The words ”Without Prejudice” are often stamped at the top of correspondence in proceedings and negotiations. But when is it appropriate to do so?

The courts will always encourage parties to attempt to negotiate a settlement before a hearing is necessary. This saves costs and time for all involved, especially the court. However, parties and their solicitors need to be certain that correspondence sent in the course of negotiating a settlement will not harm them should negotiations fail and a court hearing become necessary. This is where “without prejudice” correspondence comes in. If correspondence is sent as part of a genuine attempt to settle a dispute, it should be marked “without prejudice”. Consequently this correspondence cannot be used against them in evidence.

This has unfortunately led to a misunderstanding that any and all documents marked “without prejudice” are barred from being presented to a judge at a subsequent hearing, and has led to the practice in some cases of correspondence being marked as such because the writer is concerned about something said in that letter. The only correspondence which will be barred from admissions in court is that pertaining to a genuine dispute and a genuine attempt to resolve it. If there is no dispute as to liability, only a discussion of applicable terms in relation to the discharge of that liability, then generally correspondence will not be covered by the “without prejudice” rule preventing disclosure.

This approach has been confirmed in the recent case of Avonwick Holdings Ltd v Webinvest Ltd [2014] EWHC 3322 (Ch). The court held that at the time of the correspondence, there was no genuine dispute between the parties as to liability. Discussions were predominantly concerned with the restructuring of the defendant’s debt to facilitate discharge of the liability. Therefore the use of “without prejudice” did not preclude disclosure of the relevant correspondence as evidence at trial. This was upheld by the Court of Appeal.

The Court of Appeal did clarify one exception to this rule. They stated that parties were free, subject to some limitations, to contract as they believed appropriate and parties could agree that communications between them may not be disclosed in subsequent proceedings, even if no dispute existed at that time. However, it would be necessary for the parties to expressly agree these terms at the time of correspondence.

It is therefore clear that how a piece of correspondence is marked will not automatically grant the status sought. Parties should be careful to avoid creating documentation which may not necessarily attract the level of privilege they expect. It is important to know how to use it, but also when not to.