Costs judge finds information from mediation is admissible when considering costs consequences of settlement

A costs judge has held that information about a party's costs provided for the purposes of a mediation could be used as evidence when considering the cost consequences of a subsequent settlement: Savings Advice Limited v EDF Energy Customers Ltd [2017] EWHC B1 (Costs) 

Documents produced for the purposes of mediation are generally covered by without prejudice privilege and, subject to limited exceptions, cannot subsequently be used as evidence. In the present case the costs information was provided in emails headed "without prejudice save as to costs", so it is perhaps not surprising that the costs judge concluded it could be used as evidence in subsequent cost proceedings.

However, other aspects of the reasoning for the decision are more surprising and arguably not supported by existing authorities regarding the without prejudice rule. In particular, the costs judge held that the costs information was not in any event covered by the privilege because it was a statement of pure fact rather than an admission or concession. Such distinction has been rejected in previous cases on the basis that requiring parties to a negotiation to constantly analyse whether they are making admissions or factual statements would undermine the privilege's purpose of enabling parties to speak freely in settlement negotiations (see for example the decision of the House of Lords in Ofulue v Bossert [2009] UKHL16, considered here).

While the decision will not necessarily be followed in future cases,  it serves as a reminder that parties should be aware of the limitations of without prejudice privilege and the circumstances in which information provided during mediation may be used in subsequent litigation. As a practice point, parties should ensure that they are clear as to what is intended when they provide or receive information  'without prejudice save as to costs' in the context of a mediation.

Gary Horlock (associate) and Jan O'Neill (professional support lawyer) in our dispute resolution team consider the decision further below.

Background

The claimants brought a claim for damages against EDF.  In the run up to a mediation in May 2015, and at the claimants' request, EDF provided the claimants with a figure for the amount of costs incurred by EDF up to that date.  The mediation was unsuccessful but the claim subsequently settled in December 2015 when the claimants accepted a Part 36 offer made by EDF.

Having accepted the Part 36 offer, the claimants were entitled to recover their costs from EDF. They had taken out After the Event (ATE) insurance and sought to include the premium in their recoverable costs. (It was recoverable in principle, as the policy had been taken out before 1 April 2013; ATE premiums are not recoverable for policies taken out after that date as a result of the Jackson reforms.) The premium was calculated, in part, by reference to the amount of costs that EDF would have been able to recover from the claimants if it had successfully defended the claim.

The parties disagreed as to the relevant figure for EDF's costs. The claimants sought to rely on the information that EDF had provided about its costs for the purposes of  the mediation and EDF objected on the grounds that the information was confidential and subject to without prejudice privilege.

Decision

The costs judge, Master Haworth, accepted that the costs information had been provided by EDF for the purposes of the mediation but nevertheless held that it was admissible.   Although the reasoning in this regard is relatively brief, he appears to rely on three reasons to support this conclusion:

• the statement as to EDF's costs was a statement of pure fact, rather than an admission or concession, and therefore not covered by without prejudice privilege;
• it was provided under cover of emails headed "without prejudice save as to costs" rather than simply "without prejudice"; and
• the whole purpose of the mediation was to achieve a settlement and any costs information given in a mediation must be admissible in order to work out the consequences of any subsequent settlement.

The mediation agreement between the parties also included comprehensive confidentiality provisions (in relatively standard form) agreeing not to disclose or use for any other purpose any material produced for the purposes of the mediation. However the costs judge appears to have concluded that this did not prevent the claimants from relying on the documents: '..it cannot be used to suppress relevant information in an assessment relating to the costs of the substantive claim.'
 

Admissions and concessions or statements of pure fact

Previous cases have established that without prejudice privilege has a broad remit: it covers the entirety of communications made for the purpose of attempting to settle a dispute and is not limited to identifiable admissions or concessions (Ofulue).

While the protection of admissions and concessions from disclosure is a key aspect of without prejudice privilege, the underlying objective of the privilege is to encourage settlement of disputes by enabling negotiating parties to speak freely. This objective would be undermined if parties discussing settlement had to pre-vet every statement to determine whether or not it constituted a concession.  The authorities have therefore confirmed that it is not necessary or appropriate for a court to try to dissect out admissions and concessions and withhold the privilege from the remainder of negotiations.

The costs judge does not appear to have been referred to the previous authorities on this point and this part of his reasoning is unlikely to be followed in other cases.
 

Without prejudice save as to costs

The trade-off for the broad remit of without prejudice privilege is that there are certain recognised exceptions to the rule. One such exception is where the parties have agreed to alter the scope of the privilege, such as by marking documents "without prejudice save as to costs" to indicate that the material will be admissible in the context of a dispute as to the costs of the proceedings  

In the present case, the fact that the costs information was included in emails headed "without prejudice save as to costs" could provide a principled rationale for the costs judge's finding (without needing to rely on an unclear distinction between admissions and statements of fact).  However, it appears that the judge proceeded on an unstated assumption that the 'save as to costs' carve out on the emails in question necessarily trumped the fact that the emails were sent for the purpose of a mediation and would therefore normally otherwise attract the full scope of the privilege (under both the normal application of the privilege to mediations and the parties' express confirmation in the mediation agreement that the privilege applied). In doing so, he appears to have been influenced by the fact that the information in question was itself costs-related information, which he had considered 'must' always be admissible in a subsequent costs dispute (see below). It is not clear whether he would draw the same conclusion in relation to more substantive admissions contained in a 'without prejudice save as to costs' communication. Such a conclusion that the marking on a specific document trumped the otherwise existing wider privilege may well be justifiable in many cases. However, the fact that the question turns on the presumed intention of the parties means that whether it would do so in any particular case may depend on the particular circumstances of the case.
 

Working out the consequences of any subsequent settlement

Another exception to without prejudice privilege is that facts communicated between the parties during negotiations may be admissible as an aid to interpreting any resulting settlement agreement if they are part of the relevant "factual matrix" (Oceanbulk Trading & Shipping SA v TMT Asia [2010] UKSC 44).  It is not clear whether the costs judge had this exception in mind in concluding that the costs figures were admissible because they were necessary 'to work out the consequences' of the subsequent settlement.

It is possible that this exception could provide a basis for allowing costs information provided during a mediation to be used when interpreting the costs provisions contained in a resulting settlement agreement. Whether it would so in any particular case would depend on whether the information was necessary to clarify what the parties had agreed as to costs.  However, it is unclear how this would apply to the present case where (i) the settlement agreement in question did not result from the mediation but seven months later by the acceptance of a Part 36 offer and (ii) assessing the amount of costs automatically payable following a Part 36 acceptance does not involve any interpretation or construction of the agreement to settle.

In any event, the costs judge's blanket statement that "any costs information given in mediation is and must be admissible in order to work out the consequence of any subsequent settlement" (emphasis added) appears to go well beyond the bounds of the exception as generally understood to date.

Comment

While the costs judge in this case was clearly of the view that costs information given in mediation should be admissible to work out the consequences of a later settlement, that conclusion will not necessarily be followed in other cases, at least where the material is not expressly marked "without prejudice save as to costs".  Nevertheless, it may be advisable for parties exchanging costs information in mediation who do not wish the information to be subsequently admissible in relation to costs at a later stage to ensure that this is made clear, including by marking the material as 'without prejudice' without any carve-out for costs.