Berkeley Square v Lancer: A reassessment of the exceptions to the without prejudice rule under English law

In Berkeley Square Holdings Limited & Others v Lancer Property Asset Management Limited & Others, the English Court of Appeal has upheld the High Court’s interpretation of the exception to without prejudice privilege which can apply in cases of misrepresentation, fraud or undue influence. In doing so, it held that without prejudice position statements prepared for a mediation were admissible to defend against a claim relating to a breach of fiduciary duties. However, it held that the High Court was wrong to find that the facts of this case additionally fell within the Muller exception. Although the Court of Appeal left open the possibility of a new exception to the without prejudice rule being developed, it recognised that significant difficulties had to be overcome before this could occur, and the present case was not the appropriate occasion to consider them.

Background

As outlined in our blog post on the High Court judgment, the Claimants/Appellants are bringing a claim against Lancer, their former property portfolio manager, alleging that between 2005 and 2015 Lancer increased its fees and then paid on some of those fees to a third party without receiving any services in return. The Claimants say that they only learned in 2017 that one of their own representatives had a beneficial interest in the third party, but that Lancer knew that agreeing to the increased fees was a dishonest breach of the Claimants’ representative’s fiduciary duties, and that it was therefore complicit in that breach.

Lancer contends that the Claimants knew about and/or ratified the payments to the third party from at least 2012, when the details of the payments were set out in a without prejudice position paper exchanged before a CEDR mediation between the parties on a different issue.

Previous appellate courts have approved the idea that without prejudice material can be admitted in order to show that an agreement apparently concluded between parties should be set aside due to misrepresentation, fraud or undue influence. However, Lancer was seeking to rely on this exception to uphold an agreement, rather than set it aside.

The Court of Appeal’s judgment

The Court of Appeal largely agreed with Roth J that this exception did apply to the facts of the case. David Richards LJ (with whom Henderson and Popplewell LJJ agreed) was “unable to see any principled ground for [a] distinction” between statements relied on to uphold, as opposed to set aside, an agreement. Both situations concern the question of whether the contract as made is binding on the parties, and to create such a distinction would be “failing to give full weight to the nature and purpose of [the] exception”. If this was an extension to the previous without prejudice exception, then it was a principled one. The Court of Appeal accordingly dismissed the appeal and admitted the mediation statements as evidence.

Next, the Court of Appeal considered, obiter, whether the mediation statements would additionally be admissible under the Muller exception. Such an exception was found by Roth J to apply where a party puts in issue the contents of without prejudice negotiations, and where the case is not justiciable unless those without prejudice negotiations are admissible.

The Court of Appeal held that the Muller exception can only apply where at least one party to the without prejudice negotiation is absent from the litigation. If the parties to the negotiation and litigation are identical and one party puts in issue the privileged negotiations in a way that would amount to a waiver, the other party can simply elect to treat the privilege as waived and there is accordingly no need for the Muller exception. However, where a party to the negotiation is not a party to the litigation, the parties to the litigation cannot alone cause privilege to be lost by waiver, hence the need for the Muller exception. The Court of Appeal accordingly held that Roth J was wrong to find that the Muller exception applied to the present case, where the parties to the mediation and litigation were identical. Instead, the relevant question (which was not argued) was “whether the claimants had, by their pleading of a lack of knowledge, waived privilege in the mediation statements.”

The Court of Appeal concluded that “a new exception” had in fact been developed by Roth J, and by the High Court in a separate case, which “would apply where one party raises an issue which cannot, or cannot fairly, be decided without recourse to evidence of without prejudice negotiations or communications but the party raising the issue resists disclosure or use of such evidence”. However, the Court of Appeal pointed out a number of potential difficulties with this new exception, many of which concerned the question of “whether this exception would involve an unacceptable interference with the public policy of encouraging compromises which is the reason for the without prejudice rule”. Ultimately, the Court of Appeal decided not to opine on whether this new exception in fact exists, because it was not necessary for the resolution of the present case.

The Court of Appeal additionally considered a further exception, which provides that if a party to a without prejudice negotiation makes an unambiguous statement which it intends for the other party to rely on, that other party is permitted to put it into evidence if it relied on it to its detriment. However, the Court of Appeal noted that it was Lancer, and not the Claimants, who had made the relevant mediation statements and the present case was not the appropriate occasion to opine on the Defendants’ argument that this exception should extend to any form of estoppel.

Comment

This case is a reminder that notwithstanding the without prejudice rule, circumstances do exist where such material can become disclosable. Exceptions to the without prejudice rule may be cautiously reinterpreted by courts as new circumstances arise, and extensions allowed where they are principled and in line with the nature and purpose of the exceptions. However, courts will be mindful to ensure that the exceptions remain narrow enough that the important public policy of encouraging settlement is preserved.

The Court of Appeal’s obiter comments have raised the possibility that a new exception to the without prejudice rule may be created. Such an exception would likely apply where one party raises an issue (but without waiving privilege) which cannot fairly be decided without assessing the without prejudice negotiations. However, there are significant hurdles to overcome before such an exception can be created.

For our views on other recent decisions dealing with the exceptions to without prejudice privilege, see here and here.