The courts of England and Wales are putting increasing pressure on parties to attempt to settle disputes without resorting to formal legal proceedings. If parties do resort to legal proceedings, the pressure to consider and utilise alternative dispute resolution (ADR) continues throughout the proceedings to include during trial, with costs penalties imposed on parties who are not considered to have made reasonable efforts to utilise ADR. There are many types of ADR with various advantages and disadvantages but one of the most cost-effective tools in a litigator’s arsenal remains a ‘without prejudice’ offer, which not only offers a chance at settlement but can also provide a party with costs protection if the matter should continue to trial.
What is the ‘without prejudice’ rule?
The ‘without prejudice’ rule simply means that any communications made in a genuine attempt to settle a dispute will be prevented from being put before the court as evidence of admissions. In other words, if you are genuinely attempting to settle a matter and make what could be viewed as an admission during that process, the other party cannot point to that admission in open court to ‘catch you out’. The reasoning behind this is that it is considered more likely that the parties will reach a settlement if they are able to speak freely.
As a note of caution, not all communications marked as ‘without prejudice’ will be protected, the communication must contain genuine attempt to settle the dispute. Similarly, if a communication relates to a genuine offer to settle but is not marked without prejudice, it can still be protected by that rule.
Other types of ‘without prejudice’ rule
There are several different types of ‘without prejudice’ that a party can use, for example:
- ‘Without Prejudice’ – documents (or verbal communications) cannot be brought to the court’s attention at any point.
- ‘Without Prejudice Save as to Costs’ – documents (or verbal communications) cannot be brought to the court’s attention until after the Judge has made their decision on the case and then the documents can only be considered on the point of costs. For example, when the court is deciding whether to award costs to one party or another, the parties can point to the attempts made to settle the dispute prior to trial and assert that the other party was unreasonable in not accepting such settlement and, therefore, they should be entitled to enhanced costs (this is what’s meant by ‘costs protection’).
- ‘Without Prejudice Subject to Contract’ – documents (or verbal communications) cannot be brought to the attention of the court at any point and the proposed settlement is not binding on the parties until they have entered into a contract to reflect the agreed terms. Once that contract is signed it becomes open meaning the parties can sue on it if either party is in breach.
Interestingly, in the recent case of Dallimore v Trezise [2024] EWHC 837 (Ch) the court took the view that an offer made which included the term ‘without prejudice and subject to contract’ did not amount to an offer that i) could be referenced in respect of costs and ii) could be accepted because the reference to ’subject to contract’ meant the offer was not actually capable of acceptance. These were factors in the Judge’s ruling which resulted in the Claimant only being awarded 50% of her costs despite her claim being successful.
Conclusion
Communications under the ‘without prejudice’ rule (and its variations) allow the parties to be open and honest with their opponents and to explore various avenues to settlement without concerns that those communications will be put before the court and used against them in evidence. Such communications can be relatively quick and cost effective, far more so than other types of ADR such as, for example, mediation which, although a very effective tool to reach settlement, can be time consuming and costly. Therefore, when considering how to resolve a dispute without recourse to court (or at any time after that) always consider making an offer on the basis of 1), 2) or 3) above.
Our Commercial Dispute Resolution team are trusted advisors and can help you resolve a range of issues. Please contact us on 0345 450 5558 or enquiries@stephens-scown.co.uk