MAC Hotels Ltd v Rider Levett Bucknall UK Ltd

This is an application by the defendants for disclosure and inspection of files of documents, which the claimant in the action (who I shall refer to as “MAC”), says are protected by legal professional privilege or litigation privilege.

It is necessary to set this application in context and to explain why it has come on for hearing at comparatively short notice.

I have summarised the background to this dispute in two recent judgments. I will confine my summary of that background on this occasion to the bare minimum. The claimant, MAC, engaged the first defendant (who has been referred to in this litigation hitherto by the name of “Citex”), and the second defendant (who I shall refer to as “Hills”) to act, respectively as Project Manager and Quantity Surveyor on a major development. The development involved the conversion of a property called Whatley Manor in Wiltshire into a luxury hotel and spare complex. The Contractor on the project was Midas Construction Limited (“Midas”). Midas was appointed in about June 2001 and construction began in October of that year.

At the outset, the estimated project cost was in the region of £7.5 million. Construction was finished sometime in July 2003. By then the project had overrun its planned completion date. More importantly, the construction costs charged by Midas had mounted to a figure of nearly £21 million. The last interim payment application, Valuation 25, was made in August 2003. On the basis of that application Midas was estimating that the Final Account, including sums already paid on interim applications up until March 2003, would be around £21.2 million. Negotiations ensued between MAC and Midas, the consequence of which was that the Final Account was settled on payment by MAC of a sum of just over £7 million, net of a retention of £350,000. This meant that MAC accepted a Final Account total of around £21.8 million, which represented a discount to MAC on the balance that Midas was claiming of about £350,000.

MAC attributed the cost overrun to bad advice it had received from the Project Manager and the Quantity Surveyor, and from their mismanagement of the development. In June 2007 MAC commenced the present action against Citex and against Hills, alleging negligence and breach of contract. This action has hitherto been referred to as “the lead action”. Aside from some complaints about defects in the works, the main claim against both defendants was for damages representing the difference between the sum that MAC had paid to Midas, for the works, and what MAC alleged would have been the lesser actual cost if MAC had been better advised and the works had been properly administered.

The lead action was only commenced after MAC had caused an investigation to be made of what had gone wrong with the development. The accounts of Midas supporting the interim payment claims, at least from March 2003, had been scrutinised by a firm of consultants, called BPP Construction Consultants, between May and August 2003, as part of the process which led to the settlement with Midas of the Final Account. BPP was engaged to carry out that task by the firm of solicitors (Boodle Hatfield) which was then acting for MAC’s parent company and for the Landolt family who were the owners of the parent company. BPP in turn engaged a firm called Haymarket Management Services (”Haymarket”) to assist in their investigation.

The investigation gave rise to some concern about a possible link between certain Midas employees and one of the many subcontractors on the project. However BPP reported that it could find no evidence of improper conduct on the part of Midas or any subcontractor.

In April 2004 MAC instructed another firm of solicitors called Goughs to consider whether there was any basis for bringing a claim against Citex or Hills or Midas. Goughs engaged High Point Rendel Limited to investigate. High Point Rendel considered the files which were available at that point, and produced two reports in September 2004. These contained serious criticisms of the performance of both Citex and Hills but revealed no evidence of improper conduct on the part of Midas.

In January 2006 MAC engaged Messrs Gleeds, a firm of surveyors, to investigate quantum further. Some additional voluntary disclosure was provided to Gleeds by Hills, which revealed that there was a scarcity of subcontractor records to support the costs reports which Hills produced in the course of the development.

In consequence MAC made an application for third party disclosure against Midas in October 2006. More than 65 additional files of documents were obtained from Midas as a result of that application. But they did not include the subcontractor files which MAC was expecting to find, because Midas said that they had either been mislaid or destroyed.

Mr. Alan Miskelly of Gleeds began examining all of this new documentation from Midas sometime late in December 2006 or in January 2007. As a result of his investigations MAC began a second action against Midas in March 2009. This has been referred to as “the subsequent action”, but I shall call it “the Midas action”.

The main allegation in the Midas action was that, as from about mid-June 2001, various employees of Midas who were part of the Midas team which had been managing the Whatley Manor project had conspired to defraud MAC in a number of ways. They had agreed with subcontractors that the subcontractors would invoice Midas at inflated rates, over and above the true cost of the subcontract works. They had organised for a hidden discount, by misrepresenting the true subcontract costs to MAC. They had obtained payment from MAC of the inflated subcontract prices, and had only paid the subcontractors the true discounted rates. By failing to account to MAC where, by virtue of remeasurement of the subcontract works, there was a repayment made by the subcontractor, Midas had pocketed the amount of the difference. Midas had received certain other payments for services from subcontractors, without accounting for those benefits to MAC. Midas manipulated the tendering process at the outset, so that one particular subcontractor, Mitie PLC, who had agreed to pay certain hidden discounts or additional payments to Midas, was selected to be the mechanical and electrical subcontractor for the project.

The damage claimed as a consequence of this alleged conspiracy to defraud and/or fraudulent misrepresentation amount to around £2.4 million. Of that figure, a sum of about £840,000 has already been reimbursed by Midas to MAC.

There are other claims in the Midas action concerning a Main Contractors’ Discount (“MCD”), which was, in effect, a mark up of 2.5% charged by Midas. There is a claim in respect of overhead and profit, and a claim in respect of defects. But the foundation of the case in the Midas action is the claim for conspiracy to defraud.

Precisely what prompted the fraud allegation is a matter in issue between MAC and the defendants (Citex and Hills). MAC says that certain documents obtained on the third party disclosure application against Midas suggested that Midas had been paying its subcontractors less than the rate claimed by Midas from MAC. This led to Haymarket being instructed by MAC in 2007 to enquire into the position further. In the course of 2007 Haymarket tracked down two former employees of Midas, Mr. Lee Jackson and Mr. Gary Hibbert, and interviewed them. Mr. Jackson was interviewed in November 2007 and Mr. Hibbert was interviewed twice in the early months of 2008. What they said confirmed MAC’s suspicion that Midas had negotiated arrangements with its subcontractors to inflate their rates and obtain a secret discount. Haymarket was instructed in 2008 to re-price the Midas contract. MAC says that the work done by Haymarket in that respect was unsatisfactory. Haymarket was dis-instructed, and I understand that there is a dispute between MAC and Haymarket over Haymarket’s claim for outstanding fees. The task of re-pricing the Midas contract was transferred to Mr. Miskelly of Gleeds in or about January 2009. He produced a report for MAC in March 2009, which was in part the basis of the fraud claim made against Midas in the Midas action.

By the time the Midas action was commenced, MAC was convinced that Midas had not produced all the relevant documentation on the third party disclosure application. MAC believed that Midas had further documentation relating to the project, which had yet to be produced. In April 2009 MAC obtained a search order against Midas. When the search order was executed, MAC located and seized a large number of subcontractor files which Midas had failed to produce three years earlier. According to MAC this further disclosure reinforced the allegation of fraudulent conspiracy on the part of Midas.

After obtaining the further disclosure from Midas on execution of the search order, and before any defence had been served in the Midas action, MAC applied for permission to amend the Particulars of Claim in both the Midas action and the lead action. The applications to amend were filed in September of last year. A number of the proposed amendments in the lead action arise from the allegations made against Midas in the Midas action about conspiracy to defraud in that MAC now wishes to contend against these defendant, Citex and Hills, that through breach of contract and/or negligence they failed to uncover the Midas fraud and to prevent its consequences. It is alleged that if Citex and Hills had done their job properly, they would have found out what Midas was up to and they, or MAC, would have been able to put a stop to it.

In my judgment of 4 November 2009 I granted permission to MAC to amend the Particulars of Claim in the Midas action subject to certain conditions. In my second judgment of 16 December 2009 I determined: that the primary limitation period applicable to the claims brought by MAC against the defendants in the lead action was a period of six years, and I identified the new causes of action sought to be introduced by the proposed amendments in the lead action. I held that the primary limitation period was six years rather than twelve years because neither of the contracts between MAC and Citex and Hills was to be treated as if it was a contract under seal. I identified the new causes of action included in the proposed amendments of the lead action because there was a potential defence of limitation. The new claims were listed in paragraph 4 of the order arising from the judgment of 16 December, which was sealed and entered on 5 January 2010.

In his witness statement on behalf of the defendants in support of this disclosure application, Mr. Watmough of Mills & Reeve has placed the new claims into four broad classes. First, there are new allegations of causation and loss, sought to be added to the existing allegations of breach of duty, which are connected with the Midas fraud. Second, there are allegations of new breaches of duty which are alleged to have caused the claimant loss and damage as the result of Hills’ alleged failure to monitor Midas adequately and Citex’s alleged failure to monitor Hills. Those again are largely connected with the Midas fraud. Third, there is a new and isolated claim in respect of alleged defects in the plant room at the spa at Whatley Manor. Fourth, there is a new claim against Hills based on the alleged failure of Hills to warn MAC of the risks of commencing the project works with incomplete works packages in place, and contractual documentation which was inappropriate.

Not all of the new allegations of breach of duty against the defendants are based upon the Midas fraud. There are also allegations of breach of duty introduced by the proposed amendments, which are derived from an examination of the documentation obtained from Midas on execution of the search order, but not directly related to Midas’ fraudulent conduct.

By the order of 5 January 2010, I left for decision at a third hearing, which is now due to take place over two or three days beginning on 16 March, the following issues: (1) whether the new causes of action sought to be introduced by the proposed amendments in the lead action had become statute barred since the original claim form was issued on 6 July 2007, (2) if that was the position, whether there was jurisdiction to allow the new causes of action to be introduced by way of amendment under CPR 17.4 (2), and, (3) if there was, whether, n relation to those new claims, and any other claims not statute barred, the court ought to exercise its discretion to allow the proposed amendment to be made.

The parties’ respective positions on limitation emerge from the inter-solicitor correspondence which has passed between the parties’ solicitors since the application to amend were served last September, and from the skeleton arguments which have been exchanged for the hearings which were listed last November and December. Initially Hills (and now both of the defendants) objected that the amendments introduced new causes of action: a point which I have now upheld. Secondly, the defendants object that all the new claims are ones in respect of which the primary limitation period has expired. In order to stop time continuing to run in respect of any such new claims MAC issued a fresh claim form against Citex and Hills on 7 December 2009.

So the present position is as follows: (1) time stopped running on 7 December 2009; (2) any new cause of action contained in the proposed amendments for breach of contract which arose before 7 December 2003 (i.e. six years prior to 7 December 2009) is now statute barred; (3) any new cause of action in tort which arose before 7 December 2003 is likewise statute barred, unless section 14A of the Limitation Act 1980 applies; (Section 14A suspends the running of time until the claimant has certain knowledge, which I shall call “the requisite knowledge”. Time only begins to run when the requisite knowledge is acquired (“the starting date”). Section 14A provides that an action must be brought within three years of the starting date). (4) if the three year period was still running on 7 December 2009, because the requisite knowledge was not acquired until a date sometime after 6 December 2006, the new claims in tort introduced by the amendments are not statute barred; (5) if MAC obtained the requisite knowledge more than three years prior to 7 December 2009, section 14A is of no assistance to MAC and any new claims in tort are statute barred unless MAC can bring those claims within the ambit of the jurisdiction in CPR 17.4, and, by obtaining permission to amend, defeat the time bar by the principle of “relating back”.

It is common ground that all of the new causes of action referred to in the proposed amendments arose more than six years prior to 7 December 2009. That follows from the fact that the latest date on which MAC suffered loss, thereby giving rise to one of the new causes of action in tort, was when MAC settled the Final Account with Midas on 19 September 2003. Therefore the primary limitation period in respect of any new claim has now expired.

With one minor caveat made by the defendants concerning a new claim about the MCD, it is also common ground that all of the new causes of action in the proposed amendments arose after 6 July 2001. So the primary limitation period expired sometime after the original claim form was issued in the lead action, but before the issue of the new claim form on 7 December 2009.

Thus the sole issue, in respect of any claims where the limitation period has expired between the date of the original claim form and 7 December 2009, is whether those new claims arise out of “substantially the same facts” as those already in issue on the pleadings in the lead action, so that there is jurisdiction to grant permission to amend under CPR 17.4 (2).

MAC’s primary case is that it only acquired the requisite knowledge for the bringing of the new claims against Citex and Hills, which were derived from the Midas fraud, when, in March 2009, Mr. Miskelly produced his report on the re-pricing of the Midas contract.

As for the other new claims not directly derived from the Midas fraud (which chiefly comprise claims for wrongful attribution of subcontract costs, increased preliminaries and excessive overheads and profits), MAC says it first had the requisite knowledge in August 2009 when Mr. Miskelly had finished examining around 250 subcontractor files obtained from Midas under the search order. MAC’s case is that all of these new claims were only discoverable with the benefit of the kind of expert analysis provided by Mr. Miskelly. Thus, in relation to both the fraud-derived claims and the non-fraud-derived claims, there is no defence of limitation because the three year period was still running when the new claim form was issued on 7 December 2009.

In response, the defendants say that MAC had the requisite knowledge to start embarking on preliminary steps towards issuing proceedings for the new claims derived from the Midas fraud, by no later than November 2006. The details of that allegation are contained in Appendix A to the skeleton argument which Hills filed for the hearing on 16 December 2009.

It is less clear what the defendants’ case is about the new claims not derived from the Midas fraud, but allegedly derived from Mr. Miskelly’s analysis of the subcontract files obtained under the search order. But I suspect that their case is the same, although the precise answer may depend on the result of this particular application.

MAC has filed five witness statements for the hearing in March of the limitation issues which I have outlined. One is a statement of Mr. Devas of Boodle Hatfield. One is a statement of Mr. Matthews of BPP Construction Consultants. One is a statement of Mr. Beach of Goughs. One is a statement from Mr. Miskelly of Gleeds. The last is a statement of Mr. Head of High Point Rendel. The defendants have filed no evidence for the March hearing.

MAC’s five witness statements describe the sequence of the investigations that were conducted into the cost overrun on the Whatley Manor project, between the summer of 2003 and the summer of 2009. They endeavour to explain how MAC came to realise that it had the basis for a complaint of fraud against Midas and a basis for the consequential negligence claims against Citex and Hills, and for the further non-fraud-derived claims against Citex and Hills which are included in the proposed amendments.

Save to the extent of the disclosure already made by MAC, each witness states expressly that he does not intend to waive any privilege in documentation to which MAC is entitled.

The categories of documents of which disclosure is sought are listed in a schedule to the draft order attached to the disclosure application. Primarily, the defendants seek disclosure of: (1) the files of Boodle Hatfield from January 2004 until December 2006, (2) the files of BPP Construction Consultants from 1 October 2003 until 6 December 2006, (3) the files of Goughs from the time they were first instructed until 6 December 2006, (4) he files of Gleeds until 6 December 2006, and (4) the files of High Point Rendel. In each case the cut off point is the 6 December 2006, because it is recognised by the defendants that if the starting date under section 14A was any later than that date there is no limitation defence available by reason of the new claim form issued on 7 December 2009.

The position is that MAC has already given disclosure of all of the primary documentation that has been acquired by it, either through the third party disclosure application against MAC or through the execution of the search order. It has given disclosure of the files of Boodle Hatfield until the end of September 2003 (covering their investigations into the cost overrun for the purposes of the settlement of the Final Account with Midas) and has also given disclosure of BPP Construction’s files up to the same date. The Haymarket report has also been disclosed, i.e. the report that was obtained from Haymarket in 2003.

The focus therefore is on material that came into existence between late 2003 and 6 December 2006.

Mr. Blackmore, who appears as counsel on behalf of MAC, says that MAC’s obligation to give disclosure depends on relevance, and relevance depends on the issue which arises between the parties under s. 14A. In his submission, the issue is: “When did MAC have the requisite knowledge for bringing a claim in fraud against Midas?” because that was a necessary prerequisite for the bringing of the new fraud-derived negligence claims against these defendants.

So far as the new non-fraud-derived claims are concerned, with the possible exception of the single new defects claim concerning the spa, it is MAC’s case that a prerequisite to the bringing of those claims was scrutiny of the documents obtained from Midas under the search order executed last April. So the issue in respect of those claims is: “When did MAC derive from those documents the requisite knowledge for the bringing of those claims?”.

Mr. Blackmore submits that although battle has been joined on the issue of privilege from inspection, the dispute is really a very narrow one. First, he submits that MAC has no objection to disclosing, and either has or will disclose, all of the primary documentation in its possession or control arising from the implementation of the Midas contract (including MAC’s own records, any voluntary disclosure provided by Hills, and all of the documentation obtained from MAC on the third party disclosure application and the execution of the search order). Second, he says that MAC has no objection to giving disclosure and inspection of documents evidencing the scrutiny of the primary documentation by MAC’s solicitors and consultants, insofar as they examined that documentation for the basis of a possible claim against Midas in fraud or otherwise. He points out that MAC has disclosed most of the documents in that category down to the end of 2003 and that, after 6 December 2006, MAC’s investigations are academic for limitation purposes.

As for the period between late 2003 and 6 December 2006, Mr Blackmore submits that MAC investigated the cost overrun for two distinct purposes: (1) to see whether there was any basis for a claim in breach of contract or negligence against the defendants, and (2) to see whether there was any basis for a claim in breach of contract or negligence against Midas. He says that MAC is happy to disclose everything which it has in its files evidencing the second aspect of these investigations, but not the first. MAC resists inspection of anything which relates to the investigation of the available documentation in order to see whether there was a basis of claim in breach of contract or negligence against these defendants, because that would involve disclosing to the defendants what the MAC’s advisors thought about the merits of the claims that have already been brought in the lead action. This is material which is covered by litigation privilege. At one point Mr. Blackmore seemed to suggest that the problem was really a logistical one, because it would be difficult if not impossible, and would certainly be very time consuming, to isolate in MAC’s available files covering the various investigations, those passages which relate to investigation of the conduct of Midas from those which relate to the conduct of Citex and Hills.

The defendants for their part admit that all of the documentation for which they seek disclosure has at one time been subject to privilege of one kind or another. Their argument is either that there has been an express waiver of that privilege in the evidence filed by MAC, or that, in circumstances where MAC admits that it has consulted lawyers and experts to investigate the cost overrun on the Whatley Manor project from as long ago as the summer of 2003, MAC is no longer in a position to adduce evidence of its knowledge or lack of knowledge prior to 6 December 2006 for the purposes of section 14A, without by implication waiving privilege in the content of all of those investigations.

I should start by saying something about the burden of proof under section 14A. The burden of proof in limitation cases rests on the claimant against whom the defence of limitation is pleaded. In my judgment it is for the claimant to establish that he has a claim which he can bring which is not statute barred (see in particular paragraph 21.10 of McGee on Limitation 5^th edition, and the judgment of Lawton LJ in Ketterman v Hansel Properties Ltd [1985] 1 All ER 353). By the same token, it is for the claimant to satisfy the court that he lacked the requisite knowledge under section 14A until a point in time less than three years prior to the date on which the claim form was issued and or that the claim is one which meets the conditions of CPR 17.4 and therefore falls within one of the permitted exceptions in section 35 of the Limitation Act (see e.g. CPR 14.4 and the decision of the Court of Appeal in Goode v. Martin).

When it comes to proof of knowledge under section 14A ,the assertion by a claimant that he was unaware of the material circumstances until a certain date, carries with it the assertion that he did not have the requisite knowledge at any time before that date. To that extent, the assertion involves proving a negative. MAC is here saying that it did not have the requisite knowledge any earlier than 6 December 2006: but it does not want to be compelled to establish that proposition by having to disclose details of its investigations into the defendants’ conduct only in order to establish that those investigations produced no credible leads which should have instigated a further enquiry leading to requisite knowledge about the Midas fraud and the other new non-fraud-derived claims against the defendants. However, sometimes, difficult and invidious choices have to be made if the evidence, without some waiver of privilege, risks being insufficient to enable the claimant to persuade the court that the running of limitation was postponed for as long as the claimant says.

To my mind the resolution of the present disclosure application depends on the answer to three questions. First, what is the issue under section 14A to which the requested disclosure is said to be relevant? Second, has MAC waived privilege by expressly relying on the content of documents or communications to which privilege would otherwise attach? Third, has MAC waived privilege in such documents by necessary implication, because MAC will be bound to have to rely on their content at the hearing in March?

I consider first what is the relevant issue. The relevant issue is not the fact that, from as early as the summer of 2003, MAC began investigating the cost overrun on the Whatley Manor project. The issue is not even as broad as: “What was discovered in the course of those investigations?”. Section 14A provides in sub-sections (5) to (9) as follows:

“(5)

For the purposes of this section, the starting date for reckoning the period of limitation under subsection (4)(b) above is the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action.

(6)

In subsection (5) above “the knowledge required for bringing an action for damages in respect of the relevant damage” means knowledge both—

(a)

of the material facts about the damage in respect of which damages are claimed; and

(b)

of the other facts relevant to the current action mentioned in subsection (8) below.

(7)

For the purposes of subsection (6)(a) above, the material facts about the damage are such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment.

(8)

The other facts referred to in subsection (6)(b) above are—

(a)

that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence; and

(b)

the identity of the defendant; and

(c)

if it is alleged that the act or omission was that of a person other than the defendant, the identity of that person and the additional facts supporting the bringing of an action against the defendant.

(9)

Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (5) above.”

Hitherto in this judgment I have used the phrase “requisite knowledge” to encapsulate what is required under these sub-sections to mark the starting date for the running of time. As the House of Lords made clear in Haward v. Fawcetts [2006] 1WLR 682, the starting date is the earliest date on which the claimant:

“…actually knew both enough of the acts or omissions now alleged to constitute negligence and that the loss suffered was capable of being attributable thereto to make it reasonable for him to begin to investigate whether or not the claimants have a claim against the defendant.”

It is not the date when the claimant first became aware that he might have a claim for damages for negligence against the defendant and had been in a position to commence proceedings for such a claim (see the speech of Lord Mance at paras. 128 and 129.).

Earlier in his speech in Haward v. Fawcetts, Lord Mance made clear: (1) that the knowledge under section 14A includes actual knowledge and constructive knowledge, by which he meant knowledge that a claimant might reasonably have been expected to acquire from facts observable by himself or ascertainable by him, or with the help of appropriate expert advice, which it would have been reasonable for him to seek. Lord Mance expressly approved the judgment of Brooke LJ in Spargo v. North Essex District Health Authority [1997] PIQR 235 at 242, in holding that, for the purposes of section 14A, actual knowledge is established when the claimant knows enough to make it reasonable to begin to investigate whether or not he has a cause of action against the defendant. Lord Mance also made plain that knowledge of “…the act or omission which is alleged to constitute negligence ...” means knowledge of the factual essence of what is subsequently alleged as negligence in the claim. It is not enough that the claimant knows that he has received professional advice but for which he would not have acted in a particular way and which has given rise to loss, or to know that he has not received advice when if he had received it he would have acted in a way which would have avoided such loss. “But for” causation is insufficient. What is required is knowledge of the essence of the act or omission to which the injury is attributable. Attributability means that the claimant appreciates that there is a real possibility that his loss is capable of being attributed to the act or omission, not that he should understand that that probably is a direct causal link.

No doubt I shall have to return in more detail to Haward v. Fawcetts at the hearing in March, in order to assess what MAC actually knew or ought to have known as a result of its investigations about the basis of the proposed new claims. But the foregoing is a sufficient explanation of the concept of requisite knowledge under section 14A for present purposes.

The issue to which the requested disclosure is said to be relevant is: “When did MAC first acquire the requisite knowledge for the bringing of the new claims contained within the draft amendments?”.

In my judgment all of the categories of documents requested by the defendants in the schedule to the draft order are disclosable as being potentially relevant to that issue. Insofar as Mr. Blackmore sought to argue to the contrary I disagree with him. However, it is conceded that, subject to waiver, they are all protected from inspection by privilege.

I propose to take the broader waiver argument first. It finds expression both in the witness statement of Mr. Watmough and in the skeleton argument of Mr. Mark Cannon QC who appeared on behalf of both defendants. Mr. Watmough says in his witness statement at paragraph 10:

“It is the defendant’s position that in circumstances in which they had engaged experts to investigate its potential claims in respect of the Whatley Manor project for several years before 6 December 2006, the claimant cannot adduce evidence as to its knowledge or lack of knowledge of potential claims before that date without waiving privilege in those investigations.”

Mr. Cannon puts it this way in paragraph 8 of his skeleton argument:

“It is not suggested that reliance on Section 14A amounts in itself to a waiver of privilege in any otherwise privileged communications which go to the issue of the claimant’s knowledge of the relevant matters. However, where more than three years before the issue of proceedings a claimant has instructed lawyers and through the lawyers experts to investigate and advise him as to a potential claims and the ‘new claims’ fall within the field of that investigation and advice, a claimant who positively assert, as he must, that he did not acquire the requisite knowledge as a result, will waive privilege in any privileged communication generated in the course of those investigations and any advice given as a result of them.”

I am unable to accept that proposition. In my judgment, it is too wide.

I was referred to Thanki on the Law of Privilege where, in a sanction dealing with waiver of privilege in respect of limitation issues, the authors suggest (at para. 5.90) that issues of waiver are unlikely to arise under section 14A, because of the provision in section 14A (9) - that is the provision which says that it is irrelevant that the claimant should know that the acts or omissions complained off amount in law to a cause of action in negligence. Whilst it is probably correct to say that, by reason of section 14A (9), waiver of privilege in legal advice about whether the facts amount to a cause of action in law is unlikely to be an issue, it is not right to say that no issues of waiver are likely to arise in s.14A cases. Where the investigation of the underlying facts is itself protected by litigation privilege, waiver issues do arise and this case is a good example. However, I agree with the authors when they say in the next paragraph (para. 5.91) that:

“…a claimant’s plea that he could not with reasonable diligence have discovered the relevant matter will not of itself entail a waiver of privilege. However a claimant may find it hard to maintain that the limitation period should not begin to run from a period in which he was in receipt of legal advice unless he is prepared to waive privilege in that advice.”

In Farm Assist Ltd v. DEFRA [2008] EWHC 3079 (TCC), Ramsey J. was concerned with a claim to set aside a settlement agreement resulting from a mediation on the grounds that it had been procured by economic duress. An issue arose on disclosure whether the claimant was bound to disclose certain documentation covered by legal advice privilege. Ramsey J. conducted a review of the authorities on implied waiver and concluded that, aside from proceedings in which a client sues his former legal adviser, there is no general rule in English law that, where a party places in issue a matter in respect of which there is relevant evidence covered by privilege, he automatically and by implication must be taken to have waived privilege in that evidence. Ramsey J. expressly disapproved the following statement in Matthews v. Malik on Disclosure at para. 11-64 that: “…were information which is otherwise privileged itself constitutes a material fact in proceedings, it is not privileged from disclosure.” He held that the cases established no such principle.

As a general rule, except in cases where a former legal adviser is sued, the privilege is paramount, unless it can be said to have been expressly waived because privileged documents or written communications have been deployed in a manner which indicates that the privilege has been abandoned. Therefore it is up to the claimant to decide what evidence to adduce. If he discloses nothing at all, and relies on mere assertion, he may fail to establish his case to the satisfaction of the court. The same result may follow if it becomes apparent that the disclosure that is provided by the claimant is selective and obviously the product of “cherry picking”.

MAC’s case is that all of the primary documentation which was available to it and which was subject to the scrutiny of its experts up to the end of September 2003 is disclosed, and although that led to some suspicions about one subcontractor and its relationship to Midas, none of the experts thought that there was any basis for a claim in fraud against Midas. MAC has given disclosure of all the rest of the primary documentation that has been obtained between October 2003 and March 2009. In the first period (up to 6 December 2006) that consisted of voluntary disclosure by Hills of certain of their files, and in the second period (after 6 December 2006) it included the documents obtained on the third party disclosure against Midas and the disclosure obtained from Midas on execution of the search order.

MAC’s witnesses on the limitation issue have stated the conclusions they drew from scrutinising this material. They can be cross-examined about their view, and it can be tested by reference to the primary documentation. MAC says that there is no need for disclosure of any reports or memoranda which record their views in order to establish that MAC did not acquire the requisite knowledge until sometime after 6 December 2006.

In my judgment that is a perfectly respectable argument, although by saying that I should not be taken as implying in any way that MAC would succeed in establishing its case on knowledge if none of the further disclosure requested by the defendants was given. I have not, after all, heard the defendants’ arguments about what MAC may be taken to have known or what MAC ought to have known based on an examination of the primary documentation which has been disclosed, nor have I heard any of MAC’s witnesses being cross-examined.

I turn therefore to the express waiver argument. If a party deploys, as part of his case, a document or written communication which is privileged, he may be held to have waived the privilege. Deployment to my mind involves two elements: first, a clear reference being made to the existence of the privileged documentation; second, reliance on the content of that documentation for the purpose of making a particular point. Unless the waiver begins by the document itself being put in evidence, there must be a sufficient reference made to it by the party from whom disclosure is requested. In this respect waiver shares the same approach to that which is taken under CPR 31.14 (which is the rule about disclosure of documents referred to in statements of case of witness statements). The approach under that rule is the same as that which was taken under the former RSC Order 24 Rule 10 (see Dubai Bank Ltd. v Galadari No. 2 [1991] WLR 731 and the notes at CPR 31.14.2). Mere reference to a transaction or to discussions is not enough. The documentation in question must be identified.

As to what amounts to “deployment”, Mr. Blackmore referred to the decision of Mustill J. in Nea Karteria Maritime Co Ltd v Atlantic and Great Lakes SS Corp [1981] Comm LR 138 at 139. There, Mustill J. accepted that mere reference to a privileged document was no waiver because reliance on its own was not the test. The test is whether the contents of the document rather than its effect are being made use of. This distinction is not always easy to draw. It has been held in some cases that reference to a document in circumstances which betray its content is not a waiver, but the explanation for such decisions lies in the context in which the reference was made. If the reference is made as part of mere narrative, it is probable that waiver will not result. If the contents of a document are relied upon in order to support a point which the disclosing party wishes to make, then privilege in the document will have been waived.

Thanki on the Law of Privilege deals with the above distinctions in paragraph 5.29. The authors go on to deal with three other aspects of waiver. The first is that, once there has been a partial waiver of privilege, the precise ambit of the waiver must be assessed by reference to “the transaction” to which the initial waiver related. Fulham Leisure Holdings Ltd. v. Nicholson, Graham & Jones [2006] 2 All ER 599 was the authority for this proposition cited to me by Mr. Cannon. The rule is grounded in fairness. It prevents a party from making a partial waiver of privilege which is so selective as to create a misleading impression. Mr. Cannon tried to rely on it by saying that the “transaction” here was the whole process of investigating the cost overrun on the Whatley Manor project. So, if there was a waiver of privilege in any document concerning part of that investigation, the waiver should be held to extend to the entirety of all the investigations. As I shall explain, I do not think that the transaction rule has that broad effect in the present case.

The second aspect of waiver referred to in Thanki is that it is permissible to redact privileged material from a document on its first being disclosed, without there being waiver of the privileged and unredacted part.

The third aspect of waiver referred to in Thanki is that a waiver made in interlocutory proceedings is probably a waiver for all purposes in the action and stands as a waiver of evidence for the purpose of the trial.

The express waiver argument advanced by Mr. Cannon relates to seven witness statements. It relates to the five statements I have already mentioned, namely, the statements of Mr. Devas of Boodle Hatfield, Mr. Mathews of BPP Construction, Mr. Beach of Goughs, Mr Miskelly of Gleeds and Mr. Head of High Point Rendel, also to the second witness statement of the MAC’s solicitor, Mr. Edwards Lyons, which was produced for use at the hearing on 16 December 2009, and finally to an affidavit which was sworn by Mr. Miskelly in April 2009 in support of the application for the search order against Midas. Although the latter was sworn in another action, it was included in the bundles for the hearing in both actions in November and December 2009.

I will deal briefly with each of the passages in these statements which are said to amount to a waiver of privilege.

I take first the statements of Mr. Devas and Mr. Mathews. In paragraphs 13 and 20 of their respective statements Mr. Devas and Mr. Mathews refer to their having been contacted by Mr. Beach of Goughs in May 2004. Mr. Devas says this in paragraph 13 of his statement:

“In or about May 2004 I was consulted by MAC’s then solicitors Messrs Goughs, as MAC were contemplating legal action in relation to the costs overrun on the Whatley Manor project. I am advised that any such advice I gave is privileged, however without waiving that right to privilege I can confirm that my views as expressed in 2003 had not changed regarding any claim in fraud against Midas.”

In paragraph 20 of his statement Mr Mathews says something very similar:

“In or about May 2004 I was contacted by Nicholas Beech of Goughs Solicitors who I understood then to be acting for MAC in succession to Boodle Hatfield with regard to possible legal action in relation to the costs overrun on the Whatley Manor project. Without waiving that right to privilege I can only say my views expressed previously in 2003 have not changed regarding any claim in fraud against Midas.”

All that Mr. Beach says about this episode, in paragraph 3 of his statement, is:

“However on instructions from MAC I retained Robert Matthews of BPP Consultants and also spoke to Hugh Devas of Boodle Hatfield, both of whom concurred with my view that there was insufficient evidence to pursue Midas in full.”

I do not think that any of these passages makes reference to privileged documentation, nor does it amount in any way to a waiver of any privilege in any material in the files of Boodle Hatfield, BPP or Goughs insofar as that material has not already been disclosed.

I turn next to the statement of Mr. Head of High Point Rendel. He was instructed by Goughs in May 204 to conduct an investigation into the performance of Midas and also of the defendants. In paragraph 3 of his witness statement Mr. Beach says this:

“The view I took was that in the light of the apparent extent of the costs overrun and given that professional project managers and quantity surveyors had been retained by MAC to control the contract and the costs thereof, the appropriate course in the first instance was to make enquiries into the performance of the project managers and quantity surveyors and in these circumstances I instructed Mr. Derek Head of High Point Rendel to make enquiries and then prepare a preliminary report. That report would have been prepared in contemplation of litigation. In the event Mr. Head produced two reports which were delivered by me to MAC in September 2004. The report evidenced many failings on the part of Bucknall, Austin and WT Hills Ltd ... which led to the cost overrun.”

Mr. Head, in paragraphs 3 to 10 of his statement, refers to the fact that he was instructed by Mr. Beach and that his instructions extended to assisting in any negotiations concerning resolution of any defects, in addition to investigating the reason for the cost overrun. He then goes on to describe his investigations and the conclusions which he drew from those investigations, which are set out in some detail in paragraphs 5 to 10 of his statement.

Mr. Blakemore submits that no waiver can be derived from the evidence I have just referred to because: (1) Mr. Beach refers to the High Point Rendel reports but does not seek to rely on their contents, (2) Mr. Head refers to the contents of the reports but does not mention that he produced any written reports, (3) the primary focus of Mr Head’s investigation was into the performance of the defendants, not the performance of Midas: it is therefore not an investigation that is relevant to the issue which arises under section 14A, and (4) the references to the investigation in the statements of Mr. Beach and Mr. Head are at most only part of the narrative: the High Point Rendel reports are not being relied upon by MAC in order to make a particular point in the argument on the limitation issue.

My conclusion on these submissions is as follows: (1) the witness statements of Mr. Beach and Mr. Head must be read together, since that was the obvious intention of MAC when they were both served in support of MAC’s case under section 14A, (2) there is clear reference in the statements to Mr. Head being instructed, to two reports being produced in consequence of those instructions and to the contents of those reports, (3) the references are not mere narrative: they are put forward in order to make the point that Mr Head’s detailed scrutiny of the then available records revealed a good deal that justified criticism of the performance of the defendants, but nothing to suggest that Midas had acted improperly. That is relevant not only as to what negatively is said about Midas, but what negatively is said about the defendants, namely, that the criticisms of their conduct justified the original claims in the lead action, but did not justify the new negligence claims (both Midas fraud-derived and non-fraud-derived) which are sought to be introduced by the amendments.

In my judgment MAC has waived privilege in the High Point Rendel investigation. It does not matter that both Mr. Beach and Mr. Head say in their statements that that was not their intention, the position must be judged objectively. However the waiver does not extend beyond the High Point Rendel investigation. The High Point Rendel investigation is “the transaction”. The waiver does not include other investigations and enquiries which were conducted either earlier than Mr. Head’s investigation or subsequently but prior to the 6 December 2006. The waiver covers the contents of the files of MAC, Goughs and High Point Rendel reflecting: (1) the instructions given to Mr. Head, (2) any discussion between Mr. Head, Mr. Beech and MAC about those instructions, (3) the conduct of Mr. Head’s investigation, (4) Mr. Head’s two reports, and (5) any discussion between Mr. Head, Mr. Beech and MAC about the contents of those reports.

Mr. Blackmore says that it would be highly embarrassing to MAC to have to disclose this material. That may be. Sometimes waiver, when unintentional, is embarrassing. However I detect no strong disagreement between the conclusions reached by Mr. Head about the performance of the two defendants, as described in his witness statement, and the claim against the two defendants as presently pleaded. Any discomfort MAC may experience from a forensic analysis of Mr. Head’s conclusions by the defendants’ counsel at trial may well be outweighed by the fact that a second expert opinion strongly critical of the defendants’ conduct will be in evidence. I add that the defendants may have difficulty resisting an application by MAC to call Mr. Head as an additional expert witness at the trial, once his two reports have been made available in evidence.

I turn now to Mr. Miskelly’s witness statement and the affidavit he swore in April 2009. It will be recalled that Mr. Miskelly was instructed by MAC in January 2006 to investigate the cost overrun. Between February and December of that year he examined some files which had been voluntarily disclosed by Hills. After 6 December 2006 he proceeded to examine the files which had been obtained from Midas on the third party disclosure application. I can find nothing in Mr. Miskelly’s witness statement or affidavit which could amount to a waiver of privilege in any part of the documentation relating to his examination of the files of Hills in the period up to the 6 December 2006.

In his oral submissions Mr. Cannon focused on paragraphs 14 to 17 of Mr. Miskelly’s affidavit, and paragraph 3 of his witness statement. Paragraphs 14 to 17 of the affidavit contain an account of how the third party disclosure application against Midas came to be made. Two particular remarks appear to interest the defendants. In paragraph 14 of the affidavit Mr. Miskelly describes visiting some premises of Midas at Newport, in order to view files relating to the Whatley Manor project which were stored there, so as:

“... to build up a picture at various points in time to understand what information was available to Hills when they prepared their costs reconciliation report.”

He goes on to say in the next sentence:

“Another reason for requiring these files was to establish if MAC had paid for something for which they were not responsible.”

Then in his witness statement filed for the hearing in March Mr. Miskelly says in paragraph 3:

“It was upon examination of the file, which I had been told was kept in the Newport office at Midas that I discovered evidence suggesting that Midas had been paying its subcontractors significantly lesser sums than it had claimed from MAC in respect of the subcontractors.”

It seems to me that these remarks refer to different things. The affidavit identifies a suspicion by Mr. Miskelly that there might have been wrongful attribution to MAC of costs for which MAC was not liable. It may be argued that this was an inkling on his part of the scope for a new wrongful attribution claim against the defendants. The witness statement identifies that the Newport file contained information suggesting that Midas had been claiming inflated rates for subcontract work.

The view I take is that neither remark refers to any documentation other than the Newport file, which has been disclosed, or constitutes a waiver of privilege in any of Mr. Miskell’s files for the period January to December 2006. Mr. Miskelly has, however, expressed a view as to why he thought it would be a good idea to examine the Midas files in Newport and he can be cross-examined about the basis of that view, when it first occurred to him and why.

I turn finally to Mr. Lyon’s second witness statement. Mr. Cannon drew attention to three paragraphs in that witness statement. In paragraphs 3.8 to 3.9, Mr. Lyons said this:

“3.8

MAC seeks to rely on the three year limitation period under section 14A in relation to any of its proposed amendments which are deemed new claims in negligence. In short MAC have no knowledge of either the material facts about the damage. All of the damage was attributable in whole or in part to the omissions of Bucknall, Austin and Hills, until at the earliest, March 2009 when MAC’s expert quantity surveyor Alan Miskelly, having undertaken an analysis of documents disclosed to date calculated and produced to MAC’s legal advisers a schedule of rate inflation.

3.9.

At the time the proceedings in the lead action were commenced MAC knew that there were very substantial costs overruns on the project, which is alleged in the Particulars of Claim, which had arisen from multiple failures on the part of both defendants which had resulted in increased subcontract prices and additional costs by way of variation in claims for loss and expense. However, it was not known at the time that a significant proportion of that costs overrun was attributable to the fraud of Midas carried out by conspiring with various subcontractors to create false documents which gave rise to secret discounts, rate inflation and a consequential increase in preliminaries and overheads and profits and a failure to credit to MAC the 2.5% main contractor’s discount. This was discovered much later.”

In my judgment both those paragraphs contain an assertion of MAC’s case. They do not refer to any privileged documents, nor do they waive privilege in any documents. If they did, they would be documents coming into existence as a result of Mr. Miskell’s investigations after 6 December 2006, and the defendants do not seek disclosure of Gleeds file after that date.

In paragraph 3.19, Mr. Lyons goes on to say as follows:

“The allegations against Midas are of fraud, rate inflation, preliminaries and loss and expense, wrongful attribution and wrongful retention of the 2.5% main contractor’s discount. The proposed amendments to the pleadings in the lead action arise from the fraud at Midas and it would not have been possible to have made such amendments until after the fraud by Midas had been revealed.”

That again, in my judgment, is an assertion of MAC’s case. It is inaccurate inasmuch as Mr. Blackmore concedes that at least some of the new claims against the defendants are not derived from discovery of the Midas fraud. But I am unable to find that the passage that I have just quoted constitutes a waiver of privilege attaching to any particular documentation in MAC’s possession or control.

The conclusion is that MAC has waived privilege in the High Point Rendel investigation to the extent indicated earlier in this judgment, and that disclosure and inspection should be given of the documents falling into the categories that I have mentioned. The application is otherwise dismissed, but with the following caveat: MAC remains under an obligation to give disclosure and inspection of the investigations which were targeted solely on the performance of Midas since it is MAC’s stated position on this application that it does not seek to claim privilege for such material. If necessary, MAC can redact any passages for which privilege is claimed, for example, because that passage relates solely to aspects of the claims which have been brought against the defendants which are not derived from the Midas fraud or from examination of the Midas files that were obtained on the third party disclosure application or as a result of the search order.

I will deal with the costs of this disclosure disclosure application at the hearing in March, having received written submissions on costs from the parties’ counsel beforehand.