Formica Ltd v Secretary of State Acting by the Export Credits Guarantee Department [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Colman J |
| Judgment Date | 13 July 1994 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 13 July 1994 |
Queen's Bench Division (Commercial Court)
Colman J.
Jeffrey Gruder (instructed by Dickinson Dees, Newcastle) for the plaintiffs.
Richard Spearman (instructed by Clyde & Co) for the defendants.
The following cases were referred to in the judgment:
Brown v Guardian Royal Exchange Assurance plc [1994] LR 44.
Buttes Gas and Oil Co & Anor v Hammer & Anor (No. 3)ELR [1981] QB 223.
Chantrey Martin v MartinELR [1953] 2 QB 286.
CIA Barca de Panama SA v George Wimpey & Co Ltd [1980] 1 LI Rep 598.
Gibbon v PeaseELR [1905] 1 KB 810.
Good Luck, The [1982] 2 LI Rep 540 (Note).
Leicestershire County Council v Michael Faraday & Partners LtdELR [1941] 2 KB 205.
Insurance — Discovery — Privileged documents — ECGD comprehensive short term guarantee — Claim for indemnity under guarantee — Whether insured in breach of duties of disclosure and minimising loss — Whether ECGD entitled to discovery of certain documents — Whether parties' common interest in documents defeated claim to privilege — Whether declaration under RSC, O. 14A appropriate — RSC, O.14A.
This was an application by the defendant Export Credits Guarantee Department (“ECGD”) for specific discovery of documents claimed by the plaintiff insured to be privileged.
The plaintiffs claimed an indemnity under their ECGD comprehensive short term guarantee (“the guarantee”). Under the guarantee the defendants agreed to pay to the plaintiffs 90 per cent of any loss the plaintiffs might sustain in connection with any contract covered by the guarantee when a cause specified in art. 12 of the general conditions occurred. Those causes included the buyer's insolvency and the buyer's failure to pay to the insured within six months after the due date of payment the amount owing in connection with goods delivered to and accepted by the buyer. The plaintiffs had contracts to which the guarantee applied with a Swedish corporation, “L”, which went into liquidation in October 1991 owing the plaintiffs £l.lm. The plaintiffs claimed 90 per cent of the sum owing under the defendants” guarantee.
The defendants denied liability on the ground that the plaintiffs were in breach of their duty under art. 4(a) to disclose promptly at all times during the operation of the guarantee all facts in any way affecting the risks guaranteed. Article 6 provided that due performance and observance of each and every stipulation in the guarantee was to be a condition precedent to any liability of the defendants. The defendants maintained that the plaintiffs were aware of L's financial difficulties by 12 September 1991 at the latest, that a company (“P”) wanted to buy L's business, that unless L was sold it would be put into liquidation within days, and that P, a competitor of the plaintiffs, was the only potential purchaser. The defendants contended that they were not informed of those facts until 10 October 1991, after L had gone into liquidation. Nor did the plaintiffs disclose their own actions taken between 12 September and 8 October designed to prevent the sale of L to P in view of the risk that on such a sale L's debts to the plaintiffs would not be met in full. The plaintiffs thereby failed to take proper measures to minimise loss otherwise recoverable under the guarantee as required by art. 4(b). The defendants pleaded that the plaintiffs so acted to advance their interests other than their common interest with the defendants of maximising the payment made by L of the trade debts owed to the plaintiffs. The plaintiffs denied breaches of any disclosure obligations under the guarantee.
The defendants sought discovery of certain documents relating to negotiations with P and foreign proceedings to prevent the purchase of L by P for which the plaintiffs claimed privilege. The defendants challenged that claim on two grounds, first that the documents came into existence in furtherance of the common interest of the plaintiffs and defendants in maximising the recovery by the plaintiffs of L's outstanding debts, and secondly, the plaintiffs were under a contractual duty to disclose the documents, even if they would otherwise be privileged, by art. 4 of the guarantee.
Held, making a declaration under RSC, O.14A for disclosure of the documents sought:
1. To determine whether documents were covered by common interest privilege, the essential question to be asked was whether the nature of the parties' mutual interest in the context of their relationship was such that the party to whom the documents were passed received them subject to a duty of confidence which the law would protect in the interests of justice.
2. Where the respondent to the application for discovery relied on common interest privilege, he would frequently be able to establish that the provision to him of the documents occurred because his relationship with the recipient of legal advice was, in all the circumstances, such as to give rise to a mutual interest in the subject-matter of the advice.
3. In the present case the applicant for discovery sought to rely on a common interest, i.e. his relationship to the other party was such with regard to the particular transaction on which advice was given that the applicant would have fallen within the ambit of confidence in relation to that legal advice if it had been passed on to him by the other party at the time. Once it was established that the purpose for which the otherwise privileged documents were transferred to the other party was the transaction envisaged by their underlying contract, the duties of mutual confidence in the advice would arise and the consequent protection by common privilege would be available.
4. Where such documents were never transferred but if they had been, would have been transferred for such a joint interest purpose, the applicant for discovery could show that had he been supplied with the documents at the time, he would have held them subject to the mutual obligations of confidence attributable to legal professional advice. He was thus entitled to claim to have been within the ambit of confidentiality protected by law, therefore privilege did not attach to the documents which he sought on discovery.
5. The contractual relationship between the plaintiffs and the defendants resulted in September and October 1991 in both parties having a common interest in recovering L's outstanding debt, the plaintiffs being at risk as to ten per cent and the defendants as to 90 per cent. The plaintiffs were under a wide obligation of voluntary disclosure to the defendants of all facts material to whether there was likely to be a loss recoverable under the guarantee, a duty to minimise loss and to provide all information specifically required. If at the time of the plaintiffs' negotiations with P or the commencement of proceedings the defendants had been informed that they were in train and had asked to see the legal advice obtained by the plaintiffs they would have been obliged to provide it, and to require the defendants to maintain its confidentiality. Accordingly the plaintiffs had no claim to privilege in the documents as against the defendants, who were entitled to discovery of them.
6. In the alternative, the defendants were not contractually entitled to disclosure of the documents once the guarantee had ceased to be in operation in respect of the plaintiffs' contracts with L. Since L had gone into liquidation there was no longer any risk of loss which could be affected by any information that might be provided. Accordingly at that stage the plaintiffs were no longer under a contractual duty to disclose information.
Colman J:
This is an application for specific discovery by the defendants. It raises a particular point on privileged documents which is of considerable importance in insurance litigation generally and I am therefore delivering this judgment in open court.
The plaintiffs claim to be indemnified under their ECGD comprehensive short term guarantee issued by the defendants. By that contract, to which I refer as “the guarantee”, ECGD agreed to pay to the plaintiffs the guaranteed percentage (in this case 90 per cent) of the amount of any loss which the plaintiffs might sustain in connection with any contract to which the guarantee applied by reason of the occurrence of any of the causes specified in art. 12 of the general conditions. These causes included the insolvency of the buyer and the failure of the buyer to pay to the insured within six months after the due date of payment the amount owing in connection with goods delivered to and accepted by the buyer. The plaintiffs had entered into various contracts under which they had supplied goods to a Swedish corporation called Lamett AB. There is no serious dispute that the guarantee applied to those contracts. In the course of the latter half of 1991 Lamett were in financial difficulties and by the end of September 1991 quite large sums due for payment under the Lamett contracts remained outstanding, totalling SKrl2,836,166.32 and SKr80,693.99 by way of interest. By 7 October Lamett had gone into liquidation. The sterling equivalent of the debt to the plaintiffs was about £l.lm. The plaintiffs claimed 90 per cent of this on ECGD's guarantee.
ECGD defended the claim on various grounds. In particular they said that the plaintiffs had been in breach-of art. 4(a) of the guarantee, which I set out later in this judgment, and which provided that the guarantee was given on condition that the insured would at all times during the operation of the guarantee promptly disclose all facts in any way affecting the risks guaranteed. Article 6 provided that due performance and observance of each and every stipulation in the guarantee was to be a condition precedent to any liability of the ECGD. The defendants said that by 12 September 1991 at the latest the...
To continue reading
Request your trial
-
Hansfield Developments and Others v Irish Asphalt Ltd and Others
...& CUTRESS THE LAW OF PRIVILEGE 2006 FORMICA LTD v SECRETARY OF STATE (ACTING BY THE EXPORT CREDITS GUARANTEE) DEPT 1995 1 LLOYDS 692 1994 CLC 1078 BUTTES GAS & OIL CO v HAMMER & (NO 3) 1981 QB 223 1980 3 WLR 668 1980 3 AER 475 BANK OF NOVA SCOTIA v HELLENIC MUTUAL WAR RISKS ASSOCIATION (BER......