| EXTRA DIVISION, INNER HOUSE, COURT OF SESSION |
Lord Reed Lord Hardie Lady Dorrian | [2011] CSIH 18 P1981/08 OPINION OF THE COURT delivered by LORD REED In Notes of CREDITORS 59, 105 and 106 Noters: in Petition of THE SCOTTISH LION INSURANCE COMPANY LIMITED Petitioner; against GOODRICH CORPORATION AND OTHERS Respondents: _______ |
For the Noters: Lord Davidson, QC, Ross; Dundas & Wilson, CS
For the Petitioner: Howie, QC; Morton Fraser LLP
For the Respondents: McNeill, QC, Walker; Simpson & Marwick, WS
8 March 2011
Introduction
[1] This appeal concerns a question which has arisen in the context of an application to the court to sanction an arrangement between the petitioner and its creditors under section 899 of the Companies Act 2006, following meetings of the creditors which were ordered by the court under section 896. At the meetings, the creditors cast their votes. Following the meetings, the votes were given a weighting according to the value placed upon each creditor's claims against the petitioner, on the basis that one vote would be allocated for each £1 Sterling which a claim was worth. For the purpose of that valuation exercise, creditors wishing to vote were invited to submit documentation supporting their valuation of their claims. The valuation exercise had a considerable effect upon the result of the voting: in broad terms, the claims of creditors who voted in favour of the scheme were attributed a relatively high value compared with the claims of creditors who voted against it. The application for sanction is opposed by the respondent creditors on grounds relating in part to the valuation process. There are, in particular, issues raised as to whether the voting majorities required by section 899 were actually attained, so as to confer jurisdiction on the court to sanction the arrangement, and as to whether in any event the arrangement, which provides for the valuation of claims on a broadly similar basis, is in consequence so unfair to creditors such as the respondents that it should not be sanctioned. In these circumstances, the Lord Ordinary has not only appointed an officer of the court as a reporter, to enquire into the regularity of the proceedings and to report to the court, but has in addition appointed that the hearing of the application for sanction should take the form of a proof, at which each party will be entitled to lead evidence in support of its contentions. For the purposes of that proof, the Lord Ordinary has made an order for the production of the documentation which was submitted to the petitioner by certain creditors in support of the valuation of their claims, subject to conditions designed to protect confidentiality.
[2] The question which has arisen, against that background, is whether the noters, who are amongst the creditors whose documentation is to be produced under the order, are entitled to object to the production of certain of the documents, and to the inspection of the documents by the reporter or by the court itself, on the ground of legal professional privilege. The Lord Ordinary has held that privilege cannot be claimed, since any privilege which might otherwise have attached to the documents was waived when they were submitted to the petitioner. The noters have appealed against that decision to this court.
The background
[3] The petitioner is an insurance company incorporated in Scotland, which has been in "run off" since 1994. Its business included "occurrence" insurance: that is to say, insurance providing prospective coverage against claims relating to the risks covered by the policy as long as the underlying act or omission occurred during the relevant policy period. The petitioner's remaining portfolios include both "short tail" and "long tail" business. While it is thought that its short tail business, such as property insurance, is unlikely to give rise to any future claims, its long tail business includes exposure to asbestos, pollution and health hazard losses which may not become evident until long after the exposure to which they relate. In the ordinary course of run off, claims are adjusted and settled as and when they are received. In addition, the company can terminate its liability to individual creditors once and for all by means of agreed commutation payments. Unless a mechanism for terminating the run off is established, it may continue for many years.
[4] In 2005 the petitioner presented an application for sanction of a scheme of arrangement under section 425 of the Companies Act 1995, the predecessor of section 899 of the 2006 Act. Some time after the notices convening a meeting of creditors had been despatched, the 2005 scheme was withdrawn.
[5] In 2008, in accordance with current practice in relation to schemes of arrangement with creditors, as described in the Practice Statement issued by Sir Andrew Morritt V-C on 15 April 2002 ([2002] 1 WLR 1345), the petitioner notified its policyholders, as potential creditors, of its intention to proceed with the present scheme. The letter, dated 20 October 2008, explained the background to the scheme and provided information about it. It informed creditors that an application by the petitioner for an order to convene creditors' meetings was expected to be heard by this court on 15 December 2008, and informed them that objecting creditors could be heard in response to that application. It also informed them what the next steps would be if such an order were pronounced. It gave the address of a website which the petitioner had established to disseminate information about the scheme. It was possible to download from the website the proposed scheme, the explanatory statement prepared in accordance with section 897 of the 2006 Act, voting and proxy forms and general notes. Subsequently, it was also possible to download certain orders made by the court, including the interlocutor dated 15 December 2008 which we shall later discuss.
The proposed scheme
[6] On 9 December 2008 the petitioner presented to the court a petition in which it applied for two orders: first, an order under section 896 of the 2006 Act for meetings of creditors, and secondly an order under section 899 for sanction of a scheme of arrangement.
[7] It is unnecessary for present purposes to examine the scheme in detail. In summary, it extends to all of the petitioner's "scheme liabilities", which are defined as including all its liabilities under or in relation to insurance contracts. Scheme creditors will be invited to submit claims in respect of scheme liabilities, which are to be valued as at 31 December 2007. The value of the claims submitted will be determined, failing agreement, by a Scheme Adjudicator applying a specified dispute resolution procedure. Whether they are determined by agreement or by the Scheme Adjudicator, the claims will be determined by reference to "Estimation Guidelines" set out in an appendix to the scheme. Once a creditor's claims have been determined, and any sums owed by the creditor to the petitioner have been set off, the balance will be paid to the creditor in full and final settlement of the petitioner's liabilities to the creditor in respect of its insurance business.
[8] In the petition, the petitioner summarises what it perceives to be the advantages and disadvantages of the scheme to scheme creditors. Advantages of the scheme are said to include: (i) early payment, i.e. the fact that the scheme creditors will have their scheme liabilities determined and paid sooner than if there were no scheme; (ii) that there will be no discount for early payment, so that in most cases scheme creditors will receive, in effect, a premium over the present value of their claims; (iii) that the scheme offers a practical, straightforward and cost effective means of determining the value of present and future claims, with a dispute resolution procedure under which the Scheme Adjudicator will determine claims in respect of which agreement cannot be reached; and (iv) that the scheme will bring finality and certainty in respect of the claims of scheme creditors, thereby achieving savings in costs which the petitioner will apply towards making the undiscounted payments. Disadvantages are said to include: (i) the fact that the scheme creditors will be paid on the basis of an estimate of the value of their claims, so that, although some may receive more than they would otherwise have been entitled to, others may receive less; (ii) that if the scheme comes into force, scheme creditors will be barred from bringing court proceedings to obtain payment of their claims; and (iii) that the petitioner's insurance liabilities to scheme creditors in respect of scheme liabilities will cease, and any subsequent losses which might otherwise have resulted in a claim against the petitioner under the contracts of insurance will not be covered.
The relevant legislation
[9] Arrangements and reconstructions are dealt with in Part 26 of the 2006 Act. So far as material for present purposes, the relevant provisions are as follows:
"895 Application of this Part
(1) The provisions of this Part apply where a compromise or arrangement
is proposed between a company and -
(a) its creditors, or any class of them, or
(b) its members, or any class of them.
...
896 Court order for holding of meeting
(1) The court may, on an application under this section, order a meeting of the creditors or class of creditors, or of the members of the company or class of members (as the case may be), to be summoned in such manner as the court directs.
(2) An application under this section may be made by -
(a) the company,
...
897 Statement to be circulated or made available
(1) Where a meeting is summoned under section 896 -
(a) every notice summoning the meeting that is sent to a creditor or member must be accompanied by a statement complying with this section, and
(b) every notice summoning the meeting that is given by advertisement must either -
(i) include such a statement, or
(ii) state where and how creditors or members entitled to attend the meeting may obtain copies of such a statement.
(2) The statement must -
(a) explain the effect of the compromise or arrangement,
...
899 Court sanction for compromise or arrangement
(1) If a majority in number representing 75% in value of the creditors or class of creditors or members or class of members (as the class may be), present and voting either in person or by proxy at the meeting summoned under section 896, agree a compromise or arrangement, the court may, on an application under this section, sanction the compromise or arrangement.
(2) An application under this section may be made by -
(a) the company,
...
(3) A compromise or agreement sanctioned by the court is binding on -
(a) all creditors or the class of creditors or on the members or class
of members (as the case may be), and
(b) the company
...".
Procedure
[10] As was explained by Chadwick LJ in Re Hawk Insurance Co Ltd [2001] BCLC 480 at paragraphs 11-12, there are three stages in the process by which the approval of a scheme of arrangement is sought. First, there must be an application to the court for an order that a meeting or meetings be summoned. It is at that stage that a decision needs to be taken as to whether or not to summon more than one meeting, and, if so, who should be summoned to which meeting. Second, the scheme proposals are put to the meeting or meetings held in accordance with the order that has been made, and are approved (or not) by the requisite majority in number and value of those present and voting in person or by proxy. Third, if approved at the meeting or meetings, there must be a further application to the court to obtain the court's sanction to the arrangement. Each of those stages serves a distinct purpose. At the first stage the court directs how the meeting or meetings are to be summoned. It is concerned, at that stage, to ensure that those who are to be affected by the compromise or arrangement proposed have a proper opportunity of being present (in person or by proxy) at the meeting or meetings at which the proposals are to be considered and voted upon. The second stage ensures that the proposals are acceptable to at least a majority in number, representing three-fourths in value, of those who take the opportunity of being present (in person or by proxy) at the meeting or meetings. At the third stage the court is concerned (i) to ensure that the meeting or meetings have been summoned and held in accordance with its previous order, (ii) to ensure that the proposals have been approved by the requisite majority of those present at the meeting or meetings and (iii) to ensure that the views and interests of those who have not approved the proposals at the meeting or meetings (either because they were not present or, being present, did not vote in favour of the proposals) receive impartial consideration.
The first stage - the application for an order that a meeting or meetings be summoned
[11] As we have mentioned, the petitioner presented its application on 9 December 2008. The relief sought included in the first place an order under section 896 of the 2006 Act that meetings of the creditors be summoned. As we have explained, all known policyholders had been notified in advance of the hearing and given the opportunity to attend and be heard. Two separately represented groups of creditors, including the respondents, attended and made representations. After hearing counsel, the Lord Ordinary on 15 December 2008 ordered two separate meetings of creditors: one, of creditors in respect of non-IBNR claims, and the other, of creditors in respect of IBNR claims. An "IBNR" claim is a claim in respect of which a loss has been incurred but not reported. Separate meetings of these two categories of creditors were ordered on the basis that they constituted distinct classes for the purpose of considering the proposed scheme. Paragraph 5 of the interlocutor of 15 December 2008 ordered the petitioner to give notice of the meetings to all persons mentioned in the Scheme Mailing List referred to in the petition: that is to say, to all known insureds and reinsureds. Paragraph 6 required the notice to be accompanied by a copy of the explanatory statement required by section 897 of the 2006 Act, a voting form in which each creditor wishing to vote would give details of its IBNR and non-IBNR claims and their value, a proxy form, and general notes, all in the form (or substantially in the form) of drafts produced with the petition. Paragraph 8 appointed Mr Daniel Schwarzmann, of PricewaterhouseCoopers LLP, to be the chairman of each of the meetings Paragraph 9 conferred on the chairman a number of powers, including the following:
"(iv) failing agreement between the Company and a Scheme Creditor as to the value to be placed upon that Scheme Creditor's claims against the Company for the purpose of voting at the Meetings or either of them, to fix that amount in such manner as shall appear to the chairman to be fair and reasonable having regard to (a) any supporting information produced by the Scheme Creditor, (b) the information available to the Company from its own records, (c) any advice received from the Scheme Actuarial Adviser mentioned in the Scheme, who shall apply the principles mentioned in the Estimation Guidelines mentioned in the Scheme and (d) the report of the Independent Vote Assessor mentioned in the petition; provided that any amount so agreed or fixed shall be binding solely for the purpose of determining the number of votes which may be cast at the Meeting in question by that Scheme Creditor."
Paragraph 11 provided that, at each of the meetings, each scheme creditor was to be entitled to one vote for each £1 sterling of his claims against the petitioner as agreed or fixed in accordance with paragraph 9(iv). Paragraph 12 ordained the chairman to report to the court the outcome of each of the meetings within 14 days of his receiving the report of the Independent Vote Advisor. Paragraph 13 appointed Mr David Bennett, WS "to enquire into and to report to the court upon the facts and circumstances set forth in the petition and the regularity of the present proceedings." In relation to these provisions, it is necessary to consider the role of (i) the chairman, Mr Schwarzmann, (ii) the Independent Vote Assessor, Mr Colin Czapiewski and (iii) the reporter, Mr Bennett.
The role of the chairman
[12] In terms of section 899 of the 2006 Act, the court may sanction an arrangement only if it is agreed at the meeting summoned under section 896 by "a majority in number representing 75% in value of the creditors or class of creditors". The section is silent as to how the value of creditors is to be established. In the case of creditors of an insurance company of the present kind, calculation is far from straightforward. In the case of IBNR creditors, in particular, it is necessary to estimate the present value of the company's future contingent liabilities in respect of losses which have not yet been reported: for example, liabilities in respect of mesothelioma which may be diagnosed at some point in the future and may have been caused by an exposure to asbestos, for which the insured was responsible, during a period when a policy with the company was in force. In such circumstances valuation is inherently uncertain. Any valuation can only be an estimate, which with the benefit of hindsight may be shown to have undervalued or overvalued the liability. The effect of paragraph 9(iv) of the interlocutor was for the court to confer on Mr Schwarzmann, failing agreement between the petitioner and a creditor as to the value to be placed upon the creditor's claims for the purpose of voting, the power "to fix that amount in such manner as shall appear to the chairman to be fair and reasonable". In exercising that power, Mr Schwarzmann was required to have regard to four specified categories of information. The first was any supporting information produced by the creditor. The second was the information available to the petitioner from its own records. The third was any advice received from the Scheme Actuarial Adviser mentioned in the scheme, who was to apply the principles mentioned in the Estimation Guidelines set out in the scheme. The fourth was the report of the Independent Vote Assessor mentioned in the petition.
[13] The Scheme Actuarial Adviser is identified in the scheme as PricewaterhouseCoopers LLP. The petition states that PwC have a large number of actuarial experts in-house, and have advised 76 companies in relation to solvent schemes of arrangement. For their services as Scheme Adviser (a distinct role in relation to the scheme), PwC are to receive a contingent fee, to be calculated by reference to any return to the petitioner's shareholders. According to the answers to the petition, PwC are the market leaders in the promotion of such schemes and are paid substantial success fees in this connection.
[14] As was made clear by the proviso at the end of paragraph 9(iv) of the interlocutor of 15 December 2008, the amount fixed by the chairman as the value of a creditor's claims is binding solely for the purpose of determining the number of votes allocated to the creditor in question. In the event that the scheme were to be approved, a separate process of valuation of creditor's claims would then be undertaken, involving the submission of claim forms and supporting information to the petitioner, the valuation of the claims by the petitioner in accordance with the Estimation Guidelines and, failing agreement between the creditor and the petitioner, an adjudication by the Scheme Adjudicator. The scheme provides (in paragraph 19.6) that the amount in respect of which any creditor was admitted to vote at one or other of the creditors' meetings is not binding upon the creditor, the petitioner or the Scheme Adjudicator for any purpose of the scheme.
[15] Mr Schwarzmann is described in the petition, and in a curriculum vitae produced with it, as a partner in PwC who specialises in company reorganisations within the insurance industry and acted as scheme adviser to the 76 companies which implemented solvent schemes of arrangement.
The role of the Independent Vote Assessor
[16] The petition narrates that the petitioner has appointed Mr Czapiewski to act as an Independent Vote Assessor ("IVA") for the purpose of providing a cross-check on the votes cast at the creditors' meetings. It appears from his curriculum vitae, produced with the petition, that Mr Czapiewski is an independent consultant actuary. The petition states:
"Mr Czapiewski's task will be to assess the estimated values of the votes cast by any Scheme Creditor which votes against the Scheme at either or both of the Scheme Creditors' meetings and of a significant sample of the votes cast by those Scheme Creditors which vote in favour of the Scheme. The sample will be sufficient to determine whether the majority mentioned in section 899(1) of the Act has been achieved. In addition, Mr Czapiewski will be entitled to review further votes should he so request. Having conducted this assessment, Mr Czapiewski will report to the Company on his findings ... The report will be lodged in Court."
The role of the reporter
[17] In order to explain the role of the reporter, it may be helpful to begin by explaining the nature of petition procedure. In the Court of Session, proceedings can be begun either by summons or by petition. The difference between the nature of these two forms of proceeding has been explained as follows:
"The object of the summons is to enforce a pursuer's legal right against a defender who resists it, or to protect the legal right which the defender is infringing; the object of a petition, on the other hand, is to obtain from the administrative jurisdiction of the court power to do something or to require something to be done, which it is just and proper should be done, but which the petitioner has no legal right to do or require, apart from judicial authority."
(Report of the Royal Commission on the Court of Session, Cmd 2801, 1927, pages 49-50). The petition is an application in writing which is addressed to the court and requests it to exercise the power in question. It can be served on other persons with an interest, provided the court grants a warrant to do so, and such persons then have an opportunity to oppose it. Even if the petition is unopposed, it will not be granted unless the court is satisfied that it is appropriate for it to exercise the relevant power in the manner requested.
[18] In petition procedure, the court possesses a wide discretion, subject to any specific provision in the Rules of Court, to determine the form of procedure which is most appropriate in the circumstances (cf Tomkins v Cohen 1951 SC 22 at page 23 per Lord Keith). In relation to unopposed petitions, Rule of Court 14.9 provides that "the court shall ... after such further procedure and inquiry into the grounds of the petition, if any, as it thinks fit, dispose of the petition." In relation to opposed petitions, Rule of Court 14.8 provides that "the court shall make such order for further procedure as it thinks fit." The court's inquisitorial role in relation to petitions is also made clear by section 25(2) of the Court of Session Act 1988, in terms of which the court may make such investigation and require such assistance from professional persons as it thinks fit. Whether the petition is opposed or unopposed, the court may in particular remit to a reporter to carry out such enquiries on behalf of the court as may be necessary and report on his findings to the court. In some classes of petition there is invariably a remit to a reporter; and petitions for the approval of schemes of arrangement fall into that category (cf. Practice Note No 2 of 1976). Where the petition is opposed, the court may also order a proof (the allowance of proof being signified by the granting of a warrant to cite witnesses), or may order affidavits or allow a hearing on the petition and answers without evidence being adduced.
[19] In the present case, in terms of paragraph 13 of the interlocutor of 15 December 2008 the court appointed Mr Bennett "to enquire into and to report to the Court upon the facts and circumstances set forth in the petition and the regularity of the present proceedings". That is a standard form of wording, whose flexibility allows the scope and depth of the investigation carried out by the reporter to reflect the requirements of the court in the particular case. Mr Bennett is a solicitor who is independent of the petitioner and of PwC and has previously acted as a reporter in respect of numerous schemes of arrangement, including the scheme which was proposed by the petitioner in 2005 and subsequently withdrawn. As we shall explain, the Lord Ordinary has also allowed a proof on the petition and answers. In the circumstances, the remit to the reporter must be understood as being of an informative character (cf the discussion of different types of remit in Thomson and Middleton, Manual of Court of Session Practice, page 397; Maxwell, The Practice of the Court of Session, page 312): that is to say, the remit is designed to provide the court with independent information which, although not conclusive (see e.g. La Lainière de Roubaix v The Glen Glove & Hosiery Co Ltd 1926 SC 91), will assist it in carrying out its functions. That that was the Lord Ordinary's intention is confirmed by his Opinion dated 8 July 2010, at paragraph 24.
The second stage - the creditors' meetings
[20] The court has not yet received Mr Bennett's report, but it was not disputed before us that the relevant notices and other documents had been issued in accordance with the court's interlocutor of 15 December 2008. In the circumstances, we can proceed on that basis for present purposes. The explanatory statement explained (at paragraph 3.23) the need for approval of the scheme by a majority in number representing not less than 75 per cent in value of the creditors. It also explained the court procedure which would be followed:
"3.6 In Scotland a company which is proposing a scheme of arrangement presents to the Court a petition asking (i) for one or more scheme creditors' meetings to be summoned and (ii) for the scheme to be sanctioned. Having presented the petition, the company asks the Court to make an initial order allowing one or more meetings of creditors to be summoned and setting out the mechanics for convening and holding the meeting or meetings. On making the first order, the Court will also appoint a 'Reporter', who will be a solicitor in Edinburgh, Scotland. The Reporter's remit is, typically, to report on the facts and circumstances of the petition and on the regularity of the proceedings.
3.7 The outcome of the meeting or meetings is reported back to the Court. If the scheme has been agreed, the company will then ask the Court to make a second order, this time for the petition to be advertised. The second order will also specify the period of time during which any person claiming an interest (for example, a creditor which is affected by the scheme) may lodge answers to the petition.
3.8 Once the period for lodging answers has expired, the company will apply to the Court for a third and final order sanctioning the scheme. A hearing will be fixed for the application to be heard. Any person who has lodged answers to the petition will be entitled to appear by counsel, or by a solicitor-advocate, at that hearing."
The notice of the meeting, and the explanatory statement, requested creditors to complete the voting and proxy forms and to return them with supporting information by 27 February 2009. The meetings were held on 2 March 2009, under the chairmanship of Mr Schwarzmann. The court was subsequently provided with Mr Schwarzmann's report and with the report of the IVA.
[21] It appears from Mr Schwarzmann's report that 97 creditors voted at the meeting of non-IBNR creditors, and that 108 creditors voted at the meeting of IBNR creditors. If their votes had all been treated as valid, and their valuations of their claims had all been accepted, the non-IBNR meeting would have resulted in 70 votes in favour of the scheme and 27 against. In terms of value, 72 per cent of the votes would have been in favour of the scheme, and 28 per cent against. On the same hypothesis, the IBNR meeting would have resulted in 61 votes in favour of the scheme and 47 against. In terms of value, 56 per cent of the votes would have been in favour of the scheme, and 44 per cent against. On that basis, the scheme would have failed to obtain the majority required by statute at either meeting.
[22] The votes recorded at the meetings were however adjusted in two respects. First, Mr Schwarzmann declined to accept certain votes as having been validly cast. 78 votes were treated as having been validly cast at the non-IBNR meeting, of which 61 were in favour of the scheme and 17 against. 80 votes were treated as having been validly cast at the IBNR meeting, of which 49 were in favour of the scheme and 31 against. It appears from appendices 1 and 2 to Mr Schwarzmann's report that, if the creditors' valuations of their claims had been accepted, the vote at the non-IBNR meeting would then have been 72 per cent in favour of the scheme and 28 per cent against. The vote at the IBNR meeting would have been 35 per cent in favour of the scheme and 65 per cent against. On that basis, the scheme would have again failed to obtain the statutory majority at either meeting.
[23] Secondly, the value of all of the votes against the scheme, and of a number of the votes in favour of the scheme, was reviewed. This process resulted in a substantial adjustment of the value of the votes. Following the review, the votes in favour of the scheme at the non-IBNR meeting were calculated as being 89 per cent by value, and those against as 11 per cent. The votes in favour of the scheme at the IBNR meeting were assessed at 97 per cent by value, and those against at 3 per cent. On that basis, Mr Schwarzmann reported that the majorities mentioned in section 899(1) of the 2006 Act had been achieved at each of the meetings.
[24] It is apparent from the foregoing that the valuation of creditors' claims was critical to the reported outcome of the meetings. The extent to which the valuation review resulted in a greater devaluation of votes against the scheme than of votes in favour of it is also apparent. In the case of the non-IBNR meeting, the value of the votes in favour (so far as treated as valid) was reduced by 65 per cent, while that of the votes against was reduced by 89 per cent. In the case of the IBNR meeting, the value of the votes in favour was reduced by 24 per cent, while that of the votes against was reduced by 99 per cent.
[25] It appears from the IVA's report that he was provided with files in respect of 62 creditors who had voted at one, or both, of the meetings. The files related to all of the creditors who had voted against the scheme, and a sample of those who had voted in favour. They included creditors whose votes were rejected as invalid by Mr Schwarzmann. The IVA concluded that the values submitted for 20 creditors were reasonable for voting purposes, that 24 creditors should have their values amended, and that 18 creditors should have their claims rejected in toto.
[26] The valuations of all the votes were then considered by Mr Schwarzmann. He reported:
"5.1 The values for voting purposes of 63 claims in respect of Notified Outstanding Claims and of 57 IBNR Claims were agreed as cast, following a review of (a) any supporting information produced by the Scheme Creditors concerned; (b) the information which was available to the Company from its own records (access to those records having been given to PricewaterhouseCoopers LLP, of which I am a partner); (c) advice received from the Scheme Actuarial Adviser; and (d) the report of the Independent Vote Assessor. Each of these votes was considered fair and reasonable.
5.2 As regards claims which were not so agreed, I fixed their amount in such a manner as appeared to me to be fair and reasonable. In fixing their amount, I had regard to the matters mentioned in paragraph 9(iv) of the Interlocutor that is to say: (a) any supporting information produced by the Scheme Creditors concerned; (b) the information which was available to the Company from its own records (access to those records having been given to PricewaterhouseCoopers LLP, of which I am a partner); (c) advice received from the Scheme Actuarial Adviser; and (d) the report of the Independent Vote Assessor. In every case in which my own Initial view of the value of a claim differed from that of the Independent Vote Assessor, I deferred to the Independent Vote Assessor and substituted the value suggested by him for my own initial view."
The answers for the respondents
[27] On 29 April 2009 the court made an order for the advertisement of the petition and the lodging of answers by anyone claiming an interest. The respondents then lodged answers in which they set out their objections to the scheme. They explain that they are scheme creditors with claims which include IBNR claims, and that they object in principle to the petitioner being released from its obligations towards them. In that regard, they state that many scheme creditors, including themselves, are major industrial organisations for whom occurrence-based coverage represents a valuable and irreplaceable asset. Replacement occurrence-based coverage is no longer available on any insurance market at any price. The respondents also complain that the value of scheme liabilities, especially in regard to IBNR claims, is likely to be heavily discounted under the scheme, with the consequence that they will receive little if any compensation for being deprived of the protection which their purchase of occurrence-based coverage has given them. In addition, the respondents object to the way in which creditors' claims were valued for voting purposes. In that regard, they aver that
"the Scheme was not properly approved by the requisite statutory majorities, by reason of significant and unwarranted devaluation of Scheme Creditors' votes, particularly those of Scheme Creditors voting against the Scheme"
(answer 13). There are complaints that the claims of opposing creditors were unfairly valued at low, nominal or nil amounts, that favourable treatment was given to creditors who voted in favour of the scheme, and that the reported majorities were achieved only by manipulation of the valuations. In relation to these matters, the respondents make a number of specific criticisms, in answer 8.3, prefaced by a general observation that they have been hampered by a lack of access to the materials necessary to undertake a full and detailed analysis of the methods and assumptions employed by the Scheme Advisers and the IVA, including the materials submitted by scheme creditors. We need not quote the criticisms in full. They include complaints that the valuations proceeded upon the unfounded and unrealistic assumption that the absence of a developed claims profile denoted an unlikelihood that such a claims profile would develop in the future; that the valuations reflected the application of a confidence level which was actuarially unsound; that the valuations were based on an erroneous rejection of the "all sums" approach to the allocation of liabilities to insurance policies and the adoption of a type of "pro rata" approach, despite the rejection of the latter approach by courts in the United States; that different estimation methods were employed in respect of different scheme creditors; that the Scheme Advisers and the IVA were inconsistent in their treatment of the supporting documentation (or lack of it) supplied by different scheme creditors; and that certain specific errors were made in the valuation of the respondents' IBNR claims. It is necessary to set out one further criticism in full, as it is particularly relevant to the issue we have to decide:
"(h) The respondents note that the votes of Scheme Creditors 44, 59, 105 and 106, all of which were cast in favour of the Scheme, were accepted by the Scheme Advisers and the IVA at 100% of their claimed value. It is impossible, in the absence of underlying data, to identify what it is about these votes which distinguishes them from others such that it was appropriate to apply no discount."
In relation to this matter, it is convenient at this point to say something about the votes of Scheme Creditors 44, 59, 105 and 106.
The votes of Scheme Creditors 44, 59, 105 and 106
[28] Scheme creditors were not named in the reports of Mr Schwarzmann and the IVA, but were distinguished by means of reference numbers. Creditors 44, 59, 105 and 106 were amongst the 20 creditors whose claims were accepted by the IVA at their own valuation. In terms of value, they were the largest creditors in that category. They were also among the largest of all creditors once the valuation process had been completed. In relation to non-IBNR claims, their votes represented 24 per cent of all votes by value (as finally determined by Mr Schwarzmann), and 27 per cent of the votes cast in favour of the scheme. In relation to the IBNR claims, their votes represented 78 per cent of all votes by value, and 81 per cent of the votes cast in favour of the scheme. Creditors 59, 105 and 106 (the present noters), in particular, accounted for 26 per cent of the votes in favour at the non-IBNR meeting, and for 73 per cent of the votes in favour at the IBNR meeting.
[29] The IVA did not discuss in detail the claims which he accepted in full, but he made certain comments. In relation to Creditor 44, he commented:
"There is full supporting information for the values of mainly Australian asbestos claims based on a detailed external analysis. The amount seems to be reasonable."
In relation to Creditor 59, he commented:
"There was full and detailed supporting documentation for the amounts. It appears that the expected claims will fully exhaust the policies. I believe that the amounts are reasonable."
In relation to Creditor 105, he commented:
"These fully supported submitted liabilities are in respect of the non aviation claims only. The aviation claims for this scheme creditor are included within scheme creditor number 106. I believe that the creditor amounts, that are for outstanding and IBNR claims, are reasonable."
In relation to Creditor 106, he commented:
"These fully supported submitted liabilities are in respect of the non aviation claims for the scheme creditor and for aviation liabilities for all companies within the group, including those for creditor number 105. I believe that the creditor amounts, that are for outstanding and IBNR claims, are reasonable."
Further procedure
The hearing on 7-9 July 2009
[30] At the time of ordering that the meetings be held, the court was made aware that there might be opposition to the motion for sanction, and pencilled in 7 July 2009 and the three ensuing days for the hearing of a contested application. The case was put out By Order on 22 June 2009 so that parties could inform the court of their state of readiness for the hearing. It became clear that a full contested hearing could not take place on the reserved days in July. Nonetheless, parties had identified certain issues of principle which, if decided in a particular way, might limit the scope of the hearing. Accordingly, it was decided to use the reserved dates in July for the hearing of argument on these issues, and long-stop dates for a full contested hearing (if one was still necessary) were fixed for January 2010. In relation to that hearing, the court's interlocutor of 22 June 2009 granted diligence to cite witnesses and havers. As explained earlier, that form of order implied that the full hearing was to take the form of a proof.
[31] The two issues of principle identified by the parties and argued at the hearing in July 2009 were these:
(1) Are the respondents entitled to challenge the decision by the chairman
of the creditors' meetings that the statutory majorities, both by number and value, were attained at the meetings of both classes of creditors?
and
(2) Can it ever be fair to sanction a "solvent" scheme of arrangement in the
face of continuing creditor opposition to having their occurrence cover compulsorily terminated?
At the end of the hearing on these issues on 9 July 2009, the Lord Ordinary made avizandum.
The order for the production of documents
[32] On 10 July 2009 the Lord Ordinary heard an application by the respondents for the production of documents. The relevant documents included (1) the records held by the petitioner relating to the valuation of the claims of the respondents and of certain other identified creditors, so far as showing or tending to show a number of aspects of the methodology employed; (2) the records showing or tending to show the basis of selection of the 62 cases referred to the IVA, and the information provided to the IVA in connection with these cases, and (3) the records showing the means, if any, employed to ensure that that the valuation of claims which were "agreed as cast", or in respect of which the creditors and the petitioner came to a negotiated resolution, was consistent with the valuation of claims which were not agreed. The identified creditors included some whose claims had been accepted by the IVA, some whose claims had been amended by the IVA, some whose claims had been rejected in toto by the IVA, and some whose claims had not been considered by the IVA but had been accepted by the chairman.
[33] In terms of an interlocutor dated 10 July 2009 the Lord Ordinary made an order for the production of the documents. The order contained a number of provisions designed to protect the confidentiality of the documents, which had been agreed between the petitioner and the respondents. They included provision for the redaction from the documents of such information as would indicate to an informed reader, from a reading of the document and nothing else, the identity of the creditor referred to in the document.
The intervention by the noters
[34] The order of 10 July 2009 was intimated by the petitioner to some or all of the identified creditors. This prompted applications to the court by creditors 59, 105 and 106, who are companies domiciled in the United States. In their applications, they identified themselves only by their reference numbers, and they have requested the court to respect their anonymity. We shall return to that aspect later. Notes of their identities were lodged in process in sealed envelopes. Their applications were in identical terms, mutatis mutandis, and contended that the materials recoverable under the order of 10 July 2009 contained information which was privileged and/or confidential to them. They accordingly sought to make submissions relating to the disclosure of the materials in question.
[35] As a result of the noters' interventions, on 25 August 2009 the interlocutor of 10 July 2009 was varied in terms which allowed the petitioner to lodge in process the documentation relating to the noters' claims in encrypted form on computer disks. A further interlocutor of 7 September 2009 appointed the noters to lodge in process a schedule of the documents contained on the disks, identifying those documents in respect of which legal professional privilege was claimed and the basis of the claims. The process of dealing with this issue was then interrupted as a result of the Lord Ordinary's issuing his decision on the issues which had been discussed at the hearing on 7 to 9 July 2009.
The Lord Ordinary's Opinion of 10 September 2009, and subsequent procedure
[36] On 10 September 2009 the Lord Ordinary issued his Opinion on the two issues which had been discussed at the hearing in July. In relation to the first issue (ie. whether the respondents were entitled to challenge Mr Schwarzmann's report that the scheme had achieved the required majority at both meetings), the Lord Ordinary rejected the petitioner's submissions, in so far as they were directed to excluding criticisms of the valuation of claims for voting purposes even at the stage when the court was considering whether to exercise its discretion to sanction the scheme. In so far as the submissions were directed only at the exclusion of such a challenge, other than on grounds of perversity or irrationality, at the stage when the court was considering whether it possessed jurisdiction to sanction the scheme, he decided to leave the point open until after the evidence had been heard. In relation to the second issue (i.e. whether it could ever be fair to sanction a solvent scheme of arrangement in the face of creditor opposition to having their occurrence cover terminated), he decided that a solvent scheme should not be imposed upon creditors against their will, in the absence of special reasons to justify such a course. No such reasons had been advanced. Accordingly, by interlocutor dated 16 October 2009 the Lord Ordinary dismissed the petition.
[37] That interlocutor was then the subject of a reclaiming motion, but the part of the Lord Ordinary's decision which concerned the first issue was not placed under review in the Inner House. On 29 January 2010 the Inner House allowed the reclaiming motion, recalled the interlocutor of 16 October 2009, and remitted to the Lord Ordinary for further procedure. The process of dealing with the noters' applications then resumed.
[38] By this time, schedules had been lodged in compliance with the interlocutor of 7 September 2009. Each schedule stated that the noters were prepared to make available the items for which legal professional privilege was not claimed, subject to redactions made by the petitioner and subject to confidentiality being preserved. The redactions were of the name and contact details of the creditor in question. In the schedule produced on behalf of Creditor 59, legal professional privilege was claimed in respect of 35 of the 52 pages of documents. The following explanation was given of the basis of the claim:
"Report prepared by attorneys for Creditor 59. Report prepared using materials prepared for Creditor 59, using confidential and privileged database, and materials taken from a report sent to Creditor 59 providing legal advice regarding management of litigation."
In the schedule produced on behalf of Creditor 105/106 (these two reference numbers being referable, in commercial terms, to a singe entity), legal professional privilege was claimed in respect of 11 of the 48 pages. The following explanation was given:
"Print of presentation prepared by settlement consultant for Creditor 105/106 at the direction of attorney for Creditor 105/106. Confidential settlement document setting out policy limits, certain terms of insurance settlements with London Market Insurers and financial terms of confidential settlement demand to Scottish Lion."
[39] In response to an interlocutor of 28 May 2010, the noters lodged in process a Summary Note setting out the basis upon which privilege was asserted by them. The documents had, it was said, been submitted to the petitioner subject to non-disclosure and confidentiality agreements. The documents were subject, under Scots law, to legal advice privilege, litigation privilege (the litigation in question being, it was said, the present proceedings), and common interest privilege. They were also protected from discovery under United States law in terms of the doctrines of attorney work product, attorney-client privilege and common interest. In reply, the respondents contended that any privilege had been waived. They also raised issues as to the relevance of the law of the United States, or of any individual state, and as to the noters' entitlement to claim privilege, even if waiver were left out of account.
[40] It was recognised by the parties that a full hearing on the issue of privilege would take some days and could not proceed without serious delay to the ultimate disposal of the petition. The respondents argued that the question of waiver could be dealt with at a relatively short hearing without undue delay, it being assumed for the purpose of the hearing that the noters were, subject to the question of waiver, entitled to claim privilege on the grounds advanced in their Summary Note. The petitioner supported this approach, its interest being to progress the petition to a conclusion without undue delay. After hearing argument, the Lord Ordinary decided that it would be in the interests of all parties that the question of waiver be taken as a preliminary point. The argument would proceed on the basis that, subject to waiver, the noters were entitled to claim privilege on the grounds set out in the Summary Note. If it were held that any such claims for privilege had been waived, there would be no purpose in further investigating those claims. If, on the other hand, it were held that they had not been waived, then there would have to be a full hearing to determine their validity.
[41] A hearing on the question of waiver accordingly proceeded before the Lord Ordinary on 11 June 2010. On 8 July 2010 the Lord Ordinary issued an opinion in which he concluded that any legal professional privilege in the documents submitted by the noters to the petitioner had been waived. By interlocutor dated 7 September 2010 the Lord Ordinary formally repelled the noters' claims to privilege as identified in the Summary Note. He remitted to a commissioner (i.e. a member of the Bar, acting on behalf of the court) to consider any claims to commercial confidentiality which the noters might make, such as were referred to in paragraph (5) of the interlocutor of 10 July 2009, to excerpt from the documents any entry which would fall within the terms of that paragraph and which had not already been redacted, and to lodge in court in a sealed packet the documents as so excerpted and redacted. The present reclaiming motion is brought against that interlocutor, with the leave of the Lord Ordinary.
[42] Finally, in relation to the procedural history of the case, it is relevant to note that on 21 May 2010 the Lord Ordinary allowed the respondents a period of time within which to lodge a minute of amendment of their answers. That was in response to an observation in the previous Opinion of this court (at paragraph 34) that:
"Subject to any relative amendment of the respondents' pleadings the court will also require to take into account any contention that some of the creditors who voted in favour of the scheme had a special interest by reason that compositions had been agreed privately with them in advance of the vote. That might, if established, be a 'blot' in the scheme."
We were informed that a minute of amendment had been lodged in relation to this matter, in which an issue was raised as to whether creditors whose claims had been agreed in advance formed a separate class for voting purposes. Counsel for the respondents informed us that the noters, in particular, had each entered into a prior agreement with the petitioner as to the value of their claims for the purposes of payment under the scheme, and thus as to the amount that they would be paid in the event of the scheme being sanctioned. No contrary suggestion was made.
Discussion
[43] We begin by noting that it was common ground before us that the issues fall to be determined in accordance with Scots law, notwithstanding the noters' contention that privilege can be asserted in these proceedings on the basis of foreign law.
[44] Legal professional privilege is of undoubted importance: see, for example, the discussion in Three Rivers District Council v Governor and Company of the Bank of England (No 6) [2005] 1 AC 610. It can however by overridden by statute, and it can be waived by the person entitled to assert it. No issue arises in the present case as to whether the privilege has been overridden by statute. The issue in contention is whether it has been waived.
[45] As Lord Keith of Kinkel remarked in Armia Ltd v Daejan Developments Ltd 1979 SC (HL) 56 at page 72, the topic of waiver may arise in a number of guises in a variety of contexts. The term connotes the giving up or abandonment of a right. The abandonment may be express, or it may be inferred from the facts and circumstances of the case. There was no express waiver in the present case. The question that we have to determine is whether waiver is to be inferred.
[46] In order to answer that question, it is necessary to begin by understanding the nature and purpose of privilege. Privilege is the name given to a right to resist the compulsory disclosure of information (B v Auckland District Law Society [2003] 2 AC 736 at paragraph 67 per Lord Millett). It exists in order to maintain the confidentiality of the information in question. It follows that privilege will be lost if the information in question ceases to be confidential: if, for example, it is published in the press. In such circumstances there is no longer any confidentiality to maintain, and the information therefore ceases to be privileged. Waiver of privilege can be distinguished from loss of privilege (see e.g. B v Auckland District Law Society at paragraphs 68 and 69). It will arise, as we have explained, in circumstances where it can be inferred that the person entitled to the benefit of the privilege has given up his right to resist the disclosure of the information in question, either generally or in a particular context. Such circumstances will exist where the person's conduct has been inconsistent with his retention of that right: inconsistent, that is to say, with the maintenance of the confidentiality which the privilege is intended to protect.
[47] There are two further points which it is important to understand. First, waiver does not depend upon the subjective intention of the person entitled to the right in question, but is judged objectively (Armia Ltd v Daejan Developments Ltd at page 72 per Lord Keith of Kinkel). Waiver of legal professional privilege, in particular, is determined on an objective analysis of the conduct of the person asserting the privilege (see e.g. Great Atlantic Insurance Co v Home Insurance Co [1981] 1 WLR 529). Secondly, privilege may be taken to have been waived for a limited purpose without being waived generally: in other words, the right to resist disclosure may be give up only in relation to a particular context. The point can be illustrated by the case of Goldman v Hesper [1988] 1 WLR 1238, in which a party to legal proceedings had disclosed privileged documents to the court in support of the taxation of her costs. The question arose whether the taxing officer could order disclosure of the documents to the paying party, where necessary to enable that party to raise a bona fide challenge to any item of cost claimed. The court concluded that, although disclosure would rarely be necessary in practice (since the taxation would not normally depend upon the contents of the document), the taxing officer had to see that the paying party was treated fairly and given a proper opportunity to raise a bona fide challenge. Disclosure could therefore be ordered where necessary. Taylor LJ, in a judgment in which Lord Donaldson of Lymington MR and Woolf LJ concurred, observed at pages 1244-1245 that any disclosure of privileged documents to the paying party would be only for the purposes of the taxation:
"That it is possible to waive privilege for a specific purpose and in a specific context only is well illustrated by the decision of this court in British Coal Corporation v Dennis Rye Ltd. (No 2) [1988] W.L.R. 1113. ....
By the same token voluntary waiver or disclosure by a taxing officer on a taxation would not in my view prevent the owner of the document from reasserting his privilege in any subsequent context."
Similar observations were made in B v Auckland District Law Society, where Lord Millett, delivering the judgment of the Judicial Committee of the Privy Council, distinguished (at paragraph 68) between waiver generally and waiver for a limited purpose:
"It does not follow that privilege is waived generally because a privileged document has been disclosed for a limited purpose only: see British Coal Corpn v Dennis Rye Ltd (No 2) [1988] 1 WLR 1113 and Bourns Inc v Raychem Corpn [1999] 3 All ER 154. The question is not whether privilege has been waived, but whether it has been lost. It would be unfortunate if it were. It must often be in the interests of the administration of justice that a partial or limited waiver of privilege should be made by a party who would not contemplate anything which might cause privilege to be lost, and it would be most undesirable if the law could not accommodate it."
[48] Whether the conduct of a person entitled to the benefit of privilege has been inconsistent with the maintenance of confidentiality, either generally or for a limited purpose, is dependent upon the relevant circumstances. The question has most often arisen in circumstances which are different from those of the present case. One such circumstance is where a person sues his legal advisers and seeks to rely on the privilege to prevent them from adducing evidence relevant to their defence. In such a case, the privilege is taken to have been waived because of "the unfairness of both opening the relationship by asserting the claim and seeking to enforce the duty of confidence owed by the defendant" (Nederlandse Reassurantie Groep Holding NV v Bacon & Woodrow [1995] 1 All ER 976 at page 986 per Colman J: a passage approved in Paragon Finance Plc v Freshfields [1999] 1 WLR 1183 at page 1191 per Lord Bingham of Cornhill CJ). Another type of situation where the question has often arisen is where a party to legal proceedings seeks to rely upon part of a confidential document (or sequence of related documents), but asserts privilege so as to prevent disclosure of the remainder. In such a case, the privilege may be taken to have been waived on the basis that "a party may not waive privilege in such a partial and selective manner that unfairness or misunderstanding may result" (Paragon Finance at page 1188 per Lord Bingham of Cornhill CJ). As these dicta indicate, where proceedings require to be conducted fairly, considerations of fairness may bear on an assessment of whether a person's conduct in relation to those proceedings has been inconsistent with the maintenance of confidentiality, and whether he must therefore be taken to have waived privilege (as has also been noted in decisions in Australia and New Zealand: see Mann v Carnell (1999) 201 CLR 1 and Ophthalmological Society of New Zealand Inc v Commerce Commission [2003] 2 NZLR 145).
[49] A third type of situation where the question has arisen, which is more directly relevant to the present case, is where a person has chosen to disclose a privileged communication in particular circumstances, and has subsequently asserted privilege in order to prevent the disclosure of the same communication in different circumstances. There are many such cases, but two examples will illustrate how the approach adopted has reflected the same underlying principles as have been applied in the other situations we have discussed. In British Coal Corporation v Dennis Rye Ltd (No 2) (1988) 1 WLR 1113 the plaintiffs had disclosed documents to the police to assist in a criminal investigation as a result of which charges were brought against the defendants. The documents, which were covered by litigation privilege, were then disclosed by the police to the defendants prior to the trial. The plaintiffs were ordered to disclose further documents to the defendants during the trial. The question then arose whether the plaintiffs could assert privilege in respect of the documents in civil proceedings brought against the defendants. The court held that privilege had not been waived, even on the assumption that the plaintiffs had impliedly consented to the disclosure of the documents to the defendants for the purpose of the criminal proceedings. Neill LJ, with whom the other members of the court agreed, said (at page 1121) that the plaintiffs had made the documents available for a limited purpose only, namely to assist in the conduct of the criminal investigation and trial. That action of the plaintiffs, looked at objectively, could not be construed as a waiver of any rights available to them in the civil action for the purpose of which the privilege existed. The criminal proceedings and the civil action were separate processes, with the consequence that there was no inconsistency between disclosure in one process and the assertion of privilege in the other. That case might be contrasted with Goldman v Hesper, which we have already mentioned, where the documents in question had been disclosed to the taxing master in order to support the party's bill of costs. The court noted that taxation was a procedure which involved not only an assessment of the bill of costs by the taxing master but also an opportunity for the paying party to challenge any item in the bill. The documents lodged in support of the bill must therefore be disclosed to the paying party if that were necessary in order for the taxation to be conducted fairly. It can be seen that in that case the purpose for which the documents had been disclosed formed part of a process which involved an opportunity for challenge by the paying party, with the consequence that there was an inconsistency between disclosing the documents to the taxing master and asserting privilege against the paying party, in so far as the paying party had to see the documents in order for the taxation to be conducted fairly.
[50] Against that background, the crucial question in the present case is whether the noters' disclosure of the privileged documents (as, for present purposes, we must assume them to be) to the petitioner, in order to have their claims valued for the purpose of voting on the scheme at the meeting ordered under section 896 of the 2006 Act, is inconsistent with the maintenance of the confidentiality of those documents in the proceedings for sanction of the scheme under section 899. In order to answer that question, it is necessary to consider the context in which the disclosure was made, and the relationship between that context and the context in which the privilege is now asserted.
[51] From the submissions made to us, it appears that the documents were submitted by the noters to the petitioner with the proxy forms, under cover of letters dated 26 and 27 February 2009. It is accepted that they were submitted specifically for the purpose of voting on the proposed scheme, so as to support the value which the noters sought to have attributed to their votes. It is also accepted that the noters submitted the documents in the knowledge that an application was intended to be made to the court under section 899, that that application was potentially adversarial and contentious, and that creditors opposed to the scheme might in particular object to the valuations placed on claims for the purpose of voting.
[52] The material made available by the petitioner to scheme creditors explained the nature of the procedure. We have already referred to the material in question. In particular, the "Practice Statement letter" dated 20 October 2008 drew creditors' attention to the website, on which the interlocutor of 15 December 2008, including the remit to the reporter, was subsequently published. Both the role of the reporter, and the possibility of a contested hearing of the application for sanction, were made clear by the explanatory statement provided to creditors. In relation to schemes of this kind, the possibility of a contested hearing on issues relating to the valuation of claims was well-known by the time the present scheme was put forward, following the judgments in Re British Aviation Insurance Co Ltd [2006] BCC 14 and Re Sovereign Marine and General Insurance Co [2007] EWHC 1331 (Ch), [2007] EWHC 1781 (Ch).
[53] Counsel for the noters submitted that the documents fell within the scope of two confidentiality agreements, but counsel for the petitioner maintained that the agreements in question had no application in the circumstances in which these documents had been produced. It is therefore necessary to consider the agreements. The copies produced to the court have been redacted, but we were informed that one, dated 16 June 2005, was between Creditor 59 and the petitioner, and that the other, dated 28 November 2008, involved Creditors 105 and 106 and the petitioner.
[54] It is apparent from the recitals to the 2005 agreement that it was concerned with the scheme proposed by the petitioner in 2005:
"WHEREAS, Scottish Lion intends to propose to its creditors that the parties be bound by a Scheme of Arrangement pursuant to Section 425 of the UK Companies Act 1985 (the 'Scheme')."
It also appears from the recitals that the agreement was concerned with material submitted with the claim form, for the purpose of calculating the payment due under the 2005 scheme:
"WHEREAS, in order to qualify for payment under the Scheme, [ ] must complete and return a claim form detailing its claim and is required to supply privileged and confidential information to support its claim;
WHEREAS [ ] wishes and is required to protect the confidentiality of the information to which Scottish Lion has access to in the course of reviewing [ ] claim."
The remainder of the agreement reflects that background. In clause 1, the petitioner agrees that it
"will not directly or indirectly use or disclose to, or permit to be used or disclosed to, any third parties any information or documentation which is confidential in nature ('Confidential Information') provided as part of this claim process except in accordance with this Agreement."
In relation to privilege, clause 2 provides:
"2. Scottish Lion agrees that the exchange of any material or information for the purposes set forth in this Agreement does not constitute the waiver of any privilege or right associated with such material or information."
On the basis of the information before us, that provision has no bearing on the present case, since the documents with which we are concerned were not exchanged for the purposes set forth in that agreement.
[55] The context of the 2008 agreement is explained in its recitals:
"WHEREAS, Certain Underwriters at Lloyd's, London, and Certain London Market Insurance Companies (hereinafter referred to as the 'London Market Insurers') severally subscribed to certain policies providing general liability insurance to Policyholder for various periods REDACTED (the 'Policies'); and
WHEREAS, Policyholder is presently in settlement discussions with the participating, solvent London Market Insurers arising from Policyholder's current and/or future long tail asbestos, pollution and human health liabilities insured or liabilities potentially insured under the Policies (the 'Claim'); and
WHEREAS, Insurer has asked that Policyholder submit additional information in support of its Claim."
It appears from the recitals that the insurer had asked certain policyholders to submit additional information in support of their claimed liabilities under policies underwritten by a number of underwriters and London Market insurance companies, in the context of settlement discussions with certain of those underwriters and insurance companies. Against that background, the agreement provides:
"1. All writings, agreements, other information or materials provided to Insurer by Policyholder, its consultants or agents ('Settlement Materials') shall be deemed privileged and confidential settlement communications. Insurer agrees that such Settlement Materials shall not be admissible in evidence in any proceedings between Policyholder and Insurer for any reason.
2. Insurer agrees that the Settlement Materials shall be kept confidential and shall not be disclosed to any person except by order of court or by agreement, in writing, signed by Policyholder, except that, provided recipients agree to keep such information confidential, Insurer may disclose Settlement Materials to: (1) its consultants retained to assist it in connection with their analysis of the Claim;
...
4. Material protected by this Agreement shall be deemed to fall within the protection afforded compromises and offers to compromise by Rule 408 of the Federal Rules of Evidence, similar provisions of state law and state rules of court."
The agreement appears therefore to be concerned with a potential London market-wide commutation of insurers' and underwriters' liabilities to certain policyholders. It is designed to protect the confidentiality of information provided for the purposes of the commutation, and in particular to ensure that such information is not used in proceedings between the policyholders and the insurer. It permits disclosure if required by an order of the court. On the basis of the information before us, this agreement likewise has no bearing on the present case, since it is not concerned with the provision of documents for the purpose of voting on the petitioner's proposed scheme of arrangement.
[56] Notwithstanding our conclusions in relation to the 2005 and 2008 agreements, it remains possible that the petitioner was under an obligation of confidentiality in respect of the documents in question, since an agreement as to confidentiality can be implied even if not expressed (see e.g. Gotha City v Sotheby's [1998] 1 WLR 114). In particular, where disclosure is for a limited purpose, there may be an obligation of confidentiality in so far as wider disclosure is concerned. We shall return to that issue.
[57] Subject to the issue we have just mentioned, the question whether, having disclosed the documents to the petitioner for the purpose of voting at the creditors' meetings, the noters are entitled to assert privilege in the present proceedings depends upon the relationship between the voting and the application under section 899: whether the relationship is such that disclosure could be limited to the voting exercise, without any implication that the noters would also consent to disclosure, if necessary, for the purpose of the sanction hearing; or whether the relationship is such that a creditor who elects to disclose privileged documents for the purpose of voting cannot, consistently with having done so, maintain that the documents are immune from disclosure at the sanction hearing.
[58] As we have explained under reference to the judgment of Chadwick LJ in Re Hawk Insurance Co Ltd, the statutory procedure by which an arrangement becomes binding on the company and its creditors involves three stages. It begins with an application to the court for an order that a meeting or meetings be summoned. Secondly, the scheme proposals are then put to the meeting or meetings held in accordance with the court's order, and are approved, or not, by the requisite majority. Thirdly, if the meeting or meetings approve the proposals, there must be a further application to the court to obtain the court's sanction to the arrangement. All these stages form part of a single process. The second stage, of which the voting forms a part, cannot therefore be considered in isolation from the other stages in the process. The meeting is held by order of the court, and must be conducted in accordance with any directions given by the court. The subsequent determination by the court of any application for sanction will involve consideration of the outcome of the meeting, and of whether it was properly conducted. The contention advanced before us on behalf of the noters that, because the meeting is not a procedure of a litigious character, therefore the disclosure of privileged material for the purposes of the meeting can have no bearing upon a claim of privilege at the sanction hearing, does not bear scrutiny. There is nothing in the concept of waiver of privilege which requires that the conduct giving rise to the waiver must necessarily have occurred in the context of litigation: indeed, if there were such a requirement, it would be one which courts have consistently failed to notice (see, for example, B v Auckland District Law Society, Goldberg v Ng (1995) 185 CLR 83, Mann v Carnell, Ophthalmological Society of New Zealand Inc v Commerce Commission and Fyffes plc v DCC plc [2005] IESC 3). It does not however necessarily follow, merely because there is a nexus between the meeting and the subsequent hearing in court, that disclosure for the purposes of the former must be taken as a waiver of any right to withhold disclosure for the purposes of the latter. It is necessary to consider with care how disclosure for the purposes of the meeting may bear upon consideration of the application for sanction.
[59] In any application under section 899, the court must be satisfied in the first place that it possesses jurisdiction, and therefore must be satisfied that the proposed arrangement was approved by the majority required by section 899: otherwise, the application must be refused (La Lainière de Roubaix v The Glen Glove & Hosiery Co Ltd; Re UDL Holdings Ltd [2002] 1 HKC 172 at page 184 per Lord Millett). The requisite majority is defined not only numerically but also in terms of the value attributed to the creditors' claims for voting purposes. It follows that the court must be able to examine the valuations placed on the claims, if it requires to do so in order to satisfy itself that it possesses jurisdiction to sanction the arrangement. In a case where an examination of the valuations requires an assessment of material submitted by creditors for the purpose of the valuation, the court must, for the same reason, be able to examine such material. In addition, a consideration of such material may also be relevant to the question whether, assuming that jurisdiction exists, the application for sanction of the arrangement should in any event be granted. The manner in which claims have been valued for voting purposes will, for example, usually be indicative of the manner in which they will be valued for the purpose of payment if the scheme is approved, and may therefore bear on the question whether the scheme is one which an intelligent and honest person acting in respect of his interest as a member of a properly constituted class of creditors might reasonably approve. Furthermore, it has long been understood to be inherent in the statutory scheme that a creditor who is opposed to the proposed arrangement may take part in the proceedings before the court so as to oppose the application for sanction. Such opposition may involve a challenge to the court's jurisdiction or to the merits of the scheme. In either event, it is in principle open to a creditor to raise questions of the kind we have just discussed. [60] In those circumstances, for a person to submit material for the purpose of the second stage of the statutory procedure for approval of a scheme of arrangement is inconsistent with his subsequently resisting the disclosure of that material when it is necessary at the third stage of the procedure in order for a relevant challenge to be properly considered, since such conduct at those two stages of the process is incompatible with the proper operation of the statutory procedure. As in Goldman v Hesper, and in distinction from such cases as British Coal Corporation v Dennis Rye Ltd (No.2), the disclosure of the material is inconsistent with the assertion of privilege in respect of the same material, since the assertion of privilege would prevent the proper operation of the procedure for the purpose of which the material was disclosed. The potential consequences for the company's scheme also mean that any implied agreement as to confidentiality cannot ordinarily be such as to prevent the disclosure of the material where necessary in the course of the proceedings under section 899, since any agreement which had that effect would not make commercial sense.
[61] In the present case, in particular, creditors who submitted documentation to the petitioner for the purpose of its being assessed for voting purposes - that is to say, to establish their status as scheme creditors, to determine which class of creditors they belonged to, and to fix the value of their claims for the purpose of voting - did so in circumstances in which that documentation might require to be scrutinised in a number of different contexts. First, the documentation would require to be considered by those involved in fixing the value of their claims for voting purposes: that is to say, the petitioner, the Scheme Actuarial Adviser, the IVA and the chairman of the meeting. Secondly, the documentation might also require to be considered in the course of the proceedings before the court - proceedings which, as we have explained, are inseparably connected to the meetings ordered by the court and to the process of valuation of claims, for the purpose of the meetings, which was authorised by the court. That consideration of the documents would be liable, even in the absence of opposition to the application under section 899, to involve scrutiny by the reporter approved by the court. In a case in which the application was contentious, however, and relevant grounds of challenge to the reported results of the meetings were put forward, it might also be necessary for the documentation to be considered at a contested hearing involving the petitioner and the opposing creditors.
[62] Against this background, when the noters submitted privileged documents to the petitioner with the intention that they should be relied on for the purpose of valuing the noters' votes, they must be taken to have done so in the knowledge that the disclosure of those documents to the court, to the reporter, and to creditors who opposed the granting of the application under section 899, might be necessary to satisfy the court that it had jurisdiction to grant the application and that sanction ought to be granted. In these circumstances, the noters must be taken to have waived any right to object to the disclosure of the documents in question in the present proceedings, to the extent that disclosure is necessary to enable the court to deal with the petitioner's application and the respondents' answers. Since the Lord Ordinary's assessment that disclosure is indeed necessary for that purpose is not challenged, it follows that the documents in question must be produced.
[63] Two other matters should be mentioned. First, as was made clear in B v Auckland District Law Society, disclosure of a privileged document for a limited purpose does not mean that privilege is lost: the waiver is limited, and does not prevent the noters from re-asserting their privilege in any subsequent context. A decision that the documents in question can be used at the hearing of the section 899 application and the respondents' answers does not infer any wider waiver of privilege, let alone the loss of privilege.
[64] Secondly, the confidentiality of the documents should be protected so far as that is consistent with the use which requires to be made of them in these proceedings. There is an obligation upon the parties not to use the documents for any purposes other than those of the present proceedings (Iomega Corporation v Myrica (UK) Ltd 1998 SC 636). In addition, it is clear from the interlocutors of 10 July 2009 and 7 September 2010, and from the Lord Ordinary's opinion of 8 July 2010, that care has been taken, and will continue to be taken, to protect the confidentiality of the documents.
Anonymity
[65] As we have explained, the noters have identified themselves only by their reference numbers, and they have requested the court to respect their anonymity (although notes of their identities have been lodged in process). In considering this matter we accept the importance of protecting, so far as possible, the confidentiality of the documents in question. The measures so far taken by the Lord Ordinary for that purpose include, in terms of the interlocutor of 10 July 2009, the redaction of documents so as to remove any indication of the identity of the creditor in question. The disclosure of the noters' identity by the court would be inconsistent with that interlocutor, and would undermine the confidentiality which the court is properly endeavouring to preserve. We do not under-estimate the importance of the general principle that the parties to legal proceedings should be named in judgments (cf Re Guardian News and Media Ltd [2010] 2 AC 697). Nevertheless, in the unusual circumstances which we have described, we are satisfied that it is proper in the present case that the identities of the noters should be withheld.
Conclusion
[66] For the foregoing reasons, we shall refuse the reclaiming motion.