XCHRX PCCW-HKT INTERNATIONAL LTD. v. NEW WORLD TELEPHONE LTD.

HCCL229/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST NO.229 OF 1999

(formerly High Court Action No.2076 of 1999)

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J U D G M E N T

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The present application

1. By summons dated 23 April 2001 taken out by the applicants herein, an order is requested that the defendant be excused from giving inspection of documents numbered 269, 290, 291, 293, 297, 301, 302, 306, 307 and 409 in Part 1 of Schedule 1 of their list of documents filed on 21 August 2000, unless within 14 days the plaintiff, by its solicitors, Messrs Herbert Smith, do expressly undertake that the said documents will not be shown nor their contents revealed to anyone other than counsel for the plaintiff, and that the plaintiff will not use the said documents for any purpose collateral to or ulterior to the conduct of this action.

The context of the application

2. This application is made in the context of an action which already has attracted a certain amount of judicial attention, in particular a judgment of this court, dated 5 April 2000, dismissing the defendant's Order 14A application, a decision which was unsuccessfully appealed. As that judgment records, in this case the plaintiff has brought this action against the defendant, New World Telephone Limited ("NWT"), in a bid to recover the sum of HK$280 million it alleges it paid to NWT in delivery fees under a mistake of fact, namely, that the calls in respect of which such fees were paid actually terminated on the defendant's network. These telephone calls have variously been described as 'delivery call diversion' calls or, as the plaintiff also put it in argument, 'hijacked' calls. In addition to the monies allegedly wrongly so paid, the plaintiff further seeks a declaration that it has been entitled, for the like reason, to withhold payment of a further sum of HK$94 million otherwise allegedly due to the defendant.

3. For its part, the defendant, by Amended Defence and Counterclaim, asserts that by virtue of the Interconnection Agreement entered into between itself and the plaintiff as from 1 July 1995, together with the operation of section 36A of the Telecommunications Ordinance, Cap.106, and the 1995 Determination of the Telecommunication Authority, such delivery fees were rightfully paid for the interconnection of its network with that of the plaintiff, and that such fees were a function of interconnection per se as opposed to actual delivery of the call to the called party, that is, termination of the incoming calls. Accordingly, NWT counterclaims for the sum of HK$94 million wrongfully so withheld, and for certain declaratory relief.

4. So much, therefore, for the broad picture. What now has occurred is that in the actual discovery process in this action, 10 particular documents were discovered in Part 1, Schedule 1 of the defendant's list - the very documents in issue in this application - and the applicants herein object to any more than that which might be termed "controlled inspection" of these documents.

5. The matter developed thus. By a letter dated 29 November 2000, solicitors for Teleglobe, Messrs Sinclair Roche & Temperley, wrote to solicitors for New World, Messrs Deacons, saying, inter alia :

"Our client is prepared to consent to an order that disclosure of the relevant documents be given to the Plaintiff. This consent will be given on the condition that Herbert Smith, as the Plaintiff's solicitors, undertake to the Court not to disclose after discovery the contents of the relevant documents to their client."

In response, solicitors for the plaintiff, Messrs Herbert Smith, responded by a letter dated 8 December 2000, stating :

"We have some difficulties with this proposal. Given the technical information that we anticipate the documents will contain, we would almost certainly refer documents to our client for their comment and analysis. We would also anticipate practical difficulties in complying with the requested undertaking if we were unable to disclose any Teleglobe documents, which could be directly relied upon at the trial of this matter, to our client."

In turn, by a letter dated 20 December 2000, Messrs Sinclair Roche & Temperley responded :

"We note the difficulties which Herbert Smith purport to have with our clients proposal for inspection. However, we cannot see how Herbert Smith are in a position to anticipate these difficulties without having themselves first inspected the documents."

6. The matter first came before this court on 24 April this year, when this court agreed to entertain Teleglobe's submissions on the issue of controlled disclosure. I pause to note that for the purpose of this application formal joinder of Teleglobe to this action was not required.

7. By a letter dated 6 June 2001, Messrs Herbert Smith requested inspection of the documents upon their personal undertaking not to disclose their contents to their clients or anyone else, and on the basis that if, upon seeing the documents, they considered that it was not necessary for them to disclose the documents to their clients, they would not proceed with their application for inspection. On the other hand, if upon inspection Messrs Herbert Smith did consider that it was necessary to proceed with the application, accordingly they would resist Teleglobe's application for such controlled disclosure. The documents duly were disclosed to Messrs Herbert Smith and, having so inspected the documents on 22 June 2001, the plaintiff has decided to resist an order for controlled disclosure, Messrs Herbert Smith having taken the view that full disclosure was necessary in all the circumstances.

8. This, then, constitutes the background and broad parameters of the present hearing. It should be added that the defendant, NWT, takes "a neutral position" in relation to this entire issue, although a representative of that party has been present in court today.

The basis of the application

9. Teleglobe opposes the full disclosure of the 10 documents to the plaintiff on the asserted basis that such documents contain "highly sensitive pricing information" and "trade secrets", and therefore that such documents should not be revealed to a competitor such as the plaintiff. These assertions are contained in two affidavits in support of this application, each sworn by Mr Anthony Hill, the applicants' solicitor, upon information and belief, and respectively dated 23 April 2001 and 19 May 2001. There is no affidavit evidence from any officer of the applicants. The relevant battleground, therefore, is confidentiality.

Applicable principles

10. There is, I think, no dispute between counsel as to the relevant principles to be applied by the court in circumstances such as these. Mrs Newell, for the applicants, does not dispute that confidentiality alone does not give rise to a claim for privilege, and in itself constitutes no ground for protection. She accepts that the jurisdiction of the court to order production is discretionary, although the court naturally will weigh in the balance the claim for confidentiality, the circumstances in which such claim is made, and whether the order is necessary either for disposing fairly of the cause or matter or for saving costs. Mrs Newell helpfully referred me to a number of authorities in this area, of which the observations of Lord Wilberforce in the well-known decision of Science Research Council v. Nassé [1979] 3 All ER 673, at 679 are particularly helpful :

"...

(2) There is no principle in English law by which documents are protected from discovery by reason of confidentiality alone. But there is no reason why, in the exercise if its discretion to order discovery, the tribunal should not have regard to the fact that documents are confidential, and that to order disclosure would involve a breach of confidence. In the employment field, the tribunal may have regard to the sensitivity of particular types of confidential information, to the extent to which the interests of third parties (including other employees on which confidential reports have been made, as well as persons reporting) may be affected by disclosure, to the interest which both employees and employers may have in preserving the confidentiality of personal reports, and to any wider interest which may be seen to exist in preserving the confidentiality of systems of personal assessments.

(3) As a corollary to the above, it should be added that relevance alone, though a necessary ingredient, does not provide an automatically sufficient test for ordering discovery. The tribunal always has a discretion. That relevance alone is enough was, in my belief, the position ultimately taken by counsel for Mrs Nassé thus entitling the complainant to discovery subject only to protective measures (sealing up etc). This I am unable to accept.

(4) The ultimate test in discrimination (as in other) proceedings is whether discovery is necessary for disposing fairly of the proceedings. If it is, then discovery must be ordered notwithstanding confidentiality. But where the court is impressed with the need to preserve confidentiality in a particular case, it will consider carefully whether the necessary information has been or can be obtained by other means, not involving a breach of confidence.

(5) In order to reach a conclusion whether discovery is necessary notwithstanding confidentiality the tribunal should inspect the documents. It will naturally consider whether justice can be done by special measures such as 'covering up', substituting anonymous references for specific names, or, in rare cases, hearing in camera.

..."

The foregoing observations of Lord Wilberforce were, of course, made in the specific circumstances arising in that case, but in terms of general principle and broad approach his words, it seems to me, are equally applicable to the present debate.

The argument

11. In her persuasive argument Mrs Newell pressed upon the court the concerns of her clients, as set out in the affidavit evidence, to which, she noted, there had been no response. In particular, she relied upon the information contained in paragraph 9 of Mr Hill's 1st Affidavit, where it is said that he has been informed that pricing information in international telecommunications arrangements is typically the main issue, even where this information is apparently stale, as the possession of such information by competitors (of which PCCW-HKT International Limited is considered by Teleglobe to be) allows the competitor to compare historical costing and to ascertain whether Teleglobe had a price advantage. The documents in question further revealed, asserts Mr Hill, that such information as the manner in which Teleglobe negotiate agreements, the form of Teleglobe's agreements, the type of service that could be customized for Hong Kong, the manner in which Teleglobe could configure solutions through engineering/network capabilities, the type of network capacity (i.e. transoceanic cable or satellite) that Teleglobe was using to provide the service, further provide insight into Teleglobe's regulatory due diligence approvals process and insight into where and how it provided this service. All such matters are alleged to constitute "trade secrets" belonging to Teleglobe.

12. In addition, in paragraphs 5 to 7 of his 2nd Affidavit, Mr Hill asserts that he is informed and believes that the schematics and project descriptions of services provided by Teleglobe, as set out in the documents in question, provide details in regard to the configuration and location of Teleglobe's network assets, including the type of equipment Teleglobe utilizes to route international telephone calls. His further information and belief is that these documents also revealed the routing pathway Teleglobe's network uses to transmit international telephone calls and that, in addition, the documents contained Teleglobe's internal processing/order/review forms as developed by Teleglobe. The documents also are said to contain information as to the vendor relationships employed by Teleglobe to provide services. Mr Hill further opines that a competitor of Teleglobe's in receipt of this information could gain an understanding of Teleglobe's network process flow, and that set out in the documents is a detailed description of Teleglobe's network, its functionality, its engineering, the methods by which Teleglobe tests the services provided, and the results of such testing. There is a further amount of detail, but these points, I think, are the gist underlying the application.

13. For his part, Mr Eugene Fung, who appeared on behalf of the plaintiff in opposing this application for "controlled inspection", in summary argued that the twin discovery and inspection requirements of relevance and necessity are amply satisfied in the circumstances of this case, that there was insufficient evidence of "trade secrets", that there was a fundamentally displaced concern over the issue of disclosure to competitors, and that, if, which specifically was denied, these documents contained "trade secrets" properly so-called, it was difficult to see how such information could be regarded as remaining so, given that in its October 1998 Determination the Hong Kong Telecommunications Authority had ruled expressly that delivery fee diversion calls/number translation was not permitted, and that, accordingly, the proprietary aspect of Teleglobe's alleged "trade secrets" could no longer exist, not least because the documents in question related to a practice discontinued over two and a half years ago. In so summarizing the argument I do not wish to minimise its import, but these points at least represented the bare bones.

Decision

14. In my judgment, this application fails, and fails signally. I agree with Mr Fung's arguments. Upon the fundamental issue of relevance and necessity for the fair determination of matters in issue in this case, in my view Mr Fung is absolutely correct when he says that a critical component of delivery fee diversion calls (as defined by the plaintiff in the Amended Statement of Claim) is the involvement of an overseas telecommunications operator who is responsible for 'diverting' calls travelling to Hong Kong to the defendant's network. And that, absent such an overseas operator, delivery fee diversion calls cannot occur. Therefore, he says, any document concerning agreements with, and the involvement of, such overseas operators is plainly relevant and is necessary for the fair determination of the matters in issue in this action. In the event, Mr Fung notes, the issues of relevance and necessity of the 10 documents themselves never have been disputed by the defendant or Teleglobe (and, I would note, somewhat oddly Mrs Newell has told me that she has not even had a sight of the pleadings in this case, which makes it extremely difficult for her to argue this matter in what is, in effect, a factual vacuum).

15. Having dealt with the issue of relevance and necessity, the court is thrown back, therefore, squarely upon the confidentiality issue. I agree with Mr Fung that although the burden may be on him to establish necessity, the burden is certainly on Teleglobe to establish that the 10 documents contained "trade secrets". Although in the affidavits supporting the application Teleglobe asserts that there are "trade secrets" in the 10 documents, it is, I think, fair comment for Mr Fung to respond, as he did, that all that these documents revealed is the nature of the information alleged, and that it is unclear why such information is said to constitute "trade secrets"; there was, for example, no evidence showing that any information from the 10 documents is exclusively owned by Teleglobe, or how and to what extent Teleglobe would be prejudiced (if at all) if such information is disclosed. In this connection I would observe that, having perused these 10 documents myself (they were called for in the manner anticipated by Lord Wilberforce in Nassé, op.cit.), I am wholly unable to discern the "trade secrets" referred to. Moreover, no attempt has been made to do anything but to exclude all 10 documents in their entirety, and no elision or excision of any form has been suggested. In fact, looking at these documents as a whole, I would further comment that, at this stage, their confidential purport and current sensitivity is not immediately apparent.

16. Mr Fung also makes the further point, and it is very much a forensic point, that some of the diagrams and material in the documents now sought to be excluded actually have appeared elsewhere in the unrestricted discovery. For my part, I recall poring over certain of these documents, or very similar documents, in the Order 14A application. So that I am quite unable, on the face of the present evidence, to be satisfied of the existence of "trade secrets" as asserted by the applicants. I think it is probably fairer or more accurate to say that, for whatever reasons, the applicants indeed feel a certain sensitivity towards the material in those documents. But, as I say, I am disinclined to attribute to them the label "trade secrets".

17. Mr Fung also argued that, whilst the reason put forward by Teleglobe for limiting disclosure is the apparent concern that the information contained in the 10 documents would be revealed to competitors of Teleglobe, including the plaintiff, nevertheless such a concern was misplaced for two reasons. First, it was clear, he said, that the plaintiff is not a competitor of Teleglobe in the sense of being engaged in the process of diverting telephone calls with an overseas telecommunications operator. This is perhaps an obvious proposition, and I remind myself that these practices ceased several years ago. Indeed, said Mr Fung, apart from a bare assertion, there was no evidence from Teleglobe that the plaintiff indeed was one of its competitors, although I suppose it can be said in a general sense (and I am certainly prepared so to accept it in this sense) that both are competitors or at least both work in the telecommunications field. But I fail to see why these documents, which outlined and detailed a practice which was discontinued in late 1998, now should obtain the protection of the court in this case; indeed, all 10 documents are dated within the first four or five months of 1997, that is, some four years ago.

18. Even if he were to be wrong about his primary submissions, said Mr Fung, in any event Teleglobe should not be concerned, as it now apparently is, that the information obtained by the plaintiff from these 10 documents would be disseminated to Teleglobe's other competitors. He referred to two matters in this context. First, he cited the well-known implied undertaking by a party who obtains discovery not to use the documents for any collateral or ulterior purpose. This is so well-known that nothing more needs to be said about it. Moreover, said Mr Fung, there was an additional element, because the plaintiff's key staff involved in the present action also had given express personal confidentiality undertakings that they would not "except with the leave of the Court, directly or indirectly make use or permit another to make use of the Defendant's documents or the information contained therein, being documents listed in the Defendant's List of Documents dated 21st August 2000 and produced for inspection, otherwise than for the purposes of this action", and that such undertakings would of course cover the 10 documents in issue.

19. Again, somewhat curiously Mrs Newell appears at be at a disadvantage, noting at the end of her submissions that, as matters had transpired, she has not even had a sight of these express undertakings. Why that is so I know not. Indeed, I also observe in passing that, although the defendant takes a neutral stance and has been present in this application, and has no doubt been copied in on the evidence, there does not appear to have been much contact or liaison between the defendant and the applicants.

20. Having found in favour of Mr Fung's primary submissions, there is no need to dwell on to his fallback position, which is that, in any event, even if Teleglobe could establish that the 10 documents contained "trade secrets", and therefore are as such confidential, the court should nevertheless exercise its discretion to order full disclosure. All I will say upon this aspect is this. Were I to be wrong in accepting Mr Fung's submissions, and should this matter go further, I am in no doubt that even if Mrs Newell had made out her case (which, in my view plainly she has not), I should not have hesitated in the circumstances to find that these documents as discovered, but as at present only partially inspected, are necessary for the fair determination of this matter, and that uncontrolled disclosure and inspection therefore would have been ordered notwithstanding such confidentiality as asserted. In my view the applicants are adequately protected by both the implied undertaking and by the express undertakings as proffered, and, as I have already observed during this hearing, I fail to understand why such documents, which in telecommunications' terms relate to a long abandoned practice and no doubt, also, involve four-year-old technology, should be regarded as anything other than technology fossils of historical interest only, with little relevance to what players in the technology field actually are doing today.

Order

21. In my judgment, the correct order, and the order that I now make, is that the applicants' summons dated 23 April 2001 be dismissed.

[Submissions from counsel]

22. I have now had the opportunity to hear counsel on the costs of this application. Mr Fung asks for his costs, and Mrs Newell, appropriately in my view, does not resist, although she does say that she should not be made to pay the costs of what she refers to as the plaintiff's 'preliminary issue'. This is a matter that I have not adverted to in this judgment, and which arose after the defendant had sent the documents in question to Messrs Herbert Smith without, the argument goes, the implied undertaking attaching thereto. I did not think there is anything in the point, and I did not treat the so-called 'preliminary issue' as having any importance, the court proceeding immediately to the main issue and Mrs Newell's application.

23. In my view the appropriate order is that the plaintiff is to have the costs of and occasioned by this application, to be taxed and paid by the applicants. This does not take care of the costs position entirely because Miss Ng, who appears today for the defendant, but has said nothing of substance, asks me to order her costs be paid by the defendant. I have reflected on her position. She has told me during the course of the hearing that she has a separate contractual arrangement with the applicants whereby her costs are to be met, and I see no reason why I should visit an order of the court upon that contractual arrangement, or indeed why she should have the costs of today as a matter of separate order. I make no order as to costs as far as the defendant is concerned. What Miss Ng does or does not do with the applicants is entirely her affair.

24. One matter remains outstanding. The summons which was the catalyst for this application, that is, the plaintiff's summons dated 2 April 2001 for the discovery that has been the subject of today's hearing. Paragraph 1 thereof asked for inspection of the documents which have occupied the court's attention today, and paragraph 2 asked that the defendant pay the plaintiff's costs in any event. No point will be served in making an order in terms of paragraph 1 because the inspection has, as a matter of practical politics, now taken place, and it can now go forth in an "uncontrolled" manner, if I can use that term, with the applicants being protected by the implied and express undertakings that have been given. As to paragraph 2, Miss Ng says that she should not bear the costs of this summons because she was effectively stuck in the middle. I am in two minds about this, but at the end of the day I make no order as to costs of this summons. In effect, the real battle has been between the applicants and the plaintiff, the plaintiff now having succeeded on its summons dated 2 April 2001.

25. I thank the parties for their assistance.