Admissibility of Without Prejudice Communications

When Parties to a commercial transaction negotiate to resolve contentious issues, the prudent practice is to qualify that communications (oral or written) pertaining to such negotiation is on a “without prejudice” basis. Such without prejudice communications save for certain exceptions are generally inadmissible in court. Judicial decisions [1] in recent years indicate that the rule is much wider, not absolute and without prejudice communication can be referred to when the justice of the case requires it.

In a recent case [2] before the UK Supreme Court, [3] the issue was whether Appellants were are entitled to rely upon two representations or alleged representations made by Respondents as aid to interpretation of the agreement. Respondent sought to exclude the evidence on the ground that it was made in the course of without prejudice negotiations.

It was submitted on behalf of Appellants that “facts which (a) are communicated between the parties in the course of without prejudice negotiations, (b) form part of the factual matrix or surrounding circumstances and (c) would, but for the without prejudice rule, be admissible as an aid to construction of a settlement agreement which results from the negotiations should be admissible in evidence by way of exception to the rule because the agreement cannot otherwise be properly construed in accordance with the well recognised principles of contractual interpretation and because there is no distinction in principle between this exception (“the interpretation exception”) and, for example, the rectification exception.”

On the question of whether the interpretation exception be recognised as an exception to the without prejudice rule, Lord Clarke answered in the affirmative and stated that the interpretation exception should be recognised as an exception to the without prejudice rule as justice clearly demands it. He also stressed that he was neither seeking to underplay the importance of the without prejudice rule nor to extend the exception beyond evidence which is admissible and nothing in this judgment is intended otherwise to encourage the admission of evidence of pre-contractual negotiations.[4]. In allowing the appeal, the Supreme Court reached a different conclusion from the majority at the Court of Appeal but essentially the same conclusion reached by Andrew Smith J at first instance and by Ward LJ in the Court of Appeal. 

[1] Cutts v Head [1984] Ch 290 at p 306 Oliver LJ, Rush & Tomkins Ltd v Greater London Council [1989] AC 1280 Unilever plc v The Procter &  Gamble Co [2000] 1 WLR 2436, Unilever plc v The Procter & Gamble Co (2000) 1 WLR 2436], Ofulue and another (FC) (Appellant) v Bossert (FC) (Respondent) [2009] UKHL 16

[2] Oceanbulk Shipping & Trading SA (Respondent) v TMT Asia Limited and others (Appellants)[2010] UKSC 44
[3] The UK Supreme Court has assumed the jurisdiction of the Appellate Committee of the House of Lords and the devolution jurisdiction of the Judicial Committee of the Privy Council.

[4] Per Lord Clarke at paragraph 46