The Scottish Lion, Petitioner [2011] CSIH 18.

14 March 2011

In the latest in a line of cases concerning the proposed solvent scheme of arrangement by The Scottish Lion Insurance Company, the Inner House of the Court of Session has authoritatively considered the rules on waiver of confidentiality/legal privilege. Scottish Lion Insurance Company ("the Petitioner") provides insurance in respect of inter alia asbestos, pollution and health hazards. It is in run-off and now seeks to have the court sanction a proposed solvent scheme of arrangement under s 889 of the Companies Act 2006.

If sanctioned, the scheme will result in the Petitioner being wound up, although solvent, with the resulting loss of cover by its policy holders. All of the Petitioner's creditors were allowed to vote either for or against the scheme. The Noters are all large US based multinationals who had taken out insurance policies with the Petitioner. They all voted in favour of the scheme and will receive substantial commutation payments if the scheme is ultimately sanctioned. In so doing, the Noters submitted confidential and privileged documents in support of their claims under the scheme. The Respondents oppose the scheme on various grounds. The Respondents wish to see the privileged documents that were submitted and relied on by the Noters in order to assess if the voting process was fair.
 
Lord Glennie approved the Respondent's specification of documents to recover these privileged items. He held that privilege/confidentiality had been waived by them when they submitted the documents within the context of the proposed scheme. The Noters appealed, arguing that they had not waived privilege in the documents. In this important decision, the Inner House ruled that privilege in the documents, including those containing legal advice, was waived when they were lodged by the Noters within the context of the petition for sanction of the scheme.
 
This decision will impact on all future schemes under s889. It opens up for scrutiny any documents that a creditor wishes to rely on in support of a claim made under such a scheme. Creditors will know that, if they wish to seek to claim in a scheme, they must elect which documents to rely on and which they may wish to keep confidential. If they elect to rely on a document, they do so at the risk that other creditors opposing the scheme may be able to see their confidential/privileged documents, at least for the purposes of challenging the scheme. Of course, once seen for that purpose, other opposing creditors cannot "un-see" the documents with the obvious commercial consequences that follow. 
 
James McNeill QC and Gavin Walker, advocate both of Axiom represented the successful Respondents. Lord Davidson of Glen Clova QC and Morag Ross, also both of Axiom represented the Noters.

http://www.scotcourts.gov.uk/opinions/2011CSIH18.html