Shlosberg v Avonwick Holdings Ltd & Ors

A trustee in bankruptcy does not acquire a bankrupt’s legal professional privilege merely because privileged documents enter the estate. The Crescent Farm principle applies where the successor acquires property to which the advice or litigation relates. Privilege is a personal, non-marketable right concerning control of confidential information. Section 311(1) of the Insolvency Act 1986 permits possession and statutory use of privileged documents, but does not itself transfer privilege or confer an unrestricted power to waive it. Where solicitors for an adverse party have deliberately reviewed extensive privileged material, an injunction may require them to cease acting.

Mikhail Shlosberg, a bankrupt, applied for Dechert LLP to cease acting for Avonwick Holdings Ltd and, alternatively, for his trustees in bankruptcy. Dechert acted for Avonwick, the trustees and the liquidators of Webinvest Ltd, and had reviewed more than 44,000 pages of documents obtained from Mr Shlosberg’s former solicitors.

The documents concerned a personal County Court claim, proceedings brought by Avonwick against Mr Shlosberg and Webinvest, and related insolvency proceedings. The central issues were whether privilege had vested in the trustees under the Insolvency Act 1986, whether the trustees could use the documents, and what remedy was appropriate.

1. Legal professional privilege is a negative right to resist compulsory disclosure and a fundamental human right. The court should be cautious before finding that legislation involuntarily transfers it in the absence of express words.

2. The Crescent Farm principle operates where a successor in title acquires property to which legal advice or litigation relates. It does not operate merely because the successor acquires the paper, file or electronic record containing the privileged information. Ownership of the medium is immaterial.

3. Privilege is neither an interest arising out of or incidental to property within section 436(1), nor a power exercisable over or in respect of property within section 283(4). Section 311(1) permits trustees to take possession of privileged documents relating to the estate or affairs and to use information from them for statutory purposes, but does not itself transfer privilege or confer an unrestricted power to waive it. Privilege is also peculiarly personal to the bankrupt, subject to the Crescent Farm principle.

4. The County Court judgment for damages in Mr Shlosberg’s favour was property vested in the trustees. The trustees therefore acquired privilege relating to that judgment. The High Court judgment against him was a liability, not property or an obligation within section 436(1); privilege relating to the underlying proceedings did not vest in the trustees.

5. An injunction restraining use of the information was inadequate. The documents had been deliberately reviewed in detail by the partner leading Avonwick’s litigation, no information barrier existed, and Avonwick wished to use the acquired knowledge in hostile proceedings. Dechert was ordered to cease acting for Avonwick. No present order was made concerning its retainer by the trustees.

The judgment records reconsideration of an earlier draft judgment, reported at [2016] EWHC 416 (Ch). It also records, without determining, a pending application for permission to appeal from [2015] EWHC 3832 (Ch).