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In the latest UK200Group blog post, Nick Parker Partner, Berry Smith LLP, discusses the merits and pitfalls of what is considered to be one on the most overused legal terms in business language

Nick Parker
The most overused legal terms in business language? Surely one of the contenders must be ‘without prejudice’. This term is frequently used by clients and advisers in correspondence during a dispute.

The words are often thought to have magical properties to make whatever is said around them ‘off the record’ and confidential, and to prevent having to show those documents to a judge if the dispute ends up in Court. But is that really the case? Caution needs to be exercised.

In fact, using these words does not automatically make the content legally privileged. The phrase ‘off the record’ is another phrase often used, though this has no legal status in itself. It is only valid without prejudice discussions that can attract privilege.

The without prejudice rule exists to prevents statements that are made in a genuine attempt to settle an existing dispute from being put before a court as evidence of an admission against the party that made them.

It exists so that parties can speak freely, secure in the knowledge that what has been said may not be used against them should settlement discussions fail and parties wish to take a harder line in the future. The various components of the rule are important, as the absence of one or more may mean that this privilege does not apply.

There must be an existing dispute. There is sometimes a debate as to whether there was a dispute in existence at the time when statements were made. While legal proceedings do not have to be underway, the parties need to be aware that there is a dispute between them.

There must be a genuine attempt to settle the dispute. Often, correspondence contains a discussion of the facts in the dispute or a reiteration of a party’s position, but omits a proposal to settle the dispute, or contains a proposal which, it could be argued, is not actually a genuine proposal. In that case the document may not attract the protection of legal privilege and would be available to the judge. Sometimes a party may have gone further in such a letter than they otherwise would have done in the mistaken assumption that the letter was privileged and would remain private between the parties.

There also needs to be an admission, or a proposal to resolve the dispute. The concept of admissions is given wide meaning in the sense that it generally includes all matters disclosed or discussed in the without prejudice communication, and not just the admission itself, not least because dissecting admissions from the rest of the communication would create huge practical difficulties.

There is often a dialogue of proposals between parties. Not every piece of correspondence forming part of the ongoing exchange must set out an offer to settle in order to benefit from privilege.

In fact, the presence of the words ‘without prejudice’ is not itself essential but is strongly advisable to avoid a later argument as to whether the document was without prejudice Otherwise, to determine whether a document was without prejudice, the court would need to work out what the authors intention was, and how the authors intention would be understood by a reasonable recipient.

Simply labelling a document ‘without prejudice’ will not bring it within the ambit of privilege if is not in substance a genuine attempt to settle an existing dispute – caution should therefore be exercised in the use of this term.

Another common misconception regarding legal privilege relates to internal documents exchanged by a business during a legal dispute. It is often thought that such documents are automatically privileged and do not have to be made available for inspection.

Again, such documents are often written in a less guarded way than they may otherwise have been. The widespread use of email, which often provides less formal discussion of issues, can often produce documents which are of concern at the point at which inspection needs to be provided.

In the recently reported case of WH Holding Ltd v E20 Stadium LLP, the Court of Appeal provided guidance on the scope of litigation privilege in such circumstances.

In the case, one of the parties had sought to say that documents that had been exchanged between the board of directors regarding an ongoing dispute were privileged, and therefore did not need to be shared with the opponent or with the Court. The court decided that litigation privilege did not extend to purely commercial emails sent between members of a company’s board of directors to discuss proposals for the settlement of a dispute.

To fall within the protection of litigation privilege documents must seek advice or information for the purpose of conducting the litigation. There is no a blanket restriction on internal corporate communications regarding a dispute.

This should stand as a cautionary reminder to businesses and their professional advisers, as there may be documents (including board minutes), that discuss litigation that do not seek information or advice, and are therefore capable of inspection in litigation.

A practical step is to ensure that lawyers are copied in to communications.

In short, do not automatically think that the use of the term without prejudice, or that internal discussion about an ongoing dispute, means that those communications will not end up before a judge in Court. Most of all remember to exercise caution in what is set out in writing.

Nick Parker is a Dispute Resolution Partner in Berry Smith LLP and a mediator of civil and commercial disputes.

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