Without prejudice privilege provides an important protection for parties who are involved in disputes because it allows the parties to communication candidly and to explore options for settlement without fear that their admissions will be subject to scrutiny if the dispute goes to Court. Now you might be saying, “I swear I’ve heard of without prejudice before”.
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Well, it is no surprise that the term is one of the most used and abused legal phrases in law. Many people, including solicitors, believe that the use of the words “without prejudice” will make the communication privileged. As Justice Well described this view in Davis v Nyland (1975) 10 SASR 76 at 89:
“[I]n some quarters of the community there is a belief, amounting almost a superstitious obsession, that the expression ‘without prejudice’ is possessed of virtually magical qualities, and that anything done or said under it supposed aegis is everlasting hidden from the prying eyes of a court”.
Of course, this belief is incorrect. Unsurprisingly, it is also misunderstood by many as the term seems to promise the remarkable ability to prevent statements said to one another from being relied upon in court proceedings. In actual fact, “without prejudice” is a tool to help parties to settle their disputes outside of the courtroom.
Communications made with prejudice in an attempt to settle a dispute are privileged: Old Papa’s Franchise Systems Pty Ltd v Camisa Nominees Pty Ltd [2003] WASCA 11. The privilege operates as a joint privilege and cannot be waived without the consent of all parties involved. The purpose of without prejudice privilege is to allow parties to explore the possibility of settlement in an environment where they can deal with the other party to the extent of making admissions without prejudice to their rights should the negotiations fail: Nouvelle Homes t/as Wilson & Hart v Hatch [2009] WASC 63.
It essentially serves as a public policy purpose by facilitating an avenue for parties to seek settlement without resorting to litigation. It is important to note that mere reference to settlement negotiations does not attract the without prejudice privilege.
Unsurprisingly, not every dispute will be covered by without prejudice privilege. The dispute must be either the subject of litigation, or litigation might reasonably be contemplated by the parties if they cannot reach an agreement in the course of the negotiations. The communications between the parties need to indicate intention to comprise, offer cession or sacrifice to resolve the dispute: Thomson v Austen (1823).
The most common ways of purporting to communicate without prejudice are to:
The mere act of labelling communications “without prejudice” will not be pivotal as to whether or not the communication is privileged. Similarly, communications that are either oral, written and by conduct can retain privilege even where the parties do not expressly state that the communication is made without prejudice.
It essentially serves as a public policy purpose by facilitating an avenue for parties to seek settlement without resorting to litigation. It is important to note that, mere reference to settlement negotiations does not attract the without prejudice privilege.
It is not surprising that there are indeed exceptions to the applicability of the term “without prejudice”. The most significant exception applies where a settlement agreement has been reached (e.g. if one party agrees on a “without prejudice” basis to accept $10,000.00 payable in seven days to settle a dispute) but one party then breaches the terms of that agreement. In these circumstances, the aggrieved party could elect to sue on the basis of the ‘without prejudice’ agreement to enforce the bargain.
The decision in Unilever Plc v Proctor & Gamble Co [2001] sets out the following examples of when the “without prejudice” privilege may not be applied:
The court in Muller v Linsley & Mortimer [1996] discussed the rationale behind the exception for “without prejudice” privilege:
“If one analyses the relationship between the without prejudice rule and other rules of evidence, it seems to me that the privilege operates as an exception to the general rule on admissions (which can itself be regarded as an exception to the rule against hearsay) that the statement or conduct of a party is always admissible against him to prove any fact which is thereby expressly or impliedly asserted or admitted. The public policy aspect of the rule is not in my judgment concerned with the admissibility of statements which are relevant otherwise than as admissions, i.e., independently of the truth of the facts alleged to have been admitted … But the public policy rationale is, in my judgment directed solely to admissions.”
Correspondence and ‘without prejudice’ documentation will be made privileged from third parties. This is, more often than not, the case with multi-party litigation. 5 As what Lord Griffiths stated in Rush & Tomkins Ltd v Greater London Council [1989]:
“In multi-party litigation it is not an infrequent experience that one party takes up an unreasonably intransigent attitude that makes it extremely difficult to settle with him. In such circumstances it would … place a serious fetter on negotiations between other parties if they knew that everything that passed between them would ultimately have to be revealed to the one obdurate litigation.”
Plainly, if there are three parties to a dispute, two of those parties are able to negotiate a settlement without worry of their agreement being undermined by the third party, due to the “without prejudice” privilege.
The belief that “if I put ‘without prejudice’ on this email, I can’t go wrong” is false. The simple use of putting the term ‘without prejudice’ on an email, document or in a conversation does not itself create magical protection. Labelling all communication “without prejudice” may not be beneficial, and in certain circumstances it may be in a party’s best interest to allow certain communication to be admissible.
The proper use of the phrase in the right context can lead to great tactical advantage and minimise costs. For example, it may be better not to insert it on a letter that contains evidence of another party’s wrongdoing, so that such correspondence can be relied on in future proceedings.
Often, people (and even solicitors) use “without prejudice” where they may not need to, or where it does not apply. For example, people misuse it by adding it to:
In the case of Hammerton v Knox Grammar School [2013], a dispute that went before the Fair Work Commission, a teacher argued that she was forced to resign due to the breakdown in without prejudice negotiations. The school successfully argued that it would be prejudiced in responding to this allegation unless the correspondence was allowed into evidence. The Fair Work Commission permitted the school to submit evidence of the “without prejudice” negotiations that occurred between the teacher and the school, which contradicted the teacher’s evidence.
Another example is the case of Hera Resources Pty Ltd v Gekko Systems Pty Ltd [2019]. In that case, the court held that if a document substantially contains material which is not protected by privilege, then it can be admissible notwithstanding that it also contains some “without prejudice” material.
Another commonly used term is “without prejudice save as to costs”. This refers to the same class of documents or correspondence, which contain offers or negotiations of settlement, but which can be brought to the court’s attention after a decision is handed down. Following the determination of a matter by a court, the court will also make an order about legal costs. Generally, a party who successfully argues their case will be entitled to have their legal costs paid, at least in part, by the unsuccessful party. How much of a party’s costs are ordered will often depend on how the parties conduct themselves during the case.
During a proceeding, a party may make an offer of settlement in a letter marked “without prejudice save as to costs”. If that offer is not accepted by the other party, and the party who made the offer achieves an outcome on terms at least as favourable to them as the offer which they made, then they may wish to produce the “without prejudice save as to costs” letter to the court in arguing that they should be entitled to recover a greater sum of their legal costs. The reasoning for this is that they were sensibly trying to resolve the matter, and they should not have to bear the costs which they incurred due to the other party not accepting a reasonable offer.
Making a generous “without prejudice save as to costs” offer early on in a proceeding is often a very good idea, as it increases the chance of the matter being resolved without the need for a trial. Alternatively, if the matter does go to trial, making an reasonable and early offer should assist you in recovering as much of your legal costs as possible.
Inserting “without prejudice” in your correspondence does not automatically prevent that correspondence being shown to the court.
If you have any question about adding “without prejudice” to communications in a settlement negotiation or if you believe that “without prejudice” privilege has been used incorrectly, then contact our team at Gibbs Wright Litigation Lawyers for assistance.
