The “without prejudice” rule provides that a statement made in a genuine attempt to settle a dispute cannot be put before the Court as evidence of an admission against the interests of the party making it.  This rule exists for public policy reasons so that parties can lay all their cards on the table in order to try and settle their disputes outside of court. 

There are a limited number of exceptions to this, including where there is a dispute as to whether the without prejudice negotiations resulted in a concluded settlement agreement.
 
In a recent case Oceanbulk Shipping & Trading SA v TMT Asia Limited [2010] EWCA Civ 79  the Court of Appeal was asked to consider whether evidence of without prejudice communications was admissible where there was a dispute over the interpretation of a concluded settlement agreement. 
 
At first instance, the Court said that such evidence should be admissible.  The Court of Appeal disagreed.  It held that without prejudice material is not admissible as an aid to interpreting a settlement agreement.
 
In giving the leading judgment, Longmore LJ referred to the reasoning of the first instance Court.  He said that:

• The court at first instance said there was a fine distinction between identifying whether a settlement agreement had been reached and interpreting its terms, and that this distinction would often be difficult to apply.  The Court of Appeal disagreed. The “fine distinction” point was not really a problem, especially if, as was the case here, the result of the without prejudice negotiations was a written agreement.
• The Court at first instance placed reliance on a previous authority Admiral Management Services Ltd v Para Protect Europe Ltd [2002] 1WLR 2722.  However, this was distinguished as that case involved a settlement agreement which incorporated a without prejudice document.  That was not the case here.
• The Court at first instance said that it would be inconsistent not to admit evidence of without prejudice negotiations for the purpose of construction as such evidence is admissible where there is a claim for rectification.  The Court of Appeal disagreed.  There was no inconsistency with rectification.  Rectification involved the Court ascertaining the true terms of a contract.  It did not involve looking at background facts relating to what a contract meant.

Conclusion
The Court of Appeal’s decision emphasises that parties should be able to negotiate on a without prejudice basis, without fear of statements made during those negotiations being put before the Court except in very limited circumstances. 
 
It should be noted, however, that Ward LJ in the Court of Appeal vigorously dissented, saying that he was “outnumbered, nay outgunned” and that his mother would find the decision “barmy”! 

TMT has recently been granted permission to appeal to the Supreme Court so watch this space for a future update. 

For more information on these issues please contact

Paula Barry

or your usual Lewis Silkin contact