China Does Not Have an Attorney-Client Privilege
In the United States and much of the rest of the world, private communications between a lawyer and their client that cannot be disclosed without the client’s consent. This is not the case with China.
The Critical Risks of No Attorney-Client Privilege in China
In China, the fundamental concept of attorney-client privilege that protects lawyer-client communications in the U.S. and elsewhere does not exist. This means communications with Chinese lawyers are not confidential. Companies need to take precautions when sharing information.
Way back in 2007, we did a post on attorney ethics in China, Chine Foreign Lawyer Ethics Rules. In that post, we discussed Time to Raise The Professional Ethics Bar for Lawyers in China? a post by American lawyer Brad Luo noting how China’s guidelines lawyers must follow forbid them from representing both sides in the same conflict but go little beyond that. Brad wrote how he was troubled by how China does not require lawyers to keep the secrets and interests of past clients, and how this means Chinese lawyers can turn on their own clients without offending any ethical duty to keep either client’s information secret.
In a subsequent post, Time to Raise The Professional Ethics Bar for Lawyers in China? (II), Brad rightfully describes “confidentiality” as “the bedrock of an open and trusting relationship between lawyers and clients” and notes that American lawyers must keep client confidences “strictly confidential and secret.” Chinese lawyers, on the other hand, are prohibited from divulging only “’national secrets, clients’ trade secrets, and privacy of parties learned by the lawyer during representation.” “Personal privacy is not defined, and Brad sees it as being limited and he views the duty to keep someone’s information private as stated in China’s Lawyer’s Law and Ethics “does not provide sufficient protection to clients.”
Real World Dangers of No Attorney Confidentiality
1. Be Wary of Hiring Chinese Lawyers and Even More Wary of Revealing Confidences to Them
Brad concludes this post by saying “if I were a client, I’d hesitate to talk about certain things with my Chinese lawyer.” Brad is dead on with this advice and foreign companies using Chinese lawyers must be cognizant of this and this is something our China lawyers constantly have to explain to our somewhat disbelieving American clients. The following are some concrete examples where companies have paid a stiff price for not accounting for how lawyer-client issues differ across borders.
Many years ago, a couple of our international lawyers were meeting with in-house legal counsel for a very large Korean company, or chaebol. We were representing the chaebol on a matter, but the chaebol’s in-house counsel wanted to use our meeting as an opportunity to “pick our brains” about another fairly small, but somewhat complicated, multi-party case on which he was working. The other case involved an alleged breach of contract and a number of American high-tech companies. The case was pending in a Korean court and settlement talks had just begun. The in-house lawyer spent maybe ten minutes explaining the facts of the case and the various players to us and once we had reached a point where we felt we understood its overall outline, the in-house lawyer handed us a two-page letter to review.
The letter was written by an American attorney, on behalf of his American client, to the Korean lawyer representing the American company in Korea. The letter talked about how the American company wanted to settle the case for a million dollars, but it would be willing to take $600,000. The letter then instructed the Korean attorney for the American company to start settlement negotiations at $1.4 million.
Seeing as how my client had a copy of this letter, we initially assumed the American company whose settlement strategy was revealed in the letter was on the same side in the Korean case as our Korean client, and we read the letter accordingly. We then read the letter again and then we read it a third time. We were really confused, and we confessed as much to the Korean in-house lawyer. We told him we had thought the American company whose settlement strategies were being discussed was the American company suing the chaebol, but we obviously must have misunderstood the facts. The Korean in-house lawyer (who had an American legal degree) smiled and then explained.
The American company in the letter was on the opposite side of the chaebol in the case and the letter setting forth the innermost workings of the American company’s settlement strategy directly involved the American company’s efforts to settle with the chaebol. The Korean chaebol had been given this letter by the American company’s Korean attorney because this Korean lawyer had attended the same Korean law school as the chaebol’s in-house lawyer and had started law school a year or two later, making the in-house Korean lawyer his “big brother.” The opposing Korean lawyer would golf once or twice a year with the in-house Korean lawyer and had been trying to secure legal work from this chaebol for some time.
We are aware of multiple instances where Western companies have overpaid or been cheated from having their own lawyers reveal confidences to the other side. We have seen/heard of this happening in all sorts of deals, but most commonly in joint venture deals and in large procurement deals. In the end, this form of cheating is essentially the same as your standard run of the mill kickback deal but involving your own lawyer.
The idea that lawyers must keep their client’s secrets has been a rule in the Western world for hundreds of years. The privilege fundamentally informs American company expectations of the legal profession, to a degree that creates dangerous assumptions when dealing with lawyers in jurisdictions outside the common-law tradition, where the privilege might not be as extensive—or may not exist at all.
By way of example, under Washington State law, a lawyer cannot be forced to reveal what their client told them unless the client gives its okay. Per a U.S. Supreme Court decision, for justice to work well, people need expert advice from lawyers, and they’ll only get that if they can trust the lawyer to keep their secrets.
The Supreme Court’s reasoning seems compelling, but clearly its views are not universal. In China, for example, lawyers have a general duty of confidentiality (Art. 83, Law on Lawyers), but there is nothing to stop them from bearing witness against their clients in civil cases. And though Chinese criminal defense attorneys can choose to maintain confidentiality (Art. 46, Crim. P. Law) regarding their cases, the same discretion does not legally extend to other lawyers. Per this rule, the Chinese lawyer defending a person in a tax cheating case can decide not to speak against their client, but that person’s other lawyers (even the lawyer who helped with the taxes, do not have that protection.
In addition to these legal considerations, there are also practical ones. American lawyers are rightfully terrified of disciplinary action, which can including losing one’s license to practice law. This is not to say that lawyers in China are not subject to disciplinary oversight from the government and bar authorities: they are. However, a study of disciplinary cases in Zhejiang found that only 11 out of 122 cases reviewed involved “some aspect of client protection”. Political concerns and the protection of law firms’ interests were usually the driving force.
It is hard to see how the average Chinese lawyer would be fearful of the consequences of revealing confidential information, especially if the affected client is a foreigner, even more so these days if it is an American company. This means you are in a vulnerable situation if your Chinese lawyer stands to benefit by revealing information you provide. Perhaps your Chinese lawyer has another client who would just love to take a look at that new patent application of yours. Perhaps your Chinese law firm stands to benefit by tipping off your competitor before it files your trademark application — we have many times heard of this happening. Or maybe it will be as simple as revealing that you told them that you would have paid $10 per widget, not just the $8 written in your contract. Worse yet, what if your Chinese lawyer is in hot water with Chinese governmental authorities and reporting the missteps of a foreign company will help them curry favor? All of these nightmare scenarios are real life possibilities.
2. Precautions for Companies
Mindful of all this, savvy clients often take their China work to lawyers bound by the strict confidentiality rules of foreign countries. Of course, on occasion some information may need to be revealed to Chinese co-counsel, but it should always be done in a careful, measured, need-to-know basis.
Even in countries that recognize some form of attorney-client privilege, issues can still arise. For instance, in-house counsel cannot invoke attorney-client privilege in some jurisdictions. Conversations with in-house counsel in certain countries like France and Italy lack confidentiality protections. Your CEO should be aware in-house talks are not privileged like discussions with the general counsel back home.
Needless to say, you do not want to find out that your communication is not privileged after you have disclosed confidential information. Before working with lawyers in other countries, it’s best to first discuss your situation with U.S. lawyers familiar with international issues, and then plan carefully.
Conversations with in-house counsel in certain countries like France and Italy lack confidentiality protections. Your CEO should be aware in-house talks are not privileged like discussions with the general counsel back home.
Conclusion
These lawyer trust issues have been out there for a long time, but with the increasing tensions between China and the United States, they are and will continue coming to be at the fore and this has spurred us to write about this again.
In tandem with your own country’s lawyers, take the steps necessary to protect your company’s confidential information before you retain Chinese counsel.
Be careful out there. Like really careful.
