Without Prejudice Communications Admissable To Interpret
Settlement Terms
By Alistair Feeney
In Oceanbulk Shipping & Trading SA v TMT Asia Limited (29 July 2009) the High Court considered whether without prejudice correspondence leading up to a settlement agreement was admissible as evidence in a dispute over the terms of the settlement.
Oceanbulk and TMT had concluded a settlement agreement in June 2008 after TMT had defaulted under a number of forward freight agreements. One of the terms of the settlement was that "In respect of FFA open contracts between TMT Interests and [Oceanbulk] for 2008, the parties shall crystallise within the ten trading days following 26th June 2008, as between them, fifty per cent of those FFAs at the average of the ten days' closing prices for the relevant Baltic Indices from 26th June 2008 and will cooperate to close out the balance of 50 per cent of the open FFAs for 2008 against the market on the best terms achievable by 15th August 2008".
Oceanbulk brought a claim against TMT on the grounds that TMT breached the settlement agreement, including by not taking steps to close out FFAs, with the result that Oceanbulk were exposed to the large falls in the freight market which occurred during autumn 2008. Oceanbulk claim that if the FFAs had been closed out in August 2008 they would have made a profit of US$47 million, whereas leaving the FFAs open into autumn led them to owe TMT around US$86 million.
Oceanbulk argued that the close out obligations in the settlement agreement only concerned FFAs between Oceanbulk and TMT. However, TMT sought to adduce evidence in the form of without prejudice communications leading up to the settlement agreement, which TMT submitted showed Oceanbulk informing TMT that for each FFA between the parties Oceanbulk held an opposite position under an FFA with another market participant, and that those FFAs were to be closed out at the same time as the FFAs between Oceanbulk and TMT, with the result that Oceanbulk's exposure to market fluctuation would always be limited.
As a general rule, without prejudice communications are not admissible as evidence under English law. One established exception to this rule is that without prejudice communications are admissible if the dispute concerns whether those communications resulted in a settlement agreement. Oceanbulk submitted that this exception did not extend to evidence about the interpretation of a concluded settlement agreement.
The High Court rejected Oceanbulk's submission and held that without prejudice communications were admissible as evidence in a dispute over the interpretation of a settlement. The judge found that there was no good reason to distinguish between evidence of the existence of a settlement and evidence of the terms of a settlement, and it was in the interests of justice to admit without prejudice communications if it assisted the Court to interpret parties' intentions.
This decision provides a useful reminder that even genuinely without prejudice discussions and correspondence may not always be kept from courts and arbitrators, and that the principal advantage of negotiating on a without prejudice is that communications are unlikely to come to the attention of a judge or arbitrator if negotiations fail.
Excluding Rights Of Appeal Against Arbitration
Awards
By Matthew East
In the recent case of Shell Egypt v Dana Gas Egypt (7 August 2009) the High Court considered whether an arbitration clause which provided that arbitration awards were to be "final, conclusive and binding" excluded statutory rights of appeal.
The dispute arose from a Farm-In and LNG Cooperation Agreement ("the FIA") relating to concessions for crude oil and gas exploration in the Nile Delta. Shell sought to terminate the FIA by giving a 30-day termination notice under the FIA. This was however an error because the termination clause Shell relied upon no longer had effect. Shell subsequently sought in UNCITRAL arbitration to justify the termination on grounds that Dana had been in repudiatory breach of the FIA.
The arbitral tribunal found that Dana had been in repudiatory breach of the FIA. However, the tribunal also found that Shell had lost its right to terminate for repudiatory breach because instead of accepting the repudiatory breaches as bringing the FIA to an immediate end, Shell had given its 30-day termination notice, and thereby affirmed the existence of the FIA, albeit for a limited period.
Shell applied to the High Court for permission to appeal against the arbitration award. Dana argued that the High Court had no jurisdiction to hear the appeal application, because the arbitration clause in the FIA provided for awards to be "final, conclusive and binding".
The Court rejected Dana's argument and held that the words in the arbitration clause did not exclude Shell's right of appeal on points of law under section 69 of the Arbitration Act 1996. The Court held that the words "final, conclusive and binding" simply meant that the parties agreed to abide by an arbitration award, that the claimant in the arbitration could not bring the same claim again in a fresh arbitration or court action, and that neither party could reopen in a later dispute issues of law or fact which had been determined in the award. If an arbitration clause was to exclude statutory rights of appeal, clear words to that effect were required.
The Court also observed that the rules of the ICC and LCIA specifically state that the parties waive rights of appeal or further recourse against awards, whilst the GAFTA rules, in common with the arbitration clause in the FIA, merely refer to awards being final, binding and conclusive.
This case is another example of the close scrutiny that the English courts give to arbitration clauses, and underlines the need for clarity in the drafting of such provisions. It should probably also be treated as establishing that the GAFTA rules do not exclude statutory rights of appeal under English law.
HFW London Commodities Breakfast Seminars
In October 2009, HFW's Trade & Energy Group will present another series of breakfast seminars covering a range of current issues affecting commodity trading.
The seminars will be held at HFW's London offices on 1, 8 and 15 October 2009. The seminars are primarily designed for in-house counsel, cargo/ ship operators, and risk controllers, but anyone with an interest in the field is welcome to attend.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.