Legal questions: how to mark communications

8 April 2016

Faiza Ahmad looks at whether proposals for settlement in lease renewal proceedings should be marked "without prejudice" or "subject to contract"

I am acting for the tenant of business premises in relation to a lease renewal. I need to write to the surveyor acting for the landlord setting out my client's proposals for settlement of the lease renewal proceedings. Should I be marking my communications "without prejudice" or "subject to contract"?

How to mark negotiations in communications is a common source of confusion and can land parties in hot water if they fail to do so appropriately.

The phrases you mention have different meanings, although they may be used together. If you mark your communication "without prejudice" (WP), the general effect is to confer privilege on the correspondence, but it will not be admissible in court, neither can it be relied on as evidence. Your communication must be made in a genuine attempt to settle the dispute to have WP protection.

Just labelling your communication WP does not in itself afford protection. Similarly, if you do not mark your communication WP, that will not necessarily preclude it from having WP protection if it is sent in a genuine attempt to settle the dispute. However, you may then find yourself having to explain to the court why, if you did in fact intend the communication to be privileged, you did not mark it WP – so always do so, because it's better to be safe than sorry.

Bear in mind that the parties to the WP correspondence jointly own the privilege, so it can only be waived jointly. However, there are a number of occasions in which WP communication might be admissible, including:

• as evidence of misrepresentation, fraud or undue influence
• to explain delay
• where the communication is expressed to be "without prejudice save as to costs" (WPSATC).

The final example is useful where you want the communications to remain privileged but, once the matter has been determined, you want to be able to bring them to the attention of the court on the question of costs. When considering who should be responsible for payment of the costs of the proceedings, the court will take into account matters such as the parties' conduct. Marking your correspondence WPSATC will allow you to bring the communications so marked to the attention of the court. For example, you might be able to persuade the court that the landlord should be penalised on costs by showing any WPSATC correspondence that could demonstrate the other party acted unreasonably during the negotiations, such that your client has incurred unnecessary costs. Faced with this prospect, the person receiving your WPSATC letter should be more inclined to cooperate and consider the terms of the offer seriously.

How to mark negotiations in communications is a common source of confusion and can land parties in hot water if they fail to do so appropriately

There are certain circumstances when a Part 36 offer is more appropriate. Note that if you are acting for a defendant in proceedings, you might want to avoid making a Part 36 offer as accepting it automatically makes the defendant responsible for the claimant's costs (see Property Journal December 2015/January 2016, p.20). A solicitor should be instructed to draft the offer as it must be formulated in a particular way, and they can also advise on whether such an offer is appropriate.

If your opponent accepts the terms of the WP offer in open correspondence, this will create a binding contract of settlement. As such, you should ensure that you also mark the letter "subject to contract" as you have suggested, or "subject to lease" as well, to ensure that any agreement of the terms is not binding until the parties have entered into a legally binding contract or lease. That way, once you have agreed terms on a WPSATC and subject-to-contract basis, you can leave it to the solicitor to carry out any necessary legal investigations, and draft and agree the terms of the final legal document implementing the terms agreed appropriately.

An important point to note is that you can create a legally binding contract verbally as well as in writing, so ensure your conversations are appropriately expressed to avoid inadvertently being bound.

In general terms the following should be a useful guide.

• "Without prejudice" – appropriate when negotiating in relation to an existing dispute where you want to make proposals or points without prejudice to your client's open position in a genuine attempt to settle that dispute.
• "Without prejudice save as to costs" – appropriate when you consider the terms of the offer are realistic, should be accepted or you want to put the opponent under pressure on the issue of costs (perhaps because they have been acting unreasonably), as well as in cases where you are acting for the defendant.
• "Subject to contract" – appropriate where you are making WP proposals that, if accepted in open correspondence, will constitute a legally binding agreement.

It is always safest to consult a solicitor to ensure that any communications are marked properly so as to protect your client fully and put them in the best position possible until they enter into the new lease and you have finally disposed of proceedings.

Faiza Ahmad is Partner at Hamlins LLP

Further information

This feature is taken from the RICS Property journal (March/April 2016)