Hong Kong High Court adopts English approach for implied waiver of privilege

In the recent decision of Chinachem Financial Services Limited v Century Venture Holdings Limited HCA 410/2013 & HCMP 2299/2013 ("Chinachem Financial Services"), the Hong Kong court considered the approach to the issue of implied waiver of legal professional privilege in Australia, England and the USA. The judge held that the correct approach in Hong Kong is to follow the English approach – i.e. that there will be an implied waiver if there is disclosure of the privileged material or use of the privileged material to advance a party's case in litigation.

We previously posted a blog on the ruling of the Hong Kong Court of Appeal in Citic Pacific Limited v Secretary for Justice (unrep, CACV 60/2011) where it was held that the concept of partial waiver of privilege is recognised in Hong Kong. If you would like to read more about this, please click here.

The facts

The new case involves Chinachem Financial Services Ltd (the "Plaintiff") and Century Venture Holdings Ltd (the "Defendant"). In 2001, there was litigation in the People's Republic of China between the Plaintiff and a Mainland company over shares in China Minsheng Bank.

In 2002, the Plaintiff was awarded the sum of US$10,940,000 and compensation in the sum of RMB 45,914,912. The Plaintiff immediately lodged an appeal against the judgment to the Supreme People's Court (the "Appeal").

By an agreement dated 25 August 2009 (the "Agreement"), the Defendant undertook, amongst other things, to procure a favourable outcome for the Plaintiff in the Appeal within a period of 18 months from the date of the Agreement. At a meeting of the Plaintiff on 2 November 2011, an issue was raised as to the legality of the Agreement, and as a result the Plaintiff engaged a Hong Kong law firm to advise. In about March or April 2012, the lawyers produced a draft Memorandum of Advice (the "MOA") for the Plaintiff.

No new agreements were signed between the Plaintiff and the Defendant, but there were negotiations between them on a revision of the terms of division of the proceeds in the event of a favourable judgment in the Appeal. During these negotiations, the Supreme People's Court handed down judgment in the Appeal in favour of the Plaintiff.

In early 2013, the Defendant commenced legal proceedings against the Plaintiff in Beijing for payment under the Agreement. On 7 March 2013, the Plaintiff commenced proceedings against the Defendant in Hong Kong, seeking declarations that: (a) the Agreement had expired; and (b) that the Defendant was not entitled to any remuneration from the Plaintiff under the Agreement. The Defendant issued a summons to stay the proceedings, supported by an affirmation of a director of the Defendant (Mr Lam), which stated that the Chief Executive Officer of the Plaintiff, Mr Hui, had given a copy of the MOA to him. The Plaintiff applied to strike out the relevant paragraph in Mr Lam's affirmation which referred to the MOA and exclude the MOA from evidence on the grounds that the MOA was protected by legal professional privilege.

The issue

The Defendant claimed that the giving of the MOA to Mr Lam by Mr Hui was an act indicating that the Plaintiff did not want to terminate the relationship with the Defendant and was therefore evidence of an extension of the Agreement by conduct. On this basis, the Defendant's case was that this constituted an implied waiver of privilege.

The Defendant invited the judge to adopt the Australian approach, citing Australian authorities which included Hong Kong Bank of Australia v Murphy [1993] 2 VR 419 and Wardrope v Dunne [1996] 1 QD R 224. In essence, the principle in the Australian authorities is that, where a party's state of mind may or may not have been influenced by the privileged material, it is necessary to investigate all relevant matters in that person's mind at the time, including the privileged information.  

The Court's findings

The judge referred to recent English decisions which clarified the law of implied waiver of privilege. In particular, he referred to the English decision of Farm Assist Ltd v Secretary of State [2009] PNLR 16 ("Farm Assist") in which the English court held that English law does not follow the approach in Australia discussed above (which is similar to the US approach), but maintains the right of a party to assert legal professional privilege absent disclosure or use of the information.

The judge in Chinachem Financial Services held that the English approach is the correct approach for the Hong Kong courts and adopted the following principles:

1. The fact that legal advice is relevant to an issue in the proceedings does not result in the waiver of privilege;
2. Relevance is a necessary precondition for disclosure but it is not a sufficient condition for a finding of waiver;
3. The position in (2) is the same even where the legal advice is "highly relevant" and even where an investigation of the issue may be hindered by the absence of the privileged material;
4. There will be waiver of privilege if a party uses the contents of the legal advice to advance his own case in litigation, but in the absence of such use there is no rule of law which allows the court to override the claim to privilege just because the court considers it would be fair to do so.

On the basis of the above principles, the judge held that, as the Plaintiff was not seeking to use the MOA to advance any case against the Defendant, there had not been any implied waiver of legal professional privilege by the Plaintiff.

Take-away points

• The scope of implied waiver of privilege in relation to legal advice in Hong Kong is that there will be no waiver unless the advice is deployed by a party to advance his own case in litigation or otherwise disclosed by him.
• Parties should take care to avoid inadvertent or implied waiver of privilege, especially when considering whether or not to make express references to legal advice to substantiate their position in court documents (ie, in affirmations).

If you wish to discuss, please contact Gareth Thomas or Dominic Geiser of our Hong Kong Dispute Resolution team.