Foreign representative’s right to inspect documents subject to third party’s privilege

Despins v Kwok (Re Cross-Border Insolvency Regulations 2006) [2023] EWHC 74 (Ch)Is a foreign representative entitled to inspect documents subject to privilege held jointly by the bankrupt and third parties?

Overview

This case considers whether a trustee in bankruptcy / foreign representative is entitled to inspect a litigation file held by solicitors acting in litigation brought by the bankrupt and two other parties. The Court ruled that the foreign representative was entitled to inspect the file, finding that there was a benefit to the bankruptcy estate in that it would enable the foreign representative to consider whether to pursue the claim. The Court also found that there were sufficient protections in place to ensure that the privilege would be maintained.

Background

The Applicant was the trustee in bankruptcy of the Respondent Ho Wan Kwok, who was subject to Chapter 11 proceedings in the US. He was also the bankrupt’s foreign representative in the UK. The application sought recognition of the bankrupt’s Chapter 11 bankruptcy case as foreign main proceedings, as well as an order that Harcus Parker, solicitors acting in English litigation worth $500m brought by the bankrupt and two BVI companies, Ace Decade and Dawn State, disclose their litigation file to the foreign representative.

The foreign representative had no information concerning the English proceedings, despite the bankrupt’s interest in those proceedings having vested in the foreign representative as his trustee in bankruptcy. The foreign representative wanted to be provided with the documents in order to consider the merits of the claim before determining whether to intervene, and to be able to instruct any legal representatives in relation to the litigation.

The Court’s Decision

Ace Decade took the position that it should be entitled to assert privilege against the foreign representative since he was not the holder of the bankrupt’s privilege.

The bankrupt, Ace Decade and Dawn State instructed Harcus Parker to act for them on a joint retainer. Where a law firm represents a number of clients pursuant to a joint retainer, each of the clients has a joint interest in relation to any privileged communications or advice irrespective of to whom it is addressed, and an unequivocal right to inspect any document subject to that joint privilege. This means that the documents relating to the English proceedings held by Harcus Parker were within the bankrupt’s possession or control as a joint client even though there were other parties entitled to assert privilege over them.

The foreign representative, as the Chapter 11 trustee of the bankrupt, did not enjoy the same rights as the bankrupt in relation to the documents, and was not in the same position as a client with a joint retainer. As HHJ Hodge QC put it in Leeds v Lemos [2018] Ch 81 at [233], merely because privilege is held by a bankrupt, the trustee does not “automatically step into his shoes”.

However, pursuant to section 311 of the Insolvency Act 1986, a trustee in bankruptcy is entitled to see and consider documents over which the bankrupt or a third party would be entitled to assert privilege. As the Master of the Rolls held in Shlosberg v Avonwick Holdings [2017] Ch 210, the express terms of section 311(1) describe the duty of the trustee to take possession of the bankrupt’s documents. Implicit in that duty is that the trustee is to take possession of the documents for the overriding function of getting in, realising and distributing the bankrupt’s estate. It follows that the trustee must, at the least, be entitled to look at the documents to obtain information relevant to those matters. However, that does not mean that the trustee himself obtains that privilege or the right to use the material in a way that privilege would be waived in taking steps against third parties for the benefit of the bankrupt’s estate, desirable as that might be from the point of view of the creditors.

Privilege was thus not a bar to the relief sought by the foreign representative. The position would be different if the foreign representative intended to deal with the documents inconsistently with the other parties’ privilege, but he had made it clear that he did not want to waive privilege in the documents he was seeking. He simply wished to review them to decide what to do in relation to the English proceedings. The foreign representative undertook to return to the Court if his intention in this regard changed. As a result, Ace Decade’s concerns were unfounded, and the Court ordered that the documents be produced to the foreign representative for his review.

Judge: Deputy Insolvency and Companies Court Judge Parfitt

Counsel: Paul Wright of Brick Court Chambers (instructed by Paul Hastings (Europe) LLP) for the Applicant foreign representative; Daniel Lewis of Wilberforce Chambers (instructed by Wedlake Bell LLP) for Ace Decade