Factual and Procedural Background
This claim concerns damages for alleged misrepresentation and breach of a settlement agreement related to property known as Portland House, an industrial unit in Stoke-on-Trent. The dispute involves multiple parties: the Defendant company, BCL, its pension scheme trustees (the Cadman family members and an independent trustee, IPM), and the Claimants including Pentagon Food Group Limited, Khan Estates Limited (KEL), and Mr Khan, a businessman and group CEO. The property was owned by the trustees of the pension scheme, not by BCL itself.
Litigation history includes three prior disputes over Portland House following a fire in May 2017. The first was a Rent Claim settled in 2019, involving unpaid rent. The second was a Fire Claim brought by BCL in 2021 alleging trespass by fire, which was compromised at mediation in January 2022 through a Settlement Agreement. This Settlement required KEL to purchase Portland House from BCL "as soon as reasonably practicable."
The present Enforcement Claim, issued in May 2022, alleges that BCL breached the Settlement by failing to sell Portland House to KEL in a timely manner. The Claimants further allege misrepresentations by BCL during the mediation and plead both express and implied terms in the Settlement contract. BCL denies these allegations, asserting it fulfilled its obligations by causing the sale rather than selling directly, and that it does not own the property.
Procedurally, the case proceeded to a liability trial focusing on whether BCL is liable for breach of contract or misrepresentation, leaving questions of remedy and loss mitigation for later consideration.
Legal Issues Presented
- Are BCL's statements in its Fire Claim particulars and conduct during mediation admissible and actionable despite judicial proceedings immunity and the without prejudice rule?
- What is the proper interpretation of the express terms of the Settlement Agreement, and has there been a breach?
- Should terms be implied into the Settlement contract, and if so, was there a breach of those implied terms?
- Was there an actionable misrepresentation by or on behalf of BCL?
- Have the Claimants proven causation of loss resulting from any breach or misrepresentation?
Arguments of the Parties
Claimants' Arguments
- BCL breached an express term of the Settlement requiring it to sell Portland House to KEL as soon as reasonably practicable.
- BCL made misrepresentations during mediation and in pleadings, falsely representing ownership and the right to sell the property.
- Implied terms should be read into the Settlement warranting BCL's ownership or at least its ability to sell or cause the sale of Portland House.
- The misrepresentations induced the Claimants to enter into the Settlement and caused loss.
Defendant's (BCL's) Arguments
- Paragraph 3 of the Settlement imposes an obligation only on KEL to enter into a contract to purchase from BCL, and BCL's obligation was limited to causing the sale rather than selling itself.
- BCL denies ownership of Portland House and asserts it discharged its obligation by procuring the sale through the trustees.
- The pleadings in the Fire Claim are protected by judicial proceedings immunity and are not actionable misrepresentations.
- The Claimants have not proven causation of loss or that the misrepresentations induced the Settlement.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Salomon v A Salomon & Co Ltd [1897] AC 22 |
Legal distinction between a company and its controlling individual shareholders/directors. |
Emphasised the importance of distinguishing between Mr Cadman personally, BCL, and the pension scheme trusteeship. |
| Brown v Rice [2007] EWHC 625 |
Clarification of when mediation communications are admissible despite "without prejudice" privilege. |
Confirmed the Settlement and some mediation communications were admissible for interpretation and misrepresentation claims. |
| Pedriks v Grimaux [2021] EWHC 3448 (QB) |
Principles of contractual interpretation and construction of settlement agreements. |
Applied to interpret the Settlement and assess express and implied terms. |
| Marks & Spencer v BNP Paribas [2016] AC 742 |
Criteria for implying terms into contracts: necessity for business efficacy or obviousness. |
Guided the court in assessing whether implied terms were necessary in the Settlement. |
| Rush & Tompkins v GLC [1989] AC 1280 |
Foundations of the "without prejudice" rule to encourage settlement negotiations. |
Supported the exclusion of certain evidence from admission unless exceptions apply. |
| Unilever v Procter & Gamble [2000] 1 WLR 2436 |
Exceptions to the "without prejudice" rule, including misrepresentation and fraud in settlement negotiations. |
Allowed admission of mediation communications for misrepresentation claims in this case. |
| Oceanbulk Shipping v TMT [2010] 3 WLR 1424 |
Exception to "without prejudice" rule for contract interpretation using facts within common knowledge. |
Permitted use of mediation context and facts for interpreting the Settlement. |
| Singh v Reading BC [2013] EWCA Civ 909 |
Judicial proceedings immunity and its limits regarding statements of case. |
Held that pleadings are immune from suit but can be used as context for other claims. |
| Motorola v Hytera [2021] EWCA Civ 11 |
Strict application of the "unambiguous impropriety" exception to "without prejudice" privilege. |
Rejected Claimants' argument that misrepresentation amounted to unambiguous impropriety. |
| Berkeley Square Holdings v Lancer Property [2021] 1 WLR 4877 |
Clarification of exceptions to "without prejudice" rule including misrepresentation affecting consent. |
Supported admission of mediation evidence to challenge the validity of the Settlement. |
| FCA v Arch Insurance (UK) Ltd & Ors [2020] EWHC 2448 (Comm) |
Emphasis on objective interpretation of contracts considering context and commercial common sense. |
Reinforced approach to interpreting the Settlement in light of mediation context. |
| Raiffeisen Zentralbank v RBS [2010] EWHC 1392 (Comm) |
Inducement test in misrepresentation claims: claimant need only prove reliance on false representation. |
Applied to find Claimants were induced by BCL's misrepresentations. |
| Zurich Insurance v Hayward [2016] 3 WLR 637 |
No requirement for claimant to prove genuine belief in fraudulent misrepresentation. |
Supported finding of fraudulent misrepresentation despite Claimant's genuine belief. |
| Hadley v Baxendale (1854) 9 Exch 341 |
Remoteness of damage in contract law and foreseeability of loss. |
Used to caution on the scope of recoverable losses claimed by the Claimants. |
| Smith New Court v Citybank [1996] 3 WLR 1051 |
Direct causation in fraudulent misrepresentation claims and limits on damages. |
Informed analysis of loss causation and mitigation issues. |
Court's Reasoning and Analysis
The court commenced by examining the admissibility of evidence given the "without prejudice" rule and judicial proceedings immunity. It held that pleadings in the Fire Claim, though misrepresenting ownership, are protected by judicial proceedings immunity and not actionable misrepresentations. However, these pleadings and mediation communications are admissible as context for interpreting the Settlement and for assessing misrepresentation claims under recognized exceptions to the "without prejudice" rule.
The court interpreted the Settlement Agreement, particularly paragraph 3, in light of the entire contract and surrounding circumstances. Although paragraph 3 explicitly imposed an obligation on KEL to enter into a contract to purchase from BCL, the court found that this implied a mutual obligation on BCL to contract to sell Portland House to KEL. This interpretation was consistent with the contract's commercial purpose and the parties' intentions during mediation.
The court found that BCL breached this express term by failing to enter into the contract within a reasonable time and by proposing a different contract more than a year later, from the trustees rather than BCL, without the agreed staged payments.
Regarding implied terms, the court applied the established test from Marks & Spencer v BNP Paribas and related authorities. It rejected the implication that BCL warranted ownership of Portland House, finding it unnecessary for business efficacy. However, it accepted implied terms that BCL warranted it had or could obtain the right to sell or compel the sale of the property, and that it would sell or cause the sale to KEL. These terms were necessary to avoid a one-sided and commercially incoherent contract.
On misrepresentation, the court identified two categories: the pleadings in the Fire Claim (not actionable due to immunity) and representations made during mediation. It found that BCL, through Mr Cadman, made implied misrepresentations that it owned Portland House and had the right to sell or arrange for its sale. These misrepresentations were material and induced the Claimants to enter into the Settlement. The court found Mr Cadman at least negligent, and likely reckless, in making these representations, fulfilling the requirements for fraudulent misrepresentation.
Finally, on causation and loss, the court found that the Claimants proved some loss due to delay and failure to complete the sale as agreed. While the exact quantum and mitigation issues remain for a remedies hearing, the court accepted that deterioration of the property and lost commercial opportunity had occurred, constituting recoverable loss in principle.
Holding and Implications
The court held that BCL is liable for breach of an express term of the Settlement Agreement requiring it to contract to sell Portland House to KEL as soon as reasonably practicable. Alternatively, BCL is liable for breach of implied terms warranting its capacity to sell or cause the sale of the property. Furthermore, BCL made actionable misrepresentations inducing the Claimants to enter the Settlement, which were at least negligent and likely reckless, amounting to fraudulent misrepresentation.
The direct consequence is that BCL has breached its contractual and tortious duties, entitling the Claimants to pursue remedies and damages in a subsequent hearing. The judgment does not set new legal precedent but applies and clarifies existing principles on the interplay of mediation privilege, contractual interpretation, implied terms, and misrepresentation in the context of settlement agreements. The court encourages the parties to consider further mediation to resolve outstanding issues.