In its decision of January 11, 2021, the English Court of Appeal set aside a freezing injunction imposed by the High Court in the context of an ongoing trade secrets dispute in the US. Key to its ruling was an analysis of the “unambiguous impropriety” exception to without prejudice (WP) privilege.
Emphasising the limited scope of that exception, this judgment preserves the privilege in WP communications, emphasising the strong public interest in facilitating open and frank settlement discussions between litigants, with an aim to resolving disputes.
Background
In April 2020, American consumer electronics and telecommunications company Motorola obtained a freezing injunction in the UK against Hytera, a Chinese manufacturer of radio systems. In support of its interim application, Motorola relied on statements made by Hytera during WP settlement discussions.
Motorola argued that comments made by Hytera about a “retreat to China” during those discussions amounted to a threat to dissipate assets from western jurisdictions to jurisdictions in China, Russia and Africa. Motorola contended that the purpose of this restructure would be to frustrate the enforcement of an adverse judgment in the US trade secret litigation. Key to the admissibility of such evidence was whether Hytera’s statement was sufficiently “unambiguously improper” to lift the cloak of WP privilege.
In support of its position at first instance, Motorola had relied upon the case of Dora v Simper (1999) in the UK. Motorola argued that, to determine whether comments made during WP discussions might be admitted, the court must ask whether the disputed statement, if indeed accurate, demonstrated an “unambiguous impropriety”.
Hytera’s position was that the reference “retreat to China” had been misconstrued and should not fall within the scope of the exception (the comment being underpinned by legitimate commercial considerations).
In his decision, the High Court judge opined that the test for admissibility of WP evidence was whether there was a “good arguable case” that there had been “unambiguous impropriety”. Further, he considered that he was bound by the approach taken in Dora that a threat to transfer assets with the aim of frustrating a judgment (if proven) constituted such impropriety.
In light of this, the judge ruled that the statements made fell within the exception, were thus admissible, and granted the injunction.
The appeal
Hytera, in appealing the High Court decision, argued that the judge had erred in the following respects:
- He was wrong to hold that a party need only establish “a good arguable case” of “unambiguous impropriety” to rely on the exception; and
- He was wrong to hold that the statements made on behalf of Hytera were “unambiguously improper” for the purpose of the exception.
”Dora should not have been regarded as a binding authority that it is sufficient to take a party’s evidence at face value.”
Richard Roberts
Aidan Southall
Georgia Carr
After hearing the parties’ submissions, the Court of Appeal overturned the High Court decision, concluding that the WP statements should not have been admitted. Lord Justice Males, giving the leading judgment, held that Dora should not have been regarded as a binding authority that it is sufficient to take a party’s evidence at face value to determine the admissibility of WP evidence. The judge questioned the reasoning underlying the Dora decision and regarded it to be of limited authority in light of more recent cases, such as Berry Trade v Moussavi (2003) and Ferster v Ferster (2016).
Lord Justice Males considered that the application of a “good arguable case” test, applied by the High Court, would diminish the significance of the WP rule. He stated: “The policy choice is that the public interest in the settlement of litigation generally outweighs the risk of abuse of the privilege in individual cases.”
The judge considered that applying a “good arguable case” threshold for admissibility risked parties becoming reluctant to make any statements in negotiations that may be amenable to misinterpretation. This was particularly the case in multinational negotiations where dialogue risked being lost in translation.
Indeed, Lord Justice Males feared that WP dialogue would involve “manoeuvring to obtain an advantage in litigation at the expense of frank settlement discussion”.
Commentary
This decision provides welcome comfort to parties engaging in WP settlement discussions. It emphasises the importance of there being a robust mechanism to facilitate productive and frank negotiations during litigation without fear of those discussions being placed before the courts. Importantly, it makes clear that the “unambiguous impropriety” exception shall apply only in exceptional circumstances where there is evidence of clearly improper conduct.
Had the Court of Appeal affirmed the view of the High Court, there was a real risk that the WP rule enshrined in English law would be watered down, inevitably leading to greater caution in settlement discussions—completely contrary to the purpose of the rule.
This additional endorsement of the “sacredness” of the WP rules will be welcomed by IP litigators and clients alike.
Richard Roberts is a partner at Potter Clarkson. He can be contacted at: richard.roberts@potterclarkson.com
Aidan Southall is an associate at Potter Clarkson. He can be contacted at: aidan.southall@potterclarkson.com
Georgia Carr is a trainee at Potter Clarkson. She can be contacted at: georgia.carr@potterclarkson.com
Video: Envato Elements / alphaspirit.it
