Expandable Ltd. & Ors v Rubin

This is an appeal by Expandable Ltd and Prime Trust Corporation, the first and fourth respondents to these proceedings, against the order of Mr Registrar Simmons of 21 June 2007 dismissing their application for disclosure and inspection of a letter written to the appellant, Mr Rubin, by his solicitor, Mr Zaidi of Messers Edwin Coe, enclosing a copy of a note of an interview he had conducted with the debtor, Mr Martin Christopher Clarke, in December 2005.

The application before the Registrar was based on the letter having been mentioned in paragraph 23 of Mr Rubin’s second witness statement within the meaning of Civil Procedure Rule 31.14. In the alternative, specific disclosure is sought of the document under CPR 31.12. In the event that neither of these courses is open to the appellants, they seek an order for its production by inviting the court to exercise its supervisory jurisdiction over Mr Rubin as an officer of the court under the rule in ex parte James [1874] LR 9 Ch App 609 so as to ensure that Mr Rubin acts fairly and honourably between all potential claimants to the assets under his control.

It is necessary to begin by saying something about the background to the application. Mr Rubin is the supervisor of a failed IVA in respect of Mr Clarke dated 3 December 2001. Mr Clarke is now bankrupt. I am told there is an issue between him and the trustees in bankruptcy as to whether he is obliged to transfer to them the assets remaining in his hands. These comprise £684,000 plus accrued interest, which was paid to him by Allied Dunbar on 22 September 2004 as representing the debtor’s share from the sale and development of land in Hendon, acquired as part of a joint venture with Allied Dunbar.

Before these issues can be resolved between Mr Rubin and the trustees in bankruptcy, there is a prior question which relates to the debtor’s entitlement to the Hendon project monies. This consists of a claim by the appellants to a proprietary or beneficial interest in those monies, which, if well founded, would leave nothing for the creditors of Mr Clarke’s estate. This claim was first notified in August 2005 by Expandable Ltd through its solicitors, Goldkorn Matthias Gentle. Mr Rubin gave an undertaking not to distribute the funds without first giving them 14 days’ notice.

It is not either necessary or appropriate for me to go into the basis of the claim, let alone its merits, on this appeal. Suffice it to say GMG asserted a claim by their client to one-half of the £684,000, but soon thereafter raised the claim to the whole of that sum.

The basis of the claim is a letter of 14 May 2001 signed by the debtor, which refers to Prime Trust having paid £245,000 pursuant to a verbal agreement with Mr Robert Noonan, who is a Gibraltar resident and has, according to his witness statement, advised Prime Trust, a Gibraltar company. Prime Trust in turn is described as the administrator of Expandable Ltd, itself another Gibraltar company. The letter goes on to refer to an agreement that Expandable would, in return, receive 50 per cent of Mr Clarke’s profit share from the sale of the Hendon land. The letter does not in terms refer to any trust over the monies or any other form of security, nor does it put a date on the agreement.

Mr Rubin says in his witness statement that in an initial discussion the debtor suggested Expandable Ltd had no proprietary interest in the monies. Following this, he wrote to GMG seeking further information in support of the claim. In September 2005, Mr Rubin held a further interview with Mr Clarke, who said Mr Noonan had advanced the sum of £245,000 to him, but that the money was to be repaid from the proceeds of two other property developments. In March 2001, he said that he had needed to raise £1 million to buy out Allied Dunbar’s interest in the Hendon project. Mr Noonan had asked for a letter which could be used to seek finance from potential backers. This was the letter of 14 May.

In the event, Mr Noonan failed to come up with the finance and the debtor obtained it from other sources. Mr Rubin said that as a result of this and from his own assessment of the letter, he notified GMG in November 2005 that he considered there to be no basis for Expandable Ltd’s claim.

There was then the further interview with the debtor in December 2005, conducted by Mr Zaidi. He reported that Mr Clarke had changed his story and now said that the £245,000 borrowed from Mr Noonan through one or other of the appellants was used for general cash flow purposes and that he had promised Mr Noonan 50 per cent of the profit from the Hendon project after deducting his costs, which were to include the monies borrowed in order to buy out Allied Dunbar. The letter of 14 May was to provide Mr Noonan with comfort in approaching banks and was not intended to record the exact terms of the loan of £245,000.

This did not convince Mr Rubin of the claim to a proprietary interest and more information was asked for. He had doubts, he said, and apparently still has doubts about aspects of Mr Clarke’s account. But he says he did consider that Mr Clarke’s version of the agreement was more credible than that put forward by Mr Noonan. Ultimately, however, he decided that the matter was not sufficiently clear-cut for him to reject the claim outright and so he decided to issue an application under s.363 of the Insolvency Act, seeking the determination of the court on the issue. The application was issued in October 2006.

Mr Noonan put in a witness statement of 25 January 2007 giving his account of the matter and producing a number of new documents not previously disclosed. Mr Boeddinghaus referred me to various paragraphs in the witness statement, including paragraph 35 which deals with the telephone conversation with Mr Clarke in November 2002 and which he says is inconsistent with the claim to a proprietary interest.

I do not propose to go into any of the detail of this. It is enough to record that, having seen this evidence, Mr Rubin took the view that he was now satisfied that there was no basis for the claim and did not need or propose to seek the directions of the court. His position is set out in his second witness statement made on 21 February 2007, in which he comments on the progress of the application and the further evidence which has been filed. He makes it clear in paragraph 17 of this witness statement that, if the appellants wish to proceed further, he is content provided Expandable Ltd gives security for the costs of his application. It was eventually agreed that the application should continue but with the appellants, in effect, having carriage of the proceedings.

This takes me to the source of the present application and this appeal. For some time Mr Rubin resisted producing the notes of interviews and other communications with Mr Clarke on the grounds that they are privileged. In the end, this resistance was abandoned and the appellants now have copies of all written communications with the debtor, including the debtor’s note to Mr Rubin containing his second explanation of the purpose of the £245,000 loan and the note of Mr Zaidi’s interview with him in December 2005. He sets this out in paragraphs 22 and 23 of his witness statement in the following terms:

“22.

I confirm that the above-mentioned documents represent the totality of my written communications with the Debtor (including those of my Solicitors on my behalf) concerning the issue of the Expandable claim As I have indicated in my first witness statement, I regret to say that I do not consider the Debtor to be a reliable source of information, hence the emphasis I have sought to place (from the time that the Expandable claim was first mentioned) on information and documentation provided by Expandable.

23.

In particular it will be noted that there are several inconsistencies between Mr Clarke’s note to me and what he told Mr Zaidi. For example in his note to me Mr Clarke suggests that the monies he had received were for the purposes of investing in China. However with Mr Zaidi his emphasis changed to suggesting that the money went towards funding the Hendon Land Project though he also says in that same note that the monies were in fact used to cover his office overheads. I think it right I draw the Court’s attention to the fact that after Mr Zaidi had interviewed Mr Clarke he wrote to me enclosing a copy of his note of the meeting and drawing my attention to the discrepancies (which, by the way, I did not think in any way assisted Expandable/Prime Trust with their claim). I was curious to know from Mr Clarke why that was and I therefore telephoned him seeking an explanation. Mr Clarke initially informed me that when he had written his note to me he was confused as to events, after such a long period of time. I recall saying to Mr Clarke initially informed me that when he had written his note to me he was confused as to events, afters such a long period of time. I recall saying to Mr Clarke that he seemed pretty clear of the relevant events in his note. At that stage I recall Mr Clarke breaking down during our conversation. Mr Clarke advised me that subsequent to preparing his note for me he had been contacted by Mr Noonan who was obviously aware that I had instructed Edwin Coe to query Expandable’s claim. Mr Clarke advised me that Mr Noonan had sought to exert pressure upon Mr Clarke to change his story to one that was favourable to him. Mr Clarke explained that Mr Noonan was in a position to do so as it seemed that Mr Noonan had commenced possession proceedings against a property I understood Mr Clarke and his wife to be occupying. Mr Clarke further advised me that Mr Noonan had informed him that his approach to these proceedings could be influenced by Mr Clarke assisting him with this claim. Obviously I have no way of verifying anything Mr Clarke said and, as stated in my first statement and repeated above Mr Clarke has shown himself to be unreliable on numerous occasions in the past and therefore I cannot comment in any way as to the accuracy of what Mr Clarke told me.”

The application before the Registrar was for the disclosure and inspection of the letter from Edwin Coe, which it is said is mentioned in the words in paragraph 23. I quote:

“I think it right I draw the Court’s attention to the fact that after Mr Zaidi had interviewed Mr Clark he wrote to me enclosing a copy of his note of the meeting drawing my attention to the discrepancies (which, by the way, I did not think in any way assisted Expandable/Prime Trust with their claim).”

As mentioned earlier, it is not in dispute that a letter was written enclosing the note of the interview. But the application of CPR 31.14, which is Mr Lightman’s first basis for seeking inspection, is a technical matter and, on his argument, has important consequences in terms of Mr Rubin’s ability to assert legal, professional or litigation privilege in respect of the document.

It is common ground that privilege attaches to the solicitor’s letter Mr Zaidi sent to Mr Rubin. It was a letter from a solicitor sent in connection with ongoing litigation, which we know from Mr Rubin’s witness statement drew his attention to various discrepancies in the version of the loan agreement given by Mr Clarke. If that privilege continues to exist, can be asserted and has not been waived, it is an absolute bar to the inspection of the letter under CPR 31.12.

But Mr Lightman submits that the position under CPR 31.14 is materially different and that Mr Rubin has no right to invoke a claim of legal privilege against a request for production of the document. CPR 31.2 provides:

“31.2.

A party discloses a document by stating that the document exists or has existed.”

Once a document has been disclosed, a right to inspect it arises under CPR 31.3(1) unless:

“31.3(1) (b) the party disclosing the document has a right or a duty to withhold inspection of it;”

If a claim to such a right or privilege on other grounds is made out, a statement to this effect must be made in the list of documents or, if there is no list, to the person wishing to inspect the document. See CPR 31.19(3) and (4). In cases of dispute, the court can decide whether a claim should be upheld. See CPR 31.19(5).

CPR 31.14 provides:

“31.14

A party may inspect a document mentioned in –

(a)

a statement of case;

(b)

a witness statement;

(c)

a witness summary;

(d)

an affidavit.”

These provisions replaced the old Order 24 Rule 10 of the Rules of the Supreme Court, which dealt with the production of documents to which “reference was made” in any pleading, affidavit or witness statement. RSC Order 24 Rule 2 contained a procedure for giving notice requiring production and for a counter-notice to be served, setting out the grounds of any objection. The matter would then be decided by the court under RSC Order 24 Rule 11. There is no doubt, therefore, that under the Rules of the Supreme Court, a claim to privilege could form the basis of an objection to production under the rule.

The argument that this regime has been fundamentally altered by the CPR is largely based on the absence of any reference in CPR 31.14 to CPR 31.19(3) to (5). This is said to be in contrast to CPR 31.3(1). Mr Lightman submits that CPR 31.3 and CPR 31.14 are alternatives with their own separate procedures, only one of which permits an objection on the grounds of privilege. He was not, however, able to suggest a reason why the Rules Committee should have decided to narrow down CPR 31.14 from the position under Order 24 beyond suggesting that the mention of an otherwise privileged document in a pleading or witness statement was likely to have the effect of waiving privilege and the change in the rule was, therefore, perhaps intended to reflect and embody this in the rule itself.

I have no hesitation in rejecting that submission. During the subsistence of RSC Order 24, the Court of Appeal confirmed in Buttes Gas and Oil Company v Hammer[1981] QB 223 and in a number of other cases that a bare reference to a document in a pleading did not waive any privilege attached to it. This caused Donaldson LJ at page 252 to observe:

“On waiver, McNeill J held that references in the pleadings to a document or to its content does not of itself waive any privilege which attaches to it. It must be right that their reference to a document in a pleading does not waive any privilege attaching to it as otherwise, there would be no scope for taking objection under RSC Order 24 Rule 11(1) where the notice was served under Rule 10(1). If, on the other hand, a document is reproduced in full in the pleading, its confidentiality is gone and no question of privilege could arise. Where the line is drawn between these two extremes may be a matter of some nicety”.

He obviously - and in my judgement quite rightly - contemplated that some cases falling within Order 24 Rule 10 would not involve any waiver of privilege and that a right to raise privilege as an objection to production was therefore necessary.

The change in the wording of CPR 31.14 to a document being “mentioned” in the pleading or witness statement cannot have excluded this possibility. If Mr Lightman is right, the Rules Committee must have decided to exclude the right in such cases to rely on privilege as a bar to production. They cannot have assumed there would be a waiver in every case.

CPR 48.7(3) provides:

“… the court may direct that privileged documents are to be disclosed to the court and, if the court so directs, to the other party to the application for an order.”

In General Mediterranean Holdings SA v Patel[1999] 3 All ER 673, Toulson J held that CPR 48.7(3) was not Article 6 complaint and that there was no delegated power under the Civil Procedure Act 1997 to abolish the absolute right to privilege. In his judgment, he referred to the speech of Lord Taylor CJ in R v Derby Magistrates Court ex parte B[1996] AC 487, who stressed the fundamental nature of legal professional privilege as a condition on which the administration of justice as a whole rests.

In the judgment of the Court of Appeal in R v Secretary of State for the Home Department ex parte Leech[1994] QB 198 at page 211, Steyn LJ explained why subordinate legislation was not capable of being employed to authorise the abolition of a common law privilege. These principles apply equally in my judgment to CPR 31.14 if it has the effect for which Mr Lightman contends. A similar view was expressed at least provisionally by the Court of Appeal in Lucas v Barking, Havering & Redbridge Hospitals NHS Trust[2003] 4 All ER 720.

In the end however, I am not satisfied that it is right or necessary to construe CPR 31.14 in the way Mr Lightman suggests. Although there is no reference in it to CPR 31.19(3) - (5), those provisions are in no sense excluded, any more than they are by CPR 31.12, which also in terms bears no reference to CPR 31.19. If one looks at CPR 31.19(3) to (5), those provisions are of general application and as a matter of language could equally apply and be operated following the demand to inspect a document falling within CPR 31.14. On the basis that this construction is one which would be Article 6 compliant as well as respecting the fundamental principles of English law instructed, I prefer it to that advanced by Mr Lightman.

In these circumstances, the remaining issues are whether the letter from Mr Zaidi is a document mentioned in the second witness statement of Mr Rubin and whether privilege has been waived by what is said there. I can deal with both of these issues more shortly.

The test under Order 24, which used the phrase “reference”, was whether there was a direct allusion to the document in the pleading or affidavit, as opposed to a reference by inference. See Dubai Bank Ltd v Galadari (No.2)[1990] 2 All ER 738 at page 744. Slade LJ gives as an example of the latter type of case one in which there is a reference to a property being conveyed, but no specific reference to the conveyance. The purpose of the rule - and presumably now CPR 31.14 - is said to be to give the other party the same advantage as if the document referred to had been fully set out in the pleadings. See Quilter v Heatley [1883] 23 Ch D 42 at page 50.

In Dubai Bank v Galadari the Court of Appeal was particularly impressed by the submission that a deponent or pleader who relies on a document as a source of information ought to be prepared to verify it by specific reference to that source of information. If that is the purpose of the rule, it has no application in this case. Technically, the letter is not referred to any more than was the conveyance in the example given by Slade LJ.

As Mr Registrar Simmons pointed out, the term “wrote” could connote a number of different types of document, not just a letter, nor were the contents of the letter relied on in themselves. The reference in paragraph 23 of Mr Rubin’s witness statement simply explains what the letter did and what its purpose was. So far as details of any discrepancies are relied on in themselves, they are set out in the witness statement.

For these reasons, the Registrar was right to conclude that CPR 31.14 has no application in this case. But if I am wrong about that, I am also satisfied that there was no waiver of privilege. That is made clear in the passage quoted earlier from the judgment of Donaldson LJ in the Buttes Gas case. To set out the subject matter of a letter is not to waive privilege in its contents unless they are themselves disclosed.

This principle is referred to in more detail in the judgment of Mustill J, as he then was, in Nea Karteria Maritime Company Ltd v Atlantic and Great Lakes Steamship Corporation [1981] Com LR 138 at page 139 when he says:

“When a party is deploying in court material which would otherwise be privileged the opposite party and the Court must have an opportunity of satisfying themselves what the party has chosen to release from that privilege represents the whole of the material relevant to the issue in question.  To allow an individual item to be plucked out of context would be to risk injustice through its real weight or meaning being misunderstood.”

The distinction made in Mustill J’s judgment between “reference” and “deployment” has been adopted and followed in a number of subsequent decisions on appeal up to and including that in Dunlop Slazenger International Ltd and Joe Bloggs Sports Ltd[2003] EWCA Civ 901. The same point is made in two short passages in the much earlier Buttes Gas case I have already referred to, first by Lord Denning MR:

“Buttes, in their amended reply and defence to counterclaim, referred to a number of documents by pleading them. Buttes showed that they intend to rely on them. They should make them available for production. If, insofar as they contend that those documents were the subject of a privilege, they should amend their pleadings by striking out all reference to them.”

The second passage is from Brightman LJ’s judgment:

“It is to my mind equally clear that a party cannot rely on a privileged document so pleaded without thereby waiving the privilege. Therefore, sooner or later, Buttes will have to decide whether to forego privilege in respect of a privileged document which is pleaded or to abandon reliance on it.”

Some cases will obviously be marginal but, in my judgement, this is not one of them. There was clearly no express waiver of privilege and I can see nothing in paragraph 23 from which it can be inferred that privilege was intended to be waived.

Mr Lightman submits that this is a deployment case, not one of mere reference, but I disagree. The contents as such of the letter were not disclosed in full, nor were they as such relied upon. The reference to the letter detailing discrepancies was simply made to describe the purpose and effect of the document, nothing more. It follows that both the applications under CPR 31.14 and that under CPR 31.12 fail and the registrar was right, in my judgement, to dismiss them.

In these circumstances, it is strictly unnecessary for me to deal with the other ground upon which the registrar dismissed the application for specific disclosure, that is that the document is not necessary for the presentation of the appellant’s case. I do, however, wish to say this about this issue. The purpose of the disclosure application is still unclear to me. The supervisor has the right to invite the court to summons Mr Clarke to appear at the hearing scheduled in October. He has already indicated the outcome is likely to depend on whose account of the loan agreement the judge prefers. He will not be assisted by Mr Rubin’s views of this matter, still less by those of Mr Zaidi. Moreover, all the points which could be made about the differences in Mr Clarke’s various accounts of the agreement can be made by Mr Lightman simply from looking at the source material which has been disclosed and from asking Mr Rubin what points he put to Mr Clarke and what replies he received. If Mr Clarke gives evidence, these matters can be pursued directly with him. Either way, the letter itself does not help.

This last point has a bearing on the final basis on which the application for inspection is made, namely the rule in ex parte James. I have no doubt that in a proper case the court has the power to order one of its own officers to put all relevant material before the parties in order to enable the court properly to determine relevant issues in a liquidation or bankruptcy. This might in certain - probably rather rare - cases include what would otherwise be privileged material.

For this reason, I would, had it been before me, have ordered disclosure of the notes of conversations and interviews with the debtor, whose production was originally resisted. But I can see no reason to require the supervisor to yield up privileged documents with its solicitors where that material is unnecessary for the proper disposal of the issues in the proceedings. The registrar said that by withholding the letter Mr Rubin was not giving any advantage or causing any disadvantage to either side. He was entitled to come to this view on the evidence before him and there are no grounds for interfering with that exercise of his discretion. For these reasons, I propose to dismiss the appeal.

Technically, there is also before me an application for permission to appeal which, with the consent of both parties, I indicated I would decide at the same time as the substantive appeal. That gives rise to the issue of what I should do in respect of that application. If the matter had simply been whether or not the registrar had exercised his discretion correctly, I would have had no hesitation about refusing permission to appeal. Of course, the consequence of that is to shut out any possibility of a second appeal.

But I think there is something to be said for Mr Lightman’s point that the sole issue of whether or not CPR 31.14 excludes the right of Mr Rubin to rely on legal professional privilege is a matter which would have justified the grant of permission to appeal under CPR 52.3(6)(b). In those circumstances, the right order is to give to the appellants permission to appeal but to dismiss their appeal.

Costs are awarded to the appellant in the sum of £7,500, payable within 14 days.