Fraud, Electronic Data Sources and Claims to Privilege in the United Kingdom—Lessons From Brian Glasgow v David Ames
The Situation: Insolvency officeholders increasingly find their investigations into a company's affairs frustrated by the comingling of records on a "group" server. Claims to privilege by other group entities (or even third parties) are then advanced as an obstacle to delivering company records to the officeholder, leading to expensive and logistically complex inspection and review processes that can be a burden on insolvent estates.
The Result: In Brian Glasgow v David Ames  EWHC 2834 (Ch), the English High Court has ruled that, where an insolvency officeholder proposes a feasible scheme which "does all it can to preserve the privilege of others", the Court will be prepared to order the delivery of an entire server to the officeholder, notwithstanding that the server may contain documents belonging and/or privileged to third parties.
Looking Ahead: Insolvency officeholders should now have a robust solution to a commonly encountered objection to the delivery up of documents under compulsion, thereby expediting the officeholder's ability to gather information and take action for the benefit of the creditors.
Harlequin Property (SVG) Limited (the "Company"), a St Vincent company that was part of the Harlequin Group, conducted a hospitality and property development business that promised investors holiday homes in luxury Caribbean resorts. The Harlequin Group, which was controlled by a British businessman, David Ames, collapsed in 2013 after losing nearly £400 million of retail investors' funds. Interpath and KPMG St Vincent administered the estate.
The UK Serious Fraud Office (the "SFO") brought criminal proceedings against Ames, culminating in a high-profile conviction on 30 September 2022 for two counts of fraud by abuse of position. Sentencing Ames to 12 years' imprisonment, the judge described the Harlequin scheme as a "giant Ponzi scheme", telling Ames he was "a slick and plausible salesman and thoroughly dishonest", while being "a menace to anyone unfortunate enough to do business with [him]".
The Harlequin Group comprised more than 40 different companies that were all administered from Harlequin's head office in Essex, England. There was a "mess of contractual relationships" and intercompany dealings. As a result, the overwhelming majority of the documents relating to the affairs of the Company were stored on group servers in the Essex headquarters, which were owned by a different Harlequin company. The servers (according to Ames) contained documents relating to the affairs of various companies in the group, many of which had been involved in extensive litigation and had been subject to investigation by the SFO. As a result, Ames asserted that the servers contained substantial amounts of highly sensitive and privileged information relating to other companies and their owners/employees, and that the trustee-in-bankruptcy (the "Trustee") should not be allowed to take copies of them.
Attempts were made to agree on a consensual process to separate out irrelevant and privileged material, but those efforts faltered when reasonable search parameters could not be agreed upon and Ames, who by then had personal control of the servers, claimed that he lacked the means to fund ongoing legal advice or an independent review. Since Ames's actions had depleted the Company's resources, the Company was also unable to fund the costs of a third-party review of the 8.5 terabytes of data on the servers, and its creditors would doubtless have been alarmed if it had been forced to incur the massive costs of such an exercise.
The Trustee ultimately issued an application against Ames in November 2021 under sections 234 and 236 of the Insolvency Act 1986 seeking an order compelling Ames to deliver up the documents on the servers to Interpath.
Attending the hearing remotely from prison, Ames maintained his objection that the servers contained documents belonging to other members of the Harlequin Group and his own family, and that he could not speak for those parties. In In re Murjani  1 WLR 1498, the Court held that there was a general rule that "where a person is to be ordered to disclose confidential information or documents belonging to a third party, the joinder of that third party" should be sought. In the context of the Harlequin Group, serving 40+ companies in various jurisdictions would have been extremely time-consuming and expensive.
The Trustee's practical solution, which was approved by the Court, was as follows:
- The Trustee wrote to members of Ames's family and the Harlequin Group notifying them of the application; the Court accepted that the Trustee did not need to go to the costs or effort of formally serving them.
- Ames would instruct the independent digital forensic firm which held the servers to deliver the server data to Interpath.
- Interpath would apply negative keyword searches to the server data, using the names of various legal advisers that Ames had previously claimed had provided legal advice to him and his family or members of the Harlequin Group.
- Interpath could proceed with reviewing the balance of the documents with their own positive search terms (subject to an obligation to disregard privileged documents).
- Interpath would be permitted to write to the named legal advisers seeking confirmation as to whether they had in fact provided privileged advice (and those legal advisers would respond, providing such confirmation pursuant to a letter of instruction from Ames authorising them to do so).
- The Trustee would have the option to instruct an independent barrister to review the allegedly privileged documents.
In his judgment dated 28 October 2022, Insolvency and Companies Court Judge Prentis stated that the Court was "entirely satisfied that in the circumstances of this case" the Trustee's process "represents a feasible scheme which does all it can to preserve the privilege of others".
The judge considered the leading authorities on applications under section 236 of the Insolvency Act 1986, including Re Mid East Trading Limited  1 All ER 577, in which the Court held that an officeholder's powers under the section did not extend beyond requiring the production of documents relating specifically "to the company in whose liquidation the application under the subsection is made". Referring to the interpretation of the statute set out in Re Rolls Razor Ltd  3 All ER 698 (as approved in Re Esal (Commodities) Ltd  BCLC 59), the judge held that a literal reading of Mid East would be too restrictive on the facts: the statute is "directed to enabling the court to help a liquidator to discover the truth of the circumstances … of the company". The Court's analysis in this case was guided by the judgment in Yasuda v Orion Underwriting Ltd  Q.B. 174, where the Court found that it was not open to the defendants in that case to rely on the inseparability of irrelevant from relevant material as a justification for preventing a principal from inspecting an agent's books, accounts and records.
Looking at the issue from the perspective of other common law jurisdictions, where a similar situation arose in a New York bankruptcy court (in In re Ampal-Am. Israel Corp., No. 12-13689 (SMB), 2019 WL 3756728 (Bankr. S.D.N.Y. Aug. 7, 2019)), a similar proposal to the one advanced by the Trustee in the Harlequin case was debated before the courts, but eventually agreed between the parties by consent. U.S. bankruptcy courts may be receptive to the concept of making an order without the parties' consent in circumstances like the Harlequin case, where the counterparty is uncooperative, but as is also currently the case in the Australian courts, no precedent for the solution yet exists.
Jones Day advised the trustee-in-bankruptcy of Harlequin Property (SVG) Limited in this matter.
Three Key Takeaways
- Claims to privilege should not be deployed as a tactical means of objecting to the delivery of a document repository to an insolvency officeholder. In cases where the respondent is uncooperative, third parties do not advance claims to privilege, and the officeholder can propose a system of responsibly safeguarding privilege to those third parties, the Court will take a pragmatic approach to addressing privilege concerns.
- Where a complex corporate structure exists as part of the same trading enterprise, resulting in "comingled" documentary and/or financial operation, it is more likely that the Court will permit an expansive order for the delivery of documents pursuant to section 236 of the Insolvency Act 1986.
- Unless there is positive proof that a section 236 application will impact a third party, it should not be necessary to formally join that party.