In a landmark judgment, Oceanbulk Shipping & Trading SA v TMT Asia Limited and others [2010] UKSC 44, the Supreme Court has limited the application of the "without prejudice rule". This judgment has far reaching implications with respect to the negotiation of settlement agreements.

The "without prejudice" rule was established to encourage the parties in a dispute to reach a settlement during the course of proceedings. Any communications (oral or written) between parties aimed at settling a dispute are "without prejudice" and cannot be put before the courts in evidence should such negotiations fail. The Supreme Court's judgment has created an exception to this rule.

Relevant "without prejudice" communications are now admissible as evidence of the true meaning of any provision in the settlement agreement in the event that the parties disagree on that meaning.

This judgment has highlighted the need for caution when negotiating and drafting settlement agreements. It is important to use clear language so that there is no room for ambiguity when the parties' agreement is recorded in writing.

For more information on the negotiation and drafting of settling agreements can be found here.