Richard Bourchier invites Nicholas Cheffings to lunch to explain the use of the term “without prejudice” on correspondence or during verbal negotiations
Question: Richard Bourchier, partner, Allsop LLP
During a recent discussion with two other experienced rent review surveyors, I explained that, as an RICS APC assessor chairman, my panel had referred a candidate because of a lack of understanding about “without prejudice”.
The candidate was asked whether a binding agreement was reached if a “without prejudice” offer to settle a rent review was made and the other party accepted the offer “without prejudice”. The answer given was “no” because both parties’ correspondence had been marked “without prejudice”.
My companions argued that the candidate was right. I explained that once agreement is reached, the privilege of “without prejudice” falls away and the exchange of correspondence is evidence of a binding agreement. My friends asked for legal authority.
As a result, a wager was agreed: invite property litigator Nicholas Cheffings for lunch, ask him the question and whoever is wrong picks up the tab.
Answer: Nicholas Cheffings, chair, Hogan Lovells
Clearly, there is no such thing as a free lunch. This one had to be earned.
Surveyors can be remarkably liberal in their use of the term “without prejudice”. Many believe that it enables them to say anything they like because nothing can be disclosed or used against them. That is wrong.
Writing “without prejudice” on a letter does not automatically make it confidential and does not prevent a dispute resolver from seeing it. For that to happen, the key elements are:
- there has to be a dispute;
- the communication has to be without prejudice to something; and
- it must be part of an attempt to settle.
I have seen many rent review notices marked “without prejudice”. At best, the term is meaningless. At worst, it could render the notice ineffective. I have even seen a break notice headed “without prejudice”. Without prejudice to what?
The purpose of “without prejudice” is to encourage parties to settle their disputes without having to go to the courts and without fearing that every unsuccessful offer they make will prejudice their position when it is used against them. If one party makes a “without prejudice” offer, it is literally without prejudice to the fact that it is going to argue for a different figure in due course. If the landlord’s surveyor offers to settle a rent review at £50,000 on a without prejudice basis and the tenant ignores the offer or counters at £40,000 without prejudice and the review is not otherwise settled, neither party can refer to the offers in front of an arbitrator.
What happens if the tenant replies “without prejudice” that it agrees to pay £50,000? That is the law of offer and acceptance. If A offers X to B and B says “yes”, there is a contract. That basic principle applies even if both the offer and the acceptance are marked “without prejudice”.
Law students learn on day one that an offer is an expression of willingness to contract on certain terms, made by a person (the “offeror”) with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed (the “offeree”) and acceptance is a final and unqualified expression of assent to the terms of the offer (see Treitel on The Law of Contract). A contract comes into existence when acceptance of an offer is communicated to the offeror by the offeree. That is what has happened here.
In Newbury v Sun Microsystems Ltd [2013] EWHC 2180 (QB), the defendant offered £601,464.98 in full and final settlement plus £180,000 legal costs. The letter stated: “Such settlement to be recorded in a suitably worded agreement.” In a reply marked “without prejudice save as to costs”, the claimant accepted and confirmed it would “forward a draft agreement for your approval”. The parties failed to conclude a written agreement. One argued for a binding agreement by their exchange of letters. The other said that because the acceptance letter was not an open letter, the parties were still negotiating.
The judge, Lewis J, said: “I am satisfied that, viewed objectively, that correspondence did give rise to a binding legal contract between the parties. The terms of the contract were that the defendant would pay certain sums to the claimant in full and final settlement of the claim and counterclaim by a specified time. That agreement would be recorded in a suitably worded agreement, that is, one which reflected the terms of the agreement, but execution of that agreement was not a condition of the creation of a binding agreement but was simply intended to record more formally the contract that was reached. Viewed as a whole, I do not consider that the use of the words ‘without prejudice’ on certain of the correspondence indicates that both parties considered that they were still negotiating and that terms of an agreement had not been reached.”
What mattered was whether the parties had agreed on all of the terms that were essential to the conclusion of their dispute. In a rent review (unless there are costs issues), parties only have to agree the rent payable. So the question is whether one party has made an offer that the other has unequivocally accepted. If so, a binding agreement has been reached and the need for the “without prejudice” cover falls away.
There you have it. If you know the two other surveyors involved, you will not be surprised to learn that I am still waiting for my free lunch.
