Without Prejudice Explained: When It Protects You and When It Doesn’t

If you have been involved in a legal dispute, you may have received a letter that includes the phrase without prejudice, save as to costs, but what does it actually mean, and can you just label anything ‘without prejudice’? 

Without prejudice refers to communications made in connection with a genuine attempt to negotiate the settlement of an actual or anticipated legal dispute. If the privilege applies, the substance of those communications will generally be inadmissible in later proceedings, although the fact that negotiations occurred may still be referred to in limited circumstances.

What is the purpose of Without Prejudice Privilege? 

The purpose of without prejudice privilege is to provide parties with the opportunity to make concessions and assertions free from repercussions, in an effort to resolve legal disputes, and consequently avoid costly legal proceedings. 

The difference between without prejudice and without prejudice, save as to costs

If a letter is marked simply “without prejudice”, its contents are generally protected from being used as admissions in the substantive dispute. By contrast, “without prejudice save as to costs” preserves that protection until the question of costs arises, at which point the court may consider the offer when deciding whether a party acted reasonably in accepting or rejecting it.

Can I label anything without prejudice? 

Simply labelling a communication “without prejudice” does not conclusively enliven the privilege. However, where parties are genuinely negotiating the settlement of a dispute, the label can support an understanding that the relevant correspondence, including earlier and later communications in the same chain, is intended to be protected, unless there is a clear break showing that later communications are open.

Instead, the test is: 

1. whether there is a legal dispute, either on foot or anticipated; and 
2. whether the communication relates to negotiations genuinely aimed at settlement.^[1]

The word ‘dispute’ has been interpreted as also applying where parties are in actual disagreement, but the disagreement has not yet been articulated, and one party has made an offer to resolve what it anticipates is in dispute.

Ordinary commercial negotiations, without an actual or anticipated dispute capable of settlement, will not usually attract without prejudice privilege.

Entitlement to claim privilege over without prejudice documents 

The right to discovery does not depend upon the admissibility of documents in evidence.^[2] Therefore, it is not acceptable to simply not discover without prejudice material where it is directly relevant to the proceedings. Instead, it is important to ensure that privilege against production is claimed, otherwise the privilege may be taken to be waived.

For example, in Trade Practices Commission v Arnotts Ltd, the court held that although a document arising from settlement negotiations could have been privileged, Arnotts waived that privilege by disclosing it without claiming privilege, and fairness required that it also be admissible in evidence.

There are also important exceptions. For example, without prejudice material may become admissible where it is relevant to determining whether a settlement agreement was reached, where both parties consent, where the communication is relevant to costs, where disclosure is necessary to avoid the court being misled, or where the communication was made in furtherance of fraud, an offence, a civil penalty contravention, or other abuse of process.

A further exception under the Evidence Act 1995 (Cth) is that evidence may be adduced if evidence given in the proceeding may be misleading unless evidence of a communication or document, which would otherwise be subject to the privilege, were not adduced to contradict or qualify that evidence.^[3] This exception has been applied in a number of cases.^[4]

Key take aways

• “Without prejudice” protects genuine settlement discussions, helping parties negotiate freely without fear that concessions or admissions will later be used against them in court.
• Not every communication labelled “without prejudice” is protected. The privilege generally only applies where there is an actual or anticipated legal dispute and the communication forms part of a genuine attempt to resolve that dispute.
• “Without prejudice” and “without prejudice save as to costs” are not the same. The latter allows the court to consider the offer when determining costs, particularly where a party has unreasonably refused a settlement offer.
• Without prejudice documents may still need to be disclosed in litigation. Parties should properly claim privilege over relevant documents, as privilege can be waived if not asserted.
• The privilege is not absolute. Courts may permit without prejudice communications to be used in certain circumstances, including where they are relevant to costs, the existence of a settlement agreement, preventing the court from being misled, or where statutory exceptions apply.
• Before sending or relying on a without prejudice communication, obtain legal advice to ensure the communication achieves its intended purpose and does not inadvertently prejudice your position.