Beckkett Pte Ltd v Deutsche Bank AG

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 12 July 2005
• Neutral Citation: [2005] SGCA 34
• Docket Number: Civil Appeal No 34 of 2005
• Date: 12 July 2005
• Published date: 13 July 2005
• Year: 2005
• Plaintiff Counsel: Steven Chong SC, Ronald Choo and Sim Kwan Kiat (Rajah and Tann)
• Citation: [2005] SGCA 34
• Defendant Counsel: K Shanmugam SC, Stanley Lai and William Ong (Allen and Gledhill)
• Court: Court of Appeal (Singapore)
• Subject Matter: Whether risk that shares may be sold to bona fide purchaser without notice existing,Implied undertaking not to use discovered documents for collateral or improper purpose,Mortgage of personal property,Credit and Security,Mortgagor giving notice of interest in shares,Stocks and shares,Discovery of documents,Whether overriding public interest required before discovering party can be released from implied undertaking,Civil Procedure,Mortgagor alleging breach of mortgagee's duties,Discovering party seeking to use discovered documents to obtain injunction in foreign jurisdiction,Whether discovering party should be released from implied undertaking,Whether court can take into account risk that party giving discovery may face criminal prosecution in foreign jurisdiction

12 July 2005

Chao Hick Tin JA (delivering the judgment of the court):

1 This was an appeal against the decision of Woo Bih Li J, who allowed the appeal of the respondent, Deutsche Bank (“DB”), against the decision of the assistant registrar permitting the appellant, Beckkett Pte Ltd (“Beckkett”), to use certain documents disclosed by DB in proceedings in Singapore for the purposes of obtaining an injunction against a third party in Indonesia (see [2005] SGHC 79). We heard the appeal on 25 April 2005 and dismissed it for the reasons that follow.

The background

2 At all material times, Beckkett, PT Swabara Mining & Energy (“SME”), PT Asminco Bara Utama (“Asminco”), PT Adaro Indonesia (“Adaro”) and PT Indonesia Bulk Terminal (“IBT”) were part of a group of companies known as the Swabara group. In October 1997, DB granted a loan of US$100m to Asminco, which loan was secured by Beckkett’s 74.2% shareholding in SME, SME’s 99.9% shareholding in Asminco and Asminco’s 40% shareholding in Adaro and in IBT. These securities are hereinafter referred to as “the pledged shares”.

3 It was not in dispute that by November 2001, Asminco was in default, giving rise to a right in DB to dispose of the pledged shares. Indeed, Asminco was in default for the entire preceding three-year period before the pledged shares were sold. Neither Beckkett nor Asminco rectified the default in spite of repeated requests by DB. On 21 November 2001, DB, in exercise of its rights as lender, disposed of the pledged shares.

4 Beckkett alleged that DB did not give it notice of DB’s intention to dispose of the pledged shares. In any case, on learning of the sale, Beckkett asked for particulars of the sale, including the identity of the purchaser and the price. Eventually, DB gave information only in relation to the sale of the pledged SME shares. Not being satisfied with that limited disclosure, Beckkett took out pre-action discovery by way of Originating Summons No 772 of 2002 (“OS 772”), whereupon DB was ordered to disclose documents relating to the sale of the other pledged shares. It emerged that the pledged shares were sold to PT Dianlia Setyamukti (“DSM”).

5 Following from the discovery, Beckkett instituted the present action, Suit No 326 of 2004 (“Suit 326”), claiming for damages on the ground that the pledged shares were sold at a gross undervalue.

6 Pursuant to the discovered documents, Beckkett came to the conclusion that the sale of the pledged shares to DSM was not a genuine arms’ length deal. Accordingly, Beckkett added DSM as the second defendant to the action. In the Amended Statement of Claim in Suit 326, Beckkett sought to set aside the sale of the pledged shares to DSM, or alternatively, for damages. However, even up to the date of the hearing of the appeal before us, service of the writ on DSM in Indonesia had yet to be effected.

7 In the meantime, Beckkett received information that DSM intended to sell the shares in Adaro which it had bought from DB. Beckkett claimed that the special value of the Adaro shares lay in the fact that Adaro operated a major Indonesian coal mine and that the loss of that interest could not be adequately compensated by monetary payment. Beckkett asserted that unless DSM was restrained from further selling the pledged shares to other parties, the relief eventually obtained in Suit 326 would be rendered nugatory. Thus, Beckkett made the present application to court to obtain leave to enable it to use the discovered documents (obtained in OS 772 and Suit 326) to apply for an injunction in Indonesia to restrain DSM, or its nominees, from disposing of the pledged shares, in particular the shares in Adaro. Of course, except in relation to the pledged SME shares, Beckkett’s interest in the other pledged shares are indirect.

8 On 30 March 2005, the assistant registrar, while granting the application, limited the documents which Beckkett was to be allowed to use in Indonesia. The assistant registrar also restricted Beckkett from proceeding further in Indonesia after obtaining the injunction. In addition, Beckkett was required to obtain an order from the Indonesian court to seal the record there so that the documents would not be accessible to the public.

9 Woo J reversed the decision of the assistant registrar and refused to grant leave to Beckkett to use the documents in Indonesia. In deciding that leave should not be granted to Beckkett, Woo J’s main concern was that, in all the circumstances, the disclosure of the documents in Indonesia could render DB liable to criminal prosecution in that jurisdiction. A subsidiary reason was that even though the pledged shares were to be sold by DSM or its nominees to third parties, it did not necessarily follow that the setting aside of the sales of the pledged shares would not be possible, bearing in mind that every effort had been made by Beckkett to give notice of its interest in them to potential buyers. In any event, even if setting aside was not possible, Beckkett would be entitled to substantial damages. Beckkett had not asserted any special interest or value in the pledged shares beyond their monetary value. Beckkett had not challenged DB’s ability to meet whatever damages which the court might award in favour of Beckkett in Suit 326. Thus, Woo J thought that it was not correct for Beckkett to claim that Suit 326 would be rendered nugatory unless leave was granted to permit Beckkett to obtain an injunction in Indonesia to restrain DSM and its nominees from disposing of the pledged shares.

Appeal

10 Before us, Beckkett emphasised the fact that the circumstances surrounding the sale of the pledged shares to DSM were unusual and highly suspicious, as no prior valuation was obtained by DB. Beckkett asserted that some of the discovered documents indicated that there was a conspiracy between DB and DSM and that the sale was not really an arms’ length transaction.

11 Reference was also made by Beckkett to reports in the media that another substantial shareholder in Adaro, New Hope Corporation (“New Hope”), an Australian company which also owned about 40% of the shares in Adaro, was planning to sell its shares in Adaro “following the lead of its Indonesia partners”. Beckkett asserted that the “Indonesian partners” would include DSM. According to the reports, New Hope was to hold a general meeting on 21 April 2005 to vote on the proposed sale. In the meantime, to protect its interest in the Adaro shares, Beckkett had also made every effort to notify all potential purchasers of its interests in those shares.

12 Beckkett contended that, given that DSM and its nominees were Indonesian companies and the pledged shares were shares of those companies, it was vitally important for Beckkett to obtain an injunction in Indonesia to preserve its rights as direct or indirect chargor or mortgagor of the pledged shares. The injunction proposed to be obtained in Indonesia was ancillary to, or in furtherance of, the action in Singapore. The documents on which leave was given by the assistant registrar would greatly assist Beckkett in obtaining an injunction in Indonesia. Beckkett reiterated that there was never any intention on its part to litigate the substantive dispute there. Proceedings in Indonesia would be stayed once the injunction was obtained.

13 Reliance was placed by Beckkett on the case of Omar v Omar [1995] 1 WLR 1428, where the court allowed the plaintiff the use of discovered documents for the purpose of seeking an injunction against third parties in another jurisdiction.

The Riddick principle

14 The principle established in Riddick v Thames Board Mills Ltd [1977] QB 881 (“the Riddick principle”) is that where a party to litigation has been ordered to give discovery, the discovering party may not use the discovered documents, and the information obtained therefrom, for a purpose other than pursuing the action in respect of which discovery is obtained. Public interest requires that in relation to an action, there should be full and complete disclosure in the interest of justice. On the other hand, it cannot be denied that discovery on compulsion is an intrusion of privacy. The Riddick principle seeks to strike a balance between these two interests. Lord Denning MR enunciated the rationale and scope of the undertaking as follows (at 896):

The memorandum was obtained by compulsion. Compulsion is an invasion of a private right to keep one’s documents to oneself. The public interest in privacy and confidence demands that this compulsion should not be pressed further than the course of justice requires. The courts should, therefore, not allow the other party – or anybody else – to use the documents for any ulterior or alien purpose.

15 The implied undertaking of not using the documents for other purposes is also an obligation owed to the court and not just to the party who was compelled to make discovery and it is an obligation which only the court can modify: see Prudential Assurance Co Ltd v Fountain Page Ltd [1991] 1 WLR 756 at 764–765.

16 However, the Riddick principle is not absolute. Where there are exceptional circumstances, and no injustice will be caused to the party giving discovery, the court will release the party obtaining discovery from the implied undertaking. In Crest Homes Plc v Marks [1987] AC 829 (“Crest Homes”), Lord Oliver of Alymerton, in delivering the judgment of the House of Lords, said at 860:

I do not, for my part, think that it would be helpful to review these authorities for they are no more than examples and they illustrate no general principle beyond this, that the court will not release or modify the implied undertaking given on discovery save in special circumstances and where the release or modification will not occasion injustice to the person giving discovery.

This case held that the party seeking release from the implied undertaking must demonstrate cogent and persuasive reasons why that party should be released from its...