In the case of Oceanbulk Shipping & Trading SA v TMT Asia Limited & 3 Others, the High Court has ruled in favour of allowing without prejudice exchanges to be adduced as evidence where there is a dispute over the interpretation of a settlement agreement.

Facts

A dispute arose between the parties over the interpretation of a settlement agreement which, if interpreted one way would result in a payment of US$47 million to Oceanbulk or, if interpreted the other, would result in a payment of US$86 million to TMT.

In support of its interpretation, TMT sought to adduce without prejudice exchanges made between the parties before the settlement agreement was concluded which it asserted were important to the proper interpretation of the settlement agreement. In response, Oceanbulk sought a declaration that “evidence of negotiations conducted ‘without prejudice’….is inadmissible, absent mutual waiver”.

Decision

The High Court held that the without prejudice exchanges could be adduced as evidence to the extent that they would have been admissible had the exchanges not been without prejudice.

The court considered some of the existing exceptions to the without prejudice rule and, in particular, the exception which allows without prejudice evidence to be adduced where the issue is whether the without prejudice communications have actually resulted in a concluded settlement agreement. The court found that it would be illogical to admit evidence about whether a settlement has been concluded without also admitting evidence about what the terms of the settlement were. The reasons the court gave for this were:

  • there was no public policy reason to justify a distinction between admitting without prejudice evidence for
  • the purpose of identifying the terms of a settlement agreement and identifying the meaning of those terms;
  • authority for allowing the evidence could be found in the case of Admiral Management Services Limited v
  • Para-Protect Europe Limited;
  • as without prejudice evidence is admissible for the purpose of determining whether an agreement should
  • be rectified, it should also be admitted to enable interpretation of an agreement;
  • the interests of justice required the interpretation of a settlement agreement to be determined by reference
  • to the parties’ without prejudice exchanges.

Comment

Although heavily influenced by the judgment in Admiral Management Services Limited v Para-Protect Europe Limited the decision is radical and extends the scope of the exceptions to the without prejudice rule. The practical implication of this case is that parties should be aware when negotiating a settlement that the contents of any without prejudice communications may become admissible if there is a dispute as to the proper interpretation of the settlement agreement.

Further Reading

Click here for a copy of the judgment