reasons why the correspondence should be discoverable to third parties. The settlement agreement itself has been disclosed, but it is characteristically unhelpful to the second defendants since it states an agreement to compromise proceedings for a lump sum, but does not indicate how that sum has been perceived or calculated. In a building dispute it is the detailed breakdown which is crucial. Therefore disclosure of the relevant documents on which the first defendant and the plaintiffs have settled is likely to establish the true differences between the second defendants and the plaintiffs, and that in turn will shorten these proceedings and possibly lead to a further compromise. The judge dealt with the matter as one of overriding principle and did not look at the facts of the case. He was wrong to hold that the privilege arising between the plaintiffs and the first defendant extended to the whole world. He was also wrong to rely on the decision in The Aegis Blaze [1986] 1 Lloyd's Rep. 203. That case concerned litigation privilege to which different policy considerations apply; in particular, litigation privilege is by its very nature personal and attaches to the party claiming it; in consequence and unlike "without prejudice" 1284 correspondence it does not arise solely due to communications with another party. The Aegis Blaze is accordingly distinguishable from the present case and is not binding on the court for present purposes.

The present "without prejudice" correspondence may be relevant to the pleaded issues between the plaintiffs and the second defendants. Its discovery may well lead to settlement of the remaining issues between them. The privilege does not bind third parties particularly since their interests are discussed in and effected by the settlement achieved as a result of the correspondence. After the conclusion of the settlement between the plaintiffs and the first defendant there can be no policy consideration in favour of continuing the privilege. It is however accepted that quite other considerations would arise where no settlement has been reached by virtue of the correspondence.

Charles Hollander for the plaintiffs. The judge was right to decide the matter as a question of general principle and he reached the correct conclusion. "Without prejudice" correspondence is protected because the law encourages the freedom of parties to negotiate without fear that any admission or concession will be used against them. To allow discovery of such correspondence even in another action would therefore weaken the protection thus given and, a fortiori, where the correspondence is sought to be disclosed in the same action, since the admissions, concessions and content of negotiations passing between the plaintiffs and the first defendant are far more likely to inhibit a party from conducting negotiations. If the disclosure as now sought were to be given, the effect would be to discourage settlements and that the court has always set its face against: see Hoghton v. Hoghton (1852) 15 Beav. 278, 321, per Sir John Romilly M.R., and Jones v. Foxall (1852) 15 Beav. 388, 396. Nor will the court permit the principle to be eroded: see La Roche v. Armstrong [1922] 1 K.B. 485, 489, per Lush J. Exactly the same principles apply to solicitor- client privilege as to "without prejudice " privilege, including the maxim "once privileged, always privileged": see I. Waxman & Sons Ltd. v. Texaco Canada Ltd. [1968] 1 O.R. 642, and [1968] 2 O.R. 452; Derco Industries Ltd. v. A. R. Grimwood Ltd. [1985] 2 W.W.R. 137 and The Aegis Blaze [1986] 1 Lloyd's Rep. 203 which is relevant and binding on the court.

The classic definition of "without prejudice" correspondence is that of Lindley L.J. in Walker v. Wilsher (1889) 23 Q.B.D. 335, 337, approved by Danckwerts L.J. and Ormrod J. in Tomlin v. Standard Telephones & Cables Ltd. [1969] 1 W.L.R. 1378, and by Oliver and Fox L.JJ. in Cutts v. Head [1984] Ch. 290, 305-306, 313. Walker v. Wilsher is also authority for the proposition that where letters have become inadmissible because written without prejudice they do not become admissible after the issues have been disposed of. The authorities show that "without prejudice" privilege therefore appears to be a mixture of public policy, convention and implied agreement: see Cutts v. Head [1984] Ch. 290.

However there is no binding authority on whether "without prejudice " correspondence is disclosable to third parties except The Aegis Blaze [1986] 2 Lloyd's Rep. 203 and the persuasive authority of I. Waxman & Sons Ltd. v. Texaco Canada Ltd. [1968] 1 O.R. 642 and [1968] 2 O.R.452. Walker v. Wilsher, 23 Q.B.D. 335 1285 , is concerned with the position between the parties, and does not deal with third parties. In addition in that case agreement had been reached as a result of the "without prejudice " correspondence. It is clear that if agreement is reached, the agreement itself is not privileged: see Tomlin v. Standard Telephones & Cables Ltd. [1969] 1 W.L.R. 1378 and that in certain circumstances it might be a proper construction of the "without prejudice" negotiations for an unqualified admission to be made which is not protected: see In re Daintrey, Ex parte Holt [1893] 2 Q.B. 116. See also Holdsworth v. Dimsdale (1871) 24 L.T. 360; Teign Valley Mining Co. Ltd. v. Woodcock, The Times, 22 July 1899, and Stretton v. Stubbs Ltd., The Times, 28 February 1905; see also Cross on Evidence, 6th ed. (1985), pp. 408-410. Although a narrow view of "without prejudice" privilege cannot be justified (see Walker v. Wilsher, 23 Q.B.D. 335), where proceedings are not settled then the communications remain privileged and are not discoverable to third parties such as the second defendants. The officious bystander if asked whether "without prejudice " admissions could be relied on by the plaintiff in a new action against the defendant after settlement of a previous action would unhesitatingly say "No " and such a result accords with common sense and the policy behind the privilege.

If the court were to allow discovery, settlement would be discouraged particularly in multi-party actions because as soon as one part of the dispute had been settled there would be an application for discovery and all the negotiations would be opened up and interrogatories asked; also those advising as to "without prejudice" negotiations would probably suggest great caution thereby avoiding settlement. "Without prejudice" privilege would take a different route from other heads of privilege for no justifiable reason.

Fernyhough in reply. The question is whether the privilege subsists or disappears once the "without prejudice" negotiations reach a concluded settlement. Lindley L.J. defined the nature of the privilege in Walker v. Wilsher, 23 Q.B.D. 335, 337. But is the present case an exception to the cloak of privilege? There is no authority directly in point but where settlement is reached, then the cloak should go, since the policy reason for the privilege has been fulfilled. The result may well be that negotiations will be more difficult in multi-party actions, but that merely requires the parties to be circumspect in their dealings, and there is nothing to stop them conducting their negotiations orally. However it cannot be right for two parties to litigation to deny documents to a third party in the same litigation and the public policy preventing disclosure should cease to be a relevant consideration once the negotiations have achieved a settlement.

Cur. adv. vult.

In December 1971 the Greater London Council ("G.L.C.") entered into a contract with Rush and Tompkins Ltd. for 1286 the development of the Hanwell Estate in Ealing by the construction of 639 dwellings. In January 1973 Rush and Tompkins engaged P. J. Carey Plant Hire (Oval) Ltd. (trading as P. Carey Contractors, and hereinafter called "Carey Contractors") as domestic subcontractors to carry out certain ground works required by the main contract. Between June 1976 and January 1979 Carey Contractors submitted to Rush and Tompkins claims for loss and expense to which they contend they are entitled under the subcontract. So far, Carey Contractors have only received a very small part of the sum to which they claim to be entitled.

In August 1979 Rush and Tompkins started proceedings to which the G.L.C. and Carey Contractors were defendants. By their statement of claim Rush and Tompkins claimed against the G.L.C. a declaration that the G.L.C. were liable to pay to them any sum which they (Rush and Tompkins) were liable to pay to Carey Contractors in respect of direct loss and expense under the subcontract, save in so far as such loss and expense had been caused by Rush and Tompkins' default. They also claimed as against both defendants an inquiry as to the amount of the loss and expense which Carey Contractors were entitled to recover from them, which as against Carey Contractors they contended did not exceed £ 10,000, and certain other heads of consequential relief.

To this statement of claim both defendants put in defences, and the action was in July 1981 transferred to the official referee's list. However, on 12 October 1981 Rush and Tompkins entered into a compromise agreement with the G.L.C., under which the G.L.C. paid the sum of £1,200,000 to Rush and Tompkins, who were to be responsible for meeting all subcontractors' claims. It is accepted by Rush and Tompkins that that compromise agreement was preceded by correspondence "without prejudice" between themselves and the G.L.C. In December 1981 Rush and Tompkins discontinued the action against the G.L.C.

Rush and Tompkins' action as against Carey Contractors then went to sleep for over three years. We were not told why, and for the purposes of this judgment the delay is immaterial. After various interlocutory applications Carey Contractors were given leave to amend their defence by adding a counterclaim for an inquiry as to the amount due to them under the subcontract and for payment of any amount found due on the inquiry, which they did in February 1986. Since the hearing at first instance from which this appeal is brought, the counterclaim has been further amended and a defence to counterclaim served, but nothing now turns on this.

This appeal concerns Carey Contractors' application for specific discovery of the "without prejudice" correspondence between Rush and Tompkins and the G.L.C. leading up to the compromise agreement of October 1981. The compromise agreement itself has been disclosed to Carey Contractors. It is conceded by Rush and Tompkins that the correspondence may be relevant to the issues between themselves and Carey Contractors, in that it may show how the global settlement sum was arrived at and how the parties to that agreement evaluated Carey Contractors' claim, but they claim that the correspondence is privileged from disclosure because it was conducted without prejudice. This claim to privilege was upheld by Judge Esyr Lewis Q.C. in a judgment 1287 delivered on 12 February 1987, and it is from that judgment that this appeal is brought with the leave of the judge.

The rule which gives the protection of privilege to "without prejudice " correspondence "depends partly on public policy, namely the need to facilitate compromise, and partly on implied agreement:" per Parker L.J. in South Shropshire District Council v. Amos [1986] 1 W.L.R. 1271, 1277. The nature of the implied agreement must depend on the meaning which is conventionally attached to the phrase "without prejudice." The classic definition of the phrase is contained in the judgment of Lindley L.J. in Walker v. Wilsher (1889) 23 Q.B.D. 335, 337:

"What is the meaning of the words 'without prejudice'? I think they mean without prejudice to the position of the writer of the letter if the terms he proposes are not accepted. If the terms proposed in the letter are accepted a complete contract is established, and the letter, although written without prejudice, operates to alter the old state of things and to establish a new one."

Although this definition was not necessary for the facts of that particular case and was therefore strictly obiter, it was expressly approved by this court in Tomlin v. Standard Telephones & Cables Ltd. [1969] 1 W.L.R. 1378: see per Danckwerts L.J. at p. 1383, and per Ormrod J. at pp. 1384-1385. Although he dissented in the result, on this point Ormrod J. agreed with the majority. The definition was further cited with approval by both Oliver and Fox L.JJ. in this court in Cutts v. Head [1984] Ch. 290, 305-306, 313. In our judgment, it may be taken as an accurate statement of the meaning of "without prejudice," if that phrase be used without more. It is open to the parties to the correspondence to give the phrase a somewhat different meaning e.g. where they reserve the right to bring an offer made "without prejudice" to the attention of the court on the question of costs if the offer be not accepted (see Cutts v. Head), but subject to any such modification as may be agreed between the parties, that is the meaning of the phrase. In particular, subject to any such modification, the parties must be taken to have intended and agreed that the privilege will cease if and when the negotiations "without prejudice" come to fruition in a concluded agreement.

The attribution of such intentions to the parties is, in our judgment, entirely consistent with the considerations of public policy which lead to the court to give protection to what has been said in the course of negotiations under the "without prejudice" rule. As Oliver L.J. said in Cutts v. Head, at p. 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 1288 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."

To the like effect was Fox L.J., at p. 314:

"As to public policy it obviously is desirable to facilitate compromise rather than forcing the parties to litigate to the end. But to achieve a compromise one of them has to make an offer. He might be apprehensive that his offer might be used against him if the negotiations failed. So he would make his offer without prejudice to his position if the offer was refused. But that was unfair to the other party. It was one-sided. So it was necessary to extend the 'without prejudice' umbrella to cover both parties."

However, unless the parties have chosen to give the phrase a different meaning, once the "without prejudice" correspondence has resulted in their reaching a concluded agreement, the protection has served the purpose for which it must be treated as having been intended, and this particular head of public policy has no further application. The more general head of public policy which lies behind the rules requiring discovery of documents in civil proceedings (currently R.S.C., Ord. 24 and Order 14 of the County Court Rules 1981) which is to provide the parties with the relevant documentary material before the trial, so as to assist them in appraising the strength or weakness of their respective cases, and thus to provide for the fair disposal of the proceedings before or at the trial: see Halsbury's Laws of England, 4th ed., vol. 13 (1979), p. 2, para. 1, can then take effect.

Approaching the present case on the basis of these principles, it seems to us clear that, unless further authorities compel a different conclusion: (a) the privilege afforded by the correspondence between Rush and Tompkins and the G.L.C. being marked "without prejudice" came to an end when that correspondence came to fruition in the compromise agreement of October 1981; (b) it would then have been discoverable as between the G.L.C. and Rush and Tompkins, had it been relevant to any issue that might still have been outstanding between them, although it is difficult to think of any issue between those parties to which it might have been relevant; (c) it is certainly discoverable as between Rush and Tompkins and Carey Contractors where it is conceded to be relevant.

We now turn to the principal further authorities cited to us to see whether they require us to reach any different conclusion. In Holdsworth v. Dimsdale (1871) 24 L.T. 360, the defendant was being sued on a bill of exchange drawn and indorsed by him. He wrote to the plaintiff's attorneys a letter, headed "without prejudice", as follows:

"I never had any notice of dishonour of this bill, but if the debt will be accepted without costs, I do not want Mr. Holdsworth to be the loser of it, and I would give a cheque."

Thereupon the plaintiff applied to discontinue the action on payment of costs by him to the defendant, which costs were subsequently taxed and paid. The plaintiff then commenced another action on the bill against the defendant, and offered the "without prejudice" letter as evidence of waiver of notice of dishonour. It was held he could do so. Blackburn J. said, at p. 361:

"Then comes the further question, whether when the letter was only to be without prejudice conditionally and the condition was fulfilled, the letter could be used against the writer of it? The mere statement of the point resolves it. It is, of course, quite right that admissions made without prejudice should not be available against those making them; but when an admission is upon a condition, as here, which has been performed, it would be monstrous to say that it should never be used. Here the writer of the letter says in effect, 'I will waive notice of dishonour if you consent to forego costs. I say this is not an admission against myself unless you accept my offer; if you concur, of course, it may be used.'"

Teign Valley Mining Co. Ltd. v. Woodcock, The Times, 22 July 1899, is cited by both Phipson on Evidence, 13th ed. (1982), paras. 19-11, 20-04; and Halsbury's Laws of England, 4th ed., vol. 17 (1979), p. 151, para. 212, as authority for the proposition that the protection afforded by "without prejudice" does not extend to third parties.

The report of the Teign Valley case is by no means clear, but it appears that what happened was that, in proceedings between W. and R., W. sought to tender in evidence a document, marked "without prejudice," proposing terms of settlement in an action between T. and R., which contained certain admissions on the part of R. Darling J. admitted the document, although expressing doubts as to whether he was right to do so. The report is such that it is not worthy of citation as constituting authority for any proposition of law: but at least it can be said that it does not appear to be inconsistent with our conclusion above.

Stretton v. Stubbs Ltd., The Times, 28 February 1905, was an action for defamation. The plaintiff alleged that the defendants had published a statement that judgment had been obtained against him in the county court, the innuendo being that this imputed insolvency to the plaintiff. The defendants sought to put in a letter written by the plaintiff "without prejudice," which had led to a concluded settlement in another action, which contained admissions by the plaintiff that he was absolutely insolvent. The trial judge had refused to admit the letter, but this court allowed the letter to be read. Mathew L.J. said that, in his opinion, a letter written with regard to an action and marked "without prejudice" was only privileged for the purposes of that action. The report of this case is also not of the clearest, but the decision appears to be entirely consistent with our conclusion above.

Derco Industries Ltd. v. A. R. Grimwood Ltd. [1985] 2 W.W.R. 137 is a decision of the Court of Appeal for British Columbia which is directly in point. On facts very similar to those in the present case it was 1290 held that a plaintiff, in the same position as Carey Contractors, was entitled to production of without prejudice correspondence between the defendants and another party, which had led to a concluded settlement in another action arising from the same construction project.

The Derco Industries case was followed by Judge Hawser Q.C. in Lorne Stewart Ltd. v. William Sindall Plc. (1986) 35 B.L.R. 109.

Mr. Hollander, for Rush and Tompkins, relied, as did the judge below, on two appellate decisions, one of the Court of Appeal of Ontario and one of this court.

I. Waxman & Sons Ltd. v. Texaco Canada Ltd. [1968] 2 O.R. 452 is the Ontario Case. The headnote reads:

"Communications written 'without prejudice' and with a view to settlement of issues between A and C are privileged from production at the instance of B in subsequent litigation between A and B on the same subject-matter or subject-matter closely related to that with which the correspondence in question was concerned."

The decision of this court, on which Mr. Hollander and the judge relied, is The Aegis Blaze [1986] 1 Lloyd's Rep. 203. The privilege there in question was legal professional privilege. This court held that a party entitled to claim legal professional privilege for a document in one action could claim privilege for the same document in a second or subsequent action provided that there was a sufficient connection for the document to be relevant. However, legal professional privilege is based upon an entirely different head of public policy than that which justifies "without prejudice" privilege, and with all respect to Fraser J. in the Waxman case, who thought that similar reasoning might "well be applicable both to solicitorand-client privilege and to without prejudice privilege" (see [1968] 1 O.R. 642, 657), and to the judge in the present case, these two heads of privilege are wholly different. In our judgment, therefore, The Aegis Blaze affords no assistance in the present case.

That would be enough to dispose of the present appeal, but the case has disclosed what appear to be some widespread misconceptions as to the nature of "without prejudice" privilege. In an attempt to remove those misconceptions, and to give guidance to the profession, we venture to state the following principles. (1) The purpose of "without prejudice" privilege is to enable parties to negotiate without risk of their proposals being used against them if the negotiations fail. If the negotiations succeed and a settlement is concluded, the privilege goes, having served its purpose. This will be the case whether the privilege is claimed as against the other party or parties to the negotiations, or as against some outside party. (2) It is possible for the parties to use a form of words which will enable the "without prejudice " correspondence to be referred to, even though no concluded settlement is reached e.g. on the issue of 1291 costs: see Cutts v. Head [1984] Ch. 290. (3) In contrast, in our judgment, it might be possible for parties to use a special form of words which, at least as between the parties themselves, would preclude reference to "without prejudice" correspondence even after a settlement has been reached. However, no such special form of words was used in the present case and we find it unnecessary to express any view on the effect which the use of such special wording would have in the context of subsequent applications for discovery by third parties. (4) The privilege does not depend on the existence of proceedings. (5) Even while the privilege subsists i.e. before any settlement is reached, there are a number of real or apparent exceptions to the privilege. Thus: (a) the court may always look at a document marked "without prejudice" and its contents for the purposes of deciding its admissibility: see In re Daintrey, Ex parte Holt [1893] 2 Q.B. 116 and South Shropshire District Council v. Amos [1986] 1 W.L.R. 1271. This is not a real exception to the privilege, since the court must always be able to rule on the admissibility of a document, when a claim to privilege is challenged. It is under this head that the court can look at the documents to see e.g. if an agreement has been concluded and, if so, to construe its terms. (b) The rule has no application to a document which, by its nature, may prejudice the person to whom it is addressed. Thus a letter written without prejudice may be used to prove an act of bankruptcy: see In re Daintrey. Other examples are given in Phipson on Evidence, 13th ed. (1982), para. 19-11. (c) There may be other exceptions: see Phipson, but we do not think it appropriate to consider them further, since they do not arise in the context of the present case. (6) The privilege extends to the solicitors of the parties to the "without prejudice " negotiations: see La Roche v. Armstrong [1922] 1 K.B. 485. However, we do not think it necessary or desirable to express any view on the question whether the privilege is valid against a third party (other than a party's solicitor) when no settlement has been reached by the parties to the "without prejudice " negotiations. Teign Valley Mining Co. Ltd. v. Woodcock, The Times, 22 July 1899, suggests that it may not be valid against such a third party; I. Waxman & Sons Ltd. v. Texaco Canada Ltd. [1968] 2 O.R. 452is persuasive authority to the effect that it is valid against a third party in these circumstances. We can see that in such a case there is a balance to be held as between competing principles of public policy and this point should be left for decision in a case when the question arises fairly and squarely.

This appeal has been very well argued on both sides. For the reasons given above we allow it and make an order for specific discovery by Rush and Tompkins of the "without prejudice" correspondence between Rush and Tompkins and the G.L.C. brought into existence for the purpose of reaching settlement with the G.L.C.

Appeal allowed. Order for specific discovery. Leave to appeal. ([Reported by Miss DIANA PROCTER, Barrister-at-Law] )

This was an appeal by the plaintiffs in the action, Rush & Tompkins Ltd. from the judgment dated 21 December 1987 of the Court of Appeal (Slade, Balcombe and Stocker L.JJ.), ante, p. 1285H, allowing an appeal by the second defendants, P. J. Carey Plant Hire (Oval) Ltd. (trading as P. Carey Contractors), from the judgment dated 12 February 1987 of Judge Esyr Lewis Q.C. (sitting on official referees' business) dismissing the second defendants' application for specific discovery of documents. The Court of Appeal had ordered that the plaintiffs should give discovery of certain correspondence marked "without prejudice " which had passed between the plaintiffs and the first defendant in the action, the Greater London Council, and which led to a concluded settlement of the disputes between those two parties.

John Dyson Q.C. and Charles Hollander for the plaintiffs. The issue raised by this appeal is a very short issue and may be stated as follows: if "without prejudice" correspondence comes into existence for the purposes of negotiating a settlement between parties A and B, is that correspondence privileged from production as against C, who is a party to the same action but not a party to the settlement agreement, and against whom A's action continues? There is very little authority on the point, and it should not be decided on the basis of what authority there is but on principle.

Reliance is placed on the following propositions: (1) The general rule is that statements and admissions made by A and B to each other in "without prejudice" negotiations to settle a dispute between them are inadmissible in subsequent litigation between those parties. There are exceptions but none are relevant in the present case. (2) The privilege which attaches to those rights is not removed as between A and B unless they consent to that removal and it is not removed merely because the dispute between them has been settled. (3) The rule is a rule of law and the reason for it is that it is a matter of public policy that settlements of disputes are to be encouraged. (4) The same reason of public policy which makes "without prejudice" material inadmissible as between A and B also makes it inadmissible between B and C, namely, the public interest in encouraging A and B to settle the dispute between them.

The general rule is not in doubt: for a judicial statement of the purpose of the privilege: see Scott Paper Co. v. Drayton Paper Works Ltd. (1927) 44 R.P.C. 151, 156, per Clauson J.

The courts have always recognised that there must be exceptions to the "without prejudice" rule. Most of them are discussed in Phipson on Evidence, 13th ed. (1982) paragraphs 19-10 and 19-11.

There is no authority which leads to the conclusion reached by the Court of Appeal. The Court of Appeal erred in the reliance it placed on Walker v. Wilsher (1889) 23 Q.B.D. 335, in particular, the judgment of Lindley L.J. at p. 337, where he refers to the meaning of the words "without prejudice." But that passage is strictly obiter as Balcombe L.J. in the present case accepted. He, however, pointed out that they had been approved in Tomlin v. Standard Telephones & Cables Ltd. [1969] 1 W.L.R. 1378 and Cutts v. Head [1984] Ch. 290. But in neither of those 1293 cases did the Court of Appeal have to deal with the position of correspondence leading to an agreement but not being part of that agreement once an agreement has been reached. In the Tomlin case the issue was whether two letters were admissible in order to prove an agreement, albeit written "without prejudice." Cutts v. Head was concerned with whether any conventional meaning of the words "without prejudice" could be varied by the parties so as to enable one party to stipulate that his "without prejudice" letter might be relied upon on a question of costs.

The second defendants did not seek to argue in the Court of Appeal that the immediate parties to "without prejudice" communications could never rely upon the privilege as against the third party; nevertheless the Court of Appeal left the point open. The only English authority which deals with this question is Teign Valley Mining Co. Ltd. v. Woodcock, The Times, 22 July 1899. Balcombe L.J. was correct in stating that the report is such that it is not worthy of citation as constituting authority for any proposition of law. The same observation may be made of Stretton v. Stubbs Ltd., The Times, 28 February 1905.

Strong reliance is placed on The Aegis Blaze [1986] 1 Lloyd's Rep. 203 by analogy. True it is distinguishable from the present case in that it deals with legal professional privilege, which is privilege simpliciter, and not "without prejudice" privilege, which is a form of privilege sui generis and might be described as quasi privilege. Nevertheless, the rationale behind the rule is similar. The law has taken a firm stand in respect of legal professional privilege that the public interest in maintaining that privilege outweighs the public interest in production of all relevant documentation so that legal professional privilege subsists in a different action so long as the party claiming privilege in the second action is the person entitled to privilege in the first action. Croom-Johnson L.J., at pp. 210-211, justified the maintenance of legal professional privilege outside the immediate action for which it was created on public policy grounds which are no different from those applicable in the present case. Accordingly, it would be wrong for English law to take a different course in respect of "without prejudice" privilege to that which obtains in respect of privilege simpliciter unless there are valid reasons for it to do so. In the plaintiffs' submission there are none, and therefore the Court of Appeal should not have rejected its applicability to the present case.

To the question does the "without prejudice" rule subsist after agreement between A and B so that they may deny production to C, the answer is in the affirmative. The Court of Appeal referred to the decision of the Court of Appeal of British Columbia in Derco Industries Ltd. v. A. R. Grimwood Ltd. [1985] 2 W.W.R. 137, but that case does not address the issue in the way the present plaintiffs contend for. Further, there is little reasoning set out in the judgment of Lambert J.A., doubtless for the reasons stated, at p.141, that the decision was urgently required. The court merely asserted in weighing up the various factors involved that the balancing act might be different in respect of third parties after a settlement had been concluded. It does not represent English law.

The only decision which discusses the present question in depth, and one on which the plaintiffs rely, is the Ontario case of I. Waxman & Sons Ltd. v. Texaco Canada Ltd. [1968] 2 O.R. 452 where the Court of Appeal of Ontario in a short judgment upheld the very full and careful judgment of Fraser J. [1968] 1 O.R. 642. The Court of Appeal in the present case distinguished Waxman on the basis that no concluded settlement was reached. However, Waxman did not proceed on that basis; indeed, given that the decision was based upon the importance for public policy reasons of maintaining privilege and the analogy with legal professional privilege, it would be difficult to see how the Waxman case could have been decided any differently had a concluded agreement been reached between the immediate parties.

In conclusion, the following passage from the judgment of Judge Esyr Lewis Q.C. at first instance is adopted as part of the argument. "It seems to me that it is the over-riding policy of the law to encourage the settlement of actions and parties say things during 'without prejudice' discussions that they would not want other parties to know about. Accordingly, as a matter of common sense and general principle, I consider that the privilege which arose between the plaintiffs and the G.L.C. extends to the whole world. Mr. Fernyhough argued that it is one thing between the parties to the course of privileged correspondence but quite another in relation to a third party. This, in my view, mistakes the nature and basis of the privilege. The reason for it is to enable people to speak their minds freely. If they know that 'without prejudice' negotiations are open to subsequent scrutiny by third parties, this may have an inhibiting effect on their approach. It will inhibit them from laying their cards on the table. For example, in a case when there are several defendants, if one defendant settles with the plaintiffs, the plaintiffs may makeconcessions to achieve the settlement. On Mr. Fernyhough's argument all the other defendants would be entitled to use the documents referring to those concessions. If parties thought that such documents could be used in this way, they would be careful and wary and could be inhibited from making a settlement. In my judgment, it is as a matter of good sense that the privilege arising from 'without prejudice' correspondence relating to the negotiations should not be limited to the immediate parties. I am not concerned with the circumstances in which privilege can be lost, such as by waiver, or the circumstances in which the court can examine 'without prejudice' correspondence where there is an issue as to whether the 'without prejudice' negotiations ended in a binding contract. It is my view that once privilege arises between A and B in the course of correspondence, that correspondence is privileged as against all."

Richard Fernyhough Q.C. and Rosemary Jackson for the second defendants. The basis on which the Court of Appeal decided the present case is correct on the present law and is the view that has been accepted over the years.

Alternatively, the second defendants are strangers to the "without prejudice " negotiations and therefore they are not bound by the "without prejudice " protection.

Reliance is placed on the following propositions: (1) The privilege accorded to "without prejudice" correspondence determines as and when that correspondence results in a concluded agreement between the parties to it. (2) The privilege accorded to "without prejudice" correspondence which has resulted in a concluded agreement does not prevent a third party to that correspondence from requiring discovery of it providing that the third party can satisfy the overriding test of relevance. (3) The privilege accorded to "without prejudice " correspondence which has not resulted in a concluded agreement does not prevent a third party to that correspondence from requiring discovery of it providing that the third party can satisfy the overriding test of relevance. (4) The parties to "without prejudice" correspondence can use a form of words in that correspondence which would thereafter preclude use of that correspondence as between themselves, even though the correspondence has led to a concluded agreement. (5) The parties to "without prejudice" correspondence cannot use a form of words in that correspondence which would thereafter preclude discovery of that correspondence at the suit of a third party whether or not the correspondence leads to a concluded agreement.

What is the true nature of "without prejudice" privilege? (i) It is the protection which the law accords parties who are making a genuine attempt to settle a dispute. Therefore it only arises when there is an actual dispute in existence and where one party make a genuine attempt to settle the dispute. (ii) The protection given pertains to admissions or statements which are damaging to the party making them and which can be used against him by the other party. (iii) The rationale behind the privilege is to encourage parties to settle disputes and to have formed an opinion in so doing. (iv) The discussion "without prejudice" are subject to the implied condition that if a settlement is not reached one cannot use anything in the correspondence between the parties.

It follows from (iv) that the converse is true, namely, that if a settlement is reached then the privilege disappears: see the judgment of the Court of Appeal, ante, p. 1290G. This is a correct statement of the law following the dictum of Lindley L.J. in Walker v. Wilsher, 23 Q.B.D. 335, 337, which expresses the modern law: Cutts v. Head [1984] Ch. 290, 305H, per Oliver L.J. For examples of limitations to the doctrine, see In re River Steamer Co. (1871) L.R. 6 Ch.App. 822; Holdsworth v. Dimsdale (1871) 24 L.T. 360 and In re Daintrey, Ex parte Holt [1893] 2 Q.B. 116.

As to the Commonwealth cases. In Knapp v. Metropolitan Permanent Building Association (1888) 9 N.S.W.R. 468 there it was held that letters written "without prejudice" with a view to effecting a settlement of a case were privileged, but that the privilege was lost so soon as the settlement had been effected. Reliance is placed on Schetky v. Cochrane and The Union Funding Co. [1918] 1 W.W.R. 821 which shows that the privilege is personal to the parties to the negotiations and is not binding on third parties.

Attention is drawn to the distinction between discoverability of documents and admissibility of evidence. The present appeal only concerns discoverability of documents. It is questionable whether the 1296 "without prejudice " doctrine is part of the law of privilege at all; rather it is a rule of evidence. "Without prejudice" documents are discoverable as between the immediate parties and at the suit of third parties if they are relevant. Whether those documents are admissible in evidence is an entirely different question. All the cases hitherto cited dealt with admissibility at the trial. This proposition can be tested by reference to the list of documents, which must be served on discovery. To the question: in which part of the List of Documents are "without prejudice" documents to be placed? The answer is that it can only be in the first part of the Schedule I. Cross on Evidence, 6th ed. (1985) chapter XII, section 3 refers to "statements made without prejudice," p. 408 and "C. limits of the privilege," at p. 410. In those passages there is no mention of discoverability.

R.S.C., Ord. 24 deals with discovery and inspection of documents: see Supreme Court Practice 1988, p. 408. For discovery by parties without order: see R.S.C., Ord. 24, r. 2(1). For the form of list of documents: see R.S.C., Ord. 24, r. 5. The privilege afforded is that against production: see the notes to that rule; Supreme Court Practice 1988, p. 420. On p. 425 of the Supreme Court Practice 1988, under the heading "Without Prejudice Communications" there is a note which states: "Any discussions between the parties for the purpose of resolving the dispute between them are not admissible, even if the words 'without prejudice' or their equivalent are not expressly used ... It follows that documents containing such material are themselves privileged from production." That last sentence is contested. There is no authority cited for the proposition there put forward.

If the plaintiffs' argument is accepted that a document incorporating a settlement of proceedings between A and B is subject to privilege it leads to the impossible position that no third party is entitled to see that document however relevant it might be in proceedings in which a third party is concerned. In this case the relevance of the "without prejudice" letters is conceded by the plaintiffs. Accordingly they ought to be compelled to give discovery of the documents leaving the trial judge to determine their admissibility when they are sought to be introduced in evidence.

The courts have always recognised that there must be exceptions to the "without prejudice" rule. There are a number of exceptions, most of which are discussed in Phipson on Evidence, 13th ed. (1982), paras. 19-10 and 19-11. The exceptions recognised have included the following: (i) The mere fact and date of such letters and negotiations, as distinguished from their contents, may sometimes be received to explain delay: Walker v. Wilsher, 23 Q.B.D. 335, 338. (ii) Letters are only protected when there was a dispute or negotiations pending between the parties and the letters were bona fide written with a view to compromise: In re, Daintrey, Ex parte Holt [1893] 2 Q.B. 116, 119. (iii) A letter marked "without prejudice" or "private and confidential" which contains a threat against the recipient if the offer is not accepted is admissible to prove such threat: Kitcat v. Sharp (1882) 48 L.T. 64, 66. (iv) Where the alternative to acceptance was the committal of an act of bankruptcy, the letter was admissible to prove such act: In re Daintrey, Ex parte Holt [1893] 2 Q.B.116 1297 , 120. (v) Independent facts admitted during negotiations for a settlement are receivable: Waldridge v. Kennison (1794)1 Esp. 143; 170 E.R. 306. (vi) "Without prejudice" offers are receivable if the protected condition has been fulfilled: Holdsworth v. Dimsdale (1871) 24 L.T. 360, 361. (vii) Correspondence headed "without prejudice" is admissible for the purpose of ascertaining whether or not an agreement has been reached: Tomlin v. Standard Telephones & Cables Ltd. [1969] 1 W.L.R. 1378, 1382. (viii) If privilege is claimed, but challenged, the court can look at a document headed "without prejudice" in order to determine its nature: South Shropshire District Council v. Amos [1986] 1 W.L.R. 1271, 1277, per Parker L.J. (ix) Letters written "without prejudice save as to costs": Cutts v. Head [1984] Ch. 290.

The plaintiffs relied strongly by analogy on the position in relation to legal professional privilege and cited in support the decision in The Aegis Blaze [1986] 1 Lloyd's Rep. 203. But there is a difference. As to legal professional privilege, a party making or defending a claim has practically no other choice but than to seek legal advice and the law makes privileged what that party says to his legal adviser. But in relation to "without prejudice " privilege, a party is free to choose whether he will enter into "without prejudice" correspondence and he may decide what he will or will not state. At all times such a party is in control of what he states but in relation to his own solicitor he has to tell all. Legal professional privilege exists whether or not a dispute is in existence. Whereas "without prejudice" privilege only arises when there is a dispute and the parties are genuinely attempting to resolve it. This distinction is implicit in the judgment of the Court of Appeal; the two privileges are entirely distinct. The Aegis Blaze [1986] 1 Lloyd's Rep. 203 is solely concerned with legal professional privilege, and so has no bearing on the decision in this appeal.

Dyson Q.C. in reply. It is said that the present issue is not one of admissibility but of discoverability. It is further said that regardless of whether documents are admissible they should be produced. The matter is governed by R.S.C., Ord. 24, r. 5(2). If a matter goes to privilege it is dealt with at the interlocutory stage. The second defendants' argument could lead to grave difficulties at the trial in complicated proceedings. It is emphasised that the question of produceability has to be dealt with at the interlocutory stage. The question before the House is whether there is a proper claim to privilege where there are "without prejudice" negotiations. If there is to be a challenge to the claim for privilege it should be taken before the Master at the interlocutory stage.

As to the Schetky case [1918] 1 W.W.R. 821, there is no reference to it in either Cross on Evidence, 6th ed., or Halsbury's Laws of England, 4th ed. There is nothing in that case which detracts from the plaintiffs' contentions. As to the English authorities, it is plain that the dictum of Lindley L.J. in Walker v. Wilsher, 23 Q.B.D. 335, 337, has never been applied in the way that it was applied by the Court of Appeal in the present case. The point developed in Wigmore on Evidence, 2nd ed. (1923), vol. 2, p. 524 et seq., is not to be found in English law.

Their Lordships took time for consideration.

My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Griffiths. I agree with it and, for the reasons he gives, I would allow the appeal.

My Lords, for the reasons given by my noble and learned friend Lord Griffiths I would allow the appeal.

My Lords, this appeal raises a novel point on the right to discovery of documents. It arises out of a dispute under a building contract in the following circumstances. The appellants, Rush & Tompkins Ltd., entered into a building contract in December 1971 with the Greater London Council ("G.L.C.") to build 639 dwellings on the Hanwell Estate in Ealing. In January 1973 Rush & Tompkins engaged the respondents, P. J. Carey Plant Hire (Oval) Ltd., as subcontractors to carry out ground works required under the main contract.

The completion of the contract was subject to much disruption and delay and between June 1976 and January 1979 Carey put in claims for loss and expense to Rush & Tompkins. Rush &Tompkins for their part maintained that they were entitled to be reimbursed by the G.L.C. in respect of these claims for loss and expense under the subcontract. It appears that the G.L.C. would not agree Carey's claim and consequently Rush & Tompkins would not pay it. Eventually in order to resolve the deadlock Rush & Tompkins commenced proceedings in August 1979 against the G.L.C. as first defendant and Carey as second defendant in which they claimed an inquiry into the loss and expenses to which Carey were entitled under the subcontract and a declaration that they were entitled to be reimbursed that sum by the G.L.C.

However, before these proceedings came to trial Rush & Tompkins entered into a compromise with the G.L.C. on 12 October 1981 in which Rush & Tompkins accepted the sum of £1,200,000 in settlement of all outstanding claims under the main contract. It was a term of this settlement that Rush & Tompkins would accept direct responsibility for all the subcontractors' claims. This settlement embraced matters which ranged far beyond those raised in the action with which this appeal is concerned. Rush & Tompkins then discontinued the action against the G.L.C.

The terms of this settlement were disclosed to Carey but the settlement did not show what valuation had been put upon Carey's claim in arriving at the global settlement of £1,200,000.

The action then went to sleep but eventually it awoke and Carey added a counterclaim to recover their loss and expense which they quantified at £ 150,582.86. In their statement of claim Rush & Tompkins had pleaded that the architect had withheld consent to the settlement of Carey's claim and that the G.L.C. had stated in writing that the claim did not exceed a value of approximately £10,000. So on the face of it the gap between the parties was very wide.

Carey, however, believed that in the negotiations between Rush & Tompkins and the G.L.C. documents must have come into existence 1299 which showed the basis upon which Carey's claim was valued for the purpose of the global settlement and they suspected that they might show that the figure was very much larger than the sum of £10,000 which had been alleged as the value of the claim in the statement of claim.

Rush & Tompkins admit that there are such documents and that they relate to the issues in the action, presumably because they cast light on the value of Carey's claim, but they maintain that Carey are not entitled to discovery of these documents because they came into existence for the purpose of settling the claim with the G.L.C. and are thus protected from discovery by the "without prejudice" rule.

Carey took out a summons for the specific discovery of this "without prejudice" correspondence but the official referee, Judge Esyr Lewis Q.C., accepted the argument of the main contractors and refused discovery. The Court of Appeal reversed his decision and ordered discovery of the "without prejudice " correspondence passing between Rush & Tompkins and the G.L.C. holding that the protection given by the "without prejudice" rule ceased once a settlement had been reached.

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. A competent solicitor will always head any negotiating correspondence "without prejudice" to make clear beyond doubt that in the even of the negotiations being unsuccessful they are not to be referred to at the subsequent trial. However, the application of the rule is not dependent upon the use of the phrase "without prejudice" and if it is clear from the surrounding circumstances that the parties were seeking to compromise the action, evidence of the content of those negotiations will, as a general rule, not be admissible at the trial and cannot be used to 1300 establish an admission or partial admission. I cannot therefore agree with the Court of Appeal that the problem in the present case should be resolved by a linguistic approach to the meaning of the phrase "without prejudice." I believe that the question has to be looked at more broadly and resolved by balancing two different public interests namely the public interest in promoting settlements and the public interest in full discovery between parties to litigation.

Nearly all the cases in which the scope of the "without prejudice" rule has been considered concern the admissibility of evidence at trial after negotiations have failed. In such circumstances no question of discovery arises because the parties are well aware of what passed between them in the negotiations. These cases show that the rule is not absolute and resort may be had to the "without prejudice" material for a variety of reasons when the justice of the case requires it. It is unnecessary to make any deep examination of these authorities to resolve the present appeal but they all illustrate the underlying purpose of the rule which is to protect a litigant from being embarrassed by any admission made purely in an attempt to achieve a settlement. Thus the "without prejudice" material will be admissible if the issue is whether or not the negotiations resulted in an agreed settlement, which is the point that Lindley L.J. was making in Walker v. Wilsher (1889) 23 Q.B.D. 335 and which was applied in Tomlin v. Standard Telephones & Cables Ltd. [1969] 1 W.L.R. 1378. The court will not permit the phrase to be used to exclude an act of bankruptcy: see In re Daintrey, Ex parte Holt [1893] 2 Q.B. 116 nor to suppress a threat if an offer is not accepted: see Kitcat v. Sharp (1882) 48 L.T. 64. In certain circumstances the "without prejudice" correspondence may be looked at to determine a question of costs after judgment has been given: see Cutts v Head [1984] Ch. 290. There is also authority for the proposition that the admission of an "independent fact" in no way connected with the merits of the cause is admissible even if made in the course of negotiations for a settlement. Thus an admission that a document was in the handwriting of one of the parties was received in evidence in Waldridge v. Kennison (1794) 1 Esp. 142. I regard this as an exceptional case and it should not be allowed to whittle down the protection given to the parties 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. If the compromise fails the admission of the facts made for the purpose of the compromise should not be held against the maker of the admission and should therefore not be received in evidence.

I cannot accept the view of the Court of Appeal that Walker v. Wilsher, 23 Q.B.D. 335, is authority for the proposition that if the negotiations succeed and a settlement is concluded the privilege goes, having served its purpose. In Walker v. Wilsher the Court of Appeal held that it was not permissible to receive the contents of a "without prejudice" offer on the question of costs and no question arose as to the admissibility of admissions made in the negotiations in any possible subsequent proceedings. There are many situations when parties engaged upon some great enterprise such as a large building construction 1301 project must anticipate the risk of being involved in disputes with others engaged on the same project. Suppose the main contractor in an attempt to settle a dispute with one subcontractor made certain admissions it is clear law that those admissions cannot be used against him if there is no settlement. The reason they are not to be used is because it would discourage settlement if he believed that the admissions might be held against him. But it would surely be equally discouraging if the main contractor knew that if he achieved a settlement those admissions could then be used against him by any other subcontractor with whom he might also be in dispute. The main contractor might well be prepared to make certain concessions to settle some modest claim which he would never make in the face of another far larger claim. It seems to me that if those admissions made to achieve settlement of a piece of minor litigation could be held against him in a subsequent major litigation it would actively discourage settlement of the minor litigation and run counter to the whole underlying purpose of the "without prejudice" rule. I would therefore hold that as a general rule the "without prejudice" rule renders inadmissible in any subsequent litigation connected with the same subject matter proof of any admissions made in a genuine attempt to reach a settlement. It of course goes without saying that admissions made to reach settlement with a different party within the same litigation are also inadmissible whether or not settlement was reached with that party.

In arriving at my opinion on this aspect of the case I have taken into account the reports of two cases in "The Times" newspaper around the turn of the century. The first is a decision of Darling J. in Teign Valley Mining Co. Ltd. v. Woodcock, The Times, 22 July 1899, which is cited in both Phipson on Evidence, 13th ed. (1982), pp. 374-375, 386, paras. 19-11, 20-04; and Halsbury's Laws of England, 4th ed., vol. 17 (1976), para. 212 as authority for the proposition that the protection afforded by "without prejudice" does not extend to third parties. The report is short and unclear, but it appears that the claim was by a company for money owed upon calls upon its shares. The defendant, Woodcock, admitted liability to the company but claimed against a Captain Rising that he held the shares as his nominee. The judge admitted in evidence terms of the negotiation between the plaintiffs and Captain Rising in which Captain Rising admitted ownership of the shares standing in the name of the nominee. The judge expressed doubts whether he should have admitted the evidence and said he did so because he had been pressed to do so by counsel. I agree with the comment of the Court of Appeal [1988] 2 W.L.R. 533, 538 that "The report is such that it is not worthy of citation as constituting authority for any proposition of law" The other case is Stretton v. Stubbs Ltd., The Times, 28 February 1905. This was an action for libel and slander arising in the following circumstances. Mr. Stretton was an artist and judgment had been obtained against him in the sum of £16 in the City of London Court by a picture frame maker. That judgment had been entered by consent pursuant to a "without prejudice" agreement with the plaintiff's solicitor that no publicity should be given to the result of the action. The defendants published the judgment in "Stubbs' Weekly Gazette" and the plaintiff 1302 alleged that their canvasser had gone round to various tradesmen pointing out the importance of subscribing to the "Gazette", directing their attention to the plaintiff's name and saying that he could not be worthy of credit. The jury returned a verdict for the plaintiff of £25. As part of his case the plaintiff had relied upon the contract between himself and the solicitor for the plaintiff in the City of London Court action that the judgment should not be made public. This contract was contained in two "without prejudice" letters. The offer was contained in a letter from the plaintiff and the acceptance in a letter from the solicitor. The judge permitted the second letter to be put in evidence and read but refused to admit the first letter which had contained admissions by the plaintiff that he was absolutely insolvent. From a reading of the report it appears that the ground upon which it was submitted to the Court of Appeal that the judge had erred in refusing to admit the first letter was that putting in the second letter as part of the "without prejudice" correspondence rendered the first letter admissible. It was also submitted that it would be wrong for the plaintiff not to be allowed to be cross-examined on his assertion that he was insolvent and at the same time to allow him to put himself before the jury as being quite solvent and of good credit. The Court of Appeal allowed the first letter to be read to the court. The report does not say why Sir Richard Henn Collins M.R. permitted it but Matthew L.J. is recorded as saying "that in his opinion a letter written with regard to an action and marked 'without prejudice' was only privileged for the purpose of that particular action." No citation of authority or reasoning is given in support of that opinion. There may well have been good grounds for admitting the first letter in that action on the ground that it was a part of a correspondence which the plaintiff had chosen to put in evidence, and possibly also on the ground of establishing an independent fact, namely, the plaintiff' s insolvency, which was unconnected with the merits of the dispute about the amount owed to the frame maker and was obviously of central importance to the issue of libel or slander. I cannot however regard it as an authority of any weight for the proposition that "without prejudice" negotiations should in all circumstances be admissible at the suit of a third party.

The only issue that now survives in the present litigation is the subcontractors' counterclaim. For the reasons I have given the contents of the "without prejudice" correspondence between the main contractor and the G.L.C. will not be admissible to establish any admission relating to the subcontractors' claim. Nevertheless, the subcontractors say they should have discovery of that correspondence which one must assume will include admissions even though they cannot make use of them in evidence. They say that the correspondence is likely to reveal the valuation put upon the claim by the main contractor and the G.L.C. and that this will provide a realistic starting point for negotiations and therefore be likely to promote a settlement. This is somewhat speculative because for all we know the subcontractors' claim may have been valued in the "without prejudice" correspondence at no more than the figure of £10,000 pleaded in the statement of claim leaving the parties as far apart 1303 as ever. However, it is of course a possibility that it appeared at a much higher figure.

It was only at a late stage in the argument for Carey that the distinction between discoverability and admissibility was taken. In the courts below the question appears to have been considered solely on the question of admissibility. But the right to discovery and production of documents does not depend upon the admissibility of the documents in evidence: see O'Rourke v. Darbishire [1920] A.C. 581.

The general rule is that a party is entitled to discovery of all documents that relate to the matters in issue irrespective of admissibility and here we have the admission of the head contractors that the "without prejudice " correspondence would be discoverable unless protected by the "without prejudice" rule. There is little English authority on this question but I think some light upon the problem is to be gained from a consideration of the decision in Rabin v. Mendoza & Co. [1954] 1 W.L.R. 271. In that case the plaintiffs sued the defendants for negligence in surveying a property. Before the action commenced a meeting had taken place between the plaintiffs' solicitor and a partner in the defendants' firm of surveyors to see if the matter could be settled without litigation. The defendants agreed at the meeting to make inquiries to see if they could obtain insurance cover against possible risk of damage to the house so that litigation could be avoided. After the interview the defendants obtained a report from another surveyor for the purpose of attempting to obtain insurance cover. No settlement was reached and the action commenced. The defendants disclosed the existence of the report in their affidavit of documents but claimed privilege from production on the ground that it was made in pursuance of a "without prejudice" discussion between the plaintiffs' solicitor and the defendants'. The master, the judge and the Court of Appeal all upheld the defendants' claim to privilege. Denning L.J. after referring to Whiffen v. Hartwright (1848) 11 Beav. 111 said, at pp. 273-274:

"The Master of the Rolls there affirms the undoubted proposition that production can be ordered of documents even though they may not be admissible in evidence. Nevertheless, if documents come into being under an express, or, I would add, a tacit, agreement that they should not be used to the prejudice of either party, an order for production will not be made. This case seems to me to fall within that principle. This report was clearly made as a result of a 'without prejudice' interview and it was made solely for the purposes of the 'without prejudice' negotiations. The solicitor for the plaintiff himself says in his affidavit that at the time of the interview it was contemplated that steps such as these should be undertaken. I find myself, therefore, in agreement with the decision of Master Burnand and the judge that this is not a case where production should be ordered."

"It seems to me that it would be monstrous to allow the plaintiff to make use - as he certainly would make use - for his own purposes 1304 as against the defendants of a document which is entitled to the protection of ' without prejudice' status."

"to the extent that there is a rule that prevents the production of documents that were prepared in the course of negotiations leading to a concluded settlement, it is my opinion that the rule does not extend to the prevention of the production of those documents at the instance of a litigant who was not a party to the settlement and whose claim for production comes under the rule in [Compagnie Financiere et Commerciale du Pacifique v. Peruvian Guano Co.. (1882) 11 Q.B.D. 55]."

Schetky v. Cochrane and The Union Funding Co. was not followed by the Court of Appeal of Ontario in I. Waxman & Sons Ltd. v. Texaco Canada Ltd. [1968] 2 O.R. 452. The Court of Appeal in a short judgment upheld a long reasoned judgment by Fraser J. who expressed the following opinion [1968] 1 O.R. 642, 656:

"I am of opinion that in this jurisdiction a party to a correspondence within the 'without prejudice' privilege is, generally speaking, protected from being required to disclose it on discovery or at trial in proceedings by or against the third party."

I suspect that until the present decision of the Court of Appeal the general understanding of the profession was that "without prejudice" negotiations between parties to litigation would not be discoverable to other parties and that admissibility and discoverability went together. For instance in The Supreme Court Practice 1988 under "Discovery and Inspection of Documents" Note 24/5/17 reads:

"Without prejudice communications - Any discussions between the parties for the purpose of resolving the dispute between a them are not admissible, even if the words 'without prejudice' or their equivalent are not expressly used (Chocoladefabriken Lindt & Sprungli A. G. v. Nestlé Co. Ltd. [1978] R.P.C. 287). It follows that documents containing such material are themselves privileged from production."

I have come to the conclusion that the wiser course is to protect "without prejudice" communications between parties to litigation from production to other parties in the same litigation. In multi-party litigation it is not an infrequent experience that one party takes up an unreasonably intransigent attitude that makes it extremely difficult to settle with him. In such circumstances it would, I think, place a serious fetter on negotiations between other parties if they knew that everything that passed between them would ultimately have to be revealed to the one obdurate litigant. What would in fact happen would be that nothing would be put on paper but this is in itself a recipe for disaster in difficult negotiations which are far better spelt out with precision in writing.

If the party who obtains discovery of the "without prejudice" correspondence can make no use of it at trial it can be of only very limited value to him. It may give some insight into his opponent's general approach to the issues in the case but in most cases this is likely to be of marginal significance and will probably be revealed to him in direct negotiations in any event. In my view this advantage does not outweigh the damage that would be done to the conduct of settlement negotiations if solicitors thought that what was said and written between them would become common currency available to all other parties to the litigation. In my view the general public policy that applies to protect genuine negotiations from being admissible in evidence should also be extended to protect those negotiations from being discoverable to third parties. Accordingly I would allow this appeal and restore the decision of Judge Esyr Lewis Q.C.

My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Griffiths. I agree with it and would allow the appeal for the reasons which he has given.

My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Griffiths. I agree with it and, for the reasons he gives, I would allow the appeal.