Motorola -v- Hytera: Protecting the sanctity of settlement discussions
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In an interesting judgment the Court of Appeal has clarified the test for admitting without prejudice privileged communications into evidence under the “unambiguous impropriety” exception. The decision makes clear that the exception cannot be utilised where there is only a “good arguable case” for impropriety; the evidence must actually establish impropriety. This all but prevents the exception being used to admit communications which are not recorded, since any dispute as to the actual existence of the material will prevent the test being met. The policy reason behind this is to protect the strength of without prejudice privilege in encouraging settlement of disputes through frank, open discussions.
Facts behind the dispute
In 2008, Chinese company Hytera recruited three of Motorola’s senior engineers who stole confidential documents and source code from Motorola to aid Hytera in copying and developing Motorola’s two-way digital mobile radio (DMR) technology. Following the successful development and distribution of Hytera’s DMR technology around the world, in March 2017, US-based Motorola brought a claim for theft of trade secrets in the US courts. In February 2020, a US court found in favour of Motorola and awarded it $345 million in compensatory damages and $418 in punitive damages.
Following judgment Hytera filed various motions in the US proceedings with the aim of slowing enforcement. Concerned about its ability to extract the judgment sums from Hytera, Motorola applied for a freezing order for the sum of $345 million. Motorola sought not just to freeze Hytera’s assets, but also made an application to the English courts requesting that it exercise its jurisdiction to impose a freezing order on two of Hytera’s UK based subsidiaries in aid of the US proceedings. It is in this context that the English courts considered the admissibility of without prejudice, privileged material.
What are without prejudice communications?
The arguments before the English court
Commercial settlement discussions relating to the US proceedings had taken place between Motorola and Hytera and various statements were made by Hytera that led Motorola to believe that, in the event of a favourable US judgment, Hytera would take steps to stifle enforcement. Motorola subsequently sought to rely on those statements in an application before the English Commercial Court in April 2020[1], and then on appeal before the Court of Appeal in December 2020[2] , to request a freezing order preventing dissipation of Hytera’s assets.
Motorola relied on five arguments to show why, in its opinion, there was a real risk of Hytera dissipating its assets:
ii. Hytera’s theft of trade secrets;
iii. That theft of those secrets had occurred with the complicity of Hytera’s senior management;
iv. That the engineers who had stolen the documents and code from Motorola were not dismissed by Hytera until sometime after the commencement of the US proceedings; and
v. That Hytera continued to sell products containing Motorola’s stolen code.
Moreover, Hytera argued that their “retreat to China” strategy had been misrepresented and this strategy merely signified the commercial reality that they would have to retreat to their core market in China in the event of a negative judgment. It was not, Hytera argued, a threat to dissipate assets.
As a result, Motorola had to convince the court that the statements made constituted evidence of unambiguous impropriety (see below) and therefore Motorola should be able to rely on these regardless of the without prejudice privilege attached to them.
The Test for Unambiguous Impropriety
Under English law limited exceptions apply to the rule that statements made during without prejudice meetings are protected from being used in court; one such exception is that such statements are evidence of “unambiguous impropriety”.
In the Commercial Court – the test considered at first instance
Given the parallels which existed between Dora v Simper and the present case, Jacobs J in the Commercial Court found in favour of Motorola, permitting it to adduce the evidence and made a freezing order against Hytera.
In the Court of Appeal: the test of unambiguous impropriety is unambiguous propriety
Hytera appealed the ruling of the first instance court on two grounds: first, that the statements made were not, in fact, evidence of unambiguous impropriety; and second, that the evidential test applied from Dora v Simper was incorrect; it was not enough to simply present a “good arguable case” that the statements had been made.
Males LJ outlined the following problems with Dora v Simper in his judgment:
Second, the approach diminishes the strength of without prejudice privilege; a key tool in enabling parties to facilitate meaningful settlement discussions. Encouraging settlement is at the heart of the procedural rules which guide adversaries through litigation. Anyone who has participated in these high stakes discussions will recognise Walker LJ’s description of them in Unilever Plc v Procter & Gamble Co as a “mixture of admissions and half-admissions against a party’s interest, more or less confident assertions of a party's case, offers, counter-offers, and statements (which might be characterised as threats, or as thinking aloud) about future plans and possibilities”[4]. Without prejudice privilege provides a safe space for those negotiations.
The unambiguous impropriety exception is intended to catch those parties who seek to use that privilege as “a cloak for perjury, blackmail or other ‘unambiguous impropriety[5]’”; it is not to catch “colourful or even exaggerated language[6]” used in settlement discussions and it is not to enable parties to strategically pick apart the content of “wide-ranging unscripted discussions during a meeting which may have lasted several hours”[7]. If the exception is widened, undesirable consequences will flow from it namely that “no litigant could be advised to enter into without prejudice discussions without a lawyer at his elbow or a prepared script approved by his lawyer. To allow such admissions in evidence flies in the face of the public policy justification for the without prejudice rule”[8].
Finally, in Dora v Simper, provided there was a good arguable case that the statement had been made, the court effectively assumed that the claimant’s allegation was correct for the purposes of determining impropriety. But at no point would that allegation actually come under scrutiny, since this was all dealt with at the interim stage before trial. Failing to properly scrutinise the allegation means that “there is a danger of the exception to the rule displacing the rule by a process of begging the question” [9]. As Males LJ put it, this position cannot be satisfactory in view of the potential harm to a defendant resulting from a freezing order that ought not have been granted.
Considering all of the above, the Court of Appeal applied a simpler test: does the evidence establish unambiguous impropriety? Examining the arguments afresh, the Court of Appeal found Hytera’s side of the story just as plausible as Motorola’s. While this was enough to reject the freezing order (since there was no actual, undisputable evidence of unambiguous impropriety) the Court of Appeal also noted that, even if Motorola’s side of the story was correct, those statements did not amount to a genuine threat to improperly dissipate assets when considered in the context of protracted and hard fought settlement meetings.
In light of the above, the Court of Appeal upheld Hytera’s appeal, stating that the material should not have been admitted and therefore set aside the freezing order. The test was restated as follows: “Rather, the position should be that the test remains one of unambiguous impropriety. Nothing less will do.” [10]
Key Takeaways
The judgment from the Court of Appeal reinforces the principle that what is communicated under the cloak of without prejudice privilege will remain sacrosanct unless it falls within very specific, defined criteria. The judgment acts as a helpful reminder of the following practical points when considering the limits of without prejudice privilege:
- The bar for adducing without prejudice is very high. Do not attempt to argue that there has been unambiguous impropriety unless there is sufficient evidence available to support the allegations.
- Do not announce plans to dissipate assets in the event of an unfavourable judgment!
- Remember that exceptions to privilege rules do exist. Communications made in settlement discussions should be frank and open but always measured.
- We frequently get asked by clients if statements made during settlement discussions which are contrary to what is set out in the pleaded case/ correspondence is sufficient to override without prejudice privilege. This in itself is not enough to lose the benefit of privilege and there must be other grounds such as unambiguous impropriety, fraud, misrepresentation or undue influence to enable a party to rely on what was said during settlement discussions in court.
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[1] Motorola Solutions Inc. v Hytera Communications Corporation Ltd [2020] EWHC 980 (Comm)
[2] Motorola Solutions Inc v Hytera Communications Corporation Ltd [2021] EWCA Civ 11
[3] Dora v Simper [1999] 3 WLUK 273
[4] Unilever Plc v Procter & Gamble Co [1999] EWCA Civ 3027, [2000] 1 WLR 2436
[5] Unilever Plc v Procter & Gamble Co [1999] EWCA Civ 3027, [2000] 1 WLR 2436
[6] Forster v Friedland (10th November 1992, unreported)
[7] Berry Trade Ltd. v Moussavi [2003] EWCA Civ 71
[8] Berry Trade Ltd. v Moussavi [2003] EWCA Civ 715
[9] Savings & Investment Bank Ltd v Fincken [2003] EWCA Civ 1630
[10] Motorola Solutions Inc v Hytera Communications Corporation Ltd [2021] EWCA Civ 11
