Success Elegant Trading Limited v La Dolce Vita Fine Dining Company Limited and others and another appeal

• Jurisdiction: Singapore
• Judge: Andrew Ang SJ
• Judgment Date: 15 August 2016
• Neutral Citation: [2016] SGHC 159
• Citation: [2016] SGHC 159
• Docket Number: Originating Summons No 305 of 2015 (Registrar’s Appeals Nos 73 and 88 of 2016); Originating Summons No 307 of 2015 (Registrar’s Appeals Nos 72 and 89 of 2016)
• Published date: 25 August 2016
• Hearing Date: 16 March 2016,05 July 2016
• Plaintiff Counsel: Edmund Kronenburg, Grace Loke and Jeslyn Tan (Braddell Brothers LLP)
• Date: 15 August 2016
• Defendant Counsel: Chua Sui Tong and Daniel Chan (WongPartnership LLP),Harpreet Singh, S.C., Paul Sandosham, Tan Mingfen, Jerald Foo and Elsa Goh (Cavenagh Law LLP),Tan Xeauwei and Benjamin Koh Zhen-Xi (Allen & Gledhill LLP)
• Court: High Court (Singapore)
• Subject Matter: Disclosure of documents,Civil Procedure

Andrew Ang SJ: Introduction

These were appeals by Success Elegant Trading Limited (“SETL”) against the decision of an assistant registrar (“the AR”) ordering pre-action discovery against two banks under O 24 r 6(5) of the Rules of Court (Cap 322, R 5, 2006 Rev Ed). In Originating Summonses Nos 305 of 2015 (“OS 305”) and 307 of 2015 (“OS 307”), the plaintiffs applied for discovery of bank documents pertaining to the bank accounts of SETL (“the second defendant”) with Deutsche Bank Aktiengesellschaft (“DB”) and Credit Suisse AG (“CS”), respectively. DB and CS were the first defendants in OS 305 and OS 307, respectively.

After hearing the parties, the AR ordered disclosure of the following documents within CS’s and DB’s possession, custody or power relating to any account held in the name of or beneficially owned by Zhang Lan (“Mdm Zhang”) and/or SETL and/or any alias known to CS and DB: the account opening forms and other related documents submitted for the purpose of opening the aforesaid accounts; bank statements in respect of those accounts setting out all transfers into and/or from the accounts from and including 13 December 2013 to the date of the order; and remittance slips, payment instructions and SWIFT instructions relating to any transfers above.

In addition, the AR ordered that the documents disclosed to the plaintiffs by DB and CS were to be used solely for the purpose of following and tracing the money, and not for any other purpose.

At the conclusion of the hearing before me, I dismissed the appeals and affirmed the above order. I now provide detailed grounds of decision.

Background facts The parties

The first and second plaintiffs (“the Plaintiffs”) were limited liability companies incorporated in the Cayman Islands.¹ They were majority owned by a private equity group, the CVC Group (“CVC”), which consisted of CVC Capital Partners SICAV-FIS S A and its subsidiaries. The second plaintiff owned 82.7% of La Dolce Vita Fine Dining Holdings Limited (“EquityCo”). EquityCo, which was itself a Cayman Islands special purpose vehicle, wholly owned the first plaintiff.

Mdm Zhang was an individual who, although not a party to these proceedings, featured prominently. She was registered as a citizen and resident of St Kitts and Nevis but habitually resided in the People’s Republic of China (“PRC”). At the material time, Mdm Zhang wholly owned two British Virgin Island companies, Grand Lan Holdings Group (BVI) Limited (“Founder Holdco”) and South Beauty Development Limited (“Management Holdco”). I will refer to Mdm Zhang and these companies collectively as “the Sellers”.

SETL was a British Virgin Islands company incorporated on 2 January 2014. The parties were in disagreement over the beneficial ownership of SETL. The Plaintiffs took the position that Mdm Zhang owned and continued, up to the time of the hearing, to own SETL beneficially. SETL, on the other hand, took the position that Mdm Zhang no longer had an interest in SETL after 4 June 2014, which was when she transferred the sole share in SETL to Asiatrust Limited (“Asiatrust”).²

DB and CS were foreign companies registered in Singapore as carrying on activities as the Domestic Banking Units of Wholesale Banks in Singapore. It was not disputed that SETL had accounts with both DB and CS.

The acquisition

Through a series of transactions from late December 2013 to January 2014, the Plaintiffs acquired shares in a food and beverage business beneficially owned by Mdm Zhang. Certain private equity funds advised by CVC purchased for a sum of US$286,850,887 the equivalent of 82.7% of the issued shares in South Beauty Investment Company Limited (“the Company”) from the Sellers.³ The Company, incorporated in the Cayman Islands, was a holding company of a group of subsidiary companies that owned a well-known chain of restaurants operating in the PRC (“South Beauty Business”).⁴

The acquisition was carried out in two stages. In the first stage, the first plaintiff purchased all the shares of the Company from Founder Holdco and Management Holdco for a consideration of US$235,066,678. EquityCo thus owned, through the first plaintiff, 100% of the Company. In the second stage, the second plaintiff (who held 69.2% of EquityCo prior to the acquisition) purchased 13.5% of EquityCo from Mdm Zhang (who prior to the acquisition held the remaining shares in EquityCo through nominees) for a consideration of US$51,784,209.⁵ The second plaintiff thus held 82.7% of EquityCo, indirectly holding 82.7% of the Company. The first and second stages of the acquisition were governed by a Share Purchasing Agreement dated 9 December 2013 and a Share Sale and Purchase Agreement dated 13 December 2013, respectively.

Simplified for our present purposes, the valuation formula for the Company was based on a multiple of 13 times the Company’s estimated 2013 consolidated net profit after tax, which in turn was based on the projected growth rate of the South Beauty business in 2013.⁶ The bulk of the purchase price was eventually paid into Mdm Zhang’s bank account (“the HK Account”) with Bank J Safra Sarasin, Hong Kong Branch (“Bank Sarasin”).

Allegations by the Plaintiffs of manipulation

According to the Plaintiffs, Mdm Zhang had represented to CVC at a number of face to face meetings prior to the acquisition that, inter alia, the South Beauty Business “was a thriving and successful brand, and that it was resistant to the economic and consumption slow-down that was occurring in the PRC during 2013 and beyond”.⁷ This was in addition to the express indemnities and warranties in the acquisition agreements. The Plaintiffs also averred that the oral representations complemented the information that CVC received from the Company on behalf of Mdm Zhang and that this induced them into recommending the acquisition.

The Plaintiffs alleged that after the acquisition was completed, they discovered manipulation of the Company’s accounting and financial records for the year 2013. This manipulation led to a higher (and false) valuation that induced the Plaintiffs to think that the Company was more profitable than it actually was and to buy into the Company at a price that was grossly and artificially inflated. The Plaintiffs claimed that Mdm Zhang had, amongst others, (a) artificially inflated customer traffic, sales and revenue figures by fictitious booking of diners for expensive meals; and (b) artificially inflated sales and revenue figures by the purchase of a large number of diners’ prepaid cards and gifting products.

Commencement of arbitration

The acquisition agreements were governed by the laws of Hong Kong and contained an arbitration agreement by which parties agreed to resolve claims arising out of or in connection with the agreements by arbitration in the China International Economic and Trade Arbitration Commission (“CIETAC”).⁸

Each of the Plaintiffs had commenced arbitration proceedings against the Sellers on 5 March 2015 (“the CIETAC arbitration”). In brief, the claims in the respective Requests for Arbitration pertained to what the Plaintiffs claimed was fraudulent manipulation of the accounting information of the Company, which information was relied on by the Plaintiffs when deciding whether or not to proceed with the acquisition. The Plaintiffs also asserted that the Sellers had breached various warranties in the agreements and made fraudulent misrepresentations in connection with those agreements. The Plaintiffs sought rescission of the acquisition agreements as well as recovery of the monies paid pursuant to those agreements. In the alternative, they prayed for damages caused by Mdm Zhang’s fraudulent misrepresentation.

The freezing orders in Hong Kong and Singapore

Following an ex-parte hearing on 26 February 2015, the High Court of the Hong Kong Special Administrative Region Court of First Instance (“the HK High Court”) granted the Plaintiffs the following orders against Mdm Zhang and Founder Holdco: Injunctions restraining them from disposing of their assets worldwide up to the sums of US$51,784,209 and US$235,066,678. These injunctions were granted in support of arbitration proceedings to be commenced in CIETAC. As mentioned above, the arbitration proceedings were commenced shortly after, on 5 March 2015. Disclosure of information requiring them to disclose all assets, worldwide, in excess of an individual value of HK$500,000. Disclosure of information against Bank Sarasin in respect of the HK Account. Evidence preservation orders.⁹

On 2 March 2015, three days before the commencement of the CIETAC arbitration, the Plaintiffs obtained orders in Singapore prohibiting Mdm Zhang from disposing of or dealing with or diminishing the value of her assets in Singapore whether in her own name or not and whether solely or jointly owned, up to the sums of US$235,066,678 and US$51,784,209 (“the Singapore Injunctions”). Like the freezing orders obtained in Hong Kong, these orders were granted on an ex parte basis. The Singapore Injunctions continued to remain in place as Mdm Zhang had not applied for these orders to be set aside.

Various banks in Singapore were then notified of the Singapore Injunctions. The Plaintiffs, believing that SETL was owned by Mdm Zhang and that SETL had an account with CS (“the CS Account”), sought confirmation of the same from CS on 9 March 2015. On 12 March 2015, solicitors for CS confirmed that steps had been taken to comply with the Singapore Injunctions.¹⁰ On 14 March 2015, the Plaintiffs’ solicitors were notified by solicitors for DB that SETL had an account with DB (“the DB Account”) and that DB believed that the account was subject to the Singapore Injunctions. Additionally, DB informed the Plaintiffs that measures had been taken to ensure compliance with the Singapore Injunctions.¹¹

Documents provided by Bank Sarasin

Pursuant to the disclosure orders made by the HK High...