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Framlington Group Ltd v Barnetson

When two parties are in negotiation to settle a dispute, anything they say or write to one another during their negotiations is not usually admissible in evidence if they end up in court.

In Framlington Group Ltd v Barnetson, the Court of Appeal concluded that the crucial factor in the “without prejudice” rule is whether any of the parties had contemplated litigation if they could not agree.

Basic facts

In early March 2005, Mr Barnetson was verbally offered a job as Chief Operating Officer with the Framlington Group. The deal consisted of a package including a number of shares in the company and participation in a bonus scheme.

Despite a number of attempts to get the package committed to writing, Mr Barnetson eventually signed a contractual document at the end of April which did not mention the shares or the bonus scheme.

He continued to try to resolve matters, but things came to a head in October 2005 when he was told that his contract would be terminated. There then followed a period of negotiation in which Framlington made a number of settlement offers as part of a compromise agreement which it headed “without prejudice”.

In mid-December, Mr Barnetson threatened proceedings if matters were not speedily resolved. The company then discontinued negotiations and dismissed him with effect from 31 December 2005. Mr Barnetson issued proceedings in April 2006, and included details of the negotiations in his supporting statement. The company said he could not rely on these as they were “without prejudice”.

Mr Barnetson claimed wrongful dismissal and breach of contract.

High Court decision

At the High Court, the company argued that the point of the meetings it held with Mr Barnetson was to reach a settlement with him, and to avoid court proceedings. For his part, Mr Barnetson said the point of the discussions was not to settle a dispute, but to agree the terms of his departure.

The judge agreed with Mr Barnetson and decided that the negotiations were to prevent a dispute occurring, rather than to compromise an existing dispute. He refused to order that the details of the discussions be removed from his statement.

Arguments on appeal

The company appealed the High Court decision, arguing that had it accepted Mr Barnetson’s proposals, there would not have been a dispute. The parties were clearly in negotiation about the terms of his contract, as a result of which anything that was said was “without prejudice.”

Mr Barnetson, on the other hand, said that, to engage the "without prejudice" rule, the dispute must relate to communications that were made either when the litigation had already started, or were at least “proximate” to them starting. As he had not started litigation until April 2006, some four or five months after the negotiations ended, there could not be a dispute.

Court of Appeal decision

The main question for the Court was whether the negotiations constituted a dispute and whether they were near enough in time to the litigation to engage the rule.

It said that the principle behind the “without prejudice” rule was to encourage parties to settle their differences “rather than litigate them to a finish.” It followed that a dispute could be “without prejudice” even if litigation had not yet begun, as in this case. Otherwise both sides would end up threatening each other with proceedings before they would start talking sensibly to one another.

On the other hand, it said that the rule should not be extended any further than was necessary to promote that principle. The question for the court was where to draw the line.

It concluded that “the crucial consideration would be whether in the course of negotiations the parties contemplated or might reasonably have contemplated litigation if they could not agree.” Confining the operation of the rule, as the judge did in this case, to some time limit near to the litigation, did not encourage genuine attempts to settle, irrespective of when they were made.

It therefore allowed the appeal.