'Without Prejudice' is a term commonly used by legal professionals in correspondence to try to settle a dispute out of Court. The term 'without prejudice' is often misunderstood and sometimes used in the wrong context.
This article explains in details what 'without prejudice' and 'without prejudice save as to costs' means, how it should be used, when it should not be used.
Author: Farrah Motley, an online business lawyer.
What Does 'Without Prejudice' Mean?
Parties that are involved in a dispute may want to discuss their options to settle a matter before going to Court, and try and negotiate an agreed outcome instead. The risk with doing this is that you may need to disclose some information, make concessions or admissions for the purpose of trying to discuss and negotiate an outcome.
Each party will want to avoid that information later being used as evidence against them if they can't agree to a negotiated outcome and do have to go to Court.
To avoid information later being used against them, a party can write 'without prejudice' correspondence.
By using 'without prejudice' correspondence, the parties can speak freely and openly about the issues being disputed, and don't have to worry that it will later be used against them. In other words, the communications are made with an intention not to affect the legal rights of the person making the assertion. Or, to put in an other way, the legal rights of that person are reserved.
Here is an example of how using 'without prejudice' might work in practice. Let's say you have a dispute with someone and the amount in dispute is $5,000. You have received an offer to settle a dispute for $2,000. If you write an email in response, stating that you will accept $2,500 in settlement of the dispute (as opposed to pursuing the full $5,000), you should add ‘without prejudice’ to the email. If your counter-offer is not accepted and the matter proceeds to Court, the other party cannot use this letter as evidence in support of their claim that you were prepared to accept the lower amount of $2,500. And you cannot use the other party's initial offer (provided it was sent on a 'without prejudice' basis) as evidence that the other party was prepared to settle for $2,000.
‘Without prejudice’ can apply to both written (email or letters, for example) or verbal (over the phone or in person, for example) communications between parties.
If you do want to use correspondence as evidence in Court, it is referred to as 'open' communications.
'Without prejudice' communications are allowed for public policy reasons; it's preferable and in the interests of the public to settle disputes out of Court. Avoiding costly Court proceedings is in everyone's interests; particularly tax payers who may bear some of the cost of litigation.
What Does ‘Without Prejudice Save as to Costs’ Mean?
Another term which is similar to 'without prejudice' is ‘without prejudice save as to costs’.
'Without prejudice save as to costs' means that the correspondence is inadmissible as evidence except (that's the 'save as' part) when the Court needs to make a decision about who is responsible for legal costs. This means that the protection of ‘without prejudice’ correspondence only applies in Court until a judgment is handed down.
Once the Court makes a judgment, it will decide how to award costs.
Usually what happens is that the unsuccessful party (the person who has 'lost') must pay the other party’s legal expenses. But correspondence that is marked 'without prejudice save as to costs' can change this. This is because Courts look favourably upon attempts by a party to resolve a dispute quickly and reasonably, before both parties have to incur significant legal costs in order to resolve the dispute.
If one party is unreasonable in its refusal of an offer, or in its response to an offer, that party may end up having costs awarded against it.
Why It's Not Enough Just to Write 'Without Prejudice'
“[I]n some quarters of the community there is a belief, amounting almost to a superstitious obsession, that the expression “without prejudice” is possessed of virtually magical qualities, and that anything done or said under its supposed aegis is everlastingly hidden from the prying eyes of a Court.” [Davies v Nyland (1975) 10 SASR 76]
Context is everything when you're wanting to ensure that correspondence cannot be used as evidence against you later.
You don't necessarily have to write 'without prejudice' on the correspondence (for example, a letter or an email), however the correspondence may be more likely to be considered 'without prejudice' if you do. What is really key to making sure correspondence is actually 'without prejudice' is to make sure it is clear from the context. If the context makes it clear that the correspondence was intended by the writer to be 'without prejudice', this goes further in defending the correspondence as having been provided on a 'without prejudice' basis.
Additionally, just making reference to settlement negotiations or the fact that you are trying to resolve a dispute, is not enough to guarantee that the correspondence will be considered 'without prejudice'. It's possible that correspondence may included some information which is provided on a 'without prejudice' basis, and some information which is considered to be 'open' correspondence.
Constructions Pty Ltd v Tarnap Pty Ltd  NSWSC 173 is a good example of this. In this case, the Court found that there must be a sufficient relationship between the correspondence and a genuine attempt to negotiate a settlement.
Whether there is a sufficient relationship depends on how the phrase “without prejudice” is used. The correspondence must be made solely in connection with an attempt to negotiate a settlement. If the correspondence also serves some other purpose, it may not be considered to be fully 'without prejudice'.
To make sure there is a sufficient relationship between the correspondence and a genuine attempt to negotiate a settlement, there needs to be:
a genuine attempt to resolve that dispute; and
assertions made in the course of genuinely attempting to resolve the dispute.
If you can prove all three elements, the privilege of 'without prejudice' correspondence applies to both parties and consent is required from both parties for the correspondence to be admitted as evidence.
If you look at the three elements, it should also be clear that ‘without prejudice’ does not apply in general commercial negotiations where there is no prospect of a litigated dispute.
There are exceptions to correspondence being considered 'without prejudice'. The exceptions are:
criminality, including blackmail and fraud;
misrepresentation or undue influence;
reneging on a settlement agreement;
explaining a delay in proceedings;
to ascertain which party should pay costs; and
an estoppel argument has arisen because of things said during settlement negotiations.
In addition to the above list, you also need to remember that “without prejudice” does not extend to every word spoken during negotiations, and words and conduct that may amount to criminal conduct may not be considered to be provided on a 'without prejudice' basis.
Now, let's take a look at each of the exceptions in turn.
Criminality may remove the protection of 'without prejudice'
If the term 'without prejudice' is being used to cover up blackmail or some other nefarious dealing, it may be admissible as evidence. Just like contracts in relation to criminal activity are unenforceable, criminality will not be protected by the use of 'without prejudice'.
Misrepresentation or undue influence may remove the protection of 'without prejudice'
This becomes relevant where a party wants to admit correspondence that was alleged to be provided on a 'without prejudice' basis into evidence. This is likely to arise where, for example, the party wishes to challenge a settlement agreement because they claim the agreement was procured through misrepresentation or undue influence.
Reneging on a settlement agreement may remove the protection of 'without prejudice'
Once a settlement agreement has been reached, the three elements discussed above will no longer apply. Because of this, if one party reneges on the agreement reached, the 'without prejudice' correspondence may at that point become admissible in Court as evidence.
'Without prejudice' correspondence may be disclosed to explain a delay in proceedings
If there has been a delay in proceedings, for example because the parties were engaged in settlement negotiations, there might be a need to disclose 'without prejudice' communications to explain the delay to the Court.
'Without prejudice save as to costs' correspondence may be disclosed to determine who should pay costs
The use of 'without prejudice save as to costs' gives rise to the so called 'Cutts v Head' exception.
In Cutts v Head  1 All ER 597 Fox LJ said:
Parties should be encouraged so far as possible to settle their disputes without resort to litigation and should not be discouraged by the knowledge that anything that is said in the course of such negotiations (and that includes, of course, as much the failure to reply to an offer as an actual reply) may be used to their prejudice in the course of the proceedings. They should … be encouraged freely and frankly to put their cards on the table.
Once a Court determines the outcome of a dispute, the Court can refer to the correspondence to decide who should pay for costs.
An estoppel argument may remove the protection of 'without prejudice'
There are other exceptions to relying on 'without prejudice' correspondence to avoid admitting the information into evidence in civil (not criminal) proceedings. Those exceptions are included in legislation such as the Evidence Act 1995 (Cth). Those exceptions include that 'without prejudice' correspondence can be disclosed in the following circumstances:
with the parties consent;
where the substance of the communication or document has already been partly or wholly disclosed with consent;
if the communication included a statement that it was not to be treated as confidential;
where the evidence contradicts or qualifies evidence already admitted;
if the evidence is sought to be used to enforce an agreement;
if the communication affects a person’s rights;
if the communication involves fraud or an abuse of power.
A judge can exercise their discretion to admit 'without prejudice' correspondence as part of the court’s inherent jurisdiction.
How Should I Use The Term 'Without Prejudice?
If you want correspondence to be ‘without prejudice’, you should:
write the phrase 'without prejudice' clearly at the top of the correspondence; or
if you're having settlement negotiations over the phone or in person, state it at the start of the verbal communication.
If you do forget to mark the correspondence as 'without prejudice' then, depending on the surrounding context, you may still be able to argue that it is inadmissible as evidence.
We Can Help You to Write 'Without Prejudice' Correspondence
Prosper Law provides legal representation to Australian businesses and sole traders. We help businesses resolve disputes in a cost-effective way and can help you to write 'without prejudice' correspondence.
Contact us today for a free consultation and a no-obligation quote for your legal matter.
Author: Farrah Motley | Legal Principal
PROSPER LAW - A Commercial Law Firm for Businesses
M: 0422 721 121