Paragon Finance Plc (formerly National Home Loans Corpn Plc) v Freshfields

A client who sues a former solicitor for negligence impliedly waives legal professional privilege only so far as necessary to determine issues arising from their own confidential professional relationship. The waiver permits the former solicitor to rely on relevant communications to which it was party, including communications concerning earlier matters where appropriate.

The waiver does not ordinarily extend to confidential communications between the client and different solicitors. The latter relationship has not been put in issue merely because those communications are relevant to the former solicitor’s defence. Fairness alone does not displace legal professional privilege, which remains absolute save for established exceptions or waiver.

The appellants alleged that Freshfields, their former solicitors, negligently drafted insurance arrangements used in mortgage securitisation transactions. After Freshfields withdrew because of a potential conflict, the appellants instructed Slaughter and May to pursue and settle claims against the insurers and to assist with related restructuring.

In the negligence action, Freshfields sought disclosure of privileged communications between the appellants and Slaughter and May concerning the insurer claims. Buckley J held on 6 November 1998 that the appellants had impliedly waived privilege by suing Freshfields. The appellants appealed. The central issue was whether a waiver arising from a claim against former solicitors extended to communications with later, different solicitors.

1. Appeal allowed. The court dismissed Freshfields’ application for disclosure of the disputed communications. The appellants had not impliedly waived legal professional privilege in communications with Slaughter and May.
2. Nature and scope of implied waiver. Legal professional privilege is, save for abuse to facilitate crime or fraud, absolute unless the client waives it. A client who sues former solicitors places their own confidential relationship in issue. The client therefore waives privilege, or releases the former solicitors from confidence, only to the extent necessary for a fair determination of that claim. This enables the former solicitors to use relevant communications to which they were already privy.
3. Different legal advisers. The appellants had not sued Slaughter and May or asked the court to adjudicate upon that relationship. Their communications with Slaughter and May had not entered the forensic arena. Relevance to Freshfields’ defence did not create an implied waiver or entitle Freshfields to obtain communications of which it had no prior knowledge.
4. Authorities. Lillicrap v Nalder and Son [1993] 1 WLR 94 supported waiver in relation to earlier transactions handled by the solicitor sued, but did not establish a wider rule. The court approved the explanations in Nederlandse Reassurantie Groep Holding NV v Bacon & Woodrow [1995] 1 All E.R. 976 and Banque Bruxelles Lambert SA v Simmons and Simmons concerning the need for the relevant confidence to arise from the same solicitor-client relationship. It distinguished Kershaw v Whelan [1996] 1 WLR 358. It overruled Hayes v Dowding [1996] PNLR 578, which had adopted an impermissibly broad approach based on fairness.
5. Order. The appellants received the costs of the appeal and 65% of the costs attributable to the privilege argument before the judge. Leave to appeal was refused.

• Court of Appeal (Civil Division) Allowed the appellants’ appeal and dismissed the respondent’s disclosure application: [1999] EWCA Civ 955.
• High Court of Justice, Queen's Bench Division Buckley J had held that bringing the negligence claim impliedly waived privilege in the communications with the later solicitors concerning the insurer claims.