If you are involved in a dispute or negotiation, you may receive a legal letter with the words “without prejudice”. It’s very important that you handle your response to such a letter with great care. The concept of “without prejudice” is an important one in lawsuits. We’ll discuss the meaning and implications of this legal term in this article.
We’ll explain:
- What does “without prejudice” mean?
- What does “without prejudice save as to costs” mean?
- What is the purpose of “without prejudice” rules?
- When is a letter considered to be “without prejudice”?
- Can “without prejudice” rules be struck down?
- How should I protect myself from lawsuits?
What does “Without Prejudice” mean?
A “without prejudice” letter is sent to settle a legal dispute between two parties. The label of “without prejudice” means that if the dispute ends up in court, you can’t use these “without prejudice” letters as evidence against the other party.
“Without prejudice” labels thus function as protection for specific communications that could potentially be damaging if brought into a lawsuit. However, this protection is not universal, and can be ignored in specific situations. We talk about this more in a later section.
What does “Without Prejudice Save as to Costs” mean?
A “without prejudice save as to costs” label means that the letter can only be produced as evidence after judgement has been delivered, but before damages to be awarded have been finalised. Such letters are used during the process of determining damage amounts/legal costs to be awarded for the party that won the case.
Example: You’re involved in a legal dispute with another party who damaged your business property. The other party sends you a “without prejudice save as to costs” letter, offering to pay $30,000 to settle the dispute. You reject the offer as it’s too low. The dispute goes to Court. The Court decides to award you $20,000 instead. Your lawyer could then introduce this “without prejudice save as to costs” letter as evidence. Your lawyer could argue that the other party should pay all your legal costs on top of the $20,000 court-awarded damages. This is because all of the legal costs the other party has incurred in fighting the lawsuit could have been avoided if they had just settled earlier on.
A “without prejudice save as to costs” letter is often used to pressure the other party into accepting a settlement offer. This is because the other party will know that if they receive and reject such an offer, there is a possibility that their rejection can be used in Court as evidence against them. A “without prejudice save as to costs” letter provides leverage for parties to consider reasonable negotiation offers, and not just make unreasonable compensation demands.
If you’ve received a “without prejudice save as to costs” letter, discuss the offer with an experienced lawyer. If you don’t handle the negotiation properly, and you lose the case, this “without prejudice” letter (and your response to it) may be used by your opponent to increase the damages you have to pay. For more information on protecting yourself against legal action, read our guide on how to defend a lawsuit.
What is the purpose of the “Without Prejudice” rule?
The purpose of the without prejudice rule is to allow parties to negotiate honestly, in confidence and good faith, so that the matter can be resolved without evolving into a lawsuit.
“Without prejudice” rules allow parties to make sincere offers for settlements or compensation. Parties don’t have to worry that these offers will be used against them in Court. For instance, let’s say you’re involved in a contractual dispute, and you make an offer to settle for $100,000. The offer was a sincere negotiation effort and qualifies as “without prejudice”. If the other party takes the dispute to trial, you won’t have to worry about your $100,000 settlement offer being used as a benchmark figure, so that the other party can argue for even higher compensation amounts.
This helps disputing parties to come to amicable settlements without the cost and effort of going to Court.
How does a letter qualify to be “without prejudice”?
Simply slapping on these two words doesn’t automatically make something “without prejudice”. The letter needs to meet a few key criteria to be truly protected from being admitted into Court as evidence.
Here are some key qualities:
- Letter must involve a negotiation
- Letter must be made in a genuine attempt to resolve the negotiation/dispute
Also, the label “without prejudice” doesn’t need to be explicitly stated on the letter for it to be protected from Court admission. It just needs to fulfil the criteria above. Writing the labels ““without prejudice” simply makes it easier during the lawsuit to identify which documents are clearly earmarked for protection. If all communication didn’t carry the “without prejudice” labels, then parties would have to sort through potentially thousands of documents to determine which ones are protected.
When does the “Without Prejudice” protection not apply?
It’s important to note that “without prejudice” protections are not universal. Letters with the label “without prejudice” can still be admitted in Court as evidence, if they are not genuinely made in the spirit of attempting to negotiate a solution.
Let’s take a look at a good example of this. In the case of Buckinghamshire County Council v Moran [1990] 1 Ch 623, a council sued a homeowner for illegally encroaching on council property. The plaintiff (the party initiating the lawsuit) was a council which had purchased a plot of land, to be used later for constructing a road. The defendant (the party being sued) had a house that was connected to the council’s plot of land. The defendant started using the land for his own purposes. The council found out about this, and put the defendant on notice to stop his illegal actions. The defendant responded with a letter to the council marked “without prejudice”. The defendant’s letter stated that he had a right to use the land, until the council built the road.
The Court ruled that the defendant’s letter was not “without prejudice”, because it was not an attempt to negotiate a settlement. Rather, the letter was merely asserting the defendant’s right to use the land until the council used it for their own purpose. This example illustrates very well that point that “without prejudice” letters must be attempts at negotiation. Merely stating one has a right to this or that may not qualify a letter as “without prejudice”. Now, had the defendant attempted to negotiate with the council (e.g. on whether he could compensate the council, or use a small portion of the land), that letter might well have been counted as “without prejudice”, and thus been prevented from being used as evidence in Court. The defendant lost the case. He had to pay for the council’s lawyer’s fees and other legal expenses.
Some other scenarios where “without prejudice” rules don’t apply:
- Waiver through mutual consent: If both parties agree, “without prejudice” letters can be made admissible as evidence. The entire document must be waived – parties cannot agree to waive only a portion of a document. When a “without prejudice” letter becomes admissible, other related documents may then become admissible also. This can trigger a large wave of fresh evidence to be introduced to the Court.
- Dishonest case: If a party is pursuing a case built on false evidence/claims/statements, or a party has committed a criminal act, then the Courts can remove “without prejudice” protections.
What should I do if I get a “Without Prejudice” letter?
If you don’t have liability insurance, contact a lawyer immediately. It’s probably not the best idea to respond to such a letter without first speaking to an experienced legal professional. If you don’t handle your response correctly, it could be used as evidence against you in Court.
If you have Professional Indemnity Insurance, contact your broker or insurer ASAP. Your insurance company will provide you with assistance as part of your policy protections. This can come either in the form of in-house lawyers, referral to lawyers, and/or paying for you to engage your own lawyers.
Protect yourself from business lawsuits now
We’ve established that “Without prejudice” letters must be handled very carefully. It’s a highly technical area of the law, with potentially massive implications for whether you win, or lose, a lawsuit. It also has significant impact on determining the amount of damages you have to pay, should you lose the lawsuit.
If you run a business, strongly consider taking up Professional Indemnity Insurance. This type of coverage protects you from a very a wide range of business-related lawsuits.
Professional Indemnity Insurance pays for:
- Lawyer’s fees (which can be hundreds of thousands, if not millions!)
- Damages/settlements (also can cost hundreds of thousands or millions)
Professional indemnity insurance covers a wide range of lawsuits, like:
- Negligence lawsuits
- Errors & omissions lawsuits
- Defamation lawsuits
- IP infringement lawsuits
- Lawsuits related to subsidiaries
- Employee dishonesty lawsuits
- Breach of confidentiality lawsuits
- …and much more
