Can the Court Override Confidentiality in a Mediation?
Typically, statements and disclosures made during a mediation are protected by confidentiality and cannot be referred to in court proceedings. However, this principle was challenged in the case of Pentagon Foods, which involved misrepresentation in a mediation. The case presented an opportunity for the court to clarify the scope of the without prejudice rule, and, more importantly, it marked a rare instance where the court formally recognized a distinct mediation privilege.
The Pentagon Foods Case
The case centered around a claim for damages arising from alleged misrepresentation and breach of a settlement agreement. It raised important questions about the admissibility of certain statements made during mediation and their potential exceptions to the without prejudice rule.
The facts of the case involved a dispute over Portland House following a fire in May 2017. In 2018, the freehold owners of Portland House, the Cadmans, sued Pentagon Foods for unpaid rent related to the fire. This was settled at mediation in 2019, with Pentagon agreeing to pay the Cadmans a sum of £59,000. The settlement, however, left open other claims regarding the fire.
In 2021, a new claim—the Fire Claim—was brought not by the Cadmans as trustees but by BCL. This claim was also settled at mediation shortly before trial in January 2022. The settlement contract stated that Khan Estates Limited (KEL) would purchase Portland House from BCL. However, complications arose when it was discovered that BCL did not own the property, prompting claims of misrepresentation.
The present claim in 2022, known as the “Enforcement Claim,” sought specific performance of the settlement agreement, and part of the litigation focused on the admissibility of mediation discussions and the statements made during them.
What happened at the Mediation?
It is interesting to note that there were technological issues with the remote mediation which is often the case. The judgment reads as follows:
- It is first important to contextualise the mediation itself by talking about the pre-mediation agreement dated 14 January 2022 between Pentagon and BCL. (Of course, KEL and Mr Khan were not parties to the mediation, although Mr Khan was present at it as the decision-maker for Pentagon). That pre-mediation agreement was signed on behalf of those parties by their lawyers and by the mediator. Clause 8.1 stated that:
- The far from perfect conditions for the mediation are illustrated by Ms Cadman’s evidence. It was January 2022 and we were still in the throes of the COVID epidemic, with the ‘Omicron’ variant emerging just before Christmas 2021 and the country only just coming out of lockdown in circumstances where a video mediation was a necessity. Therefore, Ms Cadman was unable to do what she would have wanted to do, which is to be with her father, as unfortunately she had COVID herself as did the rest of her family. Therefore, she joined the video mediation, but because she was not there to help him, her father Mr Cadman, by that stage in his 80s, struggled with the technology. He therefore participated in a less than ideal way but as best a way as Fiona Cadman could facilitate, as she called his telephone and put her mobile by her laptop so he could hear and be heard. Fiona Cadman was not even clear whether her mother was in the room with him.
- Nevertheless, doing the best they could in those difficult circumstances, the parties began to mediate and of course, against the context of the fact that there had been a successful mediation of the Rent Claim just over two years before.
Mediation Confidentiality and the ‘Without Prejudice’ Rule
In the course of the litigation, the parties debated the extent to which statements made in mediation could be admitted into evidence. Both Mr. Khan (from Pentagon) and Ms. Cadman (from BCL) provided straightforward evidence regarding the mediation. Their testimonies confirmed that the terms of the settlement agreement were admissible, as were certain details of what had transpired during the January 2022 mediation.
Before the mediation, the parties had signed an agreement outlining confidentiality provisions. Clause 8.1 of the pre-mediation agreement emphasized that all information arising from or related to the mediation was confidential, with exceptions for situations such as preventing harm, enforcing settlement terms, or notifying insurers. Additionally, Clause 10 clarified that no terms of settlement would be legally binding until set out in writing.
The issue of misrepresentation was central to the case, as Mr. Khan testified that had he known BCL did not have the authority to sell the property, he would not have entered into the agreement. This testimony highlighted a critical point: the importance of verifying ownership and ensuring that the seller had the legal power to complete the transaction.
Admissibility of Statements in Mediation
The case involved the question of whether statements made during mediation could be admissible in court, particularly in the context of misrepresentation. The without prejudice rule generally excludes evidence from settlement negotiations, including mediation, from being used in litigation. This rule is founded on public policy, aiming to encourage open discussions during mediation without the fear that these statements will later be used against the parties in court.
However, there are important exceptions to this rule. In the Unilever v Procter & Gamble case, Robert Walker LJ outlined several instances where without prejudice communications could be admitted, such as when a settlement agreement has been reached or when a party seeks to challenge the agreement on grounds of misrepresentation, fraud, or undue influence. Similarly, statements made in the course of mediation may be admissible if they give rise to an estoppel or if their exclusion would shield unambiguous impropriety, such as perjury or blackmail.
In this case, the court allowed certain details of the mediation to be considered, particularly because the misrepresentation claims hinged on what was discussed during the mediation process. The court emphasized that while the without prejudice rule provides strong protections, it is not absolute and can be overridden in exceptional circumstances, such as when there are claims of fraud or misrepresentation.
Is Mediation Privilege Separate from ‘Without Prejudice’ Privilege?
The Pentagon Foods case also raised the issue of whether mediation privilege constitutes a distinct form of privilege separate from without prejudice privilege. Some commentators have suggested that mediation has its own unique privilege, but the court did not fully embrace this view. Instead, it recognized that the mediation context often involves additional layers of confidentiality, which could enhance the application of the without prejudice rule.
This case confirmed that while mediation confidentiality is important, it is not absolute, and certain exceptions allow for the disclosure of mediation statements in court, especially in cases of misrepresentation, fraud, or other significant misconduct.
Conclusion
Third time lucky? Interestingly the Court declined to stay the case for further mediation but did encourage the parties to mediate again saying:
In conclusion, I appreciate that the last thing in the world that these parties may want to do is mediate yet again. However, perhaps ‘third time lucky’. It is quite possible that in the context of me having made the determinations that I have and having said the things that I just have, it may well be possible for the parties to finally put this litigation behind them. I would actively encourage that process. I am not, following Churchill, going to direct it, but I am going to encourage it, but I will do no more than that.
The Pentagon Foods case demonstrates that while confidentiality in mediation is generally protected, it is not immune from being overridden under certain circumstances. The court recognized exceptions to the without prejudice rule, especially when misrepresentation or fraud is involved. Mediation privilege, while an important concept, does not entirely shield parties from the consequences of their statements, particularly when those statements form the basis of a claim for misrepresentation or fraud. This case serves as a reminder that the balance between confidentiality in dispute resolution and the need for accountability in litigation is a nuanced and evolving area of law.