Avonwick Holdings Ltd & Anor v Shlosberg

Legal professional privilege is a fundamental right. A bankrupt retains that right unless legislation removes it expressly or by necessary implication. General provisions vesting property and powers in a trustee in bankruptcy do not transfer the bankrupt’s privilege.

A trustee may take possession of privileged documents and inspect them to obtain information needed to get in, realise and distribute the estate. The trustee cannot waive the privilege or deploy the material against third parties in a way which would waive it. A power which would merely assist a creditor’s separate claim does not fall within the trustee’s statutory function, even if success might reduce that creditor’s proof in the bankruptcy.

The respondent was an undischarged bankrupt. His trustees obtained files from his former solicitors containing documents subject to his legal professional privilege, some of which was held jointly with a company he owned. The trustees retained the same firm of solicitors as the respondent’s principal creditor and wished to permit that creditor to use relevant material in separate conspiracy proceedings.

On the respondent’s application, the High Court held in [2016] EWHC 1001 (Ch) that the privilege had not vested in the trustees. It ordered the solicitors to cease acting for the creditor in matters relating to the respondent or his affairs.

The central issues were whether privilege was property vesting in a trustee under the Insolvency Act 1986, whether section 311(1) authorised waiver or external deployment of privileged material, and whether the injunction was a proper exercise of discretion.

1. The appeal was dismissed. Legal professional privilege is a fundamental right. Under the principle of legality, a statute removes such a right only through express language or necessary implication. A necessary implication must follow from the statutory language and logic. It is insufficient that conferring the proposed power would have been sensible or reasonable.

2. The bankrupt’s privilege was not property which vested automatically in the trustees. The general definitions and vesting provisions in sections 283, 306 and 436(1) of the Insolvency Act 1986 neither expressly transferred privilege nor did so by necessary implication. Privilege was also not transferred as a power over or in respect of property. The fact that the physical documents were assumed to vest in the trustees did not transfer the distinct right to resist compulsory disclosure of their contents.

3. Section 311(1) required the trustees to take possession of books, papers and records relating to the bankrupt’s estate or affairs, including privileged documents. It necessarily permitted them to inspect those documents and use the information internally to get in, realise and distribute the estate. It did not authorise them to waive the bankrupt’s privilege by deploying the documents or information against third parties. The provision also extended to privileged documents belonging to third parties, which reinforced the conclusion that no general power of waiver could be implied.

4. Assisting a creditor to pursue separate proceedings was outside the trustees’ statutory function, even though a recovery by that creditor might reduce its proof against the estate. The function stated in section 305(2) was to get in, realise and distribute the bankrupt’s estate. As privilege was neither estate property nor capable of waiver under section 311(1), paragraph 12 of Schedule 5 did not authorise the proposed deployment.

5. The order requiring the solicitors to cease acting for the creditor was within the judge’s discretion. He had considered the safeguards, the jointly held privilege, the solicitors’ other retainers and the relevant authorities. The order was neither plainly wrong nor outside the permissible ambit of discretion. The court expressed no view on future case-management measures in the conspiracy proceedings.

6. Permission to appeal against the costs order made against the solicitors alone was refused because the proposed appeal had no real prospect of success.

1. Court of Appeal (Civil Division): The court unanimously dismissed the appeal and upheld the order restraining the solicitors from continuing to act for the creditor. It refused permission to appeal against the costs order.
2. High Court, Chancery Division, Bankruptcy Court: In [2016] EWHC 1001 (Ch), Arnold J held that the bankrupt’s legal professional privilege had not vested in his trustees. He ordered the solicitors to cease acting for the creditor in matters relating to the bankrupt or his affairs.