Without Prejudice: a ‘fraud’ exception

The ‘without prejudice’ rule might, by now, have become simpler were it not for the many exceptions to it.

Striking the right balance, in any given case, between acknowledging the parties’ need to be unfettered in negotiating a settlement while not prejudicing any future proceedings, can be a tricky job. This is why judgments on the without prejudice principle should always be noted – particularly from the higher courts.

In April 2021, the Court of Appeal issued a noteworthy ruling in which the claimants made an application to strike out certain paragraphs of the defence. The grounds of the application were that paragraphs pleaded statements made without prejudice in a mediation between the parties which were therefore inadmissible.

It was common ground that the statements were inadmissible, unless an exception to the without prejudice principle applied. So what was the court’s approach?

The background

The case arose almost a decade ago out of a dispute (eventually settled after mediation) over the first defendant’s entitlement to management fees

Six years later, the claimants (various offshore companies) brought proceedings against the defendants alleging that they had played a part in a fraud, in relation to increased payments made to the defendants following an alleged conspiracy with a representative of the claimants.

In their defence, the defendants said the claimants had known about and approved the payments and sought to rely on a position statement from the mediation which referenced the payments made. All the parties’ mediation statements had been marked ‘without prejudice’ but it was argued that they were admissible on the basis that this fell within one of the established exceptions to the without prejudice rule.

The court provides a useful summary of the without prejudice rule, setting out the six exceptions to it. One of those exceptions includes evidence of negotiations to show that an agreement apparently concluded during negotiations should be set aside on the ground of misrepresentation, fraud or undue influence.

On the facts in the present case, the court ruled that the relevant parts of the mediation position statement were admissible as being used to rebut allegations of fraud. As Roth J stated when he initially refused the application, evidence of without prejudice negotiations is admissible where it "is so central to an issue which the party resisting disclosure has introduced that there is a serious risk that there will not be a fair trial if that evidence is excluded".

The claimants had alleged that the defendants had been complicit in a substantial fraud, saying that they did not know, for instance, the scale of the payments being made. Their knowledge of these matters before the settlement deeds were made was a central issue – an issue "not fairly justiciable" if the defendants could not put the mediation statements in evidence.

What does this mean?

The without prejudice rule has stood the test of time for good, public policy reasons, but it cannot always be used as a tool to provide blanket protection against a meritorious claim (or defence).

Litigators need to be aware that there are exceptions available, and in what circumstances they can be relied upon such that the rule will not apply to certain communications. The judgment is important reading for practitioners.

1Berkeley Square Holdings and others v Lancer Property Assets Management Ltd and others [ [2021] EWCA Civ 551

Without Prejudice, Privilege and Settlement is a topic included with our latest virtual event, LAW2021 Online: Litigation.

Presented by Helen Swaffield, Barrister and Head of Contract Law Chambers

• Incorrect use of without prejudice

• Exceptions when it can be lifted

• Agreements reached "without prejudice"

• New cases on "subject to contract"

• Litigation privilege update

• When litigation privilege runs out

• Settlement agreements - mistakes not to make

See the full course details here.


Posted on 03.06.21