There may be no other legal phrase that is more misunderstood and abused, by bush and city lawyers alike, than the phrase “without prejudice”.

Even where no dispute being resolved, it is not unusual to see emails or letters garnished with the words “without prejudice”, sometimes in all-caps or even underlined and in bold for good measure.

Without Prejudice: 5 Common Misconceptions

  1. The phrase must be written in capitals and marked to stand-out (e.g. WITHOUT PREJUDICE), otherwise it won’t apply.
  2. If writing a letter of demand, you should mark the letter Without Prejudice even though you’re not making any concessions or reducing the debt.
  3. If sending a letter to try and finalise a contract (e.g. sale of a business) through genuine negotiation or compromise, you should mark the letter Without Prejudice even though the contract is not a settlement of a dispute.
  4. Once your email or letter is marked Without Prejudice, then that correspondence is protected and cannot be used against you in the court of law.
  5. Even if you mark a letter Without Prejudice, you can choose whether to refer to that letter in subsequent court proceedings as it is your letter.

Without Prejudice Letter: What is It?

The “without prejudice” privilege applies to letters (paper or electronic) and verbal communications made in the course of genuine attempts to negotiate a settlement in a civil dispute.

The without prejudice letter or verbal communication must be a valid and genuine negotiation between parties with an intention to settle a dispute.

If negotiations fail, the without prejudice letter cannot be used in any subsequent court proceedings without the consent of both parties.

Without prejudice is a joint privilege that protects equally the maker and the recipient of the letter and cannot be waived unilaterally.

What is the Effect of the Without Prejudice Privilege?

The purpose of the rule is to facilitate communication between parties in a dispute to help them avoid litigation.

The privilege protects parties so that they can make settlement offers in the context of a dispute without fear that the content of their settlement negotiations will be used as evidence (or some admission of liability) against them.

When a letter or document is made on a without prejudice basis, it generally cannot be entered into evidence except in limited circumstances discussed below.

Without Prejudice Letter and Substance Over Form

The test to determine what is protected is a matter of what’s known in law as substance over form. The simple fact that a letter is marked “without prejudice” does not mean it necessarily attracts the privilege.

There is no strict legal requirement that a person sending a without prejudice letter actually specify that they are speaking or writing on a without prejudice basis.

Whether the privilege applies will be determined by the substance of the communication.

If you want to make a without prejudice offer or hold a conversation in the context of a dispute, the best practice is to communicate clearly that you wish to do so on a without prejudice basis.

In the interests of clarity, you should use the term “without prejudice” and explain its meaning if required.

Other phrases, such as “off the record” should be avoided as they have no defined legal meaning and will be open to interpretation by a court.

Main Exception to the Without Prejudice Rule

Any communication made on a without prejudice basis may still be referred to a court if relevant to determine liability for costs in a proceeding. This explains why the phrase is sometimes expanded to “Without Prejudice Save as to Costs”.

This might be relevant if the without prejudice communications show that one party has acted unreasonably in the course of the proceeding or has pursued litigation for a collateral purpose that is unrelated to the enforcement of their rights or the determination of a genuine dispute.

In that case, although the communications cannot be entered in as evidence on the actual matter in dispute, they may be admitted when the court or tribunal determines which party should bear the costs of the proceeding.

Aside from the issue of costs, there are many other exceptions that are contained in section 131(2) of the Uniform Evidence Acts, including:

  • a dispute regarding the terms of a concluded settlement;
  • a misrepresentation contrary to the Competition and Consumer Act 2010 (Cth); or
  • perjury, blackmail or other unambiguous impropriety.

Takeaway

Unless it is made in an effort to settle a dispute, a communication will not be protected by having the words Without Prejudice used.

Whether it is marked “without prejudice” or not, a communication that is connected to the settlement of a dispute is generally protected and cannot be used against either party.

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