A recent decision from the Court of Session (Inner House) serves as a timely reminder that if you wish to claim legal professional privilege in respect of advice received, you should be wary about disclosing that advice in any circumstances, as you may be found to have waived privilege.

The Facts

Scottish Lion was an insurance company which, as part of their business, provided occurrence based insurance relating to risks including exposure to asbestos, pollution and health hazards - losses which may not become evident until long after the exposure to which they relate. After failing to write new business, the company went into run-off and, although solvent, sought to have the court sanction a proposed scheme of arrangement under section 889 of the Companies Act 2006. This cut off scheme proposes the solvent winding up of the company, resulting in loss of cover for its policy holders in exchange for amounts calculated by reference to the estimated value of their prospective future claims.

The scheme requires the sanction of the court. However, before the scheme can be sanctioned, it is necessary, amongst other things, for the scheme to be approved by the requisite majority of creditors. Following the lodging of the petition seeking sanction of the scheme, meetings of the creditors were convened for the purpose of ascertaining whether the requisite majority were in favour of the scheme.

The Arguments

The chairman of the meetings held to approve the scheme reported that the requisite majority had approved the scheme. However, the chairman's findings were disputed. The valuation which had been made of the creditors' claims for the purposes of voting at the meetings was critical to the outcome of the meetings. In assessing the appropriate valuation of the various creditors' claims, the chairman of the meetings had taken account of confidential and privileged documents which had been lodged by certain creditors, all large US-based multinationals.

The opponents of the scheme argued that it was necessary for these documents to be disclosed in order to ascertain whether the valuation process had been properly carried out and that any privilege in the documents had been waived when the documents were submitted to the chairman of the meetings held to approve the scheme. The creditors concerned opposed this application, arguing that the documents were the subject of legal professional privilege ("LPP") and that privilege had not been waived.

The Decision

The court found (confirming the decision at first instance) that privilege had been waived. The court accepted that the documents concerned had been submitted specifically for the purpose of voting on the proposed scheme so as to support the value which the creditors sought to have attributed to their votes. However, these documents were lodged in the knowledge that an application had been made to the court to have the scheme approved and that the application in question may be adversarial and contentious with the possibility of a contested hearing. In the circumstances, the court decided that the creditors in question must be taken to have waived any right to object to the disclosure of the documents in the proceedings to sanction the scheme, to the extent that disclosure is necessary to enable the court to deal with the issues raised in connection with such sanction. The court stated, however, that no wider waiver of privilege should be inferred.

Comment

LPP provides important protection to a party when seeking advice on potentially contentious issues. Particular care should always be taken to ensure that this protection is not lost by disclosing such advice in any context.