The Supreme Court has in Oceanbulk Shipping & Trading SA
v TMT Asia Ltd & Ors held that without prejudice
negotiations which form part of the factual matrix leading to a
settlement agreement will be admissible as evidence to assist in
the interpretation of that settlement agreement.
Statements made in the course of genuine settlement negotiations
are subject to without prejudice privilege and evidence of those
statements are only admissible evidence in court in limited
circumstances, such as where there is a dispute whether a
settlement was reached. The rationale for this rule is to
encourage the parties to openly discuss in order to settle a
dispute without having to worry about admissions made in the
negotiations being used against them in court.
In the present case, it was held at first instance that as
evidence establishing whether a settlement agreement was reached
was admissible so should be evidence as to the terms of that
agreement. The Court of Appeal overturned that decision and
held that communications in the course of settlement negotiations
could not be admitted as an aid to interpretation of the settlement
agreement.
The Supreme Court disagreed with the Court of Appeal and held that
no sensible distinction could be drawn between "admitting
without prejudice communications in order to resolve the issue
whether they have resulted in a concluded compromise
agreement...and admitting them in order to resolve the issue what
that agreement was". The Supreme Court also
accepted that if a party to the settlement negotiations knew that
objective facts which emerge during the negotiations will be
admissible in the event of a dispute about what the settlement
agreement means, this would encourage settlement and thus be in
line with the public policy underpinning the without prejudice
rule. Therefore, the Supreme Court was of the view that if
the communications would be admissible under ordinary principles of
interpretation of contracts (i.e. they formed part of the factual
matrix) then the fact that the communications were subject to the
without prejudice privilege was no bar to their
admissibility.
This decision creates consistency when interpreting contacts and
avoids the need to apply differing principles in the case of
settlement agreements. Ultimately, a settlement agreement is
a contract and it ought to be interpreted as one.
Please click here for a copy of the Supreme Court
judgment.
Case reference: Oceanbulk Shipping & Trading SA v TMT Asia
Ltd & Ors [2010] UKSC 44
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 28/10/2010.