Without prejudice and subject to contract

What does “without prejudice” mean?

“Without Prejudice” means “without prejudice to my position if the terms that I propose for the resolution of this dispute are not accepted.” The without prejudice rule is meant to prevent statements made in a genuine attempt to settle a dispute being put before the Court as evidence of admissions against the interest of the parties that made them. It is in the public interest for parties to be able to speak freely and be encouraged to settle their differences outside of Court where possible. “Without prejudice” communications are privileged and cannot be put before the Court.

What communications are “without prejudice”?

For a communication to be “without prejudice”:

There must be a dispute between the parties; and
The communication must contain an admission, concession or offer to compromise.

It is not necessary for formal steps to have been taken to institute proceedings but there must be a real issue in dispute between the parties. In Avonwick Holdings Limited v Webinvest Limited (2014), it was held that the “without prejudice” heading had no effect as at the time there was no dispute in existence.

The failure to label a without prejudice communication “without prejudice” is not necessarsily fatal. Where a claim to without privilege communication’s status is challenged, the Court will focus on the substance, rather than the form, of the disputed document. However, if it important to get the labelling right as the onus is likely to be on the party arguing that a unlabelled communication was without prejudice to show that is should not be treated as an open document.

Exceptions to the without prejudice rule

There are a several exceptions to the without prejudice rule:

When there is an issue as to whether the without prejudice communications have resulted in a concluded settlement agreement;
As evidence that an agreement apparently concluded between the parties should be set aside on grounds of misrepresentation, fraud or undue influence;
Where a without prejudice statement may have given rise to an estoppel;
As evidence that the without prejudice communications included evidence of perjury, blackmail or other unambiguous impropriety;
To explain delay;
To demonstrate mitigation of loss;
On the question of costs when the parties have made written “without prejudice save as to costs” offers.

Without prejudice save as to costs

Without prejudice communications are not admissible in costs proceedings. Therefore, if a party wishes to permit a Court to refer to document when deciding what costs order to make, the heading “without prejudice save as to costs” should be used to preserve the privileged status of the communication throughout the proceedings, but to allow it to be produced once the dispute has been resolved.

What does “subject to contract” mean?

“Subject to contract” creates a presumption that a binding agreement has not yet been reached and that either party may withdraw from the transaction without legal liability. This also means that a party should not take significant, potentially detrimental steps in reliance of an agreement that is “subject to contract” until a binding contract is in place.

It is important to use this label carefully. In the case of Maurice Investments v. Lincoln [2006] All ER D 402 the court examined whether a rent review trigger notice that had been headed both “without prejudice” and “subject to contract” was valid. The court held that it was not as the recipient could not know that the sender intended to be legally bound and was triggering the rent review process.