Without Prejudice, or is it?

The Without Prejudice rule is important in contentious matters. Parties to a dispute are encouraged to settle without recourse to litigation. They should therefore not be discouraged from entering into settlement negotiations if there is any possibility that anything they say during the course of discussions can be referred to in subsequent litigation.

However, in Oceanbulk v TMT Asia the Supreme Court had to decide whether without prejudice correspondence could be referred to in order to assist in the interpretation of a settlement agreement.

The Judges emphasised the importance of the without prejudice rule:

•“without prejudice” means without prejudice to the position of the writer if the terms of settlement proposed are not accepted;
•If the terms are accepted, the without prejudice communications can be referred to in order to establish the terms agreed;
•Without prejudice protection will be afforded to all communications genuinely aimed at settlement – whether oral or in writing;
•Without prejudice protection should not be lifted unless it is required to serve the interests of justice.

The Court identified 10 exceptions to the without prejudice rule, albeit that the court should not exercise the exceptions lightly. In this particular case, the Court held that the without prejudice correspondence was admissible but only to explain the facts or circumstances to the Court in order to interpret the agreement reached between the parties.

COMMENT: It is important to remember that adding the words “without prejudice” to a letter will only offer protection if it is genuinely aimed at settlement; conversely a genuine attempt to settle may be afforded without prejudice protection even if the words are not expressly written.

The message here, though, is that the use of without prejudice communications should be exercised with some caution. The judgment also emphasises the importance of drafting terms of settlement clearly to avoid any ambiguity.