CABLE & WIRELESS HKT TELEPHONE LTD. AND ANOTHER v. CITY TELECOM (H.K.) LTD.

CACV 197/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 197 OF 1999

(ON APPEAL FROM HCA 11409/1998)

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J U D G M E N T

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Hon Rogers JA :

1. This is an appeal from a decision of Stone J given on 2 June of last year on an application for directions that there should be a split trial of damages and liability. There was an application on the part of the plaintiff to strike out a major part of the counterclaim which related to anti-competitive practices but that does not form any part of the proceedings in this court.

2. The plaintiffs complain of the defendant's use of 8 leased telephone lines as a conduit for multiple international telephone calls. Whereas no complaint has been made by the Plaintiff that the defendant operated what is termed a call back service, the subject of the plaintiff's complaint is the practice of keeping open the 8 lines, or at least some of them, during business hours and routing more than one call at a time on each line. It is understood that the primary complaint is that there was no call back feature for each individual call. The plaintiff thus lost revenue on being unable to charge on a call-by-call basis. The period of activity which is complained of was from the middle of July until 20 October 1997. No specific instances of multiple calls have been cited in the statement of claim.

3. The plaintiffs allege that the defendant was thus acting in breach of contract and unlawfully interfering with the trade or business of the plaintiffs.

4. Damage is the essence of the plaintiffs' claim and it should be noted that in contrast to the assertions in the correspondence before action, the plaintiffs are not now claiming an account of profits but are claiming damages. The distinction is quite simple. A claim for damages is a claim for loss suffered by the party claiming the damages. An account of profits is a claim to deprive the party against which the claim is made of the profits which it made as a result of the alleged wrongful activity.

5. In its defence, the defendant admits that it packaged or multiplexed calls on the 8 leased lines but denies that it is liable to the plaintiffs for a number of reasons. It also raises a question in the defence that the plaintiffs' action is an abuse of process. It says, for example, in paragraph 33 of the defence:-

"(3) The purpose for which the Plaintiffs have brought these proceedings is in order to attempt to obtain from City Telecom, by interlocutory discovery, City Telecom's confidential and sensitive information concerning City Telecom's clients and client base, City Telecom's charging rates for its clients and City Telecom's range of charging rates and the nature or extent of the services provided by City Telecom for the charges involved. The Plaintiffs seek this information, not for the purpose of assisting them to present their case at trial, but in order to exploit the commercial advantages arising from it in competition with City Telecom."

6. Our attention has been drawn to the evidence filed on the application and in particular that which is contained in the affirmation of Mr Ricky Wong Wai Kay, where he says :-

"22. The Defendant has been advised that the Plaintiffs' causes of action in this case are contrived and/or insubstantial. It is my opinion that this action is without merit and has been instituted, not for the purpose of obtaining damages, but in order to attempt to obtain from the Defendant, by interlocutory discovery, its confidential and sensitive business information. Competition amongst licensed telecommunication services providers in Hong Kong is fierce and hostile and is likely to become even more fierce and even more hostile as Hong Kong Telecom loses its monopoly. Hong Kong Telecom has already been censured by OFTA for its anti-competitive practices, details of which are set out in Exhibit 'WWKR-2'.

23. The Defendant has pleaded that this action has been brought in abuse of this Honourable Court's process for the collateral purpose of obtaining discovery to which the Plaintiffs are not entitled. The Defendant contends that each of the two alleged causes of action pleaded by the Plaintiff in the Amended Statement of Claim are contrived and insubstantial. I believe that this action has been commenced by the Plaintiffs as part of a campaign to undermine the Defendant's ability to compete with the Plaintiffs in the telecommunications market for international services. If the Plaintiffs are given interlocutory discovery of the Defendant's financial and customer records prior to liability being determined in this action, I believe that the Plaintiffs will gain an unfair advantage over the Defendant and will use the information so obtained to the detriment of the Defendant's business.

24. If the Plaintiffs are able to obtain access to the Defendant's confidential and sensitive business information such as the identities of the Defendant's customers, the scope of the services provided by the Defendant to individual customers, the prices or ranges of prices at which the Defendant provides those services to individual customers and/or any discounting or rebating arrangements which may have been available to individual subscribers, the Plaintiffs are in a position to target such customers in an attempt to entice them away from the Defendant."

7. The question of misuse of proceedings is clearly not something which the court could come to a conclusion on at this stage. Whereas the defendant's claim of abuse of process is still extant and therefore not to be regarded as anything other than a serious claim, there is no direct evidence of the Plaintiffs' intention to misuse the discovery obtained in the proceedings. There are only the fears expressed in the affirmation. The defendant points to the counterclaim made that the plaintiffs have indulged in anti-competitive practices. That was the claim sought to be struck out before the Judge. The Judge refused to strike out that claim. Even assuming it is a good claim that, it seems to me, does not establish that the plaintiffs will breach their obligations as to the confidentiality of items disclosed on discovery. If there is a breach of the confidentiality of discovery documents, that is a contempt. The plaintiffs have affirmed on oath that they are fully cognisant of their obligations in this regard.

8. The case presented by the defendant is that if a split trial of liability and damages should not be ordered, the damage which is feared will be occasioned and is the subject of the defence of abuse of process and is repeated in the counterclaim, will have been suffered. It is said that this can be avoided if there were a split trial.

9. The Judge below ruled against the defendant essentially for 3 reasons. He said first that he perceived an overlap between the documents relevant for the purposes of liability and those relevant for the purposes of damages. He considered that the process of discovery might be made more complicated by the existence of a split trial with extensive and undesirable interlocutory applications. He also considered that the documents might also be relevant and therefore discoverable in relation to the defendant's counterclaim for abuse of process. (In this respect, I consider that there must have been a typographical error in the decision referring to the plaintiff rather than the defendant.)

10. The Judge quite rightly referred to forms of protection as to the use that can be made of discovery documents.

11. In my view, this court should not interfere with the Judge's approach to the matter. The case has been presented on the basis of a likelihood of abuse of discovery. A case that that is likely to happen has simply not been made out at this stage. It is one thing for the defendant's claim to remain as a pleading to be tried but it is quite another for the court to consider that it is made out at this stage to the extent that a split trial is necessary to avoid that abuse. The Judge was, in my view, correct that the same documents would appear to be prima facie discoverable for the purposes of liability and damages.

12. In considering the matter, the Judge took into account the various orders that can be made to protect confidentiality of documents. For example, limiting disclosure to specified persons. Moreover, whereas there may be a case for saying that the identity of clients might still be highly confidential, the defendant's pricing in 1997 is hardly likely to be of any relevance anymore in view of the fact that from the beginning of this year, there has been a total change in the telephone business in Hong Kong. There are now a number of companies permitted to operate telephone businesses involving overseas calls independently of the plaintiffs and their facilities.

13. I would also add that this court is always reluctant to interfere with the exercise by a judge of his discretion in relation to the conduct of a case before him. Case management is primarily a matter for the judge at first instance to decide what is appropriate and necessary in the circumstances of the case.

14. I would, however, like to add a few words as to the further conduct of this action. It seems to me that this is a case which requires strong case management to ensure that the issues between the parties are properly and efficiently dealt with. The Judge records in his judgement the defendant's objection to the case being assigned to a particular judge. It was explained by Mr Barlow on behalf of the defendant that the objection related to the assignment of the case to the Commercial List because it was considered that that was inappropriate for this case. That may be so, but it seems to me that this case should be assigned to a specific judge or list and perhaps an appropriate one would be the list of the judge in charge of intellectual property matters.

15. The issues in this case seem to me to be at least these. In respect of the claim in contract, first as to whether the 2nd plaintiff had any contract with the defendant; secondly, whether the defendant's actions constituted a breach of contract; thirdly, as to whether there was any damage and fourthly, as to whether there was waiver or acquiescence and, of course, what the defendant did and proposed to do.

16. In relation to the unlawful interference, there is a question as to whether what the defendant was doing was operating an external public telephone service. Secondly, there is a question as to whether what the defendant was doing was unlawful. Then there is the question whether there was any loss or damage. Then, there are matters as to the abuse of process claim and the matters arising on the counterclaim. Lastly, of course, there is the question of damages on the plaintiffs' claim and on the defendant's counterclaim.

17. It seems to me that arrangements should be made to have these issues decided without waste of time and effort and without extensive discovery. Whether the issue of liability can be decided on the basis of agreed facts, I do not know. It may be that a preliminary issue could be decided. I, for one, would be most anxious that extensive discovery should be avoided, unless it becomes essential. The matter of extensive discovery does not appear to have been considered although it is mentioned, in passing, in the defendant's submissions in this court. If it is to be addressed, a great deal more information would be required as to exactly what is involved and how it could be simplified and as to how this case could be conducted by limiting the discovery where possible.

18. For these reasons, I would dismiss this appeal.

Hon Wong JA :

19. I agree and have nothing to add.

Hon Ribeiro JA:

20. I agree that the appeal must be dismissed and would like to add a few words.

21. The question of whether there should be a split trial is pre-eminently a matter for the discretion of the judge. Such decision forms part of his overall case-management of the proceedings and the Court of Appeal should not intervene unless it can be shown that his decision either to grant or dismiss the application was founded on some error of principle or clearly wrong.

22. The Defendant alleges that the Plaintiffs have brought the action solely or mainly for the improper purpose of getting, by way of discovery from the Defendant, a list of those persons who were its customers in 1997, the intention being to entice them away.

23. It is fundamental to the Defendant's entire case on this point that, having obtained a list of customers on discovery, the Plaintiffs will misuse such information for the improper purpose mentioned, in breach of their implied undertaking to the court and therefore acting in contempt.

24. As Mr Barlow accepts, the Defendant is not in a position to establish such abuse at present but will try to do so at the trial.

25. Indeed, it could hardly be otherwise since it is clear that the abuse is not even alleged yet to have accrued. For there to be such abuse, the action must first proceed to the point of discovery and, more importantly, the Plaintiffs' executives must commit the contempt of misusing the information thereby obtained for the improper purpose I have mentioned.

26. I say nothing about the viability or otherwise of the action. However, the allegation of abuse is at present necessarily in a wholly inchoate state, both evidentially and on the Defendant's own submissions.

27. In such circumstances, the judge was not prepared to approach the application on the assumption that such abuse had been established. In my judgment, he was entirely entitled to take this view in the exercise of his discretion. He certainly cannot be said to have erred in principle or to have in any sense been clearly wrong.

28. The judge also stated at p.6 of his judgment as follows:

"Whatever the perceptions of the Defendant as to the Plaintiffs' motives in bringing this action, the fact is that the Court is well able to regulate its own procedure in the manner it thinks just and convenient, both in terms of the mechanics of discovery and in terms of punishment for breach of the undertakings necessarily attendant upon this exercise."

I think that comment well founded. I see no reason why in due course sensible directions such as those indicated by Rogers JA should not be given including directions to provide legitimate safeguards for any genuinely sensitive information to be provided on discovery.

29. I therefore consider that there is no basis for interfering with the judge's exercise of discretion and would also dismiss the appeal.