GE Capital Commercial Finance Ltd v Sutton (2004)
The disclosure by administrative receivers to a debenture holder of documents passing between a company and its solicitors was outside the receivers' powers and could not have the effect of waiving the company's right to confidence and privilege in the documents.
The defendant (S) appealed against orders refusing to restrain the claimant (GE) or the administrative receivers of a company (APL) from using certain documents disclosed by APL's solicitors (BT) to the receivers and passed by them to GE as the debenture holder which appointed them. S was a director of APL which entered into a debt factoring agreement with GE. Under the agreement GE advanced money to APL against its invoices. Security for the advances was provided by a debenture. In September 2001 APL was in breach of the finance agreement and GE gave notice of termination. A compromise was negotiated under which APL agreed to repay the indebtedness by instalments and to provide further security. S also agreed to give a personal guarantee for some or all of APL's liability. Solicitors (BT) acted for APL in the negotiations. The obligations under the compromise were not met and GE appointed administrative receivers of APL and issued proceedings against S under his guarantee. S argued that the guarantee was invalidated by non-disclosure on the part of GE. In order to investigate S's knowledge of certain allegedly fictitious transactions the administrative receivers requested BT to deliver up any communications between BT and S relating to execution of the guarantee. BT delivered its files to the receivers who forwarded the documents to GE. GE wished to use the material in an application for summary judgment against S. APL and S applied for an injunction to restrain GE from using that material on the ground that it was privileged. APL, acting by S, also brought proceedings for an injunction and return of the documents. The judge held that S could not claim privilege because he asserted that BT did not act for him. The receivers were entitled to any documents to which APL was entitled and BT had voluntarily surrendered the documents. The receivers had waived privilege by passing the documents to GE.
(1) The BT documents were sought by the APL receivers in reliance on their powers under the Insolvency Act 1986 s.234-236 and for the express purpose of enabling the APL receivers to investigate matters relating to the indebtedness of APL to GE and not for the purpose of assisting GE to obtain evidence to rebut S's non-disclosure defence in the guarantee action. The receivers sent the documents to GE without considering the contents or whether it was in the interests of APL to do so. In obtaining the documents the receivers were not acting within the powers conferred on them by the debenture. The requirement to provide information under the debenture was for the purpose of operating the invoice discounting arrangements and did not extend to privileged and confidential communications between APL and its solicitors particularly where they related to APL's rights vis-a-vis GE. If the true purpose of the receivers in requesting the documents from BT was to assist GE in its litigation against S as guarantor the receivers exceeded their powers. If the documents were obtained under the statutory powers conferred by s.234-236 of the 1986 Act for the purposes of the receivers' own investigations, it was not a proper exercise of those powers to pass the documents to GE without considering their contents and whether disclosure was in the interests of APL. The disclosure of the documents by the receivers was outside their powers and could not have the effect of waiving APL's right to confidence and privilege. Therefore APL's right to confidence was not lost when the BT documents were sent by the receivers to GE. (2) It was open to APL, acting by S, to bring proceedings, notwithstanding the appointment of administrative receivers to APL, so long as the proceedings did not impinge prejudicially on the position of the debenture holder (Newhart Developments Ltd v Co-operative Commercial Bank Ltd (1978) QB 814). The APL proceedings did not threaten the interest of GE in the charged assets and they were properly brought, although it might be that the APL receivers could override the power of S as a director to institute proceedings in the name of the company. (3) BT, although not retained by S as his solicitors, gave him as well as APL legal advice in relation to his obligations under the guarantee. To that extent it was arguable that the circumstances in which the BT documents came into existence gave S a right to confidence which equity would protect.