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What law governs your without prejudice settlement discussions?

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Jason Rix

Senior Prof Support Lawyer

London

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Keller Paul B
Paul B Keller

Partner

New York

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04 August 2021

A decision of the Court of Appeal highlights the challenges, in multi-jurisdictional disputes, of conducting without prejudice settlement discussions: AutoStore Technology AS v Ocado Group Plc & Ors [2021] EWCA Civ 1003 (07 July 2021)

Autostore sued Ocado for patent infringement in England relating to automated storage technology. Ocado denied infringement and counterclaimed that the patents were invalid. As well as in England, proceedings were also taking place in Germany, before the European patent office, in two states in the U.S., and in the ITC. Ocado was claiming in the ITC that Autostore made certain statements about the scope of the invention that Ocado relied on when designing and importing its products to the U.S. market. To rebut this, Autostore wanted to deploy, before the ITC, evidence of settlement discussions that took place in London. Ocado sought an injunction from the English court to prevent this. 

The crucial document was marked “CONFIDENTIAL & WITHOUT PREJUDICE PROVIDED FOR PURPOSES OF SETTLEMENT NEGOTIATIONS ONLY”. In the minutes to the third meeting where settlement was discussed and for which the document was produced, Ocado’s solicitor noted that “this meeting was a continuation of the confidential and without prejudice discussions between Ocado and AutoStore ... and that any US law discussions were to be governed by rule 408 of the rules of evidence”. This was a reference to the U.S. Federal Rules of Evidence, Rule 408 of which deals with compromise offers and negotiations. FRE 408 applies to proceedings in the ITC. It has affinities with, but is not identical to, the without prejudice rule under English law. 

A high probability of establishing your case 

According to the majority of the Court of Appeal, Ocado had to show a high probability of succeeding at trial. This was akin to the test for an anti-suit injunction. The reason was that if an injunction was granted to enforce the alleged agreement not to deploy the document it that would interfere with the foreign ITC proceedings. 

What agreement had been reached on the facts? 

The majority held that it would expect Autostore to establish at trial:  

  • that by the third meeting, the parties had agreed that “any US law discussions were to be governed by rule 408”, rather than the English without prejudice rule;  
  • this variation necessarily imported an understanding that it would be up to a U.S. court to decide upon the admissibility of materials discussed in London into U.S. proceedings based on FRE 408; and 
  • in those circumstances, however wide the "without prejudice" agreement may have been, it did not include decisions that would fall to be made in future U.S. proceedings. 

The injunction was refused. 

Comment 

There are two bases for the English without prejudice rule: public policy and an implied/express agreement between the parties. Where the basis is public policy only, you cannot restrain use of the materials in foreign litigation (The Prudential Insurance Company of America v the Prudential Assurance Company Limited [2003] EWCA Civ 1154). Ocado had therefore to rely on an agreement. This “agreement” is not really a true agreement in the contractual sense, since it can apply to “opening shots”. Despite its artificiality it is susceptible to contractual analysis. Here the real question was what had the parties agreed. By a majority, the court decided the words in the minutes meant that the U.S. rule applied in place of (and not in addition to) the English rule. As a result, it will be for the judge hearing the ITC proceedings to decide admissibility. 

It is rare in practice for parties to specify expressly the scope of the without prejudice protection they want including the governing law. There is flexibility to be derived from this approach. This case may serve as a prompt to reconsider whether it is better to set out in some detail the basis on which settlement discussions are taking place. 

The U.S., for its part, does not apply a “Without Prejudice” standard to settlement negotiations, and its recognition of that approach through the laws of comity is uncertain and fraught with issues. FRE 408, and the various state corollaries, provide the standard by which settlement communications will be determined to be admissible in proceedings (discoverability is an entirely different subject of concern in the U.S.). By its terms, FRE 408 limits the admissibility of settlement communications for the purposes of proving a party is liable (or not) for the claims being asserted in the matter, the amount of the damages incurred (or not); or to show an inconsistent statement or position. FRE 408 provides explicit exceptions but in general, if the settlement materials are being offered for another purpose, to show intent or mental state, for example, the evidence can be admitted. The ITC likely will apply FRE 408 and its contours to the question of materials’ admissibility at trial. From the available facts, the intended use of these materials is to demonstrate a prior position that is inconsistent with the one now being taken at trial – a use of settlement materials explicitly prohibited under FRE 408. If this approach is pursued, it may prove difficult to persuading the ITC to allow the material to be admitted. If, however, the material can be offered for another credible and legitimate purpose, for example, to properly construe the claims or reliance that the ITC believes is separate from the issues of liability or amount, the materials may be admitted.  

The uncertainty of the application of FRE 408, however, for the parties in this matter supports the view that ambiguity over the parties’ agreement over the use of settlement materials at trial can have a material impact on the proceedings, and therefore, clarity in the contours over what can (and cannot) be used should be determined at the outset. 

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