Of the many apparently mystical phrases that have crept into legal terminology over the years, “without prejudice” has to be high on the list.
In this article we’ll give you a practical guide covering:
- what does without prejudice mean?
- when can you use “without prejudice” validly?
- how you can “lose” whatever protection you might have had?
- what is using “without prejudice” communications going to achieve?
What Does Without Prejudice Mean?
When it comes to settlement communications, some think the words “without prejudice” are the legal equivalent of the invisibility cloak in Harry Potter, but that’s not the case.
Most correspondence in a dispute is “open”, meaning that it can be placed before the Court in evidence at the hearing of the matter.
“Without Prejudice” means that you are sending a communication in an honest attempt to compromise a matter, in which you might make a concession (either expressly or implicitly) to the other side that cannot be later put into evidence in Court. The communication can, however, be considered by the Court as part of any later decision about costs, after the dispute itself has been determined.
What it’s NOT is a magical heading that you put at the top of a letter just to make everything in it “off the record”.
Why “without prejudice”?
The purpose of without prejudice privilege is to ensure parties can negotiate free of potential risk of their communications could later be used in evidence.
In one case the Court described that without prejudice communications exist because if parties’ negotiations could later be used against them, they’d act more like “poker players in a high-stakes game than adversaries attempting to arrive at a just resolution of a civil dispute”.
But just because a party might not want to have their hand revealed doesn’t mean it can’t be under certain circumstances.
Saying “without prejudice” doesn’t necessarily make correspondence without prejudice
The use of the words “without prejudice” don’t necessarily make communications privileged. Whether something is covered by privilege depends on if there:
- is a dispute;
- is a genuine attempt being made to resolve the dispute; and
- have been assertions made in a genuine attempt to resolve the dispute.
If all three of these factors are met, then neither party will be able to disclose the information unless both parties agree to waive privilege.
Without prejudice protection isn’t limited to a dispute in litigation. It generally applies to arbitration, tribunal proceedings and alternative dispute resolution.
This means that simply labelling communication “without prejudice” may not protect the communication. It also means that communication not labelled “without prejudice” might be anyway.
As you’d expect though, it’s always safest to label relevant communication “without prejudice” to be on the safe side.
Example of A Common Error – The Without Prejudice Demand
It’s sadly common, even amongst lawyers, to send a letter headed “without prejudice” that in truth demands their client’s full legal entitlements (at least, as they see it).
Looking back to our three core factors though, you can no doubt see that the second is not met – there is no genuine attempt to resolve the dispute.
It’s also a questionable strategy – making a “without prejudice” demand (even if it could be considered without prejudice” then prohibits you from putting into evidence that the demand was made at all. And a Court won’t always be too impressed if you’ve started proceedings without having made a demand first…
Exceptions to Without Prejudice Privilege
It’s important to understand the exceptions to without prejudice privilege so that documents you thought would be protected don’t come back to bite you. Not all correspondence in a settlement negotiation will be covered by the without prejudice protections. Here are a few examples of exceptions to without prejudice privilege.
The making or enforcement of an agreement between the parties is in question
This exception will occur when one party tries to back out of a settlement agreement. Evidence that might have been “without prejudice” may be admissible to prove an agreement was reached. Negotiations will also be admissible if the dispute is about the terms of a settlement.
The court will be misled unless “without prejudice” information is presented
In the recent Queensland case (Liu v Chan & Ors [2020] QCA 25), the Court found that privileged was waived during pleadings, and that maintaining privilege would mislead the court. Evidence that negotiations had occurred, but not the content of the negotiations, was allowed.
This exception also was notably used in a case where a school teacher was essentially given an ultimatum between getting fired or resigning during “without prejudice” negotiations. The decision maker would have been misled if the evidence wasn’t admitted, so the correspondence was admitted into evidence.
The communication was made to further a fraudulent act
When it comes to negotiating, there is always a certain amount of posturing that will occur. However, when a party is acting dishonestly, or is committing a fraudulent act, even “without prejudice” communication may be admissible as evidence.
Other circumstances
“Without prejudice” communications might also be disclosed if it is necessary to explain a delay in proceedings, where it constitutes an estoppel, or where it is being used as a cloak for blackmail or other improper dealing.
So in Liu v Chan & Ors that we mentioned earlier, evidence that without prejudice negotiations occurred was disclosed to explain for the delay in progressing litigation. Like there, often it will be enough for the existence of negotiations to be referred to and not the content.
Waiver
Without prejudice privilege is jointly held by all parties to the communication. It can only be waived with the consent of all parties to a settlement negotiation. It doesn’t have to be at the same time, but all parties need to consent.
When it comes to waiving without prejudice privilege, care must be taken in drafting pleadings. This is because waiver may occur from something as small as responding to an allegation in a pleading.
What about “without prejudice save as to costs”?
After a dispute has been determined, the decision maker will usually decide who should bear the costs (if such an award is available in the dispute).
The starting point, as you might guess, is that a party who is generally successful will be entitled to their costs of the dispute.
Where the parties have had “without prejudice” communications, the decision maker will be able to look at that correspondence when deciding who should pay for costs.
The general idea is to ask this question: should a party who received an offer of compromise earlier in the proceedings accepted it, such that they would have done better than the end result now?
If so, then many Court rules and general legal principles will come into play that can have a dramatic affect on the costs outcomes. For example, the “winner” might not get their costs at all, or they might get a greater amount for their costs. The result will depend on many factors including the nature and timing of the offers that were exchanged and the decision maker’s assessment of the reasonableness for the rejection of the offer.
It’s for this reason you’ll often see “without prejudice, save as to costs” although in reality it’s probably not needed to go past “without prejudice” alone these days.
What if I refer to “without prejudice” communication in open communication?
If a party discloses “without prejudice” communication in open communication, it may or may not be admissible depending on the other party’s conduct. As previously mentioned, it takes all parties to waive without prejudice privilege, so revealing “without prejudice” information will only put the ball in the other party’s court.
For example, if a settlement offer is revealed in open communication that benefits the other party then they are likely to waive privilege to better their case. On the other hand, if you try to reveal “without prejudice” communication in open communication and it doesn’t benefit the other party, they are unlikely to waive privilege and it won’t be admitted. Also, the decision maker will probably look down upon this.
In any event, revealing without prejudice communications might have no real impact at all, depending on the contents. If no concessions or admissions are clearly made the Court won’t necessarily infer that simply making an offer to compromise should be treated as an admission of a weak case.
What doesn’t receive without prejudice privilege?
Putting “without prejudice” on documents that are not covered by without prejudice privilege can confuse everyone involved, and can even cause issues when it comes to deciding a matter.
Documents that generally shouldn’t be labelled “without prejudice” include:
- Notices and demands
- Correspondence unrelated to settlement of a dispute
- Pre-contractual correspondence
Practical Tips on Without Prejudice Communications
- Once a dispute occurs, the easiest way to negotiate on a without prejudice basis is to include the words at the beginning of a relevant correspondence. While it won’t always mean that the document is in fact without prejudice, it’s the safest starting point.
- Keep without prejudice correspondence separate from open correspondence, and don’t refer to without prejudice correspondence in open correspondence.
- Don’t use inappropriate phrases like “off the record”, they don’t have the same meaning as “without prejudice” (or, indeed, any meaning at all really).
- Be very clear about stating what is and is not without prejudice communication, including in discussions with other parties.
- Take care when drafting pleadings not to respond to allegations made “without prejudice” because it may constitute a waiver.
- Take care when making settlement offers, because even “without prejudice” offers have been held to be admissible when awarding costs.
