General Topics of Law

Without Prejudice

---

Perhaps one of the most used (and misused) legal jargon is the phrase “without prejudice”. It is frequently used in emails, letters and even verbal conversations and can be an effective tool in settlement negotiations. However, if not used properly, it will not provide the protection you may need if your dispute ends up in court.

What does “without prejudice” mean?

Communications that are “without prejudice” are made without an intention to affect the legal rights of the person making the statement. As such, legal privilege is attached to such communications and thus the content of the communications is inadmissible in any future court proceedings – they cannot be used by the other party as evidence in court. 

On the other hand, “open” communications are not subject to legal privilege and can be referred to and relied on at trial.

Why is “without prejudice” used?

The phrase is typically used in legal negotiations to assist parties in reaching an out-of-court settlement. Due to the protection “without prejudice” confers, parties to a dispute can speak openly and candidly in a negotiation without fearing that their words would be used against them in court should a settlement fail to materialise.

Further, unless all parties to the communication agree otherwise, “without prejudice” correspondences are confidential and cannot be shown to any other party. This means that, if a dispute involves A, B and C, A and B can negotiate a settlement without worrying that statements made during those negotiations would be disclosed to C.

When is a communication “without prejudice”?

Both written and oral communications can be “without prejudice”. It is also not necessary that a communication be expressly marked as “without prejudice” for the protection to apply, nor is the use of the label determinative. Instead, to determine whether a communication is “without prejudice”, the court will look at the surrounding circumstances to see if it appears that the parties intended to resolve their dispute by reaching a settlement. 

Nonetheless, in the interest of clarity, correspondences should be expressly marked as “without prejudice” when they are intended to have that effect. This is because forgetting to apply the label can lead to a costly dispute as to the true basis of the communication (i.e. whether it is “without prejudice” or “open”). In addition, in a dispute about admissibility, it may be more difficult to convince a court that a correspondence was “without prejudice” if the label was not used. 

It should also be borne in mind that there need not be ongoing litigation or a threat of litigation for communications to be “without prejudice”. Instead, what is required is a genuine dispute between the parties.

How do I use “without prejudice”?

The phrase should be clearly stated when it is intended to apply. The following are some useful tips:

1. For written correspondences, the term should be clearly written at the top of the document so that it is instantly clear to the recipient. 

2. For oral communications, such as meetings or telephone conversations, it is best to mention at the outset and to confirm with the other party that they agree to the discussion being “without prejudice”. 

It is possible to mark only a select part of a written or oral communication “without prejudice” and leave the remainder “open” and admissible as evidence. However, this is not advisable. Firstly, there is a risk that the other party may miss the “without prejudice” portion of the communication, resulting in the entire correspondence inadvertently ending up in court. Secondly, as was the case in Hera Resources Pty Ltd v Gekko Systems Pty Ltd [2019] NSWSC 37, if the document substantially contains material which is not protected by the privilege, the whole document can wind up in court notwithstanding that it also contains some “without prejudice” material. Therefore, it is best to keep “without prejudice” communications separate from those which are not

When does “without prejudice” not apply?

The mere use of the term “without prejudice” on an email, letter or in a conversation does not guarantee that the correspondence is protected as such. Rather, “without prejudice” applies only to genuine settlement negotiations and dispute resolution options such as mediation or court proceedings. 

The following are some further exceptions to the “without prejudice” rule:

1. Impropriety

“Without prejudice” does not apply to a communication that includes any illegal or misleading comments made during negotiations. Although courts understand that, in practice, negotiations often involve some posturing and accept that a party may adopt a position in “without prejudice” discussions that is inconsistent with its “open” position, using the “without prejudice” label does not give a party free rein to be dishonest. 

2. Waiver by mutual consent

Both parties can expressly consent to privilege being waived in relation to a communication marked “without prejudice”. Also, privilege is waived by implication where the content of a communication marked “without prejudice” has already been previously disclosed with the parties’ consent. 

3. Where the communication contains an express statement that it is not to be treated as confidential

4. To prove the existence of a settlement agreement

If a settlement is reached and one party reneges on or breaches the terms of that agreement, the content of the negotiations is admissible to show that an agreement was reached and on what basis. 

5. Fraud, misrepresentation or undue influence

If the settlement agreement was induced by undue influence, misrepresentation or fraud, the offended party can rely on “without prejudice” communications in seeking to exit the agreement made. 

6. To explain a delay in proceedings

7. To evidence an estoppel

If the “without prejudice” communication contains representations that the other party relies upon, the communication may be admissible for the purpose of establishing an estoppel. 

8. Where an issue arises relating to the reasonableness of the settlement

This exception would apply in situations where one party to a settlement agreement is seeking indemnity for the settlement monies paid from a third party (e.g. an insurer).

When should you not use “without prejudice”?

As mentioned above, “without prejudice” should only be used for communications made in connection with an attempt to negotiate a dispute. It should not be used for correspondence unrelated to settling a dispute. 

As such, it should not be used for the following correspondences:

1. General commercial negotiations

2. Where you are merely setting out your case or criticising the other side’s case
3. Letters of demand insofar as you are not making any concessions or discounting the amount you are demanding

4. Where you are merely finalising the terms of an agreement

In some circumstances, allowing certain communications to be left “open” (i.e. admissible) may lead to tactical advantages. For example, you may forego inserting the “without prejudice” label to a letter that contains evidence of the other party’s wrongdoing so that you can rely on that letter in court. 

What does “without prejudice save as to costs” mean?

Where a communication is marked “without prejudice save as to costs”, the same privilege as “without prejudice” applies until the court hands down a judgment. After the court makes a judgment, the communication can then be used to determine how costs will be awarded. 

Generally, in litigation, the losing party will have to pay the successful party’s costs. How much of those costs will have to be paid depends on how the parties conducted themselves during the case. In particular, in ordering costs, the court will consider whether the parties made any attempts to reach a settlement before going to court. This means that “without prejudice save as to costs” can be used to apply pressure on the other side during negotiations since rejecting an offer of settlement marked as such may have cost consequences at the end of trial.

Frequently Asked Questions

Where should I put “without prejudice” on a document?

The label should be clearly written at the top of the document

Can a “without prejudice” letter be used in court?

The letter cannot be used in court so long as it constitutes a genuine attempt to settle a dispute

Can I record a “without prejudice” conversation?

Yes, in fact it would be advisable to do so. However, the record cannot then be used as evidence in court.

Contact us today

If you have any further questions on “without prejudice” or “without prejudice save as to costs”, or require assistance with negotiating a settlement, our experienced team would be happy to assist. Contact us today at 1300 127 330.