The Facts

This case is the first to really consider the practical impact of the recent Court of Appeal decision in Shlosberg v Avonwick [2016] EWCA Civ 1138, in which it was decided that legal professional privilege does not vest in a Trustee in Bankruptcy.

Mr Lemos' Trustees in Bankruptcy obtained certain documents from the Mr Lemos' solicitors, Withers LLP, which they believed would assist them in investigating possible transactions defrauding creditors. The documents related to the purchase of a London property at which Mr and Mrs Lemos had lived, and which was registered in the name of a Bermudan trust company. Several of the documents also therefore attracted Mrs Lemos' privilege.

The Trustees' grounds for the application were based on certain ambiguities that arose in the Shlosberg decision. They maintained that whilst Shlosberg confirmed that the right to privilege did not vest in the Trustee in respect of a liability, the position as regards the assets of a Bankrupt's estate was not resolved. They asserted that, for a Trustee to be barred from waiving a Bankrupt's privilege as regards assets would prevent the Trustees from carrying out their statutory functions in realising those assets.

It was further submitted that whilst Shlosberg was authority for waivers of privilege as against third parties, it did not apply to situations involving Bankrupts and their Trustees only. The Trustees also argued that the court's discretion was wide enough to allow it to order the Bankrupt to waive his right of privilege.

The Judgment

The court dismissed the Trustees' application.

The decision in Shlosberg focussed heavily on the status of legal professional privilege as a fundamental human right, which could not be overturned unless statute specifically provided for it. This was held not to be the case in the Bankruptcy sections of the Insolvency Act.

This reasoning was upheld in Lemos. While it was acknowledged that certain factual ambiguities in both the first instance and appeal judgment of Shlosberg required clarification, the Judge found that legal professional privilege was a fundamental human right that applied generally, in respect of both the assets and liabilities of the Bankrupt.

It was also held that the court did not have the authority to compel bankrupts to waive such a fundamental human right as legal professional privilege, unless statute specifically provided for it.

Our Comment

The most important practical lesson to learn from this judgment is that while Trustees in Bankruptcy have the right to view documents that attract the Bankrupt's privilege, they do not have the power to waive that privilege without the Bankrupt's consent.

The decision provides some welcome clarity on the issues of privilege in respect of Trustees carrying out their functions, but it will be greeted with frustration among Insolvency Practitioners in that it is, to some extent, a curtailment on their ability to operate effectively.

More generally, it is a useful reminder of the sacrosanct status granted to legal professional privilege by the courts. It is further confirmation of the approach courts will take with respect to what are regarded as 'fundamental human rights'. In essence, courts are highly unlikely to contemplate overruling them without express statutory provisions.