On 3 November 2022 the Privy Council handed down what is likely to be an important (if not seminal) judgment on what constitutes without prejudice negotiations in the context of construction contracts. It concerned the construction of an oil rig for a state-owned company.
A & A Mechanical Contractors & Company Limited v. Petroleum Company of Trinidad & Tobago – click here for the judgment.
The issue was whether negotiations pursuant to a contractual obligation to agree variations (and thier value) in a construction contract were without prejudice. There was no authority on the point. At paragraph 69 the Board said: “the process is with a view to seeking agreement in accordance with their contractual obligation under clause 7. It is to be seen as an ongoing process which is distinct from negotiations between parties who in contemplation of litigation seek to settle their differences. There is no policy reason why the contractual process should be conducted on a without prejudice basis. Rather, if subsequently a court must determine whether there has been a variation and the value to be attributed to it the court will be assisted by knowing the earlier positions adopted by the parties.”
Some of the correspondence was marked “WP” and the negotiations were entered into at or about the same time as litigation being contemplated. The case is likely to have a significant impact in this area; indeed in the context of any contract that contains a clause requiring the parties to negotiate values, prices or fees.
Those drafting or advising on construction contracts or other contracts with such clauses should consider the judgment and its implications; and insofar as there is an intention for any negotiations to be without prejudice how the strictures of the ruling may be avoided.
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November 21, 2022
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