Hollywood Realisations Trust Ltd. v Lexington Insurance Company & Ors

There is before the Court an application under CPR 32.12 that there should be an order that certain witness statements and experts reports already exchanged in these proceedings should be used for a purpose other than that of these proceedings.

In rather less than three weeks’ time there is due to commence in the Commercial Court a very substantial trial. It is divided into two phases. The first phase is estimated to last over 20 weeks. There are seven parties, although not all are directly involved in Phase 1. The second phase is due to start in 2004, after judgment has been given in Phase 1. It will last for a large number of weeks. The costs of this litigation so far incurred by all parties exceed £25 million. At least another £15 million is estimated to be the future cost of the trial. In view of the vast expenditure in costs and time likely to be involved if both Phases are to be tried, on 4 April 2003 I made an order that all parties should take part in a settlement conference in London before the start of the trial. That order included a provision that throughout the conference each party’s solicitor should have immediate access to decision-takers in its client’s organisation and its insurers and reinsurers. This conference has been fixed to take place on 24 and 25 April.

The core issue in these proceedings is whether the insurers, Lexington, under policies issued to LDT, since replaced as claimants by HRT, are liable in respect of certain film finance transactions which turned out to be loss-making. Lexington has taken various points by way of defence, including allegations of non-disclosure in relation to which fraud is alleged on the part of JLT, the brokers, and others.

Lexington was allegedly re-insured in respect of these risks. Indeed there are pending arbitrations between it and its reinsurers. These arbitrations necessarily await the outcome of this trial. Not surprisingly however, Lexington wish that representatives of their reinsurers should attend the settlement conference. Further, in order that those reinsurers should be fully informed of the strengths and weaknesses of the case advanced against Lexington and its defences, Lexington wish those reinsurers to have access to pleadings, witness statements and expert reports exchanged by Lexington and other parties, in particular by JLT. This is an entirely understandable approach. However, it is confronted by objections, particularly on the part of JLT.

JLT is concerned that if those witness statements and reports are disclosed to the reinsurers JLT’s position will be imperiled by the risk of the claims based on that evidence. They also make the point that in the short time available it will be impossible for the reinsurers to read and absorb the vast quantity of documents involved.

CPR 32.12(i) reflects the general principle worked out in the authorities before the introduction of the CPR that unless and until a witness statement is put in evidence at a trial it is privileged and confidential and cannot be relied upon for any purpose by any party to whom it is disclosed: see Comfort Hotels v. Wembley Stadium Ltd [1988] 1 WLR 872 and Prudential Assurance Co v. Fountain Page Ltd. [1991] 1 WLR 756. In the latter case Hobhouse J said at p. 774-775 :

“In my judgment when a statement is served pursuant to a direction given under Order 38, rule 2A and the witness to whose evidence that statement relates is never called by that party to give evidence (whether it be because the trial never takes place or for any other reason) that statement remains a privileged document in the same way as without prejudice communication remains privileged. The party serving the statement may not be compelled to disclose the statement to any other person and is entitled to prevent any other person using that statement without his consent and, in particular, using it in evidence against the person who originally served the statement. This was what was decided by the House of Lords in Rush & Tompkins Ltd v. Greater London Council [1989] AC 1280 in relation to without prejudice communications and I consider that the same applies to witness statements served under rule 2A.

The policy reflected in the rule is simply procedural. Its purpose is stated in sub-rule (2) to be ‘disposing fairly and expeditiously of the cause or matter and saving costs.’ It is related to the instant litigation alone. Later paragraphs of the rule cover matters of obvious relevance to the trial, and its preparation, in that action. A secondary purpose must also be to encourage and facilitate the making of admissions and settlements. If one party can see the evidence that the other party has and has also to disclose its own, this exchange of information may enable disputes to be resolved in a manner that is exactly parallel to that which often occurs in without prejudice negotiations. Costs are saved if trials are rendered unnecessary or appropriate admissions are made. The policy of the law which protects without prejudice communications should apply to protect the confidentiality of statements that are exchanged but not used under rule 2A. Similarly, the example of Riddick v. Thames Board Mills Ltd [1977] QB 881 illustrates another danger of not recognizing a restriction. A statement may contain possibly defamatory statements; if an unused statement is not to be treated as privileged from disclosure to third parties or being used in evidence, obvious difficulties can arise. Accordingly, there are good reasons of policy arising from the rule that reinforce the analogy with the treatment of documents obtained on discovery and communications without prejudice. Likewise, there are good policy reasons for imposing similar restrictions. There is therefore no basis for declining to give effect to the inference to be drawn from the rule itself.

I consider that the rights of the London plaintiffs arise by inference from the terms of rule 2A and from the confidential and privileged character of the statement prior to the time at which it was served. I consider that it is therefore a rule of law that, unless the London plaintiffs have relinquished their rights to restrict the use of the document by some further waiver or consent (which is not alleged has happened in the present case), the fourth defendants and the London solicitors were under the duty which I have formulated above. Their supplying the statements to the Texas attorneys and to other parties in the Texas proceedings and their use of the documents in and for the purposes of the Texas proceedings was a breach of that duty.

It may be thought desirable to express the duty as an implied undertaking to the court. But, whether it is so expressed or not, it is in my judgment a duty that is owed to the court and which can be enforced by the court at the instance of the English plaintiffs. Breach of the duty amounts to a contempt of court, which may be trivial or serious depending upon the circumstances. The court has the power wholly or partially to release the recipient from the duty, or undertaking, and to permit use to be made of the documents nevertheless. Circumstances under which that relaxation would be allowed without the consent of the serving party are hard to visualise, particularly where there was any risk that the statement might be used directly or indirectly to the prejudice of the serving party. (This is, of course, always subject to any overriding principle of public policy.)”

CPR 32.12 provides as follows.

“(1)

Except as provided by this rule, a witness statement may be used only for the purpose of the proceedings in which it is served.

(2)

Paragraph (1) does not apply if and to the extent that:-

(a)

the witness gives consent in writing to some other use of it;

(b)

the court gives permission for some other use; or

(c)

the witness statement has been put in evidence at a hearing held in public.”

The reference to the exception of “any overriding principle of public policy” at the end of the passage from the judgment of Hobhouse J. cited above is directly relevant in the present case. The effect of CPR 32.12 (2) (b) is that notwithstanding the privileged and confidential nature of witness statements before being put in evidence in court reflected in 32.12 (i) the Court retains a power to override the prohibition of their use for other purposes. This residual power is clearly of a discretionary nature. However, in order to identify the principles on which the discretion should be exercised, it is necessary first to identify the underlying purpose for the protection of witness statements provided for under CPR. 32.12(i). The privilege which attaches to such documents coupled with their essentially confidential nature rest on considerations of public policy. Such documents having been provided to the opposite parties to the litigation in order to facilitate the smooth and efficient running of the trial and to encourage settlement before trial by providing information as to the content of a witness’s evidence, it is an abuse of their function for them to be used for any other purpose or to be disclosed to anyone who is not a party to the trial or its representative. This limitation on use does not rest merely on the limited purpose for which the statement is disclosed, but upon the wider policy that such documents should not be exposed to any wider use until made public in the course of a trial because the document may be seriously harmful to any party whose witness has made the statement if it is relied on for other purposes than the trial in question. For example, it may be used to found a claim not previously made. It may be said to be defamatory. It may be used by a third party to intervene in the trial. Further, it may never be used at the trial and may therefore never enter the public domain, except, perhaps as a basis for cross-examination of witnesses by those representing other parties.

Accordingly, in order to justify the exercise of the court’s discretion to permit the statement to be put to other uses, there must, as recognised by Hobhouse J., be a strong public policy basis for removing the restriction on the use and the protection of the party concerned to which that party is ordinarily entitled.

I have no doubt that in the present case there is a very strong countervailing public policy factor which has to be considered. That is the public interest in facilitating the settlement of massive litigation of this kind. This is reflected in the overriding principle under the CPR. It is contrary to the public interest that the settlement of cases of this magnitude should not be facilitated. That is why in the Commercial Court we frequently make ADR orders and that is why in the present case an order was made for a settlement conference prior to the start of the trial. London solicitors experienced in insurance and reinsurance litigation are well acquainted with the benefits of settling before trial these massive multi-party cases, but there may be many cases like the present where it may in practice be very difficult for any one party to initiate a formal settlement meeting of the kind previously ordered in this case. Apparently over 60 people are likely to be immediately involved in this conference, some of them coming from Australia. In such cases an order for such a conference to be held before trial may initiate timely negotiations which otherwise might never have taken place due to the fact that cases of this size develop their own nearly unstoppable momentum. There is therefore a very strong public policy in facilitating the effectiveness of such conferences.

The reinsurers clearly have a vital part to play in the decision-taking relevant to an overall settlement. Without their consent it would be very difficult for Lexington to commit itself to any settlement at all. The trial is due to start but one working week after the two day period set aside for the settlement conference. If Lexington’s reinsurers were not immediately on hand to take informed decisions, opportunities for negotiating a final settlement might well be lost simply because there would be insufficient time to brief reinsurers on the evidence and for them to take a view on what might be realistic figures for settlement. It would be unreasonable to expect the other parties to wait for decisions affecting Lexington which might so delay the conference as to prejudice its chances of achieving a global settlement before trial.

In making this application Lexington have assented in principle to suggestions put forward by JLT that if the court is to make an order under CPR 32.12, it should incorporate into it certain conditions in order to ensure that there is no wider use of the witness statements and experts reports than is absolutely necessary for the purpose of facilitating decision-taking at the settlement conference. These include:

The documents which the Court orders to be disclosed should only be provided to specified individuals within the reinsurers attending the settlement meeting and their nominated advisers.

The details of the persons being provided with the documents should be provided to the other parties.

Before the documents are provided to these persons, they must agree in writing that the contents of the documents will not be disclosed by them to any other party (other than their nominated adviser) and the documents will be used only for the purpose of facilitating the discussions ordered by the Court and for no other purpose.

All the documents so provided are to be returned to Lexington’s solicitors immediately upon conclusion of the settlement conference.

Subject to matters of detailed wording, these conditions minimize the risk of disclosure beyond the parties to these proceedings prejudicially affecting the interests of any of them and restrict the ambit of disclosure as narrowly as possible and in a way which reflects the particular limited uses to which these documents are to be put.

Taking fully into account the very strong public policy of protecting the confidential and privileged nature of these documents at all times before they enter the public domain by being put in evidence at trial, I have come to the very firm conclusion that the countervailing public interest in facilitating the settlement before trial of litigation of these immense proportions outweighs such conventional considerations and must prevail in favour of the order applied for, suitably qualified as I have described.

I would only add in conclusion that, although this application is made in multi-party proceedings of very considerable size and complexity, it should not be thought that it is only in cases with comparable characteristics that the combination of an order for a settlement conference and an ancillary order for disclosure of witness statements to insurers or re-insurers are likely to be appropriate. There may well be occasions when in the interests of the Overriding Objective orders of this kind are entirely appropriate in cases of substantially more modest proportions.