Kiri Industries Ltd v Senda International Capital Ltd and another

• Jurisdiction: Singapore
• Judge: Kannan Ramesh J
• Judgment Date: 12 March 2019
• Neutral Citation: [2019] SGHC(I) 2
• Court: International Commercial Court (Singapore)
• Docket Number: Suit No 4 of 2017
• Year: 2019
• Published date: 15 March 2019
• Hearing Date: 23 November 2018,08 January 2019
• Plaintiff Counsel: Dinesh Dhillon Singh, Lim Dao Kai, and Elyssa Lee (Allen & Gledhill LLP)
• Defendant Counsel: Nandakumar Ponniya Servai, Wong Tjen Wee, Liu Ze Ming, and Nicolette Oon (Wong & Leow LLC),See Chern Yang, Teng Po Yew and Audie Wong Cheng Siew (Premier Law LLC)
• Subject Matter: Companies,Shares,Valuation
• Citation: [2019] SGHC(I) 2

Kannan Ramesh J (delivering the grounds of decision of the court):

These grounds follow the directions that we issued on 8 January 2019 (“the Directions”), in respect of the case management conference held on 23 November 2018 (“the CMC”). We shall adopt the terms used in our judgment in DyStar Global Holdings (Singapore) Pte Ltd v Kiri Industries Ltd and others and another suit [2018] 5 SLR 1 (“the Main Judgment”).

In the Main Judgment, we held that Kiri succeeded in its claim under s 216 of the Act for minority oppression (at [270]). We ordered that Senda purchase Kiri’s 37.57% shareholding (“Kiri’s shareholding”) in DyStar based on a valuation to be assessed as of the date of the Main Judgment, and that the valuation of Kiri’s shareholding should take into account losses arising from various oppressive acts by Senda (at [279], [281(a)] and [281(b)]). We also allowed in part DyStar’s claims in Suit 3 and Senda’s counterclaims in Suit 4. Notably, we entered interlocutory judgment with damages to be assessed for DyStar and Senda against Kiri for breach of cll 15.1(a) and (b) of the SSSA.

We gave directions at [281(d)] and [378] of the Main Judgment for a case management conference to be held for the fixing of timelines on various matters so as to facilitate the movement of Suits 3 and 4 towards the assessment of damages and the valuation of Kiri’s shareholding for the purpose of the buy-out order that we had made. The CMC was fixed pursuant to our directions in the Main Judgment. At the CMC, we received submissions on issues relating to the valuation of Kiri’s shareholding. The following matters were addressed: Whether the valuation of Kiri’s shareholding should be undertaken by (A) the court, (B) a valuer appointed by the court or the parties, or (C) some other method and (if so) what method (“the Valuation Process Issue”); Whether a discount should be factored into the valuation of Kiri’s shareholding given that Kiri was a minority shareholder, and if so, how this should be assessed in the valuation process (“the Minority Discount Issue”); Whether Kiri was entitled to interest on the amount payable to it by Senda pursuant to the buy-out order (“the Interest Issue”); How (if at all) the court’s rulings allowing part of DyStar’s claims in Suit 3 and Senda’s counterclaims in Suit 4 might affect the valuation of Kiri’s shareholding (“the Counterclaims Issue”); The process and procedure for assessment of the loss caused by the various acts of oppression by Senda we had found, namely: (i) the Special Incentive Payment to Ruan; (ii) the Longsheng Fees for 2015 and 2016; (iii) the licence fees that Longsheng had obtained from the Patent; (iv) the benefit that Longsheng had obtained from its commercial use of the Patent for its own production; and (v) the loss to DyStar, directly or by impact through subsidiaries, from the Related Party Loans, the Cash-pooling Agreement and the Longsheng Financing Concept, and of the value to be written back into DyStar’s value as a result (“the Loss Assessment Issue”); and The appropriate order for costs in respect of Suits 3 and 4 (“the Costs Issue”).

The Directions we issued dealt with these issues. Senda has since appealed against our decision in respect of the Minority Discount Issue, the Counterclaims Issue, the Loss Assessment Issue and the Costs Issue. There has been no appeal against the Directions in respect of the Valuation Process Issue and the Interest Issue. We nonetheless set out briefly our decision on those matters for completeness: On the Valuation Process Issue, it was common ground between the parties that the court should undertake the valuation. Each party would appoint its own independent expert(s) to assess the value of Kiri’s shareholding on the basis of which the court would make the final determination. The parties were also in agreement that the valuation should not be undertaken by a court-appointed expert. We agreed with the approach suggested by the parties. On the Interest Issue, there were arguments made with regard to whether the court had the power to award interest on the amount assessed as payable for Kiri’s shareholding. We reserved our ruling until after our decision on the valuation of Kiri’s shareholding, leaving open the possibility of inviting further submissions on whether interest should be awarded and if so from what date, if the court has the power to award interest.

In respect of the four aspects of the Directions that Senda has appealed against, we set out our reasons in full below.

The Minority Discount Issue

Kiri submitted that a minority discount should not be factored into the valuation of Kiri’s shareholding. Relying principally on Thio Syn Kym Wendy and others v Thio Syn Pyn and another [2018] SGHC 54 (“Thio Syn Kym”), Kiri advanced four main reasons in support of its position: There was no general rule requiring the application of a minority discount where the relationship was not that of a “quasi-partnership situation”. The breakdown of the parties’ relationship was precipitated by Longsheng and not Kiri. Kiri has been compelled to seek a buy-out as a result of the oppressive acts by Longsheng (through their directors nominated to the DyStar Board). The various oppressive acts found to be committed by Longsheng were to extract benefit from DyStar for Longsheng, and to the detriment of DyStar. Following the buy-out of Kiri’s shareholding, Senda would be the sole shareholder of an extremely valuable company.

Senda’s submissions on the Minority Discount Issue at the CMC may be summarised as follows: Generally, the court has the discretion to apply a discount to the assessed value of a minority shareholding. The discount had two features: one to reflect the lack of control of the minority shareholder, and the other the lack of marketability of minority shareholdings in private companies. The court must look at all the facts and circumstances to assess whether either or both components should apply. In the present case, specifically in relation to the issue of a minority discount for lack of control, the following factors were relevant: the parties’ respective contributions to DyStar between 2010 and 2018; Kiri’s conduct as a shareholder, including conduct which was not raised at the trial of Suit 4; whether Kiri was in fact an unwilling seller; whether the alleged oppressive conduct was directed at worsening the position of Kiri as a shareholder so as to compel it to sell out, or whether the conduct of Senda and/or the Senda-related parties was motivated by other considerations; and whether the conduct of Kiri or the Kiri Directors contributed to the oppressive conduct complained of. Evidence of the abovementioned factors had to be adduced, and submissions had to be made on such evidence, for the court to come to a fair decision on whether a minority discount should be factored in the valuation of Kiri’s shareholding. In any event, as the evidence stood, a minority discount ought to be applied because: Kiri and Senda were not engaged in a quasi-partnership; The Senda-related parties made significant contributions to the success of DyStar; and Kiri had not come to the court with clean hands, given that it was found to be in breach of the SSSA.

We directed that a minority discount (for lack of control) should not be factored in the valuation of Kiri’s shareholding. In doing so, we rejected Senda’s suggestion that it was necessary for further evidence to be adduced before the court could determine the issue of whether a minority discount ought to be factored in the valuation of Kiri’s shareholding. We were of the view that the findings necessary to arrive at a determination on whether a minority discount (for lack of control) ought to be given had already been made in the Main Judgment. On the basis of those findings, Senda’s conduct fell within the situations identified in Thio Syn Kym at [31] in which the court would not usually order a minority discount (for lack of control). We elaborate on this below (at [10]–[15]).

We also made clear that the Directions were restricted to the matter of a minority discount for lack of control. The separate question of a discount, if any, due to a lack of marketability (because DyStar is a privately held company) was left to be determined as part of the valuation of Kiri’s shareholding. This part of the Directions was not appealed against, and we therefore say no more on it.

Both Senda and Kiri accepted that Thio Syn Kym was instructive on the issue of when the court would order a minority discount for lack of control. In Thio Syn Kym, Judith Prakash JA, sitting in the High Court, articulated the following observations on the applicability of a minority discount when the company was not a quasi-partnership (at [27]–[31]): 27 While it is clear that a presumption of no discount exists where the company is a quasi-partnership, the legal position is far less certain as to whether the converse is true such that there would be a presumption of a discount for shares in companies that are not quasi-partnerships. …

…

29 Any rule I articulate on this issue must take into account two competing considerations. The first is that, in general, an oppressed minority shareholder should not be treated as having elected freely to sell his shares … and the court should ensure that the oppressor does not profit from his wrongful behaviour … In my view, this logically applies to all buyouts ordered under s 216(2) of the Companies Act regardless of whether the company in question is a quasi-partnership or not. The second consideration is that minority shareholding may be relatively harder to dispose of, due to the lack of control that a minority shareholder has over the management of the company. 30 Having considered all of the cases cited to me by counsel, I find a coherent and principled reading of the...