With Or Without Prejudice?

Introduction

When commercial disputes first arise, the natural inclination for the parties is often to attempt to resolve matters between them, without involving lawyers at an early stage. Instructing lawyers is often seen as a last resort. Amongst other things, parties to a dispute are often concerned that instructing solicitors gives the impression that the business relationship with the other party has broken down irretrievably.

Whilst many disputes will be capable of resolution without the involvement of lawyers, care should be taken in any correspondence sent with a view to settling a dispute. If matters can't be resolved amicably and recourse to the courts is required, the other party to the dispute may attempt to rely on the content of correspondence sent during this period.

Some people make the mistake of assuming that including the words "without prejudice" in correspondence provides a magical shield which protects all statements made from being relied upon in court at a later date.

In fact, the extent to which without prejudice clauses protect the contents of a communication is not entirely settled in Scots Law. There is a line of authority which suggests that an appropriately drafted without prejudice clause only renders inadmissible concessions which are made for the purposes of negotiation and not clear statements of fact. The distinction between these two categories of statement is not always easy to identify.

Case Law Example

In the 1994 case of Daks Simpson Group Plc v Kuiper the Pursuer company claimed that a former director had received commission from customers, which he had retained for himself and had not accounted for to the company. An admission was made during a meeting between the parties and their solicitors that the director had received secret commission in excess of £600,000.

After the meeting, the company's solicitor wrote to the director's solicitor with a schedule of payments that they alleged the director had received. The director's solicitor responded indicating that, whilst the schedule was exaggerated in some respects, sums in excess of £600,000 were due to the company. The letter was concluded with a "without prejudice" clause. On the basis of...