Without Prejudice - Admissability of Exchanges as an Aid to Interpretation

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An earlier website article reported the Commercial Court decision in Oceanbulk Shipping & Trading v TMT Asia Limited. Since that report, the case has been heard on appeal before both the Court of Appeal and the Supreme Court.

The High Court had held that held that evidence of without prejudice exchanges is admissible not only to actually identify the terms of a settlement reached but also to explain the meaning of those terms.

The Court of Appeal disagreed. Given the subsequent appeal, there is little point in dwelling on the reasoning of the majority. However, the judgment is worth review for the dissenting words of LJ Ward. His erudite and persuasive judgment concludes:
 

“There is little point in expanding upon these reasons for I am outnumbered, nay outgunned, by the commercial colossi seated either side of me. I prefer the instincts of the youthful Stanley Burnton J. before he became corrupted by the arid atmosphere of this Court. It goes to prove what every good old-fashioned county court judge knows: the higher you go, the less the essential oxygen of common sense is available to you. So I am unrepentant. With, of course, great respect to my Lords, I dissent.”

In a unanimous judgment, all concurring with the judgment of Lord Clarke, the Supreme Court overturned the Court of Appeal.

The Court noted that the approach to without prejudice negotiations and their effect has developed significantly over the years. And the importance of the without prejudice rule requires that its “boundaries should not be lightly eroded.”

The current exceptions to the rule can be summarised as follows:

1. Whether an agreement was reached;
2. To set aside the agreement on the grounds of misrepresentation, fraud or undue influence;
3. A question of estoppel;
4. An issue of perjury, blackmail or unambiguous impropriety;
5. An application to strike out for want of prosecution;
6. “Save as to costs”;
7. Matrimonial proceedings; and
8. To rectify an agreement.

The Court saw no reason why the ordinary principles governing the interpretation of a settlement agreement should be any different regardless of whether the negotiations which led to it were “without prejudice”.

As Lord Clarke said:

“I would accept the submission made on behalf of TMT that, if a party to negotiations knows that, in the event of a dispute about what a settlement contract means, objective facts which emerge during negotiations will be admitted in order to assist the Court to interpret the agreement in accordance with the parties' true intentions, settlement is likely to be encouraged not discouraged. Moreover this approach is the only way in which the modern principles of construction of contracts can properly be respected.”

Lord Clarke also considered that any rejection of this proposed exception would result in a distinction between this type of case and those exceptions already identified as to establishing whether an agreement actually existed and whether such agreement should be the subject of rectification.

It would seem that common sense has prevailed and Ward LJ can take comfort that the Supreme Court saw the merit in his dissenting view.

Oceanbulk Shipping & Trading SA -v- TMT Asia Limited [2010] EWCA Civ 79 and 2010] UKSC 44
 

Article by Sian Morris