Oceanbulk Shipping & Trading SA v TMT Asia Ltd & Ors

Summary

Michaelmas Term
[2010] UKSC 44
On appeal from: [2010] EWCA Civ 79

JUDGMENT

Oceanbulk Shipping & Trading SA (Respondent) v TMT Asia Limited and others (Appellants)

before

Lord Phillips, President
Lord Rodger
Lord Walker
Lord Brown
Lord Mance
Lord Clarke
Sir John Dyson SCJ

JUDGMENT GIVEN ON

27 October 2010

Heard on 14 and 15 July 2010

Appellant
Jonathan Crow QC
James Leabeater
(Instructed by Ince & Co)

Respondent
Alistair Schaff QC
James Willan
(Instructed by Berwin Leighton Paisner LLP)

LORD CLARKE (with whom Lord Rodger, Lord Walker, Lord Brown, Lord Mance and Sir John Dyson agree)

Introduction

This appeal raises a question as to the scope of the exceptions to the principle that statements made in the course of without prejudice negotiations are not admissible in evidence ("the without prejudice rule"). Specifically, the question is whether facts which (a) are communicated between the parties in the course of without prejudice negotiations and (b) would, but for the without prejudice rule, be admissible as part of the factual matrix or surrounding circumstances as an aid to construction of an agreement which results from the negotiations, should be admissible by way of exception to the without prejudice rule.

The dispute between the parties relates to a series of forward freight agreements ("FFAs") and is set against the background of the extraordinary volatility of the freight markets in 2008. Capesize bulk carriers are large vessels, so called because they were historically too large to pass through the Suez Canal. The Baltic Exchange index of daily rates of time charter hire for such vessels fell from about US$200,000 per day in May 2008 to US$3,000 per day in December 2008. Each FFA was a swap agreement which consisted of a bet on whether the settlement rate (being the average of the published rates, as stated in the relevant index, for each index publication day in the relevant settlement month) would, on specified future settlement dates, be higher or lower than the contract rate as defined in the FFA.

Under each FFA the seller bet that the market rate on the settlement dates would be lower than the contract rate and the buyer bet that it would be higher. If it was higher on a given settlement day, the seller was obliged to pay the difference between the two rates multiplied by the contract period, which was usually the number of days in the month. If it was lower the buyer was obliged to pay the seller the appropriate amount. The relevant FFAs had settlement days at the end of one or more months within the period May to December 2008. At the end of each month all settlement sums due under all the FFAs were to be netted off and payment made by the indebted party under the net position to the other party. (I use the word "bet" because it was used by the parties in the agreed statement of facts and issues and because it appears to me to be…

JUDGMENT