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23 June 2020
In its recent decision of Berkeley Square Holding v Lancer Property Asset Management,(1) the High Court considered the scope of the existing exceptions to the without prejudice rule. This well-known rule protects communications made in a genuine attempt to settle an existing dispute from later deployment in court. The High Court allowed passages from papers prepared for a mediation to be admitted into the proceedings under two exceptions to the without prejudice rule.
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 Al Ahbabi on the claimants' behalf. A portion of the increased fees received under the side letter was paid by Lancer to Becker Services Ltd, a company beneficially owned by Al Ahbabi. These payments to Becker 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 – specifically, it referred to:
The dispute was settled shortly after the mediation.
In 2018 the claimants began separate proceedings in the High Court. One allegation was that Lancer and Al Ahbabi had been complicit in a fraud on the claimants, the main instrument of which had been the side letter. The claimants' case is that they had been unaware of the sums paid by Lancer to Al Ahbabi (via Becker) until 2017. Lancer's defence to these allegations is that:
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?
The judge reinforced 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.
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 ."
Issues and evidence – Muller exception
If a party puts a point in issue,(5) 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 had not known about the payments to, or 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 was unable to submit evidence of what it had told the claimants in its mediation papers in 2012.
When deciding whether the relevant passages of the Lancer mediation papers fell into this exception, the judge considered the following factors:
Thus, 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 a dispute. Therefore, the balance weighed in favour of admitting the passages so as to avoid the risk of the High Court being misled.
This judgment is a deft foray into a complicated area of law and a useful reminder of the importance of the without prejudice rule: while it is not absolute, the court will make exceptions to it only 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. Unsurprisingly, where that balance lies will depend on all of the circumstances of each case, although it is clear that the public policy of encouraging parties to speak freely in without prejudice discussions will not be easily outweighed.
For further information on this topic please contact Rosy Gibson or Simon Hart at RPC by telephone (+44 20 3060 6000) or email (email@example.com or firstname.lastname@example.org). The RPC website can be accessed at www.rpc.co.uk.
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