When is 'Without Prejudice' not 'Without Prejudice'?

The Supreme Court has just delivered confirmation of one of the exceptions to the legal principle of "Without Prejudice" (WP) (Oceanbulk Shipping & Trading SA -v- TMT Asia Limited & Ors [2010] UKSC 44).

It is widely understood that applying the words "without prejudice" to a communication is supposed to allow negotiations to take place openly and frankly without fear that any statements made by parties will be used against them as an admission of liability or waiver of rights. It makes the document 'privileged' and a party does not need to disclose it in litigation or arbitration.

However, merely applying the WP label to a communication may not necessarily produce the result you expect. The purpose of this article is to provide some guidance on using the rule effectively.

Preliminary points to bear in mind

Simply marking a message WP does not necessarily mean that it is privileged. Discussions must be part of negotiations genuinely aimed at settlement of an existing dispute. All discussions, whether oral or in writing, are covered by the rule. Subsequent negotiations will also be WP even if not expressly stated to be so. Pre-contract negotiations are not likely to be WP. The general rule is that everything said in a WP context is privileged, whether it be WP admissions or non-WP types of statement. A number of exceptions to the rule have emerged over the years which include: The first is the exception confirmed in the Oceanbulk Shipping v TMT case. The effect of WP will not necessarily be permanent. Lord Phillips neatly summed up the exception as follows: "When construing a contract between two parties, evidence of facts within their common knowledge is admissible where those facts have a bearing on the meaning that should be given to the words of the contract. This is so even where the knowledge of those facts is conveyed by one party to the other in the course of without prejudice negotiations." If there is an issue as to whether WP communications have resulted in a concluded settlement agreement, those communications can be disclosed by the party seeking to enforce the settlement. WP documents may lose their privileged status in subsequent litigation with different parties. Sometimes WP communications are disclosed at an early stage of an injunction or freezing application. In those circumstances, it is unlikely that they will regain privileged status. A clear statement made by one party to settlement negotiations, on which the other...