Summary and business impacts

  • The existing without prejudice rule and its exceptions apply to the mediation process in the same way as to party-to-party negotiations.
  • Communications during the mediation can be admitted as evidence to establish whether a settlement has been reached.
  • There is no distinct "mediation privilege" yet, although the legislature or the courts may be required to consider this in future.
  • Clarity in the mediation agreement and accurate communication during the mediation process is essential.

In a recent High Court case, Brown v Rice & Patel [2007] EWHC 625 (Ch), Mr Stuart Isaacs QC (sitting as a deputy judge of the High Court) held that it was not only permissible but necessary to admit without prejudice evidence relating to the mediation in question to determine if a settlement had been reached. On the facts, no binding settlement had been concluded.

The without prejudice rule and mediation

Before considering the facts of this case, and whether the existing without prejudice rule applied to the mediation process, the judge set out the justifications for that rule, as well as recent case law where it had been considered in the context of mediation. The case of Unilever plc v The Proctor & Gamble Co [2000] 1 WLR 2436, together with earlier cases (Cutts v Head [1984] Ch 290 and Rush & Tompkins Ltd v Greater London Council [1989] AC 1280), established two underlying justifications. The first is the public policy to encourage parties to settle their disputes without resorting to litigation, which may be discouraged if it was thought that the negotiations may later be used in the litigation. The second is the express or implied agreement of parties to mediation that negotiations should not be admissible in evidence if settlement does not result. 

The judge also considered two of the established exceptions to the without prejudice rule (identified in Unilever in light of earlier authorities) of particular relevance to this case. Those exceptions are that without prejudice communications may be admitted into evidence (i) where it is necessary to determine whether the communications have resulted in a concluded settlement; and (ii) even if no concluded settlement is reached, where one party is intended to and does in fact act following a clear statement made by the other party in the negotiations giving rise to an estoppel.

The judge then described mediation as a "form of assisted without prejudice negotiation". He stated that no distinction is to be made between party-to-party negotiations and negotiations conducted within a mediation: both are to be treated as subject to the without prejudice rule (Reed Executive Plc v Reed Business Information Ltd [2004] 1 WLR 3026). He referred to the recent case of Aird v Prime Meridian Ltd [2006] EWCA Civ 1866 in which the Court of Appeal recognised that, save in limited circumstances, communications in a mediation are privileged and cannot be referred to or relied on in subsequent court proceedings. The judge also referred to Hall v Pertemps Group Ltd [2005] EWHC 3110 (Ch) in which the High Court recognised that in some exceptional circumstances it is necessary to look at the conduct of a mediation: it was not "a no go area".

The facts

The applicant trustee in bankruptcy (Mr Brown) applied to set aside a transfer at an undervalue between the bankrupt (Mrs Rice) and the second respondent (Mrs Patel). Before the trial the parties agreed to mediate and entered into a mediation agreement. The agreement contained various standard confidentiality provisions and a clause providing that any settlement reached in the mediation would not be binding until it was reduced to writing and signed by, or on behalf of, the parties. No settlement was reached on the day of the mediation. Mr Brown argued that he had settled the case the following morning by accepting an offer made the previous evening. This was disputed by Mrs Patel who applied for a declaration that there was no binding settlement agreement. It was ordered that the question of whether the proceedings had been settled should be heard as a preliminary issue before the High Court. ADR Group, a prominent dispute resolution body in the UK, was permitted to intervene in the trial of the preliminary issue.

"Mediation privilege"

Counsel for Mrs Patel argued for the existence of a "mediation privilege", distinct from the without prejudice rule, whereby a mediator could not be required to appear as a witness or produce documents and the parties could not waive that entitlement. It was argued that this should build on an emerging category of privilege in matrimonial cases, protecting confidential communications made with a view to matrimonial conciliation. ADR Group also relied upon the concept of a "budding" mediation privilege in this and other jurisdictions and argued that in the absence of unambiguous impropriety by a party to a mediation, nothing said or done in preparation for, at or in consequence of the mediation which may disclose the negotiations could ever by used outside the mediation process. Counsel for Mrs Patel and ADR Group also argued that the clause in the mediation agreement, requiring any binding settlement to be reduced to writing and signed, effectively removed the exception to the without prejudice rule where the issue is whether or not there had been a concluded settlement.

However, the judge found that it was common ground that this was not a case that required a determination on the existence of a mediation privilege, as the case could be decided under the existing without prejudice rule. He stated that, in particular, this was because the parties had agreed that they could not require the mediator to give evidence. The judge did comment that determining the existence of a distinct mediation privilege may have to be considered "either by the legislature or the courts" in the future.

Concluded settlement?

Having decided that the existing without prejudice rule applied, the judge held that communications during the mediation process could be admitted as evidence to establish whether a settlement had been reached. He disagreed that the mediation agreement, requiring any settlement to be reduced to writing and signed, prevented an examination of the without prejudice communications, since the parties might in some cases expressly or impliedly agree to vary or waive those provisions or be estopped from relying on them.

The judge also held that while on the evidence, objectively, a settlement offer had been made, it was an incomplete offer as it did not deal with the manner of disposal of the proceedings (for example, by Tomlin order or by judgment being entered). The purported acceptance of that offer therefore did not give rise to a complete agreement.

The judge also held that no binding agreement was reached because it was never reduced to writing and signed by or on behalf of each of the parties, as required by the mediation agreement. This requirement was not varied or waived by the parties and there was no evidence that the offer had been made on an open basis. He stated in this regard that unless a party makes plain its intention that a settlement offer is made on an open basis, it remains "covered by the cloak of the without prejudice rule". The judge therefore concluded that, on these facts, no settlement had been concluded.

The judge also referred to offers made during a mediation which are often "left on the table" after the conclusion of the formal mediation hearing itself. He stated that if such an offer is accepted after the mediation hearing, that offer is to be treated as if it were made in the mediation itself.

Comment

This judgment sensibly confirms that mediation is a without prejudice process and only in certain defined circumstances will the court lift the veil to examine the conduct of the mediation. The judge recognised that those exceptions to the without prejudice rule should be "kept within close confines". It is reasonable that the process can be opened up to scrutiny by the court if one of those limited exceptions applies, however, the exceptional facts in this case should not be regarded as an attack on the confidentiality which is at the heart of the mediation process.

A somewhat surprising aspect of the judgment is the court's conclusion that the offer in question was incomplete because it failed to deal with the manner of disposal of the proceedings. This would seem to run contrary to the court's usual willingness to imply a term, if necessary, in order to give effect to a settlement.

The court's other conclusion, that there was no binding agreement as the mediation agreement in question required the settlement to be in writing and signed by the parties (which it was not), may be seen as of far more importance and practical relevance. The judge said that this in effect made the negotiations "subject to contract". However such a term should not be relied on too heavily as it could have been waived or varied by the parties – including, presumably, orally – though it was not in this case.

The judgment is also a useful reminder to parties to mediation that the "cloak of mediation" extends beyond the mediation hearing itself. Conduct before and after the mediation will often be construed as part of the mediation process and subject to the rules of the mediation and any mediation agreement.

Finally, the case is a salutary reminder of the importance of clarity of communication in the context of mediation. Under the pressure of the mediation environment offers, counter-offers and acceptance must be fully and accurately articulated and it should be clearly established whether the mediator is authorised to convey offers and has in fact done so. As so many disputes settle shortly after the mediation, the precise terms of any offers left open should be clarified before the mediation is adjourned and any settlement reached should be reduced to writing and signed by the parties as soon as possible.