Guarantees And Implied Waivers Of Legal Advice Privilege

In the recent case raised by the former owners of department store chain McEwens of Perth against The Royal Bank of Scotland plc, the question arose as to whether there was an implied waiver of legal advice privilege in relation to the advice given to a party granting a personal guarantee.

The facts

McEwens Direct Limited (MDL) acquired the shares in McEwens of Perth Limited (MoPL) as part of a management buyout (MBO) in 2008. As part of the financing for the MBO, John Bullough and Georgina Bullough (spouses) (the Guarantors) granted a personal guarantee for £750,000 (the Guarantee) which was supported by a standard security over their home in favour of The Royal Bank of Scotland plc (the Bank).

MoPL went into administration in March 2016 having amassed debts totalling £4.27 million, including Bank debt totalling £3.44 million. The Bank then moved to recover monies owed.

The Guarantors raised an action to reduce the Guarantee and to interdict (block) the Bank from enforcing the Guarantee or the standard security over their home supporting this Guarantee.

The Guarantors argued that the Guarantee and the supporting standard security should not be relied upon for two reasons:

firstly, the relationship manager for the Bank misrepresented the position, in stating that the Bank would exhaust all rights against MDL and MoPL before enforcing the Guarantee, and that the Bank would never take the Guarantors' home; and secondly, in reliance on this misrepresentation, the Bank would be in breach of good faith in enforcing the Guarantee and standard security. In order to evaluate the facts, the Bank sought to recover certain documents that the Guarantors were relying upon for their case. The Guarantors produced the documents, but argued that the contents were protected by legal advice privilege. In particular, one of the documents that had been produced, an attendance note, had been redacted. The Bank sought, amongst other things, disclosure of an unredacted version of the attendance note.

The attendance note

Whilst there are many relevant facts in this case, it is worth looking at the contents of the attendance note. The attendance note was made by the solicitors acting for the Guarantors, and recorded the events on the day of completion of the MBO. The attendance note narrated, amongst other things, that:

the Guarantee was tabled at the meeting; the first Guarantor, John Bullough, waived his right to take legal advice in respect of the Guarantee; the...