The admissibility of passages in a position statement for mediation and the application of the established exceptions to the without prejudice (WP) rule were considered in the High Court decision in Berkeley Square Holdings and others v Lancer Property Asset Management Ltd and others.
Facts of the case
The claimants were offshore companies who owned a portfolio of properties worth around £5 billion. An appointed representative dealt with the portfolio on their behalf.
The defendants were asset managers of the claimants’ property portfolio between 2004 and 2017. They dealt with the claimants’ appointed representative.
In 2012, a dispute arose over the first defendant’s entitlement to management fees. This dispute was settled shortly after mediation in 2012.
In 2018, the claimants commenced proceedings against the defendants for their role in an alleged fraud. It was alleged that the defendants had conspired with the claimants’ appointed representative fraudulently to increase payments made to the defendants, and passed substantial payments to a company controlled by the claimants’ appointed representative. The claimants contended that they had not known about these payments until 2017.
The defendants asserted in their defence to this claim that the claimants had known and approved of the payments since at least 2012. The defendants wished to rely upon passages from the position statement in the mediation five years earlier, which referred to the payments being made as part of the factual background to the dispute. In doing so, the defendants argued that the admissibility of the statement fell within three of the established exceptions to the WP rule, and applied to amend their defence. The claimants opposed the application and sought to strike out parts of the defence as an abuse of process.
The key question determined was whether the defendants were precluded from relying on these passages from their position statement or whether the circumstances came within an exception to the WP rule.
Admissible under two exceptions to the WP rule
Roth J allowed the defendants’ application and concluded in his judgment that passages from the defendants’ position statement were admissible under two exceptions to the WP rule:
- The misrepresentation/fraud exception.
- The “Muller exception” (set out in Muller v Linsley and Mortimer).
The relevant passages were admissible under an exception to the WP rule to refute allegations of fraud, or by reason of a “small principled exception to it to serve the interests of Justice” (paragraph 52 of the judgment). Since a party to an agreement could rely on the WP exception to show that it was reached following a fraudulent misrepresentation, it was logical that a party should be able to rely upon the material to rebut the allegation of fraud.
The decision is a reminder that the protection provided by the WP rule is not absolute and without prejudice material may be referred to “for a variety of reasons when the justice of the case requires it.” (Lord Griffiths in Rush & Tompkins Ltd v Greater London Council and others).
The decision also provides some clarification of the scope of some of the exceptions to the WP rule, set out in Unilever Plc v Proctor & Gamble Co and expanded upon in Oceanbulk Shipping SA v TMT Ltd). The exceptions considered are of particular interest because the misrepresentation/fraud exception has never previously been applied in a reported English case, and because of the exception set out in Muller which has been a case of some uncertainty.
A decision concerning the admissibility of a without prejudice position statement may cause concern that the public policy behind the WP rule and the protection of position statements is being undermined, or that parties should fear that position statements prepared in a genuine attempt to settle a dispute will end up being used in court as evidence against them. However, there was, as Roth J considered, “a serious risk of the court at trial being misled if the material in question was not admitted”, and furthermore, the material admitted in this case was comprised exclusively of passages in statements made by the party seeking to have them admitted and were, in fact, peripheral to the issues in the mediation (see paragraph 88 of judgment). It is clear that the courts’ approach to the exceptions to the WP rule remains restricted and the court is not prepared to extend the exceptions in an ad hoc manner.