Introduction

In the current environment of intensified regulatory scrutiny and heightened corporate accountability, internal investigations have become essential for businesses operating in Hong Kong, particularly for listed companies and regulated entities. These organisations must navigate complex challenges, including responding to regulatory inquiries, managing whistleblower reports, and addressing potential misconduct while mitigating legal, reputational, and regulatory risks.

Legal professional privilege (LPP) can play a critical role in safeguarding your legal rights during these investigations.  This note examines the nuances of LPP within the context of internal investigations and offers insights for preserving privilege amidst Hong Kong’s intricate legal landscape.  

What is Legal Professional Privilege (LPP)?

In Hong Kong, LPP is a fundamental right that allows parties to withhold from disclosure documents that are protected by privilege. This applies not only during litigation but also when dealing with regulatory authorities and investigations. As explained in Lai Chee-Ying v Commissioner of Police [2022] HKCFI 3003, LPP consists of two categories:

1. Legal Advice Privilege (LAP): This applies to confidential communications (whether written or oral) between a client and a lawyer made for the purpose of obtaining legal advice.
2. Litigation Privilege: This extends to confidential communications (whether written or oral) created for the dominant purpose of adversarial proceedings—whether pending or reasonably anticipated. 

In the context of internal investigations, litigation privilege can be a powerful shield, but it is not automatic. It may not apply if an investigation is purely internal or aimed at addressing early-stage regulatory concerns, rather than in contemplation of litigation.

Set out below is a brief summary of the relevant legal principles on litigation privilege (Lai Chee-Ying v Commissioner of Police [2022] HKCFI 3003):

1. Given the wider ambit of the litigation privilege, the requirements/conditions must be strictly adhered to;
2. The burden of proof is on the party claiming privilege to establish it;
3. A party claiming privilege must show that the relevant communications were for the dominant purposes of either (i) enabling legal advice to be sought or given, and/or (ii) seeking or obtaining any evidence or information to be used in or in connection with such anticipated or contemplated proceedings. Where communications may have taken place for a number of purposes, it is incumbent on the party claiming privilege to establish that the dominant purpose is litigation. If there is another purpose this test will not be satisfied;
4. The dominant purpose is a matter for a court to determine after consideration of the relevant evidence;
5. Affidavits claiming privilege should be “specific enough to show something of the deponent’s analysis of the documents or, in the case of a claim to litigation privilege, the purpose for which they were created;
6. The fact that legal professionals were involved does not assist the party claiming the privilege;
7. The purpose of the communications must be for “conducting the litigation”, and not merely in connection with litigation;
8. As a general rule, “non-privileged documents do not, without more, acquire privilege simply because they are copied by a solicitor for purposes of an action”; 
9. The common interest privilege does not enable a claim for privilege to be made when previously none was available because it is adjunct to legal advice privilege and litigation privilege, not a separate head of the privilege;
10. “Raw material (viz original documents which come into existence during the course of the transaction or event, not created for the purpose of legal advice) is not protected by LPP” and “are not protected by privilege even though such copies were forwarded to or made by a solicitor for litigious purposes”.

Importance of LPP in Internal Investigations

In the context of internal investigations, LPP would serve several critical functions:

1. Encourage full disclosure – by ensuring that communications are confidential, employees are more likely to provide complete and candid information during investigations. This would help uncover facts and address potential legal issues.
2. Protect sensitive information – LPP allows organisations to resist demands for disclosure from external parties, including regulatory bodies or during litigation. This protection is particularly important when investigations may lead to sensitive findings that could impact the organisation’s reputation or legal standing. 
3. Clarifies investigation purpose – The primary objective of an internal investigation typically centres on evaluating allegations of misconduct, compliance breaches, or potential legal claims.  Invoking LLP allows organisations to clarify that the investigation is designed to seek legal advice or prepare for litigation, reinforcing its intent and safeguarding sensitive information from disclosure. 

Whether communications made in the context of an internal investigation are protected by LPP will largely depend on the facts and circumstances giving rise to the investigation. Common scenarios that result in an investigation include:

• Regulatory Notices: Formal notices issued by investigative or prosecutorial authorities requiring action or disclosure.
• Litigation Claims: Situations where a business faces civil litigation necessitating an internal investigation to assess the matter.
• Routine Internal Audit or Whistleblower Reports: Discovery of misconduct during regular operations or through whistleblower disclosures that warrant further inquiry.

In Orient Finance Holdings (Hong Kong) Ltd. v China Vered Asset Management (Hong Kong) Ltd. [2024] HKCFI 649, the respondent made a claim that the report prepared by Deloitte as the independent consultant to conduct an independent investigation into, among others, (i) investments made by an offshore fund which is managed by the group’s asset management subsidiary; and (ii) the nature, existing and valuation of the underlying assets of such investments, was subject to legal professional privilege.  The High Court of Hong Kong rejected the respondent’s claims on the basis that the dominant purpose of the report was for the investigation rather than fact-finding in connection with the then anticipated legal proceedings. 

Practical Consideration for Organisations or In-house Counsel

Given the importance of LPP in an internal investigation, it is critical to consider the following:

1. Whether in-house counsel or external counsel be engaged to conduct / lead the investigation

The choice of counsel—whether in-house or external—can have significant implications for both practical outcomes and LPP considerations. In both cases, the legal advice provided may be protected by privilege, but complications may arise when in-house counsel assumes non-legal roles within the organisation. The distinction between legal advice provided by lawyers and non-legal advice is crucial; only legal advice provided by a qualified lawyer will attract LPP.

To mitigate the risk of waiving LPP, it is essential to recognise that when multi-addressee messages (in particular, emails and messaging applications) are sent to various individuals—including lawyers—for their advice, the court may interpret this as a potential waiver under the doctrine of collateral waiver.  It is prudent to restrict such communications to only those necessary for obtaining legal advice and to ensure that privileged information is not disclosed to non-privileged recipients. By doing so, organisations can better protect their privileged materials from unintended disclosure and maintain the integrity of the legal strategy.

2. Scope and availability of LPP

In scenarios where legal advice is sought specifically by certain members of the board of directors, rather than the company as a whole, it is questionable whether the company would be treated as the client and be able to enjoy the protection of LPP.  The term “client” is interpreted restrictively, particularly following the Court of Appeal’s decision in Three Rivers District Council and Others v Bank of England [2003] EWCA Civ 474.

Moreover, if an internal investigation involves multiple subsidiaries or complex corporate structures, accurately identifying the relevant “client” can present significant challenges.  To ensure effective scope and availability of legal professional privilege, general counsel may consider the following practices:

• Clarify Engagement Parameters: To explicitly define in engagement letters who constitutes the client.
• Limit Communications: Restrict communications to only those who are directly authorised to seek legal advice.
• Joint Retainers and Common Interest Agreements: Assess whether a joint retainer is appropriate for multiple individuals or if entering into a common interest agreement would be beneficial for all relevant parties involved in seeking legal advice.

Alfred Leung, Partner

E: alfredleung@hkytl.com T: +852 3468 7202

This article is introductory in nature. Its content is current at the date of publication.  It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this article. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.