Without Prejudice and Subject To Contract
The terms “without prejudice” and “subject to contract” can often be found in legal correspondence or documents; but what do they actually mean and what is their legal significance?
Generally, statements which are made in an attempt to settle a dispute are “without prejudice” and as such they can’t be referred to in Court proceedings as evidence.
Any form of communication between the negotiating parties, be it in written correspondence, telephone calls, or meetings, can be classed as without prejudice.
The reason for this is that parties are more likely to enter into settlement discussions if they believe they can speak openly and without restriction (and that what they say, and any admissions that they make to try to settle the dispute, can’t be used against them if those discussions don’t achieve a settlement).
Use of without prejudice, allows the parties to negotiate behind a cloak of confidentiality and protection with such communications being legally privileged and not admissible as evidence should those negotiations break down and the matter subsequently proceeds to a trial.
The public policy of encouraging parties who are involved in litigation to try to settle their dispute out of Court is the main reason for having the without prejudice rule.
However, simply marking correspondence without prejudice doesn’t guarantee that it’s privileged material because, for any communication to qualify as being without prejudice, it must contain a genuine offer to settle.
So, for example, marking a letter that contains defamatory content “without prejudice” wouldn’t prevent it being admissible in a defamation claim.
Equally, omitting the heading from a letter which contains an offer to compromise may not prove fatal if the letter clearly contains a genuine offer of settlement.
Subject to Contract
During pre-contract negotiations parties frequently head correspondence “subject to contract”.
This phrase indicates that the negotiating parties wish to remain uncommitted until a formal agreement has been reached and all terms are known. It therefore prevents one party from bringing a claim on what was said in the pre-contract communications because, where a term is offered by one party without reference to further terms yet to be negotiated and agreed and that term is accepted by the other party, it can give rise to a legally binding settlement. In those circumstances there will be no scope for the parties to negotiate further terms.
Marking correspondence “subject to contract” makes it clear that the content of the letter won’t give rise to a legally binding contract until all the terms have been agreed and the contract has been signed by both parties.
Therefore, marking a letter subject to contract prevents the inadvertent creation of a contract, or an argument, that one has been created.
In addition, it’s prudent that once the contract has been agreed, it incorporates a term that all pre-contractual terms and representations don’t bind the parties save for the terms included in the final contract (commonly referred to as an Entire Agreement Clause).
In the right context communications can, and should, be marked “without prejudice” and/or “subject to contract”.
Failure to observe these rules could prove fatal to a case. For instance, if a Judge reading a Court Bundle comes across a “without prejudice” offer in the Bundle which hasn’t been marked as such then there is a risk that the Judge may withdraw from the case and order a new trial before a different Judge, with the offending party having to pay the costs of the aborted trial.