Abhilash s/o Kunchian Krishnan v Yeo Hock Huat and another

• Jurisdiction: Singapore
• Judge: Valerie Thean J
• Judgment Date: 30 April 2018
• Neutral Citation: [2018] SGHC 107
• Court: High Court (Singapore)
• Docket Number: Suit No 917 of 2016
• Published date: 01 March 2019
• Year: 2018
• Hearing Date: 14 February 2018,23 October 2017,19 October 2017,03 November 2017,02 November 2017,30 October 2017,31 October 2017,01 November 2017,20 October 2017
• Plaintiff Counsel: Liew Teck Huat, Christopher Yee, Kanapathi Pillai Nirumalan, Anand George and Sean Lee (Niru & Co LLC)
• Defendant Counsel: Suresh Divyanathan, Koh Hui Lynn Kristine and Chow Chao Ping, Clarissa (Oon & Bazul LLP)
• Subject Matter: Companies,Oppression,Minority Shareholders,Share valuation
• Citation: [2018] SGHC 107

Valerie Thean J: Introduction

The plaintiff, Mr Abhilash s/o Kunchian Krishnan (“Mr Abhilash”), is a minority shareholder of the second defendant, a company incorporated in Singapore called JCS-Vanetec Pte Ltd (“JCS-Vanetec”). Mr Abhilash brought this action against JCS-Vanetec and its majority shareholder, Mr Yeo Hock Huat (“Mr Yeo”), alleging that Mr Yeo had conducted the affairs of JCS-Vanetec in a manner oppressive to Mr Abhilash and in disregard of his interests as a shareholder within the meaning of s 216(1)(a) of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”). The principal remedy that Mr Abhilash sought was a court order for Mr Yeo to purchase his shares in JCS-Vanetec on a fair market valuation.¹

On the first day of trial, the parties came to an agreement that Mr Yeo would purchase Mr Abhilash’s shares, and that there was therefore no need for a trial on Mr Yeo’s liability for oppression under s 216(1)(a) of the Act. As expert evidence had been adduced by both sides on the value of JCS-Vanetec, the trial needed to proceed only for the purpose of testing the expert evidence to determine how much JCS-Vanetec was worth, and consequently to determine the price which Mr Yeo should be ordered to pay for Mr Abilash’s shares. The parties therefore recorded a consent order to this effect and the hearing proceeded on the basis of the consent order.

On 14 February 2018, after giving the parties brief reasons, I accepted the defendants’ case that JCS-Vanetec should be valued on a net assets basis, and that the valuation of the defendants’ expert, Mr Thio Khiaw Ping (“Mr Thio”), should be accepted. I therefore ordered Mr Yeo to purchase Mr Abhilash’s 76,500 shares in JCS-Vanetec, being 13.91% of the company’s total shareholding,² at the price of $15,242.83. Mr Abhilash now appeals against my decision, and I therefore set out my grounds of decision in full.

Background

Mr Abhilash is in the business of manufacturing machines for the aerospace industry.³ He ran his business through two companies, one of which was called Vanilla Aviation Pte Ltd (“Vanilla Aviation”). Near the end of 2003, he met Mr Yeo, who was, at that time, running a successful business manufacturing and selling industrial washing machines to international clients.⁴ Mr Yeo operated his business through a number of companies with the “JCS” namesake, one of which was called JCS-Echigo Pte Ltd (“JCS-Echigo”). With the hope of expanding his business into manufacturing for the aerospace industry, Mr Yeo formed a business partnership with Mr Abhilash for that purpose and set up a company called JCS-Vanilla Pte Ltd. The company was later renamed JCS-Vanetec, who is the second defendant in this action. For convenience, I shall refer to it by its existing name.

At JCS-Vanetec’s inception, its 10,000 shares were held in the proportion of 50.99%, 0.01%, and 49% by Mr Yeo, Ms Elise Hong (who was an officer of JCS-Echigo), and Mr Abhilash through Vanilla Aviation respectively. JCS-Vanetec later issued more shares and the proportions of its shareholding also changed as a result. At present, JCS-Vanetec has issued 550,000 shares. Mr Yeo holds 433,500 shares, which is 78.8% of JCS-Vanetec’s shareholding. One of Mr Yeo’s companies, JCS Group Co Ltd (“JCS Group”), holds 40,000 shares, which is 7.3%. Mr Abhilash holds 76,500 shares, which is 13.9%.⁵

The reason Mr Abhilash’s shareholding was reduced from 49% to 13.9% was a contested issue in the context of the question of whether Mr Yeo had acted oppressively as a majority shareholder towards Mr Abhilash’s minority interest. Mr Abhilash had alleged that Mr Yeo had diluted his shares as part of his attempt to cut him out of the company,⁶ whereas Mr Yeo had contended that he and JCS Group had been issued shares in return for capital they had injected into JCS-Vanetec to keep its business afloat.⁷ It was not necessary for me to resolve this dispute because Mr Yeo’s liability for minority oppression was no longer in issue. Under the consent order, there was no dispute that Mr Abhilash was entitled to 13.9% of JCS-Vanetec’s shares, which is 76,500 shares, and that my task was to determine the value of those shares.⁸

Consent order and issues to be determined

Prior to trial, Mr Yeo made an offer to purchase Mr Abhilash’s shares at a fair market value to be determined by the court. On the first day of trial, Mr Abhilash decided that he would accept Mr Yeo’s offer. They agreed that this would be effected by an order for Mr Yeo to buy Mr Abhilash’s shares at a price determined by the court, and so the parties recorded a consent order to this effect, as I have mentioned. Before proceeding further, it is useful at this juncture to clarify the jurisdiction upon which I have made the buy-out order in this case and its relationship with the parties’ consent order.

In the present case, the form and basis of the parties’ consent order takes direct reference from the Court of Appeal’s decision in Hoban Stevens Maurice Dixon v Scanlon Graeme John and others [2007] 2 SLR(R) 770 (“Hoban (CA)”). Similar to the parties in the present case, the parties in Hoban (CA) indicated that they did not desire for the court to determine the defendants’ liability for minority oppression. They therefore agreed, by way a consent order, the terms of reference for an expert to determine the fair market value of the plaintiffs’ shares, which the defendants had agreed to purchase. Accordingly, the trial judge, V K Rajah J (as he then was), appointed an expert valuer to value the defendant company’s shares. In the event, the expert valuer valued the company at nil. The plaintiffs then attempted to persuade the Rajah J to adjust that valuation in favour of the plaintiffs in exercise of his power to make a buy-out order under s 216(2)(d) of the Act. Rajah J declined to exercise that power, on the basis that on a proper construction of s 216(2), that power was enlivened only upon a determination the defendant was liable for minority oppression under s 216(1): Hoban Steven Maurice Dixon and another v Scanlon Graeme John and others [2005] 2 SLR(R) 632 (“Hoban (HC) (No 1)”) at [12] and [17].

The plaintiffs appealed, and the Court of Appeal, without issuing grounds, held that the issue of the defendants’ liability for minority oppression could no longer be litigated, and that the expert’s valuation was final: Hoban (CA) at [12]. The Court observed, however, that Rajah J had failed to exercise the discretion provided specifically in the parties’ consent order to adjust the valuation after hearing evidence on what the order had referred to as “non-pecuniary material circumstances”: Hoban (CA) at [12]. In the circumstances, the Court remitted the matter to Rajah J for him to consider exercising that discretionary power. Rajah J then convened a new trial for that purpose and, having examined the evidence, concluded that there still was no basis to vary the nil valuation: Hoban Steven Maurice Dixon v Scanlon Graeme John [2006] SGHC 136 (“Hoban (HC) (No 2)”) at [15].

From this decision, the plaintiffs brought the appeal in Hoban (CA). The Court of Appeal in Hoban (CA) allowed the appeal and set aside the nil valuation. This was because on a proper interpretation of the consent order, the parties had contemplated an actual purchase of shares, and a nil valuation had made that impossible. This in turn rendered the consent order inoperable and the valuation liable to be set aside: Hoban (CA) at [42] and [44] per Chan Sek Keong CJ.

The aspect of the Hoban decisions which is key and relevant to the present case is that the Court of Appeal when dealing with Hoban (HC) (No 1) and again when considering Hoban (HC) (No 2) considered it entirely appropriate for the parties to argue and the trial judge to determine the value at which the plaintiffs’ shares would be bought by the defendants even though no finding of liability for minority oppression had been made. Indeed, much of the court’s reasoning in Hoban (CA) was built on the premise that parties are entitled to compromise a s 216 action by agreeing that one party will buy out the other party’s shares, and by proceeding to trial on only the issue of the valuation of those shares. Had the court not accepted the legitimacy of this approach, it would not have held that liability for minority oppression by virtue of the parties’ consent order could no longer be litigated, and it would not have analysed the parties’ intentions behind the consent order in question to determine whether the order had become inoperable by reason of the Rajah J’s nil valuation of the shares in question: Hoban (CA) at [12] and [35].

This approach is permissible for unfair prejudice claims in England as well. In re A Company (No 003324 of 1979) [1981] 1 WLR 1059 (“In re A Company”), the plaintiff sought an order to compel the defendants to purchase his minority shareholding on the ground that they had conducted the company’s affairs in an oppressive way within the meaning of s 210 of the Companies Act 1948 (c 38) (UK), which is in pari materia with s 216 of our Act. In the event, the parties settled their differences and the petition was compromised. They then sought a determination on whether a consent order in Tomlin form setting out a scheme for purchase of the plaintiff’s shares was appropriate when a s 210 action was compromised. The English High Court held that it was appropriate. The minority oppression action in England has since become the action for unfair prejudice, but In re A Company is still cited for the proposition that such an action may be so compromised and the compromised terms will be given effect by the court: see Sir David Foskett (gen ed), Foskett on Compromise (Sweet & Maxwell, 8th Ed, 2015) at para 23-12.

It follows from this analysis that the basis of my jurisdiction, to order Mr Yeo to buy Mr Abhilash’s shares at the price I have determined, is the parties’ consent...