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The use or misuse of the term "Without Prejudice" in correspondence

Newsflash 03 April 2013

Without prejudice is, without doubt, one of the most overused legal phrases. As stated by Wells J in Davies v Nyland (1975) 10 SASR 76 at 89:

“in some quarters of the community there is a belief, amounting almost to a superstitious obsession, that the expression “without prejudice” is possessed of virtually magical qualities, and that anything done or said under its supposed aegis is everlastingly hidden from the prying eyes of a Court”

Without prejudice privilege exists to facilitate the resolution of disputes by allowing parties to make concessions or compromises without the risk that their willingness to compromise during negotiation will be used against them at a later stage if negotiations fail.

So what does it really mean? ‘Without Prejudice’ refers to the privilege that attaches to written or verbal statements made by a party to a dispute in a genuine attempt to settle that dispute. This means that the statements will generally not be admissible in Court as evidence against the person who made the statement.

Importantly, without prejudice privilege only applies to written or verbal statements made in an effort to settle a dispute once legal proceedings (or other alternative dispute resolution proceedings) have commenced or at the very least considered by the parties to the communication. It will not protect a document or statement made in the course of negotiations that are not related to dispute resolution (i.e. commercial negotiations).

As well as being entrenched in common law, the Evidence Act 1995 (Cth) and in particular, section 131(1) states that any communication between any of the parties to a dispute that occurs during the negotiation, or any document prepared in connection with the negotiation cannot be adduced as evidence in Court. Therefore, without prejudice privilege is established not by whether the words “Without prejudice” have been used, but rather by the party’s intentions which are to be ascertained from the nature of the communication. However, to avoid a potential argument in respect of the use of a document in Court, it is still recommended to clearly state on your correspondence that it is set out on a Without Prejudice basis.

Some examples of documents that ought not to be headed “Without Prejudice” are:

  • Letters of Demand - As you are not making any concessions or discounting the debt. If you are, then it is a letter of offer and ought to be “Without Prejudice”.
  • Correspondence which is not related to settling a dispute (i.e. general commercial correspondence) - As it will not protect or make confidential any communication unless it is a valid and genuine negotiation with an intention to settle a dispute.
  • Correspondence for the purpose of finalising the terms of a contract/agreement where the agreement is not a settlement (i.e. parties entering into a contract) - Whilst there may be genuine negotiation or compromise between the parties, there is no dispute or litigation contemplated.
  • Mere Assertion of rights - Where a letter merely purports to set out your client’s rights and reserves them, it will not be privileged and can be relied on in Court at a later date.

It is also important to remember that without prejudice privilege can be found to apply to part of a document rather than the whole. Whilst an element of a larger document can be for the purposes of negotiation, a Court may find that other parts of the document are sufficiently removed from the negotiation to be able to be adduced in evidence.

Unlike legal professional privilege (which may be waived by the party to whom the privileged document belongs), without prejudice privilege may only be waived with the consent of both parties. Therefore, you cannot enter into without prejudice negotiations and then later seek to adduce your own document or statement in Court without seeking the other party’s consent. This is an important consideration when deciding whether to head a document “Without Prejudice”. As considered above, the contents of the document rather than the label attracts the privilege, however, a document purporting to be “Without Privilege” that does not fit the criteria may lead to a fight in Court, with the associated costs, down the track.

Finally, it is important to remember that, when you are negotiating with another party to a dispute where legal proceedings or ADR are underway or anticipated, and you want to be able to rely on your communication if the matter proceeds to Court, it is vital to state clearly that the communication is an “Open Communication”. This will avoid your communication being caught by the Evidence Act and/ or common law and attracting privilege.

Without prejudice privilege is a vital tool in early dispute resolution and countless settlements are achieved as parties feel free to make admissions or concessions in an environment where it cannot be held against them. But the misuse of the “Without Prejudice” label can lead to complications, legal arguments and potential negative cost implications for clients. Whilst it may be attractive to use the terms liberally, it may pose a risk of costs and a risk of a red face to the person drafting the material.


Maria Kerhoulas, Partner
Melbourne

Newsflash 03 April 2013
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