Burkle Holdings Ltd v Laing

This is a disclosure application of importance not only to the parties but also of more general importance relating to a situation in which solicitors may frequently find themselves. It underlines the difficulties confronting solicitors when they act, or may be acting, for more than one party to a transaction. This difficulty can arise in what may be the most mundane of circumstances.

Since there are issues of general importance to the solicitors’ profession, I shall consider briefly the guidance given by the Law Society to its members. I understand that the 1999 edition is currently being revised. The guidance in relation to solicitors acting for both parties to a transaction should be reviewed in the light of this judgment and, more importantly, the recent judgments of the House of Lords to which I shall come in a moment.

This hearing arises out of a defendant’s application for disclosure, dated 1 March 2005. The claimant asks for disclosure of specific documents and through a witness summons, also issued on 1 March 2005, addressed to Mr Kelly of Taylor Walton (TW) solicitors asks for the production of specific documents.

Mr Laing, supported by Mr Kelly, claims that Mr Kelly was acting both for Burkle Holdings Limited (Burkle) and for Mr Laing on the basis of a joint retainer. Burkle disputes this. It claims that at all times Mr Kelly was acting for Burkle and not for Mr Laing. Its fallback position is that if Mr Kelly was acting for Mr Laing it was pursuant to a separate retainer or several retainers.

The specific documents which are listed in the two applications are virtually identical in each case. They are as follows:

“All documents relating to the retainer of Taylor Walton (TW) by David Laing (Mr Laing), and/or Ian Watson (Mr Watson) and Burkle Holdings Limited (Burkle), and/or European Securities Limited (ESL), such documents to include all attendance notes and relevant drafts in connection with:

(i)

the drafting, making, implementation, performance, and/or enforcement of the loan agreement between Burkle and Mr Laing dated 23 December 1999 (the 1999 agreement);

(ii)

the drafting, making, implementation and performance of the loan agreement between Burkle and Mr Laing, ultimately executed on 18 September 2002 (the 2002 loan agreement);

(iii)

the drafting and proposed agreement intended to be entered into by ESL and Mr Laing in 2002 (the draft 2002 profit share agreement) relating to a 12.5% profit share proposed to be recoverable by ESL from Mr Laing in connection with the development of a property at Glory Mill, High Wycombe;

(iv)

[oral instructions given and/or] letters or other documents arising in respect of the abandonment of the proposal to enter into the draft 2002 profit share agreement, and/or in respect of the treatment, and/or status of the 12.5% share holding in New Federal Incorporated in ESL’s name at all stages between 1999 and 2002.”

At the request of the parties, I heard oral evidence from Mr Kelly, a partner in TW, Mr Laing and Mr Ian Watson, who effectively owns Burkle. This evidence was given based on brief witness statements but was supplemented by a considerable amount of oral evidence. Again, with the agreement of the parties, a significant amount of the additional evidence was given in chief. Although I would be no advocate of a general return to the former practice of witnesses giving substantial oral evidence in chief, the procedure worked well in the unusual circumstances of this case.

In the course of the hearing I was referred to a large number of authorities and legal text books in the field of solicitor/client privilege and breach of confidence, the effect of which I summarise later.

Summary of the parties’ contentions. The application was extremely well argued on both sides on the basis of general principle without concentrating wholly on the specific categories of documents set out in the applications or as individual documents. Mr Laing’s case is that the documents (which he believes to be in Mr Kelly’s files) are relevant and disclosable. His case is that Mr Kelly acted for both parties in the 1999 agreement and the 2002 loan agreement, and the proposed 2002 profit share agreement. In these circumstances, no claim for legal professional privilege arises on either side.

The case is also put by Mr Laing on the basis that Mr Kelly had a contractual fiduciary duty to Mr Laing to disclose all the documents relating to the transactions. In this regard, Mr Laing relies on the recent case of Hilton v Barker Booth & Eastwood (a firm). Speeches in the House of Lords were handed down on 3 February 2005. I am invited, in particular, to adopt in Mr Laing’s favour the speech of Lord Walker of Gestingthorpe. Mr Laing seeks to link the cases of solicitor/client privilege with those relating to the existence of a confidential relationship which requires disclosure of the documents.

Burkle resists the application for disclosure because it says that the documents to which the applications relate are subject to legal professional privilege. It argues, as its primary submission, that only Burkle instructed Mr Kelly and TW. Its fallback position is that if at any time Mr Laing did instruct Mr Kelly, this was unknown to Mr Watson and that he and Mr Kelly had separate retainers from each party.

Burkle emphasised that legal professional privilege is absolute and once established cannot be overridden (even in a murder case): R v Derby Magistrates’ Court [1996] 1 AC 487. See the speech of Lord Taylor of Gosforth.

In order to consider the relationship of Mr Kelly with Mr Laing and Mr Watson at any time, it will be necessary to analyse carefully the history as set out in the documents, once I have considered the law.

The law. In two recent decisions, Three Rivers DC v Bank of England (No 6) [2004] 3 WLR 1274 and Hilton v Baker Booth & Eastwood [2005] UK HL 8 decided on 3 February 2005, the House of Lords has given guidance on the nature of legal advice privilege, the prohibition against disclosure of privileged material and the potential consequences of a solicitor acting for two parties with actual or conflicting interests. In their very helpful submissions, Mr Warwick and Mr Marks QC took me through these and a number of earlier decisions.

I summarise the relevant law in a series of propositions:

The Law Society Rules. The current rules relating to solicitors’ retainers are set out in Chapter 12 of the Guide to the Professional Conduct of Solicitors. Rule 12.02 makes it clear that the solicitor is under a duty to observe the rules on conflict of interest.

General rules relating to conflicts of interest are set out in chapter 15. Rule 15.01 warns solicitors that they should not accept instructions to act for two or more clients where there is a conflict or significant risk of a conflict between the interests of those clients. It goes on to say that even if an actual conflict of interest exists and is disclosed to the client and the client consents, the solicitor, in certain circumstances, must not accept the instructions.

Rule 15.02, paragraph 4, states:

“Where a solicitor has acted for both lender and borrower in the making of a loan, the solicitor should not subsequently act for the lender against the borrower to enforce repayment if the solicitor has obtained relevant confidential information eg of the borrower’s financial position, when acting for the borrower in connection with the original loan.”

Rule 15.03 deals with conflicts arising between two or more current clients. Paragraph 1 of the rule provides that:

“If a solicitor has already accepted instructions from two clients in a matter, or related matter, and a conflict subsequently arises between the interests of those clients, the firm must usually cease to act for both clients. A solicitor may only continue to represent one client if not in possession of relevant confidential information concerning the other whilst acting for the other.”

Rule 13 deals with general client care, but not specifically with potential or actual conflicts of interest.

Recent decisions of the House of Lords set out clearly the dangers of solicitors acting for two parties in circumstances where there is an actual or potential conflict of interest, and also in being involved in a transaction where they do not make sufficiently clear to each party their relationship with that party and with the other party. This can lead to considerable confusion and difficulty. The current position may need to be spelt out more clearly in the new edition of the Guide to the Professional Conduct of Solicitors.

Whatever the outcome of this case, the facts demonstrate the necessity for a solicitor to obtain the written agreement both parties before agreeing to act for them both. This rule should apply equally whether the solicitor is acting for a client for the first time or has acted for the client as previous occasions. The written agreement should set out in detail the nature and scope of the retainer.

The Background. Before the events with which I am primarily concerned which start in October 1999, Mr Laing had instructed TW (formerly Taylor Walker) as his solicitors on about 20 occasions over the previous 10 years. Some of these instructions related to personal and some to business transactions.

When he instructed TW he frequently instructed Mr Kelly, a partner in the firm, whom he found particularly helpful in property transactions. Mr Kelly, who was admitted as a solicitor in 1979, became a partner of the firm in 1984. He is an experienced solicitor.

In the previous 18 months, from 20 April 1998, the firm had been involved in a number of matters for Mr Laing, including drafting a statutory declaration relating to Mr Laing’s son, Ben, carrying out land searches, and correspondence relating to a bank guarantee. On occasions in the past Mr Laing telephoned Mr Kelly to inform him of a possible venture which might lead to instructions to Mr Kelly to give legal advice and to act for him in the transaction. Mr Kelly agreed that, as he put it, the fact that he opened a file did not mean, necessarily, that it was going anywhere. One such occasion related to the sports centre site at Glory Mill, Wooburn Green, High Wycombe (Glory Mill). This was the start of what would have been a different project at Glory Mill to the one with which I am concerned. Mr Kelly opened a general file headed “Laing”.

In relation to Glory Mill, it is not clear whether the 1998 enquiry was active in the sense that Mr Kelly was receiving instructions to advise or whether Mr Kelly was simply being kept informed, but in any event this occurred only between April 1998 and June 1998. The project did not proceed. It is not clear whether during those few months Mr Kelly, in fact, gave Mr Laing any legal advice. The file was also used later by Mr Kelly as Mr Laing’s file in relation to the matters which are the subject of this dispute.

Mr Laing and Mr Ian Watson have known each other for at least 25 years and, in respect of at least one project, are still business partners. Mr Laing is an architect who is still in practice. Mr Watson is a chartered accountant who at least prior to his retirement in the year 2000 was a sole practitioner. He regularly instructed two other firms of solicitors on a professional and personal basis. On two or three occasions he had instructed Mr Kelly in connection with projects which he had undertaken in conjunction with Mr Laing.

Between 1975 and 1999, Mr Watson and Mr Laing had worked together on about eight development projects. Each had been involved in the other’s projects. Mr Laing had been involved in Mr Watson’s development projects. Mr Watson had invested in two property developments in which Mr Laing had taken the lead. They are and have been, for a number of years, co-directors of Wheathampstead Land Company Limited (Wheathampstead).

In August/September 1999, Mr Laing introduced Mr Watson to an opportunity to invest in a new development project at Glory Mill. A company called New Federal Inc was incorporated in the British Virgin Islands on l6 July 1999. This company was to purchase the site. Mr Watson was one of those approached to invest in the project. Mr Watson became interested in investing £500,000. The original idea was that he would make a personal loan to Mr Laing in that sum, repayable in two years at an interest rate of 12.5% per annum, payable quarterly in arrears. Mr Laing would provide security for the loan in the form of his shares in two companies. In addition, Mr Watson would receive a 12.5% profit share in the Glory Mill project.

Mr Watson said that he was told that in relation to the project McBride Wilson (MBW) had been instructed as solicitors. The sole principal of the firm was and is Ms Sandra Krywald.

There is no dispute that in the course of a number of conversations, during which Mr Watson’s participation was agreed, Mr Watson and Mr Laing agreed that the arrangements for Mr Watson’s loan would be handled by Mr Kelly at TW and that TW would act as Mr Watson’s solicitors in relation to the loan agreement.

The issue I have to decide is whether Mr Laing also instructed Mr Kelly in relation to the loan agreement and, if so, when, and if he did instruct Mr Kelly whether those instructions were given jointly with Mr Watson or severally. Even if they were joint instructions, I would have to consider the ambit of the joint instructions and whether they could be said to extend, as Mr Laing contends, to all advice which Mr Kelly gave Mr Watson in relation to the loan agreement or whether they were limited in some way.

On 18 October 1999, Mr Watson wrote a handwritten fax setting out that the loan agreement would be made by his company, Burkle. It noted that the interest rate would be 12.5%, that the guarantee would be a personal one binding on Mr Laing’s estate and it listed the security. The fax was copied to Mr Kelly. Mr Kelly said in evidence that it was the first he had heard of the transaction. This is not surprising because it appears that the project had been on and off over the previous weeks.

Mr Kelly spoke to Mr Laing that day. He was clear in his understanding as to his part in the transaction which was to be very limited, “Taylor Walton will therefore only be involved in connection with providing a reference for David (Laing) and advising Ian (Watson) as to his investment”. The note ended, “David will drop me a line to confirm instructions”.

The file was a continuation of the firm’s “Laing” file. Mr Kelly explained that at that stage, for all he knew, he might have had to refer back to the earlier aborted project at Glory Mill. In the event, the early history was of no relevance.

Mr Kelly’s firm was not to be involved in the legal work for the formation of the new company which would then acquire the site. This work was to be handled by MBW.

Also on 18 October 1999, Mr Laing wrote to Mr Kelly setting out the terms of the loan. The letter makes no mention of Mr Kelly being instructed to act on Mr Laing’s behalf. Originally, Mr Kelly gave evidence that he assumed that the letter constituted instructions to act for Mr Laing in relation to the guarantee, but his oral evidence became more tentative: “I thought at some stage I might be involved in relation to the guarantee”.

Mr Watson maintained that at all times Mr Kelly was acting for him and his company, Burkle, and that when Mr Kelly was writing to Mr Laing he was writing on Mr Watson’s behalf to keep Mr Laing informed. It is significant that there is no document evidencing that Mr Kelly was receiving instructions to give legal advice on behalf of Mr Laing, either in correspondence or in file notes of telephone calls.

It is clear that in accordance with the telephone conversation between Mr Laing and Mr Kelly, on 18 October 1999, Mr Sanders, Mr Laing’s partner in his architect’s practice, organised the reference for Mr Laing which Mr Kelly gave on 20 October 1999.

Also on 20 October 1999, Mr Kelly replied to Mr Laing’s letter dated 18 October 1999. He wrote as follows:

“I note the terms of Ian’s loan – you mentioned to me on the telephone that McBride Wilson would be dealing with the formation of the company to take the purchase, as well as dealing with the purchase itself. I presume, therefore, that my involvement will be to act for Burkle in connection with the loan to the new company.”

This was a clear attempt by Mr Kelly to clarify his position in relation to who his client was. Although Mr Kelly now says in evidence that he thought he was acting for both parties, this letter suggests that his clear understanding at the time was that he was acting only for Burkle and wanted Mr Laing to confirm that this was the case.

On 21 October 1999, Mr Laing replied to Mr Kelly answering two other questions which Mr Kelly had raised in his letter of 20 October 1999. Mr Laing did not attempt to correct or even to comment on Mr Kelly’s understanding of the scope of his involvement which he had set out in his letter of 20 October 1999. I have no doubt that if Mr Laing had disagreed with Mr Kelly’s interpretation of his instructions, he would have said so in this letter.

On 20 October 1999, Mr Kelly had written a short letter to Mr Watson as follows:

“I enclose a copy of the letter which I have received from David relating to the above [It is agreed that this letter is Mr Laing’s letter dated 18 October 1999 setting out the details of the loan.] and would be grateful if you could confirm instructions to me to act for Burkle in connection with the loan agreement. I understand from David that McBride Wilson will be dealing with the formation of the new company to purchase the site, as well as with the purchase itself.”

There is no reference in the letter from Mr Kelly to him or him being retained to advise Mr Laing in relation to the transaction. Mr Kelly said in evidence that nothing much should be read into that. He also emphasised that he had received the letter from Mr Laing, dated 18 October 1999, and that he had treated that letter as instructions to advise Mr Laing in relation to the guarantee. If this was indeed the case it is surprising that Mr Kelly made no reference to it in correspondence or attendance notes. I reject his evidence on this point.

Mr Watson said, and I accept his evidence, that he had no idea that Mr Laing was instructing Mr Kelly in relation to the loan agreement. Mr Watson confirmed by telephone Mr Kelly’s instructions to act for Burkle.

On 22 October 1999 Mr Kelly wrote to MBW, with a copy to Burkle. The letter said that Mr Kelly’s firm was instructed to act for Burkle which was to lend £500,000 to the special purpose vehicle in connection with the purchase of the site at Glory Mill, High Wycombe. The letter noted that Mr Laing was to give a guarantee to Burkle. “This guarantee is something that will be dealt with between the parties and will not involve yourselves.” Mr Kelly said in evidence that he meant to convey by this that the question of the guarantee to Burkle was not something that needed to concern MBW or their clients.

There is then a gap in the correspondence. It appears that the basis of Mr Laing and Mr Watson’s participation in the project changed. I have two versions of a file note dated 22 November 1999 of a telephone conversation between Mr Kelly and Mr Watson. The one on the Laing file, in the redacted form in which I have it, relates to a delay in the completion date for the purchase of the site. The one on the Watson file was disclosed in the course of the trial. It said that it was a note of a telephone conversation with Mr Watson and concerned a change in the financial arrangements relating to Mr Laing. There is a gap in the redacted note which I presume is claimed to relate to legal advice given by Mr Kelly to Mr Watson relating to the proposed change. The note then continues:

“Agreeing with him that it was therefore not necessarily a guarantee document that needed to be drawn up, but instead a simple loan agreement between Burkle and David [There is then another redacted passage and the note goes on] arranging I would prepare a draft loan agreement and send it to him and David for consideration tomorrow.”

As a result of the conversation with Mr Watson, Mr Kelly dictated a letter on the following day, 23 November 1999, which was sent out on 24 November 1999.

It must be borne in mind that it is sent following Mr Watson’s instructions. The letter says:

“... Ian, however, tells me that as far as he is concerned it is a loan to you to enable you to participate in the joint venture and so, therefore, I need not be concerned with the purchase of the land itself ...

I have prepared and am faxing to Ian, at his suggestion, a draft loan agreement to be entered into by you, with Burkle Holdings, and a copy of this is enclosed to you for your information. I trust that this accurately reflects the terms which you set out in your letter to me of 18 October but no doubt you will let me know if you have any queries or comments.”

In other words, Mr Kelly was saying that the draft loan agreement was being sent to Mr Watson as the client and to Mr Laing for his information.

Mr Kelly conceded in the course of his evidence that up this stage he was acting for Burkle and had no client relationship with Mr Laing, but he said that it was at this point that matters changed and he was thereafter acting for both parties. This, of course, was a change from his position at the start of the trial. If there was to be a change of position, at this stage, it was not explained to Mr Watson who continued to be under the impression that Mr Kelly was acting solely for him and Burkle.

Mr Kelly agreed in evidence that he did not send Mr Laing a client care letter but said it was not necessary because he had acted for Mr Laing on many occasions in the past.

Mr Kelly dictated a separate letter to Mr Watson on 23 November 1999. He said in evidence that he wrote separate letters to Mr Laing and Mr Watson as a matter of courtesy. Whereas in the letter to Mr Laing he made no reference to a solicitor/client relationship, he said in the letter to Mr Watson that he was expecting to be involved in connection with the terms of the loan by Burkle Holdings to the SPV Companies purchasing the site. This made it clear to Mr Watson that Mr Kelly would be giving legal advice to Burkle.

The letter to Mr Watson went on:

“As discussed, I have prepared and enclose for your consideration a draft loan agreement and am sending a further copy to David. Please let me know if you have any thoughts or comments on this draft.”

Mr Kelly sent out copies of the loan agreement to both Mr Watson and Mr Laing on 24 November 1999. The covering letter was addressed to Mr Watson and copied to Mr Laing.

A further version was sent out on 25 November 1999. This incorporated comments made by Mr Watson as Mr Kelly made clear in a fax to Mr Laing:

“Further to my earlier fax of today’s date, Ian has rung me with one or two comments on the draft. I have prepared a revised draft which is enclosed, together with a copy of the covering letter which I am faxing to Ian today.

I understand that you are meeting Ian tomorrow and I look forward to hearing from you, or him, further as to the final information to complete the document.”

It is said by Mr Laing that Mr Kelly would not have sent the letter to him if Mr Kelly had been acting for Mr Watson alone. This letter was not copied to Mr Watson.

On 25 November 1999, Mr Laing and Mr Watson met at Mr Laing’s house. They discussed amendments to the loan agreement and then they both telephoned Mr Kelly. Mr Kelly said that the purpose of the telephone call was to tell him what amendments were needed so that he could draft a document on which they were both agreed. The note makes it clear that Mr Kelly would need to speak to Ms Krywald at MBW on the question of whether he could agree to Mr Kelly saying that Mr Watson would be charging such of the assets as were in his name and procuring the charging of any assets not in his name. Mr Watson said that, although he did not know the position, he thought that Ms Krywald was acting as Mr Laing’s solicitor.

On 26 November 1999, Mr Kelly reported to Mr Watson by letter. I have seen a copy of this letter in a redacted form but not a parallel letter sent to Mr Laing. It would appear from the letter to Mr Watson that Mr Kelly sent Mr Lang an engrossment of the loan agreement. There is a passage in the letter to Mr Watson which is redacted.

Mr Kelly wrote to Ms Krywald at MBW on 1 December 1999. The letter says explicitly:

“As you know we are acting for Burkle Holdings Limited who are advancing David Laing the sum of £500,000 to enable him to provide his share of the purchase money.”

There are further references in the letter to “our client”, clearly meaning Burkle. There are no references to Mr Kelly acting for Mr Laing. Mr Kelly said in evidence that there was no reason to keep the information that he was acting for Mr Laing confidential. On the other hand, he said that there was no need to mention Mr Laing since the letter was concerned with the acquisition of the site, not the arrangements between Mr Laing and Mr Watson as to how it was to be financed.

On 1 December 1999, Mr Laing gave Ms Krywald the information which he had been asked to provide. He referred to Mr Kelly as Mr Watson’s solicitor. Mr Laing agreed in cross-examination that he was identifying to Ms Krywald that Mr Kelly was indeed Mr Watson’s solicitor. He agreed that there was nothing in the letter to indicate to Ms Krywald that Mr Kelly was also acting as his, Mr Laing’s, solicitor.

There was further correspondence between Mr Kelly at TW and Ms Krywald at MBW in the course of which Mr Kelly consistently identified Burkle (Mr Watson) as his client.

The contractual completion date was 3 December 199: The actual completion date was 15 December 1999. Mr Kelly wrote to Mr Watson a letter dated 10 December 1999 setting out the arrangements for completion. Mr Kelly needed the loan agreement also to be signed before completion in order that the finance would be in place before the purchase date.

On 10 December 1999, Mr Kelly wrote a chasing letter to Mr Laing asking him to sign his copy of the loan agreement. The defendant says that the second paragraph of the letter can only be explained on the basis that Mr Kelly was giving Mr Laing legal advice. That is not how I read it. In order to provide what he regarded as adequate security, Mr Watson had amended paragraph 4 of the schedule to the loan agreement to refer also to Mr Laing’s shareholding in New Federal Inc BVI. Mr Laing was merely being asked to make the identical amendment.

Mr Laing responded to Mr Kelly on the same day, having first spoken to Mr Watson, and agreed with him that there could be a reduction in his holding in one of his companies which needed to be included as security. The defendant says that Mr Kelly was to hold the share certificates on Mr Laing’s behalf prior to completion and this could only be because he was acting as Mr Laing’s solicitor.

The mechanics of the transaction were not explored in detail in cross-examination. At most, Mr Kelly was acting for Mr Laing to the limited extent that he was holding the security to his order pending completion. This was a practical step. It does not mean necessarily that he was acting for Mr Laing for any other purpose.

On 14 December 1999, Ms Krywald confirmed receipt of the funds for completion and said she hoped to complete the sale and purchase of the Glory Mill site on the following day. In fact, it was not completed until 23 December 1999. In the course of a telephone call to Ms Krywald, Mr Kelly said, in relation to the delay: “My clients would want interest on the money.” Mr Kelly made it clear in evidence that by “my clients” he meant Burkle.

On 24 December 1999, Mr Kelly reported to Mr Laing that he did not know whether completion had taken place and would write again in the New Year. Mr Kelly sent a letter in similar terms to Mr Watson but added that he had told Ms Krywald that Burkle would require interest to be paid on a daily basis. Apart from the reference to interest in the letter to Mr Watson, there was nothing in the letters which was referable to Mr Kelly acting in the capacity of a solicitor.

On 4 January 2000, in separate letters, Mr Kelly told both Mr Kelly and Mr Watson that the completion had taken place on 23 December 1999. He said that he had dated the loan agreement with the date of completion and enclosed a copy of the agreement with the letter.

The letter to Mr Laing went on to say that Mr Watson had told Mr Kelly that Mr Laing was to be responsible for Mr Kelly’s costs. He enclosed a fee note with the letter. Mr Laing relies on this letter as demonstrating a solicitor/client relationship. Mr Kelly said in evidence that it is not his practice to report to people who are not his clients. It may not be his normal practice but this was a well recognised circumstance in relation to loan agreements, namely that the borrower pays the lender’s costs. Such a communication does not necessarily connote any solicitor/client relationship: see also Peter Gibson J in Re Konigsberg (a bankrupt) [1989] 3 All ER 289 at 293.

The invoice is addressed to Burkle Holdings. I was told that it included fees not only relating to the formal drawing up of the loan agreement, but also to time spent giving Mr Watson independent legal advice in relation to the loan agreement. There is no reference in the fee note to Mr Laing. Mr Kelly did not send Mr Laing a separate fee note.

In evidence Mr Kelly was asked, “Did you do any work for Mr Laing in relation to the loan agreement?” He answered, “Well in the sense that I was acting for both parties jointly, yes I did”.

Mr Kelly went on to say that it was not his normal practice to act for both lender and borrower in a substantial loan transaction. He said he could not ever recall doing so on another occasion. He went on:

“... in the context of this transaction I regarded my role as to draw up a document to reflect what the parties had agreed between them. I would have had some difficulty advising either of them as to anything in particular in relation to the document. I was simply, if you like, preparing a document to serve the purposes of the parties who wanted a document drawn up to record an agreement reached between them.”

I have difficulty in evaluating this answer. Burkle’s case is that Mr Kelly did give Mr Watson independent legal advice in relation to the loan agreement. I have not seen the redacted parts of the documents so I can only proceed in this judgment on the basis that Mr Kelly was giving Mr Watson legal advice, in respect of which he was entitled to claim privilege (unless Mr Laing’s contentions succeed). In due course it may be necessary to see the individual documents, to see if that claim is well-founded.

I raised the possibility of reviewing the documents in the course of this hearing but Burkle preferred to deal with the matter without my seeing the documents, or parts of the documents, for which privilege is claimed. Counsel for Mr Laing did not press the point.

Also on 4 January 2000, Mr Kelly wrote to Mr Watson; part of the letter is redacted.

On 29 March 2000, Ms Krywald advised Mr Kelly of a shareholders’ meeting for New Federal Inc which was to take place on 18 April 2000 and noted that Mr Kelly would be representing Burkle at the meeting.

Mr Kelly wrote on 31 March 2000 to Mr Watson, with a copy to Mr Laing, saying that he had had no instructions from either of them for him to represent one or both of them at the shareholders’ meeting. This was the first time that Mr Kelly had raised the possibility with Mr Watson that he might represent Mr Laing for some purpose connected with the loan transaction.

On 26 June 2000, MBW wrote to Mr Watson enclosing a second draft of the shareholders’ agreement as amended. Ms Krywald said:

“I was informed by David Laing that I might hear from you or your lawyer (ie TW) to effect an alteration to the ownership of the shares.”

Mr Watson replied to Ms Krywald indicating the change in his shareholding. On 31 October 2000, Mr Kelly wrote to Ms Krywald on the matter in his capacity as Mr Watson/Burkle’s solicitor.

Repayment of the loan was due on ₃rd December 2001. In October 2001 Mr Laing and Mr Watson entered into discussions as to what to do next. There is no reference in the documents before me that these involved Mr Kelly, acting for either party, until March 2002.

Mr Laing wrote a letter to Mr Watson dated 31 October 2001, but endorsed as having been received by fax on 19 November 2001. The last paragraph of the letter says:

“Repayment of the loan is, of course, due on 3 December 2001 when the NFI shares will revert to me and although all the security will fall in on repayment of the loan, it would be of assistance to me to have the other shares released at this juncture.”

Mr Watson replied on 26 November 2001 that interest on the loan had not been paid since April 2001 and that Burkle was reluctant to draw on the security.

Mr Laing and Mr Watson met on 5 December 2001. There is a handwritten note of the meeting signed by Mr Watson, but not by Mr Laing. Mr Laing seems to have been involved, in spite of discussions, about which Mr Laing wrote to Mr Watson on 12 December 2001.

Mr Laing and Mr Watson continued to meet and on 11 March 2002 Mr Watson sent a handwritten note to Mr Laing: “I enclose a draft from our discussion last week. Have you any comments before I send to Mike Kelly?” The note enclosed handwritten heads of agreement for a new loan agreement. Mr Watson was clear in his evidence that he regarded Mr Kelly as acting as his solicitor.

Mr Laing sent the fax to Ms Krywald endorsed, “Sandra, please review and call me asap. I think this now looks okay”. In evidence, Mr Laing insisted that Ms Krywald was not advising him in relation to the proposed loan agreements. If that was not the case, it was not explained in what capacity she was advising him. I conclude that Ms Krywald was being asked by Mr Laing to give him legal advice.

Mr Watson sent a handwritten fax to Mr Kelly on 18 March 2002. Part of the fax is redacted. The fax is signed by Mr Watson for Burkle. It says:

“We have now agreed to separate the loan from the profit share as per enclosed drafts. Could you please draw up the documentation with costs to David.”

This is clearly an instruction to Mr Kelly to act in the capacity of Mr Watson’s solicitor.

Mr Kelly replied to Mr Watson very promptly on 19 March 2002. At the start of the hearing I saw a copy of the response in its redacted form. In the course of the hearing the claimant agreed to waive any privilege to the document for the purposes of this hearing.

Mr Kelly wrote that he was sending drafts of two separate agreements to be entered into with Mr Laing by Burkle and European Securities Limited. In the part of the letter which was originally redacted he set out various queries. Some of these could be said to be simply amplifications of instructions which Mr Kelly had been asked to reduce to terms in an enforceable agreement. There are two passages which Burkle says amounts clearly to legal advice. The first (paragraph 2.3) relates to an additional payment by Mr Laing if the share is not paid in full by 3 December 2002. Mr Kelly advises Mr Watson that this may be regarded as a penalty which would not be legally recoverable. The second passage (paragraph 2.5) advises that there is no need for Burkle to assign its interest in the property to a third party.

Mr Kelly maintains that he was acting for both parties and that he only raised the point to make sure that the agreement worked. When asked whether he sent the advice to Mr Laing, Mr Kelly said that he did not see the point in troubling him with these technical points.

Later, on the same day, 19 March 2002, Mr Kelly spoke to Mr Watson who confirmed that he had received Mr Kelly’s fax. Most of the note of the conversation is redacted. Mr Kelly told Mr Watson that he was sending Mr Laing copies of the amended agreements to read through.

Mr Kelly did this on the following day. He said to Mr Laing:

“I enclose for your information copies of the draft agreements which I have prepared on Ian’s instructions …”

The letter refers without comment to the additional £125,000 which was to be paid if the loan was not repaid by 3 December 2002. The letter also notes that:

“Ian (Watson) says that you are to be responsible for any costs in preparing these agreements and so I have provided for this in the final clause in each agreement.”

Mr Kelly ends the letter by asking if Mr Laing has any queries and notes that he, Mr Laing, must get back to him if he wishes to progress matters before Easter. Mr Laing relies on the last sentence of the letter as evidence that he was in a solicitor/client relationship with Mr Kelly. I do not agree.

On 2 May 2002 Mr Watson had a meeting with Mr Kelly. On 3 May 2002 Mr Kelly wrote to him with a copy of Burkle’s loan agreement for his signature. On 3 May 2002, Mr Kelly also wrote to Mr Laing saying that he had heard from Mr Watson that Mr Kelly was happy with the agreements in the form in which they had been sent to him on 20 March 2002. The letter explains the mechanics of signing and witnessing the agreement. Mr Laing contends that this looks like a solicitor’s letter to his client. Mr Watson says that it is consistent with Mr Kelly writing to someone who is not his client to explain the formalities. I prefer Mr Watson’s explanation.

On 27 June 2002, Mr Laing wrote to Ms Krywald explaining that, as Mr Laing had wanted all along, Mr Watson had now invested in New Federal. He noted that he had had useful conversations with Mr Watson but made no mention of receiving advice from Mr Kelly.

On 3 September 2002, Mr Watson wrote to Mr Kelly. Part of the letter is redacted. The part that is not asked Mr Kelly to write to Mr Laing requesting a signed copy of the agreement for the period ending on 3 December 2002 if he had not received it already. Mr Kelly wrote to Mr Laing on 4 September 2002.

Mr Laing returned the signed agreement to Mr Kelly with an accompanying letter dated 12 September 2002.

On receipt of this letter, Mr Kelly wrote to Mr Laing on 13 September 2002 suggesting for the first time that he might be acting for both Mr Laing and Mr Watson. Rather surprisingly, he did not write to Mr Watson in similar terms. The problem arose because Mr Laing had endorsed the advance as being £400,000, whereas Mr Watson wanted the figure to be £442,000 to reflect the fact that no interest payment had been made on the original advance.

Mr Kelly went on:

“I do not think I can complete the agreement until this point has been resolved between you and Ian and, as I am acting for you both, I cannot get involved in advising either of you in this connection.”

He suggests that Mr Laing and Mr Watson get together to discuss the position.

The statement that Mr Kelly could not draw up an agreement, unless Mr Watson and Mr Laing were in agreement, does not indicate that Mr Kelly was acting for both parties. It was a prerequisite to there being an agreement at all.

It appears that Mr Watson did not see this letter until much later. He said, and I accept it, that he had no idea that Mr Kelly might be acting for Mr Laing in relation to the transaction. It is very surprising that Mr Kelly did not send a copy of this letter to Mr Watson/Burkle at the time.

Mr Kelly said in evidence that he was getting conflicting signals and he had to tell the parties to resolve the matter before he could complete the document. As a simple matter of contract, he could not complete the draft document until each party had agreed the terms.

Mr Kelly wrote again to Mr Laing on 17 September 2002 saying that Mr Watson told him to put a figure of £442,000 in the agreement “and if you do not agree this figure, you will have to take it up with him direct …”

Mr Laing and Mr Watson discussed the problem on 18 September 2002 and Mr Laing telephoned Mr Kelly to say that it had been resolved.

On 19 September 2002, Mr Kelly wrote separate letters to Mr Laing and Mr Watson, enclosing copies of the loan agreement with the amendment. He also sent Mr Laing a fee note.

On 17 October 2002, Mr Kelly had a 15 minute conversation with Mr Watson. The whole note of the conversation is redacted. I assume that privilege is claimed because, despite his stated reluctance to do so, Mr Kelly was giving Mr Watson independent legal advice.

On 10 December 2002, Mr Watson sent Mr Kelly a note by fax. It is entitled “David’s loan”. The note is redacted. On 16 December 2002, Mr Watson sent Mr Kelly a note by fax which is similarly headed and similarly redacted. Mr Kelly responded by fax on 18 December 2002. This note is also redacted.

Events moved towards the crystallising of the dispute between Mr Laing and Mr Watson in early 2003. Mr Laing wrote to Mr Kelly on 28 January 2003 enclosing a copy of what he understood was the current loan agreement between Burkle and himself. He asked if Mr Kelly had any other signed agreement.

Mr Kelly replied on 30 January 2003 confirming that the copy agreement which Mr Kelly had sent was indeed the final agreement. He went on to explain that:

“The proposed agreement with European Securities was indeed, so far as I am aware, never proceeded with. Ian (Watson) told me on 2 May that it was not to be proceeded with and I was to go ahead only with the agreement with Burkle Holdings.”

This is said by the defendant to amount to the giving of legal advice to Mr Laing. I do not agree. This is consistent with Mr Kelly setting out the factual position.

On 3 February 2003, Mr Laing wrote to Mr Kelly setting out his understanding of the loan agreement. He said that the loan had been reduced to £400,000 in 2002, subject to interest being up to date. This letter was copied by Mr Laing to Mr Watson. I have seen no evidence that Mr Kelly responded to Mr Laing with legal advice. Mr Laing has waived any privilege in respect of all his correspondence with Mr Kelly.

On 14 February 2003, Mr Laing wrote to Mr Watson. (It appears to have been sent by fax on the morning of 17 February 2003.) In the course of the handwritten note he said that in relation to the dispute over the value of Glory Mill he had consulted both Mr Kelly and Ms Krywald to confirm the factual position at the time when the shares were issued.

Mr Watson sent two handwritten faxes on 17 February 2003. The first was to Mr Laing asking what shares had been issued to him in 2002. The second was to Mr Kelly:

“Can you please explain to me the exact basis of your advice to David (Kelly) that the agreement of 23-12-99 lapses on the issuance of shares purported to have been made to me last year?”

The fax to Mr Kelly could only have been written on the basis that Mr Watson knew, or at least thought, as a result of the 14 February 2003 letter that Mr Kelly was currently giving legal advice to Mr Laing.

On 24 February 2003, Mr Laing telephoned Mr Kelly to enquire what the position would be in the event of a dispute between him and Mr Watson. Mr Kelly said that TW could not act for either party. Mr Kelly told Mr Laing about the contents of the letter which he had faxed to Mr Watson on the previous Friday.

Mr Kelly wrote to Mr Laing on 7 April 2003, perhaps in response to a fax sending on to him a letter from Linklaters dated 3 April 2003. The letter relating to the shares in Eskmuir Properties makes it clear that Mr Kelly is holding the share certificate on behalf of Burkle and that Mr Kelly needs Mr Watson’s instructions before releasing the share certificate.

Also on 7 April 2003, Mr Kelly sent Mr Watson a letter by fax, the contents of which are redacted. It would appear from the documents that by this stage Mr Kelly was becoming thoroughly confused in his professional relationship with Mr Watson and Mr Laing, although there is no evidence that he was giving joint legal advice to Mr Watson and Mr Laing.

On 8 April 2003, Mr Kelly wrote to Linklaters confirming that he held the shares in Mr Laing’s name and that he would forward the share certificates on receipt of the proceeds of sale of 100,000 shares. The letter was copied to Mr Laing. Also on 8 April 2003, Mr Kelly sent Mr Watson another letter by fax, the contents of which are redacted.

On 9 April 2003, Mr Kelly telephoned Linklaters to explain that the difficulty was the share certificate was not held by Mr Kelly to Mr Laing’s order but to the order of the company to whom it was charged by Mr Laing.

On 14 April 2003, Mr Laing sent an e-mail asking Mr Kelly to confirm his understanding regarding the payment of interest on the money outstanding at that time. Mr Kelly was on holiday and matters were dealt with by his assistants. One of those assistants, Ms O’Connell, seems to have taken the lead. The two assistants said that having looked at the loan agreement, interest was payable on the basis of simple interest and not on a compound basis.

Mr Laing was then told that Herbert Smith, who were acting for Eskmuir, asked Mr Laing if he would agree to an undertaking being given on his behalf, that TW would release the share certificate within 48 hours of receipt of funds of £285,000 into TW’s client account.

It is said that this amounted to TW giving advice concerning Mr Laing giving his undertaking. I do not understand this to be the case unless TW also advised Mr Laing as to whether or not he should give the undertaking. I am rather more concerned with the advice which the two fee earners at TW gave relating to their interpretation of the loan agreement. It was plain that there was a potential dispute between Mr Laing and Mr Watson and that TW was certainly acting for Mr Watson and Burkle in relation to the loan agreement. Even so, they appear to have been giving legal advice to Mr Laing.

On 16 April 2003, Ms O’Connell advised Herbert Smith that Mr Laing had instructed her to give the appropriate undertaking. Ms O’Connell also wrote a formal letter confirming the solicitors’ undertaking. This, of course, could only have been given on the basis of a solicitor/client relationship.

On 17 April 2003, Mr Watson sent a fax to Mr Kelly asking for advice in writing relating to Mr Laing’s loan. The nature of the advice which he requested is redacted.

Mr Kelly, back from a short holiday, replied to Mr Watson on 22 April 2003. He said that while he was away the previous week, his assistant was in communication with Mr Laing about the receipt of funds for the sale of Mr Laing’s Eskmuir shares. Mr Kelly said that as soon as he received the funds he would place the money in Burkle’s account. There followed a redacted part of the letter, which I assume answered points in Mr Watson’s fax.

TW received the funds on 22 April 2003. On 23 April 2003, Mr Kelly reported to Mr Laing that he had sent the share certificate from Eskmuir to Herbert Smith and had accounted to Burkle for the proceeds. The letter is headed “Our client – Burkle Holdings Limited loan agreement”.

The letter enclosed a fee note expressed as an invoice to Burkle, payable by Mr Laing. It makes no reference to any legal advice having been given to Mr Laing. As I understand it, as before, TW did not send Mr Laing a separate fee note.

It is clear that on 14 April 2003, Mr Laing asked for legal advice on his liability for interest under the loan agreement and that on 16 April 2003 he received legal advice. There is no suggestion this was done with the knowledge and consent of Mr Watson. Indeed, it is apparent from the limited evidence that I have seen that the question of interest was a matter of contention between the parties and it is somewhat surprising that Mr Kelly was giving legal advice to Mr Laing in relation to it.

On 12 May 2003, Mr Watson wrote a fax to Mr Laing, copied to Mr Kelly, on the question of whether interest should be calculated as simple interest or compound interest. After further correspondence, Mr Laing wrote a letter to Mr Watson, copied to Mr Kelly, accepting the calculation.

This left the sum of £100,000 outstanding which is the substance of the present dispute. On 29 May and 29 July 2003 Mr Kelly had telephone conversations with Mr Watson. They are headed “Advice re loan agreement”. Their contents are redacted.

On 30 July 2003, Mr Kelly wrote to Mr Laing suggesting that the balance which he had asserted was still owing to Burkle should be settled out of the proceeds of sale on completion of the sale of Mr Laing’s house, then on the market for £4.5 million.

Mr Watson asked Mr Kelly to take action to recover the money, which he contended was still due under the loan agreement. Mr Kelly said that it would be better if Mr Watson went to other solicitors because he (Mr Kelly) had a conflict of interest. He also said that he was acting for Mr Laing on the sale of his house.

In evidence Mr Watson said that this was the reason why he instructed Sherringtons in these proceedings. Having done so, he then discovered that Mr Kelly was acting for Mr Laing in this dispute. Mr Watson said that he was surprised at this, particularly in view of Mr Kelly saying that in the event of a dispute arising on the loan agreement, he could not act for either side. I can only comment that I share Mr Watson’s surprise.

On 8 September 2003, Sherringtons wrote on behalf of Burkle to make a formal demand for the £100,000 plus interest which Burkle claimed to be outstanding on the loan.

On 10 September 2003, Mr Kelly discussed the demand with Mr Laing. He seemed to be suggesting that the demand was a valid demand but that payment would be made out of the proceeds of sale of Mr Laing’s house, with completion expected to take place on 15 December 2003.

On 11September 2003, TW wrote to Sherringtons saying that in view of the completion date Mr Laing sent a postdated cheque for £100,000, dated 16 December 2003, which was forwarded with the letter. A copy of this letter was sent to Mr Watson by Sherringtons. He said that he was extremely surprised to see that Mr Kelly was acting for Mr Laing.

On 29 September 2003, Sherringtons responded that Burkle was prepared to wait until 15 December 2003, provided that Mr Laing agreed to pay the principal sum of £100,000, together with interest and costs. The dispute continued.

In due course, Addleshaw Goddard were instructed by Burkle and Mr Watson, and MBW by Mr Laing. There was considerable correspondence between solicitors. By letter dated 7 April 2004, Addleshaw Goddard, on behalf of Mr Watson/Burkle, wrote to MBW, acting on behalf of Mr Laing. In the course of the letter, Addleshaw Goddard wrote:

“3.

Our client would also like to place on record his objection to the inference raised in your second paragraph that our client improperly came by the letter of 18 October 1999 (with reference to Mr Laing’s proposed guarantee). First, your client relayed the joint instructions of our client to TW …”

It was originally suggested that this amounted to an admission that Mr Kelly received joint instructions in relation to the loan agreement in the form in which it was proposed in September/October 1999 and thereafter. On the facts as I have found them Mr Kelly did not receive joint instructions in 1999 and thereafter.

There was further correspondence between Mr Kelly and Mr Laing on 7 April 2004. In the course of the letter Mr Laing Mr Kelly said:

“I was acting both for you and Burkle Holdings in the preparation of the loan agreements on the terms agreed between you, and I made it clear to Ian (Watson) last summer that I could not advise him if he wanted to take proceedings against you which is why he instructed separate solicitors at the time.”

On 8 April 2004, in a letter to Addleshaw Goddard, Mr Kelly repeated that he had been acting for both Mr Laing and Burkle/Mr Watson. I do not accept that this is the case. In so far as Mr Kelly’s evidence is inconsistent with the facts as I have found them, largely derived from a study of the documents, I reject his evidence.

In so far as Mr Kelly or Mr Laing’s evidence conflicts with Mr Watson’s evidence I prefer the evidence of Mr Watson.

I must apply the principles of law which I have set out to the facts of this case as they are presently before me. I have to consider: (a) whether there was any retainer between Mr Laing and Mr Kelly in existence at the relevant time; (b) the extent of the retainer; (c) whether, if there was a retainer, it was a joint retainer or a several retainer. I must then consider the question of whether there was a common interest which required the disclosure that has been applied for.

The test of whether or not Mr Laing and Mr Kelly were in a solicitor/client relationship at the relevant time requires me to answer the question of whether Mr Kelly gave Mr Laing advice relating to his rights, obligations or remedies under private law. I am satisfied that in the first period to the end of October 1999 he did not do so. I am also satisfied that the relationship between Mr Kelly, Mr Watson and Mr Laing was established where Mr Watson (Burkle) was Mr Kelly’s client. Mr Laing was kept informed as he needed to be.

In the period up to the making of the 1999 agreement, dated 23 December 1999, Mr Kelly may have asked Mr Laing for comments on the proposed loan agreement, but he did not give Mr Laing any legal advice relating to his rights, obligations or remedies under the agreement.

Mr Kelly was acting for Mr Laing in mid-December 1999 only to the limited extent that he was holding securities to his order pending completion in his capacity as a solicitor. This was separate to the instructions which he was accepting from Mr Watson in relation to the drawing up of the loan agreement and giving advice upon it.

I am satisfied Mr Laing did not have a common interest within the definition in relation to the document held confidential to Burkle and Mr Watson.

If I had concluded that Mr Laing was Mr Kelly’s client at this stage, I should have concluded that Mr Laing and Mr Watson/Burkle had separate retainers and that Mr Laing’s retainer was confined to the mechanical process of drawing up the 1999 agreement. It certainly did not extend to seeing independent legal advice which was given by Mr Kelly to Burkle/Mr Watson.

I am satisfied that the same position applied in the period which followed. In order to have had joint retainers, Mr Watson would have had to have agreed, expressly or by implication, to this position. There was no such agreement, expressly or by implication. Having heard the evidence, I am satisfied that such an agreement could not be implied.

I now consider the period from October 2001 to the execution of the 2002 loan agreement which took place finally on 18 September 2002.

Mr Kelly continued to advise Mr Watson/Burkle. The pattern followed the first agreement. Assuming that the passages in the documents are properly redacted, Mr Kelly continued to give Mr Watson/Burkle independent legal advice. Mr Kelly sent drafts of documents to Mr Laing to see if he had any queries. This does not of itself connote the giving of legal advice, although certain queries may only be answered (if they are answered) by the giving of such legal advice. This question did not arise in March/May 2002 because it does not appear that Mr Laing did raise queries which required to be answered by legal advice. Mr Kelly heard from Mr Watson in a letter dated 3 May 2002 that Mr Laing was happy with the agreements in the form in which they had been sent to him on 20 March 2002. Mr Watson’s meeting with Mr Kelly on 2 May 2002 is covered by legal professional privilege provided on examination of any documents it can properly be claimed.

On 12 September 2002, Mr Kelly wrote to Mr Laing suggesting that he might be being instructed by both sides. He pointed out that he could not complete the 2002 agreement if the parties themselves had not reached agreement. Mr Kelly did not send this letter to Mr Watson, who did not see it until much later. Despite his comment that he was acting for both sides, Mr Kelly does not seem to have given Mr Laing any legal advice in relation to the loan agreement which would establish such a relationship.

On 18 September 2002, Mr Laing and Mr Watson discussed the problem of the amount of the advance to be specified in this loan agreement and resolved it.

After September 2002 it appears that Mr Kelly continued to give Mr Watson independent legal advice. Passages in the documents continue to be redacted. I have seen no evidence that Mr Kelly was acting in a solicitor/client relationship but even if Mr Kelly was giving legal advice to Mr Laing at the relevant time, Mr Watson was receiving his legal advice pursuant to an independent and several retainer. There was no common interest which required such advice (assuming that privilege has been properly claimed) to be shown to Mr Laing.

The position changed in early 2003. By 14 February 2003 Mr Laing was writing to Mr Watson to say that he consulted both Mr Kelly and Ms Krywald to confirm the factual position in relation to the shares. This does not imply the giving and receiving of legal advice, but the fax from Mr Watson seems to imply that he understood that by then Mr Kelly was in fact giving legal advice to Mr Laing. In so far as this was taking place, I am satisfied, whether it was professionally proper to do so or not, that if Mr Kelly was receiving instructions from both Mr Laing and Mr Watson they were separate instructions and there was no intention for the advice given to one party to be given to the other.

The position became clearer in April 2003 when solicitors in Mr Kelly’s office appear to have been giving Mr Laing legal advice when Mr Kelly was on holiday. This was separate to legal advice given to Mr Watson which was still covered by a separate retainer.

The other two categories are the drafting of the proposed profit share agreement to be entered into by ESL and Mr Laing in 2002, and the instructions given and/or letters or other documents arising in connection with the abandonment of the proposal to enter into the draft 2002 profit share agreement, and/or in respect of the treatment, and/or status of the 12.5% share holding in New Federal Incorporated between 1999 and 2002. The evidence has not focused on these specific questions. If necessary, I will hear further argument if the parties are unable to resolve the questions after applying the principles which I have set out in this judgment.