Shun Kai Finance Co. Ltd. and Others v. Japan Leasing (Hong Kong) Ltd.

CACV000087A/2000

CACV87/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO.87 OF 2000

(On Appeal from HCA No.13826 of 1998)

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Coram: Hon Rogers VP, Keith and Le Pichon JJA in Court

Date of Hearing: 22 November 2000

Date of Judgment: 19 December 2000

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J U D G M E N T

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Le Pichon JA :

1. This is the rehearing of an appeal from an order of Chung J made on 8 February 2000. The appeal came before the Vice President and Keith JA in May of this year. This rehearing was necessitated by the fact that no unanimous decision was reached.

The issue

2. The appeal concerns an application for production of documents pursuant to Order 24, rules 10 and 11. It is common ground that an implied undertaking applies to documents provided on discovery. The question before this court is whether any implied undertaking attaches to documents disclosed pursuant to Order 24, rules 10 and 11.

The English position

3. English law on this subject is not in doubt. The relevant authorities are referred to in the judgments of both the Vice President and Keith JA handed down in October following the earlier hearing, namely, Derby v. Weldon (No.2), The Times, 20 October 1988, a decision of Sir Nicholas Browne-Wilkinson V-C (as he then was) and the decisions of Hobhouse J (as he then was) in Prudential Assurance Co. Ltd v. Fountain Page Ltd [1991] 3 All ER 878 and Eagle Star Insurance Co. Ltd v. Arab Bank plc (unrep. 25 February 1991). As appears from the judgments, it is settled law in England that the implied undertaking does not apply to documents referred to in pleadings and which are subject to Order 24, rules 10 and 11.

4. The implied undertaking

5. Before proceeding to consider whether the law as stated in Derby v. Weldon (No.2) represents the law in Hong Kong, it would be convenient to summarize here the rationale underlying an implied undertaking. This was succinctly put by Lord Hoffmann in Taylor v. Serious Fraud Office [1999] 2 AC 177 at 207 :

"The concept of an implied undertaking originated in the law of discovery in civil proceedings. A solicitor or litigant who receives documents by way of discovery is treated as if he had given an undertaking not to use them for any purpose other than the conduct of the litigation. As Hobhouse J pointed out in Prudential Assurance Co. Ltd. v. Fountain Page Ltd. [1991] 1 W.L.R.756, 764 the undertaking is in reality an obligation imposed by operation of law by virtue of the circumstances in which the document or information is obtained. The reasons for imposing such an obligation were explained by Lord Keith of Kinkel in Home Office v. Harman [1983] 1 A.C.280, 308:

'Discovery constitutes a very serious invasion of the privacy and confidentiality of a litigant's affairs. It forms part of English legal procedure because the public interest in securing that justice is done between parties is considered to outweigh the private and public interest in the maintenance of confidentiality. But the process should not be allowed to place upon the litigant any harsher or more oppressive burden than is strictly required for the purpose of securing that justice is done.'"

An implied undertaking thus attaches to all documents obtained through discovery. The practice of compelling litigants in the course of preparing for the trial of a civil action to produce to one another, for inspection and copying, all documents in their possession or control which contain information that may enable that other party either to advance his own cause or to damage the case of his adversary or which may fairly lead to a chain of inquiry which may have either of those consequences is peculiar to countries whose systems of legal procedure are inherited from the English courts of common law and from the court of Chancery (in which discovery originated). See per Lord Diplock in Home Office v. Harman [1983] AC 280 at 299 G-H. It is not a voluntary process inasmuch as the parties have no choice in the matter but are compelled to disclose their private documents for the purpose of enabling a proper trial of the action. This is to be contrasted with the nature and rationale underlying production pursuant to Order 24, rules 10 and 11.

6. Production under Order 24, rules 10 and 11

7. So far as documents that are referred to in pleadings and affidavits are concerned, Order 24, rule 10 provides that 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 or experts' reports reference is made to any document requiring him to produce that document for the inspection of the party giving the notice and to permit him to take copies. This rule which dates back to the last century was considered by the English Court of Appeal in Quilter v. Heatly (1883) 23 Ch D 42. Its effect was summarized by Hobhouse J in Eagle Star Insurance Co. Ltd v. Arab Bank plc (unreported) 25 February 1991 (at pages 3-4). A pleading should be approached on the basis that it sets out in full all the documents which are referred to in that pleading. So if a party refers to documents in pleadings without their being set out in extenso, there is a right to require the pleading party to produce the document. Before a party can respond to the claim, he must have the full particularity of the other side's pleading to which he is entitled. 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. Hobhouse J further pointed out that although sometimes referred to as an exercise of discovery and rule 10 appears in the Order entitled "Discovery and Inspection of Documents" -

"...it is not, in essence, a discovery exercise. Its history is different, its function is different."

A similar rule applies to exhibits to an affidavit. It has been held that these form as much part of the affidavit as if they had been actually annexed to and filed with it. See per Lord Herschell LC in In re Hinchliffe [1895] 1 Ch 117 at 120.

8. The question whether an implied undertaking attaches to documents produced pursuant to Order 24, rules 10 and 11 arose for consideration in Derby v. Weldon (No.2), The Times, 20 October 1988. The Vice-Chancellor rejected the submission that the documents so disclosed were subject to an implied undertaking. He did so on the basis that documents voluntarily disclosed do not come within the rationale which underlies the implied undertaking relating to documents disclosed on discovery. It is the invasion of privacy which gives rise to the implied undertaking. So, where a party voluntarily chooses to refer to a document in his pleading or an affidavit, it is he who has destroyed the privacy of the document and not the other party or the court. This approach was adopted and followed by Hobhouse J in the Prudential Assurance case and in Eagle Star.

9. In the Prudential Assurance case, Hobhouse J had to consider as a matter of law, whether witness statements and experts' reports were subject to an implied undertaking. He concluded that the duty was owed to the court for the benefit of the parties rather than simply to the parties and the appropriate test for determining the existence or otherwise of an implied undertaking was what is sometimes referred to as "the compulsion principle" : the undertaking applied to the extent that the documents were within "the compulsion principle".

10. Counsel for the respondent contended that an order under Order 24, rule 11 falls squarely within the compulsion test stated by Hobhouse J in Prudential Assurance at 886g. It is necessary to set out in full the passage (at 886 e-h) in which the so-called 'compulsion test' appears :

"It was argued before me that the compulsion principle is not simply confined to orders which require the disclosure of documents or information. In litigation a party may be subjected to orders or rules of procedure which require him to do various things or take various steps in the action. It was argued that whenever a party was in this position he was acting under a compulsion which brought the implied undertaking into force. This argument can be attractively developed. It is said that many things in actions are done because a party is ordered or otherwise required to do them...... The primary sanction that the court imposes is to strike out the claim or the defence. If a party fails to deliver a pleading or to lodge or adduce evidence he will fail to protect his rights and the other party's claims or defences will prevail. The outcome for the litigant is, in practical terms, the same. However in legal terms this is not correct. There is distinction between orders, the breach of which is a contempt of court and those orders or rules which merely give rise to a default. The principle of compulsion applies to the former category only. This has been made clear in a number of cases."

Mr Swaine who appeared for the respondent submitted that "the former category" was referable to "orders, the breach of which is a contempt of court". He drew attention to Order 24, rule 16 which deals with the failure to comply with an order for discovery made, inter alia, pursuant to rule 11(1). Rule 16(2) provides for the committal of any party against whom an order for discovery or production of documents is made who fails to comply with it. A parallel rule exists in England but in none of the English authorities referred to above was reference made to this rule. The suggestion was that the rule had simply been overlooked in Derby v. Weldon (No.2) and the subsequent cases. Accordingly, it was submitted that the English decisions ought not to be followed or, the observations should, at best, be regarded as having been made per incuriam.

11. Whilst, at first blush, Mr Swaine's analysis seemed attractive, the judgment, fairly read, does not support his interpretation of the compulsion test. This becomes apparent from the cases to which Hobhouse J referred at the end of the passage cited as illustrating the distinction he was seeking to make. The first was Derby v. Weldon (No.2) which he cited with approval, agreeing with the distinction drawn by the Vice-Chancellor between documents produced voluntarily and those produced under compulsion. Hobhouse J also found re-affirmation of this crucial distinction in the decision of Hoffmann J in Comfort Hotels Ltd v. Wembley Stadium Ltd [1988] 1 WLR 872. That case concerned a challenge to the validity of Order 38, rule 2A and its relationship to the right of privilege. It was contended that a direction under rule 2A would infringe the rights of privilege to refuse to disclose documents or information which fall within the scope of such privilege. In rejecting this argument, Hoffmann J explained that the rule had the effect of empowering the court to make it a condition of a party's ability to lead oral evidence at the trial that he should have given prior notice of such evidence in the form of a written statement served on the other parties. It did not mean that he could be compelled to disclose any document or information.

"Anything which he does not wish to disclose he may still keep to himself. It is only if he wants to disclose the information by way of evidence at the trial that he may now be required as a precondition to disclose it in written form in advance....."

12. After reviewing that decision and other authorities, Hobhouse J reached the conclusion that there was no blanket restriction on the use of documents and information acquired in the course of litigation.

"Prima facie there is no restriction. The compulsion exception is confined to documents and information which a party is compelled, without any choice, to disclose. Where a party has a right to choose the extent to which he will adduce evidence or deploy other material, then there is no compulsion even though a consequence of such choice is that he will have to disclose material to other parties."

See the Prudential Assurance case at 890C. His conclusion accorded with the Vice-Chancellor's approach in Derby v. Weldon (No.2), where the Vice-Chancellor rejected "without any hesitation" the submission that even though the documents were not disclosed under compulsion of a court order or court procedure, there was an implied obligation not to disclose them at least until they had been used in open court. If that submission were right, he could see no logical step short of holding that all documents produced in litigation (whether voluntarily or involuntarily and whether at an interlocutory stage or later) remained confidential to the parties unless and until used in open Court. That was not a result he was prepared to reach unless compelled so to do by authority and there was none. It follows that although a party who is in breach of any order made pursuant to rule 11 may face committal under rule 16(2), production under rule 11 is nonetheless not within the compulsion exception. In deciding whether the compulsion principle applies, one needs to consider how the document was introduced : that is the point at which the voluntariness or otherwise of the disclosure is to be determined.

13. Mr Swaine's other submission related to the rationale for the implied undertaking. He took issue with compulsion being the basis for the implied undertaking and submitted that it arose because of the advantage the litigant derives in having the document, citing, inter alia, the following passage from Lord Diplock's speech in Home Office v. Harman [1983] AC 280 (at 304 F-G) :

"... it is, in my view, beyond question that anyone who had in his or her possession ... copies of documents belonging to the Home Office and disclosed by them in obedience to the judicial process of discovery had a great advantage over anyone who did not have access to those bundles if it was desired to use them for some collateral or ulterior purpose unconnected with the proper conduct of the action ... in which they were disclosed. This is why an order for production of documents to a solicitor on behalf of a party to civil litigation is made upon the implied undertaking given by the solicitor personally to the court (of which he is an officer) ..."

Far from disavowing compulsion as the rationale for the implied undertaking, Lord Diplock had earlier in his speech (at 299G-300A) expressly referred to the compulsion aspect of discovery which gave rise to the need for safeguard against abuse, namely the implied undertaking. It is also clear from the speeches of Lord Scarman (at 312C) and Lord Roskill (at 321E) that they agreed with Lord Denning's explanation in Riddick v. Thames Board Mills Ltd [1977] QB 881 at 896 that compulsion is the basis for the implied undertaking. For my part, I can find nothing in any of the speeches that cast any doubt on the rationale for the implied undertaking. I agree with Mr Fok SC, who appeared for the appellant, that compulsion is the bedrock for the implied undertaking.

14. I should mention that since the decision in Derby v. Weldon (No.2), English case law has almost without exception followed and applied that decision. The only exceptions that have come to light since the earlier hearing are Bhimji v. Chatwani [1992] 1 WLR 1158 where it was assumed without argument that the implied undertaking applied to documents disclosed under RSC Order 24, rule 10 and Bourns Inc. v. Raychem Corp [1999] 3 All ER 154 where the Prudential Assurance case was distinguished. That case concerned documents disclosed in taxation. The implied undertaking applied although there was no automatic discovery and no order had been made because the party seeking costs was dutybound to provide the taxing master with documents relevant to the claim. In my judgment, neither of these authorities undermines the principles stated in Derby v. Weldon (No.2).

Conclusion

15. I see no valid reason why the English decisions on this issue should not be followed. On the contrary, if it be the common law of Hong Kong that an implied undertaking applies to documents produced pursuant to Order 24, rules 10 and 11, it would have the effect of retrospectively exposing the parties to contempt proceedings which is plainly not desirable. As to the reasons given by the judge below as to why Hong Kong should not follow the law in England and Wales, there is no sound basis for them as appears from the earlier judgment of the Vice President to which I have nothing to add.

16. In the absence of good reason, the common law in Hong Kong should not part company with that prevailing in England and Wales. I would therefore allow the appeal with costs.

Keith JA:

Introduction

17. It is now well known that, when this appeal was first heard by Rogers V-P and I, we were unable to agree on what the outcome of the appeal should be. On the re-hearing of the appeal, Mr Joseph Fok SC for the defendant has, with both tact and courtesy, suggested where in his submission my judgment was flawed. For his part, Mr John Swaine for the 1st plaintiff has advanced additional reasons for supporting the conclusion which I had reached, and which in his submission was correct both in terms of principle and justice.

18. For these reasons, I have decided that in approaching the matter afresh I should write a new and completely free-standing judgment, though much of the uncontroversial background and some of the argument I shall be taking from my previous judgment. I start by repeating that this appeal raises a short but by no means easy point on the use which may be made of documents referred to in pleadings. In a judgment displaying commendable independence of mind, Chung J departed from the current law on the topic in England. The principal question which this appeal raises is whether he was right to do so.

The relevant facts

19. The plaintiffs' case is pleaded in their Amended Statement of Claim. For present purposes, all that needs to be said is that the 1st plaintiff, Shun Kai Finance Co. Ltd. ("Shun Kai"), is a moneylender duly licensed under the Money Lenders Ordinance (Cap. 163). Its moneylending activities were financed by the defendant, pursuant to an agreement under which the defendant agreed to lend various sums to Shun Kai. Shun Kai would then lend those sums to its customers. Shun Kai's case is that the defendant broke that agreement, and procured Shun Kai's customers to break their loan agreements with Shun Kai, by requiring Shun Kai's customers to repay the monthly instalments on various loans to it (the defendant) instead of to Shun Kai.

20. In the Amended Statement of Claim, Shun Kai gave particulars of the various loans to which this allegation related. Those particulars were given under five columns. They gave, in relation to each loan, the name of the customer to whom the loan was made, the date of the loan agreement, the amount of the loan, the monthly instalments which the customer was required to make by way of repayment of the loan, and the date of the defendant's notice to the customer requiring repayment of the monthly instalments to the defendant.

21. In due course, the defendant's solicitors requested Shun Kai's solicitors to produce copies of the loan agreements to which those particulars related. That request was made pursuant to Ord. 24 r. 10(1), which provides:

"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 served under Order 38, rule 2A, or experts' reports reference is made to any document requiring him to produce that document for the inspection of the party giving the notice and to permit him to take copies thereof. "

Ord. 24 r. 10(2) sets out what Shun Kai's solicitors had to do when served with such a notice. It provides:

"The party on whom a notice is served under paragraph (1) must, within 4 days after service of the notice, serve on the party giving the notice a notice stating a time within 7 days after the service thereof at which the documents, or such of them as he does not object to produce, may be inspected at a place specified in the notice, and stating which (if any) of the documents he objects to produce and on what grounds."

Shun Kai's solicitors did not respond to that request, and the defendant issued a summons seeking an order requiring Shun Kai to produce the loan agreements to the defendant and its solicitors for inspection and to permit them to take copies of them. That summons was issued under Ord. 24 r. 11(1), which provides (so far as is material):

"If a party who is .... served with a notice under rule 10(1) .... fails to serve a notice under .... rule 10(2) .... then .... the Court may, on the application of the party entitled to inspection, make an order for production of the documents in question for inspection at such time and place, and in such manner, as it thinks fit."

22. By the time that the defendant's summons was heard by Master Lok, Shun Kai had agreed to produce the loan agreements for inspection and to provide copies of them. In other words, Shun Kai had agreed to do everything which the master could have ordered it to do on the hearing of the defendant's summons. However, Shun Kai's solicitors believed that production of the documents would have resulted in the defendant and its solicitors being subject to an implied undertaking not to use the documents for any purpose other than for use in the litigation. They therefore required the defendant and its solicitors to give an express undertaking not to use the documents for any purpose other than for use in the litigation. The defendant and its solicitors did not accept that the production to them of the documents would result in them being subject to such an implied undertaking, and they therefore declined to give an express undertaking to that effect.

23. In these circumstances, the hearing before Master Lok was treated as an opportunity to decide, not the issue to which the defendant's summons related, namely whether Shun Kai should be required to produce the documents for inspection and permit the defendant's solicitors to take copies of them (because that issue was not one on which the parties disagreed), but the issue relating to the use which the defendant and its solicitors could make of the documents. I am not convinced that Master Lok had the jurisdiction to determine that issue, but in the event he decided that issue in favour of the defendant. He ruled that the production of the documents would not result in the defendant or its solicitors being subject to an implied undertaking not to use the documents for any purpose other than for use in the litigation. Accordingly, he did not require the defendant or its solicitors to give an express undertaking of the kind sought by Shun Kai's solicitors.

24. It is here that a procedural gremlin found its way into the works. Unfortunately, the actual order which Master Lok made did not reflect this ruling. When it was drawn up, it ordered Shun Kai (a) to provide the defendant with copies of the documents and (b) to permit the defendant and its solicitors to inspect the originals. A more appropriate order - to reflect that which Shun Kai had been prepared to do and to reflect Master Lok's ruling as to the use which the defendant and its solicitors could make of the documents - would have been to make no order on the summons, but to give the defendant and its solicitors liberty to use the documents for purposes other than use in the litigation.

25. Shun Kai wished to appeal against Master Lok's ruling on the use which the defendant and its solicitors could make of the documents. By its Notice of Appeal, the order it sought was the setting aside of Master Lok's order. But that could not have achieved the desired result, because it was not the order which Master Lok had made which was the real problem, but the ruling which he had made which had not been reflected in the order. When the appeal was decided by Chung J, he was alive to this problem. Although he found that Master Lok's ruling had been wrong, and that the production of the documents resulted in the defendant and its solicitors being subject to an implied undertaking that they would only use the documents for the purpose of the litigation, he did not set aside Master Lok's order. He simply ordered that the appeal be allowed to the extent that the production of the documents was subject to that implied undertaking.

The subsidiary ground of appeal

26. The defendant now appeals to the Court of Appeal from Chung J's order. It seeks to have Master Lok's ruling restored. But the procedural history is relevant because of a subsidiary point taken by Mr Fok (who did not appear below). In his skeleton argument, he argued that the issue as to whether the production of the documents resulted in the defendant or its solicitors being subject to an implied undertaking not to use them for any purpose other than for use in the litigation was not before Chung J. The issues before him were

(a) in the light of Shun Kai's Notice of Appeal, whether Master Lok had been right to order Shun Kai to produce the documents for inspection, and

(b) in the light of the express undertaking which Shun Kai had required the defendant and its solicitors to give, whether Master Lok had been right not to require the defendant and its solicitors to give an express undertaking not to use the documents for any purpose other than for use in the litigation

27. I reject this argument. Issue (a) was not an issue before Chung J since Shun Kai accepted that it had to produce the documents to the defendant's solicitors for inspection. It would not be right for the defendant to rely on the terms of Shun Kai's Notice of Appeal from Master Lok's order because that Notice of Appeal did not reflect the real issue which Chung J had had to decide. Incidentally, in his judgment, Chung J referred to the fact that the documents had already been produced to the defendant's solicitors. He added that they were being held by them "pending the outcome of this appeal", by which he meant, I assume, that the defendant's solicitors had undertaken not to use them for any purpose until the question of principle which the appeal raised had been decided. In fact, Chung J had been incorrect. The defendant's solicitors had declined to receive copies of the documents to avoid any accusation about their misuse pending the resolution of the issue relating to the use to which they could be put.

28. As for issue (b), that was not before Chung J either. The real issue which Chung J had to decide was whether the production of the documents had resulted in the defendant or its solicitors being subject to an implied undertaking not to use them for any purpose other than for use in the litigation. If the defendant and its solicitors were subject to such an implied undertaking, an express undertaking to that effect would have been unnecessary.

29. Mr Fok did not abandon these arguments, but the only part of them which he developed orally related to their impact on costs. I shall return to this issue at the end of this judgment.

The principal ground of appeal

30. The way is now clear for the defendant's principal ground of appeal to be addressed. It is common ground that the party to whom documents are disclosed in accordance with the normal processes of discovery under Ord. 24 is subject to an implied undertaking not to use the documents for any purpose other than for use in the litigation in which the documents were disclosed. However, the current state of the law in England is that that principle does not apply to documents referred to in pleadings which have to be produced for inspection under Ord. 24 rr. 10 and 11. When those documents are produced, the party to whom they are produced is free to use them for purposes other than the litigation. Chung J held otherwise. He ruled that documents referred to in pleadings are to be treated in the same way as documents disclosed pursuant to the normal processes of discovery, and that the party to whom they are produced for inspection under Ord. 24 rr. 10 and 11 is subject to an implied undertaking not to use them for any purpose other than for use in the litigation. The defendant's principal ground of appeal is that that ruling was wrong. To evaluate this argument, it is necessary to return to first principles.

The relevant principles

(i) The normal processes of discovery. The rationale underlying discovery in civil cases is that

".... compulsory procedures are needed to ensure that the parties are able successfully to extract all relevant documents and other information from others, and thus to find evidence supporting their own case and undermining that of their opponents"

(Matthews & Malek, "Discovery", Litigation Library, 1992, para. 1.03). Thus, Ord. 24 r. 2 requires the parties to exchange lists of documents identifying those documents which are (or were) in their possession relating to matters in issue in the proceedings.

31. However, the normal processes of discovery represent a significant infringement of personal privacy. As Lord Keith of Kinkel said in Harman v. Secretary of State for the Home Department [1983] AC 280 at p. 308B-C:

"Discovery constitutes a very serious invasion of the privacy and confidentiality of a litigant's affairs. It forms part of English legal procedure because the public interest in securing that justice is done between parties is considered to outweigh the private and public interest in the maintenance of confidentiality."

Sir Nicholas Browne-Wilkinson V-C (as he then was) said much the same thing in Derby & Co. Ltd. v. Weldon (No. 2), unreported, 19 October 1998:

"The approach of English law is that discovery in the course of an action is an interference with the right of privacy which an individual would otherwise enjoy in relation to his own documents. As a result of the public interest in ensuring that all relevant information is before the Court in adjudicating on the claim in the action, that right of privacy is invaded and the litigant is forced, under compulsion by the process of discovery, to disclose his private documents."

32. It is that invasion of privacy, forced on litigants by the compulsory nature of the normal processes of discovery, which lies at the heart of the rationale for the implied undertaking relating to documents disclosed under the normal processes of discovery. Accordingly, the implied undertaking relating to documents disclosed under the normal processes of discovery is no more than an illustration of the principle that

".... private information obtained under compulsory powers cannot be used for purposes other than those for which the powers were conferred" (emphasis supplied)

(per Browne-Wilkinson V-C in Marcel v. Commissioner of Police of the Metropolis [1992] Ch. 225 at p. 237C). Thus, the rationale for the implied undertaking is conveniently explained in Matthews & Malek, op. cit., para. 12.04, as follows:

"The primary rationale for the imposition of the implied undertaking is the protection of privacy. Discovery is an invasion of the right of the individual to keep his own documents to himself. It is a matter of public interest to safeguard that right. The purpose of the undertaking is to protect, so far as is consistent with the proper conduct of the action, the confidentiality of a party's documents. It is in general wrong that one who is compelled by law to produce documents for the purpose of particular proceedings should be in peril of having those documents used by the other party for some purpose other than the purpose of the particular legal proceedings and, in particular, that they should be made available to third parties who might use them to the detriment of the party who has produced them on discovery. A further rationale is the promotion of full discovery, as without such an undertaking the fear of collateral use may in some cases operate as a disincentive to proper discovery. The interests of proper administration of justice require that there should be no disincentive to full and frank discovery."

Again, this theme was picked up by Browne-Wilkinson V-C in the Derby case:

"... such invasion of privacy being only for the purpose of enabling a proper trial of the action in which the discovery is given, the Court is astute to prevent a document so obtained from being used for any other purpose. As a result the law is well established that the recipient of documents disclosed under compulsion of Court proceedings holds those documents subject to an implied undertaking not, without the consent of the Court, to disclose such documents to any third party or use the documents for any purpose other than the action in which they are disclosed."

33. The fact that it is the invasion of privacy, forced on litigants by the compulsory nature of the normal processes of discovery, which lies at the heart of the rationale for the implied undertaking, explains why the courts have been reluctant to apply the implied undertaking to public documents which a litigant has had to disclose pursuant to the normal processes of discovery. That reluctance emanates from Ord. 24 r. 14A, which provides:

"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 to such document after it has been read to or by the Court, or referred to, in open court, unless the Court for special reasons has otherwise ordered on the application of a party or of the person to whom the document belongs."

The historical reasons for the introduction in England of an identical provision in the Rules of the Supreme Court are explained in Matthews & Malek, op. cit., paras. 12.17-12.19. But the reasons for the implied undertaking no longer applying to documents after they have "been read to or by the Court, or referred to, in open court" is that once that has been done, the documents have been made public. Thus, the premise on which Ord. 24 r. 14A proceeds is that the implied undertaking should not apply at all to documents which have been made public. Indeed, Browne-Wilkinson V-C made that clear in the Derby case. He said:

"Once a document has been read or referred to in open Court, it becomes a public document. Under Rule 14A, at that stage the undertaking ceases to run. I do not see how retrospectively the court can reinstate an undertaking which has already ceased to apply in circumstances where, during the intervening period, the document is in the public domain and capable of being used generally." (Emphasis supplied).

The words emphasised show that the implied undertaking will not apply to documents compulsorily disclosed under the normal processes of discovery if the documents are in the public domain. That amounts to an express recognition of what has always been acknowledged: that discovery is compulsory to ensure that the litigation is fought on a level playing field, but if discovery involves the disclosure of private documents it is their private nature which causes them to be subject to the implied undertaking.

(ii) Documents referred to in pleadings. However, the normal processes of the compulsory discovery of documents by lists has to be contrasted with the requirements of Ord. 24 rr. 10 and 11, pursuant to which a party may be required to produce for inspection by the other party documents referred to in pleadings. The rationale for these rules was explained in Quilter v. Heatly (1883) 23 Ch. D. 42. Talking about the predecessor of these rules, Chitty J said at p. 45 that

".... its main object was to prevent fictitious deeds or documents being invented by the pleader and inserted in the statement of claim."

And at p. 50, Lindley LJ said that 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."

The reasoning underlying Chitty J's view is plain. Documents referred to in pleadings must be produced so as to satisfy the other party to the litigation that they exist. The reasoning underlying Lindley LJ's view is, in my view, no less clear. In Eagle Star Insurance Co. Ltd. v. Arab Bank Plc, unreported, 25 February 1991, Hobhouse J (as he then was) explained what he thought Lindley LJ was getting at:

"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."

Hobhouse J then referred to what Lindley LJ had said in Quilter v. Heatly at p. 50, and added:

"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 particularised. If a document is just referred to without the document being conclusively identified, and its full terms identified, then the opposite party does not have the full particularity of the other side's pleading to which he is entitled. 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. If you choose to refer to a document in an affidavit, whether or not you exhibit it, you can be required, in order to enable the other side, so as to identify the full terms of the statement on oath of the other side, to see that document. It may be, in that category, that it is viewed not so much as a matter of particulars but as a matter of the application of the best evidence rule; in other words, if you are going to refer to a document in your evidence, you must produce it."

34. I am not persuaded that Ord. 24 rr. 10 and 11 are examples of the best evidence rule, i.e. that documents referred to in a pleading are required to be produced because their production is the best evidence of their contents. The production of a document referred to in a pleading is obviously required to enable the other party to the litigation to know what the whole of the document says. And why should he be entitled to know that? The answer, I am sure, is to enable him to see whether there is anything else in the document (apart from that part of the document which is referred to in the pleading) upon which he can rely. It is to prevent the party who first referred to the document from concealing the fact that there may be other things in or about the document which might be of assistance to the other party to the litigation. Thus, documents referred to in pleadings may be ordered to be produced for inspection even when lists of documents have not been served, and even before the pleadings have closed.

The English authorities

35. In the light of the rationale for the imposition of the implied undertaking in relation to documents disclosed pursuant to the normal processes of discovery, should the implied undertaking be imposed in relation to documents produced for inspection because they are referred to in the pleadings? Two English cases are particularly important. First, in the Derby case, Browne-Wilkinson V-C said:

"The voluntary disclosure of documents in the course of interlocutory proceedings by a party does not come within the rationale which is the basis of the implied undertaking relating to documents disclosed on discovery. In relation to documents voluntarily disclosed the Court has not invaded the privacy of the party. The party has, for his own purposes in defending a case, decided himself to use the documents rather than maintain his privacy. It is the party who has destroyed the privacy of the document, not the plaintiff or the Court ... In my judgment the special protection given to documents disclosed under compulsion of discovery procedures does not apply to any wider class of documents. If [the position was otherwise], I can see no logical step short of holding that all documents produced in litigation (whether voluntarily or involuntarily or whether at an interlocutory stage or later) remain confidential to the parties unless and until used in open court. That is not a result I would be prepared to reach unless compelled to do so by authority and, as I have said, there is none."

However, the particular issue which he had had to decide was whether documents referred to in an affidavit but subsequently made the subject of compulsory production by an order of the court under Ord. 24 r. 11 were subject to the implied undertaking. He held that they were not. He said:

"In swearing the affidavit and referring to the documents, Mr Weldon voluntarily waived any right of privacy. He knew, or should have known, that he could not rely on a document in an affidavit without being liable to produce it. He elected to rely on these documents and the Order of the Court was merely a consequence of that election."

There may be significant differences between documents referred to in affidavits prepared for use in interlocutory proceedings and documents referred to in pleadings, and it is only to the latter that the present case relates.

36. However, in the Eagle Star case, Hobhouse J had to decide whether documents referred to in a pleading as well as in an affidavit (but not subsequently made the subject of compulsory production by an order of the court under Ord. 24 r. 11) were subject to the implied undertaking. He held that they were not. He relied on the fact that the normal processes of discovery on the one hand and the inspection of documents to which Ord. 24 r. 10 applied were regimes whose history and function were different. Having explained the rationale given in Quilter v. Heatly for the predecessor of Ord. 24 r. 10 in the way I have described, he then went on to explain why he agreed with the approach adopted in the Derby case. He said:

"If a party chooses to refer to a document in his pleading or if he chooses to refer to it in any of his evidence (and that includes an affidavit) 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 [Riddick v. Thames Board Mills Ltd. [1997] QB 881]. 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. He cannot rely thereafter on the principle of compulsion which underlies [the] implied undertaking which arises from an order for discovery ...."

Hobhouse J was echoing similar sentiments which he had expressed in Prudential Assurance Co. Ltd. v. Fountain Page Ltd. [1991] 1 WLR 756 at pp. 765H-768A.

37. The Derby case, as I have said, concerned documents referred to in affidavits, but I accept that the effect of the Eagle Star case is that the implied undertaking does not apply to documents referred to in pleadings because the waiver of privacy involved in referring to such documents in pleadings is entirely voluntary. The obligation to produce them for inspection is only triggered because of the voluntary waiver of privacy in them in the first place. That is to be contrasted with the normal processes of discovery which impose an obligation on a party to disclose relevant documents and involves an involuntary waiver of privacy in the documents.

The correctness of the Eagle Star case

38. Chung J decided not to follow the Eagle Star case. I do not propose to analyse the whole of his reasoning, because in my view the critical question is whether the premise on which the Eagle Star case rests is correct - namely, whether a distinction can legitimately be made between the normal processes of discovery and the referring to documents in pleadings on the basis that the former involves the involuntary waiver of privacy whereas the latter does not.

39. Chung J rejected this distinction. His view was that by voluntarily commencing proceedings (and presumably by voluntarily deciding to resist proceedings), a litigant voluntarily subjects himself to rules of court relating to the conduct of proceedings. Thus, the waiver of privacy involved in the disclosure of documents under the normal processes of discovery is just as voluntary as the waiver of privacy involved in referring to documents in pleadings which triggers the obligation to produce them for inspection. I cannot go along with this view. The fact that litigants voluntarily subject themselves to rules of court does not make the application of the rules of court to them any the less involuntary. They are still subject to the compulsory discovery of documents which, but for the rules relating to discovery, they would not be required to disclose.

40. But there is another side to this coin. What is the position if one concentrates, not on whether the waiver of privacy involved in the disclosure of documents under the normal processes of discovery could be said to be involuntary, but rather on whether the waiver of privacy involved in referring to documents in pleadings could be said to be voluntary? It is here that I find myself in respectful but profound disagreement with the Eagle Star case. In my view, it is a fiction to describe a litigant's decision to waive the privacy in a particular document by referring to it in a pleading as voluntary. Whether litigants have commenced proceedings or whether they are resisting them, they have to file pleadings. Rules of court require them to plead all material averments. Litigants have no choice in the matter. If, in order to advance or defend their case, rules of court require them to refer to a particular document in a pleading, it would be unrealistic to describe the waiver of privacy which those references involve as voluntary. The need to refer to them would be dictated by the rules of court relating to pleadings. In other words, the reference to a document in a pleading which triggers the obligation to produce the document for inspection is as involuntary a waiver of privacy as is the waiver of privacy involved in the disclosure of documents under the normal processes of discovery.

41. It is important to note that this conclusion does not amount in any way to a rejection of the rationale for the implied undertaking or the reasoning behind the rules requiring that documents be produced for inspection if they are referred to in pleadings. Nor does this conclusion in any way involve rejecting the distinction between the voluntary and involuntary waiver of privacy in respect of documents. The difference is only in whether it is right to characterise the waiver of privacy involved in referring to documents in pleadings as voluntary.

42. The effect of characterising this waiver of privacy as voluntary, and rendering such documents as not subject to the implied undertaking, is to create an anomaly which in my view produces a serious injustice. Apart from anything else, I suspect that a litigant would be surprised to hear that, by permitting a document to be referred to in a pleading, he would be treated as being content for the other party to make whatever use of the document which it chose. Moreover, if a document is referred to in a pleading, it is likely to be a document to which the normal processes of discovery will apply. Such a document would therefore have to be disclosed in due course in the list of documents, and the implied undertaking would apply to it. However, if it has before then been referred to in a pleading, and has therefore been produced for inspection, it would be absurd if it could then be used for a purpose other than for use in the proceedings. That would have the effect of denying to the document the protection against its collateral use which it would be entitled to as a document to which the normal processes of discovery would in due course apply. If documents referred to in pleadings were not subject to the implied undertaking (but would otherwise have been when the normal processes of discovery took their course), those who draft pleadings would take the simple expedient of not referring to the documents in them. That could have the effect of pleadings not being as comprehensive as the person who drafts them would like them to be.

43. All that applies to the present case. Since one of Shun Kai's causes of actions was that the defendant had procured Shun Kai's customers to break their loan agreements with Shun Kai, the loan agreements had to be pleaded in the Amended Statement of Claim. The particulars of the loan agreements were material averments. If the privacy of documents referred to in pleadings is regarded as having been voluntarily waived, the loan agreements could (but for the defendant's commendable unwillingness to accept them prior to the resolution of the issue relating to the use to which they may be put) now be used by the defendant to obtain the details of Shun Kai's customers to enable the defendant to persuade them to repay their loans to it rather than to Shun Kai - a course which would not have been open to the defendant if the waiver of privacy involved in referring to them in the Amended Statement of Claim is regarded as just as involuntary as the waiver of privacy involved in disclosing them in the normal processes of discovery.

The narrow argument

44. Mr Swaine deployed a narrower argument for supporting the conclusion reached by Chung J. That argument was based on the fact that there had been an order for the production of the loan agreements, viz. the order of Master Lok requiring Shun Kai (a) to provide the defendant with copies of the loan agreements and (b) to permit the defendant and its solicitors to inspect the originals. A failure to comply with some orders of the court merely give rise to a default. A failure to comply with other orders of the court amount to a contempt of court. Hobhouse J himself made that point in the Prudential case at p. 765G-H:

"If a party fails to deliver a pleading or to lodge or adduce evidence he will fail to protect his rights and the other party's claims or defences will prevail. The outcome for the litigant is in practical terms the same. However in legal terms this is not correct. There is [a] distinction between orders, the breach of which is a contempt of court and those orders or rules which merely give rise to a default. The principle of compulsion applies to the former category only. This has been made clear in a number of cases."

A party who fails to comply with an order for production of documents such as the order made in the present case by Master Lok under Ord. 24 r. 11 is liable to committal: see Ord. 24 r. 16(2). Thus, since Shun Kai has been compelled to produce the documents, it is said that, for this reason alone, the implied undertaking applies to them.

45. The fallacy in that argument is that it ignores what Rogers V-P described in the course of argument as the way in which "the documents came to be introduced into the case". Mr Swaine's narrow argument is only necessary if referring to a document in a pleading amounts to the voluntary waiver of privacy in a document. Thus, if privacy in the document has already been voluntarily waived, an order compelling its production will not have the effect of compelling the production of a private document to which the implied undertaking attaches.

Conclusion

46. However, for these reasons, I have concluded that the implied undertaking applies to documents produced for inspection because they were referred to in pleadings just as much as documents to which the normal processes of discovery apply. Accordingly, I would dismiss this appeal, although I would vary the order made by Chung J to reflect the order which should have been made by the master. The order as varied should be that no order be made on the appeal from the order of Master Lok of 7 September 1999, save that the defendant and its solicitors should be at liberty to use the documents produced pursuant to the order of Master Lok only for the purposes of the proceedings herein. At present, I see no reason why costs should not follow the event, and the order nisi which I would make as to costs is that the defendant must pay to Shun Kai its costs of the appeal to be taxed if not agreed.

47. Having said that, I would vary the order for costs made by Chung J in one respect. He ordered the defendant to pay to Shun Kai Shun Kai's costs of the appeal and of the application to the master in any event. Shun Kai's solicitors' initial failure to respond to the defendant's solicitors' request for production of copies of the loan agreements meant that the defendant's solicitors had to issue the summons under Ord. 24 r. 11(1). Accordingly, I would make an order nisi varying the order for costs made by Chung J so as to order Shun Kai to pay to the defendant the defendant's costs of issuing that summons and preparing the affidavit in support.

Rogers VP :

48. I agree with the judgment of Mrs Justice Le Pichon JA and would also say that I have found no reason to alter my previous judgment. The appeal will therefore be allowed. There will be an order nisi that the costs of this appeal will be to the defendant.

Representation:

Mr Joseph Fok SC and Mr Kenneth W.H. Ng, instructed by Messrs Baker & McKenzie, for the Defendant/Appellant

Mr John J.E. Swaine, instructed by Messrs Yolanda Fan & Co., for the 1st Plaintiff/Respondent