Edward Thomas & Ors v Metro Bank Plc & Ors

Disclosure is not automatic in an insolvency application. Under Insolvency Act 1986 section 366, the court must positively order disclosure and assess all relevant circumstances by applying the overriding objective.

Where officeholders deploy privileged legal advice in support of an application, privilege may be waived before the substantive hearing if reliance on the advice is clear. The waiver extends to the transaction and further material necessary to prevent unfairness or misunderstanding, but it does not extend to unrelated advice. Any order must be confined to the issue on which the advice was deployed.

The applicants were trustees in bankruptcy of Ilya Yurov. They had applied under section 366 of the Insolvency Act 1986 for bank statements relating to accounts held solely by Nataliya Yurova.

The trustees relied on privileged Russian law advice concerning matrimonial property to contend that part of the money in those accounts belonged beneficially to the bankrupt. Mrs Yurova, treated as a respondent, applied for disclosure of the advice, asserting that privilege had been waived and that fairness required disclosure of the relevant material.

The court had to determine whether privilege had been waived, the scope of any waiver, and whether disclosure was appropriate in the context of a section 366 application.

1. Outcome. The Privilege Application was allowed. The trustees were ordered to disclose the relevant Russian law advice, the instructions giving rise to it, and related communications, subject to redactions and the limits set out below. Consequential directions for the section 366 application were reserved.
2. Disclosure in insolvency proceedings is governed by the court’s positive power to order disclosure under Rule 12.27 of the Insolvency (England and Wales) Rules 2016 and CPR 31.12. The court must consider all relevant circumstances and the overriding objective. Section 366 applications are ordinarily summary and disclosure will usually be unnecessary, but each case requires an individual assessment.
3. A party cannot prevent waiver by stating that privilege is not waived. The court examines what material has been deployed and the circumstances of its use. Privileged material is deployed before the substantive hearing where it is clear that the party will ultimately rely on it. Requiring the opposing party to wait until the hearing could cause adjournments, wasted costs and procedural unfairness.
4. The scope of waiver is determined by identifying the transaction in respect of which disclosure was made. The court must consider whether the transaction is wider than the material immediately disclosed and whether further disclosure is needed to avoid unfairness or misunderstanding. Advice on unrelated Russian law issues remained privileged.
5. Here, the relevant transaction was advice on Russian matrimonial property law as it applied to money held in bank accounts in one spouse’s name. The trustees had deployed conclusions from that advice but had not disclosed the instructions or all reasoning relevant to those conclusions. Fairness required disclosure because the extracts could otherwise mislead or be misunderstood.
6. The order was confined to legal advice concerning matrimonial property and bank-account funds, instructions dealing with those issues, and communications concerning the substance of the disclosable advice or instructions. Other instructions and advice were to be redacted or remained privileged.