Pursuers: Lake QC, Burness LLP

Defenders: Mure, MacRoberts

27 May 2009

[1] This action arises out of a Share Purchase Agreement ("the SPA") dated 29 September 2004, under which the defenders and other parties ("the vendors") sold to the pursuers their shareholdings in A McLelland & Son Ltd ("McClelland") for a consideration of just over £96 million. The purchase and sale completed on 29 September 2004.

[2] The pursuers claim damages for negligent misrepresentation and/or breach of warranty, in each case based upon warranties set out in Part 3 of the Schedule to the SPA. In clause 13 of that Part of the Schedule, the vendors warranted that

"No Group Company has received any process, notice or communication, formal or informal, by or on behalf of the Office of Fair Trading or the European Commission ... and so far as the Warrantors are aware, there are no subsistence circumstances that may give rise to any such process, notice or communication being received by any Group Company."

On 5 May 2005, McClelland were served with a notice by the Office of Fair Trading ("the OFT") under section 26 of the Competition Act 1998 requiring them to produce certain documents and information for the purposes of an investigation under the Act. On the 20 September 2007, the OFT served on McClelland a Statement of Objections ("SO"), which gave notice that the OFT proposed to make a decision that, in 2002 and 2003, McClelland and others had entered into a concerted practice and/or practices which had as its/their object the prevention, restriction or distortion of competition in respect of the retail price of certain products produced in the UK; and that they had done this by engaging in the repeated exchange and/or disclosure of commercially sensitive retail pricing intentions. In support of its proposed findings, the OFT relied upon McClelland's participation in meetings and correspondence during that period, of which details are given in Articles 6 and 7 of Condescendence.

[3] The pursuers, through their solicitors, gave notice to the solicitors for the defenders of possible claims under the warranty provisions, both in May 2005 and in September 2007. There is an issue between the parties as to the effect of these notices.

[4] In Article 10 of Condescendence, the pursuers make the following averment about the events from and after September 2007:

"Following service on them of the SO, McClelland ... took legal advice from solicitors and counsel as to how to respond. Investigations were undertaken into the facts and circumstances relied upon by the OFT. Staff members were interviewed."

In the following Articles of Condescendence, the pursuers describe the negotiations between McClelland and the OFT concerning the possibility of reaching an early resolution agreement, and the involvement of the defenders in these negotiations. At about the beginning of 2008, a stage was reached at which McClelland decided to enter into an agreement with the OFT. In Article 16 of Condescendence, the pursuers make this averment:

"McClelland took the advice of counsel as to the merits of admitting the breach and agreeing to cooperate with the OFT. The advice of counsel was that the advantages of early resolution of the proceedings outweighed the disadvantages. In reliance on this advice, McClelland entered into an agreement with the OFT in which, inter alia, they admitted involvement in breaches of the Act, undertook to cooperate with the OFT and the OFT agreed to adopt a decision which imposed a penalty ..."

A copy of counsel's advice, in the form of a written Opinion from Professor Philippa Watson, has been produced by the pursuers and lodged in process.

[5] The pursuers' claim is put on the basis of negligent misrepresentation and, separately, breach of warranty. The quantification of the claim under each head differs slightly, but in essence they claim the amount of the penalty imposed by the OFT together with their costs in dealing with and responding to the allegations made by the OFT, and in particular to the SO.

[6] The matter comes before the court on the defenders' motion for recovery of documents in terms of their Specification of the Documents (No.23 of Process). Some of the categories of documents sought in that Specification were the subject of agreement between the parties. Call 1 had already been dealt with sufficiently at an earlier stage. It was agreed that I should make an order in terms of Calls 4 and 5. And an undertaking was given in respect of Call 6. The remaining issues arise under calls 2, 3 and 7. These raise questions of confidentiality or legal professional privilege.

[7] It is convenient to take calls 2 and 7 together. Call 2 relates to the averment in Article 10 and seeks recovery of:

"All documents of whatever description and held in whatever form (including electronically) containing entries setting out or recording the terms of the legal advice referred to in Article 10 of Condescendence, in order that excerpts of such entries may be taken therefrom at the sight of the Commissioner."

Call 7 relates to the averment in Article 16 and seeks recovery of

"The instructions, and relative documents, provided to Professor Philippa Watson for the purpose of providing the Opinion dated 11 February 2008 ..."

This is the Opinion referred to by the pursuers in that Article and already lodged in process.

[8] Mr Mure, who appeared for the defenders, submitted that if the pursuers wished to found upon the legal advice which they took, which would otherwise be privileged, then fairness required that the court and the defenders should be in possession of all the legal advice on that point and not only a part of it. He referred to Wylie v Wylie 1967 SLT (Notes) 9 and to a number of English decisions to like effect, including Great Atlantic Insurance Co. v Home Insurance Co. [1981] 1 WLR 529, citing with approval the passage from the judgement of Mustill J in Nea Karteria Maritime Co. Ltd. v Atlantic and Great Lakes Steamship Corporation [1981] Com. L.R. 138, and Re Konigsberg (a Bankrupt) [1989] 1 WLR 1257. It was not necessary in Scottish procedure to wait until one party adduced the otherwise privileged material in evidence before raising the question of waiver of privilege: see Whitbread v Goldapple 2003 SLT 256, distinguishing on this point of practice the decision of Hobhouse J in General Accident Fire and Life Assurance Corporation Ltd. v Tanter [1984] 1 WLR 100. In Article 10, the pursuers were relying upon the legal advice sought and obtained in September 2007 and subsequently. The advice of Professor Watson was part of this. It was specifically relied upon by the pursuers in Article 16. The Opinion had been produced, but that Opinion itself referred back to earlier advice and to changes in circumstances which had caused Professor Watson to modify her earlier advice. It was necessary, in the interests of fairness, that the defenders should be able to see the whole of the advice, and the instructions and information on which it was based. Only in light of that could the Opinion be fully understood and its coherence assessed. It was essential to any effective cross-examination of the expert that counsel for the other party should have available to him the whole of the material upon which the expert had relied. There was a danger that what the defenders were being given was only a partial view selected by the pursuers.

[9] I did not understand Mr Lake QC to challenge this general approach. He accepted that there had been a waiver of privilege in respect of Professor Watson's Opinion. However, he submitted that that Opinion was self-contained. It set out the question which was asked and all the matters which Professor Watson considered relevant to her Opinion. Nothing further was needed. Further, it was important to identify the issue to which the Opinion related. There was no issue between the parties as to McClelland having been in breach of the prohibition in the Act. Nor was there any issue as to whether or not the pursuers should have entered into a compromise agreement with the OFT. Nothing, therefore, turned on Professor Watson's Opinion. There was no reason why the pursuers should not maintain privilege in respect of the whole of the legal advice obtained since September 2007, or at least to that part of it which had not already been produced.

[10] Mr Lake emphasised that the principle laid down in the cases to which I was referred was that, once part of the privileged material relating to a particular subject matter was put in play, whether by the release of part of a privileged document or by the release of one of a series of privilege communications, then the whole document or series of communications must be produced, unless that which had been released dealt with a separate subject matter from that which had not. The rationale was that any use of part of a document, or part of a series of documents, might be unfair or misleading, and that the party making the partial disclosure was not the person who could safely be left to judge whether or not there was such unfairness: see Great Atlantic at p.536. It was important to note the limit on the rule. A partial disclosure would usually waive privilege only in respect of the "transaction" or "issue" in respect of which there had been that partial disclosure: see General Accident at p.114-115, Great Atlantic at p.538-9. This approach was applied in Fulham Leisure Holdings Ltd. v Nicholson Graham & Jones [2006] PNLR 23 by Mann J, who emphasised that the underlying principle was one of fairness. That principle will usually only require a waiver of privilege to the extent of opening up the whole of the transaction in respect of which there has been part disclosure. It was important to identify the transaction or issue in question; and in doing so it was helpful to look at the purpose for which the waiving party was seeking to use the otherwise privileged material. In the present case the transaction in respect of which there had been a waiver of privilege was simply the legal advice given by Professor Watson. That was put forward only as part of the narrative leading up to the settlement with the OFT. The pursuers had not sought to put in issue their reasons, based on legal advice, for responding to the OFT investigation at various stages in the way they did.

[11] There was no dispute that the matter fell to be determined now. It was not necessary to wait until the otherwise privileged material was adduced in evidence before deciding whether there had been a waiver of privilege. To that extent there appears to be a difference in practice between Scotland and England. On the issue of substance, however, it seems to me that the approach adopted in the English cases to which I was referred is entirely consistent with that laid down in Wylie v Wylie. The maintenance of legal professional privilege is essential to the adversarial process. A party may, if he wishes, waive privilege in a document or series of documents or advice which would otherwise be covered by it. However, partial waiver of privilege is potentially unfair, since what is disclosed may not give the full picture. If a party seeks to make use of otherwise privileged material, it is up to him in the first instance to decide how much he wishes to disclose. But he should not have the final say. Once he has opened the door, by relying upon material otherwise covered by legal professional privilege, he should have to provide the whole of the privileged material relating to that transaction. The use by a party of some privileged material, therefore, gives rise to a presumption that privilege in the whole of the material, in so far as it relates to that transaction, has been waived; and he must make his decision as to whether to waive privilege at all in the knowledge that this is the consequence. All this is well established. The important question in each case is: how far does that waiver of privilege extend? The test has been expressed in different ways. The waiver extends to the whole of the "transaction" on which the partially disclosed privileged material bears (see General Accident at p.114H-115A); or, to use another expression, to the whole of the "issue in question". The precise phraseology does not matter, but the restriction on the waiver of privilege is important. Use of otherwise privileged material by a party does not of itself immediately open up to the other side, and waive privilege in, the whole of the legal advice obtained by that party on the issues in the case, or the whole of his correspondence with his lawyers. The identification of the transaction is, or may be, informed by the purpose for which the partial disclosure of otherwise privileged material has been made. An illustration is given in Fulham at para.20. If a party seeks to prove a particular fact, for example his state of mind, by the use of certain material which is otherwise privileged, it is right that the other party should see all of the related (privileged) material which is or may be relevant to that fact. This rule prevents a party from selecting material to fit his case, whilst keeping back other material which presents a less favourable picture. But there is no reason in principle for extending the rule beyond that point. That would be going too far; further, certainly, than is required by the principle of fairness underpinning the rule.

[12] In the present case the pursuers aver that they sought and obtained advice from counsel, and have disclosed that advice in the form of the Opinion of Professor Philippa Watson. The defenders say that certain passages in the Opinion make it clear that earlier advice was given; and that the advice changed to some extent in the light of changes in circumstances, or at least changes in the understanding of what had happened. That is undoubtedly true, but it does not get the defenders home. The issue to which the Opinion relates in these proceedings is: why did the pursuers take steps when they did to seek early resolution and enter into an agreement with the OFT? That is the extent of the transaction to which the waiver of privilege in this instance relates. There is no issue as to why they did or did not take those steps or different steps at some other time. So previous, possibly different, advice forms no part of the transaction. If there were an issue as to the reasonableness of the advice, or of the pursuers' reliance on it, and the Opinion of Professor Watson had been put forward to explain or justify the pursuers' conduct, the transaction might well be wider, and the pursuers' reliance on that Opinion might open up the whole of the material relevant to understanding the questions asked, the documents placed before counsel and all notes of advice given by counsel leading up to the formal Opinion. But there is at present no such issue - the defenders do not question the reasonableness of the pursuers taking this course - and the pursuers do not rely upon the Opinion for this purpose. If the issues change, and if the pursuers seek to rely upon the advice of counsel as justifying the action they took, the question can be revisited. For the present, however, I refuse Call 7.

[13] Call 2 overlaps to some extent with Call 7. But it has another justification. The pursuers rely upon the averment in Article 10 to lay the basis for their claim to recover the costs incurred in reacting to the service of the SO. Those costs include legal expenses and the costs of investigations carried out by their lawyers or acting on legal advice. But again, it seems to me that this does not open up the content of the legal advice and investigations. The issue is: what costs did the pursuers incur in taking such advice and carrying out such investigations? That is the transaction to which the material relied on relates. The content of the advice and the result of the investigations is irrelevant, at any rate on the pleadings as they stand at present. Fairness requires that the defenders should be entitled to sufficient disclosure to enable them to be satisfied that the advice and investigations were, as the pursuers contend, obtained and undertaken in the circumstances and for the purpose averred in article 10; or, if they are not satisfied, to challenge those averments by reference to the relevant documents. But it goes no further than that, though the position may change if the pursuer seeks to make a different use of the material. The authorities support the idea that disclosure may be ordered for a limited purpose and upon terms: see the Fulham case, and see also Bourns Inc. v Raychem Corporation [1999] FSR 641, 670, which deals with waiver of privilege in the context of taxation of costs, a situation analogous to the present. The practical question is: how is this to be achieved? It was suggested that the court could consider the documents and form a view, but I would be reluctant to go down that road. The alternative is an excerpting commission, but that gives rise to expense and some possible difficulties in drawing up the terms of reference for the excerpting exercise. I consider that in the first instance, the pursuers should provide redacted copies of the relevant documents, enabling the defenders to see everything apart from the content of the advice given or the substance of precognitions or other documents in respect of which the claim for privilege is maintained. Any arguments can be brought back before the court and, if necessary, the court can at that stage appoint a commissioner.

[14] Call 3 raises different issues. The pursuers have lodged in process an expert report by Elizabeth Gutteridge. It deals with issues of quantum. In Appendix 2 to the Report, she lists by reference to tabs in the file provided to her by the solicitors for the pursuers, the documents which she has considered in preparing her report. They include the following:

LM stands for McLelland. Salans were at the material times solicitors for the pursuers.

[15] By Call 3, the defenders seek to recover all of the above documents. Call 3 also covered other tabs in addition to these, but the parties were able to reach agreement on these other matters. One of the difficulties in relation to this call is the lack of precision in the description of the documents in the various tabs. Mr Lake explained that tabs 2a, 2b, 3a and 3b were reports from agents to clients and therefore covered by legal professional privilege. Tabs 11a, 11b and 12 were interviews conducted following service of the SO. They were in the nature of precognitions and were covered by post litem motam privilege, having been taken in anticipation of proceedings by the OFT following service of the SO. Further, since there was no challenge to the reasonableness of the pursuers entering into an early resolution agreement, they were not relevant to any live issue. As to tabs 13, 24 and 30, although these were described as "minutes", they were more in the nature of solicitors' reports to their clients of the meetings with the OFT, and were therefore privileged. Tab 21 was also covered by agent client privilege. Mr Mure did not seek to challenge the description of the various documents but argued that, even if they were prima facie privileged, that privilege had been waived by the documents having been put forward as the factual material underlying the expert report. It was necessary that this material be produced so that the defenders could properly consider Ms Gutteridge's report and cross-examine her about the basis upon which she had reached her conclusions.

[16] In the course of argument I was referred to Clough v Tameside & Glossop Health Authority [1998] 1 WLR 1478 in which Bracewell J held that where a party supplied material to an expert in order for the expert to consider it as part of the background documentation in the case upon which his opinion was sought, and that material was referred to in the resulting report, privilege in that material was waived once the expert report was disclosed. The reasoning is based upon the general approach to waiver of privilege to which I have already referred, but the particular application to the case of an expert report appears to be encapsulated in the following passage from the judgment at p.1484H-1485A in which, having referred to the duty which an expert owes to the court, the judge says this:

"If an expert has discounted some evidence supplied to him, he may, at the conclusion of the case, be held wrong to have done so and his opinion may thereby be invalidated. Equally, he may have assumed an incorrect significance for a particular piece of material. It is only by proper and full disclosure to all parties, that an expert's opinion can be tested in court, in order to ascertain whether all appropriate information was supplied and how the expert dealt with it. It is not for one party to keep their cards face down on the table so that the other party does not know the full extent of information supplied. Fairness dictates that a party should not be forced to meet a case pleaded or an expert opinion on the basis of documents he cannot see. Although civil litigation is adversarial, it is not permissible to withhold relevant information, or to delete or amend the contents of a report before disclosure, as was submitted by counsel for the defendants to be the practice of some firms of solicitors."

Parts of that decision have been question by the Court of Appeal in Bourns Inc. v Raychem Corp. [1999] FSR 641. It has been the subject of comment by the Court of Appeal in Lucas v Barking, Havering and Redbridge Hospitals NHS Trust [2004] 1 WLR 220.

[17] It is not clear to me how far Clough represents the law in England at present. However, what is clear is that in England the issue is significantly affected by specific Rules of Court, which developed both before and as part of the Woolf reforms and which have no equivalent in Scotland. The difference in the position in Scotland was emphasised by Lord Carloway in Amy Whitehead's Legal Representative v Graham John Douglas [2006] CSOH 178 (unreported 20 November 2006). That was a personal injuries action in which the defenders moved for commission and diligence to recover the documentation reviewed by the pursuers' experts, as identified in the pursuers' expert reports lodged in process. This documentation included a number of precognitions. Lord Carloway refused the motion. His reasoning is set out fully in paras.[13]-[20]. In para.[16] he says this about the differences in procedure in the two jurisdictions:

"Although I am in no position to express any view on civil practice and procedure in England, it would appear relatively clear that there may be major differences between the English provisions and the equivalent practice and procedure in Scotland. The rules on disclosure seem to be different; there being no general obligation of disclosure in Scottish civil procedure. The rules on experts may not be the same either, since it would appear that in England there are clearly defined duties owed by experts to the court. Furthermore, the rules of evidence are different and a report may take on a status in England that it does not have in Scotland. For example, in Scotland, it does not become the evidence in chief of the witness or otherwise serve as a substitute for oral testimony. Because of these differences, references to English practice and procedure are not of any material assistance in determining the issue here."

I agree that there are a number of differences in procedure; and that, for that reason, it would be inappropriate simply to transplant into Scottish procedure rules and practices which have developed south of the border. But nor would it be sensible to ignore them completely. There have been many cases in which a procedure developed in England has been adopted, with necessary modifications, in Scotland: see e.g. Tonner v Reiach and Hall 2008 SC 1. The general approach to waiver of privilege to which I have referred earlier is an example of the two jurisdictions proceeding along similar paths, though recognising that procedural differences may give rise to differences in the application of the principles: see Whitbread v Goldapple.

[18] In paras.[13], [14] and [17] of his Opinion, Lord Carloway sets out in more detail his understanding of the position of an expert in Scottish litigation. His remarks are directed to the procedure on the Ordinary Roll and, in particular, in personal injury actions. It should not be thought that they reflect the practice in commercial causes. Thus, in para.[13], Lord Carloway says that it is not necessary for a party seeking to adduce expert evidence to lodge a report. In commercial causes a party would not normally be allowed to adduce expert evidence without having first lodged a report in process. It is a requirement of the pre-action protocol that, where his claim depends upon expert evidence, a party intending to commence proceedings should intimate his expert report to the other party (see Practice Note No.6 of 2004 para.11(2)(iii)); and, at preliminary and procedural hearings, the court will usually give directions for the lodging of reports and meetings of experts (see Rule 47.11(1)(b)(vii) and 47.12(2)(e)). Well before the expert evidence is adduced, the contents of the reports inform the pleadings and the recovery of documents, as well as the procedural orders made by the court. And at proof, the expert in his evidence in chief will usually adopt his report or reports and will give his evidence by reference thereto: compare the remarks at the end of para.[13] of Lord Carloway's Opinion.

[19] It seems to me that, in commercial causes (and I see no reason why this should not apply to all civil proceedings), the expert witness stands in a different position to the witness of fact. In para.[17] of his Opinion, Lord Carloway takes a different view and says this of an expert witness:

"Of course, once he is sworn, he must abide by the terms of his oath. However, when he is in the witness box, what he is permitted and not permitted to say will depend not just on what he is asked but on what he is not asked. He is not in a position to volunteer information."

My own views are somewhat at variance with this It has been accepted in Scotland for some time that an expert witness owes a duty to the court: see e.g. Elf Caledonia Ltd. v London Bridge Engineering Ltd. (Lord Caplan, unreported, 2 September 1997) and McTear v Imperial Tobacco 2005 2 SC 1 at paras.5.12-5.18, in both cases citing with approval the remarks of Creswell J in National Justice Compania Naviera SA v Prudential Assurance Co. Ltd ("The Ikarian Reefer") [1993] 2 Lloyd's Rep. 68, 81. It has become the established practice - a practice which, in my opinion, should continue - for an expert to state in his report that he is aware of and has complied with that duty. The precise ambit of such duty may be open to discussion. One aspect is, however, clear, and that is that an expert owes a duty to the court to give his honest and complete opinion. He must bring to the attention of the court all matters which could affect his opinion one way or the other, and he is not entitled to keep some reservation about his opinion to himself simply because he is not asked the precise question which would bring it out into the open. He is not only in a position to volunteer information but he is under a duty to do so if his failure would leave the court with a misleading impression of his whole opinion on the issue.

[20] None of this, however, leads me to the view that a party is entitled to production of all the otherwise privileged material which the expert for the opposite party has referred to in his report. It seems to me that the question must be approached in the same way as any other argument about waiver of privilege where there has been partial reference to, or reliance on, otherwise privileged material. The test is fairness; and is to be applied to the "transaction" as that term is understood in this context (see para.[11] above). The transaction here is the expert evidence which the party wishes to adduce and, more precisely, its cogency. Fairness requires that the other party should have available to him all material enabling him to test that, but not for any other purpose. The expert report is lodged in order to give fair notice of the evidence which a party will seek to adduce from that expert. The expert evidence, as foreshadowed in the report, will be linked to certain factual assumptions, explicit or implicit. At proof, factual evidence will be led which may or may not result in those facts being established. On either case, the expert can be examined and cross-examined by reference both to as to the "science" and also as to how that bears on the facts as they emerge. A variety of different sets of facts may have to be considered. The expert evidence will have to be understood and its cogency assessed in light of the facts as ultimately found. It does not seem to me that it is relevant to a proper assessment of the value of the expert evidence to know the basis upon which the expert made the factual assumptions which he did make. So what if he is shown to have been wrong in his understanding of the facts to which his expertise was directed? How does this affect the cogency of his evidence? In the context of the transaction therefore, namely the meaning and cogency of the expert report, the materials which are sought to be recovered in Call 3 are irrelevant. There is no other basis for recovering the material. The same approach was adopted by Lord Carloway in paras.[19]-[20] of his Opinion in Amy Whitehouse, with which, on this matter, I respectfully agree.

[21] I therefore decline to make an order in terms of Call 3.

[22] In the event, therefore, I shall make an order for the recovery of redacted versions of the documents referred to in Call 2, but otherwise: and except as otherwise agreed between the parties, I shall refuse the motion. I shall continue the case until 29 May, when it is due to come before the court By Order in any event. In the meantime, parties may wish to consider an appropriate wording to give effect to my decision on Call 2.