SWISS RE CORPORATE SOLUTIONS LTD v MRS H SOMMER

This Appeal was ordered to proceed to an expedited hearing on two grounds. Last week I allowed an application to amend the Notice of Appeal to correct a clerical error to which I will briefly return below. Conduct, including the error, which I considered to have been merely clerical, was relied on by the Respondent, Mrs Sommer, in an application to strike out the Appeal last week. I dismissed that application and the focus has now shifted back to the substance of the Appeal.

The Appeal is directed against an order by Employment Judge Grewal (“the EJ”) which was sent to the Parties on 30^th December 2021, following a preliminary hearing on 9^th December 2021. The material part of the decision was that an order sent by the employer’s solicitors, Clyde & Co, dated 22^nd January 2021 and headed “Without prejudice and subject to contract” (“the WP letter”) was admissible in the Employment Tribunal (“ET”) proceedings. The employer, which is the Respondent in the ET proceedings, now advances two grounds of appeal:

I will consider first whether the EJ directed herself incorrectly as to the law (Ground 1a). I will then consider the other questions together, i.e. whether the EJ incorrectly applied the law (Ground 1b) or reached a perverse conclusion (Ground 2).

The two underlying ET claims are brought by the Respondent to the Appeal, Mrs Sommer. A full merits hearing is due to begin on 20^th April 2022, just over a week from now. The employer is a UK services company which forms part of a global provider of insurance and reinsurance. Mrs Sommer was employed as a Band E political risk underwriter until she was dismissed on grounds of redundancy on 16^th April 2021. On 22^nd January 2021, before her dismissal, she brought the first claim, complaining of race, sex and pregnancy/maternity discrimination and claiming for equal pay. Her second claim was presented on 28^th April 2021, complaining of further acts of pregnancy/maternity discrimination, and of harassment and victimisation and unfair dismissal, and discriminatory dismissal. For present purposes it is not necessary to go into further detail about those claims.

On 22^nd January 2021, the employer’s solicitors sent the WP letter to Mrs Sommer. It made a number of allegations against her and suggested that these could result in summary dismissal, criminal convictions, fines and/or findings of a breach of the Conduct Rules of the Financial Conduct Authority (“FCA”), which could make it difficult for her to work again in the regulated sector. It ended by offering a settlement agreement in which she would be paid £37,000 and her employment would be terminated. In summary, the allegations were:

She had sent three e-mails with attachments to her personal e-mail address and one of these was also sent to her husband. I should interject that the unamended Notice of Appeal stated that the latter went to her husband’s work e-mail address. The amendment corrected this, referring, instead, to his personal e-mail address. That was the clerical error to which I referred above. Although Mrs Sommer was suspicious of the original error, today’s hearing has not had to consider it any further.

The sending of these e-mails was a breach of the confidentiality obligations in her contract of employment.

Mrs Sommer sought a ruling from the ET that the WP letter, despite the “Without prejudice” heading, was admissible in the full merits hearing. Employment Judge Grewal decided that the WP letter was admissible on the basis that it constituted “unambiguous impropriety”.

There is a strong and consistent rule that communications, written or oral, when made as part of negotiations genuinely aimed at settlement of a dispute are not generally admissible in evidence in litigation between the parties over that dispute. That rule is founded upon the public policy of encouraging litigants to settle their disputes by agreement and enables them to negotiate without fear that what is said will be used in evidence.

As the EJ stated in her ruling, the privilege must not be used and will not apply in a case where it would “act as a cloak for perjury, blackmail or other unambiguous impropriety”: Unilever PLC v Procter & Gamble Co. 1999 EWCA Civ 3027. In such a case, the public interest in disclosure will outweigh the usual public interest in maintaining the privilege.

However, case law has repeatedly emphasised that a high bar is to be surmounted before there can be such an incursion into the scope of privilege. In Motorola Solutions Inc. v Hytera Communications Corp Ltd [2021] EWCA Civ 11 WLR 679, Lord Justice Males said:

Employment Judge Grewal set out the basic background and key contents of the WP letter. She then stated the effects of the without prejudice rule and the exception to it, quoting from Unilever. She cited Savings and Investment Bank Ltd v Fincken [2004] 1 WLR 667 for the proposition that the exception applies only when the privilege is abused. She referred at some length to Ferster v Ferster [2016] EWCA Civ 717 as an example of a threat made by a party in negotiations amounting to blackmail, and also to Motorola for the proposition that the exception only applies in cases that are “truly exceptional”.

The EJ then referred to the factual context in which the WP letter was sent. The following details are taken from her judgment:

Mrs Sommer returned to work from maternity leave on 1^st July 2020. On 9^th October 2020, she was informed that her role (unlike any others in her team) was at risk of redundancy.

On 19^th October 2020 she raised a formal grievance by e-mail complaining of discrimination on several grounds. She attached documents, including the CV of a male colleague who she alleged had been wrongly appointed to a senior role ahead of her. She openly copied the e-mail to her personal e-mail address and blind-copied it to her husband. On 14^th November 2020, she sent a further grievance about equal pay, attaching e-mails which contained information about transactions with clients of the company to show how work was allocated. This was openly copied to her personal e-mail address. On 17^th November 2020, she sent another e-mail, also openly copied to her personal e-mail address, with further details about her grievance, attaching documents including one with information about a transaction with a client of the company.

On 16^th December 2020, she was informed that her grievances had not been upheld.

In a further letter to her on 6^th January 2021, an HR partner pointed out that the e-mails which she had sent to her personal e-mail address and to her husband included personal data and matters confidential to the company and its clients. This was referred to as a “low level data breach” but she was told that this should not have occurred, was asked to explain it and was asked to delete the material.

Mrs Sommer responded on the same day, stating that she had sent the e-mails in order to provide herself with a copy of the evidence for her grievances and potential tribunal case, and asking which items should be deleted. The HR partner identified the items and Mrs Sommer confirmed that she had deleted them.

On 19^th January 2021 the HR partner informed Mrs Sommer that a disciplinary investigation was being commenced to establish the facts of the transmission of confidential information and personal data. On 20^th January an investigator was appointed.

The WP letter was sent on 22^nd January 2021.

On 25^th January 2021, the investigator reported that there had been a breach of Mrs Sommer’s employment contract and that her acts were not in line with the employer’s code of conduct, but that there were strong mitigating factors, in that the sole purpose was to support the grievances she had raised with no indication that anyone had suffered adverse consequences. He recommended informal action.

Having set out those facts, the EJ then asked herself whether the main body of the WP letter (occupying five-and-a-half of the six pages) “amounted to improper threats and pressure to persuade the Claimant to accept” the settlement offer. She added at para. 48:

The EJ pointed out that, although it was always apparent that Mrs Sommer had copied the grievance e-mails to herself, no complaint was made in October, November or December of 2020. The only new matter that the employer would have discovered was the copying of one e-mail to Mr Sommer. The HR Partner had described the data breach as “low level”. Meanwhile, the WP letter was sent before the investigation had established the facts.

Her conclusion, at para. 52, was that having regard to Mrs Sommer’s reason for sending the e-mails, her having done so openly, the low level of any breach, the lack of action until January 2021 and the early stage that the investigation had reached:

The EJ then summarised the threats of dismissal, prosecution, fines and regulatory action and concluded:

Finally, the EJ said that her conclusion was “reinforced” by what happened next, namely the investigator finding that there had been only a “technical” breach not warranting formal disciplinary action, and then a failure to inform Mrs Sommer of the outcome of the investigation before the deadline of 5^th February 2021 which she had been given to respond to the offer. That delay, the EJ concluded, “must have been to let the Claimant believe that she was still at risk” of the various consequences threatened.

By Ground 1A, the employer effectively contends that the EJ misdirected herself as to the legal test for the “unambiguous impropriety” exception.

Andrew Edge, of Counsel, representing the employer, submitted that the exception cannot be triggered merely by a party making threats in the course of negotiations. So, it was not triggered by a threat to bring an action for infringement of a patent in Unilever, or by a threat to remove assets from the jurisdiction in Motorola. Something more is needed, such as dishonesty or behaviour akin to blackmail, perjury or extortion, and it was therefore necessary for the EJ to analyse the WP letter and decide whether it contained any such element.

Mr Edge referred to the small number of cases in which unambiguous impropriety has been found. In Greenwood v Fitz [1961] 29 DLR 2D 260, a party stated that, if the case went to trial, then he would perjure himself and bribe witnesses to do the same and would go abroad rather than pay damages. In Hawick Jersey International Limited v Caplan, The Times, 11^th March 1998, the claimants admitted that they had sued for a non-existent debt in order to impose dishonest pressure on the defendant to settle. In Ferster v Ferster, parties to a company dispute made “an attempt at blackmail” by using a threat of committal proceedings and imprisonment to put pressure on another party to buy their shares at a higher price. In Boreh v Republic of Djibouti & Others [2015] EWHC 769 (Comm), a party falsified evidence and used it as the basis to demand settlement for a sum greater than the value of their claim.

In support of Ground 1, Mr Edge submits that the EJ’s scrutiny of the evidence and her findings did not go far enough for the case to be capable of passing the high threshold of unambiguous impropriety. Although she found that the employer’s solicitors had no, or no sufficient, grounds to justify the allegations made in the WP letter, she did not find that they acted dishonestly or that they engaged in extortion or blackmail, and therefore she set the bar too low.

Mr Edge reminds me that it is not unusual for employers to uncover potential misconduct by a claimant in the course of an employment dispute. Such conduct can be highly relevant to a tribunal claim. It can also be criminal in nature and/or have regulatory consequences. Mr Edge submits that there can be value in the parties negotiating and in reference being made to such potentially relevant matters, even if an employer’s investigation has not yet occurred or finished.

It is therefore an error of law, Mr Edge submits, for a tribunal to base a finding of unambiguous impropriety on the perceived weakness of an allegation made by a party in negotiations, save in the most exceptional circumstances. Given the importance of the privilege attaching to without prejudice communications, Mr Edge submits that when parties merely exaggerate their case or put pressure on the other side to settle, that does not amount to unambiguous impropriety unless the conduct is akin to extortion. By ‘extortion’ he meant using a threat to extract money (or some other remedy) which could not otherwise have been legitimately obtained in the underlying proceedings.

Mr Edge also criticises the EJ for relying on circumstances post-dating the WP letter, such as delay by the employer in sending Mrs Sommer the outcome of the disciplinary investigation, because the question was whether the WP letter was an abuse of privilege when it was sent.

He also complains that the EJ had no, or no sufficient, regard to the fact that when the WP letter was sent, the employer believed that Mrs Sommer was represented by a solicitor and a Trade Union representative because she had untruthfully stated this. However, that point was not developed in the hearing and also, in my view, has more to do with the application of the law to the facts.

Mrs Sommer was assisted by her husband, Mr Phillippe Sommer, as a lay representative. Not being legally trained, he did not descend into the technicalities of the legal argument, but he submitted that the EJ had made no error of law and invited me to uphold her reasoning. The bulk of Mr Sommer’s submissions concerned the evidence and the facts, so I shall return to them under the heading of ‘The Other Grounds’.

I do not consider that the EJ misdirected herself on the law. She correctly defined the test as whether there was unambiguous impropriety of an exceptional nature, with blackmail as an example, and asked herself, at para. 47, whether the contents of the letter “amounted to improper threats and pressure to persuade the Claimant to accept that offer” which “unambiguously exceeded what was permissible in settlement of hard fought litigation”. That, in my judgment, was the right question.

Mr Edge rightly says that it is not uncommon for employee misconduct to be discussed in correspondence of this kind and the EJ recognised at para. 48, that there is “nothing inherently wrong in referring to the potential disciplinary process” in without prejudice negotiations. That, of course, does not mean that an employer is then free to raise such matters dishonestly or to use them in an attempt at blackmail.

Nor do I think that any misdirection in law can be detected in the EJ’s references to matters post-dating the WP letter. I shall return to that subject when I deal with the facts but, in general, whilst it may be unlikely that conduct could be viewed as unambiguously improper in the light of later events, I would not rule out the possibility.

For these reasons I do not consider that EJ Grewal misunderstood the relevant law, and Ground 1A cannot succeed.

Mr Edge emphasises the nature of the impropriety actually identified by the employment judge. She found that threats were made on the basis of allegations of serious misconduct for which there was “no basis at all” or which were “grossly exaggerated”. However, she did not make a different kind of finding that a threat was used as a lever to try to obtain something to which the employer was not entitled.

Mr Edge submits that, although the EJ rejected the allegations in the WP letter, she did not properly or sufficiently address their substance by scrutinising the evidence and considering whether there was a proper explanation for them, and that this failure prevented her from properly deciding whether any impropriety was unambiguous.

Any such analysis, he contends, would have had to deal with the following:

So Mr Edge complains that in the absence of discussion of those factors, the EJ simply did not explain how they permitted a conclusion that there was “no basis” for the assertion of serious misconduct.

He adds that the EJ also did not closely analyse the language of the WP letter, and that the views expressed there about Mrs Sommer’s conduct were all expressly made conditional on, or subject, to the findings of the investigation which had not yet concluded. Although the letter wrongly predicted that the investigation would conclude that there was a formal case to answer, it only identified dismissal as “one of the possible outcomes” of an eventual disciplinary hearing.

These matters, Mr Edge submits, should have compelled the EJ to conclude that the employer’s solicitors at least may have held the genuine view that the allegations were true, and that it was not unambiguously improper to set them out and then to make Mrs Sommer a settlement offer to resolve all the outstanding issues. Meanwhile, the making of that offer gave effect to the policy underpinning the without prejudice rule of encouraging settlement of disputes of all kinds.

In the alternative, he submits that the matters listed at para. 40 above made it perverse for the EJ to find that there was “no basis at all” for asserting that Mrs Sommer had committed serious misconduct, a criminal offence and a breach of the FCA Conduct Rules.

Finally Mr Edge also contends that, on the facts of this case, it was an error for the EJ to refer to circumstances post-dating the WP letter and that the letter either was or was not unambiguously improper on the day that it was sent.

Mr Sommer emphasised the imbalance between the Parties. This was a case of a large, wealthy corporation instructing a leading firm of solicitors to send a threatening letter to an individual who, at that time, had already referred to deteriorating mental health. The letter, he says, had a profound and detrimental impact on Mrs Sommer.

In that context, Mr Sommer invites me to uphold the careful reasoning set out by the Employment Judge in nine pages of her Judgement. He submits that the EJ was right to view the WP letter as containing improper threats in the nature of blackmail. This can be seen from the disproportion between Mrs Sommer’s conduct and its characterisation in the letter. It was understandable that she sent the e-mails to preserve evidence which was needed for her case at a time when she was worried that she would be shut out of the employer’s systems, and the employer itself repeatedly referred to the low level of any breach of obligations.

Mr Sommer submitted that, for a company in this situation to say, in effect, “sign an agreement or else”, that is in the nature of blackmail and the addition of qualifying words in the letter do not change that. He added that the EJ was right to see this conclusion as reinforced by the later events. The employer should have told Mrs Sommer about the outcome of the investigation but did not do so until she had raised a further grievance about the WP letter.

The key question under Ground 1B and Ground 2 is whether the EJ made a finding which was not open to her on the evidence. Ground 1B is framed as a failure to test the “unambiguous” element of unambiguous impropriety, but the thrust of it is that the evidence compelled the conclusion that, even if there was evidence of impropriety, it was not unambiguous.

I have paid particular attention to Ferster v Ferster, which the EJ also quoted at some length. As I have said, this was a company dispute. In the context of a mediation, two shareholders wrote to the third, demanding that he sell his shares to them at an increased price. They stated that they had uncovered conduct on his part which would lead to criminal and contempt proceedings if the offer was not accepted. The trial judge, Mrs Justice Rose (as she then was) found that there was no lack of clarity in what was being said. There was a clear purpose to pressure the recipient to pay a higher price, for personal gain. The Court of Appeal, upholding her decision that the communication was admissible, noted that the judge reached those conclusions regardless of whether the senders had a genuine belief in the substance of their allegations. What was improper was the use of committal proceedings to place pressure on the recipient to pay a higher price. Even if it could be proper to take the threatened steps if there was a genuine belief in the basis for them, it was improper to use them as a lever for financial gain. Lord Justice Floyd, with whom Mr Justice Baker and Lord Justice Patten agreed, concluded that the test was satisfied because:

It is notable that the question of whether the person making the threats believed the allegations to be true was found to be beside the point. What mattered in Ferster was the type of threat made. It is entirely normal for parties in negotiations to threaten to bring or continue legal proceedings against each other, for example. The impropriety in Ferster consisted of using a threat of criminal or quasi-criminal proceedings as a lever for settling a civil dispute.

The present case has some similarities with Ferster but there are significant differences. Most importantly, the employment judge did not find that the threats of or references to criminal or regulatory consequences were of a kind which could not properly be made in civil proceedings. The reasons for finding impropriety in para. 23 of Ferster firstly went well beyond the mere warning that there could be criminal consequences, and secondly included the lack of any connection between the alleged conduct and the proposed settlement. In the present case, the letter was about conduct which was bound up with the continuing employment dispute and the employment relationship.

Instead, EJ Grewal put this case in a slightly different category as a case in which the conduct allegations were without basis or were grossly exaggerated.

I would not decide that, as a matter of principle, there is no such category which can satisfy the test for unambiguous impropriety. Baseless or exaggerated allegations could, for example, be evidence of dishonesty, which is a well-recognised basis for lifting the without prejudice privilege. However, I have not been referred to any decided case where such a finding has been made on the basis of a party making exaggerated allegations.

An important practical difficulty will arise in such a case where it is necessary to decide whether a party has acted dishonestly. That is that such issues will tend to be decided, as in this case, at interlocutory or preliminary hearings without oral evidence and in advance of the court or tribunal hearing the evidence in the underlying proceedings. In those circumstances, I agree with Mr Edge that a finding of unambiguous impropriety will depend on a rigorous analysis of what is said, and can only be made in a very clear case. That was recognised by the Court of Appeal in Motorola, where Males LJ stated, at para. 64:

In my judgment, the problem with the Employment Judge’s ruling in the present case is that it does not engage with the arguable merits of the allegations made in the WP letter. Instead, the EJ founded her conclusion on what was, essentially, a sudden change of attitude by the employer. Having first overlooked the e-mails and then described any breach as low level, it then framed them as serious misconduct in the WP letter. The Employment Judge may have been right to describe that framing as “grossly exaggerated”. However, she did not acknowledge that the facts did at least arguably disclose breach of confidence, breach of contract, a breach of the data protection legislation and conduct lacking integrity.

I therefore consider that the EJ’s reference to allegations of serious misconduct having “no basis at all” was an error. Her decision could still be founded on the ruling that the allegations were “grossly exaggerated”. However, it seems to me that exaggeration will not usually pass the high threshold of unambiguous impropriety without findings as to the guilty party’s state of mind. The EJ did not make those findings, and I doubt that she could validly have done so at a preliminary hearing without oral evidence.

Similarly, the EJ’s conclusion that the purpose of delaying the notification to Mrs Sommer of the investigation outcome “must have been to let the Claimant believe that she was still at risk of summary dismissal, criminal conviction and being found to be in reach of the FCA Conduct Rules”, does appear to overlook the fact that the determination was being made without oral evidence. In my view the EJ’s conclusion was probably correct, but that is not to say that there could not have been some other explanation.

In my judgment, therefore, Grounds 1B and 2 succeed. Given the basis for the allegations which were made in the WP letter and given the nature of this sort of preliminary hearing, it does not seem to me that there was a valid route to a ruling that unambiguous impropriety had been established.

In fairness to Mr and Mrs Sommer, none of this means that the WP letter was free from any impropriety. On the contrary, it seems to me that the employer or Clyde & Co sailed close to the wind. Although I accept Mr Edge’s submission that there is no rule prohibiting parties who are negotiating in civil proceedings from making any threat of criminal or regulatory action, there will always be the danger of applying improper pressure by doing so. That danger was heightened here by the exaggeration of the misconduct in the WP letter, in the light of everything else that had been said about it. However, as I have said, there is a strong rule of public policy maintaining privilege for without prejudice correspondence and exaggeration by itself is insufficient to make out an exception.

The Appeal is therefore allowed. It follows from my conclusion that only one outcome is possible, which is that the WP letter is inadmissible in evidence at the forthcoming full merits hearing.