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Decision Pending Construction from without prejudice agreements

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A pending decision from the Supreme Court could change the law regarding the permissibility of without prejudice negotiations being produced as evidence to the courts. Oceanbulk Shipping & Trading SA v TMT Asia Limited and others - Case Background The parties had made many freight forward agreements with each other; TMT then later failed to pay an invoice from Oceanbulk. Upon this failure of payment TMT and Oceanbulk entered into written negotiations and during this period reached a settlement agreement. Later, Oceanbulk sued for damages citing TMT's failure to comply with the agreement; the main issue being that the parties could not agree on the meaning and interpretation of a specific clause in the agreement. TMT sought to rely on without prejudice exchanges made during the period of negotiations asserting they were essential to proper interpretation of the clause. Oceanbulk argued that such exchanges were not admissible as evidence of the proper construction of an agreement as they were "without prejudice". At first instance the judge held that the without prejudice exchanges could be admitted, as they fell within the exceptions listed in the care of Unilever Plc v Proctor & Gamble Co . The appeal against the first instance decision by Oceanbulk was allowed by the Court of Appeal. It was held that the exception to the without prejudice rule in the instant case was not specifically in the list in Unilever. The Court of Appeal therefore had to decide whether there was another exception in the instant case. It was held that the general rule against admission of without prejudice exchanges should be upheld, based on the policy that negotiating parties should not be discouraged by fear of litigation. TMT were granted leave to take it's case to the Supreme Court. Issue and Impact The issue at the heart of this debate is whether it is permissible to provide evidence of without prejudice negotiations to enable the courts to construct a settlement agreement between the two parties. There is a direct conflict between the prejudice rule, a device aimed at promoting settlements in commercial disputes, and the policy of providing the court with the best and most useful evidence to help them reach a decision as to the terms of the agreement. Clearly the implications of the decision by the Supreme Court currently awaited could be significant as to the effect it could potentially have on the way that commercial agreements are conducted. The concern is that, if the Supreme Court does decide that these types of without prejudice exchanges could be admitted to court as evidence if a dispute is raised as to the eventual terms of the agreement, this could lead to negotiations between commercial parties becoming more hesitant and protracted due to fear of litigation. For additional information please contact: Alexandra Dean of Gepp & Sons. The above is not legal advice; it is intended to provide information of general interest about current legal issues.