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Xydhias v Xhdhias [1998] EWCA Civ 1966

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  • CCFMI 98/0529/2

    IN THE SUPREME COURT OF JUDICATURE

    IN THE COURT OF APPEAL (CIVIL DIVISION)

    ON APPEAL FROM BIRMINGHAM COUNTY COURT

    (HIS HONOUR JUDGE HAMILTON)

    Royal Courts of Justice

    Strand, London WC2A 2LL

    Monday, 21st December 1998

    B e f o r e:

    LORD JUSTICE STUART-SMITH

    LORD JUSTICE THORPE

    and

    LORD JUSTICE MUMMERY

    ____________

    HARRY COSTAS XYDHIAS Appellant

    v

    CHRISTALLA XHDHIAS Respondent

    ------------

    (Handed down transcript of

    Smith Bernal Reporting Limited

    180 Fleet Street, London EC4A 2HD

    Tel: 0171 421 4040 Fax: 404 1424

    Official Shorthand Writers to the Court)

    ---------------

    PATRICK ECCLES QC & EDWARD HESS (instructed by Messrs Blakemores of Leamington Spa, CV32 5QL) appeared on behalf of the appellant.

    MICHAEL HOROWITZ QC & TIMOTHY BISHOP (instructed by Messrs Mercy Messenger of Solihull, B93 0LL) appeared on behalf of the respondent.

    ____________

    J U D G M E N T

    (As approved by the court)

    (c)Crown Copyright

    LORD JUSTICE THORPE:

    The History

    Mr and Mrs Xydhias married in 1977 and have three children, only two of whom are now minors. In June 1994 Mrs Xydhias, the wife, petitioned for divorce and in April 1995 filed her application for ancillary relief. The subsequent progress of that application towards final hearing was bedevilled by the husband's breach of his duty to make full and frank disclosure. A penal notice was necessary to compel his affidavit of July 1995. The document itself was incomplete and misleading. The inevitable result was a string of questionnaires, directions hearings and production appointments. By those means sufficient information materialised to enable the wife's solicitors to obtain a three day fixture for trial commencing 2nd September 1996. In August each side filed a report from a forensic accountant. The wife's expert assessed the husband's worth at £2.25M. The husband's expert assessed his worth at about £1.1M. The experts broadly agreed that he had a net income of about £70K a year.

    Obviously unless the husband compromised the case, or protected his position by a realistic Calderbank offer, he was in danger of paying the costs on both sides, possibly even on an indemnity basis in the light of his misconduct. Between March and July 1996 negotiations proceeded on a Calderbank basis. By a letter of 5th July the husband's solicitors offered the wife the former matrimonial home plus a lump sum of £100K in full and final settlement of her claims, with maintenance for the children but with no order as to costs. The wife's response of 13th August sought an additional £150K plus an order for costs.

    Six days later Miss Brown, the wife's counsel telephoned Mr Keehan to explore the possibility of settlement. Matters did not advance, probably because Mr Keehan had a conference fixed for the following day. At the conclusion of that conference with his client Mr Keehan telephoned Miss Brown and on his client's instructions sought a minimal reduction: either a lump sum of £250K with no order for costs alternatively, if the petitioner were to have her taxed costs, then the lump sum would reduce to £225K. There were ancillary proposals for dates of transfer and payment together with proposals for child maintenance and for indemnifying the wife in respect of debts arising out of their business partnership.

    It transpired that both sides had fixed further conferences with the clients for 22nd August. Clearly there was little between the parties and Mr Keehan sensibly re-arranged the venue of his conference to ensure that counsel, solicitors, and clients would all be beneath the same roof but in separate rooms on the afternoon of 22nd August. Mr Keehan offered to put his proposals in writing prior to the commencement of the joint conference. The document that Mr Keehan produced prior to the commencement of the joint conference was a great elaboration of the simple terms proposed on 20th August. It was in the form of a draft order and extended to eight pages. It was later labelled Draft 1. He might have prepared a simple heads of agreement to record what one was prepared to provide and the other prepared to receive. However he leapfrogged that stage and attempted to go to the end position, namely the extension of the simple agreement into the language of the court, replete with recitals and undertakings and schedules. No doubt he was mindful of the imminent fixture and the desirability of presenting the district judge with a completely crafted draft order. An unusual feature of Mr Keehan's draft was that it contained an undertaking by the husband to execute legal charges in respect of ten separate properties specified in the first schedule to secure the payment to the petitioner of the lump sum. Although now rare, arrangements to secure the performance of continuing periodical payments orders were once commonplace. But in my experience the provision of security for the payment of a lump sum is unknown. Of course its justification was that the husband required a period of 36 months in which to complete the payment of the capital sum. The telephone offer made on 20th August had made no mention of security although it accepted that interest on outstanding instalments would accrue at 2% over base. It appears that it was Mr Keehan who first introduced the concept of securing payment of future instalments in addition to compensating the wife for the delay by payment of either interest or periodical payments. Whilst it is possible to see the sense of security for the payment of a lump sum by instalments long deferred it is harder to understand the development that emerged in Draft 2 whereby the husband undertook to charge shares and properties to secure not just the payment of the lump sum in full but also the performance of the full range of his obligations extending to the transfer of his share in the matrimonial home and the division of chattels.

    The negotiations on 22nd August, despite the fact that the parties were so close, lasted from 2.30pm to 8.00pm. But the time was productively spent and Mr Keehan pressed for a document signed by the parties that evening. Miss Brown refused on instructions, saying that until she could consider a full and fair copy of all that had been agreed she would not bind her client although her client would not seek to renege. On that basis the parties separated. Mr Keehan remained in chambers and at about 10.00pm faxed the full and fair copy to Miss Brown's home. The reason he finished the work that day was that he planned to start a holiday in the west country on the following morning. The document which he faxed has been labelled Draft 2.

    Over the course of the next few days negotiations continued, partly through counsel and partly through solicitors. Perhaps this was the result of Mr Keehan's absence from chambers, although he had a fax at his holiday address and continued to communicate with Miss Brown both by fax and telephone. This industry led to the production of further drafts which have been labelled 3, 4 and 5. For the purposes of this judgment it is unnecessary to record the variations thereby advanced. Partly they consisted of drafting points, partly the correction of errors and partly variations in the proposals for securing payment of the lump sum. What is abundantly plain to me is that during the course of these exchanges Miss Brown was fully committed to the search for compromise. If not expressly then impliedly she withdrew the caveat which she had entered on 20th August. Manifestly the pressure that induced the caveat had evaporated.

    The solicitors were also communicating with the court. On 27th August the wife's solicitor wrote to the district judge's listing officer. I quote four paragraphs from the letter:

    "Heads of terms have been agreed between the parties and subject to agreement as to the terms of the proposed consent order and the giving of security by Mr Xydhias, the respondent, to underpin his proposals, matters are agreed.

    The three days will not now be required and, subject to Mr Xydhias' counsel approving the final version of the order we will only need a short appointment next week to place the order before the court for consideration.

    However as the matter is complex this short appointment should, ideally, be for 45 minutes.

    We understand Mr Xydhias' solicitors, Williams, Freeman and Lloyd are closed today. However we are sending them a copy of this fax and no doubt they will be confirming the position to you tomorrow."

    On 28th August there was a discussion on the telephone between Miss Brown and Mr Keehan. They identified the two remaining issues as:

    "(a) Whether or not the respondent would be willing to include additional properties to the schedule of securities, and if so, which, and,

    (b) The duration of the respondent's continuing obligations."

    Counsel agreed that these were relatively minor questions of form and not matters of substance. On the same day the wife's solicitor wrote a letter to Miss Brown formerly releasing her from attending the fixture commencing 2nd September.

    On 29th August the wife's solicitor again wrote to the court. The essential part is as follows:

    "1. Heads of terms of settlement have been agreed between the parties following lengthy negotiations between counsel for both parties.

    2. The proposed settlement (inter alia) involves the payment of a lump sum by instalments. In this case it is accepted by both sides that security should be given for the deferred payments.

    3. Draft security documents have been prepared by us and were sent by fax to Mr Xydhias' solicitors on Tuesday. So far they have not been approved. A revised security document and a further security document will have to be prepared. These documents will hopefully be sent to Mr Xydhias' solicitors for approval today.

    4. We had hoped that the order could refer to the security documents as agreed. In the event that time does not allow this to happen then this difficulty can be overcome by a reference to the security documents being agreed between the solicitors and in default of agreement as drafted by conveyancing counsel.

    5. We were advised by Miss Brown that the court should be notified on Tuesday that the matter was so close to settling in order to save wastage of court time.

    6. We are conscious not only of a possible wastage of court time but that we need to save a wasted brief fee for our client as well.

    7. We therefore suggest that the case is removed from the list subject to a 45 minutes appointment at 10.00am on Monday morning. We will then be able to either put the order before the court for approval or if this is not possible ask that there is a further appointment listed with a time estimate of 45 minutes to allow further negotiations/consideration of the proposed order."

    On the same day Mr Keehan faxed to Miss Brown the fourth version of the consent order. Miss Brown telephoned him in response and said that she agreed that draft.

    However also on 29th August the husband's solicitors communicated with the wife's solicitor and attempted to vary in the husband's favour the timetable for paying the lump sum. On 30th August the wife's solicitor passed that letter on to Miss Brown with the comment that it was an attempt to move the goal posts. Miss Brown therefore faxed Mr Keehan to the effect that the letter of 29th August represented an unacceptable attempt to alter the agreement. However on the following day in the course of a telephone conversation between counsel Miss Brown said that she would be prepared to advise some flexibility on that issue in order to maintain the agreement. That conversation concluded counsel's involvement.

    Of course neither counsel attended the short appointment on 2nd September during the course of which the husband's solicitor stated on instructions that he had withdrawn all offers and that the case would be fully fought. The wife's solicitor had little option but to seek an interim order from the district judge and a four day fixture commencing 19th November, a date on which both Mr Keehan and Miss Brown would be available. Certainly the directions given on the 2nd September were appropriate for a trial of the applications at large. However on 25th September the respondent applied for various directions including leave to file an affidavit by Mr Keehan. By that date the respondent had changed his solicitors.

    Then on 7th October the wife filed notice of application for an order that:

    "1. The respondent do show cause why an order should not be made in the terms of an agreement reached between the petitioner and respondent between 22-29 August 1996."

    Alternatively directions were sought in preparation for a full trial. On 8th October the district judge ordered the wife's application for an order in terms of an agreement to be tried as a preliminary issue on 19th November with a time estimate of two days and appropriate directions were given for the filing of affidavits and documents relevant to the preliminary issue.

    The Issues In The Court Below

    The evidence then filed upon the preliminary issue consisted of an affidavit by the husband, an affidavit by Mr Keehan, an affidavit by Miss Brown and an affidavit by the wife's solicitor. The husband in his affidavit said that he did not believe that a binding agreement had been entered into and that after discussions with his business accountant, as opposed to his forensic accountant, he told his solicitor to withdraw the proposed settlement. The affidavits of counsel recounted their involvement at length. Happily there was no substantial issue between them. The wife's solicitor equally gave a lengthy account of her involvement. Of her attendance at court on 2nd September she said:

    "I still hoped that the few remaining practical matters would be resolved at the court and that the respondent would adhere to the previously agreed time-scale for payment of the first instalment."

    At the hearing on 19th November the wife was represented by Mr Horowitz QC and Mr Bishop and the husband by Mr Hess. Mr Horowitz relied on two principles. The first was that provided the court is satisfied that parties intended to be bound and essential terms were agreed the contract would be upheld even where further significant terms were to be agreed later. In support he cited both Chitty and Treitel on Contract. His second principle was that, whilst the first had been developed in the sphere of commercial agreements, it was wholly consistent with the practice and policy of the family court in upholding bargains properly made. Mr Hess submitted that the question was to be decided on the application of normal contractual principles, that those principles dictate that unless all the material terms are agreed or the contract contains an agreed mechanism for ascertaining what is not agreed then there is no contract. Further in the matrimonial context if there is no concluded agreement the application must be decided at large without reference to the negotiations. In support he relied upon a number of authorities, perhaps principally Foley v Classique Coaches [1934] 2 KB 1. Apparently during the course of the hearing Mr Hess discovered and relied upon the case of Pagnan SpA v Feed Products Limited [1987] 2 LLR 601. Mr Horowitz accepted the relevance of that authority but contended that of the six principles identified by Lloyd LJ at 619, principles 4-6 plainly demonstrated a concluded contract between the parties.

    The district judge delivered a written judgment on the 25th November. He said

    "From a close review of the events which took place between 22nd August and 2nd September 1996 it is clear:

    (a) That the parties wished to conclude an agreement before the court was called upon to decide the issue on 2nd September.

    (b) That by a process of detailed negotiations between counsel and solicitors for each party the issues were gradually narrowed down to a point where by some time probably on 29th August (it is difficult to pin down a defining moment) the essential building blocks of an agreement were in place."

    The district judge in finding for the wife excised from Draft 4 only two points that the husband had not expressly agreed namely:

    (a) The inclusion within the schedule of properties to be charged to secure the payment of the lump sum a property which the husband owned jointly with his father.

    (b) The wife's proposal to save a taxation by quantifying the husband's pre-existing liability for the costs of the divorce at £350.

    On 19th December the husband filed notice of appeal asserting that the district judge had been wrong as a matter of fact and/or law. Again Mr Horowitz and Mr Bishop prepared a lengthy skeleton argument for the purposes of that appeal. In an extended presentation of the case law relevant to the formation of commercial contracts Mr Horowitz submitted that the court had to decide whether the parties intended to be bound by the terms of an agreement, if so what remained outstanding, and did failure to reach agreement on any outstanding matter render the agreement unworkable. He relied heavily on the judgment of Lloyd LJ in Pagnan. He repeated the submission advanced in the court below that this principle developed in the sphere of commercial agreements was wholly consistent with the practice and policy of the family court. A skeleton argument of Mr Eccles QC and Mr Hess for the husband set out similar principles of contract law, relied on the same authorities, but contended that they produced the opposite result. The appeal came before His Honour Judge Hamilton who heard no oral evidence. He reviewed the relevant factual history succinctly and meticulously. He set out the legal principles that had been presented in the skeleton arguments. He reviewed the district judge's decision most carefully and he upheld it. Judge Hamilton made some small revisions to the order removing undertakings and relaxing the timetable of instalments in accordance with a concession made by the wife.

    On 13th January 1998 Judge Hamilton refused leave to appeal but leave was subsequently granted on paper by this court. By way of footnote to this history the wife has had to issue judgment summonses in order to obtain even interim provision from the husband. On the hearing of one of those summonses on 9th March 1998 Judge Hamilton heard oral evidence from the husband. In the course of that evidence the husband said that there had been an agreement but that he had been forced into it. The judge disbelieved that evidence. Of his evidence generally the judge held that the husband was untruthful about his financial transactions because of his determination that the wife should get nothing and because of his attempt to manipulate financial matters to her disadvantage.

    The Appeal

    The skeleton argument prepared by Mr Eccles and Mr Hess for the purposes of this appeal was in its essence summarised in this quotation:

    "Ordinary contractual principles apply: Peacock v Peacock [1991] 1 FLR 324, Harte v Harte (Times 2nd December 1976). Contractual principles are summarised in Pagnan v Feed Products."

    Mr Horowitz and Mr Bishop in their skeleton submitted that the applicable principles of law are derived from the law of contract and were correctly applied. The only distinction between ordinary contract law and the application of contract law in the field of ancillary relief is the effect of section 25 by which the agreement must subsequently be considered and approved by the court, which may decline to make an order in the terms agreed. No such issue arises directly in this case because both district judge and Judge Hamilton correctly held that the agreement should be approved by the court under the principles derived from Edgar v Edgar [1980] 1 WLR 1410.

    That is a reference to the fact that in the county court the husband had not only submitted that there was no agreement but also that, if there was an agreement, he should not be held to it on Edgar principles. In this court the husband has not pursued that second submission thereby accepting that, if an agreement for compromise is found despite his submissions, there are no grounds upon which he can escape its transition into the order refined in the court below. Thus in this court both skeletons proceeded on the footing that the outcome of the appeal depended upon the application of the Pagnan principles to the facts.

    Having read the skeleton arguments my lord, Lord Justice Stuart-Smith, raised the question as to whether the agreement, even if concluded and in writing, might not fail to meet the requirements of section 2(3) of the Law of Property (Miscellaneous Provisions) Act 1989. That question resulted in a prompt amendment of the notice of appeal to introduce that additional contention at the outset of the hearing.

    In his oral argument Mr Eccles developed the additional argument that all the negotiations between the parties had been without prejudice and that, since the negotiations had not resulted in a compromise, evidence of the negotiations should not have been admitted. Although he had referred to both Peacock v Peacock [1991] 1 FLR 324 and Kelley v Corston [1998] 3 WLR 246 in his skeleton Mr Eccles did not accept that compromises in ancillary relief were on any different footing to compromises of actions in other divisions. He submitted that were it concluded that the question for the court was to determine whether the exchanges between the parties precluded the respondent from his ordinary right to a full trial practitioners would be deprived of any certainties.

    Mr Horowitz had not referred to Peacock v Peacock or Kelley v Corston in his skeleton and on the first day accepted with little seeming enthusiasm an alternative formulation of his case on the basis that the issue before the district judge was not to be determined by applying the principles regulating the formation of commercial contracts but by exercising a broader discretion to judge if the parties were ad idem as to the extent of the financial redistribution and as to whether the husband had so conducted himself as to forfeit his right to a fully contested trial. On the second day he adopted the alternative formulation more robustly but always tenaciously contending that the appeal should be dismissed upon the application of the Pagnan principles. At the close of his submissions he assented to the court's suggestion that he should file a respondent's notice setting up the alternative formulation and an opportunity was given to Mr Eccles to make further written submissions on the respondent's notice.

    Conclusions

    I set out my conclusions on the legal arguments under three heads. I will consider first the applicable principles, second the section 2(3) argument and third the submission that the evidence in support of the wife's application should have been excluded on the grounds of privilege.

    The Applicable Principles

    My cardinal conclusion is that ordinary contractual principles do not determine the issues in this appeal. This is because of the fundamental distinction that an agreement for the compromise of an ancillary relief application does not give rise to a contract enforceable in law. The parties seeking to uphold a concluded agreement for the compromise of such an application cannot sue for specific performance. The only way of rendering the bargain enforceable, whether to ensure that the applicant obtains the agreed transfers and payments or whether to protect the respondent from future claims, is to convert the concluded agreement into an order of the court. The decision of the Privy Council in de Lasala v de Lasala [1980] AC 546 demonstrated that thereafter the rights and obligations of the parties are determined by the order and not by any agreement which preceded it. The order is absolute unless there is a statutory power to vary or unless vitiated by a fact that would vitiate an order in any other division. Additionally, as was demonstrated in Robinson v Robinson [1983] FLR 102 an order in ancillary relief proceedings may be set aside if the product of a material breach of the duty of full and frank disclosure. An even more singular feature of the transition from compromise to order in ancillary relief proceedings is that the court does not either automatically or invariably grant the application to give the bargain in the force of an order. The court conducts an independent assessment to enable it to discharge its statutory function to make such orders as reflect the criteria listed in section 25 of the Matrimonial Causes Act as amended. The decision of this court in Kelley v Corston has a decisive impact on this appeal, as was pointed out by my lord, Lord Justice Mummery. Although the judgments in Kelley v Corston have since been criticised by this court in the case of Arthur JS Hall & Co (a firm) v Simmons (The Times: 18th December 1998), the Peacock v Peacock point, with which we are concerned, was again affirmed by the judgment of the court. Lord Justice Pill in his judgment approved the first instance decision of Peacock v Peacock and continued at 268G:

    "Section 33A deals expressly with consent orders for financial relief. It was enacted to enable courts to deal with consent applications upon a consideration of the papers. However it does not in my judgment remove the duty of the court to consider the merits of the settlement. The parties have a duty of full and frank disclosure. They must disclose the information prescribed by rules of court. The court then has a duty, in the context of the statute, to consider whether there are other circumstances into which it ought to enquire. It follows from the existence of that duty, which will no doubt lead to the making of further enquiries in some cases, that, if a consent order is made, it is made with the approval by the court of its contents."

    The reference to procedure under section 33A has no bearing on this appeal where the information as to the parties respective financial circumstances was contained in extensive preparation for full trial in compliance with directions of the court. But the remainder of the citation is directly in point.

    In similar vein Lady Justice Butler-Sloss, having approved the same passage from the judgment in Peacock v Peacock, continued at 273:

    "The court retains the duty laid upon it under section 25 in respect of consent orders as well as contested proceedings. It has to scrutinise the draft order and to check, within the limited information made available, whether there are other matters which require the court to make enquiries. The court has the power to refuse to make the order although the parties have agreed it. The fact of the agreement will, of course, be likely to be an important consideration but would not necessarily be determinative. The court is not a rubber stamp."

    At the foot of the same page she described this balance in ancillary relief litigation as, 'a situation entirely different from the jurisdiction in the other Divisions of the High Court or civil litigation in the county court.'

    In consequence, it is clear that the award to an applicant for ancillary relief is always fixed by the court. The payer's liability cannot be ultimately fixed by compromise as can be done in the settlement of claims in other divisions. Therefore the purpose of negotiation is not to finally determine the liability (that can only be done by the court) but to reduce the length and expense of the process by which the court carries out its function. If there is a dispute as to whether the negotiations led to an accord that the process should be abbreviated, the court has a discretion in determining whether an accord was reached. In exercising that discretion the court should be astute to discern the antics of a litigant who, having consistently pressed for abbreviation, is seeking to resile and to justify his shift by reliance on some point of detail that was open for determination by the court at its abbreviated hearing. If the court concludes that the parties agreed to settle on terms then it may have to consider whether the terms were vitiated by a factor such as material non disclosure or tainted by a factor within the parameters set in Edgar v Edgar. Finally in every case the court must exercise its independent discretionary review applying the section 25 criteria to the circumstances of the case and to the terms of the accord. This approach particularly applies to accords intended to obviate delivery of briefs for trial. Different considerations may apply to agreements not negotiated in the shadow of an impending fixture.

    It is well recognised by all experienced practitioners, whether solicitors or counsel, that contested ancillary relief proceedings are expensive and by far the most expensive stage of the process is the trial, preceded by delivery of briefs. There have been innumerable examples over more than the last decade of cases in which the legal costs incurred have been quite disproportionate to the assets available for division. This perception has engendered the Calderbank procedure and more recently the interdisciplinary development of modern procedures designed to excise much of the elaboration and waste that have become the hallmarks of the old procedure. Litigants in ancillary relief proceedings are subjected to great emotional and psychological stresses, particularly as the date of trial approaches. In my opinion there are sound policy reasons supporting the conclusion that the judge is entitled to exercise a broad discretion to determine whether the parties have agreed to settle. The pilot scheme depends on judicial control of the process from start to finish. The court has a clear interest in curbing excessive adversariality and in excluding from trial lists unnecessary litigation. A more legalistic approach, as this case illustrates, only allows the inconsistent or manipulative litigant to repudiate an agreement on the ground that some point of drafting, detail, or implementation had not been clearly resolved. Ordinarily heads of agreement signed by the parties or a clear exchange of solicitors letters will establish the consensus. Hopefully a case such as this requiring the exercise of the judge's discretion will be a rarity.

    The Section 2(3) Point

    The relevant subsections of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 are as follows:

    "2(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each.

    (2) The terms may be incorporated in a document either by being set out in it or by reference to some other document.

    (3) The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract."

    Thus Mr Eccles submits that if there were a concluded contract it fails the section 2 test since it is for the disposition of an interest in land and it is not signed by or on behalf of each party to the contract.

    In my opinion this point too is settled by a proper analysis of the nature and effect of an agreement to compromise ancillary relief proceedings. The agreement, if concluded, is not one for the disposition of an interest in land but an agreement as to the terms which the parties themselves considered fair with the object of avoiding the expense and stress of a contested hearing. One of the terms of the agreement may be that the husband will submit to a transfer of property order in respect of the final matrimonial home. Such an order once made would require the husband's signature to a transfer. But if he declines to sign the document the district judge will sign in his stead.

    The Claim to Privilege

    In ancillary relief litigation negotiations may proceed on one of three basis, without prejudice, Calderbank or open. If negotiations proceed on a without prejudice basis then I would accept Mr Eccles' submission that they are governed by the following passage from the speech of Lord Griffiths in Rush & Tompkins Limited v GLC [1989] AC 1280:

    "The rule applies to exclude all negotiations genuinely aimed at settlement whether oral or in writing from being given in evidence. A competent solicitor will always head any negotiating correspondence 'without prejudice' to make clear beyond doubt that in the event of the negotiations being unsuccessful they are not to be referred to at the subsequent trial. However, the application of the rule is not dependant upon the use of the phrase 'without prejudice' and if it is clear from the surrounding circumstances that the parties were seeking to compromise the action, evidence of the content of those negotiations will, as a general rule, not be admissible at the trial and cannot be used to establish an admission or partial admission. I cannot therefore agree with the Court of Appeal that the problem in the present case should be resolved by a linguistic approach to the meaning of the phrase 'without prejudice'. I believe that the question has to be looked at more broadly and resolved by balancing two different public interests namely the public interest in promoting settlements and the public interest in full discovery between parties to litigation."

    There is no special rule governing without prejudice negotiation in ancillary relief proceedings.

    Calderbank is but a variant allowing what would otherwise be privileged to be put in evidence in the determination of any issue on costs.

    The Outcome Of The Present Appeal

    The principal issue in this appeal is not difficult to decide on the application of the first principle. It is relevant to regard not only the offers and counter offers in their terminology but also the communications with the court and the understanding of those involved. Clearly both counsel understood that they had settled the case. Clearly the solicitors understood that they had no need for advocates. Briefs were not delivered and the court was informed that the case had settled and that the fixture was vacated. Those convictions rested on firm foundation. In ancillary relief litigation a clear distinction has always been drawn between the determination of the liability and the determination of the security for the performance of the obligation. In the years when secured provision orders were common place counsel regularly settled cases on the footing that if the quantum of the annual payment could be agreed the mechanism that would be triggered to secure the recipient in the event of the payer's default would be separately and subsequently put into place either by further agreement or by the determination of the court. I have no doubt that that long established practice informs and explains the communications between counsel as well as their readiness to regard the detail of the properties to be included within the schedule as ancillary and not precedent to a concluded agreement. Of course if the issue had to be decided on the stricter basis of pure contractual principle then the saga of the developing drafts and the complementary exchanges between solicitors would have to be examined in much greater detail. The ambiguities and the inconsistencies that such an analysis would reveal would all tell against a finding of concluded contract on Pagnan principles. However on the evidence before him I am in no doubt that the district judge rightly held that the parties had concluded a compromise during the week before the hearing. Throughout that week it was the husband who was pressing for a settlement and plainly there came a point at which the wife agreed his terms. All that remained unresolved was either mechanics or trivial.

    Section 2

    The considerations special to ancillary relief litigation also determine this issue against the appellant for the reasons which I have stated above.

    The Claim To Privilege

    The negotiations with which we are concerned open with the letter of 13th August which is undoubtedly labelled to have been written on the Calderbank basis. None of the written communications between counsel specify their status and there is no evidence as to the basis upon which counsel themselves regarded the negotiation. The relevant letters between solicitors do carry the without prejudice label in some instances but on and after 28th August the wife's solicitor dropped the 'without prejudice' label from her letters and it was not employed by the husband's solicitors throughout the relevant exchange. It appears that the point was not investigated below, the husband being content to rely on the contention that no agreement had been made. No objection was taken before the district judge to the admission of evidence of negotiation or of concessions made in the course of without prejudice communications. Indeed it was the husband who first sought leave to introduce the evidence of his negotiating counsel. Of course an agreement serves to open without prejudice correspondence and if there is a dispute as to whether or not that stage was reached the without prejudice record must be admitted to determine that issue. Since I am in no doubt that an agreement was concluded this issue requires no further consideration.

    Postscript

    This case illustrates the deficiencies of current ancillary relief procedures. By his manipulation and abuse of the system the husband has frustrated the wife's reasonable objective to achieve independent financial security. 31/2 years after issuing her notice of application she is no further forward despite incurring what must be very considerable legal costs. The Lord Chancellor's Ancillary Relief Advisory Group has made proposals for new procedures, reformed routes of appeal in family proceedings and the rationalisation of enforcement remedies. If all these proposals are accepted this sort of litigation history will hopefully not be repeated.

    There are perhaps two lessons for specialist practitioners. The first is to distinguish clearly between the two stages of negotiation. The first stage is to establish what the applicant is to receive. That should be expressed in simple terms in heads of agreement signed by both counsel and their clients. All who appeared with or against the late Mr Jackson QC will remember that was for him a cardinal rule. The formality marks the conclusion of that part of the negotiating process which the parties dominate. The subsequent task of expressing the heads of agreement in the language of an order of the court is one to which they ordinarily make little contribution and, although it generally precedes the presentation of the agreement to the judge for his consideration, it can as well be done after the judge has determined the issue. The signature of the parties to a draft consent order hardly seems apt.

    Second it seems to me desirable that counsel should explicitly agree whether their negotiations are open or without prejudice. Ordinarily they are likely to be without prejudice and if they do not achieve a concluded agreement the aftermath is likely to be an exchange of Calderbank and/or open correspondence.

    Mr Eccles in his submissions referred us to procedures to be introduced by the Family Law Act 1996. Those are radical changes that will have a substantial impact on current practice. But since the relevant part will not come into force before April 2000 at the earliest it would be premature to consider them in this judgment.

    I would dismiss the appeal on the grounds advanced in the respondent's notice.

    LORD JUSTICE MUMMERY: I agree.

    LORD JUSTICE STUART-SMITH: I also agree.

    Order: Appeal dismissed; costs below as ordered; respondent to have 86% of appeal costs; application for leave to appeal to the House of Lords refused; application for stay of execution refused.


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Published: 21/12/1998

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