Oceanbulk Shipping & Trading SA v TMT Asia Ltd  EWCA Civ 79
Although the point of the without prejudice rule - namely to encourage settlements in commercial disputes - confl icts with the policy of affording the court the best and most useful evidence, one cannot resolve that confl ict merely by saying that the latter policy trumps the former. Instead, the court must decide on a case by case basis whether the logic of the without prejudice rule requires the exclusion of the evidence in question. In this case, as a matter of principle it was more important to preserve the without prejudice rule than to allow it to be breached so as to permit the admission of background facts arguably relevant to construction of a settlement agreement. (Ward LJ dissenting)
In Oceanbulk Shipping & Trading SA v TMT Asia Ltd  EWCA Civ 79, the appellants (Oceanbulk) and the respondents (TMT) entered into a large number of Freight Forward Agreements (FFAs) for the year 2008. These were effectively bets on the freight market going up or down. Oceanbulk thought it would go up, while TMT thought it would go down. It did go up during May, June and July, thereafter the market turned and went down to a very low point in September and the following months. The parties had agreed monthly settlements, so that by the end of May TMT owed Oceanbulk about $40.5m. TMT sought to negotiate terms for payment and a settlement agreement was reached.
A dispute arose as to the interpretation of a clause in the settlement agreement. TMT accepted that some of the representations and statements they sought to rely on were made on ‘without prejudice’ occasions but said that, just as without prejudice discussions can be referred to for the purpose of determining whether a settlement agreement was made, and what the terms of that agreement were, they can also be referred to as an aid to the construction of those terms, if there is a dispute about their meaning, or if they evidence the background against which, or the matrix within which, the parties were contracting. Oceanbulk argued that the recognised exceptions to the ‘without prejudice’ umbrella did not go as far as that.
The court noted that TMT’s strongest point was that the logic of the exception enabling parties to give evidence as to terms of an agreement extended also to permissibly relevant evidence of background, if that was relevant to construction; otherwise one could theoretically have a term that meant one thing if without prejudice material were excluded and another if it were included. However, that danger was more forensic than real. Very few disputes about interpretation were truly informed by evidence about preceding without prejudice oral discussions and they did not outweigh the policy of encouraging settlements. Looking at the instant case, as a matter of principle it was more important to preserve the without prejudice principle than to allow it to be breached - the admission of background facts arguably relevant to construction was now allowed.
To read the judgment, go to http://www.bailii.org/ew/cases/EWCA/Civ/2010/79.html