Legal principles confirmed
Application in practice
CITIC Pacific Limited v Secretary for Justice finally addresses the application of the English law of privilege, including Three Rivers (No 5), in Hong Kong.
For several years, lawyers have been seeking clarification as to whether the English law of privilege applies in Hong Kong in all its rigour. In particular, they have been awaiting a decision that would clarify whether the Three Rivers (No 5) problems will be imported into Hong Kong law, work through the practical implications of that case and provide guidance to institutions on the correct approach to claims of legal privilege.
The Hong Kong Court of First Instance has now handed down a judgment which addresses the practical application of the legal principles. Parts of the judgment make uncomfortable reading and it is eminently appealable, but for the moment it represents the best guidance on how the vexed issues around Three Rivers will apply in Hong Kong.
In October 2008 the Securities and Futures Commission (SFC) announced that it was investigating CITIC's affairs. This statement followed public outcry over a $2 billion foreign currency trading loss that CITIC had suffered. Several months after the SFC investigation, a police investigation took place. The police seized hundreds of thousands of documents and other materials. CITIC asserted that materials seized by the police were subject to legal professional privilege.The court had to consider the extent to which the seized material was covered by privilege.
Legal principles confirmed
It comes as no surprise that the judge confirmed the established categories of legal professional privilege - namely, litigation privilege and legal advice privilege.
The judge held that litigation privilege protects confidential communications which come into existence with the dominant purpose of aiding actual or contemplated litigation or arbitration proceedings. This protects communications between the client (or the client's solicitor) and a third party. The judge also stated that litigation must be a real likelihood, rather than a mere possibility. This requirement is the same for claims of privilege in civil and criminal litigation, as well as litigation involving regulatory bodies. This finding supports the view that litigation privilege may apply in respect of adversarial regulatory litigation - for example, disciplinary proceedings involving the SFC.
Legal advice privilege
The judge confirmed that legal advice privilege protects confidential communications entered into between client and legal adviser (in the latter's professional capacity) for the dominant purpose of obtaining legal advice or assistance.
Following Three Rivers (No 5), information given by an employee to an employer or fellow employee, or information given by an agent to a principal, even if it is intended to be shown to a solicitor, does not attract legal advice privilege in itself. Surprisingly, the judgment does not reveal whether the judge considered and rejected Australian case law that does not follow Three Rivers (No 5).
Following Three Rivers (No 6), legal advice is not restricted to information regarding the law, but includes advice about a course of action in the relevant legal context.
Application in practice
The judge had the daunting task of applying these legal principles to a huge volume of material. This in itself was unusual, since the judiciary is not obviously geared or used to undertaking such an enormous task. The judge's analysis raised a number of key points.
Could litigation privilege be claimed?
The judge found that litigation privilege could not be claimed. The publication of CITIC's financial losses did not, in itself, represent reasonable grounds to expect litigation from investors; any such conclusion was entirely speculative. Although CITIC had received a complaint letter from a shareholder demanding compensation, CITIC rejected the demand and the matter went no further. The SFC investigation was at a very early stage at that time.
The judge's conclusion highlights that in the early stages of an investigation, litigation privilege may not apply in relation to communications with third parties, such as potential witnesses and external expert advisers and consultants. The conclusion in this case seems open to question. Given the circumstances and the factual background, there must have been a real prospect that at least criminal prosecutions and regulatory disciplinary proceedings would follow against CITIC and its officers.
Did legal advice privilege apply?
On the applicability of legal advice privilege, the judge followed the approach in Three Rivers (No 5). This is the particularly interesting and problematic aspect of the judgment. In Three Rivers a committee formed of three nominated employees of the Bank of England, assigned to deal with external legal advisers, was regarded as being the 'client' of the legal advisers for these purposes. The Bank of England's remaining employees were therefore regarded as third parties and their input into instructions to the legal advisers was not subject to privilege.
In CITIC the judge found that the client was CITIC's group legal department, which was the entity delegated to communicate with and instruct CITIC's legal advisers. Other CITIC employees, including a qualified solicitor, were third parties. Consequently, communications made with or by them were not privileged, even when the materials were prepared for, or at the request of, CITIC's solicitors. However, CITIC's board of directors was not a third party, as the group legal department acted under its directions.
The judge noted that in Hong Kong, in-house counsel are treated in the same way as external legal advisers and privilege may apply to their communications in their capacity as legal advisers. However, privilege would not apply to internal communications between CITIC and the group legal department where the in-house lawyers were acting in a managerial, administrative or executive capacity. This finding - that an in-house legal team is the client - raises problems. In most cases someone outside the legal department should be treated as the client - that is, the ultimate recipient of the legal advice.
Other key points
The judge found that it would be a question of fact in each instance whether and to what extent the dissemination to a third party of legal advice received by CITIC was intended to constitute a waiver of privilege. Waiver is not inevitable in every case. However, if privileged material is disseminated too widely, confidentiality will be lost - as will privilege.
If an internal document or communication reveals the content of legal advice, the document will be subject to privilege. However, 'products' of the use of the legal advice or documents, drafted or amended in accordance with advice received, are not subject to privilege. In practice, there may be difficulties in separating advice from draft documents amended as a result of such advice, especially if lawyers have also been commenting on and annotating the same draft documents at different stages.
In light of this analysis, the judge made specific decisions in respect of particular types of document:
- Engagement letters are not privileged if they relate solely to the terms on which the solicitors will act. If such letters are kept brief and do not go into detail about the issues on which advice is being given, this should not create difficulties, but in practice engagement letters go further.
- Chronologies of events are not privileged, even if they include references to meetings with legal advisers. The chronology in question was found merely to have recorded the author's "understanding of a series of events". The fact that the chronology was circulated outside the group legal department to third parties also contributed to the decision. This is a very restrictive ruling, since a chronology prepared by a lawyer which includes an element of legal analysis and commentary is more likely to be privileged.
- Communications with subsidiaries and other corporate entities of a company are not privileged, as they are separate legal persons and therefore third parties. However, joint interest privilege or common interest privilege may apply on another set of facts.
- A legal opinion that is expressed in a public meeting open to all shareholders is not privileged.
- Minutes of meetings of the board of directors are generally not privileged. In this case, sections of the minutes which contained details of legal advice, including advice given at meetings, were privileged and could be redacted.
- Generic pre-interview questions are generally not privileged. The questions in this case were prepared to help individuals who were likely to be interviewed by regulatory bodies. The list, prepared in the absence of contemplated litigation or investigation, was "purely speculative in content". This finding is controversial. A list of questions prepared by lawyers in the context of a regulatory investigation may be part of the process of giving advice to the client as to areas of exposure in the investigation.
- Transcripts of interviews with the SFC are not privileged.
The CITIC decision does not create new law, although it confirms that the difficult Three Rivers (No 5) decision applies in full in Hong Kong - which is surely an appeal point in itself. The decision seeks to apply existing principles, but some aspects of the judge's approach are open to question - in particular, the issues of whether litigation privilege could be claimed and whether the group legal department was the client for the purposes of assessing legal advice privilege. The decision is being appealed, but it nonetheless emphasises the need for rigour in the approach to internal communications, especially communications with third parties. One of the most helpful steps that can be taken is to identify the client precisely at the inception of a project and to manage communications accordingly.
For further information on this topic please contact Abdulali Jiwaji or Paul Li at Simmons & Simmons by telephone (+852 2868 1131), fax (+852 2810 5040) or email ([email protected] or [email protected]). Alternatively, contact Colin Passmore at Simmons & Simmons' London office by telephone (+44 20 7628 2020), fax (+44 20 7628 2070) or ([email protected]).