Commodities Research Unit International (Holdings) Ltd & Ors v King and Wood Mallesons LLP

There are before the Court two applications by the Defendants for specific disclosure. The Defendants are solicitors. The claim against them is for professional negligence arising out of advice which they gave the Claimants in connection with the departure of an employee who was, at the time, the CEO of the Claimants (Footnote: ¹). Following that advice the Claimants entered into a severance agreement with the employee with a side letter relating to entitlement in the event of sale of the business. The side letter in turn related to entitlements derived from a written long term incentive payment document (‘LTIP’).

In 2011 the employee brought proceedings against the Claimants alleging that he was entitled to a percentage of the sale price of the business (‘the underlying proceedings’). He claimed that when entering into the side letter the parties were labouring under a mutual mistaken belief that entitlement under the LTIP would continue after termination of his employment but contended that he remained entitled to payment on the sale of the business on a construction of the side letter or because of estoppel by convention.

The Claimants defended the underlying proceedings on various grounds. The employee and the Claimants engaged in two attempts at mediation. The first, in 2011, was unsuccessful, but the second (in October 2012) led to an agreement which compromised the underlying proceedings on payment to the employee of £1.35 million by the Claimants. There was a later dispute as to whether the Claimants were entitled or obliged to deduct tax from this sum. That led to a judgment by Vos J. in 2013. The Claimants now claim £1.35m. as damages from the Defendants. They also claim over £800,000 in costs which they incurred in defending the underlying proceedings. In addition, they claim compensation for management time which was devoted to the underlying proceedings.

The present claim is defended on various grounds. Notably, for present purposes, it is not admitted that the Claimants were obliged to settle the underlying proceedings ‘in light of the robust Defence to those claims advanced by the [present] Claimants’ in those proceedings. The Defendants also contend that the problems arose because of the Claimants’ failure to inform them of an exchange of emails with the employee in 2004 and which is said to have been material. No admission is made as to the costs incurred by the Claimants in the underlying proceedings and it is denied that the present Defendants are liable for them. No admission is made as to the management time said to have been expended by the Claimants in connection with the underlying proceedings and the Claimants are put to strict proof of that head of loss.

The present claim is well advanced. At a directions hearing on 15^th July 2015 Master Eastman ordered standard disclosure (with specific provision in relation to electronic searches). Lists were exchanged. Inspection took place. There was considerable correspondence between the parties as to matters which the Defendants alleged were missing from the Claimants’ disclosure. In a letter of 10^th November 2011 RPC, for the Defendants, set out 21 categories of documents which they were still seeking. Some of those were settled by agreement, but the Defendants’ first application for specific disclosure (issued on 23^rd December 2015) sought an order for disclosure of a large number that were still said to be outstanding. Further discussion between the parties has led to a considerable narrowing of the terms of dispute. Ignoring overlap with the second application, there are now just two categories which call for decision from the court. Using the labels in RPC’s original letter, these are as follows:

Master Eastman also directed the exchange of witness statements. The statements served by the Claimants include the following;

These witness statements led the Defendants to issue their second application notice, dated 7^th January 2016. By this they seek all communications between the Claimants and Mr Glick including his advice on the merits of the underlying proceedings, the documents and other information on which he formulated his advice, communications between Norton Rose and the claimants in the underlying proceedings including those solicitors’ advice on the merits and all internal communications within the claimant companies relating to the underlying proceedings.

Mr Porter, on the Defendants’ behalf, contends that the Claimants have waived privilege (notwithstanding what Mr Perlman and Mr Barber said in their witness statements) and these documents should now be disclosed.

I said that the present claim is well advanced. The trial is due to start on 8^th February 2016. The hearing of these applications took place on 15^th January 2016. I reserved my decision, but I was encouraged by both parties to make it available as soon as possible. This I have attempted to do.

The application for specific disclosure is under CPR r.31.12. The Claimants did not suggest that the Defendants were precluded from making their applications because of the proximity of the trial and that was sensible. The first application was preceded by correspondence which did substantially narrow the issues; the second was only triggered by the contents of the witness statements to which I have referred.

The Defendants have not argued that I should apply anything other than the standard disclosure criteria in CPR r.31.6. In other words the first issue is whether the requested documents are ones on which the Claimants rely or which would adversely affect their case or support the case of the Defendants. As both parties accepted, the wider obligation to make discovery under the Rules of the Supreme Court of documents which might lead to a train of inquiry and represented by cases such as Compangnie Financiere et Commerciale du Pacifique v Peruvian Guano (1882-3) LR 11 QBD 55 CA are not relevant to the present applications. To determine the cases of the parties, I should look to the pleadings. While relevance to a pleaded issue is important, it is not the only consideration. I must also seek to give effect to the overriding objective in CPR r.1.2 as elaborated in r.1.2. In particular, I must consider whether the orders sought are proportionate and necessary for the fair disposal of the present litigation.

Issues of privilege are relevant to the second application. Again, there was no substantial dispute about the principles. Legal advice privilege and litigation privilege can be waived by a client. Whether there has been waiver is determined by the parties’ conduct and Mr Davidson, on the Claimants’ behalf, rightly did not suggest that he could, in the present circumstances, rely on the statements of Mr Barber and Mr Perlman in their witness statements to the effect that they were not waiving privilege – to some extent they clearly had. The extent to which privilege had been waived was for the Court to determine. A client could not ‘cherry pick’ i.e. be selective and waive privilege in relation to one part of a document (or series of documents on the same topic) while maintaining it in relation to other parts of the same document or same series. On the other hand, if there were severable parts of the document or if there were severable issues in the exchanges with legal advisers, privilege waived in relation to one of those parts or one of those issues, did not mean it was waived as well for the others. Finally, not everything in a lawyer’s records was covered by either legal advice or litigation privilege. Thus, for instance, the date and time of a meeting with a lawyer would not be privileged. Correspondingly, a reference only to such matters would not constitute a waiver of privilege in what took place at the meeting. It would be otherwise if the contents of that meeting or communication were sought to be deployed.

I can now turn to the matters which remain in dispute.

The Claimants argue that the employee whose claim gave rise to the underlying proceedings had a unique LTIP which was not part of the work undertaken by Monk or KPMG in relation to other employees. The Defendants argue that nonetheless the documents are relevant. Mr Porter said in his skeleton argument, ‘To the extent that such schemes were a live issue at or about the material times and advice on their operation (vesting, circumstances in which entitlement would be lost and the like) this is relevant to the issue of the claimants’ knowledge of such matters and to the contention [by the Defendants] that they were negligent in failing to provide the defendant with the materials referred to above [i.e. the exchange of emails in 2004]. It is submitted that in the circumstances such advice received at or around the material time goes to the issue of the claimant’s knowledge of such matters at that time and that disclosure thereof is necessary for the fair disposal of the proceedings.’

In my judgment the Defendants have not shown that disclosure of the generality of this category is necessary for the fair disposal of the action or is otherwise proportionate. I accept Mr Davidson’s submissions in this regard.

There is, though, a qualification. The evening before the hearing the Defendants served a statement of Nicholas Bird dated 13^th January 2016. He referred to an inspection of certain documents of the Claimants which he had carried out. He said at paragraph 7

Mr Davidson initially objected to the Defendants relying on Mr Bird’s statement because it had been served so late and the Claimants had not had an opportunity to respond to it. Later in the hearing he withdrew the objection, although he showed me one of the other documents to which Mr Bird had referred to make the point that it had nothing to do with the disputes between the parties. He did not specifically refer to paragraph 7. I was not entirely clear whether the document to which Mr Bird there refers was one which had already been disclosed or how this sat with the Claimants’ case that the Monk Partnership had not been asked to consider the LTIP arrangement of this particular employee. Subject to anything further which the Claimants wish to say on this specific matter, it appears to me that the Defendants would be entitled to have disclosure of any document to or from the Monk Partnership which concerns this particular employee and where that document also refers to his LTIP.

The Defendants argue that they dispute the reasonableness of the settlement of the underlying proceedings. They need to know what documents would have been available had that litigation continued through to trial. The Claimants submit that they have already disclosed such of their own documents as are disclosable in the present proceedings. Until recently, they were inhibited from providing the employee’s list or copies of his documents which were supplied on inspection by CPR r.31.22. They recognise that that obstacle has recently been lifted because the employee has given his consent to disclosure which he made in the underlying proceedings being deployed in the present action. What they now propose is to disclose all witness statements and exhibits and all relevant correspondence between the parties and, subject to the mediators’ consent where required, all documentation produced at the two mediations held in connection with the underlying proceedings. They submit that it would be unduly burdensome and disproportionate to require them to produce the disclosed documents provided by the employee. They were substantial (some 4 lever arch files in the first place) and the exercise would be disproportionate even if the course proposed by the Defendants (of not filleting out documents already disclosed) was adopted. In addition, the initial tranche of disclosure was followed by further disclosure in the course of the litigation. Tracing these would require a manual search and would also be burdensome. They also object to a requirement to produce their own list of documents which they served in the underlying proceedings since there is no basis for the Defendants’ concern that they may not have received all the standard disclosure in the present proceedings to which they are entitled.

Again I agree with Mr Davidson in relation to the generality of his argument. I agree that the Defendants have not shown that there is an arguable deficiency in the Claimants’ own disclosure. I agree, therefore, that there is no justification to require them to produce their own list of documents in the underlying proceedings. Mr Porter submitted that it would allow the Defendants to check that they had received everything to which they were entitled, but that is not a sufficient basis for ordering specific disclosure.

I understand Mr Porter’s argument that, in order for the Defendants to advance their case that the underlying proceedings should not have been compromised (or that any compromise was due to matters for which they were not responsible) they need to have an idea of the material which the employee was able to deploy, as well as the material put forward by the Claimants. However, it seems to me that Mr Davidson is right when he says that they will be able to see that from the witness statements served by the employee, the exhibits to those witness statements, and the documentation produced in the two mediations.

I have said that I agree with the generality of Mr Davidson’s argument. There are two caveats.

Mr Glick’s witness statement exhibits his letter of 30^th June 2015. This was almost 3 years after the settlement took place. At the hearing before me Mr Davidson flagged up that there might be an issue as to whether the court would have to consider the merits of advice given to the Claimants at the time when they settled with the employee or whether it was sufficient that they had acted in accordance with advice from competent counsel and solicitors. However, he accepted that this was not an argument for now. For present purposes, he recognised, the Claimants had served Mr Glick’s witness statement which did speak to the content of the advice he had given. Plainly, privilege in that communication had been waived. Mr Davidson accepted that the Defendants would be entitled to any contemporary record of advice given by Mr Glick in October 2012 as to the merits of the settlement which was finally agreed. Thus it would include any advice by him in writing on that subject and any record of oral advice which he gave about it. Since Mr Perlman said that he also followed the advice of Norton Rose, Mr Davidson also accepted that any advice which those solicitors had given as to the merits of the settlement which was finally agreed should also be disclosed. Since lawyers’ advice was dependent on instructions, Mr Davidson also accepted that the Defendants would be entitled to any instructions given to either Mr Glick or Norton Rose on which their advice as to the merits of the final settlement was given.

Mr Porter argued that the advice of counsel and solicitors as to the October 2012 settlement could not be separated from advice which they gave earlier in the proceedings. In particular, he submitted that such advice might show that the Claimants should have entered into the settlement at an earlier stage in the underlying proceedings. He submitted that this was an issue in the present proceedings because there is no admission as to the costs incurred by the Claimants in the underlying proceedings. It is denied that the Defendants are responsible for those costs. His skeleton argument for the present application appeared to contemplate disclosure of the entirety of the communications between the Claimants and their lawyers or between the Claimants’ lawyers themselves in the underlying proceedings. In the course of oral submissions, though, he narrowed this to advice and communications as to the merits of the underlying proceedings.

In my judgment, Mr Porter’s submission should not be accepted. A bare non admission of the amount of the costs incurred by the Claimants coupled with a bare denial of responsibility for those costs is not sufficient to raise the positive case that the Claimants should have settled with the employee at an earlier stage. Indeed, I am inclined to agree with Mr Davidson that this would also be inconsistent with the positive case which is advanced (in paragraph 55.2 of the Amended Defence) that it is not admitted that the Claimants were obliged to settle with the employee when they did in view of the Claimants’ robust defence to those proceedings. Nor do I accept Mr Porter’s argument that advice as to merits (given at any stage in the course of litigation) is indivisible. Of course, a lawyer may choose to incorporate by reference advice which had been given an earlier stage in the proceedings, but that aside, an advice on the merits at one stage in litigation should not necessarily be seen as part of the same sequence as advice on the merits at an earlier stage. The circumstances in which the advice is sought or given at each may be quite different. Consequently, I reject Mr Porter’s argument that it would be ‘cherry picking’ to confine the waiver of privilege to that which Mr Davidson agrees must follow.

Mr Porter argues that Mr Barber has referred in the schedule to his witness statement to a great many communications to and from Norton Rose. The Defendants are now entitled to see copies of those documents pursuant to CPR r.31.14. Because they have been mentioned in his witness statement, privilege in them has been waived.

Mr Davidson argues that Mr Barber has referred to these matters simply to fix the dates on which he or his colleagues were engaged in the underlying proceedings and in order to elaborate on the Claimants’ claim for lost management time as a result of that litigation. He refers to R v Manchester Crown Court ex parte Rogers [1999] 1 WLR 832 DC in which Lord Bingham observed that a lawyer’s record of the date and time at which he saw a client was not privileged. Mr Davidson submits that Mr Barber was alluding to these matters only for that limited purpose. There was no waiver of privilege. Privilege continued to protect the underlying documents from disclosure.

In my judgment, Mr Porter is right to submit that Mr Barber is not confining his allusion to these documents to that limited purpose. He is deploying them to justify the detailed expenditure of management time. The Defendants have put the Claimants to strict proof of this part of their claim and so this is an issue in the proceedings. Mr Davidson argued that it was obvious that heavy commercial litigation would involve considerable amount of management time. That may be, but the Claimants have chosen not simply to rely on such a bald proposition. Instead, they have provided Mr Barber’s detailed witness statement. The consequence seems to me that privilege has been waived in the documents to which Mr Barber refers. In the circumstances, disclosure is necessary for the fair disposal of the present proceedings and would not be disproportionate. The Defendants are entitled to inspect them.

There may be a degree of overlap between the two parts of the Defendants’ second application. They are, though, advanced as independent reasons for disclosure. Thus, to the extent that the documents to which Mr Barber refers in his schedule concern earlier advices on settlement from either Norton Rose or Mr Glick, they must be disclosed because the Defendants have succeeded on this second part of their application, even though in relation to the first part, they have not obtained an order for disclosure of more than Mr Davidson was willing to concede.