England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)

		Royal Courts of Justice, Rolls Building Fetter Lane, London, EC4A 1NL
		13/11/2018

Master Clark:

Application

1. This is my judgment on that part of the claimants' application dated 7 September 2018 which seeks:

(1) a declaration that the documents in the client files held by the defendant solicitors in respect of Anabus Holdings Limited (a Cypriot company, now dissolved) ("the Company") are not protected by legal professional privilege, and that the parties are entitled to make use of such documents for the purposes of these proceedings; and

(2) an order that the defendant give disclosure and inspection in these proceedings without withholding inspection of any document on the grounds of the prima facie privilege of the Company.

For the avoidance of doubt, this judgment is solely concerned the effect of the dissolution of the Company on the relevant legal professional privilege, and not with the existence or extent of the so-called iniquity exception to such privilege, which remains in issue between the parties.

Parties and the claim

2. The claimants are about 240 investors in an investment scheme operated by the Company, under which investors were invited to invest in gold dust. The scheme was promoted by the Company to investors from spring 2010 through an agent and a network of "introducers". The scheme closed on 31 October 2010 and, despite later promises of payment, left the majority of the investors unpaid. The claimants say the scheme was fraudulent (which the defendant does not admit); and that they lost (collectively) over €6.5 million.
3. The defendant is an English LLP which previously operated as an SRA-regulated firm known as Salans LLP. It acted for the Company during the life of the scheme.
4. The claim in summary (which is sufficient for present purposes) is that the defendant recklessly and/or negligently enabled the scheme, and induced many of the individual claimants to invest, by affording the scheme apparent respectability by endorsing it as the Company's legal adviser.
5. The Company was dissolved on 20 June 2016 under the provisions of the Companies Law 2012 of Cyprus ("the Cypriot Companies Act"), which, so far as relevant, provide:

"328 Where a company is dissolved, all property and rights whatsoever vested in or held on trust for the company immediately before its dissolution (not including property held by the company on trust for any other person) shall, subject and without prejudice to any order which may at any time be made by the Court under sections 326 and 327 be deemed to be bona vacantia and shall accordingly belong to the Republic, and shall vest and may be dealt with in the same manner as other bona vacantia accruing to the Republic."

and

"327(7) If a company or any member or creditor thereof feels aggrieved by the company having been struck off the register, the Court on an application made by the company or member or creditor before the expiration of twenty years from the publication in the Gazette of the notice aforesaid may, if satisfied that the company was at the time of the striking off carrying on business or in operation, or otherwise that it is just that the company be restored to the register, order the name of the company to be restored to the register, and upon an office copy of the order being delivered to the registrar for registration the company shall be deemed to have continued in existence as if its name had not been struck off; and the Court may by the order give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off."

6. The defendant's solicitors have made extensive attempts to contact the former directors of the Company by letters and emails, in which they have asked them if they are willing to waive privilege and confidentiality in the documents held in the client files for the Company. Perhaps not surprisingly, they have received no response.
7. Both sides have written to (and provided copies of the application notice and evidence in the application to) the Bona Vacantia Division of the UK Government Legal Service, but have not sought to join the Crown as a party. The Crown's position (as set out in its emails of 12 and 14 September 2018) as at the date of the hearing can be summarised as follows:

(1) The assets (in this jurisdiction) of a foreign dissolved company vest in the Crown as bona vacantia at common law;

(2) These assets include the client files of their solicitors;

(3) The Crown does not hold any documents belonging to the Company and is not seeking to take possession or control of them;

(4) Once the Crown is satisfied as to jurisdiction, it intends to disclaim any interest in the client files;

(5) The disclaimer will expressly exclude any suggestion that such a step should be taken as either an assertion or a loss or waiver of privilege.

(6) The Crown does not consider that the effect of disclaimer is to waive privilege; its effect is that the asset does not vest in the Crown as bona vacantia.

8. Following the hearing of the application, on 22 October 2018, the Crown disclaimed its interest in "Property" identified as:

"The books and records of the Company situated in the United Kingdom whether physical or electronic including in particular but without prejudice to the generality of the foregoing the client files of Dentons Europe LLP in relation to the affairs of the Company."

9. The Notice of Disclaimer continues:

"The Treasury Solicitor as nominee for the Crown (in whom the Property vested on the dissolution of the Company) and without either asserting or waiving any legal professional privilege that may attach to any part of the Property hereby disclaims the Crown's title (if any) in the Property the vesting of which having come to his notice on 10 September 2018."

Issues in the application

10. The parties were agreed that:

(1) the documents the subject of this application are relevant and likely to be of importance in the claim;

(2) (for the purposes of this part of the application only) if the Company had not been dissolved, then any documents subject to legal professional privilege would not be disclosable in the claim unless and until the privilege was waived.

11. The primary issue in this part of the application was therefore the effect, if any, of the Company's dissolution on its legal professional privilege.
12. This issue arose in similar circumstances in the decision of the Upper Tribunal in Garvin Trustees Ltd v The Pensions Regulator [2014] UKUT B8 (TCC), [2015] 1 Pens LR 1. That case concerned a company incorporated in Northern Ireland, and the privilege, if any, attaching to documents which had been passed by its liquidators to a director. The company was then dissolved; and the question arose as to whether the documents remained subject to privilege in the hands of the director. The judge held that they were not and were accordingly disclosable.
13. Both sides agreed that Garvin is binding on me. Argument therefore focussed on whether it was distinguishable from the present case. It is necessary therefore to examine the judge's reasoning in more detail.
14. The judge's starting position was that the company itself could not assert any right to privilege, because the effect of its dissolution was that it no longer existed: [33]. I respectfully agree.
15. He then considered the effect on this of the relevant provisions governing the restoration of the company to the register. He referred to (but did not set out) sections 1030 to 1032 of the Companies Act 1986. These provide (so far as relevant):

"1030 When application to the court may be made

(1) An application to the court for restoration of a company to the register may be made at any time for the purpose of bringing proceedings against the company for damages for personal injury.

…

(4) In any other case an application to the court for restoration of a company to the register may not be made after the end of the period of six years from the date of the dissolution of the company, …

1032 Effect of court order for restoration to the register

(1) The general effect of an order by the court for restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register.

…

(3) The court may give such directions and make such provision as seems just for placing the company and all other persons in the same position (as nearly as may be) as if the company had not been dissolved or struck off the register."

16. The judge summarised these provisions as providing that "in general", the application must be made within six years of the date of dissolution of the company: [22]. Turning to the facts before him, he concluded that, if the company was to assert any rights, it would have to be restored to the register:

"a process that cannot now be undertaken due to the expiry of the time limit provided for in section 1030(4) of the 2006 Act." [33]

17. The Judge then went on to consider the position of the Crown, the relevant provisions in Garvin being contained in Article 605 of the Companies (Northern Ireland) Order 1986:

"(1) When a company is dissolved, all property and rights whatsoever vested in or held on trust for the company immediately before its dissolution (including leasehold property, but not including property held by the company on trust for another person) are deemed to be bona vacantia and –

(a) accordingly belong to the Crown, and

(b) vest and may be dealt with in the same manner as other bona vacantia accruing to the Crown.

(2) Except as provided by Article 606, the foregoing provisions of this Article have effect subject and without prejudice to any order made by the court under Article 602 or 604."

18. As the judge noted, Article 602 deals with the power of the court to declare a dissolution void; the reference to that Article in Article 605(2) makes it clear that the restoration of a company to the register does not affect the legal position pending restoration. Article 604 deals with restoration to the register on the application of an "aggrieved" member or creditor. Although it is not entirely clear from the judgment, I assume that this Article (which provides for a 20 year time limit) was replaced (with retrospective effect) by s.1029 of the Companies Act 2006 to which the 6 year time limit in s.1030 (set out above) applies.
19. Article 606 sets out the Crown's rights in property vested in it, and the consequences of an order declaring the dissolution void or restoring the company to the register. So far as relevant it provides:

"(1) The Crown, in whom any property or right is vested by Article 605, may dispose of, or of an interest in, that property or right notwithstanding that an order may be made under Article 602 or 604.

(2) Where such an order is made –

(a) it does not affect the disposition (but without prejudice to the order so far as it relates to any other property or right previously vested in or held on trust for the company), and

(b) the Crown shall pay to the company an amount equal to –

(i) the amount of any consideration received for the property or right, or interest therein, or

(ii) the value of any such consideration at the time of the disposition, or, if no consideration was received an amount equal to the value of the property, right or interest disposed of, as at the date of the disposition …"

20. Article 607 gives the Crown the power to disclaim title to any property vested in it under Article 605.
21. With these provisions in mind, the judge turned to consider the Crown's position in respect of the right to assert legal professional privilege. He accepted that the wording of Art 605 was wide enough to result in the right vesting in the Crown as bona vacantia. After setting out the Crown's stated position, which was that it had no interest in either maintaining or waiving any privilege, the judge continued:

"38. This response brings into clear relief the role of the Crown in relation to bona vacantia. Although it becomes both legal and beneficial owner of the property and rights concerned it is more akin to a custodian to whom assets are given for safekeeping. Like all custodians, it will not seek to act on its own initiative, save as it is permitted to do so by the legislation and it knows it is free to dispose of property without repercussions if it decides to exercise that power. In relation to a right that is not capable of being turned to account, such as the right to privilege, it is clear that its policy is to do nothing, so the Crown will neither assert nor waive the right. That is entirely consistent with the statutory scheme; the Crown has no power to act on behalf of the company concerned because the company does not exist and no right of its own to assert privilege. If any person has an interest in the right being asserted, then the appropriate course is for an application to be made to restore the company to the register and then the person who is entitled to assert it can do so.

39. It is therefore clear that the Crown is not a successor in title to the Company in the same way that that the executors of a deceased person's estate are successors in title to the deceased and can, as the authorities show, assert any privilege which the deceased was entitled to maintain. As far as the Crown is concerned, the winding up of the Company has concluded and it is not in effect to be prolonged by the Crown becoming involved in any ongoing matters relating to the Company's previous rights. That is entirely a matter for those with the power to revive the Company and restore its rights.

40. It follows that with the Crown having no interest in asserting the privilege that Mr Gordon is under no obligation to maintain the privilege simply because the right has been vested in the Crown. The Crown has correctly concluded that it should not assert the privilege and in those circumstances absent any other restriction [the director] has no obligation to maintain the privilege. ...."

(emphasis added)

Claimants' submissions

22. The claimants' counsel made the following submissions.
23. First, he submitted, privilege is, in nature, a negative right to resist disclosure: referring me to Shlosberg v Avonwick [2016] EWCA Civ 1138 [2017] Ch 210 at [43]-[47].
24. As to the effect of the Company's dissolution upon that right, he submitted:

(1) It was dissolved in Cyprus under provisions which mirror exactly the terms of former English Companies Acts, particularly ss353 -355 of the Companies Act 1948.

(2) Accordingly, the Company no longer exists. As such, it cannot own property or have the benefit of rights.

(3) As a dissolved company, it has no successor in title to take the benefit of its privilege (as executors would take the privilege of a deceased person): Garvin at [39].

(4) On the Company's dissolution, any English property belonging to it would have passed to the English Crown as bona vacantia at common law: referring me to Russian and English Bank v Baring Brothers [1936] AC 405 at 426-7 (Lord Atkin) and Ing on Bona Vacantia at 160, 163.

(5) But, if the privilege right may technically survive, vested in the Crown as bona vacantia, it is not a right which the Crown has any proper interest in maintaining, and it is accordingly not to be enforced: Garvin at [40].

(6) The Crown's position is effectively identical to that taken by the Crown in Garvin.

25. Garvin was, he submitted, recent, clear and correct; and on this basis, he submitted that the client files of the Company were no longer protected by privilege.

Defendant's submissions

26. The defendant's counsel sought to distinguish Garvin on 3 grounds:

(1) Garvin is not a decision concerning a solicitor, and does not apply to solicitors;

(2) Garvin does not apply if the company can be restored to the register, as here;

(3) Garvin only applies if the party entitled to the privilege has declined to be involved; and in this case, the relevant party is the Republic of Cyprus, whose views have not been sought.

27. He commenced his submissions by emphasising what he said was the fundamental nature of privilege. He referred me to Shlosberg v Avonwick Holdings [2017] Ch 210, in which privilege is described at [44] as:

"a fundamental condition on which the administration of justice rests… a fundamental right protected by the Convention for the Protection of Human Rights and Fundamental Freedoms"

and at [46]:

"a fundamental right long established in the common law and a necessary corollary of the right of any person to obtain skilled advice about the law."

28. He also relied upon the decision of Nationwide BS v Various Solicitors, [1999] PNLR 52. The facts in Nationwide were that the claimant building society brought some 400 claims against various solicitors in connection with secured loans made by it to borrowers buying or remortgaging residential property. The claims were for breach of contract/negligence arising out of a default by the borrower, and the resulting shortfall between the sum loaned and the sum ultimately realised from the security. Nationwide sought disclosure of documents in the solicitors' files, some of which the judge held were the subject of legal professional privilege.
29. In Nationwide, one of the issues was whether legal professional privilege was available where the client no longer had an interest in asserting the privilege. In all of the cases, the relevant transaction had occurred more than 5 years previously; and Nationwide had long since taken possession and sold the properties: the borrowers had "disappeared from the scene". In these circumstances, Nationwide's counsel submitted that the borrowers had no interest in the claim against the solicitors, and that there was no serious risk of any proceedings against them. It followed therefore, he argued, that since they had no interest in asserting the privilege, it should not be maintained. This was rejected by the judge, who said at p65

"I am by no means convinced that the borrowers do not have an interest in asserting privilege in their confidential communications with the various defendant firms, but whether they do or not does not affect the question of privilege and, not least, the solicitors' duty where privilege exists, to assert it on behalf of the client or former client."

30. After reviewing R v Derby Magistrates Court ex p. B [1996] AC 487, he concluded at p69B-C:

"whether or not the client has any recognisable interest in continuing to assert privilege in the confidential communications, the privilege is absolute in nature and the lawyer's mouth is 'shut for ever'. I further agree … that it follows from this that it is the lawyer's duty to claim the privilege on behalf of the client, or former client, whose privilege it is."

31. Nationwide was considered in Garvin, in the following terms at [29]:

"The case appears to apply the 'once privileged, always privileged' principle to privileged documents held by solicitors and they are duty bound to maintain confidentiality in respect of them even in the absences (sic) of instructions from a client or former client to maintain the privilege."

and at [41]

"That case was dealing with the positive duty of solicitors to maintain privilege in the absence of its client or former client seeking to do so. The case did not deal with the position of a solicitor holding privileged material of a dissolved company. Moreover, in this case the documents concerned are not held by a firm of solicitors against whom disclosure is sought."

Garvin does not apply to solicitors

32. The defendant's counsel submitted that, since Garvin was not a case concerning the duties of solicitors, then either:

(1) it is confined to accepting that solicitors have a duty to uphold privilege, even if they have heard nothing from the client; or

(2) insofar as it seeks to go beyond that, then, so far as solicitors are concerned, it is obiter.

33. As to this, the claimants' counsel submitted that the ratio of Garvin was not confined to persons other than solicitors. Nationwide was, he said, distinguished in Garvin on the basis that it did not deal with the position of a solicitor holding privileged material of a dissolved company.
34. He also submitted that a special rule for solicitors would have arbitrary and capricious consequences: for instance, where emails have passed between solicitors and a company's directors, the maintenance of the privilege would depend on whether a copy of an email survives in the directors' accounts; and the position would be similar in respect of hard copy documents and conversations.
35. He also submitted that such a rule would have to be derived from the regulatory obligations of solicitors. It would not, he said, be a matter of confidence and fiduciary duty, as there is no reason why a solicitor should be under a greater obligation than a former director. It would however, he said, be strange if the solicitor's obligation depended on the solicitor's code of conduct at any given time.
36. In my judgment, the reasoning in Garvin is not confined in the way the defendant's counsel submitted. It is clear from [41] that the judge's reasoning was focussed on the distinctions between the position where the client remains in existence, but does not seek to assert the privilege; and the position where, as in Garvin, the client no longer exists, irrespective of by whom the documents were held. In addition, in my judgment, the policy considerations on which the privilege is based, namely that a client must feel free to consult her/his solicitors without fear of her/his communications being revealed (see Nationwide at 68F-G) prevent any principled distinction from being drawn between solicitors and others in possession of privileged material.

Garvin does not apply if the company can be restored to the register

37. The defendant's counsel submitted that in Garvin it was clear that the judge had in mind that the time for restoring the company to the register had expired; and, on that basis, disregarded the rights of those who might restore it to the register. By contrast, in this case, many years remain in which an application to restore could be made – but the practical effect of the order sought would be to bring the privilege to an end, because its existence depends upon the confidentiality of the material.
38. He relied on [33] and [38] (set out above) of Garvin, which showed, he said, the importance in the judge's mind of the ability (or inability ) to restore the company to the register. He submitted therefore that even though the Company no longer exists, the court should protect its interests which would be resurrected should it be restored.
39. In response, the claimants' counsel referred to the judge's statement in [22] that the 6 year time limit for restoration was only "in general", reflecting the fact that there is no time limit if the purpose of restoring the company is to bring a personal injury claim against it. This showed, he submitted, that the judge took into account that even in England and Northern Ireland, the 6 year rule is not absolute. The judge's reasoning depended, he said, on the non-existence of the company, not on whether there was no prospect of it being restored.
40. I do not accept the claimants' counsel's analysis of this part of Garvin. [33] sets out in terms that restoration cannot now be undertaken due to the expiry of the time limit, and this is (in part) the basis of the judge's decision. The fact that strictly, this was incorrect (an application to restore could have been made under s.1030(1)) does not prevent it from being a key element in the judge's reasoning.
41. The critical issue is therefore whether and to what extent the court should have regard to the possibility (for all practical purposes, remote) that the Company might be restored to the register.
42. The defendant's counsel submitted that the privilege still existed as an inchoate right, and since the Crown was not proposing to waive it, the court should maintain it. He referred me to Russian and English Bank v Baring Brothers [1936] AC 405 at 426 and 444 in support of the proposition that only moveable property vested in the Crown. He submitted that the right to privilege was not moveable property and did not therefore vest.
43. In support of this, he relied upon Shlosberg v Avonwick Holdings [2017] Ch 210, in which privilege is described as "a right to resist the compulsory disclosure of information" [43]; and the Court of Appeal's finding that the privilege in that case was not property which vested in the trustee in bankruptcy of Mr Shlosberg.
44. He submitted that the right then either, if it was property, passed to the Republic of Cyprus (as to which, see below) or remained an inchoate right capable of returning to existence on the restoration of the Company.
45. The claimants' counsel submitted that the possibility of restoration of the Company could not give rise to a difference in the privileged status of a document. He submitted that the test was a bright line one: on dissolution, the Company ceased to exist; the privilege vested in the Crown, but that was not sufficient to make it enforceable, since the Crown had no interest in asserting it.
46. He also submitted first, that if such a right existed, it would have provided a basis in Garvin for holding the privilege to be maintainable, in the absence of evidence that a personal injury claim was impossible. As to this, it highlights the inconsistency in the judgment considered in paragraph 40 above; but does not of itself show that no such right exists.
47. Secondly, the claimants' counsel submitted that the category of inchoate right put forward by the defendant was a novel category, unknown to the law and contrary to principle, referring me to Shlosberg at para 97 of the judgment of Arnold J, when discussing Garvin:

"given that the company had ceased to exist, then its privilege had either to cease to exist or to be transferred to someone else. Furthermore, Article 605 expressly vests not only property, but also "all … rights whatsoever" in the Crown, whereas there is no comparable language in the 1986 Act vesting all the rights of bankrupt in the trustee."

48. In my judgment, there is no basis in principle or on the authorities for the existence of the inchoate right put forward by the defendant's counsel, in circumstances where the postulated owner of the right does not exist. The issue for determination is rather the extent to which the court should have regard to the fact that the Company could, as a matter of law, be restored (even though the practical likelihood of this is remote). This may be tested by considering the position if an application for restoration had been made, but was not to be determined until after the hearing of this application – the court would then, in my judgment, be bound to protect the privilege which was about to be revested in the Company. However, it is difficult to distinguish in principle between that situation and the present one, where, although no application to restore has been made, there is and will be no bar to it being made until 20 June 2036. Not enforcing the privilege means contemplating the position where, having been restored to the register and otherwise placed in the position it was before dissolution, the privilege to which the Company should then be entitled would be irretrievably lost.
49. In my judgment, the policy considerations (considered above) underlying the principle "once privileged, always privileged" compel the court to maintain the privilege, unless and until there is no prospect of the privilege being enforced by the person entitled to it.

Garvin only applies where the party entitled to the privilege has declined to be involved

50. It follows from the above, that it is not necessary to consider the defendant's counsel's third point; but I do so in case this decision is the subject of an appeal.
51. The position of the English Crown in respect of the Company's privilege is set out above. In his written submissions, the defendant's counsel relied upon s.328 of the Cypriot Companies Law (set out above) as establishing that the rights of the Company passed to the Republic of Cyprus. The claimants had not, he said, ascertained what its policy was in respect of the rights; and could not therefore show that it did not assert an interest.
52. In response, the claimants' counsel made the following submissions. First, the decision in Garvin did not depend on the fact that the Crown had specifically declined to be involved. This is shown by [38] to [40] in which the judge concludes that the Crown has no interest in asserting the privilege, and then records the Crown's position:

"The Crown has correctly concluded that it should not assert the privilege ..."

I agree.

53. Secondly, he referred me to a number of authorities in support of the proposition that bona vacantia is territorial, so that English assets of a foreign dissolved company vest in the English Crown. It is not necessary to consider these authorities in detail because the position is summarised in Dicey, Morris & Collins on the Conflict of Laws (15^th edn) at para. 30-058:

"Where a company incorporated outside the United Kingdom has been dissolved, its English assets vest in the Crown as bona vacantia."

54. In response, the defendant's counsel did not refer me to any authorities to the contrary. He submitted, however, in the alternative, that the right to privilege was not property, but an unattached negative right to resist disclosure, which did not pass as bona vacantia to the English Crown; but may have passed under s.328 of the Cypriot Companies Act to the Republic of Cyprus.
55. As to this, the claimants' counsel relied upon the fact that the relevant provisions in Garvin and in the Cypriot Companies Act are in identical terms, namely "all property and rights whatsoever vested in or held on trust for the company immediately before its dissolution"; and Garvin was decided on the basis that the right did vest in the Crown. He submitted that the position was effectively binary: either the right passed by bona vacantia, in which case it passed to the English Crown; or it did not pass by bona vacantia, in which case it did not pass to any person (and was in some sort of proprietary limbo).
56. Although the defendant's counsel suggested that the position as to vesting of the right to privilege might be different under the Law of the Republic of Cyprus, it has not sought to adduce any expert evidence that that is the case. In the absence of such evidence, I am entitled to assume therefore that the position in the Republic is the same as under English law, namely that the right passes as bona vacantia; and as property within the jurisdiction, passes to the English Crown.
57. I therefore reject the submission that the principle in Garvin only applies where the party entitled to the privilege has declined to assert it. I also reject the submissions that the right to privilege has or may have passed to the Republic of Cyprus; so that, in any event, the party entitled to the privilege, namely the English Crown, has declined to assert it.

Conclusion

58. For the reasons set out above, therefore, I dismiss this part of the claimants' application. I am very grateful for the able arguments of counsel on both sides.