Why you should watch what you say at mediation

Although mediations are conducted on a without prejudice and confidential basis, the recent case of Berkeley Square Holdings and others v Lancer Property Asset Management Ltd and others [2020] EWHC 1015 (Ch) highlights that, in certain circumstances, assertions or admissions at mediation can be adduced in evidence in later proceedings if the claim does not settle. The without prejudice rule is fundamental to negotiations between parties as, ordinarily, anything said or written is inadmissible in evidence before a court. This means parties are free to make offers and admissions in an attempt to settle without running the risk that this can then be used against them if the dispute proceeds to court. The case The claimants are the owners of a property portfolio valued at about £5bn, including properties around Berkeley Square, W1. From 2004 to 2017, this portfolio was managed by the first defendant, Lancer. The claimants are suing the defendants in relation to payments totalling £26.48m made by Lancer to a third party, Becker Services, which the claimants allege were made without their knowledge or authority. They claim that these payments are evidence the defendants had been complicit in a substantial fraud involving a former representative of the claimants, Dr Mubarak Al Ahbabi (the owner of Becker), and that this only became apparent to the claimants after Lancer’s appointment as asset manager was terminated in September 2017.  The parties had previously been in dispute as to a bonus of £75.5m claimed by Lancer pursuant to a side letter entered into in 2005. They had attended a mediation in 2012 and the dispute had been resolved shortly thereafter, with the claimants making a payment of £30m. The claimants now assert that the side letter was the main instrument of the fraud and should be declared void. In their defence, the defendants claim the claimants were fully aware throughout of the payments to Becker, that this was disclosed in Lancer’s position statements in the 2012 mediation and the claimants raised no objection then. Accordingly, it is the defendants’ case that the claim by Lancer for a bonus payment under the side letter was settled by the claimants in the knowledge and acceptance of the true purpose and effect of the side letter. Further, they say that the claimants are estopped from now disputing the validity of the side letter as Lancer continued to make payments to Becker thereunder in the belief that they were authorised to do so. The claimants objected to the defendants seeking to rely on anything disclosed in the mediation. They relied on all documents being marked without prejudice, all discussions being on this basis and also on the CEDR Mediation Agreement making it clear that no party would make any disclosure “except where otherwise disclosable in law”. Accordingly, they applied to strike out passages of the defence which relied on what Lancer had submitted at the mediation. The law The without prejudice rule is not absolute, as not all without prejudice negotiations are privileged from disclosure. So the effect of the exception in the CEDR Mediation Agreement is that, if the Lancer position statements are not subject to the without prejudice rule, they are disclosable and could be relied on by the defendants in the current proceedings. While public policy is served by parties being able to negotiate freely and confidentially, with the result that many cases are settled at mediation or otherwise, there can be cases where justice dictates that the court should be aware of what has been said in negotiations. Examples of cases where the court has held fit to have regard to without prejudice material include disputes as to whether any settlement was actually concluded or whether one was procured by fraud, misrepresentation, perjury or blackmail. Further, where it is claimed that there is an estoppel as a party has acted to its detriment because of a representation made without prejudice by the other party, then the court has a discretion to disapply the without prejudice rule. So, in this case, the court had to decide whether any of the exceptions to the without prejudice rule applied and, for the very first time, it had to consider whether a party could rely on without prejudice negotiations to prove it had not been fraudulent, rather than to do so to show the other party had been. The decision Given that, if Lancer had misled the claimants, then the claimants could have relied on what had been said at mediation so as to set aside the £30m settlement, the court held it was only fair that Lancer could rely on its position statements to rebut the case it had acted fraudulently. If a party can rely on the negotiations to set aside an agreement or settlement then the court considered it would be illogical for Lancer not to be able to rely on negotiations to disprove any misrepresentation and uphold the settlement and side letter. Moreover, the court held that it was important that documents should be admitted to prevent it being misled. It would not be doing justice to prevent the defendants relying on their own documents to show the true position at that time. This was not a case of the defendants seeking to rely on any admission or concession made by the claimants in their mediation documents. The court also considered whether the position statements were admissible also because of the estoppel claim, but it held they were not as it was not claimed that the claimants had made any express and unambiguous representation. The defendants were simply seeking to rely on what they had said in their own position statements and the claimants’ silence in not disputing what had been said. The application to strike out failed and the case will now proceed in light of the full relevant background facts. Jonathan Ross is a partner at Forsters LLP