Practice and procedure – Legal professional privilege – Bankruptcy – Claimant involved in hostile litigation seeking order directing solicitors to cease acting for defendant and trustees in bankruptcy – Solicitors being in possession of and reviewing documents subject to legal professional privilege – Whether benefit of privilege passing to trustees in bankruptcy – Claim allowed in part
The claimant was a bankrupt involved in hostile litigation with the first defendant company. The first defendant had previously made a loan to a company of which the claimant was the beneficial owner. When the company failed to repay the loan, the first defendant took steps to recover the outstanding sums and instructed the second defendant to act for it. The first defendant obtained judgment against the claimant and the company. No payment was made in respect of that judgment and, on the first defendant’s petition, a bankruptcy order was made against the claimant and a winding up order made against the company. The third defendants were appointed as trustees in bankruptcy. Both the third defendants and the liquidators of the company also retained the second defendant to act on their behalf.
The first defendant commenced proceedings against an investment trust of which the claimant’s family were the beneficiaries alleging conspiracy. It subsequently obtained an order joining the claimant as a party to those proceedings. The claimant applied to the court for an order directing the second defendant to cease acting as solicitors for both the first defendant and the third defendants. The basis for the application was the second defendant’s possession of and review of a large quantity of documents which the claimant were subject to legal professional privilege and/or were confidential.
The defendants contended that the benefit of the privilege had passed to the third defendants and that there was no real risk of any misuse of information confidential to the claimant by the second defendant.
Held: The claim was allowed in part.
(1) Given that the defendants did not dispute that the claimant was entitled to the privilege prior to his bankruptcy, they bore the burden of establishing that the benefit of the privilege had been transferred to the third defendants. As a matter of principle, the right to exercise privilege could not depend on ownership of the paper on which the privileged information was recorded. It was not ownership of the paper which mattered, but the right to control the dissemination and use of the information recorded on the paper. The client had that right even if the information was recorded only electronically. Whether the trustee acquired ownership of the bankrupt’s documents depended on the nature of the documents, and in particular the nature of the information recorded therein, and not upon the status of the documents as chattels. Accordingly, in the present case, the third defendants had not acquired the benefit of the privilege as a result of acquiring title to the documents recording the privileged information: Haig v Aitken [2001] Ch 110 followed. Crescent Farm (Sidcup) Sports Ltd v Sterling Offices Ltd [1972] Ch 553, Re Konigsberg [1989] 1 WLR 1257 and Surface Technology plc v Young [2002] FSR 25, Re Omar [2000] BCC 434 and Garvin Trustees Ltd v The Pension Regulator [2015] Pens LR 1 distinguished. Re Cook [1999] BPIR 881, Deloitte & Touche Inc v Bennett Jones Verchere (2002) 206 DLR (4th) 280 and R v Dunwoody [2004] QCA 413 considered
(2) Privilege was not an “interest” within the meaning of section 486(1) of the 1986 Act. Although privilege was enforceable in a court of law, its only effect was to enable the beneficiary of the privilege to resist compulsory disclosure of information in proceedings. It was not a marketable right, it had no commercial value and it could not be realised or distributed to creditors. Moreover, it did not arise out of, nor was it incidental to, property in the documents containing the privileged information. It was a right in respect of the information which arose out of the confidential relationship between the client and the lawyer, and it had nothing to do with the status of the documents as chattels: Bristol Airport plc v Powdrill [1990] AC 744, Re Rae [1995] BCC 102 and Re Hemming [2008] EWHC 2731 (Ch), [2009] Ch 313 considered.
(3) The purpose of section 283(4) of the 1986 Act was to ensure that the trustee had the same powers in respect of property forming part of the bankrupt’s estate as the bankrupt did, and thereby to ensure that the trustee was in as good a position as possible to realise such property and to distribute the proceeds among the creditors. In the context of disclosure in proceedings, privilege could be described as a power exercisable over, or in respect of, documents, but even in that context it was not a power over documents as chattels, but a power exercisable over the information that they contained. Privilege was not a power which would assist the trustee to realise the value of the documents recording the privileged information or to distribute the proceeds. Accordingly, privilege was not a power exercisable over, or in respect of, property within the meaning of section 283(4).
(4) The exercise of the court’s discretion depended upon all the relevant circumstances. In the present case the first defendant was an adverse party to the claimant in hostile litigation. Its claim alleged unlawful means conspiracy which was akin to a claim for fraud and would survive the claimant’s discharge from bankruptcy. More than 44,000 pages of documents had been reviewed in detail by the second defendant over a substantial period of time. Although there was no suggestion that it acted otherwise than in good faith, it had proceeded upon an understanding of the law which the court now held to be mistaken. Furthermore, the safeguards which had been put in place provided inadequate protection for the claimant and did not address the key fact that the solicitors acting for the first defendant had already read a large quantity of the claimant’s privileged documents and could not put that knowledge out of their minds. In all the circumstances, the claimant’s rights in respect of the privileged information would not be adequately protected by granting an injunction restraining the second defendant from using the privileged information unless a strict information barrier were created within the firm and an entirely new team was assigned to act for the first defendant. The disruption and expense would be little short of the disruption and expense of instructing a different firm of solicitors. Accordingly, an injunction would be granted requiring the second defendant to cease acting for the first defendant.
(5) However, an order requiring the second defendant to cease acting for the third defendants was not justified. They were not parties to the conspiracy claim and, by virtue of section 311(1) of the 1986 Act, the claimant’s privilege was no bar to the third defendants taking possession of the documents in question to the extent that they related to his estate or affairs. In so far the third defendants were entitled to take possession of the documents, it followed that they were entitled to use the information contained in the documents in the discharge of their statutory duties.
Philip Marshall QC and James Mather (instructed by Enyo Law LLP) appeared for the claimant; Tom Smith QC and Henry Phillips (instructed by Dechert LLP) appeared for the defendants.
Eileen O’Grady, barrister
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