What is meant by 'without' prejudice' when it is put on the top of a letter. Many people think they know that very well. They will say that the correspondence cannot be used or brought to the attention of the court should the matter go to trial. They would be wrong.
The purpose of the public policy behind the use of these words is to encourage discussion and negotiation between parties to a dispute in order that a settlement might be reached outside of court. The intention is that they should be allowed to negotiate freely whilst at the same time being able to take the matter to court if negotiations fail without the fear that any statements or offers made will be held against them. Use of the words can however lull them into a false sense of security. It does not necessarily follow that whatever is said or admitted in 'without prejudice' correspondence cannot be used against you in court proceedings. The use of the words does not automatically make a communication privileged. It is their substance and purpose that governs this and even where they are not used correspondence could be privileged and not available to the court in evidence.
The rule will only apply where there is a dispute between the parties which they are trying to settle. If the correspondence does not relate to settling a dispute there will be no privilege whether or not it is marked 'without prejudice'. This was aptly demonstrated in the case of Midgley v Oakland Glass Ltd.
This case concerned an application by Mr Midgley to have 'without prejudice' correspondence excluded from evidence. These were letters passing between the parties in which Mr Midgley was seeking a discount for payment of the judgment debt and putting forward various settlement proposals.
The court found that none of the letters referred to a dispute over the sum owed. Indeed there could be no dispute as there had been a court judgment in which the amount to be paid had been ordered. The letters were no more than a discussion on how the court judgment was to be paid. For the 'without prejudice' rule to apply there must be genuine negotiations to resolve or compromise a disputed issue. When these letters were written there was no dispute over the amount owed and asking for a concession over payment did not amount to a dispute. They could be used in evidence as simply marking them 'without prejudice' did not make them privileged.
The "without prejudice" rule is extremely useful to allow discussion without becoming committed to an offer and having it used as an admission if the dispute ends up in court. However the words alone are not enough. They must refer to an underlying dispute or they will not be privileged and could be shown to a court.