Without prejudice discussions between parties to a legal dispute are one of the most effective ways to avoid full-blown litigation and the associated risk and expense. The specialist shipping and commercial litigation lawyers at Bahamas law firm ParrisWhittaker regularly advise clients on ways to avoid court through constructive settlement negotiations.
Essentially the without prejudice principle means that whatever the parties say during negotiations can’t be used against them in any subsequent court case. The rule has distinct advantages for the individual litigants themselves and more widely from a public policy perspective. Primarily it encourages free and frank discussions between parties engaged in a dispute. Without prejudice talks also promote negotiated settlements.
But there are limitations to the rule.
In certain situations the courts will lift what’s been described as the ‘veil of without prejudice’. But given the usefulness of this type of discussion these exceptions will only be used sparingly. In Motorola v Hytera (2021), for example the English Court of Appeal was asked to weigh up the public interest in settling litigation through without prejudice negotiations against the risk that, on occasion, one party to negotiations may abuse the without prejudice privilege. The Appeal Court’s decision –which is highly persuasive in the Bahamas – came down clearly in favour of bolstering the without prejudice rule in the public interest. We discuss it in detail below.
But there are limitations to the rule. What is the Unambiguous Impropriety Exception?
The Motorola case focused on ‘unambiguous impropriety’, a recognised exception to the without prejudice rule. (Other exceptions include the existence of fraud, misrepresentation or undue influence.). Unambiguous impropriety is based on the desire of legal authorities to prevent purposeful wrongdoing (for example perjury or blackmail) that may come to light during without prejudice discussions.
Alleged wrongdoing that’s so serious and clear cut should, the argument goes, be examined by the courts, irrespective of whether it was revealed on a without prejudice basis or not. Given the public policy reasons for the without prejudice rule we’ve mentioned however, the courts will only in very limited circumstances permit this particular exception to be used.
In Motorola v Hytera the Court of Appeal reaffirmed this position
Motorola v Hytera: Injunction Unfrozen
Motorola issued proceedings for copyright infringement against Hytera in numerous jurisdictions across the globe, accusing the tech company of being a ‘serial infringer’ of trade secrets.
In the US the courts awarded Motorola $345 million in damages (this was not a minor dispute). It was in the course of enforcing this judgment and Motorola seeking a freezing injunction against a UK based subsidiary of Hytera (Shortway) that the case came before the UK courts.
To obtain the injunction Motorola needed to provide evidence that Hytera (or its subsidiary) was going to dissipate their assets or move them out of reach of the courts. (similar to the requirement in applications for flag injunctions in the Bahamas).
To establish Hytera’s intention to dissipate assets Motorola brought to the court’s attention a settlement meeting – held on a without prejudice basis. Motorola alleged that during the meeting a senior Hytera director had suggested that if Hytera lost the case it would start to move assets to China (where it would be much more difficult for Motorola to recover any sums due under a US or UK judgment).
Motorola argued that such a move amounted to ‘unambiguous impropriety’ on Hytera’s part. And this in turn meant that the without prejudice veil could be lifted and the statement by Hytera’s director relied upon by Motorola in support of its freezing injunction application.
For its part Hytera argued that all the senior director had done was reflect on the commercial reality Hytera would face if such a significant judgment – in monetary terms – were entered against it. It would have no choice but to retreat to core markets like China. This, it argued, had nothing to do with trying to thwart the jurisdiction of the court.
The High Court agreed with Motorola and granted the injunction. The Court of Appeal however disagreed.
Unambiguous Impropriety – No Room for Doubt
The Court of Appeal Judge, Lord Justice Males was clear: a company like Motorola seeking to establish that words used by a defendant in without prejudice discussions amounted to unambiguous impropriety really must do so without any element of ambiguity whatsoever. The idea that when discussions are held on a without prejudice basis they won’t later be used in court must, Males LJ said, be ‘scrupulously and jealously protected’.
The very fact that a dispute exists over what was said could in itself lead to the threshold of ambiguity being reached so as to protect the without prejudice discussions from disclosure. Some have argued that this means the exception can never be applied to a discussion that has not been recorded (because the existence of any unrecorded discussion can in theory be disputed – leading to ambiguity)
Comment
Courts will always encourage the parties to a commercial dispute to negotiate. Without prejudice discussions are an important tool in dispute resolution— particularly when the financial stakes are as high as in the Motorola case we’ve discussed. That case makes clear that the courts won’t lightly interfere with the without prejudice rule or widen the exceptions to it. As commercial lawyers regularly engaged in settlement negotiations we welcome any judicial intervention like this that strengthens the without prejudice rule and makes it easier for disputing parties to speak freely in negotiations.
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