Exceptions To The Without Prejudice Rule: When Can Without Prejudice Communications Be Put Before The English Court?

• Published date: 30 November 2020
• Law Firm: Mayer Brown
• Author: Mr Chris Roberts and Robert Slattery

Introduction

The ability for parties to communicate "without prejudice" to try to settle disputes is an important principle in litigation in England and Wales. This gives a party comfort that a statement made without prejudice cannot later be used against it. There are however certain exceptions to this rule which are, perhaps inevitably, themselves often the subject of dispute.

Earlier this year we reported on a High Court decision analysing one exception to the without prejudice rule, the unambiguous impropriety exception (see our update "When is a statement made "without prejudice" not "without prejudice"?"). In a separate claim, Berkeley Square Holdings v Lancer Property Asset Management Ltd ¹, the High Court has also provided useful guidance in relation to three other exceptions to the without prejudice rule: the misrepresentation, fraud or undue influence exception; the estoppel exception; and the controversial Muller² exception.

Background

The Claimants were 24 BVI companies which have a combined English property portfolio of around '5 billion. From 18 November 2005 to 3 September 2015, Dr Mubarak Al Ahbabi ("Dr Al Ahbabi") was the Owner's Representative and held powers of attorney for the Claimants.

The Defendants were Lancer Property Asset Management Limited ("Lancer"), along with 4 of its directors and its holding company, Lancer Property Holdings Limited. Lancer was the Claimant's asset management company from 18 November 2005 until September 2016.

In 2005, the Claimants, through Dr Al Ahbabi, and Lancer entered into an Agreement in which Lancer was appointed to act as asset manager of the portfolio (the "2005 Agreement"). This 2005 Agreement was amended by a side letter signed in April 2006 (the "Side Letter") in which the Claimants, through Dr Al Ahbabi, agreed to an additional "capital performance bonus" to be payable to Lancer as well as additional fees in relation to rental income from the properties and revised fees for the asset and property management.

Part of these additional fees, about '26.48 million between 2005 and 2015, were paid over to a third party, Becker Services Limited ("Becker"). Dr Al Ahbabi is the beneficial owner of Becker.

In March 2011 the Claimants and Lancer executed a deed of variation ("2011 Variation") which included ratifying payments made by Lancer to Becker and other third parties prior to the date of that variation.

In 2012, a dispute arose between the Claimants and Lancer relating to the payment of the capital performance bonus outlined in the Side Letter. The parties agreed to go to mediation on this dispute. Following this mediation, the parties entered into a Deed of Settlement and a linked Deed of Variation ("2012 Variation") in which the Claimants agreed to pay Lancer '30 million, and the Side Letter was revoked and replaced with various new amendments to the 2005 Agreement.

Proceedings

On 4 September 2018, the Claimants issued proceedings. Their claim was that, in increasing the asset and property management fees in the Side Letter and paying these over to Becker, Lancer had "been complicit in a substantial fraud perpetrated on the Claimants by their own appointed representative, Dr Al Ahbabi, in dishonest breach of fiduciary duty."

They also claimed that by entering into the Deed of Settlement and Deed of Variation after the 2012 mediation, Dr Al Ahbabi had acted in further dishonest breach of his fiduciary duties and therefore, the Side Letter, Deed of Settlement and the Deed of Variation were all void.

In response to a Part 18 Request for Information, the Claimants stated that they had known that Lancer had made payments to Becker since March 2011 by virtue of the 2011 Variation - but not the amount, scale or purposes of those payments. The Claimants stated that it was only in May 2017 that they found out that Dr Al Ahbabi was the beneficial owner of Becker; that Lancer had paid around '32 million to Becker; and that Becker had provided no consultancy services to Lancer.

The Defendants contended that this was...