The use of the words "without prejudice" on correspondence or in a meeting where there is a "dispute" over a finance agreement can potentially lull the parties into a false sense of security. It may be assumed that whatever is said, or admitted to, in that correspondence or meeting cannot be brought to the court's attention should the dispute progress that far. Wrong!

The public policy behind the "without prejudice" rule is to encourage parties to settle their differences rather than litigate them to trial. The rule enables parties to negotiate freely while, at the same time, being in a position to continue to fight the case without fear (subject to specific exceptions) that any statements or offers made during the course of negotiations to settle will prejudice them by being placed before the court later as evidence of admissions of liability.

However, using the words "without prejudice" will not automatically render a communication privileged. Equally, the absence of those words will not mean that the communication fails to attract the privilege. It is the substance of the communication that is all important.

Critically, there must be an underlying dispute between the parties which they are attempting to settle for the rule to apply in the first place. This was again confirmed in the case of Midgley v Oakland Glass Ltd, where Midgley sought to exclude from evidence certain letters written by the parties' solicitors. That correspondence made reference to a discount being sought from the judgment debt obtained, an assignment of the judgment debt once payment had been made in full and a request for an interest calculation on the indebtedness so the exact amount outstanding could be ascertained and settlement proposals put forward. Midgley claimed the correspondence was "without prejudice" as it referred to negotiations between the parties to settle a dispute.

The court held that none of the references in the letters amounted to a dispute over the sum involved but were more akin to an acknowledgement or admission of the sum or were neutral in relation to it. The "without prejudice" rule has no application to communications designed to discuss the repayment of an admitted liability rather than to negotiate and compromise a disputed liability.

There must be negotiations genuinely aimed at settlement of a real dispute or at an attempt to compromise actual or impending litigation. At the time the letters were written, there was no dispute as to the judgment sum.

Asking for a discount was not disputing that sum but merely seeking a concession. The letters were not "without prejudice" and could be referred to the court.

Comment

The "without prejudice" rule is fundamental in enabling parties to hold open discussions in an attempt to settle disputes without the fear of offers made subsequently being used as evidence of admissions. Without an underlying dispute however, the rule will not apply. Requests for time to pay an admitted amount and how payment should be made will not covered by the rule and the use of the "without prejudice" label will not prevent subsequent production.

This article was published in the June issue of Motor Finance