Aquariva Pte Ltd v Gezel Group Pte Ltd and another

• Jurisdiction: Singapore
• Judge: Zeslene Mao AR
• Judgment Date: 31 August 2017
• Neutral Citation: [2017] SGHCR 14
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 108 of 2017
• Published date: 09 September 2017
• Year: 2017
• Hearing Date: 07 July 2017
• Plaintiff Counsel: Jeremy Cheong and Rebecca Chia (IRB Law LLP)
• Defendant Counsel: The first defendant not represented,The second defendant in person.
• Subject Matter: Civil Procedure,Discovery of documents,Pre-action discovery
• Citation: [2017] SGHCR 14

Zeslene Mao AR: Introduction

Originating Summons No 108 of 2017 (“OS 108/2017”) arose out of affairs of the Chillax Market, a shop space operated by the 1st defendant, Gezel Group Pte Ltd, at The Grandstand located at Turf Club Road. The business model of the Chillax Market was based on concessionary agreements entered into between the 1st defendant and vendors who wished to sell goods at the Chillax Market. The plaintiff, Aquariva Pte Ltd, was one such vendor. On or about 22 January 2016, the plaintiff entered into a contract with the 1st defendant for a licence to use and operate a concession space of approximately sixty square feet at the Chillax Market for a period of 12 months to sell women’s wear and accessories (“the Agreement”).

The terms of the Agreement may be summarised as follows. The plaintiff was required to pay a monthly licence fee of $1,800 to the 1st defendant on the 1st day of every month, which would comprise the provision of space (including any fixtures or furniture provided), advertising and marketing and administrative services. Sales of the plaintiff’s products would be received and recorded into a cash register or point of sales system maintained by the 1st defendant at the Chillax Market and would be payable to the plaintiff after deducting goods and service tax, credit card charges and NETS charges. The plaintiff’s position is that the net sales were, pursuant to the Agreement, to be held on trust by the 1st defendant for the plaintiff.

About three months after the plaintiff entered into the Agreement, the vendors were informed via an email dated 23 April 2016 that due to the challenging business environment, the Chillax Market was making a loss and had to be closed down completely. Vendors were asked to remove their respective stocks from the Chillax Market within two days from the date of the email. A meeting was held on 24 April 2016 during which the 2nd defendant, Ms Nguyen Huynh Boi Tran, the managing director of the 1st defendant, informed the vendors that the 1st defendant did not have any money in its account and required some time to repay the vendors the respective sums outstanding to each of them. According to Jones Louise Ann (“Ms Jones”), a director of the plaintiff, this announcement came as a surprise as all indications were that the business of the Chillax Market was operating normally. The closure of the Chillax Market left Ms Jones feeling frustrated and dissatisfied.

In August 2016, the plaintiff’s solicitors sent a letter of demand to the defendants, seeking repayment of the sum of $10,971.58 which was the net sum due from the 1st defendant to the plaintiff for the plaintiff’s sales at the Chillax Market which had yet to be paid. To date, this sum appears to be outstanding.

On 31 January 2017, the plaintiff commenced OS 108/2017, seeking pre-action discovery against the 1st defendant and the 2nd defendant of the following categories of documents: the documents relating to all bank accounts held in the name of or beneficially owned by the 1st defendant in relation to the Chillax Market, including but not limited to records of cheques drawn out, bank statements and vouchers in respect of monies in these accounts; all financial statements and/or accounting documents relating to the business/operations of the 1st defendant and/or its constituent businesses, including all or any financial plans and projections, business plans or other forecasting or management financial information; and all bank accounts held in the name of or beneficially owned by the 2nd defendant.

I heard the parties on 7 July 2017. The plaintiff was represented by Mr Jeremy Cheong and Ms Rebecca Chia. The 1st defendant was not represented at the hearing before me and the 2nd defendant appeared in person. At the conclusion of the hearing, I granted leave for further written submissions to be tendered. After considering the submissions, I now render my decision on the application.

The grounds for the application

The plaintiff commenced this application for pre-action discovery based on its suspicion that the 1st defendant’s cash flow issues were due to fraud on the defendants’ part. In the first place, given the 1st defendant’s simple business model, the plaintiff was of the view that the 1st defendant should not encounter cash flow difficulties. The fact that the Chillax Market had to cease operations a mere three months after the parties had entered into the Agreement itself gave rise to cause for suspicion.

In her affidavit filed in support of this application, Ms Jones also stated that she realised in retrospect that there had been certain transactions adopted by the 1st defendant and/or its representatives between February and April 2016 that were suspicious. In particular, sometime in March 2016, the 1st defendant had issued a cheque to the plaintiff for payment of the sales of the plaintiff’s products in February. However, this cheque which was issued from a bank account with Oversea-Chinese Banking Corporation (“OCBC”) bounced. The 1st defendant’s explanation for this was that its bank account had been “temporarily closed” due to issues with internet banking. Subsequently, a cheque for the payment of $597.15 was issued to the plaintiff. This sum, which represented the balance payable to the plaintiff after the licence fees for March and April 2016 had been accounted for, was successfully deposited into the plaintiff’s bank account.

The plaintiff submits that the circumstances detailed above showed that the 2nd defendant, being a signatory of the 1st defendant’s cheques, was issuing cheques from an OCBC account which the 2nd defendant knew and/or ought to have known had insufficient funds or was closed. The plaintiff also highlights what appears to be a discrepancy in the 1st defendant’s use of bank accounts – although payment of the licence fees were made by vendors to a United Overseas Bank (“UOB”) account, the cheque that the 1st defendant issued to the plaintiff which subsequently bounced was issued from an OCBC account.

Subsequently, after the Chillax Market ceased operations, Ms Jones and other vendors who were owed monies decided to seek repayment from the 2nd defendant of the monies that were owed to them. This led Ms Jones to discover that the 2nd defendant was living in a high-end property and had been taking multiple leisurely and expensive vacations with her husband.

Based on the above, the plaintiff formed an impression that the 2nd defendant had been operating the 1st defendant fraudulently. Yet, the plaintiff claims that it is unable to pursue a claim against the defendants because it is not able to ascertain how viable a claim for fraud committed by the 2nd defendant using the 1st defendant as a vehicle would be, given the lack of information which the plaintiff currently possesses. The plaintiff therefore seeks the defendants’ financial information in order to (a) understand and clarify why the vendors’ money had been depleted and (b) ascertain if there is any cause of action against the defendants that could be pursued.

The applicable legal principles

An application for pre-action discovery is made under O 24 r 6(1) of the Rules of Court (Cap 322, R 5, 2014 Rev Ed). In making such an application under O 24 r 6(1), the plaintiff, pursuant to O 24 r 6(3), must file a supporting affidavit stating: the grounds for the application, the material facts pertaining to the intended proceedings and whether the person against whom the order is sought is likely to be a party to subsequent proceedings in court; and specify or describe the documents in respect of which the order is sought and show, if practicable by reference to any pleading served or intended to be served in the proceedings, that the documents are relevant to an issue arising or likely to arise out of the claim made or likely to be made in the proceedings or the identity of the likely party to the proceedings, or both, and that the person against whom the order is sought is likely to have or have had them in his possession, custody or power.

In deciding whether pre-action discovery ought to be ordered, the court must also have reference to the overriding test of under O 24 r 7, which is that such discovery must be necessary or necessary at that stage of the cause or matter, and in any case, necessary either for disposing fairly of the cause or matter or for saving costs.

The requirement of necessity in the context of pre-action discovery has been considered in various cases. In Ching Mun Fong v Standard Chartered Bank [2012] 4 SLR 185 (“Ching Mun Fong”), the Court of Appeal stated that as the scheme of pre-action discovery is to accommodate the situation where a potential plaintiff does not have sufficient facts to commence proceedings, pre-action discovery would be unnecessary where an individual is already in a position to commence proceedings (at [23]). Similarly, in Bayerische Hypo-und Vereinsbank AG v Asia Pacific Breweries (Singapore) Pte Ltd and other applications [2004] 4 SLR(R) 39, Belinda Ang J held that pre-action discovery was for “the case of an applicant who is unable to plead a case as he does not yet know whether he has a viable claim against the opponents, and needs pre-action discovery to fill the voids or gaps in his knowledge” (at [25]).

In the context of an application for pre-action discovery, the viability of a claim does not relate to the plaintiff’s prospect of success in its intended action. As the Court of Appeal noted in Ching Mun Fong, pre- and post-action discovery necessarily served different objectives. The object of pre-action discovery thus did not allow a plaintiff to obtain evidence to boost its intended claim, as this would “effectively render otiose the provisions for the normal discovery following the commencement of action” (at [28]). In other words, pre-action discovery should be granted where the...