Case Update: La Dolce Vita Fine Dining Co Ltd v Deutsche Bank AG [2016] SGHC 3 – SGHC orders pre-action discovery against banks to disclose customer account information

Significance: Singapore High Court orders banks to disclose customer account information to plaintiffs in respect of the plaintiffs’ claims against the banks’ customer in an application for pre-action discovery under O 24 r 6(5) and/or the Court’s inherent jurisdiction (i.e. a Norwich Pharmacal order).

Brief facts: the plaintiffs applied to the Court to obtain discovery of bank account information of a party (the “Counterparty”) whom the plaintiffs have commenced arbitration in China (the China International Economic and Trade Arbitration Commission (“CIETAC”)) for (inter alia) fraudulent misrepresentation from two banks, Deutsche Bank and Credit Suisse (the “Respondent Banks”). The plaintiffs claimed on the breach of, and sought the rescission of, a Sale and Purchase Agreement and associated agreements due to the Counterparty’s (and her related entities’) fraudulent misrepresentation.

Requirements for obtaining an order for pre-action discovery pursuant O 24 r 6(5) of the Rules of Court (“ROC”) and/or the inherent jurisdiction of the Court

The Court has the jurisdiction to order the discovery of documentary samples from non-parties under O 24 r 6(5) along with a Norwich Pharmacal order which may be made under the Court’s inherent jurisdiction: UMCI Ltd v Tokio Marine & Fire Insurance Co (Singapore) Pte Ltd and others [2006] 4 SLR(R) 95, per Sundaresh Menon JC (as he then was) at [91].

The principles in granting a Norwich Pharmacal order are (Dorsey James Michael v World Sport Group Pte Ltd [2014] 2 SLR 208):-

(1) the person possessing the information sought must have been involved in the wrongdoing. This presupposes some degree of actual involvement, even if the involvement is completely innocent;

(2) a real interest in suing the source of information; ordinarily, the claimant must be able to show a reasonable prima facie case of wrongdoing against the person(s) whom
information/identity is sought of (not from);

(3) the information sought must be shown to be necessary “for the purposes of the claimant asserting his legal rights”. Whether there exist an alternative and more appropriate method to obtain the information sought. In addition, there is the consideration of proportionality, where the court always maintains a residual discretion as to whether the order should be made in all the circumstance.

The Court held that the Counterparty had transferred her assets from a Hong Kong bank account to her accounts in the Respondent Banks. This was allegedly for the purpose of putting her money out of reach of the plaintiffs. Thus, the Court held that the Respondent Banks had become involved in the Counterparty’s wrongdoing, even if it was completely innocent: at [42], [45].

The Court observed that a Norwich Pharmacal order may be made under the Court’s equitable jurisdiction to compel non-parties to provide documents to assist with the applicant’s tracing claim where there is a prima facie case of fraud. These orders have come to be known as Banker Trust orders (from the case of Bankers Trust Co v Shapira [1980] 1 WLR 1274): at [46].

The Counterparty’s subsidiary company however argued that the plaintiffs did not have a proprietary claim and so were not entitled to seek orders to assist in a tracing claim. The plaintiffs’ solicitors countered by arguing that all the plaintiffs had to show is that there is an arguable case that the SPA and associated agreements may be rescinded due to the sellers’ (including the Counterparty’s) fraudulent misrepresentation.

The Court held that it is not a requirement that the plaintiff must have sufficient information to establish a tracing claim before establishing an entitlement to relief. What is more important is that “there should be sufficiently cogent evidence of wrongdoing”: [54].

The standard of proof which an applicant must show before obtaining a Norwich Pharmacal order/Bankers Trust order is that there is an arguable or prima facie case of fraud or some wrongdoing. The applicant does not have to prove that the actual wrongdoing was committed at the time of the application: [57].

On the facts, the Court found a prima facie and/or an arguable case of fraudulent misrepresentation on behalf of the Counterparty in respect of the 2013 and 2014 accounts of the company which may entitle the plaintiffs to rescind the SPA and associated contracts and have a proprietary claim against the Counterparty. Therefore, the threshold standard of proof required for a Norwich Pharmacal/Banker Trusts order had been met: at [59].

On the issue of necessity, the Court held that without the court’s assistance, the plaintiffs would not know or would not know any information as to what happened to the funds. It is clear that the documents sought are necessary for the plaintiffs to trace the funds: [71].

Likely prospect of subsequent proceedings being held in Singapore

The Court then addressed the argument that pre-action discovery should not be ordered in this case as there was no prospect of subsequent proceedings being held in Singapore.

In this regard, the Court of Appeal in Dorsey James Michael v World Sport Group Pte Ltd [2014] 2 SLR 208 was of the view that an applicant had to adduce some credible evidence of a Singapore nexus to the alleged third party wrongdoing.

The Court held that the existence of bank accounts in Singapore coupled with the evidence and inferences that monies were transferred to the Counterparty’s account in the Respondent Banks led to a likely prospect that subsequent proceedings would be commenced in Singapore if the monies are still in the Singapore bank accounts or have been transferred to other bank accounts in Singapore: at [76].

In any case, the Court held that under its inherent jurisdiction, “the touchstone for invoking the court’s inherent jurisdiction is necessity” and specifically, it is the “necessity to prevent injustice or abuse of the process of the court” (Wellmix Organics (International) Ptd Ltd v Lau Yu Man [2006] 2 SLR(R) 117 at [81] and UMCI Ltd v Tokio Marine & Fire Insurance Co (Singapore) Pte Ltd and others [2006] 4 SLR(R) 95, per Sundaresh Menon JC (as he then was) at [92]): at [81].

The Court held that the plaintiffs required the discovery orders to trace and to find out what happened to the funds: at [83]. Therefore, the Court held that it should grant the discovery orders sought by the plaintiffs under O 24 r 6(5) and/or the Court’s inherent jurisdiction: at [84].

The Banking Act and Part IV of the Evidence Act

While the Respondent Banks are subject to the duty of banking secrecy under s 47 of the Banking Act, disclosure of documents by banks is permitted in the circumstances stated in the Third Schedule of the Banking Act. One of the situations where disclosure is permitted is under paragraph 7 of the Third Schedule where disclosure is necessary to comply with an order of the Supreme Court or Judge thereof pursuant to the powers under
Part IV of the Evidence Act: at [85].

The application for discovery of documents from the Respondent Banks was made pursuant to s 175 of the Evidence Act. The Court observed that s 175 of the Evidence Act by itself does not give any independent, substantive right to the discovery of documents. It relates only to how evidence is to be provided by the banks after the Court decides in an independent legal proceedings that the order for discover against the bank is warranted. Part IV of the Evidence Act has no bearing on the logical prior question of whether discovery should be ordered in the first place: at [91].

As the plaintiffs are parties to the CIETAC arbitration and an arbitration falls within the definition of legal proceedings (s 170 of the Evidence Act), the Court held that the plaintiffs are parties to separate and independent legal proceedings for the purposes of s 175 of the Act: at [96].

Whether the Court can order discovery in aid of foreign-seated arbitration?

The Counterparty’s company submitted that under the International Arbitration Act (“IAA”) and the Model Law, the Court has no power to grant discovery/ Norwich Pharmacal/Bankers Trust orders to assist international arbitrations whether seated in Singapore or abroad.

The Court held that as the orders sought in these applications are against non-parties to the CIETAC arbitration, i.e. the Respondent Banks, the Court’s power to grant the relief sought in these applications is not affected by Article 5 of the Model Law and the IAA. It is also not material whether the CIETAC arbitration is a foreign-seated arbitration: at [106].

It should be noted that the decision is likely to be appealed against. Thus there may be further developments on this case.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.