SHUN KAI FINANCE CO LTD v. JAPAN LEASING (HONG KONG) LTD (IN CREDITORS' VOLUNTARY LIQUIDATION)

CACV 87/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 87 OF 2000

(ON APPEAL FROM HCA NO. 13826 OF 1998)

______________

_______________

J U D G M E N T

_______________

Hon Rogers VP :

1. This is an appeal from an order of Chung J made on 8 February this year. The application before the judge below was an appeal from an order of Master Lok whereby he had ordered the 1st plaintiff to provide photocopies of documents identified in the defendant's summons which had been referred to in the original (but now amended) statement of claim in the action. The order made by the judge below was that :-

"The Appeal is allowed to the extent that an undertaking is implied in relation to documents disclosed under Order 24 rule 10."

He then made an order nisi that the costs of the appeal and the application before Master Lok were to be paid by the defendant to the 1st plaintiff in any event.

2. It is to be noted at this stage that the judge did not grant an injunction nor did he require the defendant to submit to an undertaking prior either to inspection of the documents or the provision of photocopies. Furthermore, the reference in the order to an implied undertaking is not specific as to the terms of that undertaking. It is also to be noted at this stage that if the judge below is correct that there is automatically an implied undertaking when documents are produced in response to a request for inspection under Order 24 rule 10, the matter would have a wide application to all requests to inspect documents referred to in pleadings and affidavits.

The distinction between discovery and inspection of documents referred to in a pleading

3. There is a fundamental distinction between discovery in the proper sense of the word and disclosure of documents which are referred to in pleadings and affidavits.

4. Discovery is the process whereby the parties to litigation disclose documents which are in their possession or control relating to the issues in the action. The reason for discovery is that it provides a basis for fairness in the proceedings. In order to encourage full and proper discovery, there has always been an implied obligation on the part of the party receiving the discovery and being granted inspection, that documents disclosed on discovery will not, without the consent of the court, be disclosed to any third party nor used for any purpose other than the action in which they were disclosed. The obligation is imposed as a consequence of the court having invaded the right of privacy that the party who is forced to give discovery under compulsion of the process. The obligation is sometimes referred to as an implied undertaking, but whether it be an obligation or an undertaking, a breach of it would constitute contempt : see e.g. Williams v. Prince of Wales Life etc. Co. (1857) 23 Beav. 338, Hopkinson v. Burghley (1867) 2 Ch. App. 447 and Alterskye v. Scott [1948] 1 AER 469.

5. The point was put in this way by Lord Hoffmann in Taylor v. Serious Fraud Office [1999] 2 A.C. 177 at 207 :-

"The concept of an implied undertaking originated in the law of discovery in civil proceedings. A solicitor or litigant who receives documents by way of discovery is treated as if he had given an undertaking not to use them for any purpose other than the conduct of the litigation. As Hobhouse J. pointed out in Prudential Assurance Co. Ltd. v. Fountain Page Ltd. [1991] 1 W.L.R. 756, 764 the undertaking is in reality an obligation imposed by operation of law by virtue of the circumstances in which the document or information is obtained. The reasons for imposing such an obligation were explained by Lord Keith of Kinkel in Home Office v. Harman [1983] 1 A.C. 280, 308:

'Discovery constitutes a very serious invasion of the privacy and confidentiality of a litigant's affairs. It forms part of English legal procedure because the public interest in securing that justice is done between parties is considered to outweigh the private and public interest in the maintenance of confidentiality. But the process should not be allowed to place upon the litigant any harsher or more oppressive burden than is strictly required for the purpose of securing that justice is done.'"

6. The process of discovery is in contrast to production of documents which are referred to in pleadings. The rules of court have provided for conciseness of pleading and for documents to be exhibited to affidavits. If a party wishes to rely upon a document in its pleading, for example, a plaintiff in the statement of claim, there is no compulsion upon him to do so. He does so voluntarily. However, the party chooses to rely upon that document. In referring to it in a pleading, the party referring to it has made the document part of his pleading. It is for that reason that the opposing party is entitled to inspection of that document : see the Court of Appeal decision in Quilter v. Heatly (1883) 23 Ch. D. 42. The same reasoning was applied to exhibits in affidavits in Re Hinchcliffe [1894] 1 Ch. 117.

7. The distinction between documents which were disclosed under discovery and documents which were allowed to be inspected because they were referred to in pleadings or affidavits was examined in the case of Derby v. Weldon No. 2, namely the decision of the Vice Chancellor, Sir Nicholas Browne-Wilkinson of the 19 October 1988. The judge examined four different types of documents which were in issue as to whether they were governed by the implied undertaking to which I have referred.

8. The first category was documents and affidavits put in evidence by the plaintiff in English proceedings. The second was affidavits and exhibits put in by the defendant voluntarily in the course of proceedings. The third was documents referred to in an affidavit voluntarily by the defendant which had been produced in response to an order as a consequence of the application of Order 24 rules 10 and 11 and the fourth was affidavits and exhibits sworn by the defendant under compulsion of court orders.

9. For the purposes of this case, it is relevant to refer to what was said in respect of the third category of documents. It was said that the affidavit was sworn voluntarily but the person who made the affidavit and referred to the documents in it had waived any right to privacy. He knew or should have known that he could not rely on a document in an affidavit without being liable to produce it. Having elected to rely on the documents, any order that they be produced was as a consequence of that election. The distinction was drawn in that case between documents which were relied upon voluntarily and documents, the existence of which had been revealed under discovery orders and were subject to usual orders for discovery.

10. What was said in that case was followed by Hobhouse J in Eagle Star Insurance Co. Ltd v. Arab Bank Plc in a judgment given on 25 February 1991. In that case, the argument turned upon documents which had been subject of production following a notice upon Order 24 rule 10. As is recorded by the judge, it was argued that Order 24 rule 10 should be viewed as the same type of discovery exercise as any other part of Order 24 and, therefore, anything obtained under Order 24 rule 10 must be subject to the same duty and the same implied undertaking as documents obtained on discovery in the conventional sense.

11. The judge rejected this argument because, in his words, it misunderstood the character of Order 24 rule 10. As he pointed out, the rule dates at least to the last century. He cited the case of Quilter v. Heatly 23 Ch. D. 42 and in particular what Lindley L.J. said at p.50 that it was essentially a matter of enabling the opposite party to understand fully what is in the other side's pleading and in effect to have it fully particularised.

12. If the document is referred to without the document being conclusively identified, and its full terms identified, then the opposite side does not have the full particularity of the other side's pleading to which he is entitled. Order 24 rule 10 was a machinery by which the party obtained that particularity and he was entitled to have produced to him the document which was referred to in the pleadings. Hobhouse J emphasised that the production of documents in accordance with Order 24 rules 10 and 11 was not, in essence, a discovery exercise. He said :-

"Its history is different, its function is different."

13. Hobhouse J went on to agree with Browne-Wilkinson V-C's approach, at page 6 of the printout of the Derby v. Weldon report that a party who, for his own purposes in defending a case, decided to use the documents rather than maintaining privacy "destroys the privacy of the document".

14. In referring to the implied undertaking in relation to documents disclosed on discovery, Hobhouse J agreed with Sir Nicholas Browne-Wilkinson V-C's analysis of the underlying principle.

15. The same thoughts were echoed by Hobhouse J in Prudential Assurance Co. Ltd v. Fountain Page Ltd [1991] 3 AER 878 at p.890 where he said that there was no blanket restriction on the use of documents and information acquired in the course of litigation and that the compulsion exception is confined to documents and information which a party is compelled, without any choice, to disclose. That decision was, as noted above, cited in Taylor v. Serious Fraud Office.

16. In short, there is little to be gained from further repetition of authorities since it is, in my view, settled by undisputed authority up to the House of Lords that the rationale for the implied undertaking in relation to documents disclosed on discovery stems from the compulsory nature of the discovery. Documents, referred to in pleadings and affidavits, which are the subject to Order 24 rules 10 and 11 are in law part of the pleadings and can be used just as much as the pleadings can be used.

The judgment in the court below

17. The judge in the court below had before him the Eagle Star case but it appears that he only had an abbreviated synopsis of the decision in Derby v. Weldon No. 2. He came to the conclusion that he should not adopt that reasoning in the Eagle Star case for three reasons. First, he said that the logic in the reasoning in the Eagle Star case was flawed. Secondly, he relied upon the Rules of Court and thirdly, he prayed in aid what he considered were policy considerations.

18. I propose to examine those in turn.

(1) Logic in the reasoning

19. At page 8 of his judgment, the judge wrongly stated that the Derby case was not concerned with the existence or otherwise of the implied undertaking. He then went on to indicate that his view was that the reason underlying the production of documents referred to in a pleading related to "a level playing field". He equated that with discovery. In my view, here, he misunderstood the nature of the entitlement to inspection of documents contained in a pleading. It is not a question of a level playing field. It is a question of knowing what the other side voluntarily stated its case to be. When he went on to say, there was "no logical or necessary connection between that purpose and whether an implied undertaking exists or should exist", he clearly failed to understand the genesis of the implied undertaking in relation to documents compulsorily discovered.

20. Having misled himself in relation to the point about a level playing field, the judge then went on to attribute a compulsion in respect of the inspection of documents where a party has voluntarily referred to them in a pleading.

21. In pursuing this line of his own perception, the judge ignored not only the cases to which I have referred but indeed, ignored the fact that those cases were indeed an accurate reflection of the distinction between the production of documents contained in pleadings and discovery. That distinction goes back at least two centuries in the common law world. As Bray on Discovery, 1885 edition, makes clear the history of disclosure of documents which were referred to in the pleadings goes back to the common law practice of Profert and Oyer. It is unnecessary to go into the details of that save to say that there was always a distinction in common law between the production of documents which were referred to in pleadings under Profert and Oyer and discovery, even the equitable common law discovery, which was practised in the common law courts : see p. 263 onwards.

22. In this respect, far from being a matter of circular reasoning or strained distinction as the judge below said, what has been said in the cases to which I have referred is not merely based on sound propositions but clearly finds its basis in history.

(2) Construction of the Rules of Court

23. Two points are made here. The first is that Order 24 rule 10 is to be found in an order relating to discovery and the second is that by Order 24 rule 14A, it is provided that :-

"Any undertaking, whether express or implied, not to use a document for any purposes other than those the proceedings in which it is disclosed shall cease to apply ... after it has been read to or by the court, or referred to, in open court ..."

24. In this respect, it is unnecessary to refer to the comparatively recent line of authorities which eventually ended with the introduction of rule 14A in the English Rules which were then followed in the Hong Kong Rules. The point can simply be made that it reflects the fact that once a document has been used in open court, any undertaking is no longer valid. There can be no basis simply from the wording of that Rule for inferring that an express or implied undertaking does exist in respect of documents disclosed under Order 24 rule 10 or 11.

25. The fact that Rules 10 and 11 are contained in Order 24 and not in a separate order, does not in any way dictate that there should be an implied undertaking.

(3) Policy considerations

26. The final point made by the judge was under the heading of "Policy considerations". He said it was necessary for the court to retain control over the use of documents disclosed and at the same time have discretionary power to release such undertaking. There is, in my view, no reason to retain control over documents which have been disclosed as a result of voluntary acts of a party.

27. Even if there were reason to retain control over documents referred to in pleadings and exhibits to affidavits that can be, and in the case for example of exhibits to affidavits frequently is, done by means of specific confidentiality orders in individual cases. There is no reason in principle why a court cannot make a particular document subject to a confidentiality order in just the same way as proceedings in court can be made confidential.

28. I would add for completeness that there is no bar to use of another's pleading for purposes other than the action : see Russell J in Grindell v. Bass [1920] 2 Ch. 487 and Farr Smith v. Messers [1928] 1 KB 397.

29. The final point made that there should be a consistency between documents on discovery and documents disclosed because they are referred to in the pleadings, again, misses the point.

The plaintiffs' submissions in this court

30. Mr Allman-Brown whilst acknowledging the weight of authority against him, sought to argue that it was open to this court to adopt its own course, particularly since the coming into force of the Basic Law and the fact that decisions of the Court of Appeal and House of Lords in England are not binding. Whatever the correct analysis as to whether other decisions are binding or not, the clarity of reasoning and sound basis of the judgments to which I have referred, in my view, makes it impossible for this court to come to any other view than that there can be no implied undertaking not to make use of documents which have been disclosed voluntarily. Neither logic nor reasoning would lead to that conclusion and the invitation to this court to administer the rules of court oblivious of their genesis and rationale must be declined.

31. I would add that no reported case has been found either by the researches of counsel or by this court, where it has been held that documents disclosed in a pleading were subject to the same implied undertaking as that relevant for documents disclosed on discovery. To hold now that there is such an implied undertaking would mean that there had always been such an implied undertaking. The effect would be that anybody who had used a document referred to in a pleading for purposes other than the action would have been guilty of contempt. Such a result would, in my view, have very serious consequences.

32. In my view, this appeal must be allowed. The order in the court below should be set aside and the order of the Master restored.

Hon Keith JA :

Introduction

33. This appeal raises a short but by no means easy point on the use which may be made of documents referred to in pleadings. In a judgment displaying commendable independence of mind, Chung J departed from the settled law on the topic in England and Wales. The principal question which this appeal raises is whether he was right to do so.

The relevant facts

34. The plaintiffs' case is pleaded in their Amended Statement of Claim. For present purposes, all that needs to be said is that the 1st plaintiff, Shun Kai Finance Co. Ltd. ("Shun Kai"), is a moneylender duly licensed under the Money Lenders Ordinance (Cap. 163). Its moneylending activities were financed by the defendant, pursuant to an agreement under which the defendant agreed to lend various sums to Shun Kai. Shun Kai would then lend those sums to its customers. Shun Kai's case is that the defendant broke that agreement by requiring Shun Kai's customers to repay the monthly instalments on various loans to it (the defendant) instead of to Shun Kai.

35. In the Amended Statement of Claim, Shun Kai gave particulars of the various loans to which this allegation related. Those particulars were given under five columns. They gave, in relation to each loan, the name of the customer to whom the loan was made, the date of the loan agreement, the amount of the loan, the monthly instalments which the customer was required to make by way of repayment of the loan, and the date of the defendant's notice to the customer requiring repayment of the monthly instalments to the defendant.

36. In due course, the defendant's solicitors requested Shun Kai to produce copies of the loan agreements to which those particulars related. That request was made pursuant to Ord. 24 r. 10(1), which provides:

"Any party to a cause or matter shall be entitled at any time to serve a notice on any other party in whose pleadings, affidavits or witness statements served under Order 38, rule 2A, or experts' reports reference is made to any document requiring him to produce that document for the inspection of the party giving the notice and to permit him to take copies thereof. "

Ord. 24 r. 10(2) sets out what Shun Kai had to do when served with such a notice. It provides:

"The party on whom a notice is served under paragraph (1) must, within 4 days after service of the notice, serve on the party giving the notice a notice stating a time within 7 days after the service thereof at which the documents, or such of them as he does not object to produce, may be inspected at a place specified in the notice, and stating which (if any) of the documents he objects to produce and on what grounds."

Shun Kai's solicitors did not respond to that request, and the defendant issued a summons seeking an order requiring Shun Kai to produce the loan agreements to the defendant and its solicitors for inspection and to permit them to take copies of them. That summons was issued under Ord. 24 r. 11(1), which provides (so far as is material):

"If a party who is .... served with a notice under rule 10(1) .... fails to serve a notice under .... rule 10(2) .... then .... the Court may, on the application of the party entitled to inspection, make an order for production of the documents in question for inspection at such time and place, and in such manner, as it thinks fit."

37. By the time that the defendant's summons was heard by Master Lok, Shun Kai had agreed to produce the loan agreements for inspection and to provide copies of them. In other words, Shun Kai had agreed to do everything which the master could have ordered it to do on the hearing of the defendant's summons. However, Shun Kai's solicitors believed that production of the documents would have resulted in the defendant and its solicitors being subject to an implied undertaking not to use the documents for any purpose other than for use in the litigation. They therefore required the defendant and its solicitors to give an express undertaking not to use the documents for any purpose other than for use in the litigation. The defendant and its solicitors were not prepared to give that undertaking.

38. In these circumstances, the hearing before Master Lok was treated as an opportunity to decide, not the issue to which the defendant's summons related, namely whether Shun Kai should be required to produce the documents for inspection and permit the defendant's solicitors to take copies of them (because that issue was not one on which the parties disagreed), but the issue relating to the use which the defendant and its solicitors could make of the documents. I am not convinced that Master Lok had the jurisdiction to determine that issue, but in the event he decided that issue in favour of the defendant. He ruled that the production of the documents would not result in the defendant or its solicitors being subject to an implied undertaking not to use the documents for any purpose other than for use in the litigation. Accordingly, he did not require the defendant or its solicitors to give an express undertaking of the kind sought by Shun Kai's solicitors.

39. It is here that a procedural gremlin found its way into the works. Unfortunately, the actual order which Master Lok made did not reflect this ruling. When it was drawn up, it ordered Shun Kai (a) to provide the defendant with copies of the documents and (b) to permit the defendant and its solicitors to inspect the originals. A more appropriate order - to reflect that which Shun Kai had been prepared to do and to reflect Master Lok's ruling as to the use which the defendant and its solicitors could make of the documents - would have been to make no order on the summons, but to give the defendant and its solicitors liberty to use the documents for purposes other than use in the litigation.

40. Shun Kai wished to appeal against Master Lok's ruling on the use which the defendant and its solicitors could make of the documents. By its Notice of Appeal, the order it sought was the setting aside of Master Lok's order. But that could not have achieved the desired result, because it was not the order which Master Lok had made which was the real problem, but the ruling which he had made which had not been reflected in the order. When the appeal was decided by Chung J, he was alive to this problem. Although he found that Master Lok's ruling had been wrong, and that the production of the documents resulted in the defendant and its solicitors being subject to an implied undertaking that they would only use the documents for the purpose of the litigation, he did not set aside Master Lok's order. He simply ordered that the appeal be allowed to the extent that the production of the documents was subject to that implied undertaking.

The subsidiary ground of appeal

41. The defendant now appeals to the Court of Appeal from Chung J's order. It seeks to have Master Lok's ruling restored. But the procedural history is relevant because of a subsidiary point taken by Mr Joseph Fok SC for the defendant (who did not appear below). He argued that the issue as to whether the production of the documents resulted in the defendant or its solicitors being subject to an implied undertaking not to use them for any purpose other than for use in the litigation was not before Chung J. The issues before him were

(a) in the light of Shun Kai's Notice of Appeal, whether Master Lok had been right to order Shun Kai to produce the documents for inspection, and

(b) in the light of the express undertaking which Shun Kai had required the defendant and its solicitors to give, whether Master Lok had been right not to require the defendant and its solicitors to give an express undertaking not to use the documents for any purpose other than for use in the litigation

42. I reject this argument. Issue (a) was not an issue before Chung J since Shun Kai accepted that it had to produce the documents to the defendant's solicitors for inspection. Indeed, in his judgment, Chung J referred to the fact that they had already been produced to the defendant's solicitors. He added that they were being held by them "pending the outcome of this appeal", by which he meant, I assume, that the defendant's solicitors had undertaken not to use them for any purpose until the question of principle which the appeal raised had been decided. It would not be right for the defendant to rely on the terms of Shun Kai's Notice of Appeal from Master Lok's order because that Notice of Appeal did not reflect the real issue which Chung J had had to decide.

43. As for issue (b), the real issue which Chung J had to decide was whether the production of the documents had resulted in the defendant or its solicitors being subject to an implied undertaking not to use them for any purpose other than for use in the litigation. It was only if the defendant and its solicitors were subject to such an implied obligation that it might be appropriate to require them to give an express undertaking to that effect.

The principal ground of appeal

44. The way is now clear for the defendant's principal ground of appeal to be addressed. It is common ground that the party to whom documents are disclosed in accordance with the normal processes of discovery under Ord. 24 is subject to an implied undertaking not to use the documents for any purpose other than for use in the litigation in which the documents were disclosed. However, there is a respectable line of authority in England and Wales to the effect that that principle does not apply to documents referred to in pleadings and affidavits which have to be produced for inspection under Ord. 24 rr. 10 and 11. When those documents are produced, the party to whom they are produced is free to use them for purposes other than the litigation. Chung J held otherwise insofar as documents referred to in pleadings are concerned. He ruled that documents referred to in pleadings are to be treated in the same way as documents disclosed pursuant to the normal processes of discovery, and that the party to whom they are produced for inspection under Ord. 24 rr. 10 and 11 is subject to an implied undertaking not to use them for any purpose other than for use in the litigation. The defendant's principal ground of appeal is that that ruling was wrong.

The relevant principles

45. To evaluate this argument, it is necessary to return to first principles. The rationale underlying discovery in civil cases is that

".... compulsory procedures are needed to ensure that the parties are able successfully to extract all relevant documents and other information from others, and thus to find evidence supporting their own case and undermining that of their opponents"

(Matthews & Malek, "Discovery", Litigation Library, 1992, para. 1.03). Thus, Ord. 24 r. 2 requires the parties to exchange lists of documents identifying those documents which are (or were) in their possession relating to matters in issue in the proceedings.

46. The compulsory nature of the normal processes of discovery lies at the heart of the rationale for the implied undertaking. The implied undertaking is no more than an illustration of the principle that

".... private information obtained under compulsory powers cannot be used for purposes other than those for which the powers were conferred"

(per Sir Nicholas Browne-Wilkinson V-C (as he then was) in Marcel v. Commissioner of Police of the Metropolis [1992] Ch. 225 at p. 237C). Thus, the rationale for the implied undertaking is conveniently explained in Matthews & Malek, op. cit., para. 12.04, as follows:

"The primary rationale for the imposition of the implied undertaking is the protection of privacy. Discovery is an invasion of the right of the individual to keep his own documents to himself. It is a matter of public interest to safeguard that right. The purpose of the undertaking is to protect, so far as is consistent with the proper conduct of the action, the confidentiality of a party's documents. It is in general wrong that one who is compelled by law to produce documents for the purpose of particular proceedings should be in peril of having those documents used by the other party for some purpose other than the purpose of the particular legal proceedings and, in particular, that they should be made available to third parties who might use them to the detriment of the party who has produced them on discovery. A further rationale is the promotion of full discovery, as without such an undertaking the fear of collateral use may in some cases operate as a disincentive to proper discovery. The interests of proper administration of justice require that there should be no disincentive to full and frank discovery."

47. However, the normal processes of the compulsory discovery of documents by lists has to be contrasted with the requirements of Ord. 24 rr. 10 and 11, pursuant to which a party may be required to produce for inspection by the other party documents referred to in pleadings or affidavits. The rationale for these rules was explained by Lindley LJ in Quilter v. Heatly (1883) 23 Ch. D. 42. Talking about the predecessor of these rules, he said at p. 50 that they

"were evidently intended to give the opposite party the same advantage as if the documents referred to had been fully set out in the pleadings."

Thus, documents referred to in pleadings may be ordered to be produced for inspection even when lists of documents have not been served, and even before the pleadings have closed.

The English authorities

48. In the light of the rationale for the imposition of the implied undertaking in relation to documents disclosed pursuant to the normal processes of discovery, should the implied undertaking be imposed in relation to documents produced for inspection because they are referred to in the pleadings? The courts in England and Wales have answered this question with a resounding No. Two cases are particularly important. First, in Derby & Co. Ltd. v. Weldon (No. 2), unreported, 19 October 1988, Sir Nicholas Browne-Wilkinson V-C said:

"The voluntary disclosure of documents in the course of interlocutory proceedings by a party does not come within the rationale which is the basis of the implied undertaking relating to documents disclosed on discovery. In relation to documents voluntarily disclosed the Court has not invaded the privacy of the party. The party has, for his own purposes in defending a case, decided himself to use the documents rather than maintain his privacy. It is the party who has destroyed the privacy of the document, not the plaintiff or the Court ... In my judgment the special protection given to documents disclosed under compulsion of discovery procedures does not apply to any wider class of documents. If [the position was otherwise], I can see no logical step short of holding that all documents produced in litigation (whether voluntarily or involuntarily or whether at an interlocutory stage or later) remain confidential to the parties unless and until used in open court. That is not a result I would be prepared to reach unless compelled to do so by authority and, as I have said, there is none."

The particular issue which he had had to decide was whether documents referred to in an affidavit but subsequently made the subject of compulsory production by an order of the court under Ord. 24 r. 11 were subject to the implied undertaking. He held that they were not. He said:

"In swearing the affidavit and referring to the documents, Mr Weldon voluntarily waived any right of privacy. He knew, or should have known, that he could not rely on a document in an affidavit without being liable to produce it. He elected to rely on these documents and the Order of the Court was merely a consequence of that election."

49. Secondly, in Eagle Star Insurance Co. Ltd. v. Arab Bank Plc, unreported, 25 February 1991, Hobhouse J (as he then was) had to decide whether documents referred to in a pleading and an affidavit but not subsequently made subject of compulsory production by an order of the court under Ord. 24 r. 11 were subject to the implied undertaking. He held that they were not. He relied on the fact that the normal processes of discovery on the one hand and the inspection of documents to which Ord. 24 r. 10 applied were regimes whose history and function were different. He explained the rationale given in Quilter v. Heatly for the predecessor of Ord. 24 r. 10 as follows:

"It is essentially a matter of enabling the opposite party to understand fully what is in the other side's pleading and, in effect, to have it fully particularised. If a document is just referred to without the document being conclusively identified, and its full terms identified, then the opposite party does not have the full particularity of the other side's pleading to which he is entitled. The machinery by which he obtains that particularity is to entitle him to have produced to him the document which is referred to in the pleading. The same type of reasoning applies, as is set out in that case, to affidavits as well. If you choose to refer to a document in an affidavit, whether or not you exhibit it, you can be required, in order to enable the other side, so as to identify the full terms of the statement on oath of the other side, to see that document. It may be, in that category, that it is viewed not so much as a matter of particulars but as a matter of the application of the best evidence rule; in other words, if you are going to refer to a document in your evidence, you must produce it."

He then went on to explain why he agreed with the approach adopted in Derby & Co. Ltd. v. Weldon. He said:

"If a party chooses to refer to a document in his pleading or if he chooses to refer to it in any of his evidence (and that includes an affidavit) then he waives the right of privacy that previously existed. The Vice-Chancellor, in my judgment, correctly identified the underlying principle, which gave rise to the implied undertaking as being the invasion of privacy. That was how Lord Denning put it, in particular, in [Riddick v. Thames Board Mills Ltd. [1997] QB 881]. The party who chooses to refer to a document in his pleading or in his affidavit or elsewhere in his evidence, in the words of the Vice-Chancellor, 'destroys the privacy of the document'. It is the party who has destroyed the privacy of the document, not the plaintiff or the Court. He cannot rely thereafter on the principle of compulsion which underlies [the] implied undertaking which arises from an order for discovery ...."

Hobhouse J was echoing similar sentiments which he had expressed in Prudential Assurance Co. Ltd. v. Fountain Page Ltd. [1991] 1 WLR 756 at pp. 765H-768A.

50. The effect of these authorities is that the implied undertaking does not apply to documents referred to in pleadings and affidavits because referring to such documents in pleadings and affidavits is entirely voluntary. The obligation to produce them for inspection is only triggered because of the voluntary reference to them in the first place. That is to be contrasted with the normal processes of discovery which impose an obligation on a party to disclose relevant documents.

The correctness of the English authorities

51. Chung J decided not to follow these authorities. I do not propose to analyse the whole of his reasoning, because in my view the critical question is whether the premise on which the English authorities rests is correct - namely, whether a distinction can legitimately be made between the normal processes of discovery and the referring to documents in pleadings and affidavits on the basis that the former involves a degree of compulsion whereas the latter does not.

52. Chung J rejected this distinction. His view was that by voluntarily commencing proceedings (and presumably by voluntarily deciding to resist proceedings), a litigant voluntarily subjects himself to rules of court relating to the conduct of proceedings. Thus, the disclosure of documents under the normal processes of discovery is just as voluntary as the reference to documents in pleadings and affidavits which triggers the obligation to produce them for inspection. I cannot go along with this view. The fact that litigants voluntarily subject themselves to rules of court does not make the application of the rules of court to them any the less compulsory. They are still subject to the compulsory discovery of documents which, but for the rules relating to discovery, they would not be required to disclose.

53. But there is another side to this coin. What is the position if one concentrates, not on whether discovery under the normal processes of discovery could be said to be compulsory, but rather on whether the reference to documents in pleadings or affidavits could be said to be voluntary? It is here that I find myself in respectful but profound disagreement with the English authorities. In my view, it is a fiction to describe a litigant's decision to refer to a particular document in a pleading or an affidavit as voluntary. Whether litigants have commenced proceedings or whether they are resisting them, they have to file pleadings. And if there is an interlocutory dispute of one kind or another, they have to file affidavits if the resolution of the interlocutory dispute depends upon placing facts in evidence. The same is true of witness statements and (if expert evidence is necessary to resolve the issues in the action) experts' reports - which are the other classes of documents referred to in Ord. 24 r. 10(1). Litigants have no choice in the matter. If, in order to advance or defend their case, it is necessary to refer to a particular document in a pleading or an affidavit, it would be unrealistic to describe those references as voluntary. The need to refer to them would be dictated by the exigencies of the litigation. In other words, the reference to a document in a pleading or an affidavit which triggers the obligation to produce the document for inspection is just as compulsory as the discovery of documents under the normal processes of discovery. Indeed, when I returned to the authorities to see precisely why it was assumed that a reference to a document in a pleading or an affidavit was regarded as entirely voluntary, I was not able to find any reasoning for that assumption.

54. It is important to note that this conclusion does not amount in any way to a rejection of the rationale for the implied undertaking or the reasoning behind the rules requiring that documents be produced for inspection if they are referred to in pleadings or affidavits. Nor does this conclusion in any way involve rejecting the distinction between compulsory and voluntary discovery. The difference is only in whether it is right to characterise the reference to documents in pleadings, affidavits, witness statements and experts' reports as voluntary.

55. The effect of characterising them as voluntary, and rendering such documents as not subject to the implied undertaking, is to create an anomaly which in my view produces a serious injustice. Apart from anything else, I suspect that a litigant would be surprised to hear that, by permitting a document to be referred to in a pleading or affidavit, he would be treated as being content for the other party to make whatever use of the document which it chose. Moreover, if a document is referred to in a pleading or affidavit, it is likely to be a document to which the normal processes of discovery will apply. Such a document would therefore have to be disclosed in due course in the list of documents, and the implied undertaking would apply to it. However, if it has before then been referred to in a pleading or an affidavit, and has therefore been produced for inspection, it would be absurd if it could then be used for a purpose other than for use in the proceedings. That would have the effect of denying to the document the protection against its collateral use which it would be entitled to as a document to which the normal processes of discovery would in due course apply. If documents referred to in pleadings and affidavits were not subject to the implied undertaking (but would otherwise have been when the normal processes of discovery took their course), those who draft pleadings and affidavits would take the simple expedient of not referring to the documents in them. That could have the effect of pleadings and affidavits not being as comprehensive as the person who drafts them would like them to be.

56. All that applies to the present case. There was no need for the loan agreements to have been referred to in the Amended Statement of Claim. It would have been sufficient for particulars of the loans to have been given. In other words, the Amended Statement of Claim would not have been deficient if there had not been a column in the particulars giving the dates of the loan agreement. If documents referred to in pleadings and affidavits are regarded as having been voluntarily referred to in them, the loan agreements could now be used by the defendant to obtain the details of Shun Kai's customers to enable the defendant to persuade them to repay their loans to it rather than to Shun Kai - a course which would not have been open to the defendant if the loan agreements had not been referred to in the Amended Statement of Claim but had been disclosed in the normal processes of discovery.

Conclusion

57. For these reasons, I have concluded that the implied undertaking applies to documents produced for inspection because they were referred to in pleadings and affidavits just as much as documents to which the normal processes of discovery apply. Accordingly, I would dismiss this appeal, although I would vary the order made by Chung J to reflect the order which should have been made by the master. The order as varied should be that no order be made on the appeal from the order of Master Lok of 7 September 1999, save that the defendant and its solicitors should be at liberty to use the documents produced pursuant to the order of Master Lok only for the purposes of the proceedings herein. At present, I see no reason why costs should not follow the event, and the order nisi which I would make as to costs is that the defendant must pay to Shun Kai its costs of the appeal to be taxed if not agreed.

Hon Rogers VP :

58. The fact that the court was equally divided has already been communicated to the parties. Following a request by the defendant, in accordance with section 34B(5), the order shall be that this case be reargued before an uneven number of Justices of Appeal not less than three.