High Court Determines Exceptions to ‘Without Prejudice’ Privilege in Recent Disputes

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Latham & Watkins LLPTwo cases illustrate the narrow scope of application for exceptions to the without prejudice rule of legal privilege.

Background

In two recent judgments, the High Court found exception to the ‘without prejudice’ rule of legal privilege. The rule protects statements made by parties to a dispute (whether written or oral statements) in a genuine attempt to settle the dispute. There are certain situations in which this public policy justification will be outweighed by other factors if the fairness of judicial proceedings is at risk. Motorola Solutions, Inc. v Hytera Communications Corporation Ltd[1] and Berkeley Square Holdings v Lancer Property Asset Management Limited[2] clarify the scope of certain aspects of these exceptions, namely the “unambiguous impropriety”, misrepresentation/fraud, and the “Muller” exceptions.

Motorola Solutions, Inc. v Hytera Communications Corporation Ltd.

Facts

Motorola Solutions, Inc. and Motorola Solutions Malaysia (together, Motorola) made an application for a freezing injunction against Hytera Communications Corporation Ltd and some of its subsidiaries (together, Hytera) further to a judgment in the US that was pending enforcement. Motorola alleged that, during settlement meetings, Hytera stated its intention to remove assets from jurisdictions that were likely to be amenable to enforcement of a judgment in favour of Motorola, so as to frustrate the enforcement by Motorola of any such judgment (the Hytera Statements). Hytera contended such evidence was inadmissible, as it was protected by without prejudice privilege.

Judgement

The Court held that the Hytera Statements were prima facie protected by without prejudice legal privilege, in that the statements were made in the course of settlement meetings, and were, therefore, not ordinarily admissible. However, the Court did acknowledge the existence of an exception to this rule in the form of the “unambiguous impropriety” principle.

The Court held that this exception only applied if the privilege was “itself abused on the occasion of its exercise,”[3] and would only apply in exceptional circumstances. The given example of such an exceptional circumstance was an instance in which an “improper threat”[4]— one that unambiguously exceeded what was “permissible in settlement of hard fought commercial litigation”[5]— was made in the course of settlement meetings.

Jacobs J was satisfied that the alleged statements would constitute “unambiguous impropriety”, and that the Hytera Statements were capable of substantiating the existence of a real risk of dissipation. The Court also noted that the fact that Hytera denied making the threat could only give rise to a factual question (i.e. whether such denial is relevant to determining whether the Hytera Statement had actually been made or not) that the court may need to resolve. The Court held that “plausible evidence” of the Hytera Statements’ existence had been submitted in the form of witness statements and documentary evidence.

Berkeley Square Holdings v Lancer Property Asset Management Limited

Facts

Berkeley Square Holdings and others (together, Berkeley) brought an application against the manager of their London property portfolio and its directors and certain holding companies (together, Lancer), to strike out parts of Lancer’s defence statement that referenced information included in previously exchanged without prejudice mediation position statements. In the wider dispute, Berkeley claimed that Lancer was “complicit in a substantial fraud” perpetrated on Berkeley, whereby Lancer’s management fees were significantly increased through a “capital performance bonus”. Lancer’s defence claimed that Berkeley was actually aware of these payments (and, in fact, affirmed them), given that details of the increased payments were set out in the position statements exchanged during an earlier mediation.

Judgement

Roth J, although acknowledging that the position statements were subject to without prejudice privilege, struck out Berkeley’s application and permitted Lancer to adduce the privileged statements to support its defence. This finding was premised on Robert Walker LJ’s findings in Unilever Plc v Proctor & Gamble Co[6], in which certain exceptions to the general rule regarding privilege of without prejudice statements were discussed. Roth J held that of the exceptions described in Unilever, the misrepresentation/fraud and the Muller exceptions applied to the facts of the present case.

Although the misrepresentation/fraud exception is generally applied if a party is seeking to use antecedent without prejudice negotiations to prove fraud, misrepresentation, or undue influence (and thereby rescind an agreement), Roth J held that it would be illogical to not also allow parties to rely on such negotiations to disprove a misrepresentation and, thereby, uphold an agreement. This reasoning thus represents a minor, albeit intuitive, extension of the misrepresentation/fraud exception to ‘without prejudice’ privilege.

Roth J applied the Muller exception as described in Muller v Linsley and Mortimer[7] and decided it would not be “fairly justiciable” for Berkeley to allege that Lancer had acted dishonestly without disclosure of the position statements into evidence. Given that the statements were so central to the consideration of Berkeley’s claims of dishonesty against Lancer, Roth J held that there is a “serious risk that there will not be a fair trial if that evidence is excluded.”

Conclusion

Both these cases highlight the fact that legal privilege afforded to without prejudice statements is not absolute, however, such exceptions have a narrow application. In these cases, the Court only permitted an exception if there was a real risk that the privilege was misused (in the case of the “unambiguous impropriety” exception), or if there was a real risk that a fair trial would not take place unless the exception was permitted (in the case of the misrepresentation/fraud exceptions and Muller exceptions).

This blog post was prepared with the assistance of Vikram Ajith in the London office of Latham & Watkins.

[1] Motorola Solutions Inc and others v Hytera Communications Corporation Ltd and others [2020] EWHC 980 (Comm)

[2] Berkeley Square Holdings v Lancer Property Asset Management Ltd [2020] EWHC 1015 (Ch).

[3] Savings & Investment Bank v Fincken [2003] EWCA Civ 1630

[4] Ferster v Ferster [2016] EWCA Civ 717

[5] Boreh v Republic of Djibouti [2015] EWHC 769 (Comm), [132]

[6] [2000] 1 WLR 2436

[7] [1996] PNLR 74

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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