The Supreme Court handed down judgment in the case of Oceanbulk Shipping and Trading SA v TMT Asia Limited and others [2010] UKSC 44 on the 27th October 2010. The case concerned the scope of exceptions to the principle that statements which are made during “without prejudice” negotiations are not admissible in evidence.

The parties had entered into forward forward freight agreements (FFA), and payments which were due in May 2008 failed to be met by the appellants. Representatives of the parties and solicitors began settlement negotiations which were partly in written form, and which were said to be “without prejudice”, and an agreement was concluded. A dispute arose concerning alleged breach of a clause of the agreement, the respondents claiming damages for the difference in two sums, namely the sum achievable had the FFA been closed out on 15th August, and the sum which was due as a result of the FFA remaining open.

The issues arising required interpretation of the clause of the agreement. In demonstrating their interpretation of the clause, the appellants sought to rely on statements contained within the negotiations. The respondents submitted that this reliance was precluded by the “without prejudice” status of the negotiations.

Considering the issue, the High Court determined that the evidence contained within the negotiations was “potentially of significant probative value and might possibly be crucial upon an issue of construction”, and consequently found the evidence was admissible. However allowing the appeal, the Court of Appeal found that the evidence was not admissible.

Before the Supreme Court, the issue was whether one of the exceptions to the rule should be that facts identified during “without prejudice” negotiations, which lead to a settlement agreement of the dispute between the parties, are admissible in evidence in order to ascertain the true construction of the agreement as part of its factual matrix or surrounding circumstances. The legal principles relating to without prejudice were outlined. The court considered the rule established in Walker v Wilsher (1889) 23 QBD 335 which had been extended in a series of cases, most recently in Ofulue v Bossert [2009] UKHL 16, where it was held the rule extended to earlier concluded negotiations where an issue remained unresolved. Highlighting the importance of the rule, the court nonetheless set out that exceptions could be made in the interests of justice.

Setting out the existing exceptions to the rule, the court referred to the list outlined in the case of Unilever plc v The Procter and Gamble Co [2000] 1 WLR 2436. Examining whether the interpretation exception could be recognised as an exception, the court found that the justice of the case required it.

Referring to principles set out in Investors Compensations Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 and Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, the court held that without recourse to the information the agreement could not be properly construed; evidence is to be admitted in order for the courts to make an objective assessment of intention and to do otherwise with without prejudice material would mean that these principles were not respected.

Considering other exceptions to the rule, the court held that there was little distinction between the possible exception at issue, and the recognized exception that without prejudice evidence can be admitted in order to consider whether negotiations had resulted in a concluded compromise agreement. Any distinction introduced would be unprincipled.