ON APPEAL FROM THE HIGH COURT, CHANCERY DIVISION
THE HONOURABLE MR JUSTICE ROTH
Strand, London, WC2A 2LL
B e f o r e :
LADY JUSTICE KING
LORD JUSTICE DAVID RICHARDS
| DECHERT LLP
|- and -
|EURASIAN NATURAL RESOURCES CORPORATION LIMITED
Lord Pannick QC, Richard Lissack QC, Benjamin Williams QC and Tamara Oppenheimer (instructed by Signature Litigation LLP) for the Respondent
Hearing date: Thursday 17 December 2015
Crown Copyright ©
Lady Justice Gloster:
"The factual background
3. In December 2010, ENRC received a report from a whistleblower indicating that there may have been fraud involving some of its overseas operations. ENRC was at that time listed on the London Stock Exchange and it instructed outside lawyers to conduct an investigation. Initially, DLA Piper UK LLP was instructed but in April 2011 the partner there with conduct of the matter moved to Dechert and ENRC instructed Dechert to take over the investigation.
4. Following a leak of the whistleblower report and resulting articles in the press, the Serious Fraud Office ("SFO") contacted ENRC and reminded it of the so-called self-reporting process which they operate in such circumstances. ENRC and Dechert, together with ENRC's general corporate law advisors, Jones Day, held meetings with the SFO in late 2011, and ENRC thereafter agreed to a considerable expansion of the scope of Dechert's investigation as part of a possible self-reporting process. ENRC entered into a formal written retainer with Dechert in April 2011.
5. The scale and range of the expanded investigation is apparent from the level of Dechert's fees. In total, Dechert has billed ENRC over £16.3 million, of which some £11.7 million was invoiced in the period from 23 July 2012 to 11 April 2013. ENRC became increasingly concerned about the level of Dechert's fees and what it perceived to be serious over-charging. On 27 March 2013, ENRC terminated Dechert's retainer and instructed other lawyers. It is unnecessary to decide to what extent the decision to terminate Dechert's retainer was due to the level of its fees or made for other reasons.
6. Subsequent to termination of its retainer, Dechert submitted invoices in the total amount of some £5.1 million. ENRC agreed to pay those invoices in order to obtain a release of Dechert's lien over its files, in return for the express agreement by Dechert that it would not object to a detailed assessment of those costs. The balance of the £11.7 million had been paid prior to ending the retainer, and Mr Ehrensberger, the General Counsel of ENRC, explains in his witness statement that this was because the company was concerned not to do anything that might delay or jeopardise the self-reporting process with the SFO, or be perceived to be obstructing that process.
7. ENRC's application under sect 70 SA 1974 was issued on 18 October 2013. In opposition to that application, Dechert served in February 2014 detailed evidence from two partners and two associate solicitors employed by the firm. Those four witness statements, which in themselves exceed 220 pages, are accompanied by 13 lever arch files of exhibits. Altogether, Dechert's evidence gives what purports to be a very full account of the various practices at ENRC being investigated, identifying many of the individuals involved and describing the way they conducted themselves in response to Dechert's investigations.
8. It is not in dispute that much of Dechert's evidence comprises a mass of otherwise confidential and sensitive information which had come into its hands only as a result of its instruction by ENRC and the work done on ENRC's behalf. Subject to the considerations discussed below, this is information and comprises documents that would be covered by legal professional privilege ("LPP").
9. The SFO investigation has since developed into an active criminal inquiry. It is clear that if ENRC's application for taxation, and the detailed evidence served, were heard in public, the SFO would attend that hearing in order to glean information of assistance to its inquiry. For present purposes it can be assumed, and Dechert does not seriously dispute, that at least some of the material set out in Dechert's evidence could potentially and significantly prejudice the interests of ENRC in the SFO inquiry. Indeed, so concerned is ENRC about the disclosure of this information that it has made clear that if its application for taxation is not heard in private it will rather withdraw the application than proceed."
i) The report received by ENRC in December 2010 from a whistleblower indicated possible wrongdoing on the part of its executive management in Kazakhstan.
ii) ENRC delegated the authority and power in respect of the investigation of the whistleblower complaint to a Special Investigations Committee ("SIC") which was comprised of independent board members.
iii) In April 2011, Dechert was retained by ENRC to conduct an investigation into that complaint. As a consequence of the delegation of authority to the SIC, Dechert's instructions were provided by the SIC at all times throughout its retainer.
iv) In August 2011, following a leak of the whistleblower report, ENRC initiated a possible self-reporting process to the SFO.
v) On 27 March 2013 Dechert's retainer was orally terminated. The termination was confirmed in writing on 1 April 2013.
vi) Immediately subsequent to Dechert's termination, the SFO instituted a formal criminal investigation into ENRC's affairs. That investigation continues.
vii) On 22 October 2013, ENRC issued a detailed assessment application under section 70(3) of the Solicitors Act 1974.
viii) Mr Ehrensberger, whose first witness statement supports the application, was not a member of the SIC after 9 July 2012 (at the latest) and he was not privy to its workings as he was identified as having been personally involved in transactions in Africa then being investigated. Despite this, Mr Ehrensberger was responsible for the filing of the section 70 proceedings and, as explained below, in his evidence filed on behalf of ENRC, Mr Ehrensberger makes a number of very serious allegations against Dechert.
"… Dechert made decisions regarding the methods and scope of the investigation for the principal purpose of expanding the work to generate higher fees rather than to serve the interests of the investigation, or indeed ENRC as Dechert's client."
" ... The situation is the claimant terminated its retainer with the defendant. It has sought in the witness evidence to make a number of serious, allegations, against the defendants, even put at its lowest, looking at some of the schedule to which I was provided by the defendant in this case.
It has chosen to bring these matters before the public arena and in doing so must therefore accept the consequences of that position. In those circumstances the claimant's application is dismissed."
"Here, ENRC relies in particular on CPR 39.2(3)(c) and (g) together, on the basis that the greater part of the material in Dechert's evidence is subject to LPP and therefore confidential. ENRC submits that whilst LPP has by implication been waived to enable Dechert to place relevant material before the costs judge to resist the challenge to its bills, that waiver is limited to that particular purpose and does not constitute a general waiver of LPP. On the facts of the present case, it is in the interests of justice to preserve the confidentiality from any wider disclosure and thus protect the documents and information from scrutiny by the SFO."
i) Where there was an implied waiver by reason of proceedings brought against a solicitor, the solicitor must be entitled to use any relevant privileged documents"in such a manner as he fairly requires for the purpose of his defence. That will therefore include showing them to potential witnesses, experts, and his professional indemnity insurers":see paragraph 35 of the judgment.
ii) Although the Court of Appeal's judgment in Paragon Finance plc v Freshfields  1 WLR 1183 ("Paragon") established that, where a client started professional negligence proceedings against its solicitor, it would be held to have impliedly waived privilege in respect of all relevant materials, that waiver was of limited scope. Paragon was not dispositive of ENRC's application in favour of Dechert because neither in Paragon nor in any of the other cases on implied waiver was there:"any suggestion that use of the documents by the solicitor in proceedings in open court would damage the legitimate interests of his former client, or that all or part of the negligence action should therefore be heard in private. The issue simply did not arise".See paragraph 37 of the judgment.
iii) He rejected Dechert's arguments that all the cases dealing with limited waiver concerned the provision of privileged documents to a third party, where that provision was expressed, or implied, to be for a limited purpose, and that was recognised as a special circumstance; that none of those cases concerned privileged documents which were already in the possession of the party prior to the waiver; and that, in the latter circumstances, the waiver could not be limited but was complete. In rejecting this argument, Roth J said at paragraph 45:"However, in my judgment there is no reason as a matter of principle, practicality or authority why the circumstances giving rise to a limited waiver should be restricted in the manner which Mr Hollander [leading counsel for Dechert] suggested. Although the leading cases concerning professional negligence actions against a solicitor speak of an implied waiver of privilege in general terms, in my view, that simply reflects the fact that in none of those cases was this question [the question of whether the hearing should be in private] raised for consideration. In none of them was there any issue about holding the hearing in public. More significantly, the authorities which have directly considered limited waiver do not suggest that the concept has an inherently restricted application. The words of Lord Millett, speaking for the Privy Council in B v Auckland District Law Society, set out above, are of general scope ("It must often be in the interests of the administration of justice…."). Since it is established that a waiver of privilege may be express or implied, I consider that in appropriate circumstances an implied waiver can be limited in the same way as an express waiver."
iv) Notwithstanding that ENRC's waiver of privilege was only limited, so that the relevant documents remained privileged as against third parties, the question of whether the hearing should take place in public or private was ultimately a matter of discretion under CPR 39.2(3). Exercising his discretion, Roth J held that "there is the potential for very real prejudice to ENRC if the matter were heard in public" and that, because ENRC had stated that it would not proceed with its section 70 proceedings if the hearing were in public, the "effective protection of ENRC's rights therefore requires that the matter be heard in private": see paragraph 66 of the judgment.
v) Whilst Dechert has an "understandable concern to vindicate its reputation", that concern would "be entirely met by a public judgment determining the costs application" and therefore there was no need for the hearing itself to be in public: see paragraph 68 of the judgment.
vi) There was no public interest on the facts of this case for holding the hearing in public, in which context it was relevant that "this is not adversarial litigation but the exercise of a supervisory jurisdiction by the court over its officers": see paragraph 69 of the judgment.
"that the question whether or not there has been an implied waiver, and more particularly whether or not a waiver is limited, is, in my judgment, a matter of considerable importance because, for instance, the person who is involved in the proceedings and who is not the client, namely Dechert LLP, may wish to use the documents for some other purpose,"'
i) First, Roth J misunderstood the principle that was established by the Court of Appeal in Paragon and the rationale of the dicta of Lord Bingham in that case.
ii) Secondly, Roth J wrongly held that the principle which stems from Paragon can be qualified by reference to the line of authority concerning limited waiver.
In relation to the judge's alleged misunderstanding of the Paragon principle
i) First, the point was irrelevant. According to the Paragon principle, clients had to make an election. If they pursued proceedings against their solicitors they had to live with the consequences, namely that, by commencing proceedings, whether pursuant to section 70 or in a professional suit, they would lose the right to assert any confidence in the relationship. As Morgan J correctly held in V v T  EWHC 3432 (Ch), the mere fact that a hearing in open court might be "painful, humiliating, and a deterrent" to a party was not a proper basis for departing from the open justice principle. That was because the principle was concerned with the public interest in the administration of justice as opposed to the private interest of individual litigants.
ii) Second, even leaving aside Dechert's admitted desire to vindicate itself at a public hearing, there was a public interest in section 70 proceedings being heard in public (and not merely that judgments should be in public). In the vast majority of cases brought under section 70 a solicitor would need to refer to privileged documents for the purposes of his defence. If Roth J's conclusion were correct, the effect, therefore, would be that in all such cases a hearing in private could be obtained by the client. But that would be to turn the general rule in the CPR on its head.
In relation to the judge's erroneous conclusion that the principle which stems from Paragon can be qualified by reference to the line of authority concerning limited waiver
i) The common law sought, wherever possible, to proceed by way of open hearings. But there were exceptions where it was necessary to protect other public interests. An important public interest recognised by the common law was the protection of LPP.
ii) Because of the importance of LPP, the common law has recognised the principle of limited waiver of documents which were otherwise protected by LPP; see Lord Millett for the Judicial Committee of the Privy Council in B v Auckland District Law Society  2 AC 736, 761-762, at paragraph 68 .
iii) In the present context, because of its issue of the section 70 proceedings, there had been a limited waiver of LPP by ENRC. But that waiver was only to the extent necessary to enable Dechert to defend such proceedings. LPP remained valid for all purposes other than as needed by Dechert for that purpose. A private hearing was necessary to protect the LPP of ENRC. A hearing in private did not impede Dechert's ability to defend the section 70 proceedings. As the judge held (see paragraphs 65-69 of the judgment), Dechert had no legitimate interest in a public hearing. On the contrary, the public interest required a private hearing. ENRC had made clear that because of the need to protect its LPP, if the section 70 proceedings were to be heard in public, ENRC would abandon those proceedings.
iv) It was well established that, for the purposes of an inter partes detailed assessment of costs, the waiver of LPP by the applicant was limited and for the purpose of the assessment only: Goldman v Hesper  1 WLR 1238 (Court of Appeal) and Bourns Inc v Raychen Corp  3 All ER 154 (Court of Appeal). There was no principled basis for adopting a different approach in the context of a solicitor client detailed assessment.
v) Paragon did not establish that when a client commences professional negligence proceedings against a former solicitor the implied waiver of LPP is absolute. Paragon recognised an implied waiver "so far as necessary for the just determination of his claim" (p.1188E G). An implied waiver was limited in order to serve that purpose whilst also protecting the interests of the client (and the legal system) in LPP. That issue was not addressed by the Court of Appeal in Paragon.
vi) In any event, this appeal was concerned with the approach to waiver of LPP and privacy in the context of detailed assessment proceedings, not with the approach to these issues in the context of professional negligence proceedings.
vii) For those reasons, which reflect those given by the judge, the judgment should be upheld.
Discussion and determination
"It is a general principle of our constitutional law that justice is administered by the courts in public, and is therefore open to public scrutiny."
He added, at paragraph 27, that it is for the courts, exercising their inherent jurisdiction, to decide on the ambit and application of this principle. At paragraph 29, he referred with approval to the recognition by Viscount Haldane LC in Scott v Scott  AC 417, 437-438 that the principle of open justice is subject to exceptions. Viscount Haldane said:
"As the paramount object must always be to do justice, the general rule as to publicity, after all only the means to an end, must accordingly yield. But the burden lies on those seeking to displace its application in the particular case to make out that the ordinary rule must as of necessity be superseded by this paramount consideration. The question is by no means one which, consistently with the spirit of our jurisprudence, can be dealt with by the judge as resting in his mere discretion as to what is expedient. The latter must treat it as one of principle, and as turning, not on convenience, but on necessity."
"Whether a departure from open justice was justified in any particular case would depend on the facts of that case. ... Central to the court's evaluation will be the purpose of the open justice principle, the potential value of the information in question in advancing that purpose and, conversely, any risk of harm which its disclosure may cause to the maintenance of an effective judicial process or to the legitimate interests of others."
"A hearing, or any part of it, may be in private if -(a) publicity would defeat the object of the hearing;
...(c) it involves confidential information ... and publicity would damage that confidentiality;
(g) the court considers this to be necessary, in the interests of justice".
As the Court of Appeal said in X v Dartford and Gravesham NHS Trust  EWCA Civ 96, paragraph 10, CPR Part 39:
"seeks to encapsulate both the general rule of open justice and the particular cases in which it may be appropriate to depart from it."
66. The Court of Appeal rejected the Society's contention that privilege could not be waived for a limited purpose and continue to be maintained as an objection to any wider use. The Society renewed its argument before the Board. Privilege, the Society submitted, is merely a right to resist compulsory disclosure. Once disclosure has occurred, it is no longer a question of privilege. Ex hypothesi a right to resist disclosure cannot be invoked against the person to whom disclosure has already been made. If he is to be restrained from making use of the information, it must be on the ground that the information is confidential. But the equitable right to the protection of confidential information may be outweighed by a countervailing public interest in having the information made available. In the present case the Judge held that the public interest would have prevailed over the firm's rights to preserve confidentiality.
67. Their Lordships agree that privilege is a right to resist the compulsory disclosure of information. It has been so characterised in numerous authorities. It is sufficient to cite a passage from the judgment of Hoffmann J in Black & Decker Inc v Flymo  1 WLR 753, 755:
"It is not possible to assert a right to refuse to disclose in respect of a document which has already been disclosed. Once the document has passed into the hands of the other party the question is no longer one of privilege but of admissibility."
68. The Society's argument, put colloquially, is that privilege entitles one to refuse to let the cat out of the bag; once it is out of the bag, however, privilege cannot help to put it back. Their Lordships observe that this arises from the nature of privilege; it has nothing to do with waiver. It does not follow that privilege is waived generally because a privileged document has been disclosed for a limited purpose only: see British Coal Corporation v Dennis Rye Ltd (No 2)  1 WLR 1113: Bourns v Raychem Corporation  3 All ER 154. The question is not whether privilege has been waived, but whether it has been lost. It would be unfortunate if it were. It must often be in the interests of the administration of justice that a partial or limited waiver of privilege should be made by a party who would not contemplate anything which might cause privilege to be lost, and it would be most undesirable if the law could not accommodate it.
69. The Society argued that, once the documents were produced to Mr Ennor, they ceased to be privileged. Their Lordships consider that this is playing with words. It confuses the nature of the documents with the rights to which the arrangements with Mr Ennor gave rise. The documents are privileged because they were created for the purpose of giving or receiving legal advice. If they are not produced voluntarily, production cannot be compelled. If they are produced voluntarily, the right to withhold production no longer attaches to them. In that sense the privilege may be said to be lost. But they are the same documents, and it is not inappropriate to describe them as privileged. Their inherent characteristics are the same. The policy which protected them from unauthorised disclosure is the same. The cat is still a cat. It can be put back in the bag.
70. There is another confusion also. The appellants want to recover the documents because they are privileged. But they do not rely on privilege to found their cause of action. A party who has parted with possession of documents may have a right to recover possession on any one of a number of grounds. He may reclaim them because they belong to him; or because he has a contractual right to recover them; or because they are confidential; or because he has parted with them for a limited purpose and equity will not permit the recipient to retain them once that purpose is fulfilled. In the present case the documents are both privileged and confidential, but the appellants do not rely on privilege or confidentiality to found their claim to recover them. They rely on the terms of the arrangements under which they were supplied and the limited purpose for which they permitted use to be made of them. Their case is that there is no legal basis on which the Society can retain and make use of the documents free from the limitations which Mr Lusk imposed and Mr Ennor accepted.
71. The fact that the claim to recover the documents is made on equitable grounds does not mean that it must yield to an overriding countervailing public interest. The documents are both confidential and privileged. Whether a claim to the return of such documents is based on a common law right or an equitable one, the policy considerations which give rise to the privilege preclude the Court from conducting a balancing exercise. A lawyer must be able to give his client an unqualified assurance, not only that what passes between them shall never be revealed without his consent in any circumstances, but that should he consent in future to disclosure for a limited purpose those limits will be respected: see Goddard v Nationwide Building Society  1 QB 670, per Nourse LJ at p 685.
The arrangements with Mr Ennor.
72. The majority of the Court of Appeal accepted that it was possible to waive privilege for a limited purpose only, but held that Mr Lusk had not done so. They considered that he had waived the privilege for all the purposes of the Complaints Committee's investigations. They reasoned that, when reaching his agreement with Mr Ennor, Mr Lusk could not have believed that privilege applied in an investigation by a complaints committee or he would not have disclosed the documents to Mr Ennor at all. He must therefore have intended to preserve privilege for a quite different reason connected with the bloodstock litigation.
73. Their Lordships cannot accept this reasoning. It is inconsistent with the primary facts found on unchallenged evidence by Paterson J and with the express terms of Mr Lusk's letter, which offered to make the documents available "on the express basis that, in doing so, privilege is not waived". The limitations which Mr Lusk imposed were limitations on the use which Mr Ennor might make of the documents, not on the extent of the waiver. Save in respect of the agreed use, privilege was expressly reserved. It is true that a reason for maintaining the claim to privilege was that not all the litigation relating to the bloodstock partnerships had been resolved when the letter was written. But this was not necessarily the only reason, nor would it make any difference if it were. If on the true construction of Mr Lusk's letter, objectively ascertained, privilege was not waived, that is the end of the matter. It does not matter what his reasons were, nor whether they were wholly logical.
74. Their Lordships are not disposed to leave this case without expressing their dismay that a professional body representing solicitors, who have the most solemn professional obligation to honour their undertakings, should have seen fit to argue that it was free to disregard the obligations which Mr Ennor undertook on its behalf. The Society may wish to consider whether the most honourable course would be for it to return the documents without an order requiring it to do so.
75. Their Lordships will humbly advise Her Majesty that the appeal should be allowed, the order of the Court of Appeal set aside, and the orders of Paterson J restored. The appellants should have their costs in the Court of Appeal and before the Board.
76. The parties have agreed that, in the event of the appeal succeeding, certain documents should be removed from the Record and returned to the firm and that the identity of the first appellants should not be disclosed. Their Lordships order accordingly. The documents to be removed from the Record should be listed in a minute to be agreed between the parties; failing agreement either party may seek a further order from the Board."
"once a party puts forward privileged documents as part of his case for costs some measure of their privilege is temporarily and pro hac vice relaxed ... Any disclosure of privileged documents which does have to be made in the exercise of the taxing officer's discretion would in my judgment be only for the purposes of the taxation."
This principle was approved by Aldous LJ for the Court of Appeal in Bourns Inc at page162c where a submission that the above passage from Goldman was obiter was rejected. Aldous LJ added:
"It is possible to waive privilege for a specific purpose and in a specific context without waiving it for any other purpose or in any other context. Documents disclosed on taxation ... are disclosed for the purposes of that taxation and, perhaps absent special circumstances, the privilege is only waived for the purpose for which the documents are disclosed."
Aldous LJ also noted (at pages162j-163a):
"There is good reason to encourage voluntary disclosure of relevant documents in taxation proceedings. A party who claims payment may have to elect whether to pursue that claim in the light of knowledge that it might require disclosure of privileged documents. If he decides to pursue such a claim with the result that natural justice requires disclosure, he should not lose his right of confidentiality more than justice requires. Justice only requires that right to be lost for the taxation proceedings."
"When a client sues a solicitor who has formerly acted for him, complaining that the solicitor has acted negligently, he invites the court to adjudicate on questions directly arising from the confidential relationship which formerly subsisted between them. Since court proceedings are public, the client brings that formerly confidential relationship into the public domain. He thereby waives any right to claim the protection of legal professional privilege in relation to any communication between them so far as necessary for the just determination of his claim; or, putting the same proposition in different terms, he releases the solicitor to that extent from the obligation of confidence by which he was formerly bound. This is an implication of law, the rationale of which is plain. A party cannot deliberately subject a relationship to public scrutiny and at the same time seek to preserve its confidentiality. He cannot pick and choose, disclosing such incidents of the relationship as strengthen his claim for damages and concealing from forensic scrutiny such incidents as weaken it. He cannot attack his former solicitor and deny the solicitor the use of materials relevant to his defence." [My emphasis.]
Thus the language used by Lord Bingham supports the concept that the implied waiver of privilege of the client by bringing a negligence claim against a former solicitor is only: "so far as necessary for the just determination of his claim". To similar effect is the statement of Dillon LJ for the Court of Appeal at page 99A in Lillicrap v Nalder & Son, supra where he accepted the formulation by May J that:
"A client who sues his solicitor invites the court to adjudicate the dispute and thereby, in my judgment, waives privilege and confidence to the extent that it is necessary to enable the court to do so fully and fairly in accordance with the law including the law of evidence."[My emphasis.]
Dillon LJ added at p.99D:
"The waiver can only extend to matters which are relevant to an issue in the proceedings ...."
"Mr Gadd, basing himself on Lillicrap v Nalder  1 WLR 94 argues that by reason of his entering a defence to the Fee Proceedings Mr Bonas thereby waived confidence and that Mr Brice thereafter became free to use against Mr Bonas material which otherwise would have been denied him under solicitor-and-client confidence and under the rules under which solicitors practice. I do not doubt that if the Fee Proceedings had been fought further Mr Brice would have been able to use otherwise confidential solicitor-and-client material in those proceedings. The reason would have been that without such an implied waiver justice would not have been capable of being done in that suit. But it would be quite disproportionate to achievement of that end to enlarge that limited form of implied waiver in such a way as to free Mr Brice to use the otherwise confidential material wherever he might choose, including in these proceedings. I reject Mr Gadd's submission on this point and, to do Mr Brice justice, I add that he had never had this possibility in mind as the events unfolded."
Lady Justice King:
Lord Justice David Richards: