Losing WP privilege: two narrow exceptions in the spotlight in the UK

Exceptions to the without prejudice rule are notoriously restricted, given that the fundamental premise of the rule is that litigants should be able to speak freely during settlement discussions to encourage settlement – even if the statements made during those discussions are inconsistent with their pleaded case.  However, in the past few weeks the High Court has found that narrow exceptions have been engaged twice: once where a threat was allegedly made during a settlement meeting to frustrate a judgment by removing assets from the reach of the other party, and once where the contents of an earlier position statement for a mediation indicated that a fraudulent misrepresentation had not been made.

Threats to frustrate a judgment constitute unambiguous impropriety

In Motorola Solutions, Inc. and others v Hytera Communications Corporation Ltd. and others, Motorola alleged that during settlement negotiations Hytera’s CFO threatened that, if Motorola won its case against Hytera in the US for theft of intellectual property, Hytera would remove assets from jurisdictions amenable to enforcement, including by undercapitalising subsidiaries operating outside China, ensuring that clients made payments to its Chinese entities rather than local entities, and changing the payment term of its contracts to be shorter than the time it would take Motorola to enforce.  Hytera’s CFO allegedly added that if Motorola actually began enforcement processes then Hytera would “retreat” to operate primarily in “murky” locations like China, Russia and Africa, and said words to the effect of “good luck collecting in those places”.

Motorola subsequently won its US case against Hytera, and then applied to the High Court for a freezing injunction in relation to Hytera’s UK assets, relying on Hytera’s threats to demonstrate the required intention to dissipate assets.  Hytera accepted that it had said it would “retreat” from Western markets if Motorola was successful, but disagreed that it had made the threats described by Motorola.

Jacobs J held that the threats allegedly made by Hytera fell within the very narrow ‘unambiguous impropriety’ exception to without prejudice privilege.  The critical question was whether there had been an abuse of the privileged occasion – in other words, an improper threat which exceeded what was permissible in hard fought commercial litigation – rather than a mere admission of truth.  The exception is usually applied to threats of blackmail or perjury, but Jacobs J was satisfied that there was authority that a threat to frustrate a judgment by improper means also fell within the exception, and that the exception can apply even if the making of the threat is disputed.  He considered that there was plausible evidence that the threat was made and that therefore there was unambiguous impropriety.

This evidence, along with the serious dishonesty demonstrated by Hytera in the US claim itself, was sufficient to establish a real risk that the assets in the UK would be dissipated before Motorola could enforce, and Jacobs J granted the freezing order Motorola sought.

Position statement admissible to defend against claim of fraudulent misrepresentation 

In Berkeley Square Holdings and others v Lancer Property Asset Management Limited and others, the Claimants, companies ultimately owned by the President of the UAE, are bringing a claim against Lancer, the manager of their property portfolio, alleging that between 2005 and 2015 Lancer increased its fees and then paid on some of those fees to a third party without receiving any services in return.  The Claimants say that they only learned in 2017 that one of their own representatives had a beneficial interest in the third party, but that Lancer knew that agreeing to the increased fees was a dishonest breach of the Claimants’ representative’s fiduciary duties, and that it was therefore complicit in that breach.  The Claimants are also bringing claims for bribery, breach of contract and breach of fiduciary duty against Lancer.

Lancer contends that the Claimants knew about and/or ratified the payments to the third party from at least 2012, when the details of the payments were set out in a without prejudice position paper exchanged before a CEDR mediation between the parties on a different issue.  The question for the Court here was whether Lancer could rely on the position statement (or whether certain parts of its Defence should be struck out).

Roth J noted that there is an exception to without prejudice privilege which allows material to be admitted to show that an agreement between parties should be set aside due to misrepresentation, fraud or undue influence, and that this exception (or a “small and principled extension to it”) applied in this case.  Although Lancer was trying to uphold an agreement rather than set it aside, the issue was the same.  Since a party to a concluded agreement could rely on without prejudice material to show that it was reached following a fraudulent misrepresentation, so should a party be able to rely on the same material to show that there was no fraudulent misrepresentation.

These cases are a good reminder that the protection of without prejudice privilege is not absolute, and that the courts may find ways of admitting without prejudice material where they consider privileged occasions have been misused.