CHINAPLUS WINES LTD v. NICHOLAS FREDERICK PEGNA AND OTHERS

HCA 905/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 905 OF 2011

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1.  This is a plaintiff’s application under Order 24, rules 10 and 11 for an order that the defendants produce various documents for inspection.  The case concerns, inter alia, claims that the 1^st defendant left his employment with the plaintiff in breach of his fiduciary and contractual duties and misappropriated confidential information in order to establish a rival business.  For the purposes of this application the documents being sought fall into two categories:

(i) iPhone contact details which, it is said, contain details of approximately 6,000 of the plaintiff’s customers; and

(ii) emails in the 1^st defendant’s possession which are dated between 2000 to 2006 and are said to be about 50,000 in number.

2.  Since the application was first taken out, on 17 September 2013, there has been correspondence between the parties which has resulted in the issue being substantially narrowed.  In short, with respect to (i) above, the defendants do not oppose the application save that they require the plaintiff to give an undertaking that they would not copy, use or disclose the documents otherwise than for the purpose of the action, HCA 905/2011. The plaintiff has declined to give the undertaking.  With regard to (ii) above, the defendants oppose the application on the basis of necessity, relevance, time and costs. In addition, they say it is a “fishing expedition”

(i) The iPhone customer details

3.  Discovery under Order 24, rules 10 and 11, described by Mr Edward Alder, counsel for the defendants, as “advance discovery” differs from normal discovery in one important respect.  Documents ordered to be discovered under this order are not covered by the usual implied undertaking to use the documents solely for the purpose of the action.  That this is the general rule was confirmed by a majority of the Court of Appeal in Shun Kai Finance Co Ltd v Japan Leasing (HK) Ltd (No 2) [2000] 3 HKLRD 539. Mr Julian Lam, counsel for the plaintiff, relies on this authority when opposing the defendants’ request for an undertaking.  He submits that there is nothing out of the ordinary about this case and thus, although there could be exceptional cases where the undertaking would be appropriate, this is not such a case.

4.  The onus is on the defendant to satisfy the court that an undertaking would be appropriate.  Mr Alder advanced three reasons as follows:

(1) The defendants claim that if they produce the requested documents without any assurance from the plaintiff that the documents would not be used otherwise than for the purpose of the action, this would be a breach of the undertaking (this ‘undertaking” is explained below)

(2) It is the defendants’ case that the information in the requested documents are the property of the defendants and/or confidential to the defendants.

(3) The refusal by the plaintiff to accept the condition suggests an intention to use the documents for ulterior purposes.

5.  In reason (1), “The Undertaking” referred to is the defendants’ undertaking given by consent in injunction proceedings in 2012 to the same effect, i.e. not to disclose etc. save for the purpose of this action.  There is no substance in this reason because any disclosure pursuant to a court order would not breach a previous undertaking in the same terms regardless of whether or not the defendant suspected the plaintiff had ulterior motives.

6.  Reason (2) simply states a key issue in the case and again takes the matter no further.

7.  Reason (3) is more important.  Nowhere does the plaintiff explain why, other than reliance on the Shun Kai Finance case, they oppose such an undertaking which would have been the norm had this been a discovery application other than under Order 24, rules 10 and 11.  In the course of oral submissions at the hearing of this summons one possible reason was advanced.  It was said that the police may be interested.  Apparently there has been police involvement on the periphery of this civil litigation for some time but its nature, its extent or its purpose has not been alluded to in either the pleadings or the witness statements.

8.  This “possible reason” remained vague and unparticularized.  It simply meant that absent an undertaking from the plaintiff the door for the purpose of police enquiries could be opened.

9.  On the face of it the Shun Kai Finance case only permits an undertaking in “exceptional circumstances”.  Mr Alder has referred to two subsequent decisions when the effect of the principle was considered.  In Akai Holdings Ltd v Ho Wing On, Christopher, HCCL 37/2005 Stone J said:

“58. Accordingly, on the basis of this authority I must hold that no implied undertaking attaches to documents disclosed pursuant to Order 24, rules 10 and 11, and thus the refusal of the defendants to accede to the request of the plaintiffs to confirm that they will provide such an undertaking has legal underpinning, given that in this situation such undertaking does not impliedly arise.

59. Nevertheless, I do not read the judgment of Le Pichon JA, with whom Rogers VP agreed, as precluding this court, in the exercise of its discretion, from requiring such an undertaking to be given by the defendants if it considers it just and appropriate in all the circumstances – as in this case I most certainly do.”

10.  In The Joint and Several Liquidators of Akai Holdings Ltd v The Grande Holdings Ltd and others, HCCW 49 and 50/2000 Kwan J (as she then was ) noted:

“As Stone J has observed in paragraphs 59 and 60 of his decision, the judgment of the Court of Appeal has in no way precluded the court, in the exercise of its discretion, from requiring an undertaking to be given by the party to whom disclosure is made, if it considers it just and appropriate in all the circumstances, and it is open to a party who is subject to the undertaking to apply to the court to lift the undertaking with respect to any one or more of the documents disclosed on good grounds.”

11.  In my judgment, given the plaintiff’s somewhat vague reason of possible police involvement, it seems to me that the defendants’ “concerns about an ulterior motive” are not fanciful which, arguably, might take this case out of the “normal unexceptional case” suggested by Mr Lam and into a more unusual arena.  In such an arena it could be just and equitable to take a safer course and require the undertaking.  The purpose simply being to put the onus on the plaintiff to apply to lift the restriction, for specific and particularized reasons, should it wish to do so.

12.  Thus, as far as all documents which are the subject of this summons, other than the “old emails”, are concerned I grant the order as requested upon the plaintiff giving an express undertaking not to copy, use or disclose the documents otherwise for the purpose of HCA 905/2011.

(ii) The “old emails”

13.  As stated, there are estimated to be about 50,000 such emails between 2000 and 2006.  The events which are the subject of the statement of claim post date this period by some years, namely 2009 onwards.  Mr Alder expresses concern at the cost and the time necessary to carry out the exercise. Mr Lam says the age of the emails does not make them irrelevant and it is a task which will have to be done.  Moreover, the plaintiff undertakes to bear the expense.

14.  In my judgment the application under Order 24, rules 10 and 11 for these documents is premature.  I see no compelling reason for them to be the subject of an Order 24, rule 10 application rather than in the normal discovery procedure.

15.  In due course the same arguments will be made.  The plaintiff’s request will be met by submissions concerning time, cost, necessity, relevance and fishing. The plaintiff, on the other hand, makes the point that discovery is sometimes, in commercial litigation, a lengthy but nonetheless necessary process.

16.  I therefore make no findings and make no order at this stage in relation to the old emails.  In the meantime, given that the plaintiff, from its own database, is likely to be in possession of many of the emails already, the parties may be able to devise a cheaper and more cost effective way of resolving the issue rather than referring it again to the court.  It may be that the defendant’s estimate of the potential time and cost is somewhat pessimistic and that with a more co-operative approach the task could be undertaken (using, as Mr Lam suggested, computer search engines) more simply and by consent.

Costs

17.  In relation to the old emails costs should be reserved.  With regard to the remaining documents, namely the iPhone details, the costs order is less obvious.  The plaintiff has its order, but the defendants have their undertaking.  It is true that the undertaking was the key reason for a hearing being necessary but future events, relevant to the question of costs, may occur.  I therefore make a nisi order of costs reserved on both aspects of this summons.