While there can be no doubt that the face of dispute resolution in England has changed radically with the Court of Appeal decision in Churchill v Merthyr Tydfil [2023] EWCA Civ 1416 and the change in the Civil Procedure Rules, the recent decision in The Pentagon Food Group Ltd (1) Khan Estates Ltd (2) Ashfaq Khan (3) v B Cadman Ltd [2024] EWHC 2513 (Comm) raises issues that require careful consideration.
In that case (and put very simply), the mediation settlement between the parties involved obligations concerning the transfer of a property, such that the transfer necessarily involves parties not subject to the mediation. In a fresh action, the party claiming entitlement to the property sought specific performance of the settlement agreement, also alleging misrepresentation including fraudulent misrepresentation, against the other party.
In its defence, the defending party contended that the furthest any implication or representation it made could go was that it agreed that it would cause the property to be sold to the other party, not that it was the legal owner or that it would sell the property itself.
In trying the matter, the judge was necessarily sucked into an evidential quagmire in having to decide the correct interpretation of the settlement agreement, and the actionability of particular statements or conduct. Much of the analysis concerned the conduct of the principal director of the defending party (since deceased), including the evidence of that director’s surviving daughter.
In conclusion, the judge found that while the defending party could rely on without prejudice privilege, such presumption was displaced by the unambiguous impropriety of the defending party, in particular fraudulent misrepresentation both in tort and by way of the Misrepresentation Act 1967.
In giving judgment, there was but a fleeting consideration of the existence of the concept of a distinct mediation privilege, the same being rejected. In so doing, reliance was placed in part on Brown v Rice [2007] EWHC 625 Ch, and also Phipson on Evidence, 20th Edition (2024) at paras 24-51 to 24-54.
Pentagon has been the subject of extensive commentary, with reference to the exceptions to mediation confidentiality. However, if one takes a detached overview of Pentagon and other cases concerning mediation confidentiality, it is suggested that they raise the question as to whether or not the law regarding confidentiality will prove to be fit for purpose in meeting the challenges posed by the new growth in mediation.
There are the following considerations:
1. Pentagon cannot be seen in isolation. In addition to Brown v Rice, another case where mediation confidentiality has been overturned is Ferster v Ferster [2016] EWCA Civ 717 (an allusion to possible contempt and criminal proceedings in the making of an offer being held to be unambiguous impropriety). It may be presumed that there are far more such cases in practice not the subject of a reported decision. I have had experience of a demanding litigant in person issuing proceedings for substantial damages against a client for ‘unambiguous impropriety’ during a mediation day (which did not result in a settlement agreement). This was based on the client’s passing reference to the usual warning of the possible consequences of perjury at the end of a statement of affairs (such allusion being solely directed toward future credibility in giving evidence). There was no settlement agreement and the claim was eventually struck out after many months as disclosing no reasonable cause of action (at appellate level, and with an extended civil restraint order being made against the claimant), leaving my client with large irrecoverable costs outlay.
2. It would surely be optimistic to believe that an increase in mediations will not see an increase in cases where an aggrieved party challenges a settlement agreement on the basis of unambiguous impropriety and/or advances a claim with reference to the conduct of a party and/or their representative during the mediation day. If one accepts that proposition, there will be a material increase in satellite litigation concerning mediations. That is not only undesirable for all of the usual reasons, it may well also detract from the usual assurances given to parties at the start of a mediation as to confidentiality and closure of the dispute, and devalue the process as a whole. Such challenges may prove to be irresistible to those embroiled in high-value litigation where challenging a settlement agreement might be attractive from a cost/benefit perspective.
3. A ticking time bomb within this context is the common contractual obligation in a mediation agreement to mediate in good faith, when frequently the underlying contractual or other relationship between the parties contains no such obligation (construction contracts being a case in point). While the spirit of good faith is of fundamental significance in a progression to settlement, little thought seems to have been given to the implications of elevating that to a contractual obligation when considering unambiguous impropriety and mediation privilege. For example, if a party and/or their representatives takes a highly subjective view of the value of an asset, is that a breach of the contractual obligation of good faith? Further, can that implicate not only the party but also their representatives (the latter almost certainly having professional indemnity insurance)?
4. Whether or not there is such a concept as a separate mediation privilege in English law, and the circumstances in which it is negated, needs to be determined as soon as possible. While one can follow the logic of the court in Pentagon, valid observations are that this decision makes no mention of the underlying contractual nature of mediation (where privilege does not arise by common law), and that Brown v Rice is a decision of some antiquity when considering the new mediation landscape. The passing comments in Phipson are of doubtful assistance (the entire section on mediation is some five pages).
5. England and Wales is not unique in facing the challenge of maintaining confidentiality but at the same time not cloaking nefarious conduct. However, the difference lies in the tangible steps taken by other jurisdictions to meet that challenge face-on. See, for example, Singapore’s Mediation Act 2017, which not only defines the requirements of the process but seeks to address the challenge. Section 9(1) prohibits the disclosure of ‘mediation communications’ save by section 9(2) in limited circumstances (none of which come as any surprise, for example the consent of the parties or the commission of an offence or illegal purpose). Beyond that, by section 9(3) application may be made to a court or arbitral tribunal for disclosure in the following circumstances:
‘(a) for the purpose of enforcing or disputing a mediated settlement agreement;
(b) for the purpose of establishing or disputing an allegation or a complaint of professional misconduct against a mediator or any other person who participated in the mediation in a professional capacity;
(c) for the purpose of discovery or other similar procedures in any court proceedings or arbitral proceedings (as the case may be) which have been instituted, where the person who is a party to those proceedings is required to disclose documents in the person’s possession, custody or power; or
(d) for any other purpose that the court or arbitral tribunal (as the case may be) considers justifiable in the circumstances of the case.’
Assuming that one or more of the above criteria are met, the relevant court or arbitral tribunal must then take into account all of the following:
(a) whether the mediation communication may be or has been disclosed under section 9(2);
(b) whether it is in the public interest or the interests of the administration of justice for the mediation communication to be disclosed or admitted in evidence or;
(c) any other circumstances or matters that the court or arbitral tribunal (as the case may be) considers relevant.
6. It will be appreciated that the above in effect incorporates mediation confidentiality into statute, and only envisages the removal of such confidentiality in circumstances which are more constrained than those in English common law. Similar approaches have been taken in other jurisdictions: see for example the US Uniform Mediation Act, which again legislates for mediation confidentiality save for limited exceptions.
7. In delivering her speech to the British Institute of International and Comparative Law in January, lady chief justice Baroness Carr in outlining the significance of mediation in ‘promoting the rule of law, both domestically and internationally’, alluded to the establishment of a London Dispute Resolution Committee to make recommendations with the aspiration of England becoming a leading international mediation centre. Quite apart from the fact that this would do little or nothing for domestic users of mediation, it is difficult to see that flourishing in the absence of the same protection afforded to mediation confidentiality in other jurisdictions. How can England be seen as a satisfactory forum for mediation in such circumstances?
8. There is, therefore, a pressing need for clarification and certainty in this area. In an ideal world, that would arrive in the form of an early, almost codifying decision of the Supreme Court, but such an expectation would be unduly optimistic. We have, after all, had to wait almost 20 years for one Court of Appeal decision (Churchill) to make known that the common application of its earlier decision (Halsey) was misconceived, the relevant part being obiter only. Absent such clarification and certainty, there is a risk of burgeoning satellite litigation and our jurisdiction lagging behind others.
Peter McLoughlin is an independent civil and commercial mediator (mc-mediation.co.uk)
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