The ability to make an offer to settle a dispute, without that offer coming to the attention of the court or (as the case may be) an arbitrator, is a vital tool in the dispute resolution armoury. However, both practical experience and the case law teach us that the term can be misapplied, without proper thought having been given to the consequences.
The purpose of “without prejudice” is to encourage parties to settle their disputes and avoid going to court, but without fearing that an unsuccessful offer will be used against them in court, and prejudice their position. When a party makes a “without prejudice” offer, it is literally “without prejudice to” the fact that it is going to argue for a different result in an open forum.
For that reason, writing “without prejudice” on a letter will not make it confidential, and will not shield it from the eyes of the court or an arbitrator unless the following criteria are met:
- There has to be a dispute;
- The communication has to be “without prejudice to” something; and
- The communication must be part of an attempt to settle.
Something labelled “without prejudice” just because the writer wants to hide it from the eyes of the court, will not be afforded the protection enjoyed by true “without prejudice” correspondence.
Erroneously adding the label to a letter or notice can also have serious adverse consequences. We have seen rent review notices and even break notices headed “without prejudice”. Without prejudice to what? At worst, that could render the notice ineffective.
And what of a “without prejudice” offer that is accepted under the heading “without prejudice”? Is that a binding settlement, or merely part of an ongoing negotiation until the magic words have been dropped? The answer is a simple one, and lies in the basic principles of contract. Acceptance of an offer is a final and unqualified expression of assent to the terms of the offer, and the contract comes into existence when acceptance is communicated to the offeror. If offer and acceptance exist, it makes no difference that one or both were labelled “without prejudice”. At that point, the protection automatically falls away (see Newbury v Sun Microsystems Ltd  EWHC 2180 (QB)).
In short, the words “without prejudice” should only ever be attached to a genuine offer to settle. Misapplied, they might not have the effect of confidentiality that you intended. At worst, they might have unintended and serious legal ramifications.
Based on an article by Richard Bourchier (EGi) and Nicholas Cheffings (Hogan Lovells) which appeared in EGi on 25 April 2015