24 August, 2015
The judgment recently delivered by the Hong Kong Court of Appeal (CA) in Citic Pacific Limited v Secretary for Justice and Commissioner of Police (unrep, 29/06/2015, CACV 7/2012) sets a new precedent in Hong Kong for legal advice privilege (LAP). In its decision, the CA expressly disagreed with the restrictive definition of a ‘client’ adopted by the English Court of Appeal in Three Rivers District Council v Bank of England (No 5) [2003] EWCA Civ 474 (Three Rivers (No 5)) and decided to take a more liberal approach in interpreting who the ‘client’ is for the purpose of LAP. According to the CA’s judgment, the client is simply the corporation and the question is which employees should be regarded as being authorised to act for it in the process of obtaining legal advice. In addition, and importantly, the CA has adopted a broader test for LAP than had previously applied. As a result of the decision, LAP is no longer restricted to communications between a lawyer and a client, but now extends to cover an internal confidential document of a client organisation which is produced or brought into existence with the dominant purpose that the document or its contents be used to obtain legal advice.
1. THE COURT’S FINDINGS
In this appeal, the CA judges focused on the question of internal communications between employees and confined themselves to consider only one specific issue, i.e. what the proper approach to the definition of a ‘client’ should be for the purpose of LAP.
The CA trawled through the jurisprudence underlying the foundation for legal professional privilege (LPP) and decided to overturn the Court of First Instance’s (CFI) decision on the narrow definition of a ‘client’ effectively steering away from the applicability of the English Court of Appeal’s decision in Three Rivers (No 5) in Hong Kong. The CA held, instead, that the definition of a ‘client’ has to be understood in the wider context of the information gathering process within a company or corporation for the purpose of getting legal advice. The CA also considered that the dominant purpose test is demonstrably more appropriate in setting the proper limits to LAP.
Constitutional basis and rationale behind LPP
In Hong Kong, LPP is entrenched by Article 35 of the Basic Law, which provides that residents shall have the right to confidential legal advice. Since LPP is fundamental in furtherance of the rule of law, the CA in Citic Pacific argued that the rationale behind LPP should be applicable to both litigation privilege (LP) and LAP. In other words, for LAP to serve its purpose, the CA viewed that there ought to be an effective and meaningful protection for confidentiality in the process of obtaining legal advice (i.e. including information which is communicated to the lawyer to enable the advice to be given) even in the non-litigious context.
Broader interpretation of a ‘client’
The English Court of Appeal, in Three Rivers (No 5), held that the ‘client’, for the purposes of LAP, refers to a narrowly defined group of individuals within the wider client entity. Following this judgment, it was held at first instance in Citic Pacific that only the Plaintiff’s Group Legal Department, reporting to the Board of Directors, was to be considered the ‘client’ and that all other employees (including a qualified solicitor who was employed by the Plaintiff within its Company Secretarial Department, as distinct from the Group Legal Department) were considered third parties. On this basis, only communications between the Board and/or the Group Legal Department and the external legal lawyers were protected by LAP even when the documents were created by the employees at the request of the Group Legal Department for the purpose of obtaining legal advice.
The CA judgment in this respect is broadly welcomed as LAP is now extended to cover all communications exchanged between the external lawyers and the duly authorized employees of a corporation which are created for the dominant purpose of obtaining or receiving legal advice, as well as internal confidential documents created for that same purpose. The ‘client’ is now simply the corporation and the question is which employees should be regarded as being authorised to act for it in the process of obtaining legal advice.
Dominant purpose test
Previously, in order to be covered by LAP, a communication must (i) involve a lawyer and client; and (ii) have been written to or by the lawyer in his/her professional capacity for the purpose of giving or obtaining legal advice in relation to legal rights, liabilities, obligations or remedies of the client (including what should prudently be done in light of the legal advice). As the relevant document must have been communicated to the lawyer to attract privilege, this means that preparatory notes or documents prepared internally by the client but not themselves addressed to the lawyer would necessarily be excluded from the protection of LAP, even if they were intended for submission to the client’s lawyers or prepared at their request in order to enable legal advice to be sought.
The view taken by the CA in Citic Pacific was that it would not be possible for lawyers to render proper legal advice without having all relevant information from their clients. Recognising today’s reality that it is unlikely for a small group of employees within the legal department of a corporation to have all the technical knowledge or skills that may be required to obtain information for providing suitable instructions to the corporation’s external lawyers, the CA held that the whole information gathering process (as opposed to only the communication that set out the legal advice) ought to be protected by LAP in order to safeguard confidentiality. Accordingly, LAP will now cover documents and communications (including preparatory materials that contain factual information) created by the corporation’s employees for the dominant purpose of obtaining legal advice.
Procedures to be adopted when privilege in dispute
The CA judges opined that the practice of requesting the lower court judges to examine documents subject to LPP claims on their own without proper assistance from the parties (in particular, without the full and comprehensive understanding of the relevant context in which the document was created, and the roles of the sender and recipient in such context) was highly unsatisfactory. As such, the CA took the initiative to set out the procedure to be adopted by a person claiming LPP for more effective disposal of LPP claims in the future. A summary can be found in paragraphs 74 to 76 of the judgment.
Suggestion of having an independent LPP lawyer
As a final passing remark, the CA judges also strongly urged the Department of Justice and the Hong Kong legal profession to consider adopting the English procedure of instructing an independent lawyer to deal with LPP materials when such disputes arise. For example, in a case where the premises to be searched are likely to have on them privileged documents, the relevant law enforcement authority should consider instructing an independent lawyer to attend on the search to identify LPP materials or deal with a claim to LPP by the occupier of the premises. Although there is no statutory basis for this practice, it has been practiced in England for at least 15 years and has received judicial blessings.
2. HAS THE CA GONE TOO FAR IN ADOPTING THE ‘DOMINANT PURPOSE’ TEST FOR LAP?
While the CA in Hong Kong sensibly rejected the Three Rivers (No 5)’s narrow approach in defining a ‘client’, we believe that the law in this area is yet to be completely settled.
In the event that an application for leave to appeal to the Court of Final Appeal (CFA) is made and granted; and the appeal eventually comes before the CFA, it is our prediction that the CFA may agree with the CA to steer away from the Three Rivers (No 5) Court of Appeal judgment and accept a wider definition of a ‘client’. To our knowledge, there has been no subsequent English case applying Three Rivers (No 5) in England on this point. Even Lord Carswell of the House of Lords, when considering a different issue in the same case on appeal, observed in Three Rivers (No 6) that he was “not to be taken to have approved of the decision” of Three Rivers (No 5) on the interpretation of a ‘client’ and reserved his position on correctness.
It also remains to be seen whether the CFA will agree with the CA that the dominant purpose test is the correct and proper test in determining the scope of LAP. While this legal position on LAP is in line with that of other major jurisdictions (such as Australia, Singapore and the US), it appears to have expanded the relevant Hong Kong law in this regard. Additionally, once a dominant purpose test is adopted for LAP, the distinction between whether a document was prepared internally, by an employee of an organisation, or by a third party consultant or adviser, may begin to look somewhat arbitrary. The position of the third parties was, however, expressly excluded for consideration by the CA on the basis that this issue did not arise for determination and the CA concentrated on the position of internal communications between employees of an organisation.
3. TAKEAWAY POINTS
When, or indeed whether, an appeal to the CFA may materialise, and what its outcome may be, is of course anybody’s guess. For the moment at least, commercial clients and in-house lawyers can enjoy privilege under the expanded test of LAP as decided by the CA.
It is, however, important to bear in mind that any documents created now may retrospectively lose privilege should the CFA subsequently decide to reverse the CA’s decision, whether in whole or in part. Therefore, corporate clients who may find themselves litigating before the Hong Kong courts are well-advised to continue with a cautious approach, at least until it is clear whether or not the case will go to the CFA.
This decision represents a significant development for Hong Kong on the protection afforded to confidential communications between corporate clients and their in-house lawyers. For many, it is welcome for its return to the common sense position that the ‘client’ is simply the corporation. We are hopeful that the CFA will at least follow this expanded interpretation of a ‘client’.
For further information, please contact:
Gareth Thomas, Partner, Herbert Smith Freehills
gareth.thomas@hsf.com
