CIVIL LITIGATION – EXCEPTION TO THE WITHOUT PREJUDICE RULE

For the first time in a reported case in England, the High Court has applied the misrepresentation or fraud exception to the without prejudice (“WP”) rule.

In the case of Berkeley Square Holdings -v- Lancer Property Assets Management Ltd [2020] EWHC 1015 (Ch), the High Court held that statements made in a WP mediation paper were admissible as they were to be used to rebut allegations of fraud, by showing that the claimants had known about - and approved  - the transactions said to constitute the alleged fraud. The decision acts as a reminder that the protection afforded by the WP rules is not absolute.

Background

The underlying dispute concerns a fraud claim brought by Berkeley Square Holdings and others (“the Claimants”) against the manager of their property portfolio (“Lancer”), its directors and holding company.

Between 2004 and 2017, Lancer acted for the Claimants as their asset manager. In early 2012, a dispute arose regarding the apparent bonus payments due to Lancer from the Claimants. In September 2012, mediation took place and the dispute was subsequently settled.

In September 2018, the Claimants commenced proceedings against Lancer alleging that Lancer and its directors had been “complicit in a substantial fraud perpetrated on the Claimants by their own appointed representative, in dishonest breach of fiduciary duty.” through an agreement whereby Lancer’s fees were significantly increased and paid in part to a company owned and controlled by the representative. A key area of dispute between the parties was whether these payments were authorised by, and known to, the Claimants.

Lancer argued that the Claimants were aware of the payments, and in fact affirmed them, as the payment had been detailed in the factual background to the WP mediation in September 2012, and sought to adduce this to evidence.

The Claimants applied to strike out the parts of Lancer’s defence which refer to the WP statements, on the basis they were WP and therefore inadmissible. Lancer argued the WP material was admissible under one or more of the WP exceptions.

Decision

The High Court (Roth J) held the WP statements were admissible.

Practical implications

The case of Unilever Plc -v- Proctor & Gamble Co [2000] 1 WLR 2436, as expanded on in Oceanbulk Shipping SA v TMT Ltd {2010] UKSC44, sets out (a non-exhaustive list) of the exceptions to when WP material can be admissible to evidence.

Namely:

•             That a settlement agreement has been reached;

•             That an agreement should be set aside on the ground of misrepresentation, fraud or undue influence;

•             An estoppel argument;

•             Perjury, blackmail or other unambiguous impropriety;

•             Delay;

•             That a party has taken reasonable steps to mitigation loss when that party has put the reasonableness of the settlement in issue (the “Muller” expectation);

•             That a settlement agreement should be rectified (an extension to the first exception); and/or

•             To aid the interpretation of a settlement agreement.

This recent judgment illustrates that the misrepresentation or fraud exception will apply where a party wishes to rely on WP material in seeking to disprove misrepresentation or fraud and thereby uphold a settlement agreement.