Without prejudice privilege is a frequently used but often misunderstood tool in commercial litigation. The following is a broad overview of the general principles.
The without prejudice (WP) rule prevents statements made in a genuine attempt to settle an existing dispute, whether made in writing or orally, from being put before the Court as evidence of admissions against the interest of the party which made them.
In this context, “admission” does not mean a formal admission, but rather a statement made by a party against his own interest.
The Rationale for the Rule
In general a party’s submissions against his own interest are always admissible against him. The WP rule is an exception to that rule.
The rationale for it is that it encourages parties to settle their disputes out of Court. It is thought that settlement discussions will be facilitated if parties are able to speak freely, comfortable in the knowledge that any admissions they make cannot be used against them if settlement discussions fail. The idea is that parties are more likely to settle if they are free to put all their cards on the table.
Whether a challenge to WP privilege is successful will depend on the substance rather than the form of the disputed documents.
This means that:
- Simply labelling a document “WP” will not bring it within the ambit of WP privilege if it is not, in substance, a communication made in a genuine attempt to settle an existing dispute.
- Similarly, omitting to label a document WP will not preclude it from benefitting from WP privilege if it is a communication made in a genuine attempt to settle an existing dispute. That tolerance is less likely to apply when the parties are both legally represented.
Without Prejudice Privilege and Waiver
The starting point is that WP privilege belongs, collectively, to the parties to the WP communication. Therefore, it can only be waived with the consent of all the parties. Normally, if one party seeks to deploy WP communications in evidence unilaterally, the other party can choose whether to apply to strike out the offending material or to treat it as a waiver of privilege so that material becomes admissible for the benefit (or detriment) of both parties.
Exceptions to the WP Rule
There are a number of important exceptions to the WP rule which illustrate that it is not absolute and that it might be possible to use WP material for a range of reasons when the justice of the case requires it.
For example, WP communications have been admitted in evidence in the following circumstances:
- Where the issue is whether the WP communications have resulted in a concluded settlement agreement.
- As evidence of a misrepresentation, fraud or undue influence.
- Where a statement may have given rise to an estoppel (i.e. where one party is estopped from doing a certain thing because another party has acted in reliance upon a previous statement by that party).
- As evidence of perjury, blackmail or other unambiguous impropriety.
- On the question of costs when the parties have written “without prejudice safe as to costs” offers.
- As evidence as to the reasonableness of a settlement.
This latter exception is particularly relevant in the context of disputes between insureds, insurers and brokers where the insured settles at an under-value and then seeks to recover the balance of the claim from his insurance broker.
In those circumstances, it is obviously important to understand the dynamics of the negotiations between insured and insurers so that the broker can establish that the insured has properly mitigated his loss by pursuing his claim against insurers.
In conclusion, WP privilege provides important protections for parties trying to negotiate their way out of disputes but the protection is not without exception. It is therefore imperative that those exceptions are understood before any admissions are made.
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