In the Matter of A Company

[2005] Reported in Lawtel (a decision of Lewison J in the High Court, Chancery Division)

The fascinating case of a without prejudice threat

The Facts

The Claimants had issued proceedings for the return of documents and for injunctions restraining their use or dissemination. The action was stayed for mediation to be attempted. After certain threats had allegedly been made in the mediation and allegedly the confidentiality of the

mediation had been breached by the party alleged to be the target of those threats disclosing to a third party that they had been made, separate litigation was commenced.

The Issues

Were alleged threats made in the course of a mediation properly to be taken into account when the court considered making a costs order?

The Decision

Without prejudice protection encouraged parties to speak frankly so as to facilitate the settlement of disputes. Parties could, if they so wished, waive such protection. Normally threats made in a mediation would be covered by such protection and hence could not be taken into account on costs. However here the alleged maker of the threats (who denied making them in the first place and who commenced satellite litigation for breach of the confidentiality provision of the mediation agreement) had, by commencing that separate litigation, brought the threats into the public domain and had thereby waived the without prejudice protection. In that litigation the alleged maker of the threats confirmed that they had

been made, but denied communicating them to any third party and hence denied breach of the confidentiality provisions o fhe mediation. The court found there had been a mutual waiver of the without prejudice protection by both parties. Accordingly they could be taken into account on the question of costs.

Comment

A case of a mediation (or rather the parties to a mediation) not settling their dispute, and a further dispute flowing directly from the mediation which plainly substantially increased costs and no doubt wasted time. The case shows the folly of the mediation process not being used for its proper purpose. One cannot tell which (if either) party was at fault in this or whether both parties were at fault - as the facts over the disclosure were in hot dispute.

However, a danger of this case is that the judge’s decision seems to suggest that it is quite alright to make threats in a mediation. The point as to that is that what is a legitimate warning or statement by one party may be perceived as an outrageous and unwarranted threat by the other party.

This raises the question of at what point frank discussion ends and inappropriate threats (and potentially counterthreats) begins. The communication by either side to any third party (beyond their legal advisers of course) is then a potentially very dangerous situation and can set

ablaze what has become a tinder box. Allegations which then arise of disclosure in breach of the confidentiality provisions are often heavily disputed. Some parties appear to relish such fights - perhaps because it removes them from having to deal with the substantive issues in

the main dispute. This case shows the way in which disputes can spiral out of control.