High Court allows disclosure of privileged documents to a foreign trustee

The case, Re Ho Wan Kwok [2023] EWHC 74 (Ch), concerned privilege held jointly by the bankrupt and other parties. The High Court accepted an application from a foreign trustee in bankruptcy seeking to access the legal file held by the solicitors of the bankrupt in relation to proceedings brought jointly by the bankrupt and two other companies in the UK.

Was disclosure ‘necessary’?

Ho Wan Kwok is subject to bankruptcy proceedings in the US. Kwok, together with two British Virgin Island companies, Ace Decade Holdings Limited (ADHL) and Dawn State Limited (DSL), has separately lodged legal proceedings against UBS before the High Court in London, claiming around $500 million.

Luc Despins, the foreign trustee in bankruptcy of Kwok, applied to the High Court seeking recognition of the US proceedings as foreign main proceedings under the Cross-Border Insolvency Regulations 2006 (CBIR). The CBIRs implement the UNCITRAL Model Law on Cross-Border Insolvency, which entitles debtors to certain automatic reliefs when the court in a foreign jurisdiction recognises proceedings as foreign main proceedings. For this recognition to be granted, Article 17(2) of the Model Law requires the foreign court to be satisfied that the proceedings are taking place in the same state where the debtor has its centre of main interests (COMI).

In addition, Despins applied to the court for disclosure of privileged material under the Insolvency Act 1986 (IA86). The material was held jointly by Kwok, ADHL and DSL. 

The application for recognition was unopposed and the High Court considered recognition to be appropriate in the circumstances. The focus for the court concerned the disclosure of certain documents sought by Despins from Harcus Parker, a law firm jointly engaged by Kwok, ADHL and DSL in the proceedings brought against UBS.

Despins sought disclosure on the basis that Kwok’s interest in the UBS proceedings vested in him as trustee in bankruptcy. The order was sought under Articles 21(1)(d) and (g) of the UNCITRAL Model Law which provides that the court may grant relief to a foreign representative in recognised foreign main proceedings, including relief that may be available to a British insolvency officeholder.

The court found that relief under the UNCITRAL Model Law may extend to orders made by the court that enforce a trustee in bankruptcy’s investigatory powers under sections 311, 312 and 366 of the IA86 respectively, and that it had a discretionary power in the context of recognised foreign proceedings to make orders under those sections.

The discretion is to be exercised where it is “necessary” to protect the assets of the debtor or the interest of the creditors. Despins expressed the view that access to the privileged material was necessary so that he could consider the nature and merits of the claim against UBS before determining whether it was in his interests to pursue it.

The court confirmed that the joint engagement between Kwok, ADHL and DSL meant that each party had a joint interest in the privileged material. ADHL contended that it should be entitled to assert privilege against Despins. Whilst the court accepted that Despins did not enjoy the same rights as Kwok in relation to the privileged material, it found that ADHL and DSL’s right to assert privilege is one they share with Kwok as joint clients. It considered that the companies cannot assert privilege against Kwok to prevent him from having possession or control of the privileged material.

As a result, the court determined that the privileged material was within Kwok’s control or possession and within the scope of sections 311 and 366 of the IA86. ADHL and DSL, therefore, could not assert privilege to resist an application under section 311 of the IA86.

The court was satisfied that the UBS litigation represented a substantial asset for the benefit of Kwok’s creditors. Expecting Despins to participate in the litigation without full knowledge of the underlying facts could have exposed the bankruptcy estate to a significant adverse costs order. On that basis, the court confirmed it was necessary for Harcus Parker to provide the documents to Despins. Although Despins was entitled to inspect the documents for the purpose of assessing the nature and merits of the UBS litigation, he did not obtain the privilege and could not use the privileged material in a manner which would waive the privilege held by Kwok, ADHL and DSL even if it would benefit the bankrupt’s estate.

Gemma Kaplan of Pinsent Masons said: “It has been six years since the cases of Re Shlosberg and Leeds v Lemos where a large amount of attention was focussed by the courts and the insolvency profession as to a bankrupt’s right to assert privilege against a trustee in bankruptcy. Surprisingly, though, there have been few reported cases on the issue until now. The difference with the Kwok case is that the court additionally had to consider the interaction between the principles of joint privilege and a trustee’s right to obtain documents under the IA86.”

“Any officeholder in a similar position should ensure suitable safeguards are in place to make sure the privilege in the material being disclosed is not lost and to avoid criticism or potential applications against them for loss of privilege,” she said.

Bill Geiringer of Pinsent Masons said: “Instructing solicitors on a joint retainer where several clients’ interests are aligned is commonplace in litigation. However, such clients should be aware that the bankruptcy of one client could have consequences for disclosure of privileged material.”

“It is well established that where a law firm represents several clients on a joint retainer, each client has a joint interest in privileged material. This decision clarifies that a client cannot then assert that privilege against a co-client to prevent disclosure to a trustee in bankruptcy of the co-client. The impact of the judgment is significant for anyone instructing representatives on a joint retainer; they must be aware that the privilege may not provide protection if one of the joint clients becomes bankrupt and the trustee is collating books and records,” he said.    

Co-authored by Nick Gilvear of Pinsent Masons.