Key Points

  • Court confirmed that legal professional privilege (LPP) does not automatically vest in the trustee in bankruptcy
  • LPP is a fundamental human right such that express statutory powers would be necessary to deprive the bankrupt of that right
  • The bankrupt would therefore need to waive privilege or consent to the use of privileged documents

The trustees in bankruptcy of Mr Lemos’ estate (the “Trustees”) applied for directions to determine whether information subject to LPP which had been obtained from the bankrupt’s former solicitors could be used in proceedings under section 423 IA 86 (transaction defrauding creditors) which may have recovered significant value for the insolvency estate.

The bankrupt opposed the application on the basis of the Court of Appeal’s judgment in Avonwick v Shlosberg which held that LPP in a document was not “property” for the purpose of the Insolvency Act 1986, therefore did not vest in the Trustees and so could not be waived by the Trustees.

The Trustees argued that Avonwick did not apply to LPP in information which related to assets of the bankrupt.

Decision

The Court held that on a proper reading of the Avonwick decision, the “Crescent Farm” principle which stated that privilege would pass to a successor in title did not apply in a bankruptcy scenario. While the Trustees were entitled to use the documents to fulfil their statutory functions, this did not include bringing a claim under section 423 of the Insolvency Act 1986.

The Avonwick judgment, as applied in this case, causes significant difficulties for trustees who are unable to rely on or deploy documents subject to LPP in order to recover assets for the bankruptcy estate.