When without prejudice discussions at mediation fall within the “unambiguous impropriety” exception

Communicating on a without prejudice basis is a widely adopted practice in negotiating settlements in legal proceedings.

Such communications are protected by without prejudice privilege and cannot be admissible as evidence in court, except where the communication “would act as a cloak for perjury or other unambiguous impropriety”. This is commonly referred to as the “unambiguous impropriety” exception and is only applied in the clearest cases of abuse of a privileged occasion.

In this case, the English Court of Appeal took the opportunity to revisit the unambiguous impropriety exception and explain its application.

Background

The appeal arose from a High Court decision allowing the respondent to amend his unfair prejudice petition to refer to the contents of an email that would normally have attracted without prejudice privilege.

The email in issue, sent by the mediator, contained a revised offer from the appellants to sell their shares at an increased price on the basis that they had become aware of “further wrongdoings” by the respondent and that the respondent was going to be in “very serious trouble”. It went on to say that the “very serious trouble” would also “have implications for [the respondent]’s partner by reason of [his] actions”.

The email also contained the following threats: (i) if the offer was not accepted within 48 hours, the “wrongdoing” would be made public; (ii) an acceptance of the offer would obviate “the need of further steps such as committal proceedings”; and (iii) the respondent was likely to face criminal action and was likely to be imprisoned and that “his credibility and reputation would be destroyed”.

The key question was whether the contents of the email fell within the unambiguous impropriety exception to the application of without prejudice privilege. If it did, the contents of the email could be referred to in the unfair prejudice petition by the respondent.

The High Court judge considered that the email was an attempt to blackmail the respondent and ruled that it fell within the unambiguous impropriety exception. The appellants appealed.

English Court of Appeal decision

The Court of Appeal unanimously confirmed the High Court decision.

Was the privilege abused?

The Court of Appeal said that the crucial question in determining whether the exception applied was whether the privileged occasion was itself abused.

Whilst it might have been proper to bring committal proceedings against the respondent if there was genuine belief that there was basis to do so, it was wrong to use it as leverage to enable the appellants to get more money for their shares. Furthermore, whilst it was possible that the appellants were making an increased offer by reference to what they regarded as the increase in the value of their shares, a fair reading of the email suggested that they wanted more for their shares because of the improper tactics which they could have deployed.

Whilst the test remains that of establishing unambiguous impropriety, it was held that it might be easier to do so where there is an improper threat, rather than where there is simply an unambiguous admission of truth made on a without prejudice basis.

The Court of Appeal also looked at the circumstances of the case and agreed that it was unambiguous that the threats went beyond what was proper. The Court of Appeal considered the following factors:

• the threats went beyond what was reasonable in pursuit of civil proceedings especially the threat of criminal action;
• there were threats of serious implications for the respondent’s family; 
• the threat to immediately publicise allegations of extreme severity against the respondent and his life partner, within a very short timescale, placed improper pressure on the respondent; and 
• there had been no attempt to make any connection between the alleged wrongdoing and the increased demand.

In passing, the Court mentioned that it was not necessary for the threats to fall within any formal definition of blackmail to be regarded as unambiguously improper.

The Court of Appeal held that the without prejudice privilege had clearly been abused.

Implications

This case provides helpful guidance in identifying situations where without prejudice privilege might have been abused, and the factors the court will take into account when determining the propriety of the contents of communications.

It is worth noting here the recent Hong Kong Court of Appeal case of Crane World Asia Pte v Hontrade Engineering Ltd [2016] HKCU 1461 where the Court ruled on a similar issue. In that case, the plaintiff wished to put forward evidence of an offer by the defendant to an individual in respect of another set of proceedings. One of the terms of that offer was that the individual had to agree not to prepare any witness statement for the plaintiff.

The key issue was whether the defendant’s attempt to preclude an individual from giving a witness statement to the plaintiff, in consideration of the settlement of another action, was unambiguous impropriety. It was held that whilst blackmail and threats could amount to criminal conduct, it would not actually be necessary to establish that the defendant was guilty of the offence of perverting the course of justice or any other offence in order for the unambiguous impropriety exception to apply. Given that the defendant had no legitimate interest in including this particular term of settlement, the plaintiff’s appeal was allowed on the basis of unambiguous impropriety.

However, what is abundantly clear is that improper threats or attempts to preclude a person from giving evidence cannot be hidden under the cloak of without prejudice privilege and will be made admissible in Court under the unambiguous impropriety exception. It remains to be seen, however, whether these recent decisions will be subject to further appeal.