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25 Mar 2021

Commercial litigation

Court of Appeal judgment against Motorola highlights importance of ‘Without Prejudice’ rule

“Without prejudice” is a commonly used expression, particularly in legal proceedings, and it is very important to properly understand its meaning. In a recent appeal involving communications giant, Motorola, the Court was asked to examine whether a statement that was made during a “without prejudice” meeting should have been admissible as evidence.

Our head of dispute resolution, Ben Jenkins, provides an overview of the “Without Prejudice” rule and examines its importance in English and Welsh law.

What does ‘Without Prejudice’ mean?

‘Without Prejudice’ or ‘WP’ is a very important and common concept in law. It is a form of legal privilege that was introduced to make it easier for parties who are attempting to settle disputes to negotiate freely without fear of future prejudice to their case in court.

It essentially means that any ‘without prejudice’ statements that are made in a genuine attempt to settle an existing dispute are not admissible in court or tribunal as evidence against the interest of the party that made them.

Are there any circumstances that fall outside ‘Without Prejudice’ privilege protection?

Yes, in exceptional circumstances, ‘without prejudice’ exchanges can be used in legal proceedings in cases in which it would be manifestly unjust to allow privilege protection to apply. For example, where a communication amounts to evidence of fraud, misrepresentation, undue influence or other impropriety. This was made clear in the case of Motorola Solutions, Inc. and another v Hytera Communications Corporation Ltd. and another that was recently brought before the Court of Appeal.

What was the issue in this case?

The issue arose from a lengthy legal battle between US telecommunications giant, Motorola, and Chinese communications firm, Hytera.

In February 2020, Hytera was found guilty of stealing trade secrets and ordered to pay Motorola $763 million in damages. In March, Motorola applied to the English and Welsh Courts for a freezing order against Hytera and two of its indirect UK subsidiaries, claiming that the company had said it would seek to avoid paying the damages by concentrating its assets in China and other countries where enforcement would be more difficult.

Importantly, Motorola sought to rely on the statement of Hytera’s (now former) chief financial officer during ‘without prejudice’ settlement meetings that the company would “retreat to China“.

In this case, the Court found that Hytera’s threat to deal with assets in order to frustrate a Judgment constituted ‘unambiguous impropriety’ and deemed that the ‘without prejudice’ nature of the communications did not apply, thereby permitting them to be brought as evidence.

However, Hytera appealed this Judgment and in January of this year, the Court of Appeal unanimously upheld their appeal. Since there was scope for misunderstanding in Hytera’s ‘retreat to China’ statement, the Court ruled that it was impossible to say that the statement established ‘unambiguous impropriety’ and the fact that it had been admitted into evidence had constituted an unjustifiable erosion of the ‘without prejudice’ rule.

Why is this ruling important?

This judgment is a helpful reminder of the extent to which the courts will protect the ‘Without Prejudice’ rule. It reinforces the principle that what is communicated under the cloak of the ‘WP’ privilege will remain sacrosanct unless it falls within very specific, defined criteria.

From a public policy perspective, there are clearly compelling reasons to maintain the sanctity of the privilege, so that parties can freely and openly conduct settlement discussions without being inhibited by the fear of anything they say being used against them in Court.

Nevertheless, parties entering into ‘WP’ discussions should always remember that there is a point where an overly aggressive or threatening negotiation strategy could cross the line and be considered by the Court as going beyond what was “permissible in settlement of hard fought commercial litigation” and this could result in the ‘Without Prejudice’ protection being lost.

Such occurrences are likely to be rare, however, and this Court of Appeal Judgment is a useful illustration of how difficult it is for a party to succeed in invoking the unambiguous impropriety exception, particularly where the relevant statement is not evidenced in a recording or in written form.

If you are facing a legal dispute and would like any advice or assistance, please contact Ben Jenkins at hello@hevans.com or call 01633 244233.

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