“Without Prejudice”: Why that phrase?

Whether you are negotiating a claim, a new completion date or preparing a final account, you are likely to have come across the phrase “without prejudice” and have asked yourself; why that phrase?

What is the Without Prejudice Rule?

The without prejudice rule was founded for one purpose: to encourage the amicable settlement of disputes outside of legal proceedings.  It essentially prohibits communications (both written and oral), made in a genuine attempt to settle a dispute, being admitted as evidence in later legal proceedings.

Therefore, parties are given the freedom to make concessions in negotiations without the fear of repercussions if an agreement is not reached.  Generally, parties will be entitled to revert to their prior position and any admissions they previously made cannot be used against them.

For example, two parties are in dispute over the value of a contractor’s claim.  The contractor values the claim at £250k.  The client values the claim at £55k.  During the course of without prejudice correspondence, the client makes a without prejudice offer to settle the dispute at £150k.  If no settlement is reached and an adjudication then commences, the contractor will be unable to rely upon the client’s  offer to settle the dispute at £150k as evidence the claim is worth more than £55k.

The offer will in no way constitute an admission of any liability or confirmation from the client that any further sums are due.  If the offer was then placed in front of the adjudicator, it would almost certainly be ignored, and the contractor may potentially risk the enforceability of any decision reached (if a decision is even reached, as the adjudicator may resign upon viewing the without prejudice information).  Certainly, the contractor and in particular, its representatives, may face serious consequences for simply disclosing the information.

The Without Prejudice Rule in practice

Owing to the benefits of without prejudice privilege, essentially every communication between legal professionals during the course of settlement negotiations will be plastered with the phrase “Without Prejudice” or “Without Prejudice Saves as to Costs” ¹.

However, for correspondence to be subject to without prejudice privilege, it does not need to contain the phrase “Without Prejudice”.  Conversely, just because correspondence contains the phrase “Without Prejudice” does not mean it is automatically subjected to without prejudice privilege.

For correspondence to be subject to without prejudice privilege, it must demonstrate a genuine attempt to settle a dispute.  This is not something that can be contained in an email description or letter head alone, and it means that the correspondence must be read as a whole to determine its “genuineness”.

This is an example of where the law becomes subjective and involves a question of interpretation that will change on a case-by-case basis.  Helpfully, a recent case in the Technology and Construction Court analysed the use of without prejudice correspondence in a construction dispute.  The key takeaways from this case are set out below.

The Legals: How do the courts view the Without Prejudice Rule?

Case Name: AZ v BY [2023] EWHC 2388 (TCC) (27 September 2023)

In this case, AZ had included without prejudice material in its adjudication submissions and ultimately received a decision from the adjudicator in its favour.  AZ then sought to enforce the decision.

BY sought to resist the enforcement of the decision, contending that the disclosure and reliance placed on the without prejudice material was a breach of natural justice that would invalidate the decision.

When determining the admissibility of the without prejudice materials in this case, Mr Justice Constable analysed a number of key cases.  I have summarised his conclusions below:

• The without prejudice rule is implied through both public policy and the acts of the negotiating parties;
• There must be a genuine and clear intention to partake in the negotiations of a dispute;
• Simply stating the phrase “without prejudice” does not guarantee this privilege, but it is a strong pointer;
• If “without prejudice” communications are to be brought to an end, the party seeking to do this must do it explicitly and clearly;
• Should parties wish to communicate both on an open and without prejudice basis, the courts must exercise extreme caution when trying to differentiate what is “open” and what is “without prejudice” to ensure public policy is not undermined;
• There are very limited circumstances were valid “without prejudice” communications will be admissible in legal proceedings (but exceptions do exist); and
• The primary exception being that where without prejudice negotiations have resulted in a concluded settlement, evidence of this settlement is admittable as the new contract formed will replace the previous dispute.

In this case, it was ultimately decided that AZ had knowingly introduced without prejudice material to the adjudicator and as a result, there was a real possibility that the adjudicator was “unconsciously bias” when reaching the decision and the decision was unenforced.

The key point is that the disclosure of without prejudice material is enough to create just the appearance of bias.  This offers an extremely wide scope to resist an adjudication decision as the adjudicator was not determined to be biased but simply viewing the without prejudice material created the appearance of bias.

So, opting to disclose without prejudice material in adjudication comes with high risk, as even if you win, you may lose!

Considering the extremely narrow grounds for resisting the enforcement of adjudication decisions (which occurs in just 21% of enforcement cases in the TCC) this judgement shows just how seriously without prejudice privilege is protected by the courts.

In my experience, the disclosure of without prejudice material in legal proceedings, such as adjudication, is unfortunately an all-too-common occurrence, and so this judgement is a welcomed support of this already well-established rule.

What do you need to know?

The without prejudice rule and legal privilege is a complicated area of the law and one that is often misunderstood, but the underlying principles are easily digestible:

• The without prejudice principle exists to assist parties in reaching a settlement of disputes before time and money is spent fighting a dispute in court;
• The phrase “without prejudice” alone does not, by itself, create without prejudice privilege and correspondence can be subject to without prejudice privilege even if the phrase “without prejudice” is absent. So, when seeking the benefit of without prejudice privilege, you must ensure that you are making a genuine attempt to settle a dispute;
• If you are making concessions in negotiations on a project, ensure to include the phrase “without prejudice” in your correspondence. While not being conclusive, this will make it more difficult for the opposing party to rely on it in the future.  This can mean saying it at the start of your meeting or phone call, including it in your email and using it as a heading on your letter;
• Be aware that parties may attempt to revert to open discussions before, during or after without prejudice discussions, so it is important to ensure that you maintain the inclusion of the phrase in all negotiation correspondence; and
• Relying on without prejudice correspondence you have received (or issued yourself) in dispute resolution such as adjudication is risky, and it will likely invalidate any decision reached through impacting the fairness of the adjudicator.

As someone who works daily in the contentious field of construction disputes, my advice is simple: seek legal advice at the earliest possible stage when a dispute arises.  Getting good advice early will not only save you costs but it will greatly increase your chances of success.

If you are involved in a dispute where the opposing party is attempting to exploit you based on a previous settlement offer that you have made, or you wish to issue a without prejudice offer in an attempt to settle a dispute, please get in contact with us and we can advise you on your available options and our recommended course of action.

If you need advice or assistance in the negotiation or preparation of your claim, or alternatively the preparation of any response to a claim, get in touch with Micheál O’Shea at: Micheal.OShea@QuiggGolden.com.  

¹ This phrase, keeps the material privileged until after the principal facts of the dispute have been decided (i.e liability, entitlement, and quantum). When the issue of legal costs is being decided, a party will rely on this correspondence to demonstrate that it made a genuine attempt to settle the dispute prior to the legal proceedings. If any without prejudice offer is similar to the awarded sum, then the legal costs are likely to be awarded against the party who unreasonably rejected the offer. This is because accepting the genuine settlement offer would have saved time and money for all involved.