Litigation privilege applied to witness interviews conducted by administrators

In NMC Health PLC (in Administration) v Ernst & Young LLP [2024] EWHC 2905 (Comm) the High Court held that certain witness statements and records of interviews created by the administrators of the Claimant were protected by litigation privilege (LP) and refused to order their disclosure. The Judge further held that other documents of an investigative nature were not relevant.

For LP to apply, a document must have been created for the dominant purpose of legal advice, information or evidence to be used in litigation which is in reasonable contemplation. The Judge took a pragmatic approach to the dominant purpose test and held that the administrators’ purpose when conducting the interviews was evidence-gathering for potential claims arising out of the discovery of a substantial fraud. The decision will be of interest to insolvency practitioners; although each case will depend on its facts, it seems the courts will take a realistic approach to the dominant purpose of interviews conducted by insolvency practitioners.

Background

The Claimant, NMC Health Plc (in Administration), brought a negligence claim against its former auditors on the basis that they had failed to uncover an alleged fraud in the finances of the company.

The current application concerned whether the Claimant should be required to disclose to the Defendant certain documents generated by the administrators. The Judge considered two categories of documents: (i) the records of around 140 interviews conducted by the administrators and five witness statements also obtained by the administrators; and (ii) other documents relating to the administrators’ investigation. The parties agreed that the first category of documents were relevant but the Claimant objected to their disclosure on the basis they were protected by LP. The Claimant argued the second category of documents were irrelevant.

Decision

In relation to the second category of documents above, the Judge agreed with the Claimant and refused to order their disclosure on the basis they were irrelevant. The Judge differentiated between (i) contemporaneous documents which should be (and had been) disclosed in order to ensure parity between the parties in their ability to analyse what had happened; and (ii) documents which had been generated by the administrators during their investigation into the fraud at the Claimant.  The Judge referred to the latter as documents of an “investigative type” and these included documents looking at the scale of the fraud, how it had been perpetrated, potential claims and recoveries, and work summarising and reporting on the evidence that had been reviewed.  On the facts, the Judge concluded that these documents recording the administrators’ investigations and views of what may have constituted the fraud were irrelevant – ultimately these were issues for the Court to determine. The large number of documents involved meant the Judge was not inclined to give the applicant “the benefit of the doubt” on this issue and order the disclosure.

The Judge then considered the witness interview records and statements and whether LP could be asserted over these documents. 

The Judge referred to the established position and the test as set out in Starbev v Interbrew Holding BV [2013] EWHC 4038 where it was explained that for LP to apply, a document must have been produced:

“... for the dominant purpose of either (i) enabling legal advice to be sought or given, and/or (ii) seeking or obtaining evidence or information to be used in or in connection with such anticipated or contemplated proceedings.”

The Claimant relied on a 2008 decision in the Hong Kong Court of Final Appeal. In the context of potential claims against a company’s former managers and auditors, the Court held that the dominant purpose of the liquidators in undertaking witness interviews was to obtain information which could be used in seeking legal advice regarding the potential claims by the company to maximise the recovery of its assets.

In challenging the claim to privilege, the Defendant had shown the Court certain correspondence from the period immediately after the administrators were appointed, which said that the administrators were involved in taking steps to preserve the value of the company and that they had not yet given “detailed consideration” about claims against third parties.  

Notwithstanding this correspondence, the Judge concluded that LP had been properly asserted as there was no other reason for the witness interviews to have been carried out by the administrators apart from to assist with potential proceedings.  The interviews had formed part of the initial evidence-gathering by the administrators and were not part of the usual work of the administrators which fell outside of the bringing of claims.  The Claimant’s evidence had explained that disputes lawyers had been instructed the day after the Claimant went into administration because litigation was reasonably contemplated by the administrators at that point and the purpose of instructing the lawyers was to advise in relation to claims by and against the Claimant. Whether or not those anticipated claims were to be against the Defendant was irrelevant for the purposes of LP. As a result, the Judge held that it would have been “unreal” to consider the dominant purpose to have been anything other than evidence-gathering for potential litigation.

Key takeaways

1. Administrators and insolvency practitioners may be able to claim LP over the records of interviews they conduct or their investigations into a company’s affairs if they can show that this was for the dominant purpose of investigating actual or potential claims the company may have (or need to defend). This decision suggests the courts will take a realistic approach to this assessment.
2. Contemporaneous records and actions are key to supporting a claim to LP over documents as they can evidence the dominant purpose in creating the documents and that litigation was in reasonable contemplation when they were created. Parties should consider if a claim to LP is consistent with the correspondence sent and actions taken at the time. For example, potential claimants should take care when setting out the purpose of any investigation in correspondence.