Warning: when settlement discussions cause prejudice

Until an algorithm is applied to determine the division of assets and income on relationship breakdown, a separating couple who want to sort out financial matters between them are rightly channelled into agreeing a solution, rather than surrendering to the prospect of painful, protracted and pricey court proceedings.

On or before separation, armed only with common sense, many attempt to reach agreement with their soon to be estranged spouse or partner in respect of their finances. This often happens at a very early stage, before a Form E is even a twinkle in a prospective lawyer’s eye. So far, so civilised: maintaining control, saving money.

These kitchen table meetings should come with a health warning. Offers put forward at such meetings, concessions made which may be far more generous than would be proposed later, may not be viewed as privileged and so shielded from disclosure. Offers made at that early stage may come back to bite at a final hearing months, if not years, down the line.

In SC v YD [2014] EWHC 2446 (Fam), a mother and applicant in proceedings under Schedule 1 of the Children Act 1989 and TLATA 1996, was permitted by the Deputy District Judge to rely upon a document prepared by the father shortly before the parties’ final separation, which was the father said put forward by him as an “opening shot”, a genuine attempt to settle financial matters between the parties and record an agreement. That document was prepared by the father after the mother had requested some knowledge of the financial arrangements the father proposed in the event of their separation. The father sought to appeal that decision, contending that the document was a privileged offer of settlement, but was refused permission to appeal by the High Court.

It was clearly very much in the mother’s interests that she should be able to rely upon the document prepared by the father, as the father proposed in it that she should have an equal share in the parties’ home. The mother used that document as evidence of a common intention, based on proprietary estoppel and constructive trust principles. It was on the other hand, very much in the father’s interests to bury the contents of that document, as he denied any such common intention.

The decision of the court was based on the following conclusions:

1. At the time that the father delivered the draft agreement to the mother, neither of the parties could be said to be seeking to compromise actual or pending litigation.
2. At that time, in light of the surrounding circumstances, it could not be said that there was between them a real or pending dispute which was then capable of compromise.

The obvious point is that the parties ended up in litigation concerning their property, an event the father sought to avoid by making an early offer of settlement – his “opening shot”. In any similar situation before proceedings are contemplated or lawyers involved, until one party states their position, which is then rejected by the other, no dispute exists. That would mean that any opening offer, unless lawyers are instructed or litigation is pending, may well be vulnerable to disclosure.

The decision in the case presents a compelling contradiction in policy. At a time when legal advice is beyond the means of many, surely any genuine attempt to settle matters at whatever stage it arises on the breakdown of a relationship should attract the shield of privilege and be protected from subsequent disclosure?