CITIC PACIFIC LTD v. SECRETARY FOR JUSTICE AND ANOTHER

CACV 60/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 60 OF 2011

(ON APPEAL FROM HCMP NO. 767 OF 2010)

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BETWEEN

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J U D G M E N T

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Hon Hartmann JA:

Introduction

1.  In September 2008, as a financial crisis enveloped the world’s markets, the appellant (‘Citic’), a company listed on the Hong Kong Stock Exchange, found itself dangerously exposed to fluctuations in the foreign exchange markets.  Over the next few weeks, as its exposure grew steadily more precarious, the company took steps to try and protect its position.  This included seeking loans from banks and seeking financial assistance from an associated company in the Mainland.

2.  It was only six weeks later, on 20 October 2008, that Citic published a profit warning informing the market of its predicted losses occasioned by its exposure to foreign exchange markets.  The profit warning was published pursuant to Rule 13.09 of the Listing Rules of the Hong Kong Stock Exchange which requires public companies “as soon as is reasonably practicable” to publish information expected to have a material impact on its share price.  In the notice, Citic estimated that its losses would approach HK$15 billion.

3.  Shareholders reacted sharply.  Citic shares lost more than half their value.  There was in addition media criticism of the six-week delay in publishing the profit warning.

4.  In the days following, acting pursuant to its powers under the Securities and Futures Ordinance, Cap 571, the Securities and Futures Commission (‘the SFC’) commenced an investigation into why it was that Citic had delayed publication of its profit warning.  The SFC did so on the basis that persons involved in the management of the company may have engaged in “defalcation, fraud, misfeasance or other misconduct” or may have withheld information from its members that should have been disclosed to them.

5.  A notice was served on Citic pursuant to s. 179 of the Ordinance requiring it to produce all records relevant to the SFC investigation.  Among the records given by Citic to the SFC were six documents which Citic asserted were subject to legal professional privilege on the basis that they contained legal advice or that they recorded legal advice orally given at board meetings.

6.  It has not been disputed that the six documents (‘the documents’) contain, or record, legal advice given and prima facie therefore are documents in respect of which Citic was entitled to claim privilege.

7.  In the course of the present proceedings, it has been Citic’s case that, when it surrendered the documents, it did so subject to a limited waiver of privilege; namely, for the single purpose of permitting the SFC to conduct its investigation.  In all other respects privilege was retained.

8.  In March 2009, the police commenced their own criminal investigation into the affairs of Citic.

9.  Shortly thereafter, Citic learned that the documents (among other papers) had been passed by the SFC to the Department of Justice for the purpose of seeking legal advice.  It also learnt that the police wished to have sight of the documents in order to advance their own investigation.

10.  In the result Citic instituted proceedings in the Court of First Instance seeking two principal orders –

(1) An order that the documents be returned to it on the basis that they were subject to legal professional privilege, that privilege having been waived for the limited purpose only of the SFC investigation and that accordingly the Secretary for Justice had no lawful authority to continue in possession of them.

(2) In the alternative, a declaration that, if the Secretary for Justice was in lawful possession of the documents, it was for the purpose only of giving legal advice to the SFC concerning its investigation and that the Secretary was not therefore entitled to divulge the contents of the documents to any third party.

11.  The proceedings were resisted on a number of grounds –

(i) That, when the documents were surrendered to the SFC, Citic waived all privilege in them, any assertion of partial waiver being made well after the event.

(ii) That in any event a partial waiver of privilege was not recognised in Hong Kong law; once privilege was waived it was waived for all purposes in respect of all persons.

(iii) That there was prima facie evidence that the documents were created by certain of the persons responsible for the management of Citic for the purposes of a fraud.  Accordingly, the fraud exception to the rule of privilege applied and the documents were admissible into evidence in legal proceedings.

12.  In respect of this third ground, Ms Draycott SC, leading counsel for the defendants (the Secretary for Justice and Commissioner of Police) said that the fraud alleged was to delay the disclosure that Citic was obliged to make of its financial situation.  She submitted that those directors of the company who engineered the delay knew that it put at risk the economic interests of all those who were entitled to know the true situation.  Specifically, during the period of the delay loans were obtained from three banks, it being the overwhelming inference on the evidence available, said Ms Draycott, that the banks were not informed of Citic’s foreign currency exposure, an exposure that increasingly undermined the viability of the company.  It was her submission that the loans would not have been granted if the banks had known the true situation or, if granted, would only have been granted subject to more stringent conditions.  In addition to the banks, said Ms Draycott, those who were entitled to know the true position and who were denied that knowledge included trading counterparties, joint-venture partners, banks with existing lines of credit open to the company, existing shareholders, those interested in buying shares and the market regulators who were prevented from performing their public duty to ensure a stable market.

13.  In his judgment of 18 March 2011, Wright J dismissed Citic’s claims.  He did so on the following grounds.

14.  First, he was satisfied on the evidence that, when the privileged documents were surrendered to the SFC, there was no express or implied condition attached to the surrender and that there had been a full waiver of privilege.  In the circumstances, it was not necessary for him to determine whether partial waiver was a concept known to Hong Kong law.

15.  Second, 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 they had never been privileged.

16.  It is from that judgment that the present appeal lies.

Partial waiver of privilege

17.  It is fundamental to Citic’s claim that, in surrendering the privileged documents to the SFC, it did so subject to the condition that privilege in them was waived only to the extent necessary to enable the SFC to carry out its investigation and no other purpose.  That being the case, it was entitled to invoke legal professional privilege against all third parties who sought access to the documents.

18.  On behalf of the defendants, it was submitted that the concept of partial waiver of legal professional privilege was not known to Hong Kong law.  Accordingly, once privilege was waived in favour of one party it was waived for all purposes in respect of all parties.

19.  On behalf of the defendants, it was further submitted that, even if partial waiver of privilege was a concept known to Hong Kong law, if a prosecuting authority, in respect of criminal proceedings, came into possession of privileged material, no matter how it did so, public policy dictated that it was entitled to use the material in proceedings against the person who claimed privilege in them.  The issue then was not one of privilege, for privilege had been lost; it was whether, having regard to all relevant circumstances, the court should rule the material admissible.

20.  As I have said, the judge at first instance concluded that it was not necessary for him to determine whether partial waiver of legal professional privilege was a concept known to Hong Kong law.  This was because he was satisfied on the evidence that, when Citic surrendered the documents to the SFC, it did so without reservation, express or implied.  It was his finding that it was only later, after the horse had bolted that Citic attempted to close the stable door by imposing conditions on its waiver.

21.  For reasons to which I shall refer later in this judgment, I have been drawn to a different conclusion.  I have reached the view that the probabilities point to Citic, when it surrendered the documents, doing so on the basis that it gave up privilege to enable the SFC to carry out its investigation but for no other purpose.  What must therefore be determined is whether Hong Kong law recognises such a partial waiver of privilege.

22.  To determine this issue, it is first necessary to look to the principles that, as the law has now developed, define the nature and extent of legal professional privilege.

23.  Broadly stated – without in any way attempting an exact definition – it may be said that legal professional privilege protects 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.  The privilege conveys the right to resist the compulsory disclosure of those communications.  The rationale of the privilege is to be found in the often cited speech of Lord Taylor CJ in R v Derby Magistrates’ Court, Ex p B [1996] AC 487:

“The principle which runs through all these cases, and the many other cases which were cited, is that a man must be able to consult his lawyer in confidence, since otherwise he might hold back half the truth. The client must be sure that what he tells his lawyer in confidence will never be revealed without his consent. Legal professional privilege is thus much more than an ordinary rule of evidence, limited in its application to the facts of a particular case. It is a fundamental condition on which the administration of justice as a whole rests ... it is not for the sake of the applicant alone that the privilege must be upheld. It is in the wider interests of those hereafter who might otherwise be deterred from telling the whole truth to their solicitors.”

24.  In giving the judgment of the Privy Council in B and Others v Auckland District Law Society and Another [2003] 2 AC 736, at 756, Lord Millett spoke of the defining aspects of the privilege:

“First, the privilege remains after the occasion for it has passed: unless waived “once privileged, always privileged”.  Secondly, the privilege is the same whether the documents are sought for the purpose of civil or criminal proceedings and whether by the prosecution or the defence.  Thirdly, the refusal of the claimant to waive his privilege for any reason or none cannot be questioned or investigated by the court.  Fourthly, save in cases where the privileged communication is itself the means of carrying out a fraud, the privilege is absolute.”

25.  Privilege may have its origins as a rule of evidence; today, however, it is viewed as a substantive legal right: Phipson on Evidence 17^th ed. [23-02].  It is today in Hong Kong a constitutionally protected right, art. 35 of the Basic Law providing that residents “shall have the right to confidential legal advice”.

26.  What then of the issue of partial waiver?  Does the law permit the holder of the privilege to waive it for a limited purpose or is the consequence: waived in favour of one, waived in favour of all?

27.  Keith JA, in his judgment in Rockefeller & Co Inc v Secretary for Justice [2000] 3 HKC 48, at 67B, a judgment to which I shall return, was of the view that the latter was the consequence.  In this regard, he commented:

“I note that in its solicitors letter of 10 December 1996 Rockefeller expressly purported to reserve its right to assert that the production of the documents to the SFC did not constitute a waiver of its privilege. In my view, that stance was conceptually unsound. If a document is privileged, the person who enjoys the benefit of that privilege can refuse to produce it. Privilege renders lawful a refusal to produce which would otherwise be unlawful. Thus I do not see how it is possible to produce documents which are privileged while at the same time claiming that the privilege which attaches to them is not being waived.”

28.  Logic and authority dictate that, if the holder of privilege in a document voluntarily discloses that document to a specific party then, in respect of that specific party at least, privilege in the document must be lost.  As Hoffmann J observed in Black & Decker Inc v Flymo Limited [1991] 1 WLR 753, at 755 –

“It is not possible to assert a right to refuse to disclose in respect of a document which has already been disclosed. Once the document has passed into the hands of the other party the question is no longer one of privilege but of admissibility.” [My emphasis]

29.  On that basis, I am satisfied that it must follow that, in providing the documents to the SFC, Citic surrendered privilege in those documents.  That privilege, vis-à-vis the SFC, cannot be regained.  The extent to which the SFC may make use of the documents in court proceedings is, of course, a different issue; as was said by Hoffmann J, an issue going to admissibility.

30.  Citic surrendered privilege to enable the SFC to conduct its investigation.  That investigation, in my view, must include not only the gathering of evidence and its analysis by officers of the SFC but must also include taking legal advice.  Legal advice is integral to any such investigation; it is artificial to think that the one can be successfully concluded without the other.  The SFC may have its own in-house lawyers but it is a matter for them if they deem it proper to seek outside legal advice.  That too I would consider integral to its investigation.

31.  The question of course remains whether voluntary disclosure to one party constitutes disclosure to the whole world.

32.  As I have observed, in Rockefeller & Co Inc v Secretary for Justice (cited above), Keith JA expressed the view that it would be conceptually unsound to hold other than that once privilege is waived in favour of one it is thereby waived in favour of all.  That, however, was not the English approach at the time nor is it the approach today.

33.  The English case in question is a 1988 judgment of the Court of Appeal: British Coal Corporation v Dennis Rye Ltd (No 2) [1988] 1 WLR 1113.  In that case, the plaintiff, which had instituted civil proceedings against the defendant claiming damages for fraud, gave certain privileged documents created for the purposes of that litigation to the prosecuting authorities for the purposes of collateral criminal proceedings.  In due course, those documents were given to the defendant.  At the conclusion of the criminal proceedings, it was ordered that the defendant return the documents to the plaintiff and be injuncted from making any use of them for the purposes of the civil proceedings.  The defendant appealed on the basis that privilege in the documents had been lost.  In dismissing the appeal, the Court of Appeal, per Neill LJ, said (at 1121):

“In my judgment, the action of the plaintiff in making documents available for the purpose of the criminal trial did not constitute a waiver of the privilege to which it was entitled in the present civil proceedings. Its action in regard to [the documents] was in accordance with its duty to assist in the conduct of the criminal proceedings, and could not properly be construed as an express or implied waiver of its rights in its own civil litigation. Indeed, it would in my view be contrary to public policy if the plaintiff’s action in making the documents available in the criminal proceedings had the effect of automatically removing the cloak of privilege which would otherwise be available to it in the civil litigation for which the cloak was designed.”

34.  In 2003, giving judgment in the Privy Council in B and Others v Auckland District Law Society and another (cited above), Lord Millet cited that judgment with approval (at 761):

“It does not follow that privilege is waived generally because a privileged document has been disclosed for a limited purpose only: see British Coal Corporation v Dennis Rye Ltd (No 2) [1988] 1 WLR 1113 and Bourns Inc v Raychem Corporation [1999] 3 All ER 154. The question is not whether privilege has been waived, but whether it has been lost. It would be unfortunate if it were. It must often be in the interests of the administration of justice that a partial or limited waiver of privilege should be made by a party who would not contemplate anything which might cause privilege to be lost, and it would be most undesirable if the law could not accommodate it.”

35.  In a recent (2011) judgment, that of Berezovsky v Hine and others (EWCA) Civ 1089, the English Court of Appeal, referring to this dictum of Lord Millet, said that it sets out what is today the applicable principle.  

36.  But what of Rockefeller & Co Inc v Secretary for Justice, the judgment of this Court in 2000 in which Keith JA concluded that it would be “conceptually unsound” to hold other than that once privilege is waived in favour of one it is thereby waived in favour of all?  

37.  While respecting the force of that observation, I am satisfied that I am not bound by it. Although the Court in Rockefeller came to a unanimous conclusion, it did so by different routes, there being three judgments.  The majority of the Court (Godfrey VP and Rogers JA) proceeded on the assumption that privilege in the documents which were the subject of the appeal had been lost and that the issue to be determined was whether, there being an agreement that the documents should remain confidential, an injunction to prevent a threatened breach of that confidentiality should be granted.  They determined the matter on the basis that compelling reasons of public policy outweighed the plaintiff’s right to confidentiality.  Keith JA also came to the issue of confidentiality, agreeing with the majority but, en route to that issue, made the observations cited in paragraph 27 of this judgment, making those observations without reference to authority.  In summary, I am satisfied that the ratio of the court in Rockefeller was focused on the issue of confidentiality and not privilege.

38.  In my judgment, therefore, on the basis of the authorities which I have cited, I am satisfied that Hong Kong law incorporates the concept of partial waiver of privilege.

39.  Before us, Ms Draycott submitted that, even if the concept of partial waiver of privilege was recognised to be part of Hong Kong law, in respect of criminal proceedings it was subject to the well-established rule that, if privileged information came into the hands of the prosecuting authorities, whether through inadvertence, mistake or even surreptitious conduct by a third party, then privilege was lost and it was open to use by the authorities subject only to the question of whether the court, in the exercise of its discretion, would rule it to be admissible.  The rule, she submitted, was founded on the dictates of public policy, namely, the common interest in apprehending and prosecuting criminals.

40.  Ms Draycott’s submission is supported by a line of English authorities, the principal ones being: Calcraft v Guest [1898] 1 QB 759, Butler v Board of Trade [1971] 1 Ch 680 and R v Tompkins (1977) 67 Cr App R 181.

41.  The last of these cases (Tompkins), a decision of the criminal division of the English Court of Appeal, defines in clear terms the extent to which the rule applies.  The accused had passed a note to his counsel during the course of the trial.  Certain things said in it were against interest.  The note was inadvertently mislaid and recovered from the courtroom floor by a member of the prosecution team.  The prosecution did not produce the note but used it in cross-examining the accused.  He was convicted and appealed on the grounds that the note had been privileged and that its use constituted a breach of natural justice.  In giving the judgment of the court, Ormrod LJ held (at 184):

“The note, though clearly privileged from production, was admissible in evidence once it was in the possession of the prosecution: Butler v Board of Trade.”

42.  In 1982, in R v Uljee [1982] 1 NZLR 561, the New Zealand Court of Appeal looked to the same issue, namely, whether in criminal proceedings privilege could be lost by accident or mere inadvertence or whether, having regard to the development of the law of privilege, it was not lost unless waived.  The facts of the case were as follows.  The appellant visited the home of his solicitor to take advice concerning a violent incident which had occurred between himself and his wife.  While he was there the police arrived.  The appellant wished to discuss matters privately with his solicitor and did so in a room.  Although the door to the room was shut, a police officer who was there to prevent anybody leaving the premises overheard what was said.  The prosecution wished to lead evidence of what the officer overheard.  It accepted that the conversation itself was privileged but argued that, in light of the English authorities (set out above), once the privileged information was in its hands, even though brought about by accident or mere inadvertence on the part of the appellant and his solicitor, it could employ that information in the prosecution.

43.  The Court of Appeal, in a unanimous decision, declined to follow the English authorities, holding that the conversation remained privileged and that the officer’s evidence was thereby inadmissible.

44.  In his judgment, Cooke J, having examined the development of jurisprudence in England and the United States, concluded (page 570):

“[Privilege] relates to communications for the purpose of obtaining or giving legal advice or assistance. The client cannot be compelled to disclose what was said at any stage for such a purpose to or by his professional legal adviser in intended confidence. The legal adviser must not do so without the client’s consent. It seems to me that the law should not shrink from the fair and natural consequence. A third party who has overheard such communication, if oral, or come into possession of it or a copy of it, if written, should not be allowed to give evidence of it unless the client waives the privilege.”

45.  Richardson J, looking to matters of public policy, said (page 572):

“If society sets store on the right to legal services for persons under investigation or charged with offending it must undertake to ensure the confidentiality of discussions between lawyer and client. It is an invasion of their expectations of privacy if that confidence is violated by a third party who listens into the interview unknown to them whether it is done deliberately or accidentally.”

46.  Richardson J concluded by saying (page 572) :

“The exclusion of overheard communications is in my view a logical extension of the privilege as it applies to solicitors and clients.”

47.  In my judgment, R v Uljee correctly reflects the law in Hong Kong.  In so finding I would adopt the reasoning of the three judges in that judgment.  I would in addition add the following.

48.  While privilege may have had its origins as a rule of evidence founded in public policy, today it is recognised as a substantive legal right of particular importance to the due and just administration of justice.  Lord Hoffmann has described it as “a fundamental human right”: R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2003] 1 AC 563 at 606, a description cited with approval in a number of subsequent cases: see Phipson on Evidence 17 ed., [23-06].  That it is regarded as a fundamental human right in Hong Kong is witnessed by art. 35 of the Basic Law.

49.  As a fundamental human right, privilege must, and does, guarantee the same measure of protection in criminal as well as civil matters; art. 35 makes no differentiation.

50.  In B and Others v Auckland District Law Society and Another (cited in para 24 above), Lord Millett not only stated that the privilege is the same whether the proceedings are civil or criminal but said that, save in cases where the privileged communication is itself a means of carrying out a fraud, privilege is ‘absolute’.  It is therefore the position that privilege is not to be balanced against competing public interests no matter how compelling they may be: one such interest being the apprehension and prosecution of criminals.

51.  That being the case, it seems to me to be inherently contradictory to say that privilege, although a fundamental human right unassailable to competing issues of public interest, may nevertheless be lost in criminal matters without any intention on the part of the holder, indeed on no more than a whim of fate; that is, by accident or inadvertence, or even (at the outer extreme) by the surreptitious conduct of a third party. I do not accept that the Basic Law affords such frail protection.  I am satisfied that, in both civil and criminal matters, privilege is not lost unless there is evidence that it has been intentionally waived by the holder of that privilege.

52.  Evidence of the intention to waive privilege may be inferred from all the circumstances.  However, as a constitutionally guaranteed right, a “condition on which the administration of justice as a whole rests”: R v Derby Magistrates’ Court, ex parte B (cited above), that waiver will not lightly be inferred.

53.  By way of a footnote, for the avoidance of doubt, nothing that I have said should be taken as seeking to influence existing jurisprudence on attempts to abuse privilege by making partial or selective disclosure in order to achieve a tactical advantage in civil or criminal proceedings.  No such issue has arisen in this appeal.

The present case: was the waiver absolute or partial?

54.  As I have earlier indicated, the judge at first instance concluded that, while the documents were originally privileged, the privilege being vested in Citic alone, the circumstances in which they were surrendered to the SFC operated as a blanket waiver of that privilege.  However, the conclusion I have reached is that, on a consideration of all the evidence, the probabilities support Citic’s contention that privilege was waived in favour of the SFC for the purpose of its investigation only and for no other purpose.  In short, that there was no blanket waiver.

55.  I have of course paid due regard to the findings of the judge at first instance, findings that were clear and considered.  However, this was not a case in which the judge at first instance had the benefit of hearing oral evidence.  He had no advantage in respect of the evidence (all of which was presented to him on paper) which we do not share.  It is also to be said that I have approached the matter on the express basis that, privilege being a constitutionally guaranteed right in Hong Kong, its waiver is not lightly to be inferred.

56.  As to the consideration of the evidence itself, appropriate guidance is provided in the judgment of the English Court of Appeal in Berezovsky v Hine and Others (cited in para 35 above).  In determining if there has been a blanket or limited waiver, the Court said (para 29):

“… where privilege is waived, the question whether the waiver was limited, and, if so, the parameters of the limitation, must be determined by reference to all the circumstances of the alleged waiver, and, in particular, what was expressly or impliedly communicated between the person sending, and the person receiving, the documents in question, and what they must or ought reasonably to have understood – cf. per Hoffmann LJ in Brown v Guardian Royal Exchange plc [1994] 2 Lloyd’s Rep 325,328, as discussed by Aikens J in Winterthur Swiss Insurance Company v AG (Manchester) Ltd (in liquidation) [2006] EWHC 839 Comm, para 74.”

57.  As to the circumstances in which the documents were surrendered to the SFC, it is to be noted that, at the time of the surrender itself, Citic’s solicitors provided no written document setting out specific terms as to limitation of the waiver of privilege.  It was only several weeks later, in response to an enquiry from the SFC, that CITIC stated in writing what it considered the terms of limitation to have been.

58.  It is not disputed that the documents were among many other papers and records surrendered to the SFC pursuant to demands for production issued pursuant to s. 179 of the Ordinance.  Five of the six documents were surrendered to the SFC at the offices of Citic on 27 October 2008 while the remaining document was later surrendered as a result of correspondence between Citic’s solicitors and the SFC.

59.  As to the circumstances in which the first five documents were surrendered, Mr Luk King Yip, a Director of the SFC Enforcement Division, affirmed as follows:

“When we arrived at Citic’s office … we met with Ms Shih and a Mr Martin Rogers, a partner of Messrs Clifford Chance and two other persons in a meeting room. There were approximately 30 lever arch files and some DVDs containing copies and originals of the records and documents required to be produced under the direction, made available for our inspection in the meeting room. Ms Shih told us that the records and documents to be produced under the direction were in the meeting room. The company had prepared a list of documents to be inspected… Legal documents are listed there at 12 but there is no mention of legal professional privilege. She told us that Citic would fully cooperate with the Commission in its investigations. She said that Citic would produce to the Commission legal advices provided to Citic by Messrs Mayer Brown JSM in this matter and would waive legal professional privilege in respect of these legal advices. I now do not recall whether Ms Shih mentioned any terms regarding the waiver ...”

60.  It was only a month or so later that the issue of whether there had been a full or partial waiver of privilege arose.  Mr Luk of the SFC made a telephone enquiry, seeking confirmation that Citic had waived all privilege in the documents then in the possession of the SFC.  In response, by letter dated 26 November 2008, Citic’s solicitors stated the following:

“For the purposes of the Commission’s investigation only (the scope of which is set out in the Commission’s Direction to Investigate dated 22 October 2008, the Additional Direction to Investigate dated 27 October 2008 and the Authority to require production of records and documents dated 23 October 2008), Citic Pacific Limited (‘the company’) confirms its agreement to waive privilege in relation to legal advice provided to the company by Mayer Brown JSM as contained in the documents handed to the Securities and Futures Commission on 29 October 2008.”

61.  Fairly extensive correspondence ensued during which, under Citic’s obligation to make disclosure, the existence of one further privileged document was made known to the SFC.  In respect of that remaining document, it was initially the contention of the SFC that, in handing over the first five documents, Citic had (somehow) waived privilege in respect of all communications between the company and its lawyers in relation to the SFC’s investigation whether surrendered or retained.  That contention (understandably) was rejected.

62.  As it was, by February 2009 an agreement had been reached in terms of which “for the time being” the SFC agreed that there had only been partial waiver of privilege in the documents surrendered to it, that is, for the purposes of its investigation.  In terms of that understanding the sixth document was handed to the SFC.

63.  In the latter part of April 2009, when Citic learnt that the documents (together with other papers and records) had been given over to the Department of Justice, it expressed concern that there had been a breach of the arrangement reached respecting its asserted privilege in the documents.  The SFC’s Senior Legal Counsel replied by letter dated 30 April 2009 to the following effect:

“There was no breach of LPP [privilege] on the part of the Commission. We did not give any of the materials to the police. When we provided the materials to the DOJ [Department of Justice], we brought to their attention that (i) the materials were subject to LPP and that Citic waived LPP for the purposes of the Commission’s investigation only; and (ii) Citic did not waive LPP in the materials for the purpose of the police inquiry. Recently DOJ confirmed to us that the materials had not been disclosed to anyone outside of the DOJ.

We acknowledge and respect Citic’s assertion of LPP in respect of the materials.  We confirm that the materials were and are being used only for the purpose of the Commission’s investigation.”

64.  That explanation appears not to have resolved matters.

65.  In light of this evidence, the judge at first instance was satisfied that there had been a full waiver of privilege in the documents.  He gave little weight to the letter of 26 November 2008 from Citic’s solicitors to the SFC stating that the waiver of privilege had been “for the purposes of the Commission’s investigation only”, describing that letter as an attempt to close the stable door after the horse had bolted.

66.  The judge further took into account that on 27 October 2008, when the first five documents were surrendered, Citic was represented not by rank and file but by its own general counsel as well as by a partner in the firm of solicitors then acting for it.  He was satisfied that those two persons would have been aware of two matters.  First, that, pursuant to s. 378 and s. 380 of the Ordinance, the SFC had the power to hand over the documents to others (for example, the police) to enable them to investigate other possible offences.  Second, that, the documents being privileged, while their existence would have to be disclosed, their contents were immune from disclosure unless, for whatever perceived advantage, the decision was made to waive that privilege.  It was the judge’s view that a conscious decision to waive all privilege in the documents must have been made.

67.  Matters would have been put beyond doubt if Citic’s legal advisors had seen fit to state in specific terms the basis upon which the documents were surrendered to the SFC.  Their failure to do so is troubling.  That being said, I have nevertheless been drawn to the finding that the inherent probabilities do not justify the conclusion reached by the judge at first instance.

68.  On 27 October 2008 when the first five documents were surrendered, there was no evidence that any agency other than the SFC had instituted investigations or were contemplating doing so.  As it was, the police only initiated their independent investigation in the new year, several months later.

69.  At that time, the matter in issue was a regulatory one, namely, the alleged failure of Citic to inform the market “as soon as reasonably practicable” of information reasonably expected to materially affect the price of its shares.  The Listing Rules, however, did not set any specific timeframe within which such information had to be divulged to the market.  Note 4 to Rule 13.09 of the Listing Rules states that:

“The question of timing of the release of an announcement to the market is crucial, having regard to its possible effect on the market price of the issuer’s listed securities. The overriding principle is that information which is expected to be price-sensitive should be announced immediately it is the subject of a decision…” [my emphasis]

70.  In my view, it is understandable that Citic, a publicly listed company of very considerable substance actively trading its shares on the market, would wish to co-operate with the SFC, more especially by way of providing information on how it was that there had been a perceived delay in making the “decision” to publish its profit warning.  The SFC was the regulatory body responsible for maintaining the orderly and transparent conduct of the securities and futures industry: see s 5(1)(a) of the Ordinance.  It is clear that, from the point of view of Citic, the continued trading of its shares and the hoped for recovery in the value of those shares was essential to its continued viability.

71.  It is correct, as the judge at first instance noted, that the SFC investigation canvassed the possibility of serious misconduct, of “defalcation, fraud, misfeasance”.  The SFC also possessed certain criminal powers.  The weight of evidence, however, indicates that in late October 2008 when the SFC commenced its investigation that investigation was certainly understood by the directors of Citic to be focused on a failure to publish price sensitive information in accordance with the Listing Rules, a grave enough matter but essentially a regulatory one.

72.  In my judgment, the evidence indicates that in October 2008 Citic’s general counsel and its advising solicitors would have viewed a criminal investigation by the police into the conduct of the company (and its individual directors and officers) in a markedly different light.  An indication of this is to be found in the fact that, when the SFC wrote to Citic in March 2009 to ask whether the company would be prepared to waive privilege in the documents for the purposes of a police investigation, a far more cautious approach was adopted: the company seeking first to ascertain the scope of the investigation and thereafter declining to permit inspection.

73.  On this basis, bearing in mind that a full waiver of privilege by Citic is not lightly to be inferred, the probabilities, in my view, indicate that what reasonably ought to have been understood on 27 October 2008 when the first five documents were given to the SFC for inspection was that Citic was prepared to waive its privilege in those documents for the only purpose then known to Citic, namely, the SFC investigation, but would inevitably have adopted a very different approach in respect of the issue of privilege if faced with a criminal investigation.

74.  As to the events on 27 October 2008, in his affirmation (cited in para 59) Mr Luk said that Citic’s general counsel informed him that that the company was willing to cooperate fully with the SFC in its investigation and would produce the documents (containing legal advice) for that purpose.  No broader statement was made, there was no statement, for example, indicating that Citic was prepared to waive privilege in the documents to the whole world.

75.  That privilege had been waived in respect of the SFC’s investigation was manifest: the first five documents had been surrendered to the SFC pursuant to demands and directions issued under the Ordinance confirming the commencement of the investigation.  However, that there was at the very least some uncertainty on the part of the SFC as to the exact terms on which privilege had been waived is supported by the fact that several weeks after surrender of the documents, the SFC (quite properly) contacted Citic concerning the issue of waiver.  In response, the solicitors for the company replied in writing that the documents had been waived for the sole purpose of the SFC investigation.

76.  The solicitors’ letter of 26 November 2008 was afforded little weight at first instance.  On the evidence, however, there appears to be nothing to suggest that at about the time the letter was drafted Citic knew of any police investigation or had reason to believe that one was about to be launched and, regretting its earlier full waiver of privilege, was seeking to claw back at least some partial privilege in the documents in order to avoid them falling into the hands of the police.  Citic’s general counsel and the company’s legal advisers may of course have had a change of heart concerning surrender of the documents to the SFC but there is nothing to suggest that.  Accordingly, I must disagree with the judge at first instance.  I am satisfied on the probabilities that the letter is not to be seen as a tactical device but as a simple statement of what Citic had always considered to be the basis upon which privilege in the documents had been waived several weeks earlier.  As such, I am satisfied that the contents of the letter stating Citic’s understanding that waiver of privilege had not been absolute must be given due weight.

The fraud exception

77.  It has long been settled that privilege does not attach to communications between lawyer and client if the purpose of the client in seeking legal advice is to facilitate criminal or fraudulent conduct, certainly conduct of the kind in respect of which in the present case Wright J found there to be a prima facie case.  The principle was authoritatively laid down in R v Cox and Railton [1884] 14 QBD 153, Stephen J saying (at 165):

“The question, therefore, is whether, if a client applies to a legal adviser for advice intended to facilitate or to guide the client in the commission of a crime or fraud, the legal adviser being ignorant of the purpose for which his advice is wanted, the communication between the two is privileged? We expressed our opinion at the end of the argument that no such privilege existed. If it did, the result would be that the man intending to commit treason or murder might safely take legal advice for the purpose of enabling himself to do so with impunity, and that the solicitor to whom the application was made would not be at liberty to give information against his client for the purpose of frustrating his criminal purpose. Consequences so monstrous reduce to an absurdity any principle or rule in which they are involved.”

78.  It has equally been long settled that the power vested in the courts to order disclosure of what are claimed to be privileged documents by way of what has become known as ‘the fraud (or crime/fraud) exception’ is to be exercised with the considerable caution.  In this regard, see, for example, O’Rourke v Darbishire [1920] AC 581, per the speech of Viscount Findlay (at 604):

“But it is not enough to allege fraud. If the communications to the solicitor were for the purpose of obtaining professional advice, there must be, in order to get rid of privilege, not merely an allegation that they were made for the purpose of getting advice for the commission of a fraud, but there must be something to give colour to the charge. The statement must be made in clear and definite terms, and there must further be some prima facie evidence that it has some foundation in fact. It is with reference to cases of this kind that it can be correctly said that the court has a discretion as to ordering inspection of documents. It is obvious that it would be absurd to say that the privilege could be got rid of merely by making a charge of fraud. The court will exercise its discretion, not merely as to the terms in which the allegation is made, but also as to the surrounding circumstances, for the purpose of seeing whether the charge is made honestly and with sufficient probability of its truth to make it right to disallow the privilege of professional communications.”

79.  A more recent authority, one to which the judge at first instance had regard, is R v Gibbins [2004] EWCA Crim 311 (paras 49 and 50):

“In the context of a civil or criminal case, where the cause of action pleaded or the charge to be determined at trial is that of fraud, the existence of which is in issue and will only be finally determined at trial, the judge who is required at the interlocutory stage to determine the question whether or not a document is disclosable for the purpose of admission in evidence at trial under the fraud exception, is in no position finally to determine that question. Such a final determination will only be possible at trial in the light of all the evidence, including the oral evidence of the parties and, in particular, that of the defendant if called. Meanwhile, the judge can only realistically cope with the matter on the basis of the prima facie position i.e. that which appears to be the position at the time of consideration in the absence of further explanation. Neither policy nor practicality require more than that the judge should be satisfied that a prima facie case of fraud exists and that, considered in that context, a prima facie case also exists that the document concerned came into existence as part of the fraud.

In this respect, bearing in mind the nature of the proceedings, the importance of the doctrine of LPP [privilege], the room for ambiguity and the possibility of innocent explanation, it has been stated (in Cox and Railton) that the judge should consider it ‘probable’ that the document was part of the fraud and (in Derby v Weldon) that a ‘strong’ prima facie case is required (the standard adopted by the judge in this case). We consider that these observations rightly emphasise the need for the judge to be clear in his view that a prima facie case of fraudulent purpose exists. However we do not think that any gloss upon the requirement of a prima facie case is desirable either in respect of the charge contained in the indictment or in respect of the purpose behind the document of which disclosure is sought.” [my emphasis]

80.  Following Gibbins, Wright J applied a two-stage approach, asking himself: first, was a prima facie case of conspiracy to defraud or to make false statements made out on the papers and, second, if yes, were the documents (containing legal advice) prima facie produced to facilitate or further that conduct?  He concluded that –

(i)    a prima facie case had been demonstrated of the existence of a conspiracy on the part of certain of those controlling the affairs of Citic to defraud and/or to make false statements as to the affairs of the company, contrary to s. 21 of the Theft Ordinance, Cap 210, and

(ii)   the documents, that is, the documents in respect of which privilege was claimed, had been produced to facilitate or further the conspiracy.

81.  The judge was clear in his view that a prima facie case existed of the following conspiracy.

82.  First, the aim was to delay disclosure of the company’s increasingly parlous financial position brought about by its continuing foreign exchange losses in order, first, to prevent a precipitous reaction on the part of all those whose economic interests would be affected by Citic’s weakened position; in common parlance, to prevent panic in the market, and, second, to afford sufficient time to enable the company to raise money from its ‘parent’ company in the Mainland as well as from banks.  The essence of the conspiracy therefore was to delay for as long as necessary making public disclosure of the true financial position of the company.

83.  Second, this constituted a conspiracy to defraud because its members used dishonest means to bring about the delay with the realisation that the use of such means may cause economic loss to others or put their economic interests at risk.

84.  Third, the legal advice requested (and thereafter exploited) to facilitate this conspiracy was to ask to what extent the inevitable public disclosure of the company’s true financial position could be delayed while the company sought some way to rescue its position.

85.  In setting out how he had come to his findings, the judge had regard to two matters which he said suggested the wilful concealment on the part of the directors of Citic (or, more accurately, certain delinquent directors, for there was no evidence the full Board was involved), the concealment being related to Citic’s increasing exposure to foreign exchange losses, and thus to the existence of the conspiracy to defraud.

86.  When Citic had published its profit warning on 20 October 2008, it had said that it had first become aware of its exposure to foreign exchange losses on 7 September 2008, some six weeks earlier.

87.  The first matter to which the judge had regard was an announcement published on 16 September 2008 concerning Citic’s acquisition of a financial interest in two motor companies.  Within the body of the announcement it was said that the latest date prior to printing by which it had been practical to make any changes to the document had been 9 September 2008.  That was two days after Citic had first become aware of its exposure to foreign exchange losses.  Despite the two-day leeway, the announcement said that the directors were not aware of any material adverse change in the financial trading position of the company since the publication of the last audited accounts.  It was the finding of the judge that this was “a clear, and public, demonstration of an intention to conceal the knowledge of the abnormal losses already sustained or anticipated”.

88.  For myself, bearing in mind that Citic’s exposure to losses on the foreign exchange markets had (on the evidence) only come to light two days before the deadline for amending the announcement, and bearing in mind, on the information available, that at that time the company’s financial position was a strong one and that it was not in a position at that early juncture to predict the full extent of its losses, I have difficulty in coming to the same finding.  First, on the evidence, it is uncertain whether at that very early stage Citic appreciated that its exposure constituted a material adverse change in the company’s financial trading position.  Second – oversight not equating to intention – it is uncertain, having regard to the narrow timeframe, whether the senior officers of the company were even alive to the issue of amending the announcement.

89.  The second matter to which the judge had regard was the evidence that between 25 September and 14 October 2008 – after Citic had become aware of its financial difficulties but before its profit warning – the company had raised three bank loans, the necessary authorisations being signed by the Finance Committee of the Board of Directors.  In respect of the loans, the judge said (at para 60):

“It is the defendants’ case that at the time of negotiating and obtaining the loans no disclosure of the financial risk exposure was made by the plaintiff to any of the potential lenders. Taking this to be so, for on the evidence before me there is nothing to gainsay it, it amounts to a further demonstration of an intention to conceal the plaintiff’s true state of knowledge regarding its financial position.”

90.  During the course of the appeal hearing, when we commented that there was only the thinnest evidence of the exact nature and terms of the bank loans and importantly whether and, if so, the degree to which, and the manner in which, the loans were secured, Ms Draycott made an application for an adjournment to enable the respondents to adduce further evidence concerning the bank loans.  Having heard submissions on the matter, we declined to grant the adjournment.  We did so for two principal reasons.  First, nothing was put before us to suggest that this further evidence could not, with reasonable diligence, have been obtained for the first instance hearing.  In this regard, it is a fundamental principle that it is the duty of each party to litigation to “bring forward his whole case at once and not to bring it forward piecemeal” as he discovers the objections in his way: see Re New York Exchange Ltd (1888) 39 Ch.D, 415, at 420.  Second, for the reasons which follow in this judgment, we were of the view that, even if it could be shown that certain directors did withhold information from the banks, that itself was not capable when considered in context, of demonstrating that they had sought legal advice as to Citic’s financial troubles to facilitate a conspiracy to delay disclosure of those troubles.

91.  In the result, the evidence before us was the evidence before the judge at first instance, that and no more.  On that evidence, I hesitate to conclude that the fact of the loans clearly demonstrates a prima facie case of dishonest concealment.  It was Ms Draycott’s submission that, there being no contrary evidence filed by Citic or any of its directors, it would be naïve to think otherwise.  I do not agree.  Remembering that a prima facie case must be clearly demonstrated, there was, as I have said, only the thinnest evidence of the exact nature in terms of the bank loans and, of central importance, of such issues as the manner in which, if at all, formally or informally, the loans were secured.

92.  As to the existence of a conspiracy to defraud, the judge said (at para 61):

“It is stating the obvious to say that to conceal the plaintiff’s financial risk exposure, known as it was at that time, from investors in the plaintiff; from those who might invest in the plaintiff, the shares in which were freely traded on the Hong Kong stock exchange; and from its creditors would put at risk the economic interest of those groups, a fact which could not have escaped the notice of the plaintiff or those controlling it.”

93.  As I see it, however, that conclusion begs a central question, namely, was such failure to disclose dishonest?  That is an issue very much in dispute, one that will have to be resolved at trial.  The legal advice contained in the documents, is integral to that issue in that, without in any way invading the asserted privilege in the documents, it has been accepted in open court that the advice was related to the manner in which, generally, the Listing Rules permitted Citic – the advice being to the company, not an isolated group of directors – a measure of discretion in how best to protect the interests of the company in the face of the crisis and, more specifically, it set out the imperatives governing the issue of a profit warning.

94.  When, as is the case here, the alleged fraudulent conduct is inextricably bound up with the legal advice received, there is a body of authority to say that this is a factor which must be taken into account, one that places a heavier burden on the party seeking disclosure on the basis of the fraud exception.  In this regard, see, for example, Kuwait Airways Corporation v Iraqi Airways Company (No 6) (CA) [2005] 1 WLR 2734 at 2748 per Longmore LJ (paras 37 and 38):

“If all one has is disputed versions of events, it will be difficult to say that there is even a prima facie case of fraud. This will be particularly so if the disputed version of events is the very same issue that is to be tried in the proceedings. If, however, the evidence of crime or fraud is freestanding and independent and particularly if its evaluation “does not require any judgment to be reached in relation to the issues to be tried” (per Rose LJ in the Hallinan case [2005] 1 WLR 766,771), it may be perfectly possible, and even on prima facie case basis, to decide whether the fraud exception applies.

It is significant that in Chandler v Church 137 NLJ 451 where there was only prima facie evidence of fraud and the fraud was alleged in relation to the issues that had to be tried, Hoffmann J refused to order disclosure.  By contrast, in Dubai Aluminium Co. Ltd v Al-Alawi [1999] 1 WLR 1964, 1968, where the alleged fraud did relate to issues to be tried on the application to discharge the search and seizure order and the freezing injunction, Rix J (following Barclays Bank v Eustice [1995] 1 WLR 1238, 1249)) thought that before disclosure was ordered there should be a strong prima facie case of criminal or fraudulent conduct; he held that, on the facts, there was.  He therefore ordered disclosure.”

95.  In my judgment, at this time and in light of the nature and breadth of the evidence as it presently stands, bearing in mind that the evidence inevitably will be disputed should the issue go to trial, it is not possible to say that there is a strong (or clear) prima facie case of the existence of a conspiracy to defraud, or even of fraudulent conduct on the part of some of Citic’s directors.

96.  In these circumstances, following the dictum of Longmore LJ in Kuwait Airways Corporation (para 36) I believe that it would be unfair to make an order that the fraud exception applies on the basis of what, as I see it, is at this time at best a bare prima facie case, but certainly not a clear or strong one, and which may on full investigation – when all the relevant evidence is tested – turn out to be in no case at all.

97.  I regret to say that I must also differ from the judge at first instance in respect of his finding that there is prima facie evidence that the documents (containing legal advice) were produced to facilitate or further some form of fraudulent conduct.

98.  The suggestion that certain directors took legal advice to facilitate a conspiracy to delay disclosure of the foreign exchange losses necessarily involves a number of assumptions.  First, that the Listing Rules required immediate disclosure of such losses.  Second, that this was sufficiently obvious that the directors must be assumed to have known this – indeed this is what Ms Draycott argued.  Third, that the directors took the decision to instruct a solicitor knowing that it was likely that they would be told to make immediate disclosure (which necessarily follows if the second assumption is correct), but hoping to get advice that was wrong, namely, that they did not need to make immediate disclosure.  It is relevant that it is not suggested that the solicitor who was chosen to give advice lacked relevant expertise or experience.  On the contrary he was a very senior and experienced partner in one of Hong Kong’s major commercial law firms.  Neither is it suggested that he was acting in collusion with the delinquent directors.  It is not suggested, for example, that there is any evidence that either Citic’s general counsel or the solicitor was told what advice the relevant directors were looking for.  I note at this juncture that during her address Ms Draycott suggested that it was odd that advice was sought at all on such a straightforward point.  I disagree.  Given the magnitude of the problem facing the company, in my view it is entirely unsurprising that legal advice was sought on the ambit of the company’s disclosure obligations.

99.  It seems to me to be inherently unlikely in these circumstances that the advice was sought in the hope that it would provide some justification for delaying disclosure.  It necessarily follows that I have difficulty seeing how it can fairly be concluded that there is a prima facie case, let alone, a clear prima facie case, that the advice was sought to facilitate the alleged conspiracy.  On the contrary it seems to me to be inconsistent with it.

100.  Further the advice was not given on a single occasion but was essentially on-going and, as would expect, was debated at some length by the full Board consisting of some 16 or 17 directors of different backgrounds and professions.

101.  The probabilities further suggest that, with the full Board engaged, the opportunity on the part of the delinquent directors to distort matters in order to obtain the advice necessary to facilitate their fraudulent scheme was limited.

102.  Similarly, although criticism was made of the extent of the disclosure to the solicitor in instructions to him, and assuming, for the moment that there is something in the criticism, it can be said, without in any way invading the privilege of the documents, that the advice given was broad in nature, advice of that kind being almost inevitable when the Board was faced with a series of management options, options that differed in significance as events unfurled.  It is difficult, in these circumstances, to read into any of the alleged inadequacies in the instructions the inference that they demonstrate that the advice was sought to facilitate the alleged conspiracy.

103.  It was asserted before us that certain of the directors were selective in what aspects of the legal advice they chose to follow; it was further asserted that they ignored the advice when it suited their purpose, indeed that they acted contrary to such advice.

104.  As I understand the law concerning legal advice privilege, the integrity of the privilege does not depend on the person receiving the legal advice then following it.  The relationship of confidentiality is created when advice is sought in good faith and given in good faith.  That thereafter the person who has received the advice seeks not to heed it but to follow some independent dishonest course of conduct does not act retroactively to strip away the earlier privileged relationship.  There must be a direct causal relationship between the advice received and the fraudulent conduct.  Put simply, there must be evidence of a fraudulent purpose behind the seeking and obtaining of the advice.

105.  It may well be, of course, that dishonest actions subsequent to the taking of legal advice will prove the state of mind of the person at the time he took the advice.  In a very full set of submissions strongly argued by Ms Draycott she conducted an analysis of the legal advice contained in the documents in order to illustrate this exact point, namely, that the manner in which, as she put it, the advice was exploited for a dishonest purpose, was clear demonstration of the fact that there had been a dishonest attempt in obtaining the advice in the first place.

106.  I do not consider that there is any need, in a separate confidential judgment, to look to all the issues raised by her.  It suffices to say that even if, without finding it to be so, there was prima facie evidence of any dishonest conduct on the part of one or more directors, I am satisfied that it does not indicate a dishonest purpose in obtaining the advice in the first place – advice, it is to be remembered obtained by the company and given to the full Board – but indicates rather subsequent dishonest conduct essentially independent of the advice earlier given.

107.  I am therefore satisfied that there is not, on the evidence available, including the contents of the documents, evidence that the documents were produced to facilitate or further a conspiracy to defraud or some other form of dishonest conduct on the part of one or more of the directors.

Conclusion

108.  For the reasons given, I would allow the appeal on the basis of a declaration to the following effect:

(i)  that Citic has waived privilege in the documents for the purpose of enabling the SFC to conduct its investigation and for no other purpose;

(ii)  that the taking of legal advice is integral to the conduct of the investigation and, in giving such advice, for that purpose and no other, the SFC may deliver the documents to the Secretary for Justice;

(iii)  that for all other purposes, and in respect of all other persons, Citic retains privilege in the documents.

109.  In respect of costs, bearing in mind that the parties have not had an opportunity to make submissions in that respect, I am of the view that there should be an order nisi awarding both the costs of this appeal and at first instance to Citic.  Should the parties seek an order to different effect, an application is to be made within 21 days of the date of this judgment.

Hon Kwan JA:

110.  I have had the benefit of reading in draft the judgment of Hartmann JA.  I respectfully agree with his judgment and the orders he proposes to make.

Hon Harris J:

111.  I too have had the benefit of reading in draft the judgment of Hartmann JA.  I agree with his judgment and the orders he proposes to make.

Hon Hartmann JA:

112.  Accordingly, the appeal is allowed on the basis set out in paragraphs 108 and 109 of this judgment.