Ferster v Ferster & Ors

The Court of Appeal dismissed the appeal and upheld the judge's order allowing amendment to a section 994 Companies Act 2006 petition to refer to an email exchanged after a mediation. The court applied the "unambiguous impropriety" exception to the without prejudice/mediation privilege, holding that the mediator's email contained threats that unambiguously exceeded permissible settlement conduct because they threatened committal and criminal consequences, implicated third parties, threatened immediate publicity and were deployed to extract a personal financial advantage for two shareholders. The court rejected arguments that involvement of solicitors or a mediator, or a belief in the truth of allegations, prevented the application of the exception and noted that redaction of monetary figures was sufficient to avoid drawing into evidence other mediation discussions.

Background and nature of the application:

• The respondent, a shareholder, brought a petition under section 994 of the Companies Act 2006 alleging unfair prejudice. He sought permission to amend his petition to rely on the contents of an email sent by the mediator after a mediation session; the email was ordinarily protected by without prejudice/mediation privilege.

Procedural posture: The application to amend was granted by Mrs Justice Rose in the Chancery Division ([2015] EWHC 3895 (Ch)). The first and second respondents (the selling shareholders) appealed to the Court of Appeal with permission.

Issues framed by the court:

• Whether the content of the post-mediation email was protected by without prejudice/mediation privilege, or whether it fell within the "unambiguous impropriety" exception (including threats amounting to blackmail or improper pressure) so as to be admissible.

Facts and evidence:

• A mediation took place on 20 January 2015 where the two shareholders offered to sell their shares to the petitioner. The mediator forwarded an email recounting revised offers and warning that, if not accepted within 48 hours, the company might pursue committal, criminal and publicity measures relating to alleged non-disclosure of assets.
• The proposed amendment alleged that the email evidenced an attempt to extort a ransom price by threatening committal and criminal proceedings unless the petitioner paid an increased sum.
• Respondents did not adduce evidence to explain or justify the threats; their solicitors later wrote that the clients neither sought nor intended committal or allegations of perjury but reserved procedural steps.

Court's reasoning:

• The court applied the established authorities on the without prejudice rule and its exceptions (including Unilever plc v The Procter & Gamble Co. and the reasoning in Savings & Investment Bank Ltd v Fincken) and stressed that the exception must be confined to clear cases of abuse of the privileged occasion.
• The email was a single, carefully formulated document drafted by lawyers and sent by the mediator and, read as a whole, plainly tied an increased price to threats to use company proceedings (including committal and criminal steps) to the personal financial advantage of the selling shareholders.
• The threats went beyond normal settlement leverage by invoking criminal consequences, implicating the petitioner's partner, threatening immediate publicity and seeking to convert advantages that, if established, would properly benefit the company into a private gain for the shareholders.
• The court did not have to determine whether the shareholders genuinely believed the allegations; the impropriety lay in the nature and purpose of the threats themselves. The court also declined to rely on the statutory presumption in section 21 of the Theft Act 1968 and warned against routine use of that presumption so as not to undermine without prejudice protection.

Conclusion: The Court of Appeal concluded that the email fell within the unambiguous impropriety exception and that allowance of the proposed amendment was justified; the appeal was dismissed.

The appeal is dismissed. The Court of Appeal agreed with the judge that the mediator's email fell within the unambiguous impropriety exception to without prejudice/mediation privilege because it contained threats (committal, criminal consequences, publicity) deployed to extract a personal financial advantage for two shareholders, and therefore the amendment to the section 994 petition to refer to the email was properly allowed.

Appeal from Mrs Justice Rose (Chancery Division) decision of 21 December 2015 ([2015] EWHC 3895 (Ch)). Permission to appeal was granted by Briggs LJ after an oral hearing. The Court of Appeal (Floyd LJ, Patten LJ, Baker J) dismissed the appeal on 12 July 2016 ([2016] EWCA Civ 717).