Leeds & Anor v Lemos

Legal professional privilege does not automatically pass to a trustee in bankruptcy merely because documents relate to assets vested in the trustee. The Crescent Farm principle applies to voluntary succession to property, but not to the involuntary transfer of assets on bankruptcy. A trustee may take possession of privileged documents and inspect them for the statutory purposes of administering the estate, but may not use them so as to waive the bankrupt’s privilege without consent. Sections 333 and 363 of the Insolvency Act 1986 do not confer jurisdiction to compel that waiver. The principle applies equally to documents concerning assets and liabilities, and a claim under section 423 does not alter the result.

The applicants were trustees in bankruptcy seeking directions concerning documents obtained from the bankrupt’s former solicitors. The documents might be subject to the bankrupt’s sole privilege, his joint privilege with his wife, or his wife’s sole privilege. The trustees wished to use them in connection with potential proceedings under section 423 of the Insolvency Act 1986 concerning transactions involving the bankrupt’s former matrimonial home.

The application required the court to determine the effect of Avonwick Holdings Limited v Shlosberg, including whether privilege in documents relating to assets passed to a trustee in bankruptcy under the Crescent Farm principle, whether the second ground in Re Konigsberg remained good law, and whether sections 333 and 363 could compel the bankrupt to waive privilege.

1. Effect of Avonwick. The Court of Appeal’s decision in Avonwick Holdings Limited v Shlosberg was concerned directly with liability documents, but its reasoning was not confined to that category. The Court of Appeal treated legal professional privilege as a fundamental right which could be displaced by statute only by express words or necessary implication.
2. Crescent Farm principle. Crescent Farm (Sidcup) Sports Limited v Sterling Offices Limited concerned assertion of privilege by a voluntary successor in title. It did not decide who could waive privilege. Its principle could not be applied to the involuntary vesting of property in a trustee in bankruptcy. There was no principled distinction between documents concerning assets and documents concerning liabilities.
3. Re Konigsberg and Re Cook. The second ground of the decision in Re Konigsberg, which treated the trustee as stepping into the bankrupt’s shoes for privilege purposes, had been overruled by the reasoning in Avonwick. The reasoning in Re Cook, which relied on Re Konigsberg, was likewise unsustainable.
4. Statutory powers. Section 311 permitted the trustees to take possession of documents, including privileged documents, and at least to inspect them for information relevant to the administration of the estate. It did not authorise use which waived privilege. Sections 333 and 363 did not expressly or by necessary implication empower the court to compel the bankrupt, still less a third party, to waive legal professional privilege.
5. Section 423 proceedings and disposal. The court indicated, alternatively, that property recovered under section 423 would not be property comprised in the bankrupt’s estate for the purposes of the Crescent Farm principle. The generic directions application was dismissed, save for an order directed to Withers concerning remaining documents. The trustees were left to make any later application concerning specific identified documents. Costs were ordered against the trustees, with £40,000 plus VAT payable on account for each individual respondent. Permission to appeal was refused.

First-instance application. The judgment considered the effect of the Court of Appeal decision in Avonwick Holdings Limited v Shlosberg, [2016] EWCA Civ 1138, but did not determine an appeal from that decision.