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Privileged but admissible? When can without prejudice material be pleaded in statements of case?

26 June 2020. Published by Simon Hart, Partner and Rosy Gibson, Associate

The High Court considered the scope of the existing exceptions to the Without Prejudice Rule in its recent decision of Berkeley Square Holding & others v Lancer Property Asset Management & others(1). This well-known rule protects communications made in a genuine attempt to settle an existing dispute from later deployment in court. The Court allowed passages from papers prepared for a mediation to be admitted into the proceedings under two exceptions to the Without Prejudice Rule.

Factual overview
The Claimant companies own a portfolio of London properties with an approximate total value of £5 billion. In 2005 Lancer Property Asset Management, the First Defendant, became the asset manager of the portfolio for which it was to receive various fees for its services. The relevant agreement was signed on behalf of the Claimants by Dr Mubarak Al Ahbabi who was responsible for the management of the Claimants' beneficial owner's private assets at the time.

Lancer's fees were later increased by a side letter, approved by Dr Al Ahbabi on the Clamaints' behalf.  A portion of the increased fees received under the side letter were paid by Lancer to Becker Services Ltd, a company beneficially owned by Dr Al Ahbabi. It is these payments to Becker that are at the heart of the current proceedings.

By early 2012, a dispute had developed over Lancer's entitlement to certain fees under the side letter. The parties went to mediation and in its mediation papers Lancer referred to its arrangement with Becker in relation to the side letter fees, the sums paid under that arrangement, and Becker's ownership. The dispute was settled shortly after the mediation.

In 2018, the Claimants began separate proceedings in the English High Court. One allegation was that Lancer and Dr Al Ahbabi had been complicit in a fraud on the Claimants, the main instrument of which had been the side letter: the Claimants' case was that they were not aware of the sums paid by Lancer to Dr Al Ahbabi (via Becker) until 2017. Lancer's defence to these allegations, is that the payments to Becker were authorised by the beneficial owner of the claimants, were subsequently ratified by the claimants and, that the claimants knew of Dr Al Ahbabi's interest in Becker long before 2017. It was in this context that Lancer wished to refer to relevant passages of its 2012 mediation papers.

It was common ground between the parties that the mediation papers came within the Without Prejudice Rule but were the key passages admissible anyway under one or more of the exceptions to that Rule?

What were the exceptions?
The Judge was at pains to reinforce that the Without Prejudice Rule is founded on the important public policy of encouraging litigants to settle their differences before trial.(2) However, justice demands that it is not an absolute rule and is subject to exception in limited circumstances; six such exceptions were set out in Unilever.(3) The Unilever exceptions are capable of incremental, principled extension, where absolutely necessary.(4)

The relevant passages of the Lancer mediation papers fell into two exceptions and were therefore admissible;

  1. Fraudulent misrepresentation
    That a party to a concluded settlement agreement can rely on preceding Without Prejudice discussions to demonstrate that the agreement was reached following a fraudulent misrepresentation by the other party is well established as an exception to the Without Prejudice Rule.  Here, Lancer was seeking to rely on preceding Without Prejudice discussions to demonstrate that there had been no misrepresentation on the other party.  In other words, it wished to uphold, rather than undermine the settlement agreement using an exception to the Without Prejudice Rule.
    The Judge found that either the existing exception covered this situation, or that a small and principled extension to the exception was required to serve the interests of justice: "if you can use the antecedent negotiations to prove a misrepresentation and thereby rescind an agreement, it is illogical to say that you cannot use them to disprove a misrepresentation and thereby uphold an agreement" [52].

  2. Issues and evidence – Muller(5)
    If a party puts a point in issue, it cannot then rely on the Without Prejudice Rule to exclude evidence, the hearing of which is required for the issue to be fairly justiciable.(6)

In this case, the Claimants' contention that they did not know about the payments to, or of Dr Al Ahabi's interest in, Becker until 2017 was fundamental to their allegation of fraud. Their case relied heavily on this lack of knowledge such that this issue would not be fairly justiciable if Lancer were not able to put in evidence of what it told the Claimants in its mediation papers in 2012.

When deciding if the relevant passages of the Lancer mediation papers fell into this exception, the Judge looked at these factors:

  • Lancer was not relying on any admission by the Claimants in the mediation (on the contrary, it was what was said by Lancer that was relevant); and
  • the relevant passages were included in the Lancer mediation papers by way of background and were largely irrelevant to the 2012 dispute itself.

So, there was no serious risk that the application of this exception to the Without Prejudice Rule would fetter future free and open exchanges between parties exploring settlement of their dispute.  The balance therefore weighed in favour of admitting the passages so as to avoid the risk of the Court being misled.

This judgment is a deft foray into a very complicated area of law and a useful reminder of the importance of the Without Prejudice Rule: while it is not absolute, the Court will only make exceptions to it in limited circumstances. In such cases, the Court must balance the policy justification of the Without Prejudice Rule on the one hand with the interests of justice on the other. Unsuprisingly, where that balance lies will depend on all the circumstances of each case though it is clear that the public policy of encouraging parties to speak freely in without prejudice discussions will not be easily outweighed.

RPC acted for the successful party in this application.

(1) [2020] EWHC 1015 (Ch)
(2) Rush & Tompkins Ltd v Greater London Council [1989] AC 1280 at [1299].
(3) Unilever plc v Proctor & Gamble Co [2001] 1 WLR 2436 at [2444-2446].
(4) Single Buoy Moorings Inc v Aspen Insurance Ltd [2018] EWHC 1763 (Comm) at [54].
(5) So-called after the case in which the exception was first formulated, Muller v Linsley & Mortimer [1996] PNLR 74.
(6) [2019] EWHC 102 (Ch).