Plaintiff mortgage lenders insuring against loss caused by defaulting mortgagors – Plaintiffs suffering loss – Claims rejected by insurers – Plaintiffs issuing proceedings against former solicitors – Whether plaintiffs impliedly waiving right to legal professional privilege in relation to confidential communication between themselves and new solicitors – Application for disclosure allowed – Appeal allowed
The first plaintiff carried on business as a substantial centralised mortgage lender. In order to raise capital, it entered into transactions whereby pools of its mortgages were securitised. For the purposes of each transaction companies were set up, (known as CMS companies numbers 1-9). The defendant acted as solicitors to the first plaintiff and CMS companies numbers 4-9, the second to seventh plaintiffs. Insurers issued a pool insurance policy agreeing to indemnify each CMS company against loss arising from default by the mortgagor if the property in question proved to be inadequate security for the moneys advanced. Each pool policy provided, as a condition precedent to the insurer’s liability, that the mortgages had been made in accordance with the first plaintiff’s lending guidelines referred to in the pool policies. In the early 1990s as a result of a fall in the property market, the CMS companies sustained heavy losses caused by defaulting mortgagors. The insurers declined to indemnify the CMS companies in respect of a significant number of mortgages claiming, inter alia, that the lending guidelines had not been complied with.
In July 1993 the plaintiffs instructed new solicitors, Slaughter & May, to act for them. In July 1995, in consideration of a large payment, the plaintiffs gave up their rights to make any claim against the insurance companies pursuant to the pool policies. The plaintiffs issued proceedings against the defendant, claiming that it had been negligent, in particular by incorporating into the pool policies lending guidelines that were stricter than the first plaintiff’s actual guidelines, thereby affording the insurers a ground of non-payment when those stricter guidelines were not complied with. Subsequently, the defendant made an application for the disclosure of certain documents. The judge allowed the application, concluding that the plaintiffs had impliedly waived legal professional privilege, not only in relation to communications between the plaintiffs and the defendant but also in relation to communications between plaintiffs and Slaughter & May concerning the claims made by the plaintiffs against the insurers and the pursuit and settlement of those claims. The plaintiffs appealed.
Held: The appeal was allowed.
A client who sued his solicitor invited the court to adjudicate the dispute and thereby waived the protection of legal professional privilege in relation to any communication between them, so far as it was necessary for the just determination of the claim. However, the plaintiffs had not sued Slaughter & May and had not invited the court to adjudicate on any question arising from their confidential relationship and so they had not brought that confidential relationship into the public domain. Accordingly, they had done nothing to release Slaughter & May from the obligation of confidence by which they were bound: Lillicrap v Nalder & Sons [1993] 1 WLR 94; Nederlandse Reassurantie Groep Holding NV v Bacon & Woodrow [1995] 1 All ER 976; Banque Bruxelles Lambert SA v Simmons & Simmons (unreported 23 November 1995), considered.
Stewart Boyd QC and Charles Hollander (instructed by Slaughter & May) appeared for the plaintiffs. Simon Browne-Wilkinson and Bankim Thanki (instructed by Barlow Lyde & Gilbert) appeared for the defendant.
