Burkle Holdings Ltd. v Laing No 2 [2005] EWHC 2022 (TCC)

[2005] EWHC 2022 TCC

Case No HT-04-169

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

HH Judge Thornton QC

St Dunstan’s House,

Venue 133 -137 Fetter Lane,

Date Monday 27 June 2005

London, EC4A 1HD

Before

HH Judge Thornton QC

Between

Burkle Holdings LimitedClaimant

Mr Mark Warwick (instructed by Addleshaw Goddard, 150 Aldersgate Street, London, EC1A 4EJ, Ref: Blowa/313883-11) for Claimant

Mr Jonathan Marks QC (instructed by McBride Wilson & Co, The Courtyard, Queen’s House, 55 – 58 Lincoln’s Inn Fields, London, WC2A 3LJ, Ref: PB/hnc/LAI1-3) for Defendant

Hearing Hearing dates: 10 and 13 June 2005

JUDGMENT

HH Judge Thornton QC:

[1]Introduction This is the second judgment in this action to be concerned with questions of privilege and admissibility of evidence. The dispute is, in essence, a dispute between Mr David Laing and Mr Ian Watson, it involves a large sum of money and it arises because these two investment partners, who have been involved over the years in many development projects undertaken as investments, have fallen out over their respective shares in one of the developments that they were both involved in.

[2]The first judgment was handed down by Judge Toulmin CMG QC on 23 March 2005 following a four-day hearing on the dates that had originally been listed as the four days of the trial of the action. The trial of action was then adjourned to be relisted for trial at a later date. This judgment follows a further two days of submissions on the third and fourth days of the relisted trial.

[3]Both judgments relate to documents in the possession of, or emanating from, a solicitor, Mr Michael Kelly, a partner in Taylor Watson, who was acting for Burkle Holdings Ltd (“Burkle”) at highly crucial periods in the history of the dispute in 1999 and 2002. Judge Toulmin had to decide whether certain documents that Mr Laing was seeking disclosure of from Burkle were subject to legal professional privilege and were in consequence not disclosable by Burkle to Mr Laing. That question turned on whether Mr Kelly was acting exclusively for Burkle or was acting jointly for Burkle and Laing under a joint or two several retainers. Judge Toulmin decided that Mr Kelly was only acting for Burkle and the documents in question were, in consequence subject to legal professional privilege.

[4]I must decide whether Mr Laing can be stopped from adducing in evidence the contents of related documents which were sent by the same solicitor to Mr Laing. Burkle now wishes to assert its entitlement to legal professional privilege over those contents. This decision will involve my considering documents that Mr Kelly disclosed to Mr Laing and documents in the possession or power of Mr Laing’s solicitor, Ms Sandra Krywald, a partner in McBride Wilson.

[5]Two different judges have been concerned with these questions of privilege and admissibility because they have all arisen at a late stage before trial. I had been the judge assigned to case manage this case but Judge Toulmin was assigned to try it due to my non-availability during the period fixed for its trial. However, Judge Toulmin did not start the trial because the whole of the period allotted to the trial was spent by him in determining Mr Laing’s disclosure application, a determination involving three days of cross-examination and a day of legal submissions. At that stage, Burkle’s applications had not been issued and were not, in consequence, heard by Judge Toulmin. Following Judge Toulmin’s order on Mr Laing’s disclosure application, the trial was relisted. I was assigned to try the case because Judge Toulmin was not available to try it during the relisted period.

[6]It will be necessary to summarise the nature of the dispute and the procedural history of this action. In doing so, I will adopt Judge Toulmin’s detailed and careful summary of the dispute’s factual background set out in paragraphs 22 – 144 of his judgment

[2005] EWHC 638

TCC which should be read as part of this judgment.

[7]I will first identify the applications being made. I have paraphrased and shortened the text of the applications for convenience. The applications are:(1) Whether the contents contained in identified passages in 6 documents provided by Mr Kelly to Mr Laing without Burkle’s authority may be adduced in evidence at the trial;

(2) Whether Burkle is entitled to an injunction to restrain Mr Laing from referring to or relying on for any purposes whatsoever, the contents of, or the information contained in the passages in the documents referred to in paragraph (1). 3. Factual and Procedural Background and Issues for Determination 3.1. Factual Background

[8]Burkle is the investment company through which Mr Watson undertakes much of his investment including investment in development projects. He also is the moving spirit in another investment vehicle, European Securities Ltd (“European”), which is an Isle of Man company. He is a retired accountant. Mr Laing is an architect who also undertakes much investment in development projects. Mr Laing was the moving spirit in the acquisition of a plot of land, Glory Mill, High Wycombe, Buckinghamshire. This plot was acquired for commercial development and the acquiring company and developer was a single vehicle company, New Federal Inc (“New Federal”), incorporated in July 1999 in the British Virgin Islands. New Federal has a wholly owned subsidiary, Brightstar Properties Ltd (“Brightstar”) whose purpose is to facilitate the development of the Glory Mill site. 3.2. The Loan and Oral Agreements

[9]The necessary funds for the development were largely borrowed against the security of the development with a significant sum being raised by way of loans from investors including Mr Laing and his partner in his architects’ practice. At a late stage in the putting together of the necessary borrowing needed to complete the acquisition and development of the site, Mr Laing asked Mr Watson whether he wanted to participate in the development. Mr Laing was in some temporary difficulty since he needed the last £500,000 tranche to enable the prospective deal to be fully funded but time was running out. The most and obvious way for him to raise the money was to borrow it from his development partner from previous development projects and, as it turned out, Mr Watson was keen to participate. Thus, in late 1999, he caused Burkle to loan that sum to Mr Laing pursuant to a loan agreement and Mr Laing, without any formal contract, security, interest requirement or repayment terms, then loaned that sum to New Federal. The site was then acquired and the development was started using Brightstar to facilitate that work.

[10]The loan agreement between Burkle and Mr Laing, dated 23 December 1999, provided that Mr Watson’s loan, interest payments and other sums payable under the loan agreement were to be secured by Mr Laing by way of a charge over various shares held by him or on his behalf. The shares to be charged included Mr Laing’s shares in New Federal. The loan agreement also provided that Burkle would receive, as a further payment from Mr Laing, a sum equal to 12½% of the net profit realised by the development. Unlike the other investors in the development, the loan agreement did not provide for Mr Watson to be issued with shares in New Federal.

[11]Mr Watson contends that it was also agreed between him and Mr Laing, in a separate undocumented oral agreement made in October 1999 that he was also to receive from Mr Laing, as consideration for his loan, an absolute transfer to him of part of Mr Laing’s shareholding in New Federal. Mr Watson contends that it was agreed that Mr Laing would transfer absolutely to Burkle 12½% of New Federal’s issued shares. In summary, Mr Watson’s case is that the loan agreement was a completely separate transaction to the oral agreement providing for the transfer of part of Mr Laing’s shareholding in New Federal to Burkle. As it happened, the loan agreement was entered into after the share transfer agreement but was executed before that agreement since the shares were only transferred to Burkle in March 2000 after the loan agreement had been entered into. At Mr Watson’s request, these shares were subsequently reregistered in the name of his Isle of Man company, European in April 2001. The overall result of both agreements was that Mr Watson obtained the repayment of his loan, a shareholding through his company of 12 ½% in New Federal and, additionally a profit share of 12½% in the development that would be paid by Mr Laing when the development was complete.

[12]Mr Laing strenuously denies that he reached any oral agreement with Mr Watson or agreed to transfer part of his shareholding in New Federal to Burkle. He contends that the transfer of shares to Burkle that took place, although on the face of it an absolute transfer, was and was understood by Mr Watson to be, a transfer by way of a charge over the shares or their proceeds of sale so as to provide security for the loans, interest and profit share provided for by the loan agreement.

[13]The development was delayed and the loan had not been repaid at its repayment date. A second loan agreement was therefore entered into by Burkle and Mr Laing, dated 18 September 2002, which provided for later repayment of the loan. Mr Laing and Mr Watson disagree fundamentally about the extent and effect of this second loan agreement.

[14]Mr Laing contends that the September 2002 loan agreement superseded the earlier loan agreement in its entirety. As a result, his obligation to pay Burkle a share of the profits realised by the development was discharged. This discharge occurred because the second loan agreement excluded all reference to the payment by him of a sum equal to a 12½% share of the profit realised by the development whereas this provision was contained in the first loan agreement.

[15]Mr Laing contends that that omission and the substitution of the shareholding for the entitlement to a profit share payment occurred as a result of an earlier oral agreement reached between Mr Watson and himself during a telephone conversation in April 2002 for which no admissible written record or confirmation exists. Mr Watson is as strenuous in his denial of this second oral agreement as Mr Laing is of the first oral agreement. He also asserts that the first loan agreement was only varied by the second loan agreement so that the provisions in the first as to a profit share payment survived, the effect of the second agreement being merely to vary the terms relating to the repayment of the loan. 3.3. Mr Kelly and Ms Krywald

[16]Mr Kelly had acted for Mr Laing for many years but, at his instigation, he acted for Burkle in the transaction leading up to the first loan agreement and in the discussions leading up to its subsequent modification or replacement by a second loan agreement. Mr Kelly has always contended that he was acting for both Burkle and Mr Laing in both transactions but Judge Toulmin, as an essential finding in his judgment that disposed of Mr Laing’s discovery application, held that Mr Kelly was acting only for Burkle during both transactions. Ms Krywald acted for New Federal when it reissued shares in Burkle’s name but she was only marginally involved in the discussions leading up to each of the two loan agreements. 3.4. The Current Dispute

[17]The current dispute between Burkle and Laing arises out of Burkle’s claim to a share in the profit of the development, a claim that relies on the profit share provisions of the first loan agreement. Mr Laing denies that those provisions remain in force and contends that he owes no surviving obligations to Burkle. However, the second loan agreement does not clearly and unequivocally provide that it supersedes the entire first loan agreement and Mr Laing wishes to establish that he reached the second oral agreement with Mr Watson in April 2002 so as to enable the ambiguous terms of the second loan agreement to be interpreted in the way he contends for. Mr Watson, on the other hand, wishes to establish that he reached the first oral agreement with Mr Laing so as to show that it is extremely unlikely and improbable that he would have reached the second oral agreement contended for since, pursuant to the terms of that first oral agreement, he had already acquired through Burkle an absolute title to, and ownership of, the shareholding in New Federal that Mr Laing contends was only passed to Mr Watson’s company, European, as a result of the second oral agreement. 3.5. Supporting or Corroborative Evidence of the Oral Agreements

[18]In deciding whether or not either oral agreement was reached, the parties wish to rely on such extrinsic or corroborative evidence of these agreements as exists. In Mr Laing’s case, he wishes to rely on what he contends is an admission by Mr Watson to Mr Kelly made during a conversation covered by legal professional privilege about the proposed terms of the second loan agreement that occurred soon after the second oral agreement had been made on an occasion covered by legal professional privilege. At the time, Mr Watson and Mr Kelly were negotiating the terms of what became the second loan agreement and Mr Kelly was acting for Mr Watson albeit that he erroneously thought at the time that he was acting for both parties.

[19]Mr Watson’s Suggested Admission. The contents of that suggested admission have subsequently been disclosed to Mr Laing by Mr Kelly in communications he sent to him at a time when Mr Kelly erroneously thought he was acting for both men at the time of the conversation in question. This disclosure of the suggested admission occurred on 2 May 2002, soon after the date of the oral agreement that is alleged by Mr Laing. On that occasion, Mr Watson spoke with Mr Kelly and that conversation is recorded in an attendance note on which privilege is claimed and which has not been disclosed or shown to Mr Laing. However, the alleged content of that admission were paraphrased by me in a memorandum I submitted to the parties during the course of the submissions concerned with the admissibility of these statements of Mr Kelly and this summary was accepted as being accurate by both parties.

[20]The summary is as follows:

“You, Mr Kelly, need not bother about the 12½% profit share when negotiating a new loan agreement because my company, [European], now has a 12½% shareholding in [New Federal]. My entitlement to the profit share in the 1999 loan agreement has been satisfied by the allotment of those shares to [European]. The 1999 loan agreement therefore has no continuing effect. Thus, the proposed new profit share agreement is not to be proceeded with”

. Thus, if the admission was proved to have been made, it would provide corroboration of Mr Laing’s case that there was a second but not a first oral agreement, that the profit share obligation was replaced by the transfer to European of the beneficial ownership in the shares previously held as security and that the second loan agreement completely superseded the first loan agreement.

[21]Burkle and European Treated as Beneficial Owners of New Federal’s Shares from March 2000. For his part, Mr Watson wishes to rely on the circumstances in which the New Federal shares were issued by New Federal in Burkle’s name without any supporting documentation evidencing that the shares were issued as a security and not absolutely. He also wishes to show that from the outset, Mr Watson acted as the beneficial owner of the shares with Mr Laing and New Federal’s agreement in attending shareholders’ meetings and in receiving the information that shareholders were entitled to receive under the terms of a shareholders’ agreement. This agreement, significantly, precluded shares being held as security.

[22]It follows that any document in Ms Krywald’s possession relating to the issue of the New Federal shares to, and their registration in, Burkle’s name or of meetings involving Mr Watson as the representative of Burkle or European in their respective capacities of shareholders having an absolute title to the shares would be relevant as a means of showing that Burkle’s and European’s shareholding in New Federal prior to the alleged April 2002 agreement was treated as being a beneficial shareholding and not a nominee shareholding. If Mr Watson, Burkle and European were proved to have acted, and to have been treated, as beneficial owners of the New Federal shares from the moment they were issued in Burkle’s name in March 2000, that evidence would provide corroboration of Mr Watson’s case that there was a first but not a second oral agreement. 3.6. Current Applications.

[23]Overall, I am required to determine whether the contents of documents that apparently show that an admission against interest was made by Mr Watson on 2 May 2002 as to the suggested terms of a second oral agreement may be adduced in evidence even though the admission was apparently made by Mr Watson to Mr Kelly under terms of confidence and legal professional privilege.

[4]Factual Background to First and Second Alleged Oral Agreements

[24]The trial has reached the stage where Mr Laing has given evidence and has been cross-examined and Mr Watson has yet to give oral evidence but his witness statement has been included in the trial bundles. From this evidence, it is clear that both protagonists accept that any oral agreement is not documented and that the only document referring to the issue or transfer of the shareholding to Burkle’s name was a letter from Mr Laing to Ms Krywald dated 1 December 1999 in which he asked to “arrange for a share certificate representing a 12.5% interest in the project to be prepared in the name of Mr I.W.Watson.” By this time, as Judge Toulmin has already found, Mr Kelly was acting for Burkle in connection with its loan to Mr Laing and Mr Kelly faxed Mr Watson on 10 December 1999 and asked whether the share certificate should be issued in his name or in Burkle’s name. Mr Watson must have replied verbally or by fax since a share certificate was issued, dated 14 March 2000, in the name of Burkle for 6, 250 shares. Ms Krywald was asked by Mr Laing to arrange for this issue of the share certificate in what appears to have been her twin role of his solicitor and as solicitor to New Federal. She was also the company secretary of Brightstar Properties. To date, there has been no discovery of the documents showing whether and in what form this share issue was registered in the books of New Federal.

[25]At Mr Watson’s request, these shares were reregistered in the name of European and a new share certificate, with that company named as the registered shareholder, was issued dated 27 April 2001. This issue had been preceded by correspondence involving Mr Krywald and Mr Watson and a discussion or discussions between Mr Watson and Mr Laing.

[26]The alleged second oral agreement was preceded by the time for the repayment of the loan approaching but with no completion of the development in sight. The protagonists had therefore to address the question of when and by what means the loan was to be repaid by Mr Laing. Discussions as to when and how the loan was to be repaid appear to have been initiated by a letter from Mr Laing to Mr Watson which was received by him in late October or in November 2001, there is a dispute as to when the letter was written and dispatched by Mr Laing. This led to exchanges between Mr Laing and Mr Watson and between Mr Watson and Ms Krywald since it rapidly became clear that Mr Laing was contending that the shares issued to European were only issued as security for the loan whereas Mr Watson was contending that these shares were beneficially owned by European and not subject to any charge or requirement to return them once the loan was discharged.

[27]As a result, three related matters were being discussed by Mr Watson and Mr Laing. These were the basis upon which European was holding the shares in New Federal issued in its name, how the profit share calculation that would determine how much Mr Laing would have to pay Burkle was to be calculated and to what date and under what terms the loan would be rescheduled. These discussions were conducted orally between Mr Watson and Mr Laing and culminated, so Mr Laing contends, in the second oral agreement. Mr Kelly was instructed at a late stage of these discussions to draw up two agreements, one covering the loan and a second covering the profit share. Judge Toulmin has found that Mr Kelly was instructed by Burkle for this purpose. He sent drafts to both Mr Watson and Mr Laing on 20 March 2002 and the second alleged oral agreement then occurred, if it occurred, during a telephone conversation between the protagonists. Mr Watson then had at least three separate discussions with Mr Kelly during one of which the alleged admissions were made. On 3 May 2002, the day after those alleged admissions, Mr Kelly wrote to Mr Laing saying:

“I understand from Ian that you are happy with the Burkle Holdings Agreement in the form I sent you with my letter of 20 March 2002.”

[28]It is disputed why only the loan agreement was referred to and later executed. Mr Laing says it is because he had reached the second oral agreement with Mr Watson whose effect was to compromise the disputes between them as to the ownership of the New Federal shares and as to the method of calculating the profit share by his agreeing to give up his claim to the return of the New Federal shares and for them to be transferred beneficially to Mr Watson through his company European. Mr Watson, on the other hand, contends that there was no oral agreement and no understanding. All that happened was that the two protagonists agreed on the terms for rescheduling the loan and left unresolved the other two disputes.

[29]On either version, there was no need for the second, profit share agreement and Mr Kelly was clearly and obviously instructed not to proceed with that agreement by Mr Watson. Those instructions were communicated to Mr Kelly on 2 May 2002 and were communicated to him as Burkle’s solicitor but with the obvious intention of Mr Kelly finalising the drafting of the required contract or contracts and seeking agreement and the signature of Mr Laing for those agreed draft or drafts. Thus, whatever was said to Mr Kelly on 2 May 2002 by Mr Watson involved his instructing Mr Kelly on the terms of the draft agreement that Mr Kelly was to send to Mr Laing for signature and, by necessary inference, an explanation as to why the original instructions to prepare two agreements were being changed so that only one agreement would be finalised and signed by both protagonists. On Mr Laing’s case, that explanation would, or certainly should, have included details of the recently reached oral agreement that had compromised the two protagonists’ disputes as to the profit share and shareholding.

[30]The disputed documents were brought into being subsequently. The documents are all dated on various dates in 2003 and 2004. Their context was the resurfacing of the dispute as to the ownership of the New Federal shares which broke out again because Mr Watson was pressing for the repayment of the loan since the deferred repayment date had been and gone. Mr Laing was adopting the position, initially, that that loan would only be repaid once the New Federal shares were transferred back to him. Mr Kelly, in early 2003, still regarded himself as being jointly instructed by both protagonists. He did not attempt to intercede in this on-going dispute but he did reply to correspondence addressed to him on this subject by Mr Laing.

[31]The first document in point of time is Mr Kelly’s response to Mr Laing dated 31 January 2003. In it he informs Mr Laing that Mr Kelly had instructed him not to proceed with the profit share agreement at their meeting on 2 May 2002. This was by way of explanation as to why only one agreement had ultimately been entered into. This letter obviously led to a telephone conversation between Mr Laing and Mr Kelly and the second document is Mr Kelly’s attendance note of that conversation. Full details of the alleged admission are set out since Mr Kelly purports to summarise the conversation which included his reporting the alleged admission to Mr Laing. This document was disclosed as one of the documents annexed to Mr Kelly’s witness statement served in this action in November 2004. These documents included every document in his files relating to Glory Mill which involved a communication or record of a communication with Mr Laing. The witness statement had been prepared for use in the action at Mr Laing’s request and, when Mr Laing’s discovery application was issued on 1 March 2004 one week before the trial, was obviously also to be used to support that application.

[32]The third document is dated 7 April 2004 and is a letter from Mr Kelly to Mr Laing written after the present dispute had arisen and enclosing a letter he had just received from Mr Watson’s solicitors. The purpose of the letter was to inform Mr Laing that he had had to hand over copies of his files to Mr Watson’s solicitors, as they had requested, but he volunteered a statement to the effect that he had assumed that the second loan agreement had resolved all outstanding matters between the two protagonists.

[33]The fourth and fifth documents are letters written by Mr Kelly to, respectively, Mr Watson’s solicitors and to Mr Laing and they repeat, by way of a paraphrase, the terms of the alleged admission. These letters were written as part of the on-going correspondence relating to the request for Mr Kelly to hand over his Watson file to Mr Watson’s solicitors. In his letter to those solicitors, Mr Kelly asserts that he was acting for both parties. In the second he volunteers the information as to the content of the alleged admission in the course of a letter to Mr Laing responding to a fax he had just received which must have been seeking advice or assistance in relation to the on-going dispute between the two protagonists. Both letters were also exhibited to Mr Kelly’s witness statement. 5. Procedural History

[34]In April 2004, before the notice seeking the appointment of an arbitrator was served, Mr Watson’s new solicitors asked Mr Kelly to provide them with his files to enable them to be properly instructed in the dispute. Mr Kelly sent copies of the documents in his files that related to the Glory Mill project other than attendance notes and other communications between Mr Laing and himself which were removed because he regarded those as being privileged since he erroneously considered that he had been acting for Mr Laing under a separate retainer. At the same time, Mr Kelly sent Ms Krywald copies of documents in his file which comprised attendance notes and other communications with Mr Laing and copies of the same common documents that he had sent to Mr Watson’s solicitors which he regarded as not being subject to privilege vis-à-vis both protagonists.

[35]This action started as an application issued by Mr Watson seeking the appointment by the court of an arbitrator to resolve the dispute arising from his continuing claim to a profit share under the first loan agreement. This agreement contained an arbitration clause but Mr Laing had declined to agree to the appointment of an arbitrator. This was met by a defence to the effect that the agreement containing that arbitration clause had been superseded by the second loan agreement and a counterclaim seeking a declaration that the first loan agreement had been superseded by the second loan agreement. This was followed by directions for the trial of that issue, for discovery and for the service of witness statements. The parties then served witness statements. Mr Laing served as one of these statements, the witness statement from Mr Kelly. At a second directions hearing, I directed that each party serve a statement of case identifying each party’s case in relation to the declaration.

[36]Mr Laing’s case was further widened by his statement of case since he identified a second declaration he was seeking, namely that the shareholding registered in European’s name in New Federal was held beneficially. These cases were served a few days before the hearing which had been set for 7 March 2005. Mr Watson’s solicitors prepared trial bundles which included the witness statements and their exhibits that had been served including the statement and exhibit of Mr Kelly.

[37]On 1 March 2005, Mr Laing issued a disclosure application for documents in Mr Watson and Burkle’s possession which, broadly, covered all relevant documents brought into being by the retainer that Mr Kelly had relating to the Glory Mill project which Mr Watson was claiming legal professional privilege over but which Mr Laing contended were documents subject to a joint retainer or two overlapping several retainers by him and Mr Watson with Mr Kelly and were therefore disclosable to him.

[38]That application was determined by Judge Toulmin, having heard evidence from the two protagonists and Mr Kelly at a trial of an issue as to who had retained Mr Kelly over the relevant period from 1999 until late 2003. This trial of an issue used the trial documentation prepared for the hearing without any attempt to reduce it or to identify particular documents as being relevant to the issue. The evidence from Mr Kelly was given by his adducing the entirety of his witness statement and the exhibit and by his being cross-examined on the statement, albeit that there was no cross-examination of the passages in those exhibited documents which contained paraphrases of Mr Watson’s disputed admission.

[39]The issue was not defined but was clearly answered by Judge Toulmin to the effect that Mr Kelly was acting for Mr Watson and that there was no joint retainer or, save for a limited and immaterial purpose, no separate retainer with Mr Laing. In consequence, Mr Laing’s application was dismissed. The judge held that Mr Watson’s meeting with Mr Kelly on 2 May 2002 was covered by legal professional privilege provided on examination of any documents it can be properly claimed. Mr Watson’s counsel and solicitor subsequently examined the attendance note relating to that meeting and advised Mr Kelly who then maintained his claim to privilege in relation to it. That claim is not challenged by Mr Laing.

[40]Following the order dismissing Mr Laing’s application, Mr Watson issued the application with which I am concerned. This was issued on 11 May 2005 and was returnable on the first day of the trial. I initially directed that the application should be determined as part of the judgment but during the early stages of the trial, Mr Laing obtained permission to widen the terms of the declarations being sought so that he is now claiming not only declarations but also claiming rectification of the second loan agreement so as to include a term which makes it clear that it superseded in its entirety the first loan agreement and also a further claim for a declaration that Mr Watson is now estopped from claiming a profit share from Mr Laing.

[41]In the light of the further widening of the scope of the trial, and because the unresolved application to remove the evidence of the alleged admission from the trial could interrupt the cross-examination of Mr Watson and preclude lines of questioning that counsel for Mr Laing would wish to pursue, I directed that I should hear and determine Mr Watson’s application before he entered the witness box. 6. Mr Kelly’s Statements 6.1. The Issues

[42]Mr Watson’s application to exclude the Kelly material involves me in having to resolve a series of questions. In order these are:(1) What Judge Toulmin decided in the first application;

(2) whether the material is subject to legal professional privilege;

(3) whether Mr Watson has waived his entitlement to rely on a claim of legal professional privilege; and

(4) whether it is still possible for Mr Watson to rely on his equitable entitlement to restrain breaches of confidence. 6.2. The Reliance Placed on the Statements

[43]The material that is sought to be relied on constitutes the report by Mr Kelly of his recollection of what was stated to him by Mr Watson. The documents in which he sets out his recollection of the conversation on 2 May 2002 were drafted at least one year later but they were drafted from, or following the refreshing of his memory using, his attendance note of 2 May 2002. This is clear from an extract from his letter to Mr Laing dated 15 April 2004 in which Mr Kelly refers to this attendance note. In that letter, having summarised his recollection of the conversation on 2 May 2002, Mr Kelly states:

“see the notes of our conversation with Mr Watson on 2 May 2002 on file number BUR336/3.”

This is a reference to his attendance note of that conversation.

[44]Thus, the relevant extracts of these documents constitute first or second hand hearsay, depending on whether the attendance note was used as the source of the summary provided by Mr Kelly or merely as the means of refreshing his memory. The admissibility of the summary is now governed by the terms of the Civil Evidence Act 1995. That provides, in summary, that:(1) A CPR 33.2(3) statement must be served. The notice should identify the hearsay. In this context, that means that the statement should clearly identify the words used by Mr Watson that are to be adduced in evidence and identify the occasion, the context of the conversation or meeting, how Mr Watson came to be saying these matters and why Mr Kelly says he is able to give this evidence to the court given that he was acting as Mr Watson’s solicitor at the time he was speaking to Mr Watson and hearing the words being reported (CPR 33.2(3)) and CEA, sections 2(1)(b) and 4).

(2) There is no need for Mr Kelly to give evidence if the context of the statement is clear from the witness statement or document containing the hearsay but Burkle can call for him to cross-examine him. Such cross-examination is limited to cross-examination “on the contents of the statement.” (CPR 33.4(2)).

(3) Burkle can call for reasonable and practicable particulars of or relating to the evidence.

[45]Mr Laing served Mr Kelly’s witness statement with the relevant documents included in the exhibited documents. The relevant passages were then highlighted in the exhibit to the witness statement served by Mr Watson’s solicitor in support of Mr Watson’s application seeking to exclude the disputed material. In case this did not serve as a sufficient Civil Evidence Act notice required by CPR 33.2(3), Mr Laing served a discrete notice under CPR 33.2(3) during the trial. No point was taken that the appropriate notice was not served and on Mr Watson’s behalf it was stated that he neither wished to cross-examine Mr Kelly on the statements if they were admitted nor did he wish to call for particulars of it.

[46]What must be ascertained is, however, whether the statement is admissible since it is only admissible in hearsay form if it is admissible at all. The statement, whether in direct or summarised form, amounts to a declaration against interest or an admission by Mr Watson since it is directly contrary to his case at trial. He denies that he ever made an agreement with Mr Laing or that he accepted that the shareholding in New Federal in European’s name was a beneficial interest as a result of, and in consideration for, the cancellation of Mr Laing’s obligation to pay Burkle a profit share payment. The statement, if made, would amount to a contemporaneous admission both that the agreement was made and as to its consequences contended for by Mr Laing. Such a statement would have been admissible at common law even if related as first hand hearsay. It would not, however, have been admissible as second hand hearsay and, in either form, would not have been admissible if the admission was being recounted by someone tied to a duty of confidence or if it was subject to legal professional privilege. Those last two exclusions still apply to the statement, if applicable, even if the statement is sought to be admitted under the Civil Evidence Act 1995. 6.3. Parties’ Submissions

[47]Mr Watson’s submissions were short and clear. He submitted that the contents of Mr Watson’s statements to him were made under circumstances governed by legal professional privilege. That has already been determined by Judge Toulmin. The disclosure of the statement, or the disclosure of what was said by Mr Kelly to have been said, amounted to serious breaches of Mr Kelly’s duty of confidence owed to him since these statements were covered by legal professional privilege. Mr Kelly has never authorised that disclosure to Mr Laing nor waived his privilege in the statements. He may now, by order or injunction, enforce his privilege by requiring the statements to be excluded from the trial, for their contents to be redacted from all documents in Mr Laing’s possession and for an order restraining him from using the material for any purpose.

[48]Mr Laing’s submissions were equally short and clear. He submitted that Mr Watson had authorised Mr Kelly to reveal the contents of this particular conversation to Mr Laing since it was a necessary part of the instructions he had given Mr Kelly to discuss and agree the terms of the replacement contract or contracts that he explained why only one of the two draft contracts would be proceeded with and the disclosure in question amounted to no more than such an explanation. Mr Laing also submitted that the material was not covered by legal professional privilege at all and nothing Judge Toulmin decided was to the contrary. Finally, Mr Laing submitted that Mr Watson had waived his privilege or that it was too late now to rely on it since the material had been deployed at the first trial without objection. 6.4. Webster v James Chapman

[49]It is helpful first to consider the decision of Scott J, sitting as Vice-Chancellor of the County of Palatine of Lancaster in Webster v James Chapman & Co (a firm) and others.

[1989] 3 All ER 939

. This decision was not referred to directly in argument but it was referred to in the materials cited and it helpfully encapsulates the legal principles that I must apply to this disclosure and admissibility dispute.

[50]In Webster, a personal injuries action, the claimant had commissioned a report as to how the relevant accident had occurred. This was adverse to the claimant and his solicitors wrote to the expert asking him to reconsider his report in the light of further instructions. They also wrote to the defendant’s solicitors informing them of their intention to rely on an expert’s report but, inadvertently, sent a copy of the draft with the letter. The claimant obtained a revised report more favourable to him and asked the defendant’s solicitors to return the report but they declined to do so. The claimant unsuccessfully sought an injunction requiring the defendant to return the report and to refrain from relying on its contents.

[51]Scott J first explained the distinction between legal professional privilege and confidentiality. All communications covered by legal professional privilege are also covered by a duty of confidentiality. Privilege in a document, once lost, cannot be reclaimed whereas equity will restore the confidentiality in a document where this remains possible even if it has been lost. In Webster’s case, as arguably in this case, the privilege and the confidentiality were lost by virtue of the unauthorised acts of a solicitor acting in breach of his duty of confidence. The documents have, therefore, lost their privilege. Secondary evidence of the contents of the document can be adduced even if the document is returned. However, equity can enforce the solicitor’s duty of confidence if, in the exercise of its discretion, it is appropriate to do so.

[52]Scott J explained how that balancing exercise should be exercised:

“… If a document has been disclosed” [or I interpolate handed over] “be it by trickery, accident or otherwise, the benefit and protection of legal privilege will have been lost. Secondary evidence of the document will have come into the possession of the other side to the litigation. The question then will be what protection the court should provide given that the document which will have come into the possession of the other side will be confidential and that use of it will be unauthorised. If the document was obviously confidential and had been obtained by a trick or by fraud, it is not difficult to see that the balance would be struck in favour of the party entitled to the confidential document. If the document had come into the possession of the other side not through trick or fraud but due to a mistake or carelessness on the part of the party entitled to the document or by his advisers, the balance will be very different from the balance in a fraud case. Suppose a case where the privileged document has come into the possession of the other side because of carelessness on the part of the party entitled to keep the document confidential and has been read by the other party, or by his legal advisers, without realising that a mistake has been made. In such a case, the future conduct of the litigation by the other party would often be inhibited or made difficult were he to be required to undertake to shut out from his mind the contents of the document. It seems to me that it would be thoroughly unfair that the carelessness of one party should be allowed to put the other party at a disadvantage. I do not think that this branch of the law is one where any firm rules as to how the balance should come down should be stated. It must be highly relevant to consider the manner in which the privileged document has come into the possession of the other side. It must be highly relevant to consider the issues in the action and the relevance of the document to those issues. It must be highly relevant to consider whether, under any Rules of the Supreme Court, the document ought in one way or another to have been disclosed anyway. All circumstances will have to be taken into account, as it seems to me, in deciding how the balance should be struck. So I do not accept the submission that in the present case I have no discretion. I regard the present case as one in which the claimant is seeking to protect the confidential and privileged document, namely the original report. The document has, by mistake, found its way into the hands of the defendant and I must consider whether its confidential character should now be protected by the grant of orders the plaintiff seeks so as to prevent any use of it being made by the defendant.”

See pages 946h – 947 e.

[53]To this statement of general principle, I would add the following passage in the judgment of Mann J in USP Strategies Plc v London General Holdings Limited Unreported, 1 March 2004,

2004 EWHC 373

(Ch). where the judge stated, in a case in which he had to decide whether to order the return of privileged and confidential material and to disentitle reliance upon it at trial:

[54]“I therefore approach this point on the footing that the normal starting point would be for appropriate relief to be granted to restrain the use of privileged material. So far as I have a discretion to do otherwise, it is not to be exercised merely on the footing that if I do not exercise it, the truth is more likely to come out. There must be some other factors, such as delay, acquiescence or other equitable defences which must be sufficiently strong to override the normal, very strong principle, that privileged communications are protected from disclosure.” See paragraph 26. 6.5. The Balancing of the Various Relevant Factors 1. Circumstances of Disclosure

[55]The disclosure to Mr Laing occurred partly in letters or telephone conversations in February 2003 and partly when as a result of being requested by each parties’ solicitors in April 2004 to provide copies of relevant documents to assist each party to prepare for the impending action. Mr Kelly, as Judge Toulmin has now found, was acting only for Mr Watson and his actions in February 2003 and April 2004 were erroneously motivated by his belief that he was acting for Mr Laing as well. The disclosure would only have come to Mr Watson’s attention when Mr Kelly’s witness statement was served with the offending documents exhibited to it in November 2004.

[56]Despite the unauthorised nature of the disclosure, it can be justified on two grounds. The first is that Mr Watson had clearly authorised Mr Kelly to communicate drafts of the proposed replacement agreements and to seek his agreement to those drafts. Those instructions extended, by necessary implication, to any instructions he gave Mr Kelly by way of explanation for the current drafts or, following the conversation on 2 May 2002, for why the two draft contracts had been replaced by one draft contract and why the draft profit share agreement was being withdrawn.

[57]A further justification is that the two protagonists had, on Mr Laing’s case, just reached an oral agreement which was intended to have legal effect. Once an agreement has been reached, the privilege attaching to the terms of that agreement disappears so as to enable the fact and terms of an agreement to be identified. The alleged admissions are statements by Mr Watson as to the fact and terms of a concluded contract recently entered into by the two protagonists and, as such, are disclosable to the other contracting party and are no longer protected by legal professional privilege. The fact that Mr Watson disputes ever making the statements or that he entered into the contract does not affect the loss of privilege attaching to the statements nor their disclosability since they are disclosable as evidence, even if disputed evidence, of a concluded contract.

[58]Thus, the statements were no longer protected by legal professional privilege in the hands of Mr Kelly at least so far as disclosure to Mr Laing is concerned. 2. Use of the Statements in the Trial

[59]The statements were exhibited to Mr Kelly’s witness statement served in November 2004 and no formal objection was then registered to their use as part of the evidence he was to adduce. The witness statement and its exhibit were then added to the trial bundles then being prepared and no intimation of the current application was given. This addition was made by Mr Watson’s solicitors but their insertion into the trial bundles was not done in a way that indicated a waiver of any privilege in the documents, the solicitors were merely mechanically bundling into convenient trial bundles all the witness statements that had been served.

[60]However, the parties attended the first day of trial and the trial opened. The disclosure application issued by Mr Laing was then tried as a first issue in the case. The nature of the hearing was such that the issue of the disclosability of the documents and the status of Mr Kelly were tried as issues with evidence, speeches and a formal finding. The evidence that was tendered included the entirety of Mr Kelly’s witness statement and the exhibits and he was cross-examined on parts of the statement. In re-examination, Mr Laing’s counsel asked Mr Kelly to look at the attendance note he had made of the telephone conversation of 24 February 2003 and he asked him whether the document was an accurate record of what was said. Mr Kelly replied that it was. Although the question was asked in the context of the first paragraph, which dealt with a different subject, the answer relates to the whole attendance note or, at least it cannot be readily confined to the first paragraph. That question and answer made the contents of that document, being one of the disputed documents, evidence in the trial. 3. Delayed Application

[61]The present application was only issued after Judge Toulmin’s judgment was handed down. It would have been more appropriate for this application to have been issued and heard as part of the hearing of the discovery issue heard by Judge Toulmin. The issues this application raise overlap with the issues in that earlier application and the question of disclosure of documents concerned with both alleged oral agreements goes to the heart of the substantive issues of liability that must be decided. The present application is, therefore, somewhat delayed. 4. Conclusion

[62]The necessary balancing points clearly against my granting Burkle equitable relief. Although I start from the presumption that the confidentiality of the material will be protected, I rapidly move away from that starting point. The alleged admissions are admissible, they have been deployed in the first trial of this dispute, the application to exclude them could and should have been issued so as to have been heard simultaneously with Mr Laing’s application and it is no longer possible to restore the confidentiality in the statements given the use made of the relevant documents already in the earlier privilege trial.

[63]Thus, Burkle’s applications are refused and the documents may be deployed at the trial. HH Judge Thornton QC

Cited in 1 later judgment

Simpkin v The Berkeley Group Holdings Plc 2017