NMC Health PLC (in Administration) v Ernst & Young LLP

Investigative documents generated by company administrators are not automatically relevant to an auditor-negligence claim merely because contemporaneous documents, interviews and witness statements may be relevant. Where the underlying documents have been disclosed and both parties can analyse them, subsequent investigative materials recording the administrators’ investigations or views on the alleged fraud may add little or no probative value. The court should not require a potentially very substantial search for speculative material in “needle in the haystack” territory unless the relevance threshold is first met.

Litigation privilege requires reasonable contemplation of proceedings and production of the document for the dominant purpose of obtaining legal advice or evidence for use in litigation. In an administration, interviews and witness statements may satisfy that test even if the administrators have not yet decided to sue a particular defendant, provided litigation against some third party is the dominant purpose.

This was a resumed disclosure hearing in a negligence claim brought by NMC Health PLC, in administration, against its former auditor, Ernst & Young LLP. The dispute concerned documents generated by the administrators during investigations into an alleged fraud, including supporting evidence, reports concerning related parties and summaries of reviewed evidence. Interviews and five witness statements were accepted to be relevant, but the relevance of the wider investigative material was disputed.

The defendant also challenged litigation privilege over the interviews and witness statements. The claimant relied on the administrators’ investigations, their appointment of solicitors and the prospect of claims. The defendant relied on correspondence indicating that, initially, the administrators had not given detailed consideration to claims against EY. The court considered the relevance of the investigative documents and whether litigation privilege applied to the accepted categories.

1. Investigative documents. The court declined to decide the Henderson v Henderson abuse of process issue and based its decision on relevance. The earlier ruling of Bright J did not bind the court. There was a clear distinction between contemporaneous documents, which had been or would be disclosed, and non-contemporaneous documents generated by the administrators’ later investigations.
2. The relevance of interviews and witness statements did not make every document generated by the administrators relevant. The court adopted and applied the reasoning in China Forestry Holdings Co Limited (In Official Liquidation) and Others v KPMG, [2020] HKCFI 2614. The trial was not to become an inquiry into the fraud based on investigative material of questionable probative value. The court would determine the allegations from the underlying evidence, not from the liquidators’ or administrators’ views about what the fraud involved.
3. The relevance threshold was not overcome for the three categories of wider investigative documentation. The claimant had confirmed that potentially relevant contemporaneous documents identified or collated during the investigations had been included in disclosure. Requiring a search for millions of investigative documents, or requiring the parties to agree search terms, would be disproportionate while relevance remained unestablished. Speculative examples of useful documents were insufficient.
4. Litigation privilege. The applicable test, derived from Waugh v British Railways Board, [1980] AC 521, and explained in Starbev v Interbrew Central European Holding BV, [2013] EWHC 4038 (Comm), required reasonable contemplation of litigation and a dominant purpose of obtaining legal advice or evidence for use in litigation.
5. Following the approach in Akai Holdings Limited In Compulsory Liquidation v Ernst & Young, the court assessed the purpose of the administrators’ activities realistically and in context. The evidence sufficiently established that the interviews and witness statements had the dominant purpose of gathering evidence for litigation. It was immaterial that the contemplated litigation might have been against third parties rather than EY specifically. Litigation privilege was therefore properly asserted.
6. The wider investigative documents were not required to be disclosed. The privilege issue for those documents did not arise. The court would hear further submissions on privilege concerning the interviews and witness statements.

Not an appeal. The judgment records an earlier hearing before Bright J on 15 April 2024, but this court expressly found that it was not bound by that ruling.