Pride and (without) prejudice

Have you ever felt the need to slap the term ‘without prejudice’ on to your email because you think it sounds important and lawyer-ish? Many people misuse the term in their business communications – either plastering emails with it unnecessarily or hanging onto it like a security blanket beyond its useful purpose. It is worth taking a moment to remember what it means, and how it should be applied.

What does ‘without prejudice’ mean?

Communications that are ‘without prejudice’ are inadmissible before a court. If communications are ‘without prejudice’ neither the sender nor the recipient can rely on anything contained within it to advance their own case in open proceedings.

By using the label ‘without prejudice’, you are saying: ‘I do not intend these communications to prejudice the position that I am going to put at a hearing in this matter. I am not making any admissions, and I maintain the position I have put in my open correspondence.’

Correspondence that is not ‘without prejudice’ is referred to as ‘open’ correspondence. This is the stuff that you can use in future court proceedings.

Why would you want something to be ‘without prejudice’?

Proceeding through a court or tribunal process leaves your fate in the hands of an independently appointed third party (a judge, tribunal member, arbitrator or independent expert), who will make a binding decision. Agreeing on a compromise outcome to resolve the dispute allows you to take control of your own fate and move on from the time and cost involved in continuing the fight.

However, to negotiate that compromise, both parties have to be prepared to make concessions.

Conducting communications behind the ‘without prejudice’ curtain allows parties to seek resolution of a dispute by proposing compromise positions without any admission of liability and without worrying that their offer to accept less than they say they are entitled to might end up being used against them. It means people can speak (or write) more openly about what they are prepared to accept, whilst maintaining the position that they have a very strong claim (or defence).

When would you use ‘without prejudice’ correspondence?

The ‘without prejudice’ label can be attached to any form of communication – letters, emails, phone calls, and meetings – whether online or otherwise. All that is required is that one or both parties state that the communication is ‘without prejudice’ before the communication occurs.

While ‘without prejudice’ communications are more common during settlement negotiations, they are not exclusively found there. The without prejudice rule ‘includes communications of all kinds which are genuinely entered into for the purpose of trying to reach a compromise and settlement agreement … [and] to encourage the free and frank exchange of views between the parties.’ [1]

When should ‘without prejudice’ NOT be used?

We frequently see communications which are in fact demands or contain allegations but are improperly marked as ‘without prejudice’.

Simply labelling your communication ‘without prejudice’ does not necessarily mean it is going to be treated as such. The communication must, in substance, contain communications that attempt to negotiate settlement of a dispute. If you attach the words to communications that are not deserving of them, you might find yourself in an argument with the other party about whether your communication is in fact ‘without prejudice’. [2]

Indiscriminate use of the ‘without prejudice’ label can also be problematic if you want to rely on your own communication in the future. For example, if you send a demand for payment, or a notification about something you were contractually required to notify, under cover of the ‘without prejudice’ label, you might find you cannot later prove to a court that the communication was in fact sent. You cannot just say ‘I change my mind and it is not without prejudice anymore’. Waiver of the ‘without prejudice’ protection requires the consent of all parties to the communication (not just the party who originally claimed it was ‘without prejudice’). [3]

Without prejudice save as to costs

Communications that are marked ‘without prejudice save as to costs’ are afforded the same level of confidentiality between the parties until a judgment is handed down and the issue of costs is considered by the court.

As a general rule (with many exceptions), ‘costs follow the event’ – meaning that the winner of any court proceedings usually gets a costs order in their favour. However, costs orders are discretionary, and there are many factors and surrounding circumstances that a court will take into account when deciding if / how to award costs. An offer to settle that is made ‘without prejudice save as to costs’ cannot be used to determine who wins the case but can be used in an argument about whether it is fair to award costs. If one party has made an offer that was rejected by the other, and the ultimate outcome for the rejecting party is no better, this might be a reason to shift the usual award of costs.

Exceptions to the rule

While there is often great utility to conduct without prejudice negotiations, parties should be aware that there are circumstances where the rule does not apply, and these communications may be admissible before a court beyond considering the issue of costs.

The Federal Court of Australia has endorsed the proposition that without prejudice communications are admissible before the court when one party can prove:

  • An agreement between the parties should be set aside on the grounds of misrepresentation, fraud or undue influence; or
  • That without prejudice communications clearly made by one party induced the other party to act, giving rise to an estoppel. [4]

Conclusion

Without prejudice communications can be an effective tool for resolving a dispute in an efficient and cost-effective manner, as well as having potentially positive implications when it comes to costs orders. However, it is always important to use the label ‘without prejudice’ wisely, and to not overuse it.

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MV Law Canberra

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[1] Pihiga Pty Ltd v Roche [2011] FCA 240; 278 ALR 209 at 87.
[2] Hera Resources Pty Ltd v Gekko Systems Pty Ltd [2019] NSWSC 37.
[3] Re Turf Enterprises Pty Ltd [1975] Qd R 266 at 267; Walker v Wilsher (1989) 23 QBD 335 at 337.
[4] Pihiga Pty Ltd v Roche [2011] FCA 240; 278 ALR 209 at 88.