Beckkett Pte Ltd v Deutsche Bank AG and another

• Jurisdiction: Singapore
• Judgment Date: 21 September 2007
• Date: 21 September 2007
• Docket Number: Suit No 326 of 2004
• Court: High Court (Singapore)

Beckkett Pte Ltd

Plaintiff

and

Deutsche Bank AG and another

Defendant

[2007] SGHC 153

Kan Ting Chiu J

Suit No 326 of 2004

High Court

Credit and Security–Mortgage of personal property–Stocks and shares–Scope of duty of pledgee to pledgor and guarantor when selling pledged shares–Pledgee failing to ascertain market price of shares before agreeing to private sale–Proper basis for valuation of shares–Whether shares sold at undervalue–Whether possible to establish breach of duty without proof of undervalue–Whether claim by company in respect of shares pledged by its subsidiary allowable–Damages–Compensation and damages–Claim by shareholder for loss purely reflective of damage caused to or loss suffered by company–Whether claim permissible –Whether open to claimant to take measures to render principle inapplicable–Tort–Conspiracy–Whether security sold at undervalue pursuant to conspiracy between pledgee and buyer–Differences between conspiracy by lawful and unlawful means–Whether intention or predominant intention to injure made out

The plaintiff (“Beckkett”), a Singapore investment-holding company, was a wholly-owned subsidiary of ASMEC, a company incorporated in Mauritius. ASMEC was owned by three shareholder groups including a management group comprising persons involved in the management of four Indonesian companies (“the Management Group”), namely, SME, Asminco, Adaro and IBT. Beckkett owned 74.2% of SME which in turn owned 99.9% of Asminco.

The first defendant (“Deutsche Bank”) gave a bridging loan to Asminco repayable in six months. As security for the loan, Beckkett pledged to Deutsche Bank all its SME shares under an agreement governed by Indonesian law, while SME pledged all its Asminco shares, and Asminco pledged all the shares it held in Adaro and IBT (all shares pledged referred to collectively as “the Pledged Shares”). When Asminco was in default on the repayment of the bridging loan, Deutsche Bank was approached by the second defendant (“DSM”), an Indonesian company, to buy the Pledged Shares. Deutsche Bank had not put the shares on sale, and did not have them valued in contemplation of a sale. It nevertheless entered into a share sale agreement with DSM under which DSM acquired all the Pledged Shares together with an assignment of all Deutsche Bank's rights under the bridging loan and Beckkett's guarantee. This share sale agreement was governed by the laws of Singapore. Pursuant to the sale, the Pledged Shares were transferred to DSM or its nominees.

Beckkett regarded the price for the Pledged Shares sold to DSM to be a gross undervalue and commenced action seeking, inter alia, that the sale of the Pledged Shares be set aside with damages for the loss Beckkett had suffered as a result of the shares being sold at an undervalue. It alleged that Deutsche Bank had breached its duty as pledgee of the Pledged Shares or as creditor of the bridging loan in failing to take reasonable steps to obtain a true value for the Pledged Shares or to obtain the best price possible for them. Beckkett further alleged a conspiracy between Deutsche Bank and DSM to sell the shares at an undervalue. Deutsche Bank denied any conspiracy and argued that it had obtained rulings from the District Court of South Jakarta that it had the right and authority to sell all the Pledged Shares privately without going through any public auction, and that, in any event, Beckkett was not entitled to claim for any loss or damage which was reflective of the loss or damage suffered by SME or Asminco. Deutsche Bank counterclaimed against Beckkett as guarantor of the bridging loan for the amount due under the bridging loan after the sale of the Pledged Shares. At the close of Beckkett's case, Deutsche Bank elected not to enter a defence and did not call any witnesses.

Held, allowing the claim in part with nominal damages and dismissing the counterclaim:

(1) Whether the basis of the duty was common law or equity, the requirement that a mortgagee had the duty to take reasonable care to obtain a proper price for the mortgaged property was eminently logical and correct, and was the settled law in Singapore. The argument that there could be no breach of a mortgagee's duty if there was no undervalue did not stand up under examination. The mortgagee must inform itself of the price obtainable for the property before it agreed to sell it. Then the enquiry moved to determine whether the price actually obtainable was a reasonable price in the circumstances. Before Deutsche Bank agreed to sell the Pledged Shares for a certain price in a private sale, it had the duty to ensure that that was the proper price for the shares, and that it had selected the proper mode of sale: at [84], [85], [89] to [91].

(2) Deutsche Bank owed a duty as pledgee to sell the Pledged Shares in the open market and, as the Indonesian law under which Deutsche Bank had applied for permission to sell the Pledged Shares by private sale was not a mandatory provision, Deutsche Bank was not compelled by law to obtain such permission, and should not have made such an application. Deutsche Bank accordingly could not rely on the orders of the South Jakarta District Court to answer Beckkett's complaint of breach of duty. In any event, the orders of the South Jakarta District Court had been revoked by the High Court and, consequently, its orders authorising the sale of the Pledged Shares through private sale no longer existed: at [52] and [53].

(3) In respect of shares that were not pledged by Beckkett but by SME and Asminco instead, it was true that Deutsche Bank as vendor-pledgee owed a duty not only to the pledgors SME and Asminco, but also to Beckkett as guarantor. However, Deutsche Bank's sale of these shares would not give Beckkett an independent right of action against Deutsche Bank because Beckkett would suffer no loss or damage from the sale. Although Beckkett substantially owned SME which in turn owned Asminco, it could not claim these two companies' losses as its own because the “no reflective loss” principle operated to prevent Beckkett from claiming for any loss it suffered as shareholder that was not separate and distinct from the losses suffered by the companies. Although it was open to Beckkett to take measures to render the principle inapplicable by removing the risk of double recovery and prejudice to the other shareholders or creditors of Asminco and SME in allowing Beckkett to proceed with its claim, Beckkett had not done so: at [86], [87], [103] and [104].

(4) In respect of the SME shares pledged by Beckkett, it was essential for Beckkett to show that the shares had been sold at an undervalue. Even if SME's assets in the form of Adaro and IBT shares could be valued at a much higher amount, its value as a company had to be determined by taking into account all relevant factors including its liabilities, prospects and other factors. While the loss in value of the SME shares caused by the sale of the Adaro and IBT shares was not really in issue, the evidence did not show whether the SME shares were worth more than the price they had been sold at. Beckkett had not done enough to prove its loss and was therefore entitled to nominal damages only: at [105], [111] to [113], [148], [149] and [152].

(5) For conspiracy by unlawful means, a mere intention to injure would suffice, but for conspiracy by lawful means, the intention to injure must be a predominant intention. In respect of Beckkett's allegation of conspiracy by lawful means, there was no evidence that either Deutsche Bank or DSM had believed the price of the shares to be an undervalue so there was no evidence of any agreement or intention to injure Beckkett, let alone a predominant intention to injure. In respect of the allegation of a conspiracy by unlawful means, there was no evidence that Deutsche Bank or DSM knew at that time that the particular mode of application used to seek court approval for the sale was inappropriate and that some other mode was required, so there could be no inference that they intended to do something unlawful. The agreement between Deutsche Bank and DSM for Deutsche Bank to wind up Beckkett after the sale and for DSM to provide the funding for the winding up was also insufficient evidence of a conspiracy. When a creditor applied to wind up a debtor company, it was exercising its right under the law. Banks did that in the normal course of their business, and it could not be said that the predominant intention for doing that was to injure the debtor companies. All that DSM had done in providing the funding was to offer an incentive to Deutsche Bank to do something it was fully entitled to do on commercial and legal grounds: at [114], [115], [120] to [124], [138], [140] and [141].

(6) While there was some evidence to support Beckkett's assertion that DSM might not be the real purchaser of the shares, and that the real purchaser was an unnamed key shareholder or certain existing shareholders, and a borrower-related entity, the evidence did not go as far as to show that the true purchasers were the Management Group, and Beckkett had failed to prove that DSM had bought the shares as a “front”, or that Deutsche Bank knew DSM was buying the shares on behalf of some other party. Beckkett had therefore not proved that DSM was not a bona fide purchaser. Beckkett's complaints about the impropriety of funding arrangements for DSM's purchase of the Pledged Shares were also not relevant to the allegation of conspiracy since it was not Beckkett's case that Deutsche Bank had any knowledge or role in those transactions: at [68], [73] and [134].

(7) As Deutsche Bank elected not to call its witnesses, it did not prove its counterclaim. Furthermore, it did not have the shares pledged by Asminco and SME valued, and had sold them in a private sale without notice to other potential buyers. Deutsche Bank as vendor-pledgee owed a primary duty to the pledgors, and also a duty to...