When Should “Without Prejudice” Be Used?

It’s a common, and often savvy, tool used in negotiations and disputes, however, can marking your correspondence as “without prejudice” actually have the opposite effect on your claim?

One of the major barriers to settling a dispute can be the reluctance of the disputing parties to speak freely and openly. Negotiations generally require concessions and compromises – meaning that the parties can often feel a sense of paranoia that any statement made in the course of negotiations can come back to haunt them later in Court. This will, naturally, stifle any productive discussion and result in each party keeping their cards close to their chest.

This is where “without prejudice” comes into play, and may be important.

What is “Without Prejudice” and What Does it Mean?

In general, “without prejudice” refers to the privilege attached to written or verbal statements made by a party to a dispute in a genuine attempt to settle that dispute. A document, or a verbal statement, made without prejudice cannot be compelled to be produced in evidence or referred to in proceedings. Marking documents and correspondence with “without prejudice” allows the parties to freely work towards a compromise without the risk that their statements may be used against them later should negotiations fail.

It has become common practice for some practitioners and laypersons alike to print “without prejudice” on any documents and correspondence in relation to a dispute. In order to qualify for without prejudice protection there is a little more required than simply printing the magic words on a document, but care should be taken to ensure that this is appropriate.

Wells J in Davies v Nyland (1975) 10 SASR  76 said:

“in 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”

When Does it Apply?

As can be expected, there are restrictions as to where and when the without prejudice protection will apply. Importantly, without prejudice will not protect a document or statement made in the course of negotiations that are not related to dispute resolution (i.e. commercial negotiations). This is a principle of common law and, specifically expressed, in section 67C of the Evidence Act 1929 (South Australia).

Without prejudice privilege will only apply to parties who are engaging in genuine settlement negotiations in an attempt to settle legal proceedings that have commenced or are at least contemplated, or where other dispute resolution avenues have commenced. Mere involvement in commercial negotiations will not attract without prejudice privilege.

In determining this, the Court will look at the circumstances surrounding each communication and assess whether the parties intended to negotiate to resolve their dispute and reach a settlement.

Many people misunderstand this basic principle, which has led to the growing misuse of the term. Commonly, people will mistakenly put “without prejudice” on the following:

  • Correspondence which is unrelated to settling a dispute;
  • Letters of Demand where they are not making any concessions or discounting the amount they are demanding; and/or
  • Correspondence where they are merely trying to finalise the terms of an agreement.

Unfortunately, this can lead to a rude shock when such correspondence, which was thought to be protected, resurfaces at later Court proceedings in a detrimental way.

Does “Without Prejudice” Need to be Included to Gain Protection?

As outlined above, the test for whether a communication is protected by “without prejudice privilege” is based on the contents of the document or communication rather than the label. The Court will look at the nature of the communication and intent of the parties over any explicit statement that the communication is to be protected. As the converse of a document bearing the “without prejudice” mark which may not be protected, a communication may be found to be protected by “without prejudice privilege” without bearing any explicit reference to it.

What if you Wish to Refer to a Without Prejudice Document?

Although one party may mark a document or communication without prejudice, the privilege cannot be waived, and the document or communication cannot be used in proceedings unless both parties agree. Careful consideration should be given to whether offers that are made in negotiations to settle a dispute should be “without prejudice” or “open”. It may be that the party making the offer will wish this to be known if the dispute proceeds to litigation.

Conclusion

Without prejudice privilege is an important tool in early dispute resolution – with many settlements being achieved due to the facilitation of open and frank negotiations between parties in an environment where admissions or other communications cannot be held against them. However, the “without prejudice” label can lead to complications, legal arguments and potential negative cost implications if used in the wrong context.

Therefore, while it may seem like an attractive “catch all” it is important to give proper consideration as to whether a particular document or communication is protected by the without prejudice privilege before sending it off bearing those magical words or claiming it in discussions.

For more information, please contact:
Sandy Donaldson

Sandy Donaldson
Director
p.  +61 8 8124 1954
e.  Email me

This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such.e Professional advice should be sought prior to any action being taken in reliance on any of th information. Should you wish to discuss any matter raised in this report, or what it means for you, your business or your clients' businesses, please feel free to contact us.

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