Cresta Estates Limited & Ors v MPB Developments Limited & Ors

MRS. JUSTICE JOANNA SMITH:

1. This is the trial of a preliminary issue in relation to a creditors’ petition for the winding-up of MPB Developments Limited (“ the Company ”).

2. At the outset of the trial this morning, at which the Second and Third Respondents (Mr Hilton and Mr Welsh) are representing themselves, they indicated to the court that they no longer sought to defend the petition on behalf of the Company. However, Mr. Matthewson (acting for the Petitioners) has, none the less, invited me to determine an issue that has arisen as to the admissibility of certain parts of the witness statement of Mr Erlich, on which the Petitioners rely in support of the petition.

3. Specifically, as I understand the Respondents' position, it is that certain paragraphs of Mr Erlich’s statement should be struck out as being inadmissible on the grounds that they refer (i) to without prejudice discussions that took place between Mr Erlich and Mr Welsh at a meeting in November 2022 prior to the presentation of the petition (paragraphs 45-51); and (ii) to the content of a proposal that was made by a Mr. Robert Whitton, who is CEO of, and shareholder in, some relevant subsidiary companies, made in February 2024 (paragraphs 52-56). The Respondents say that this proposal is also covered by without prejudice privilege.

4. In summary, Mr. Matthewson accepts that the November 2022 discussions were ‘without prejudice’, but he submits that there has been a waiver of privilege in relation to those discussions. As for the proposal by Mr. Whitton in February 2024, Mr. Matthewson contends that that proposal was never covered by without prejudice privilege in the first place.

5. Before I deal in more detail with the arguments, I should refer to the law as it was identified by Mr. Matthewson in his helpful submissions. I start with the case of Somatra Limited v Sinclair Roche & Temperley [2000] 1 WLR 2453 , per Clarke LJ, at [22]: “The underlying principle is not in dispute. It is that where discussions are held without prejudice, neither party is entitled to rely upon the contents of those discussions to prove an admission or admissions made by the other party in order to advance its case at the trial.”

6. At [30], in a passage on which Mr. Matthewson relied, Clarke LJ observed that: “Fairness requires that where a party deploys privileged or without prejudice material as part of its case at a trial, the other party should be entitled, in the one case, to see the whole of the privileged document and, in the other case, to rely upon the other without prejudice material which came into existence as part of the same without prejudice process.

7. At [36] Clarke LJ went on to say: “... as a matter of principle and policy ... where, in support of its case on the merits of an action, a party deploys material which would not be admissible because it forms part of without prejudice communications the other party is entitled to refer to the contents of those same communications in order to advance its own case on the merits. It does not seem to me to be just to allow the first party to obtain an advantage by relying on the without prejudice material in one part of the litigation, as here on an application for Mareva relief, where the merits are relevant, and to rely upon the without prejudice nature of the communications when the other party wished to rely upon, say, an admission made in the same without prejudice discussions at the trial, where the merits are of course also relevant.”

8. Mr. Matthewson also referred my attention to the family law case of BE v DE [2014] EWHC 2318, at [25], per Bodey J. In that paragraph, in the circumstances of that case, the learned judge noted that it would be unfair for one of the parties to ‘blow hot and cold’, in other words, on the one hand to seek to rely upon without prejudice material whilst, on the other, seeking to deploy without prejudice protection so as to avoid any meaningful cross-examination. He pointed out that: “[m]eaningful cross-examination would mean the court having the opportunity to evaluate [that party’s] assertion as against the content of ‘the document’.”

9. Mr. Matthewson contends that the Respondents have waived their entitlement to rely on the without prejudice privilege which otherwise attended the meeting in November 2022 for three reasons.

10. First, he says there has been a waiver by reason of paragraphs 7-9 of the Points of Defence, which read as follows: “7. For some time, Mr Erlich and Mr Hilton/Mr Welsh have been seeking to go their separate ways and to re-organise the investments held by the Company and its subsidiaries. As professional investors such as Mr Erlich and the Petitioners well know: (1) a consequence of making long term loans to the Company is that repayment cannot be demanded immediately; (2) property holdings and developments rise and fall in value over a period of years; (3) solvency or insolvency cannot be judged properly by comparing assets today with debts which do not fall due for repayment until 2029. In such circumstances, the only proper comparison is the expected value of assets in 2029 with debts repayable then.

8. The purpose of the present proceedings is to pressure Mr Hilton and Mr Welsh into giving up their shareholding and their majority on the Company’s board of directors so that Mr Erlich can take control of the Company and its investments now. In doing so, Mr Erlich (directly or through limited companies) hopes to circumvent the matters set out in paragraphs 7(1)-(3) above.

9. On or about 21 February 2022 Mr Erlich called a meeting at which he pressured Mr Hilton and Mr Welsh into resigning as directors of MPB Eco Parks Limited and MPB Property Management Limited and transferring their shareholdings to him for no consideration. When Mr Erlich was unable to engineer a similar takeover of the Company in 2023, he presented the Petition.”

11. Paying careful attention to what is said in those paragraphs, I am not satisfied that, taken on their own, they amount to a waiver. It seems to me that the observation made in paragraph 7, to the effect that Mr. Erlich, Mr. Hilton and Mr. Welsh had been seeking to go their separate ways and to re-organise the investments held by the Company and its subsidiaries for some time, is an extremely broad statement and does not necessarily refer to the content of any without prejudice document or conversation.

12. Furthermore, paragraph 9 falls into the same category. Paragraph 9 refers to a meeting in February 2022, in respect of which there is no dispute over privilege, and then goes on to assert that: “... Mr. Erlich was unable to engineer a takeover of the Company in 2023 ...”. This is of course after the November 2022 discussions which I am told were originally covered by without prejudice privilege.

13. I am not satisfied on the information I have available to me that those paragraphs in the Points of Defence plainly amount to a waiver.

14. The second ground on which Mr. Matthewson asserts a waiver arises by reason of paragraph 20 of Mr. Welsh's witness statement in these proceedings. The first few lines of that paragraph read as follows: “As it became clear that the relationship was breaking down I reached out to Baruch in September 2022 to try and agree how we might end our relationship, however rather than act in good faith, this was used as an information gathering exercise and then passed to Cresta and Luxor’s lawyers.” There is then some further information given and then the paragraph finishes as follows: “From that point on, they were constantly trying to explore an insolvency narrative and fish for any potential breaches/claims against Paul and I rather than look at how we could make any investments work. They were not interested in progressing the Impact companies or trying to make good on the investments made, they appeared only to be interested in looking at how Cresta or Luxor might be repaid early.”

15. Mr. Welsh contends that those are also broad statements and that therefore there has been no waiver by reason of the making of them. However, in my judgment, these sentences do appear to refer to the content of what was discussed in the without prejudice conversation in November 2022. This paragraph appears to include an allegation of bad faith in connection with Mr Erlich’s conduct during that discussion. Accordingly, in my judgment, it amounts to the partial deployment of privileged material.

16. In the circumstances, I consider that the Respondents have, by that partial deployment, waived their right to rely upon the privilege that would otherwise have attached to the November 2022 discussion. As Mr. Matthewson correctly says, he would be unable adequately to explore that paragraph in cross-examination of Mr. Welsh without being able to refer to the content of that discussion.

17. Given my decision on this second ground, it is perhaps unnecessary for me to deal with Mr. Matthewson's third argument as to waiver, which concerns the conduct of the proceedings. However, as the point has been raised and as I am persuaded by it, I should identify how it arises.

18. Mr. Erlich’s witness statement was exchanged on 12 July 2024. On 19 July 2024, the Respondents' then solicitors, Hill Dickinson LLP, wrote to the Petitioners’ solicitors, Kingsley Napley LLP, taking the point that the November 2022 discussion and the February 2024 proposal were protected by without prejudice privilege and asking for the relevant paragraphs in Mr. Erlich’s witness statement to be removed. Absent their removal, Hill Dickinson threatened to apply to strike the offending paragraphs out.

19. In their response, Kingsley Napley asserted that the original privilege in the November 2022 discussions had been waived by the Respondents and that the February 2024 proposal was not covered by without prejudice privilege. They refused to remove the identified paragraphs from Mr Erlich’s statement.

20. Thereafter the point does not appear to have been pursued by Hill Dickinson, notwithstanding that they continued to act for the Respondents until the end of November 2024. They did not push back on the points made by Kingsley Napley and they made no application to strike out the paragraphs in Mr. Erlich's statement to which they had objected.

21. There was a PTR listed to take place at the end of November 2024. In the event it did not go ahead in circumstances where the parties agreed a consent order. Although I understand that Hill Dickinson continued to act for the Respondents up until the date of the PTR, there was no attempt to raise this issue again and nothing was included in the consent order as to the admissibility or otherwise of passages within Mr Erlich’s witness statement. Immediately after the PTR, I understand that Hill Dickinson came off the record.

22. On 6 December 2024, Mr. Welsh sent an e-mail to Kingsley Napley maintaining that the November 2022 discussions were protected by without prejudice privilege. This was, again, rejected by Kingsley Napley on 9 December 2024. There was no response to this rejection from the Respondents and no further attempt in correspondence to maintain the argument. There has also been no application to strike out the various parts of the witness statement to which objection is now taken and, indeed, it is fair to say (although they are representing themselves) that Mr. Welsh and Mr. Hilton did not include anything in their skeleton argument for this hearing identifying a continuing wish to take a point on the admissibility of paragraphs within Mr. Erlich's witness statement.

23. In those circumstances, it does seem to me that Mr. Matthewson's argument that there has, effectively, been a waiver by conduct is a good one. The Respondents were represented by solicitors when the point was first raised but, having received a comprehensive response to the point from Kingsley Napley, those solicitors did not pursue it and they made no attempt to strike out the relevant paragraphs or to raise the point at the PTR. Equally, Messrs Hilton and Welsh have made no attempt to issue an application to strike out those paragraphs at this hearing. Had it not been raised by the Petitioners, it is unclear that the Respondents would even have raised the point.

24. In the circumstances, I am going to allow Mr. Erlich to refer to the November 2022 discussions in the paragraphs of his witness statement which are currently disputed.

25. I am told (and I have not read the relevant paragraphs recently, because I was asked by the Respondents not to do so, although I did read them early on in my preparation for the trial) that the relevant paragraphs refer to a recording of the November 2022 discussion and that there is a dispute around whether the transcript of that discussion is admissible in these proceedings.

26. I understand that a recording of the discussion was made by a Mr. Winegarten, an adviser to Mr. Erlich at the time, and that it was made without the knowledge of the Respondents. That is regrettable. However, I was taken by Mr Matthewson to Somatra at [4] from which it is clear that the fact that a covert recording of meetings and telephone calls was also made in that case did not render the transcripts of those meetings and conversations inadmissible. Specifically, Clarke LJ said in that paragraph: “It seems to me that either the contents of the conversations are admissible at the trial or they are not. If they are, no-one suggests that the court should not have the best evidence of what was said, namely the recordings.”

27. Mr. Welsh did not suggest that the court should not have the best evidence of what was said in this case, in the event that I were to rule that the disputed paragraphs in Mr. Erlich’s witness statement are admissible. Accordingly, in my judgment, the transcript of the November 2022 discussion should also be admissible as to its contents.

28. I turn then to deal with the second issue on the evidence, which relates to paragraphs in Mr. Erlich's witness statement which are concerned with the proposal made by Mr. Whitton in February 2024. Mr. Whitton is described in the evidence of the Respondents as a joint venture partner in the subsidiary companies. He is not a party to these proceedings and, indeed, there is no evidence from him in the proceedings.

29. As I have said, it is the Petitioners’ case that evidence as to this proposal is not covered by without prejudice privilege. This is because at the time of the proposal there was no dispute in existence and certainly no dispute between Mr. Whitton and the Petitioners. The Respondents have not suggested otherwise. Furthermore, Mr Matthewson points out (and it is not disputed) that the proposal, which was made in a solicitors' letter, was not marked “without prejudice”. Mr. Matthewson invites me to infer that if a firm of solicitors had understood or intended a proposal made in a letter to be without prejudice, they would have marked it as such.

30. In the context of this issue, Mr. Matthewson drew my attention to the case of St. James's Place Wealth Management plc v Dixon-Nutt [2023] EWHC 1431 (Comm) per HHJ Worster (sitting as a Judge of the High Court) at [39] where the Judge summarises the well-known principle to the effect that, for the protection of without prejudice privilege to arise, there must be a genuine attempt to compromise a dispute between the parties to the discussion.

31. Given that it is not suggested that at the time of the proposal there was any existing dispute between Mr Whitton and the Petitioners and given that it is not disputed that the solicitors sending the proposal did not mark it “without prejudice”, I accept Mr Matthewson’s submission that it is not covered by without prejudice privilege.

32. Mr. Welsh, in his submissions, indicated that he considered that the letter sent by the solicitors had been made against the background of existing without prejudice discussions and he said that he assumed that the genesis, therefore, of that letter had been borne in a without prejudice environment.

33. However, that appears to be an assumption which I am prepared to infer is wrong, given the fact that the letter was not marked “without prejudice”. Furthermore, Mr. Welsh said that the Respondents were “out of the loop” at the relevant time and were not aware of any proposal being made. He did not suggest that there was any dispute afoot between Mr. Whitton and the Petitioners at the time of the proposal. In all the circumstances, I will allow the paragraphs of Mr. Erlich's statement which refer to the proposal to remain in his witness statement. They are admissible and they are not covered by without prejudice privilege. - - - - - - - - - - - - -