Tan Teck Ping Karen AR:
Introduction
The two Originating Summons (“Applications”) are the plaintiffs’ application for discovery against the respective defendants who are non-parties to the dispute between the plaintiffs and Zhang Lan (“Founder”).
The 1st plaintiff (“Buyer”) and the 2nd plaintiff (“Investor”) are majority owned by the CVC Group (a private equity group) which consist of CVC Capital Partners SICAV-FIS S.A. and its subsidiaries (“CVC”).
The 1st defendant in OS 305 is Deutsche Bank Aktiengesellschaft (“DB”). The 1st Defendant in OS 307 is Credit Suisse AG (“CS”). Both are banks in Singapore.
The 2nd defendant in each of the applications is Success Elegant Trading Limited (“SE”), a company incorporated in the British Virgin Islands. The Founder held the sole share in SE till 4 June 2014 when she transferred this sole share to Asiatrust.
The plaintiffs believe that the Founder may have transferred to third parties all or part of funds paid to the Founder arising from transactions which are alleged to be fraudulent. As the plaintiffs believe that SE is owned by the Founder, the plaintiffs seek documents relating to SE’s accounts in the respective banks in the Applications to assist them to trace these funds.
As customer information is being sought from the respective banks, the plaintiffs seek an order of the Supreme Court or Judge for disclosure of the documents under one of the exceptions within the Third Schedule of the Banking Act.
Background Facts
The Investor is the majority shareholder of Dolce Vita Fine Dining Holdings Limited (“EquityCo”).
The Buyer is owned 100% by EquityCo.
The Founder is the 100% owner of Grand Lan Holdings Group (BVI) Limited (”Founder Holdco”) and South Beauty Development Limited (“Management Holdco”).
By way of a series of transactions, the plaintiffs acquired shares in a food and beverage business owned by the Founder and other companies owned or controlled by her (“Acquisition”), details of which are as follows: The Buyer purchased all the shares in South Beauty Investment Company Limited (“Company”), a Cayman Islands company which was in the restaurant business in China from Founder Holdco and Management Holdco (collectively “the Sellers”) for the total consideration of US$235,066,678 which was paid into the Founder’s Hong Kong Bank Account (“Founder’s Hong Kong Bank Account”) with Bank J. Safra Sarasin, Hong Kong Branch (“Bank Sarasin”). The investor also purchased shares in EquityCo from the Founder Holdco for the total consideration of US$51,784,209 which was paid into the Founder’s Hong Kong Bank Account. It is alleged that the Founder also represented to CVC at a number of meetings prior to the Acquisition that the Company and its subsidiaries (the “Group”) was a thriving and successful brand which was resistant to the economic and consumption slowdown in the People’s Republic of China.
After the transactions were completed, the plaintiffs say that in 2015 they discovered what is alleged to be manipulation of the Company’s accounting/financial records by the Founder in 2013 to give a higher valuation which induced the Buyer and Investor to think the Company was more profitable than it really was and to buy into the Company at a higher price than what should have been paid. As a result, it is alleged that the price paid for the Company was grossly and artificially inflated.
FTI Consulting was appointed by the plaintiffs to analyse the 2014 records and documents in relation to the Company. It prepared a report dated 25 February 2015 which found, inter alia, that “there was pervasive manipulation of South Beauty’s transaction sales data between January and April 2014 in the form of recognition of fictitious high value transactions paid on account; and manipulation of data in this way is consistent with inflated revenue and a rapidly increasing trade receivables balance, the same patterns [FTI] observed in South Beauty’s financial statements and [FTI] therefore consider it highly likely that similar manipulation took place in 2013.”
The 1st and 2nd plaintiff have each commenced separate arbitration proceedings against the Sellers in the China International Economic and Trade Arbitration Commission (“CIETAC”). In essence, the claim in the respective Request for Arbitration asserts that the Sellers fraudulently manipulated the accounting information of the Company, which was relied on by the plaintiffs when deciding whether or not to proceed with the Acquisition. It is also asserted that the Sellers have breached various warranties within the SPA and had made fraudulent misrepresentations in connection with the Acquisition. As such, the plaintiffs seek a rescission of the SPA, return of the purchase price paid to the Sellers under the SPA and damages to be assessed. In the alternative, if rescission is not granted, damages and/or an indemnity for all losses caused by the Sellers’ fraudulent misrepresentation.
Orders made by the respective Courts
The plaintiffs also filed various applications in the Hong Kong and Singapore courts.
On 26 February 2015, the Hong Kong court granted the following orders against the Founder and Founder HoldCo: Injunction orders to restrain them from disposing of their assets worldwide (“Hong Kong Injunctions”); Disclosure of information orders requiring them to disclose all assets worldwide in excess of HK$500,000 (“Hong Kong Disclosure Orders”); Disclosure of information orders against their bank, Bank Sarasin; and Evidence preservation orders.
On 2 March 2015, in Originating Summons No. 178 of 2015 and Originating Summons No. 180 of 2015, the Singapore court, inter alia, granted orders prohibiting the Founder from disposing of or dealing with or diminishing the value of her assets in Singapore whether in her name or not and whether solely or jointly owned (“Singapore Injunctions”).
Various banks in Singapore were notified of the Singapore Injunctions.
As the plaintiffs believed that SE is owned by the Founder and that SE has an account with CS (“CS Account”), confirmation of this was sought from CS on 9 March 2015. On 12 March 2015, Messrs Herbert Smith Freehills in Hong Kong, solicitors for CS, confirmed that steps have been taken to comply with the Singapore Injunctions in particular, to ensure there are no dealings in monies or assets held in the CS Account.
On 14 March 2015, the plaintiffs’ solicitors were notified by solicitors for DB, Messrs Allen & Gledhill, that DB believed that SE’s DB account (“DB Account”) is subject to the terms of the Singapore Injunctions.
As the plaintiffs believe that the Founder had transferred funds from the Founder’s Hong Kong Bank Account to the CS Account and the DB Account to put the funds out of the reach of the plaintiffs, the plaintiffs filed these applications for the following purposes: To identify third parties for the potential commencement of proceedings against them; To ascertain the full nature of the wrongdoing perpetrated by the Founder and to enable the plaintiffs to plead their case properly; and/or To trace assets in support of the plaintiffs’ proprietary claim against the Founder and third parties.
The issues
The following issues were considered by the Court: Whether the requirements for obtaining an order for pre-discovery pursuant O24 r 6(5) of the Rules of Court (“ROC”) and/or the inherent jurisdiction of the Court have been satisfied Whether the plaintiffs had shown that there was a likely prospect of subsequent proceedings being held in Singapore pursuant to Order 24 rule 6(5) read with Paragraph 12 of the First Schedule of the Supreme Court of Judicature Act (“SCJA”); and Whether the requirements under the Banking Act read together with section 175 of the Evidence Act for discovery of documents from the respective defendant banks have been satisfied.
Decision
Pre-Action Discovery
The Court has power to order discovery against a non-party under O 24 r 6(5), which reads as follows:
An order for the discovery of documents before the commencement of proceedings or for the discovery of documents by a person who is not a party to the proceedings may be made by the Court for the purpose of or with a view to identifying possible parties to any proceedings in such circumstances where the Court thinks it just to make such an order, and on such terms as it thinks just. (emphasis added)
The words in O 24 r 6(5) give statutory effect to the Norwich Pharmacal order, which is traditionally sought when it is necessary to obtain information for the purpose of ascertaining the identity of a potential defendant so that proceedings may be commenced against him. See Singapore Court Practice 2014 at 24/6/5 and 24/6/6.
In addition, the Court also retains its inherent jurisdiction to order disclosure from a non-party. This was recognised by Sundaesh Menon JC (as he then was) in UMCI Ltd v Tokio Marine & Fire Insurance Co (Singapore) Pte Ltd and others [2006] 4 SLR(R) 95 (“Tokio Marine”), where he observed at [91] that the Court’s jurisdiction to order the discovery of documentary samples from non-parties under O 24 r 6(5) overlaps with a Norwich Pharmacal order which may be made under the Court’s inherent jurisdiction. This was an acknowledgement that the Court had concurrent jurisdiction under O 24 r 6(5) and its inherent jurisdiction to order discovery against a non-party.
Before examining the law and facts to determine whether the documents sought by the plaintiffs should be granted, it is timely at this point to note the Court of Appeal’s caution regarding pre-action disclosure in Dorsey James Michael v World Sport Group Pte Ltd [2014] 2 SLR 208 (“Dorsey James”) at [27]:
…The utility and benefits of this procedure, however, must be calibrated against the fact that pre-action disclosure of any sort is quintessentially intrusive in nature – especially when it involves...
