Is what you say in mediation really confidential?

A recent case has once more brought to the forefront of people’s minds the extent to which what is said in a mediation can be used in evidence if the parties later fall out about the settlement agreement.

The Pentagon Food Group Limited, Khan Estates Limited, Ashfaq Khan v B Cadman Limited [2004]

  provides a comprehensive run through of the authorities and gives, albeit obiter, a small extension to the exceptions to the without prejudice rule.

The original litigation which had been settled at mediation was a dispute between a former landlord and tenant of commercial premises. At least, that was the basis on which the litigation proceeded and on which the settlement was reached. In fact, the party who, by its director, purported to be the former landlord did not actually own the building. Rather, the building was owned by a small self-administered pension scheme set up by the same director for the benefit of the purported landlord and associated companies. There was evidence before the Court that the director, who was a successful businessman, did not draw a distinction between the company, the pension scheme and himself but routinely acted as though the scheme and company would do as he directed.

The mediation settled on the basis that the property in question would be sold to the former tenant and there was evidence before the Court that the main issue during the mediation day was the price to be paid rather than the structure of the deal.

Once the error as to ownership of the property was discovered, the former tenant initially worked to alter the deal to make it work.  However, he eventually lost patience and brought the current proceedings for misrepresentations as to ownership made in the pleadings of the former proceedings and during the course of the mediation.

The Judge had to consider whether the representations made in the original pleadings were actionable (he found they could not be used as a primary cause of action because of judicial proceedings immunity although the pleadings could be used as evidence or for context) and also whether both express and implied terms of the settlement agreement amounted to misrepresentations.

In considering the latter he used evidence of what was said during the mediation day in order to interpret the contract and to determine any implied terms.

The reasoning in the case as to why and how statements made during the mediation day could be used is an interesting and full summary of the law, as well as introducing an extension to the rule.

The judge’s starting point was to consider the without prejudice rule as set out in

Rush & Tompkins v GLC

[1989] and whether that excluded from evidence information as to what was said at the mediation.

He also considered the exceptions to the without prejudice rule set out in

Unliever v Proctor & Gamble

[2000] and expanded in

Oceanbulk Shipping v TMT

[2010].

This led the judge to conclude that the primary rule is that any admissions made in a genuine attempt to settle proceedings are inadmissible in subsequent proceedings even if made with a different party within the same litigation. However the exceptions found in the later cases allowed evidence of facts within the common knowledge of the two parties to be used to interpret the contract, even if those negotiations were without prejudice.

Specifically:

1. the

   Unilever

   exception 2 found that evidence of negotiations is also admissible to show an agreement apparently concluded between parties during the negotiation should be set aside on the grounds of misrepresentation, fraud or undue influence (the judge cited

   Berkeley Square Holdings v Lancer Property

   [2021] which found that there was no relevant difference between negligent and fraudulent misrepresentation in the context of recission of a settlement agreement); and

2. Oceanbulk

   added a further exception for contractual interpretation.

In this case there were both express and implied terms to interpret and he first considered the express terms.

He found that a settlement agreement arrived at during a mediation day, even one drafted with the assistance of skilled professionals, was routinely concise rather than detailed. This therefore made the evidential context of the agreement even more important than in a complex commercial contract negotiated in depth over a long period of time.

Because of this he was satisfied he could take account of the circumstances in which the settlement agreement was produced and, therefore, evidence of what was said in mediation was admissible.

On the facts of this case, he found that the express terms of the settlement agreement had been breached. This meant that, strictly, he did not have to decide on whether what was said at the mediation could be used to determine implied terms of the settlement agreement, but he considered this obiter in any event.

Citing

Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd,

he noted that interpretation and implication are two different things, but found that while they are different and sequential analytical processes as they both draw from the same evidential context -  the surrounding circumstances known to both parties at the time of the contract and commercial common sense – it is hard to see why without prejudice material falling within that description should be admissible for interpretation but not implication.

He therefore found there was a modest extension to the

Oceanbulk

rule and that the exception to the without prejudice rule should apply to allow surrounding without prejudice negotiations to be used to interpret implied terms in a contract as well as express ones.

He also addressed the notion of “mediation privilege”. Dicta in

Brown v Rice

[2007]

had found that mediation privilege is indistinguishable from without prejudice privilege under English law, but the judge considered whether this should be reviewed in light of

Churchill v Merthyr Tydfil Borough Council

[2023] and the increased importance of ADR. He concluded that “for now” they remained the same but that it was a particularly clear example of without prejudice privilege which could be enhanced by the parties’ mediation contract and conduct by the imposition of superadded duties of confidentiality.

It is probably no surprise that misrepresentations made to induce a contract can be used evidentially - even if they were made in mediation.However, this case acts as a good reminder that there are limits to the protection afforded participants in a mediation by the without prejudice blanket.