In many instances, this reference is made without a proper understanding of the term or its application. Use of the phrase is often misconceived as famously 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” refers to the privilege that attaches to any written or oral statement made by a party to a dispute in a genuine attempt to settle that dispute. If this is the situation, the statement made will generally not be admissible in court as evidence of an admission of fact against the person who made the statement.
The purpose of the privilege is to encourage open and forthright discussion about issues arising between parties in an attempt to resolve disputes before they intensify. The benefit of this approach is that disputes are not necessarily litigated (or at the very least, not taken to trial), saving parties’ time and money, and freeing up the courts to deal with those matters where there is a genuine stalemate between parties.
The use of the expression “without prejudice” in relation to communications designed to achieve a settlement is recommended, but is not essential. The protection can in fact apply even where there is no express statement of this type. The Evidence Act 1995 (Cth) (the Act) provides that any communication between any of the parties to a dispute that occurs during a settlement negotiation, or any document prepared in connection with such a negotiation, cannot be used as evidence in a court.
An extension of the basic “without prejudice” rule can be seen in the phrase “without prejudice – save as to costs”. This concept maintains the “without prejudice” privilege but, should the matter go to court, the parties can disclose the communication when the court comes to decide who will be ordered to bear the costs of the litigation, usually the losing party. This rule can have favourable consequences for an unsuccessful party to litigation. This is particularly the case where, for example, a genuine offer is made by one party (party X) to settle the dispute, that offer is rejected by the other party (party Y) and that offer is better than the judgment later obtained by party Y. Although Party Y is the successful party, the court may take into account party X’s attempt to settle the dispute (without the need to use the court system) and may make an adverse costs order against party Y.
Some examples of documents that should not be headed “without prejudice” are:
- a mere letter of demand (which does not contain any offer of settlement);
- correspondence which is not related to settling a dispute;
- correspondence for the purpose of finalising the terms of an agreement (where the agreement is not a settlement); and
- a letter which merely contains an assertion of a person’s rights.
It should also be noted that the “without prejudice” rule is not absolute and exceptions apply. Some of these exceptions have been codified by Section 131(2) of the Act. For example, the privilege will not prevent the production of communications or documents:
- to contradict or qualify evidence that is likely to mislead the court;
- relevant to determining liability for costs;
- affecting a right of a person; or
- made or prepared in furtherance of the commission of a fraud or an offence or a deliberate abuse of power.
Parties to a dispute who are contemplating entering into settlement negotiations are encouraged to do so in the knowledge that statements made during the negotiations will be inadmissible as evidence in court. A negotiated settlement will ultimately save the parties both time and costs. However, it should be noted that the mere use of the words “without prejudice” will not automatically result in protection under the rule. Only communications of the kind discussed above attract the privilege.
Fletcher Law can assist you in seeking and achieving the resolution of disputes by negotiated settlement and, if necessary, court proceedings.