TACHING PETROLEUM COMPANY LTD v. MEYER ALUMINIUM LTD

CTA 1/2018 &
CTA 2/2018

[2019] HKCT 1

IN THE COMPETITION TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COMPETITION TRIBUNAL ACTION NO 1 OF 2018

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AND

IN THE COMPETITION TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COMPETITION TRIBUNAL ACTION NO 2 OF 2018

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D E C I S I O N

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Introduction

1.  This is the 2^nd case management conference.  The pleadings have closed, subject to Shell’s application for leave to redact part of its points of reply (“PoR”).  Parties have exchanged list of documents but have not yet done inspection pending resolution of the issue of confidentiality ring.

2.  Three matters are to be adjudicated upon at this CMC:

(1) Shell’s Redaction Summons for leave to redact part of its PoR;

(2) Meyer’s Confidentiality Summonses seeking to have 2 of its in-house non-legal representatives included in the confidentiality ring;

(3) Split trial – whether or not part or all of the related actions in HCA 1929/2017 and 1069/2018 (“the HCAs”) should be stayed pending decision of the Tribunal on the competition issues.  This matter will be dealt with in a separate decision in the HCAs.

The rest of the case management directions have largely been agreed.

Background

3.  Taching and Shell have respectively sold industrial diesel oil to Meyer and sue for the price in the HCAs.  Meyer’s defence is that Taching and Shell have breached the First Conduct Rule under the Competition Ordinance, Cap 619 (“CO”), by colluding to fix price/exchange price information (“the alleged collusion”).  That is the core issue which has been hived off to this Tribunal for determination.

4.  The parties have in October 2018 submitted a Draft Protocol by correspondence to this court concerning formation of a confidentiality ring. They could not agree on whether or not Meyer’s in-house non-legal representatives should be included in the ring. 

5.  Upon the Tribunal’s direction, Meyer issued a series of summonses asking that: (a) no confidentiality ring be established; or (b) Meyer’s non-legal representatives be included in the confidentiality ring.

6.  In the course of the arguments, it transpired that Mr Lee (with Ms Lui), counsel for Meyer, was not seeking an order on item (a) but submitted that the factors for deciding item (b) should be the same for deciding item (a).  The main protagonists are Meyer and Shell.

7.  As an alleged victim, Meyer does not possess the contemporaneous documents in the hands of Taching and Shell that are relevant to the subject matter of the cartel.  Meyer has no in-house lawyers.  So it asks that its CEO and CAO be allowed to inspect all of the documents discovered, including those with confidential and commercially sensitive business information.  If inspection is restricted in the way as presently contended by Shell, Meyer would be seriously prejudiced in the conduct of the case.  Meyer would not be able to properly understand the cases advanced by Shell and Taching and in turn would not be able to give its legal representatives proper instructions.

8.  Shell, on the other hand, contends that, consistent with established authorities, only external legal advisers be included in the confidentiality ring (at least in the early stages of the proceedings).  The Draft Protocol has in-built safeguards to protect the interests of all parties in respect of non-confidential and confidential documents, and has a mechanism to enable a party to show a confidential document to a non-ring member.  The blanket permission to inspection sought by Meyer would inflict significant and disproportionate harm on Shell’s legitimate commercial interests and must be rejected.

9.  Taching’s position is neutral although it suggests that if Meyer’s in-house non-legal representatives are to be included in the confidentiality ring, there should be a mirror order for Taching.

Legal principles on confidentiality rings

10.  There is no dispute that the Tribunal has power to impose a confidentiality ring.  Under section 143(1)(b) CO, the Tribunal has, with respect to production and inspection of documents, all the powers of the Court of First Instance.

11.  Under rule 24(4) of the Competition Tribunal Rules (Cap 619D), the Tribunal may make an order for discovery having regard to, amongst others, the confidential nature of the information, the balance between the interests of the parties and other persons, and the extent to which the discovery is necessary for the fair disposal of the proceedings.

12.  The starting point in any civil proceedings, is that it is the party who will be affected by a decision, not their advisers.  It is for that party, not their advisers, to decide how to advance or respond to a case.  See BMI Healthcare Ltd v Competition Commission [2013] CAT 24, §62.

13.  The discovery is made to a party himself, not his solicitor or agent: Warner Lambert Co v Glaxo Laboratories Ltd [1975] RPC 354.

14.  This is to allow the parties to litigate on an equal footing and with full knowledge of the materials before the court: Dyson Appliances Ltd v Hoover Ltd[2002] R.P.C. 42, §§27 & 33, Laddie J.  It is a principle of natural justice. 

15.  There is a distinction between discovery and inspection. 

(1) The burden lies upon the party holding the documents to show that they are not discoverable, ie not relevant.

(2) The burden lies on the party seeking inspection to show that that is necessary for the fair disposal of the action and for saving costs.

(3) If no element of confidentiality is asserted in the documents, routinely they will be produced for inspection without the need for a hearing under Order 24, rule 13 of the Rules of the High Court on the issue of necessity.

(4) If, however, confidentiality is asserted or any other ground of objection arises, rule 13 assumes relevance and it becomes necessary to decide whether inspection is necessary for the fair disposal of the action.

(5) Disclosure will be necessary if (a) it will give ‘litigious advantage’ to the party seeking inspection; (b) the information sought is not otherwise available to that party by, for example, admissions, or some other form of proceedings (eg interrogatories) or from some other source; and (c) such order for disclosure would not be oppressive, perhaps because of their sheer volume.

(6) If a prima facie case is made out for disclosure, then the court will first inspect the documents: (a) to ensure that inspection is indeed necessary; (b) assuming it is, to see if the loss of confidentiality involved can be mitigated by: (i) blanking out parts of the documents, and/or (ii) limiting disclosure to legal advisers only.

Wallace Smith Trust Co Ltd (in liquidation) v Deloitte Haskins & Sells (a firm) and another [1997] 1 WLR 257, 271G to 272F, Simon Brown LJ; Order 24, rule 13 of the Rules of the High Court.

16.  It would be exceptional to prevent a party from access to information which would play a substantial part in the case.  The overall principle is justice.  In Roussel Uclaf v ICI [1990] RPC 45, p49 (lines 36-50), Aldous J laid down the following summary of principles, approved by the Court of Appeal at p54 (lines15-32):

“Each case has to be decided upon its own facts and the broad principle must be deciding how justice can be achieved taking into account the rights and needs of the parties. The object is that the applicant should have as full a degree of disclosure as will be consistent with adequate protection of the secret. In so doing, the court will be careful not to expose a party to any unnecessary risk of its trade secrets leaking to or being used by competitors. What is necessary or unnecessary will depend upon the nature of the secret, the position of the parties and the extent of the disclosure ordered. However, it would be exceptional to prevent a party from access to information which would play a substantial part in the case as such would mean that the party would be unable to hear a substantial part of the case, would be unable to understand the reasons for advice given to him and, in some cases, the reasons for the judgment. Thus what disclosure is necessary entails not only practical matters arising in the conduct of the case, but also the general position that a party should know the case he has to meet, should hear the matters given in evidence and understand the reasons for the judgment.”

17.  If confidential documents have to be disclosed, the collateral undertaking will protect the party giving inspection from misuse.  However, there will be occasions where the collateral undertaking is insufficient, eg where the other side may be business competitors or may have previously misused documents, or the documents are highly confidential.  A balance has to be struck between the need to preserve confidentiality and the principle of natural justice. The court may limit inspection where good reason is shown.  See Documentary Evidence (13^th ed) at §10.07.

18.  Care must be taken to distinguish between cases involving private litigants and those involving the regulator (the Competition Commission in Hong Kong). 

(1) In respect of the former, the party seeking disclosure has to defend himself against a claim.  Disclosure and inspection of documents is the standard procedure in such litigation.

(2) In respect of proceedings involving the regulator, it is often an appeal or review, which is not a commercial dispute. In arriving at its regulatory decisions, the regulator has gathered lots of information from third parties through the exercise of their statutory powers.  The issue is not a matter of ensuring that parties to commercial litigation are placed on an equal footing before the court.  The question, rather, is how much confidential information provided to the regulator by a third party for the purpose of the regulatory function should be disclosed to the applicant in the course of the challenge to the regulator’s decision.

Carphone Warehouse Group PLC v Office of Communications [2009] CAT 37, §14.

19.  The role which the document will play in the case is a factor which must be weighed in the balancing exercise in setting the terms of the confidentiality regime at any given point in the case.  Mere confidentiality would not justify restricting the access of a party to a document: IPCOM GmbH v HTC Europe Co Ltd [2013] EWHC 52 (Pat), §§20 & 24.

20.  The confidential or sensitive nature of documents is something to be proved by evidence.  See for example British Sky Broadcasting Group PLC v The Competition Commission [2008] CAT 9, §§11 & 14; Carphone Warehouse, §§6-10 (regulator cases); Roussel Uclaf, p49 (lines 6-18), Dyson, §35 (both private litigation).

21.  The onus is on the party seeking to show that the case is sufficiently exceptional to justify restrictions on disclosure to the litigant on the other side, notwithstanding onerous undertakings as to confidentiality and the like, rather than on the party, who is prima facie entitled to see the documents, to justify its entitlement to access: Dyson, §35; TQ Delta LLC v Zyxel Communications UK Ltd [2018] FSR 34, §34 (both private litigation). 

22.  It is recognized in competition law that one man’s market advantage is invariably another’s market disadvantage: Documentary Evidence, §7.52.  If employees of the parties (including in-house legal advisers) or experts engaged by them has access to confidential information of an opponent, it would be extremely difficult, if not impossible for them to “unlearn” it.  It would create a serious risk of such confidential information getting into the market to the detriment of the party disclosing it.  See British Sky Broadcasting Group plc, §14.

23.  So the starting point mentioned in paragraph 12 above may be modified and derogated from to take account of the confidential nature of the information by the use of confidential rings: BMI Healthcare at §§63‑65.

24.  However, confidentiality rings are the exception rather than the rule. See Documentary Evidence, at §10.07, citing Porton Capital Technology Ltd v 3M Holdings Ltd [2010] EWHC 114 (Comm) Christopher Clarke J.

25.  If a confidentiality ring is necessary, a staged approach is appropriate so that eg initially the disclosure of confidential information may be made to external legal advisers and, if appropriate, to experts. (For example, see Roussel Uclaf,at p48 (lines 18-24; 33-38); Wallace Smith Trust Co Ltd at p272F.)  Typically, the interested person, including in-house lawyers, will be excluded from membership: BMI, §65.  Signed undertakings will be given by members of the ring to maintain confidentiality of the information and/or an undertaking to pay damages for breach of the undertaking is required: Roussel Uclaf, at p51 (lines 45‑51).

26.  Necessarily, the information within the confidentiality ring must be of such a nature that it can be dealt with and an informed response is given by the ring members (such as legal advisers) without their having to disclose that information to non-members (such as clients): BMI Healthcare, §66.

27.  After the disputed issues are fully crystallized and the lawyers have inspected the documents, the relevance of the documentary evidence emerges with greater clarity.  The lawyers can form a view as to whether individuals from the clients need to see some or all of the documents and make a “much more focused application for disclosure” at a later stage: Carphone Warehouse, §22. See for example Claymore Dairies Ltd v Director General of Fair Trading [2003] CAT 12 at §§16-17, a regulator case.  The applicant for discovery was a complainant who sought to review the decision of the regulator not to investigate his complaint.  The primary purpose of the case was to identify whether the regulator had made any material error of law rather than to investigate the underlying facts (at p7, lines 3-4 of the transcript).  The initial order for discovery was limited.

28.  Additionally, I agree with Ms Sit that the Tribunal should also be vigilant to the following:

(1) Confidentiality undertakings are difficult to police and enforce.  It would be difficult for a party to prove that an undertaking was breached when market rumours are frequently spread around by industry players in private.

(2) The commercial harm is often difficult to quantify, for it is virtually impossible for the harmed party to estimate the extent of advantage gained by other market players.

(3) The party in breach of the confidentiality undertaking may be a relatively small enterprise who may not have sufficient resources to meet any claim for damages.

29.  There are different examples of how the court has allowed or disallowed employees of a party to become members to a confidentiality ring which originally comprised external legal representatives and/or experts.

30.  Roussel Uclaf wasa patent infringement action where the parties were competitors.  The defendants’ confidential process could be summarized in 2 sentences and hence easy to leak out.  It would be difficult to find out whether it has been leaked.  If the leakage was to a person resident in France, it would be difficult to obtain relief preventing misuse of confidential information (at p50 (lines 34-42)).  Aldous J held that justice required that somebody in the plaintiffs should be available so that the case could be fully discussed, so that that person could appreciate the strengths and weaknesses of the case, the reasons for the experiments and provide technical input to the plaintiff’s case.  The process description and the confidential documents were at the heart of an important part of the case and it was right that somebody in the plaintiff should have an opportunity to understand the case and help the confidentiality ring members.  The case had reached a stage where the notice of experiments must be finalized and the plaintiff’s input was needed.  Aldous J permitted disclosure of the confidential process to an employee within the plaintiff’s patent department with the relevant technical expertise but that employee should not be involved in other proceedings in France.

31.  On the other hand, in IPCOM, Floyd J rejected an application for 2 employees of IPCOM to be included as ring members.  IPCOM was a very small company consisting of only two peopleengaged full time in litigating and negotiating terms for the licensing of a portfolio of patents: §28.  It sought an order against, amongst others, Nokia and HTC for payment of royalties after it was determined that the latter had breached one of IPCOM’s patents: §1. IPCOM sought to have its internal management personnel in the confidentiality ring on the ground that IPCOM would not be able to give “fully informed instructions on all the information in the case”: §§12-13.

32.  Floyd J rejected the application after taking into account the following considerations at §§31-32:

“(1) The relevant material was confidential and the court should not inflict a competitive disadvantage on HTC and Nokia unless justice so required.

(2) The case was still at the interim stage. It was not clear what part the confidential documents would play and whether the case would go to trial. To allow inspection by the key commercial people within IPCOM could inflict wholly unnecessary harm on HTC and Nokia.

(3) The confidential information could not be unlearnt by IPCOM. They would not in practical reality be able to avoid its use.

(4) The prejudice to IPCOM was significantly mitigated by the inclusion of an external lawyer.

(5) It was not necessary to do justice, at that stage at least, to allow IPCOM’s internal management team to conduct a free-ranging review of the disclosure documents.

(6) Although the case was unusual in that IPCOM was a very small company in terms of personnel, this did not mean that IPCOM was entitled to be treated differently than other litigants. It only meant that the balance had to be struck in a different way at that stage.”

33.  That was plainly an illustration of a staged approach having regard to the nature of the confidential document and its utility in the case.

34.  TQ Delta v Zyxel had a different outcome to IPCOM.  On a proper reading of TQ Delta, Henry Carr J’s concern was that in respect of key documents, the “external eyes only restriction”, in order to achieve their purpose, would continue at trial (§§11, 15).  It was in that light that he rejected that kind of restriction:

“24. An external eyes only tier enables a blanket exclusion of access by one of the parties to the relevant parts of key documents. This is incompatible with the right to a fair hearing under article 6 of European Convention for the Protection of Human Rights and Fundamental Freedoms, and with the principles of natural justice. It is incompatible with the obligations of lawyers to their clients. The principles on which solicitors are obliged to act on behalf of clients instructing them require the sharing of all relevant information of which they are aware.”

35.  The learned judge reviewed some of the authorities on natural justice and confidentiality ring.  He acknowledged that parties could choose to have an “external eyes only” disclosure tier.  Such disclosure to individual documents of peripheral relevance, whose disclosure would be damaging, may be justified in specific cases as in IPCOM.  He would not exclude the possibility that in certain exceptional cases, “external eyes only” access to specific documents of greater relevance might be justified, at least at an interim stage.  However, in the absence of exceptional circumstances, each party must be able to see and discuss with its lawyers the relevant parts of the key documents in the case.  (at §23).

36.  Henry Carr J was not satisfied on the basis of “the somewhat vague evidence so far provided” that the interest in preserving the confidentiality of commercially sensitive information would not be satisfied by just limiting access to the information to 2 named individuals from Zyxel’s ultimate parent: §31.

The asserted confidentiality and claimed restriction to access

37.  Taching asserts confidentiality in respect of only one document, ie the Agreement for Sale and Purchase between Sinopec and Taching, which requires the parties thereto to keep certain information, including pricing and quantities, confidential. 

38.  Shell asserts confidentiality in respect of the redacted part of the PoR and (according to Mr Lee) over 230 items of documents in its list of documents. 

Shell’s Redaction Summons

39.  Shell has given the unredacted PoR to the external legal representatives of Taching, but (probably due to oversight) gave it to Meyer only during this hearing.

40.  Meyer wants its employees to be included in the confidentiality ring to enable its external legal advisers (i) to properly understand the information disclosed by Shell and Taching and to place it in commercial context; and (ii) to take full and informed instructions from Meyer to formulate a defence.

41.  Shell is concerned that widening of the confidentiality ring may cause the confidential List Price Policy to be disclosed to Taching and Meyer, and further disclosure by Taching and Meyer to other market players.  That would have a significant adverse impact on Shell’s legitimate commercial interests. 

42.  Further, Shell asserts that specific details of its List Price Policy are not relevant to the core issue.  Shell’s personnel are expressly prohibited from engaging in direct or indirect discussions with Shell’s competitors or their staff about pricing information (§30 PoR).  The List Price Policy does not suggest otherwise. 

43.  Having read the unredacted PoR in full, I am of the view that Shell’s concern was justified as against Taching, one of its competitors.  The List Price Policy, if known to Taching’s internal personnel, may undermine Shell’s competitiveness in the market.  There is cause for redaction insofar as Taching is concerned.

44.  However, Meyer is not a competitor.  It is an aluminium manufacturer who used Taching/Shell’s product.  The List Price Policy forms a substantial part of the case as to whether Shell determined its price independently or in collusion with Taching.  Shell’s assertion of lack of relevance in §30 PoR is self-serving and Meyer is entitled to contest the existence and terms of the List Price Policy.

45.  Ms Sit (with Mr Joshua Chan), counsel for Shell, submits that it is not sufficient just to say that Meyer is not a competitor.  There had been past instances when Meyer used discounts offered by Taching or other suppliers as leverage to persuade Shell to reduce its sale price: §36 PoR.  She submits that the price might be in the public domain but how that price came about was confidential. The product is highly homogenous.  A slight movement in price would trigger the competitors to react. There is a need to prevent the confidential information from getting into the market. 

46.  Ms Sit further submits that Meyer has asserted in Chan Pui Wan’s affidavit that it was an outsider to the alleged cartel between Shell and Taching.  It is difficult to see why Meyer’s legal advisers would not be in a position to understand and evaluate the confidential documents for the purpose of advising on and formulating Meyer’s case.

47.  For the following reasons, I do not accept Ms Sit’s arguments:

(1) The conduct of Meyer in §36 PoR is something which a prudent customer would have done.  That is far from showing that Meyer had in the past misused Shell’s confidential information or would in future breach confidentiality obligations with regard to information obtained in this litigation. 

(2) Meyer’s assertion in Chan’s affidavit was merely to put Shell to strict proof of its List Price Policy.  That cannot be a good reason to restrict a party from access to a set of pleading. 

(3) Information in eg §§48.2, 48.4 and 48.5 of the redacted PoR contained variables which were not in the public domain in the past and unlikely to be in the future.  It could hardly be said that Meyer’s in-house non-legal representatives would likely be put in a position to exploit that information to Meyer’s advantage. 

48.  Meyer has voluntarily limited itself to having only 2 employees within the confidentiality ring (instead of 8 as originally suggested in correspondence), with an express undertaking as to confidentiality. Shell has not discharged its onus of showing why it is necessary to further restrict a party’s access to the pleading.  I therefore order that the PoR should be disclosed in full to Meyer.

49.  In summary, I give retrospective leave to Shell to redact the PoR as against Taching but not Meyer.  For the avoidance of doubt, the Draft Protocol (now modified to include 2 employees of Meyer as members) should apply to Shell’s PoR.

Meyer’s Confidentiality Summonses

50.  Taching and Shell have no issue between themselves that the confidentiality ring be limited to external legal advisers.  Regardless of the Tribunal’s ruling on Meyer’s position, Taching (being a competitor of Shell) should not be entitled to resile from that position without advancing any reason.

51.  Meyer has conceded that there should be a confidentiality ring (and hence admitted the potential existence of confidential documents).  However, Shell has still failed to discharge the burden of showing why Meyer’s suggested restriction on access to 2 persons is not sufficient. 

52.  This is private litigation and the standard procedure is for discovery and inspection.  Mere assertion of confidentiality by a solicitor is not sufficient.  Shell’s personnel has not filed any affidavit to show eg why the 2 employees of Meyer are not appropriate persons to have access, or what potential and significant harm could be caused to Shell if any employee of Meyer were included in the ring, or that Meyer would not be able to meet a claim for damages for breach of the undertaking as to confidentiality. Shell has not even alleged that all documents claimed to be confidential fall within the List Price Policy.

53.  Ms Sit submits that a balance has already been struck between fairness to Meyer in being able to properly defend the claim and protection of confidentiality by in-built safeguards in the Draft Protocol.  In particular, a party can:

(a) Give unrestricted access to non-confidential documents to persons outside the ring (Clause 4.2(d));

(b) Designate documents as confidential but provide redacted copies (without destroying the sense of the documents) to non-ring persons (Clause 4.2 (a) to (c)).

(c) Request the party supplying the document to either have the redaction removed (Clause 4.3) and/or to expand membership (Clause 3).

54.  In fact, sub-paragraphs (a) and (b) have purportedly been followed by Shell and Taching already in their lists of documents.  Meyer has agreed to the adoption of this mechanism in correspondence prior to issue of the summons but has not explained why it is necessary for their employees to see the documents at this interim stage.

55.  With respect to Ms Sit, Meyer’s “agreement” then was on the basis that its in-house non-legal representatives were included as members.  No consensus was reached.  Shell’s reliance on a draft protocol without first justifying the denial of access to information is putting the cart before the horse.

56.  I therefore grant Meyer’s request to include 2 named employees, ie James Cheng (CEO) and Sandy Chan (CAO), as members of the confidentiality ring. 

57.  I make clear that the summonses before me do not concern specific documents but only the issue of membership to the confidentiality ring.  None of the parties are precluded from applying for or contesting confidentiality treatment in respect of specific documents. 

Case Management Directions

58.  The other directions are not in dispute.  I make an order in terms of paragraphs 2-13 of the “agreed proposed directions of Shell and Taching” handed up by Ms Sit at the hearing with the following adjustments as agreed at the hearing:

(a) In §2, the time for inspection would have expired by the time of handing down of this decision.  The parties are at liberty to change this non-milestone date if they so wish, failing which inspection shall be within 14 days of the handing down of this decision. 

(b) In §10, any application for specific discovery must be supported by affidavit and shall be taken out no later than 2 weeks before the third CMC.

(c) In §11, the third CMC shall be fixed for 19 August 2019 at 10 am with 3 hours reserved.

Provisional costs orders

59.  In respect of the Redaction Summons, costs of Meyer are to be borne by Shell.  Taching’s costs shall be in the cause of the CTA proceedings, to be equally split between the 2 cases.

60.  In respect of Confidentiality Summonses, costs of Meyer are to be borne by Shell.  Taching’s costs shall be in the cause of the CTA proceedings, to be equally split between the 2 cases.

61.  The hearing time for the Confidentiality Summonses and Redaction Summons be apportioned as 2.5 hours and 0.5 hour respectively.

62.  The hearing time for case management be apportioned as 20 minutes, to be split equally between the 2 sets of CTA proceedings.

63.  Half of the costs of this CMC (excluding the costs of the Confidentiality Summons and Redaction Summons but including 20 minutes hearing time) be in the cause of the CTA proceedings, to be equally split between the 2 cases.

64.  These costs orders are all on nisi basis.  Any application for variation shall be returnable on the 3^rd CMC for argument.

65.  I thank counsel for their assistance.