Welcome to our 2020 round-up for civil fraud litigation, complex cross-border disputes and asset recovery. In this publication, we consider some of the key cases and developments in English law and practice from the past year that are of particular relevance to this field.
We summarise below a number of decisions grappling with a range of evolving and sometimes complex areas, including legally privileged communications, the standard of proof in civil fraud claims, exceptions to freezing injunctions, recovering cryptoassets, committal applications and jurisdiction battles.
1. Privileged but admissible: when can without prejudice communications become admissible?
Two notable cases in 2020 required the High Court to consider the limited circumstances in which without prejudice correspondence may nonetheless be admissible. Motorola v Hytera concerned a threat to remove assets from the jurisdiction allegedly in order to frustrate enforcement of a judgment, while Berkeley v Lancer involved an attempt to uphold a settlement agreement.
In this update, we set out the default position under English law as to without prejudice communications and the limited circumstances in which without prejudice communications may be admissible, before considering the recent judgments referred to above.
Status of without prejudice communications
The starting point under English law is that without prejudice communications cannot be referred to or relied on in ongoing litigation or arbitration. This is a fundamental principle of our legal system, designed to afford parties the opportunity to explore settlement frankly and without the concern that the content of their negotiations, including any concessions made during the course of such communications, will be deployed tactically against them later in the litigation should, for whatever reason, the settlement discussions fail.
There are a number of highly limited exceptions to this protection that have been carefully developed in English jurisprudence. For example, without prejudice material has been found to be admissible in the following circumstances (three of which were addressed in the cases examined below):1
- as evidence of perjury, blackmail or other unambiguous impropriety (the "unambiguous impropriety exception");
- where justice demands (the "Muller exception");
- as evidence that a settlement agreement had been reached, to assist in a dispute over the interpretation of a settlement agreement;
- as evidence that a settlement agreement should be rectified; and
- as evidence that an agreement should be set aside because of misrepresentation, fraud or undue influence.
Motorola v Hytera: the unambiguous impropriety exception
In Motorola Solutions Inc and others v Hytera Communications Corporation Ltd and others2, Motorola alleged that during the course of without prejudice settlement discussions, Hytera had threatened that should Motorola be successful in ongoing U.S. proceedings, Hytera would, among other things, seek to remove assets from enforcement-friendly jurisdictions in order to frustrate enforcement. In light of this threat, Motorola applied to the Court for a freezing order over Hytera's assets in England and Wales. To establish the existence of a risk of dissipation of Hytera's assets, Motorola sought to rely on the oral statements made during two settlement meetings, which had been held on a without prejudice basis. Given that such statements would ordinarily be privileged and therefore inadmissible, in seeking to rely on them Motorola argued that they were admissible under the unambiguous impropriety exception to without prejudice communications. Hytera denied that the exception applied, or indeed that it had made any such threat.
The Court agreed with Motorola and admitted the evidence in support of Motorola's application for a freezing order. In doing so, Jacobs J referred to Dora v Simper and others3, which he regarded as authority for the propositions that: (i) the unambiguous impropriety exception extended to threats to remove assets from specific jurisdictions by improper means with the intention of preventing enforcement of a judgment; and (ii) in the absence of a record of the without prejudice communications, Motorola was only required to establish a "good arguable case" or a "plausible evidential basis" that Hytera had made the statements as alleged.
Jacobs J found that there was a "plausible evidential basis for Motorola's case as to what was said at the meeting". He considered that, viewed as a whole, the alleged statements "amounted to a threat to move assets away from jurisdictions where enforcement could be accomplished without undue difficulty into countries which were 'murky', and to do so with a view to frustrating enforcement", which engaged the unambiguous impropriety exception. On this basis, the Court found there was a risk of dissipation and granted the injunction.
However, in a judgment dated 11 January 2021 the Court of Appeal (Lewison, Males and Rose LJJ) reversed Jacobs J's decision.
Notably, the Court of Appeal departed from its earlier decision in Dora v Simper. In particular, it concluded that in principle it would be wrong, and inconsistent with previous authority, to adopt an approach of taking the evidence of the applicant at face value and considering whether, if proved, it would amount to unambiguous impropriety; or to accept the proposition that an applicant is required only to establish a "good arguable case" that the improper statements were made. Instead, the judge should simply have asked himself whether the evidence before him established unambiguous impropriety.
In addition, while a threat to transfer assets in order to render a judgment unenforceable could amount to unambiguous impropriety (as was the case in Dora v Simper), this is fact-dependent. In this case, there were differences in the factual accounts of what had been said (each of which were plausible). In any case, the Court of Appeal considered Hytera's proposed strategy of "retreating" to its key markets as an alternative to appealing an unfavourable judgment on the claim to be "perfectly proper", and that the specific courses of action comprising that strategy involved no impropriety.
The Court recognised that the unambiguous impropriety test is "difficult to satisfy"; but deliberately so. To apply a less rigorous test would run counter to the policy of promoting settlement and erode the confidentiality in genuine settlement negotiations. The fact that the exception may rarely be engaged (particularly in view of the necessary limits to the conclusions which a court can reach at an interim stage) was no reason to dilute the test.
Berkeley v Lancer: interests of justice
In Berkeley Square Holdings & Ors v Lancer Property Asset Management Ltd & Ors4, Mr Justice Roth considered the application of the without prejudice rule at common law to the question of the admissibility of statements made in the context of an earlier mediation by one of the parties to the dispute.
By an agreement made in 2005, the claimants had appointed Lancer to act as asset manager of a portfolio of properties. By early 2012, a dispute had developed relating to certain management fees said to be due to Lancer. Following a mediation in September 2012, the parties entered into a settlement agreement. In its written mediation position papers, Lancer had disclosed that it had been making certain payments to a third party company owned by Berkeley's representative, a Dr Al Ahbabi.
In September 2018, the claimants brought proceedings against Lancer on the basis that Lancer and its directors had been complicit in a substantial fraud perpetrated on the claimants by Dr Al Ahbabi in dishonest breach of fiduciary duty. As a result, Berkeley contended that the settlement agreement and a side letter to the 2005 agreement were void, and claimed restitutionary and other remedies.
Before filing its Defence, Lancer served a Part 18 Request asking when the claimants first came to know of the payments in question, in response to which Berkeley asserted that it had become aware of these payments only in May 2017. In support of various estoppel defences pleaded in its Defence, Lancer sought to rely on the without prejudice statements it had made during the mediation, in order to prove that Berkeley did in fact have knowledge of the payments as early as 2012. In doing so, Lancer submitted that the statements fell within one or more of the exceptions to the without prejudice rule.
The misrepresentation / fraud exception
Under the misrepresentation or fraud exception, without prejudice communications are admissible if they show that a settlement agreement should be set aside on the grounds of misrepresentation, fraud or undue influence. Berkeley argued that the exception did not apply because Lancer sought to uphold the settlement agreement rather than set it aside. At first instance, Roth J disagreed, concluding that if a party could rely upon without prejudice communications to prove misrepresentation and rescind a settlement agreement, it would be illogical to say that the other party cannot use those same without prejudice communications to disprove misrepresentation and uphold the settlement agreement.
The Muller exception
Pursuant to the Muller5 exception, without prejudice communications may be admissible where an issue is raised that is only justiciable upon proof of the content of those communications. Given that Berkeley had relied heavily on its lack of knowledge of Lancer's payments, Lancer argued that the matter was fairly justiciable only if Lancer could rely on the only evidence that proved Berkeley's knowledge. Roth J agreed, and concluded that the without prejudice communications also fell within the Muller exception.
This decision is currently under appeal: the Court of Appeal heard the appeal on 17 December 2020 and its reserved judgment is awaited.
These decisions provide noteworthy examples of the careful balancing act the Court must undertake when considering the admissibility of without prejudice communications: protecting the confidentiality of without prejudice communications so as to encourage open dialogue between parties and - ultimately - settlement of disputes, while also allowing parties to use evidence that would otherwise be subject to the without prejudice rule where justice between the parties requires it. They serve as a pertinent reminder that the without prejudice rule is not an absolute shield for litigants, and the Court will be astute to prevent the protection from being abused. Therefore, while the without prejudice privilege remains a useful device to facilitate parties' genuine efforts to reach a settlement, parties should continue to exercise caution in their communications, so as not to risk crossing over the boundary between what is permissible and therefore inadmissible, and what may ultimately be improper and used against them later.
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1. See Unilever Plc v Proctor & Gamble Co  1 WLR 2436 and Oceanbulk Shipping SA v TMT Ltd  UKSC 44
2.  EWHC 980 (Comm)
3 .  EWCA Civ 982
4.  EWHC 1015 (Ch)
5. Muller v Linsley  EWCA Civ 39
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.