In the recent case raised by the former owners of department store chain McEwens of Perth against The Royal Bank of Scotland plc, the question arose as to whether there was an implied waiver of legal advice privilege in relation to the advice given to a party granting a personal guarantee.
McEwens Direct Limited (MDL) acquired the shares in McEwens of Perth Limited (MoPL) as part of a management buyout (MBO) in 2008. As part of the financing for the MBO, John Bullough and Georgina Bullough (spouses) (the Guarantors) granted a personal guarantee for £750,000 (the Guarantee) which was supported by a standard security over their home in favour of The Royal Bank of Scotland plc (the Bank).
MoPL went into administration in March 2016 having amassed debts totalling £4.27 million, including Bank debt totalling £3.44 million. The Bank then moved to recover monies owed.
The Guarantors raised an action to reduce the Guarantee and to interdict (block) the Bank from enforcing the Guarantee or the standard security over their home supporting this Guarantee.
The Guarantors argued that the Guarantee and the supporting standard security should not be relied upon for two reasons:
- firstly, the relationship manager for the Bank misrepresented the position, in stating that the Bank would exhaust all rights against MDL and MoPL before enforcing the Guarantee, and that the Bank would never take the Guarantors' home; and
- secondly, in reliance on this misrepresentation, the Bank would be in breach of good faith in enforcing the Guarantee and standard security.
In order to evaluate the facts, the Bank sought to recover certain documents that the Guarantors were relying upon for their case. The Guarantors produced the documents, but argued that the contents were protected by legal advice privilege. In particular, one of the documents that had been produced, an attendance note, had been redacted. The Bank sought, amongst other things, disclosure of an unredacted version of the attendance note.
The attendance note
Whilst there are many relevant facts in this case, it is worth looking at the contents of the attendance note. The attendance note was made by the solicitors acting for the Guarantors, and recorded the events on the day of completion of the MBO. The attendance note narrated, amongst other things, that:
- the Guarantee was tabled at the meeting;
- the first Guarantor, John Bullough, waived his right to take legal advice in respect of the Guarantee;
- the relationship manager for the Bank indicated that the Bank would usually exhaust all rights against the companies before enforcing a personal guarantee, but that the Bank would not be prepared to put this into writing (the attendance note is redacted at this point (the First Redaction));
- the second Guarantor, Georgina Bullough, would require legal advice (the particulars of which we assume were redacted from the attendance note as the note is redacted at this point (the Second Redaction)); and
- the Guarantors signed and delivered the Guarantee and the MBO completed.
The argument that legal advice privilege had been waived
The Bank argued that the second Guarantor, Georgina Bulloch, had received legal advice in relation to the Guarantee, and that by referring to the content of that legal advice in the court proceedings, this constituted an implied waiver of privilege in respect of that advice. Accordingly, the Second Redaction should therefore not apply.
In addition, the Bank argued that if the First Redaction related to legal advice to the Guarantors, then the First Redaction should also not apply as the first Guarantor, John Bullough, had also impliedly waived privilege in relation to that advice. Furthermore, it would be unfair for the Guarantors to cherry pick what information to disclose in the attendance note.
Opinion of Lord Doherty
On the facts of the case presented to him, Lord Doherty refused the motion of the Bank to disclose the documents that the Guarantors argued were protected by legal advice privilege.
Lord Doherty provided the following summary of the law relating to legal professional privilege (which we have paraphrased), as outlined in Scottish Lion Insurance Co Ltd v Goodrich Corporation and Others 2011 SC 534:
- Legal professional privilege can be overridden by statue and can be waived by the person entitled to it.
- Legal professional privilege can be express, or inferred from the facts and circumstances of the case.
- An implied waiver arises where the person entitled to the benefit has given up that right to resist disclosure either generally or in a particular context. Such circumstances will exist where the person's conduct is inconsistent with the retention of that right.
- Waiver does not depend upon the subjective intention of the person entitled to it, but should be judged objectively on the conduct of the person asserting that privilege. Privilege may be waived for a limited purpose without being waived generally (in other words, a waiver of privilege can be in relation to a particular context).
- Whether the conduct of a person entitled to privilege is inconsistent with the maintenance of confidentiality, either generally or for a limited purpose, is dependent on the relevant circumstances. Consideration of fairness may bear on an assessment of whether a person's conduct in relation to the proceedings has been inconsistent with the maintenance of confidentiality, and whether privilege has been waived.
This case serves as a reminder of the issues around legal advice privilege and how it can be waived.
Lord Doherty's opinion in the matter John Louis Bullough and Georgina Dorothea Mary Bullough v The Royal Bank of Scotland plc  CSOH 24, published on 12 March 2019, can be found here (PDF).
A proof before answer hearing is due to commence on 11 June 2019.
With additional reporting by James Bulpitt
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