Sending communications ‘without prejudice’ can be helpful when trying to resolve a business dispute – but this rule should be handled with care.
The without prejudice rule prevents statements made in a genuine attempt to settle an existing dispute from being put before the court as evidence against the party that made them.
This applies to oral and written communications including post, email, text and telephone. However, ‘without prejudice’ isn’t a magic phrase that protects your business in all circumstances – and so you should know how and when to use it.
What does ‘without prejudice’ mean in business disputes?
The idea behind the without prejudice rule is that parties, and their respective legal advisors, can speak more openly and freely, with the comfort of knowing that any admissions made by them, in the course of without prejudice discussions, are not going to be used to prejudice them in the course of any ongoing or future proceedings.
The rule is integral to encouraging parties to engage in negotiations and settle disputes outside of the courtroom. Without the without prejudice rule being in place, parties may feel that they have no choice but to pursue a dispute right the way through to trial, out of fear of making any open and disclosable concessions along the way.
When should I use the without prejudice rule?
Parties should engage in without prejudice discussions when attempting to settle a dispute and when making admissions or concessions which may harm them if they were to become before the court.
Litigation can be time consuming and expensive and engaging in without prejudice discussions, at an early stage of a dispute, may mean that a sensible compromise can be reached that means both parties can avoid the time and expense of any lengthy litigation.
How should the without prejudice rule be used?
To clearly indicate that a statement or communication is without prejudice, parties should clearly label any written communications as being ‘without prejudice’. Often, this is done at the top of the letter or email so that is readily identifiable to the reader. If the parties are intended to engage in oral without prejudice discussions (such as by way of a settlement meeting or a simple phone call) then it should be agreed at the outset by all parties to that the discussion is to be had on a without prejudice basis.
Do I need to mark correspondence ‘without prejudice’ for the rule to apply?
It is of better to expressly label any intended without prejudice communications as such, but all is not lost if you fail to do so. It is the content of the communication that is important and if it satisfies the requirements of the without prejudice rule, being that it is a genuine attempt to resolve a dispute, then it may still be considered to be without prejudice.
However, in the absence of being expressly labelled as such, the court may start from the position that the correspondence is not without prejudice and the court may put the onus on the party claiming privilege to rebut the inference that it was an open communication, given it was not marked as being without prejudice.
Does using the phrase ‘without prejudice’ always protect a communication?
No - the without prejudice label itself is not conclusive. Whilst the label will be indicative of a party’s attempt to settle the dispute, if the communication is in fact not a genuine attempt to settle an existing dispute, then it the label is open to challenge. Whether or not the communication was a genuine attempt to settle an existing dispute will be an objective test, determined by the court.
Extensions to the without prejudice rule
There are two extensions to the Without Prejudice rule that are often used by parties during the course of negotiations. Those are:
Without Prejudice Save as to Costs
Where statements are made Without Prejudice Save as to Costs, it means that those statements are not admissible in the substantive dispute but will be admissible on the question of costs should the dispute proceed to trial. The idea therefore being that a party can show, at the end of any claim, that they have made genuine attempts to settle the claim prior to trial and therefore should be treated more favourably by the court for the purposes of any assessment of their costs or the other party’s costs.
Without Prejudice and Subject to Contract
The label Without Prejudice and Subject to Contract is often used by parties during the course of negotiations to indicate that any agreement reached is non-binding until a formal settlement agreement has been prepared and executed by both parties.
This can be a helpful label to use where the parties are trying to agree the key terms of the settlement (such as the sums of money changing hand) but the parties want the benefit of other contractual provisions, such as confidentiality obligations, warranties and indemnities.
Parties can also mark their communications Without Prejudice Save as to Costs and Subject to Contract to obtain the benefit of being able to disclose the communication to the court on the issue of costs should negotiations fail AND not committing to being legally bound by any agreement, until that agreement is formally documented as a binding contract, executed by both parties.
The Thrings Commercial team includes experts on commercial disputes, mediation and litigation. For more information about the team and its services see here.
