Transcripts of witness interviews conducted by administrators can be subject to litigation privilege

On 11 November 2024, the High Court published its judgment in NMC Health Plc (in administration) v Ernst & Young LLP [2024] EWHC 2905 (Comm), where it refused to order the disclosure of transcripts of witness interviews conducted by administrators on grounds of litigation privilege. 

The High Court's decision, which can be viewed favourably by insolvency practitioners, underscores the delicate balance between thorough investigation in financial fraud cases and the legal protections afforded to communications and documents prepared in anticipation of litigation.

Background

NMC Health Plc (the “Claimant”) was placed into administration in April 2020, after the discovery of substantial financial discrepancies, including undisclosed debts exceeding $6.6 billion. 

The administrators pursued action for alleged audit negligence against Ernst & Young LLP (the “Defendant”) as part of their obligation to maximize returns for creditors. 

The key issue in the hearing of the claim was in respect of documents that had been generated by the administrators of the Claimant, namely 140 or so interviews which were conducted by the administrators and five witness statements, which were obtained by the administrators during the process of the administrators’ investigations.

The Claimant objected to the production of these documents to the Defendant as part of the disclosure process in the wider trial, on the grounds of litigation privilege.

Counsel for the Claimant submitted that the administrators’ main role in fulfilling its statutory purpose was going to be, as it often is in administrations of this type, to investigate, defend and bring claims in order to maximise recoveries for the companies’ creditors. In particular, the claimant placed reliance on the case of Akai Holdings Limited In Compulsory Liquidation v Ernst & Young (a Hong Kong firm) [2009] HKCU 255 (“Akai”), and suggested ‘getting real’ and adopting the approach described by Lord Hoffmann and Bokhary J in Akai, namely that the taking of the interviews and the obtaining of the witness statements must have been with the dominant purpose of litigation, and rhetorically asked, what other purpose might those activities have been undertaken for?

The Claimant also relied upon certain published notices the Claimant made, to the wider market, in support of their argument that litigation was in contemplation at the time the documents were produced. The Claimant also relied upon certain progress reports which were issued in respect of the administration. The progress report included a line that stated:

“We are reviewing the affairs of the Company to assess whether actions can be taken against individuals and /or third parties to increase recoveries for creditors”.

Counsel for the Defendant asserted that the administrators were not, at that stage, bringing a claim, or even, in effect, contemplating a claim. The correspondence sent by solicitors for the Claimant to the solicitors for the Defendant, shortly after the administrators’ appointment included statements, among other things, that:

“…the administrators have not, as yet, given detailed consideration as to whether NMC may have claims against third parties but are conscious of (i) the objectives of an administration under paragraph 3 of Schedule B1 on the Insolvency Act 1986 and (ii) the essential duty of administrators to collect and protect the assets of the company.” 

“…having regard to the Administrators’ objectives and duties, but without having reached any view on whether the Company has a claim or claims against EY…”

Judgment 

The High Court, under Mr Justice Picken, in finding that there was no doubt that litigation privilege had been properly asserted by the Claimant, made several key findings in respect of litigation privilege:

• The Judge referenced common ground as to what is the applicable legal approach to litigation privilege, referring to Waugh v British Railways Board [1980] AC 521, noting that there is a requirement not only that proceedings be in reasonable contemplation, but also that the relevant documentation be produced with the dominant purpose of such litigation. 
• The Judge agreed that the proposals / progress reports do indicate that investigations, in broad terms, were contemplating the bringing of claims against various entities. 
• The Judge saw “some force in the defendant’s observations in respect of this correspondence (referred to above), however on balance, and adopting the approach favoured by Bokhary J and Lord Hoffmann in Akai case, standing back and asking himself what it is that the purpose must have been, once they were appointed, of the administrators conducting the interviews and obtaining the witness statements that they did, it seems to me that it is unreal to take it that there was not the dominant purpose that Mr. O’Rourke (Counsel for the claimant) has described in his witness statement. I ask myself what other purpose there could have been, as I say, in doing what was done, and I conclude that there can have been no other purpose. This is not activity which falls into the category of administrators' work that would not entail the bringing of claims, at least potentially”.

Key takeaways:

• Careful consideration should be given to the production of any investigatory documents at the commencement of the office holders appointment and to whether they are caught by the protections of litigation privilege. 

• Office holders should make it clear at the outset of their appointment that investigations are being conducted to assess whether actions can be taken against individuals and / or any third parties.

• It ought to be remembered that these matters will be decided on a case-by-case basis and the Court has wide discretion as to whether disclosure may be ordered. However, it appears the Courts are taking a practical view on applying the long-standing principles of litigation privilege.