Trustees in Bankruptcy: no privilege of legal privilege

The recent decision in Leeds v Lemos may create significant problems for Trustees in Bankruptcy as they attempt to fulfil their duty of realising a Bankrupt’s estate for the benefit of his creditors.

The case centred on the wish of the Trustee in Bankruptcy to rely on documents that the Bankrupt (and some third parties) claimed were privileged. The Trustee in Bankruptcy therefore asked the Court to compel the Bankrupt to waive privilege, so that the documents could be referred to in legal proceedings..

In a prior 2016 decision of Avonwick Holdings v Shlosberg, the Court of Appeal had held that privilege was not property of a bankrupt which automatically vested in a Trustee in Bankruptcy. Accordingly, the Judge in Leeds v Lemos followed and developed this reasoning, and refused to make an order compelling the Bankrupt to waive privilege.

This has worrying implications for Trustees in Bankruptcy, who will now need to exercise caution when obtaining, and attempting to rely on, privileged information. For example, Trustees will face difficulties in carrying out the following, non-exhaustive, list of functions:

• Realising bankruptcy assets held by third parties, where a privileged document could explain the true intended beneficial ownership;
• Disclosing details of the Trustee’s investigations to creditors, as this may risk disclosure of privileged documents;
• Adjudicating on a creditor’s claim, where contents of a privileged document leads the Trustee in Bankruptcy to conclude that a claim is without basis, but where this cannot be referred to in explanation;
• Liaising with persons who might otherwise be interested in funding a claim in relation to a bankrupt’s estate and where the content of a privileged document may be helpful in convincing them to provide funding;
• Interviewing third parties in relation to the bankrupt’s assets, where there may be a desire to refer to the contents of privileged documents in the questioning process.

Trustees can still review and use privileged information as against the bankrupt, just not in a way which would amount to a waiver of privilege, such as where the information would become, or be made, available to third parties other than the Bankrupt, the Trustee and any co-owner of the privileged information.

Trustees in Bankruptcy will therefore have to carefully consider whether privilege attaches to each piece of correspondence or documentation obtained in the course of their investigations and, if so, whether privilege has been waived by the Bankrupt themselves – if not, Trustees will have to carefully consider whether they can use the information in question, and what steps can be taken to limit the risks arising from the decisions in Lemos and Avonwick.

Privilege is a complex subject and care should be taken. Please contact David Williams, Suzanne Brooker or your usual partner contact at Pitmans should you require any further assistance in this area.