Without Prejudice & Save as to Costs (letters, conversations, meetings, emails)

Without Prejudice: Meaning

The legal term "without prejudice" is a rule which allows parties to engage in private discussions to settle their disputes.

“Without prejudice” discussions whether in letters, emails or conversations are able to be withheld from courts and excluded from evidence when they qualify for protection.

What was said and written in without prejudice communications can’t be used in court.  

That's:

• any admission or concession - statements against a party's own interests, and
• any other material which might have an impact on the result of the case. 

The rule also applies to casts of previous without prejudice communications. For example, if a party has a without prejudice conversation, the contents of the discussion, summaries or accounts of what was said can’t be:

• restated in an open letter
• reproduced in a witness statement
• used in cross-examination
• recited by a person who happened to overhear it

So that's what a "without prejudice" means. It's a negotiating communication - whatever its form - which can't be produced to a court. 

("With prejudice" is a term used in the US. In the UK, it's referred to as an "open communication". The contents of the communication can be produced in court. As we understand it, a "with prejudice" communication is not a without prejudice communication.)

Without prejudice offers to settle and related communications are protected from disclosure.

There's a three-way example showing how it works below.

Purpose of Without Prejudice

Parties should be given every opportunity to negotiate freely without the discussions coming back to bite them.

Without Prejudice offers to Settle Disputes

It’s there so that parties in dispute can:

"speak freely about all issues in the litigation both factual and legal when seeking compromise and, for the purpose of establishing a basis of compromise, admitting certain facts.": That's Lord Griffiths in Rush & Tompkins

It covers discussions in any form.

Once the communication - usually an offer to settle a dispute - is covered:

• the entire communication is protected:
  • the date of the letter or other communication
  • who it was from
  • its contents – what was said in it
  • most importantly, admissions
• against each and every party involved in the dispute, whether or not they’re a formal party to it
• statements made in settlement negotiations in earlier proceedings between the same parties concerning a matter that remains in issue in dispute between them
• whether or not settlement was achieved

In this way, a without prejudice offer to settle is protected, unless an exception applies.

 

Exception to General Rule of Evidence

The truth is that "without prejudice" rule is a rule governing the admissibility of evidence.

The without prejudice rule is an exclusionary rule. It allows a party to itself avoid producing, and prevent the other party from producing without prejudice communications.

It’s an exception to the general rules of evidence which apply in courts.

That general rule is that all communications between parties may be required to be produced to a court, when they are relevant. That includes confidential information. (Measures may be taken by a court to prevent highly confidential information - think trade secret level of confidentiality, such as software source code - from falling into the public domain as a consequence of having to be produced to other litigants and a court.)

The only other sort of communication which is excluded from production to a court by default are “privileged” communications – those protected by legal professional privilege.

 

The Without Prejudice Rule

"Without prejudice" negotiations are sometimes referred to as "privileged".

That’s only shorthand for the same type of protection. It’s not a reference to legal professional privilege.

It applies to all types of communications, such as:

• letters and emails
• WhatsApp, Telegram, Teams, Slack or SMS messages
• conversations and meetings.

As you can see, it doesn't matter what form the communication takes.

 

Qualifying for Protection: When it Arises

"Without Prejudice" is not something which can be used indiscriminately in discussions.

It must qualify for protection.

What is a without prejudice communication?

The without prejudice privilege applies:

• when parties have a dispute with one another: a genuine dispute.

• automatically from nature of the communication. That’s when:

  the communication is made to start or continue negotiations which are genuinely aimed at settlement

• whether or not the words “without prejudice” are used. They don’t actually need to be used at all to have without prejudice discussions.

(As you can imagine, it's smart to make it clear that your intention is that the conversation, meeting, letter or meeting is without prejudice. It reduces the scope for argument whether it actually was or not.)

And then the without prejudice rule applies to render inadmissible anything which was said or done during the course of negotiations aimed at settlement. One of the leading cases is Rush & Tompkins Ltd v GLC (1989).

So discussions can become protected in 3 ways:

• when it’s expressly stated
• when the rule is implied into the circumstances
• when a communication follows another which was without prejudice, provided that it not an extended period of time (and is not marked without prejudice).
  Even then, a without prejudice communication which is properly protected by the rule is still protected.
  But sometimes you can’t tell from the wording of the communication.
  It’s not a good idea to assume that protection applies. Use the “without prejudice” label if that’s what you intend. It removes doubt.

 

Losing Without Prejudice 

The without prejudice applies in all circumstances, come what may.

But the “veil” to admissibility it provides can’t be used to suppress wrongdoing.

Can a without prejudice letter be used in court?

Without prejudice communications aren’t protected from disclosure to courts when it:

• didn’t qualify for protection in the first place

Unless there is a dispute or negotiations between the parties the without prejudice privilege has no application.
It must:

• • be prefatory to an offer or negotiations - somehow foreshadow an offer or negotiations
  • contain an offer
  • continue the negotiations or settlement discussions, such as by containing a counter-offer
• the privilege is waived, which can be done by agreement, by mistake or by accident, or
• the privilege is abused.

 

Waiver of Protection

It’s not for one party to unilaterally decide for themselves to waive the privilege.

But each party involved in the communications can "agree" to waive the privilege.

Waiver by Agreement

The agreement however does not need to be an express agreement.

It can be implied by conduct.

For example, mention of the content of the without prejudice material in open correspondence, either:

• deliberately, because the other party wants to get the without prejudice communications into evidence
• by mistake, 
• by accident.

When that happens the opposing party can then either:

• accept the waiver, by calling out the misuse of the content of the without prejudice material and start referring to the content of the without prejudice communications in open correspondence, or
• not accept the waiver and insist on compliance with the without prejudice status of the communications. 

Accepting or not accepting a waiver of the  privilege relies on the same principles as a repudiatory breach of contract situation. That's because part of the underlying basis of the without prejudice doctrine is a contract law between the disputing parties.

The parties may expressly agree to waive without prejudice privilege in communications too.

That’s done in writing to avoid misunderstandings, needless argument and satellite disputes.

 

Exclusions: Losing WP Protection

There are situations where courts will lift the veil of protection created by the without prejudice.

They're recognised exceptions to the without prejudice rule.

That happens when there is a good – very good – reason that the rule should not apply to protect the communications and discussions. That’s when the

"justice of the case at hand clearly demands it"

That is, the protection given by the rule has been abused.

Still, courts don’t have a general discretion to raise the veil of the privilege. The decision to do so must apply established principles to remove the protection

When protection is removed, usually all content of the communications - admissions, concessions, and all documents exchanged - may be produced, but that's not always the case.

Protection is lost when:

• agreed terms of settlement – a concluded contract – was reached as a result of the communications.
  A without prejudice settlement agreement loses its status when it has been agreed.
  If that weren't to happen, then nobody could be told that the dispute has been resolved
• a dispute arises on terms of settlement, such as when there is a dispute that a concluded settlement agreement has been reached at all.
  Really, this follows from the exception above
• a settlement agreement was tainted by misrepresentation, civil fraud or undue influence, so as to undermine its formation and render it void ab initio. That is, it is void from the very beginning.
  Again, this follows from the first exception above
• the contract must be interpreted for its legal meaning, the background negotiations will be relevant. That’s in keeping with usual rules of contractual interpretation. See the first exception above for why this is the case
• estoppel applies: a party relies on a statement made by another party, and that other party intended them to act and the other party does act.
  The without prejudice privilege can't be abused to obtain an advantage over the negotiating party that would be actionable if it wasn't a without prejudice communication
• the exclusion of communications protected by the rule would operate to suppress perjury, blackmail, extortion or other unambiguous impropriety,  such as fraud
• evidence of negotiations to explain delay
  Usually only the dates of communications can be produced and not the entire content of the communications.
  Courts take a minimalist approach to production of contents of discussions

 

Without Prejudice save as to Costs

There’s another form of the rule – or a qualified version of it: “without prejudice save as to costs” communications.

These communications are usually in writing. If they’re not, it usually pretty easy for the other party to deny it, which creates problems itself. Let's not go there now.

Why this special Exception?

Without Prejudice rules prevent production of communication on the issue of liability. In one way, it could be said it's "without prejudice to liability".

That’s why the rule prevents production of admissions.

Let me explain for some context.

Process: Courts and Litigation Hearings

In the court litigation process – whether the trial or an interim application – liability is always decided first. 

Once liability is decided, the successful party is usually entitled to recover their costs from the unsuccessful party.

After that, judges decide which party should pay the costs of the other and awards costs:

• interim applications, at the end of same hearing
• trial, after judgment is handed down or at a subsequent hearing

Usually, the judge asks the parties for submissions on costs, before deciding who should pay. Even when it is obvious what the result will be.

That’s when parties can produce “Without Prejudice save as to Costs” letters to the court.

That’s after the court has delivered its judgment on the interim application or trial

That when the court comes to consider which party:

• • should pay the costs of the hearing costs, and
  • the amount they should pay

"Without Prejudice" communications are not permitted to be used for determination of costs, other than by agreement between the parties: Cutts v Head (1984).

Without Prejudice Payments

Sometimes parties make payments to others during a dispute and call them "without prejudice payments". This is usually - but not guaranteed (it depends on the context) - to be a payment:

• made by a person said to owe money to the other party
• who wishes to make a payment to try and resolve the dispute, but
• does not want the fact of the payment to be used against them (ie argued) as an admission of liability

 

Without Prejudice v Without Prejudice save as to Costs

Without prejudice letters and emails are never produced to a court, other than where the parties have agreed to produce them or the rule has been abused.

“Without Prejudice save as to Costs” communications are only produced to courts to assist the court decide which party should pay the costs of the proceedings, and how much the paying party should pay.

When used properly, without prejudice save as to costs correspondence can be used to create real pressure for your opponent.

That’s when you make a better offer than you expect that they will obtain at the trial or even at an interim hearing - and that turns out to be the case at the liability stage.

Example

Here's an example:

You say that Someone owes you £100.

Someone says they don't. Someone says they owe you £50.

You sue Someone for £100. The commercial litigation commences. The Claim Form, Particulars of Claim and Defences are served.

Shortly after that, Someone makes a "without prejudice save as to costs" offer to you that they will pay you £60 to settle the dispute.

You reject the offer.

The case proceeds to trial.

Someone is ordered to pay you £50.  That's the final judgment done.

The court asks for submissions on the costs of the litigation: which party should pay the legal costs of the other?

Usually, you would be entitled to recover your costs for the proceedings, because an order was made against Someone to pay you money. They "won".

But then, Someone produces the letter containing the offer made to you way back at the beginning of the litigation. Someone also produces your letter rejecting the offer.

Someone's Advocate says words to the effect:

"Well, my client made an offer at the beginning of these proceedings to settle this dispute. We offered to pay £60. The offer was rejected by [insert your name].
Judge, you have found that my client liable to pay [insert your name] £50. They rejected that (better) sum of £60. Someone should have their costs of the litigation [ie you should pay the costs of Someone]."

The Judge says... "I agree". 

The outcome here means that usual rule of "costs follow the event" (ie whoever wins gets their legal costs paid by the other party) is displaced. That's because the offer made the litigation a bit of a waste of everyone's time. Courts do not like it when parties do not accept reasonable offers. 

The point is that the risk to your opponent is that they may win the main game, but is at risk of not recovering their costs. That's because they had the opportunity to accept a better offer without the commercial litigation proceedings to trial.

That's the general theory. There's a lot to the law and the discretion of courts to award - and not award - costs. 

Here's another example:

A person says that you owe them £100.

You say that you don't owe them anything (for whatever reason).

You decide to make an offer of £2 to get them to ... go away.

They reject the offer and sue.

This time, you win. The court finds that you owe the person nothing.

You may find that the court will consider making an indemnity costs order against them.

 

Part 36 Offers

Offers made under Part 36 Offers are deemed to be without prejudice except as to costs.

That Part of the Civil Procedure Rules sets up a statutory regime of fixed consequences of failing to accept offers which are beaten at trial (in financial terms) by the person making the offer.

Some of those consequences are quite harsh.

 

Proper use of Without Prejudice

The law does not take a formulaic approach to an application of the rule.

There’s no rule or law that insists on a precise form of words.

For instance, a court may accept the following as being the same thing:

• “Without Prejudice but for Costs”
• “Without Prejudice: For Production on Costs”

But these are just examples. Don’t try it.

Use the established wording:

• “Without Prejudice save as to Costs” ("WPSATC" for short)
• “Without Prejudice except as to Costs”

And don’t hand your opponent arguments to challenge you.

Do it properly, and you don’t have to worry whether you've done it correctly.

 

In Letters and Emails

Always use the label “Without Prejudice” at the top of emails and letters, even if it is a continuation of a thread of communications.

You should never combine without prejudice and open correspondence in one letter. It confuses and unnecessarily complicates matters if any of the correspondence needs to be produced to a court.

Odds-on, it will lead to a waiver of the privilege.

 

In Telephone, Voice Calls and Meetings

You should agree or confirm the status of every telephone call at the beginning.

That makes it clear that the conversation is intended to be without prejudice.

One party usually says, “May we speak without prejudice”, wait for an affirmative response and continue on that basis.

In your notes of the conversation (you do take notes, don’t you?), most people write “WP” or "without prejudice" at the top of the page next to where they write the date and the attendees of the meeting.

That's just in case they need to produce their notes of the call to a court to protect their interests.   

 

What isn't a without prejudice communication?

These include:

• letters which only assert rights, where there is no suggestion to engage in settlement negotiations 
• claims for repayment of a debt, without a hint for compromise, or prospective compromise or without concession
• discussions outside the door of the court, unless they are prefaced as mentioned above

Where parties agree to the sort of material to be produced to one another in without prejudice negotiations, and material is produced which does not fall within the agreed descriptions, there's a chance it isn't protected by the without prejudice rule.

 

Subject to Contract 

A subject to contract and without prejudice communication is one which makes an offer which is without prejudice and not capable of acceptance.

The reference to "subject to contract" means that something further - such as a written agreement must be prepared for the offer can be accepted.

An offer is said to be "in principle" usually isn't an offer: it's been made "in principle" and of capable of acceptance. 

Similarly, an offer which is subject to a condition precedent can't be accepted unless the precondition is satisfied.

 

When Without Prejudice materials are Disclosed

When without prejudice communications are produced it a court, it's a big deal.

The rule is sacrosanct. A party to a civil dispute will want to be pretty sure that the privilege has been waived or excluded before producing evidence of the communications to a court.

Getting it wrong is a serious business, because:

• the judge hearing an application which involves without prejudice correspondence will need to recuse themselves from any further hearing in the litigation, and
• the party getting it wrong will probably be ordered to pay the costs of the other party on the indemnity basis.
  Depending on the hearing, the costs order could be eye-watering.

 

Example: Open letter / Without Prejudice / Save as to Costs

Taking all of that in, let’s make up a simple example.

You’re a services provider. Let’s say your company is in the IT services business, and develop software.

Your company has completed the development and delivered it.

You issue your invoice for £10,000. You haven’t received any payment of the invoice.

You chase the customer for payment.

The customer says that the software development wasn’t performed properly. They say it’s defective.

The customer offers a payment of £7,000 in full and final settlement of the invoice, provided you do some minor fixes to rectify the defects.

At this stage, neither party has used “without prejudice” or “without prejudice save as to costs” yet in their communications.

Open Positions

The above sets the parties positions in what is prima facie open correspondence.

Each party to the dispute knows what the other party’s position is:

• You want to be paid £10,000 for the invoice
• The customer wants to pay £7,000 for the software development services provided, because (they say) some of the work was defective, and they want some minor fixes done.

At this point, one option open to you is to commence legal proceedings for the entire sum on invoice, £10,000.

But let’s say you’re prepared to compromise on the invoice to receive payment now, rather than have to sue to obtain a judgment which says that the customer owes you £10,000.

There are a series of different approaches, some of which are set out below.

First Offer: Open letter

You could write back and say:

Yes there are problems with the software. We’ll accept £8,000 instead for the invoice.

(You’ve not included the fix to the software in your acceptance. So, you haven’t accepted what was offered. So there is no agreement and no settlement, because acceptance of an offer must correspond exactly to what was offered.)

The customer says that it is does not accept your offer.

You then sue them for the £10,000. It’s no surprise that in the Defence, the customer says that the work was defective.

To support that claim with evidence, they produce a copy of your open communication saying you’ll accept £8,000. That email also admits that the software development was defective.

You’ve helped the defendant prove their case.

It should become clearer now that you’re not going to recover £10,000 for the invoice. You’ve admitted in open correspondence that your work was defective.

Second Option: Without Prejudice letter

You send the same email.

But this time, you put the heading at the top of the email:

Without Prejudice

at the top of your email. It contains an offer to resolve a dispute (ie for £8,000).

Clearly, it’s a without prejudice communication.

So that means that the email cannot be used as evidence that your work was defective, because you’ve admitted it.

In this example, it is irrelevant that your work was actually defective (or not).

It is arguable that the First Option was a without prejudice communication: it contained an offer. However, the counterargument is that if the sender intended it to be a without prejudice communication, they would have marked that way.

Third Option: Without Prejudice save as to Costs letter

This time, you send the same email, but with the heading:

Without Prejudice save as to Costs

at the top of it.

You’ve sued, and the case proceeds to trial. The email, its contents or what is said in it during the course of deciding liability of the customer.

The court enters judgment for £6,000 against the customer.

After judgment, the court will ask the parties for their submissions on costs. That is, which party should pay the costs of the proceedings, and how much?

At this point you’d produce your email marked “Without prejudice Save as to Costs”.

You’d probably make the submissions that:

• the defendant would have done better than what they had done, rather than require you to issue legal proceedings, and go through the hassle and expense to issue legal proceedings
• you should be entitled to recover your legal costs at a higher rate, because the defendant should have accepted your offer of £7,000.

 

Business Litigation Solicitors

Sometimes, it not as simple put the words without prejudice at the top of a letter and hope for the best.

We're a law firm which represents claimants and defendants in commercial litigation to resolve disputes.

Making offers is part and parcel with litigation, and negotiating to conclude the proceedings. if it's to be done, it should be done properly do that your legal position is not compromised if the dispute needs to escalate to move towards resolution.

When the negotiations are successful, it saves all of the parties time, the expense and the distraction from ordinary life - running the business and improving revenues.

When litigation can't be avoided, the Part 36 regime and Calderbank Offers may be made to try and end the proceedings early.

If you are after assistance with formulating offers that can seriously bite if they're not accepted give us a call on +44 20 7036 9282 or email us at contact@hallellis.co.uk for an initial discussion.