The term ‘without prejudice’ is used in legal negotiations to help parties to a dispute make a genuine attempt to settle outside of court. It is a legal privilege that may be applied to written and oral communications made in connection with settlement discussions, making those communications inadmissible as evidence in future court proceedings. It is important to understand when to use ‘without prejudice’ to facilitate productive settlement discussions and to be aware of the exceptions to its application.
Why is the term ‘Without Prejudice’ used?
Communications marked as ‘without prejudice’ in the context of negotiating a settlement cannot be used by either party as evidence in court. This allows parties to have productive discussions without the concern that the information shared will later be used against them in court. Parties should ensure the term is written clearly at the top of any written correspondence or state it at the start of any oral communication. The term may be applied, for example, to a letter that has an offer to accept a lesser amount than a party is claiming. If that offer is not accepted and the matter goes to court, the other side cannot use the letter to support its case.
When Does ‘Without Prejudice’ apply?
The communication must have been made solely in connection with a genuine attempt to negotiate a dispute for the privilege to apply. A court will look to the circumstances of its use and require three elements to be met, including that:
- There was a dispute,
- A genuine attempt was made to resolve it, and
- Assertions were made in that attempt.
The legal privilege applies to both parties if these elements are made out and consent is required for the privilege to be waived. The parties’ intentions to resolve the dispute by settlement is crucial. Therefore, if ‘without prejudice’ is left out of one email within a chain of emails marked ‘without prejudice’, the privilege is likely to extend to that email. However, the term does not apply to general commercial negotiations and may not extend to words and conduct if an exception applies.
Keep in mind that words and conduct constituting criminal conduct are not protected by the privilege. Thus, the privilege cannot be used to hide blackmail, fraud and undue influence or misrepresentation. Also, once a settlement is reached, if one party defaults on the agreement, evidence that was given without prejudice can be adduced in court to prove an agreement was reached.
When ‘without prejudice- save as to costs’ is used, courts can look at the communications when making a judgment on costs at the end of proceedings. The unsuccessful party will have to pay the other party’s legal costs, and the court may use communications with ‘without prejudice save as to costs’ to determine the costs order. The parties’ attempts to settle, and any unreasonable action that was taken by either party, can impact how much the unsuccessful party must pay in costs.
The Evidence Act 1995 (NSW) essentially restates that ‘without prejudice’ communications must not be adduced in court proceedings. Section 131(2) of the Evidence Act 1995 (NSW) provides further exceptions for disclosure in civil court proceedings, including when parties consent and the substance of the communication or document has already been partly or wholly disclosed with consent.
Using ‘without prejudice’ for communications can help parties speak openly in discussions to reach a settlement and encourage a quick and efficient resolution to a dispute. However, the term must be used correctly for the protection to apply and some exceptions negate its application.