‘Without Prejudice’ Statements – An ‘Interpretation’ Exception

Written by  //  October 27, 2010  //  Corporate Law and Business  //  3 Comments

About two decades ago, five judges of the House of Lords handed down the landmark decision in Pepper v. Hart, [1992] 3 W.L.R. 1032, whittling down to a great extent, the scope of the ‘exclusionary rule’ that precluded consideration of parliamentary material in the interpretation of statutes. The decision of the United Kingdom Supreme Court on 27 October 2010 in Ocean-bulk Shipping & Trading SA v. TMT Asia Limited, [2010] UKSC 44 could be understood as the civil-law analogue of the decision in Pepper. The court held in this case that even statements made in the course of ‘without prejudice negotiations’ were admissible for the purpose of interpretation of the agreement.

The specific dispute in this case revolved around the correct interpretation of a compromise agreement between the parties. While the respondent sought to place extensive reliance on statements made by the appellant in the course of settlement negotiations, the appellant argued that the negotiations were expressly ‘without prejudice’ and consequently, barred from consideration.

The court began its analysis by tracing the historic development and expansion in scope of the rule excluding ‘without prejudice’ statements. In one of the earliest decisions on this point, Lord Lindley explained the scope of the ‘without prejudice’ rule in these words:

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.” [Walker v Wilsher (1889) 23 QBD 335 at 337].

However, the scope of the rule was considerably expanded in course of time. Hence in Unilever plc. v. Procter & Gamble Co. [2000] 1 WLR 2436 for instance, it was held that the exclusionary rule makes inadmissible in any subsequent litigation connected with the same subject matter, proof of any admissions made with a genuine intention to reach a settlement. Admissions made to reach a settlement with a different party within the same litigation were also held inadmissible, whether or not settlement was actually reached with that party. However, the court also went on to recognise a set of exceptions to the application of the ‘without prejudice’ rule. Some of them are as follows:

(1) … when the issue is whether without prejudice communications have resulted in a concluded compromise agreement, those communications are admissible. …

(2) Evidence of the negotiations is also admissible to show that an agreement apparently concluded between the parties during the negotiations should be set aside on the ground of misrepresentation, fraud or undue influence.

(3) 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 may be admissible as giving rise to an estoppel.

(4) Apart from any concluded contract or estoppel, one party may be allowed to give evidence of what the other said or wrote in without prejudice negotiations if the exclusion of the evidence would act as a cloak for perjury, blackmail or other ‘unambiguous impropriety’ …

(5) Evidence of negotiations may be given (for instance, on an application to strike out proceedings for want of prosecution) in order to explain delay or apparent acquiescence.

(7) The exception (or apparent exception) for an offer expressly made ‘without prejudice except as to costs’ was clearly recognised by this court in Cutts v Head, and by the House of Lords in Rush & Tompkins, as based on an express or implied agreement between the parties.

While the decision in Unilever permitted reference to without prejudice statements only for the purpose of determining whether a contract was concluded or not, [the first exception above] later decisions in Pearlman v. National Life Assurance Co of Canada, (1917) 39 OLR 141 and in New Zealand in Butler v. Countrywide Finance Ltd., (1992) 5 PRNZ 447 recognised a further exception. They held that reference to ‘without prejudice’ statements were permissible for rectification of the compromise agreement. The court in Ocean Bulk Shipping goes a step further – holding in favour of admissibility of statements made during ‘without prejudice negotiations’ for the purpose of a compromise agreement between the parties.

The reasoning of the court was based on two prongs – the first, drawing support from the first exception in Unilever and the second, from the decisions in Pearlman and New Zealand in Butler. On the first ground, the court reasoned that “no sensible line can be drawn between admitting without prejudice communications in order to resolve the issue of whether they have resulted in a concluded compromise agreement [the first exception in Unilever] and admitting them in order to resolve the issue of what that agreement was.” The second ground of reasoning was based on the fact that a distinction between this case and a case of rectification (where ‘without prejudice’ statements were admissible as per Pearlman and New Zealand in Butler) would be “unprincipled”.

The Indian law on this point is governed by s. 23 of the Indian Evidence Act, 1872. It reads:

23. Admission in Civil cases, when relevant – In civil cases no admission is relevant, if it is made either upon an express condition that evidence of it is not to be given, or under circumstances from which the court can infer that the parties agreed together that evidence of it should not be given.

A bare reading of this provision indicates that the statutory ‘without prejudice’ rule in India has not undergone the vast expansion in scope that the judicially evolved rule in England had gone through, culminating in the decision in Unilever. The exclusionary rule in India is hence, confined to ‘admissions’ alone. A mere statement made, even in the course of a ‘without prejudice’ negotiation would hence, not be barred from consideration at all in India as per s. 23.

3 Comments on "‘Without Prejudice’ Statements – An ‘Interpretation’ Exception"

  1. Shantanu November 1, 2010 at 1:25 pm ·

    Hi KP,

    Thanks for yet another interesting post.

    However, I was wondering in what ways the Indian law would depart from the position under Unilever. Although section 23 does restrict the bar to ‘admissions’, ss. 17-20 define admissions quite broadly. In fact, section 18 provides that ‘Statements made by a party to the proceeding, or by an agent to any such party, whom the Court regards, under the circumstances of the case, as expressly or impliedly authorized by him to make them, are admissions’. The narrowing down of the scope of admissions in the IEA is only in relation to them being proved (section 21). Hence, isn’t it reasonable to say that the bar under section 23 is absolute in relation to all statements made by a party or its agent, provided that it is expressly or impliedly without prejudice?

  2. Krishnaprasad November 2, 2010 at 8:05 am ·

    Shantanu, thanks for the comment.

    I agree with you. The only condition that the Evidence Act seems to impose for a statement to qualify as an admission seems to be that it should suggest “any inference as to any fact in issue or relevant fact” [s. 17], apart from the condition under s. 18 on the person making the admission.

    However, I was wondering if s. 91 would bar such statements. It reads:

    91. Evidence of terms of contracts, grant and other dispositions of property reduced to form of document – When the terms of a contract, or of a grant, or of any other disposition of property have been reduced to the form of a document, and in all cases in which any matter is required by law to be reduced to the form of a document, no evidence shall be given in proof of the terms of such contract, grant or other disposition of property, or of such matter, except the document itself, or secondary evidence of its contents in cases in which secondary evidence is admissible under the provisions herein before contained.

    Would not the phrase “proof of the terms of such contract” not exclude evidence of a statement made in the course of negotiations?

  3. Shantanu November 2, 2010 at 9:40 am ·

    Yes KP, that seems right. So that would mean that the IEA deals separately with pre-contractual negotiations and statements as to liability etc., the former being excluded by section 91 and the latter by section 23.

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