The 24 claimant companies owned a portfolio of properties in London, which were beneficially owned by the President of the United Arab Emirates. The President’s agent held powers of attorney for each of the claimant companies. By an agreement, the properties were managed by the first defendant company, which was entitled to fees for particular management services and to a performance fee of 10% of the excess of the net proceeds of sale of any property above specified values. The other defendants were the first defendant’s holding company and its directors. By a side letter, the fees payable to the first defendant were increased and amended in a number of respects. A dispute developed as to the amount of the first defendant’s entitlement to the capital performance bonus under the side letter. The parties agreed to a mediation, as a result of which a compromise was reached, on terms which included agreement by the claimants to pay £30m to the first defendant. The terms of settlement were set out in two settlement deeds. Subsequently, the claimants issued proceedings alleging that the arrangements under the side letter and the settlement deeds were means by which the President’s agent, in breach of his fiduciary duties, misappropriated over £26m from the claimant companies. They alleged that the defendants knew or suspected that the agent was acting in breach of duty in committing the claimants to the side letter and to the settlement deeds, and had no authority to do so, and in causing the payments under them to be made. The claimants sought restitution of all sums paid by the claimants under the side letter and the settlement deeds, on the ground that the agent had neither actual nor ostensible authority to commit the claimants to the side letter and the settlement deeds, all of which were void or, alternatively, voidable. The claimants brought an application to strike out certain paragraphs of the defence, on the ground that those paragraphs pleaded statements made without prejudice in the mediation between the parties, which were therefore inadmissible. It was common ground that, unless falling within an exception to the without prejudice principle, the statements were inadmissible. The judge, in dismissing the application to strike out, held that the statements fell within the exception that evidence of negotiations were admissible to show that an agreement apparently concluded between the parties during the negotiations should be set aside on the ground of misrepresentation, fraud or undue influence (“exception (2)” as set out in Unilever plc v The Procter & Gamble Co [2000] 1 WLR 2436). The claimants appealed on the ground, inter alia, that the judge’s application of exception (2) in the present case was an impermissible extension of that exception and that any such extension had to represent a principled, incremental development by reference to existing exceptions.
On the claimants’ appeal—
Held, appeal dismissed. (i) There was no principled basis for saying that an extension to exception (2), because it had not apparently been applied to date in an English case, had to be analogous to an existing but different category of exception. It was not the case that any extension had to be an incremental development by reference to existing exceptions. New factual circumstances might arise, or conditions or attitudes might change, and the common law had to retain the ability to meet them. (ii) The judge had erred in relying on the fact that the defendants were seeking to adduce evidence of what they had said, not of anything said by the claimants. The exclusion of without prejudice material was not confined to particular categories of statements but applied to everything that was communicated in the course of without prejudice communications or negotiations. It was a joint privilege which could be waived only with the consent of all parties. In many cases, it was very difficult to extract particular statements from their context and much more than the particular statements might need to be admitted in evidence to ensure that those statements did not give a misleading impression. That was especially true of oral discussions, but it was true also of documents. It would introduce the discussed practical difficulties for participants in without prejudice negotiations and undermine the underlying objective of without prejudice privilege. (iii) It was incorrect to suggest that the purpose of exception (2) was to prevent a party from abusing the cloak of without prejudice privilege by making a wrongful or actionable statement so as to induce a settlement. Exception (2) was directed not to the abuse of the cloak of privilege but in terms to setting aside “an agreement apparently concluded between the parties during the negotiations”. Exception (2) was directed to the issue as to whether an apparent agreement had been made with the necessary consent of the parties to it and whether the consent of a party might be vitiated by “misrepresentation, fraud or undue influence”, which was not an exhaustive list. Lack of consent to an apparent contract might arise in other ways. In particular, it may arise because one party asserted that its agent lacked authority to make the contract. In the present case, the particulars of claim asserted that because the agent had his own very substantial personal interest in the side letter and the settlement deeds, which he had not disclosed to the claimants, he had no authority to commit the claimants to the settlement deeds. On that ground the claimants sought to set aside the settlement deeds. Their knowledge, or lack of it, was central to the issue. The without prejudice mediation statements were directly relevant to the issue. If they disclosed facts which showed that the agent lacked authority to make the deeds on behalf of the claimants, and the claimants applied to set aside the deeds, evidence of those statements would be admissible. The question was whether the contract as made was binding on the parties. It would not be binding if it was made without authority or if it was liable to be set aside on well-established legal grounds. If that amounted to an extension of exception (2), it was a principled extension and did not leave an unprincipled and undesirable asymmetry in the rule (paras 33, 38, 40–43, 47–52, 54–55, 97, 98, 99).
Quaere. Whether an exception to the without prejudice rule exists 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 (paras 83–90).
David Quest QC and George McPherson (instructed by Eversheds Sutherland (International) LLP) for the claimants.
Adrian Beltrami QC and Richard Mott (instructed by Reynolds Porter Chamberlain LLP) for the defendants.