Without prejudice, try to see the contract my way

Richard Nicholas, of legal firm Browne Jacobson's IT practice.

In the world of contracts, the ‘without prejudice’ rule is commonly used to encourage parties to reach a speedy settlement (outside the courtroom) without fear of making concessions should legal action ensue from negotiations failing. If the settlement agreement is not agreed, the court should not even know that it was made.

However problems arise when the offer to settle is accepted and the court battle averted, only for the parties to later question what its terms really meant. So should ‘without prejudice’ communications later be available to determine what the parties meant when they reached the settlement agreement? According to the Supreme Court they should, notably where two parties are at odds over what part of a contract means.

The judge signalled that “without prejudice” evidence could be looked at by the courts in order to work out what the parties intended at the time the agreement was entered into.

Overall the decision, in Oceanbulk Shipping & Trading v TMT Asia Limited, could have the effect of making parties more wary in their without prejudice negotiations. This would be a shame if it prevented settlement.

When it comes to settlement agreements however, it will certainly be important that, once drafted, they should be checked carefully against the offer(s) on the table to make sure that they reflect what has been agreed.