Non-lawyers and lawyers alike can take advantage of the phrase “without prejudice” and the protection it offers when making a genuine attempt to settle a dispute.
Using the phrase “without prejudice” clearly indicates that any admissions made in the course of negotiations are not to be referred to in subsequent litigation as evidence against the person making that statement.
The purpose of this privilege is to encourage open and candid discussion about issues arising between parties in an attempt to resolve disputes outside of the Court system. The benefit of this is that disputes are not unnecessarily litigated, saving parties’ expense and time, and freeing up the Court system for those matters where there is a genuine impasse between parties.
However, parties should keep in mind that the privilege does not extend to preventing a party proving the facts in issue by other means. Further, it does not prevent the material being used to show:
• The parties reached a settlement; or
• To establish the terms of the settlement reached.
This is especially relevant when the phrase “without prejudice – save as to costs” appears, as it can have unfavourable consequences for an unsuccessful party.
This is particularly the case where a genuine offer is made by one party (Party A) to settle the dispute, that offer is rejected by the other party (Party B) and that offer is better than the judgment made in favour of Party B. Although Party B is the successful party, the Court may take into account Party A’s attempt to settle the dispute (without the need to use the Court system) and make an adverse costs order against Party B.
• Party A undertook building work for Party B;
• Party B starts to notice issues with the work – for example cracks in the wall, uneven door hinges and rooms not to the correct size;
• Party B raises these issues with Party A and claims damages of $250,000;
• Party A writes a letter to Party B which features the words “without prejudice – save as to costs” and admits the cracks in the wall and uneven door hinges, but does not admit the incorrect room size and offers $180,000 to settle the matter;
• Party B refuses the offer and commences an action in Court;
• Party B is successful, but only in the amount of $125,000 for the cracks in the wall;
• Any admission with respect to the door hinges in the course of negotiations was inadmissible, which means the fault of Party A with respect to the uneven door hinges was not proved on the facts;
• Further, the existence of an offer to settle for $180,000 could be raised with the Court and may be used to make an adverse costs order against Party B (essentially for wasting the Court’s time).
In summary, keep the following in mind when entering into negotiations on a “without prejudice” basis:
• An attempt to resolve the dispute must be a genuine attempt to do so;
• The admissions made in the course of negotiations will not be admissible; but
• The fact that the parties negotiated and the terms of any agreement reached may be admissible and may result in an adverse costs order against either party.
Parties to a dispute may first wish to attempt to negotiate a settlement without legal assistance. If you wish to do this, be sure to clearly indicate that those negotiations are on a “without prejudice” basis. However, if a matter is complex or you are uncertain as to whether something should be without prejudice, then it is best to seek the advice and assistance of an expert.
Our Litigation & Risk Management team are experts and can assist in the negotiation of settlements. If you require assistance or any further information contact our office on 02 6215 9100.