Banking – Admissibility – Agreements – Estoppel – Settlement

Oceanbulk Shipping and Trading SA v TMT Asia Ltd: CA (Civ Div) (Lords Justice Ward, Longmore, Stanley Burnton): 15 February 2010

The appellant shipping company (O) appealed against a decision ([2009] EWHC 1946 (Comm), [2009] 1 WLR 2416) that evidence of without-prejudice communications with the respondent companies (T) could be given in a dispute about a written settlement agreement between them.

O and T had made many freight forward agreements with each other. When T failed to pay an invoice from O they discussed the matter, corresponded and reached a settlement agreement. O complained that T had not complied with the agreement and sued for damages. The parties disagreed on the meaning of a clause in the agreement, and to interpret it T sought to rely on without-prejudice exchanges before it was made, maintaining that they were relevant to proper interpretation of the agreement, to T’s argument on remoteness of damage, and that justice required their admissibility. T also argued for an estoppel against O. O argued that if certain representations were made, they were made in the course of negotiating the settlement and that, although, exceptionally, such exchanges were admissible to identify the terms of a settlement, the exception did not extend to evidence of its proper construction and meaning. The judge decided that the instant case fell within the exceptions listed in Unilever Plc v Procter & Gamble Co [2000] 1 WLR 2436 CA (Civ Div) and that the without-prejudice exchanges could be admitted. The main issue to be decided on appeal was whether without-prejudice discussions could be given in evidence to support arguments about construction if they arguably established a fact that was arguably part of the background to, or the matrix of, the contractual agreement.

Held: (Ward LJ dissenting) (1) The exception to the without-prejudice rule relied on by the judge was not mentioned specifically in the list in Unilever, Unilever applied. The court had to decide whether there was another exception in the instant case, perhaps as a necessary part of the first listed exception, namely whether the given without-prejudice communications had resulted in a concluded compromise agreement. The general rule against admission of without-prejudice exchanges was based on the policy that negotiating parties should not be discouraged by fear of subsequent litigation, Rush & Tompkins Ltd v West Kent Main Sewerage Board [1963] 14 P & CR 469 Lands Tr, Unilever and Ofulue v Bossert [2009] UKHL 16, [2009] 1 AC 990 applied.

(2) Contrary to the judge’s holdings (a) the distinction between identifying the terms of an agreement and interpreting them was not usually a fine one, especially where a written agreement eventuated, when, as in the instant case, there was no difficulty in identifying the contract or its terms. However, interpretation of the terms was another matter altogether. Despite the judge’s view that the reasoning whereby a court sought to give effect to the parties’ intentions could be classified as an identification of an implied term or an exercise of construction, courts did not often imply terms into contracts, and the occurrence of rare but obvious cases of that did not mean that one should adduce evidence of without-prejudice negotiations; it would lead to even more arguments about implications; (b) the case of Admiral Management Services Ltd v Para Protect Europe Ltd [2002] EWHC 233 (Ch), [2002] 1 WLR 2722 was not a decision on extending or creating exemptions from the without-prejudice rule, but concerned only the question of whether a written settlement agreement that expressly referred to another written document could be explained by reference to that document if it was made without-prejudice, Admiral Management distinguished. That case decided that it could, but only because it was referred to as part of the agreement, and not because it was a background fact in the light of which the document had to be construed; (c) there was no inconsistency with the position on rectification: the court was not considering background facts to ascertain the contract’s meaning; (d) although the point of the without-prejudice rule conflicted with the policy of affording the court the best and most useful evidence, one could not resolve that conflict merely by saying that the latter policy trumped the former. One had to decide whether the logic of the rule required the exclusion of the evidence in question, and there were indications in Ofulue that the policy of the rule should trump the general policy of enabling the court to have the maximum assistance in ascertaining the parties’ intentions, Ofulue applied.

(3) T’s strongest point was that the logic of the exception enabling parties to give evidence as to terms of an agreement extended also to permissibly relevant evidence of background if that was relevant to construction; otherwise one could theoretically have a term that meant one thing if without-prejudice material were excluded and another if it were included. However, that danger was more forensic than real. Very few disputes about interpretation were truly informed by evidence about preceding without-prejudice oral discussions and they did not outweigh the policy of encouraging settlements. Looking at the instant case as a matter of principle, it was more important to preserve the without-prejudice principle than to allow it to be breached so as to permit the admission of background facts arguably relevant to construction.

(4) The argument for an estoppel was misconceived. If T could not rely on the without-prejudice communications, estoppel could not sensibly be used to get the evidence in by the back door.

Appeal allowed.

Alistair Schaff QC, James Willan (instructed by Hill Dickinson) for the appellant; Bernard Eder QC, James Leabeater (instructed by Ince & Co) for the respondent.