England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
Claim No HC03C02361 and HC05C03097
CHANCERY DIVISION

		Royal Courts of Justice Strand, London WC2A 2LL
		6 July 2007

Background

1. Guy Pollard was the executor of the Estate of the late Mr Robert Henry Shearer. Pollard and his partners in the solicitors firm of Parker Groome were appointed executors and trustees by Mr Shearer's will. Pollard misappropriated some £317,000 from the estate and this included £81,300 stolen in 1988 and used towards the purchase of 14 Geldock Road, Little Billing, Northamptonshire. Linda Jane Pollard (Mrs Pollard) was Pollard's secretary during this period and they were married in 1999, and her evidence is that she had no knowledge of any wrong-doing. This is disputed by the claimants, who are the current executors of the estate. On 20 April 1995, Pollard transferred a one-half share in 14 Geldock Road to Mrs Pollard and on the 9 October 2002 transferred to her the other half share. It was their matrimonial home.

On 27 June 2004, the claimants commenced a claim (the 2003 claim) against Pollard and his former partners, who had not been fraudulent. Mrs Pollard was added as 12^th defendant. The claim put in re-amended particulars of claim at paragraph 42 was to the effect that Mrs Pollard was liable to indemnify the estate, insofar as she was a party to or benefited from the fraudulent acts of Pollard or the breaches of duty by him or the other defendants. The other professional defendants are referred to as the SIF defendants. On 6 October 2004, an order in Tomlin order form was made following successful mediation between the claimants and the SIF defendants, who were represented by Reynolds Porter Chamberlain.

2. On the 26 August 2005, the Court was concerned with an application to re-amend the particulars of claim in respect of Mrs Pollard to claim damages for dishonest assistance and to make a proprietary tracing claim to the property. I refused permission on the grounds that the amendments arguably raised new causes of action which were statute barred. On the 27 November 2005, the claimants commenced a second claim against Mrs Pollard claiming dishonest assistance and tracing. I ordered a trial of a preliminary issue on limitation in both claims to be heard by a judge and also ordered that the claimants' application for summary judgment on the tracing claim was to be determined by the judge, after judgment had been given on the preliminary issue.
3. By an application notice of the 21 September 2006, Mrs Pollard sought permission to amend her defence and an order that the claimants should give further disclosure. Part of the proposed amended defence at paragraph 15 was to the effect that the claimants obtained compensation or damages from the SIF defendants in respect of sums passing through their clients account, and accordingly that the claimants had elected to sue for damages or compensation in respect of misappropriation of trust monies, and could not seek to affirm the breaches of trust by following the trust monies into 14 Geldock Road. It was Mrs Pollard's case also that the claimants are not entitled to claim compensation damages from her insofar as that would amount to double recovery. These issues remain to be determined.
4. The application was supported by a witness statement of Rachel Anne Stewart, a solicitor, employed by Max Engel & Co, Mrs Pollard's solicitors. In paragraph 6 Miss Stewart refers to information about sums paid to the claimants by the SIF defendants and says that she has not been supplied copies of the correspondence or other documentation relating to the mediation. She exhibits a letter from Reynolds Porter Chamberlain of 15 June 2004 to Bray & Bray. There, the solicitors for the SIF defendants say this:-

"We will, however, maintain that our Clients have no vicarious liability for Mr Pollard's thefts to the extent that the sums stolen did not pass through the Client accounts operated by our clients and that the calculation of capital loss/lost income should be so limited".

5. Miss Stewart refers to correspondence, which is not in the bundle that has been prepared for the Court to the effect that it is agreed that there could be disclosed the terms of the settlement with the SIF defendants. Miss Stewart says that, as far as the details of the negotiations undertaken and documents created for the mediation, it would be wrong for the claimants to pursue their claim unless Mrs Pollard is provided with appropriate documents so that she can make good any case she has based on election and/or double recovery. Mr Roberts, a partner in the claimant's solicitors, made a witness statement in this connection. He clarifies that the documents referred to by Miss Stewart were not disclosed by the claimants and points out that Bray & Bray at the time, were acting for Mr and Mrs Pollard. He deals with the without prejudice mediation position statement at paragraph 14 and onwards of his witness statement and says that his clients object to Miss Stewart having exhibited and referred to the without prejudice mediation position statement. He says in paragraph 15:-

"Mediations are always confidential and carried out on entirely without prejudice basis. The confidentiality of mediation is sacrosanct. The parties and the mediator are not permitted to breach that confidentiality".

6. Mr Roberts produces a copy of the Mediation Agreement and points out that Pollard was a party to the Mediation Agreement and was represented by Reynolds Porter Chamberlain. He also points out that the mediation covered both the first claim and another claim brought against each of the defendants, except Mrs Pollard, for damages for professional negligence arising out of the handling of the estate by Mr Pollard and his partners. He says in paragraphs 20 and 21 that mediations will not succeed if confidentiality is broken. There is a reference by him in paragraph 26 to the effect that the mediation took account, as I read it, of what he describes as a client account money factor, which he says did not relate to all of the money stolen. He therefore says that it is the position that the fact that the stolen monies passed through client account was only one element of the claim and did not relate to the whole sum. In paragraph 28, Mr Roberts says that the settlement was a global settlement of all the claims and reached at a lengthy and confidential mediation. Importantly, at paragraph 32, Mr Roberts says this:-

"What I can say, however, is that in the first action the terms of the Judgment that was entered by consent was that the second to sixth Defendants and the eight to tenth Defendants agreed to pay my clients the sum of £122,000 in respect of damages, £390,400 in respect of equitable compensation and £125,000 in respect of costs".

7. In summary, what Mr Roberts is pointing out is that there was a mediation governed by terms of confidentiality, that it related not just to the first claim but to a professional negligence claim and that the settlement agreed was a global settlement and he gives the figures in his paragraph 32. Mr Roberts accepts that Mrs Pollard is entitled to know the amount that has been recovered from the SIF defendants, but he submits that Mrs Pollard is not entitled to know anything further. He says in paragraph 37 that it was a global un-particularised settlement for the breach of trust claim, the claims against the SIF defendants as solicitors for the trust and the professional negligence claim. Mr Roberts deals with other matters that were relevant at the time but generally objects to the use of the without prejudice mediation statement.
8. At the hearing on the 10 October 2006, the Court heard argument on this point from Mr Roberts on behalf of the claimants and from Mr Halpern QC, on behalf of Mrs Pollard. On that occasion Mr Halpern submitted that the claimants should not be permitted to stifle a genuine defence by putting up a barrier of confidentiality or privilege and he relied on Fulham Leisure -v- Nicholson Graham & Jones [2006] EWHC 2017 at paragraph 308. In the event, I made an order on the 10 October 2006 giving Mrs Pollard permission to amend her defence with consequential permission to the defendants to amend their reply and, at paragraph 3, I ordered that the claimants were to disclose the bundle prepared for the mediation held on or about 6 October 2004. I gave permission for the other parties (i.e. those not before the court) to that mediation or the mediator to apply to rescind this order for which purpose the claimant was to notify the other parties to the mediation and the mediator of the order. I took the view that as far as concerned Mrs Pollard's defence, it required for its just resolution mediation documents which could assist in an analysis of sums paid by the SIF defendants and which were relevant to the defence.

The Mediator's Application

9. Following upon the service of a copy of the order, Mr Willis, the Mediator, wrote to the Court on the 20 November 2006 explaining that he was the mediator. He referred to the Mediation Agreement and in his letter under the heading 'The Principles and the Cases" stated that it is clear rule of public policy that, in order to encourage parties to litigation to settle their differences in a frank and open manner, the documents generated by or for mediation are privileged. He continued that the use of mediation as a means to achieve settlement was supported and promoted by the new CPR, by Practice Directions in the Commercial Court and by considerable case law. The privilege exists to encourage frank and open discussions Mr Willis concluded that if it were thought by participants in such negotiations that what they had said or written might be disclosed to third parties, it would profoundly discourage the willingness of litigators and others in dispute to negotiate freely and openly and so it would strongly discourage settlement.
10. Mr Willis referred to a number of cases including Aird -v- Prime Meridian [2006] EWHC 2338, Rush & Tompkins -v- GLC [1989] AC 1280 and Unilever -v- Procter & Gamble [2000] 1 WLR 2436 and other authorities. He asked the Court to accept his letter as an application for an order rescinding the order, so far that it extended to the two mediation statements in the Mediation bundle and any further material in that bundle brought into existence for the mediation.
11. Pursuant to that letter a hearing took place before me on the 8 March 2007. Mr Wood QC, appeared on behalf of Mr Willis, Mr Halpern QC appeared, as before, on behalf of Mrs Pollard and Mr Roberts appeared on behalf of the claimants. 1 heard limited submissions only from Mr Roberts because it was not, in my assessment, open to Mr Roberts to make further submissions.
12. As far as the SIF defendants were concerned, there was before the Court a copy of a letter to Nelsons stating that they did not propose to attend the hearing of the Mediator's application, but broadly supporting Mr Willis' position and confirming expressly that their clients did not waive their privilege to the documents in the Mediation bundle.
13. Mr Wood, on behalf of Mr Willis, submitted in the course of very helpful submissions that, save in exceptional cases, the Court will not order documents attracting without prejudice privilege to be disclosed. He submitted that documents generated in furtherance of mediations attract without prejudice privilege automatically, but in any event will normally be expressed to be without prejudice and confidential to the parties by the terms of the mediation agreement. He referred to Aird -v- Prime Meridian on appeal at [2006] EWHC Civ 1866. He submitted that the Mediation Agreement in this case provided for without prejudice privilege and for confidentiality as set out in Mr Willis' letter to the Court and his argument was that mediation statements and any documents prepared for the purposes of mediation are covered by the privilege. Conversely, documents prepared wholly prior to or independent of the mediation are not and he suggested that the proper approach is that set out by Robert Walker LJ, in Unilever -v- Proctor & Gamble [2000] 1 WLR 2436 at 2448-9. Mr Wood also took me through the judgment of Robert Walker LJ. He suggested to me that if mediation documents were ordered to be disclosed this would have a chilling effect on mediations. He made it clear that there was no special privilege rule in relation to mediations and no special public policy involved over and above the general public policy that was attached to privilege.
14. Mr Halpern also made very helpful submissions and said that the reason why Mrs Pollard, through him, was pressing for production of the mediation bundle was because of the need to know the factual basis of the mediation which was required to make good the propositions of law pleaded in the defence. He particularly referred to the approach of Reynolds Porter Chamberlain, as indicated in the letter of 15 June 2004, (to which I have referred). He submitted that, as far the Mediator's application was concerned, the substance of the matter is that the privilege was for the parties to the mediation to assert and the Mediator had no substantial basis for his application. Mr Halpern particularly relied on the decisions of the Court of Appeal in Muller -v- Linsley & Mortimer [1996] PNLR 74, CA and Gnitrow -v- Cape Ltd [2000] 1 WLR 2327. He submitted that the present case was close to the position considered Hoffmann LJ, in Muller. 15. In reply Mr Wood accepted that Muller was a difficult decision. In relation to the question from me as to how the material in the mediation bundle might be relevant, Mr Wood said that, although it was difficult to see relevance, he supposed that if there was, for example, a statement in the bundle to the effect that Reynolds Porter Chamberlain's clients will never pay a penny beyond the client account monies, that could have arguably some materiality.
15. It is quite clear that the present application raises difficult points of principle. And subsequent to the hearing I have been provided with further material and submissions from both Mr Wood and Mr Halpern. most recently from Mr Halpern on 26 April 2007 with a copy of a further authority.

Principles

16. I will try and summarise what I believe to be some of the principles derived from the authorities. First, the without prejudice rule is a rule governing the admissibility of evidence and is founded upon the public policy of encouraging litigants to settle their differences rather than litigate them to the finish. That is taken from the speech of Lord Griffiths in Rush & Tompkins Limited -v- GLC [1989] AC 1280 at 1299. The rule rests, at least in part, upon public policy, which is that parties should be encouraged, as far as possible to settle their disputes without resort to litigation and not be discouraged by the knowledge that anything that is said in the course of negotiations may be used to their prejudice in the course of the proceedings. Robert Walker LJ, in Unilever said this in relation to Lord Griffiths formulation at page 2442.

"This well known passage recognises the rule as being based at least in part on public policy. Its other basis or foundation is in the express or implied agreement of the parties themselves that communications in the course of their negotiations should not be admissible in evidence if, despite the negotiations, a contested hearing ensues."

17. It emerges from the authorities that there are occasions in which, despite the existence of without prejudice negotiations, the without prejudice rule does not prevent the admission into evidence of what one or other of the parties has said or written. Robert Walker LJ, lists a number of instances at pages 2444 - 2446. One of the exceptions that he refers to, is that derived from Muller's case. Mutter was a case where the plaintiffs claimed damages for negligence and asserted in their claim that an earlier settlement was a reasonable attempt to mitigate their loss. The defendants applied for discovery of the documents relating to the earlier settlement and the plaintiff disclosed the settlement agreement but no more. The Court of Appeal decided that the rule had two justifications (1) public policy to encourage parties to settle disputes by excluding from evidence any admissions made in negotiation, and (2) implied agreement about what are commonly understood to be the consequences of negotiating "without prejudice". The Court of Appeal concluded that there were no public policy reasons to prevent disclosure by the plaintiffs because the correspondence leading to the settlement was relevant in determining whether they had acted reasonably in mitigating their loss, not to prove any admissions made by the plaintiffs during the course of negotiations. Hoffmann LJ said that the public policy justification is directed solely to admissions in without prejudice correspondence and not to statements which arc relevant independently of the truth of the facts alleged to have been admitted. Hoffmann LJ says this at page 79 between C and D:

"If one analyses the relationship between the without prejudice rule and the other rales of evidence, it seems to me that the privilege operates as an exception to the general rule on admissions (which can itself be regarded as an exception to the rule against hearsay) that the statement or conduct of a party is always admissible against him to prove any fact which is thereby expressly or impliedly asserted or admitted. The public policy aspect of the rule is not in my judgment concerned with the admissibility of statements which are relevant otherwise than as admissions, i.e. independently of the truth of the facts alleged to have been admitted."

Hoffmann LJ continued page 79 at G to 80 D

"This is not the case in which to attempt a definitive statement of the scope of the purely convention-based rule, not least because, as Fox L.J. pointed out in Cutts -v- Head at p.316, it depends upon customary usage which is not immutable. But the public policy rationale is, in my judgment, directed solely to admissions. In a case such as this, in which the defendants were not parties to the negotiations, there can be no other basis for the privilege.

If this is a correct analysis of the rule, then it seems to me that the without prejudice correspondence in this case falls outside its scope. The issue raised by paragraph 17 of the statement of claim is whether the conduct of the Mullers in settling the claim was reasonable mitigation of damage. This conduct consisted in the prosecution and settlement of the earlier action.

The without prejudice correspondence forms part of the conduct and its relevance lies in the light it may throw on whether the Mullers acted reasonably in concluding the ultimate settlement and not in its admissibility to establish the truth of any express or implied admissions it may contain. On the contrary, any use which the defendants may wish to make of such admissions is likely to take the form of asserting that they were not true and that it was therefore unreasonable to make them.

I do not think that interpreting the rule in this way infringes the policy of encouraging settlements. It may of course be said that a party may be inhibited from reaching a settlement by the thought that his negotiations will be exposed to examination in order to decide whether he acted reasonably. But this is a consequence of the rule that a party entitled to an indemnity must act reasonably to mitigate his loss. It would, in my judgment, be inconsistent to give the indemnifier the benefit of this rule but to deny him the material necessary to make it effective."

18. Muller was considered by the Court of Appeal in Unilever, to which I have already referred. Robert Walker LJ appears to sound a note of caution in respect of Muller. Busy practitioners, he recognised, need to act on a broad working assumption that the privilege rule, if not sacred, has a wide and compelling effect. I have already referred to the eight examples set out by Robert Walker LJ. and says this at page 2445:-

"In Muller's case (which was a decision on discovery, not admissibility) one of the issues between the claimant and the defendants, his former solicitors, was whether the claimant had acted reasonably to mitigate his loss in his conduct and conclusion of negotiations for the compromise of proceedings brought by him against a software company and its other shareholders. Hoffmann L.J. treated that issue as one unconnected with the truth or falsity of anything stated in the negotiations, and as therefore falling outside the principle of public policy protecting without prejudice communications. The other members of the court agreed but would also have based their decision on waiver".

Robert Walker LJ concluded at page 2448:-

"In those circumstances I consider that this court should, in determining this appeal, give effect to the principles stated in the modern cases, especially Cutts -v- Head, the Rush & Tompkins case and Muller's case. Whatever difficulties there are in a complete reconciliation of those cases, they make clear that the without prejudice rule is founded partly in public policy and partly in the agreement of the parties. They show that the protection of admissions against interest is the most important practical effect of the rule. But to dissect out identifiable admissions and with old 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 Rush & Tompkins Ltd -v- Greater London Council [1989] 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....."

19. What then is the proper interpretation of Muller on the one hand and Unilever on the other? It seems that where Muller applies and the without prejudice material is not required as evidence of admissions, the material may be admissible. Hoffmann LJ made it clear that the public policy of the rule is not concerned with the admissibility of statements relevant otherwise than as admissions. Where, on the other hand, the material is required as evidence of admissions made and of the truth of them in the course of negotiations it follows from Rush & Tompkins that the material may not be admitted in the same or related proceedings. There is a further difficulty, as mentioned by Robert Walker LJ in Unilever, about dissecting out identifiable admissions from other material.
20. Muller has been considered and applied in the House of Lords in Bradford & Bingley -v- Rashid [2006] 1 WLR 2066, the question in that case was whether an acknowledgment given in without prejudice negotiation could be relied on as an admission for the purposes of stopping time from running under section 29 of the Limitation Act 1980. The issue was whether a letter containing the acknowledgment of a debt was inadmissible on the ground that the letter formed part of the negotiations with a view to the creditor giving the debtor time to pay or accepting a lesser amount. Lord Hoffmann in paragraph 4 of his judgment spoke about the policy of encouraging negotiations and the need to give effect two objectives, first the objective furthered by the normal without prejudice rule that parties should be able to speak freely without fear that their statement will be relied on as admissions and secondly the objective of the special acknowledgement rule in the 1980 Act. At paragraph 17 Lord Hoffmann referred to his judgment in Muller and he said in paragraph 18 (page 2073) as follows:-

"After a detailed examination of the cases in Unilever Plc -v- The Procter & Gamble Co [2000] 1 WLR 2436, 2446 Robert Walker LJ expressed some doubt as to whether the "large residue of communications which remain protected [as being outside the recognised exceptions to the without prejudice rule] can all be described as admissions". I would certainly accept that the without prejudice rule is capable of excluding statements which are not being used as evidence of the truth of what they expressly or impliedly admit. For example, I do not think that a litigant could be cross-examined to credit on without prejudice correspondence to show that he has made previous inconsistent statements. And I have no doubt that Unilever's case was rightly decided. It was obvious to everyone in that case that the alternative to settlement of the patent dispute was litigation. The without prejudice meeting was held with a view to discussing settlement and the notion that any reference to the consequences of failure should be admissible as a threat of litigation contrary to section 70 of the Patents Act 1977 was absurd. But, as I pointed out in Muller's case, at P 79, the thread which runs through most of the alleged exceptions to the without prejudice rule is that the statement is not being used as evidence of the truth of anything expressly or impliedly asserted or admitted".

What Lord Hoffmann is applying is a distinction which he had drawn in Muller between the fact of making a communication and the truth of it.

21. In Gnitrow Ltd -v- Cape Plc [2000] 1 WLR 2327 the Court of Appeal was concerned with an agreement between the claimant's insurers and Newalls which made a global provision for compensation. Cape wanted to see the agreement as relevant to what contribution they should make to the employees damage. Pill L.J. at page 2331 said this:-

"The relevance in the present action of the agreement between the claimant and Newalls is in fact that the claimant is not permitted to recover more than it has paid to its employees. To ensure that there is no excess recovery, it is necessary to know what contribution Newalls has made to the relevant sums. Disclosure is appropriate for the reason. It is also information relevant to Cape making a realistic Part 36 payment and responding realistically to a Part 36 offer from the claimant. This accords with the overriding objective of enabling the court to deal with the case justly"'.

22. A number of other authorities have been referred to and Mr Halpern summarises some of these in paragraphs 1-5 of his note following the hearing and Mr Wood also deals with further cases in his note. Mr Stuart Isaacs QC in Brown -v- Rice (case no. 2105 - 2006) considered mediation and the without prejudice rule and suggested that it may be that the existence of a distinct mediation privilege will require to be considered by the legislature or the courts.
23. What then is the right order to make in the present case? I am conscious of Mr Wood's point that there is a very strong public policy argument in encouraging parties to reach agreement and Robert Walker LJ in Unilever, pointed to the danger of dissecting out identifiable admissions and withholding protection from the rest but it seems to me that in this case there are legitimate reasons for requiring disclosure of such parts of the mediation bundle as are factually material to Mrs Pollard's legal argument at the forthcoming trial relating to election/double counting. It may be necessary to take a broad view of what is an admission. Mrs Pollard is entitled in that connection to be satisfied that there is no double-counting and is entitled to appropriate disclosure. Midler's case is authority in my assessment for ordering disclosure in this situation. Mrs Pollard's case is that it is inherently likely that the SIF defendants would have paid out only for money passing through client account. There is similarity to the situation with which the court was dealing in Gnitrow. It is legitimate for her to know the factual background. The overriding objective is to enable the court to deal justly with cases.