How to approach 'without prejudice' communications in disputes

In the recent case of Jones v Tracey & Ors (Re Costs), it was found that a letter marked "without prejudice" was not, in fact, privileged. The defendant had agreed to the claimant's offer to attend alternative dispute resolution (ADR) and sent a further letter later on marked "without prejudice", asking why the claimant was unwilling to attend a mediation. The judge held that that letter was not privileged, despite having been marked "without prejudice". 

The letter was part of a chain of correspondence about ADR and all the earlier letters were open and intended to be open: "Communications between parties about the possibility of, for example, participating in a mediation do not need to be 'without prejudice' and it will usually be preferable for both parties to be able to rely upon such communications. They are more likely to be open than without prejudice". Furthermore, there had been no offer in the letter. 

AZ v BY 

The dangers of incorrectly claiming privilege over a document were highlighted in the case of AZ v BY. One of the parties had alleged that two exceptions to the "without prejudice" rule applied and so certain documents were not privileged. The challenge failed but the decision-maker (that is, the adjudicator) was shown without prejudice communications when deciding if privilege could be asserted. 

Mr Justice Constable held that, as a result, the adjudicator's decision on the merits of the underlying case should not be enforced because of a finding of apparent bias: "there is in the circumstances of this case an inevitable question mark about whether the result of the adjudication, however inadvertently or sub-consciously, was shaped by the Adjudicator's knowledge of the concessions/admissions in relation to key aspects of the open dispute made by [one side] in negotiations". 

The judge said that where decision-makers see without prejudice material, they "must then assess their own ability to go on to decide the remaining dispute fairly, in accordance with the principles which govern apparent bias and the rules of natural justice". If they decide that they cannot fairly proceed, they must decline to determine the remaining dispute. That is the case even if the party challenging the claim to privilege did so entirely legitimately and not for a "deliberate strategic" advantage. Accordingly, parties should balance the wish to challenge a privilege claim with the costs and delay that will be incurred if proceedings have to be started all over again.