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The English Court of Appeal decision in ENRC (No 2) (September 2018) and its endorsement of the Hong Kong Court of Appeal decision in CITIC, heralding an imminent shift in the law of Legal Professional Privilege in international common law


Dec 14, 2018

What is Legal Professional Privilege (“LPP”)?

LPP is divided into two types - litigation privilege (“LP”) and legal advice privilege (“LAP”).

LP is seen as the ‘original’ form of LPP, protecting communications between a lawyer and his client and/or a lawyer and a 3rd party, made for the sole or dominant purpose (the ‘dominant purpose’ test as established by Waugh v British Railways Board [1980] AC 520) of actual or contemplated litigation, so that parties to adversarial legal proceedings can freely prepare their case with their lawyers.

LAP later emerged as a distinct and independent subset of LPP (Anderson v Bank of British Columbia [1876] 2 Ch D 644), as an extension of / outgrowth from LP. It protects confidential exchanges within a “continuum of communications” between a lawyer and his client, made for the purpose of giving / receiving legal advice, including practical (not necessarily strictly or purely ‘legal’) advice as to what should sensibly be done in a relevant legal context (Balabel v Air India [1988] 1 Ch 317).

Courts in common law jurisdictions have since long debated how to define and/or control the scope of LAP, i.e. the extent to which the law should grant protection to lawyer-client communications in a non-litigious context.

The common law position on LAP after the English Court of Appeal (the “English CA”) decision in Three Rivers (No 5) [2003] QB 1556 (“Three Rivers (No 5)”)

Controversy as to the scope of LAP was heightened to an unprecedented level following the English CA’s decision in Three Rivers (No 5), where Longmore LJ decided that where the client is a corporate entity, only employees within that company who are expressly authorised to seek and receive legal advice on behalf of the company can communicate with the company’s lawyers under the protection of LAP.

This laid down a significantly restricted test for LAP causing much unease to legal professionals across all common law jurisdictions. This decision was also met with voices of concern from the UK Attorney General, Law Society and Bar Council, stating Three Rivers (No 5) may have gone too far, especially in the context of corporate clients that can only communicate through its employees or officers.

Such concerns were even expressed by the English House of Lords in the same case (Three Rivers DC v Governor and Company of the Bank of England (No 6) [2004] UKHL 48), although the Court could not and did not, in that hearing, intervene in what would have been ‘obiter’ (non-binding) circumstances.

The Sino-British Joint Declaration and a blurring of the distinction between LAP and LP in Hong Kong

Hong Kong’s unfavourable reception of the Three Rivers (No 5) decision should be put in context of the Sino-British Joint Declaration, which was the PRC and British leaders’ mutual promise to leave Hong Kong’s high degree of autonomy and its rule of law unchanged for 50 years following the 1997 handover of Hong Kong to the PRC. The basic freedoms to be so protected were stipulated in the Basic Law, the city’s de facto Constitution.

Article 35 provides:-

“Hong Kong residents shall have the right to confidential legal advice”.

Article 35 immediately blurred the distinction between LAP and LP and constitutionally entrenched LPP as a fundamental human right irrespective of context, litigious or non-litigious.

The effect of Article 35 of the Basic Law as exemplified in the Hong Kong Court of Appeal decision in Citic Pacific Limited v Secretary for Justice & Anor (CACV 7/2012) (“CITIC”)

The HKCA in CITIC held that the proper policy of LPP is to protect this constitutional right enshrined in Article 35 of the Basic Law, and on that basis, declined to follow Three Rivers (No 5), as the narrow definition of client adopted therein would “frustrate the very purpose of LPP” (Paragraph 55 of CITIC). This brought about a divergence between Hong Kong’s approach to LPP and that of the UK as regards the fundamental raison d'être of LPP.

The HKCA held that the ‘dominant purpose test’ (the test already adopted for LP) is demonstrably more appropriate in setting the proper limits to LAP than a restrictive definition of ‘client’ because:-

“In the context of a corporation, where the necessary information may have to be acquired from employees in different departments, it would be meaningless to have a right to confidential legal advice if the management was hampered in such process by the concern that statements taken in that process could be open to discovery. Additionally…to adopt a restrictive definition of who constituted 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 may well discourage those defined as the client for the purposes of LPP from seeking the input or assistance of other employees who might be better qualified or able to provide it.”

(Paragraph 55 of CITIC).

In reaching this decision, the HKCA also referred to liberal approaches to LAP adopted across the common law world of authorities, most notably:-

  • The US Supreme Court decision in Upjohn v US [1981] 449 US (rejecting the narrow ‘control group test’ so as to protect a company’s right to invoke attorney-client privilege);
  • The Australian Federal Court decision in Pratt Holdings Pty Ltd v Commissioner of Taxation [2004] 136 FCR 357 (FCA) (“Pratt Holdings”) (adopting the dominant purpose test for LAP);
  • The Australian High Court decision in Carter v Northmore Hale Davy & Leake  [1995] 183 CLR 121 (expressing the rationale for LPP in a non-litigious context to be the “practical guarantee of [a]  fundamental, constitutional or human right” in furtherance of the rule of law); and
  • The Singapore Court of Appeal decision in Skandinaviska Enskilda Banken AB (Publ) v Asia Pacific Breweries (Singapore) Pte Ltd [2007] 2 SLR 367 (“Enskilda”) (also adopting the dominant purpose test with reference to Pratt Holdings).

The English Court of Appeal’s favourable reference to CITIC in FO v Eurasian Natural Resources Corporation [2018] EWCA Civ 2006 (“ENRC (No 2)”) (decided 5 September 2018)

The English CA, in its recent decision of ENRC (No 2), made specific reference to the Hong Kong Courts’ decision in CITIC and the Singapore High Court’s decision in Enskilda to note that Three Rivers (No 5) is an outdated decision that fails to cater to the nature of modern day multinational corporations. It stated:-

“English law is out of step with the international common law on this issue, [where] it is undoubtedly desirable for the common law in different countries to remain aligned so far as its development is not specifically affected by different commercial or cultural environments in those countries…particularly when so many multinational companies operate across borders and have subsidiaries in numerous common law countries.”

(Paragraph 129 of ENRC (No 2)).

Conclusion: A New Direction for LPP in International Common Law

The UK’s Serious Fraud Office (the respondent in ENRC (No 2)) recently announced (in October 2018) that it will not be appealing the English CA’s decision, and it is therefore unclear when the English Supreme Court will have the opportunity to revisit the English law on LAP.

Notwithstanding the above, the ENRC (No 2) decision signals an apparent role reversal in terms of Hong Kong now paving the way to bringing the law of LPP together across common law jurisdictions and reconfiguring the rationale of LPP to be the protection of the fundamental constitutional right to confidential legal advice in the context of the today’s globalised commercial world.


Dated         14th December 2018

Author        Barry Hoy

Research   Minky Kim

 

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