Without Prejudice and Without Prejudice Save as to Costs – Reasons to be Careful

Disputes practitioners are familiar with the “without prejudice” (“WP”) and “without prejudice save as to costs” (“WPSATC”) labels used in correspondence when parties are trying to settle a dispute. Whilst commonplace, the precise consequences of their use – or omission – is often misunderstood. Generally, parties that have mistakenly labelled correspondence have benefited from the court’s willingness to imply the protection sought when the substance of the communication demonstrates it was an error. However, in Sternberg, the High Court indicated that this approach would be fettered.

What is the WP and WPSATC privilege?

WP is a special type of privilege allowing parties to make genuine attempts to settle their dispute without prejudicing their position by admitting, or being seen to concede, any amount of liability within open correspondence.

This is possible because correspondence labelled as WP is withheld from the court and the statements within it are not admissible, even after a judgment is made, ensuring statements cannot be used against parties in court if settlement discussions fail. The key exception is that correspondence labelled WPSATC is shown to the court but this is once judgment has been given, and only to assist the court when determining liability for costs between the parties.

What if the correspondence is mislabelled?

Unlike other forms of privilege, WP privilege is a joint privilege. This means that it cannot be waived unless (a) all parties consent or (b) an application to the court is made seeking the protection’s removal on the basis that it has been mislabelled. These restrictions make it a powerful protection.

A court will look at the substance of the communication, rather than the label, and will overturn the privilege if the correspondence does not contain a genuine attempt to settle the dispute.

What if the correspondence is not labelled by mistake?

Forgetting to label correspondence is not fatal: the court will be willing to imply privilege if, from a review of the substance of the correspondence and the facts surrounding its communication, the court determines that the WP or WPSATC label and protection should have been applied because there is a genuine attempt to compromise actual or impending litigation.

Sternberg has clarified which label should be applied by the court when it is required to imply the privilege.

What did Sternberg change for WPSATC privilege?

The Judge in Sternberg noted that the court will still imply WP privilege for correspondence that is not labelled by mistake. However, if the only protection a communication has is the WP privilege implied by the court, the Judge saw “no basis for implying any agreement that no reference should be made to such correspondence on issues of costs once issues in the substantive litigation have been determined.” In other words, the type of privilege imposed is WPSATC privilege, not simply WP privilege.

The Judge held that, where the court is implying WPSATC status, that correspondence may be referred to by the court when considering the issue of costs.

Implications of Sternberg

Whilst this may seem a subtle change it can have significant implications for parties when it comes to the question of costs. This is because under CPR 44.2(4)(c), when deciding what costs order it should make, the court will have regard to offers to settle the proceedings that are drawn to its attention.

Parties who have unreasonably refused settlement offers will be penalised in costs by the court.

Takeaway points

1. Carefully consider whether you want the court to be able to see your settlement offers when determining costs – Depending on the offer’s contents and the point in proceedings there may be advantages in allowing the court to see your offer post judgment. For example, if you are making a reasonable offer to settle early in proceedings you will probably want the court to see the offer, so it can infer that the other party has unreasonably refused to compromise.
2. Control the label – As a result of Sternberg, it is more vital than ever to ensure you correctly label correspondence, otherwise you risk the court imposing the WPSATC label when that may not be what you intended.
3. Be careful when it comes to the content of your communication – Always beware that the court will overturn a privilege if it has been applied to communications that do not contain a genuine attempt to settle the dispute. Similarly, any matters you want before the court should not appear only in WP/WPSATC correspondence. Otherwise reference cannot be made to the content absent an order from the court or the other party’s consent.
4. Separate your chains of communication – The best course is to run separate streams of open and WP (or WPSATC) correspondence, without matters being mixed. Substantive points going to the merits of the case should appear in open correspondence. This is a standard approach for disputes lawyers.