The Courts actively encourage parties to engage in negotiations and settlement discussions to try and resolve disputes before Trial. It is therefore important that the parties understand how the “without prejudice” rule works.
The without prejudice rule means that any statements made (either verbally or in writing) in an attempt to settle a dispute, cannot be used against you and put before the Court as evidence of an admission.
Often in commercial disputes, the parties (or their solicitors) engage in discussions on a without prejudice basis to try and settle the matter. The without prejudice rule applies to these discussions to ensure that anything said during the course of the negotiations cannot be used against you, if the negotiations fail. At the outset of the conversation, it is a good idea to confirm that you are speaking on a without prejudice basis, so that both sides are clear about the content of the discussion.
The without prejudice rule also applies to offers of settlement made in writing. Normally, any document containing proposals for settlement will be labelled “without prejudice”, to make it very clear that the without prejudice rule applies.
The idea behind the without prejudice rule is that during negotiations, the parties can speak freely, knowing that anything they say or any admissions they make to try and settle the dispute, will not be used against them if the negotiations fail.
However, there are a number of exceptions to the rule and simply labelling a document “without prejudice” does not automatically mean that it will attract the protection of the without prejudice rule. Therefore, you cannot say whatever you want, just because you have written “without prejudice” on the document.
The Court will look at the substance of the document and the context of the matter. As a general rule, there must be an existing dispute for the without prejudice rule to apply and the correspondence must be part of a genuine attempt to resolve that dispute.
Conversely, if you forget or omit to label a document “without prejudice”, but it is clear that the parties are seeking to negotiate to settle an existing dispute, then generally, the without prejudice rule will apply and the content of that document will not be admissible at Trial.
In complex commercial disputes that involve consideration of a number of issues, it is also possible that communications might start being conducted on a without prejudice basis but during the course of the negotiation, the correspondence has changed to being “open” and therefore the rule no longer applies. If that happens, the burden of proof falls on the party alleging that the basis of the communications has changed.
If there is a dispute about whether the without prejudice rule applies to communications, then the Judge making a determination on that point will not be the Trial Judge.
If you require any further advice regarding the without prejudice rule, then please don’t hesitate to contact me or another member of Farleys’ specialist commercial litigation department on 0845 287 0939. Alternatively please complete an online enquiry form.