The Court of Appeal in Citic Pacific Limited v Secretary for Justice & Anor CACV 60 of 2011 held that legal professional privilege in respect of a document is not taken as waived to the whole world if it has been disclosed for a limited purpose only.

Facts

On 7 September 2008 Citic Pacific Ltd (“Citic”), a Hong Kong listed company became aware of its exposure to foreign exchange losses following the global financial crisis. On 20 October 2008 Citic published a profit warning informing the market of its anticipated losses of nearly HK$15billion pursuant to Rule 13.09 of the Listing Rules which requires public companies “as soon as is reasonably practicable” to publish information expected to have a material impact on its share price. The share price of Citic dropped more than half subsequent to the profit warning and there was media criticism of the 6 week delay in publishing the profit warning. The Securities and Futures Commission (“SFC”) commenced an investigation into Citic’s delay in publishing the profit warning and served a notice on Citic requiring it to produce all the records relevant to the SFC investigation.Amongst the documents provided to the SFC were documents which contained legal advice given to Citic by its solicitors. In March 2009 the Police commenced their own criminal investigation into the affairs of Citic.Shortly thereafter Citic came to know that the documents which contained the legal advice had been passed by the SFC to the Department of Justice and the Police also wished to have sight of the documents for their criminal investigation. Citic instituted proceedings in the Court of First Instance seeking (1) an order that the documents be returned on the basis of legal professional privilege (“LPP”), that LPP having been waived for the SFC investigation only and the Secretary for Justice had no lawful authority to continue to be in possession of them and (2) in the alternative, if the Secretary for Justice was in lawful possession, a declaration that the documents was for the legal advice to the SFC concerning its investigation only and the Secretary was not entitled to divulge the documents to any third party.

The Decision in the Court of First Instance

Wright J dismissed Citic’s claims on the following grounds. First, there had been a full waiver of privilege when the privileged documents were surrendered to the SFC and it was not necessary for him to determine whether partial waiver was a concept known to Hong Kong. Secondly, he was satisfied on the evidence that a prima facie case existed to demonstrate that the documents had been created to further a fraudulent scheme and that accordingly the documents had never been privileged.Fraud is an exception to a claim for LPP.

The Decision in the Court of Appeal

The Court of Appeal unanimously allowed Citic’s appeal to the effect that (i) Citic had waived privilege in the documents for the purpose of enabling the SFC to conduct its investigation only; (ii) the SFC may deliver the documents to the Secretary for Justice for the purpose of taking legal advice and no other; (iii) Citic retained privilege in the documents for all other purposes and in respect of all other persons.

Whether Hong Kong law recognizes a partial waiver of legal professional privilege

The appellate court reinstated that the rationale of LPP is to protect the confidentiality of bona fide communications between lawyer and client concerning matters of legal advice or in reference to litigation, be it on-going or in contemplation.If the holder of privilege in a document voluntarily discloses that document to a specific party, then privilege in the document must be lost in respect of that specific party. Citic surrendered privilege in the documents to SFC to enable its investigation into the delay of publication of profit warning, including gathering of evidence, its analysis by SFC officers and taking legal advice by the SFC. The LPP, vis-à-vis the SFC was lost and could not be regained.

The Court of Appeal discussed the English authorities on the partial waiver of privilege and cited B and Others v Auckland District Law Society and another [2003] 2 AC 736 that LPP in respect of a document is not waived to the whole world if it has been disclosed for a limited purpose only.On that basis the concept of partial waiver of privilege was incorporated as Hong Kong law.

The Court of Appeal further recognized that LPP is a fundamental human right enshrined by the Basic Law and not to be overridden by public interests such as for the purpose of apprehension and prosecution of criminals.Therefore LPP is not lost whether in civil or criminal proceedings save that there is evidence that it has been intentionally waived by the holder of LPP and in cases where the privileged communication is itself a means of carrying out a fraud.

Whether there was a partial or absolute waiver of legal professional privilege by Citic

Recognising the concept of partial waiver, the next issue for the Court was to determine, by looking at the circumstances where Citic surrendered the documents to the SFC, whether it waived privilege in the documents for the purpose of the SFC investigation only.

As to the circumstances in which the first five documents were surrendered, in reply to SFC’s enquiry as to whether Citic had waived all the privilege in those documents, Citic’s solicitors wrote a letter on 26 November 2008 that Citic agreed to waive privilege in respect of the documents for the purposes of the SFC’s investigation only (“the 26 November letter”).The remaining privileged document was handed to the SFC on the basis of an agreement reached in February 2009 whereas the SFC agreed that there had only been partial waiver of privilege in the documents surrendered to it, that was, for the purpose of SFC investigation.

The Court of Appeal disagreed with the trial judge that the 26 November letter was used by Citic as a tactical device to claw back some privilege after discovering a police investigation had commenced against it at hindsight.

On the evidence it was found that Citic had never envisaged a criminal investigation by the Police into the conduct of the company at the time when it provided the documents to the SFC in October 2008.The investigation by the SFC was understood by the Citic directors as a regulatory one, namely an alleged failure of Citic to publish price sensitive information in accordance with the Listing Rules.In fact when the SFC wrote to Citic in March 2009 asking whether it was prepared to waive privilege in the documents for the purposes of a police investigation, Citic had declined to permit inspection of the documents for such purpose.

Bearing in mind that a full waiver of privilege is not lightly to be inferred and the evidence available was not strong enough to suggest that this was the case, it was found that Citic had waived its privilege in the documents for the purpose of the SFC investigation only and no more.

Whether the fraud exception to LPP applied

On the issue whether the documents which Citic claimed to enjoy privilege were devised to facilitate or further the conspiracy of the controlling minds of Citic, the Court of Appeal disagreed with the judge at first instance and ruled that the crime/fraud exception to LPP did not apply in the present case.

The judge at first instance had in mind the following two matters which he believed there was a prima facie case of a conspiracy to defraud. During the period when Citic became aware of its exposure to foreign exchange losses and before the publication of its profit warning, it published an announcement which stated that Citic was not aware of any material adverse change in the financial trading position of the company and raised 3 bank loans. Together the judge said there had been a wilful concealment of the true financial position of Citic by its directors.

The Court of Appeal disagreed with the trial judge’s findings.Citic did not have sufficient time to amend the announcement because there was only a 2 day gap between the day when Citic first became aware of its exposure to the financial risks and the deadline for amending the announcement.Also given that Citic was still in a strong financial position at the material time, it was rather difficult for Citic to predict accurately the extent of losses and impact on the company and to amend the announcement. Secondly, the Court did not have sufficient evidence of the details of the bank loans and how they were being secured.The facts of the loans did not demonstrate a prima facie case of dishonest concealment by the senior management of Citic.

The Court of Appeal also disagreed with the trial judge that the documents were produced to facilitate or further the conspiracy.There was not sufficient evidence to indicate a fraudulent purpose behind the seeking and obtaining of the advice.The legal advice contained in the documents was given to the company, not an isolated group of directors, in relation to how best to protect the interests of the company in the face of the regulatory action.Looking at the contents of the advice it was broad in nature, the advice was also given on an on-going basis and debated at length by the full Board which consisted of directors from different background and professions.

Conclusion

The Court of Appeal clarified the Hong Kong position on the scope of legal professional privilege.The recognition of the concept of partial waiver of LPP will definitely enhance greater protection to client-lawyer communications.