• Unambiguous Impropriety: a step too far - by Rob Kelly


    Cases involving without prejudice discussions which continue between parties following an unsuccessful mediation seldom reach the courts.  The case of Ferster v Ferster and ors [2016] EWCA Civ 717 is one such case.

    The parties - three brothers and two companies – were engaged in two actions.  One action concerned allegations of breach of fiduciary duty in the management of a company.  Another action concerned a petition under section 994 of the Companies Act 2006 for relief in favour of a member of a company where it is alleged that the manner in which the affairs of the company are being conducted is unfairly prejudicial to the interests of the members or some of them, including the petitioner.

    The parties mediated.  No agreement was reached at the mediation, but the mediator continued to stay in touch with the parties with the aim of reaching a negotiated settlement.  The mediator forwarded to the solicitors for one party an email setting out the terms of a proposed offer of settlement from the solicitors for other parties.  The email contained a threat of contempt proceedings, and a possible prison sentence, unless a better offer was made by the opposing party.  The solicitors whose client made the offer declined to give full details of the allegations.

    The party who received the offer applied to the court to amend his claim to allege that the parties who had made the offer had sought to extort a ransom price from him for his shares by making improper and unwarranted threats to cause the company to commit him for contempt and cause criminal proceedings to be brought against him unless he agreed to purchase their shares at an inflated price.  He sought to rely on the email.  The email relied on in support of the amendments was sent in the context of the mediation and would therefore normally be the subject of mediation/without prejudice privilege.  However, the party who received the offer alleged that the email fell within the “unambiguous impropriety” exception to that privilege, and was therefore available for use in the unfair petition proceedings.

    A party may be allowed to give evidence of what another said or wrote in without prejudice negotiations if the exclusion of the evidence would act as a cloak for perjury, blackmail or other “unambiguous impropriety”.  The first instance judge held that the email was an attempt at blackmail which fell firmly within the exception and permitted reliance on the email.  That judgment was upheld unanimously by the three Court of Appeal judges.

    In the course of their judgment the Court of Appeal agreed with the first instance judge that the threats made by the party who had made the offer unambiguously exceeded what was proper,  and held that it is not necessary for threats to fall within any formal definition of blackmail for them to be regarded as “unambiguously improper”.

    Comment: The opportunity to rely on an argument of “unambiguous impropriety” to defeat a without prejudice offer will not be common but this case provides a reminder that the without prejudice cloak can be overridden, and that it is not appropriate to make allegations which could amount to blackmail.

    If you would like further information please contact Rob Kelly.

    This article provides information and comments on legal issues and developments of interest.  The contents of this article do not constitute legal advice, is not a comprehensive treatment of the subject matter covered, and should not be relied on as such.  Legal advice should be sought about your specific circumstances before taking any action with respect to the matters discussed.
    Questions relating to this article should be addressed directly to the author.