Without Prejudice

This guide examines the issues that parties to a dispute should consider when seeking to negotiate terms of settlement.

The purpose of the without prejudice rule is to encourage parties to a dispute to try and reach a settlement by allowing them and their legal advisers to speak freely and make concessions knowing that their words cannot be used against them later in court if the negotiations fail to achieve settlement.  However, the protection is not absolute and there are exceptions.

"Without prejudice" or "WP" is a term most familiar to the litigation lawyer but is also frequently used by non-contentious lawyers and by lay persons.  It is commonly misused and seems to engender a degree of mystique and confusion.  This guide aims to clarify the meaning and effect of the term "without prejudice", when it should be used, and the circumstances in which the protection it gives will not apply.

What is without prejudice?

A communication (whether written or oral)¹ must be made in the context of genuine settlement negotiations to be "without prejudice". Simply labelling a document "without prejudice" will not suffice. The surrounding circumstances must be looked at to decide whether the protection should apply. "Without prejudice is not a label which can be used indiscriminately so as to immunise an act from its normal legal consequences where there is no genuine dispute or negotiation".²

Even if communications are not expressly labelled "without prejudice" the protection will not be lost provided the negotiations are genuinely aimed at settlement. Pre-action letters sent by a defendant's insurers have been deemed to form part of compromise negotiations and therefore protected even though they were not headed "without prejudice".³ 

This approach also extends to cases involving a chain of communication. What if the words "without prejudice" are used initially by the parties but they fail to repeat them in subsequent exchanges? Where the protection is deemed to apply to the first exchange of communication, all subsequent communications will be covered, provided that they form part of the same set of genuine negotiations.

However, it is best practice to ensure consistent use of the "without prejudice" label throughout the entire course of communications. It signals your intention to the other side and the court and reduces the scope for later argument about how the communication should be treated.

Without prejudice protection is generally accepted to extend to any dispute whether the subject of litigation, arbitration, tribunal proceedings⁴ or alternative dispute resolution (ADR).

Other related terms

Privileged

Without prejudice correspondence should not be confused with privileged information. There is a distinct difference, not least because privileged information is normally information only one party has and is seeking to withhold from being disclosed to the other, while without prejudice correspondence is information that has passed between both parties in the course of negotiations and is therefore known to both parties. Without prejudice correspondence is more akin to a quasi privilege as it could be classified as belonging to the laws of contract based on an implied agreement between the two parties to protect communications from disclosure.⁵

Off-the-record and confidential communications

While there are circumstances (discussed above) where correspondence not expressly stated to be "without prejudice" can still be so, it is generally advisable to state clearly when a party intends its correspondence to be without prejudice. Phrases such as "off-the-record" and "confidential" are sometimes erroneously used instead of "without prejudice". There is no authority on the status of the words "off-the-record", although the ordinary principles of contract and confidentiality may govern the situation, i.e. the parties have agreed that the words are to be kept confidential. However, this in itself will not promote the correspondence to the level of privileged⁶ so caution must be exercised in using the words "off-the-record" and "confidential".  Parties should avoid the use of these two expressions if what they actually mean is without prejudice. More importantly, a "confidential" or "off-the-record" exchange (if not protected by any other means) may well be discloseable and may be used before a court.

Subject to contract

"Subject to contract" is used to denote that an agreement is not yet binding.  A document labelled "subject to contract" will not, in the ordinary course, be subject to without prejudice protection. However, in circumstances where you are in negotiations and therefore want the without prejudice protection, but want your offer of settlement to be the subject of further discussion as opposed to being fully binding on acceptance, you should also head the letter "subject to contract".  That is a clear indication to the other side that any settlement offered or discussed is still subject to the drawing up of formal, written, agreed terms. But these two labels achieve completely different things and should not be confused.

Open communications

"Open" communications are the opposite of without prejudice communications and can be referred to and relied on at trial. It is possible to communicate on both an open and without prejudice basis but you need to be clear.

The courts expect any shift from without prejudice to open to be spelt out: "it is incumbent on the party who changes the basis of such negotiations to spell out the change with clarity".⁷  Indeed, if there is evidence that the chain of communication has been broken such that the following communications are clearly intended to be on an open basis, the protection will fall away from that point.

Conversely, an open offer of settlement cannot be converted into a without prejudice offer by labelling later correspondence "without prejudice" - what matters is the objective intention of the party at the time the offer was made. However, this does not prevent later offers being made on a without prejudice basis.

In certain circumstances you may have simultaneous open and without prejudice correspondence. Clearly label both so that there can be no doubt as to the basis on which you are corresponding. 

When can without prejudice material be used?

There are certain exceptions to the without prejudice rule: "the rule is not absolute and resort may be had to without prejudice material for a variety of reasons when the justice of the case requires it".⁸

Acceptance of a without prejudice settlement offer

The ordinary principles of contract law apply to agreements reached as a result of without prejudice negotiations and so as soon as an offer is accepted a binding contract comes into being. If the existence and terms of a settlement are disputed, the content of the negotiations is admissible for the purpose of determining whether a settlement agreement has been concluded and on what basis.⁹

Waiver by mutual consent

The without prejudice rule is a joint protection. This means that it can only be waived jointly by all of the parties to the relevant without prejudice communication.

A situation where without prejudice protection was lost arose out of a failed mediation.¹⁰ The defendants brought a second action alleging that the first claimant had told a third party that threats had been made against him during or after the mediation. The question was: could the threats be referred to in the main action or were they covered by without prejudice protection? The court held that ordinarily without prejudice protection applied to allegations of threats made in mediation. However, in these circumstances both parties would be deemed to have mutually consented to waive without prejudice protection ordinarily ascribed to the mediation because the defendants had denied in their pleadings that any threats had been made. This is of particular concern to the defendant party as any response to publicly-made allegations arising out of protected subject matter may be interpreted as consent to waive that privilege. If they had simply submitted that anything said in the mediation was covered by the without prejudice protection, they would not have waived the without prejudice protection.

Misrepresentation, fraud and undue influence

Protection will not be afforded to supposedly without prejudice communications which, if revealed, would show that a party was pleading patently untrue facts or making false statements. If the words used demonstrate that the party is pursuing a dishonest case or committing a criminal or fraudulent act, then the communication will be admissible as evidence.¹¹

Without prejudice communications may also be used as evidence by a party seeking to defend itself against allegations of fraud, misrepresentation or undue influence. The courts have held that if a claimant can use without prejudice communications to prove a misrepresentation and declare an agreement void, there is no reason why a defendant cannot use without prejudice communications to disprove a misrepresentation and thereby uphold an agreement.¹²

Impropriety

The courts are also prepared to lift the without prejudice veil where the exclusion of the evidence would act as a cloak for perjury, blackmail or other "unambiguous impropriety". The exception will only be applied in the clearest cases of abuse of a privileged occasion, i.e. involving conduct which is in some way "oppressive, or dishonest, or dishonourable".¹³  

The evidence presented in court must actually establish impropriety; it is not enough for there to be a 'good arguable case' for impropriety.¹⁴ The courts recognise that, in practice, negotiations often involve a certain amount of posturing and accept that a party may adopt a position in without prejudice discussions which is inconsistent with its open position. However, there is a line to be drawn and using the without prejudice label will not give a party "carte blanche" to be dishonest. For example, a "without prejudice" letter in which a claimant admits to having dishonestly made a claim, has been held to be admissible at trial.¹⁵

Without prejudice save as to costs

Communications can be marked "without prejudice save as to costs". The label means that the standard without prejudice protection applies until the court delivers judgment. Once that has occurred, the court will turn to the question of awarding costs, at which point the offer may become admissible as part of a costs application (distinct from a straightforward "without prejudice" offer which will never become admissible). 

Generally, following judgment, the English courts have a wide discretion to order one party (the paying party) to pay the legal costs of its adversary (the receiving party). The English courts operate on a "loser pays" principle; typically, the receiving party will be the party which succeeded at trial. However, the court is entitled to look at the content of without prejudice save as to costs communications for the limited purpose of deciding the extent of the costs order it makes. Accordingly, without prejudice save as to costs correspondence may be used by a party to apply costs pressure on the other side as, if it puts that party in a favourable light, it can use it to support an argument for a more favourable costs award. So, for example, even if a defendant loses at trial, evidence of an offer as or more favourable than that awarded by the court to the claimant may result in the defendant being awarded a portion of its costs notwithstanding the claimant's success at trial. This device is closely associated with, but different from, CPR Part 36 offers which have their own procedural requirements, and are automatically treated as "without prejudice save as to costs".

The ability to use the "without prejudice save as to costs" label to ensure offers are admissible later down the line as a costs strategy is particularly worth remembering in the context of mediation, where a party will want to ensure that offers made during the mediation are admissible on any later application for costs if the dispute later proceeds to trial. If desired, mediation agreements can specify that offers made during the mediation are without prejudice save as to costs and the offering party should consider repeating the offer in a letter marked "without prejudice save as to costs" post-mediation.

Evidence as to the reasonableness of a settlement 

Where one party (Party A) settles a dispute with a second party (Party B) and then tries to recover all or a portion of the settlement monies paid from a third party (Party C), Party C will almost inevitably argue that, whatever the merits, Party A has settled at an unreasonably high figure. In those circumstances, the substance of without prejudice discussions may be held to be admissible as evidence in subsequent proceedings to establish the extent to which Party A had discharged its duty to mitigate its losses. 

Referred to as the 'Muller exception', the rationale for the exception is that a party that directly puts the contents of the without prejudice negotiations in issue has, in effect, waived its entitlement to claim without prejudice privilege over those negotiations. However, it is now clear that this exception only applies in a three-party scenario such as this one as, in two-party situations, joint waiver is achievable.¹⁶

Delay

Evidence of without prejudice negotiations could be given in order to explain delay in progressing the litigation or apparent acquiescence, for example when defending an application to strike out for want of prosecution.¹⁷

What can I do when without prejudice material can't be used?

Unless one of the exceptions described above applies, without prejudice material cannot be used. This can be frustrating if the other side includes admissions or statements in without prejudice communications that are not in its openly pleaded case, or appears to concede a point in without prejudice correspondence and you cannot show it to the judge. There are, however, legitimate ways to try to bring the same information before the court in open form. For example, you could serve a notice to admit facts under CPR 32.18, ask targeted questions in open correspondence or make a Part 18 request for further information.

Length of time between the unsuccessful negotiation and the start of litigation: how long can it be?

The without prejudice rule prevents statements made in a genuine attempt to settle an existing dispute from being put before the court. But if there is a long period after failure of negotiations and the start of litigation, does this prevent the parties claiming that the negotiations were without prejudice because it cannot be said at that time that there was an "existing dispute"? How close to commencement of litigation do the failed negotiations have to be? 

The Court of Appeal was asked to consider this question in Framlington Group Limited and Axa Framlington Group Limited v Barnetson.¹⁸ There was no previous authority on the point. At first instance it had been held that the disputed communications were not without prejudice as, when they had taken place, there had been no dispute between the parties because no litigation had been commenced or threatened.  The Court of Appeal disagreed, finding that the critical feature was the subject matter of the dispute, rather than how long before the threat, or start of litigation, it was aired in negotiations between the parties. It was crucial to consider whether, in the course of negotiations, the parties contemplated or might reasonably have contemplated litigation if they could not reach agreement.  The court will therefore look at the purpose of the negotiations, rather than their proximity to the commencement of any proceedings, in order to answer this question.

Does without prejudice material have to be disclosed to other parties in the litigation?

Suppose A, B and C are all parties to the same litigation with A being the claimant and B and C being co-defendants. If A settles with B but continues the claim against C, can the without prejudice communications leading up to the settlement between A and B be referred to in evidence in the continuing litigation between A and C? The answer is found in the House of Lords' judgment in Rush & Tompkins v GLC.¹⁹ Rush & Tompkins (a firm of building contractors) was involved in a dispute with the GLC and a second defendant and eventually reached settlement with the GLC through without prejudice negotiations. The House of Lords held that the content of those negotiations was not discloseable to the second defendant. To hold otherwise would deter parties in multi-party disputes from attempting genuine settlement in the first place. Lord Griffiths declared:

"… as a general rule the without prejudice rule renders inadmissible in any subsequent litigation connected with the same subject matter proof of any admissions made in a genuine attempt to reach settlement. It of course goes without saying that admissions made to reach settlement with a different party within the same litigation are also inadmissible, whether or not settlement was reached with that party".

Can internal and third party settlement discussions be without prejudice?

Correspondence will only be without prejudice if there is a dispute between the communicating parties. This is especially pertinent in the context of multi party disputes: discussions between parties who have a common opponent, but no dispute with each other, will not be without prejudice. In Stax Claimants v Bank of Nova Scotia Channel Islands Ltd,²⁰  the claimants' discussions with their independent financial advisors (against whom the defendant bank had brought Part 20 proceedings) were not protected by without prejudice privilege. In such cases, consider whether litigation privilege or another protection might apply, and plan your communications accordingly.

What about sharing without prejudice material with third parties? 

Without prejudice communications are not automatically confidential. Accordingly, a party may generally reveal the content of any without prejudice settlement negotiations to a third party where it has a legitimate reason for doing so. In EMW Law LLP v Halborg²¹ the court considered, that it would be "absurd" for a litigant who needed to share without prejudice material with an expert to have to wait for the consent of the other party to the proceedings before disclosing the material. However, where parties have agreed - formally or otherwise - that without prejudice communications are to be treated confidentially, the consent of the other party (or parties) should be secured before disclosing the correspondence.

Are third party reports prepared for the purposes of settlement negotiations without prejudice?

Parties often engage third parties to produce reports to inform their settlement strategy. It may be desirable to share those reports during the course of negotiations with a view to speeding up the settlement process. However, such reports will only be protected by without prejudice privilege where there is agreement between the parties that the report is so protected.²² It is preferable for that agreement to be written and express but agreement may be implied from the parties' conduct.²³ The unilateral commissioning of a report without the agreement of the other side to the negotiations will not be protected by without prejudice privilege.

Such reports may be protected by other types of privilege, for example, legal advice privilege or litigation privilege. Consideration should be given to protection of privilege before reports are shared, a suitable option may be to share the report on a limited waiver basis.

Objecting to the use of without prejudice material 

If an opponent attempts, improperly, to use without prejudice material, objection should be raised as soon as possible. In practice, it is normal for parties to agree in advance of trial the bundle of material to be put before the court. This means that a party should receive advance notice that its opponent intends to rely on without prejudice material and can contest this.

Cross-border negotiations

Care should be taken when dealing with cross-border matters or where parties are not subject to English law. In common law jurisdictions, the "without prejudice" principle is widely recognised but in many civil law jurisdictions, the principle is not explicitly recognised (for example, this has traditionally been the position in the UAE²⁴) and confidentiality of settlement discussions is addressed through other means. It is important, in those circumstances, to seek specific local law advice in relation to local rules on without prejudice and privilege.