Privilege revisited – Super Worth at the Court of Appeal

What you need to know

This recent judgment from Hong Kong's Court of Appeal provides three important reminders on the law of legal professional privilege:

• The law of privilege in the forum hearing the dispute applies when determining whether a document is privileged, not the law of the place where the document was created.
• Legal professional privilege does not apply to legal advice given by non-lawyers, such as accountants advising on tax law.
• The crime/fraud exception to privilege should not be applied broadly; only when the legal advice in question is directly related to criminal offending will the protections of legal professional privilege be lost.

The Court of Appeal also reiterated that detailed evidence must be presented when asserting or challenging a claim of legal professional privilege. Parties who fail to do so are likely to face judicial criticism and adverse costs consequences.

What you should do

The lessons from this case are straightforward but often overlooked in practice. When creating documents where it is likely to be important for privilege to apply:

• Carefully consider in which jurisdictions disputes or investigations relating to the subject matter are likely to occur and whether the documents would meet the criteria for a valid claim to privilege in each of them.
• Ensure that a qualified lawyer is closely involved in any communications where legal advice is being sought or given.

Background

In Super Worth International Ltd -v- Commissioner of the Independent Commission Against Corruption, ¹ the plaintiffs sought to establish that several categories of documents seized during an ICAC raid were privileged. These arguments were rejected in the Court of First Instance, which held that the documents fell within the crime/fraud exception. The Court of First Instance had declined to consider two other issues – whether the law of the forum hearing the dispute should apply in determining privilege claims and whether legal professional privilege could extend to legal advice given by non-lawyers – on the basis that making a ruling on those points would be unnecessary and academic.

Our earlier update on the Court of First Instance decision can be found here.

On appeal, only two categories of documents remained in dispute: (i) an email from an accounting firm in relation to the movement of funds that was forwarded by one of the plaintiff's solicitors; and (ii) a draft fax to the New Zealand Inland Revenue Department prepared by the accounting firm.

The correct law to be applied

The documents in question emanated from accountants in New Zealand. The Court therefore had to consider whether it was the law of privilege in Hong Kong, where the proceedings were being heard (the lex fori), or the law of New Zealand (the lex causae) which applied.

The Court of Appeal held that, based on the evidence before it, there was no difference between the law of privilege in Hong Kong and New Zealand. While the plaintiffs relied on a statutory right of non-disclosure for tax advice in New Zealand, the Court held that right of non-disclosure only applied against the New Zealand Inland Revenue Department in tax matters and did not relieve a party of its obligation to disclose such documents in discovery during ordinary civil proceedings. On this basis alone, the Court considered that the plaintiffs' argument that the lex fori did not apply must fail.

Notwithstanding this, the Court also gave a short summary of reasons for rejecting the plaintiffs' arguments. It was noted that legal professional privilege was a fundamental right in Hong Kong protected by the Basic Law. However, the Court held that it is well established that a client's expectation of privacy is not enough to attract legal professional privilege. An expectation of privacy based on the statutory right of non-disclosure under New Zealand law was therefore not sufficient. The Court also considered that while legal professional privilege is a fundamental right, it is shaped by "domestic considerations". It was therefore held that the relevant legal policy for defining the limits of legal professional privilege in Hong Kong proceedings is Hong Kong law.

Extending privilege to advice by non-lawyers

The plaintiffs also argued that Hong Kong should adopt the reasoning of the minority judgment of the UK Supreme Court in the Prudential tax litigation,2 that the law of legal professional privilege should be extended to legal advice given by non-lawyers in a professional context (including advice in respect of tax laws, which is often given by accountants).

The Court of Appeal decisively rejected this submission. Consistent with the views of the majority judgment of the UK Supreme Court in the Prudential case, the Court held that to expand the range of professional advisers whose legal advice could also be privileged would lead to "a state of real uncertainty". A party seeking such advice would not know whether it was in fact protected by legal professional privilege – a state of uncertainty that does not exist where advice is sought from a qualified barrister or solicitor. It was also noted by the Court that no other jurisdictions have adopted the approach suggested by the minority in , such that Hong Kong would be out of step with other comparable jurisdictions if the plaintiffs' submissions were accepted. If such change is to be effected to the law of privilege in Hong Kong, it will remain to be done by the Legislative Council.

The crime/fraud exception

While the Court of Appeal rejected the possibility that the documents in question were protected by legal professional privilege, it went on to consider (if it was assumed that the documents were privileged) whether that privilege had been lost due to the application of the crime/fraud exception. This rule provides that there is no privilege in documents or communications which are themselves part of (or created in the furtherance of) the commission of a crime or fraud, or where the client has sought legal advice to guide or facilitate their commission of a crime or fraud.

In the Court of First Instance, the judge held that the documents would not have been protected by legal professional privilege due to the application of the crime/fraud exception, on the basis that a strong case of criminal activities and fraud had been established, and that the accounting and tax advice were part of the alleged fraud and money laundering.

The Court of Appeal rejected the Court of First Instance's reasoning on this issue. It held that there was no basis to assume that the contents of the documents had any relation to, or connection with, the charges in the criminal case, or that they could be said to promote any other criminal purpose. The Court of Appeal warned against applying the crime/fraud exception too broadly, quoting English authority that simply because a statement is found at trial to be untrue, that prior communications with a lawyer on the issue do not lose the protection of legal professional privilege.

Inadequate evidence

The Court of Appeal was also strongly critical of the evidence produced by both the plaintiffs and the Department of Justice. It echoed the earlier judgment of the Court of Appeal in Citic Pacific Ltd -v- Secretary for Justice (No 2)³ as to the burden on parties disputing claims of privilege and what evidence is required to be presented to the Court.

In the present case, the Court was dissatisfied with the lack of evidence from the plaintiffs as to how the advice in question was alleged to be legal instead of accounting advice and the context in which the advice was provided. The Department of Justice had also simply annexed a transcript of the Court of First Instance hearing to its to written skeleton submissions, instead of presenting the evidence through a properly filed affidavit.

It is critical for litigants where disputes as to privilege arise to pay close attention to the processes and evidential requirements set out in the Citic Pacific decision. Those who do not do so face the risk of criticism from the courts and the potential for adverse costs orders against them.

Our update on the Citic Pacific decision, including the procedural steps and evidential requirements for disputing privilege claims set out by the Court of Appeal in that case, can be found