Finance Litigation Briefing January 2017

Gowling WLG's finance litigation experts bring you the latest on the cases and issues affecting the lending industry.

Bankrupt's legal professional privilege upheld The doctrine of strict compliance and bank guarantees Forbearance is sufficient consideration for promissory note Effective disclaimer saves banks from untrue representations BANKRUPT'S LEGAL PROFESSIONAL PRIVILEGE UPHELD

The Court of Appeal has found that legal professional privilege in documents is not property that vests in a trustee in bankruptcy and neither can it be used under the Insolvency Act 1986 (IA) s311 so as to waive privilege.

In Avonwick Holdings Ltd and others v Shlosberg, solicitors acting for a creditor and the trustees in bankruptcy had seen and reviewed a large number of documents belonging to the bankrupt, some of which were subject to legal professional privilege (LPP). The trustees intended to permit the creditor to use those documents in proceedings for conspiracy against the bankrupt and others. The bankrupt sought an order that the solicitors cease acting for the creditor on any matter relating to him or his affairs.

At first instance the court held that the bankrupt's right to LPP did not devolve to the trustee under the IA although the trustee could use LPP information in the discharge of his statutory duty. The solicitors were ordered to stop acting for the creditor in any matters relating to the bankrupt. The trustees and creditor appealed.

The Court of Appeal upheld the first instance decision. It held that on the proper interpretation of the IA, privilege was not property of a bankrupt which automatically vested in the trustee in bankruptcy. There was no express provision in the IA that deprived the bankrupt of his/her privilege and it was not necessary to imply such a provision into the express language used.

The express terms of s311 of the IA, described the trustee's duty to take possession of documents (including privileged ones) but said nothing expressly about their use. It was implicit, however, that the trustee could use privileged documentation and the information contained in it for the statutory purpose of realising the bankrupt's estate. It was implicit that the trustee must be able to look at privileged documents to obtain information from them for that purpose. It was not implicit that they could be used in any way that waived LPP - such as by taking steps against third parties for the benefit of the bankrupt's estate, desirable though that may be to creditors.

The intended use of the documents was not one that was, in any event, within the ancillary powers or duty of the trustee i.e. getting in, realising and distributing the bankrupt's estate. The order made would protect the bankrupt's fundamental right to LPP.

Things to consider

The inter-relationship...