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Without prejudice is a legal principle in English law which protects communications between parties attempting to settle a dispute. Such communications cannot be used as evidence in court if the attempt to settle is unsuccessful.
The significance of without prejudice in English law is that communications marked in this way are inadmissible as evidence in legal proceedings.
What Does “Without Prejudice” Mean?
When letters, documents, or oral discussions are marked without prejudice, it means that the parties are engaging in settlement discussions, and any admissions, concessions or offers made during those negotiations cannot be used against them later in litigation.
For example, an employee brings a claim against their employer for unfair dismissal. At a without prejudice meeting, the employer acknowledges certain procedural flaws in the dismissal process but maintains that the dismissal itself was justified. The parties discuss a potential settlement but fail to reach an agreement. Later, the employee cannot rely on the employer’s admission regarding procedural flaws, as this was made during a without prejudice conversation.
It is important to understand that labelling a document without prejudice does not automatically guarantee protection. Two key criteria must be satisfied:
- There must be a genuine dispute between the parties
- There must be a genuine attempt to settle that dispute
Without prejudice protection applies to both written and oral communications and generally covers the entire document or meeting, rather than specific sections.
What Is the Purpose of “Without Prejudice”?
The primary purpose of without prejudice is to encourage parties to engage in open and honest discussions in order to reach a settlement without involving the court. This principle is underpinned by two important public policy objectives:
- Promoting the resolution of disputes by agreement
- Enabling full and frank disclosure between parties
In modern practice, without prejudice conversations are commonly used to:
- Protect admissions and offers made during settlement negotiations
- Allow parties to speak freely without the risk of legal consequences
- Create space for compromise and concessions
- Reduce the burden on the court system by encouraging out-of-court settlements
It is worth noting that without prejudice is not an absolute rule. There are exceptions where such communications may be admitted as evidence in court — for example, to determine whether an agreement was reached, or in cases involving fraud or improper conduct.
What Is “Without Prejudice Save As to Costs” (WPSATC)?
Without prejudice save as to costs (WPSATC) is a particular form of the without prejudice rule that allows communications or documents to be used in relation to the question of costs after the substantive issues in the case have been resolved.
When an offer is marked as WPSATC or without prejudice save as to costs, it remains protected from disclosure during the main proceedings but may be shown to the court once judgment has been given, in order to assist with the determination of costs.
For example, in a debt claim, the claimant makes a WPSATC offer to settle for £50,000. The defendant rejects the offer, and the case proceeds to trial, where the court awards only £40,000. After judgment, the claimant may submit the earlier WPSATC offer as evidence that the defendant unreasonably rejected a sensible settlement proposal and ask the court to take this into account when awarding costs.
WPSATC offers are also known as Calderbank offers, after the case Calderbank v Calderbank [1975] 3 All ER 333 (EWCA), which established the principle. The key features of such offers include:
- They allow a party to demonstrate that it made reasonable efforts to settle
- If the court awards less than was offered in the WPSATC letter, the rejecting party may face adverse cost consequences
- WPSATC offers put pressure on parties to seriously consider settlement
It is crucial to mark such offers clearly with the words “without prejudice save as to costs” in order to distinguish them from ordinary without prejudice communications.
Limitations of the “Without Prejudice” Rule
Although the without prejudice principle provides important protection in settlement negotiations, it is subject to certain limitations and exceptions.
- Requirement of a genuine dispute – Communications which take place when there is no actual dispute are not protected by the without prejudice rule. In Avonwick Holdings Ltd v Webinvest Ltd and another [2014] EWHC 3322 (Ch), it was held that discussions concerning how and when to perform an acknowledged obligation do not fall under without prejudice protection.
- Requirement of a genuine attempt to settle – The protection only applies where there is a bona fide attempt to resolve a dispute. In Suh v Mace (UK) Ltd [2016] EWCA Civ 4, the Court of Appeal clarified that this is determined not by the content, but by the purpose of the communication, and must be assessed objectively.
- Exceptions to the rule – There are several established exceptions where without prejudice communications may be admitted as evidence:
- To determine whether a binding agreement was reached
- In cases involving misrepresentation, fraud or undue influence
- Where there is blackmail or other clear impropriety
- To assess the reasonableness of conduct when deciding costs
- In estoppel situations where a party has made a clear representation on which the other has relied
- Labelling is not sufficient – Simply marking a document without prejudice does not ensure its protection if the underlying criteria are not satisfied. In Jones v Tracey & Ors (Re Costs) [2023] EWHC 2256 (Ch), the court held that a letter marked without prejudice was not genuinely so, based on an objective assessment of its content.
- Waiver of protection – Parties may agree to waive without prejudice protection, but this requires the mutual consent of both sides.
Despite these limitations, courts are generally reluctant to undermine without prejudice protection, recognising the vital role this principle plays in promoting settlement.
Examples of the Use of “Without Prejudice”
A without prejudice letter is often used in the course of negotiations. However, not all letters marked without prejudice will necessarily be protected before a court or tribunal. Below are a few illustrative examples.
Attempt to Settle a Dispute
The parties are engaged in a GAFTA arbitration due to partial non-payment for goods, allegedly owing to poor quality. The buyer sends a without prejudice letter to the seller offering to pay USD 80,000 in settlement. The parties continue to negotiate various compensation figures but ultimately fail to reach an agreement.
In this scenario, the seller may not rely on the buyer’s letter as evidence of an admission of liability or willingness to make a partial payment. This is a proper application of the without prejudice rule because:
- A genuine dispute exists between the parties
- There is a bona fide attempt to resolve that dispute
- The communication contains a settlement offer
The protection extends to all subsequent negotiations concerning the settlement amount.
Misuse of the Label in Contract Performance
The parties enter into a contract for the sale of wheat on CIF Alicante terms. During performance of the contract, the buyer sends a letter marked without prejudice, stating that the price agreed is unfavourable, expressing an intention not to perform the contract, and offering to continue the relationship only if granted a USD 10 per tonne discount.
Despite the without prejudice label, such correspondence is not protected and may be used against the buyer for the following reasons:
- It does not represent an attempt to settle an existing dispute but rather amounts to the creation of one
- The communication carries elements of undue pressure
- The buyer is expressing an intention to breach the existing contract, which may fall within the exception for “unambiguous impropriety”
The formal label alone does not confer protection if the substance of the communication does not satisfy the without prejudice criteria.
Improper Threats
During without prejudice negotiations, one party threatens to initiate criminal proceedings unless the other agrees to an unfavourable settlement. In Ferster v Ferster [2016] EWCA Civ 717, the court held that such threats may amount to blackmail and fall under the exception of “clear impropriety”, allowing the aggrieved party to rely on the communication as evidence in court.
What Does “Subject to Contract” Mean?
The term subject to contract is a reservation commonly used in English law during negotiations and in documents that precede the conclusion of a formal agreement. It clearly indicates that the parties do not yet intend to create legally binding obligations.
When a document or communication is marked subject to contract, it means that:
- The parties are still negotiating and neither has undertaken any legal obligations
- A final, legally binding agreement will only be concluded upon execution of a formal contract
- Any terms agreed during prior discussions may be altered before the final contract is signed
Subject to contract is most frequently used in the following contexts:
- Agreement of heads of terms prior to the preparation of a full contract
- Commercial contract negotiations
- Settlement discussions
- Preliminary negotiations for the sale or purchase of property
- Letters of intent or memoranda of understanding
In RTS Flexible Systems Limited v Molkerei Alois Müller GmbH [2010] UKSC 14, the UK Supreme Court confirmed the importance of the subject to contract reservation, recognising that it serves to protect parties from entering into contractual relations prematurely.
It is important to distinguish subject to contract from without prejudice, although they are often used together. Subject to contract relates to preventing the formation of legally binding obligations, whereas without prejudice protects communications made in settlement discussions from being used as evidence in court.
Subject to contract is a vital tool for safeguarding parties during negotiations, allowing them to discuss terms freely without the risk of inadvertently creating legal obligations before they are ready to do so.
Conclusion
The principles of without prejudice and subject to contract are fundamental in English law when it comes to negotiations and dispute resolution. Without prejudice enables parties to explore settlement options without the risk that their words will later be used against them in court. Subject to contract, on the other hand, prevents premature legal obligations from arising before the final agreement is formally executed.
These tools are especially important in international trade and arbitration, particularly in the context of Gafta and FOSFA contracts.
If you require legal advice or would like to learn more about how these principles apply in international arbitration or English law, feel free to contact me by email, Telegram or WhatsApp.
