NegotiationsWithout prejudice: the knight in shining amour that protects your negotiations?

INTRODUCTION

Whenever there are disputes, the parties involved are always welcomed and encouraged as far as practicably possible to settle their disputes without the need to resort to litigation. During the course of negotiations, the “without prejudice” label appears to be like a mythical cloak that protects full and frank disclosures that were laid on the table during negotiations. However, what is effect of something being “without prejudice” and does it work all the time?

As a starter, the phrase “without prejudice” has been aptly defined by Lindely LJ in the case of Walker v Wilsher (1889) 23 QBD 335 where his Lordship has expounded the following:

“What is the meaning of the words ‘without prejudice’? I think they mean without prejudice to the position of the writer of the letter if the terms he proposes are not accepted. If the terms proposed in the letter are accepted a complete contract is established, and the letter, although written without prejudice, operates to alter the old state of things and to establish a new one.”

In Malaysia, the common law rule of “without prejudice” has been captured in Section 23 of the Evidence Act 1950 which, in a nutshell, states that an admission is irrelevant if it is made either:-

1. upon an express condition that evidence of it is not be given; or
2. under circumstances from which the Court can infer that the parties agreed together that evidence of it should not be given.

CONDITIONS

What then are the main components for something to be shrouded with the cloak of without prejudice communication?  In the case of Dusun Desaru Sdn Bhd & Anor v Wang Ah Yu & Ors [1999] 5 MLJ 449, it was held that without prejudice negotiations are excluded as evidence if the following two conditions are met: –

1. some individuals must be in dispute and that dispute led them to negotiate with one another; and
2. the communication between the parties must contain suggested terms that would finally lead to the settlement of the dispute.

The two requirements above are fairly self-explanatory, however, it must be strongly emphasized that the without prejudice label can only be of assistance only when there are genuine negotiations. The wording “must” used by his Lordship Justice Abdul Malik Ishak (as he then was) speaks paramount of the importance of such requirement. As such, the “without prejudice” label MUST BE exercised diligently and cannot be simply abused as a protective veil when there are no genuine negotiations taking place. If abused, the umbrella “without prejudice”, can under the right circumstances, be cast out by a court of law.

Having said all the above, all of which are discussed in the context where the magical label of “without prejudice” having been stamped on the privileged document, what happens if a litigant’s negotiation has not been indicated as “without prejudice”?

The answer to that is that, the application of the “without prejudice” rule is not solely dependent on the label itself, in the case of Dusun Desaru (supra) it was held that the court can take into consideration the surrounding circumstances of the litigants that were seeking to compromise the action and the evidence of the content of those negotiations will usually not be admissible at the trial. This runs perfectly in tandem with the underlying purpose of the “without prejudice” rule which seeks to protect a litigant who has laid all his cards on table in attempt to reach a settlement.

Though not having the “without prejudice” label might not be fatal, it would perhaps be advisable for the negotiating litigant to label their documents as “without prejudice” accordingly as this would show beyond a shadow of a doubt that the litigant intends to negotiate, and such negotiations shall not be used against the litigant.

Instances where the umbrella of “without prejudice” negotiations can be adduced as evidence

So, what are the other circumstances that can defeat the magical label of “without prejudice”? In short, these are some of the scenarios whereby the veil of privilege was lifted:-

1. when a without prejudice negotiation has been led to a settlement, the letters would then be admissible in evidence of the terms of the agreement;
2. parties can expressly waive such privilege; and
3. a waiver may be implied by conduct.

CONCLUSION

The “without prejudice” rule has its roots from public policy and it encourages litigants to lay all their cards during their negotiations. While immensely useful, as stated in the case of Dusun Desaru (supra), the without prejudice rule is only effective when genuine negotiations are taking course, failing to observe this, would turn one’s powerful shield into a powerful sword of another.