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Cite as: [2014] EWHC 2185 (Comm)

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Neutral Citation Number: [2014] EWHC 2185 (Comm)
Case No: 2014 FOLIO 553


Royal Courts of Justice
Strand, London, WC2A 2LL

B e f o r e :


- and -



Richard Millett Q.C. (instructed by White & Case LLP) for the Claimants
Lord Grabiner Q.C. and Orlando Gledhill (instructed by Enyo Law LLP) for the First Defendant
Hearing date: 20 June 2014



Crown Copyright ©

    Mr Justice Blair :

  1. This is the first defendant's application to exclude documents from evidence filed by the claimants in support of their application for an anti-suit injunction on the grounds that the evidence is covered by "without prejudice" privilege. This is contested by the claimants, and since the hearing of the anti-suit injunction is fixed to take place on 9-10 July 2014, a decision is required as soon as practical.
  2. The facts so far as relevant to the issue that I have to decide are within a narrow compass. The claimants are Mr Viktor F. Vekselberg and Mr Leonard V. Blavatnik, and a BVI company, Rochester Resources Ltd, of which they are the ultimate beneficiaries. The defendants are Mr Leonid L. Lebedev and an Irish company, Coral Petroleum Ltd. The claimants contend that this company is ultimately owned by Mr Lebedev.
  3. The dispute between them relates to an oil and gas business in Russia. I am told that the three individuals, together with an entity known as Alfa Group, acquired an interest in the business then called TNK in 1997. There is a dispute as to whether an Investment Agreement was entered into between them in 2001. In 2003, TNK formed a joint venture with BP. Prior to this, Rochester as buyer and Coral as seller entered into an Acquisition Agreement dated 20 June 2003.
  4. Mr Vekselberg and Mr Blavatnik say that Rochester entered into the Acquisition Agreement as their agent, and that Coral entered into the Agreement as Mr Lebedev's agent. I am told that Mr Lebedev denies this assertion of agency on Coral's part.
  5. In 2013, TNK-BP was sold to the Russian oil company Rosneft. As explained to me, Mr Lebedev considers that he is entitled to a share of the proceeds under the disputed 2001 Investment Agreement. According to Mr Vekselberg and Mr Blavatnik, however, the Acquisition Agreement is a "complete knock-out" answer to Mr Lebedev's claims.
  6. Clause 11.1 of the Acquisition Agreement contains a choice of English law, and clause 11.2 contains an agreement for arbitration in London with the LCIA to be the appointing authority. The basis of the claimants' application for an anti-suit injunction is that the dispute between the parties falls within the arbitration agreement, and that the English court should therefore injunct the defendants from continuing with the proceedings in New York. Mr Lebedev is not a named party to the Acquisition Agreement, but the claimants contend that he is bound by it, since Coral entered into it as his agent.
  7. The facts

  8. I now come to the facts which are relevant to the present application. In early 2013, Mr Lebedev called Mr Blavatnik. I do not think that it is in dispute that this call came without prior notice. Each party has given evidence through their solicitors, and according to the evidence of the first defendant's solicitor, in view of the imminent sale of TNK-BP to Rosneft the purpose of the call was to explore the possibility of reaching a compromise of Mr Lebedev's claim to a share of the proceeds. According to the evidence of the claimants' solicitor, Mr Lebedev said that he was "sending something", and, asked what it was, said "read it first and call me". I cannot and need not resolve this dispute.
  9. On 6 March 2013, Mr Lebedev's office sent an email to Mr Blavatnik's office, saying "… please see attached a material for sending it out to Leonard Blavatnik". The material was a "preliminary draft" Complaint in respect of proposed proceedings in the Supreme Court of the State of New York between Mr Lebedev as plaintiff, and Mr Blavatnik and Mr Vekselberg as defendants. (A complaint is the equivalent of particulars of claim in the English courts.)
  10. At the top of each page in capital letters was what the parties have described as a "legend", which stated as follows:
    SUBJECT TO CPLR § 4547 AND FED. R. EVID. 408"

    It is not in dispute that the CPLR are the New York Civil Practice Law Rules, and the Fed. R. Evid. are the Federal Rules of Evidence.

  12. According to Mr Lebedev, shortly after sending the email he telephoned Mr Blavatnik, who advised him to have his lawyer contact Mr Blavatnik's lawyer. Mr Blavatnik denies that such a call took place, and again I cannot and need not resolve this dispute.
  13. On 8 March 2013, Mr Lebedev's then New York lawyers (Pillsbury Winthrop Shaw Pittman LLP) faxed a letter to the London office of the lawyers then representing Mr Blavatnik and the Moscow office of the lawyers then representing Mr Vekselberg.
  14. The letter was headed "Potential claims against Leonard Blavatnik and Victor Vekselberg". The letter stated that:
  15. "We are counsel for Leonid Lebedev in connection with his claims arising out of his oil interests contributed to what became TNK-BP and described in the enclosed preliminary draft complaint. We understand that you represent, respectively, entities controlled by Messrs. Blavatnik or Vekselberg. We provide the enclosed preliminary draft complaint in advance of initiating litigation in order to provide an opportunity for the parties to engage in settlement discussions that may resolve the dispute without the need for judicial intervention.
    Please distribute a copy of the enclosed preliminary draft complaint to your clients. I look forward to discussing this matter with you as soon as practicable."
  16. The enclosure was the same draft Complaint that had gone by email direct from Mr Lebedev's office two days earlier. The letter was faxed without the enclosure to the London offices of the law firms representing Alfa Group (a Russian company) and Rosneft.
  17. The proposed defendants declined to enter into any discussions. Following these exchanges, I am told that there were no further communications from Mr Lebedev or his lawyers until 4 February 2014, when a Complaint was issued in the New York court.
  18. The present dispute

  19. The present dispute arises in the following way. The claimants (of whom Mr Vekselberg and Mr Blavatnik are the defendants in the New York proceedings) say that the draft Complaint contradicts the Complaint as issued in material respects, which they say bear on the claimants' application for an anti-suit injunction. They wish to refer to Mr Lebedev's case as set out in the draft Complaint in support of that application. In view of my conclusion below as regards the validity of the claim to privilege, I will avoid revealing the detailed content of the draft Complaint, which it is not necessary to do for the purposes of this Judgment.
  20. The claimants' application to adduce expert evidence

  21. Along with their evidence in answer to the first defendant's evidence on the anti-suit application, the claimants served a statement by Hon. James M. McGuire, a partner in the law firm Dechert LLP, and formerly an Associate Justice of the New York Supreme Court, Appellate Division, First Department. However, the claimants did not have permission to adduce evidence of New York law, and though their evidence foreshadowed an application to seek the court's permission, none was actually made until the hearing.
  22. The first defendant objected to evidence of New York law being adduced, and made it clear that any application for permission would be opposed. However, so as not to leave Judge McGuire's evidence unanswered, they served their own report from Hon. James M. Catterson, special counsel in the law firm Kaye Scholer LLP, and also formerly an Associate Justice of the New York Supreme Court, Appellate Division, First Department. A witness statement of Judge McGuire was filed by the claimants in response on 18 June 2014.
  23. Although the first defendant objected to the admission of the evidence, they did not object to me reading it de bene esse prior to the hearing. The reports contain an extensive analysis of New York law as to the admissibility of the draft Complaint, and extensive citation of the case law going back to 1886. In short, Judge McGuire is of the opinion that CPLR 4547 would not bar the admission into evidence of the draft Complaint. The opinion of Judge Catterson, to the contrary, is that New York settlement privilege, codified at CPLR §4547, would bar the admission into evidence of the draft Complaint.
  24. Faced with the first defendant's continued objection to the admission of this evidence, an application was made on behalf of the claimants at the hearing on 20 June 2014 for permission to adduce it.
  25. The application was made on the basis that although the law which the English court applies to the question of whether to admit or exclude documents from evidence is English law as the lex fori, New York law is relevant to the court's assessment on three grounds. The claimants submit that:
  26. (1) The court is entitled to have regard to the actual facts and circumstances surrounding the communication in question, which will include the relevant rules applicable in the courts in question, here New York.

    (2) Where the communication is in the context of foreign litigation, the question is whether there is a relevant public policy for exclusion. There would be no English public policy justification for exclusion if the communication was not privileged from production in the New York proceedings themselves (Hollander, Documentary Evidence, 11th ed., 2012, para 20-16).

    (3) Since the question is how the communication would reasonably have been understood by the recipient viewed objectively, the law governing the communication is relevant to that objective assessment.

  27. The first defendant opposes the grant of permission to adduce the evidence. He submits that the question of admissibility has to be decided under English law, not New York law. Further, objection is taken that the application is made too late, and that in view of the difference between the experts, the court is not in a position to be able to find that the opinion of Judge McGuire represents how a person informed of New York law would have understood the status of the draft Complaint under New York law.
  28. My conclusion on the claimants' application is as follows. I accept the claimants' submission that New York law is relevant to this application in the sense that the claim for privilege applies to draft proceedings for issue in the New York court.
  29. However, when the question arises in English proceedings, the rule is that the question whether or not a document is privileged is to be determined by English law; the fact that under a foreign law the document is not privileged or that the privilege that existed is deemed to have been waived is irrelevant. This is how the principle is stated in Dicey, Morris & Collins, The Conflict of Laws, 15th ed., para 7-022. The proposition is based on the decision of the Court of Appeal in Bourns Inc v Raychem Corp [1999] 3 All ER 154 at 167h-168b, Aldous LJ.
  30. I accept the claimants' submission that New York law must be relevant at least to give meaning to the references in the legend on the draft Complaint. But this meaning is not in dispute—the first defendant agrees the relevant passage in Judge McGuire's opinion.
  31. He says that section 4547 of the New York Civil Practice Law Rules ("CPLR") came into force in 1998 and provides as follows:
  32. "Compromise and offers to compromise
    Evidence of (a) furnishing, or offering or promising to furnish, or (b) accepting, or offering or promising to accept, any valuable consideration in compromising or attempting to compromise a claim which is disputed as to either validity or amount of damages, shall be inadmissible as proof of liability for or invalidity of the claim or the amount of damages. Evidence of any conduct or statement made during compromise negotiations shall also be inadmissible. The provisions of this section shall not require the exclusion of any evidence, which is otherwise discoverable, solely because such evidence was presented during the course of compromise negotiations. Furthermore, the exclusion established by this section shall not limit the admissibility of such evidence when it is offered for another purpose, such as proving bias or prejudice of a witness, negating the contention of undue delay or proof of an effort to obstruct a criminal investigation or prosecution."

    The wording of CPLR 4547 was derived from Rule 408 of the Federal Rules of Evidence, and is virtually identical to Rule 408 at the time CPLR 4547 was introduced.

  33. There is no need for expert evidence to make these points, and there is no reason (as the claimants contend it should) for this court to decide whether or not the draft Complaint (and accompanying communications) would actually be privileged under New York law. I am not persuaded that the first or third grounds given by the claimants in support of the admission of the evidence are valid.
  34. As to the second ground, public policy has to be determined on the basis of English law. I do not think that if the draft Complaint is privileged under English law it ceases to be privileged on the ground that it would not be privileged from production in the New York proceedings. This is because, as stated above, the question whether or not a document is privileged is to be determined by English law, for reasons which are partly practical (see Bourns Inc v Raychem Corp, ibid). The position might be different if the New York courts had themselves decided that the draft Complaint was not privileged from production, and it had entered into the public domain, because in those circumstances confidentiality would have been lost. However, that is not the case here.
  35. For those reasons, I do not consider that evidence of New York law is reasonably required in this case (see CPR 35.1), and refuse the claimants permission to adduce it.
  36. The first defendant also objects that the application was made during the hearing and is too late, and should be refused on that ground. The claimants respond that the application was foreshadowed in their evidence, and that there is no prejudice to the first defendant, since he has filed evidence in response.
  37. I accept that the claimants' response is factually correct. However, the claimants had no good answer to the first defendant's objection that the court is not in a position to decide between the conflicting opinions. The claimants characterised this as a case management issue, but the suggestion that after the hearing the court should read the evidence and decide the New York law issues "on the papers" was unrealistic, as was the suggestion that the court should receive further written submissions and decide in the light of those.
  38. There is no dispute that the application made at the hearing was late, and in the circumstances I consider that I should not accede to it on that alternative ground.
  39. The parties' contentions under English law

  40. The parties' contentions are as follows. The first defendant submits that the draft Complaint was sent to explore the possibility of reaching a compromise on the terms of the Pillsbury letter of 8 March 2013. The draft Complaint attracts without prejudice privilege under English law as a document created as part of negotiations genuinely aimed at settlement. Sending the draft was an "opening shot" in what Mr Lebedev hoped would be negotiations leading to settlement. The first defendant submits that opening shots in negotiations attract privilege so long as the document in question can properly be regarded as a negotiating document.
  41. The claimants submit that the draft Complaint (including the accompanying communications) is not without prejudice because:
  42. (1) It was not a "negotiating document genuinely aimed at settlement" as that expression is to be understood in the English cases. It was in essence a letter before action. The articulation of a claim combined with an invitation to come to the table is not covered by without prejudice privilege.

    (2) There are material inconsistencies between the draft Complaint and the Complaint that bear directly on the ani-suit injunction application, and both cannot be true. On the basis that the Complaint will be put forward as truthful, the draft Complaint cannot be regarded as a genuine attempt at settlement. As it was put, to permit Mr Lebedev to hide the draft Complaint behind the without prejudice privilege and advance a case diametrically opposed to it would turn the without prejudice privilege into a "cheat's charter" which would subvert the public policy behind the without prejudice privilege.

    (3) The draft Complaint was not in substance a draft, but was "ready to go". The objective observer would not have considered that the draft Complaint was preliminary to anything else except issue.

    (4) Although the legend says "for settlement purposes only" that was not in fact true. There was no reservation in the letter of 8 March 2013 that the preliminary draft Complaint was going to change in any way. It was only preliminary because it had not yet been issued. Even had the legend stated that the draft was "without prejudice", the draft would not have attracted the privilege, since it is well settled that the use (or non-use) of those words is not decisive.

    (5) The email of 6 March 2013 was open, as was the 8 March 2013 letter from Pillsbury. That letter, it is submitted, was nothing more than an invitation. It was not a negotiating document.

    Discussion and conclusion

  43. For the most part, there was no difference between the parties as to the applicable principles, which are well settled. Written or oral communications which are made for the purpose of a genuine attempt to compromise a dispute between the parties may generally not be admitted in evidence (Phipson on Evidence, 18th Ed., para 24-09).
  44. The most recent discussion in the Supreme Court is in Oceanbulk Shipping & Trading SA v TMT Asia Ltd [2011] 1 AC 662, where at [21] Lord Clarke refers to a series of decisions, including Cutts v Head [1984] Ch 290, Rush & Tompkins Ltd v Greater London Council [1989] AC 1280, and Unilever plc v The Procter & Gamble Co [2000] 1 WLR 2436. At [22] he refers to the Rush & Tompkins case as showing that the without prejudice rule makes inadmissible in any subsequent litigation connected with the same subject matter proof of any admissions made with a genuine intention to reach a settlement whether or not settlement is reached with that party, and to the Unilever case as showing that the rule is not limited to admissions but now extends more widely to the content of discussions.
  45. I begin with the claimants' contention that Mr Lebedev's case in the anti-suit application materially falsifies the contents of the draft Complaint, which cannot therefore amount to a genuine attempt at a settlement. Following the hearing, the claimants' solicitors sent me a copy of his witness statement filed after the hearing in accordance with the timetable agreed between the parties, and the first defendant's solicitors sent me a letter in response. These communications mainly repeat points made at the hearing.
  46. Forcefully though the point was put in argument, the claimants' case is essentially that the draft Complaint is materially inconsistent with the Complaint. It is however established that the fact that statements made in negotiation are inconsistent with a party's case is not in itself a reason for admitting them in evidence if otherwise privileged (see e.g. Phipson on Evidence, 18th Ed., para 24-26).
  47. The law deals with what was called the "cheat's charter" by making an exception in cases of "unambiguous impropriety" (see e.g. Phipson, ibid). However, the claimants do not rely on this exception. I reject the contention based on inconsistency therefore.
  48. The claimants' fundamental submission is that (whether individually or taken as a package), the communications from Mr Lebedev and his lawyers were not made in a negotiation, and amounted to no more than a letter before action, and as such are not within the without prejudice privilege.
  49. A feature of this case is that the draft Complaint was not sent by or on behalf of Mr Lebedev in the course of ongoing mutual settlement discussions. In this regard, both parties accept that the court must apply the so-called "first shot" line of authority.
  50. I accept as accurate the claimants' formulation of the principle (not disputed by the first defendant). Although communications which are "opening shots" in negotiations, and not preceded by any previous correspondence, are capable of being without prejudice (see e.g South Shropshire CC v Amos [1986] 1 WLR 1271, but cf Bucks CC v Moran [1989] 2 All ER 225), whether they are so protected will depend on the substance of the communication and the facts of each case.
  51. The claimants go further and assert that an "opening shot" which is in substance a letter before action and which contains no concession or offer, but merely an invitation to treat for settlement negotiations, is not in need of the protection which the policy underlying the without prejudice principle is intended to provide (citing Standrin v Yenton Minster Homes Ltd, The Times, 22 July 1991).
  52. In support of their submission, the claimants rely on Best Buy Co. Inc. v Worldwide Sales Corpn [2011] Bus LR 1166 which they submit is dispositive of the present case. The case concerned a trademark dispute, and whether the without prejudice privilege applied so as to preclude reliance on a letter from the defendants as a threat to bring infringement proceedings. The letter had been sent by the defendants' Spanish lawyers.
  53. In rejecting the claim to without prejudice privilege, Lord Neuberger MR (with whom Etherton and Patten LJJ agreed) referred to Rush & Tompkins (ibid) saying that the question was whether the relevant parts of the letter would reasonably have been understood to have been intended to have privileged status, which involved "… considering whether the parties would reasonably have thought that their negotiations in the correspondence in issue were sufficiently advanced to have moved into the without prejudice zone" (para 37). The letter was, he said, a generally and unexceptionally expressed offer to negotiate a settlement of the issues.
  54. Lord Neuberger MR continued as follows:
  55. "40. As the Judge very fairly acknowledged, it could be said that "the real purpose of the [September] letter was to serve as a letter before action ... And it is by no means unusual for such a letter to seek to initiate settlement discussions. Indeed, parties are often anxious both to try, and to show the court that they have tried, from the start to settle their differences, as that is sensible commercially and it can be highly relevant when it comes to costs. (The absence of any without prejudice label on a letter from a solicitor would also normally be significant in itself … However, that point may be somewhat weaker here given that the September letter was written by a Spanish law firm.)
    41. Quite apart from this, I do not consider that it is realistic to treat the last three paragraphs of the September letter as amounting to the sort of settlement proposal which should, on the grounds of the public policy principle described above, be treated as privileged from use in court. Rather than constituting an offer of proposals they amount to an invitation to treat picking up on [the claimant's] similar invitation at the end of the August letter. Rather than constituting or including any sort of concession or admission, the three paragraphs merely underlined the defendant's belief in its case and its determination to pursue it. As [counsel] points out, in Unilever plc v Proctor & Gamble Co [2000] 1 WLR 2436, 2448-9, Robert Walker LJ described the "protection of admissions against interest" as "the most important practical effect of the [without prejudice] rule". The defendant plainly has no need of such protection in relation to anything stated in the last three paragraphs of the September letter."
  56. As the first defendant points out, Best Buy was not an "opening shot" case. I agree with the first defendant that no doubt is cast on authority to the effect that all parts of negotiating correspondence may attract the privilege, even if they contain no specific offer or concession. As Clarke LJ put it in Somatra Ltd v Sinclair Roche & Temperley [2000] 1 WLR 2453 at [22], "… where discussions are held without prejudice, neither party is entitled to rely upon the contents of those discussions to prove an admission or admissions made by the other party in order to advance its case at the trial. It has recently been made clear by Robert Walker L.J. … in the course of a detailed analysis of this area of the law in Unilever Plc. v. The Procter and Gamble Co. [2000] 1 WLR 2436, 2448–2449 that, although the underlying basis of the rule is to exclude evidence of admissions, the concept of admissions must be given a wide meaning in this context so as in effect to include all matters disclosed or discussed in the without prejudice discussions concerned".
  57. The court therefore has to apply the established principles as set out in Best Buy and the other authorities to the documents that Mr Lebedev says are privileged. My conclusions are as follows:
  58. (1) I consider that the 6 March 2013 email and the 8 March 2013 letter (and the earlier conversation if it happened) are to be viewed together. I do not think that this is seriously in dispute.

    (2) The significant point in both instances is that Mr Lebedev (and then his lawyers) sent the potential defendants a draft of his Complaint. It is the draft that the claimants seek to open up.

    (3) The basis upon which the draft was sent is (in my view) clearly described in the letter of 8 March 2013 from Mr Lebedev's lawyers. It was provided "… in advance of initiating litigation in order to provide an opportunity for the parties to engage in settlement discussions that may resolve the dispute without the need for judicial intervention".

    (4) The draft Complaint was headed on each page with the legend "PRELIMINARY DRAFT, FOR SETTLEMENT PURPOSES ONLY, SUBJECT TO CPLR §4547 AND FED. R. EVID. 408" (the commas are added here, the text is as set out above).

    (5) It is not in dispute that the CPLR and FED. R. EVID. provisions referred to in the legend have to do with the admissibility of evidence in the context of compromise and offers to compromise (though whether they would operate to exclude the draft Complaint as a matter of New York law is in dispute).

    (6) Given its headings, the draft Complaint is (in my view) properly to be regarded as it is described, namely as a "preliminary draft complaint" and not as the claimants submit a complaint that was "ready to go", only lacking the action number and the date of issue.

    (7) Viewed objectively, the draft Complaint (and the communications sending it) cannot in my view be regarded as a letter before action. It was sent as the "first shot" in settlement discussions.

  59. On the above basis, I consider that as a matter of English law, which applies as the lex fori (see above), the draft Complaint and its sending falls within the scope of without prejudice privilege as a document created as part of negotiations genuinely aimed at settlement.
  60. The first defendant has prepared a version of the claimants' evidence that excludes reference to the inadmissible material. I am told that it is not yet quite agreed, but that the parties will have no difficulty in reaching agreement in the light of this decision. I am grateful to them for their assistance, and will hear them as to any consequential matters.

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