Shlosberg v Avonwick Holdings Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Arnold |
| Judgment Date | 05 May 2016 |
| Neutral Citation | [2016] EWHC 1001 (Ch) |
| Docket Number | Case No: 4387 of 2015 |
| Court | Chancery Division |
| Date | 05 May 2016 |
[2016] EWHC 1001 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN BANKRUPTCY
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Arnold
Case No: 4387 of 2015
Philip Marshall QC and James Mather (instructed by Enyo Law LLP) for the Applicant
Tom Smith QC and Henry Phillips (instructed by Dechert LLP) for the Respondents
Hearing dates: 25 February and 22 April 2016
Contents
| Topic | Paras |
| Introduction | 1–2 |
| Factual background | 3–33 |
| The principal parties | 3 |
| The Avonwick Loan | 4–8 |
| The Globoid Arbitration | 9–10 |
| The Original Avonwick Proceedings | 11–18 |
| The Freezing Order | 19–20 |
| Bankruptcy of Mr Shlosberg and winding up of Webinvest | 21–22 |
| The Conspiracy Claim | 23–32 |
| Application for suspension of discharge | 33 |
| The genesis of the present application | 34–44 |
| The starting point | 45–46 |
| Mr Shlosberg's claim to privilege | 47–142 |
| The burden of proof | 51 |
| The statutory provisions with respect to the vesting of the bankrupt's estate | 52–53 |
| The definition of property | 54–56 |
| Property which does not form part of the bankrupt's estate | 57–61 |
| The nature of privilege | 62–64 |
| The correct approach to statutory construction in this context | 65–67 |
| The Respondents' arguments in summary | 68–69 |
| Mr Shlosberg's response in summary | 70 |
| The authorities on privilege | 1–97 |
| Commentaries | 98–102 |
| General observations | 103–106 |
| The Respondents' first argument: successor in title to the pieces of paper | 107–114 |
| The Respondents' second argument: privilege is either property within s 436(1) or a power over property within s 283(4) | 115–128 |
| The Respondents' third argument: successor in title to the County Court judgment | 129–132 |
| The Respondents' fourth argument: successor in title to the High Court judgment | 133–141 |
| Conclusion | 142 |
| Webinvest's claim to legal professional privilege | 143 |
| Mr Shlosberg's claim to confidentiality | 144 |
| Safeguards relied upon by the Respondents | 145 |
| Remedy | 146–61 |
Introduction
This is an application by Mikhail Shlosberg, a bankrupt, for an order directing that the Second Respondent ("Dechert") shall cease acting as solicitors for both the First Respondent ("Avonwick") and the Third Respondents, Jeremy Mark Willmont and Emma Sayers of Moore Stephens LLP, his joint trustees in bankruptcy ("the Trustees"). As I shall explain, the application is made primarily 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 basis for the application is Dechert's possession and review of a large quantity of documents which Mr Shlosberg contends are subject to legal professional privilege and/or are confidential. There is no dispute that many of the documents are privileged and confidential. The Respondents contend, however, that the benefit of the privilege has passed to the Trustees and that there is no real risk of any misuse of information confidential to Mr Shlosberg by Dechert. The application raises an important point of principle with respect to the devolution of legal professional privilege. For the sake of brevity, in the remainder of this judgment I shall refer to legal professional privilege simply as "privilege".
The application was originally argued before me on 25 February 2016. At that hearing, counsel for the Respondents argued, at least as I understood the argument, that the benefit of Mr Shlosberg's privilege had passed to the Trustees purely because the Trustees had acquired title to the pieces of paper recording the privileged information as part of the bankrupt estate. Subsequently I prepared a draft judgment rejecting that argument which was circulated to the parties in advance of being handed down on 7 March 2016. In preparation for the hearing on 7 March 2016, counsel for the Respondents submitted a skeleton argument seeking permission to appeal relying upon draft grounds of appeal which raised different arguments and cited a number of authorities and commentaries which had not been cited at the previous hearing. For the reasons given in my judgment of 7 March 2016 ( [2016] EWHC 416 (Ch)), I decided to reconsider my draft judgment in the light of the new arguments and authorities. Accordingly, the matter was re-listed for further argument on 22 April 2016. At the hearing on 22 April 2016, yet further new authorities were cited by both counsel. I have therefore considered the matter afresh.
Factual background
The principal parties
Mr Shlosberg is a Russian businessman who is domiciled in England. He is the beneficial owner of Webinvest Ltd ("Webinvest"), a company incorporated in St Vincent and the Grenadines. Mr Shlosberg's family are the beneficiaries of a discretionary trust which owns Castle Investment Fund Ltd ("Castle"). Avonwick is a company incorporated under the laws of the British Virgin Islands. It is beneficially owned by Eleana Gayduk. Mrs Gayduk is the wife of Vitaliy Gayduk, a Ukrainian businessman.
The Avonwick Loan
In early 2010 Mr Shlosberg approached Mr Gayduk with an investment proposal relating to Vimetco NV ("Vimetco"), a Dutch company which operated aluminium plants. Vimetco was owned by Vi Holding NV ("Vi Holding"), which was owned or controlled by Vitaliy Machitski. Mr Machitski was, and Avonwick believes remains, a close friend of Mr Shlosberg. Mr Shlosberg informed Mr Gayduk that Mr Machitski was proposing to de-list shares in Vimetco in London and to re-list them in Hong Kong, where it was considered that the shares would be more highly valued. In order to achieve this, Mr Machitski needed to recover control of Vimetco from Vi Holding's banks by repaying Vi Holding's borrowings to secure release of the shares in Vimetco which had been charged as security.
According to Mr Shlosberg, US$200 million was required for this purpose. Mr Shlosberg was willing to lend US$100 million to Mr Machitski, but needed a further US$100 million. Mr Gayduk agreed to lend Mr Shlosberg US$100 million so that Mr Shlosberg could invest the whole US$200 million in the project.
Avonwick was selected to act as the lender in respect of the loan and Webinvest was selected to act as the borrower. A loan agreement was signed on 23 April 2010 and US$100 million advanced on 27 April 2010 ("the Avonwick Loan"). Mr Shlosberg personally guaranteed Webinvest's obligations under the Avonwick Loan pursuant to a deed of guarantee dated 23 April 2010 ("the Guarantee").
Webinvest used the proceeds of the Avonwick Loan, together with another US$100 million lent by Castle ("the Castle Loan"), to finance the Vimetco project proposed by Mr Machitski by making a loan of US$200 million ("the Globoid Loan") to Mr Machitski's company Globoid Finance Establishment ("Globoid"), which was incorporated in Liechtenstein.
Globoid and Webinvest default
The Globoid Loan was due to be repaid on 14 May 2012. The Avonwick Loan was due to be repaid a few days later on 17 May 2012. In the event, Globoid did not repay the Globoid Loan. In turn, Webinvest failed to repay the Avonwick Loan.
The Globoid Arbitration
On 15 May 2013 Webinvest commenced an arbitration against Globoid under the ICC rules for the recovery of the Globoid Loan, claiming more than US$300 million including 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.
The Original Avonwick Proceedings
On 9 April 2014 Avonwick served statutory demands on Webinvest and Mr Shlosberg for US$180,891,155.88 representing the principal of US$100 million plus accrued interest.
On 30 May 2014 Webinvest applied for an injunction to restrain presentation of a winding up petition and Mr Shlosberg applied to set aside the statutory demand served on him. The asserted basis of these applications was that there had been a collateral oral agreement between Mr Gayduk and Mr Shlosberg on behalf of Avonwick and Webinvest respectively to the effect that payments of principal and interest by Webinvest in respect of the Avonwick Loan would only fall due when Webinvest itself had received corresponding payments from Globoid in respect of the Globoid Loan (referred to as the "pay if paid" agreement).
Webinvest's application came before Peter Smith J on 14 and 15 July 2014. Peter Smith J ordered an expedited trial of Avonwick's claim for repayment of the outstanding sums due under the Avonwick Loan and Guarantee ("the Original Avonwick Proceedings").
Avonwick was represented in the Original Avonwick Proceedings by Dechert. Webinvest and Mr Shlosberg were represented by Fladgate LLP ("Fladgate") until 16 December 2014.
Webinvest and Mr Shlosberg refused to disclose any documents relating to the Globoid Arbitration or the Settlement Agreements in the Original Avonwick Proceedings. Accordingly, Avonwick sought specific disclosure of those documents. On 10 October 2014 HHJ Walden-Smith ordered the disclosure of the arbitration and settlement documents. Webinvest and Mr Shlosberg applied for permission to appeal to the Court of Appeal, but that application was refused, following which Webinvest and Mr Shlosberg finally disclosed documents relating to the Globoid Arbitration. Some (but, as it subsequently transpired, not all) of the documents relating to the Settlement Agreements were provided to Avonwick at around 8pm on 17 October 2014, the...
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