SARAH TANYA BORWEIN OLSEN v. MARKET DRAGON LTD AND ANOTHER

HCMP 173/2022

[2024] HKCFI 516

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 173 OF 2022

________________________

________________________

________________

_________________

D E C I S I O N

_________________

1.  This is an application by Dr Sarah Tanya Borwein Olsen (“P”) by an amended summons dated 18 July 2023 for an order to expunge without prejudice (“WP”) correspondence (“WP correspondence”) and to expunge/redact references thereto in open correspondence and witness statements filed by the 2^nd respondent Lucy Alison Jane Lord (“R2”). At the conclusion of the hearing, the Decision was reserved which I now give.

Procedural history

2.  On 16 May 2023, P issued a summons (“the 1^st summons”) to expunge WP materials. This was amended on 18 July 2023 (“the amended summons”) that is the present application.

3.  Meanwhile, on 4 July 2023, P issued a 2^nd summons to expunge other WP materials as a result of the affirmation dated 30 June 2023 of Hon Kwan Ho (“Mr Hon”), R2’s solicitor. That affirmation highlighted the inconsistency arising from the fact that a significant number of other similar references to the same WP materials had been omitted from the 1^st summons.

4.  With 2 pending summonses dealing with essentially the same issue due to be heard on 22 September 2023, Linda Chan J caused directions to be given by letter dated 13 July 2023 that the summons be amended and 2^nd summons be withdrawn[1]. The letter went on to state that

“[P] should be aware that by putting the contents of the documents which would otherwise be covered by without prejudice privilege in the petition and her supporting affirmation she would be taken as having waved the privileged (sic) attached to such documents”.

5.  Apart from questioning the soundness of that application, the Judge intimated that if it were pursued (notwithstanding the concern expressed) and proved successful, it might well attract costs awarded on an indemnity basis.

6.  Following the directions issued on 13 July 2023, P filed the amended summons on 18 July 2023[2] (“the amended summons”).

7.  Prior to the hearing of the amended summons scheduled for 22 September 2023, in their letters dated 4 August 2023 and 4 September 2023, P’s solicitors stated that P had taken on board the Court’s observations and she would only pursue the amended summons in respect of “R2LOD items 70 and 75 to 79” (“the 2021 WP correspondence”)[3].

8.  This was confirmed by the written submissions dated 12 September 2023[4] of P’s counsel for the 22 September 2023 hearing.

9.  While the Judge ultimately adjourned the amended summons for argument, it is clear from the transcript of the hearing that it was on the basis that P’s counsel would consider very carefully with his client and take instructions as to whether to proceed with the balance of the application. The Judge also repeated her warning that should P pursue the application which was unsuccessful, costs would be assessed by gross sum assessment.

10.  In their letter of 9 October 2023, P’s solicitors advised that not only would P be proceeding with the balance of the application, she would effectively reinstate that which her counsel had said at the hearing on 22 September 2023 would not be pursued.

11.  The 2^nd summons was reinstated and its Schedule 2 became Schedule 3 to the amended summons which seeks redaction of parts of 2 documents referred to in the Lists of Documents (“LOD”). They are extracts from an open letter from R2 dated 24 October 2020[5] and an extract from a letter dated 22 November 2021 from the other shareholders of the Company.

Background facts

12.  P and R2 respectively hold to 31% and 67% of the issued shares in Market Dragon Limited (“the Company”) that operates (via a subsidiary) the clinic in Central under the brand name “Central Health”.

13.  P’s petition filed on 7 February 2022 seeks a buyout order for unfair prejudice pursuant to section 724 of the Companies Ordinance, Cap 622.

14.  The grounds for the petition include the following:

(a)  R2’s breach of the Shareholders Agreement and the Addendum in causing the Company not to declare dividends in 2021.

(b)  R2 causing the Company to wrongfully terminate the service agreement with P’s company for an improper purpose and in bad faith to advance R2’s personal agenda to exclude P from the Company.

15.  R2’s case is that

(a)  no dividends were paid due to various reasons; and

(b)  P’s behaviour was the material cause of the breakdown of the relationship and the Company terminated the service agreement.

16.  The WP correspondence particularised in Schedule 1 to the amended summons comprises 12 items all expressly marked WP:

(1)  6 WP letters were exchanged between 2 July 2020 and 20 November 2020 (“the 2020 WP correspondence”) between R2 and Dr Fuong (“F”) on the one part and P on the other save for the WP letter of 17 September 2020 which was from P to R2 alone and neither addressed nor copied to F.

(2)  6 WP letters were sent between 9 March 2021 and 5 July 2021 (“the 2021 WP correspondence”), 5 of which were from R2 and F and/or other non-voting shareholders to P, the remaining WP letter being from P’s solicitors concerning the then proposed mediation which subsequently took place but was unsuccessful.

17.  There was a hiatus of about 3 months between the 2020 and 2021 WP correspondence.

Legal principles

18.  It is common ground that WP materials are inadmissible unless the other party is able to establish an exception or waiver.

19.  Waiver is concerned with justice and with the protection of the privilege itself. It will be more than usually concerned with the particular circumstances of the case: see Sang Kook Suh v Mace (UK) Ltd [2016] EWCA Civ 4 at §41.

20.  When a party to without prejudice negotiations deploys the content of without prejudice negotiations as evidence on the merits of the claim, even for a limited purpose, he thereby waives his right to insist on the protection of the rule in relation to those negotiations if the counterparty accepts that the negotiations may be referred to. (The counterparty can of course instead seek to restrain the unauthorised deployment of the material.) But where the content of negotiations is not deployed in that way (e.g. where reference is made to the negotiations in correspondence, or where only the fact of them is referred to in evidence) the court must ask itself whether, given the purpose of the rule, any reference to the negotiations is such that it would be unjust for that party to insist on the protection of rule at trial: see Christopher James Briggs and Others v Alexander Clay and Others [2019] EWHC 102 (Ch) at §80.

Chronology of events between the 2 July 2020 and 5 November 2020

21.  The 2020 WP correspondence consists of 6 letters. The 1^st 3 letters may be summarised as follows:

(1)  the 1^st WP letter dated 2 July 2020 is from R2 and F to P. The backdrop discernible from that letter were P’s decisions (a) not to take up their offer to try to resolve the partnership grievances amicably and, instead, to explore legal claims; and (b) not retiring in the next year but to continue working for at least the next 5 years. Against that backdrop, R2 and F set out options for the way forward.

(2)  The 2^nd WP letter dated 4 September 2020 is from R2 and F requesting a reply to the 2 July 2020 letter.

(3)  The 3^rd WP letter is P’s response sent to R2 dated 17 September 2020 declining the offer made on 2 July 2020 and offering to step down from her practice, the exit price being USD 4 million failing which there was a liquidation threat (“the liquidation demand”).

22.  After those exchanges, on 8 October 2020, a management meeting was held (“the 1^st management meeting”) attended by R2, F, P and other doctors practising at Central Health.

23.  Following that meeting, P sent an open letter dated 11 October 2020 (“the 11 October letter”) to R2 (copied to F) relating to 5 matters[6] raised at the 1^st management meeting.

24.  A week later, on 19 October 2020, P sent a letter to R2 and F (“the 4^th WP letter”) following up on the 11 October letter and giving them 2 choices: (a) P resigns and leaves the practice if compensated for lost future income or (2) liquidation of the Company.

25.  On 24 October 2020, R2 (on her own behalf and on behalf of F) sent an open letter (“the 24 October letter”) to P responding at length[7] to each of the 5 matters raised in the 11 October letter. The responses to each of those matters appeared in bold script.

26.  The 1^st of the 5 matters attracted a response that took up no less than 2 ½ pages. One of those points concerned allegations of tensions making it impossible for P to continue to work there. R2’s response to the allegations of ‘tensions’ made a specific reference[8] to P’s email of 17 September 2020 (i.e. the 3^rd WP letter). The 2 paragraphs immediately following paraphrased the essential elements of the 1^st, 3^rd and 4^th WP letters, specifically the offer made in the 2 July 2020 letter and P’s liquidation demand.

27.  For convenience, the 11 October letter and 24 October letter are collectively referred to as “the October letters”.

28.  The 5^th WP letter is dated 4 November 2020 from R2 to P (with a copy to F) responding to the 4^th WP letter.

29.  The 6^th WP letter is dated 20 November 2020 from P to R2 and F, acknowledging their long messages and giving them 7 days to respond before P would take the matter forward to her lawyers.

30.  During that period, that was the sum total of exchanges between P on the one part and R2 or R2 and F on the other.

(B) The Petition

31.  On 7 February 2022, P filed her petition (amended on 26 September 2023) (“the Petition”) alleging unfair prejudice and seeking relief pursuant to section 724 (1) of the Companies Ordinance, Cap 622.

32.  P filed an affirmation on 8 February 2022 in support of the Petition (“the supporting affirmation”). P exhibited the 24 October letter in its entirety. The point of a supporting affirmation[9] (including its exhibits) is to adduce evidence in support of P’s case.

33.  As earlier noted, the 24 October letter was an open letter that contained WP materials, encapsulating the essential elements of the 1^st, 3^rd and 4^th WP letters.

34.  In outline, R2’s defence is that of waiver.

35.  R2 relied on the fact that P chose to exhibit the 24 October letter in its entirety representing evidence P intended to rely on in support of her case. P’s reliance on the Offer[10] and the Liquidation Demand[11] can be found in her Points of Reply filed on 23 August 2022 (“POR”), her discovery and her witness statement.

36.  Mr Justin Lam, counsel for P, submitted that the burden is on R2 to show waiver and the relevant test is for R2 to show that it would be unjust for P to maintain privilege.

37.  In outline, it was submitted that P did not ‘deploy’ any WP materials for advancing her case on the merits. Further, even if there was any deployment it would be unjust to P when all she did was to refer to an open letter.

(1) Waiver

38.  Mr Nigel Francis representing R2 referred to Mr Lam’s submission that when the 24 October letter was exhibited to the supporting affirmation, it was neither clear nor obvious that the letter was referring to WP correspondence since it was an open letter sent in response to P’s open letter of 11 October. Mr Francis invited attention to the fact that in the 24 October letter the response actually made a direct reference to the 17 September email[12].

39.  As will become apparent[13], the suggestion in P’s written submissions to the effect that the WP materials were in some way only ‘revealed’ a year later when Mr Hon filed on 30 June 2023[14] is neither tenable nor sustainable.

40.  That aside, R2 submitted that the paraphrasing of WP materials in the 1^st, 3^rd and 4^th WP letters is patently obvious from the 2 paragraphs[15] that immediately followed the direct reference to the 17 September email.

41.  If, as one must assume, P read the 24 October letter before exhibiting it, she could not but have known that it was paraphrasing the 1^st, 3^rd and 4^th WP letters. After all, P spent almost 2 and half months mulling over the offer R2 made on 2 July 2020 before rejecting it. The evidence does not show any intervening offers that could have created doubt or confusion over what the ‘offer’ was at the time the 17 September email was sent.

42.  The 1^st management meeting which took place 3 weeks later (on 8 October 2020) was the subject of P’s open letter of 11 October.

43.  Given that context, I cannot accept that on reading the 24 October letter, P would not have appreciated the paraphrasing of the key elements of the 1^st, 3^rd and 4^th WP letters especially given the specific reference to the 17 September email.

(a) Deployment

44.  Mr Lam explained that P’s reference to the 24 October letter at §132 of her supporting affirmation was to show why the October letters were exhibited and, importantly, §133 quoted verbatim R2’s reply as to her contribution (being a fixed amount rather than the percentage) to the practice.

45.  The court questioned why it was necessary to exhibit the 24 October letter in its entirety if it was not designed to support P’s case. If the extract set out in §133 was the reason, surely the relevant passage/extract[16] could have been set out verbatim without exhibiting the 24 October letter its entirety. Alternatively, a redacted version blanking out the WP materials could and should have been exhibited.

46.  No satisfactory answer was proffered. Instead, it was submitted that the mere fact that redaction was not done should not amount to a waiver of privilege over the WP negotiations because R2 has not been able to articulate the reason why it would be unjust for P to maintain privilege.

47.  As earlier noted, the WP materials in 24 October letter also featured in the parties’ pleadings as well as P’s witness statement. To those I now turn.

48.  The POD (filed on 31 May 2022) made it clear that one of R2’s defences[17] is that P’s own wrongful conduct caused the breakdown of mutual trust and confidence between herself and the other shareholders.

49.  POD §35.2 (3) concerned the matter of the offers made by R2 and/or other shareholders of the Company collectively defined and thereafter referred to in the pleadings as the “Offer”. (§35.2(5) concerned P’s Liquidation Demand.)

50.  §35.3 (2) then referred to the 24 October letter.

51.  POR §31.2[18] is in the following terms:

“Save that it is admitted that [P] did not accept the Offer, paragraph 35.2 is not admitted. It is averred that the Offer is irrelevant to the present proceedings as it does not concern any of the acts of unfair prejudice committed by [R2] against [P]”

52.  It is clear from POR §31.2 that P admitted that the Offer was made. If P had no notion of what R2 was referring to, her response would have been very different. She could also have asked for further and better particulars.

53.  That P directly expressly pleaded to the Offer in reply is evident from the last sentence in POR §31.2. In order to be able to infer that the Offer is irrelevant, P must have known what it meant. That could only mean the one stemming from the 2 July offer.

54.  P also expressly pleaded the email of 24 October 2020, stating in relation to that email and Offer in POR §31.3.5 that “[P] shall rely on the full content of the said emails and letters if necessary, at trial”.

55.  It was suggested/canvassed that R2 had resorted to a ‘deliberately safe way of pleading[19]’, ie deliberately avoiding any express reference to the WP letters. That description appears to carry connotations or insinuations of underhand or wily conduct which I consider entirely unwarranted and reject it when it is P’s own failure to recognise the obvious.

56.  Despite the above matters, the amended summons seeks to have the 24 October letter and any reference to its contents that repeat the emails of 2 July 2020 and 17 September 2020 expunged.

57.  A little over a year after the supporting affirmation was filed and almost 7 months after the POR, on 17 March 2023 the parties exchanged the 1^st round of witness statements. Mr Francis submitted (and I accept) that any suggestion that it was only after reading R2’s witness statement that P came to realise that R2 intended to rely on all of the related materials to defend the claim is untenable.

58.  Despite express references to the 24 October letter (at §142) as well as to the Liquidation Demand (at §175) in P’s witness statement of 17 March 2023, P objects to such references in other documents and the amended summons seeks to have such references expunged.

59.  It is noteworthy that in P’s supporting affirmation, filed over a year earlier, there are similar allegations that R2 shared “private[20] correspondence” (i.e. the 2020 and 2021 WP correspondence) with the other non-voting shareholders (i.e. other doctors practising at Central Health). By so doing, R2 is said to have dragged them into the dispute which is a personal dispute between P and R[21].

60.  P’s initial request to expunge WP materials was not made until on 24 March 2023 and then only in respect of the 17 September 2020 email (i.e. the 3^rd WP letter) and the 2021 WP correspondence.

61.  At §140 of her supporting affirmation, P made an express reference to the Liquidation Demand. However, P’s statement in the supporting affirmation is not the subject of the strikeout application.

62.  §175 of P’s witness statement referred to the fact that P “had written to [R2 and F] to say that if they did not discuss matters with [P] then [P] would try and wind up the Company”. P submitted that it was not a reference to the 17 September email (3^rd WP letter) but to an open letter written by P’s solicitors to R2.

63.  That open letter dated 10 February 2020 is from Robertsons to R2 only. However, the letter mentioned in §175 was a letter sent “to [R2 and F][22]”.

64.  The WP letters that made a Liquidation Demand are the 3^rd and 4^th WP letters (i.e. the 17 September email and 19 October) sent in response to the 2 July offer made by R2 and F[23]. In the scheme of things, that would appear to be more consistent with a reference to the 3^rd and 4^th WP letters rather than to Robertsons’ letter.

65.  In an obvious attempt to salvage the situation, in her supplemental witness statement dated 15 August 2023, 5 months after her witness statement , P sought to explain how the sentence “I had written to [R2 and F]” should be interpreted.

66.  For completeness, it should be mentioned that the 24 October letter featured in P’s LOD. Under Practice Direction 3.4 (at §5) the parties are required to file and exchange their respective LODs relating to the issues identified in the pleadings in so far as such documents have not been exhibited to P’s supporting affirmation. In the present case, it appears that P has done both.

67.  In summary, when P exhibited the 24 October letter in its entirety on 8 February 2022 in her supporting affirmation, she must have known that it contained WP material. But she never sought to expunge the WP materials in the 24 October letter until late March 2023.

68.  Meanwhile, as considered above, her POR filed on 22 August 2022 directly pleaded to the Offer made in the POD.

69.  Having regard to all the above matters, I am satisfied that P did deploy WP materials.

Injustice

70.  Mr Lam referred to Briggs v Clay at §80[24], and in particular to the last sentence of that passage. He submitted that it is incumbent on R2 to show that it would be unjust for P to maintain privilege.

71.  The notion of justice or injustice in the context of waiver is particularly fact-sensitive and requires an objective evaluation of P’s conduct aimed at determining whether it would be unjust for P, in the light of her conduct, to maintain privilege.

72.  On 8 February 2022, P exhibited the 24 October letter in its entirety in circumstances where she must have known of WP materials in that letter.

73.  It is clear from POR §§31.2 and 31.3.5[25] that P’s position is that she is at liberty to deploy WP materials in her own pleadings, supporting affirmation and witness statement. That explains why the without prejudice materials has strikeout does not extend to those items.

74.  That P did deploy without prejudice materials is clear. Having expressly pleaded in relation to the Offer, P denies its relevance. But the issue of relevance to P’s claim of unfair prejudice is a matter for determination at trial. It is difficult to see how a fair trial is to be achieved when R2 is put to proof in relation to the Offer but is denied the ability to show what efforts were made towards negotiating a settlement.

Conclusion

75.  The amended summons falls to be dismissed.

The Company’s attendance

76.  The order made by Linda Chan J on 13 July 2023 (“the July order”) provided that:

(1)  the Company be excused from attending the hearing in respect of the 1^st summons and the 2^nd summons (collectively, the “Summonses”) including any adjournment thereof;

(2)  unless with leave of the court, the Company shall not take any step in the proceedings save for the purpose of giving discovery and attending the hearing when the court is to consider what relief should be granted in respect of the petition.

77.  Ms Connie Wong, representing for the Company, explained that that the Company’s attendance at this hearing was to make submissions on costs (as and when necessary) without participating in the substantive argument of the amended summons.

78.  Mr Lam took exception to the Company’s attendance without obtaining the court’s leave to do so. He submitted that it was a breach of §2 of the July order in that “giving discovery” means producing a list of documents, not attending an argument on discovery. The practical consequence is that P should not in any case be liable for costs of the Company.

79.  The Company submitted that the July order does not prohibit the Company from participating when it relates to the giving of discovery which is the crux of the present hearing

80.  The date of the Company’s LOD is 8 November 2022, well before the July order. I do not agree that §2 has the meaning P attributes to it. In the circumstances, I do not consider that the Company’s attendance is in breach of the July order.

Order

81.  The amended summons is dismissed.

82.  I make an order nisi of costs in favour of the Company and R2, such costs to be summarily assessed on an indemnity basis and payable forthwith.

83.  It is further directed that (1) the Company and R2 do lodge their respective statements of costs within 14 days; (2) the Petitioner do lodge her list of objections (not exceeding 2 pages) within 14 days thereafter; and (3) the Company and R2 do lodge their respective the reply (not exceeding 2 pages if any) within 7 days thereafter.