The Without Prejudice Principle in Common and Civil Law

In both common and civil law jurisdictions, the principle of 'without prejudice' plays a significant role in legal proceedings. While this concept aims to protect certain information, the rules governing the use of the without prejudice principle vary, depending on the jurisdiction involved. This article discusses the similarities and differences in common law and civil law jurisdictions and their impact on international arbitration.

The without prejudice principle

The without prejudice principle is a legal concept that seeks to protect the disclosure of communications and documents prepared in connection with, and for the purposes of, settlement negotiations. The protection granted by the without prejudice principle is intended to ensure a "candid, free and uninhibited flow of information between the parties during their settlement talks"¹ (i.e. if the negotiations fail, then any statements made during these negotiations cannot be admitted as evidence in subsequent legal proceedings).

Lawyers will therefore often utilise the without prejudice principle by labeling negotiations and the preceding correspondence to be made "without prejudice".

Common law jurisdictions

The without prejudice principle stems from the common law spectrum. In the US, the without prejudice principle is a recognised legal concept also referred to as ‘settlement privilege’, or ‘mediation privilege’ if settlement negotiations are conducted by a third party. Under English law, any written or oral communication prepared for the purpose of a genuine attempt to compromise a dispute between the parties is subject to without prejudice privilege. If these negotiations do not result in an agreement, the without prejudice rule prevents either party from referring to the content of those negotiations  (i.e. anything written or said by the parties in the course of the negotiations in order to settle their differences) in their evidence.

Under English law, the label ‘without prejudice’ constitutes prima facie evidence that the respective documents and/or statements are privileged since this label indicates that the documents were created in the context of settlement negotiations and were not intended to be used as evidence in court. However, settlement negotiations do not automatically confer privilege. Any statements made by the parties are only privileged if they are made in furtherance of the settlement negotiations. Privilege applies only to statements and documents with a sufficiently close link to a settlement offer (i.e. to admissions made in a bona fide attempt to settle the dispute) but not to any statements of facts, which are asserted independent of the settlement negotiations. The without prejudice principle is further limited and subject to various exceptions, inter alia, (i) where there is a waiver of privilege, (ii) if the application of the principle would violate public policy, and/or (iii) where the parties are in dispute about the interpretation of the settlement agreement or its validity.

Finally, it must be noted that parties are not prevented from referring to documents and/or statements exchanged during or in the context of settlement negotiations, and potentially labeled "without prejudice", in subsequent legal proceedings. Instead, a court will review any documents submitted in this regard in order to determine which statements or admissions are admissible as evidence and which are protected by privilege.

Civil law jurisdictions / German law

In civil law jurisdictions, taking German law as an example, the without prejudice principle is not explicitly recognised. The principle of confidentiality of settlement negotiations is nevertheless partially protected by law and by professional rules of conduct.

The without prejudice principle corresponds to the German wording "ausschließlich für Zwecke der Vergleichsverhandlung" (translated: solely for the purpose of settlement negotiations). This principle does not constitute a prohibition on the disclosure of evidence ("Beweisverwertungsverbot") in subsequent legal proceedings, but rather expresses a reservation regarding any legally binding effect on the part of the declaring party. Consequently, under German law, parties are permitted to introduce statements made during settlement negotiations into evidence, as these are not privileged. These statements, however, do not have binding effect or constitute a corresponding admission. Instead, even without a corresponding express reservation, German courts will generally consider the legal effects and probative value 

of the documents/statements depending on the individual case (i.e. by determining whether the declaring party made the respective statement with the intention to be bound by law).

International Arbitration

As demonstrated in ICC Award No. 6653 of 1993, the without prejudice principle is a well-established general rule in international arbitration and confirms that settlement negotiations are confidential:

"[…] the confidential character of the exchange of proposals between parties who attempt to achieve an amicable settlement stems from a general principle of international commerce. This principle is a corollary of the general principle of good faith."

This fundamental principle is enshrined in many rules, inter alia, in Articles 9 (2) (b) and 9 (4) of the IBA Rules on the Taking of Evidence in International Arbitration, Article 9 (2) of the ICC Mediation Rules (and in almost all institutional mediation rules), the UNCITRAL Conciliation Rules, the UNCITRAL Model Law on International Commercial Conciliation, the EU Directive on certain aspects of mediation in civil and commercial matters and the US Uniform Mediation Act.

Thus, the without prejudice principle is considered a transnational and well-established principle in international arbitration, and is independent of the applicable law to the arbitral proceedings. Consequently, this principle also applies even if the choice of law refers to a legal system which does not directly recognise this principle, such as German law.

The without prejudice principle, however, does not prevent the parties from adducing potentially privileged documents into evidence. In the event that such documents are presented, an arbitral tribunal must therefore, based on the circumstances of the individual case, carefully determine which statements or admissions are admissible as evidence and which are protected by privilege. Failing to correctly apply the without prejudice principle may result in the arbitral award being set aside or its enforcement being refused. If the tribunal unjustifiably ignores the privilege, this may constitute a violation of arbitral due process.

Risks of incorrect application

Generally, the effect of the without prejudice principle is that communications subject to this principle are privileged and thus inadmissible as evidence. The restrictive scope under which the without prejudice principle is applied, however, entails the risk that this principle is handled inadequately and lawyers, when not applying the principle correctly, may give the opposing party the opportunity to argue against the interests of their client. To reduce this risk, it is advisable to mark any privileged communication with a "without prejudice" label, even if only to draw the tribunal's attention to a potential confidentiality issue and, in addition, clearly state that the statements made and documents submitted are made only to achieve a compromise and to avoid litigation or arbitration. Nevertheless, the prerequisites of without prejudice privilege, such as a close link between the statement or document and the settlement negotiations, must be present in order for privilege to apply. Thus, if there is any doubt as to whether the prerequisites for without prejudice privilege are met or whether independent facts have been exchanged during or in the context of the settlement negotiations, the execution of a Non-Disclosure Agreement (NDA) may also be appropriate.

Conclusion / practical considerations

In common law jurisdictions, where statements or admissions are protected by the without prejudice principle, such evidence – if introduced in subsequent legal proceedings – would generally be considered inadmissible. Under German law, the without prejudice principle – acting as an example for civil law jurisdictions – does not constitute a prohibition on the disclosure of evidence ("Beweisverwertungsverbot") in subsequent legal proceedings but rather expresses a reservation with regard to any legally binding effect on the part of the declaring party.

In international arbitration, the without prejudice principle is considered a transnational and well-established principle. Hence, independent of the choice of law, an arbitral tribunal is not barred from determining that settlement discussions are to be protected as confidential and thus inadmissible as evidence.

Finally, even if statements or admissions are protected by the without prejudice principle, this does not prevent the parties from adducing the respective communication in subsequent litigation or arbitration proceedings. Unless an NDA has been signed between the parties, this act would not lead to any legal consequences for the adducing party, even if it is subsequently found that the documents/statements were subject to privilege. In addition, the adducing party will regularly plead that there are doubts as to the application of privilege.

While, if privilege applies, the deciding court or tribunal is prohibited from relying on the respective documents as evidence, in order to reach this conclusion the court must first review the documents and – based on the circumstances of the individual case – carefully determine which statements or admissions are admissible as evidence and which are protected by privilege. Thus, it must have knowledge of their existence and content. This bears the risk that the court or arbitral panel is (subconsciously) not able to completely disregard the content and existence of these documents. In other words, one cannot "unring the bell". Tellingly, it is therefore often a tactical consideration to adduce a document marked as ‘without prejudice’ into evidence. In conclusion, the without prejudice principle does not offer a total guarantee that the contents of any documents and/or statements made in the context of settlement negotiations will be completely disregarded during subsequent legal proceedings.

¹ Berger, The Settlement Privilege, in Arbitration International, Vol. 24 (2008), Issue 2, pp. 265-276, p. 268.