On 29 June 2015 the Court of Appeal released its judgment in Citic Pacific Limited v Secretary for Justice and Commissioner of Police [2015] HKEC 1263. The Court has overturned the restrictive approach to legal advice privilege taken by the Court of First Instance and will be a welcome relief to many in-house legal teams.

Speed read

  • Confidential communications between a “lawyer” (which includes in-house and external counsel) and “client” for the purpose of giving or receiving legal advice are generally covered by legal advice privilege.
  • Previously, the definition of “client” was narrow and might not have included, for example, junior employees within an organisation. This caused significant concern for in-house legal teams, who could not be certain that communications with all levels of the business would be privileged.
  • The Court of Appeal has now resolved this difficulty. The “client” is now treated as the corporation and includes all its members. An internal communication will be privileged if it is sent for the dominant purpose of obtaining or giving legal advice.

Background

There are many circumstances in which organisations will be obliged to disclose documents. Aside from the obligation to disclose relevant documents in litigation, regulators such as the Securities and Futures Commission, the Hong Kong Monetary Authority and, in due course, the Competition Commission have powers to request the disclosure of documents.

Hong Kong residents have a fundamental right, protected by Article 35 of the Basic Law, to obtain confidential legal advice. This is an absolute right which cannot be taken away and it entitles an individual or company to refuse to disclose material which may reveal that advice to the other side in litigation or to regulators such as the SFC, HKMA and the Competition Commission. There are two core bases to claim legal professional privilege for confidential communications:

  • Legal advice privilege – between a client and lawyer for the dominant purpose of obtaining or giving legal advice within a relevant legal context.
  • Litigation privilege – between a client or lawyer and a third party for the dominant purpose of litigation which is in reasonable prospect.

Citic Pacific

In October 2008 Citic Pacific, a Hong Kong listed company, announced a profit warning relating to a financial exposure under forex contracts identified in September 2008. The announcement came under scrutiny from both the securities regulator and the police in Hong Kong.

Many hundreds of thousands of documents were seized from Citic Pacific’s premises in March 2009 under a police search warrant. Citic Pacific sought to prevent the authorities from reviewing the documents by asserting a blanket claim of legal privilege.

The Old Test – a restrictive definition of “client”

The CFI adopted a very restrictive definition of a client for the purposes of legal advice privilege. It followed the controversial decision of the Court of Appeal of England and Wales in Three Rivers (No 5) 1. Within a large organisation, the “client” was to be interpreted narrowly to mean the persons who instruct or communicate with external legal counsel.

Thus the “client” was held to be the Citic Group Legal Department and the Board of Directors that gave directions to that department. All other employees of Citic Pacific were “third parties” to the lawyer-client relationship and their communications could not be covered by legal advice privilege.

This approach created real practical difficulties for inhouse counsel and management of large organisations which rely on employees at many different levels to collate information when seeking legal advice. Communications with some of these employees would not be covered by legal advice privilege and may need to be disclosed.

The New Test – “dominant purpose”

The CA has now abandoned this narrow and artificial definition of a client. The court held that it did not properly give effect to the fundamental right of Hong Kong residents (enshrined in Article 35 of the Basic Law) to obtain confidential legal advice.

The “client” is to be treated as simply the corporation or institution. The scope of legal advice privilege is now to be defined by reference to a dominant purpose test: legal advice privilege protects all internal confidential communications produced or brought into existence for the dominant purpose of obtaining legal advice.

This pragmatic approach to legal advice privilege means that in-house counsel no longer need to be concerned to limit the employees of the company who should be involved in collating relevant material needed to obtain legal advice.

A note of caution: international focus

The judgment brings Hong Kong in line with other common law jurisdictions such as the US and Singapore. However, in England and Wales the restrictive approach taken in Three Rivers (No. 5) will continue to apply unless and until it is overturned.

Read the full judgement