In 2016, the freehold of commercial premises called Portland House (PH) was sold to BC, his wife DC, his daughter FC (“the Cadmans”) and TT (a pension trustee independent of the family) as trustees of the Cadman pension fund, which had been set up for the benefit of employees of BC Ltd and related companies. PF Ltd (a company controlled by AK, who also controlled KE Ltd) were already lessees of PH. BC Ltd itself at no time owned the freehold of PH. The Cadmans needed TT’s consent for any sale of PH by the pension fund.
In May 2017 PH was damaged by fire. The Cadmans (in their own names but not TT) sued PF Ltd for rent arrears. These were disputed, but at a mediation in 2019, PF Ltd agreed a sum to settle the rent claim only.
In 2021, BC Ltd (not the Cadman pension trustees) issued proceedings against PF Ltd for trespass to PH by fire, unequivocally pleading that BC Ltd owned PH in Particulars of Claim signed off as true by BC himself. A further mediation was convened online to discuss settlement of this claim in January 2022. This was “attended” by BC and FC, purportedly on behalf of BC Ltd, and AK on behalf of PF Ltd. The mediation agreement was signed by or for each of those parties. AK “attended” to represent the interests of KE Ltd and himself also. Like the litigation, the mediation proceeded on the basis that BC Ltd owned PH. Even the Cadman’s solicitor and counsel claimed not to know this was wrong (and the judge later accepted this).
A one-page written settlement agreement emerged from the mediation, signed by BD and FC (purportedly on behalf of BC Ltd) and AK (on behalf of PF Ltd, KE Ltd and himself) which provided that:
(3) Khan Estates Limited will, as soon as reasonably practicable, enter into a contract (‘the contract’), for the purchase from BCL of the freehold property [PH]…..
Staged payments of the agreed price were to be spread over three years, a personal guarantee was given by AK to BC Ltd, and KE Ltd’s debt was secured by a first charge on PH in favour of BC Ltd. As consideration for the settlement of the fire claim, PF Ltd agreed to procure the purchase by KE Ltd. No Tomlin Order was agreed: the court was simply to be notified of settlement and the imminent trial date vacated. Nor was there any set completion date for the sale. Nor was PF Ltd released from any liabilities under its lease. Nor were any express factual warranties set out as the basis for the deal. As the judge later observed, this bore all the hallmarks of a rather hasty and simple agreement produced after a gruelling day of online negotiation.
The deal immediately ran into trouble because a search of the Land Registry by AK’s conveyancer immediately after the mediation showed that BC Ltd was not the registered owner. When this emerged, AK (for KE Ltd) was not too concerned at first about the strict identity of the seller, so long as the deal could proceed quickly, but it did not. So in May 2022 KE Ltd issued a claim against BC Ltd (but not the Cadman family, with or without TT) for specific performance of the sale agreed as an express term in the mediated settlement. Summary judgment was sought in September 2022, in response to which the Cadman’s solicitor served a witness statement. This specifically admitted for the first time that the pleadings in the trespass by fire claim (to his own ignorance during the mediation) were wrong, and that title to PH was held by the Cadman family and TT as trustees for the Cadman companies, and had never been held by BC Ltd. AK/PF Ltd suspended the summary judgment application and were given permission to amend by adding a claim for misrepresentation to the existing claim for breach of an express term, relying on was had been initially pleaded in the fire trespass claim (and supported by a statement of truth) and that by signing the settlement agreement for BC Ltd, this amounted to a representation that it owned PH. A further amendment alleging breach of an implied term warranting that BC Ltd owned PH or could procure its sale on the terms agreed was allowed later.
The trial of the claim to enforce the settlement deal on one of the grounds alleged above, heard in 2024, was only to decide liability and whether there was attributable loss in principle, but without quantifying damages. There was little factual dispute. FC admitted that her father paid little heed to fine legal distinctions as to ownership by “his” company or the pension fund, all set up as his own business initiatives. She accepted that her father BC would have known at the time of the fire trespass proceedings and the consequent mediation that BC Ltd had no right to claim or settle the proceedings on the agreed or any other terms, at least not without the consent of the Cadman family and TT, the pension trustees. AK accepted that so long as the deal had gone through promptly, he would not have minded, but it did not. He rejected a deal on less advantageous terms proposed by the surviving Cadman trustees in August 2023 (three months after Mr Cadman’s death) and sought a remedy when he was unable to secure the deal on the original terms. But overall, there was very little material evidential dispute between the parties.
Behind every litigated dispute is a human story, which often emerges at mediations and HHJ Tindal acknowledged this in his judgment. The litigation was about trying to settle a claim against PF Ltd, the current lessees of PH, alleging “trespass by fire”. The Cadman family sought to establish that PF Ltd were to blame for the fire at PH, apparently alleging arson by them, a big challenge. PF Ltd clearly denied it during the earlier rent claim, although they had agreed to pay some arrears at the first mediation. But to settle the later fire claim at a mediation, in a case where expert evidence would almost certainly be needed at trial, must have seemed a difficult proposition beforehand. AK for PF Ltd would be extremely unlikely to send any concessionary signal over an allegation of arson, even within a confidential mediation. This goes to show how you can be taken by surprise at a mediation, despite apparently gloomy prospects over settlement. Soon after the second mediation had started, AK was suggesting a purchase of PH by another of his companies, with a first charge and a personal guarantee to secure that debt. The Cadmans must have been attracted to a simple disposal of an already fire-damaged property, avoiding the need to continuing with risky and expensive litigation.
The mediation itself was also a challenge, particularly for Mr Cadman. It was online: his daughter could not be with him as she had covid, and he found difficulty with the technology. It is not clear whether he was in full health. But a deal appeared to emerge, which complied with the signed writing formalities required by the mediation agreement, as it was both put into writing (despite the remote parties) and signed by BC, FC and AK personally[3]. The settlement terms provided that the first instalment of the purchase price was due no later than 1 May 2022, four months later. HHJ Tindal allowed for the fact that the settlement agreement bore the hallmarks of a less than comprehensive commercial deal, given the pressures at the end of a long day’s negotiating online. But he was not prepared to disregard the apparent determination of all to enter into a binding contract, or to flinch from enforcing its terms, subject to his interpretation of the true rights and obligations of the parties as he discerned them to be.
When it became clear within four months of the mediated settlement that the Cadmans (however constituted) were no longer prepared to honour the mediated deal, one course open to PF Ltd would have been simply to argue (or accept) that no effective deal had been done, as the other party lacked the legal status to enter into the sale of PH. With AK’s guarantee obligations lapsing. But his company PF Ltd would still be lessee of PH and probably liable for rent for premises despite their being somewhat derelict. Furthermore, PF Ltd might well still have to defend the claim of alleged trespass by fire, if the Cadman pension trustees could persuade the court to substitute them as claimants for BC Ltd, by no means a certainty; and subject to any limitation defence which might have accrued to PF Ltd. The problem for AK was that he wanted a remedy to alleviate potential liabilities for PF Ltd, which the failure of the settlement would not do. Additionally, AK, through KE Ltd, hoped to redevelop PH at a profit, but felt this was only possible if he could acquire PH and get on with works quickly.
There was never any suggestion that TT, the independent trustee would have blocked the sale of PH. TT’s concern would only have been to protect the pension fund from sale of an asset at an undervalue. But while BC was alive (he died in May 2023) none of AK’s overtures to proceed met with any progress. So presumably, as HHJ Tindal also assumed, BC regretted the deal and decided not to make it happen. It was only three months after his death that a draft contract was submitted - in August 2023 - presumably on behalf of the remaining pension trustees (then DC, BC’s widow, his daughter FC and TT), but on terms of full immediate payment and of course over a year later. AK rejected this and reverted to litigation for a remedy based on the original deal.
HHJ Tindal effectively decided the case on the basis that the express term in the mediated settlement agreement quoted above meant not just that KE Ltd agreed to buy but that BC Ltd contracted to sell PH and could affect or procure that sale. As BC Ltd could not affect a sale and did not procure that sale by some means, they were in breach of that express term. The trustees’ attempt to revive the sale in August 2023 on unstaged payment terms proposed eight months later did not constitute performance, though at a later hearing it might give rise to a possible argument over failure by PF Ltd to mitigate its loss.
Normally on an allegation of breach of contract for the sale of land, the remedy sought would be for specific performance, as the land is what the claimant really wants rather than just monetary compensation, especially if there is potential development value involved. Indeed, this is how KE Ltd’s claim was originally framed before the true position emerged. But clearly specific performance against BC Ltd could not be ordered because the company did not own PH. Equally, if PF Ltd had reneged on the deal, BC Ltd would of itself have no standing to be able to seek specific performance itself, because it did not possess title to PH. Nor could the Cadman pension trustees simply have substituted themselves for BC Ltd to seek specific performance, as they were not parties to the settlement agreement.
One point not mentioned in the judgment is the status of the settlement agreement itself. It was presumably put into signed writing not just because the mediation agreement required it, but because any contract for the sale of land must be in writing signed by the vendor and purchaser and contain all material terms[4]. HHJ Tindal seems to have found that the settlement was a binding contract for the sale of land, albeit that BC Ltd had no title to confer. Was it therefore simply void? Furthermore, was it really a binding contract or was it an agreement to agree? To repeat the relevant wording (my emphasis):
Khan Estates Limited will, as soon as reasonably practicable, enter into a contract (‘the contract’), for the purchase from BCL of the freehold property [PH]…..
The judge clearly felt that the terms were clear enough to be theoretically enforceable against BC Ltd (so long as they owned PH, which they did not, as it emerged). Terms for payment are set out, but no completion date. There is a degree of futurity and provisionality about those terms which surely raise a question as to whether this really was a binding contract for the sale of land. At best it would seem to have been an open contract with none of the usual implied sale conditions which hem in every properly considered conveyancing transaction.
This leads on to the observation that PF Ltd’s purported commitment to the purchase seems extraordinarily cavalier. The judge was in a forgiving mood when it came to considering whether PF Ltd and their solicitors had been completely taken in by BC Ltd. In seeking a remedy against BC Ltd, did AK and his companies really not do a company search to see if BC Ltd was indeed worth suing? Why did they not obtain office copy entries for PH until after they had apparently contracted to buy it? Were they sure that there were no other adverse charges or overriding interests on the property? Did they really commit to this deal without any normal checks? Within days of the deal PF Ltd discovered a fundamental flaw in BC Ltd’s title which would entitle them to treat the contract as void. But were they really taking aboard the risks that any other possible encumbrance might inflict because buying PH was so attractive? Caveat emptor is still a cardinal principle over the sale of land, and the Pentagon judgment is silent on that topic.
An alternative course for AK and his companies was to claim damages against BC Ltd for breach of warranty of authority. Indeed, there was almost certainly another actionable breach of warranty of authority, not raised by AK or the judge, based on the terms of the mediation agreement. From what is actually quoted, this appears to have been in standard CEDR model agreement form. If so, paragraph 5 of the standard CEDR mediation agreement reads:
5.1 The person signing this Agreement on behalf of each Party warrants having authority to bind that Party to observe the terms of this Agreement
5.2 Each party warrants that a person with authority will participate in the mediation to authorise any settlement.
So far as is known, no claim has been made so far in the UK on the basis of breach of warranty of authority given in a mediation agreement. It would be interesting to discover how the courts would award damages in such a case – whether they would be limited to wasted costs or be somehow related to provable losses arising from the fact that any deal reached at mediation was ineffective or a nullity.
Many cases of breach of warranty of authority arise out of agency relationships, particularly between solicitors and fraudulent clients. Here – although the solicitors acting for BC Ltd escaped criticism from the judge, partly because the original fire case was drafted by a different counsel directly instructed by BC – there was no purported agency arrangement. BC Ltd were never suggested to be agents of the Cadman trustees. The company held itself out as principal when it patently was not.
Although his decision that breach of that express term conclusively decided the issue, HHJ Tindal went on to consider misrepresentation and possible breach of implied terms for completeness in case of an appeal. Although no application for permission to appeal is reported, perhaps the judge anticipated that an appeal might still arise. As to misrepresentation, he accepted that the assertion in the fire claim pleading that BC Ltd owned PH (although wrong) could not itself be used to find a claim, as this offended the principle of judicial proceedings immunity. He also agreed with BC Ltd that the express term in the settlement agreement was not itself capable of being an actionable (mis)representation, being rather an expression of future intention (which of itself begs the question about whether the deal was just an agreement to agree). However, both could be treated as evidence to support a finding both of an implied term in the settlement agreement and representations impliedly made during the mediation that BC Ltd were in a position to sell PH to KE Ltd. He went on to find that these false representations were not just negligently made but actually technically “fraudulent” (a word he was reluctant to use), having been made recklessly by BC without regard to the true position which he well knew.
HHJ Tindal warned AK and KE Ltd that his decision was on liability only, with the added finding the loss of some kind had been established in principle, but that they faced considerable difficulties on detailed quantum. Hadley v Baxendale would cover and perhaps limit the foreseeability of loss on breach of contract (whether for breach of the express term as he found it, or the breach of warranty of authority which lay unconsidered in his judgment). His findings of reckless (or fraudulent) misrepresentation justified tortious damages, which again might, he warned, be less generous than AK might have hoped, on the grounds of the tortious test for remoteness.
The judge clearly heard about what happened at the mediation and indeed relied upon it to an extent as the foundation for his decision. He was also sensitive about the legal basis for the access he was given.
36 I now turn to the mediation. At the start of trial, Mr Diggle [for BC Ltd] was concerned to ensure the parties did not go into inadmissible evidence as to without prejudice matters and he was careful (and indeed skilful) in his cross-examination of Mr Khan accordingly, as was Mr Clarke [for AK] in his cross-examination of Ms Cadman. Both accepted the terms of the Settlement themselves were admissible as were some details of what was said at the daylong mediation on 20th January 2022.
So far, so uncontroversial: there was presumably no detailed evidence given of offers and counter-offers leading to the final settlement terms, and it has been trite law since Tomlin v Standard Telephones & Cables[5] that the court can see a settlement agreement to ensure that it is binding, even if the deal emerged from without prejudice negotiations, and (more recently) even if the mediation agreement provided for settlement terms to be confidential[6].
He then summarised accurately the twin protective concepts for mediation content – without prejudice privilege and its exceptions, and contractual confidentiality. But his musing about whether “mediation privilege” exists sems not to have been prompted by counsel’s submissions.
60. The authorities do not - at least yet - support the view that ‘mediation privilege’ is distinct from ‘without prejudice privilege’. Nevertheless, the contractual and formal context of mediation means that it is a particularly clear – certainly not now ‘fuzzy’ - example of ‘without prejudice privilege’, which can be enhanced by the parties’ mediation contract and conduct by the imposition of superadded duties of These can even be raised by the mediator if they are called upon to give evidence, even if the parties both waive ‘without prejudice privilege’: Farm Assist v DEFRA [2009] EWHC 1102 (TCC).
61. Against that background, I turn to the relevant Oceanbulk[7] and Unilever[8] exceptions to ‘without prejudice privilege’ in this case, which were not suggested by either Counsel to have been excluded or even constricted by duties of confidentiality. These are fundamental to the Claimants’ misrepresentation claim, since I have already concluded they cannot rely on BCL’s Fire Claim Particulars of Claim themselves to found that cause of action. Therefore, they must rely on misrepresentation affecting the 202[2] mediation[9] However, it is common ground that the contents of [the] mediation are admissible and I will now finally explain why in relation to the three relevant exceptions to ‘without prejudice’.
The puzzle is why the judge should have felt the need to discuss the exceptions to without prejudice in detail in the light of the common ground referred to in bold above. He cites another recent case in this discussion – Berkeley Square Holdings v Lancer Properties [10] – but in that case, Berkeley fiercely (and unsuccessfully) opposed the admission of a privileged mediation position paper sought to be adduced by Lancer to prove that Berkeley had learned certain important facts off the record which Berkeley were denying on the record. In Pentagon, neither counsel is reported to have taken points on privilege or confidentiality. The judgment reads as if privilege has effectively been waived. If privilege had indeed been waived, there was no need for the judge to venture into the tricky domain of the exceptions to privilege.
His foray into that area came in that part of his judgment which involved his secondary findings about implied terms and (mis)representations, which will remain obiter dicta unless BC Ltd successfully appeal the main judgement on breach of express term. The exceptions to without prejudice privilege are still a thorny topic with areas of doubt and conflicting authority, despite the best efforts of the courts. Without citing any specific remarks made by either party during the mediation, he found that the discussions during the mediation had generated both implied terms as to BC Ltd’s owning PH which they had breached, and also implied actionable misrepresentations of the same import, on which PF Ltd and AK had relied and which had caused damage. Yet even then, when it came to what had actually amounted to these two actionable types of breach, HHJ Tindal ultimately said:
97 It is therefore unnecessary for me to find an implied representation to rely on any without prejudice material[1].
So, did he need to venture behind the curtain of privilege anyway, even if the parties’ waiver of privilege had not permitted him to do so? The answer to this question is far from clear.
As Pentagon confirms, it must be right that both mediation agreements and settlement agreements are available to the courts if they are called upon to decide the terms on which a mediation was conducted, and whether on what terms settlement emerged. Pentagon does not add anything to Brown v Rice & Patel, other than to confirm that if signed and written settlement terms are required by the mediation agreement, there must be compliance with that self-imposed formality. Whether, in the absence of compliance courts will simply decline to find a settlement, or whether (as happened in Brown) evidence of what happened at the mediation will still be admitted to check whether waiver or estoppel of that terms has occurred did not arise in Pentagon. This remains an area open to doubt[12].
There may however be some concern among mediators that a judge should receive evidence of what happened at a mediation to ascertain whether there has been a material misrepresentation which induced the settlement contract. Although this part of the Pentagon judgment is in the obiter dicta area, it does represent the first clear instance of a finding that an actionable misrepresentation made within a mediation induced the settlement terms. It is just a little strange that the words of the misrepresentation are so vaguely extracted from the evidence. HHJ Tindal seems to find that it is sufficient for the whole tenor of the mediation to have been based on BC Ltd’s misleading PF Ltd about ownership of PH, perhaps to avoid the fact that the clear misstatement in the pleadings and what was in para 3 of the settlement agreement were not in his view actionable. He perhaps extended the use of Oceanbulk in permitting surrounding evidence to be admitted to explain the settlement terms, but as noted above he then claimed that he had no need to access potentially privileged material to find an actionable misrepresentation. Besides, his reference to Oceanbulk exception is somewhat opaque, as this relates to admission of “evidence of facts within their common knowledge” to explain a settlement. BC Ltd’s lack of title was most definitely not a fact within the common knowledge of the parties to the mediation in January 2022.
Nor did Pentagon add anything to the position about the inter-relationship between without prejudice privilege and confidentiality, as last discussed in Farm Assist v DEFRA (No.2) by Ramsey J. Counsel did not raise this, and the mediator was not in any way involved in the Pentagon case, thankfully. It is extremely likely that the mediator would not even have known that the settlement agreement was being litigated. There was no real factual dispute which might have tempted one or other party to call the mediator to resolve. In Farm Assist (No 2), the mediator was allowed to intervene, and it was her arguments that led to Ramsey J’s finding that the mediator did indeed have the standing and right to challenge breach of mediation confidentiality. As this is both an unclear area and one which might go to the heart of mediation’s security as a process, maybe parties ought to be required to give notice to the relevant mediator and mediation provider if a party intends to seek admission of mediation material, in case there is an issue of principle which needs argument to protect the status of mediation as a confidential environment.
In drawing counsels’ attention to Brown v Rice & Patel, HHJ Tindal appears to have seen a distinction between a privilege for mediation material which is of narrower scope than the ordinary exceptions to without prejudice privilege, and what might be called “mediator privilege” – protection give to a mediator from being compelled to give evidence. As the mediator was not called in either Brown or Pentagon, this issue is not explored further in Pentagon, which is decided on the basis that without prejudice privilege and its exceptions applies to, is coterminous with or no different from, evidential protections relating to mediation. But as a judge was prepared to compel a mediator to give evidence in Farm Assist v DEFRA (No.2)[13], this remains the subject for continuing debate and decision on a later occasion.
What emerged however vaguely from the Pentagon mediation was what was exchanged between the parties. Of course they were at liberty to waive without prejudice privilege, as they seem to have done, something over which the mediator has no control. But if a party sought to have admitted the content of a private meeting between themselves and the mediator, or more worryingly a private meeting between the mediator and another party, that mediator and the relevant provider might well want to take a firm stand in opposition to disclosure of such material, certainly if one party sought to call that mediator to give such evidence. It is to be hoped that no judge would allow that to happen.
HHJ Tindal closed his judgment by referring to Churchill and the power it gave him to order the parties to mediate. He acknowledged that there had been two mediations already, one successful and one unsuccessful, which had led to this recent further litigation. He tried to manage AK’s expectations about how a detailed damages claim might not work out as favourably as AK might hope, he gently suggested that another mediation might be a good way to bring things to a conclusion. He recognised that Churchill had given him the power to order them to mediate, but decided he would not actually order the parties to do so in view of their past mixed experiences!
[1] [2024] EWHC 2513 (Comm)
[2] [2023] EWCA Civ 1416
[3] And (as suggested below) these formalities would be required for it to be a binding contract for the sale of land
[4] Law Reform (Miscellaneous Provisions) Act 1989 s.2
[5] [1969] 1 WLR 1378
[6] See Brown v Rice and Patel [2007] EWHC 625 (Ch), a case to which HHJ Tindal drew to the attention of counsel
[7] Oceanbulk Shipping v TMT Asia [2010] UKSC 44
[8] Unilever v Proctor & Gamble [2000] 1 WLR 2436 (CA)
[9] wrongly dated 2021 in the judgment.
[10] [2020] EWHC1015 (Ch)
[11] Somewhat infelicitously phrased in the BAILII report: he appears to have meant that it proved unnecessary for him to rely on any without prejudice material in being able to find an implied representation (as he did).
[12] Especially after the later Supreme Court decision on “no oral modification” clauses in MWB v Rock Advertising [2018] UKSC 24
[13] [2009] EWHC 1102 (TCC)