The Without Prejudice Rule and the many exceptions to it
All litigators are familiar with the without prejudice rule, and the reasons why it exists. Oliver LJ explained in Cutts v Head  Ch 290, that “… Parties should be encouraged so far as possible to settle their disputes without resort to litigation and should not be discouraged by the knowledge that anything that is said in the course of such negotiations … may be used to their prejudice in the course of the proceedings …” There is a public policy (that litigants should be encouraged to settle their disputes) and there is an implied agreement of the parties that communications in the course of negotiations should not be admissible in evidence: see the remarks of Robert Walker LJ in Rush and Tomkins Limited v Greater London Council  AC 1280.
While a laudable principle, it must be kept in mind that there are important exceptions to the rule and these exceptions have been expanded following the recent judgment in the Supreme Court in Ocean Bulk Shipping and Trading SA v TMT Asia Limited and Others  UK SC 44. The main judgment was given by Lord Clarke.
The exceptions to the rule include:
(i) If the issue is whether a concluded compromise agreement was made, without prejudice communications are admissible to assist the court to decide the issue.
(ii) An agreement made during WP negotiations may be set aside on the ground of misrepresentation, fraud or undue influence.
(iii) A “clear statement” made by one party to another in WP negotiations and in reliance on which the other party is intended to act and does in fact act may be admissible as giving rise to an estoppel: see Hodgkinson and Corby Limited v Wards Mobility Services  FSR 178.
(iv) Evidence of WP negotiations will not be excluded where there are allegations of perjury, blackmail or other “unambiguous impropriety”.
(v) Evidence of negotiations may be given to explain delay or apparent acquiescence during the course of civil proceedings. Usually this will be no more than to inform the court of the dates between which WP negotiations were continuing.
(vi) The exception in respect of offers expressly marked “without prejudice except as to costs”. In Ocean Bulk Shipping, the court accepted that there is no reason in principle why parties to WP negotiations should not expressly or impliedly agree to vary the basis of the application of the public policy rule.
(vii) The privilege in matrimonial cases where communications are received in confidence with a view to matrimonial conciliation (see the judgment of Robert Walker LJ in Unilever Plc v The Procter and Gamble Co  1 WLR 2436 and also Re D  2 AER 697).
(viii) Rectification: a party to WP negotiations can rely upon anything said in the course of them in order to show that a settlement agreement should be rectified. This is of course similar to (i) above where the court may be asked to determine whether a compromise agreement was in fact made during the course of WP negotiations.
(ix) The new “exception”, the “interpretation exception” described by the court in Ocean Bulk Shipping. In summary, this new exception provides that the court should allow evidence to be admitted in respect of facts (a) communicated between the parties during WP negotiations which (b) form part of the factual matrix and which (c) would, apart from the WP rule, be admissible as an aid to construction of a settlement agreement resulting from the negotiations.
The only other judgment in Ocean Bulk Shipping, apart from that of Lord Clarke, is that of Lord Phillips. He held that “evidence of facts within [the parties] common knowledge is admissible where those facts have a bearing on the meaning that should be given to the words of the contract”. What is unclear is why facts within the parties common knowledge could not be proved by evidence of matters outside the scope of the without prejudice negotiations. The one paragraph of Lord Phillips’ judgment suggests that he had in mind the position when one of the parties during the WP negotiations had communicated a fact unknown to the other and this, presumably, was a fact having an impact on the decision of the counterparty whether or not to settle and, if so, on what terms.
It has been said that talking without first thinking is like shooting without first taking aim. Having in mind the various exceptions to the without prejudice rule, this is useful guidance both for open and without prejudice dialogue.
This briefing is for guidance purposes only. RadcliffesLeBrasseur LLP accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.