High Court cases provide summaries for officeholder document disclosure

In both Asertis Limited v Melhuish & Others (11 pages/ 72 KB) and NMC Health plc v Ernst & Young LLP (19 pages/223.5 KB) the limits to which confidentiality or litigation privilege will prohibit disclosure of documents were upheld in favour of officeholders.

Assignment of causes of action and confidentiality

In Asertis v Melhuish, the question arose as to whether a liquidator could disclose confidential information, obtained by compulsion using his statutory powers, to an assignee for the purposes of pursing the cause of action in court proceedings.

Liquidators have broad statutory investigative powers to require any person to disclose information in their possession necessary for the liquidators to carry out their functions. That information can then be used by the liquidators as evidence in subsequent litigation. Alternatively, a liquidator is entitled to choose whether to assign that cause of action to a third party where it will maximise returns for the creditors.

In this instance, confidential personal bank statements of a director, which were obtained using the liquidator’s powers under section 236 of the Insolvency Act 1986 (IA86), were the subject of disclosure to the third-party assignee. The bank statements were necessary for the success of the assigned action however they were confidential, and the liquidator was uncertain whether the statements could be disclosed to Asertis.

The court considered the purpose of the documents in the context of the common law duty of confidence as it applies to liquidators, that is, that a liquidator will not be bound by a duty of confidence which would prevent the performance of their statutory duties. The question was how to reconcile the conflicting duties of the liquidator to maintain confidentiality in respect of the documents obtained in insolvency proceedings, with the liquidator’s duty to obtain the best return for creditors.

It is not uncommon for a liquidator to assign a cause of action which vests in the insolvency estate to a third party like Asertis Limited. It is also not unreasonable for an assignee to expect that it will receive any documents in the liquidator’s possession which are necessary for the assignee to run the cause of action successfully. However, while a liquidator will have statutory investigative powers to compel a third party to deliver up documents which may be relevant to potential claims being investigated, an ordinary litigant will typically have to rely on pre-action disclosure applications, or the disclosure procedures after litigation has commenced, to obtain such information. This applies to assignees who will not automatically step into the shoes of the liquidator upon assignment. However, where the assignment was to maximise the return for creditors, the assignee will want to obtain all the information necessary to bring the claim successfully, otherwise it may reduce the value of the claim for assignment and adversely impact the possible returns for creditors.

The court found that, in circumstances where the assignment will benefit the liquidation estate and maximise the return for creditors, there is public interest in allowing liquidators and officeholders to disclose documents to third-party assignees. This applies where it will either result in the cause of action having a greater likelihood of success - and therefore increase the value of the claim for assignment - or where creditors will receive a proportion of the damages on a successful outcome.

When considering whether to disclose confidential documents, officeholders should consider whether a failure to disclose will impinge upon their abilities to carry out their statutory functions. If unsure, the officeholder should seek the court’s permission.

Litigation privilege

The end of last year also saw the court consider whether certain documents produced by administrators were subject to litigation privilege and therefore not disclosable.

NMC Health plc was placed into administration in April 2020 after the discovery of substantial financial irregularities. The administrators of NMC brought proceedings for alleged audit negligence against Ernst & Young LLP (EY), in failing to identify and report significant accounting irregularities which contributed to NMC’s subsequent financial collapse.

The documents in question were 140 interviews conducted by the administrators and five witness statements obtained in the process of their investigations. EY sought to claim that the documents were not subject to litigation privilege based, primarily, on a letter from the administrators which stated that they had not reached a view as to whether to bring any claims against EY.

The court relied on the existing test for litigation privilege which provides that privilege will apply to a document that was produced for the main purpose of using it or its contents to obtain legal advice or to conduct/aid litigation. This includes obtaining evidence in contemplated or anticipated litigation. A document produced for this purpose will be excluded from disclosure.

Given the nature and circumstances of the administrators' appointment the court found that the documents were clearly prepared with litigation in contemplation. Taking a step back, the judge said that the preparation of the interview transcripts and witness statements are not the category of work that an administrator will carry out unless in contemplation of litigation, and the information sought therefore satisfied the test for litigation.

In both categories of privilege and confidentiality, the court has discretion to order or refuse disclosure of documents in these circumstances. Where there may be a tension between duties of privilege and confidence, it appears that the court will place greater weight on the statutory powers of officeholders to ensure that any disclosure does not prevent them from carrying on their duties and functions.