Mediation has grown as a method of resolving construction disputes. It provides a confidential arena in which parties can hold without prejudice discussions with the objective of settling their dispute without the need for court proceedings. Anything said or written "without prejudice" cannot be used, referred to or relied on later in, for example, litigation or arbitration. It makes sense for mediations to be without prejudice because it gives the parties maximum scope to explore negotiating positions and think about commercial settlement options without the threat of these discussions and any compromises being "held against them" later in court.
But this isn't always the case. A Court of Appeal decision last year (Ferster v Ferster  EWCA Civ 717) is an example of the court allowing a party to refer to an email sent in the context of a mediation. In the usual course, any such email would be without prejudice and, consequently, wouldn't be referred to in court. But in Ferster, solicitors for one of the parties made an offer which, the court found, fell within one of the exceptions to the without prejudice rule – that of "unambiguous impropriety". The solicitors made various threats including criminal prosecution, having implications not only for the party but for his family too with the purpose of financial advantage. The solicitors also made no attempt to link the party's alleged wrongdoing and their increased demands.
In the court's view, this went well beyond what is ordinarily permissible in the settlement of litigation and therefore, what should be covered by the without prejudice rule.
Ferster should not put parties off negotiating and exploring different avenues for settlement of a dispute in the context of mediation. But the case does reinforce that mediation does not give parties carte blanche to make threats such as those made in Ferster and expect to keep such statements confidential.