Without prejudice privilege: not a cloak for improper threats
16 August 2016
Without prejudice privilege (“WP privilege”) allows parties to a dispute to try to settle their differences without their discussions being revealed to the court, and potentially to the public.
Without prejudice privilege (“WP privilege”) allows parties to a dispute to try to settle their differences without their discussions being revealed to the court, and potentially to the public. WP privilege cannot, however, be used as a cover for making improper threats, as the decision of the Court of Appeal in Ferster v Ferster has made clear.
The case was a hard fought dispute between Jonathan Ferster on one hand and his two brothers Stuart and Warren on the other. The three brothers were shareholders in an online gaming company, ITC. Jonathan issued a petition under the Companies Act 2006, claiming that ITC’s affairs had been conducted in a manner unfairly prejudicial to him. Among Jonathan’s complaints was that Stuart and Warren had instigated legal proceedings brought by ITC against Jonathan for an improper purpose, namely to pressurise Jonathan into buying his brothers’ shares in ITC at an inflated price. A mediation was not successful in resolving the brothers’ differences. After the mediation, and via the mediator, Stuart and Warren emailed Jonathan a revised offer to sell him their shares in the company. Although the offer was expressed to be without prejudice - and therefore not normally allowed to be mentioned in court documents - Jonathan applied for permission to refer to the email in his petition against Stuart and Warren. Jonathan’s case was that the email’s contents were evidence of “unambiguous impropriety”, and therefore fell within an exception to WP privilege.
The email withdrew an existing offer by Stuart and Warren to sell their shares to Jonathan, replacing it with an offer to sell the shares at a price 25 per cent higher. The email continued that Stuart and Warren had become aware of “further wrongdoings” by Jonathan which would, it was said, have “serious implications” for Jonathan’s partner. It added that if the dispute was not settled shortly there was a risk of adverse publicity. The email also referred to the possibility of Jonathan facing charges of perjury, contempt of court and of being imprisoned. Similar threats were made against Jonathan’s partner.
The Court of Appeal said that the critical question was whether the privileged occasion had itself been abused. The Court noted previous authority which held that it was not an abuse of WP privilege to tell the truth, even where the truth was contrary to one’s case. After all, the without prejudice rule was about encouraging parties to speak frankly with the aim of reaching a settlement. Here, however, there had been impropriety, which was clear from the fact that the increase in the price was tied, and tied only, to threats affecting Jonathan’s liberty, family and reputation. The Court considered that Stuart and Warren believed they had found a way of frightening Jonathan into paying more for their shares. The email made no connection between Jonathan’s alleged wrongdoing and his brothers’ higher offer for the shares.
The courts are normally anxious to protect WP privilege, and have done so in recent cases. Most of those cases have involved a party trying to have WP privilege removed after an opponent had made an admission in a without prejudice context. Here, by contrast, threats were made which went beyond the bounds permissible in hard-fought commercial litigation. It remains permissible for a litigant to say in a without prejudice situation that they have changed their view of their case and are taking a tougher line on settlement. However, making gratuitous threats to scare opponents into settlement will run the risk of those threats being made public, with inevitable adverse consequences for the person making them.