In a recent decision Peh Yeng Yok v Tembusu Systems Pte Ltd (formerly known  as  Tembusu Terminals Pte Ltd) and others [2016] SGHC 36, Judicial Commissioner Chua Lee Ming, sitting in the High Court, elaborated on the standard required to justify a search order (also known as an Anton Piller order). The Court emphasised in particular, that the onus was on the party seeking the search order to  show that  there is  a  real  possibility that the defendants will otherwise destroy documents that are relevant to the proceedings.

Shook Lin & Bok LLP (Joseph Tay and Claire Yeo) acted for the successful 2nd and 3rd Defendants in this case, and the Firm was successful in persuading the Court to set aside the search order earlier granted against them.

Facts

The case involves a minority oppression action brought by the Plaintiff, Peh Yeng Yok, against the 1st Defendant, Tembusu Systems Pte Ltd (the “Company”), and its directors, Andras Kristof and Jarrod Luo, who were respectively the 2nd and 3rd Defendants. The Plaintiff’s claim was that the directors have disregarded the corporate governance structure of the Company in a manner unfairly prejudicial to him as a shareholder, in breaching their duties as directors in, amongst other things, making unauthorised payments which amount to misappropriations and refusing to provide information on these transactions. Another key party involved in the dispute was Peh Sik Wee (“PSW”), the Plaintiff’s son, and a former director of the Company.

The Plaintiff initially applied for and unilaterally obtained the search order against the Defendants. But this was challenged by the three Defendants, who were able to persuade the Court to set aside the search order earlier obtained.

The law on search orders

The purpose of a search order is generally to preserve evidence for trial (although it may also be used to prevent a defendant from destroying the plaintiff’s property or transferring it to third parties). However, the Court in this case reiterated that a search order was a draconian measure to be granted only in the interest of justice.

Accordingly, a plaintiff who sought a search order had to show that:

  1. he had an extremely strong initial case;
  2. the damage that would be suffered if a search order was not granted would be very serious;
  3. there was a real possibility that the defendant(s) would destroy relevant documents; and
  4. the effect of the search order would not be out of proportion to the legitimate object of the order.

All of the above requirements had to be satisfied at the same time before the Court will grant the search order.

A party who seeks to challenge a search order initially granted on a unilateral basis need only show that one or more of the above requirements had not been established. Alternatively, the party challenging could also succeed if he shows that the plaintiff when making the initial unilateral application had failed to make full and frank disclosure of material facts.

A court hearing an application to set aside a search order could also take into account events subsequent to the date the search order was unilaterally sought.

The decision

  1. In coming to the decision as to whether the search order ought to be set aside in this case, Judicial Commissioner Chua Lee Meng affirmed a previous ruling in BP Singapore Pte Ltd v Quek Chin Thean and others [2011] 2 SLR 541 (“BP Singapore”) that surreptitious behaviour alone would not compel the conclusion that a defendant will destroy evidence in contempt of court to frustrate a claim brought by the plaintiff. The Judicial Commissioner held that it was not sufficient to allege that nefarious conduct or that the defendant was untrustworthy. Instead, the question to be asked in every case was whether a defendant’s conduct or untrustworthy nature showed a propensity to destroy relevant evidence.

The Judicial Commissioner went on to give examples from previous case law as to when this element is considered to have been met:

  1. where the defendant had destroyed company data in a laptop computer (as happened in the case of Asian Corporate Services (SEA) Pte Ltd v Eastwest Management Ltd (Singapore Branch) [2006] 1 SLR(R) 901 (“Asian Corporate Services”));
  2. where the defendant deleted documents (as happened in the BP Singapore case).

In coming to his conclusion that the evidence in the present case did not compel the conclusion that the Defendants had the propensity to destroy evidence, the Judicial Commissioner also drew a parallel with the stringent approach adopted by the Court of Appeal in the context of Mareva injunctions. In the case of Bouvier, Yves Charles Edgar and another v Accent Delight International Ltd and another and another appeal [2015] 5 SLR 558, the Singapore Court of Appeal ruled that an allegation of dishonesty was no substitute for the need to examine whether there was a real risk of dissipation of assets, and that it was incumbent on a court to examine:1

  1. the precise nature of the dishonesty; and
  2. the strength of the supporting evidence, bearing in mind that proceedings at the time were only at an interlocutory stage.

Similarly, in the present case, the Judicial Commissioner took into account:

  1. the specific nature of the Defendants’ conduct (to determine if it showed a propensity on their part to destroy relevant evidence); and
  2. the overall strength of evidence adduced before the court.

The specific allegations raised by the Plaintiffs against the 2nd and 3rd Defendants were as follows:

  1. that the 2nd and 3rd Defendants had secretly made multiple transfers of less than $10,000 each from the Company’s CIMB account to its DBS account, so that PSW’s signature would not be required;
  2. that the 2nd and 3rd Defendants had wrongfully removed PSW as a signatory for the DBS account without a Board resolution;
  3. that the 2nd  and 3rd  Defendants had stonewalled PSW’s requests for information and were willing to pay $200,000 for his silence, which the Plaintiff claims meant that they had to be trying to hide the documents and would be likely to destroy them before discovery;
  4. that it was highly likely that the 2nd and 3rd Defendants were misappropriating the Company’s funds, exchanging them for crypto-currency, diverting these to various electronic depositories and then deleting records so that their actions would be untraceable.

The Judicial Commissioner held that the allegations (3) and (4) were highly speculative and based on nothing more than conjecture and suspicion. In respect of allegations (1) and (2), while it was not disputed that the 2nd and 3rd Defendants had made transfers between the Company’s bank accounts and had also removed PSW as a signatory without a Board resolution, nevertheless the Judicial Commissioner took the view that such behaviour only showed that the Defendants had disagreements with PSW and were uncooperative1. In stark contrast to the cases in Asian Corporate Services and BP Singapore, there was no material to show that the 2nd and 3rd Defendants had the propensity to destroy evidence.

Conclusion

In the circumstances, the Judicial Commissioner held that the circumstances did not justify the issuance of a search order, and duly set aside the search order.

This decision serves as a reminder that a search order is not a remedy which will be readily granted by the Courts, and of the principles that would guide a judge when deciding whether to grant the remedy.