How to cast a magic legal spell? The protection afforded by Without Prejudice Settlement Negotiations.

10/12/2020

Litigation + Dispute Resolution

How to cast a magic legal spell? The protection afforded by Without Prejudice Settlement Negotiations.

You have the right to remain silent … in your civil legal dispute. By the time you approach a lawyer to assist with your civil legal dispute, you may have already discussed the matter in detail or sent text messages/emails to the other party, their agent, insurance company or lawyers. Whilst you might think you are progressing the matter: ➲ This is generally a mistake!‍

Most people [unless they are experienced with litigation or legal dispute resolution] will unknowingly proceed to communicate with the other side on an "open” basis.

This means that everything that is said or written might be capable of being used by the other parties in any subsequent legal proceedings.

We recommend you don't say or write anything until you have spoken to your lawyer

It is generally known that in any criminal matter, you have the “right to remain silent …” as this is well-covered territory on TV/Movie Legal Dramas and in the media.

When it comes to civil disputes we recommend you adopt the same position.

Our advice may be spot on when it comes to large $$ civil disputes.

Proceeding without your lawyer

When the matter is only a minor one, you may not want to go to the time and/or expense of engaging legal advice specific to your situation.

Q: How then can you proceed?

A: Very carefully, and with the assistance of some very specific legal phraseology which you may or may not have seen before.

“Without Prejudice” or “Without Prejudice Except/Save as to Costs”

We recommend you use the same specific legal terms a lawyer uses to invoke Without Privilege Privilege, being:

➲ “Without Prejudice” or “Without Prejudice Except/Save as to Costs”:

Use these words at the very top of any written correspondence, or prior to any verbal discussions with the other side using words to the effect of “This phone call is being made/meeting is being held on a Without Prejudice basis as part of a genuine attempt to understand the matter and to work towards an amicable settlement”.

What is “Without Prejudice” Privilege?

The following explanation is extracted from the judgment of Hammerschlag J. in Martin Patrick Dowling -v- Ultraceuticals Pty Ltd [2016] NSWSC 386 at para. 25:

“Without prejudice privilege prevents admission into evidence of settlement negotiations between parties, when litigation between them is in contemplation.
The privilege extends to protect without prejudice communications between parties to litigation from production to other parties in the same litigation. In Rush & Tompkins Ltd v Greater London Council [1989] AC 1280 at 1305, in an oft quoted passage, Lord Griffiths said:
I have come to the conclusion that the wiser course is to protect “without prejudice” communications between parties to litigation from production to other parties in the same litigation. In multi-party litigation it is not an infrequent experience that one party takes up an unreasonably intransigent attitude that makes it extremely difficult to settle with him. In such circumstances it would, I think, place a serious fetter on negotiations between other parties if they knew that everything that passed between them would ultimately have to be revealed to the one obdurate litigant. What would in fact happen would be that nothing would be put on paper but this is in itself a recipe for disaster in difficult negotiations which are far better spelt out with precision in writing.
If the party who obtains discovery of the “without prejudice” correspondence can make no use of it at trial it can be of only very limited value to him. It may give some insight into his opponent's general approach to the issues in the case but in most cases this is likely to be of marginal significance and will probably be revealed to him in direct negotiations in any event.
In my view this advantage does not outweigh the damage that would be done to the conduct of settlement negotiations if solicitors thought that what was said and written between them would become common currency available to all other parties to the litigation.
In my view the general public policy that applies to protect genuine negotiations from being admissible in evidence should also be extended to protect those negotiations from being discoverable to third parties.
(see Hong Kong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 512 at 523; Glengallan Investments v Arthur Anderson [2002] 1 Qd R 233 at [34]; Dr R. J. Desiatnik, Without Prejudice Privilege In Australia (2010, LexisNexus Butterworths Australia) at 49–53).”

It is a magic legal spell ➲ but it's far from bulletproof!

Using the words Without Prejudice will invoke a magic legal spell of privilege both at common law and under the relevant local evidence legislation protecting the contents which follow from being introduced into evidence.

We caution you not to misuse or be overconfident regarding the privilege protection afforded by these words, as they will not bulletproof your communications in all situations.

As is so often the case in the law, there are many exceptions to the general rule.

In every case the Court will look beyond the words to the nature of the communication to determine whether the contents are truly protected

For example, where a statement contained in a Without Prejudice communication relates to an objective fact that is not related to a substantive issue in dispute between the parties, the part of the communication containing the statement is not privileged.

Statutory Public Policy Exceptions

Another of the many exceptions to the Without Prejudice Privilege specifically provided for by the Evidence Act 1995 (NSW) is s.131(2)(g) [the entire provision has been provided at the bottom of this article for illustration purposes] which will [for public policy reasons] pierce the Without Prejudice Privilege where the Court is likely to be misled by existing evidence or an inference drawn from the existing evidence unless the privileged communication or document is adduced to contradict that evidence.

The privilege will not be allowed to act as a cloak for perjury, blackmail or other “unambiguous impropriety” …

In Unilever plc v The Procter & Gamble Co. [2000] 1 WLR 2436 at 2444, Walker LJ referred to one exception as follows:

“… One party may be allowed to give evidence of what the other said or wrote in without prejudice negotiations if the exclusion of the evidence would act as a cloak for perjury, blackmail or other "unambiguous impropriety" … But this court has … warned that the exception should be applied only in the clearest cases of abuse of a privileged occasion."

This has been referred to as the "unambiguous impropriety" exception to Without Prejudice Privilege.

The privilege may not protect you in a later unconnected or unrelated dispute

It is possible the privilege might not extend to protect your Without Prejudice communications from being disclosed and used as evidence in a later unconnected or unrelated dispute.

How far the privilege extends was of primary concern in the judgment of Hammerschlag J. in Martin Patrick Dowling -v- Ultraceuticals Pty Ltd [2016] NSWSC 386 at paras. 38-39:

“Put another way, protection is given to induce lack of inhibition in making potentially damaging statements to facilitate dispute resolution. The policy protects those statements from disclosure in a later dispute if, fairly viewed, having regard to the subject matter of the later dispute, the party making them would be expected legitimately to have had the same inhibition.
Each case will of course turn on its own particular circumstances. There is no bright line. Ordinarily, however, one might assume such a legitimate expectation if the subject matter of the two disputes is exactly the same. Where the subject matter is not the same, the nature of the connection will need to be examined to determine whether the policy will be served by protecting disclosure.”

It was ultimately held by Hammerschlag J. in the Ultraceuticals case that the Without Prejudice evidence was not privileged from disclosure.

Hammerschlag J. reasoned at para. 45:

“The subject matter of this dispute is different and divorced from the Star dispute. Dowling and Ofer could have had no legitimate expectation of protection from disclosure of material which becomes relevant to the second dispute, only because it is alleged that it falsifies statements separately made by them in a different context.
Extending protection in such circumstances would encourage dishonesty, not candour, in settlement discussions.”

If foundational elements of the Privilege are not found ➲ the privilege could be pierced

Hammerschlag J. in the Ultraceuticals case went on to consider further arguments regarding why the Without Prejudice privilege might not apply, reasoning at para. 45:

“Ultraceuticals submitted that the privilege does not extend to the documents for the additional reasons that when the documents were brought into existence litigation was not contemplated; the documents do not record communications made for the purpose of negotiating a compromise; …”

Privilege can be waived (intentionally or unintentionally) or deemed to be waived by the Court

Hammerschlag J.'s reasoning at para. 45 (cont.):

“… and by positively asserting that the Star dispute was of a different character to that asserted by Ultraceuticals, Dowling and Ofer have waived any privilege.
These submissions are well founded.”

You don't have to use precise or exact words but Doing this ➲ removes any doubt as to your intentions

We recommend using the exact legal phrases we have provided above so there can be no doubt that your intention is to invoke the protections afforded to you by these universally accepted legal terms.

It is useful to understand that it is not strictly necessary to use exact or prescribed wording in order to activate protection.

Alternative phrases such as "Off-the-Record" or "Settlement Negotiations" may be equally recognised and offer the same level of protection.

The important point is that the other party should be placed on notice that this is a special conversation / communication, where what both parties say/write are protected (in the dispute of the matter on its merits) by the judicial system.

The public policy reason behind this protection is that it encourages open + frank settlement negotiations.

The Protection does not extend to the determination of who pay legal costs

The additional words "except as to costs" or “save as to costs” are optional.

We recommend using these additional words to raise the stakes in any settlement negotiation.

These extra words help to focus parties attention on the fact that what is being discussed, including the settlement offers being made, can and will be used in the matter of deciding legal costs, should the matter proceed to litigation.

Whether or not these additional words are used, any without prejudice communications can be submitted to the Court/Tribunal in order to assist the judge/tribunal member with the determination of Costs [the second stage of civil litigation]. This is where the Court/Tribunal decides who pays what legal costs, and at what level or scale are the costs to be paid.

The public policy reason behind this approach is to encourage the parties to make reasonable settlement offers.

If a party declines to accept a reasonable settlement offer and proceeds to cause both parties to incur the substantial time + expense involved in Court/Tribunal Proceedings.

Then, if the declining party loses the case or wins and is awarded a sum less than the settlement offer which was declined.

The conclusions to be drawn as a result are as follows:

1️⃣  The declining party would have been better off accepting the settlement offer when it was made; and

2️⃣  If the declining party did accept the settlement offer it would have saved both parties [and the Court] a lot of time + money.

In this situation, the successful party can expect the Court could make an adverse costs order even though they were successful "on the merits".

The declining party might still need to pay part [indemnity or 100% costs are only awarded in very rare cases] of the other party's legal costs as the Court proceedings could have been avoided.

In an abundance of caution, if you are in any doubt you should always speak to your lawyer in the first instance.

As noted above, Settlement Negotiations from both sides in a civil dispute can be very strategic and have $$ implications which can materially vary the results obtainable on the merits of the case.

Credits:

This article was written by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

Cover Image:

Photo by Yeshi Kangrang on Unsplash

Sample Evidence Act 1995 (NSW) provision [for illustrative purposes]:

EVIDENCE ACT 1995 (NSW)
131 EXCLUSION OF EVIDENCE OF SETTLEMENT NEGOTIATIONS
(1) Evidence is not to be adduced of--
(a) a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute, or
(b) a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute.
(2) Subsection (1) does not apply if--
(a) the persons in dispute consent to the evidence being adduced in the proceeding concerned or, if any of those persons has tendered the communication or document in evidence in another Australian or overseas proceeding, all the other persons so consent, or
(b) the substance of the evidence has been disclosed with the express or implied consent of all the persons in dispute, or
(c) the substance of the evidence has been partly disclosed with the express or implied consent of the persons in dispute, and full disclosure of the evidence is reasonably necessary to enable a proper understanding of the other evidence that has already been adduced, or
(d) the communication or document included a statement to the effect that it was not to be treated as confidential, or
(e) the evidence tends to contradict or to qualify evidence that has already been admitted about the course of an attempt to settle the dispute, or
(f) the proceeding in which it is sought to adduce the evidence is a proceeding to enforce an agreement between the persons in dispute to settle the dispute, or a proceeding in which the making of such an agreement is in issue, or
(g) evidence that has been adduced in the proceeding, or an inference from evidence that has been adduced in the proceeding, is likely to mislead the court unless evidence of the communication or document is adduced to contradict or to qualify that evidence, or
(h) the communication or document is relevant to determining liability for costs, or
(i) making the communication, or preparing the document, affects a right of a person, or
(j) the communication was made, or the document was prepared, in furtherance of the commission of a fraud or an offence or the commission of an act that renders a person liable to a civil penalty, or
(k) one of the persons in dispute, or an employee or agent of such a person, knew or ought reasonably to have known that the communication was made, or the document was prepared, in furtherance of a deliberate abuse of a power.
(3) For the purposes of subsection (2) (j), if commission of the fraud, offence or act is a fact in issue and there are reasonable grounds for finding that--
(a) the fraud, offence or act was committed, and
(b) a communication was made or document prepared in furtherance of the commission of the fraud, offence or act,
the court may find that the communication was so made or the document so prepared.
(4) For the purposes of subsection (2) (k), if--
(a) the abuse of power is a fact in issue, and
(b) there are reasonable grounds for finding that a communication was made or document prepared in furtherance of the abuse of power,
the court may find that the communication was so made or the document was so prepared.
(5) In this section--
(a) a reference to a dispute is a reference to a dispute of a kind in respect of which relief may be given in an Australian or overseas proceeding, and
(b) a reference to an attempt to negotiate the settlement of a dispute does not include a reference to an attempt to negotiate the settlement of a criminal proceeding or an anticipated criminal proceeding, and
(c) a reference to a communication made by a person in dispute includes a reference to a communication made by an employee or agent of such a person, and
(d) a reference to the consent of a person in dispute includes a reference to the consent of an employee or agent of such a person, being an employee or agent who is authorised so to consent, and
(e) a reference to commission of an act includes a reference to a failure to act.
(6) In this section--

"power" means a power conferred by or under an Australian law.”


Credits:

This article was written by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

Important Notice:

This article is intended for general interest and information only. It is not legal advice and nor should it be relied upon or used as such. Always consult a lawyer for specialist advice specific to your needs and circumstances.