Without prejudice communications under Cyprus Law

As a general rule, without prejudice communications, which take place in the context of genuine and bona fide attempts to settle a dispute, either prior to or after the issuance of court proceedings, are not admissible as evidence without the consent of the person making the without prejudice statement/communication.  This position is supported by several Supreme Court judgments, including those of Karayianni v. Karayianni, Civil Appeal No. 235/11 and Electromatic Constructions Ltd. v Attorney General of the Republic (2009) 1 JSC. In the case of Karayianni (above), the Supreme Court stated that the inadmissibility of without prejudice statements is for the benefit of the offeror/the person making a proposal for settlement, and it is therefore open to the said person to forego this right/benefit, by waiving privilege and submitting as evidence, a without prejudice communication to the Court.

The inadmissibility of without prejudice communications serves to encourage parties to settle their disputes, by removing the risk/fear that their proposals and statements made during negotiations will be used to their detriment during court proceedings.

The above general rule is not without exceptions, as through caselaw, several exceptions may apply. Many of these have been summarised in the case of Unilever v. Procter & Gamble (2001) 1 All E.R. 783.  The most notable exceptions are the following:

1. ‘When the issue is whether without prejudice communications have resulted in a concluded compromise agreement, those communications are admissible’.
2. When it is argued that the agreement reached between the parties during negotiations must be set aside due to false representations and/or fraud and/or unfair conduct. Even if no agreement has been reached, ‘one party may be allowed to give evidence of what the other said or wrote during without prejudice negotiations if the exclusion of the evidence would act as a cloak for perjury, blackmail or other “unambiguous impropriety”’.
3. When negotiations do not lead to an out of court settlement, if a “clear” statement was made by one party, on which the other party is intended to act, and on which the other party does act, then the said statement may be admissible as giving rise to an estoppel.
4. Testimony on the negotiations can be accepted in order to excuse potential delay or apparent acquiescence, for example on an application to strike out a claim for want of prosecution.

In the recent case of AZ v BY [2023] EWHC 2388 (TCC) an adjudicator’s decision was declared unenforceable after one party (AZ) placed without prejudice material before the adjudicator, which created the question as to whether the adjudicator was inadvertently or sub-consciously biased.

The abovementioned decision is notable, as it considers many of the previous authorities addressing the presentation of without prejudice material within adjudications and confirms that the test to be applied in such cases is that of Re Medicaments and Related Classes of Goods (No 2) [2001] 1 WLR 700, based on which there is no need for the adjudicator’s decision to be primarily based on the without prejudice communications in order for a court to deem it unenforceable. The important question is whether the presentation of the without prejudice material gave rise to a question mark over the decision, in the sense of whether under all the circumstances, a fair-minded and informed observer would conclude that there was a real possibility that, having seen the without prejudice material, the adjudicator was biased and it is immaterial whether the adjudicator was actually influenced by the without prejudice material.

This test was also applied in Ellis Building Contractors Limited v Vincent Goldstein [2011] EWHC 269 (TCC) where Justice Akenhead summarised his conclusions on the subject in paragraph 29 of his decision as follows:

1. Obviously, such material should not be put before an adjudicator. Lawyers who do so may face professional disciplinary action.
2. Where an adjudicator decides a case primarily upon the basis of wrongly received “without prejudice” material, his/her decision may well not be enforced.
3. The test as to whether there is apparent bias present is whether, on an objective appraisal, the material facts give rise to a legitimate fear that the adjudicator might not have been impartial. The Court on any enforcement proceedings should look at all the facts which may support or undermine a charge of bias, whether such facts were known to the adjudicator or not.”

In the case of AZ (above), AZ had sought to argue that paragraph 29(b) of the judgment in Elis (above) gave rise to a threshold which required that a decision must be shown to be primarily based on the without prejudice material for a court to decline to enforce it. This submission was decisively rejected by Justice Constable who did not consider that Justice Akenhead had intended to set such a threshold test which must be passed for the decision not to be enforced.

In light of the above, the presentation of without prejudice material to the court has to be done very carefully, because, even if the court decides that it is inadmissible as evidence, there is a risk that the judgment may be deemed unenforceable in the end.

The new Civil Procedure Rules (“C.P.R”), which were put into effect from 1/9/2023 require that, prior to the filing of a claim form, the procedure outlined in the pre-action protocols must be followed, which, inter alia, aims to promote pre-action communication between the parties, to encourage the full and timely exchange of information between the parties regarding the potential claim and to prevent the issuance of unnecessary litigation by settling disputes before the filing of a claim.

The said procedure of the pre-action protocols provided for in the new CPR requires a demand letter to be sent to the potential defendant before filing the claim form. The new CPR currently provide for three (3) types of pre-action protocols:

1. Form I: Protocol I – Claim for a specific monetary amount;
2. Form II: Protocol II – Traffic Accidents and Claims for personal injuries;
3. Form III: Pre–action procedure in cases which are not covered by any existing Protocols.

The potential claimant will decide which of the abovementioned three (3) pre-action protocols is applicable, based on the remedy he/she will be seeking from the court. The potential defendant, after receiving a demand letter, must respond with a reply letter within a specific time limit provided for in the new CPR. Considering the aims of the pre-action protocols, both the demand letter and the reply letter, as well as all documents accompanying them are sent without prejudice, even if the wording “without prejudice” is not expressly included in them. Thus, the abovementioned general rule covering without prejudice communications applies when the pre-action protocol procedure is followed.

However, when “Form II: Protocol II – Traffic Accidents and Claims for personal injuries” is used, if the potential defendant accepts liability in the letter of response, then there is a presumption that he/she will be bound by such acceptance if the dispute is brought to court.

Further, Part 35.3 (1) of the new CPR provides that a party to a claim may submit to the other party a without prejudice offer to settle the claim, with which the party submitting the offer reserves the right to communicate the terms of the offer to the court after the issuance of a judgment, regarding: a) the apportionment  of the costs of the procedure and b) the matter of interest on compensation.

Without prejudice communications play an important role in encouraging parties to communicate and negotiate without fearing that their offers/proposals will be used against them in court.  This allows them to settle their disputes before the issuance of proceedings, or at least in the early stages of proceedings, reducing  the parties’ costs and allowing the court’s resources to be allocated more efficiently and to other cases.  It is therefore important that the Courts are cautious in their decisions on whether to allow without prejudice communications as evidence, so as not to undermine the aims of the principle as outlined above.