Pacific Century Regional Developments Ltd v Estate of Seow Khoon Seng

• Jurisdiction: Singapore
• Judge: Karthigesu JA
• Judgment Date: 17 September 1997
• Neutral Citation: [1997] SGCA 42
• Date: 17 September 1997
• Subject Matter: Contractual terms,Objective appearance of agreement,Whether clause required revaluation of company's and subsidiaries' assets,Reasonable persons' interpretation of clause,Formulation of clause in commercial context,Effect of valuation clause,Court to ascertain mutual intention of parties,Construction of investment agreement,Whether shares to be valued to reflect accurate and current value,Contract
• Docket Number: Civil Appeal No 97 of 1996
• Published date: 19 September 2003
• Defendant Counsel: Koh Kok Wah and Tan Aye Cheng (Wendy Wong Koh & Suparto)
• Court: Court of Appeal (Singapore)
• Plaintiff Counsel: K Shanmugam and Edwin Tong (Allen & Gledhill)

(delivering the judgment of the court)

This appeal arose from a dispute over the construction of a term in an investment agreement. The agreement in question was made between the appellants and one Seow Khoon Seng (the deceased). The deceased was the founder of a company called Pioneer Die Casting Co Limited (PDCI). Pursuant to the agreement, the appellants acquired 3,510,000 shares of PDCI at $1.40 per share. One of the objectives of the agreement, as set out in cl 6.3, was to procure the listing of PDCI on the Stock Exchange of Singapore within three years from the date of the agreement.

Pursuant to cl 6.3.1 of the agreement, it was agreed that should this objective fail, the deceased would have the option to re-acquire the shares of PDCI. The re-acquisition of the shares was to take place in accordance with cl 6.3.2 of the agreement. Clause 6.3.2 sets out the procedure by which the shares were to be valued for the purposes of the re-acquisition. It is this clause which is central to the dispute.

Clause 6.3.2 of the agreement provides that:

The consideration for the transaction referred to in cl 6.3.1 shall be as follows:

(a) in the case of cl 6.3.1(a), the value of the Seow family shares shall be based on the NTA or PE, as selected by the vendor on the exercise date and the shares in the purchaser shall be based on the average of the closing prices of the five days immediately before the exercise date;

(b) in the case of 6.3.1(b) and (c), the Seow family shares and the purchaser`s shares shall be based on NTA or PE, whichever is the higher.

In this cl 6.3.2,

(a) `NTA` means the net tangible asset value of the company as at the end of the financial year immediately preceding the exercise date based on the audited financial statements of the company in accordance with generally accepted accounting principles and practices in Singapore as determined by the auditors of the company who shall decide as experts and not as arbitrators, and whose determination shall be final and conclusive.

(b) `PE` means six times the average earnings per share of the company based on the audited financial statements of the company for the three completed financial years of the company immediately preceding the exercise date prepared in accordance with generally accepted principles and practices in Singapore as determined by the auditors of the company who shall decide as experts and not arbitrators and whose determination shall be final and conclusive.

(c) `Exercise date` means the day (which must be a day within the option period) which the vendor serves his notice to exercise the option under cl 6.3.1.

As PDCI did not acquire a listing on the Stock Exchange of Singapore, the estate of the deceased decided to exercise the option to re-acquire the shares in accordance with the provisions of the agreement. According to the agreement, they had six months from 14 May 1995 to exercise the option.

In order to exercise the option, a valuation of the shares was required. On 27 September 1995, Mr Vincent Seow (Mr Seow) representing the respondents wrote to Mr Gerard Ee (Mr Ee) of Ernst & Young, who were the statutory auditors of PDCI, to request a valuation as follows:

Please provide a share valuation report of Pioneer Die Casting Industries Pte Ltd. The price per share is to be based on the net tangible asset value of the company as at 31 December 1994. The basis will be the audited accounts of the financial year ended 31 December 1994.

We trust that you will be able to give your valuation expeditiously in order that the shareholders of the company may exercise appropriate options that are open to them. Time is of the essence as the options must be exercised before the 13 November 1995.

Mr Ee replied promptly on behalf of Ernst & Young on 28 September 1995 as follows:

I refer to your faxed letter dated 27 September 1995.

In my opinion the net tangible asset value of Pioneer Die Casting Industries Pte Ltd as at 31 December 1994, based on audited accounts for the financial year ended 31 December 1994, is approximately $1.10 per share. [Emphasis added.]

Kindly note that the fixed assets should be revalued for proper valuation. It includes leasehold land and building which was last revalued based on professional valuation on 24 November 1981.

At that time, Mr Ee had not seen cl 6.3.2 yet. His valuation was purely based on the financial statements of the company for the year ending 31 December 1994, which had been approved and adopted at an annual general meeting of the company held on 26 June 1995, without any revaluation of the assets.

Upon reading the letter of 28 September 1995, Mr Seow was dissatisfied with the last paragraph of the letter as revaluation had not been stated in his letter nor in the investment agreement. Mr Seow then met personally with Mr Ee and brought his attention to cl 6.3.2. Mr Ee later issued another letter which was similar to the letter of 28 September 1995 except that the last paragraph had been removed. However, Mr Ee maintains that he expressly stated that the letter was not to be used in conjunction with cl 6.3.2 of the agreement.

On 10 November 1995 the respondents` solicitors gave notice of election by the respondents to purchase all of the 3,150,000 shares registered in the name of the respondents at $1.10 per share. The completion was to be within seven days, a period that had been suggested earlier by the appellants.

On 15 November 1995, the appellants wrote to the respondents` solicitors in response to the letter of 10 November 1995 and 28 September 1995 from Mr Ee. They expressed disapproval at the figure of $1.10 as that valuation had failed to take into account the relevant market value of the real estate properties of PDCI and its subsidiaries. Also, since cl 6.3.2 in the investment agreement had provided that the consideration be the higher of `NTA` or `PE`, they requested that the `PE` figure be determined by the auditors.

Accordingly, on 16 November 1995, the respondents` solicitors...