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England and Wales Court of Appeal (Civil Division) Decisions
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Cite as:  EWCA Civ 1154
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
London, WC2A 2LL
B e f o r e :
LORD JUSTICE CHADWICK
LORD JUSTICE JONATHAN PARKER
| THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
THE PRUDENTIAL ASSURANCE COMPANY LIMITED
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr Geoffrey Hobbs QC (instructed by Lovells, Atlantic House, Holborn Viaduct, London EC1A 2FG) for the Respondent
AS APPROVED BY THE COURT
CROWN COPYRIGHT ©
Crown Copyright ©
Lord Justice Chadwick :
The underlying facts
"For well over one hundred years each of the parties has carried on insurance business. They, and their respective group companies, now offer a wide range of financial services. Although in competition, Prudential (USA) has derived its business, principally, from the United States of America, while Prudential (UK) has operated mainly in the United Kingdom and other parts of Europe. Until recently, they had managed to co-exist without undue conflict under arrangements made in 1974. Those arrangements provided that Prudential (UK) would not use the "PRUDENTIAL" name or mark in the United States; and that Prudential (USA) would not use that name or mark in Europe or in certain countries of the Commonwealth. Prudential (UK) asserts that the arrangements constitute an agreement binding in law. Prudential (USA) accepts that the arrangements were made; but denies that they were intended to have, or do have, legal effect."
The question whether or not the arrangements made in 1974 constitute an agreement binding in English law remains to be resolved in these proceedings. But the fact that arrangements were made under which the parties managed to co-exist without undue conflict for the next twenty years provides the context for the correspondence passing between the parties thereafter.
The letters and other documents
"The terms of the alleged agreement are not specified but presumably are alleged to relate to New Zealand. However, various parts of the correspondence are clearly wholly unrelated to the New Zealand dispute and include admissions against interest concerning likelihood of confusion between the parties' respective marks in other jurisdictions."
The relief sought under paragraph 3 of the draft order is confined, by paragraph 20 of the witness statement of 18 October 2002, to an order requiring withdrawal of "all these documents from the New Zealand Registry Proceedings save to the extent that Prudential UK can demonstrate it is entitled to rely on them under a legitimate exception to the without prejudice rule." The draft order provided for there to be described in a schedule documents "to which the Claimant has demonstrated legitimate exception, in the context of those [New Zealand] proceedings, to the without prejudice privilege attaching to those documents".
"the said documents, and any other correspondence between the parties relating to how each of them may use their respective "PRUDENTIAL" marks and variants thereof, in settlement of any dispute concerning such marks, are protected by privilege under the 'without prejudice' rule, notwithstanding their use as evidence in these proceedings or in the Taiwan and New Zealand proceedings referred to above;"
(1) The 1974 letters follow a meeting between senior executives in London at the beginning of March in that year. On 7 March 1974 Mr Haslam, the chief general manager of Prudential UK, wrote to Mr MacNaughton, the chairman and chief executive officer of Prudential USA, to record what he described as "the tenor of the verbal agreement reached" on suggestions "put forward to identify the areas in which each of our companies would be free to use the name Prudential with a view to removing the prospect of any future disputation between us on this score." He set out his understanding of "the agreement" under three paragraphs. Mr MacNaughton wrote in response to that letter, on 28 March 1974, to clarify "the understanding" reached but otherwise confirming that "your letter does set forth precisely the results of our conversation". On 13 May 1974 Mr Haslam replied, apologising "for the delay in replying to your letter of the 28th March concerning the understanding we would both like to reach on the use of the name Prudential and expressing delight that "there is clearly such agreement in broad principle between us and the only differences seem to be minor practical ones." In two further letters, of 19 and 29 July 1974, each was able to assure the other that they had reached "a complete understanding".
(2) There are only two letters from 1975. They record steps taken by Prudential UK to comply with the arrangements made the previous year; and an assurance from Mr MacNaughton that "Should the occasion arise, we too will live up to our end of the bargain". That assurance was honoured in the following year when, after correspondence between Mr Haslam and Mr Beck, the president of Prudential USA, the latter decided not to use the Prudential name in connection with a European re-insurance subsidiary.
(3) Senior executives met at the end of 1977 to review the way in which the arrangement was working . Concern was expressed lest "as memoranda are communicated down through the organization . . . the intent and spirit of understandings are lost in the preoccupation with meaning of words". But the outcome was expressed to be "completely satisfactory". Mr Sherwood, executive vice president of Prudential USA was able to write to Mr Haslam, on 21 December 1977, recording that the meeting had "served to confirm that you feel, as we do, that the important thing for all of us to keep in mind is the purpose of the agreement and the readiness on both sides to sit down and talk about problems if and when they occur".
(4) The pattern of discussing and resolving problems as and when they occurred was followed through 1978 and 1979 - in particular, in relation to the use of the name "Prudasco" for Prudential UK's Quebec subsidiary – and into 1980 – in relation to the growth of Prudential UK's re-insurance business in Puerto Rico. In 1980 Prudential USA applied to register the mark Prudential in Portugal, and in certain countries in Eastern Europe, but withdrew those applications after it had been pointed out by Prudential UK that they were perceived as in breach of the understanding or agreement.
(5) There was a further meeting between senior executives in October 1982 to discuss, in particular, "the question of Canadian names" and the "re-naming of the Bache operation" – an investment management business which had been acquired by Prudential USA. After initial disagreement in correspondence following that meeting, a mutually acceptable solution was reached on both matters.
(6) The pattern continued throughout the years 1983 to 1986. In 1986 further consideration was given to the principles underlying the 1974 arrangement, in the context of the desire of Prudential USA to broaden its activities in Asia. That led to a meeting in London at the end of August 1986. It was following that meeting that the chief general manager of Prudential UK (Mr Corby) wrote to the executive vice president of Prudential USA (Mr Kittredge) the letter of 26 September 1986, the use of which paragraphs 1 and 2 of the draft order seek to restrain. The letter contained the following passage:
"I now attach a summary of the position we reached and I would be grateful for your comments. I think it would be useful if we have it in mind that we should try to discuss developments on perhaps an annual basis."
The summary confirmed, in the first paragraph, that there was to be no change "in relation to the business considered in discussions some 10 years ago" – that is to say, no change in the arrangements recorded in the 1974 exchange of letters. Paragraph 2 of the summary recorded that investment management business was to be treated in the same way as insurance and reinsurance business. Paragraph 3 recorded that either company might undertake ventures in new geographical areas; and that "where both companies are operating in the same market each would use its best endeavours to avoid any confusion". Paragraph 4 gave the consent of Prudential UK to the use by Prudential USA of the name Prudential-Bache, on the basis that that did not extend to investment management business in the United Kingdom and other reserved areas. Paragraph 5 provided that "Both companies will continue to consult if either is in doubt as to interpretation". In his reply to that letter, dated 8 October 1986, Mr Kittredge gave particulars of the operations in which Prudential-Bache would be engaged, and concluded:
"I may possibly have included more than necessary in this letter in the interests of full disclosure. However, as we discussed during the meeting in August, the openness between the two companies has been critical to our making the understanding made ten years ago work well. We have every intention of continuing such openness and endorse the concept of meetings perhaps once a year to help the flow of communication."
There were some further letters in the last months of 1986, but they were by way of further clarification of the Prudential-Bache operation.
(7) Letters in the years 1987 to 1995 show the parties operating within the 1974 arrangements – as extended following the meeting in August 1986. It is not suggested that that correspondence is of any greater significance; and it is not, I think, necessary to refer to it in detail. As problems were identified, they were notified by one party to the other and resolved. The tenor of the correspondence appears from the final paragraph of a letter dated 5 January 1994 from Mr Keith, vice chairman of Prudential USA, to Mr Newmarch, chief executive of Prudential UK:
"We appreciate your cooperation and continued commitment to making our 1974 agreement work and adapt to our companies' evolving needs."
(8) On 12 January 1995 Mr Keith wrote to advise Mr Newmarch "of action which we have taken in the People's Republic of China with respect to the 'Prudential' name". He went on to say this:
"It appears that both of our companies have an interest in pursuing business opportunities in China under the 'Prudential' name, in one form or another, and have taken steps to secure servicemark protection of the name for our respective uses. On learning of your company's servicemark application, and the January 6, 1995, deadline for filing an opposition thereto, we elected to make an opposition filing. We did so as a defensive measure, to preserve an opportunity to discuss these issues with you directly rather than to fight them out before the authorities in the PRC.
In addition to merely providing you with this notice of our action, it is my hope that we can begin a dialogue that will permit us to come to some mutually agreeable terms governing our respective uses of the 'Prudential' name in China. It is potentially an important market for us both. Hence the best solution may be some form of concurrent use agreement, with steps being taken to avoid confusion by clearly indicating parentage and 'county of origin' (sic) of the parent, much as we have done in Canada.
If this suggestion is of interest to you, please contact me so that we can work out the details. Our companies' willingness to cooperate and compromise on matters such as these in the past have stood us in good stead. I hope we can do the same with respect to China."
That is the first of the four 1995 letters which are the subject of paragraph 1 of the draft order. The reply, dated 3 February 1995, is from Sir Brian Corby, by then knighted and the chairman of Prudential UK – Mr Newmarch having resigned in the interim. He referred to "the discussions which took place in 1986" and to the agreement, as a result of those discussions, that "in new geographical areas where both companies commenced operating in the same market each would use its best endeavours to avoid confusion". He went on:
"Nevertheless, in the same spirit of cooperation as has prevailed for the last twenty years, we are prepared to follow the Canadian precedent subject to one proviso. I think that in the event of its becoming evident that there is confusion being caused, the position should be reviewed. Furthermore, if the confusion is clearly substantial, and assuming we have succeeded in obtaining a service mark registration for 'PRUDENTIAL', then further steps will be taken on your side to dispel that confusion. We can of course discuss what those steps are to be, if and when the need should arise. . . ."
In his reply to that letter, dated 6 February 1995, Mr Keith suggested a meeting "to work out mutually compatible naming and branding strategies for Asia". He wrote:
"I would propose that we try to work out a generalized solution, letting each of us operate throughout Asia. We would each depend primarily on our local language names and logos for differentiation. We can recognize where each of us has 'first claim' to Prudential, but in that country the other could use a form of Prudential in conjunction with their local name: The Prudential Corporation with your logo in your case, and The Prudential Insurance Company of America with our logo in our case."
(9) Following that exchange of letters Sir Brian Corby and Mr Keith met in New York on 23 February 1995. On the next day Mr Keith was able to write that he was encouraged "that we can resolve the name issue in China and set some general guidelines for dealing with name issues in other countries in Asia". The matter then passed to the in-house lawyers. They met on 10 March 1995 to discuss a draft, prepared by Mr Councell, director of legal services, Prudential UK, of a "memorandum of understanding". The letters dated 7 and 18 April, 16 and 30 May, 2 June, 16 August, 20 and 27 September and 3 October 1995 between Mr Councell and his opposite numbers at Prudential USA - Mr Meade, vice president and associate general counsel, and Mr DeWald, assistant general counsel - show the in-house lawyers striving towards a mutually acceptable solution. A difficulty, in relation to the People's Republic of China, was identified in the letter of 20 September 1995 from Mr Councell. He wrote:
"We have now been advised by local trade mark agents that Chinese law does not allow the concurrent registration of marks having a common main word or feature, especially when the respective designated services are the same."
Mr DeWald thought that problem could be overcome. On 27 September 1995 he replied:
"We remain cautiously optimistic that the PRC Trademark Office might be willing to approve an accommodation for concurrent use, and possibly some form of registration, particularly, if jointly proposed by both parties, as we have previously discussed."
(10) Both Mr Keith and Mr Peter Davis, the new group chief executive of Prudential UK, were to visit Beijing during October 1995. Mr Keith had hoped to meet the relevant Minister to discuss trade mark issues. His letter of 9 October 1995 to Mr Davis recorded that the Minister would not be available; and expressed frustration "because I believe that getting a resolution in PRC is an integral part of trying to come to an overall set of name proposals for Pru U.K./Pru U.S. in Asia". On 17 October 1995 Mr DeWald wrote to Mr Councell:
"It has been suggested that it could be helpful to resolution of the issues in China to give a jointly signed letter to the Chinese, confirming our agreement in principle and request for their approval of concurrent use and registration.
Perhaps Mr Davis could present such a jointly signed letter, formalizing our agreement in principle for joint use and requesting permission for co-existing registrations, to the appropriate Chinese officials during his visit.
I attach a draft letter which we believe succinctly reflects our agreement in principle. We would appreciate your review and comments. Do you think this would be an acceptable procedure?"
The draft letter – which (so far as appears from the material before this Court) was never agreed or signed – was addressed "To Whom It May Concern". It was in these terms:
"This letter formally confirms the agreement between The Prudential Corporation, plc, and The Prudential Insurance Company of America. The parties agree that both may use, and apply to register, one or more trademarks with the English word 'Prudential', in the People's Republic of China.
Both parties agree that there will not be a likelihood of confusion from these uses or registrations. This is because both parties intend to use 'Prudential' only in conjunction with distinctive names in the Chinese language, different logo designs (the face of 'Prudence' for Prudential Corporation, and the Rock of Gibraltar for Prudential of America) and reference to their own country of origin.
The parties respectfully request that in consideration of this agreement The Trademark Office of The State Administration for Industry and Commerce of the People's Republic of China permit both parties to be allowed to register one or more marks in International Class 36 which contain the English word 'Prudential'."
(11) As I have said, there is nothing in the material before this Court to suggest that a letter in the form of that draft was agreed or signed on behalf of the parties. On 16 July 1996 Mr Keith wrote to Mr Davis, referring to the efforts which had been made since the meeting in February 1995 and pointing out that "The objecting that each of us does in various places is to maintain position while we get to a solution in China that can guide positive resolutions elsewhere". The letter went on:
"Once a solution has been reached in China, we will use that as a guideline for naming options for you in the Philippines, or elsewhere, and for us in India or other places where you have clear priority on the use of the name Prudential."
The 'without prejudice' rule
"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."
"As a practical matter, a consciousness of a risk as to costs if reasonable offers are refused can only encourage settlement whilst, on the other hand, it is hard to imagine anything more calculated to encourage obstinacy and unreasonableness than the comfortable knowledge that a litigant can refuse with impunity whatever may be offered to him even if it is as much as or more than everything to which he is entitled in the action."
It is necessary to find some other basis for the rule in order to justify its application to a post-trial consideration as to where costs should fall. Lord Justice Oliver found that basis in "an implied agreement imported from the marking of a letter 'without prejudice' that it shall not be referred to at all" (ibid, 307B-C). That view, with which Lord Justice Fox agreed, enabled the Court to hold, in Cutts v Head, that an offer which – because it was marked "without prejudice" – would be subject to an implied agreement that it should not be referred to in the litigation could be made subject to the express reservation "save as to costs"; so recognising, in High Court litigation generally, the practice approved in family cases by Lord Justice Cairns in Calderbank v Calderbank  Fam 93, 106.
"Cutts v Head shows that the rule has two justifications. Firstly, the public policy of encouraging parties to negotiate and settle their disputes out of court and, secondly, an implied agreement arising out of what is commonly understood to be the consequences of offering or agreeing to negotiate without prejudice. In some cases both of these justifications are present; in others, only one or the other."
As Lord Justice Hoffmann pointed out (ibid, 77C-E), in Cutts v Head the only basis for excluding reference to a without prejudice offer at the stage of awarding costs was an implied agreement based on general usage and understanding that the party making the offer would not do so - and such an implication could be excluded by a contrary statement as in a Calderbank offer - but in Rush & Tompkins the rule rested solely on the grounds of public policy, without any element of implied agreement, because the party against whom the privilege was claimed had not been party to the negotiations. The Muller case was, itself, one in which the only basis upon which the 'without prejudice' rule could be invoked was public policy; the defendants were not parties to the negotiations (ibid, 80A). On the facts, public policy did not provide justification for application of the rule; because the relevance of the correspondence lay in the fact that it had taken place, not in the truth of any admission which it might contain.
"The meeting took place in the context of ongoing discussions with a view to settling a number of issues between the two organisations. There is no dispute that both parties agreed to those discussions being conducted on a without prejudice basis. It is said that in the course of the meeting P&G made a claim of right and threatened Unilever with proceedings for infringement of the patent in suit"
In this Court Lord Justice Robert Walker (with whose judgment Lord Justice Simon Brown and Mr Justice Wilson agreed) pointed out, at  FSR 344, 352, that:
"At a meeting of that sort the discussions between the parties' representatives may contain a mixture of admissions and half admissions against a party's interest, more or less confident assertions of a party's case, offers, counter-offers, and statements (which might be characterised as threats, or as thinking aloud) about future plans and possibilities. . . . a threat of infringement proceedings may be deeply embedded in negotiations for a compromise solution."
After reviewing the authorities, he went on to say this (ibid, 357-8):
". . . this court should, in determining this appeal, give effect to the principles stated in the modern cases, especially Cutts v Head, Rush & Tompkins and Muller. Whatever difficulties there are in a complete reconciliation of those cases, they make clear that the without prejudice rule is founded partly in public policy and partly in the agreement of the parties. They show that the protection of admissions against interest is the most important practical effect of the rule. But to dissect out identifiable admissions and withhold protection from the rest of without prejudice communications (except for special reason) would not only create huge practical difficulties but would be contrary to the underlying [objective] of giving protection to the parties (in the words of Lord Griffiths in Rush & Tompkins at page 1300):
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.
Parties cannot speak freely at a without prejudice meeting if they must constantly monitor every sentence, with lawyers or patent agents sitting at their shoulders as minders."
He held (ibid, 358-9) that the judge had been right to conclude that it would be an abuse of process for Unilever to be allowed to plead anything that was said at the meeting either as a threat or as a claim of right:
"The circumstances were such that each side was entitled to expect to be able to speak freely, and their agreement to the meeting being arranged evinces that common intention. I would if necessary base my conclusion on the parties' agreement to extend the normal ambit of the rule based on public policy. But I do not think it is necessary to go that far. The Frankfurt meeting was undoubtedly an occasion covered by the normal rule based on public policy, and the pleading of the threat (or claim of right) has not been shown to come within any recognised exception. The expansion of exceptions should not be encouraged when an important ingredient of Lord Woolf's reforms of civil justice is to encourage those who are in dispute to engage in frank discussions before they resort to litigation."
"The present dispute arises between persons who either were parties to the original communications or have obtained the documents from persons who were such parties, and, to the extent that it be relevant, are commercially and corporately connected with such parties. If there was an implied agreement the persons before me are either bound by it as parties or must be taken to be subject to it by reason of the source of the documents in their hands. In my judgment it is strongly arguable, and indeed probable, that the without prejudice communications are indeed governed by an implied agreement that they will not be used in the current or any subsequent litigation between the same or related parties."
Mr Justice Lloyd rejected the submission that the question whether to restrain the use of the 'without prejudice' material should be left to the court in Cook County, Illinois, before which the foreign proceedings were then pending. He found support for that approach in the decision of this Court in Bourns Inc v Raychem Corp and anor  FSR 641,  3 All ER 154. He said this, at  FSR 869, 888-9:
"Having come to the conclusion that what the F-A-F companies wish and intend to do is, for the purposes of the interim application, at least very likely to be found at any eventual trial to be a breach of one or more contractual obligations governed by English law, it seems to me that the right course is indeed to grant an injunction restraining the acts which on that basis would be in breach of contract."
The Vice-Chancellor's reasoning
"2. . . . the documents relevant to this application concern negotiations carried on by correspondence in 1995 with regard to the use of the name Prudential in the People's Republic of China.
. . .
10. But, [counsel for Prudential USA] contends, the 1995 correspondence and other similar communications may not be used in the proceedings in Taiwan or New Zealand. He submits that such correspondence came into existence for the purpose of negotiating a settlement of issues arising with regard to the use of the name Prudential in the People's Republic of China and should not be used in proceedings relating to a trade mark dispute in Taiwan or New Zealand."
It was in the context of the arguments put to him that, in his written judgment, the Vice-Chancellor confined his review of the correspondence to the 1995 letters – which he set out in some detail at paragraphs 12 to 15 of that judgment. But it is clear that he viewed those letters in the light of the earlier correspondence. At paragraphs 16 and 17 he said this:
"16. Counsel for P-US submitted that this correspondence fell within the 'without prejudice' rule as being part of the overall correspondence which started in 1974 in an attempt to avoid and settle litigation and continued from time to time as occasion demanded with correspondence aimed at resolving similar disputes in a local jurisdiction. . . .
17. Neither counsel addressed me on the detail of this correspondence. Having considered it for myself in the context of other evidence before me, in particular the correspondence of 1974, I do not consider that it comes within the 'without prejudice' rule at all."
"18. As I have observed none of this correspondence was marked 'without prejudice'. As the passage from the speech of Lord Griffiths in Rush & Tompkins I have quoted in paragraph 6 above shows, the absence of such a caption does not prevent the application of the rule if it is clear from surrounding circumstances that the parties were seeking to compromise an existing dispute whether it had given rise to proceedings or not. Nevertheless, given that the rule is dependent to some extent on an implied agreement, it is not without significance that at no stage over a period in excess of 20 years did the senior management or legal advisers of either company see fit to add such a caption.
19. The tenor of the 1995 correspondence was not to compromise an existing dispute but to prevent any dispute arising in either China or any of the other countries to which the Vice-Chairman of P-US or the Chairman of P-UK referred. The cross-filings in the People's Republic of China were, as the correspondence shows, precautionary measures of an administrative nature not formal steps for the commencement of litigation.
20. It does not appear to me that the considerations of public policy described by Oliver LJ in Cutts v Head and referred to with approval by Lord Griffiths in Rush & Tompkins  1 AC 1280, 1299 have any application to these communications. Nothing had been said or done by either party which was likely to give rise to any litigation the outcome of which might be affected by any admission made in the course of these negotiations. And if the protection of the 'without prejudice' rule is extended to communications of this nature the effect will be to withhold from the court evidence which may be material in many diverse contexts without good reason. For the reasons I explain later the impact of the Human Rights Act 1998 indicates the need to apply the 'without prejudice rule' with restraint."
It was for those reasons that, as he said at paragraph 21 of his judgment, the Vice-Chancellor rejected the application "on the simple ground that the evidence to which objection has been made is not subject to the 'without prejudice' rule at all".
". . . It appears to me that the claim for P-US must be put on the basis of a contract governed by English law in order to entitle the court in England to intervene in relation to evidence tendered to a foreign court in respect of a matter within its exclusive jurisdiction. If it is so advanced then it is a substantive claim not an incidental application in the current action. This is not a purely procedural objection. The claim based on contract was not advanced until the hearing before me. At the very least it should have been the subject matter of some originating process followed if so advised by an application for judgment under CPR Rule 24.2. In that event it would have been properly alleged, particularised and proved."
Lord Justice Jonathan Parker:
Lord Justice Schiemann: