Background
In litigation proceedings, parties may understandably be concerned about the disclosure of confidential documents. This concern is more pronounced in intellectual property proceedings involving valuable and commercially sensitive patents and trade secrets, especially where the opposing party is a business competitor.
A party receiving discovery documents is bound by an implied undertaking not to use the documents for any purposes other than those of the proceedings in question. However, the receiving party is released from this implied undertaking once a document is read or referred to in open court (usually during trial)1. The implied undertaking may therefore not offer sufficient comfort to a party required to disclose highly confidential information, e.g. pricing information and manufacturing processes.
Judicial efforts to preserve the confidentiality of documents in litigation have led to the creation of "confidentiality clubs" imposing undertakings on the receiving parties not to disclose the information to be received. Without a confidentiality club, documents referred to in open court become public.
Confidentiality clubs in Hong Kong
We have occasionally seen the setting up of confidentiality clubs in Hong Kong. A prominent example is Diagcor Bioscience Incorporated Ltd v Chan Wai Hon Billy & Ors [2015] 6 HKC 474. The plaintiff, a biotechnology company, developed a test that can identify the gender of a foetus (the "Test"). The defendants include former employees of the plaintiff who had acquired confidential information from the plaintiff. Shortly after their departure from the plaintiff, they set up companies in Hong Kong that developed a test similar to the Test. Hence, the plaintiff claimed against the defendants for inter alia infringement of copyright in misusing confidential information in relation to the Test.2
The plaintiff claimed that certain data relating to the Test is confidential information, and sought an undertaking from the defendants as to confidentiality before the plaintiff would give them discovery. The plaintiff also agreed to reciprocate in respect of confidential materials to be disclosed by the defendants.3 Hon Au-Yeung J took these matters into account and ordered the formation of a confidentiality club to protect the confidential nature of the parties' disclosure. 4
The members of the confidentiality club were the parties' representatives, solicitors and barristers.5 Each of the members was required to give an undertaking both as to (i) confidentiality (i.e. not to divulge the confidential information to anybody except authorised persons such as named legal advisers, or to use the confidential information except for the purpose of the action); and (ii) damages (i.e. to indemnify the disclosing party against damages in case of unlawful disclosure by the receiving party).6 Any member that is not willing to give the undertaking will be denied access to confidential documents.7
Thus, access to confidential information is restricted mainly to the receiving party's legal advisers. Given the undertaking given by the confidentiality club members, this should hopefully ease the disclosing party's concerns that the receiving party might improperly use the confidential information to gain an unfair commercial advantage.
Future development
The formation of confidentiality clubs is not (yet) common in Hong Kong. Since Diagcor in 2015, there have only been a handful of decisions where the setting up of confidentiality clubs was explored. However, most recently in Hwang Joon Sang & Anor v Golden Electronics Inc & Ors [2021] HKCFI 1973, being a case involving alleged breaches of fiduciary duties, the Court gave the parties time to discuss the possibility of creating a confidentiality club to permit disclosure to the plaintiff's legal representatives only (and not to the plaintiff himself).8 This is an interesting proposition, which is on the face of it contradictory to the duty of a solicitor to pass on to his client and use all information which is material to the subject matter of the retainer regardless of the source of the information. Exemptions to this duty do not refer to situations like the confidentiality clubs.9
Different types of information may require different degrees of protection, according to their value and potential for misuse.10 Nevertheless, a confidentiality club where only external legal representatives (i.e. excluding any officer or employee of the receiving party) are granted access to the documents is exceptional even in the United Kingdom.11
In the context of competition law, the Competition Tribunal has power to impose a "confidentiality ring" (equivalent to a confidentiality club). Again, it would be exceptional to prevent a party from having access to information which would play a substantial part in a case. When a confidentiality ring is deemed necessary, the Competition Tribunal will adopt a two-stage approach. The first stage involves the lawyers (who were exclusively granted access to the documents) identifying the relevant issues after inspecting the documents. In the second stage, the lawyers should form a view on whether any officer or employee of the receiving party will also need to see any of the documents, and apply to the Court for disclosure accordingly.12
The setting up of confidentiality clubs can hopefully encourage parties to be more forthcoming with disclosure of confidential information that is relevant to the action. Given their benefits, we would welcome more widespread application, which may well extend beyond intellectual property and competition law proceedings to any cases involving commercially sensitive information.
Footnotes
1. Order 24, rule 14A of the Rules of the High Court (Cap. 4A).
2. Paragraph 2 to 5 of Diagcor.
3. Paragraphs 1B, 25, 66 and 68 of Diagcor.
4. Paragraph 75 of Diagcor.
5. Paragraphs 75 to 77 and 85(3) of Diagcor.
6. Paragraphs 78, 79, 85(4) and Annex A of Diagcor.
7. Paragraphs 81 and 85(4) of Diagcor.
8. Paragraph 56 of Hwang Joon Sang.
9. Section 8.03 of The Hong Kong Solicitors' Guide to Professional Conduct.
10. Subparagraph 39(vi) of Oneplus Technology (Shenzhen) Co Ltd & Ors v Mitsubishi Electric Corp & Anor [2020] EWCA Civ 1562 (19 November 2020).
11. Subparagraphs 39(ii) and (iv) of Oneplus.
12. Paragraph 13 of Competition Commission v Atal Building Services Engineering Ltd & Ors [2022] HKCT 4, summarising the principles in Taching Petroleum Company Ltd V Meyer Aluminum Ltd; Shell Hong Kong Ltd V Meyer Aluminium Ltd [2019] 6 HKC 553
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
