High Court Rules Against The Use Of Privileged Documents By Trustees In Bankruptcy

The court has no jurisdiction to direct a bankrupt to waive privilege in any document, the High Court has ruled (Leeds v Lemos [2017] EWHC 1825 (Ch)).

The High Court also confirmed that legal professional privilege is not the property of a bankrupt for the purposes of the Insolvency Act 1986 and does not automatically pass to their trustee. The Court of Appeal's recent judgment in Avonwick v Shlosberg [2017] EWCA Civ 1138 was considered and applied.

Insolvency Practitioners will need to be aware of their obligations to identify and preserve privilege in documents that come into their hands during the course of a bankruptcy. There are clear limits on how and when such documents can be used without the bankrupt's express consent.

Background

A bankruptcy order was made against Christos Lemos on 11 March 2015. Mr Lemos' trustees in bankruptcy then obtained documents from his former solicitors. These documents may have been subject to legal professional privilege belonging to Mr Lemos on his own or jointly with his wife.

Put very simply, privilege is a right to withhold disclosure of a document or other evidence. It may arise in a number of circumstances, including in the context of communication between a lawyer and their client or (in some cases) a third party. Where it arises, legal professional privilege belongs to the client.

The Trustees believed that these potentially privileged documents would be useful for evidence in proceedings (brought by a creditor) seeking to set aside certain transactions entered into by Mr Lemos prior to his bankruptcy.

The Trustees applied to court for directions as to whether:

Privileged documents could be used in proceedings without Mr or Mrs Lemos' consent in such a way as to amount to a waiver of privilege; or, if not, Whether Mr Lemos could be ordered under sections 333 (duties of a bankrupt in relation to their trustee) or 363 (general control of the court) Insolvency Act 1986 to waive privilege in these documents. Mr and Mrs Lemos were named as first and second respondents in the application.

Avonwick v Shlosberg

In November 2016 the Court of Appeal confirmed that privilege is a fundamental right, and that it does not constitute property within the meaning of the Insolvency Act 1986. While privileged documents may pass to a trustee in bankruptcy and be used by that trustee in the course of the discharge of their duties, the privilege in those documents should be preserved. The right to withhold disclosure...