Skandinaviska Enskilda Banken AB (Publ), Singapore Branch v Asia Pacific Breweries (Singapore) Pte Ltd and Others and Other Suits

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 31 May 2006
• Neutral Citation: [2006] SGHC 91
• Docket Number: Suits Nos 763, 774, 775 and 781 (Registrar's Appeals Nos 296, 298, 300 and 302 of 2005)
• Date: 31 May 2006
• Year: 2006
• Published date: 01 June 2006
• Plaintiff Counsel: Lionel Tay and Paul Ng (Rajah & Tann),Siraj Omar and See Hui Hui (Tan Kok Quan Partnership),Monica Chong, Sannie Sng and Tan Hsiang Yue (Wong Partnership),Rebecca Chew and Lynette Koh (Rajah & Tann)
• Citation: [2006] SGHC 91
• Defendant Counsel: Hri Kumar, Shivani Retnam, Yarni Loi and Kabir Singh (Drew & Napier LLC)
• Court: High Court (Singapore)
• Subject Matter: Report commissioned by directors of company after discovery of fraud perpetuated by company's employee,Defrauded banks bringing action against company and seeking order for disclosure of report and drafts thereof,Civil Procedure,Whether report and drafts thereof protected by legal advice privilege and/or litigation privilege,Sections 128, 131 Evidence Act (Cap 97, 1997 Rev Ed),Disclosure of documents,Report product of collaboration between lawyers and accountants

31 May 2006

Belinda Ang Saw Ean J:

1 The appeals before me were related to several applications for discovery and production of various categories of documents. Specifically, Asia Pacific Breweries (Singapore) Pte Ltd (“APBS”) was ordered by the assistant registrar on 17 October 2005 to, inter alia, produce for inspection the report (including all drafts thereof) commissioned or authorised by the Special Committee of directors (hereafter collectively referred to as the “PWC Draft Reports” as no engrossed final report was issued). The PWC Draft Reports were disclosed under Part II of APBS’s list of documents filed respectively on 29 April 2005 in each of the four actions commenced by the banks named below. I upheld APBS’s claim to privilege in respect of the PWC Draft Reports and allowed APBS’s appeals. The banks have now appealed against that part of my decision relating to production for inspection of the PWC Draft Reports.

The banks’ actions

2 The banks’ actions came about as a result of the fraud perpetrated on each individual bank by Chia Teck Leng (“Chia”), the former finance manager of APBS. Chia is currently serving a long term of imprisonment for cheating the banks of large sums of money totalling approximately US$83m and S$18m.

3 The four actions are as follows:

(a) The plaintiff in Suit No 774 of 2004 is Skandinaviska Enskilda Banken AB (Publ) (“SEB”) and its claim is for US$26,559,371.94 or alternatively S$45,347,671.235.

(b) The plaintiff in Suit No 775 of 2004 is Mizuho Corporate Bank Ltd (“Mizuho”) and its claim is for US$8,024,045.97.

(c) The plaintiff in Suit No 763 of 2004 is Bayerische Hypo- und Vereinsbank AG (“Hypo”) and its claim is for US$32,002,332.85.

(d) The plaintiff in Suit No 781 of 2004 is Sumitomo Mitsui Banking Corporation Singapore Branch (“Sumitomo”). Sumitomo’s claim is for S$10,323,207.94.

4 The banks have sued APBS in contract. Hypo also sued in negligence claiming that APBS owed a duty to Hypo to ensure not only that persons employed in senior financial positions were individuals of integrity, honesty and good character, but that it also had in place a system of checks to monitor the activities of its bank accounts. The banks’ pleaded case is that Chia’s fraud on the banks was committed in the course of Chia’s employment and the connection between the wrongdoing and his authorised and legitimate work responsibilities was sufficiently close for the wrongdoing to be within the scope of his employment. Separately, SEB has an alternative claim in restitution against APBS for the sum of S$45,347,671.23 being moneys which had been paid into APBS’s account with Oversea-Chinese Banking Corporation Ltd on the instructions of Chia. APBS has denied all liability. It has counterclaimed against SEB in respect of the claim in restitution.

Appointment of PricewaterhouseCoopers and Drew & Napier LLC

5 The events leading to the appointment of PricewaterhouseCoopers (“PWC”) and Drew and Napier LLC (“D&N”) are gathered from, inter alia, the affidavits filed in support and opposition and the written submissions tendered. APBS is a wholly-owned subsidiary of Asia Pacific Breweries Limited (“APBL”). On or about 2 September 2003, officers from the Commercial Affairs Department of the Singapore Police Force (“CAD”) informed the senior officers of APBL that Chia had used forged documents to borrow very large sums of money in APBS’s name for his gambling debts incurred overseas. Funds from credit facilities obtained fraudulently in APBS’s name from the four banks were channelled into the SEB account and then into Chia’s bank accounts for his personal use. Chia was arrested on 2 September 2003 and charged two days later.

6 On 3 September 2003, APBS wrote to the banks for verification of the accounts opened in APBS’s name of which it had no prior knowledge. At the same time, APBS requested all account opening documents and bank statements in APBS’s name. The banks were also asked to immediately suspend operation of the unauthorised accounts until further notice.

7 Hypo wrote to APBS on 3 September 2003. In that letter, which was faxed to APBS the following day, APBS was informed of the term loan of US$30m borrowed in its name and was advised that the first repayment of the principal instalment of US$5m plus interest of US$465,520 was due on 25 September 2003.

8 Sumitomo also wrote to APBS on 4 September 2003 terminating with immediate effect a short term credit facility it had granted on 11 July 2001 to APBS. Sumitomo also demanded immediate repayment of the sum of S$10,022,891.78 by 5 September 2003. This notice was faxed to APBS in the late afternoon of 4 September 2003.

9 On 4 September 2003, APBS learnt that Chia had been charged. On the same day, the board of APBL appointed a Special Committee of directors (“the Special Committee”) to oversee the investigations and to take any necessary actions in relation to Chia’s fraud in order to protect the interests of APBS and APBL. The Special Committee appointed D&N and PWC as special accountant. As announced by APBL in MASNET, in the form of MASNET No 7 of 4 September 2003, PWC and D&N were “to undertake” the following matters:

(a) identify the nature, circumstances and extent of any unauthorised transactions;

(b) quantify the financial impact of such unauthorised transactions;

(c) assist the company in taking the necessary action to prevent such unauthorised transactions; and

(d) conduct a review of the system of internal control and procedures to prevent the occurrence of such unauthorised transactions in the future.

10 APBL announced 20 days later in MASNET No 28 of 24 September 2003 the completion of the review by PWC of significant cash transactions, and the findings were as follows:

The scope of [PWC]’s work included reviewing APBS’ accounting records, checking all material cash receipts and payments for the relevant period. Their work has revealed that unauthorised payments have been made from APBS’ banks accounts. The aggregate of all such unauthorised payments match the aggregate of payments into APBS’ bank accounts from the unauthorised accounts. All material cash balances of APBS have been accounted for.

11 At the same time, APBL announced that:

Claims against APBS have been asserted by banks with respect to the unauthorised transactions. The Company [APBL] has sought legal advice on these claims and has been advised that legal defences are available to APBS. APBS intends and has instructed its lawyers, [D&N], to contest these claims vigorously.

12 No engrossed final report was ever issued by PWC. The banks understandably wanted the PWC Draft Reports produced for inspection. No doubt the banks imagined the PWC Draft Reports to be particularly informative for a contemporaneous insight into what was discovered in the course of the investigations including systemic failure or weakness in internal controls, if any.

The claim to legal professional privilege

13 Mr Hri Kumar for APBS submitted that APBS could not be compelled to produce the PWC Draft Reports as these reports were subject to legal professional privilege which comprises legal advice privilege under the provisions of the Evidence Act (Cap 97, 1997 Rev Ed) (“the Act”) and common law litigation privilege.

14 APBS argued that D&N and PWC jointly conducted interviews and/or meetings with APBS’s employees and other witnesses and jointly worked on the drafts prepared by PWC before they were sent to the Special Committee. Material from the interviews was used for the PWC Draft Reports. A central plank of the APBS’s argument was that D&N and PWC were for all intents and purposes a single team working on the matter. The PWC Draft Reports were brought into existence together with D&N for the purpose of giving confidential legal advice to APBS and thus came within the ambit of legal advice privilege. Alternatively, the PWC Draft Reports were subject to litigation privilege as they came into existence for the dominant purpose of contemplated or anticipated litigation by the banks against APBS. APBS needed only to succeed on one ground to resist the banks’ application for production of these draft reports.

15 The banks disagreed with APBS’s claim that the PWC Draft Reports could contain “confidential communication” to the Special Committee. It was argued that the PWC Draft Reports would not contain any legal advice from D&N or confidential communications for obtaining such legal advice as the purpose of PWC’s work as accountants was investigative in nature. On the objective evidence before the court, the PWC Draft Reports were produced because of either APBS’s Reporting Procedure on Fraud which was akin or analogous to the internal report prepared as a matter of practice for “railway operation and safety purposes” as in Waugh v British Railways Board [1980] AC 521, or the fact situation in Price Waterhouse v BCCI Holdings (Luxembourg) SA [1992] BCLC 583 (“Price Waterhouse v BCCI”). Consequently, there was no relevant legal context (as per the Balabel v Air India [1988] Ch 317 test referred to in [18] below) in which the PWC Draft Reports could be protected by legal advice privilege. The same points were used to challenge the claim for litigation privilege. The PWC Draft Reports, it was submitted, were not made for the dominant purpose of use in, or in relation to litigation then existing, anticipated or contemplated.

16 The common issue in the banks’ applications for production for inspection of the PWC Draft Reports turned on the question of legal professional privilege. Ms Rebecca Chew for SEB led the principal arguments common to all the banks. Whilst counsel for the other banks aligned themselves with Ms Chew’s submissions, other points were also advanced to augment their respective cases.

Discussions and decision

Legal advice privilege

17 It is convenient to consider the issue of legal advice privilege first. Legal advice privilege in Singapore is basically governed by ss...