If you conduct any sort of negotiations, particularly in the context of litigation, you will have used the term “without prejudice” at some stage. But what do you hope to achieve by use of the phrase? You probably hope it will encourage resolution of an issue but prevent the communication being used against you should negotiations fail. But has regular use of “without prejudice” dulled our appreciation or understanding of the actual principles behind the privilege in aid of settlement and its application?
The nature and purpose of the privilege were described by the High Court in Field v Commissioner for Railways (NSW) as:
“To enable parties engaged in an attempt to compromise litigation to communicate with one another freely and without the embarrassment which the liability of their communications to be put in evidence subsequently might impose on them… It is concerned with the use of the negotiations or what is said in the course of them as evidence by way of admission”.
A party making a “without prejudice” offer does so in the sense that they reserve the right to assert their original position in the dispute if the offer is rejected and the litigation proceeds.
Use of the term “without prejudice” can also protect communications made before litigation has commenced.
The privilege in aid of settlement rule
The privilege in aid of settlement rule is a rule governing the admissibility of evidence. It is based on the public policy of encouraging litigants to settle their differences, rather than litigating them to conclusion. In Rush & Tomkins Ltd v Greater London Council Lord Griffiths  said:
“The rule applies to exclude all negotiations generally aimed at settlement whether oral or in writing from being given in evidence. A competent solicitor will always head any negotiating correspondence “without prejudice” to make clear beyond doubt that in the event of the negotiations being unsuccessful they are not to be referred to at the subsequent trial. However, the application of the rule is not dependent upon the use of the phrase “without prejudice” and if it is clear from the surrounding circumstances that one of the parties was seeking to compromise the action, evidence of the content of those negotiations will, as a general rule, not be admissible at trial and cannot be used to establish an admission or partial admission… authorities… illustrate… the underlying purpose of the rule which is to protect a litigant from being embarrassed by any admissions made purely in an attempt to achieve a settlement.”
Beware though, mere use of the words “without prejudice” will not prevent a court from examining whether the privilege in aid of settlement has been properly invoked.
As with legal advice privilege and litigation privilege, privilege in aid of settlement can be waived. For example, if a party includes “without prejudice” correspondence in discovery, then the privilege may be waived.
Communications made “without prejudice” between two parties to multi-party litigation are protected from disclosure in the continuing litigation involving the other parties.
Communications made in the course of the mediation of a dispute are protected from disclosure on the same basis that communications “without prejudice” are protected. However, it has been held that there could be disclosure of communications at a mediation on the question of costs .
Exceptions to the rule
There are other exceptions to the without prejudice rule which will enable such communications to be received in evidence. The exceptions are designed to prevent a beneficial rule of law from being distorted in its application.
The main exception to the rule is that “without prejudice” communications can be disclosed to determine whether a settlement was in fact reached .
Other possible exceptions are:
- to demonstrate misleading and/or deceptive conduct in the course of negotiations resulting in an “agreement” which is subsequently disputed;
- to demonstrate that an option has been exercised in the course of “without prejudice” correspondence;
- where it is necessary to call evidence to support rescission or rectification of a contract in circumstances where it is alleged that a party entered into the contract under a serious mistake about a fundamental term. In such a case, the mistaken party may be entitled to an order rescinding the contract if they can show that the other party was aware of the mistake but deliberately set out to ensure that it was not discovered. Evidence of “without prejudice” negotiations which demonstrate the mistake may be called to prevent entry of a judgment that would work an injustice.