Long v Farrer & Company

JurisdictionEngland & Wales
CourtChancery Division
JudgeThe Honourable Mr Justice Rimer,MR JUSTICE RIMER
Judgment Date23 July 2004
Neutral Citation[2004] EWHC 1774 (Ch)
Docket NumberCase No: 8498 of 2003
Date23 July 2004

[2004] EWHC 1774 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Before:

The Honourable Mr Justice Rimer

Case No: 8498 of 2003

Between:
Philip James Long
Applicant
and
(1) Farrer & Co
(2) Arthur Mark Farrer
Respondents

Mr Matthew Collings (instructed by Farrer & Co) appeared for Farrer & Co and Arthur Mark Farrer (the Appellants)

Ms Raquel Agnello (instructed by Addleshaw Goddard) appeared for Philip James Long (the Respondent)

Hearing date : 6 July 2004

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

The Honourable Mr Justice Rimer MR JUSTICE RIMER

MR JUSTICE RIMER :

Introduction

1

This appeal is against an order made by Mr Registrar Jaques on 18 December 2003 in the bankruptcy of George Anthony Guy Belcher. The bankruptcy order was made on 2 August 1993 on a petition presented on 10 June 1993. Mr John Alexander, an insolvency practitioner, was appointed to be Mr Belcher's trustee on 18 August 1993. Mr Belcher has since obtained an automatic discharge from bankruptcy.

2

The Registrar's order was made on the trustee's application dated 10 July 2003. He thereby sought the production by Farrer & Co ("Farrers"), solicitors, and Mr Arthur Mark Farrer, a partner in Farrers, of "any documents in their possession or under their control relating to [Mr Belcher] or his dealings, affairs or property including, but not limited to, documents relating to any and all transactions and other arrangements entered into between [Mr Belcher] and the Trustees of the John Horace Broke Heathcote 1965 Settlement." The application was made under 366(1) of the Insolvency Act 1986 ("the Act"), which provides:

"366. Inquiry into bankrupt's dealings and property

(1) At any time after a bankruptcy order has been made the court may, on the application of the official receiver or the trustee of the bankrupt's estate, summon to appear before it –

(a) the bankrupt or the bankrupt's spouse or former spouse,

(b) any person known or believed to have any property comprised in the bankrupt's estate in his possession or to be indebted to the bankrupt,

(c) any person appearing to the court to be able to give information concerning the bankrupt or the bankrupt's dealings, affairs or property.

The court may require any such person as is mentioned in paragraph (b) or (c) to submit an affidavit to the court containing an account of his dealings with the bankrupt or to produce any documents in his possession or under his control relating to the bankrupt or the bankrupt's dealings, affairs or property."

3

As the application was solely for the production of documents, it was based on the jurisdiction conferred by the closing words of section 366(1).

4

In September 2003, Philip James Long, another insolvency practitioner, replaced Mr Alexander as Mr Belcher's trustee and was substituted as the applicant for the section 366(1) order. The background to that was that Mr Alexander was a partner in PKF, chartered accountants, but retired on 30 August 2002. Following that, and until Mr Long (another PKF partner) was appointed, the bankruptcy was handled by attorneys whom Mr Alexander had appointed by a power he executed on 19 April 2001. I shall, however, refer to the acts carried out by the attorneys as if they were those of Mr Alexander himself: nothing turns on it.

5

The Registrar made the order sought, in a modified form. By this appeal, Farrers and Mr Farrer, who appeared by Mr Matthew Collings, contend that he misdirected himself in making it. Ms Raquel Agnello, for the trustee, contends that the order is unimpeachable. The main issues in the appeal are: (i) whether the Registrar was entitled to hold, as he did, that Mr Belcher (and, through him, the trustee) was jointly entitled with others to the legal professional privilege attaching to the disputed documents; and (ii) whether, having so held, he misdirected himself in exercising his discretion to order their production.

The background to the application

6

Mr Belcher's late wife ("Miranda") was the daughter of John Horace Broke Heathcote. On 29 September 1965, Mr Heathcote made a family settlement by which he settled certain land forming part of the Conington Estate, Cambridgeshire, upon discretionary trusts for his children and their descendants. Miranda was, therefore, a beneficiary, as is Tara, the daughter of Mr Belcher and Miranda. By an appointment of 20 March 1979, Miranda and her sister Venetia each became entitled to life interests in 17.5% of the estate; and a maintenance and accumulation settlement was established for the benefit of Tara (who is now 26) and for Venetia's four children. On 8 December 1981, Miranda surrendered one-half of her life interest to Tara contingently upon Tara attaining 18. Also in 1981, Mr Heathcote settled Conington House on the same discretionary trusts, and on 17 December 1990 the trustees of the settlement appropriated the house to Tara's fund.

7

At all material times the trustees of the settlement ("the settlement trustees") were Michael Sandell, Colin Hodgen and Mr Farrer. Farrers were solicitors to the settlement trustees. It is agreed that, in 1993, they also acted as solicitors to Mr Belcher (indeed they proved in his bankruptcy for unpaid fees). The question at the heart of the dispute before the Registrar was whether they also acted for him in connection with certain transactions in December 1990.

8

The origin of the trustee's wish to see the documents the subject of the application was the making by Mr Belcher of a substantial loan to the settlement trustees. The precise date on which he had made it is unclear. I understand his evidence to be that it was in the late 1980s and no-one suggests it had not been made by 18 December 1990. The purpose of the loan was to enable the carrying out of building works at Conington House. The trustee's interest in the matter was, in particular, provoked by the discovery that on 18 December 1990 Mr Belcher had released the loan and that on the same day Conington House had been leased to him and Mrs Belcher. The trustee learnt this from a summary of the trust's financial statements for the year to 5 April 1994 which Mr Belcher had provided to one of the trustee's attorneys at a meeting in October 2002. The summary stated that the amount of the released loan was £473,611.08.

9

The trustee's consideration of the summary led to a letter from him to Mr Farrer on 16 December 2002. He wrote that the release of the loan was within a period of five years prior to the bankruptcy petition and was a transaction at an undervalue for the purposes of section 339 of the Act. He said he was therefore able to apply to the Court for a repayment order. He asked for the £473,611.08 to be paid to him within 21 days. If Mr Farrer was unable to do that, he said he would consider the merits of a written offer of settlement, also to be submitted within 21 days. He said that, if his requests were ignored, he would "have no alternative but to forward this matter to my solicitor, without further notice to you." I infer that the trustee had not written this letter on the basis of prior legal advice.

10

Nothing immediate came of that. Certainly no payment was made. At a subsequent date Mr Alexander consulted Theodore Goddard (now Addleshaw Goddard) on the matter. That led to letters of 7 March 2003 from Theodore Goddard to each of the settlement trustees asking for copies "of all documentation and further information surrounding" the loan, its release and the lease. Farrers replied on 14 March, asking the purpose of the trustee's instructions and the reasons for the request. Theodore Goddard replied by a letter of 24 March, one not in evidence. Then, on 9 April, Farrers provided to the trustee copies of (i) a deed of assignment and surrender, and (ii) the lease. Both are dated 18 December 1990.

11

The deed of assignment and surrender was between Mr Belcher and the settlement trustees. It recited the 1965 settlement and several subsequent deeds. It summarised their combined effect as being that Conington House (and certain further identified land) was held on trust for Tara contingently upon attaining the age of 18. It further recited that Mr Belcher had lent the settlement trustees £473,611.08, to be repayable on demand. The operative parts then provided that, in consideration of his natural love and affection for Tara, Mr Belcher assigned and surrendered his right of repayment to the settlement trustees, to be held by them on the trusts of Tara's fund.

12

By the lease the settlement trustees leased Conington House and the further land to Mr and Mrs Belcher for 40 years at an initial rent of £10,000 per year for three years after which (and at each subsequent third year) the rent was to be reviewed to the market rent.

13

On 28 April 2003, the trustee circulated a report on the bankruptcy to creditors. Item 3 was as follows:

"3. Transactions at Undervalue

During the course of my investigations into the affairs of Mr Belcher, a payment of £473,611 to an associated entity was identified. I consider that this transaction is a Transaction at Undervalue and therefore recoverable for the benefit of all creditors. I have sought legal advice from a firm of solicitors, Theodore Goddard, who are experienced in the recovery of such transactions.

Advice received to date indicates that a successful recovery of this money is likely and therefore I am currently making every attempt to recover this sum as quickly as possible. Creditors will be notified of the progress of this matter in due course."

The trustee explained further that, "subject to the successful recovery of the above Transaction at Undervalue," it appeared that creditors would...

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