Court of Appeal grapples with US v UK confidentiality in Autostore v Ocado without prejudice discussions

Two paws for Autostore, one tail
(not pictured) for Ocado

Last week the Court of Appeal upheld a decision of His Honour Judge Hacon in Autostore v Ocado [2021] EWCA Civ 1003 where he refused an injunction to stop the use of materials in the US by AutoStores where Ocado contended that such use was in breach of confidentiality as part of confdiential and without prejudice discussions. Over to Brussels-based trainee patent attorney, Henry Yang, provides a summary for readers below. 

Over to Henry:

"AutoStore and Ocado were in a multi-jurisdictional patent dispute including the UK and the US. Their English solicitors were negotiating settlement. Before the third settlement negotiation meeting AutoStore’s solicitor sent a document (‘the Document’) as advance materials. During the opening remarks  of this meeting, Ocado’s solicitor stated 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 [US Federal] rules of evidence [FRE 408]. 

Ocado later discovered that AutoStore intended to use in the US the Document as evidence, and applied to the English court for an injunction restraining AutoStore from doing so, based amongst others on the opening remarks. AutoStore responded that the confidential and without privilege character did not apply to the US proceeding. In the High Court, HHJ Hacon ultimately refused the injunction: [2021] EWHC 1614 . Ocado appealed. 

In a 2-1 split, the majority of the Court of Appeal upheld the judgment of the High Court: Autostore v Ocado [2021] EWCA Civ 1003. Nugee LJ, dissenting, would have allowed the appeal. A recording of the hearing was made available by the Court here.

Decision 

Grounds of appeal 

The appellant raised four grounds of appeal ([24]): 

(1) The Judge was wrong to adopt the test of whether Ocado had a high probability of success. 

(2) Even if the Judge was right to adopt that test, Ocado did have a high probability of success. 

(3) The Judge erred in saying that the concept of "without prejudice" was well known outside English law. (4) The Judge erred in finding that the balance of irreparable harm favoured AutoStore. 

Majority of the Court of Appeal 

The majority of the Court (Vos MR, Nicola Davies LJ concurring) started by considering that the sentence ‘any US law discussions were to be governed by rule 408 of the rules of evidence’ was a qualification to the overall without prejudice characterisation ([71]). Contrary to Nugee LJ’s view as will be explained below, the majority distinguished the present case from Instance v Denny [2000] FSR 869 in the High Court, since the latter lacked any agreement referring to a provision of foreign law, and the negotiations in that case were exclusively governed by English law ([74]). 

On the first ground of appeal, there were two competing positions ([78]). AutoStore’s was the ‘high degree of probability’ test applicable to anti-suit injunctions, which had been accepted by the Judge. Ocado on the other hand argued for a lower threshold that ‘in addition to the question of serious issue to be tried, a reference to the merits was appropriate in light of the potential that interim relief might have final effect’, the position in Cambridge Nutrition Ltd v BBC [1990] 3 All ER 523 ([79]; [26]). 

The majority upheld the Judge’s decision that the present situation was analogous to an anti-suit injunction, which interferes with the working of a foreign court and therefore requires a high probability of success on the merits to get the injunction granted ([79]). Here, the judge in the US proceeding would be deprived of the opportunity to decide if there should be an exception to FRE 408 so as to admit the Document in the US proceeding ([80]). 

For the second ground of appeal, the majority did not think that Ocado proved a high probability of success ([82]). They expected three issues to be decided at trial. First, AutoStore would need to prove that the agreement was varied at the third meeting so that any US law discussions were to be governed by FRE 408 instead of the English without prejudice rule. This first issue led to the second one of whether it would be within US courts’ jurisdiction to determine the admissibility of English negotiations into US proceedings within FRE 408. Thirdly, AutoStore would need to show that the without prejudice provision did not cover decisions to be made in US proceedings ([83]). The answer to none of these three issues appeared obvious to the majority of the Court, and therefore the second ground of appeal was dismissed ([84]). 

Given the decision on the first two grounds of appeal, it was unnecessary to decide the third and the fourth. But the majority said in obiter that they would rule the fourth ground in AutoStore’s favour ([85]).

Dissenting judgment 

Nugee LJ reached an entirely opposite conclusion. First he evaluating the second ground. He considered that this ground turned on whether FRE 408 applied in addition to the without prejudice rule, or in place of the prejudice rule ([29]; but the majority thought this question was only a partial one: [69], [83]). He preferred the argument that FRE 408 should apply in addition to the without prejudice rule ([30]) because first, the facts appeared to show that the without prejudice and confidential rule applied up until the third meeting ([31]) and secondly, the effect of the without prejudice agreement was not in dispute in English law, which was a contract ([32]). 

Nugee LJ noted the striking factual similarity of the present case with Instance v Denny, and approved its judgment that the without prejudice communications were agreed not to be used in the current or any subsequent litigation ([34]; [36]). He also noted that Instance v Denny was later supported by the Court of Appeal in Prudential Assurance Co Ltd v Prudential Insurance Co of America [2003] EWCA Civ 1154. Chadwick LJ in that case held that where a restraint on the use of without prejudice material could be justified by an implied contract, the English court could give extra-territorial effect to the restraint if the applicant for an interim order could show ‘a real prospect that there will be a finding at trial’ that the parties had agreed not to use this material in the litigation ([35]). 

On the fact of the present case, Nugee LJ found it unlikely for a reasonable objective observer to think that at the beginning of the third meeting, the parties agreed to replace the without prejudice protection with that of FRE 408 ([37]). In addition, he saw nothing inconsistent in the simultaneous application of the without prejudice protection in England and FRE 408 in the US ([38], [39]). He would therefore have allowed the second ground of appeal and thus, granted the injunction. 

Allowing the second ground of appeal meant it was no longer necessary to consider the first ground. But Nugee LJ, persuaded by Ocado’s counsel, stated in obiter that the interference with a foreign court here was of a lesser extent. Ocado was not preventing AutoStore from the US proceeding altogether but only preventing a document from being disclosed. As such he considered that establishing a sufficient case on the merits, a lower threshold, would suffice ([47]). 

Also in obiter, Nugee LJ would have allowed the fourth ground of appeal, for although Ocado could argue in the US proceeding for restraining the use of the Document, its position would still be weaker than if it could restrain AutoStore from using it at all ([49]). 

Comments 

Patent disputes often take place in parallel in several jurisdictions. It is quite likely that one party wishes to prevent the discussions in one country from being disclosed in another. The natural consequence of this judgment is that if one party wishes to cover foreign proceedings with the English without prejudice rule, clearer language is needed to avoid any ambiguity, such as ‘the US law discussions were to be governed by rule 408 of the rules of evidence and the English without prejudice rule’."