Avonwick Holdings Ltd v Shlosberg
| Jurisdiction | England & Wales |
| Judge | Sir Terence Etherton, Mr,Lady Justice Gloster,Lady Justice Sharp |
| Judgment Date | 18 November 2016 |
| Neutral Citation | [2016] EWCA Civ 1138 |
| Docket Number | Case No: A2/2015/2154 & 2156 |
| Court | Court of Appeal (Civil Division) |
| Date | 18 November 2016 |
[2016] EWCA Civ 1138
Sir Terence Etherton, Mr
Lady Justice Gloster
and
Lady Justice Sharp
Case No: A2/2015/2154 & 2156
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION, BANKRUPTCY COURT
MR JUSTICE ARNOLD
4387 OF 2014
Royal Courts of Justice
Strand, London, WC2A 2LL
Tom Smith QC and Henry Phillips (instructed by Dechert LLP) for the Appellants
Philip Marshall QC and James Mather (instructed by Enyo Law LLP) for the Respondent
Hearing dates: 25 & 26/10/2016
Approved Judgment
This appeal arises out of the bankruptcy of the respondent Mikhail Shlosberg. The second appellants, Jeremy Willmont and Emma Sayers, are his trustees in bankruptcy ("the Trustees"). The first appellant, Avonwick Holdings Limited ("Avonwick"), is his largest creditor.
The appeal is from an order of Mr Justice Arnold dated 5 May 2016, which was made on the application of Mr Shlosberg. The respondents to the application were Avonwick, the Trustees and Dechert LLP ("Dechert"), who were the solicitors for both Avonwick and the Trustees. The order of Mr Justice Arnold directed that Dechert cease to act for Avonwick in respect of any matter relating to Mr Shlosberg or his affairs.
The basis of the order was that Dechert had possessed, seen and reviewed a large quantity of documents, some of which were subject to Mr Shlosberg's legal professional privilege ("privilege"), and which the Trustees wished Avonwick to deploy in proceedings by Avonwick, Webinvest Limited ("Webinvest") and the liquidators of Webinvest in proceedings against Mr Shlosberg, Castle Investment Fund Limited ("Castle"), and the three other defendants for conspiracy ("the conspiracy proceedings").
Dechert has not appealed the Judge's injunction but has appealed the Judge's order for costs.
The application and this appeal raise, among other things, the issues whether privilege attaching to information and documents of a bankrupt are property which vests in the trustees in bankruptcy and what use may be made of such information and documents by the trustees.
The background
As that short introduction indicates, the factual background is complicated. For a full account, reference should be made to the comprehensive judgment of Mr Justice Arnold at [2016] EWHC 1001 (Ch). The following is a highly simplified account sufficient to understand the issues on this appeal. I have gratefully taken it from the Judge's account.
Mr Shlosberg is a Russian businessman domiciled in England. He is the beneficial owner of Webinvest. His family are the beneficiaries of a discretionary trust which owns Castle.
In 2010 Mr Shlosberg had an investment project relating to Vimetco NV ("Vimetco"), a Dutch company which operated aluminium plants. Vimetco's parent company, Vi Holding NV ("Vi Holding"), was owned or controlled by Vitaliy Machitski. UD$200 million was required for the Vimetco project. That amount was funded as follows.
Avonwick loaned US$100 million to Webinvest pursuant a loan agreement signed on 23 April 2010 ("the Avonwick loan"). Mr Shlosberg guaranteed Webinvest's obligations under the Avonwick loan pursuant to a deed of guarantee of the same date ("the Guarantee"). A further US$100 million was loaned by Castle to Webinvest.
Webinvest loaned US$200 million ("the Globoid loan") to Mr Machitski's company Globoid Finance Establishment ("Globoid"), which was incorporated in Liechtenstein.
Globoid did not repay the Globoid loan on the due date. In turn, Webinvest failed to repay the Avonwick loan.
On 15 May 2013 Webinvest commenced an arbitration against Globoid for the recovery of the Globoid loan and interest ("the Globoid arbitration"). The Globoid arbitration was subsequently settled through a series of agreements, and in particular agreements dated 23 and 24 June 2014 ("the Settlement Agreements"). On 16 January 2015 Globoid was placed in liquidation.
Avonwick commenced proceedings for repayment of the outstanding sums due under the Avonwick loan and the Guarantee ("the Avonwick proceedings"). Avonwick was represented in those proceedings by Dechert. Webinvest and Mr Shlosberg were represented by Fladgate LLP ("Fladgate").
Pursuant to an order for specific disclosure in the Avonwick proceedings, documents relating to the Settlement Agreements were provided to Avonwick by Webinvest and Mr Shlosberg.
Judgment was given for Avonwick in the Avonwick proceedings by Sales J on 6 November 2014 for payment by Webinvest and Mr Shlosberg of US$195,159,649.03 and interest at a daily rate of US$42,774.72.
In the course of a subsequent judgment in the Avonwick proceedings, Sales J observed that, even though the documents disclosed in relation to the Settlement Agreements were obscure and incomplete, it seemed that the effective proceeds of a settlement of the Webinvest claim against Globoid in the sum of US$172 million had been transferred to Castle, and not to Webinvest (the owner of the relevant contractual rights against Globoid), in circumstances where Castle proposed to pay on to Webinvest only half that amount to make it available to recovery by Avonwick; and that, on one interpretation of the documents, none of that sum would be available to Webinvest (and hence for Avonwick), leaving Avonwick with nothing against which to execute the judgment that it had obtained.
Neither Webinvest nor Mr Shlosberg has paid any sum in respect of the judgment obtained by Avonwick. On Avonwick's petition, a bankruptcy order was made against Mr Shlosberg on 14 January 2015. A winding up order was made against Webinvest on 27 February 2015. The Trustees were appointed on 20 January 2015. Mr Willmont and Michael Finch ("the Liquidators") were appointed as joint liquidators of Webinvest on 24 March 2015. Mr Shlosberg's remains an undischarged bankrupt.
The principal creditor of both Mr Shlosberg and Webinvest is Avonwick. In the case of Mr Shlosberg's insolvency, Avonwick's judgment represents at least 95 per cent, if not more, of the debts owed by Mr Shlosberg's estate.
Avonwick commenced the conspiracy proceedings against Castle on 19 November 2014. In due course Webinvest and the Liquidators were joined as claimants. Also in due course, Vi Holding, Globoid, Mr Machitski and Mr Shlosberg were added as defendants. It is alleged in the conspiracy proceedings that the Settlement Agreements were part of a scheme put in place to render Webinvest judgment proof in the face of the very substantial claims asserted against it by Avonwick. Avonwick believes that the Settlement Agreements were part of an unlawful conspiracy between Mr Shlosberg, on the one hand, and Mr Machitski/Globoid/Vi Holding, on the other hand, to ensure that the value of Webinvest's main asset would not be available to satisfy Avonwick's claims against Webinvest, but would instead be diverted to Mr Shlosberg or companies owned or controlled by him.
Shortly after their appointment the Trustees retained Dechert as their solicitors. Shortly after their appointment the Liquidators also retained Dechert as their solicitors. The responsible partner of Dechert, Adam Silver, confirmed in evidence before the Judge that no information barrier had been put in place within Dechert between those advising Avonwick and those advising the Trustees and the Liquidators. On the contrary, Mr Silver had personally led the Dechert teams advising all three sets of clients.
Fladgate has provided the Trustees with three CDs containing copies of a large quantity of documents ("the Fladgate CDs"). The evidence is that the contents of the Fladgate CDs relate to the following three matters: (a) litigation in the county court regarding an attack on Mr Shlosberg's cat; (b) statutory demands issued by Avonwick against Mr Shlosberg and Webinvest and subsequent applications to restrain Avonwick from petitioning for Mr Shlosberg's bankruptcy and the winding up of Webinvest; and (c) the Avonwick proceedings. We are not concerned on this appeal with the documents in category (a). Some of the documents in categories (b) and (c) ("the Documents") are subject to the joint privilege of Mr Shlosberg and Webinvest. The Fladgate CDs were passed by the Trustees to Dechert, as the Trustees' solicitors, to review. The Trustees wish to permit Avonwick to make use of the contents of the Documents or some of them for the purposes of its claims in the conspiracy proceedings if that would be helpful to sustain those claims.
The application and the judgment of Mr Justice Arnold
On 4 December 2015 Mr Shlosberg issued an application against Avonwick, Dechert and the Trustees for an order directing that Dechert cease to act as solicitors for Avonwick and the Trustees. As the Judge explained in his judgment, the application was primarily made in respect of Dechert's position as solicitors for Avonwick, and only secondarily in respect of Dechert's position as solicitors for the Trustees.
The Judge handed down a substantial, comprehensive and careful judgment on 5 May 2016. With no disrespect to the Judge, it is necessary only to give the following very brief summary of the judgment sufficient to understand the discussion and my conclusions below.
The Judge said (at para. [66]) that the argument of the respondents to the application was that privilege in the Documents had been transferred the Trustees. The Judge reviewed in detail a number of...
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