The term “without prejudice” is one of the most used and abused legal phrases. It is also misunderstood by many which is unsurprising, as the term seems to promise the remarkable ability to prevent statements that are conceded by one party to another from being relied upon in Court proceedings. In actual fact, “without prejudice” is a tool to assist parties to settle their disputes outside of Court.
What does “without prejudice” actually mean?
The law recognises, as a matter of public policy, that parties should be encouraged to settle their disputes without having to go to Court. The term “without prejudice” refers to the legal privilege attached to communication that is specifically used for the purpose of negotiating settlement. It restricts any such communication from being relied upon in Court proceedings – in other words, “without prejudice” communications are inadmissible.
Context is critical
While the above definition may appear straightforward, the mere use of the phrase “without prejudice” does not necessarily mean the communication is privileged. Whether communication is covered depends on whether the communication was solely for the purpose of negotiating settlement. In fact, if the context makes it plain that the communication is intended to be “without prejudice,” it isn’t strictly necessary to include the tagline, although in the interest of clarity it is better to use it than not.
It’s also important to note that a mere reference to settlement negotiations may not be sufficient to attract privilege. In fact, in some cases the Court may determine that privilege only applies to part of a document, and consequently may allow other parts that aren’t for the purpose of negotiating settlement to be submitted as evidence. The decision of CJ Redman Constructions Pty Ltd v Tarnap Pty Ltd  NSWSC 173 sheds some light on the issue of whether privilege is granted. In the case, Justice Campbell found that there must be a sufficient link between the correspondence and a genuine attempt to negotiate a settlement.
Exceptions to the rule
Like so many things in life there are exceptions to the applicability of the “without prejudice” term. The most significant one is that once a settlement agreement has been reached, if one party reneges on the agreement, evidence that was originally “without prejudice” can be admissible in Court to prove that an agreement was reached. For example, if one party agrees on a “without prejudice” basis to accept $10,000 payable in seven days to settle a dispute and the money isn’t paid, the aggrieved party could elect to sue on the “without prejudice” agreement to enforce the bargain.
Other exceptions that might result in “without prejudice” communications turning up in Court include:
When the “without prejudice” offer was induced by fraud, undue influence or misrepresentation and the offended party wants out of any agreement that was struck;
Where there is a need to explain a delay in proceedings there might be a need to disclose “without prejudice” communications by way of explanation;
In some rare instances the “without prejudice” communications may induce a party to do certain things giving rise to an estoppel;
Where the tag “without prejudice” is being used to cover up blackmail or other nefarious dealing; and,
The “Cutts v Head” exception where the communications have been labelled “without prejudice – save as to costs.” This means that the Court can look at the “without prejudice” communications for the purpose of deciding who should pay for the costs of the Court case once the main proceedings have concluded.
The privilege which attaches to the term “without prejudice” can be a vital tool in assisting parties to settle their disputes outside of the Court system, as parties are able to make concessions without fearing that their words will be held against them later in Court. However, as described above, the mere use of the term “without prejudice” outside of a settlement negotiation context may lead to serious complications down the track so it’s crucial to use the term in its applicable context.
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