The without prejudice rule provides that negotiations between parties to settle a dispute held on a without prejudice basis cannot be referred to in subsequent legal proceedings. The purpose of the rule is to encourage parties to settle their dispute without legal proceedings by allowing them to negotiate freely and frankly, without the fear that any admissions or offers made in those negotiations will be held against them in subsequent legal proceedings.

The Supreme Court in England and Wales has now created a new exception to the rule, allowing without prejudice negotiations to be admitted as evidence in respect of disputes between the parties as to the interpretation of any agreement entered into by them and arising out of the without prejudice negotiations.

The "Interpretation Exception" is of importance to UK practitioners and legal counsel alike.