By Drazen Kozaric, Special Counsel on 11/07/2022
There is a common misconception amongst many, including some lawyers, that if a correspondence is marked “without prejudice”, especially when it refers to settlement negotiations, it is privileged. Justice Well described this view in Davis v Nyland (1975) 10 SASR 76:
“[I]n some quarters of the community there is a belief, amounting almost to a superstitious obsession, that the expression ‘without prejudice’ is possessed of virtually magical qualities, and that anything done or said under it supposed aegis is everlasting hidden from the prying eyes of a court”.
Another not uncommon belief is that a party can unilaterally waive the privilege in relation to the party’s correspondence. Several legal authorities, however, suggest that all parties may need to consent to waive the privilege. The rationale is that parties should be encouraged to negotiate a potential settlement without worrying that statements made during those discussions could be used as evidence against them in court. Whilst this is mainly based on common law, in some jurisdictions this is regulated by legislation – i.e. section 131 of the Evidence Act (NSW) and (Cth).
Exceptions to the rule
A dispute must be a subject of litigation, or litigation is considered by parties to the dispute if their negotiations fail, to be covered by without prejudice privilege. Therefore, even if without prejudice label is used in other circumstances, the privilege may not apply. The following are further examples of communications where the privilege may not apply:
- it does not relate to a settlement dispute;
- it relates to finalising terms of an agreement that has already been reached;
- it relates to assertion or allegation of facts;
- it is used to contradict or qualify evidence that is likely to mislead the court;
- it is a part of a fraud, an offence or a deliberate abuse of power or privilege.
- it is evidence of a misleading or deceptive conduct in the context of settlement negotiations;
- it is evidence of a concluded settlement agreement; and
- it is a letter of demand.
In Hera Resources Pty Ltd v Gekko Systems Pty Ltd it was held that if a document contains a considerable amount of unprivileged evidence, it may be admissible even if it contains information that is privileged.
Another thing to be aware of is that communications can be privileged even if the words without prejudice have not been used. It is the party’s intention that determines whether certain communications are privileged, namely whether they relate to genuine settlement negotiations, which are determined from the nature of the communications.
Key takeaways: A communication is not necessarily privileged just because it is labelled “without prejudice”. The phrase is merely an indication of parties’ intention. The privilege is not absolute and, in some circumstances, a privileged information may be used as evidence. Without prejudice communication may not be used as evidence if all relevant parties do not consent to waive the privilege. To be privileged information needs to be a subject of litigation or litigation is reasonably considered by the parties if negotiations fail.
