Hammond (a firm) v Pro-Fit USA Ltd

Disclosure in administration proceedings is exceptional. It should be ordered only where the documents bear materially on a central issue, having regard to the nature and urgency of the administration process. Documents created for the dominant purpose of advancing litigation are protected by legal professional privilege. That privilege will not be overridden at an interlocutory stage merely because allegations of wrongdoing are made. Where the alleged iniquity is itself an issue in the proceedings, a strong or very strong prima facie case is required. Costs may be left in the proceedings where an application has become substantially academic, but costs of a finally determined unsuccessful application ordinarily follow the event.

Pro-Fit USA Limited made interlocutory applications in pending administration proceedings involving its former solicitors, Hammonds. It sought disclosure of communications between Hammonds and Tag-It, a potential participant in the proposed administration and possible purchaser of intellectual property. It also sought documents relating to a valuation prepared by Mr Hindley.

The Tag-It application raised questions of relevance, exceptional circumstances, legal professional privilege, the iniquity exception and waiver. The valuation application had narrowed substantially because documents had been provided voluntarily. The court also addressed the date for service of further evidence and the costs of the applications.

1. Tag-It communications. The application for disclosure was refused. Following Highbury Ltd v Colt Telecom Group plc [2003] 1 BCLC 290, disclosure or cross-examination in administration proceedings is justified only in very exceptional circumstances. The requested communications were peripheral to the principal administration issues, which concerned insolvency, disputed claims and cross-claims, and the possible investigation of an undervalue transfer of intellectual property. The possibility that the communications might materially affect the administration application was very low.
2. The communications were privileged. On the evidence, their dominant purpose was to obtain information from Tag-It for the purpose of advancing Hammonds’ position in the administration litigation. The use which Tag-It might later have made of the information did not alter Hammonds’ purpose when the communications were made.
3. The privilege was not displaced by alleged iniquity. Applying the approach summarised from Kuwait Airways Corporation v Iraqi Airways Co No 6 2005 1 WLR 2734, where iniquity is an issue in the proceedings a strong, or very strong, prima facie case is required. That threshold was not met. Nor was there any waiver of privilege.
4. Valuation documents and evidence. The court declined to determine every argument concerning entitlement to the valuation documents because the application had become substantially academic. The relevant costs were therefore costs in the administration petition. Pro-Fit USA was allowed until noon on 3 July 2007 to serve further evidence, subject to an unless order.
5. Costs. Pro-Fit USA was ordered to pay Hammonds’ costs of the Tag-It disclosure application and related evidence application, subject to detailed assessment, with an interim payment of £20,000. The costs relating to the Hindley valuation were costs in the petition, except that the costs of 19 June 2007 were Hammonds’ costs in any event.

First-instance interlocutory judgment in pending administration proceedings. No appellate history is stated in the judgment.