Ferster v Ferster & Ors

Without prejudice privilege may be displaced where the privileged occasion is itself abused by unambiguous impropriety. The exception is reserved for the clearest cases and must not be allowed to undermine the strong public interest in candid settlement negotiations.

A carefully formulated settlement communication crossed that threshold where threats affecting liberty, family and reputation were used to obtain a personal financial advantage unrelated to the alleged wrongdoing. The impropriety need not satisfy the criminal definition of blackmail. The court may admit the communication while protecting genuine negotiations through appropriate redaction.

Jonathan Ferster brought an unfair prejudice petition under section 994 of the Companies Act 2006. He alleged that his brothers, Stuart and Warren Ferster, had caused their jointly owned company to pursue separate proceedings for an improper purpose.

Jonathan sought permission to amend the petition by relying on an email sent by a mediator during settlement negotiations. The email connected an increased price for Stuart and Warren's shares with allegations of wrongdoing, possible committal and criminal proceedings, harm to Jonathan's partner and reputation, and imminent publicity.

Rose J, in [2015] EWHC 3895 (Ch), held that the email fell within the unambiguous impropriety exception to without prejudice privilege and allowed the amendment. The central issue on appeal was whether that evaluation was wrong.

1. Appeal dismissed unanimously. The judge had made no error of principle and was entitled to find that the email unambiguously exceeded what was permissible in the settlement of hard-fought commercial litigation.

2. Without prejudice privilege is displaced only in the clearest cases. The critical inquiry is whether the privileged occasion was itself abused. An unequivocal admission does not ordinarily suffice, even if it contradicts a pleaded position and could lead to perjury. An unequivocally proved threat in the nature of blackmail may constitute the required abuse.

3. The impropriety was the use of threatened committal, criminal consequences, damage to liberty, family and reputation, and immediate publicity to pressure Jonathan into paying Stuart and Warren personally more for their shares. The threatened steps might properly have been taken by the company on genuine grounds, but they could not properly be deployed as leverage for the shareholders' personal financial advantage.

4. The email could not realistically be read as merely reflecting an increase in the company's or shares' value. The demands themselves connected the increased price to Jonathan's alleged wrongdoing and the pressure that Stuart and Warren could cause the company to exert. The alleged wrongdoing was not connected rationally to the amount demanded.

5. The impropriety was apparent from a single, carefully formulated document. It did not depend on the amount of the price increase. Redacting the figures adequately protected the genuine details of the negotiations. The mediator's involvement carried little weight because the circumstances in which she transmitted the demands were unknown.

6. The threats did not have to satisfy the statutory definition of blackmail in section 21 of the Theft Act 1968. The court reached its conclusion without relying on that provision's presumption. Routine reliance on the presumption could make serious inroads into without prejudice protection. Nor was it necessary to decide whether Stuart and Warren had a factual basis for their allegations, because the impropriety arose from the nature and purpose of the threats.

1. Court of Appeal (Civil Division): By [2016] EWCA Civ 717, unanimously dismissed the appeal and upheld the ruling that the mediation email was admissible under the unambiguous impropriety exception.

2. High Court, Chancery Division: Rose J, in [2015] EWHC 3895 (Ch), allowed Jonathan Ferster to amend his unfair prejudice petition by relying on the email, holding that it disclosed an attempt at blackmail and fell within the exception to without prejudice privilege.