Avonwick Holdings Limited v Shlosberg

November 18, 2016

Circumstances in which a trustee can succeed to legal professional privilege enjoyed by the bankrupt

Bankruptcy – property – bankrupt’s estate – documents – legal professional privilege – conflict of interest

A firm of solicitors acted for the creditor and the trustees in bankruptcy. The trustees had given the solicitors documents which belonged to the bankrupt and which were subject to legal professional privilege for the purpose of enabling the creditor to use these documents in conspiracy proceedings against the bankrupt.

The Court of Appeal upheld the decision of the Chancery Division ordering the solicitors to cease acting for the creditor.

In so finding, the Court of Appeal held that privilege was not property forming part of the bankrupt’s estate which is automatically vested in the trustee. Privilege was a fundamental human right that could only be overridden by statute by express language or by necessary implication.  Accordingly, a bankrupt could only be deprived of privilege if this was expressly provided for in the Insolvency Act 1986, or it was a necessary implication of its provisions.

Section 311(1) of the Insolvency Act 1986 sets out the duty of the trustee to take possession of the documents set out therein, expressly including any which would be privileged from disclosure in any proceedings. The Court of Appeal held that it was necessarily implicit from this that the trustee was to take possession of these documents for the overriding function of getting in and realising the bankrupt’s estate.

However, it was not necessarily implicit from section 311(1) that the trustee could waive the bankrupt’s legal professional privilege in taking steps against third parties for the benefit of the bankrupt’s estate, despite such steps being in the interests of creditors.

Thus the trustee was entitled to use privileged documents and the information contained therein for the purpose of performing his statutory function of realising the bankrupt’s estate but only in a manner that would not amount to waiver of privilege.

The case highlights the importance for trustees of identifying any documentation coming into their possession which might be subject to legal professional privilege.  This is particularly important where the same solicitors act jointly for trustees and creditors.