In Motorola Solutions Inc and another v Hytera Communications Corp Ltd  EWCA, the Court of Appeal overturned a $345m freezing injunction which it held was based on inadmissible statements made during without prejudice (WP) settlement meetings.
The WP rule generally bars statements made during settlement talks from being used later as evidence in court. One exception to this rule is where a party can show that the exclusion of WP evidence would act as a cloak for perjury, blackmail or other “unambiguous impropriety”.1
The Court confirmed that the test for admissibility of evidence, based on the “unambiguous impropriety” exception to the WP rule, was not whether there was a “good arguable case” of impropriety, but whether the evidence shows nothing less than impropriety that is truly unambiguous. The requirement for unambiguous proof is a high threshold and applies only in the clearest of cases of abuse of WP privilege.
Background facts and law
Motorola Solutions (Motorola) won a trade secrets claim against Hytera Communications (Hytera) in the US. Hytera had recruited three of Motorola’s senior engineers who were found to have stolen confidential documents and source code and used them to build competing digital radio products.
In support of the US proceedings, Motorola obtained a $345m freezing order under section 25 of the Civil Jurisdiction and Judgments Act 1982 against Hytera, and its UK based subsidiaries. Motorola relied on evidence of dissipation provided by its in-house lawyer regarding alleged threats made by Hytera's former CFO during WP discussions. The CFO allegedly said that if Hytera lost, it would frustrate enforcement by concentrating its assets in China and other jurisdictions where enforcement would be more difficult.
Hytera appealed arguing that the High Court incorrectly concluded that statements from Hytera’s CFO amounted to unambiguous impropriety.
Court of Appeal decision
The Court of Appeal discharged the freezing order and decided that WP evidence should not have been admitted.
Statements made during without prejudice negotiations could be admitted in evidence under the unambiguous impropriety exception only if the relevant impropriety was itself proved “unambiguously”. Applying the lower court’s “good arguable case” test regarding the exception would erode the WP rule and cut across the confidentiality that policy requires for promoting settlement.
On the facts there was no unambiguous impropriety given conflicting evidence between the parties about what was said during settlement discussions. The judge noted that there “was scope for misunderstanding … bearing in mind that the participants were from different cultures and that discussions were not scripted or recorded”.
The judgment confirms that the admissibility threshold for the “unambiguous impropriety” exception is high. Successful use of “unambiguous impropriety” is likely to be rare, particularly at an interlocutory stage of proceedings. In practice, any dispute regarding the credibility of WP evidence is likely to cast some degree of doubt about its unambiguous nature.
Detailed contemporaneous written notes of WP meetings could still help in establishing unambiguous impropriety but oral comments by advisers or clients are unlikely to be sufficient.
Males LJ emphasised the policy reasons for admitting WP evidence in only exceptional circumstances noting that “the public interest in the settlement of litigation generally outweighs the risk of abuse of the privilege in individual cases”.
With thanks to Amy Hobbs for her assistance with this article.
1 Hoffmann LJ in Foster v Friedland, CA 10 Nov 1992