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ADR Practitioner Update – February 2017

Date: February 7, 2017 Posted by No Comments

‘Unambiguous impropriety’ in mediation

At mediator school many years ago, I was taught that ‘measured diplomacy’ was the most appropriate style of dialogue between parties, positional bargaining was counter-productive (and could easily be trumped by a more principled approach) and as for the making of threats of any kind, well that was just plain silly.  And then I started mediating! I soon realised that this was a no-holds-barred process (almost), with few rules and where sometimes, despite the good offices of the mediator and efforts of advisors, a party could go a bit too far.  Whilst unhelpful, in most such cases, because of the protected environment of a mediation, the ramifications are limited.  However, as the recent decision in Ferster v Ferster [2016] EWCA Civ 717 reminds us, it will be permissible to use what is said or done in without prejudice negotiations if, by its exclusion, it ‘…would act as a cloak for perjury, blackmail or other "unambiguous impropriety" (the expression used by Hoffman LJ in Forster v Friedland, 10 November 1992, CAT 105)’ (Walker LJ in Unilever plc v The Proctor & Gamble Co. [2000] 1WLR 2436).

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Ferster concerned a family business dispute – two brothers sued a third brother for breach of fiduciary duty.  The third brother issued a s.994 petition.  A mediation took place – the two brothers offered to sell their shares to the third brother, but no deal. The mediator stayed in touch with solicitors for both sides and at some point sent an e-mail to the solicitors acting for the third brother, passing on a revised offer from his two brothers. It was not an improved offer.  The two brothers were more robust in their revised proposal (25% more so), because of what was said to be the discovery of further wrongdoing by the third brother.  And their offer was accompanied by some tough messaging.  Very tough.  Too tough, as it turns out. The e-mail included the prospect of contempt proceedings and criminal action, as well as the possibility of problems arising for the third brother’s partner.  The third brother applied to amend his s.994 petition to refer to the e-mail, a communication which would ordinarily be privileged. 

Mrs Justice Rose, at first instance, allowed his application.  The two brothers appealed but were unsuccessful.  Lord Justice Floyd, at paragraph 23 of his judgment, said:

‘…I agree with the judge that the threats here did unambiguously exceed what was proper, essentially for the reasons she gave. Firstly, the threats went far beyond what was reasonable in pursuit of civil proceedings, by making the threat of criminal action, (not limited to civil contempt proceedings). Secondly, the threats were said to have serious implications for Jonathan’s family because of Jonathan’s wrongdoings. Thirdly, the threats were of immediate publicity being given to the allegations. It is nothing to the point in this connection that Warren and Stuart may have believed the allegations to be true. The threat to publicise allegations of extreme severity against Jonathan and his partner, and within such a short timescale, placed quite improper pressure on Jonathan. Fourthly, the purpose of the threats was to obtain for the brothers an immediate financial advantage arising out of circumstances which should accrue, if they had basis in fact, to the benefit of the company. Finally, there was no attempt to make any connection between the alleged wrong and the increased demand.’

The case is interesting for a number of reasons.  Threats (however they might be dressed up) are not unusual at mediation, particularly in hard fought bitterly contested commercial disputes.  Add a family dimension and there can be all sorts of skeletons leaping out of cupboards, with threats of more to follow.  So are we now in the age of the ‘snowflake’ negotiating partner?  I think not.  The authorities on setting aside privilege are clear – it is to be done ‘…only in the clearest cases of abuse of a privileged occasion’ (Walker LJ in Unilever plc).

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In Savings & Investment Bank Ltd v Fincken [2004] 1 WLR 667, the defendant admitted at a WP meeting that he owned shares that he had not disclosed in an affidavit of means.  The claimant tried to include the admission in the claim on the basis that it showed the defendant had lied and that this amounted to an unambiguous impropriety.  The Court of Appeal disagreed.  Lord Justice Rix distinguished between an unequivocal admission and an unambiguous impropriety, saying ‘…It is not the mere inconsistency between an admission and a pleaded case or a stated position, with the mere possibility that such a case or position, if persisted in, may lead to perjury, that loses the admitting party the protection of the privilege … It is the fact that the privilege itself that is abused that does so. It is not an abuse of privilege to tell the truth, even where the truth is contrary to one’s case. That, after all, is what the without prejudice rule is all about, to encourage parties to speak frankly to one another in aid of reaching a settlement: and the public interest in that rule is very great and not to be sacrificed save in truly exceptional and needy circumstances.’

Lord Justice Floyd made this clear at paragraph 11 of his judgment, when he said that ‘…the critical question is whether the privileged occasion is itself abused. Although the test remains that of unambiguous impropriety, it may be easier to show that there is unambiguous impropriety where there is an improper threat than where there is simply an unambiguous admission of the truth. In either case, as Hoffman LJ pointed out in Forster v Friedland … "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."’

A number of arguments were raised on behalf of the brothers on whose behalf the e-mail was sent, including that its admission would inevitably bring in evidence of what happened at the mediation.  Lord Justice Floyd did not think that this was a problem, saying ‘The impropriety arises from the fact that the increase in price is tied, and tied only, to the threats affecting Jonathan’s liberty, family and reputation. The impropriety does not depend on the quantum of the price increase. The redaction of the amount involved is an adequate means of protecting details of the negotiations. This is not a case of the type referred to by Hoffmann LJ where there is a need to pick through many hours of recorded negotiations in order to make out a case of impropriety. The impropriety is apparent from the email itself, a single and carefully formulated document ’ (paragraph 21 of his judgment).  It was also said that the judge at first instance did not take account of the fact that the offending e-mail was sent by a distinguished mediator.  Floyd LJ didn’t think much of that point either.  The extent of the mediator’s involvement was all speculation and indeed, it was possible that the involvement of the mediator lent ‘authority’ to the the threats they might not otherwise have.

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Negotiating the settlement of a dispute can be a fraught business.  What is improper in terms of reinforcing demands is a tricky area, but given the public interest in the without prejudice rule, it will only be in exceptional circumstances that a party will lose the benefit of the protection it affords.  The problem is, except in the most egregious cases, what’s acceptable in one camp may not be acceptable in another. Ferster may be an example. But whatever one thinks of that decision, there is perhaps a more general point to bear in mind and it goes to the environment in which settlement is best explored.  We all know that dialogue in negotiation can be robust and unwelcome at times, whether at mediation or otherwise.  Indeed, painting a realistic and often bleak picture of what life could look like absent a deal, is all part of a mediator’s job.  As might be the passing on of tough messages to re-enforce the reasonableness of proposals made.  But at mediation, proposals and accompanying messaging, tough or otherwise, are made in conversation.  The messaging can be carefully crafted so as to ensure that it is received with impact, but without the distraction of causing offence or insult and if there is any ‘fall-out’, it can be managed hands-on and in real-time.  Proposals supported by a description of what might happen if not accepted, concentrated in ‘a single and carefully formulated document’, is inevitably going to jar.  Of course, if a privileged occasion is abused, it matters not the context in which that abuse takes place.  But in the environment of mediation, where there is a captive audience and where the respective merits of alternative approaches can be properly considered and critiqued by all concerned (together at the same time), there must surely be less scope for straying into dangerous territory.

Jon Lang
February 2017