Citic Pacific Ltd v. Secretary for Justice and Another
Read the full judgment text of HCMP 767/2010 on BabelCite. This High Court CFI judgment was delivered on 18 March 2011.
1. On 20 October 2008 the plaintiff revealed, by way of a profit warning announcement pursuant to Rule 13.09 of the Listing Rules of the Hong Kong Stock Exchange, that it previously had entered into various forward contracts in respect of three foreign currencies which had resulted in it sustaining a “Mark to Market” potential estimated loss of some $14.7 billion.
Cites 3 cases
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HCMP767/2010 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO. 760 OF 2010 --------------------- BETWEEN
--------------------- Before: Hon. Wright J Date of Hearing: 9, 10 & 11 March 2011 Date of handing down Judgment: 18 March 2011 --------------------- JUDGMENT --------------------- 1.On 20 October 2008 the plaintiff revealed, by way of a profit warning announcement pursuant to Rule 13.09 of the Listing Rules of the Hong Kong Stock Exchange, that it previously had entered into various forward contracts in respect of three foreign currencies which had resulted in it sustaining a “Mark to Market” potential estimated loss of some $14.7 billion. 2.According to that profit warning announcement, CITIC had become aware of its financial exposure on 7 September 2008. Although there is no evidence as to the date when it began to seek legal advice from Mayer Brown JSM it must have been prior to 23 September 2008 for one of its partners attended a meeting of the Board of Directors of the plaintiff on that date. THE BACKGROUND 3.On 22 October 2008 the Securities and Future Commission issued a ‘Direction to Investigate’ pursuant to s. 182(1) of the Securities and Futures Ordinance, Cap. 571 (the Ordinance), concerning suspected offences by the plaintiff, or persons connected with it, in breach of s. 384 of the Ordinance. 4.On 23 October 2008 the SFC commenced an enquiry into whether :
On the same day it issued an ‘Authority to require production of records and documents’, pursuant to s.179 of the Ordinance. 5.On 24 October 2008 a letter was addressed to the plaintiff enclosing, inter alia, a copy of the Authority as well as a ‘Direction to produce records and documents’ detailing the documents which it required, which were categorized as having "reference to" the profit warning. 6.On 27 October 2008 staff of the SFC attended at the plaintiff’s offices to obtain copies of the required documents. Present at that meeting were, inter alia, a Ms Patricia Shih, the plaintiff’s Group General Counsel, and a Mr. Martin Rogers, a partner of the plaintiff’s then solicitors, Clifford Chance. It will be necessary to return to events at this meeting as affirmed by Mr. Luk King Yip, a Director of the Enforcement Division of the SFC, in his affirmation. 7.On that same day, the SFC issued an ‘Additional direction to investigate’ this time concerning suspected offences in breach of s.277 and/or s.298 of the Ordinance. On 28 October 2008 a further letter was addressed to the plaintiff enclosing, inter alia, a copy of the Additional direction as well as a ‘Notice to produce records and documents’ which related to certain specified computers and electronic devices. 8.On 29 October 2008 documents and records were handed to the SFC by one Ricky Choy of the plaintiff. Amongst them were five documents, which had been inspected on 27 October 2008. Those five are asserted to be subject to legal professional privilege. The documents are:
9.Correspondence commenced almost a month later between the SFC and Clifford Chance - who subsequently were replaced by a third firm, Robertsons, as the plaintiff’s solicitors - concerning the basis upon which those five documents had been handed over to the SFC. 10.Later, in an email dated 8 December 2008 Mr. Rogers informed Mr. Luk of the fact that he had seen a further note, dated 9 October 2008, prepared by Ms. Shih, which contained advice based upon a discussion between her and Mayer Brown JSM. It was his assertion that the advice had been furnished to two directors of the plaintiff “...in their individual, personal capacity and was not advice being given to the board of directors or the company.” 11.Be that as it may, in the ongoing exchange of correspondence between the SFC and Clifford Chance regarding the basis of the release of the earlier five documents, there were also negotiations over the use to which the note dated 9 October 2008 may be put by the SFC if the plaintiff were to surrender a copy of it. Terms were arrived at in respect of that document which, the parties accept, place it in a different position from the earlier five documents. I shall refer to these six documents collectively as “the surrendered material”. 12.On 16 March 2009, upon informations being laid before him by a number of police officers, a magistrate issued 27 search warrants pursuant to the provisions of s. 50(7) of the Police Force Ordinance, Cap. 232, authorising the seizure, at different premises, of specified documents and electronic devices and storage systems which were asserted as:
13.In addition to the stipulated documents and devices there was a catch-all category expressed as:
14.The search warrants were executed at various premises on 3 April 2009. What was seized was described, without exaggeration, by the plaintiff as:
I shall refer to these items as “the seized material”. 15.A blanket claim was made asserting that both the surrendered and the seized materials are subject to LPP. There is a further claim by the plaintiff that a portion of the seized material also falls without the scope of the search warrants. There were discussions between the plaintiff and the defendants as best how to resolve the issues. They were only partly fruitful. As a consequence, the plaintiff instituted these proceedings in which it seeks, inter alia, in its latest re-amended form, the return by the 2nd defendant of both the surrendered and the seized materials; and the return by the 1st defendant of the surrendered material, alternatively a declaration that the 1st defendant was only entitled to use it for the purpose of advising the SFC and is not entitled to deliver it or to divulge its contents to any third party. The hearing 16.The matter was set down to be heard on 9 March 2011. In the event, the hearing in respect of the seized materials was adjourned to a later date to enable the task of categorization to be completed: by agreement, this hearing dealt solely with the relief claimed in respect of the surrendered documents. That relief is set out at §§1 (iv)(a), (v) and (vi) and 1A of the re-amended originating summons. 17.At issue, at first, was whether the court should inspect the surrendered documents to ascertain their contents. The defendants contended that it was necessary to follow that course given the fact that they asserted that the surrendered material was not privileged also by virtue of the operation of the crime/fraud exception. The plaintiff resisted any such inspection. On the first day of the hearing, the defendants foreshadowed introducing further evidence, either by way of affirmations or by oral evidence pursuant to the provisions of Ord. 28 r. 4(3) and (4). 18.Upon resumption the following day, the plaintiff indicated that it no longer objected to such inspection and, indeed, itself advocated such an approach with the caveat that argument on the content be heard in chambers. The plaintiff also indicated that it did not object to the filing of an affirmation by Mr Luk and a further affirmation by DSI Wong Yiu Sum, the police officer in charge of the investigations and indicated that it saw “no need” to file any further affirmations. As a consequence it is unnecessary for me to deal with the plaintiff’s arguments on the question of a court’s power of inspection of documents said to be privileged and the circumstances in which it is appropriate to inspect. I have inspected the documents: that part of the proceedings heard in chambers is referred to in a separate judgment to maintain the aspect of confidentiality of the documents at this stage. LEGAL PROFESSIONAL PRIVILEGE 19.Discussions concerning the concept, nature and purpose of legal professional privilege occupy such a prodigious number of pages of law reports in this and other jurisdictions as to render any further detailed recitation superfluous. It is a long-established rule in the common law which today is recognised as a fundamental human right, protected in various covenants and enactments including Article 35 of the Basic Law. It was described by Lord Taylor CJ in R v Derby Magistrates Court ex p. B [1996]1 AC 487 at 507:
cited with approval in Solicitor v Law Society of Hong Kong (2006) 9 HKCFAR 175 §14. 20.The plaintiff enjoys the benefit of the privilege: it has the right to forego the benefit of that privilege. The privilege is that of the client, not of the legal practitioner (A-G v Mulholland & Ano. [1963] 2 QB 477) although, in the ordinary course of events, it is the legal practitioner who claims it on behalf of the client. It falls into two categories: litigation privilege which covers all documents brought into being for the purposes of litigation and legal advice privilege which covers communications between lawyers and their clients through which legal advice is sought or given(per Lord Scott of Foscote in Three Rivers DC v Bank of England (No. 6) [2005] 1 AC 610 §10). It is not disputed by the defendants that the surrendered material is of a nature that may render it subject to LPP. 21.It is the defendants’ case that, in respect of the earlier five documents, the plaintiff surrendered the documents unconditionally to the SFC, the result being that any privilege was lost in its entirety. This in addition to the defendants’ contention that the surrendered material is all subject to the crime/fraud exception. (A) Loss/waiver of LPP 22.The plaintiff asserts that it has the power to forego LPP in part and not only in whole: the plaintiff asserts that it is able to make an otherwise privileged document available to a third party with limitations placed on it as to the use to which the document may be put without losing the right to invoke LPP against others or as against the third party to whom it was released in respect of any usage outside of the stipulated conditions. Moreover, says the plaintiff, the circumstances in which the earlier five documents were handed over must be considered objectively from which the inevitable conclusion would be that there was, at least implicitly, only a partial waiver of LPP at the time of the surrender of the material, use of the surrendered material being limited only to the investigation by the SFC. 23.The plaintiff asserts that the principle of disclosure of documents for a limited purpose is "well-established". Whether or not that is so in other jurisdictions, it does not appear to be settled in Hong Kong. In this connection the only Hong Kong authority to which the parties have been able to make reference is that of Rockefeller and Co Inc v Secretary for Justice & Another [2000] 3 HKLRD 351. In that matter the SFC had sent documents to the Secretary for Justice, which documents had been obtained under a production order issued by the SFO. In a letter with which the documents were handed over, the company purported to impose a condition as to the extent to which it was prepared to waive LPP. It became necessary for the documents to be disclosed as unused material in the course of criminal proceedings. 24.The plaintiffs rely upon the judgment of Godfrey VP who states, in express terms, that that plaintiff’s claim to confidentiality was waived only to a limited extent as expressly set out in a letter dated 10 December 1996. The plaintiff also seeks to find support for that view in the judgment of Rogers JA. It is to be noted, as the plaintiff accepted, that each of Godfrey VP and Rogers JA referred to the documents as being "confidential" and appears to have reached his conclusion, rather than on LPP, on the basis of a breach of confidentiality. 25.As LPP is a complete answer to the disclosure of privileged documents, no balancing exercise involving the public interest can be involved - yet the decisions of both Godfrey VP and Rogers JA, as well as that of Keith JA, turned on such a balancing exercise concerning the disclosure of unusual materials in the framework of a fair (criminal) trial.
per Keith JA at 371I. 26.The defendants’ position is contrary to that of the plaintiff. The defendant contends that it is not possible partially to waive LPP, that once a document is exposed to a third party then LPP is lost in its entirety. They rely upon the judgment of Keith JA who took the view that a partial waiver of LPP is “conceptually unsound”: a person who enjoys the benefit of a privileged document may refuse to produce it, the privilege rendering lawful such refusal. Keith JA continued that he did not see how it would be possible to produce documents which are privileged whilst at the same time claiming that the privilege which attaches to them is not being waived. 27.On the view which I take of the factual basis in this matter, it is not necessary for me to decide, in respect of the earlier five documents, whether or not it is possible to partially relinquish one's right to invoke LPP. The surrender of the documents and loss of LPP 28.It is necessary now to look at the evidence as to what occurred when staff of the SFC attended at the offices of the plaintiff on 27 October 2008. The only, unchallenged, evidence in this regard is to be found in the affirmation of Mr. Luk who, after referring to the various preliminary steps taken by staff of the SFC, records the following:
29.It is, in simple terms, the plaintiff's position that because the SFC had informed the plaintiff that it was conducting an investigation in regard to the matters set out in the original and additional directions to investigate and because the evidence of Mr. Luk is that Ms Shih had said that the plaintiff would fully co-operate with the commission in its investigations, the necessary implication is that those earlier five documents were surrendered subject to the limitation that they may be used only within the scope of those investigations. The plaintiff was only dealing with the SFC, ran the argument, thus that was the only entity which could “use” the documents. 30.That, in my judgment, is an overly-simplistic approach and ignores a number of important factors which militate against that conclusion. 31.The plaintiff relies in support of its contention on the decision in British Coal Corporation v Dennis Rye Ltd and Another (No. 2) [1988] 1 W.L.R. 1113. In that matter the plaintiff had instituted proceedings against the defendants for return of moneys which had been overpaid on invoices issued by the defendants and/or damages for fraudulent, alternatively negligent, misrepresentation and conspiracy to defraud. Documents were created for the express purpose of the civil proceedings. They were handed to the police to assist in an investigation which resulted in criminal charges being brought against the defendants. The documents were supplied to the defendants by the police prior to the criminal trial: during the trial the plaintiff was ordered to disclose further documents relevant to the criminal proceedings which it duly did, together with others which were not directly relevant. All the documents disclosed in the course of the trial had been created for the purpose of the civil proceedings. After the defendants had been acquitted the plaintiff applied, in the civil proceedings, for the return of all the documents. An order, in wide terms, was granted to the plaintiff. The defendants appealed, one of the grounds being that plaintiff’s privilege had been lost because the documents had properly come into the defendants’ possession with the approval or acquiescence of the plaintiff or that the plaintiff should have foreseen that the documents would be disclosed to the defendants and had failed to reserve its privilege. 32.Neil LJ, with whom both other judges agreed, observed that it was common ground that the privilege would have applied to the documents in question, and continued, at 1121A:
33.The facts upon which that decision was based are clearly distinguishable from the instant matter. It would have been surprising, indeed, had the result been any different once the court had found that the documents in question had been generated expressly for the purpose of discrete civil proceedings and had found their way to the defendants only as a result of the application of the Attorney-General’s procedural guidelines. 34.Albeit that the SFC’s investigations related to potential offences committed in breach of the provisions of the Ordinance, it is a fact that from 24 October 2008 the plaintiff had been aware that it and persons associated with it were being investigated in connection with, amongst other things, allegations of fraud against its own members (see §4 above). 35.S. 378(1) of the Ordinance prohibits the communication of any matter coming to a person's knowledge by virtue of his appointment and allowing any third person to have access to any record or document which comes into his possession by virtue of the Ordinance. That prohibition, however, is specifically qualified in s.378(2) which provides:
36.Moreover, s.380 of the Ordinance provides, subject to the obligation preserved, by subsection (5), to disclose the name and address of a client of a legal practitioner:
thereby specifically providing the mechanism by which the plaintiff could have declined to surrender the earlier five documents. 37.At the meeting in the plaintiff's own offices on 27 October 2008, when the arrangements made to surrender the earlier five documents, the plaintiff was represented not simply by rank and file staff members but by its own general counsel as well as by a partner in the firm of solicitors by then acting on its behalf. I do not accept that both of these persons would have been ignorant of the provisions of s.378 and s.380, that the SFC was empowered to hand over those documents to others for the purpose of investigating other offences and that the plaintiff had an absolute right not to the documents if they were subject to LPP. 38.It is important to note that the plaintiff would not have been obliged to produce the documents to the SFC that meeting. It would have been open to the plaintiff, there and then, to decline to hand over the earlier five documents on the grounds that they were privileged. It clearly made a conscious decision not to exercise that right. 39.Mr. Luk says, quite frankly, in his affirmation that he does not recall whether Ms Shih mentioned any conditions attaching to that waiver. I am satisfied that she did not: first, this is a matter which I have no doubt would have impressed itself on Mr. Luk’s memory as it would have been central to the exercise of obtaining the documents - that he would have overlooked or or forgotten it is beyond improbable; secondly, had there been any such discussions it is inevitable that Mr. Rogers would have been involved in those discussions - a matter which not only would have added to Mr. Luk’s impression of this aspect but rendered it inconceivable, not to use too strong a word, that Mr. Rogers would have failed to confirm any restrictions on the release of the documents in writing either there and then or immediately afterwards. There is, of course, no affirmation from Ms. Shih or Mr. Rogers concerning this issue which in any way challenges what Mr. Luk says. 40.No effort was made by Mr. Rogers or his firm, Clifford Chance, to do so until the 26 November 2008 and then, apparently, only in response to a communication by Mr. Luk in which he asked for written confirmation of the waiver of LPP in order that he could obtain what could only have been further documents from Mayer Brown JSM which might otherwise be privileged. Only in response to that direct request was there an attempt by the plaintiff’s then solicitors to the bolt the stable door by confirming the waiver but prefaced by the observation "For the purposes of the Commission's investigation only...”. This provoked an exchange of correspondence over the ensuing weeks with the SFC making it clear that it took the view that the surrender of the documents had been a general, unconditional surrender. 41.In the circumstances, I am satisfied that at the meeting on the 27 October 2008 the plaintiff agreed to hand over the earlier five documents unconditionally to the SFC free of any claim of legal professional privilege. In the event that I am in error as to the existence of a specific agreement, I am satisfied that, viewed objectively, there were no implied conditions attached to the surrender of documents. (B) Revival of LPP by subsequent agreement 42.Mr. Shieh, on behalf of the plaintiff, suggested that there may have been a "revival" of LPP as a consequence of the subsequent correspondence initiated by the letter of 26 November 2008 from Clifford Chance. A proper reading of the correspondence simply demonstrates that the parties disagreed over the consequences of the surrender of the documents, an issue which was to be litigated subsequently as it now is. The idea that there could have been a voluntary surrender of the documents subject to LPP and that LPP could then be said to be partially reinstated by way of agreement seems to me to be contrary to the fundamental concept of the nature of the privilege. 43.Whether agreement as to confidentiality in respect of those same documents could be negotiated subsequent to the surrender of LPP is another matter but not one that was argued before me: it is consequently unnecessary for me to consider that matter. (C) Delivery of the surrendered material to the Department of Justice
44.There is no merit in this argument. Once a solicitor or barrister is employed by the Department of Justice he does not lose his professional status: the fact that he also falls within the definition of a Legal Officer contained in another ordinance simply means that he is both a solicitor or barrister and a legal officer. (D) The crime/fraud exception 45.The leading English authority in regard to privilege of legal advisers is Greenough v Gaskell 1 My. & K. 98 which was revisited in The Queen v Cox and Railton 1884 QBD 153 specifically in the context of whether privilege existed where a solicitor had been consulted for advice in contemplation of the commission of an offence. The Court said, at 165:
46.The Court further found that in order for privilege to apply to a communication:
47.The principle continues to apply in this jurisdiction: see, for example, HKSAR v WONG Hung Ki and Anor. [2011] 1 HKLRD183; China Light & Power co Ltd and Anor. v Michael Edward Ashton Ford [1998] 1 HKLRD 382. 48.The defendants do not contend, at this stage, that the solicitor's consulted by on behalf of the plaintiff necessarily were complicit in any fraud. Understandably, whether that allegation arises in due course will be dependent upon the outcome of the investigations. However, for the purposes of this decision, Cox and Railton makes it quite clear that their complicity is not an essential feature required to negate LPP. 49.Whilst I have had regard to the other judgments brought to my attention, what is required to displace the confidentiality afforded LPP, was considered at some length in R v Gibbins [2004] EWCA Crim 311. It indicated a two-stage approach as appropriate, which I propose to apply in this matter, being:
50.The Court held that both questions should be decided upon the basis of probability, in the sense of a prima facie case, rather than the overall criminal standard of proof. In order to reach that decision the Court found that it was proper, for the purpose of determining the answers, to look at the contents of the documents themselves and that the court should look at the position “in the round”. 51.The Court said:
continuing:
52.Returning to the instant matter, a chronology incorporating the dates and identity of the surrendered material as well as other significant dates affords an efficient overview of the interrelationship of events thus:
53.As to the event on 7 September 2008, that the "company" became aware of its financial exposure appears from the profit warning announcement made on 20 October 2008. The press statement issued the same day by the plaintiff's chairman, Mr. Larry Yung, refers to "the problem" having been discovered by "senior management... last month". In the circumstances it is not unrealistic to take it that the directors of the plaintiff were aware of the financial risk exposure on 7 September 2008. 54.The reference to the DCH circular dated 16 September 2008 is a reference to a document which appears to lend support to the suggested wilful concealment of the company’s financial risk exposure and, thus, to the existence of a conspiracy to defraud. 55.The circular related to a disclosable and connected transaction concerning the acquisition by the plaintiff of a 49% interest in FAW Toyota 4S Company and a 50% interest in Lexus 4S Company and the related shareholders’ loan accounts. The date of the sale and purchase agreement is shown to be 26 August 2008. 56.The definitions contained in the circular define the latest practicable date prior to the printing of the circular for the purpose of ascertaining certain information therein as being 9 September 2008, a date after the "company" became aware of its financial risk exposure. 57.The circular contains, in an appendix containing general information, a specific representation in the following terms:
58.There was, as a matter of fact, no disclosure in the circular of the financial risk exposure which had become apparent on or about 7 September 2008. It is the defendants’ contention, in which I find substantial force, that this is a clear, and public, demonstration of an intention to conceal the knowledge of the abnormal losses already sustained or anticipated. 59.A further feature of significance is that the plaintiff obtained, according to the unchallenged evidence of DSI Wong, the three bank loans on 25 September and 10 and 14 October 2008, all at a time prior to the public disclosure by the plaintiff of the financial risk exposure which was known to it. The board resolutions authorising the borrowing were signed by the Finance Committee of the Board of Directors of the plaintiff which included Larry Yung, Henry Fan, Peter Lee and Leslie Chang. The agreements in respect of the loans were signed by Leslie Chang in all three instances and also by Peter Lee in one instance. It must be self-evident that prior to the date of the granting of the three loans an application would have been made to the respective lender. 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. 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 interests of those groups, a fact which could not have escaped the notice of the plaintiff or those controlling it. 62.Insofar as is necessary for the defendants to demonstrate, at this stage, the dishonesty element of the offence of fraud, in my judgment the inference of dishonesty based on the well-known test in R v Gosh [1982] 1 QB 1053, [1982] 2 All ER 689 would be open to be drawn from the conduct of the plaintiff in concealing the knowledge which was available to it on or about 7 September 2008. (E) The contents of the surrendered material 63.Such other matters as need to be addressed flow from the contents of the surrendered material and are dealt with in §§65 - 77 in the accompanying judgment relating to the proceedings in Chambers. CONCLUSION 78.In the circumstances, I am satisfied that:
79.Accordingly, the plaintiff’s claim as set out at §§1 (iv)(a), (v) and (vi) and 1A of the re-amended originating summons is dismissed.
Mr Paul Shieh, SC and Mr Victor Dawes, instructed by Messrs. Robertsons, for the Plaintiff Ms Charlotte Draycott , SC, instructed by Department of Justice, and Mr. R G Turnbull, Senior Government Counsel, of the Department of Justice for the defendants Please refer to CACV60/2011 for the relevant appeal(s) to the Court of Appeal. |
Cases cited in this judgment
Further hearings and rulings under HCMP 767/2010