Hong Kong Court of Appeal rejects the narrow interpretation of "client" and adopts a broader test for legal advice privilege

The Court of Appeal has handed down its much-awaited judgment in Citic Pacific Limited v Secretary for Justice and Commissioner of Police (unrep, 29/06/2015, CACV 7/2012), a copy of which was made available today and can be accessed here. In a joint judgment, three judges have rejected the Hong Kong Court of First Instance's (CFI) narrow view of who from within a client organisation constitutes the "client" for the purposes of considering whether legal advice privilege applies. In the Court of Appeal's judgment, the client is simply the corporation and the question is which employees should be regarded as being authorised to act for it in the process of obtaining legal advice.

Importantly, the Court of Appeal has adopted a broader test for legal advice privilege than had previously applied, on the basis that the policy for legal professional privilege as a fundamental right – protected by Article 35 of the Basic Law - is equally applicable to litigation privilege as well as legal advice privilege, and a restrictive definition of the client would tend to frustrate that policy. As a result of the decision, legal advice privilege is no longer restricted to communications between a lawyer and a client, but will protect internal confidential documents of the client organisation which are produced for the dominant purpose that they or their contents be used to obtain legal advice bringing Hong Kong's legal position in line with other major jurisdictions such as Australia, Singapore and the US.  This judgment will be significant to all corporations or institutions, who can only act through their employees, as it greatly reduces the risk of internal documents prepared for the purpose of obtaining legal advice having to be disclosed to regulators or in subsequent legal proceedings.

Background

There was significant concern amongst commercial clients when the CFI, in Citic Pacific Limited v Secretary for Justice and anor (unrep, 19/12/2011, HCMP767/2010), applied the decision of the English Court of Appeal in Three Rivers District Council v Bank of England [2003] EWCA Civ 474 and took the view that only the group legal department (and the Board of Directors) were the “client” of the external legal advisers. The remaining employees of Citic therefore fell to be regarded as “third parties” for the purposes of legal advice privilege, so that communications with or by such employees would not be privileged, even if intended for submission to the legal advisers and/or prepared at the request of the plaintiff or the legal advisers. This led to a risk that communications between employees of a company or organisation and their in-house or external counsel may not be privileged, even if they were for the purposes of obtaining legal advice, if the relevant employees did not fall within a narrow definition of "client".

Judgment

The CFI decision has been overturned yesterday by the Court of Appeal. Companies can now rest assured that documents prepared by their employees are likely to be privileged if the sole or dominant purpose of their production was to obtain legal advice. In its judgment, aside from recognising that legal advice privilege is a fundamental right protected by Article 35 of the Basic Law, the Court of Appeal recognised that within a corporation, necessary statements or information may have to be acquired from employees in different departments or at various levels of the corporate structure and that a small group of employees within a legal team would not 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 external lawyers.  Restricting the definition of "client" in such circumstances is likely to impinge the ability of the company to seek and obtain meaningful and useful legal advice. In the Court's judgment, the dominant purpose test set the proper limit for legal advice privilege and was the appropriate test to be adopted in Hong Kong.

Take away points

Commercial clients will be pleased to hear that this decision confirms the privileged status of communications or documents prepared by a company's employees where the sole or dominant purpose of their production is to obtain legal advice. It is important to remember, however, that any documents which come into existence during the course of a transaction or event, not created for the dominant purpose of legal advice or use in litigation, are generally not protected by legal professional privilege.

Please contact Gareth Thomas, Julian Copeman, Dominic Geiser or your usual Herbert Smith Freehills contact for more information.