The term “Without Prejudice” is commonly used in litigation but its effect is not always correctly understood. When parties to a dispute engage with each other on a without prejudice basis, this allows them to speak freely, without fear that what they say or suggest as a potential compromise might be used against them in court. Conversely, if correspondence is “open”, it can be brought to the attention of the judge at future hearings, which can be detrimental to that party’s position.
As such, settlement negotiations should, and usually are, conducted on a without prejudice basis. There is also an option to make offers on a “Without Prejudice Save as to Costs” basis. In this case, the existence of the offer cannot be made known to the court until the judge has made a decision on the case generally and the issue of costs is being decided. If “Save as to Costs” is added, that means the offer can be shown to the court to demonstrate an attempt by the offeror to settle the case, which may count in their favour when costs are being decided. If correspondence is sent or an offer is made purely without prejudice, it cannot be revealed to the court at all, even when discussing costs, unless the party that has sent the correspondence agrees to waive privilege.
However, it is possible to waive privilege, either on purpose or accidentally, meaning that discussions between a client and their lawyer, or an offer made on a without prejudice basis, can be disclosed to the court.
Whilst privilege can arise in a number of circumstances the purpose of this article is to address the position with discussions and negotiations between parties during a mediation. These are privileged as between the parties as they are done on a without prejudice basis.
Pentagon v Cadman Ltd
This is a recent case in which the court considered privilege in the context of mediation. Mediation is a form of alternative dispute resolution involving a neutral facilitator or mediator, (often by a qualified solicitor or barrister). It is often used in litigation as a way of attempting to resolve the dispute without the court’s involvement.
It is generally accepted that mediation by its very nature is conducted on a without prejudice basis, although it is also common for parties to sign a Mediation Agreement which will contain a confidentiality clause to ensure nothing that is discussed can be used in court unless both parties agree.
The Pentagon case is a good reminder that there are a number of exceptions to the general rule that without prejudice communications cannot be disclosed to the court. In this case, the parties took part in a mediation to try to resolve a dispute relating to losses caused by a fire at a property owned by the Defendant, Cadman Ltd. An agreement was reached at the mediation that the property would be sold by Cadman to one of Pentagon’s group companies and a settlement agreement was drawn up.
It is common for a settlement agreement to be prepared and signed on the day (or late into the evening), once an agreement has been reached at a mediation in order to record the agreed terms of settlement.
Following the mediation, Pentagon discovered that Cadman was not in fact the legal owner of the property and it brought a claim against it for breach of the settlement agreement and/or misrepresentation.
When a case is settled and a settlement agreement is signed, it is unusual for the terms of the negotiations to be disclosable and to remain confidential.
Normally these would remain privileged as they occurred during the mediation. There was a question as to whether the court could be made aware of the without prejudice discussions that took place during the mediation in order to see the factual matrix that existed behind the making of the settlement agreement,
The judge however reaffirmed the 2010 decision in Oceanbulk Shipping & Trading SA v TMT Asia Ltd that the court had the right to look at the without prejudice communications to properly interpret the agreement. The judge however was not prepared to say that there was a new type of privilege which specifically applied to mediation negotiations.
The key takeaway from this is that, whilst it is generally accepted that discussions that take place during mediation are done on a without prejudice basis and are privileged, there are some exceptions which the courts can apply including if such disclosure of the document can assist the court to resolve issues of interpretation as what was agreed.
If you are in a dispute or may potentially be involved in one, our team of expert Commercial Dispute Resolution solicitors can assist you. Please contact our team on cdr@stephens-scown.co.uk.
This article was written by Toby Claridge, partner and Gemma Mittell, associate in our Commercial Dispute Resolution team.