Hoban Steven Maurice Dixon and Another v Scanlon Graeme John and Others

• Jurisdiction: Singapore
• Judge: V K Rajah J
• Judgment Date: 30 March 2005
• Neutral Citation: [2005] SGHC 62
• Docket Number: Suit No 679 of 2003
• Date: 30 March 2005
• Published date: 01 April 2005
• Year: 2005
• Plaintiff Counsel: Suhaimi bin Lazim and Rohan Harith (Shook Lin and Bok)
• Citation: [2005] SGHC 62
• Defendant Counsel: Tito Shane Isaac and Sadique Marican (Tito Isaac and Co)
• Court: High Court (Singapore)
• Subject Matter: Court invited to determine pricing mechanism for purchase/sale of plaintiff company's shares in defendant company,Whether court having jurisdiction to grant relief under s 216(2) of the Companies Act where no finding of oppression made,Oppression,Valuation unfavourable to plaintiffs,Valuation of shares,Shares,Parties agreeing not to pursue issue of oppression in court,Section 216 Companies Act (Cap 50, 1994 Rev Ed),Expert appointed to value defendant company's shares,Companies,Whether grounds for court to enhance valuation of such shares existing

30 March 2005

V K Rajah J:

1 The first plaintiff is the former managing director of the third defendant, a company that he co-founded sometime in or about September 1996 (“the Company”). The second plaintiff is a company founded by the first plaintiff for the purpose of holding shares in the Company. As at 18 May 2004, the second plaintiff held 30% of the Company’s issued capital, ie, 642,000 shares out of an issued capital of 2,140,000 shares.

2 The Company and its subsidiaries (namely, PT Bulkpakindo, a company incorporated in Indonesia and Bulkpak Ltd, a private limited company incorporated in the United Kingdom) are involved in the production of custom-made flexible intermediate bulk containers (“FIBCs”). FIBCs are commonly utilised to transport a wide range of solids and semi-solids, including polymers, agrochemicals, minerals, foodstuff, pharmaceuticals, chemicals and building materials.

3 The first and second defendants are currently directors cum shareholders of the Company. The first defendant also happens to be the executive chairman of the Company. As at 18 May 2004, the first and second defendants and/or their nominees, collectively held 70% of the Company’s issued capital, ie, 1,498,000 shares out of an issued share capital of 2,140,000 shares.

4 In essence, the plaintiffs’ case against the first and second defendants is founded on a claim of minority oppression by the first and/or second defendants (“the liability issue”). The claim is brought under the umbrella of s 216 of the Companies Act (Cap 50, 1994 Rev Ed) (“s 216”). The plaintiffs charge the defendants with having systematically disregarded their rights and rely on a broad litany of purported misdemeanours on the part of the defendants. The defendants, in turn, deny that there is any basis to ground any claim(s) of oppression, discrimination or undue prejudice. Counter allegations have been hurled at the first plaintiff, portraying him as an “unprincipled opportunist”. It is as plain as a pikestaff from the affidavit evidence that the relationship between the parties is beyond repair.

The hearing

5 Prior to the actual commencement of the hearing, I met with counsel and enquired whether they seriously intended to pursue the liability issue or whether they would merely be dealing with an equitable exit mechanism for the parties from the Company. Upon taking clients’ instructions, counsel confirmed that, “the liability issue need no longer be ventilated. The sole issue remaining is the pricing mechanism for the purchase/sale of the second plaintiff’s share in the Company”. Counsel then requested for time to finalise the terms of reference pertaining to the appointment of an accounting expert to value the shares in the Company. It bears emphasis that as a consequence of this agreement, there was no determination by the court on the issue of whether a case for oppression had been made out by the plaintiffs.

The expert’s terms of reference

6 The parties subsequently reached an agreement on the precise terms of reference for the court-appointed valuer. From the list of nominees proposed by both parties, I appointed Mr Ong Yew Huat (“Mr Ong”), a senior partner of Ernst & Young, as the accounting expert for the purposes of valuing the Company’s shares. It also bears mention that Mr Ong was the preferred nominee of the plaintiffs. The salient terms of his appointment provided that:

(i) the valuation be carried out on the basis of a notional market value assuming the shares in the 3^rd Defendants (“the shares”) were freely transferable at the time of the market valuation.

…

(vii) The expert shall use such method as he deems appropriate to determine fair market value of the shares. The Court will fix the valuation date.

(viii) The expert shall be at liberty to decide proper procedures to receive evidence and documents from both parties.

(ix) The expert’s valuation and any decision on procedures leading up to valuation shall be final.

[emphasis added]

7 However, on six issues (all of which were relevant for the purposes of the valuation), the parties could not reach an agreement. They were:

(a) the valuation date to be applied;

(b) whether withholding tax should be taken into account in the valuation exercise;

(c) whether an ex gratia payment of $450,000 to the first defendant was appropriate;

(d) the plaintiffs’ claim for compensatory damages;

(e) whether the defendants’ shareholdings ought to be valued on a minority basis; and

(f) costs.

8 After considering the affidavit evidence, the witnesses, oral evidence and the parties’ submissions on these issues, I determined that:

a) … the parties proceed forthwith with the appointment of an expert in accordance with their agreement dated 1st June 2004. The terms of the agreement shall take into account that the valuation of the shares is on a pro-rata basis without any discount being made for a minority interest;

b) The court shall make a decision on whether there should be any further adjustment to the valuation of the 2nd plaintiffs shares in the 3^rd Defendant (“subject shares”) upon receipt of the expert’s report. Parties are at liberty to make farther [sic] submissions to the court within seven (7) days of their receipt of the expert’s report, requesting for an adjustment to the valuation of the subject shares to take into account any other non pecuniary material circumstance(s);

c) Upon being notified by the court of its final assessment of the value of the subject shares, the 1st and 2nd Defendants shall have fourteen (14) days to decide whether they intend to purchase the subject shares at the value assessed by the court:

i) in the event the 1st and 2nd Defendants agreed to purchase the subject shares within the period stipulated, they shall complete the transaction within two (2) months from the date of acceptance;

ii) in the event that the 1st and 2nd Defendants decide not to purchase the subject shares and the parties fail to agree on any other mechanism for the disposal of the subject shares within seven (7) days from the date the 1st and 2nd Defendants indicate their intention not to purchase same, either party may at any time thereafter apply to the court for the 3rd Defendant to be wound up;

d) For the purposes of his valuation, the expert shall not take into account the sum of $450,000 granted to the 1st Defendant vide a resolution dated 26th February 2003. The said resolution is hereby declared to be null and void;

e) There shall be no adjustment to the company’s accounts and/or valuation to take into account the 3rd Defendant’s agreement to pay for the withholding tax of the 1st Defendant in the sum of approximately $60,000. The said agreement shall stand;

f) The date of valuation of the subject shares by the expert, shall be the 7th of June 2004;

g) The court may, from time to time, make such other directions as may be appropriate for the valuation of the subject shares and/or for the implementation of the sale mechanism of the subject shares, pending as well as after the receipt of the expert’s report;

h) The issue of costs is reserved for further argument after the issues pertaining to the disposal of the subject shares are resolved;

i) Parties are at liberty to apply.

The parties have not taken issue with these orders/directions and there is no appeal in respect of any of them.

The expert’s report

9 Mr Ong finalised his report on 24 September 2004. After reviewing all the material circumstances, he concluded:

In arriving at the valuation of BPL, it is important to note that the Net Asset Value of BPL as at 31 May 2004 is in deficit, ie. negative US$23,867. However, this is after taking into account shareholders’ (shareholders of BPL) loans and directors’ loans of US$1,677,698 to PTB, a wholly owned subsidiary of BPL. If the shareholders and directors continue to expect these liabilities to be payable by PTB, the fair market value of 100% of the issued share capital of BPL, as at 7 June 2004 would be nil.

On the assumption that the shareholders and directors treat their loans to PTB of US$1,677,698 as equity for the purpose of this valuation, the fair market value of 100% issued share capital of BPL would be US$398,631.

10 Not surprisingly, the plaintiffs were dissatisfied with Mr Ong’s conclusions and invited me to review his findings and/or modify his conclusions. They strenuously sought to make out a case for the court to enhance the valuation. At the resumed hearing on 3 December 2004, Mr Suhaimi, counsel for the plaintiffs, invited the court to make...