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“Without Prejudice”& “Subject to Contract” What do they mean?

Partner Barney Laurence examines what the two key terms “Without Prejudice” & “Subject to Contract” mean and how you can use them when trying to resolve disputes.

Two terms that are as important as they are misunderstood. What do they mean? And when and why should you use them?

“Without Prejudice” (sometimes just “WP” or, better still, “without prejudice save as to costs”)

You use this when you want to engage in genuine attempts to resolve a dispute.  Not always, though; sometimes you deliberately don’t want the communication to be without prejudice – more on this below.

An example in the recruitment sense illustrates the point: Say you’re owed a £50k fee but, to avoid the hassle and expense of a drawn-out dispute, you’d be happy to accept £40k. When communicating that to the other party, you’d want the communication to be “without prejudice” so that they cannot use it against you as a form of admission or acceptance that you’re in the wrong. In other words, they couldn’t, for example, refer the Judge to it and say “Look; because they know they’re in the wrong, they offered to reduce their fee”.

So, by labelling your communication “Without Prejudice”, you are making clear that this is a confidential communication that cannot be used against you as any indication of any weakness in your position. In the context of Court cases, it means the other party cannot show your communication to the Judge before the Judge has decided who is right and who is wrong in the overall dispute.

The whole point of the so-called “without prejudice rule” is to enable and encourage parties to try and resolve their differences without fear that what they say will be used against them.

There’s more to it than this – for example there are exceptions that apply, but these points are beyond the scope of this note.

Now, people all-too-frequently label their communication as “without prejudice” when, in fact, it is not so. The communication does not become “without prejudice” just because it is labelled with that term; what matters is the substance/contents/intent of the communication: does it form part of a genuine attempt to settle the dispute?

Sometimes you might, for good tactical reasons, want to negotiate openly. You do this, for example, where you want to be able to show to the Court that you tried to settle. Even though such a communication is not covered by the without prejudice rule, you should nevertheless explain in the communication that the offer you are making – which is deliberately made on an “open” basis – is without prejudice to your position. It’s a clever tactic that can pay dividends later down the line.

The critical takeaway here is this: Make sure you label appropriate communications “without prejudice”. This applies when using emails, letters, WhatsApps, text messages, even verbal conversations or meetings. If the purpose of the communication is with a view to attempting to resolve a dispute, it is (normally) without prejudice, but you should make sure that it is labelled as such to avoid any dispute later down the line about whether it was or was not without prejudice.

Subject to contract (often shown as “STC”)

Again, all-too-often misunderstood. But it is absolutely critical that the label is used correctly in appropriate circumstances.

Let’s use the same example as above. Say your offer (without prejudice) to accept £40k is accepted. You then have a legally-binding deal/settlement. You can’t turn around later and say this was subject to you getting Board approval, or discussing with your spouse. You have a deal.

However, if you made clear that the settlement discussion (and your £40k offer) was “subject to contract”, it means that the “agreement” to pay/accept £40k is not yet binding. Further actions need to be taken before it becomes so (obtaining Board approval, for example).

Clients frequently come to me for advice about what they should do, and often I advise that they should go away and have a conversation with the other side before they spend money with me trying to resolve the dispute for them – a lot of money can be saved by communicating early on. But I emphasize that, at the meeting, which should be “without prejudice”, if they agree anything, it should be “subject to contract”, which means that, when the meeting finishes, the client can relay to me the terms “agreed” upon and I can then formally document it for both parties to sign-off on.

Why is this important? It’s important because there are all sorts of issues that you might overlook when agreeing your settlement, which ought ideally to be captured. For example, are you settling just the fee claim (to continue the same example), or are you settling other claims at the same time? When is the money payable by? Into which account? What happens if they don’t pay? What about interest? Just some of the aspects that need to be captured. You might think it’s obvious what the answers to these points are, but you’d be very surprised how easily they can become a point of contention later down the line. Parties can find themselves in a very difficult (and expensive) situation over (1) whether a deal was ever reached at all; and (2) if so, what exactly was agreed. Don’t be that person who wishes they’d formalised the settlement properly when they had the opportunity to.

For more information please contact Barney or the dispute resolution team.

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