Brown (Tim) (as trustee in bankruptcy of the estate of Jane Elizabeth Rice) v (1) Rice (Stephen) (2) Patel (Smita); and ADR Group (as intervener)

JurisdictionEngland & Wales
JudgeMr Stuart Isaacs QC
Judgment Date14 March 2007
Neutral Citation[2007] EWHC 625 (Ch)
Docket NumberCase No: 2105–2006
CourtChancery Division
Date14 March 2007
Between
Tim Brown
(As Trustee in Bankruptcy of the Estate of Jane Elizabeth Rice)
Applicant
and
1.stephen Rice
2. Smita Patel
Respondents
and
Adr Group
Intervener

[2007] EWHC 625 (Ch)

Before

Mr Stuart Isaacs QC (Sitting as a Deputy Judge of the High Court)

Case No: 2105–2006

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Mr Iain Pester (instructed by Collyer-Bristow) for the Applicant

Mr Duncan Macpherson (instructed by Barnes & Partners) for the Second Respondent

Mr Michel Kallipetis QC (instructed by Mr Michael Lind) for the Intervener

Hearing dates : 26 and 27 February 2007

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic

Mr Stuart Isaacs QC

Mr Stuart Isaacs QC:

Introduction

1

This case raises interesting and, to some extent, novel issues concerning the scope and application of the without prejudice rule and the exceptions to it in the context of a mediation, one of the most common means of alternative dispute resolution (“ADR”).

2

The background facts are not in dispute. On or about 19 November 2004, Mrs Jane Elizabeth Rice (“Mrs Rice”), who was at the time subject to an individual voluntary arrangement, exchanged contracts with the Second Respondent (“Mrs Patel”) to sell a property in Northampton for £250,000. Mrs Rice failed to notify the transaction to the supervisor of her IVA who, on learning of it, issued a bankruptcy petition. Mrs Rice was made bankrupt on or about 12 January 2005 and the Applicant was appointed as her trustee in bankruptcy. By an originating application dated 22 February 2005, the Applicant issued proceedings under section 339 of the Insolvency Act 1986 relating to transactions at an undervalue. In her Defence, Mrs Patel alleged that the sale was not, or not at a significant, undervalue. She also alleged that the transaction fell outside section 339 since it was made by Mrs Patel not with Mrs Rice but with the First Respondent (“Mr Rice”). However, the Applicant alleges that this is to overlook the fact that Mrs Rice's solicitors had the conduct of the sale of the property and Mrs Rice had effective control of the sale and the consideration to be paid by virtue of an order dated 21 October 2004 made in matrimonial proceedings. The proceedings were set down for a three day trial in the Northampton County Court beginning on 21 February 2006.

3

Shortly before the trial, the Applicant and Mrs Patel agreed to mediate the dispute. Mr Rice took no part in the mediation but was available to agree any proposed settlement. He has taken no part in the present proceedings. On 16 February 2006, a mediation took place at the offices of the Applicant's solicitors, Collyer-Bristow. At the outset, the parties signed a written agreement to mediate. The mediator was Mr Stephen Walker, of the solicitors' firm of Bray, Walker. The participants included Mr Stephen Evans, an experienced insolvency practitioner who represented the Applicant, together with Ms Gillian Locke of Collyer-Bristow and counsel; and Mrs Patel and her husband, Mr Shreekant Patel (“Mr Patel”), together with her solicitor, Mr Serhat Sik of Barnes & Partners, and counsel. Mr Sik was at the time very newly qualified. The mediation began at about 9.30am and went on late into the evening, lasting in all some 13 hours. No settlement was reached at the mediation.

4

In the circumstances to which I shall have to refer in some detail later, the Applicant alleges that the proceedings in the Northampton County Court between the parties were, however, settled the next morning when his solicitors accepted an alleged offer made by Mr Patel on his wife's behalf the previous evening. This is disputed as a matter of fact by Mrs Patel, who also raises issues concerning the admissibility of the evidence relating to the alleged settlement.

5

On 20 February 2006, Mrs Patel applied to Pumfrey J for a declaration that there was no binding settlement agreement. Pumfrey J declined to make the order requested on the basis that the matter would need to go to trial in the Northampton County Court. The question whether the proceedings had been settled then came before District Judge McHale in the Northampton County Court on 21 February 2006 as a preliminary issue. In the course of the opening submissions on behalf of Mrs Patel, the district judge inquired of the parties whether Mr Walker was able and willing to attend the hearing. Mr Walker did attend court that afternoon but not to give evidence. Having spoken with ADR Group and because of the circumstances of the alleged settlement, he indicated to the court that ADR Group wished to intervene in the proceedings to make representations. On 22 February 2006, DJ McHale made a consent order whereby ADR Group was permitted to intervene and the proceedings were transferred to the High Court.

6

On 15 June 2006, Mr Registrar Rawson ordered the trial of a preliminary issue whether the Northampton County Court proceedings were settled on 17 February 2006. This is the trial of that preliminary issue.

7

At the outset of hearing before me, it was sensibly agreed by counsel for Mrs Patel and ADR Group that I should proceed to hear the evidence without prejudice to their submissions as to its admissibility. Evidence was therefore adduced on the Applicant's behalf by Mr Evans and Ms Locke. On Mrs Patel's behalf, evidence was adduced by Mr Patel and Mr Sik and also by Mr John Esplen, the partner involved at Barnes & Partners, and Ms Amy Louise Morris, a secretary at that firm who had transcribed on 22 and 23 February 2007 a tape which included the contents of two telephone conversations which it is common ground took place between Mr Evans and Mr Patel on 17 February 2006. Mr Esplen had made no witness statement but, without demur from the Applicant, was tendered for cross-examination at the hearing. Also, undisputed written evidence was given by Mr Phillip Howell-Richardson on behalf of ADR Group as to the status of communications made during a mediation and the commonplace nature amongst mediation bodies and mediators in their mediation agreements of provisions akin to those relied on by Mrs Patel in the present proceedings. Given that this evidence was adduced, counsel for Mrs Patel and ADR Group also sensibly agreed that, in the circumstances of this case, my judgment should deal with it even if I were then to accept their submissions as to its inadmissibility.

The without prejudice rule

8

A trio of cases, namely Rush & Tompkins Ltd v Greater London Council [1989] AC 1280, Cutts v Head [1984] Ch 290 and Unilever plc v The Proctor & Gamble Co [2000] 1 WLR 2436, establishes that there are two justifications for the without prejudice rule. The first is the underlying public policy that parties should be encouraged so far as possible to settle their disputes without resort to litigation and should not be discouraged by the knowledge that what transpires in the course of their settlement negotiations may be used against them in the litigation. The second lies in the express or implied agreement of the parties themselves that what transpires in their negotiations should not be admissible in evidence in the litigation if a settlement does not result.

9

The rationale for the without prejudice rule was considered in detail by Hoffmann LJ in Muller v Linsley & Mortimer [1996] PNLR 74. After considering Cutts v Head and Rush & Tompkins, he expressed the view, at 79–80, that the without prejudice rule (to which he also referred as a “privilege”):

“operates as an exception to the general rule on admissions (which can itself be regarded as an exception to the rule against hearsay) that the statement or conduct of a party is always admissible against him to prove any fact which is thereby expressly or impliedly asserted or admitted. The public policy aspect of the rule is not in my judgment concerned with the admissibility of statements which are relevant otherwise than as admissions, i.e. independently of the truth of the facts alleged to have been admitted. Many of the alleged exceptions to the rule will be found on analysis to be cases in which the relevance of the communication lies not in the truth of any fact which it asserts or admits, but simply in the fact that it was made. Thus, when the issue is whether without prejudice letters have resulted in an agreed settlement, the correspondence is admissible because the relevance of the letters has nothing to do with the truth of any facts which the writers may have expressly or impliedly admitted. They are relevant because they contain the offer and acceptance forming a contract which has replaced the cause of action previously in dispute. … Indeed, I think that the only case in which the rule has been held to preclude the use of without prejudice communications, otherwise than as admissions, is in the rule that an offer may not be used on the question of costs; a rule which … has been held to rest purely upon convention and not upon public policy. …”

10

In the light of the earlier authorities, in Unilever Robert Walker LJ identified various situations where the without prejudice rule does not prevent the admission into evidence of what one or both of the parties to litigation said or wrote. Of these, two are of particular relevance in the present case. The first is when the issue is whether without prejudice communications have resulted in a concluded settlement agreement. This is for the understandable reason that without considering the communications in question it would be impossible to decide whether there was a concluded settlement agreement or not, see Tomlin v Standard Telephones and Cables Ltd [1969] 1 WLR 1378, 1382G per Danckwerts LJ and 1386A per Sir Gordon Willmer. The second is where, even...

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