SHUN KAI FINANCE CO. LTD. v. JAPAN LEASING (HONG KONG) LTD. (IN CREDITORS' VOLUNTARY LIQUIDATION)

HCA 13826/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 13826 OF 1998

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J U D G M E N T

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Introduction

1. This is P1's appeal against the order of Master Lok dated 7 September 1999 where he ordered P1 to provide photocopies of the documents set out in para. 1 of the Defendant's summons dated 16 June 1999 to the Defendant within 14 days and for the inspection of these documents (these documents are "the requested documents").

2. According to the Amended Statement of Claim, P1 is and was a licensed money lender and P2 and P3 are the legal and beneficial owners of not less than 90% of P1's shares. P2 has control of P1's business and affairs. The Plaintiffs claim that by an agreement made between P1 and the Defendant, the Defendant agreed to lend money to P1 and P1 used the money to carry on its business of lending to its customers.

3. At para. 5 of the Amended Statement of Claim, the Plaintiffs allege that the Defendant breached the said agreement by sending written notices to some of P1's customers asking them to repay to the Defendant instead of P1. P1 then sets out the details of its customers relevant to this allegation, including their names, loan agreement details, the amounts of the loans and instalment payments and the dates of the Defendant's notices.

4. The requested documents include the original loan agreements made between P1 and its above mentioned customers. In his written skeleton submissions, Mr Swaine for P1 made it clear that P1 does not dispute it should disclose the requested documents (including the said loan agreements). The issue which divides the parties in this appeal is whether there is an implied undertaking on the Defendant's part not to use those of the requested documents disclosable under R.H.C. Ord. 24 r. 10 for purposes other than this litigation. P1 argues that there is and the Defendant argues to the contrary.

5. So far as the requested documents are concerned, I understand they have already been disclosed to the Defendant's solicitors who are holding them pending the outcome of this appeal.

Cases relied upon by the Defendant

6. It is accepted by the Defendant that in relation to documents discovered under what can be called the "ordinary discovery process", the "party who obtains discovery may use the documents disclosed to him only for the proper purposes of conducting his own case, and there is an implied undertaking by him not to use them for any collateral or ulterior purpose": see, for example, The Supreme Court Practice 1999, Vol. 1, para. 24/14A/2 citing The Distillers Co. [1975] Q.B. 613 and other cases. The Defendant contends, however, that there is no such implied undertaking if the disclosure of documents is made pursuant to Ord. 24. rr. 10 and 11 which respectively read:-

"10. - (1) Any party to a cause or matter shall be entitled at any time to serve a notice on any other party in whose pleadings, affidavits or witness statements reference is made to any document requiring him to produce that document for the inspection of the party giving the notice ...

(2) The party on whom a notice is served under paragraph (1) must ... serve on the party giving the notice a notice stating a time ... at which the documents ... may be inspected ..." (Ord. 24 r. 10);

"11. - (1) If a party who is required by rule 9 to serve such a notice as is therein mentioned or who is served with a notice under rule 10(1)―

(a) fails to serve a notice under rule 9 or, as the case may be, rule 10(2) ...

then subject to rule 13(1), the Court may, on the application of the party entitled to inspection, make an order for production of the documents in question for inspection ..." (Ord. 24 r. 11).

7. This contention derives support from a first instance decision in Eagle Star Insurance Co. Ltd v. Arab Bank plc, unrep., 25 February 1991. The facts of that case are different from those herein and irrelevant for the purpose of this appeal. The plaintiff therein applied to the learned Judge to use the documents disclosed by the defendant free of restriction. The parts of the Judgment relevant to this issue appear at pp. 4 to 6 of the transcript. The relevant passages are:-

"The next point is the significance of the conclusion that these documents are referred to either in the pleading or in that affidavit ..." (p. 4);

"Mr Templeman [for the defendant] submitted that O. 24, r. 10 is and must be viewed as the same type of discovery exercise as any other part of O. 24 and, therefore, anything obtained under O. 24, r. 10 must be subject to the same duty and the same implied undertaking as documents obtained on discovery in the conventional sense. However, that is radically to misunderstand the character of O. 24, r. 10, which dates back to the last century and was the subject matter of the decision of the Court of Appeal in Quilter v. Heatley 23 Ch. Div. p. 42.

The essence of what the Court of Appeal there say is, as regards pleadings, that a pleading should be approached on the basis that it sets out in full all the documents which are referred to in that pleading. If one cared not whether pleadings were kept within reasonable length, then that was what would have to be done. However, documents are instead referred to in pleadings without their being set out in extenso and then there is a right to require the pleading party to produce the document.

'The rules were evidently intended to give the opposite party the same advantage as if the documents referred to had been fully set out in the pleadings.'

- as was said by Lindley LJ at p 50. It is essentially a matter of enabling the opposite party to understand fully what is in the other side's pleading and, in effect, to have it fully particularized. ... The machinery by which he obtains that particularity is to entitle him to have produced to him the document which is referred to in the pleading. The same type of reasoning applies, as is set out in that case, to affidavits as well. ... It may be ... that it is viewed ... as a matter of the application of the best evidence rule ...

It will be appreciated from this that, although on a number of occasions this machinery has been referred to as an exercise of discovery (and one can understand how that might happen - the Court of Appeal in Rafidan Bank case referred to a 'discovery' application - the Order in which r. 10 appears is entitled 'Discovery and Inspection of Documents'), it is not, in essence, a discovery exercise. Its history is different, its function is different." (pp. 5-6) (underline supplied).

8. The learned Judge went on to say this:-

"I consider that the Vice-Chancellor in the Derby v. Weldon No. 2 case was entirely correct in the way that he chose to deal with it. If a party chooses to refer to a document in his pleading ... then he waives the right of privacy that previously existed. The Vice-Chancellor, in my judgment, correctly identified the underlying principle, which gave rise to the implied undertaking, as being the invasion of privacy. That was how Lord Denning put it, in particular, in the Riddick case. The party who chooses to refer to a document in his pleading or in his affidavit or elsewhere in his evidence, in the words of the Vice-Chancellor, 'destroys the privacy of the document'. It is the party who has destroyed the privacy of the document, not the plaintiff or the Court ..." (p. 6);

"I considered that Derby v. Weldon was a case that should be followed, that it was correct in principle, that the principle was one of compulsion which applied only to discovery properly so called and did not apply where a party voluntarily produced documents or voluntarily referred to documents in his evidence. The Prudential Assurance case was concerned with witness statements that had been served voluntarily by a party pursuant to an order under O. 38, r. 2(a)." (pp. 6-7).

9. The Quilter case [Quilter v. Heatley (1883) 23 Ch. D. 42] referred to in Eagle Star was also relied on by Defence counsel. The plaintiff there by his statement of claim referred to certain entries in his own books, to 2 letters written to himself and to 2 letters written by himself. The defendant applied for production of those documents. The plaintiff's solicitors refused to produced any of them on the ground the defendant had not delivered the statement of defence. The observations of Lindley, L.J. in that case were made in that context and the issue before the Court of Appeal was when should a litigant disclose documents referred to in his pleadings, not whether an implied undertaking existed.

10. Derby v. Weldon, The Times, 20 October 1988 was another case referred to in Eagle Star which was also relied on by the Defence. To summarized what happened in that case, documents were obtained by a plaintiff in English proceedings from the defendant in the course of applying for a Mareva injunction order. A plaintiff in U.S. proceedings learnt of this and obtained a subpoena against the English plaintiff asking it to appear before the U.S. plaintiff's attorney with those documents. The English plaintiff applied to quash the subpoena. The Court of Appeal decided that the documents were disclosable on the following grounds:-

(a) documents which belonged to the English plaintiff were not subject to any restriction;

(b) documents voluntarily supplied by the defendant not under any compulsion were also not subject to any restriction;

(c) affidavits sworn by the defendant and lodged with the Chief Master and which the defendant elected to rely upon;

(d) documents which had been "read in open court" which included those lodged with the court and read by the judges before coming into court fell within Ord. 24 r. 14A.

Was Eagle Star Correctly Decided?

11. Mr Swaine for the Plaintiff frankly accepts that the decision in Eagle Star was directly against his arguments but he argues the reasoning in that decision was flawed. It is therefore necessary to decide whether Mr Swaine's argument is correct and I therefore ought not follow that case.

12. In my view, that issue should be considered by examining the following:-

(a) the logic in the reasoning adopted in Eagle Star;

(b) construction of the relevant rules of court;

(c) policy considerations.

(1) Logic in the Reasoning

13. It appears that the decision made in Eagle Star was based on the following grounds:-

(a) disclosure of documents under Ord. 24 r. 10 is not properly "discovery" because it has a different history and serves a different function;

(b) by pleading a document (or referring to it in affidavits), that litigant waives any right of privacy.

14. As regards point (a) above, the learned Judge relied on the Quilter case and the Derby case. However, these 2 cases were not concerned with the existence or otherwise of the implied undertaking. The observations made therein were made in different factual context, for example, enabling the other litigant to know of the full details of the pleaded case (or the evidence filed), the underlying purpose of which is to ensure that there is a "level playing field" between the litigants. There is no logical or necessary connection between that purpose and whether an implied undertaking exists or should exist.

15. As regards point (b), the learned Judge concluded that if "... a party chooses to refer to a document in his pleading ... then he waives the right of privacy that previously existed ..." (at p. 6 of the transcript of Eagle Star). Later, he said it "... is the party who has destroyed the privacy of the document, not the plaintiff or the Court ...". With respect to the learned Judge, the reason he gave seems to be circular. A litigant destroys "the privacy of the document" only because the Courts decide that he does. The fact remains that the reason why he needs to do so (whether it serves the purpose of "discovery" or ensuring "a level playing field") is that it was prescribed by rules of the Court, not that the litigant wants to disclose the document which was pleaded.

16. Insofar as it is argued that no compulsion is involved under Ord. 24 r. 10, but there is compulsion under what was described as "properly called 'discovery'" (for example, a discovery under Ord. 24 r. 9), I find the "distinction" to be strained. Discovery of documents was prescribed by inter alia Ord. 24 r. 9, just as "disclosure" of pleaded documents was prescribed by Ord. 24 r. 10. It is trite law that ignorance of law is no defence (in relation to the obligation under either rule to "disclose" documents). Hence, it can equally be argued that when a litigant chooses a particular way of pleading his case, for example, pleading a cause of action in contract, he expects that documents which "relate to one or more of the matters in question in the cause or matter" would be disclosable. Since he chooses to bring the action in that manner, he can also be regarded as "volunteering" himself to the discovery process. Such a litigant can also be said to have "waived" the privacy of the documents. I therefore do not agree that a litigant who pleads a document waives its privacy when at the same time no such waiver is attributed to a litigant who is liable to discover documents relating to one or more of the matters in question in the cause or matter.

(2) Construction of Rules of Court

17. The relevant rules have been set out above. Ord. 24 r. 14A which provides that:-

"any undertaking, whether express or implied, not to use a document for any purposes other than those of the proceedings in which it is disclosed shall cease to apply ... after it has been read to or by the Court, or referred to, in open court ... ",

does not make any express distinction between documents disclosed under Ord. 24 r. 10 and those disclosed under the other rules of Ord. 24. This provision by itself is therefore of little help to me.

18. Ord. 24 r. 11(1) which relates to the Court's power to order the production of documents for inspection expressly refers to both a notice served under r. 9 and one served under r. 10(2). The two were set out therein in juxtaposition to each other and appear to be treated in the same way. This, coupled with the lack of distinction in Ord. 24 r. 14A between documents disclosed under Ord. 24 r. 10 and those under the other rules of Ord. 24, makes me conclude that as a matter of construction, Ord. 24 makes no distinction (regarding the nature of the disclosure process) between documents disclosed under Ord. 24 r. 10 and those disclosed under the other provisions.

19. Under Ord. 63 r. 4(1)(a), any person shall on payment of fee be entitled to inspect and obtain a copy of any writ of summons. However, I do not consider this means that any document pleaded therein should also be available to the public. Hence, I do not find that any waiver of privacy of the pleaded document (as opposed to the pleading itself) arises out of this rule.

(3) Policy Considerations

20. Mr Ng for the Defendant submitted that there is no policy reason for concluding that an undertaking should be implied in relation to documents disclosed under Ord. 24 r. 10 because:-

(a) disclosure thereunder is already limited by the question of relevance of the document;

(b) sufficient protection has been given by the provision of the Personal Data (Privacy) Ordinance, Cap. 486.

21. Relevance by itself does not appear to me to be a sufficient safeguard to privacy of the document. Merely because a document (or part(s) of it) is relevant does not mean that the party who obtained it should be able to put it to unrestricted use. As regards Mr Ng's point (b), it is possible that a disclosable document may not be document containing "personal data" and therefore Cap. 486 does not apply to it.

22. On the other hand, there is good policy reason for implying an undertaking because it would enable the Courts to retain control over the use of the documents disclosed and at the same time having the discretionary power to release such undertaking. Further, implying such an undertaking relating to documents obtained under Ord. 24 r. 10 would result in a consistent approach regarding documents liable to be discovered.

Conclusion

23. For the above reasons, I differ from the conclusion of the learned Master, who must have felt that he was bound by the decision in Eagle Star. The appeal is therefore allowed to the extent that I find that an undertaking is also implied in relation to documents disclosed under Ord. 24 r. 10.

Costs Order Nisi

24. The parties have raised no objection to a costs order nisi being made in this Judgment. There is no apparent reason why costs should not follow the event. The costs of this appeal and the application before the

learned Master (with certificate for counsel for the hearing of 7 September, 1999) are therefore to be paid by the Defendant to P1 in any event.