Injunction applications and the "unambiguous impropriety" exception to the without prejudice rule

Introduction

In the ordinary course of without prejudice settlement discussions, and consistent with public policy, parties are generally free to discuss their dispute without inhibition or fear that the matters stated might be used in subsequent litigation. In the context of an injunction application, the without prejudice rule effectively functions, in the absence of a clearly formulated and certain exception, to prohibit proof of such protected evidence. One exception includes where it can be shown that the exclusion of without prejudice evidence would act as a cloak for perjury, blackmail or other "unambiguous impropriety".^[1]

In Motorola Solutions Inc v Hytera Communications Corp Ltd^[2] the Court of Appeal allowed an appeal against a freezing injunction which was granted on the basis of without prejudice evidence which was wrongly held, in the High Court, to fall into the "unambiguous impropriety" exception and, therefore, be admissible. In doing so, the Court of Appeal confirmed the orthodox position applying to the "unambiguous impropriety" exception and dismissed the approach taken in Dora v Simper,^[3] finding it to be inconsistent with binding authority and incorrect as a matter of principle. Motorola Solutions demonstrates that any party seeking to unveil information subject to the without prejudice rule must meet a high standard of proof and must exclude all ambiguity in relation to the conduct complained of, ultimately showing that it was outside the scope of a bona fide attempt to settle.

Facts

Motorola Solutions and Hytera Communications are manufacturers of digital radio products.  Hytera recruited three of Motorola's senior engineers who stole confidential documents and source code from Motorola. Motorola brought proceedings against Hytera in the United States, alleging theft of its trade secrets. In February 2020, a jury in the US proceedings returned a verdict in favour of Motorola and the court entered a judgment of $345 million in compensatory damages and further $418 million in punitive damages.

Shortly thereafter Motorola issued an on-notice application in the United Kingdom for a domestic freezing order against Hytera and two of its UK domiciled subsidiaries solely in respect of the compensatory award. In support of its application, Motorola relied on evidence tendered by its in-house lawyer regarding statements allegedly made by Hytera's former CFO during without prejudice discussions. In summary, these were said to be that Hytera would take steps to limit Motorola's ability to enforce the US judgment by concentrating its assets in China and other remote jurisdictions where enforcement would be difficult.

High Court judgment

Jacobs J acknowledged in his judgment that the content of the without prejudice discussions were critical to reaching the conclusion that there was a real risk of Hytera dissipating its assets.^[4]The Judge assessed the admissibility of the without prejudice discussions by reference to English law as the lex fori. In doing so, the Judge decided that the "threat to deal with assets in order to frustrate a judgment" amounted to unambiguous impropriety on the basis of: (i) the decision in Dora v Simper (unreported) which provided authority for the proposition that a threat to remove assets could amount to unambiguous impropriety; and (ii) that the alleged threat made by Hytera unambiguously exceeded what was permissible in the settlement of hard fought commercial litigation.^[5]

The Judge also considered the question of the evidential standard that Motorola had to satisfy to rely on the without prejudice evidence in an interim context. In doing so, he concluded that the test for admissibility was whether there was a "good arguable case" or alternatively a "plausible evidential basis" for there being unambiguous impropriety.^[6]

Hytera appealed the High Court decision on the grounds that the Judge incorrectly concluded that the CFO's statement amounted to unambiguous impropriety as a matter of law and that the Judge applied the wrong evidential standard for the admissibility of without prejudice evidence.

Court of Appeal judgment

In relation to the High Court's test for admissibility, the Court of Appeal, with Males LJ giving the lead judgment, concluded that the adoption of such a test was wrong because it unjustifiably eroded the without prejudice rule beyond acceptable limits, likely impacting the manner in which parties would engage in settlement discussions. The Court found no support in previous authority for the High Court Judge's adoption a "good arguable case" or "plausible evidential basis" of unambiguous impropriety for admitting without prejudice evidence. The correct test was simply whether there was unambiguous impropriety and the fact that this would be difficult to satisfy in an interim context did not matter.

The Court considered various authorities on unambiguous impropriety to reach its view. A notable feature of the authorities in this area is that they concerned the admissibility of covert tape recordings or written statements. Therefore, the credibility (as opposed to the admissibility) of the evidence or statement was not in dispute.  In contrast, in this case, the Court was asked to take Motorola's evidence as to the content of the without prejudice discussions at face value when seeking to disapply the without prejudice rule—which raised credibility concerns in addition to the admissibility issue. 

The credibility of the without prejudice evidence in the present case (as well as in Dora v Simper) was in dispute between the parties. To deal with this credibility issue Dora adapted the legal test to suggest that the Court should consider whether the disputed evidence, if true, would amount to unambiguous impropriety. However, the Court of Appeal disagreed and described a dilemma inherent to that proposition: Hytera's bare denial of the evidence would count for nothing, and a substantive rebuttal would necessarily open up more of what was said between the parties which should be protected by the without prejudice rule.

The Court of Appeal conceded that a threat to a transfer assets out of reach could amount to unambiguous impropriety, but it rejected the notion that it will always be the case as a proposition of law. The Court of Appeal did not determine whether the without prejudice evidence in question amounted to unambiguous impropriety because it was not a question that the High Court asked or answered. Nevertheless the Court expressed doubt based on, amongst other things, the view that the purported threat to remove assets was made in the context of articulating a legitimate "retreat strategy" from certain jurisdictions because of the commercial pressures created by the underlying litigation.

Commentary

This case is a helpful reminder that unambiguous impropriety is a test for admissibility and not of credibility. It explicates the very powerful public policy reasons for admitting without prejudice evidence in only exceptional circumstances and only in the clearest of cases. It also makes certain that the admissibility threshold will remain high irrespective of whether the question is being considered in an interim application context or at trial, notwithstanding the inherent difficulties in meeting the evidential burden in the former. It is clear that in all cases of this type the evidence should be rigorously scrutinised by the courts and that any dispute regarding the credibility of without prejudice evidence is likely to cast some degree of doubt on the unambiguity of the statement. Therefore, we should continue to expect cases successfully applying the unambiguous impropriety exception to be rare and particularly so when the relevant statement is not recorded or in writing.