Barclays Bank plc v Eustice

Legal professional privilege does not protect communications concerning the structuring of a transaction at an undervalue where there is a strong prima facie case that its purpose was to prejudice a creditor. Such conduct is sufficiently iniquitous to engage the crime or fraud exception. Neither dishonesty in a narrow sense nor the solicitor’s participation in or appreciation of the iniquity is essential.

Advice about implementing the transaction must be distinguished from advice obtained for the dominant purpose of defending pending or contemplated proceedings. The latter may remain privileged. Mere contemplation that litigation will follow the transaction does not convert advice about structuring it into litigation-privileged material.

The bank brought proceedings under section 423 of the Insolvency Act 1986 concerning a sale of agricultural assets, the grant of a tenancy and the assignment of a lease by members of the Eustice family. It alleged that the arrangements were transactions at an undervalue intended to prejudice its ability to enforce its security.

In interlocutory proceedings, His Honour Judge Jack QC found a strong prima facie case under section 423 and ordered disclosure of communications between the defendants and their legal advisers concerning the transactions. The defendants appealed from the Queen’s Bench Division, claiming legal professional privilege.

The central issues were whether the judge could find a strong prima facie case under section 423 and, if so, whether privilege protected advice concerning the creation of the impugned transactions.

1. Appeal dismissed unanimously. Schiemann LJ delivered the judgment, with which Aldous and Butler-Sloss LJJ agreed. The evidence established a strong prima facie case that the composite arrangements satisfied both requirements of section 423 of the Insolvency Act 1986.

2. The arrangements were prima facie transactions at an undervalue. Deferred payment without interest reduced the value of the consideration for the assets. The tenancy and assignment also placed the transferees in a position to demand a ransom before providing vacant possession. The fact that the bank’s remaining security might nominally cover its debt did not answer the point because the debt, interest and realisation costs were increasing. Agricultural Mortgage Corporation plc v Woodward (1994) BCC 688 applied.

3. There was also a strong prima facie case that the purpose was to prejudice the bank. The arrangements were intended to prevent or delay enforcement of its security. A further purpose, such as preserving a family business, does not prevent section 423 from applying where prejudicing a claimant is a purpose of the transaction. Chohan v Saggar [1992] BCC 306 applied.

4. Communications made to structure these transactions were outside legal professional privilege. The strong prima facie case concerned conduct sufficiently iniquitous to engage the crime or fraud exception. The inquiry is governed by public policy, rather than by whether the conduct can be described by a particular adjective. It was unnecessary to establish dishonesty in a narrow sense, criminality, complicity by the solicitor or a shared appreciation that section 423 would apply.

5. The dominant purpose of the advice was to structure arrangements preventing the bank from interfering with the family assets. It was not to conduct contemplated litigation merely because proceedings were foreseeable. Advice concerning the conception and implementation of an iniquitous transaction may be inspected, while communications genuinely created for the dominant purpose of defending pending or contemplated proceedings may remain privileged.

6. The discovery order therefore stood, extended by common consent to include the sale agreement. The court retained the exclusion for documents subject to a bona fide claim that they were obtained or created for the dominant purpose of pending or contemplated proceedings. The bank’s request to substitute a sole-purpose test was rejected.

• Court of Appeal: Unanimously dismissed the defendants’ appeal against the discovery order and required the sale agreement to be included within it.

• Queen’s Bench Division: His Honour Judge Jack QC found a strong prima facie case under section 423 of the Insolvency Act 1986 and ordered discovery of communications concerning the tenancy and assignment, subject to litigation privilege.