COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(Mr Justice Patten)
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE CARNWATH
| SAVINGS & INVESTMENT BANK LTD (In Liquidation)
|- and -
Miss Elizabeth Gloster QC & Mr. David Ashton (instructed by Messrs Kendall Freeman) for the Respondent
Hearing dates: 16th /17th October 2003
Crown Copyright ©
Lord Justice Rix:
(1) Was the judge correct to find that the admission in question had fallen within the unambiguous impropriety exception and thus had lost the protection of the without prejudice rule?
(2) If he was correct, could his exercise of discretion be faulted?
(3) If he was not correct, is there a new basis upon which this court should nevertheless exercise its own discretion to allow the same or similar amendments?
The background to the litigation
"11. We asked Fincken about his directorship of Westminster Property Holdings plc. He had disclosed a salary from this company of £25,000 a year. We asked if he had any interest in the shares. He said he had none, directly or indirectly. He told us that the shares registered in the name of Hallam Financial Services were in fact held for a Mr Nathan Lee."
The without prejudice meeting of 13 December 2002
"This was agreed to be a without prejudice meeting to see if a settlement was possible…
"We pointed out that there were still many uncertainties about Fincken's assets and only he would ever know the true position. We referred to the accounts of Westminster Property Holdings plc, in which he appeared to have no shareholding. He told us that this company was at one time jointly owned by him and Nathan Lee. Subsequently it appeared to be owned by Hallam Financial Planning Services Limited. Fincken explained that they were his auditors. He said that the WPH shares were held by Hallam as his nominee. WPH had acquired Pyrok and he had borrowed £250,000 from Guinness Mahon, secured on his home at Field House. He had a long dispute with Guinness Mahon which was settled last year. Pyrok went bust and dragged down WPH which went into compulsory liquidation with about a £1 million deficiency. At the time he was shown as being owed some £200,000 by WPH.
"Fincken stressed that in 1992 he really had nothing. His home was charged to the hilt…He subsequently sold the house, repaid A&L and part of the charge to Guinness Mahon and had lived in rented accommodation ever since…
"We referred to Fincken's past lack of openness about his financial affairs – for example the shareholding in WPH being in the name of his auditors' nominee company. We pointed to the £300,000 share capital shown in the accounts, of which £250,000 was in preference shares injected in about 1990. Fincken said that he had never had that much money and that he thought that the apparent injection was in fact a debt for equity swap. He confirmed that he owned the shares…"
The application to amend in respect of the WPH shares and loan
"on 13 December 2002 Mr Jordan had another meeting with Mr Fincken at the offices of PricewaterhouseCoopers at Plumtree Court, London EC4A 4HT. In the course of this meeting Mr Fincken told Mr Jordan that all the Hallam shares were held by Hallam as his nominee, and later in the meeting he again confirmed that he was the owner of all the Hallam shares".
"Mr Fincken had lied on 13 December 1991 in denying that he had any interest in the Hallam ordinary and preference shares…alternatively was obliged to disclose the same to SIB on 9 December 1991 and/or 6 May 1992 but he failed to do so."
"SIB says that Mr Fincken cannot exclude the evidence obtained at the said without-prejudice meetings because that would be acting as a cloak to his lies."
"When Mr Fincken made his admission about the ownership of the WPH shares Mr Jordan and I looked more carefully at the WPH accounts, as a result of which I made enquiries and received the said letter from Mr Franklin dated 20 December 2002 which by his paragraph (c)…now for the first time reveals the true picture."
"It was also learned that Mr K J Fincken had personally guaranteed the accounts of Nubbh Limited and Mr R Williams, a creditor for some £209,640."
The hearing and judgment below
"Apart from any concluded contract or estoppel one party may be allowed to give evidence of what the other said or wrote in without prejudice negotiations if the exclusion of the evidence would act as a cloak for perjury, blackmail or 'unambiguous impropriety'"
"It seems to me that the exception identified by Robert Walker LJ can extend, in appropriate cases, not only to instances where the without prejudice occasion is abused by the making of threats but also to cases where there is an equally unambiguous admission of facts which is intended to be followed by an equally unambiguous denial of those facts by the same party. Circumstances of that kind amount to an abuse and the exclusion of such evidence by virtue of the rule would act as a cloak for perjury."
"Amendments in general ought to be allowed so that the real dispute between the parties can be adjudicated upon, provided that any prejudice to the other party or parties caused by the amendment can be compensated for in costs and the public interest in the administration of justice is not significantly harmed."
"although I think the true position is that both parties have approached the court today on the footing that they could be ready by 17 March on the basis of the existing pleading, there must be a real doubt as to whether that is in fact achievable."
"In those circumstances, with the proposed alteration and substitution of paragraph 19.27, suggested by Mr Ashton, I will give permission to reamend."
Issue one: Did the admission fall within the "unambiguous impropriety" exception to the privilege of without prejudice communications?
"It is that parties should be encouraged as far as possible to settle their disputes without resort to litigation and should not be discouraged by the knowledge that anything that is said in the course of such negotiations…may be used to their prejudice in the course of the proceedings. They should…be encouraged fully and frankly to put their cards on the table…The public policy justification, in truth, essentially rests with the desirability of preventing statements or offers made in the course of negotiations for settlement being brought before the Court of trial as admissions on the question of liability."
"I have come to the conclusion that the wiser course is to protect "without prejudice" communications between parties to litigation from production to other parties in the same litigation. In multi-party litigation it is not an infrequent experience that one party takes up an unreasonably intransigent attitude that makes it extremely difficult to settle with him. In such circumstances it would, I think, place a serious fetter on negotiations between other parties if they knew that everything that passed between them would ultimately have to be revealed to the one obdurate litigant. What would in fact happen would be that nothing would be put on paper but this is in itself a recipe for disaster in difficult negotiations which are far better spelt out with precision in writing…In my view the general public policy that applies to protect genuine negotiations from being admissible in evidence should also be extended to protect those negotiations from being discoverable to third parties."
"These cases show that the rule is not absolute and resort may be had to the "without prejudice" material for a variety of reasons when the justice of the case requires it."
Among such cases he mentioned "a threat if an offer is not accepted: see Kitcat v. Sharp (1882) 48 L.T. 64."
"These are clear cases of improper threats, but the value of the without prejudice rule would be seriously impaired if its protection could be removed from anything less than unambiguous impropriety. The rule is designed to encourage parties to express themselves freely and without inhibition. I think it is quite wrong for the tape recorded words of a layman, who has used colourful or even exaggerated language, to be picked over in order to support an argument that he intends to raise defences which he does not really believe to be true."
"I add only this. There are in my judgment powerful policy reasons for admitting in evidence as exceptions to the without prejudice rule only the very clearest cases. Unless this highly beneficial rule is most scrupulously and jealously protected, it will all too readily become eroded. Not least requiring of rigorous scrutiny will be claims for admissibility of evidence advanced by those (such as the first defendant here) who have procured their evidence by clandestine methods and who are likely to have participated in discussions with half a mind at least to their litigious rather than settlement advantages. That distorted approach to negotiation to my mind is itself to be discouraged, militating, as inevitably it must, against the prospects of successful settlement."
"this court has…warned that the exception should be applied only in the clearest cases of abuse of a privileged occasion."
He concluded (at 2448/9) that:
"[The modern authorities] show that the protection of admissions against interest is the most important practical effect of the rule. But to dissect out identifiable admissions and withhold protection from the rest of without prejudice communications (except for a special reason) would not only create huge practical difficulties but would be contrary to the underlying objective of giving protection to the parties, in the words of Lord Griffiths in the Rush & Tompkins case  AC 1280, 1300: "to speak freely about all issues in the litigation both factual and legal when seeking compromise and, for the purpose of establishing a basis of compromise, admitting certain facts." Parties cannot speak freely at a without prejudice meeting if they must constantly monitor every sentence, with lawyers and patent agents sitting at their shoulders as minders.
"Lord Griffiths in the Rush & Tompkins case noted, at 1300C, and more recent cases illustrate, that even in situations to which the without prejudice rule undoubtedly applies, the veil imposed by public policy may have to be pulled aside, even so as to disclose admissions, in cases where the protection afforded by the rule has been unequivocally abused."
No exception to the rule was found to have been justified in that case.
"The ground for disapplying the cloak of without prejudice would be that it would otherwise be being used to protect a fundamentally dishonest defence…In his summary of the law in Unilever Robert Walker LJ expressly refers [to] the situation where the exclusion of the evidence would be a cloak for perjury. That situation will arise here if Mr Raffa made the admissions and seeks to defend the case on the basis that he was not involved in the fraud."
The judge did not refer to any evidence on behalf of Mr Raffa, who was in prison in Egypt.
"46. We do not see that either the Merrill Lynch case or the Savings & Investment Bank case provides much assistance in the determination of the present case because of their different circumstances. In the Merrill Lynch case on the only evidence before the court the defendant admitted in the without prejudice discussions his involvement in fraud. In the Savings & Investment Bank case again there appears to have been no challenge to the evidence that the relevant simple admission of fact was made by the defendant. Further, Patten J had distinguished the circumstances of his case from those of other cases, by saying (in para 39) that the concerns of Lord Griffiths in Rush & Tomkins, of Hoffmann LJ in Forster and of Robert Walker LJ in Unilever were:
"largely concerned with ensuring that what may be complicated without prejudice negotiations should not subsequently be scrutinised with a view to constructing admissions which when made, and particularly in the context in which they were made, were never intended to be and were not in truth unequivocal and unambiguous admissions of liability."
"47. We will come back shortly to the circumstances of the alleged admission in the present case. [Counsel] criticised the decisions in both cases as eroding the protection afforded to admissions made in without prejudice negotiations. It may be doubted whether Robert Walker LJ's reference to "a cloak for perjury" was intended to cover such admissions rather than the threatened perjury in a case like Greenwood v. Fitt. However it is unnecessary for us to decide in this case the correctness of the decisions in Merrill Lynch and Savings & Investment Bank in view of their different circumstances."
"48. We start with the judge's self-direction that the court, when considering whether statements made in without prejudice discussions may be admitted in evidence, applies the test of whether there is a serious and substantial risk of perjury. [Counsel] does not suggest that that test has been applied before and we can see nothing in the authorities to support it. On the contrary, it seems to us to weaken significantly the requirement of unambiguous impropriety and of the need for a very clear case of abuse of a privileged occasion…
"53. In our case this is simply not the sort of case where the court should be prepared to admit the evidence of without prejudice statements as falling within the exception from the without prejudice rule for unambiguous impropriety. The situation here is precisely what Robert Walker LJ referred to in Unilever (at p 2444A) when he talked of without prejudice communications which "consist not of letters or other written documents but of wide-ranging unscripted discussions during a meeting which may have lasted several hours." It seems to us quite wrong to select from many hours of without prejudice discussions what are said to be an admission here and an admission there in order to mount a claim that by his subsequent statements on oath the alleged maker of the admissions committed perjury. These were not even discussions at which, through tape-recording or the keeping of a detailed note, what was said and the context in which it was said could not be doubted. If the without prejudice rule can be breached in this case, we do not see why it cannot be breached in any case where an admission, inconsistent with some pleading or sworn assertion, is alleged to have been made. No litigant could be advised to enter into without prejudice discussions without a lawyer at his elbow or a prepared script approved by his lawyer. To allow such admissions in evidence flies in the face of the public policy justification for the without prejudice rule."
"If the without prejudice rule can be breached in this case, we do not see why it cannot be breached in any case where an admission, inconsistent with some pleading or sworn assertion, is alleged to have been made."
Issue two: Can the judge's discretion be faulted?
Issue three: how should this court exercise its discretion anew?
Lord Justice Carnwath: