The Interplay of Disclosure and Privilege: Dissecting the Mornington Judgement on “Without Prejudice” Communications

This article examines the Mornington judgment, which interprets the scope of “Without Prejudice” privilege – particularly whether a reference to undertake an independent third-party audit discussed during a Without Prejudice meeting is sufficient to protect the resulting audit report under the Without Prejudice privilege. The decision suggests that, unless there is an agreement, the Without Prejudice negotiations will not protect what was done during such negotiations but rather will only protect what was said by the parties.

Introduction

1. The recent judgment of Mornington 2000 LLP (t/a Sterilab Services) v The Secretary of State for Health and Social Care [1] is a helpful reminder to the industry regarding the interpretation and application of the 'Without Prejudice' rule, particularly regarding documents created during settlement discussions.
2. This case highlights the legal questions surrounding the admissibility of a third party report, purportedly protected under the 'Without Prejudice' umbrella.
3. The 'Without Prejudice' rule is traditionally invoked to encourage parties to negotiate openly and honestly without fear that their concessions or candid statements will later be used against them in court. However, its application is not without limits, and this case sets out those limits, especially when it comes to tangible documentary evidence which straddle the line between settlement communications and substantive evidential material.

Without Prejudice Rule

4. The without prejudice privilege (“WP Privilege”) is a legal principle, derived from public policy justification, that protects communications made in a genuine attempt to settle a dispute from being disclosed to a court. This encourages parties to resolve disputes amicably without fear that their disclosure of information during the negotiations will later be used against them.
5. It is distinct from legal professional privilege, which protects confidential communications between a lawyer and their client for the purpose of legal advice or litigation. WP Privilege can apply even when no lawyers are involved. Any party to a dispute can engage in WP communications, provided they are genuinely aimed at settlement. However, the protection does not apply automatically.  Express or implied agreement between the parties can determine application, but importantly it is the substance of the communication, not just the label, which determines whether the material is subject to WP Privilege.
6. There is further distinction between a ‘Without Prejudice’ communication and that of ‘Without Prejudice Save as Costs’. The former is entirely inadmissible in court; this includes the substantive dispute and any subsequent costs hearings. While the latter may be disclosed after the judgment when the court considers costs, allowing parties to demonstrate reasonable conduct during negotiations.

Background

7. On 30 September 2021, Mornington 2000 LLP (trading as Sterilab Services) (“Mornington”/the “Claimant”) and Sante Global LLP (“Sante”/ the “Second Claimant”), were contracted by the Secretary of State for Health and Social Care (“DHSC”/ the “Defendant”) to supply 68.4 million (“Committed Order”) COVID-19 lateral flow test kits (the “Tests”). This contract was part of the government’s urgent response to the ongoing pandemic, designed to ensure rapid and widespread availability of diagnostic tools.
8. The contract was subsequently terminated by the Defendant on 12 November 2021, alleging significant breaches of the terms, including non-compliance with labour laws at the manufacturing sites, health and safety, workers payment obligations, and quality control failures. The Defendant rejected the Tests already delivered and the further Tests to be delivered pursuant to the Committed Order.
9. The Claimants disputed the termination and initiated three claims, two of which alleged the Defendant breached the Public Contracts Regulations, with the other challenging the alleged wrongful rejection of the Tests.
10. Without Prejudice (“WP”) negotiations began around January 2022 between the parties, with a mediation taking place on 19 January 2022, with another WP meeting on 25 January 2022.
11. During the WP meeting and included in the further emails (on a WP basis), the parties discussed the arrangements for an audit to be conducted as one of the eight proposed headline proposals for settlement. The scope and purpose of the proposed audit was also discussed in the WP emails.
12. Following the discussions, the Defendant commissioned the audit, and subsequently refused to disclose the audit report when the parties failed to reach a settlement.  The Defendant’s position was on the basis that “the audit was produced as part of the confidential and without prejudice process and any documents disclosed in that process, including the Intertek audit report, are covered by without prejudice privilege.” [26].
13. The Claimant made an application for a declaration that a report from an audit that was undertaken as a result of the parties’ WP negotiations was not itself protected by WP Privilege. 
14. The Defendant argued the application of WP Privilege, and asserted the public policy justification, and the presence of an express or implied agreement between the parties during the negotiations.

Decision

15. The Court ruled that the audit report was an independent document, not a communication made in the course of negotiations, and therefore did not fall within the scope of the WP rule.
16. The Defendant asserted that the audit was commissioned to inform settlement discussions, essentially as part of their strategy to negotiate a resolution without proceeding to trial. The Claimants, on the other hand, argued that the report was not part of any genuine attempt to settle but rather an investigative tool to strengthen the Defendant's position in litigation. They stressed that the report’s findings were detrimental to their case and should be excluded under the ‘Without Prejudice’ principle.
17. The court examined the chronology of events, the communications accompanying the report, and the manner in which the parties treated the report. Of particular importance was whether the audit was created primarily as a settlement communication or as independent factual evidence.
18. The Defendant’s public policy justification argument was rejected by the Court as it was found that the audit report was an independent report commissioned by a third party and was not a statement or offer made in course of the WP negotiations between the parties. Moreover, the audit report did not contain statements from either party that might be subject to the WP rule.
19. The Court also rejected the express or implied agreement argument due to absence of any evidence to support the statement. The fact that the parties discussed an audit to take place following the WP negotiations did not amount to a consent on the part of the Claimant that the audit report would also be protected by the WP privilege.

The scope of protection – lessons to remember

20. While the Without Prejudice rule plays a crucial role in facilitating open and honest settlement discussions, its protection is not automatically guaranteed by merely referring to a document during WP negotiations or labelling a communication as such; there is a need to understand its limitations. 
21. The Mornington case emphasises the necessity of careful wording in settlement discussions, especially when balancing the want for candid negotiations with the need to preserve critical evidence.
22. If a third party document or report is referred to or created at the same time as settlement discussions, always take a moment to consider whether the underlying document itself is subject to WP Privilege. Calling something “Without Prejudice” is not sufficient in itself to ensure that it is protected by privilege.
23. This case is a helpful reminder that the Courts will look beyond the label to assess the true nature and context of the communication, should the same be challenged. In house counsel and industry professionals alike should always be alive to the limitations and proper application of WP Privilege when engaging in any communications with an opposing side.