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Disclosure of ‘Without Prejudice’ Settlement Exchanges
London & Bermuda Newsletter
It is a well-known principle of English law that communications between parties to a litigious dispute, for the purpose of settling it, are not generally admissible in evidence before the court as they are protected from disclosure by what is known as “without prejudice” privilege. The rule seeks to encourage parties to settle disputes by allowing them to make concessions during the settlement negotiations without the fear that anything said can be used against them in any future proceedings.
Background Facts
In Oceanbulk Shipping & Trading SA v TMT Asia Ltd. [2009] EWHC 1946 (Comm), a settlement agreement relating to an unpaid invoice was negotiated on a “without prejudice” basis. However after the settlement agreement was concluded, one of the parties (the claimant) brought proceedings against the other (the defendant) asserting that the defendant had not honoured its obligations under the settlement agreement and had caused the claimant loss as a result.
The issues in dispute concerned the meaning of terms in the settlement agreement and whether the defendant was entitled to rely upon and adduce evidence of the parties’ prior “without prejudice” negotiations in this regard. In essence, the defendant argued that the “without prejudice” negotiations should be admitted in evidence to demonstrate that its interpretation of the settlement agreement was in accordance with the parties’ original intentions. The claimant objected to this on the basis that the negotiations were protected by “without prejudice” privilege and, therefore, inadmissible in evidence.
The Decision
The Commercial Court held that evidence of the “without prejudice” exchanges was admissible. Although recognising the broad scope of the “without prejudice” principle, the judge noted that one of the established exceptions to the rule was that evidence from “without prejudice” exchanges were admissible in order to help identify the terms of a settlement agreement (in other words, to determine whether there was a concluded agreement). Accordingly, in the judge’s view, it was logical and in the interests of justice “… to require the meaning of a settlement agreement to be ascertained by reference to the without prejudice exchanges” as well (own underlining).
Summary
We understand that the claimant has applied to the Court of Appeal for permission to appeal this decision so it remains to be seen whether this new enhanced exception to the “without prejudice” privilege rule will remain. For the time being, however, before entering into settlement negotiations and settlement agreements parties must now be alert to the possibility that their “without prejudice” exchanges could become admissible in evidence against them should a dispute as to the meaning of the settlement agreement arise.
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