The use of the words "without prejudice" does not automatically prevent a communication from being used in court. If the rule is applied incorrectly, communications that were never supposed to see the light of day could end up before the Judge.
What is the "without prejudice" rule?
It prevents a genuine attempt at settlement from being put before a court or used as evidence against the party who made it and it can apply to oral and written communications.
What is the legal rationale behind the rule?
Settlement negotiations have a greater chance of success if parties are able to speak freely and make compromises without harming their legal position should the negotiations fail. The rule is intended to encourage parties to settle their disputes commercially without recourse to court proceedings which involve costs and business disruption.
Substance of communication is key
Correspondence is not automatically protected simply because it is marked "without prejudice". Conversely, forgetting to label a document "without prejudice" will not prevent it from being "without prejudice".
1. There must be a dispute between the parties; and
2. There must be a genuine attempt to settle the dispute.
Marking documents without prejudice, when they satisfy the test, will avoid debates at a later date over whether the document can be produced in court.
Be aware of when the "without prejudice" rule does NOT apply
Exceptions to the rule:
1. Ordinary commercial negotiations - The without prejudice rule is not applicable to ordinary commercial negotiations (there needs to be a pre-existing dispute you are negotiating to resolve).
2. Concluded settlement agreement – "without prejudice" material is admissible in court to prove whether the parties agreed terms of settlement. So, for example, A makes a “without prejudice” offer of settlement to B. B accepts that offer but later changes his mind. A may produce the “without prejudice” correspondence to the court as evidence that a binding agreement was actually reached.
3. Misrepresentation, fraud or undue influence – "without prejudice" material may be produced to show that an agreement concluded between the parties should be set aside on grounds of misrepresentation, fraud or undue influence.
4. Delay – evidence of the fact of "without prejudice" negotiations (but not the content) may be given in order to explain delay or acquiescence in steps in the formal litigation.
5. "Without prejudice save as to costs" – where correspondence is marked in this way, then "without prejudice" offers may be put before the court when deciding the question of costs after the conclusion of the main trial (i.e. once the main dispute is resolved).
6. Waiver – Both parties can agree to a "without prejudice" document being put before the court, and the whole of that document, including any admissions in it, can be considered by the court.
• Mark correspondence correctly. If you are not communicating to make a genuine attempt at settlement, the rule will not apply. If you are unsure, carefully consider the content of your letter – ask yourself: would you mind if this communication was placed before the court?
• Has your opponent understood the "without prejudice" rule? If your opponent has marked correspondence “without prejudice” basis, but you do not believe it is, flag this up with your opponent. This will put your opponent on the back foot.
• Use open correspondence alongside "without prejudice" correspondence. It can be tactically advantageous to write "open" letters alongside "without prejudice" offers to increase pressure on your opponent to settle.
• "Without prejudice save as to costs". Marking correspondence in this way increases pressure on your opponent to settle if they are concerned about the costs consequences of litigation (which most people are).
• If in doubt, get legal advice.