DEACONS (a firm) v. WHITE & CASE LTD LIABILITY PARTNERSHIP AND OTHERS

HCA2433/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2433 OF 2002

---------------------

----------------------

-------------------------

J U D G M E N T

-------------------------

INTRODUCTION

1. The plaintiff is a firm of practising solicitors in Hong Kong. The 1st defendant is an international law firm based in New York. The 2nd defendant is its connected local firm operating here. The 3rd and 4th defendants were at all material times respectively a capital and salaried partner of the plaintiff. In about May 1999, the plaintiff and the 1st and 2nd defendants began merger discussions, which subsequently fell through. On 11 June 2002, the 3rd and 4th defendants, together with some other colleagues, tendered to the plaintiff notices of resignation. After the expiry of the notices, the 3rd and 4th defendants joined the 2nd defendant.

2. On 24 June 2002, the plaintiff commenced the present proceedings against the 1st and 2nd defendants. The 3rd and 4th defendants were joined in the proceedings shortly after they commenced employment with the 2nd defendant. Pursuant to the order of Ma J (as he then was) dated 29 October 2002, there will be a spilt trial of the action as between liability and damages. The trial of liability will take place in June this year.

APPLICATIONS

3. There are three summonses on discovery but in substance two applications before me. The plaintiff, by its two summonses dated 6 January and 13 February 2003, seeks to limit discovery so as to exclude any documents relating to matters raised or referred to in paragraphs 9 to 16 and 26(9) of the defence of the 3rd and 4th defendants ("the Defence"). The 3rd and 4th defendants, on the other hand, by its summons dated 11 February 2003, seeks further discovery of documents referred to in the three schedules attached to the summons. As will be seen in a moment, the applications relate to and have bearing on each other in certain aspects.

4. The debate that took place before me concerned mainly on the relevance or otherwise of various matters raised in the pleadings. It is therefore necessary to summarise the parties' respective case in order to understand the nature of the applications. I will begin with the plaintiff's claims.

THE PLAINTIFF'S CLAIMS

5. At all material times, the plaintiff had about 24 capital partners, over 120 legally qualified employees (including about 20 salaried partners) and over 400 supporting staff members. It was divided into a number of departments, one of which was called the "Finance and Insolvency Department". That department included a finance group and an insolvency group. The insolvency group was further divided into two sub-groups, one dealing with contentious insolvency and the other dealing with corporate restructuring. The 3rd and 4th defendants, together with two associates, Mr Robin Darton and Mr Neil McDonald, and one or two junior associates, comprised the corporate restructuring sub-group ("the Corporate Restructuring Group"). Mr Jeremy Leifer was a salaried partner of the plaintiff, working in its Commercial Department. In the course of his practice, he regularly worked with members of the Corporate Restructuring Group.

6. The 3rd defendant's partnership agreement with the plaintiff required the 3rd defendant to, inter alia :

(1) devote his whole time and attention to the practice of the plaintiff and carry on and manage the business of the plaintiff for the common benefit of the partners to the utmost of his skill and ability;

(2) be just and faithful to the other partners;

(3) give to the other partners a just and faithful account of all transactions relating to the firm; and

(4) disclose to the firm all transactions or dealings entered into or effected by him involving any client of the firm.

The plaintiff further alleged that the 3rd defendant owed to his fellow partners equitable obligations to display the utmost good faith and to render true accounts and full information of matters affecting the partnership.

7. Each of the service agreements between the plaintiff and the 4th defendant, Mr Darton, Mr McDonald, and Mr Leifer required each of them, inter alia :

(1) to devote his whole time and attention to the performance of his duties and serve the plaintiff faithfully and to the best of his abilities;

(2) not to take or engage in any other employment or business without the prior consent of the plaintiff; and

(3) to keep confidential and not to divulge to any other person any confidential information, including any matter concerning or touching on the business or internal affairs of the plaintiff.

The plaintiff further alleged that each of them owed to the plaintiff an implied contractual duty to serve the plaintiff with good faith and fidelity.

8. Between May 1999 and November 2001, the plaintiff and the 1st and 2nd defendants were engaged in discussions for a proposed merger of their practices. In connection with those discussions, the parties entered into a confidentiality agreement, which provided, essentially, for the prohibition of any use of "Confidential Material" provided by each party to the other during the course of the merger discussions except for the purpose of evaluating the proposed merger ("Confidential Agreement"). In addition, an agreement was reached, as evidenced by an exchange of letters dated 20 May 1999 and 31 May 1999, prohibiting the solicitation by either party of the other party's lawyers during the time when the merger discussions were on going and for a further period of 12 months after the cessation of such discussions. In the plaintiff's letter of 20 May 1999, the prohibition was stated in the following terms :

"... each firm undertakes not to solicit any lawyer from the other firm during any merger discussions between our respective firms and for a period of 12 months after those discussions come to an end (should there be no agreement to merge)."

9. It is the plaintiff's case that 1st and 2nd defendants effectively agreed not to :

"... whether directly or indirectly by themselves, their employees or agents, offer to take into partnership or employment any lawyer employed by or in partnership with [the plaintiff] or enter into any negotiations with or offer any inducements to such lawyer for such purposes during the merger discussions and for the period of 12 months following the end of the merger process if no merger process if no merger resulted therefrom."

10. The prohibition agreement has been figuratively referred to as "the hands off agreement". The 1st and 2nd defendants' case is that the hands off agreement is limited to the following :

"... each firm undertook not to approach any lawyer from the other firm with a view to enticing such lawyer to join it during any merger discussions between the plaintiff and the 2nd defendant, nor to do so during a period of 12 months after such merger discussions came to an end."

11. During the course of the merger discussions and in reliance on the Confidentiality Agreement and/or the hands off agreement, the plaintiff supplied to the 1st and 2nd defendants confidential and sensitive business information including its financial performance and individual practice areas, its personnel, a profile of its partners and consultants, a detailed list of its most significant clients and details of the profitability of the plaintiff's practice areas. On 11 November 2001, the plaintiff decided to cease further discussion with the 1st and 2nd defendants. The plaintiff's decision was notified to the 1st and 2nd defendants in January 2002.

12. Whilst the merger discussions were still going on, between 1 February 2001 and 9 January 2002, the 1st and 2nd defendants engaged the services a firm of recruitment agent, Robertson Smart, for the purpose of introducing to them practicing lawyers in Hong Kong with certain specialties whom they might seek to employ or engage. It is the plaintiff's case that Robertson Smart was acting at all material times as agent of the 1st and 2nd defendants in approaching lawyers for the aforesaid purpose.

13. On or about 9 January 2002, Robertson Smart informed the 1st and 2nd defendants that they had approached a restructuring/insolvency team of lawyers of the plaintiff who might be interested in joining the 2nd defendant. Thereafter, between January and June 2002, the 1st and 2nd defendants entered into negotiations with the 3rd and 4th defendants, Mr Darton, Mr McDonald and Mr Leifer, which ultimately led to them being offered to join the 1st and 2nd defendants as contractual equity partners (in the cases of the 3rd and 4th defendants) or salaried partners (in the cases of Mr Darton, Mr McDonald and Mr Leifer). On 11 June 2002, they all tendered to the plaintiff notices of their resignation. The 3rd and 4th defendants have since joined the 1st and 2nd defendants as contractual equity partners, and Mr Darton, Mr McDonald and Mr Leifer have since commenced employment with the 1st and 2nd defendants.

14. It is the plaintiff's case that 1st and 2nd defendants acted in breach of the hands off agreement by entering into negotiations with the 3rd and 4th defendants, Mr Darton, Mr McDonald and Mr Leifer and/or offering inducements to them to join the 1st and 2nd defendants. Further, the 3rd and 4th defendants, with knowledge of the hands off agreement, pursued negotiations (on behalf of themselves and/or on behalf of Mr Darton, Mr McDonald and Mr Leifer) with the 1st and 2nd defendants leading to their engagement by them, thereby procured their breaches of the hands off agreement.

15. The plaintiff further alleged that the 3rd and 4th defendants, by (i) procuring or inducing or encouraging or facilitating employees of the plaintiff to leave their employments to join a competitor and/or (ii) preparing a written business plan for the 1st and 2nd defendants using confidential business information of the plaintiff and/or (iii) contacting clients of the plaintiff for the purpose of ascertaining whether they would transfer their business to the 2nd defendant and thereby soliciting work on behalf of the 2nd defendant, acted in breach of their respective contractual (express or implied) and/or equitable obligations to the plaintiff. It is also the plaintiff's case that the 1st to 4th defendants unlawfully interfered with the plaintiff's business by acquiring (or seeking to acquire) the business of the plaintiff's clients by unlawful means (including breaches of contracts and procuring breaches of contracts and equitable obligations).

16. The plaintiff therefore claimed against the 3rd and 4th defendants for injunctions, damages and exemplary damages.

MATTERS RAISED IN THE DEFENCE

17. Before answering the substantive allegations raised in the Re-amended Statement of Claim, the 3rd and 4th defendants pleaded in paragraphs 9 to 16 of the Defence under the heading "Background to the 3rd and 4th Defendants' decisions to resign" the following matters. The partners owed to each other duties including the duty to devote their whole time and attention to the practice of the plaintiff and to carry on and manage the same for the common benefit of the partners to the utmost of their skill and ability, the duty to be just and faithful, the equitable obligation in all their dealings and transactions to the partnership to display the utmost good faith. Certain partners failed to act for the common benefit of the partners or to be just and faithful to other partners, as a result of which, the Insolvency Department and the 3rd and 4th defendants were placed at a disadvantage as compared with other departments and partners. Such grievances were the subject of repeated complaints by the 3rd and 4th defendants. The 3rd and 4th defendants complained of a further grievance related to the blocking of Mr Darton's promotion to partnership for reasons unconnected with merit but related to inter-departmental issues, or issues between partners. All the grievances had been repeatedly raised and discussed with senior and other partners. By November 2001, the plaintiff knew that the 3rd defendant, the 4th defendant and Mr Darton were so dissatisfied that each had independently formed the intention of leaving. By December 2001, the plaintiff was aware that Mr McDonald would also leave if other did and by January, the plaintiff knew that Mr Leifer would do the same.

18. In addressing the plaintiff's substantive allegations, the 3rd and 4th defendants put in issue the following matters :

(1) whether Robertson Smart was acting as agent for the 1st and 2nd defendants in approaching the 3rd and 4th defendants with a view to possible recruitment by the 1st and 2nd defendants;

(2) the 3rd and 4th defendants' knowledge or lack of knowledge of the merger discussions;

(3) whether the 1st defendant was a party to the hands off agreement;

(4) the width and enforceability of the hands off agreement; and

(5) the extent of the 3rd and 4th defendants' knowledge of the Confidentiality Agreement and hands off agreement;

(6) whether the plaintiff had a serious intention to pursue the merger discussions with the 1st and 2nd defendants and whether the plaintiff was capable of a merger with the 1st and 2nd defendants;

(7) whether the 1st and 2nd defendants breached the hands off agreement in entering into negotiations with the 3rd and 4th defendants, Mr Darton, Mr McDonald and Mr Leifer and ultimately taking them as contractual equity or salaried partners;

(8) whether the 3rd and 4th defendants procured the 1st and 2nd defendants' breaches of the hands off agreement;

(9) whether the 3rd and 4th defendants acted in breach of express/implied contractual duties or equitable obligations to the plaintiff;

(10) whether the 1st and 2nd defendants procured breaches of express//implied contractual duties or equitable obligations to the plaintiff; and

(11) whether the 3rd and 4th defendants are liable for unlawful interference with the business of the plaintiff.

The 3rd defendant raised a counterclaim which is, for present purposes, immaterial.

THE PLAINTIFF'S APPLICATION

19. The plaintiff seeks to limit discovery on the ground that the matters pleaded in paragraphs 9 to 16 and 26(9) of the Defence are irrelevant. Mr Chow, counsel for the plaintiff, first addressed the point about jurisdiction. He submitted that Order 24, rule 2(5)(a), Rules of the High Court, under which the plaintiff's application is made, empowers the court to limit discovery on the ground of irrelevance. That particular rule provides :

"(5) On the application of any party required by this rule to make discovery of documents, the court may -

(a) order that the parties to the action or any of them shall make discovery under paragraph (1) of such documents or classes of documents only, or as to such only of the matters in question, as may be specified in the order; or

(b) ...

and the Court shall make such an order if and so far as it is of opinion that discovery is not necessary either for disposing fairly of the action or for saving costs."

20. Mr Chow next relied on the proposition that relevance, the touchstone of discovery, is in the first instance, determined by reference to the pleadings but the relevance of an issue cannot be dictated by a party unilaterally placing it in his pleadings. Even if the opposing party had not applied to strike out the irrelevant allegation, he could take the point on his opponent's application for specific discovery that the allegation was irrelevant to the subject matter of the action. In this connection, counsel derived support from Allington Investments Corp. & Others v. First Pacific Bancshares Holdings Ltd & Another [1995] 2 HKC 139, CA, where Jerome Chan J said at pp.144G-145B thus :

"With respect, the learned deputy judge fell into error when he held the view that the relevance of an issue can be dictated by a party unilaterally simply by placing it in his pleadings. Even if the opposing party has failed to apply to strike out an irrelevant allegation in the pleadings of the other side, he is not barred from taking the point in an application for specific discovery that the allegation made in the pleadings is irrelevant to the subject matter of the action and ought to be disregarded for the purpose of discovery. The court is certainly not bound to take account of any immaterial or irrelevant averment of fact improperly inserted into the pleadings by a party. Otherwise, the court will become helpless and innocent litigants will be held to ransom. An abuse of the discovery process in this manner not only frustrates the legitimate objectives of the judicial process, it will bring the administration of justice into disrepute. A denial, or an implied joinder on pleadings, by the opposing party per se is not sufficient to bring relevance to an otherwise wholly irrelevant allegation. The relevance of an issue, or of a document, is dependent on its substance and contents in the light of the subject matter of the trial; and not simply on its mere presence in pleadings or the existence of a denial of it by a party."

21. As I understand him, Mr Smith, SC, counsel for the 3rd and 4th defendants, did not take any issue regarding the court's jurisdiction to limit discovery under the rules or the above proposition on relevance.

22. Mr Chow argued that paragraphs 9 to 16 of the Defence in substance pleaded that the 3rd and 4th defendants together with others decided to leave the plaintiff because they were disenchanted with the mindset of certain partners, with the plaintiff's business strategy, and with disharmony amongst certain partners and that the plaintiff was made aware of their concerns and their subsequent decision to leave. He contended that the underlying reasons why they chose to leave are irrelevant to the matters in dispute. They were entitled to leave after serving the requisite notice, whatever their reasons for doing so might have been. What are in issue are whether the 3rd and 4th defendants acted in breach of their contractual or equitable obligations owed to the plaintiff; whether they procured breaches of contract on the part of the 1st and 2nd defendants; and whether they unlawfully interfered with the plaintiff's business. They had no right to do any of the matters complained of even if they had good reasons, as alleged, in leaving the plaintiff. Thus, the reasons why they and others left should not be matters calling for determination by the court at trial. They are irrelevant and discovery should not be allowed.

23. Mr Smith, on the other hand, submitted that the matters pleaded in paragraphs 9 to 16 of the Defence are directly relevant to two main issues arising from the pleadings. The first point relates to the effect of paragraphs 38N, 38O and 38Q of the Re-amended Statement of Claim. Those paragraphs are found in the section entitled "Interference by the First to Fourth Defendants with the Plaintiff's business by unlawful means". They read :

"38N. In the premises, [the 1st and 2nd defendants] entered into a common design, with at least [the 3rd and 4th defendants], to acquire the business of the Plaintiff's insolvency Practice Group or a substantial tranche thereof and to employ for such purpose unlawful means namely the breaches of equitable and contractual obligations referred to at paragraphs 38.1 - 38F above and/or the inducement or procurement or encouragement or facilitation of such breaches referred to at paragraph 38J above.

38O. Without prejudice to the generality of the foregoing, in breach of confidence, [the 1st and 2nd defendants] and [3rd and 4th defendants] made use of the confidential information of the Plaintiff specified in paragraph 38I above for the purposes of the said common design.

38P. ...

38Q. The [1st and 2nd defendants] and [3rd and 4th defendants] threaten and intend unless restrained by the Court to carry out the purpose of the common design and thereby cause to the Plaintiff substantial loss and damage of its business."

24. The cause of action pleaded and relied on by the plaintiff in these paragraphs is the economic tort of unlawful interference. However, Mr Smith argued that although the plaintiff had not used the exact wording, the matters pleaded in the above paragraphs supported a plea of conspiracy to acquire the plaintiff's insolvency practice by unlawful means. He referred to the following propositions relating to the tort of conspiracy in Clerk & Lindsell on Torts (18th edn) at paragraphs 21-116 to 24-124 :

"1. A conspiracy consists in the agreement of two or more to do an unlawful act, or to do a lawful act by unlawful means.

2. The tort of conspiracy therefore takes two forms: conspiracy to use unlawful means, and conspiracy to injure. The latter does, but the former does not, require a predominant purpose to injure. Liability for conspiracy to injury where the acts would without combination be lawful, forms a qualification to the general rule that the mere agreement of many persons to act in concert cannot make the act of any one or more wrongful, if it would not be wrongful when done by each alone independently.

3. The tort requires an agreement, combination, understanding, or concert to injure, involving two or more persons. Of the various words used to describe a conspiracy, 'combination' has been preferred on the ground that 'agreement' might be thought to require some agreement of a contractual kind, whereas all that is needed is a combination and common intention.

4. On the point when a party became a party to the conspiracy, the question is whether a particular defendant, having regard to his knowledge, utterances and actions, was sufficiently a party to the combination and the common design. It would appear that the question whether a person is a party to a combination constituting a conspiracy is essentially the same as whether he is liable as a joint tortfeasor in procuring a wrong, by reason of a common design.

5. In judgments involving combinations alleged to be tortuous conspiracies by reason of unlawful means it was usually suggested that the act need do no more than be deliberate and have the effect of injuring the plaintiff."

25. In order to rebut the allegation that the 3rd and 4th defendants conspired or combined with others to acquire the plaintiff's insolvency practice group, Mr Smith submitted, it is both relevant and necessary for them to plead and prove the matters set out in paragraphs 9 to 16 of the Defence, which show the reasons why they, as well as the other individuals referred to, decided to leave the plaintiff.

26. It is trite that the same facts or the same transaction or event may give rise to more than one effective cause of action: see Halsbury's Laws of England, Vol.37, para.18 at p.24. The short answer to Mr Smith's submission is that the plaintiff is not suing on the tort of conspiracy. The tort pleaded is unlawful interference, which remains a separate and distinct cause of action from conspiracy although the two may have some features in common. The 3rd and 4th defendants are not permissible, in my view, to say that it is a plea of conspiracy in order to attach relevance to the matters pleaded in paragraphs 9 to 16 of the Defence. In any event and perhaps more importantly, those matters are simply not relevant to any of the causes of actions pleaded by the plaintiff. Those matters explained why the 3rd and 4th defendants and other individuals concerned left the plaintiff. They were entitled to do so after serving notices. Their resignations could not and did not give rise to any matters the plaintiff now complains of or indeed any causes of action. Viewed thus, the matters pleaded in paragraphs 9 to 16 of the Defence are irrelevant. If on the pleaded case, those matters are irrelevant, then I fail to see how they can become relevant on the pretext that the same pleaded case is in substance a plea of conspiracy. There is no suggestion that a plea of conspiracy per se will admit a wider discovery.

27. The second point taken by Mr Smith concerns the plea of exemplary damages. Paragraph 38R of the Re-amended Statement of Claim alleged that 3rd and 4th defendants acted with cynical disregard for the plaintiff's rights in the hope of making profits that would exceed any damages that might be payable, and claimed exemplary damages. Mr Smith submitted that in order to defend themselves against the allegation, the 3rd and 4th defendants ought to be allowed to plead and prove the various matters referred to in paragraphs 9 to 16 of the Defence. The formation of grievances and the grounds for being aggrieved; the repeated communication to the plaintiff of the grievances, and the communication of the intention to leave, are all highly relevant to the allegation that they acted in cynical disregard of the plaintiff's rights. He further submitted that the court would also consider the plaintiff's conduct in deciding whether to award exemplary damages. If the court concludes that their behaviour was caused or contributed to by the plaintiff's conduct, this might reduce or eliminate the exemplary damages. To support his contentions, Mr Smith referred to Winfield & Jolowicz on Tort (16th edn) at p.753; McGregor on Damages (16th edn), 4th Supplement at para.465 and Thompson v. Commissioner of Police [1998] QB 498 at 517D. He submitted that the court has to decide if the plaintiff is entitled to exemplary damages at the trial on liability. Assessment of such damages, if so ordered, will then be carried out later at the trial on damages. The witnesses will have to be cross-examined on this issue at the trial on liability. This means discovery on this and the related issues cannot be postponed. Accordingly, the 3rd and 4th defendants are entitled to discovery on those matters pleaded in paragraphs 9 to 16 of the Defence now.

28. This line of submissions presupposes that all or some of the plaintiff's causes of action are made out and the 3rd and 4th defendants are thereby liable for damages. As I have already demonstrated, the matters pleaded in paragraphs 9 to 16 of the Defence are not relevant to any of the causes of action or defence pertaining thereto. They might cause or contribute to the resignation and subsequent departure of the individuals concerned, but not the breaches or misconduct on the part of the 3rd and 4th defendants complained of. I do not find them relevant to the question whether the defendants, as alleged, acted in cynical disregard of the plaintiff's rights in the hope of making profits that would exceed any damages that might be payable so that exemplary damages should be awarded.

29. I next consider paragraph 26(9) of the Defence. Mr Smith argued that that sub-paragraph is concerned with the extent to which the plaintiff has a legitimate interest in imposing restrictions on the right of the 1st and 2nd defendants to recruit from within the ranks of the plaintiff. Paragraph 26(9) pleads that in determining the extent of any such interest it will be necessary to take into account the plaintiff's own aggressive recruitment policy/tactics. In paragraph 8 of the Reply, the plaintiff replied to this plea, denying in general that the plaintiff's recruitment differs from the norm, and specifically challenging the example of aggressive recruiting cited in paragraph 26(9) of the Defence and denying that the plaintiff acted improperly with regard to proposed recruitment of Ms Peggy Cheung. Given that the plaintiff's rather lengthy plea, it is difficult to see why discovery should be refused in relation to it.

30. Mr Chow pointed out that no allegation is made as to the circumstances in which the plaintiff obtained that alleged similar information. It is also not clear what particular transactions the 3rd and 4th defendants were referring to, except in respect of one specific example relating to Ms Peggy Cheung. Mr Chow then submitted that irrespective of whether the allegation is true, the plaintiff's recruitment of lawyers over the last five years has no bearing on the specific circumstances surrounding the recruitment of the defendants and others by the 1st and 2nd defendants. The allegation being irrelevant, discovery should similarly be disallowed.

31. As noted, the mere fact that a party pleads to certain matters does not necessarily make them relevant for the purpose of discovery. I agree with Mr Chow's submission in its entirety that those matters raised in paragraph 26(9) of the Defence are simply irrelevant.

32. For the above reasons, I allow the plaintiff's applications to limit discovery.

THE APPLICATION OF THE 3RD AND 4TH DEFENDANTS

33. I now turn to the application for discovery by the 3rd and 4th defendants. There are three schedules of documents attached to their summons. Schedule A relates to documents already disclosed by the plaintiff. The application is for production for inspection "the attachments and/or enclosures, and unredacted originals of the redacted sections" of the documents referred to in that Schedule. Schedule B relates to documents "referred to in a document previously disclosed by the Plaintiff". The application is for a better and further list. Schedule C relates to documents for which specific discovery is sought. In respect of some documents, the plaintiff has already conceded that it will make discovery. In respect of some few others, it has deposed that it is not in possession thereof, which position the defendants are prepared to accept. Here, I shall only deal with those that are in controversy. Mr Chow took a preliminary point that the documents sought, as described in the Schedules, do not fall within a class. Mr Smith addressed the point by re-formulating the requests. The revised requests are contained in the short document entitled "The Classes of Documents" that he handed up in the course of submission. I do not think any further issue arises from this particular point with some few exceptions. When I come to describe the requests in greater detail, I will incorporate Mr Smith's formulation where applicable.

34. The debate again mainly concerns whether the documents sought are relevant. Mr Smith has identified six issues to which, he contended, the documents sought to be discovered are relevant. I will discuss the documents with reference to each of the six issues in turn.

(1) Merger discussions

35. The 3rd and 4th defendants purported to put in issues the plaintiff's serious intention of merging with the 1st and 2nd defendants and its capability of doing so arose in the pleadings in this way. Paragraph 25 of the Re-amended Statement of Claim alleged that on 11 November 2001, the plaintiff held its annual meeting of its capital partners and that at that meeting, it was resolved that the plaintiff should terminate the merger discussions with the 1st and 2nd defendants. In answering paragraph 25, the 3rd and 4th defendants averred in paragraph 34 of the Defence that it is not admitted that the plaintiff had a serious intention to pursue merger discussions with the 1st and 2nd defendants or that it was capable for merger for the reasons stated therein. Other than that, paragraph 25 is admitted.

36. It is common ground that the parties were conducting parallel negotiations with other potential candidates while having merger discussions between themselves. Mr Smith submitted that the issue is as to the date on which merger discussions between the plaintiff and the 1st and 2nd defendants ceased. There are related issues as to whether the plaintiff had any serious intention of merging with the 1st and 2nd defendants and whether it was capable of doing so. Mr Smith argued that the progress of the plaintiff's discussions with others is relevant to the question whether the 1st and 2nd defendants were serious candidates for merger. He further argued that the plaintiff had an association with Messrs Graham & James and discovery is sought in relation to restrictive covenants preventing the plaintiff from merging with any other US law firm.

37. With respect, I fail to see how the discussions with other candidates will throw any light on the factual dispute as to when the merger discussions between the plaintiff and the 1st and 2nd defendants ceased. The issue can only be resolved with reference to the actual merger discussions between the plaintiff and the 1st and 2nd defendants. The plaintiff has already disclosed the documents pertaining to the merger discussions with the 1st and 2nd defendants. Any attempted discovery of documents relating to discussions with other parties on this ground must be refused.

38. The additional points regarding whether the plaintiff had serious intention or capability to merge with the 1st and 2nd defendants do not assist the 3rd and 4th defendants. As rightly pointed out by Mr Chow, the plaintiff did not plead and is not required to plead that it had a serious intention or capability to merge with the 1st and 2nd defendants. The points were raised by the 3rd and 4th defendants by way of non-admission, a non-admission to a plea which the plaintiff had not raised in its pleadings in the first place. I agree with Mr Chow that an issue cannot be created artificially in this manner.

39. In any event, I do consider these additional points relevant at all. It is not in dispute that the parties were conducting parallel merger discussions with other parties at the same them when they were having their own. Mr Chow submitted that the only circumstance in which merger discussions between the plaintiff and other parties might conceivably be relevant is to the extent that such document demonstrated that the plaintiff had already reached an agreement with another firm that precluded the possibility of continuing discussions with the 1st and 2nd defendants or the plaintiff had in fact abandoned or terminated the merger discussions with the 1st and 2nd defendants. No such documents, however, exist, according to Mr Mark Roberts of the plaintiff : see paragraph 13 of his 5th affidavit filed on 17 February 2003. No discovery of such documents is permissible. I agree.

40. Mr Chow further submitted that the degree of the plaintiff's intention or ability successfully to conclude a merge with the 1st and 2nd defendants is irrelevant where it is not disputed that the plaintiff and the 1st and 2nd defendants entered into merger discussions, that the parties entered into the Confidentiality Agreement to protect confidential information exchanged for the purpose of those negotiations and that the parties had also into the hands off agreement. On a closer analysis, the disputed issues in respect of the merger discussions are (1) in respect of the hands off agreement, the period in which the agreement was operative, the effect or scope of that agreement, whether the 1st and 2nd defendants breached the agreement, whether the 3rd and 4th defendants procured such breach; and whether the agreement is void, either wholly or in part, as an illegitimate restraint of trade; (2) in respect of the Confidentiality Agreement, the effect or scope thereof, whether the 1st and 2nd defendants breached the agreement, whether the 3rd and 4th defendants procured such breach. The degree or scale of the plaintiff's intention or capability to merge with the 1st and 2nd defendants bas no bearing on any of these issues. Again, I agree.

41. In connection with the suggestion that the plaintiff's agreements with Messrs Graham & James might have imposed a restriction on its merging or entering into merging discussions with the 1st and 2nd defendants, the plaintiff has already disclosed all the relevant agreements. Any additional discovery on this basis cannot be allowed.

42. With these general points in mind, I now turn to the specific documents that the 3rd and 4th defendants seek to discover with reference to the merger discussions.

(a) Schedule A

A1 : Un-redacted copy of the section of the Minutes of the First Meeting of the Merger Committee entitled "How to respond to G&J's letter dated 14th June, 1999".

I agree with Mr Chow that the redacted part has nothing to do with the 1st or the 2nd defendants. The 3rd and 4th defendants have failed to make out a prima facie case of relevance.

A3 : Un-redacted section of "The Future of Deacons: International, Regional or Local" headed "Deacons Asian Network: Summary of Operation Results for the Period 1/1/98 to 30/6/00".

Similarly, no prima facie case of relevance is shown.

A4 : Un-redacted section of Keith Cole's note dated 19th June, 2001 headed "Current Network Issues".

The 3rd and 4th defendants have themselves disclosed this item in their lists of documents. Mr Smith suggested that they could be handwritten notes in the plaintiff's copy. This suggestion is speculative. It is no more than a fishing expedition.

(b) Schedule B

B3 : Report prepared by David Andrews, and documents created by the Plaintiff which comment on its findings.

The plaintiff is willing to disclose the report only. I agree with Mr Chow's submission that no prima facie case has been established on the existence of the documents created by the plaintiff which comment on the findings of the report. It is also speculative whether such comments, if existed, are relevant to issues in the action.

B5 : Peter Aherne's note to partners regarding the structure of the proposed merger referred to in the Minutes of the First Meeting of the Merger Committee.

The merger discussions with the 1st and 2nd defendants commenced in about May 1999. The note in question predated 23 June 1999. I fail to see how it could have any bearing on the issue when the merger discussions ceased or indeed any other issue.

B8 : Mark Roberts' note dated 15th March, 2000, referred to in Paul Scholefield's note of 17th March, 2000.

No prima facie of relevancy is shown on the note in question.

(c) Schedule C

C1 : Strategic plan and business plans prepared for each practice area of the Plaintiff in contemplation of merger discussions.

Page 4 of that document refers to the need to develop proper strategic plan and valid business plans for each practice area including in particular China. I agree with Mr Chow that it does not say that such plans exist or that such plan, if existed, have anything to do with the 1st and 2nd defendants. No prima facie case of relevance is shown as the report containing the document in question is of a meeting held on 12 December 1998, before the discussions with the 1st and 2nd defendants commenced.

C2 : Documents created by the Plaintiff's culture sub-committee (or members thereof) regarding (a) the issues raised by external consultant David Andrews; and (b) the desirability or otherwise of a merger.

The culture sub-committee was to be formed to look at the issues identified by Mr Andrews. There is no basis to believe that those issues had any relevance. Indeed, no prima facie case of existence of such documents is shown either.

C3 : Counsel's opinion and documents created by the partners of the plaintiff or any of them regarding the enforceability of the restrictive covenants contained in the Further Association Agreement with Graham & James, and all other documents relating to the enforceability thereof.

Leaving aside the questions whether the counsel's opinion is privileged for the purpose of the present proceedings, and whether the remaining documents sought form a class of documents for the purpose of the rules, the enforceability of the restrictive covenants in question is plainly irrelevant. No discovery on the documents is permissible.

C8 : Covering letters enclosing the exchange of information with potential merger partners, including (but not limited to) White Case, Sidley & Austin, Latham & Watkins, Dorsey & Whitney and LeBoeuf" and documents containing the information so provided, hard copies of presentations, attendance notes and documents created during the plaintiff's analysis of the information received from potential merger partners.

Documents relating to exchange of information with the 1st and 2nd defendants have already been disclosed. Documents of similar nature pertaining to other potential merger partners are simply irrelevant.

C9 : Documents recording the content of merger discussions with US and UK firms.

The documents sought are irrelevant.

C10 : Documents created by the Plaintiff's Merger Committee in relation to proposed mergers with other firms (including the First and Second Defendants).

The relevant documents relating to the 1st and 2nd defendants have already been disclosed. The documents relating to other merger candidates are irrelevant.

C12 : Information circulated internally in response to Simon Lai's email of 19th June, 2001 to Keith Cole.

The e-mail, prima facie, has nothing to do with the 1st and 2nd defendants. The reference to information in response to this e-mail is too vague to form a class of documents. No relevance is shown.

C13 : Register prepared by Deacons of information disclosed to LeBoeuf (and other potential merger partners).

This request is based partly on the relevance of the points raised with reference to merger discussions and partly on the scope of the plaintiff's interest. On the first basis, the short answer is information disclosed to other firms is plainly irrelevant. I will deal with the other basis below.

C14 : Minutes or other notes of full partners' meeting on 22nd June, 2001.

The meeting held on 22 June 2001 relates to the authority given to Louisa Ha to pursue discussions with one LeBoeuf and to explore other possible merger candidates. No prima facie case is established.

C16 : Minutes of the meetings of the merger committee and internal documents created by the plaintiff regarding the operations of the said committee established in relation to the proposed merger with LeBoueuf, and referred to in Keith Cole's memo entitled "Merger Discussion & Future Strategy".

Discussions with LeBoeuf are irrelevant. So are the documents sought.

C24 : Documents relating to the decline in the relative position of the firm in the marketplace over the last 10 years, and to the strength of its regional network of offices.

These documents do not form a class and are irrelevant. The 3rd and 4th defendants have also failed to establish a prim facie case of existence. The request is in any event too wide and hence oppressive.

43. For these reasons, I will refuse discovery of all the above documents (except the report under item B3). I next turn to the second issue identified by Mr Smith in support of his application.

(2) Scope of the plaintiff's interest

44. As can be seen from the pleadings, there are issues as to the extent to which confidential information was supplied to the 1st and 2nd defendants and whether such information could have been used by them in soliciting lawyers from the plaintiff. The extent to which the plaintiff had a legitimate interest in protecting itself is relevant. Related to the last point, Mr Smith contended, are the scope of confidentiality and restraint agreements entered into by the plaintiff with potential candidates other than the 1st and 2nd defendants and the extent and nature of the information supplied to such other potential merger candidates. The plaintiff's interest is obviously relevant to the issue of enforceability of the hands off agreement. However, those documents which are not related to the 1st and 2nd defendants and for which discovery is now being sought, are simply irrelevant to this matter. I will deal with the requests in greater detail below. They are all found in Schedule C.

C4 : Correspondence and internal communications of the plaintiff relating to the intended or likely effect of the Confidentiality Agreements contemplated or entered into with parties to merger discussions with the Plaintiff (other than White & Case).

These documents are irrelevant. I agree with Mr Chow that the intended or likely effect of confidentiality agreements contemplated or entered into by the plaintiff with other firms plainly has no relevance to the issues in this action. And no meaningful or useful purpose will be served by comparing the hands off agreement or the Confidentiality Agreement with any of those agreements. The effect of the hands off agreement and the Confidentiality Agreement are to be determined by a proper interpretation of their terms and effects.

C5 : Documents evidencing any agreement contemplated or entered into with parties to merger discussions with the Plaintiff (other than White & Case) which seeks to restrain the solicitation of the Plaintiff's partners or employees.

For the same reasons above, these documents are irrelevant.

C6 : Response to Peter Aherne's letter of 9th August, 1999 requesting written confirmation of non-solicitation agreement.

The non-solicitation provision referred to in the said letter clearly relates to the plaintiff's arrangement with some other firms and not the 1st or 2nd defendants. The documents sought are irrelevant.

C7 : The plaintiff's internal communications relating to the intended or likely effect of the agreement between the Plaintiff and White & Case regarding the non-solicitation of their partners and employees.

The formulation of the request is wide indeed and does not form a class of documents. There is no prima facie case of existence. Mr Mark Roberts has confirmed in paragraph 15 of his 5th affidavit that no further discoverable document exists. I do not think the matter can be taken any further.

C8 and C13

The requests have already been set out in paragraph 42 above. As noted, the documents sought are not relevant. In connection with "Register prepared by Deacons of information disclosed to LeBoeuf (other potential merger partners)", the suggestion that disclosure of information to other potential partners might affect the confidential nature of the information, Mr Mark Roberts has confirmed in paragraph 11 of his 5th affidavit that all information provided to other firms was similarly subject to confidentiality agreements. The confidentiality agreements with other firms bear no relevance to the scope of Confidential Material in the Confidential Agreement. The term is contractually defined, the scope of which is to be determined by a proper interpretation.

45. For these reasons, discovery of the documents sought under this head is refused.

(3) Has confidentiality been lost?

46. The third issue identified by Mr Smith is has confidentiality of the agreements between the plaintiff and the 1st and 2nd defendants been lost. Allied to this issue is question of the extent to which the plaintiff has supplied client information, or information relating to the financial performance of the plaintiff, to persons outside the firm. I agree with Mr Chow's submission that since the term "Confidentiality Material" is contractually defined, for the purpose of the parties' agreements, it matters not whether the information provided by the plaintiff to the 1st and 2nd defendants would otherwise be regarded as confidential. The duty of confidentiality is imposed by contract. No useful purpose will be served by asking the plaintiff to disclose the documents sought. The documents sought are :

C22 : Pitch documents prepared for potential clients, copies of the firms' website entries for its staff, individual partners marketing CVs, press statements, brochures and other marketing materials; shareholders circulars and annual reports prepared by client companies which disclose the amount of legal fees paid to the plaintiff and documents containing information as to :

• "the financial performance of the Plaintiff, its individual departments and individuals within those departments
• the Plaintiff's personnel (including partners and consultants)
• the Plaintiff's clients"

Mr Mark Roberts deposed in paragraph 19 of his 5th affidavit that he is not aware of the existence of any document which might set out the sort of figures referred to in this request. In any event, these documents are, as I have demonstrated, irrelevant to the issues pertaining to the question whether confidentiality has been lost.

(4) Composition of the Insolvency Department

47. The fourth issue identified by Mr Smith is whether the 3rd defendant, the 4th defendant, Mr Darton, Mr Leifer and Mr McDonald comprised the entirety of the corporate Restructuring Group as alleged by the plaintiff or whether they were just part of a Finance and Insolvency Department, as alleged by the defendants. The existence or otherwise of a formal restructuring group within the finance and insolvency department is irrelevant to the plaintiff's claim or the defendants' defence. It may however be relevant to the question of damages, which may be determined later, if necessary. There are two requests in this connection.

C11 : The Departmental Business Plans produced in relation to the Plaintiffs, Finance and Insolvency Department from 2000 to date.

I agree with Mr Chow's submissions that no prima facie case of relevance has been established.

C19 : Internal memoranda, minutes of meetings, Business Plans, marketing material and other similar documents relating to the creation or existence of a formal Restructuring Group within the Plaintiff.

These documents are irrelevant.

(5) Recruiting methods

48. When the plaintiff was proposing to recruit Ms Peggy Cheung from Messrs Baker & McKenzie, it had access to information concerning her billings, as can be seen from an internal memo dated 4 April 2002, a document which the plaintiff has already disclosed. Mr Smith argued that there is an issue on the pleadings as to the extent to which the plaintiff had a legitimate interest in imposing restrictions on the right of the 1st and 2nd defendants to recruit from within the ranks of the plaintiff, having regard to the plaintiff's own recruitment methods. The documents sought are contained in item 18 of Schedule C. They are :

"(a) salaried partners; (b) consultants; (c) senior associates and (d) other associates joining the Plaintiff with, or shortly after, a partner from the same firm. Those persons will include, but are not limited to:

• Chris Britton
• Peter Burge
• Scott Carnachan
• Eugina Chan
• Elizabeth Cole
• Rory Gallaher
• Susan Gordon
• Glenn Haley
• Joseph Kwan
• Jeremy Larn
• Richard Lawrence III
• Martin Lister
• Prudence Mak
• Gavin Nesbitt
• Geoff Shaw
• Daisy Tong
• Nicki Squire
• Syren Johnstone
• Mark Sutherland
• Taylor Hui
• Samuel Ngo
• John Siu
• William Wang
• Charmaine Koo
• John Lo
• Conrad Chan"

I have already dealt with Mr Smith's contentions in paragraphs 29 to 31 above. For the reasons stated therein, I do not consider the documents sought relevant.

(6) Issues pleaded in paragraphs 9 to 16 of the Defence

49. The requests are in items 23 to 26 in Schedule C. They deal with documents said to be relevant to some of the issues pleaded in paragraphs 9 to 16 of the Defence. As I have already ruled that the matters pleaded in those paragraphs are irrelevant, discovery of these documents must be refused.

50. The only remaining request that is disputed is item 27 of Schedule C. It, however, relates to a part-heard hearing before Ma JA. Counsel agreed that the application concerning this item should be adjourned pending the disposal of the part-heard hearing. I so order.

CONCLUSION

51. For the above reasons, I will refuse the 3rd and 4th defendants' application for discovery of all the items which are contested except item 27 of Schedule C. The plaintiff succeeds in its application. It has also successfully resisted a substantial portion of the application brought by the 3rd and 4th defendants. I will therefore make an order nisi that the plaintiff shall have the costs of its summons and the costs of the summons of the 3rd and 4th defendants in any event, to be taxed if not agreed.

Remarks: