‘Without prejudice’ is an expression commonly used in correspondence and documentation. The fact that it is sometimes used inappropriately or out of context suggests that there is  uncertainty about its precise meaning and effect. The purpose of this article, by Lawyer Albert Ponte, is to give the reader a basic explanation of the principle of without prejudice communications; when the term applies and some of its limitations. The article follows the principles under English law.

WHAT IS WITHOUT PREJUDICE PRIVILEGE AND WHEN DOES IT APPLY?

It is often convenient and desirable that parties involved in legal proceedings or in obtaining legal advice should be able to keep certain documents and communications to themselves, the most obvious example being the communications between a legal advisor and their client. It can also be useful during negotiation, which is discussed in more detail below. The law accommodates this by allowing various categories of communications to be privileged (or protected) from disclosure in legal proceedings. One such category covers what are knownas ‘without prejudice’ communications.

The concept of without prejudice privilege arises from the idea that parties should be encouraged to settle their disputes by negotiation and without resorting to litigation or other legal proceedings. There are powerful public policy arguments for promoting this idea. As well as saving unnecessary legal costs, the Court’s limited public resources can be reserved for more difficult or complicated cases that parties cannot easily resolve between themselves.

Naturally, parties to negotiations are unlikely to make any admissions about their case, or any compromise of their position if there is a risk that those admissions can later be use against them in legal proceedings. It follows that prospective litigants will be more candid about their case when negotiating if that risk is eliminated and they feel able to make those admissions and concessions ‘without prejudice’ to the arguments they may wish to make if it is later the subject of formal proceedings. The more open and frank the discussions, the more likely that a negotiated settlement will be achieved.

Without prejudice privilege recognises this and to facilitate the settlement process, there is a general rule that any communications between opposing parties which are a genuine attempt to settle the issues in dispute cannot normally be accepted as evidence and so will not be disclosed in proceedings. There are also cases which suggest that in certain circumstances parties engaged in without prejudice negotiations to settle a dispute enter into an implied contract to similar effect. The use of the without prejudice label in noncontentious matters, however, is generally meaningless as there are no issues in dispute.

A party seeking to settle a dispute will often mark correspondence ‘Without Prejudice’ or will say at the beginning of a telephone conversation or meeting that the discussions are without prejudice. Although this is generally good practice, it is not always strictly necessary.

The rule does not only apply when the communication in question is marked ‘Without Prejudice’. If necessary, the Court or another legal tribunal (such as an arbitrator) will also consider the substance of the communication to determine whether it is a genuine attempt to settle any of the issues in dispute. So, a letter that does not bear the words ‘Without Prejudice’ on its face may still be protected from disclosure in proceedings. Equally, a letter that carries the without prejudice label may not be protected if it does not contain anything that resembles a genuine attempt at settlement. In those circumstances there is a risk that the Court or other tribunal may choose to disregard the label.

WHAT ARE ITS LIMITATIONS?

Although it can be a useful means of negotiating a settlement, the veil covering the protected communications is not completely impenetrable. Some of the more relevant exceptions in commercial and construction disputes are as follows:

• Disputes may arise as to whether the without prejudice discussions have resulted in a concluded settlement agreement. Where it is not possible to determine this issue without considering the without prejudice correspondence, it may be accepted as evidence of that issue. The decision in Oceanbulk Shipping v TMT Asia suggests that this exception is not limited to establishing the existence and terms of a concluded agreement, but extends to resolving disputes about the meaning and proper interpretation of any such agreement and its terms.
• Where one party seeks to set aside a settlement agreement on grounds of misrepresentation, fraud or undue influence, the negotiations leading up to the agreement may be admissible as evidence even if they were conducted on a without prejudice basis.
• Without prejudice privilege may not be used to conceal perjury, blackmail or any other ‘unambiguous impropriety’. So, if Party A deliberately and unambiguously admits certain facts in without prejudice communications which it later intends to deny in its pleadings or witness statements, Party B may successfully challenge any attempt by Party A to rely on without prejudice privilege to prevent the disclosure of its earlier admissions. However, the Courts are generally reluctant to allow challenges to without prejudice privilege on this ground.
• Without prejudice negotiations often lead to procedural delays in litigation and it is widely accepted that the existence of without prejudice negotiations can be brought to the attention of the Court or other tribunal to explain why delays have arisen.
• Occasionally, a party to proceedings that have been settled may seek to recover any residual loss from a third party. For example, a dispute between an Employer and Contractor concerning defects might settle with the Contractor making a payment equal to 50% of the Employer’s loss. The Employer might then seek to recover the remaining 50% from members of the professional team and is ikely to plead that its settlement with the Contractor was a reasonable attempt to mitigate the losses now claimed against the professional team. In such cases, the without prejudice correspondence in the original proceedings might not be privileged in the subsequent proceedings.
• Settlement negotiations are sometimes made ‘without prejudice save as to costs’. In other words, the communications will not be discloseable in evidence in relation to the actual dispute, but may be put before the Court once judgment has been given and the issue of costs is to be decided.

Although not strictly an exception to the rule, it is also important to be aware that without prejudice privilege can be waived. This can be done with the prior consent of both parties or it can arise where one party refers to any of the contents of a without prejudice communication to support its case. In the latter circumstances, the other party may elect to accept that conduct as a waiver and thus set aside the without prejudice privilege in that communication and all associated without prejudice material. Care should, therefore, be taken to ensure that without prejudice communications are not referred to in open correspondence, pleadings or witness statements, unless the potential consequences of waiving without prejudice privilege have been fully considered.

SUMMARY
In summary, without prejudice privilege:

• Applies in situations where the parties are in dispute. The use of the label in correspondence concerning non-contentious matters is generally meaningless and will not give any protection from disclosure.
• Is intended to protect any oral or written communications between the parties which are aimed at settling any of the issues in dispute from disclosure in legal proceedings.
• Means that without prejudice communications should be (and usually are) labelled as such, but the label does not necessarily give this protection, nor does failure to apply the label automatically forfeit the right to privilege from disclosure.
• There are a number of established exceptions to the without prejudice rule which mean that protection is not always guaranteed.
• Should not be waived before considering the consequences. Without prejudice privilege is a useful tool in resolving disputes. The fundamental concept and purpose behind it is easy to understand, but its implementation and the law surrounding it is sometimes less straightforward.

Albert Ponte is a Lawyer with Fladgate LLP and can be contacted at aponte@fladgate.com