The idea of using the words: “without prejudice” is to enable negotiations to take place without admitting liability. The rationale for the rule is that parties to a dispute should not be discouraged from having full and frank settlement discussions by the fear that any admissions or prejudicial comments that they make could be used against them.
So for example, you could write a letter/ email saying, “You say that I owe you £1000, but I am willing to compromise and give you £500.” Now, unless you put “without prejudice” on this communication then it could be used by the other party at a later court hearing or trial to prove that you admit owing them at least £500. However, if you put “without prejudice” on it then the trial judge would refuse to read it until he had made his decision on whether you owe anything at all, although you can show it to your solicitor.
The legal definition of “Without prejudice” is that it is without abandonment of a claim, privilege, or right, and without implying an admission of liability. When used in a document or letter, without prejudice means that what follows (a) cannot be used as evidence in a court case, (b) cannot be taken as the signatory's last word on the subject matter, and (c) cannot be used as a precedent. It is therefore very useful to enable parties to talk freely and this usually helps when negotiating a settlement in a dispute.
It is important to realise that merely labelling a document “without prejudice” will not afford a document protection if the communication does not form part of a genuine attempt to settle a dispute.
Lawyers will often use the technique of writing two letters; one “open” letter and the other “without prejudice”. The open letter is the normal letter in which you criticise the other party or deny all liability; or disagree with matters the other party has raised, and can be quite robust and aggressive in tone.
The without prejudice letter is usually more conciliatory in tone and the usual format is to accept that a dispute has arisen and that the parties clearly disagree on various issues, but in order to avoid further time being wasted and legal fees being incurred by both parties, you are prepared to offer a settlement proposal.
Another technique is to use “without prejudice save as to costs” which means that the communication is not disclosable until after the main issue has been determined by the courts, but is disclosable when the courts are determining which party will be liable for the legal fees. This is an important tactical device for putting pressure on the other party to accept your settlement offer.
The precise use of “Without Prejudice" is complex and can be used in a variety of ways. Gaining a full understanding of when to use and when not to use it, can help win or settle many disputes, potentially relieving stress and saving money on legal fees.