Piercing the veil of privilege in mediation - the Pentagon Foods Case

Piercing the veil of privilege - the Pentagon Foods case

Summary

1. Enforceability - mediated settlement agreements are contracts and must meet the usual rules regarding certainty of terms if they are to be enforced. Consider spending time prior to the mediation meeting thinking about what form the settlement might take and preparing a draft.
2. “Mediation Privilege” - despite some debate, as a matter of general law there is currently no “mediation privilege” (protecting the mediation generally or the mediator from giving or producing evidence), as distinct from “without prejudice” privilege. However it is usual in the mediation agreement to make such provision.
3. “Without Prejudice Privilege” - the courts can admit evidence regarding negotiations in mediation to establish the common knowledge of the parties when construing a settlement agreement, and when considering whether the agreement has been induced by misrepresentation, fraud or undue influence.

Introduction

In the case of Pentagon Food Group Ltd and others v B Cadman Ltd [2024] EWHC 2513 (Comm) the court considered a numbers of issues relating to mediation, including (1) the enforceability of settlement agreements reached through mediation, (2) whether a distinct type of “mediation privilege” exists, (3) the scope of “without prejudice” privilege, in particular the extent to which evidence relating to the mediation can be admitted when construing a settlement agreement and when considering whether the agreement had been induced by misrepresentation.

The facts

The case was decided by HHJ Tindall sitting in the Birmingham Commercial Court. The facts of the case are quite convoluted, but only need to be understood at a high level for the purposes of considering the impact of the case on mediation.

A claim was brought by B Cadman Ltd (BCL) against the tenants (Pentagon) of commercial premises which had been damaged by a fire. A remote mediation took place at which it was agreed that a company associated with Pentagon would buy the premises from BCL. A one page settlement agreement was signed by the parties. No form of consent order was agreed; the court was simply informed that the case had settled.

Following the mediation it emerged that BCL did not own the property, and could not therefore sell it. The property was in fact owned by the family who controlled BCL, and also by an independent trustee of the BCL pension fund. Considerable time passed as these individuals were asked to approve the sale. They did not, and so Pentagon brought proceedings alleging breach of the settlement agreement and/or misrepresentation.

The court found in favour of Pentagon on both counts.

Enforceability of settlement agreements reached in mediation

The settlement agreement provided for the sale of land, but was very short (1 page). The primary obligation in the document was “to enter into a contract”, and so on its face could easily have been interpreted as an agreement to agree, and therefore unenforceable. Although a price was specified, no completion date was stated, many of the other terms you might expect to see in a contract for the sale of land were not present, and no provision was included to bring the existing lease arrangements to an end, meaning the agreement was at risk of being held void for uncertainty.

The court found a way to enforce the agreement, but the decision could easily have gone the other way. It is critical that mediators and lawyers take the time, albeit at the end of a long day of negotiating, to make sure an agreement is put in place which deals with all the relevant issues and sets out the essential agreed terms, so that an enforceable contract is put in place. A good discipline is to use the period before the mediation meeting to consider what form the settlement might take and to prepare a draft in anticipation of settlement.

Is there such a thing as “mediation privilege”

The answer is, not as things stand. In finding a way to give effect to the settlement agreement the judge had to consider the extent to which he could take into account evidence regarding the mediation. Some commentators have considered whether there is a distinct “mediation privilege” which, whilst not fully defined, would preclude a mediator being required to give or produce evidence, even if the parties to the mediation consented. In Brown v Rice [2007] EWHC 625 Ch the court had considered this question, but concluded that such privilege did not yet exist.

In his judgement HHJ Tindall reflected on the growing importance of mediation, particularly since the case of Churchill v Merthyr Tydfil BC [2023] EWCA Civ 1416, and whether in the future mediation privilege may be established, but he was not prepared (or required for the purposes of this case) to make a determination.

It is common practice in mediation agreements to include provisions which prevent the mediator being required to give or produce evidence in proceedings relating to the mediation, which the judge noted were perfectly valid arrangements.

The scope of ‘without prejudice” privilege when applied to mediated settlement agreements

The judge considered this question in two contexts; (1) for the purposes of construing the agreement (including whether terms can be implied); (2) in considering whether an actionable misrepresentation had been made.

Regarding construction he relied on the decision of the Supreme Court in Oceanbulk Shipping v TMT [2010] 3 WLR 1424 which held that, to interpret a contract, the court could admit facts within the common knowledge of the parties, including facts arising in the course of without prejudice discussions. On that basis the court could consider evidence of that nature arising in a mediation. He thought the same rule should apply to the implication of terms, but his comments were obiter on that point.

In relation to misrepresentation the case of Unilever v Proctor & Gamble [2000] 1 WLR 2436 provides that evidence of negotiations is admissible to show an agreement should be set aside on grounds of misrepresentation, fraud or undue influence (commonly known as the Unilever Exception 2). He was therefore entitled to take into account representations made in the mediation by BCL that it was the owner of the property, which he considered to be fraudulent (i.e. recklessly made), and therefore actionable.

Mike Henley

29.01.25