USP Strategies Plc & Anor v London General Holdings Ltd & Ors

Factual and Procedural Background

The applications before the court concern legal professional privilege and issues of disclosure related to a warranty scheme devised in 1998 by the claimants (hereafter "USP") to replace insurance-based schemes affected by tax changes. Two solicitors from the Isle of Man developed an offshore trust-based scheme, documented in a Collections Account Agreement ("CAA"), with copyright initially vested in the second claimant and later transferred to the first claimant, collectively referred to as USP. The first defendant ("LGH") held the CAA as scheme administrator under a confidentiality agreement. Modifications led to joint copyright ownership between USP and Scottish Power.

In 2000, USP and LGH (along with two other defendants, part of the AON group) competed to operate a similar scheme for an entity called Powerhouse. LGH and its group used the final CAA draft to prepare a competing bid, which was found by HH Judge Weeks QC in 2002 to infringe USP's copyright and breach confidentiality. An inquiry into damages was ordered.

During the inquiry, questions of privilege arose concerning legal advice given to LGH by Isle of Man lawyers, the communication of that advice to Powerhouse, and related disclosures. Additionally, infringements relating to a separate transaction with an entity called Apollo were raised, although it was not alleged that the final Apollo scheme involved use of protected documents. The inquiry also addresses whether earlier infringements influenced pricing negotiations with Powerhouse.

Legal Issues Presented

1. Whether and to what extent legal professional privilege applies to communications and documents relating to legal advice obtained by the defendants, especially when such advice or summaries thereof were communicated to third parties such as Powerhouse.
2. Whether privilege is waived when privileged advice is disclosed to third parties under confidentiality agreements.
3. The scope and limits of privilege concerning different levels of communication: mere references to legal advice, indications of advice on subject matter, and detailed content of legal advice.
4. Whether the defendants are entitled to restrain the use or disclosure of privileged material by the claimants or third parties.
5. The applicability of the "iniquity" exception to legal professional privilege in the context of alleged copyright infringement.
6. The obligation of the defendants to provide a formal list of documents relevant to the inquiry.

Arguments of the Parties

Defendants' Arguments

• All material claimed as privileged falls within legal professional privilege and has not been waived.
• Privilege covers not only direct solicitor-client communications but also communications evidencing such advice, including those communicated to third parties under confidentiality.
• Privilege extends to different levels of material, including written advice and summaries or extracts thereof.
• Use of privileged material by the claimants or third parties should be restrained, including exclusion of certain witness statement parts and redactions of documents.
• Parts of the Particulars of Claim relying on privileged material should be struck out as an abuse of process.
• The defendants have already disclosed all relevant Apollo-related documents, save for privileged ones.
• They resist providing a new list of documents beyond those already disclosed or listed.

Claimants' Arguments

• Privilege applies only to direct solicitor-client communications; communications from client to third party (except verbatim full advice) are not privileged.
• Summaries or partial disclosures of legal advice to third parties do not meet the elements of privileged communications.
• References to legal advice that do not reveal content (Level 1 and 2) are insufficient to ground privilege and have been waived.
• Use of privileged material by claimants or their witnesses should not be restrained because they are innocent recipients.
• The defendants are using privilege to conceal wrongdoing, which should influence the court’s discretion against granting relief.
• Delay by defendants in asserting privilege (laches) and prior public disclosure of some privileged material (e.g., an email from 2000) undermine their claims to privilege.
• Documents prepared for submission to solicitors are not privileged; drafts and advice from solicitors are privileged but privilege may be waived.
• The iniquity exception applies, as the defendants sought legal advice to improve an infringing document.
• A proper list of disclosed documents is necessary for clarity and transparency.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by distinguishing between different levels of communication: mere references to legal advice (Level 1), references to advice on subject matter (Level 2), and communications evidencing the content of advice (Level 3). It held that Level 1 and 2 references are not privileged, particularly where waiver has occurred, as demonstrated by evidence from the defendants’ own witnesses.

Regarding Level 3 material, the court found that communications containing or evidencing legal advice retain privilege even when communicated to third parties, provided confidentiality is maintained. This conclusion was supported by a detailed analysis of the Three Rivers case, The Good Luck, and Gotha City, which collectively establish that privilege extends beyond the initial solicitor-client communication to documents evidencing such communications and communications to third parties under confidentiality agreements.

The court rejected the claim that summaries or paraphrases of advice lose privilege due to potential inaccuracies, reasoning that such a distinction is illogical and inconsistent with the policy underlying legal professional privilege.

It concluded that in the present case, the confidentiality agreement between the defendants and Powerhouse limited any waiver of privilege to Powerhouse alone, preserving privilege against wider disclosure.

In relation to witness statements and documents, the court ordered excision of specific passages revealing privileged content but allowed evidence referring generally to the existence of advice without disclosing its substance. The court emphasized the practical necessity of witnesses testifying to reliance on legal advice without revealing privileged details.

The court also addressed the defendants’ application to redact parts of Powerhouse documents, ordering redactions only where content revealed privileged advice and rejecting redactions where no privileged information was disclosed.

On the issue of striking out parts of the Particulars of Claim relying on privileged material, the court declined to do so at this stage, allowing the claimants to reconsider their pleadings in light of the judgment.

Regarding the Apollo transaction, the court found the claim to be insubstantial ("a storm in a teacup") but ordered disclosure of relevant documents, subject to privilege claims. It ruled that documents prepared for submission to solicitors are not privileged, drafts and advice from solicitors are privileged, and privilege is not waived by subsequent disclosure of non-privileged drafts.

The court rejected the defendants’ reliance on the iniquity exception due to lack of evidence of wrongdoing.

On the issue of providing a further list of documents, the court ordered the defendants to supply one to comply with standard disclosure obligations and to alleviate suspicion from the claimants.

Finally, the court considered delay and prior disclosure arguments, holding that prior limited disclosure of privileged material did not amount to deployment sufficient to waive privilege or bar relief, and that delay did not justify refusal of relief.

Holding and Implications

The court's final decision was to GRANT relief protecting legal professional privilege in respect of Level 3 communications evidencing legal advice, including those communicated to third parties under confidentiality agreements, while holding that Level 1 and Level 2 references are not privileged or have been waived.

The court ordered appropriate redactions in witness statements and documents to exclude privileged content, but allowed general references to legal advice where privilege was not infringed. It declined to strike out parts of the Particulars of Claim relying on privileged material but left open the possibility for claimants to amend their pleadings accordingly.

The court mandated the defendants to provide a formal list of documents relevant to the inquiry, reinforcing procedural transparency and compliance with disclosure obligations.

No new legal precedent was established; rather, the judgment clarified the application of existing principles on legal professional privilege, waiver, and confidentiality in the context of multi-party commercial litigation involving third-party communications.