Test for “unambiguous impropriety” exception to without prejudice privilege clarified by Court of Appeal in Motorola Solutions Inc and another v Hytera Communications Corp Ltd and another [2021] EWCA Civ 11.

It is well-known that without prejudice privilege allows for frank settlement discussions to take place, without parties having to fear that what is said during these discussions may be admitted as evidence. There are limited circumstances in which what is said during without prejudice negotiations may nevertheless be admissible as evidence. The “unambiguous impropriety” exception is one of them. The Court of Appeal has clarified just how narrow that exception is, in a judgment that emphasises the importance of without prejudice privilege and the need to protect it from erosion.

Background facts

The respondents (“Motorola“) applied for a freezing injunction. In doing so, they sought to rely on statements made during without prejudice settlement meetings by the first appellant (“Hytera“). The statements in question were said to be to the general effect that, if Motorola obtained a judgment which was “unacceptable” to Hytera, then Hytera would “retreat to China” and take steps to transfer its assets away from western jurisdictions to make enforcement more difficult. Hytera disputed the interpretation of the statements and denied that they were indicative of a plan to avoid enforcement.

In the High Court, the judge held that it was “self-evident” that such a threat, if made, amounted to unambiguous impropriety, and that he was bound so to hold by Dora v Simper [1999] 3 WLUK 273. He further held that, even though Hytera denied making this threat, it was sufficient, to render the statements admissible, that there was a “good arguable case” that they were indeed made as alleged.

Court of Appeal

The Court of Appeal held that the unambiguous impropriety exception to without prejudice privilege had been misapplied at first instance.

The test

The Court of Appeal held that in applying the test for the admissibility of without prejudice statements, based on the unambiguous impropriety exception, a judge should ask whether the evidence before them, when fully scrutinised, establishes an unambiguous impropriety. The test is narrow and deliberately difficult to satisfy. As the Court of Appeal stated, “Nothing less will do”. The test is not whether there is a “good arguable case” that there has been an unambiguous impropriety.

The unambiguous impropriety exception has only been applied in truly exceptional cases. In such cases, the relevant statement was either recorded or in writing (excluding Dora v Simper), meaning there was no room for dispute about what was said. Although possible, it is likely to be rare for there to be cases where the meeting was unrecorded and the evidence would be so clear that the court could reach a firm conclusion on it.

Dora v Simper

The Court of Appeal stated that:

• In Dora, the approach taken was to ask whether one party’s disputed evidence, if true, demonstrates an unambiguous impropriety. This approach was contrary to the weight of authority, wrong in principle and should not be followed. Dora is an outlier which has been criticised in later cases.
• Dora was not, therefore, binding authority that it was sufficient to take evidence at face value, when considering whether evidence of a threat to deal with assets to frustrate a judgment was admissible.
• A threat to transfer assets to render a judgment unenforceable could amount to unambiguous impropriety, but Dora did not establish that this would always be the case as a proposition of law. Whether it would amount to such would be fact dependant.

Was there unambiguous impropriety?

The Court of Appeal noted that during the without prejudice negotiations, the “retreat to China” was presented as an alternative to an appeal, and the specific courses of action within the “retreat strategy” did not involve impropriety. If the evidence from Motorola was plausible, then so was Hytera’s evidence. The Court of Appeal concluded that it was impossible to say that the evidence established an unambiguous impropriety. The evidence of the without prejudice statements should not, therefore, have been admitted.

Comment

The reasons given by the Court of Appeal for the need to maintain such a narrow test are compelling. If the test was changed to that applied at first instance, it would likely have the following consequences. Parties engaging in without prejudice discussions may avoid saying anything which could possibly be misconstrued. Frank discussions would consequently be impeded. It is conceivable that parties could try to use settlement discussions as a way to gain an advantage in litigation, rather than a genuine attempt to settle. Parties wary of this might avoid without prejudice negotiations altogether, through fear of subsequently being engaged in satellite litigation regarding the admissibility of without prejudice statements.

However, one cannot help but sympathise with the frustrations that may be felt if a threat made during without prejudice negotiations, but that does not satisfy the test for the unambiguous impropriety exception and is therefore not admitted as evidence, subsequently materialises. The Court of Appeal acknowledged that “[t]here are competing considerations here”, and concluded that “[t]he policy choice is that the public interest in the settlement of litigation generally outweighs the risk of abuse of the privilege in individual cases”. As frustrating as the aforementioned scenario may be, most would agree that the desire to protect without prejudice privilege and the ability to have honest settlement discussions prevails.