Court of Appeal rules partial waiver of privilege recognised in Hong Kong

In Citic Pacific Limited v Secretary for Justice  (unrep, CACV 60/2011), the Court of Appeal considered the legal principles relating to the nature and extent of legal professional privilege, and held that the concept of partial waiver of privilege is recognised under Hong Kong law. In the regulatory context, this important decision is a reminder that when handing over documents to regulators in regulatory investigations, it must be clearly stated in writing that any waiver of privilege is limited to the purposes of the investigation alone. This step should prevent any inadvertent waiver of privilege where documents in question are sought by third parties for some other purpose such as a criminal investigation. Mark Johnson, Gavin Lewis and Gareth Thomas  analyse the decision below.

Background

The underlying proceedings related to certain documents Citic Pacific Limited ("Citic") voluntarily provided to the Securities and Futures Commission ("SFC") in response to an investigation by the regulator into the company's delay in the publication of a profit warning announcement as required by the Listing Rules (the "Surrendered Material"). Citic had asserted that the Surrendered Material contained or recorded legal advice and were therefore subject to legal professional privilege.

Citic subsequently learned that the SFC had passed the Surrendered Material to the Department of Justice for the purposes of obtaining legal advice. In addition, the Police wanted to have sight of the Surrendered Material in furtherance of its investigation into the company. Citic objected and sought a return of the documents mainly on the basis that when it surrendered the documents, it did so subject to a limited waiver of privilege (ie. for the single purpose of permitting the SFC to conduct its investigation) but in all other respects, privilege was retained. As such, it was entitled to invoke legal professional privilege against all third parties who sought access to the Surrendered Material.

In a judgment handed down in March 2011, Wright J in the Court of First Instance dismissed Citic's claims. Wright J held that at the time the Surrendered Material was handed over to the SFC, there was no express or implied condition attached to the surrender and that there had been a blanket waiver of privilege. It was therefore unnecessary for him to determine whether partial waiver was recognised under Hong Kong law. Further, Wright J considered that there was a prima facie case that the Surrendered Material had been created to further a fraudulent scheme (ie. to delay the publication of the profit warning announcement) and as such the crime/fraud exception applied such that the documents were not subject to privilege. Citic appealed to the Court of Appeal.

Court of Appeal

Partial waiver of privilege

Contrary to Wright J's conclusion, the Court of Appeal was of the view that it was likely that when Citic surrendered the documents, it had done so on the basis that it waived privilege only for the limited purpose of the SFC's investigation. As such, the Court of Appeal considered it necessary to determine whether Hong Kong law recognised such a partial waiver of privilege.

The Court of Appeal considered, amongst other things, the approach of Keith JA in Rockefeller & Co Inc v Secretary for Justice [2000] 3 HKC 48 who expressed the view that partial waiver was "conceptually unsound" and that once privilege was waived in favour of one party it was waived in favour of all. However, this did not reflect the approach under English law at the time, nor at present.

The current position in England is that privilege is not waived generally because a privileged document has been disclosed for a limited purpose only (see British Coal Corporation v Dennis Rye (No.2) [1988] 1 WLR 1113; B and Others v Auckland District Law Society and Anor [2003] 2 AC 736; Berezovsky v Hine and Ors [2011] EWCA Civ 1089).

The Court of Appeal considered that it was not bound by Rockefeller as the ratio of the Court in Rockefeller was focused on the issue of confidentiality rather than privilege. The Court of Appeal therefore held that Hong Kong law incorporates the concept of partial waiver of privilege.

The Department of Justice contended, based on public policy principles (ie. The common interest in apprehending and prosecuting criminals), that even if the concept of partial waiver of privilege was recognised under Hong Kong law, where privileged information came into the hands of prosecuting authorities, then privilege is lost and such information would be available for use by the authorities, subject the court's ruling on admissibility. This was so even if such waiver was made through inadvertence, mistake or even surreptitious conduct by a third party.

The Court of Appeal disagreed, adopting the approach of the New Zealand Court of Appeal in R v Uljee [1982] 1 NZLR 561 in which the Court unanimously declined to follow the English authorities and held that a conversation between the accused and his lawyer which was overheard by a police officer remained privileged.

Hartmann JA in his judgment commented:

"… privilege is not to be balanced against competing public interests no matter how compelling they may be: one such interest being the apprehension and prosecution of criminals… it seems to me to be inherently contradictory to say the privilege, although a fundamental human right unassailable to competing issues of public interest, may nevertheless be lost in criminal matters without any intention on the part of the holder, indeed on no more than a whim of fate; that is, by accidents or inadvertence, or even (at the outer extreme) by the surreptitious conduct of a third party. I do not accept that the Basic Law affords such frail protection. I am satisfied that, in both civil and criminal matters, privilege is not lost unless there is evidence that it has been intentionally waived by the holder of that privilege."

The Court of Appeal noted that as privilege is a constitutionally guaranteed right in Hong Kong, any waiver of such privilege may be inferred from all the circumstances of the case but it will not be lightly inferred.

In this case, when Citic surrendered the documents to the SFC, their solicitors had not provided any specific terms in writing as to the limitation of waiver of privilege. It was not until a month or so later, in response to an enquiry from the SFC seeking confirmation that Citic had waived all privilege in the documents surrendered, that Citic provided written clarification of what it considered the terms of limitation to have been.

Although the Court of Appeal noted that it was "troubling" that Citic's legal advisors had not set out the specific terms upon which the Surrendered Material were handed over to the SFC, it held that the inherent probabilities did not justify a finding of a blanket waiver of privilege. The Court of Appeal was of the view that when the SFC commenced its investigation, it was understood by Citic's directors that the focus of the investigation was regulatory and that its approach to privilege would have been very different if it had been faced with a criminal investigation.

The Court of Appeal therefore held that Citic had only waived privilege in favour of the SFC for the purpose of its investigation (the scope of which includes the gathering of evidence and its analysis by the SFC, as well as the taking of legal advice) and for no other purpose.

Crime/fraud exception

In the Court of First Instance, Wright J also considered the applicability of the crime/fraud exception in regard to legal professional privilege and found that there was a prima facie case of the existence of both a conspiracy to defraud and offences pursuant to section 21 of the Theft Ordinance. Wright J concluded, amongst other things, that the legal advice requested by the company's directors was to facilitate such conspiracy and therefore legal professional privilege did not attach to the Surrendered Material.

On a consideration of the facts, the Court of Appeal disagreed. In particular, the Court of Appeal rejected the assertion that the legal advice had been sought to facilitate the alleged conspiracy on the basis that certain of the directors had been selective in what aspects of the legal advice they had chosen to follow (ie. ignoring or acting contrary to advice when it suited their purpose). On this point, Hartmann JA explained that with regards to legal advice privilege:

"… the integrity of the privilege does not depend on the person receiving the legal advice then following it. The relationship of confidentiality is created when advice is sought in good faith and given in good faith. That thereafter the person who has received the advice seeks not to heed it but to follow some independent dishonest course of conduct does not act retroactively to strip away the earlier privileged relationship. There must be a direct causal relationship between the advice received and the fraudulent conduct. Put simply, there must be evidence of a fraudulent purpose behind seeking and obtaining the advice."

The Court of Appeal was unable to conclude that there was prima facie evidence that the Surrendered Material had been produced to facilitate or further some form of fraudulent conduct.

Comments

This highly important judgment establishes that partial waiver of privilege is recognised under Hong Kong law. In the context of regulatory investigations, this development clarifies that legally privileged documents provided to a regulator for the purposes of such investigation may be protected from disclosure to third parties where the purpose is outside the scope of the regulatory investigation (eg. for use in criminal proceedings). In order to be afforded such protection, however, it is important to clearly specify in writing that any waiver of privilege is restricted to the purposes of the investigation only, and such written qualification should ideally be provided at the time the documents are surrendered.

The practical effect of this decision in the context of regulatory investigations will be welcomed by those having to assist in such investigations. However, it remains to be seen whether this decision will be appealed and if so, whether the concept of partial waiver of privilege will be re-considered by the Court of Final Appeal.