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‘What goes on behind closed doors…’

One of the great strengths behind mediation, whether conducted before the issue of proceedings or after, is that it allows the parties to have frank discussions about their dispute. The law protects the secrecy of those discussions by two methods. Firstly, confidentiality principles. Secondly, without prejudice privilege. This article is an explanation of both, with an explanation of those exceptions which may allow the courts behind those ‘closed doors’.

The courts support mediation as a cost-effective method of alternative dispute resolution (‘ADR’), and encourage the parties’ to attempt to settle their disputes by allowing proceedings to be stayed (suspended) to allow for that and will even go so far as to punish a party which unreasonably refuses to mediate by means of adverse costs orders, including denying a victor the recovery of a proportion of their legal costs.

Most parties who have undergone mediation agree that while it may not confer a sense of a ‘win’, it delivers outcomes which the parties can live with, particularly when the alternative is expensive litigation to trial, the outcome of which can never be guaranteed.  Once a compromise has been reached in a mediation over a civil dispute, this is reduced to writing in a settlement agreement which is immediately binding (the position is different in family cases).   Such settlements can embrace solutions which go beyond the win/lose dichotomy that is all a court can deliver, and may preserve existing commercial relationships which would otherwise be irreparably damaged.  It is fair to assert that the parties could only get to that position if they can be confident that (a) any concessions they may make to arrive at a compromise cannot be subsequently used to their detriment in court if a settlement is not achieved, and (b) the mediator him or herself is also bound to keep the parties’ discussions confidential.

Confidentiality

Although it is generally accepted that confidentiality is key to mediation, there is no standard definition of what constitutes confidentiality.  A typical mediation agreement will say, for example, that “The Parties, their representatives and advisors and the Mediator agree in relation to all information statements whether written or oral disclosed or made to them in the mediation including any preliminary steps,…to keep them confidential (save only as may be required to report to the Court or an arbitrator or arbitrators whether or not has been resolved to professional advisors, HM Revenue and Customs, relevant regulatory bodies or as may be required by law), …not to use them for a purpose other than the mediation…that no notes taken by the parties or by the Mediator and no other evidence concerning the conduct of the mediation including oral submissions, oral statements, concessions or admissions of law or fact will be adduced in evidence in any subsequent proceedings in Court or before an Arbitrator or Arbitrators in connection with the Dispute ….”  If a settlement is achieved, it is not uncommon for the parties’ agreement to include a confidentiality clause, which will provide that the terms of their settlement remain confidential.

Cross-border mediations between parties domiciled in the EU, and family mediations in Scotland are regulated by statutes which provide for confidentiality.  However, no equivalents apply to domestic civil mediations. In the absence of a standard definition of confidentiality, the best one can say is that (a) in mediation, it is a contractual matter (whether written or implied by participating), (b) most of the actors know what confidentiality looks like, and (c) the participants elect to use mediation with the expectation that it will be observed.

Confidentiality is not absolute; courts seek to respect it and rarely compel the disclosure of information which the parties have regarded as confidential, but where it is necessary in the interests of justice for evidence to be given of confidential matters, the courts will order or permit that evidence to be given or produced to resolve any sufficiently serious unfinished business connected with the case.

In general, a party who agrees to mediate but then takes an unreasonable position in the mediation is in the same position as a party who unreasonably refuses to mediate, and can be punished in costs even if they win at trial. See (1) James Carleton, Seventh Earl Of Malmesbury (2) William John Maltby (3) Kathleen Hobbs (4) Wilsco 283 Ltd -v- Strutt & Parker (A Partnership) [2008] EWHC 424 (QB), where a mediation took place to resolve the question of damages payable after the claimants had broadly succeeded in a trial on issues of liability. The mediation failed and the claimants, who had claimed damages of £87.8m were found at the quantum trial to have exaggerated these, and their damages were assessed at £915,139.  This exaggeration, coupled with an unreasonable stance during mediation, resulted in their costs recovery in respect of the quantum trial being slashed to 68% (and the vagaries of a detailed assessment of costs would reduce those further).

Every so often, there are doubts about the veracity of any settlement which has resulted from mediation. In Tim Brown (as trustee in bankruptcy of the estate of Jane Elizabeth Rice) –v- (1) Stephen Rice (2) Smita Patel [2007] EWHC 625 (Ch) (Brown v Rice), the parties had entered into a mediation agreement that contained standard confidentiality clauses and a provision that any settlement reached in the mediation would not be binding until it had been reduced to writing and signed by, or on behalf of, the parties. The dispute did not settle on the day of the mediation, but an offer was left on the table. Mr Brown argued that he had settled the case the following morning by accepting the offer made the previous evening within the time stipulated. This was disputed by Mrs Patel, who applied for a declaration that there was no binding settlement agreement. It was ordered that the question of whether the proceedings had been settled should be heard as a preliminary issue before the High Court.  Such was the case’s importance that ADR Group, a leading mediation provider, was given leave to intervene in the trial of the preliminary issue.  The court had no difficulty in enquiring what happened during the mediation to help it decide that there had been no binding settlement. This was judged necessary because the clause in the mediation agreement requiring any settlement to be reduced to writing and signed to be effective was not watertight – the parties might in some cases either expressly, or impliedly, agree to vary, or waive, those provisions, or be estopped from relying upon them.  This case reminds all participants in a mediation of the importance of reducing their agreements to writing as soon as possible after mediation.

Mediators are not above being required to give evidence where serious allegations are involved.   In Farm Assist Ltd (In Liquidation) v Secretary of State for the Environment, Food and Rural Affairs [2009] EWHC 1102 (TCC), Farm Assist had been in dispute with DEFRA concerning the 2001 Foot and Mouth epidemic, and brought proceedings to set aside a settlement agreement entered into as a result of mediation, on the grounds that the settlement was entered into under economic duress. DEFRA presented the mediator with a witness summons (a subpoena in old money), which she sought to set aside.  The mediator contended that as well as the mediation agreement, there was a mediation procedure document which provided that neither party would call her as a witness in proceedings about the dispute, and that in any event, her evidence was confidential and/or legally privileged and/or irrelevant.  The court refused to set aside the witness summons.  The agreement not to call the mediator as a witness "in relation to the dispute" was limited to the underlying dispute, and did not include whether the settlement agreement was entered into under duress. It was in the interests of justice for the mediator to give evidence as to what was said and done in the mediation, and while she had a right to rely on the confidentiality provision in the agreement, the interests of justice in this case favoured evidence being heard of what was said and done in the mediation in order to get to the bottom of Farm Assist’s contention about duress.

Without Prejudice privilege

In Brown v Rice, the judge characterised mediation as a “…form of assisted without prejudice negotiation”, and stated that no distinction should be made between direct negotiations and those conducted within a mediation: both are to be treated as subject to the without prejudice rule. 

Lord Griffith in Rush & Tompkins v GLC [1989] AC 1280 said of without prejudice privilege that: “The rule applies to exclude all negotiations genuinely aimed at settlement whether oral or in writing from being given in evidence. A competent solicitor will always head any negotiating correspondence “without prejudice” to make clear beyond doubt that in the event of the negotiations being unsuccessful they are not to be referred to in the subsequent trial. However, the application of the rule is not dependant upon the use of the phrases “without prejudice” and if it is clear from the surrounding circumstances that the parties were seeking to compromise the action, evidence of the content of those negotiations will, as a general rule, not be admissible at the trial and cannot be used to establish an admission or partial admission.”

This doctrine allows parties to be candid about their positions, secure in the knowledge that their disclosures cannot be used against them in subsequent litigation. The doctrine therefore supports the courts’ encouragement of mediation as a way of avoiding litigation altogether.  Many commentators consider that without prejudice privilege is what really underpins the confidential nature of mediation rather than notions of confidentiality.

The breadth of this principle is well illustrated by Ofulue v Bossert [2009] UKHL 16, an adverse possession case in which the House of Lords held that a without prejudice letter written in 1992 in which Ms Bossert and her father had offered to buy the property, thereby impliedly admitting the Ofulues' title, was not admissible in subsequent proceedings.  Lord Neuberger said "…save perhaps where it is wholly unconnected with the issues between the parties to the proceedings, a statement in without prejudice negotiations should not be admissible in evidence, other than in exceptional circumstances such as those in Unilever".

That case, Unilever plc v Procter & Gamble Co [2000] 1 WLR 2436, confirms that, like confidentiality, the without prejudice rule is not absolute. Without prejudice communications may be admitted into evidence (a) where it is necessary to determine whether the communications have resulted in a concluded settlement (like Brown v Rice); (b) instances of misrepresentation, fraud, undue influence or some other ‘unambiguous impropriety’, and (c) regardless of whether settlement is reached, where one party is intended to and does in fact act following a clear statement made by the other party in the negotiations, thereby giving rise to arguments over procedural delays, acquiescence and estoppel (fairness).

An example of ‘unambiguous impropriety’ which allows the court to go behind without prejudice privilege includes Ferster v Ferster [2016] EWCA 717, which concerned a without prejudice offer from a company’s shareholders to a minority shareholder to sell him the company shares for an increased amount, on the basis that they knew of alleged wrongdoing that could lead to the company taking committal proceedings against him, which the court judged to amount to blackmail. These threats were made via a mediator in the course of without prejudice negotiations, but were judged to fall within the unambiguous impropriety exception to without prejudice privilege and the shareholder would be permitted to rely on it in his unfair prejudice petition. 

Where a party makes a clear and unambiguous statement in without prejudice negotiations with the intention that the other party will rely on it, and they do, the statement may be put in evidence to raise an estoppel.  This is because it would be unfair to allow the first party to hide behind the cloak of without prejudice privilege. Therefore, evidence of negotiations may be admissible to give the court a fair picture of the rights and wrongs of the delay. In Family Housing Association v Michael Hyde & Partners [1993] 1 WLR 354, the defendant architects applied to have the claim dismissed for want of prosecution.  In its response to that application, the claimant submitted an affidavit plus exhibits from its solicitor which focussed on the content of without prejudice negotiations which took place between the parties. The defendant acknowledged that it is permissible to refer to the fact that without prejudice negotiations have taken place, but contended it was not permissible to refer to the details of what was offered, or conceded for negotiation purposes only, or said. The affidavit’s exhibits indicated that far from shirking their responsibilities to progress the case, it was the claimants who were suggesting the fixing of an early trial date, while the defendant disagreed, holding out for expert evidence and further amendments to the pleadings (as insured defendants’ solicitors commonly do). In order for its application to have the claim struck out succeed, the defendant had to show the claimant was guilty of unreasonable and inexcusable delay causing substantial prejudice to the defendant, so it made a further application to have these (disadvantageous) parts of the affidavit struck out on the grounds of without prejudice privilege. The Court of Appeal refused, holding that the content of the correspondence would show which side was willing to move ahead and which was not, and would be admissible in the context of this interim application for strike out for want of prosecution. However, the material would not be admissible at trial.  It can therefore be seen that in order to deliver procedural justice, it is unlikely that a party which has induced delay or acquiesced in it will be able to avail itself of without prejudice privilege where it would be unfair to do so.  A situation like this could arise where, at a mediation, the dispute does not settle and the parties then go on to discuss case management but then do not implement what they have agreed, and one party unfairly tries to take advantage of that.

It is also important to remember that for any disclosures made during mediation to enjoy the protection of without prejudice privilege, they must be made in order to achieve a settlement, and are unlikely to include statements of pure fact. In Savings Advice Ltd v EDF Energy Customers Plc, Senior Courts Costs Office (‘SCCO’), 17 January 2017, the SCCO had to work out how much of the claimant’s insurance premium for its ‘After the Event’ (ATE) insurance policy should be reimbursed by the defendants.  The ATE policy would cover the claimant’s liability for the defendant’s costs if the claim failed, and the premium was linked to the level of the defendant’s costs at certain stages of the case.  The case settled early at mediation without costs budgets being exchanged.  The only contemporaneous costs information was contained in emails from the defendant, sent in preparation for the mediation, which the claimant’s ATE insurer then used to calculate the premium at the time of settlement.  When the claimant sought to justify the ATE premium before the SCCO it relied on the defendant’s costs emails.  The defendant sought to attack the reasonableness of the claimant’s ATE premium, and they therefore objected to their own costs emails being put before the costs judge on the grounds that they were covered by without prejudice privilege, and that their disclosure was contrary to the mediation agreement. The SCCO disagreed, saying that since without prejudice privilege only protected admissions or concessions made in negotiations, and not statements of pure fact, the defendant’s costs emails could be relied on.  The costs judge said “The whole purpose of the mediation was to achieve a settlement. In those circumstances any costs information given in mediation is and must be admissible in order to work out the consequence of any subsequent settlement. In that sense in my judgment, costs information in the form of statements of facts can be separated out from documents or other information that comes into the domain of either party for the purposes of negotiating a settlement of the substantive claim.”  The point to take away is that statements of fact ought not attract without prejudice privilege.

One of the reasons why the cost judge in Savings Advice Ltd v EDF Energy Customers Plc felt able to deal with the defendant’s objection as he did was that the defendant had applied the phrase ‘Without Prejudice save as to Costs’ on its costs emails. This denotes that the party does not regard the statement or disclosure to be wholly privileged, because it wishes to rely on them after trial or settlement if questions concerning the costs of the dispute remain to be decided.  It is debateable whether using only the words ‘without prejudice’ are capable of availing a document with any enhanced form of privilege, but they are unlikely to oust the exceptions explained above.

What does this mean for you or your business?

Mediation is a highly cost effective method for resolving disputes, and such is the courts’ support for it that refusing to mediate, or failing to engage properly in the process, can be perilous, as the Earl of Carterton found.  Ofulue v Bossert shows just how significant the protection afforded by the without prejudice privilege applicable to disclosures made in mediation really is.  However,  cases like Farm Assist, Ferster and Hyde & Partners show that behaviours which are intolerable in open forums and correspondence cannot be concealed by a mediation context either, and that disputes must be conducted judiciously at all times.   Cases like Hyde & Partners and Savings Advice v EDF illustrate the need for identifying a sustainable justification for asserting that without prejudice privilege has been breached and launching into satellite litigation, especially over procedural rather than substantive matters.

What do you need to be doing now?

At the end of mediation, recording the terms of settlement as soon as possible is crucial in order to avoid Brown v Rice type scenarios.  Recording the basis of settlement is also key if subsequent litigation with third parties is in prospect, for reasons which will have to be the subject of a separate article.  If you wish to rely on without prejudice correspondence on the question of costs, reserve your right to do so clearly.

 

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.

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