A Veiled Threat Is Still a Threat: High Court Clarifies Limits of Without Prejudice Privilege

The High Court’s recent decision in QPQ Limited v Schute[1] offers important guidance on the admissibility of settlement correspondence and the boundaries of the “without prejudice” rule, especially where implicit threats are used to exert pressure in commercial litigation.

Background

The dispute centred on allegations by the Plaintiff of breach of a shareholders’ agreement, employee poaching, and misappropriation of blockchain technology (“1DLT”), with claimed losses exceeding €106 million. The Defendant denied all wrongdoing.

As the litigation progressed, a sequence of seven letters between the parties’ solicitors became the focus of an application to admit them into evidence, despite being headed “without prejudice save as to costs” (WPSATC).

The Controversial Correspondence

The first WPSATC letter, sent by the Plaintiff’s solicitors, referenced ongoing Swiss criminal proceedings against former employees and suggested that the defendant’s reputation could suffer if the matter was not resolved. The letter urged the Defendant to consider compensating the plaintiff, linking the resolution of both the Irish proceedings and the Swiss criminal complaints.

The Defendant argued that this amounted to an implicit threat: settle or risk reputational and criminal consequences. Expert evidence on Swiss law confirmed that complainants could influence the scope and continuation of criminal proceedings, adding weight to the Defendant’s concerns.

Legal Principles

Mr Justice Sanfey reviewed the rationale for the “without prejudice” rule, noting its public policy purpose of encouraging settlement. However, he emphasised that privilege is not absolute and may be set aside in cases of “unambiguous impropriety” - a test drawn from Ferster v Ferster [2016] EWCA Civ 717 and Boreh v Republic of Djibouti [2015] EWHC 769 (Comm).

The judgment makes clear:

• The WPSATC heading was technically inappropriate in the absence of a settlement offer, but this did not deprive the letter of privilege.
• An “opening shot” in negotiations can be protected, even without a formal offer.
• The key issue is whether the correspondence was “unambiguously improper.”

The Court’s Findings

Sanfey J. found that, while the letter did not contain an express threat, its references to Swiss criminal proceedings and reputational harm amounted to improper pressure. He stated:

“I do not think it can be the case that improper pressure can only be exerted expressly or overtly. A veiled threat is still a threat.”

The Court concluded that the Plaintiff’s conduct exceeded what is permissible in settlement negotiations. The pressure exerted was unambiguous and improper, justifying the admission of the correspondence as open evidence.

Practical Takeaways

• Drafting Settlement Letters: Solicitors must avoid any suggestion - explicit or implicit - of coercion or improper pressure, especially where criminal proceedings are referenced.
• Privilege Is Not Absolute: The “without prejudice” rule will not protect communications that cross the line into impropriety, even if the threat is veiled.
• Objective Assessment: The court will assess impropriety from the recipient’s perspective, not based on subjective explanations or post facto rationalisations.

Conclusion

This decision is a timely reminder that the privilege attached to settlement negotiations is robust but not unbreakable. Where correspondence is used to exert improper pressure - whether overtly or by implication - the courts will not hesitate to lift the veil of privilege.

Wriiten by Christian Carlyle.