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Court of Appeal guidance on exceptions to the Without Prejudice Rule

April 27, 2021

The without prejudice or “WP” rule is routinely used every day by parties looking to settle disputes, but the exceptions to the rule are not so commonly discussed (or used).  Indeed, it has been a long time since the Court of Appeal set out a list of possible exceptions to the WP rule in Unilever plc v Procter & Gamble Co  (“Unilever”). The Court of Appeal has now given further guidance on two of the exceptions to the WP rule in the recent case of Berkeley Square Holdings Ltd and others v Lancer Property Asset Management Ltd and others  (“Berkeley Square”).

Berkeley Square background

The appellants owned a portfolio of properties worth billions of pounds. One of the respondents, L, had managed the properties and the appellants were represented by their agent, M. In 2005, a side letter introduced a bonus for L and increased L’s fees, and a dispute arose as to L’s bonus entitlement. Following mediation, settlement was reached in 2012. However, in 2018, the appellants issued proceedings claiming that they had discovered in 2016 that M had misappropriated £26 million from them in breach of his fiduciary duties.  It was alleged that M had done so by using the arrangements with L under the side letter and settlement and that L suspected or knew about the misappropriation. The appellants argued that the settlement deed and side letter were void (or voidable) because M had no authority to commit the appellants.

In their defence, the respondents sought to rely on the mediation position paper provided by L for the mediation in 2012.  Specifically, the facts relied upon by the appellants in their claim were referred to in L’s mediation statement. The appellants contended that the mediation position papers were covered by WP privilege and could not therefore be admissible as evidence.  The appellants applied to strike out those parts of the respondents’ defence.

The second and the sixth exceptions to the WP rule in Unilever

In Unilever, the Court of Appeal set out a list of eight non-exhaustive exceptions to the WP rule. The second exception in Unilever noted that WP communications could be admissible as evidence of grounds to set aside a settlement agreement reached by the parties on the basis of undue influence, fraud or misrepresentation.

Under the sixth exception (also known as the Muller exception ), WP communications could be disclosed as evidence of the reasonableness of the settlement concluded.

The court at first instance in Berkeley Square held that the respondents’ statements fell within the second and the sixth exceptions in Unilever and were therefore admissible as evidence.

The Appeal

The appellants appealed and their appeal was unanimously dismissed. In dismissing the appeal, the Court of Appeal recognized the second exception in Unilever and also extended its application. The second exception is normally used in cases aiming to set aside settlement agreements that have been fraudulently concluded. However, in Berkeley Square, the Court of Appeal agreed with the respondents that WP communications could be disclosed to support an argument that the parties’ settlement agreement should be upheld and to defeat allegations of fraud or misrepresentation. The extension of the second exception also served to address another fundamental point in dispute which was whether M had authority to commit the appellants to the settlement deed and the side letter.

On the sixth exception in Unilever, the Court of Appeal disagreed that the sixth exception was applicable in this case because the parties to the litigation and the parties to the dispute settlement were the same. There was also an interesting question about whether the appellants, by pleading lack of knowledge of the impugned transactions and lack of authority, might have waived privilege over the WP communications. The Court did not address this question in this case as the respondents made it clear that this was not an argument they relied on.

Conclusion

Berkeley Square is a useful guide for parties and practitioners on the interpretation of the second and the sixth Unilever exceptions. Importantly, whilst Berkeley Square has without doubt broadened the scope of the second exception, it may also have developed a new exception to the WP rule, namely, in circumstances where a party raises an issue but at the same time resists the disclosure of evidence without which the issue might not otherwise be capable of fair resolution. It will be interesting to see how the courts will approach such an exception in future cases.

*This article is not intended to give any legal advice or to give rise to a client-solicitor relationship. It has been prepared for information purposes only. If you require legal assistance on arbitration and/or litigation matters, please contact iLaw’s Head of Arbitration, Jenny Lau at jenny.lau@ilaw.co.uk

[1] [1999] EWCA Civ 3027

[2] [2021] EWCACiv 551

[3] Muller andanother v Linsley and another [1994] EWCA Civ 39

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