Kiri Industries Ltd v Senda International Capital Ltd and another

• Jurisdiction: Singapore
• Court: International Commercial Court (Singapore)
• Judge: Kannan Ramesh J,Roger Giles IJ,Anselmo Reyes IJ
• Judgment Date: 21 December 2020
• Neutral Citation: [2020] SGHC(I) 27
• Citation: [2020] SGHC(I) 27
• Published date: 23 December 2020
• Docket Number: Suit No 4 of 2017
• Subject Matter: Valuation of shares,Minority shareholders,Measure of damages,Discount for lack of marketability,Shares,Hearsay,Valuation date,Oppression,Wrotham Park damages,Weight of evidence,Buy-out order,Admissibility of evidence,Evidence,Companies,Damages,General and specific hearsay
• Date: 21 December 2020
• Plaintiff Counsel: Dinesh Dhillon, Lim Dao Kai, Margaret Joan Ling, Teh Shi Ying, Han Jiajun and Dhivya Naidu (Allen & Gledhill LLP)
• Hearing Date: 03 April 2020,28 February 2020,02 March 2020,31 March 2020,27 February 2020,06 April 2020,26 February 2020,01 July 2020,01 April 2020,30 June 2020,02 April 2020,03 July 2020
• Defendant Counsel: Toh Kian Sing SC, Cheng Wai Yuen, Mark, Chew Xiang, Soh Yu Xian, Priscilla, Lim Wee Teck, Darren and Yu Qianqian (Rajah & Tann Singapore LLP),See Chern Yang, Teng Po Yew and Audie Wong Cheng Siew (Drew & Napier LLC)

Kannan Ramesh J (delivering the judgment of the court): Introduction

The facts of the present dispute have been set out in DyStar Global Holdings (Singapore) Pte Ltd v Kiri Industries and others and another suit [2018] 5 SLR 1 (the “Main Judgment”), and we do not propose to repeat them here. Unless otherwise indicated, we adopt the abbreviations used in the Main Judgment. We briefly detail the procedural history of the present suit and the key findings in the various judgments that have been delivered.

In the Main Judgment, we held that Senda International Capital Ltd (“Senda”) had engaged in instances of oppressive conduct against Kiri Industries Ltd (“Kiri”). For the purposes of this Judgment, the relevant oppressive conduct includes the following: the exploitation by Zhejiang Longsheng Group Co, Ltd (“Longsheng”) of the Orange 288 patent (the “Patent”), which was owned by DyStar Global Holdings (Singapore) Pte Ltd (“DyStar”); the fees paid to Longsheng by DyStar for Longsheng’s provision of services to DyStar (the “Longsheng Fees”); the payment of remuneration of US$2m to Ruan Weixiang (“Ruan”) as a director of DyStar (the “special incentive payment”); and three financing transactions, which we refer to as the “Financing Transactions”, namely: the granting of loans to Longsheng-related entities (the “Related Party Loans”); an arrangement made pursuant to an agreement we referred to in the Main Judgment as the “Cash-pooling Agreement”; and an arrangement that we referred to in the Main Judgment as the “Longsheng Financing Concept”.

For ease of reference, we refer to these items collectively as the “Oppressive Acts”.

Senda was ordered to purchase Kiri’s shares in DyStar, their joint venture vehicle. Kiri’s shares were to be valued as at 3 July 2018 (“the valuation date”) (see Main Judgment at [281(b)]). The findings in relation to oppression in the Main Judgment were upheld on appeal in Senda International Capital Ltd v Kiri Industries Ltd and others and another appeal [2019] 2 SLR 1 (the “CA Main Judgment”). Notably, our finding on the valuation date was not challenged on appeal by either party – we elaborate on the significance of this below (see [26] onwards).

In Kiri Industries Ltd v Senda International Capital Ltd and another [2019] 4 SLR 1 (the “12 March 2019 Judgment”), this court held, inter alia, that no minority discount for lack of control (“DLOC”) should be applied to the valuation of Kiri’s shareholding in DyStar. In Senda International Capital Ltd v Kiri Industries Ltd and others [2020] 2 SLR 1 (the “12 February 2020 CA Judgment”), the Court of Appeal upheld our decision on this issue in the 12 March 2019 Judgment.

The most recent tranche of proceedings (“the valuation proceedings”), which took place between 26 February and 1 July 2020, concerned the valuation issue. The focus of the valuation proceedings was on the valuation of DyStar as a whole and of Kiri’s shares in DyStar in particular, in order to arrive at the price at which Senda was obliged to purchase Kiri’s shares in DyStar pursuant to the order made in the Main Judgment ([1] supra). Having considered the evidence and the submissions by the parties, this is our Judgment on those issues.

The evidence in the valuation proceedings

Expert evidence formed a central part of the valuation proceedings. The key experts who gave evidence were Ms Roula Harfouche (“Ms Harfouche”) for Kiri and Mr Lie Kok Keong (“Mr Lie”) for Senda. They expressed opinions on the correct approach to valuing DyStar and Kiri’s shares in DyStar as at the valuation date, and the value that ought to be arrived at based on the approaches they advanced. Their written evidence was in the form of several reports of significant length and complexity, which we list below: Ms Harfouche provided the following four reports: a report dated 22 August 2019 (“Ms Harfouche’s first report”); a report dated 11 October 2019 (“Ms Harfouche’s second report”); a report dated 24 March 2020 responding to document 23 of DyStar’s 20th Supplementary List of Documents (“Ms Harfouche’s comments on DyStar’s 20th SLOD”); and written updates to her calculations dated 30 March 2020 (“Ms Harfouche’s updated calculations”). Mr Lie provided the following four reports: a report dated 23 August 2019 (“Mr Lie’s report”); a report dated 15 October 2019 replying to Ms Harfouche’s first report (“Mr Lie’s reply report”); a supplementary report dated 24 March 2020 (“Mr Lie’s supplementary report”); and written updates to his reply report dated 31 March 2020 (“Mr Lie’s updated reply”).

Both experts also gave oral evidence during the valuation proceedings. Ms Harfouche’s and Mr Lie’s evidence will take centre-stage in this Judgment; their evidence addresses squarely the pivotal question in the valuation proceedings, and that is the valuation approach we should adopt in arriving at the value of Kiri’s shares in DyStar. This Judgment begins with that question.

On behalf of Senda, other experts gave evidence on the following issues: Mr Chan Kheng Tek (“Mr Chan”) gave evidence on the impact of the Oppressive Acts. He provided the following reports: a report dated 23 August 2019 (“Mr Chan’s report”); a report dated 15 October 2019 replying to Ms Harfouche’s first report (“Mr Chan’s reply report”); and written updates to his reply report dated 31 March 2020 (“Mr Chan’s updated reply”). Mr Tang EnLiang (“Mr Tang”) gave evidence on whether the intra-group charging mechanism between Longsheng and DyStar was reasonable. To this effect, he provided a report dated 19 August 2019 (“Mr Tang’s report”). Mr Shi Xianping (“Mr Shi”) gave evidence on inter alia the state of the global dyestuff industry. He provided the following reports: a report dated 19 August 2019 (“Mr Shi’s report”); and a report replying to Ms Harfouche’s first report dated 12 October 2019 (“Mr Shi’s reply report”).

Factual witnesses were also called to give evidence. They were mainly the key office holders in Kiri, Senda and DyStar. We will refer to these witnesses as we did in the Main Judgment.

Issues

Our analysis in this Judgment is divided into two main parts. The first part concerns the issue of which expert’s (ie, Ms Harfouche’s or Mr Lie’s) valuation approach ought to be adopted (see [36]–[156] below). As noted earlier, this is the pivotal question and forms the starting point for the court’s valuation of Kiri’s shares in DyStar.

The second part concerns the discrete adjustments that have to be made to the preferred valuation approach (see [157] onwards). In their respective valuations, each of the experts, to varying degrees, took into account the impact (or lack thereof) of various risk events and other relevant factors affecting the value of Kiri’s shares in DyStar. We have grouped these events and factors into three broad categories: The first category comprises what the parties have termed the “Five Risk Events”. They are: the closure of DyStar’s dye production plant in Nanjing, China (the “Nanjing plant”); the closure of DyStar’s dye finishing plant in Wuxi, China (the “Wuxi plant”); the closure of DyStar’s dye finishing plant in Ankleshwar, India (the “Ankleshwar plant”); the expiration of the Patent, in conjunction with which we will consider the adjustments which must be made to DyStar’s valuation due to our finding in the Main Judgment ([1] supra) at [281(b)] that the loss from Longsheng’s use of the Patent is to be incorporated into DyStar’s valuation; and the expiration of DyStar’s patent rights over the Indigo 40% solution in multiple jurisdictions (the “Indigo 40% patents”). The second category comprises specific adjustments that have to be made to the discounted cash-flow (“DCF”) approach. The DCF approach, as will be explained (see [37] below), is a method used to value companies, which was relied on by both Ms Harfouche and Mr Lie albeit to varying extents. The adjustments that will be considered in this respect are: the discount for lack of marketability (“DLOM”), and the extent to which this must be considered in the experts’ DCF approaches; two factors affecting DyStar’s cost of equity, which is a component of DyStar’s weighted average cost of capital (“WACC”). The WACC is a component of the DCF approach. These factors are the country risk premium and the size premium; and the tax rate to be applied on DyStar’s revenue. The third category comprises the remaining discrete adjustments that must be made to DyStar’s valuation due to certain one-off events and transactions, and our finding in the Main Judgment that the value of the Oppressive Acts is to be incorporated into DyStar’s valuation (at [281(b)]). These are: DyStar’s payment of the Longsheng Fees to Longsheng; the special incentive payment; the Financing Transactions; the US$4m insurance pay-out received by DyStar; and three post-valuation tax and legal events, which will be elaborated upon in due course.

We will address the parties’ factual and legal arguments with respect to each of these events and factors where relevant in the course of our analysis.

For reasons that will be made clear in the course of this Judgment, we prefer, generally speaking, Ms Harfouche’s approach to the valuation of DyStar and Kiri’s shares in DyStar. Her approach is to be used as the starting point for the valuation exercise. We will then consider and explain the adjustments that need to be made to Ms Harfouche’s approach.

The parties’ cases

The parties structured their respective cases, by and large, according to the framework of issues set out at [9]–[10] above. They first made arguments on which expert’s general valuation approach is to be adopted by the court. They then examined the specifics of each of the relevant events and transactions, and made arguments on whether these should be, and if so to what extent, taken into account in the court’s...