Crescent Farm principle no longer applies in bankruptcy
In the recent case of Leeds and another v Lemos and others [2017] EWHC 1825 (Ch) the High Court held that, following the recent Court of Appeal decision in Avonwick Holdings Limited and others v Shlosberg [2016] EWCA Civ 1138 (“Avonwick”), the principle formulated in Crescent Farm (Sidcup) Sports Limited v Sterling Offices Limited [1972] Chancery 553 that legal professional privilege (“LPP”) no longer applied in bankruptcy.
In this case, trustees in bankruptcy (“TIBs”) applied for directions on how to use potentially privileged documents obtained from the bankrupt’s former solicitors as evidence in support of proceedings under section 423 of the Insolvency Act 1986 (“IA 1986”). If such proceedings succeeded, the TIBs anticipated recovering property of significant value for the bankrupt’s estate.
The High Court considered that an individual’s right to LPP was such a fundamental human right, and tenet of common law, that only an express statutory power to waive it would confer jurisdiction on the court. There is no such statutory power contained in the proper interpretation of the IA 1986 so the TIBs’ application was dismissed. Further, it held that the court had no jurisdiction or, therefore, discretion to direct a bankrupt or a third party to waive their LPP in any documents under sections 333 and 363 of the IA 1986.
Until Avonwick, it had always been assumed that TIBs simply stepped into the shoes of the bankrupt and acquired the benefit of any LPP formerly exercisable by the bankrupt over documents relating to their estate or affairs. This decision sets a high water mark for the protection of an insolvent individual’s LPP in documents. TIBs seeking access to, or use of, documents subject to LPP will now require the bankrupt’s consent or apply for a specific waiver of identified documents on a case by case basis.
For further information regarding this case or for any insolvency enquiries please contact Lauren Hartigan-Pritchard on 01905 677051 or lhartiganpritchard@thursfields.co.uk
