When ‘without prejudice’ ceases to be ‘without prejudice’

14/06/2019

It is a common perception that if a party prefaces any communication with the words ‘without prejudice’, he or she would be able to state any matter with impunity as such communication cannot used to his or her detriment by the other party.

The perception has its basis in the common law privilege in aid of settlement.  Usually the contents of a statement marked ‘without prejudiced’ cannot be put in evidence unless both parties consent.  The ‘without prejudice’ privilege, which is enshrined in both the Commonwealth and NSW rules of evidence, provides that communication containing settlement negotiations generally cannot be adduced as evidence.

There are, however, exceptions where the ‘without prejudice’ privilege could be lifted.

Occasionally a situation can arise where one party makes a statement or admission of fact that is inconsistent with what the party had previously represented to the other party or the Court.  If such a statement is said in the course of a settlement discussion or communicated in writing within a document marked ‘without prejudice’ the statement would be protected by the privilege unless the other party wishing to rely on the statement can satisfy the Court that an exception to the privilege applies.

A hypothetical scenario similar to a case in which Watson & Watson act for the Homeowner is used to illustrate the point. 

For example; a Homeowner and a Builder are engaged in a building dispute before the NSW Civil & Administrative Tribunal (Tribunal) in which the Builder is claiming moneys.  The Homeowner claims there is defective and incomplete building work.  At our request orders were made by the Tribunal for the Builder to produce building certificates in respect of works carried out by subcontractors engaged by the Builder.  The Certificates are sought by the Homeowner for the purpose of allowing the building works to progress further subject to an issue relating to the Harma Principle that restricts the use of documents to obtain in litigation for other purposes (with the consent of the other party or appropriate order).

The Builder advises the Homeowner in writing that it is in possession of certain certificates which the Builder is willing to provide to the Homeowner subject to the Homeowner’s acceptance of the Builder’s terms of settlement.  The Builder’s letter is marked ‘without prejudice’.  Subsequently the Builder produces pursuant to a Summons issued by NCAT at our request, a few of the certificates to the Tribunal in purported compliance with the Tribunal’s orders.  The Builder represents to the Tribunal that it has produced all of the certificates in its possession.

The letter from the Builder, being a communication made in connection with an attempt to negotiate a settlement of the dispute, arguably would be protected by the Evidence Act.  It would be so, even if the letter had not been marked with the words ‘without prejudice’.

Courts have held that the words ‘without prejudice’ do not have the magical properties that confer “immunity” on the document from production in Court.  In every case the Court will look beyond the words ‘without prejudice’ and examine the nature of the communication to determine whether the contents are truly protected by the privilege.

Furthermore where a statement contained in a ‘without prejudice’ communication relates to an objective fact that is not related to a substantive issue in dispute between the parties, the part of the communication containing the statement is not privileged.

Under the Evidence Act, it is an exception to the ‘without prejudice’ privilege that if the Court is likely to be misled by existing evidence or an inference drawn from the existing evidence unless the privileged communication or document is adduced to contradict that evidence.

In the hypothetical scenario where:

(a)       the question of the certificates in the possession of the Builder is an objective fact;

(b)       the objective fact is not related to an issue in the proceedings and does not affect the merits of the Builder’s claim against the Homeowner; and

(b)       the Builder’s representation to the Tribunal regarding the certificates in its possession is inconsistent with what the Builder has said in its ‘without prejudice’ letter;

the Homeowner would have a good basis for arguing that the part of the Builder’s letter specifically containing the admission about the certificates in the Builder’s possession, is not protected by the privilege.  Furthermore the Homeowner could also argue that the Tribunal would likely be misled by the Builder’s representation unless the ‘without prejudice’ letter is adduced to correct the representation.

This is one of many issues that occur in litigation including building and construction matters of which advisers are not always aware of.

If you are involved in a legal dispute or litigation proceeding brought against you or which you propose to commence in the Tribunal or Courts, at Watson & Watson our highly experienced Senior Commercial Litigation Solicitors have extensive knowledge and expertise to assist you with your evidence, submissions and arguments as well as navigating and preparing settlement negotiations with the opposing party.  Please contact Richard Watson Accredited Specialist Commercial Litigation or his Personal Assistant Shereen Da Gloria to discuss your matter and seek timely advice.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.