Without Prejudice Explained in Construction Disputes

What does ‘without prejudice’ really mean in a construction dispute?

In the fast-moving world of construction, disputes are inevitable—whether it’s due to delays, variations, defective works, or payment disagreements. When parties attempt to resolve these issues before litigation, the phrase ‘without prejudice’ often emerges. But despite being frequently used in emails, letters, and meetings, many professionals remain unclear on what this phrase actually does—and when it does or does not apply.

‘Without prejudice’ is more than just legal jargon. It’s a mechanism rooted in common law designed to promote open and frank negotiations between disputing parties without the fear that such dialogue could later be used against them in court. Used correctly, it can protect certain communications from being admissible as evidence. Used incorrectly, it can create confusion or even waive critical rights.

This blog explores how the principle of ‘without prejudice’ applies specifically to the construction industry—where contract management, legal privilege, and commercial relationships intersect.

When is ‘without prejudice’ protection triggered in construction negotiations?

The ‘without prejudice’ rule applies when there is a genuine dispute between parties and they are attempting to resolve it through negotiation. These communications—written or verbal—must form part of a genuine attempt to settle the dispute.

To trigger protection:

There must be an existing dispute, not just routine discussions or complaints.
The communication must include or imply a settlement offer.
It must be expressly or implicitly made on a ‘without prejudice’ basis.

For instance, if a contractor sends a letter proposing to accept 80% of a disputed payment to close the issue, and labels it ‘without prejudice’, it would likely be protected. However, general project correspondence or documents merely stating facts without settlement intentions won’t qualify.

What types of construction communications can be ‘without prejudice’?

The following types of communication may qualify:

Emails proposing resolution to a contractual delay or variation
Negotiation meeting notes suggesting mutual compromises
Settlement proposals between builder and developer
Lawyer-to-lawyer correspondence during pre-litigation
Mediator-led dialogue during alternative dispute resolution

When does the ‘without prejudice’ rule not apply?

Despite its broad usefulness, the ‘without prejudice’ rule has limitations. It cannot be used to shield all communications. In the construction context, the rule does not apply if:

The conversation is not part of a genuine attempt to settle
It contains fraud, misrepresentation, or improper conduct
The statement is purely factual or non-negotiable
The correspondence fails to clearly indicate the intention of confidentiality

What is the ‘without prejudice save as to costs’ exception?

This exception allows courts to review communications marked ‘without prejudice’ only after a decision has been made, and only to determine liability for legal costs.
In construction litigation or arbitration, this can be pivotal. For example:

If one party made a reasonable offer early in the process, but the other rejected it and ultimately lost or achieved a worse outcome—they may be penalised in costs.
This incentivises early settlement and discourages frivolous rejections of fair offers.

How does the rule encourage dispute resolution in construction?

Open communication is vital in construction. Parties are often required to continue working together on the same project, even while disputes are unfolding. The ‘without prejudice’ rule creates a safe zone for negotiation by ensuring that settlement discussions can occur without compromising legal strategy.
Benefits include:

Preserving working relationships during disputes
Encouraging faster resolution and avoiding court
Protecting strategic admissions made during negotiation
Allowing flexibility in offers without legal risk

What is the legal foundation of ‘without prejudice’ in Australia?

The principle of ‘without prejudice’ is not codified in statute but forms part of the common law across Australian jurisdictions. Courts have consistently upheld its protective function across various cases in both general commercial and construction-specific contexts. While tribunals like NCAT and other State-based construction commissions also respect the rule, the applicability may vary slightly depending on the forum.

How does it differ from ‘without admission of liability’?

These two phrases are sometimes confused but serve different purposes:

Term	Function
Without Prejudice	Shields the communication from being inadmissible in court
Without Admission of Liability	Denies any wrongdoing, but does not necessarily prevent admissibility

To achieve full protection, it is often advisable to use both together, e.g., “without prejudice and without admission of liability.”

What construction-specific scenarios illustrate this rule in action?

Scenario	Is It Protected by ‘Without Prejudice’?	Why / Why Not?
Email proposing a lump sum to settle delay costs	Yes	Settlement intent clearly shown
Site diary entry outlining a cost claim	No	Not intended as negotiation
Mediation session led by third party	Yes	Conducted in a protected negotiation setting
Threatening letter without compromise	No	Coercive tone, not part of negotiation
Response to adjudication decision offering compromise	Yes	Attempt to resolve ongoing dispute

Why is using the phrase correctly so important?

Incorrect use of ‘without prejudice’ can backfire. Overuse dilutes its meaning, and misuse can lead to key communications being admitted in court, especially if they don’t meet the criteria of a genuine settlement attempt.

Use it wisely:

Always include it when you’re offering to resolve a dispute
Avoid using it on standard project documentation
Keep it separate from factual admissions unless necessary
Clearly state the intention in the communication header or subject line

How can CCR Work assist with construction dispute resolution?

At CCR Work, we specialise in navigating complex construction disputes with clarity, precision, and commercial sensibility. Our team understands the nuance behind contractual communications, legal privilege, and negotiation strategy. Whether you’re a developer, contractor, or project manager, we can help you protect your position, engage in protected negotiations, and resolve disputes efficiently.

Our support goes beyond legal theory—we work closely with industry professionals to ensure each step taken is not only legally sound but also practically aligned with your commercial goals. Trust CCR Work to help safeguard your interests in the intricate world of construction law.

FAQs

1. Can I use ‘without prejudice’ in every email during a dispute?
No, it should only be used when you are genuinely attempting to settle the dispute. Overusing it on unrelated emails could undermine its value.

2. Is verbal communication also protected under the ‘without prejudice’ rule?
Yes, but only if it can be proven to be part of genuine settlement negotiations. Documentation or witness testimony may be needed to support this.

3. What happens if I accidentally leave off ‘without prejudice’?
Protection may still apply if the context clearly shows it was a settlement offer, but it’s safer to label it correctly to avoid legal uncertainty.

4. Does ‘without prejudice’ apply during mediation?
Yes, mediation is typically conducted on a ‘without prejudice’ basis, offering strong protection for anything discussed or shared during sessions.

5. Can I refer to a ‘without prejudice’ offer in a court affidavit?
No, not unless it falls under an exception such as the ‘save as to costs’ rule. It should remain confidential unless admissibility is ruled otherwise.

6. What’s the difference between ‘confidential’ and ‘without prejudice’?
‘Confidential’ does not automatically make something legally inadmissible. ‘Without prejudice’ specifically protects communications made to settle a dispute.