Summary and implications
Practitioners and clients alike often receive correspondence which is marked with a heading, such as “without prejudice” or “subject to contract”. As the market turns, and the number of deals starts to increase, so too will the amount of correspondence exchanged. This article provides a practical guide on the meanings of the words commonly added to correspondence, and serves as a useful reminder of the dangers of issuing correspondence with the wrong terminology, or none at all.
“Without prejudice” can only properly be used where there is an existing dispute between two parties, whether or not court proceedings are on foot. The purpose of marking a letter “without prejudice” is to protect the writer so that any concessions made by him in that letter (e.g. an admission) cannot be relied on by the other party in any court proceedings, i.e. the letter is written without prejudice to the writer’s position. It is in the public interest for parties to a dispute to try to resolve the issues between them without the risk that one party can rely on any concessions made by the other if agreement cannot be reached. Consequently, “without prejudice” communications are privileged from disclosure in litigation.
Simply marking a letter “without prejudice” will not be enough to confer privileged status on the document. If there is no dispute between the parties, or if the correspondence is not an offer to negotiate, or a response to such an offer, or part of the parties’ negotiations, the letter will not be treated as “without prejudice” even if it is marked as such.
Similarly, failing to mark a letter “without prejudice” does not mean the document will lose privilege. For example, a recipient of a without prejudice letter cannot make his reply to that letter “open” simply by failing to mark that reply “without prejudice”. “Without prejudice” privilege cannot be waived by one party.
“Without prejudice save as to costs” (known as a Calderbank offer)
This is an extension of “without prejudice” correspondence.
The writer will mark a without prejudice letter “without prejudice save as to costs” so that the letter can be referred to the attention of the court (or arbitrator) to decide what order to make about costs (once the dispute has been settled by the parties or determined by the court or arbitrator). The writer is in effect preserving the privileged status of the document until the dispute has been settled or determined, whilst being able to rely on the letter in subsequent submissions about costs.
The successful party in any proceedings is usually entitled to have its costs paid by the losing party. Therefore, the ability of the court to take into account “without prejudice save as to costs” offers has a significant impact on the exercise of the Court’s discretion about awarding costs, and also on the conduct of litigation by the parties and their willingness to try to settle the dispute.
“Without prejudice to the validity of”
This expression is often used where, for example, one party has served a notice and subsequently serves a second notice dealing with the same subject matter (e.g. a break notice). Typically, this happens where the serving party has doubts about the validity of his first notice. This doubt may arise from the wording of the particular clause under which the notice is being served, or because of the form and substance of the notice.
The second notice will be served “without prejudice to the validity of” the first notice. By using these words the serving party is making clear that he is relying on the first notice but, if that notice is found to be invalid, he will rely on the second notice. The serving party should make clear what notices he is relying on and in what priority. To avoid invalidating the notice, this should be dealt with in a covering letter accompanying the notice, not in the notice itself.
“Subject to contract” / “subject to lease”
Where the terms of a sale or a new lease are agreed “subject to contract”, or an offer is accepted on a “subject to contract” basis, the words “subject to contract” mean that the parties are not legally bound until a contract is executed. Even though the parties have agreed terms, the matter effectively remains in a state of negotiation. Furthermore, either party can withdraw from the transaction without liability.
These words may also be used as part of an offer to compromise a claim, i.e. that the parties will not be bound by the terms of settlement until a settlement agreement is executed.
“Subject to lease” has the same effect as “subject to contract”, but it applies only in the context of negotiations for a lease, where the parties will not be bound until the lease is completed. Section 2 of the Law of Property (Miscellaneous Provisions) Act 19891 has reduced the scope of the words “subject to contract”. Nonetheless, the inclusion of this wording serves as a useful reminder that a deal remains in a state of negotiation and that either party may withdraw without liability.
“Subject to mortgage” / “subject to survey”
Care should be taken when using these (or similar) words as their meaning can be unclear. If this form of words must be used, the party seeking to include them should make clear exactly what is meant by these words, and when, if at all, he is to be bound.
The words “subject to satisfactory survey” have been held to mean that the matter remains in a state of negotiation. However, the words “subject to survey of the property” have been held to be a condition precedent to the enforceability of the contract, requiring the purchaser to obtain a survey and consider it. In that situation, the purchaser could only withdraw from the purchase if he could reasonably conclude the results of the survey were unsatisfactory. He could not simply change his mind.
“Confidential” / “Privileged and confidential” / “Privileged”
A privileged document cannot be disclosed in litigation. Although privileged documents are often also confidential, the confidentiality of the document does not confer any special status on it.
Whether a document is privileged will be determined by reference to its nature and purpose. For example, communications between a solicitor and a third party, which came into existence only after litigation was contemplated or begun, and which were made in connection with seeking or giving advice or seeking or assembling evidence in relation to the litigation are privileged from disclosure. In assessing privilege, a court will look at the substance of the document, rather than any label applied to it.