The Supreme Court has just delivered confirmation of one of the exceptions to the legal principle of "Without Prejudice" (WP) (Oceanbulk Shipping & Trading SA -v- TMT Asia Limited & Ors [2010] UKSC 44).
It is widely understood that applying the words "without prejudice" to a communication is supposed to allow negotiations to take place openly and frankly without fear that any statements made by parties will be used against them as an admission of liability or waiver of rights. It makes the document 'privileged' and a party does not need to disclose it in litigation or arbitration.
However, merely applying the WP label to a communication may not necessarily produce the result you expect. The purpose of this article is to provide some guidance on using the rule effectively.
Preliminary points to bear in mind
- Simply marking a message WP does not necessarily mean that it is privileged. Discussions must be part of negotiations genuinely aimed at settlement of an existing dispute.
- All discussions, whether oral or in writing, are covered by the rule. Subsequent negotiations will also be WP even if not expressly stated to be so.
- Pre-contract negotiations are not likely to be WP.
- The general rule is that everything said in a WP context is privileged, whether it be WP admissions or non-WP types of statement.
- A number of exceptions to the rule have emerged over the years which include:
- The first is the exception confirmed in the Oceanbulk Shipping v TMT case. The effect of WP will not necessarily be permanent. Lord Phillips neatly summed up the exception as follows:
"When construing a contract between two parties, evidence of facts within their common knowledge is admissible where those facts have a bearing on the meaning that should be given to the words of the contract. This is so even where the knowledge of those facts is conveyed by one party to the other in the course of without prejudice negotiations."
- If there is an issue as to whether WP communications have resulted in a concluded settlement agreement, those communications can be disclosed by the party seeking to enforce the settlement.
- WP documents may lose their privileged status in subsequent litigation with different parties. Sometimes WP communications are disclosed at an early stage of an injunction or freezing application. In those circumstances, it is unlikely that they will regain privileged status.
- A clear statement made by one party to settlement negotiations, on which the other party is intended to act, and does in fact act, may be discloseable as not WP.
- WP cannot be used as a cloak for perjury, blackmail, fraud, misrepresentations, libel, threats of insolvency, or other forms of unambiguous impropriety (such as denying facts or liability in open correspondence but unambiguously admitting the same facts WP).
- Evidence of WP negotiations may be produced in legal proceedings in order to explain a failure by a party to pursue an action.
- An offer made expressly "WP save as to costs" may be adduced in evidence when the Court is deciding the question of costs once the entire dispute has been concluded.
- Privilege can be waived, usually by the conduct of one party, but not unilaterally. Both parties have to agree to the WP communications being disclosed in proceedings.
Practical guidance
Some use WP as a default setting for emails sent when there is a dispute. But much will depend on the particular circumstances of each case as to whether the communication is WP, or whether it should be WP. The following should act as a practical day-to-day guide:
- As soon as a dispute has been identified, if there are any discussions that are aimed at resolving the dispute, protect rather than prejudice your position. While it is, strictly speaking, not necessary to mark a communication WP, it would be sensible to do so.
- Ensure that the contents of negotiations are caught by the rule (i.e. that they are genuine attempts to settle the matter or promote the possibility of settlement). Mere allegations and threats will not be covered. Do not put the words WP on communications without thinking what you want to achieve.
- Beware of making compromise proposals by telephone. Where possible, conduct WP exchanges in writing.
- WP correspondence should be kept separate from non-privileged ("open") correspondence. Open correspondence should not refer to WP messages.
- Messages that parties would want to rely on if negotiations were to fail must also be put in open correspondence. This would result in two separate streams of correspondence, but there is nothing wrong with this.
- If you want to bring the WP nature of the discussions to an end and continue on an open basis, it is up to you to make it clear that you want to do that. It would be dangerous to try to do it by stealth-for example, by suddenly omitting to put the WP label on correspondence.
- Do not panic if you have sent a letter with the wrong heading. If you realize that you have made a mistake soon after sending a letter, you can send a corrective message.
- Be aware of contractual time limits. WP can be used to put legal rights on hold for a brief time to give a short breathing space, but no more. Also remember that a time bar for commencing proceedings or starting an arbitration may expire whilst you are negotiating. If you are coming up against a time bar, you may need to issue a protective claim to protect your right to arbitrate/litigate while negotiations are ongoing.
Conclusion
The WP rule is more than just legal jargon reserved for lawyers-it can be a very useful strategic tool early in a dispute-but only if it is used properly.