'Without Prejudice' - But Is It Really?

The full version of this article was first published in Lloyd's List on 22 December 2011.

In October 2010, the Supreme Court extended the scope of the exceptions to the without prejudice rule to permit the admissibility of without prejudice negotiations for the purpose of construing the true meaning of a settlement agreement.

Is evidence of without prejudice negotiations admissible to resolve a dispute over the meaning of a term in a settlement agreement?

Until recently, the answer was probably not as this type of scenario fell outside the defined scope of the without prejudice rule's exceptions. The situation changed on 27 October 2010 when the Supreme Court extended the scope of the exceptions to the without prejudice rule to permit the admissibility of without prejudice negotiations in order to construe the true meaning of a settlement agreement (Oceanbulk Shipping and Trading S.A. v TMT Asia Ltd et al (2010)). Oceanbulk has been a useful reminder that the without prejudice rule is a general, not absolute, rule.

Exceptions to the without prejudice rule

To encourage parties to settle rather than litigate their disputes, without prejudice oral and written statements made during negotiations are generally inadmissible. Whilst this is true most of the time, it is not true all of the time. Listed below are the exceptions to the without prejudice rule with an example of how each exception may arise in practice.

Exceptions to the without prejudice rule

Exception

Example

(1)

Rectification exception1

Y may rely upon anything said between itself and X in without prejudice communications to show that a settlement agreement's term should be corrected because it has been misstated and does not reflect the parties' true intention.

(2)

Interpretation exception2

Where X and Y are in dispute over the true meaning of the terms of a settlement agreement, Y may rely upon without prejudice communications as an interpretive tool as evidence of facts within both parties' common knowledge.

(3)

Existence of settlement agreement exception3

Where X claims that it never concluded a settlement agreement with Y, then Y may rely upon the without prejudice communications to show that the parties did, in fact, conclude a settlement agreement.

(4)

Misrepresentation, fraud or undue influence exception4

X tells Y during negotiations that he will accept US$100,000 from Y in full and final settlement of a US$175,000 claim. Y pays X US$100,000 in reliance upon X's...