In the recent case of Oceanbulk Shipping and Trading SA v TMT Asia Ltd, October 27, 2010, (Oceanbulk) the UK Supreme Court held there should be an exception to the 'without prejudice' rule for facts communicated between the parties in the course of 'without prejudice' negotiations where such facts would assist the court to construe an agreement that resulted from the negotiations.

Without prejudice privilege, which is a branch of legal professional privilege, covers communications, whether written or oral, which are made for the purpose of a genuine attempt to settle a dispute. Generally these communications are not admissible in evidence as the primary rationale for the privilege attaching to 'without prejudice' communications is the public policy of encouraging litigants to settle their differences without recourse to litigation, and without the risk of the content of the negotiations being used in court proceedings if the matter does not settle*. It is well settled however that there are exceptions to the 'without prejudice rule', for example, where there is a dispute as to the terms or existence of a concluded compromise settlement**.

In Oceanbulk the UK Supreme Court held that 'without prejudice' negotiations could be admitted to determine the meaning of the terms of a settlement agreement. The Supreme Court found there was no reason why the ordinary principles governing the interpretation of a settlement agreement should be any different depending on whether the negotiations which led to it were 'without prejudice'. The language should be construed in the same way and the relevant question should be the same, namely, what a reasonable person, having all the background knowledge which would have been available to the parties, would have understood the parties to have meant***.

The issue as to whether evidence of negotiations that were conducted on a 'without prejudice' basis can be admitted in court proceedings to aid interpretation of a settlement agreement, had not been decided in any previous UK case. Robert Walker LJ in Unilever plc v The Proctor & Gamble Co [2000] 1 WLR 2436 (Unilever) set out what he called "the most important instances" of occasions when the 'without prejudice' rule does not prevent the admission into evidence of what one or both of the parties said or wrote. The Supreme Court in Oceanbulk accepted that none of the exceptions, set out in Unilever, to the 'without prejudice' rule applied in this case. However the Supreme Court concluded that the 'interpretation exception' should be recognised as an exception to the 'without prejudice' rule, as justice clearly demanded it.

We await to see if the Irish courts will follow this decision. In Ryan v Connolly [2001] IESC 9, Keane C.J., at the Supreme Court stated that: "The (without prejudice) rule...although firmly based on considerations of public policy, should not be applied in so inflexible a manner as to produce injustice." This indicates that the Irish Courts also accept that resort may be had to 'without prejudice' material where the justice of the case requires it****. However the Irish Courts have yet to consider the exact circumstances when departure from the 'without prejudice' rule is justified.