Are mediations really ‘without prejudice’?

09 June 2021

Alternative dispute resolution (ADR) comprises a fundamental element of modern litigation. Pre-litigation processes and court rules in Queensland[1] provide for ADR, by way of settlement conference or mediation, to encourage settlement of the matter prior to commencement of action in court and again before trial.

All conduct, communications and agreements made during, or arising from, settlement conferences and mediations are understood to be ‘without prejudice’. It is not unusual for parties to a mediation to agree as much in writing. The consequence is that, in genuine attempts to seek compromise and reach settlement, discussions often extend beyond the mutually known facts and evidence between the parties.

The recent decision of the England and Wales Court of Appeal in Berkeley Square Holdings Ltd & Ors v Lancer Property Asset Management Ltd & Ors [2021] EWCA Civ 551 serves as a reminder that ‘without prejudice’ communications during mediation are not necessarily afforded protection from later use by either or both of the parties.

Berkeley Square Holdings Ltd & Ors v Lancer Property Asset Management Ltd & Ors [2021] EWCA Civ 551: Facts

A dispute arose as to the entitlement of property managers to fees for managerial services in relation to a £5 billion property portfolio in Central London.[2]
The parties to the dispute signed a mediation agreement, which required all persons involved to keep confidential all information arising out of, or in connection with, the mediation, and confirmed that such information was agreed to be ‘without prejudice’.[3] Position papers, marked ‘without prejudice’, were exchanged by the parties prior to the mediation. Settlement deeds set out the terms of the settlement reached.[4]
Almost six years later, the property owners commenced proceedings alleging misappropriation of over £26 million on the basis that their agent had no actual or ostensible authority to sign the settlement deeds on their behalf and that the property managers knew, or suspected, that the agent at the mediation was in breach of his fiduciary duties in agreeing to the settlement deeds.[5]
In their defence, the property managers alleged the property owners knew of, and ratified, the payments on the basis of ‘facts in [the property managers’] mediation position papers’, statements made during the mediation and the settlement deeds executed thereafter.[6]
The property owners sought to have the allegations struck out as they were ‘privileged as being without prejudice and inadmissible in evidence’.[7]

Findings

There are eight generally accepted exceptions to the ‘without prejudice’ rule. The two exceptions, through which ‘without prejudice’ communications may be admissible, relevant to this case were:

Exception two – to establish that an apparently concluded agreement reached by way of negotiation should be set aside due to misrepresentation, fraud or undue influence;[8] and
Exception six – if the information is disconnected from the truth or falsity of the conduct that constitutes the cause of the action, such that it falls ‘outside the principle of public policy protecting without prejudice communications’.[9]

The Court of Appeal unanimously agreed that exception two applied (but not exception six) and the appeal was dismissed.

Application of exception two

Parties to ‘without prejudice’ ADR are permitted to adduce evidence from this process to prove misrepresentation, fraud or undue influence on the part of the other party.[10]

The property owners submitted that exception two applied only to the party attempting to set aside an agreement[11] and as the property managers were seeking to prevent the setting aside of the settlement deeds, they were unable to adduce ‘without prejudice’ evidence.[12] Their Honours failed to find grounds for this distinction, as refusing the exception’s reversal would be ‘unjust’ and contrary to the underlying principle.[13]

The settlement deeds were held to be no different to any other contract,[14] such that the existence of proper, authorised consent was foundational; the lack of which is a well-established ground for setting aside.[15]

In this case, the property owners’ agent’s substantial personal interest in the settlement deeds, and his authority to execute such an agreement on their behalf, was in dispute. Consequently, the property owners’ knowledge of this interest and authority, or lack thereof, was central.[16]

‘Without prejudice’ statements are admissible for the purpose of establishing the ‘factual matrix known to the parties against which the contract falls to be construed’.[17] The settlement deeds, and statements made by the property managers, were held to be relevant to determine the facts of which the parties were aware at the time of the mediation, constituting the surrounding circumstances upon which the settlement deeds were formed.[18]

Their Honours held that just as the property owners were permitted to adduce ‘without prejudice’ evidence to substantiate the lack of authority of their agent, so too were the property managers permitted to adduce such evidence to rebut the claimed ignorance of the property owners to certain key facts of the negotiation.[19]

Application of exception six

The findings of the High Court in relation to exception six were not upheld on appeal, though consideration was given by the Court of Appeal to the principles that underlay this exception. The Court of Appeal said that the relevant question was whether the property owners had, in pleading their lack of knowledge, waived privilege in the mediation material. As this allegation was not raised in either proceeding, it could not be further considered and ‘this is not the case to decide whether a new exception of this type exists’.[20]

Relevance

The Court of Appeal reiterated that “the purpose of ‘without prejudice’ negotiations is to arrive at a compromise of the dispute’. Their Honours agreed with the property owners’ submission that ‘without prejudice’ ‘is a joint privilege which can be waived only with the consent of all parties… [and] applies to everything that is communicated in the course of without prejudice communications or negotiations’.

However, these decisions reiterate that it is prudent for parties engaged in ‘without prejudice’ ADR processes to remain cognisant of the potential implications of privileged information disclosed during the course of those processes becoming admissible evidence in future proceedings.

^[1]^{Rule 553 of the Uniform Civil Procedure Rules 1999; section 36 of the Personal Injuries Proceedings Act 2002; section 289 of the Workers’ Compensation and Rehabilitation Act 2003; section 51A of the Motor Accident Insurance Act 1994.}
^{[2] Berkeley Square Holdings Ltd v Lancer Property Asset Management Ltd [2021] EWCA Civ 551, [3].}
^{[3] Ibid, [10].}
^{[4] Ibid, [14].}
^{[5] Ibid, [16].}
^{[6] Ibid, [19].}
^{[7] Ibid, [21].}
^{[8] Underwood v Cox (1912) 4 DLR 66.}
^{[9] Muller v Linsley and Mortimer [1996] PNLR 74.}
^{[10] Berkeley Square Holdings Ltd v Lancer Property Asset Management Ltd [2021] EWCA Civ 551, [30].}
^{[11] Ibid, [44].}
^{[12] Ibid, [49].}
^{[13] Ibid, [50].}
^{[14] Ibid, [52].}
^{[15] Ibid, [47], [51].}
^{[16] Ibid, [48].}
^{[17] Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] AC 1101; Berkeley Square Holdings Ltd v Lancer Property Asset Management Ltd [2021] EWCA Civ 551, [47].}
^{[18] Berkeley Square Holdings Ltd v Lancer Property Asset Management Ltd [2021] EWCA Civ 551, [30].}
^{[19] Ibid, [54].}
^[20]^{Ibid, [83].}