Beckkett Pte Ltd v Deutsche Bank AG Singapore Branch

• Jurisdiction: Singapore
• Judge: Kan Ting Chiu J
• Judgment Date: 15 November 2002
• Neutral Citation: [2002] SGHC 268
• Date: 15 November 2002
• Subject Matter: Civil Procedure,Applicable principles,Banking,Rules of Court (Cap 322, R 5, 1997 Rev Ed) O 24 r 6,Discovery of documents,Pre-action discovery,Scope of confidentiality clause in share pledge agreement,Secrecy
• Docket Number: Originating Summons No 772 of 2002
• Published date: 19 September 2003
• Defendant Counsel: Stanley Lai (Allen & Gledhill)
• Court: High Court (Singapore)
• Plaintiff Counsel: Ronald Choo (Rajah & Tann)

Judgment

GROUNDS OF DECISION

1 The plaintiff Beckkett Pte Ltd applied for pre-action discovery against the defendant Deutsche Bank Aktiengesellschaft Singapore Branch ("the bank"). The application was for the bank to give discovery of:

a. a complete list of all securities/guarantees realised or exercised by the Defendant in connection with the loan granted by the Defendant to PT Asminco Bara Utama;

b. In respect of each security/guarantee realised or exercised:

(i) the date when the security/guarantee was realised/exercised;

(ii) the amount realised from the exercise of the security/guarantee;

(iii) in the case of the pledges of shares, a copy of the valuation report(s) in respect of the shares that were realised;

(iv) the identity of the purchaser of the pledged shares;

(v) details of the manner of sale of the pledged shares (whether by private treaty or auction);

(vi) in the case of sale by private treaty, details of the negotiations leading to the sale;

(vii) details of steps taken to ensure that your client obtained the best reasonable price for the pledged shares.

After the application was granted over the bank’s objections, the matter came before me on the bank’s appeal.

Background

2. The plaintiff is an investment company incorporated in Singapore. It held 74.2% of the issued share capital of an Indonesian company known as PT Swabara Mining and Energy ("SME"). SME in turn held 99.8% of the issued share capital in PT Asminco Bara Utama ("Asminco"). Prior to 15 February 2002, Asminco held 40% of the issued share capital of PT Adaro Indonesia ("Adaro") and PT Indonesia Bulk Terminal ("IBT").

3.. Asminco entered into a loan agreement with the bank to borrow US$100 million. In consideration of the loan, the plaintiff’s shares in SME, SME’s shares in Asminco, Asminco’s shares in Adaro and IBT ("the pledged shares") were pledged to the bank. The plaintiff also issued a guarantee for the repayment of all amounts owing by Asminco to the bank. The loan agreement and the guarantee were specifically stated to be governed by English law whereas the share pledge agreements are governed by Indonesian law.

4. When Asminco failed to repay the loan the bank exercised its rights as pledgee and sold the plaintiff’s shares in SME for US$800,000 and the other pledged shares. The bank gave notice to the plaintiff that Asminco still owed US$86,696,304.10 and demanded payment of the outstanding amount from the plaintiff.

5. On 8 April 2002, the plaintiff’s solicitors wrote to the bank’s solicitors to request for the following information:

a. the date when the security/guarantee was realised/exercised;

b. the amount realised from the exercise of the security/guarantee;

c. in the case of the pledges of shares, a copy of the valuation report(s) in respect of the shares that were realised;

d. the identity of the purchaser of the pledged shares;

e. details of the manner of sale of the pledged shares (whether by private treaty or auction);

f. in the case of sale by private treaty, details of the negotiations leading to the sale;

g. details of steps taken to ensure that your client obtained the best reasonable price for the pledged shares.

6. On 26 April the bank’s solicitors replied that

(a) As your clients are fully aware, our clients granted a bridge loan facility dated 24 October 1997 ("the bridge loan") to PT Asminco Bara Utama. Security for the bridge loan was in the form of, inter alia, corporate guarantees issued by your clients and PT Swabara Mining and Energy, and pledges of shares owned by PT Asminco Bara Utama, PT Swabara Mining and Energy, and your clients, in various companies.

(b) Our clients have realised your clients’ shares in PT Swabara Mining and Energy on 15 February 2002. Your clients’ shares in PT Swabara Mining and Energy were realized for US$800,000.00. A copy of the valuation report on the shares in PT Swabara Mining & Energy is enclosed.

(c) The purchaser of your clients’ shares in PT Swabara Mining & Energy is PT Mulhendi Sentosa Abadi.

(d) The shares were sold to PT Mulhendi Sentosa Abadi by way of private treaty.

(e) Quite apart from the Indonesian authorities approving the sale of the shares, a valuation of the shares owned by your clients in PT Swabara Mining & Energy was secured, to ensure that the true market value of the shares was determined. All reasonable steps were therefore taken to ensure the best possible price was obtained in respect of your clients’ shares in PT Swabara Mining and Energy.

7. This was followed by a further reply on 13 May that:

We reiterate our clients’ stand that the information you have sought in relation to negotiations is irrelevant, and that your clients are, in any event, not entitled to this information. Similarly, as to the issue regarding confirmation that our clients have released or agreed not to claim against PT Swabara Mining and Energy, your clients are not entitled to this information. Further, we do not see how the information can be relevant to a proper valuation of the shares in PT Swabara Mining and Energy, and to the issue of whether our clients have taken reasonable steps to obtain the true market value of the pledged shares.

8. Besides stating that "reasonable steps" were taken, neither letter disclosed the steps taken.

The bank’s duties

9. When a creditor sells property it holds as security, the debtor’s interests must be taken into account. A bank which exercises its right of sale under a pledge must take care that the sale is a provident sale, see The Odessa [1916] 1 AC 145, and Malayan Banking Berhad v Hwang Rose [1997] 2 SLR 1. Where there is a guarantor, the duty extends to him as he has an interest in the sale as he is also liable for the debt remaining after the sale, see Standard Chartered Bank Ltd v Walker [1982] 3 All ER 938, American Express International Banking Corp v Hurley [1985] 3 All ER 564, The Bank of East Asia v Tan Chin Mong Holdings (S) Pte Ltd [2001] 2 SLR 193, Goh Chin Soon v Vickers Capital Ltd [2001] SLR 728, and Bank of Credit and Commerce International Societe Anonyme (Licensed Deposit Takers) v Aboody (30 Sept 1987, Queen’s Bench Division, unreported).

10. When the bank decided to sell the pledged shares, it owed a duty to the plaintiff as the pledgor of the SME shares and guarantor of Asminco’s borrowing to take reasonable steps in effecting the sale.

The application

11. In the face of the bank’s negative response, the plaintiff applied for pre-action discovery. An affidavit was affirmed by Arthur Ling Ping Sheun, a director of the plaintiff in support of the application. He deposed that:

13. The Plaintiff believes that the Defendant has sold the Pledged Shares at below their true value. The Plaintiff believes that Asminco’s shares in Adaro and IBT alone should have realised more than enough proceeds to repay the entire amount outstanding under the Bridge Loan with a surplus remaining. Had the Defendant obtained the true value for the shares in Adaro and IBT, there would have been no need to sell the shares in Asminco and SME, nor to call on the Guarantee provided by the Plaintiff.

Particulars

a. The Defendant valued Asminco’s 40% shareholding in Adaro and IBT at approximately USD300 million in late 1997 when the Bridge Loan was advanced.

b. The investment bank Salomon Smith Barney had valued PT Kaltim Prima Coal (an Indonesian company with the next highest coal production after Adaro) at USD889 million in December 2001 (this would translate to a valuation of approximately USD350 million for Asminco’s shares in Adaro). …

c. An article which appeared in the Australian Financial Review on 15 March 2002 mentioned that analysts had put an approximate value for Adaro alone at A$1 billion (which translates to a value of approximately USD200 million for Asminco’s shares in Adaro). …

14. Despite requests from the Plaintiff, the Defendant has not provided any particulars or details on the valuation or the sale of shares in Asminco, Adaro and IBT. Until discovery is given by the Defendant, the Plaintiff cannot ascertain whether the Defendant had obtained a proper valuation of Asminco, Adaro and IBT before it sold the Pledged Shares. Further, the Defendant has not confirmed whether it has released SME from liability under its guarantee to the Defendant. This is relevant to the valuation of the shares of SME.

15. In the circumstances, the Plaintiff has taken out this application for an order compelling the Defendant to disclose all relevant information concerning the realisation of securities in connection with the Bridge Loan.

Possible Action to be taken by the Plaintiff

16. As mortgagee of the Pledged Shares, the Defendant owes certain equitable duties to the Plaintiff (as surety of Asminco). These include:

a. A duty to use its mortgagee powers only for proper purposes (ie. securing repayment of the Bridge Loan) and to act in good faith; and

b. A duty, if the mortgagee exercises its power of sale over any of the Pledged Shares, to take reasonable care to obtain the true value of the security.

17. The Plaintiff has been advised that the Defendant owes the Plaintiff a duty to take reasonable steps to obtain the best price reasonably obtainable for the Pledged Shares when it exercised its right of sale under the various pledges so as to reduce the Plaintiff’s liability to the Defendant under the Guarantee.

The law

12. The plaintiff’s application was made under Order 24 rule 6 of the Rules of Court. Rule 6 (3) requires that an application for pre-action discovery be supported by an affidavit which must state 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.

13. The...