When parties are negotiating the settlement of dispute, they will often do so on a ‘without prejudice’ basis. This allows the parties to make statements or offers in the course of negotiations on the basis that they will not be used in court as admissions of liability.

Communications which are ‘without prejudice’ are not admissible in court. This is to encourage litigants to settle their differences rather than litigate them to the finish.

Whether communications are protected as being ‘without prejudice’ depends on the intention of the parties, which may be inferred even though the communication is not expressly made ‘without prejudice’. Conversely, an endorsement ‘without prejudice’ does not automatically give communications privileged status. For communications to be ‘without prejudice’ there must be a dispute in issue and the terms of the communications must seek a compromise of the dispute, or have some bearing on the settlement negotiations.

In Bradford & Bingley Plc v Rashid, the English House of Lords recently considered the ‘without prejudice’ rule in the context of a debtor’s acknowledgement of a long overdue debt.

Bradford & Bingley, a bank, wrote to Mr Rashid about an outstanding loan account asking for an offer of repayment. In his reply to the bank, Mr Rashid acknowledged that he owed the total amount of the outstanding debt. He also advised that he could not make payment at that time but he may be in a position to start repayments two or three years later. Unsurprisingly, Bradford & Bingley were not satisfied with Mr Rashid’s response and issued proceedings to recover the debt. Judgment was sought on the basis of Mr Rashid’s earlier acknowledgement of the debt. However, Mr Rashid argued that the acknowledgement was protected by the ‘without prejudice’ rule and sought to have his letters excluded from evidence.

The majority of the Lordships held that the ‘without prejudice’ rule did not apply to open communications designed only to discuss the repayment of an admitted debt, rather than to negotiate and compromise a disputed debt. Mr Rashid’s correspondence treated the debt as an undisputed liability and dealt only with whether and when and to what extent he could meet that liability. Since the debt was admitted, there was no dispute and therefore the communications could not be ‘without prejudice’.

The case highlights the importance for creditors when negotiating with debtors to be aware of circumstances that could give rise to a without prejudice discussion, and to keep careful notes of any acknowledgement made by a debtor despite any ‘without prejudice’ label on communications.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.