Sutton v GE Captial Commercial Finance Ltd & Ors

Equitable relief concerning confidential legal communications is founded on confidence rather than privilege. It may require documents to be returned and restrain their use, including against an innocent recipient. Restraint of use in litigation is available only where the claimant could have asserted privilege if the documents were in his possession or control. Administrative receivers may use their statutory and debenture powers only for legitimate purposes connected with their functions. They cannot obtain confidential legal advice solely to assist the appointing creditor’s litigation. Disclosure outside those powers does not waive the company’s rights. Appointment of receivers does not automatically suspend the directors’ power to litigate where proceedings do not threaten charged assets.

GE sought to enforce guarantees given for the liabilities of Anglo Petroleum Limited, which was in administrative receivership. Documents held by APL’s former solicitors, Boyes Turner, were obtained by the receivers and promptly passed to GE’s solicitors. Paul Sutton and APL applied for their return and for injunctions restraining their use, alleging confidence and legal professional privilege.

McCombe J dismissed both applications on 4 July 2003. He held that the receivers were entitled to the documents and that APL’s proceedings were not properly brought without the receivers’ concurrence. The appeals concerned waiver of APL’s rights, the limits of receivers’ powers, APL’s authority to sue, and whether Mr Sutton could claim protection despite Boyes Turner not being formally retained by him.

Both appeals were allowed.

1. Confidence and privilege. The relief sought was properly analysed as equitable protection of confidence rather than privilege against disclosure by the person controlling the documents. Under Goddard and another v Nationwide Building Society [1987] QB 670, equity may order the return of confidential communications and restrain their use. A litigation injunction or order for return of copies is available only where the claimant could have asserted privilege had the documents been in his possession or control. The jurisdiction is not discretionary according to the materiality of the communication or the perceived justice of admitting it.
2. Receivers’ powers and waiver. The powers under sections 234–236 of the Insolvency Act 1986 may be used only for a legitimate purpose connected with the office-holder’s functions. The debenture powers were directed to taking possession of, protecting and realising APL’s property for APL and its creditors. They did not authorise the receivers to obtain documents solely to assist GE in litigation against guarantors. Even if the documents were obtained for the receivers’ own investigation, they could not be passed to GE without considering their contents and whether disclosure served APL’s interests. The unauthorised disclosure was outside the receivers’ powers and therefore did not waive APL’s confidence or privilege.
3. APL’s proceedings. The receiver’s power to bring proceedings was enabling and did not automatically displace the directors’ power to sue on behalf of the company. The return of the documents to APL did not threaten GE’s interest as debenture holder. The proceedings were therefore properly brought. A challenge to the authority of APL’s solicitor had to be made by an application to strike out, with the solicitor joined, rather than by defence. The exceptional rule in Daimler Company Limited v Continental Tyre and Rubber Company (Great Britain) Limited [1916] 2 AC 307 did not apply because APL was not incapable of giving any retainer.
4. Mr Sutton’s position. It was at least arguable that Boyes Turner had given Mr Sutton confidential advice about his guarantee, although the firm had not been formally retained by him. He was entitled to restrain Boyes Turner and APL from disclosing the documents while they remained under their control. Whether he had an independent legal professional or common-interest privilege was not finally decided because APL succeeded. If the receivers later identified a proper reason for disclosure in APL’s interests, they could apply to the Companies Court, where Mr Sutton should have an opportunity to be heard.

An extension of time limits was granted. Reporting restrictions on McCombe J’s judgment continued, but none applied to the Court of Appeal judgment.

Procedural history

1. Court of Appeal (Civil Division). On 19 March 2004, Chadwick LJ and Rix LJ delivered a joint judgment and allowed both appeals: [2004] EWCA Civ 315.
2. High Court of Justice, Queen’s Bench Division. McCombe J dismissed the applications for return of the documents and injunctions restraining their use on 4 July 2003, and refused permission to appeal.