A High Court judge has ruled Dechert was wrong on the law relating to legal privilege, barring it from acting for its client in a $180m dispute.
Russian businessman Mikhail Shlosberg last month secured an injunction against Dechert acting for creditor Avonwick in the case, which has set a precedent on legal privilege.
Shlosberg is being sued by Avonwick over a $100m loan, plus $80m in interest, that the company lent Shlosberg’s Webinvest. British Virgin
Island-registered Avonwick is owned by Eleana Gayduk, the wife of Ukrainian billionaire Vitaliy Gayduk.
The loan was backed with a personal guarantee from Shlosberg, but was not repaid and, in early 2015, Shlosberg was declared insolvent and Webinvest wound up.
The High Court ordered an injunction to stop Dechert acting for Avonwick because it is also acting for his trustees in bankruptcy and has access to around 44,000 documents that are covered by legal professional privilege.
While Dechert argued that the benefit of Shlosberg’s privilege now vests in the trustees as part of the bankrupt estate, Shlosberg succeeded in retaining it in a decision that clarifies rules on whether legal privilege can be passed on or inherited. It means that law firms, which have long acted for both the trustees and the creditors in bankruptcy cases, will have to keep information for trustees separate from their advice given to creditors in bankruptcy cases.
‘There has never been any attempt by Dechert to set up any kind of information barrier.’
Mr Justice Arnold
The judge disagreed that there was no real risk of any misuse of confidential information by Dechert and listed 11 reasons that included ‘Avonwick is an adverse party to Mr Shlosberg in hostile litigation’ and ‘there has never been any attempt by Dechert to set up any kind of information barrier’.
Mr Justice Arnold said: ‘There is the fact that it is clear that Avonwick wishes, if possible, to make use of the knowledge that Dechert have acquired from their review of the documents in the pursuit of its claim against Mr Shlosberg.’
A lawyer specialising in legal privilege said: ‘As Dechert argued, it is quite usual for a law firm to act for the insolvency practitioner and the main creditor, but just because this is what’s happened in the past doesn’t mean that it’s right.’
Enyo Law acted for Shlosberg, with lead partner George Maling instructing Philip Marshall QC of Serle Court as counsel. Dechert instructed Tom Smith QC of South Square as counsel. Dechert refused to comment.
tom.moore@legalease.co.uk