Interesting read: Legal advice privilege and the 'client' – important development
Legal advice privilege and the 'client' – important development
Contributed by Smyth & Co in association with RPCJuly 28 2015
Introduction
In an important and much-anticipated judgment, the Hong Kong Court of Appeal recently decided that legal advice privilege (often referred to as 'solicitor-client' or 'attorney-client' privilege) can extend to confidential internal communications between employees of a client organisation, provided that those communications were created for the sole or dominant purpose of obtaining legal advice. The judgment puts the status of such communications on a similar footing to that in other common law jurisdictions such as Australia and Singapore, and is more aligned with the position in the United States. The judgment disagrees with and departs from awkward English case law that, in this context, purports to limit legal advice privilege to communications sent or received by employees that have direct responsibility on behalf of the client for communicating with its external legal advisers.
Background
Legal advice privilege is a fundamental human right and applies as much to corporates as it does to individuals. In this context, the expression 'legal advice' is widely construed and refers to a client's rights and obligations (eg, advice as to what to do in a relevant legal context, whether litigious or non-litigious). The lawyer and client retainer should make clear who the client is and what legal advice is sought and to be given.
The privilege was generally well understood until 2003, when the English Court of Appeal sought to limit the meaning of 'corporate client' in this context to those employees directly responsible for communicating with the external legal advisers (Three Rivers (No 5)).(1) According to Three Rivers (No 5), other employees are not considered to be part of the corporate client; therefore, their communications should be treated as communications by third parties and generally not attract legal advice privilege.
It would be fair to state that Three Rivers (No 5) has not been well received. However, while best explained by its facts, it has not been overruled and it has been referred to at first instance in Hong Kong (albeit without much enthusiasm).(2)
Recent appeal judgment
Background
The Hong Kong Court of Appeal judgment is Citic Pacific Ltd v Secretary for Justice ([2015] HKEC 1263).(3) It arose out of part of an appeal from a first-instance judgment in which the company made a claim to privilege over a large number of documents seized by the police. At first instance, the judge held (among other things) that some of the documents seized did not attract legal advice privilege because they were communications between certain of the company's employees which were not communications on behalf of the company. In effect, the judge adopted a narrow interpretation of the meaning of 'corporate client' in this context, applying Three Rivers (No 5). As such, communications outside the company's group legal department, or not under the direction of its board of directors, were put on the same footing as communications by third parties and were not regarded as being on behalf of the corporate client. Therefore, so the argument went, such communications did not attract privilege.(4)
That was in 2012 and, following the company's appeal, the issue came before the Court of Appeal for determination some three years later.
Issue
For the purposes of the appeal, the Court of Appeal was asked to decide whether the judge was correct to decide that the company's claim to legal advice privilege was limited to communications between members of its group legal department and its external lawyers and, therefore, excluded communications between other employees (eg, communications by members of the company secretariat department). In deciding this issue, the Court of Appeal was asked to determine the proper approach to the definition of a 'client' for the purpose of legal advice privilege and whether Three Rivers (No 5) was good law in Hong Kong.
Decision
The Court of Appeal held that, in the context of the issue before it, the 'client' was the corporation and it could seek advice through those employees authorised to act for it in the process of obtaining legal advice. The Court of Appeal considered that a restrictive approach to the definition of who the client is in the context of a corporation is contrary to the underlying rationale of legal advice privilege in the modern age – that is, to help to administer the rule of law and allow clients to avail themselves of what is a fundamental and constitutional legal right.(5)
The Court of Appeal decided that the proper test to establish the parameters of legal advice privilege is the 'dominant purpose' test. The Court of Appeal considered that a confidential internal communication by an employee can attract legal advice privilege where it is created for the sole or dominant purpose of seeking legal advice. In determining this, the focus should be on the substance of the communication and the context in which it was created.
The following passage from the Court of Appeal judgment helps to demonstrate the wider application of the dominant purpose test, compared with a restrictive approach to the definition of 'corporate client':
"In the context of a corporation, where the necessary information may have to be acquired by the management from employees in different departments or at various levels of the corporate structure, there is a need to protect the process of gathering such information for the purpose of getting legal advice. It would be meaningless to have a right to confidential legal advice if the management is hampered in such process by the concern that statements taken in that process could be open to discovery. Additionally, particularly in the present day, it is unlikely that a small group of employees within the legal department of a corporation would be likely to have all the technical knowledge or skills that may be required to obtain information for, and put together, suitable instructions to the corporation's lawyers. To adopt a restrictive definition of who constitutes the client in such circumstances would be just as likely to impinge upon the ability of the corporation to seek and obtain meaningful and useful legal advice, since it might well discourage those defined as the client for the purposes of legal professional privilege from seeking the input or assistance of other employees who might be better qualified or able to provide it."(6)
Comment
The Court of Appeal's judgment is significant. The judgment expressly disagrees with the narrow definition of 'client' adopted in Three Rivers (No 5). This will be welcomed by the legal profession in Hong Kong and by their corporate clients (not to mention corporate in-house lawyers). The judgment confirms what many have advocated – that in determining issues of privilege, the focus should be on the purpose and context of the communication or document at the time of its creation.
This is not to state that everything passing between a client and a lawyer in Hong Kong is privileged.(8) Documents that come into existence as part of a transaction or event that are not produced for the sole or dominant purpose of obtaining legal advice (the Court of Appeal refers to "raw material") do not attract legal advice privilege.(9) Moreover, in applying the dominant purpose test, the courts will examine a claim to privilege on a case-by-case basis and it is for the party asserting the privilege to establish it. 'Blanket' claims to privilege will fail. The courts will also usually expect some engagement between the parties before being asked to determine disputes involving claims to privilege.(10)
It is also important to note that the focus of the Court of Appeal's judgment in Citic Pacific is on confidential internal communications between employees of a company and, in this context, the expression 'employees' can extend beyond a client's in-house legal team. The issue of which employees (persons) are authorised to act for the company in the process of obtaining legal advice from its external lawyers is determined on a case-by-case basis and should be considered at the outset of a retainer.
That said, the importance of Citic Pacific should not be underestimated – particularly as regards confidential internal documents that are prepared within a client entity for the sole or dominant purpose of obtaining legal advice.
Going forward, clients still need to be careful about document generation (particularly in the context of potential lawsuits or regulatory matters). In this regard, the role of in-house lawyers remains important.
In-house lawyers also need to be mindful of which entities within a group structure they work for – particularly in the context of cross-border disputes where different laws may apply (eg, in the context of the Citic Pacific case, England/Hong Kong and, more generally, Hong Kong/United States or as between common law and civil law jurisdictions).
Way forward
For now, the parties in Citic Pacific are seeking to resolve their disagreements over the documents in question, further to the guidance given by the Court of Appeal. At the time of writing, it is unknown whether the parties will be able to reach agreement on the way forward or if the Department of Justice will seek to appeal.
Given that the issue raised in the Citic Pacific case is of fundamental importance, there could be an appeal to the Court of Final Appeal. If there is such an appeal, there is a good prospect that the Court of Final Appeal will dismiss it while at the same time elaborating on the Court of Appeal's reasoning. The Court of Final Appeal has traditionally adopted an expansive approach to the determination of fundamental rights, including legal professional privilege.(11) Some important issues relating to legal advice privilege remain unresolved and more disputes can be expected.(12)
This leaves Hong Kong's common law having departed from Three Rivers (No 5) and become more aligned with the position in other common law jurisdictions. In the meantime, corporate clients in England which still have to wrestle with the application of a narrow definition of 'corporate client' – in the context of claiming legal advice privilege there – may look on with some interest. When the right case comes along, the UK Supreme Court may well arrive at a similar result to the Hong Kong Court of Appeal's decision in Citic Pacific.
An inescapable conclusion from all this is that the earlier that legal advice is sought from internal or external legal advisers, the sooner a claim can be made to legal advice privilege where need be.
For further information on this topic please contact Warren Ganesh or Jonathan Cary at Smyth & Co in association with RPC by telephone (+852 2216 7000) or email (warren.ganesh@rpc.com.hk or jonathan.cary@rpc.com.hk). The RPC website can be accessed at www.rpc.co.uk.
Endnotes
(1) Re Three Rivers District Council (No 5) [2003] EWCA Civ 474.
(2) Citic Pacific Ltd v Secretary for Justice [2012] 3 HKLRD G1. Out of which the appeal arises.
(3) CACV 7/2012, June 29 2015 (Citic Pacific).
(4) Supra note 2. At footnote 3 of its judgment in Citic Pacific, the Court of Appeal queried why the judge, in applying a restrictive definition of 'corporate client', considered that the company's directors were different from 'employees' – thereby illustrating the impracticality of Three Rivers (No 5).
(5) Paragraphs 2, 36-38, 53 and 63.
(6) Paragraph 55. Similar sentiments are expressed at (among others) Paragraphs 53-54 and 58 and will be favourably received by in-house lawyers in Hong Kong.
(7) Paragraphs 69-77.
(8) That said, clients are not usually in the habit of contacting (or preparing to contact) their lawyers except primarily to seek legal advice; therefore, most things said or done between a client and the lawyer acting as such should be privileged.
(9) Paragraphs 42 and 52.
(10) Paragraph 79. The Court of Appeal:
- refers to (with approval) the UK Serious Fraud Office's and the England and Wales Bar's guidelines for handling claims to privilege in the context of materials seized upon execution of a search warrant and the role of an independent lawyer to supervise disputes as to privilege before they get to court; and
- lays down its own "Guidance on the procedure to be adopted" (Paragraphs 73-76) – such procedure is stated to have been "broadly adhered to" in Super Worth International Ltd v Commissioner of ICAC [2015] HKEC 1314, HCMP 1320/2012, July 3 2015 (Paragraph 8).
(12) For example, proving the dominant purpose test:
- with respect to confidential communications between employees and the client organisation's external lawyers (although this may be self-evident – see note 8); and
- given the multifaceted role of in-house lawyers.
Is there a better test to establish the proper parameters of legal advice privilege?
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