BUSINESS LAW – THE EXTENT OF “WITHOUT PREJUDICE” PRIVILEGE

Many business people understand the importance of the without prejudice privilege.

This privilege can be summarized that, if a communication between negotiating parties has the without prejudice privilege attached to it, the communication will not be admissible in court and cannot be adduced in evidence against the interest of the party that made it. The rationale behind this legal privilege is that it is in the public interest that litigating parties should be able to negotiate freely, without fear of future prejudice in court, with a view to settling their dispute wherever possible.

Practically speaking, it means that if the settlement discussions are unsuccessful, neither party will face the embarrassment of having private concessions and offers of settlement made known to the judge or jury indicating that there public defences are not to be taken at face value.

For communications to attract without prejudice privilege, there must be a real issue between the parties. Those communications must be, or form part of, a genuine attempt to negotiate a resolution to the dispute. It is the substance of the communication that matters – not whether the document, meeting or phone call has been labeled or categorized to be “without prejudice”.

The without prejudice privilege has a number of important exceptions. Some settlement negotiations can fall outside its ambit. One example is where parties choose to negotiate openly. Another exception is where it would be manifestly unjust to allow the privilege to apply such as where a communication amounts to evidence of fraud, misrepresentation, harassment, undue influence, perjury, blackmail or other impropriety.

It is also important to remember that without prejudice privilege ceases to attach to communications between parties once the substantive dispute between them has been resolved. A good example is where a debt is acknowledged by a debtor in financial difficulties. After negotiations, the creditor allows deferred or reduced payment as a means of mitigating the creditor’s potential loss. The post-acknowledgement negotiations will not be privileged.

It is clear that the privilege operates in civil litigation. What is less clear is whether the privilege protects communications arising in the context of regulatory investigations. Will the privilege apply to discussions between a taxpayer and the Australian Taxation Office whereby the taxpayer is seeking to negotiate a reduction of penalty and interest in exchange for payment of the primary tax? Does the privilege apply to the negotiation of a fine between the directors of a corporation and the Australian Securities and Investments Commission? Or between a manufacturer and the Australian Competition and Consumer Commission over whether or not the Australian consumer law has been breached? Recent decisions in the United Kingdom suggest that as regulatory investigations can lead to civil proceedings, and as there is public policy interest in the timely and cost effective resolution of regulatory investigations, without prejudice privilege can extend to communications made with a regulator about the settlement of an investigation.

Like all privileges, they can be dangerous if the user does not fully understand its nature and consequences. Parties often use the phrases “without prejudice” and “off the record” as though they meant the same thing when communicating orally or in writing. Unless the correspondence specifically relates to a settlement effort, it will not be privileged. Communications cannot be made “without prejudice” simply by a heading or a statement to that effect. Furthermore, “off the record” is not a legally recognized concept under Australian law in any event.

Another trap for the unwary is that the without prejudice privilege can be waived either deliberately or inadvertently. Some parties expressly choose to waive privilege in a communication. This may be because the documentary communication contains some information which one or both parties actually wish to be able to place before the court in later litigation. It is not generally possible for parties to pick or choose items or admissions within any one communication without waiving privilege in respect of the entire communication. In some instances, attempting to waive privilege as part of one communication may result in the waiver of privilege in respect of the entire documented negotiation. The parties may feel that it is best to waive privilege entirely rather than run the risk that a partial picture should not be presented to a court.

Without prejudice privilege can also be waived if a communication is inadvertently disclosed. A court order will then be required to determine the admissibility of the communication. The party against whose interests the communication operates will have to hope that the court will disregard what it has seen in the subsequent court hearing.

It must also be remembered that without prejudice privilege is a joint privilege. It applies to communications between both parties and protects them equally. This means that privilege can also be waived jointly. If one party seeks to waive privilege, the circumstances of the case and of the other party’s reaction can confirm the admissibility of the communication in question.

Many business clients will be aware that the without prejudice privilege can also be restricted or qualified in writing. An example is a Calderbank-type letter which is often marked “without prejudice save as to costs”. Such communications are designed to be shown to the court or tribunal following judgment of the main dispute. The intention is to show how reasonably or otherwise a party has acted so as to influence the determination of any costs award.

Recent judicial decisions about the without prejudice privilege have stressed a number of legal and practical points:

To determine whether a communication attracts without prejudice privilege, the court must consider the circumstances of the communication objectively, ask whether the communication was or ought to have been seen by the parties as negotiations genuinely aimed at settlement, and adopt a broad view without “salami slicing” communications into parts that were open and parts that were without prejudice.
Where litigants in person are concerned, an objective assessment might be more difficult. The court must ask “what else could it be said the discussions were about?” If the court’s conclusion is that the only sensible purpose for such communications must have been to seek some time of solution to the litigation, the communications will be privileged.
The impropriety or abuse exception should only apply to deny a party the cloak of without prejudice privilege in the clearest cases of abuse of a privileged position. When considering a litigant in person, courts will be slow to conclude that they intended to deliberately tell lies and thus lose the protection of the privilege.
In circumstances where one party unilaterally waives or attempts to waive privilege, an objective evaluation of the facts and circumstances of the case is required to determine whether it would be unjust to allow the latter party to maintain that the communications in question were privileged from production to the court. This objective evaluation will include an assessment of the other party’s conduct.

Obviously, the ambit of the without prejudice privilege can be restricted and qualify in other ways. The author of a communication, by using express words, may restrict the privilege to particular uses, or for particular purposes, or even for particular times. However, the restriction on the width of the privilege would need to be drafted clearly so that it was brought to the attention of the receiving party.

Accordingly, when engaged in settling disputes, parties should bear in mind the following practical points:

Be on guard at all times. Whilst without prejudice privilege exists to encourage free negotiations and to facilitate settlement, the privilege will only arise to protect parties in particular circumstances.
If discussions or documents do not amount to genuine attempts to settle a dispute, they will not be protected from disclosure to the court regardless of any attempt to label or categorize them “without prejudice”. This may raise a potential problem for a party that is merely going through settlement motions and is making offers of settlement which, objectively speaking, are entirely unreasonable and not genuine.
The question of whether or not privilege exists relates to the entire communication. It is generally not possible for a party to argue that some aspects of a communication can be disclosed to a court but not others. The specific items of content would have to be very clearly separable to argue otherwise. Be careful, therefore, not to include matters that you do want a court to see in a document that is otherwise privileged and vice versa.
Consider every communication individually and ask whether it should be wholly without prejudice, or without prejudice save as to costs, or without prejudice save as to some other qualification or restriction. Make sure that the communication is endorsed accurately and appropriately.
Beware inadvertent waiver. Speak to your lawyer immediately if you are every unsure whether actions or reactions that you or your opponent have taken in respect of any “off the record” correspondence may have waived or undermined privilege.
Take particular when dealing with litigants in person. Those without legal representation may be less likely to appreciate the subtleties of legal concepts such as privileged protection. These legal concepts are often founded in fundamental justice and public policies and represented parties should proceed with caution. Take appropriate advice from your lawyers.

****

This article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice.

DISCLAIMER: We accept no responsibility for any action taken after reading this article. It is intended as a guide only and is not a substitute for the expert legal advice you can get from De Marco Lawyers and other relevant experts.