SINODENTAL INVESTMENTS LTD AND OTHERS v. SIN CHUNG YIN RONALD AND OTHERS

HCA 2176/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2176 OF 2012

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BETWEEN

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D E C I S I O N

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The application

1.  By summons dated 2 April 2014, the plaintiffs applied to the court pursuant to Order 24 rules 7 & 11 of RHC for specific discovery from each of the 4^th, 7^th to 18^th defendants by way of an affidavit in the prescribed form in respect of the documents set out in the schedule attached to the summons and for inspection thereof.  There are three categories of documents, namely,

a. Category A refers to the engagement agreements and/or documents pursuant to which the ex-employees of the 3^rd plaintiff were engaged to work in the business of 7^th to 18^th defendants;

b. Category B refers to the bank account opening documents and documents for change of bank account signatories in respect of all bank accounts used by the XD Group companies (7^th to 18^th defendants); and

c. Category C refers to the tenancy agreements of the business addresses of 7^th to 13^th defendants and also 15^th to 17^th defendants.[1]

2.  The defendants oppose the applications on the grounds that the documents are irrelevant, oppressive and disproportionate to the value that the plaintiffs would gain, if any, and it would not save costs.[2]  Defendants’ counsel states further in her written submissions that the documents contain confidential commercial secrets and that it is a fishing exercise.[3]

3.  Mr. J. Yu, counsel acts for the plaintiffs and Ms L. Lau, counsel acts for the defendants.

Factual background

4.  The 1^st plaintiff is the majority shareholder of the 2^nd plaintiff, which is the holding company of a group of subsidiaries providing a wide range of dental services in Hong Kong and Macau.  The 3^rd plaintiff is the operating arm of the 2^nd plaintiff.  The 1^st, 2^nd and 3^rd defendants were the shareholders and directors of the 2^nd plaintiff.  The 1^st, 4^th, 5^th and 6^th defendants were the employees of the 3^rd plaintiff.  The 7^th to 18^th defendants are the companies allegedly set up by the 1^st to 6^th defendants in competition with the plaintiffs’ business (“the XD Clinics”).

5.  The plaintiffs claim against the 1^st to 6^th defendants for various breaches of their shareholders’ agreements, employment agreements and/or fiduciary duties as employees and/or directors for their involvement of the formation and operation of the XD Clinics.[4]

6.  Further or in the alternative, the plaintiffs plead that the 4^th defendant and 7^th to the 18^th defendants conspired with one another in carrying out unlawful competition against the plaintiffs’ business by unlawful means.[5]

The relevant legal principles

7.  The relevant legal principles are as follows:

a. If the issue is not expressly pleaded in the pleadings, particularly for allegations of conspiracy, the documents concerning conspiracy are irrelevant and the application must be disallowed. Joyce T. Ongsip t/a LT Enterprises Co. v Pimatronics Ltd. (unreported, HCA611/2010, 7 June 2012)  at §§12 & 13;

b. However, relevance must be defined “by reference to the plaintiffs’ pleaded claim in its general sense, as distinct from its detailed exposition.  What matters for discovery purposes are the claim and defence to it in the broadest sense and not to the detailed particulars of either claim or defence.” by Deputy High Court Judge H Wong SC in Chan Hung v Yung Kwong Chung HCA 216 & 271/2004.  At paragraph 27 of the judgment, the Deputy Judge further said: “With respect, I agree with Colman J[6]. For the purpose of discovery, the relevance of a document should not be solely tested against the detailed particulars pleaded by the parties.  It is the pleaded case of the parties in the broad sense that one should be concerned with.  A document may be generally relevant to a party’s case as pleaded (many so-called “background documents” are of this nature) although its relevance cannot be specifically pinned to some pleaded particulars.  For discovery purpose, the pleadings have to be looked at broadly.”, see also Moulin Global Eyecare Holdings Limited (in liquidation)(formerly known as Moulin International Holdings Limited) & Or. v KPMG (a firm) (unreported, HCA118/2007, 8 June 2010), The Incorporated Owners of Kodak House II and No.321 Java Road v Kai Shing Management Services Ltd. (unreported, HCA711/2011, [2012] HKEC 1375) and adopted in Billion Lead Investment Ltd. v Union Joyce Ltd. & Others by M. Chan J. (unreported, HCMP2145/2011, 14 December 2012) and

c. Once the plaintiffs have shown to the court that the defendants have possession of or power over the documents, the relevance and disclosure of them will be for a fair trial or saving costs, the burden will shift to the defendants to show otherwise.  Tullett Prebon (Hong Kong) Ltd. v Chan Yeung Fong Nick & Others (unreported, HCA2197/2009, [2011] HKEC 761) by To J.;

d. The Court must not make oppressive order, the meaning of which depends on the circumstances of the case, such as massive class documents.  Deak and Company (Far East) Ltd. v N.M. Rothschild and Sons Limited & Others per Barker JA (unreported, CACV 28/1981, 4 November 1981) at page 5.

Discussion

8.  Defence counsel has set out the relevant issues of dispute in this matter as follows:

(i) whether there is a valid restrictive covenant,

(ii) whether there is any breach of employment agreements,

(iii) whether the Defendants had enticed away the ex-employees and ex-consultants of the Plaintiffs;

(iv) whether the XD clinics are in direct competition with the Plaintiffs’ business; and

(v) whether the 1^st to 18^th Defendants had conspired to wrongly compete with the Plaintiffs.[7]

9.  The defendants submit that whether the 1^st to 6^th defendants signed the engagement agreements, the tenancy agreements and/or become the authorized bank signatories of the 7^th to 18^th defendants are not relevant to the issues because they simply would not advance the plaintiffs’ case.[8]  Further, they submit that the dates of some ex-employees and ex-consultants of the plaintiffs engaged by the XD Companies or XD Clinics will not show whether they were enticed by the defendants or how and when they were so enticed into joining the XD Clinics.[9]  Finally, the defendants submit that the documents asked for by the plaintiffs contain confidential information about the defendant’s business and their personal particulars.  The court has the discretion to disallow the disclosure of those documents, relying on Re Global Info Ltd [1999] 1 BCLC 74 at 79a.

10.  This morning, the defendants go further to submit that the plaintiffs had through their solicitors in their correspondence told the defendants that the plaintiffs were concerned about the dates of the joining of the employees and the dates of the entering into the tenancy agreements for the business centres.  The plaintiffs had also agreed to redact the confidential information in the documents.  Now they are asking the court to have the documents without limitation.

11.  The defendants therefore submit that the plaintiffs’ application for discovery of the documents is merely a fishing exercise.

12.  On this issue of relevance, the plaintiffs submit that the massive exodus of employees from the 3^rd plaintiff was caused by the enticement of the 4^th defendant and others.  The exact words pleaded are:

“ By reason of all of the aforesaid, and in particular the involvements of the 1^st to 4^th Defendants in the set up/management/operation of the XD Group of companies and clinics; the proximity of the time of resignations of all of the aforesaid ex-employees of the 3^rd Plaintiff the proximity of the time of their respective engagements by the XD Group of companies and clinics, the Plaintiffs ask the Court to infer that these ex-employees of the 3^rd Plaintiff were enticed and/or solicited by the 1^st to 4^th Defendants to join the XD Group of companies and clinics” (emphasis added).[10]

13.  They rely upon the facts of the case of UBS Wealth Management v Vestra [2008] IRLR 965 §§21-38 and Tullett Prebon v Chan Yeung Fong Nick (unreported, HCA2197/2009, [2011] HKEC 761)  I do not want to have a detailed discussion of the facts of those cases, comparing them with the facts of this case here.  This should be within the province of the trial.  It is trite practice that the court should not embark upon a mini-trial of the matter in interlocutory proceedings on paper.

14.  Adopting the legal principle in Chan Hung’s case, it is not difficult to see that the documents that the plaintiffs are trying to discover from the defendants are related to the pleaded issues in paragraph 16(26) of the Statement of Claim.  Mr. Yu in his written submissions has hinted the use that he or his leader will put to those documents.  Those documents will be used for examination of the witnesses’ evidence at the trial. But I consider that they may also be useful for the defendants to advance the defence as well.  In any event, this is for the trial judge to consider.

15.  It should be borne in mind that the plaintiffs are asking the court to draw the inference from all the circumstances as pleaded to establish their case of conspiracy against the defendants.  As Sir Anthony Mason NPJ pointed out in Ming Shiu Chung & others v Ming Shiu Sum & others [2006] 2 HKLRD 831, at §72, inferences of fraud or serious misconduct are “......not to be reached by conjecture nor ...... on a mere balance of probabilities.”  They are “to be plainly established as a matter of inference from proved facts”.[11]  The plaintiffs have pleaded the facts in the Statement of Claim.  They are now asking for evidence in support of the alleged facts of their pleadings.

16.  If the defendants are so adamant that the documents to be discovered are irrelevant to the issues in dispute, I would be surprised that there is no application by the defendants to strike out paragraph 16(26) of the Statement of Claim.

17.  I consider that Mr. Yu is quite right that the documents the plaintiffs are seeking from the defendants are relevant, not only to the issue of conspiracy, but also the other causes of action viz. breach of the contract, the clause of restraint of trade, and fiduciary duties as directors and employees of the plaintiffs’.

18.  For these reasons, I consider that the plaintiffs have shown the relevance of the documents, the remaining questions for this court to exercise its discretion will be other grounds of confidentiality of the documents, oppression and whether they will save costs or for a fair trial.

19.  In Tullett Prebon (Hong Kong) Ltd., the court held that confidentiality is a factor to be considered but no defence to discovery and there is an implied undertaking not to use the documents for other purpose. See paragraph 18.

20.  The defendants’ objection on the ground of fishing will fall apart accordingly.

21.  The defendants say that the documents are disproportionate to their value to the plaintiffs and to compel the defendants to disclose them is oppressive. They rely upon the size of the documents as they say “ …the Plaintiffs are requesting the 4th, 7^th to 18^th Defendants to disclose at least tenancy agreements for 11 business entities, bank documents for 11 business entities, 38 engagement contracts for 11 business entities.  This is oppressive and completely disproportionate to the value that the Plaintiffs would gain (if there is any value which is not admitted) from this discovery exercise.”[12] 

22.  It appears that the defendants have no dispute over the number of business centres that they had set up for their business.  Nor do they dispute the number of employees allegedly from the plaintiffs’ set-up to the defendants’.  I consider that the court will require such evidence either from the plaintiffs or from the defendants at the trial.  It cannot be said to be oppressive to the defendants. Proportionality is out of the question in the circumstances.

23.  Finally, the defendants submit that the documents will not save costs. They propose that the plaintiffs may ask for information from them.  It is for the plaintiffs to determine the best way to advance their case.  They do not want to rely upon the defendants to supply the information voluntarily themselves.  Ultimately, if there is any dispute over the scope or the contents of the information, the plaintiffs may have to put the disputes before the court.  As I have considered that the burden on the plaintiffs in proving conspiracy against the defendants is heavy, relying upon the Ming Shiu Chung case, for the sake of fairness, the plaintiffs should be given access to those documents sought in order to advance their case.  The defendants have no dispute that they have the documents. Time will be wasted and the costs will be increased if they finally seek to produce them only at the trial.

24.  For the reasons above, I allow the plaintiffs’ application.

Costs and Order

25.  On the question of costs for today’s hearing, the costs should follow the event and are to be assessed under Order 62 rule 9A RHC at $75,000 to be paid by the defendants within 14 days from the date hereof.

26.  I shall now make an order in terms as follows:

a. An order for discovery in terms of paragraphs 1 and 2 of the plaintiffs’ summons dated 2 April 2014 as amended that the time for the defendants to make the affidavits be extended to 28 days from the date hereof and inspection to follow within 14 days thereafter;

b. The costs of this application, including the costs reserved and today’s hearing be to the plaintiffs as per paragraph 25 supra.