UK: Legal Privilege - Human Right Or Fraudster's Shield?

Last Updated: 21 November 2017
Article by Alex Jay

The recent decisions in Avonwick Holdings Ltd and others v Shlosberg and Leeds v Lemos have restricted the ability of trustees in bankruptcy to use privileged documents belonging to the bankrupt. What do these rulings mean for trustees?

The Trustee in Bankruptcy's purpose and powers

A Trustee in Bankruptcy (TIB) is appointed when a bankruptcy order is made against an insolvent individual. The TIB's statutory purpose is to realise the bankrupt's estate for the benefit of the bankrupt's creditors. The Insolvency Act 1986 and Insolvency Rules 2016 contain various powers to support the TIB in fulfilling this function, including the following:

  • The bankrupt's estate vests automatically in the TIB upon appointment.
  • A TIB has statutory powers to investigate the bankrupt's affairs and to compel the bankrupt to give information and produce documents.
  • A bankrupt is under a duty to co-operate with the TIB by providing information.
  • A bankrupt commits an offence if, among other things, he or she fails to disclose to the TIB details of property within the bankruptcy estate, or conceals documents relating to their property with a view to defrauding creditors.

TIB's use of privileged material

s.311(1) Insolvency Act specifically provides that a TIB shall take possession of all books, papers and other records belonging to the bankrupt and relating to the bankrupt's affairs, including any which would be privileged from disclosure in any proceedings (i.e. including legally privileged documents). That appears to give a TIB wide-ranging power to investigate the bankrupt's affairs.

Further, there is a line of authorities starting with Crescent Farm (Sidcup) Sports v Sterling Offices to the effect that legal professional privilege enures for the benefit of a successor in title, such that a bankrupt's legal privilege in documents passes to TIBs, who may then "use" those privileged documents for purposes beneficial to the bankrupt's estate.

Two recent cases however have called into question the application of this principle in bankruptcy, and restricted the use to which a bankrupt's privileged documents may be put by the TIB.

In Avonwick Holdings Ltd and others v Shlosberg, the Court of Appeal found that although a TIB may take possession of the bankrupt's documents, any legal professional privilege in those documents is not property that vests in a TIB, and neither does s.311 Insolvency Act 1986 allow the trustee to waive privilege unilaterally. That suggests that a TIB is in reality not in a position freely to use privileged documents which they may come into possession of for the purpose of realising the bankrupt's estate.

In Leeds & another v Lemos & others, the High Court was asked to consider the true meaning and effect of the Avonwick judgment and its implications for TIBs (not least since the Avonwick decisions left many important issues open to question). In that case, the applicant TIBs of the bankrupt, Mr. Lemos, sought directions from the court as to what use they could make of potentially privileged documents which they had obtained from the bankrupt's former solicitors. The TIBs believed that those documents might be useful evidence in proceedings under s.423 Insolvency Act in relation to unravelling certain transactions which they said the bankrupt entered into with the intention of defrauding creditors. The documents could therefore enable the TIBs to recover substantial sums for the benefit of the bankrupt's estate. Some of the documents in question were potentially covered by legal professional privilege, with the privilege 'belonging' either to Mr. Lemos alone, or jointly to him and his wife.

The High Court had to consider the effect of the Avonwick decision on earlier authorities and whether ss.333 and 363 of the IA (the obligation on the bankrupt to co-operate with the trustee, and the court's power to compel such compliance) could be used to order Lemos (who had by this time been discharged from bankruptcy) to waive his privilege in the documents.

The High Court held that, as a result of the decisions in Avonwick, the principle expounded in Crescent Farm (Sidcup) Sports v Sterling Offices no longer applied in bankruptcy cases, and subsequent cases confirming that the Crescent Farm principle applied in the case of property passing to TIBs had been wrongly decided.

The court also confirmed that "privilege is a fundamental human right and that the court has no jurisdiction to direct a bankrupt, still less a third party, to waive privilege in any documents". It continued "In my judgment, it is a matter going to jurisdiction rather simply than to discretion. But if I am wrong in that, it seems to me that, in principle, a very powerful case indeed would have to be made out before the court should properly order a bankrupt to waive legal professional privilege in relation to documents. As at present advised, I find it difficult... to think of any circumstances in which it would be appropriate to make such an order."

The court held that only a clear statutory power allowing a TIB to waive a bankrupt's privilege would provide the court with jurisdiction to order compliance. Ss.333 and 363 IA did not provide that statutory power (as per the Avonwick decision) and so Mr. Lemos' privilege could not be waived.

What does this mean for TIBs?

This decision confirms the protection of a bankrupt's LLP in documents. Without the bankrupt's consent, the TIB will not be able to use such documents, even if they could be used to found proceedings which may be beneficial to all creditors. Privilege remains a fundamental human right. TIBs will therefore need to identify and preserve privilege in documents coming into their hands.

Impinging on TIB's ability to perform functions

As the applicants in the Lemos case argued, if TIBs cannot use the bankrupt's privileged documents without the bankrupt's consent, and the court cannot order the bankrupt to waive privilege, that has the potential to seriously restrict the ability of TIBs to discharge their functions to recover assets of the bankrupt's estate. In many cases a bankrupt may intentionally have hidden or dissipated assets. In such cases, legally privileged material may be the only evidence a TIB may have available in order to pursue claims to recover assets for creditors, and in those circumstances it is clear that a bankrupt will not be willing to provide consent to use the privileged material.

Removing the Crescent Farm principle from the bankruptcy arena creates a potentially serious lacuna. A TIB has a statutory right to take possession of the bankrupt's privileged material; and a bankrupt has a statutory duty to co-operate with the TIB – it seems perverse that the combined effect of those provisions does not permit a TIB to deploy privileged material in his hands for proper purposes connected with recovering assets for the bankruptcy estate; indeed, one might go as far to say that a bankrupt co-operating properly with his TIB should positively want to allow the use of material which would help restore assets to his bankruptcy estate, in order to repay some of his debts to creditors.

Whilst many will find the recognition of legal privilege as a "fundamental human right" reassuring, it is perhaps unpalatable that in many cases now this will be placed before the rights of creditors who may have lost many millions of pounds to the bankrupt (as demonstrated, for example, by the high profile bankruptcies of the likes of Madoff and Maxwell). This approach risks creating a fraudster's charter, as well-advised individuals seek to ensure their affairs are documented on solicitors' files which may not be capable of being used in proceedings under any circumstances.

These decisions also appear to be out of step with the developing regulatory landscape in relation to fraud, where the prevention and investigation of fraud is taking centre stage, and the use of legal professional privilege to withhold information in certain circumstances is not treated as acceptable. For example:

  • The Serious Fraud Office (SFO) encourages companies under investigation to waive privilege in their internal investigations as a mark of co-operation. In the SFO's investigation into Rolls-Royce PLC, Rolls-Royce's voluntary waiver of privilege was noted as part of its 'extraordinary cooperation' with the SFO, and was a contributing factor in allowing the company to settle by means of deferred prosecution agreements rather than criminal prosecution.
  • In May 2017, the High Court ordered ENRC to disclose to the SFO certain internal investigation documents created by solicitors, which ENRC claimed were privileged. In that case, the court concluded "there is a recognised public interest in the SFO being able to go about its business of investigating and prosecuting crime; and the sort of evidence which one would expect to be found in the Disputed Documents".
  • David Green QC, Director of the SFO, has said he will target companies "whose lawyers obstructed investigations by hiding behind the shield of professional privilege".
  • Other legislation, including the Proceeds of Crime Act, Bribery Act and Fraud Act, take an aggressive approach to combat fraud and include draconian measures against those who infringe them (e.g. restraint and confiscation powers, and severe penalties for committing or even failing to prevent bribery). These acts have helped place the UK at the forefront of the global anti-fraud community.

In stark contrast to the anti-fraud agenda being pursued in other areas, the recent decisions in Avonwick and Lemos have the potential seriously to undermine the TIB's powers and frustrate their ability to undertake effective countermeasures where a bankrupt's conduct has left creditors unpaid. This erodes the de-facto "governance" that the personal insolvency regime provides, to ensure that business affairs are conducted properly and fairly, and when this does not happen there is a means of redress.

For the time being TIBs will need to live with these curtailed powers and be wary of the use of a bankrupt's privileged documents. But perhaps it is time for further consideration of this issue, or even legislative review of the Insolvency Act to bring TIBs' powers in relation to privileged material in line with current anti-fraud measures.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Squire Patton Boggs LLP
Charles Russell Speechlys LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Squire Patton Boggs LLP
Charles Russell Speechlys LLP
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions