The "Without Prejudice" Rule: When to Use It and How It Protects Settlement Discussions from Court Proceedings
When we see the words "without prejudice" written on legal documents, what does it really mean? These two words have a large effect and yet can easily lead to confusion and misuse.
- When to use a without prejudice letter?
- What are exceptions to the without prejudice rule?
- What is the without prejudice obligation?
- What is the goal of without prejudice?
In essence, when parties attempt to resolve a dispute, they often mark their written and verbal communications "without prejudice". The without prejudice ("WP") principle or rule exists to encourage settlement discussions between parties. It protects WP materials from being used as evidence against the party making the statement.
The rationale is that it is in the public's interest to encourage parties to settle disputes and avoid litigation wherever possible. Therefore, if a party makes a genuine attempt to settle a dispute under WP privilege, such communication cannot be used against them if the matter is heard before the courts.
Without Prejudice Rules
While there are no rules on how "without prejudice" should be used, generally the words will appear at the top of a document, in a subject line or confirmed at the outset of a conversation, where the opposing party can agree to the interaction being WP.
If a party forgets to include "without prejudice" in their communications, the rule will look to the content of the interaction. For example, if a party shows a genuine attempt to settle a dispute, WP may still apply. In such situations, one would look at whether the conduct of the parties indicates that the correspondence was intended to be WP. It is the content and intent of an interaction that is determinative of whether the rule applies. In essence, WP is a question of substance over form.
As WP privilege is commonly misused and can be confusing, some considerations to determine its applicability include:
- Where the communication merely concerns the matter in dispute, stating WP will not guarantee that privilege will be upheld. For WP to apply, the communication must directly attempt to settle the dispute;
- Labelling a communication as "off the record" differs from WP and does not have strict legal meaning. "Off the record" should not be relied upon;
- Labelling a communication as "subject to contract" is used to denote that an agreement is not yet binding. This also differs from WP and should not be relied upon;
- Privileged information is not the same as WP as it refers to information only one party has and is seeking to withhold from being disclosed to the other. This can include attorney-client privileged communications, and does not benefit from the same WP protections; and
- It is important for both parties to understand and confirm when a communication is protected under WP confidentiality.
Open Communication
In contrast, a party may want to make an offer to settle or negotiate in open communications. For example, a party may believe that an open communication tactic will shift the costs' risk of litigation. If this is the case, the party should clearly state that the interactions are "open correspondence" to avoid confusion or assumptions that negotiations are taking place under WP.
Without Prejudice Exceptions
In some instances, a court may allow WP materials to be used in litigation. For an exception to apply, the justice of the case must justify it. In these situations, the WP materials are usually limited to specific purposes only. Some examples of exceptions include:
- Where it is disputed whether a concluded settlement agreement exists between parties or not;
- Where the WP material presents evidence of fraud, undue influence, misrepresentation, perjury, blackmail or other clear impropriety;
- Where a statement in the WP materials may give rise to an estoppel;
- To explain a delay; and/or
- Where there is an issue related to the reasonableness of a settlement.
These exceptions are important to consider in that WP is not absolute and does not offer a blanket protection to confidentiality.
Without Prejudice Save As To Costs
One should also consider that marking a document as WP differs from "without prejudice save as to costs" ("WPSTC"). The latter means that WP protections apply until a court delivers a judgment. In such instances, if the dispute is not resolved, the interaction may be referred to when a judgment is provided, and cost entitlements are considered by the court. During that time, the materials would be relied on to illustrate whether a party acted reasonably in trying to settle the dispute. While there are no guaranteed outcomes on costs, the court may weigh the efforts to resolve a dispute, at the stage of cost consideration.
WP is frequently misused and can lead to confusion in its applicability. It is important to be aware of when the WP or WPSTC rules are available to protect your position during negotiations and how to use them appropriately.
Originally published September 18, 2021.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
