Gotha City v Sotheby’s

Legal advice privilege is not necessarily lost when privileged material is disclosed to a third party. The decisive question is whether the communication remained confidential in the circumstances. Disclosure for a limited purpose, under an express or implied understanding of confidentiality, may waive privilege against the recipient while preserving it against other persons.

The presence of a third party when legal advice is sought or given is likewise not conclusive. A shared practical interest may support an inference that confidentiality was intended. Applications for specific discovery must define relevant documents or classes carefully, and the supporting deponent must have a sound basis for the required statements on oath.

The City of Gotha and the Federal Republic of Germany claimed ownership of a painting held by Sotheby’s on the instructions of Cobert Finance SA. Cobert had obtained legal advice concerning the painting and disclosed a legal-advice letter to Sotheby’s. Its lawyers, Cobert and Sotheby’s had also attended a meeting convened to obtain information and give legal advice.

Master Trench ordered Cobert to disclose and permit inspection of broad classes of documents. Mr Baker QC, sitting as a Deputy High Court Judge in the Queen’s Bench Division, upheld that order on the ground that disclosure to Sotheby’s had waived privilege generally. The central issue was whether limited disclosure to Sotheby’s, or Sotheby’s presence at the meeting, destroyed Cobert’s privilege against the plaintiffs.

1. Appeal allowed unanimously. Staughton LJ, with whom Aldous and Hutchison LJJ agreed, held that disclosure of privileged material to a third party does not invariably waive privilege against the world. Privilege may be lost as between the privilege holder and the recipient while remaining effective against other persons. The operative question is whether the material was disclosed to the third party in confidence.
2. The letter containing legal advice and the information communicated at the meeting remained confidential as against the plaintiffs. Although there was no express confidentiality agreement, one could be implied from the circumstances. Cobert disclosed its advice to Sotheby’s in connection with their intended sale of the painting. Their shared practical interest in achieving a sale with good title supported the inference that both understood the communications to be confidential.
3. The Court did not decide whether the relationship satisfied the technical requirements of common-interest privilege. A common interest in the ordinary sense could nevertheless provide evidence from which an agreement or understanding of confidentiality was inferred. The presence of Sotheby’s at the meeting therefore did not itself destroy privilege.
4. The limited-disclosure approach was consistent with Crescent Farm (Sidcup) Sports Ltd v Sterling Offices Ltd [1972] 1 Ch 553 and British Coal Corporation v Dennis Rye Ltd (No 2) [1988] 1 WLR 1113. Derby & Co Ltd v Weldon (No 7) [1990] 3 All ER 161 concerned the fraud exception and did not govern the present question.
5. Aldous LJ additionally emphasised that applications for specific discovery under Order 24, rule 7 must identify the documents or classes sought clearly and carefully. A solicitor swearing the supporting affidavit must be satisfied that every document sought is relevant and has been within the opposing party’s possession, custody or power. Overbroad classes should not be supported by an unqualified affidavit.
6. Paragraphs 7 and 8 of the discovery order were set aside. Any application concerning documents newly identified in evidence was left to the master. The appellants received their costs.

• Court of Appeal: Allowed Cobert Finance SA’s appeal and set aside paragraphs 7 and 8 of the discovery order: [1997] EWCA Civ 1897.
• Queen’s Bench Division: Mr Baker QC, sitting as a Deputy High Court Judge, dismissed Cobert’s appeal from the master and upheld the discovery order. He refused permission to appeal.
• Master: Master Trench ordered Cobert to disclose documents within several specified categories and permit inspection. Potter LJ subsequently granted permission to appeal and stayed the disputed parts of the order.