Its a strange expression which means we are going to disclose something to you in confidence- it's between us, it might be a suggestion on how we want to settle this matter and to stop you showing the Court, or others, our offer or thinking on this subject we are marking it 'Without Prejudice', which protects us from you using it in Court to cast blame on us, or aspersions on our good character. If you refuse this offer then the knowledge you have gained cannot be used by you to discredit us in any way. If we go to Court then nothing in this letter can be mentioned by you in Court, it's confidential.