Yet another implied waiver case: Paragon Finance Plc v Freshfields (a firm)

Several recent posts have been about the implied waiver which is said to be an incident of clients suing their former solicitors for negligence.  They are simply case notes.  Some of the cases are English.  All were decided under a law different from that which from 1 January 2010 applies in Victorian court proceedings, a law which has existed in fellow uniform evidence jurisdictions NSW and the Commonwealth only since the beginning of 2009, when amendments to the client legal privilege provisions came into operation.  The purpose of this preamble is to warn against assuming that the law stated in these cases, which represent the common law at the time and in the place of their decision, is the law today. I’m not saying it’s not, right; I just can’t be bothered for the moment to work it out.

Paragon Finance Plc v Freshfields (a firm) (1999) 1 WLR 1183; [1999] EWCA 955 is a unanimous decision of the English Court of Appeal’s Chief Justice, Lord Bingham, and Lord Justices Brooke and Chadwick.  The question the Court identified for decision was:

‘if a client sues his former solicitors claiming damages for alleged negligence in the handling of a commercial transaction between the client and a third party, does the client’s waiver of legal professional privilege (implied from the bringing of the proceedings against the former solicitors) apply not only to confidential communications between the client and those former solicitors relating to that transaction but also to confidential communications between the client and different solicitors whom he later instructed to pursue and settle his claim against the third party?’

The Court said no.  The facts were that big business insureds had a very big dispute with their insurers in relation to insurance against default on mortgages against the security of which financiers lent money.  Freshfields had acted in the setting up of the scheme and subsequently in the dispute with insurers which ensued.  Then they decided they had a conflict and ceased to act in favour of Slaughter & May.  The plaintiff sued Freshfields for negligence for allowing the insurers to deny indemnity if the lenders did not adhere to certain lending guidelines.  The problem was that the guidelines were stricter than those in fact used by the lenders, affording an opportunity to deny indemnity in those cases where the lenders’ but not the insurers’ guidelines were met.  Eventually, the plaintiff settled with the insurers, but claimed as damages the difference between the position they would have been in but for the negligence and the position achieved by settling the dispute reasonably, plus Slaughter & May’s fees in advising and negotiating the settlement. Freshfields sought discovery of Slaughter & May’s files in relation to the settlement.  The Court held:

‘When a client sues a solicitor who has formerly acted for him, complaining that the solicitor has acted negligently, he invites the court to adjudicate on questions directly arising from the confidential relationship which formerly subsisted between them. Since court proceedings are public, the client brings that formerly confidential relationship into the public domain. He thereby waives any right to claim the protection of legal professional privilege in relation to any communication between them so far as necessary for the just determination of his claim; or, putting the same proposition in different terms, he releases the solicitor to that extent from the obligation of confidence by which he was formerly bound. This is an implication of law, the rationale of which is plain. A party cannot deliberately subject a relationship to public scrutiny and at the same time seek to preserve its confidentiality. He cannot pick and choose, disclosing such incidents of the relationship as strengthen his claim for damages and concealing from forensic scrutiny such incidents as weaken it. He cannot attack his former solicitor and deny the solicitor the use of materials relevant to his defence. But, since the implied waiver applies to communications between client and solicitor, it will cover no communication to which the solicitor was not privy and so will disclose to the solicitor nothing of which he is not already aware.

Thus, on the present facts, by bringing these proceedings the plaintiffs impliedly waived any claim to legal professional privilege in relation to confidential communications between them and Freshfields concerning the transactions briefly described above, up to the moment when Freshfields ceased to act. That is not in issue. The question is whether the plaintiffs have also impliedly waived any claim to legal professional privilege in relation to confidential communications between them and Slaughter and May relating to the pursuit and settlement of claims arising from those transactions. Approaching this question as one of pure principle, we conclude that they have not. The plaintiffs have not sued Slaughter and May. They have not invited the court to adjudicate on any question arising from their confidential relationship with Slaughter and May, and so have not brought that confidential relationship into the public domain. They have done nothing to release Slaughter and May from the obligation of confidence by which they are bound. They have chosen to subject their relationship with Freshfields to public scrutiny, but not their relationship with Slaughter and May. They are not seeking to pick and choose among the confidential communications passing between themselves and Slaughter and May: none of them is (so far) in the forensic arena. It is open to Freshfields, by way of defence, to rely on any communication passing between themselves and the plaintiffs; to hold that the plaintiffs have impliedly waived privilege in relation to confidential communications between themselves and Slaughter and May would be, not to enable Freshfields to rely on communications of which they are already aware, but to disclose to them communications of which they now have no knowledge. We consider that the plaintiffs are correct in submitting that the judge’s conclusion is inconsistent with the principles which govern implied waiver of legal professional privilege.

We would not wish to exclude the possibility that there may be factual situations in which a plaintiff who sues his solicitor may be taken to have impliedly waived privilege in respect of written legal advice from other lawyers which he agreed to that solicitor seeing for the purposes of the matter on which he was currently seeking advice from him.

the plaintiffs have undoubtedly brought their previously confidential relationship with Freshfields into the public domain, and fairness requires that Freshfields should be free to rely on any communications passing between them and the plaintiffs relevant to their defence of that claim. They are already privy to those communications. But, as already pointed out, the plaintiffs have not brought their relationship with Slaughter and May into the public domain. That relationship remains confidential. The plaintiffs have done nothing to breach it. And far from enabling Freshfields to rely on material to which they are already privy, the ruling for which Freshfields contend would make documents available to them of which the contents are unknown.

Fairness is an important part of the reason why a solicitor who is sued cannot be required to respect the confidentiality of his relationship with the client who is suing him; but save as between the client and the solicitor he is suing, fairness is not the touchstone by which it is determined whether a client has or has not impliedly waived his privilege.’

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