16 February 2010

Dissent In Style

Oceanbulk Shipping & Trading SA v TMT Asia Ltd [2010] EWCA Civ 79 is a case about the without prejudice rule.

"This appeal raises the question whether evidence of "without prejudice" communications and discussions can be given if there is a dispute about the interpretation of a written settlement agreement."

The majority tell us that these communications and discussions cannot be used for the purpose of interpreting the settled agreement.

Burnton LJ explaining, "... in the absence of a claim for rectification, antecedent without prejudice correspondence cannot be adduced in evidence for two reasons: privilege and irrelevance. These reasons are independent: the privilege applies even if the correspondence is relevant. If relevance alone displaced the privilege, the privilege would have no content."

However, the minority view, given by Ward LJ is worth repeating in full.

"36 The factual background to this appeal can be very shortly stated. There was a dispute about liability under the forward freight agreements, and the wagers under which the parties made – or lost – substantial fortunes. They entered into without prejudice negotiations to resolve that dispute. These negotiations were successful. They reached a settlement agreement which was reduced to writing and signed by them. Now there is a dispute about the meaning of that agreement. The respondent wishes to adduce evidence "of what had been said or done during the course of negotiating that agreement" for the purpose of establishing "a fact which may be relevant as background known to the parties" and thus serve as an aid to construction in accordance with Chartbrook Ltd v Persimmon Homes Ltd [2009] A.C. 1101 at paragraph 42. It matters not for the purpose of this appeal what those background facts are and whether or not they will triumphantly carry the day or, as is suggested, simply obfuscate the issue. It matters not because this appeal gives rise to a pure point of principle, namely whether the veil of privilege can be lifted to admit evidence of without prejudice negotiations to establish background facts known to the parties as an aid to the construction of the settlement agreement reached in the course of those without prejudice negotiations.

37 In Unilever Plc v Proctor and Gamble Co. Ltd [2000] 1 W.L.R. 2436, 2444 Robert Walker L.J. set out instances when the without prejudice rule does not prevent the admission into evidence of what one or both of the parties said or wrote. His non-exhaustive list included the without prejudice communications which result in a concluded compromise agreement, the negotiations which showed that an agreement apparently concluded between the parties during the negotiations should be set aside on the ground of misrepresentation, fraud or undue influence; and also, even if there is no concluded compromise, a clear statement which is made by one party to negotiations and on which the other party is intended to act and does in fact act so as to give rise to an estoppel. It is common ground that one can add rectification to that list. So, if you can use the antecedent negotiations to prove the agreement, to rescind it, or to rectify it, why on earth can you not use the negotiations to establish the truth of the what the concluded contract means? Not to do so would strike my mother as "barmy". Perhaps I should simply say it strikes me as illogical.

38 Lord Griffiths told us in Rush and Tompkins v Greater London Council [1989] A.C. 1280, 1300 that "The rule is not absolute and resort may be had to the "without prejudice" material for a variety of reasons when the justice of the case requires it." Surely justice demands that truth prevail. What is the justice of a self-imposed rule that one is not allowed to look at the facts which will establish what the parties truly meant by their compromise?

39 I am not for a moment suggesting that "relevance alone displaces privilege": see [35] above. That would be obviously wrong. It was rejected in Ofulue v Bossert [2009] 1 A.C. 990 where the offer to purchase was clearly relevant but properly held inadmissible because it was a statement in the course of negotiations which did not result in agreement. If the very purpose of clothing the negotiations with privilege is to facilitate, in the public interest, the settling of disputes by compromise, then once that purpose has been served there seems to me to be no justification for continuing to wrap the negotiations in this cloak of secrecy. Again I do not wish to take this too far. That I would be prepared to lift the cloak as between the parties to the negotiation is no justification for the peeping Toms outside the negotiations, like the sub-contractors in Rush & Tompkins, to sneak a look at what was happening beneath the cloak. But if one is allowed to lift it at all, it should be lifted high enough to see in all its raw detail the truth of what previously was remain unseen. That seems consistent with the rationale for this privilege. I take that from Lindley L.J.'s judgment in Walker v Wilsher (1889) 23 Q.B.D. 335, 337:

"What is the meaning of the words 'without prejudice'? I think they mean without prejudice to the position of the writer of the letter if the terms he proposes are not accepted. If the terms proposed in the letter are accepted, a complete contract is established, and the letter, although written without prejudice, operates to alter the old state of things and to establish a new one. A contract is constituted in respect of which relief by way of damages or specific performance would be given."

I repeat the limitation I impose on that rule: it applies only where a new order between the negotiating parties has replaced the old. Where compromise has been reached, the purpose has been served and the inhibitions fall away.

40 In Ofulue Lord Hope of Craighead restated the basis for the rule in these terms at [2]:

"Where a letter is written "without prejudice" during negotiations with a view to a compromise, the protection that these words claim will be given to it unless the other party can show that there is a good reason for not doing so."

Logic and justice seem to me to be good enough reasons to remove the protection.

41 There is little point in expanding upon these reasons for I am outnumbered, nay outgunned, by the commercial colossi seated either side of me. I prefer the instincts of the youthful Stanley Burnton J. before he became corrupted by the arid atmosphere of this Court. It goes to prove what every good old-fashioned county court judge knows: the higher you go, the less the essential oxygen of common sense is available to you. So I am unrepentant. With, of course, great respect to my Lords, I dissent. In my judgment Andrew Smith J. was absolutely correct for the reasons he gave. I would dismiss the appeal.

(The dissenting argument although compelling would lead to further litigation which is contrary to public policy).

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