Without Prejudice in Arbitration: Negotiators Beware

Gautam Mohanty[1]


The applicability of the principle of without prejudice in litigation arena is fairly well-settled. However, from my perspective as a Tribunal Secretary, its practical manifestation in the context of arbitration is not well-elaborated. Through this post, I aim to elaborate upon two things primarily; (i) A real proposition regarding the applicability of the without prejudice principle raised as a contention by one of the Parties in a high stake construction arbitration and (ii) The law regarding the same.


In the Arbitration Proceedings, one of the Parties sought to argue that in absence of the words “without prejudice” marked in the correspondences exchanged between the Parties the correspondences constituted a binding agreement between the Parties.


1. The law pertaining to the “without prejudice” has been elaborately enunciated in the judgements of Hon’ble Supreme Court in the case of MD, NTPC Ltd v. Reshmi Constructions, Builders & Contractors[2], Peacock Plywood (P) Ltd. v. Oriental Insurance Co. Ltd.[3]. Phipson on Evidence[4] as has been relied upon by the Hon’ble Supreme Court in the case, while relying on Peacock Plywood (P) Ltd. v. Oriental Insurance Co. Ltd., in the context of “without prejudice” Court has observed that:

“…

(C)… If it is clear from the surrounding circumstances that the parties were seeking to compromise the action, evidence of the content of these negotiations will, as a general rule, not be admissible…

It has been said that if one is seeking to change the basis of the correspondence from without prejudice to open it is incumbent on that person to make the change clear, although that may be more a pointer than a rule. There is no reason why every letter for which without prejudice is claimed should contain an offer or consideration of an offer, so long as the without prejudice correspondence is part of a body of negotiation correspondence.”


2. Similarly, Wharton’s Law Lexicon[5], as relied upon by the Apex Court in the case of MD, NTPC Ltd v. Reshmi Constructions, Builders & Contractors[6], states as below:


“The words import an understanding that if the negotiation fails, nothing that has passed shall be taken advantage of thereafter; so, if a defendant offers, ‘without prejudice’, to pay half the claim, the plaintiff must not only rely on the offer as an admission of his having a right to some payment.


The rule is that nothing written or said 'without prejudice' can be considered at the trial without the consent of both parties - not even by a Judge in determining whether or not there is good cause for depriving a successful litigant of costs … The word is also frequently used without the foregoing implications in statutes and inter parties to exclude or save transactions, acts and rights from the consequences of a stated proposition and so as to mean 'not affecting', 'saving' or 'excepting'.”


3. P Ramanatha Aiyar’s, Advanced Law Lexicon,[7] replying upon the judgement of Tata Oil Mills Co. Ltd. v. Lokanatha Chemical Works[8] has elaborated upon the term “without prejudice” and has stated:


““ Without prejudice” means that the proposed terms are not to be used against the writer, if there is not settlement. If the proposed terms are acceptable, the parties will be bound by the terms and if the terms become infructuous, they cannot be used against the writer.”


4. The term "without prejudice" has been defined in Black's Law Dictionary[9] as follows:


“Where an offer or admission is made 'without prejudice', or a motion is defined or a bill in equity dismissed 'without prejudice', it is meant as a declaration that no rights or privileges of the party concerned are to be considered as thereby waived or lost, except in so far as may be expressly conceded or decided. See, also Dismissal Without Prejudice.”


5. After having perused the aforesaid judgement of the Hon’ble Supreme Court, I am of the opinion that in a nutshell, the Apex Court has held that the implication of the term 'without prejudice' means (1) that the cause or the matter has not been decided on merits, (2) that “fresh proceedings according to law were not barred."


6. Subsequently, I am also of the opinion that two judgements of the Hon’ble Bombay High Court also require to be taken into consideration with relation to the discussion about “without prejudice” i.e. Sanjay Kumar Agarwal v. Central Bank of India[10] and Oberai Construction v. Worli Shivshahi Co-op Housing Society[11]. In the case of Sanjay Kumar Agarwal v. Central Bank of India (Supra) the Hon’ble Bombay High Court has opined as below:


15. Moreover, the correspondence written by the plaintiff to the defendant are all on without prejudice basis. Therefore, in my view, we cannot even place reliance on such documents to conclude that there was a concluded understanding. The meaning of without prejudice has been stated in Oberoi Constructions Pvt. Ltd. v. Worli Shivshahi Co-op. Hsg. Society Ltd. Paragraph-9 reads as under:-


“The next legal contention advanced is as to what will be the effect of the words “without prejudice”. On behalf of the appellants, the learned Counsel has drawn our attention to the judgment of the Supreme Court in the case of Chairman and MD, NTPC Ltd. v. Reshmi Constructions, Builders and Contractors reported in AIR 2004 SC 1330. The Apex Court noted that even correspondence marked as “without prejudice” may have to be interpreted differently in different situations. The interpretation would be based amongst others according to usage in the profession and that no issue of public policy is involved. The Supreme Court quoted with approval the judgment in Rush & Tompkins Ltd. v. Greater London Council (1988) 1 All ER 549 at pp. 551g-552b. It was held that the rule which gives the protection of privilege to “without prejudice” correspondence depends partly on public policy, namely the need to facilitate compromise and partly an implied agreement. In the same judgment the exposition of definition of “without prejudice” contained in the judgment of Lindley, LJ in Walker v. Wilsher (1889) 23 QBD 335 was set out, which reads as under:


‘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 stage of things and to establish a new one.


The court then noted that the term had come up for consideration in Superintendent (Tech.I), Central Excise v. Pratap Rai reported in 1978 CriLJ 1266, wherein it was observed “without prejudice” would indicate that the order was not final and irrevocable. The definition in Black's law Dictionary was then quoted which reads as under:


Where an offer or admission is made “without prejudice” or a motion is denied or a bill in equity dismissed “without prejudice”, it is meant as a declaration that no rights or privileges of the party concerned are to be considered as thereby waived or lost, except insofar as may be expressly conceded or decided. See also ‘Dismissal without prejudice’.


It would thus, be clear that the expression “without prejudice” is to be understood on the fact situation. When parties agree to a set of things then merely marking on the document “without prejudice” would be of no consequence. However, if the material indicates that the negotiations are still in progress and there is no finality on what was contained in the document marked “without prejudice”, then the document marked “without prejudice” cannot be considered without the consent of both the parties.”


7. Likewise, in the case of Oberai Construction v. Worli Shivshahi Co-op Housing Society (Supra) the Hon’ble Bombay High Court has observed that:


15. The next legal contention was advanced is as to what will be the effect of the words “without prejudice”. On behalf of the appellants the learned Counsel has drawn our attention to the judgment of the Supreme Court in the case of (Chairman and MD, NTPC Ltd. v. Reshmi Constructions, Builders and Contractors)3, reported in 2004 DGLS 339 (soft) : (2004) 2 S.C.C. 663 : A.I.R. 2004 S.C. 1330. The Apex Court noted that even correspondence marked as “without prejudice” may have to be interpreted differently in different situations. The interpretation would be based amongst others according to usage in the profession and that no issue of public policy is involved. The Supreme Court quoted with approval the judgment in (Rush & Tompkins Ltd. v. Greater London Council)4, All. E.R. PP. 551g-552b. It was held that “the rule which gives the protection of privilege to “without prejudice” correspondence depends partly on public policy, namely the need to facilitate compromise and partly an implied agreement. In the same judgment the exposition of definition of “without prejudice” contained in the judgment of Lindley, L.J., in (Walker v. Wilsher), 12 Q.B.D. 337 was set out, which reads as under:


“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 letter are accepted a complete contract is established and the letter although written without prejudice, operates to alter the old stage of things and to establish a new one.”


16. The Court then noted that the term had come up for consideration in (Superintendent (Tech. 1), Central Excise v. Pratap Rai), reported in 1978 DGLS 136 (soft) : (1978) 3 S.C.C. 113 : A.I.R. 1978 S.C. 1244, wherein it was observed “without prejudice” would indicate that the order was not final and irrevocable. The definition in Black's Law Dictionary was then quoted which reads as under:


“Where an offer or admissions made “without prejudice” or a motion is denied or a bill is equity dismissed “without prejudice”. It is meant as a declaration that no rights or privileges of the party concerned are to be considered as thereby waived or lost, except in so far as may be expressly conceded or decided. See, also, Dismissal without prejudice.”


8. Pursuant to the above mentioned judicial dicta and opinion postulated in various treatises, it appears that the expression “without prejudice” is to be understood as per the factual situation in hand. When Parties agree to a set of things then merely marking on the document, emails or any correspondence “without prejudice” would be of no consequence. However, if the material indicates that the negotiations are still in progress and there is no finality on what was contained in the document marked ‘without prejudice’ then the document marked ‘without prejudice’ cannot be considered without consent of both the Parties.



[1] The author is currently working as an Arbitration Associate with Justice Deepak Verma, Former Judge of Supreme Court of India and can be reached at gautam.mohanty1414@gmail.com.


[2] MD, NTPC Ltd v. Reshmi Constructions, Builders & Contractors, (2004) 2 SCC 663.


[3] Peacock Plywood (P) Ltd. v. Oriental Insurance Co. Ltd., (2006) 12 SCC 673.


[4] Phipson on Evidence 19th ed Mainwork by Hodge M. Malek, Jonathan Auburn, Roderick Bagshaw.


[5] Wharton's Law Lexicon, J J S (John Jane Smith) 181 Wharton, 2010.


[6] MD, NTPC Ltd v. Reshmi Constructions, Builders & Contractors, (2004) 2 SCC 663.


[7] Shakil Ahmad Khan, P Ramanatha Aiyar’s, Advanced Law Lexicon, 5th Edition. Pg.5520.


[8] Tata Oil Mills Co. Ltd. v. Lokanatha Chemical Works, AIR 1987 Cal 13.


[9] Bryan A Garner, Black’s Law Dictionary, 10th Edition.


[10] Sanjay Kumar Agarwal v. Central Bank of India, 2016 SCC OnLine Bom 10368.


[11] Oberai Construction v. Worli Shivshahi Co-op Housing Society, 2008 SCC OnLine Bom 102.

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