UK Court of Appeals Upholds Privilege 'Allowing Parties to Speak Freely in Settlement Negotiations,' Sets Aside Domestic Freezing Order

First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement.

Steptoe represents Hytera, a Chinese manufacturer of radio systems, in its long-running dispute with Motorola. In April 2020, Motorola applied for, and obtained, a domestic freezing order in England against Hytera's Chinese parent company and, in addition, against one of its English subsidiaries under the so-called Chabra jurisdiction, which allows the English court in some circumstances to grant freezing orders over third parties that are not party to the underlying proceedings.

Motorola's application was brought on the basis of purported statements made by Hytera during a confidential mediation in the United States. Under English law, "unambiguously improper" statements are exempt from the protections usually afforded to settlement discussions by without prejudice privilege. Motorola argued that Hytera's statements at the mediation, purportedly in respect of the difficulties of enforcing any future judgment against its assets, fell within the exception and sought to introduce those statements into evidence in support of its application. 

Motorola relied on the decision in Dora v. Simper, an unreported case from 1999, in support of its position. Broadly, Dora approached the exception by asking whether one party's disputed evidence, if true, demonstrates an unambiguous impropriety. Motorola argued that its evidence did just that. Hytera resisted the application on the basis that its statements had been misconstrued and did not fall within the exception.

The High Court concluded that Motorola had a "good arguable case" (an evidential standard sometimes applied in the English courts at the interlocutory stage) as to its version of events being correct and granted Motorola's application.

Hytera was granted permission by the High Court to appeal that decision to the Court of Appeal. The one-day hearing took place on December 15, 2020 and considered Hytera's contentions that, firstly, the "good arguable case" test applied by the lower court was too low and, secondly, that the lower court was wrong to conclude that Hytera's alleged statements were "unambiguously improper."

On January 11, 2021, the Court of Appeal handed down its judgment and set aside the freezing order against Hytera. In a detailed analysis of the application of the exception, the Court of Appeal noted that:

1. Dora was not binding authority for the proposition that a claimant's evidence as to the application of the exception could be taken at face value. In fact, the Court of Appeal agreed, as had been stated in a previous decision, that the reasoning in Dora was of "doubtful cogency."
2. The English courts have "consistently emphasised the importance of allowing parties to speak freely in the course of settlement negotiations" and have applied the exception only in "truly exceptional" cases where there was no scope for a dispute about what had been said (typically because the statements under scrutiny had been either recorded or written down).
3. There was "no support" for the adoption on an interim application of a test of good arguable case of unambiguous impropriety for the admission of without prejudice evidence. In fact, the Court of Appeal noted that the test remained one of "unambiguous impropriety" and that "nothing less will do." That test, the Court of Appeal confirmed, is "deliberately difficult to satisfy."
4. As to the content of Hytera's purported statements, the Court of Appeal noted that it is "common for potential problems of enforcement to be a factor to which both parties will be alive in international litigation" and concluded that it would be "unfortunate if that was a subject which could not be discussed in settlement meetings for fear of being interpreted as a threat to move assets improperly."
5. Dora is a "clear outlier which has been criticised in later cases and, until the decision of the judge in this case, has never been followed." Critically, the Court of Appeal found that Dora's approach is "wrong in principle and should not be followed."

On the basis of its analysis, the Court of Appeal concluded that Hytera's evidence as to what was said at the mediation was "at least equally" plausible as Motorola's evidence, such that it was "impossible to say … that the evidence established an unambiguous impropriety." On that basis, the freezing order fell to be set aside.

This decision provides welcome confirmation as to the strength of the protections afforded to litigants by without prejudice privilege with a view to facilitating productive settlement negotiations. Significantly, the exception will be applicable exceptionally and only in the clearest cases of improper conduct by parties to settlement negotiations.

For more information, please contact members of Steptoe's Complex Commercial Disputes group.