Robert French IJ (delivering the judgment of the court):
Introduction
DyStar Global Holdings (Singapore) Pte Ltd (“DyStar”) is part of a global group which carries on business in the manufacture and sale of dyes. From 2012 Senda International Capital Ltd (“Senda”) was a majority shareholder of DyStar with 62.43% of its shares. Kiri Industries Ltd (“Kiri”) was a 37.57% shareholder. In 2015, Kiri commenced proceedings against Senda alleging oppressive conduct by Senda. In a judgment dated 3 July 2018, a three judge coram of the Singapore International Commercial Court (“SICC”) found for Kiri and ordered that Senda purchase Kiri’s 37.57% shareholding in DyStar, which was to be valued as at the date of the judgment (see DyStar Global Holdings (Singapore) Pte Ltd v Kiri Industries Ltd and others and another suit [2018] 5 SLR 1 (the “Main Judgment”)). In making the buyout order, the SICC held that the value of Kiri’s shareholding was to take into consideration the effects of various aspects of oppressive conduct by Zhejiang Longsheng Group Co Ltd (“Longsheng”), of which Senda was a wholly-owned subsidiary. The SICC’s decision was upheld on appeal (see Senda International Capital Ltd v Kiri Industries Ltd and others and another appeal [2019] 2 SLR 1).
Further proceedings then took place before the SICC to determine how Kiri’s shareholding was to be valued for the purposes of the buyout order. The SICC delivered four judgments for the valuation proceedings, the first of which was delivered on 21 December 2020 (see Kiri Industries Ltd v Senda International Capital Ltd and another [2021] 3 SLR 215 (the “First Valuation Judgment”)). An oral judgment was delivered on 17 March 2021 (the “Oral Judgment”), a second judgment on 3 June 2021 (see Kiri Industries Ltd v Senda International Capital Ltd and another [2021] 5 SLR 1 (the “Second Valuation Judgment”) and a final judgment on 21 June 2021 (see Kiri Industries Ltd v Senda International Capital Ltd and another [2021] 5 SLR 111 (the “Final Valuation Judgment”). These appeals by both Senda and Kiri raise issues arising out of those judgments concerning matters affecting the valuation of DyStar and adjustments for various factors as well as the valuation of Kiri’s shareholding and adjustments relevant to that.
The SICC’s judgments in the valuation proceedings
The First Valuation Judgment
In the First Valuation Judgment, the SICC dealt with questions of valuation methodology and adjustments to DyStar’s enterprise value. The valuation of DyStar for the purposes of the buyout order was derived from its enterprise value after subtracting net debt and other accounting adjustments. The parties presented expert evidence on those issues ‒ Kiri’s expert being Ms Roula Harfouche (“Ms Harfouche”) and Senda’s being Mr Lie Kok Keong (“Mr Lie”). Senda also called Mr Chan Kheng Tek (“Mr Chan”) who gave evidence on the impact of the oppressive acts. The SICC generally preferred the valuation methodology used by Ms Harfouche (see First Valuation Judgment at [76]). It rejected objections advanced by Senda that various broker and market reports containing information and forecasts about companies comparable to DyStar upon which Ms Harfouche relied in her valuation exercise were inadmissible hearsay (see First Valuation Judgment at [104] and [115]).
The SICC also found that DyStar management forecasts prepared in April 2019 (the “April 2019 Forecasts”), which Mr Lie had relied on in his valuation exercise, were unreliable and skewed in Senda’s favour (see First Valuation Judgment at [138]‒[150]). It was of the view that Mr Lie’s valuation had been overly depressed because of his reliance on the April 2019 Forecasts (see First Valuation Judgment at [137]). A financial model purportedly building on the April 2019 Forecasts and which quantified the impact of various risk events that Senda said negatively impacted DyStar’s valuation (the “February 2020 Model”) was also rejected by the SICC (see First Valuation Judgment at [154]). The SICC considered that most of the assumptions made by the February 2020 Model were not backed up with evidence and the circumstances in which it had been prepared suggested that, like the April 2019 Forecasts, it had been prepared specifically for the valuation proceedings and consciously skewed in Senda’s favour (see First Valuation Judgment at [152]‒[153]).
The SICC accepted Ms Harfouche’s valuation of US$1,636m but required nine adjustments: Incorporation in DyStar’s valuation of notional licence fees payable by Longsheng for its use of a patent known as Orange 288 (the “O288 Patent”) (see First Valuation Judgment at [178]‒[203]). The O288 Patent is owned by a DyStar affiliate, DyStar Colour Deutschland GmbH and is used in the manufacture of black and navy blue disperse dyes. The O288 Patent had temporarily been assigned to Longsheng in August 2010 for the purpose of Longsheng defending it from invalidation proceedings in China. It was not reassigned after the settlement of those proceedings and Longsheng had exploited the O288 Patent in its commercial production of black and navy blue disperse dyes and also collected licence fees from third parties for the use of the O288 Patent without accounting to DyStar, which the SICC had found to constitute an oppressive act (see Main Judgment at [74]‒[78] and [189]‒[198]). In connection with the quantification of the notional licence fee, the SICC held that: The litigation costs incurred by Longsheng in defending the O288 Patent were not to be deducted from the notional licence fee because the terms on which the O288 Patent had been assigned to Longsheng suggested that such costs were to be borne by Longsheng (see First Valuation Judgment at [195]‒[197]). The benefits obtained by Longsheng from the use of the O288 Patent were not to be quantified by way of an account of profits made by Longsheng from the sale of products manufactured by Longsheng using the O288 Patent, as Kiri had urged the SICC (see First Valuation Judgment at [185]). The notional licence fee was to be calculated based upon the quantity of products manufactured using and falling within the scope of the O288 Patent (also referred to by the SICC and Kiri as “Related Products”). The SICC relied on Senda’s evidence in this regard although it accepted that there had been incomplete disclosure of the same by Senda (see First Valuation Judgment at [194]). The downstream financial impact on DyStar due to the expiration of the O288 Patent to be deducted from Ms Harfouche’s computation of DyStar’s maintainable earnings before interest, taxes, depreciation and amortisation (“EBITDA”) with an impact of US$6.5m, as suggested by Mr Lie (see First Valuation Judgment at [210]‒[213]). The downstream financial impact on DyStar due to the expiration of other patents used in the manufacture of a solution known as Indigo 40% for the production of Indigo dyes (the “I40 Patents”) to be deducted from DyStar’s maintainable EBITDA. This event would have an impact of US$17.2m as suggested by Mr Lie (see First Valuation Judgment at [214]‒[223]). A discount for lack of marketability (“DLOM”) of 19% to be applied to the value of Kiri’s 37.57% share in DyStar (see First Valuation Judgment at [224]‒[246]). A country risk premium of 1.6% to be accounted for in DyStar’s cost of equity, which would increase DyStar’s weighted average cost of capital (“WACC”) and result in a larger discount rate in the discounted cash flow (“DCF”) approach (see First Valuation Judgment at [247]‒[250]). The SICC however rejected Senda’s contention that a size premium be applied in calculating DyStar’s cost of equity (see First Valuation Judgment at [251]‒[265]). The applicable tax rate for DyStar’s revenue to be 26.7% instead of 23% (see First Valuation Judgment at [266]‒[268]). The tax rate for substantial sums paid by DyStar to Longsheng purportedly as payment for services and support that Longsheng had provided in 2015 and 2016 (the “Longsheng Fees”) (see Main Judgment at [79]‒[92]), which the SICC had found in the Main Judgment to constitute oppressive conduct (at [202] and [225]), was to be adjusted to match DyStar’s historical tax rates (see First Valuation Judgment at [276]). For the purposes of the buyout order, the Longsheng Fees were to be incorporated into DyStar’s valuation. A “special incentive payment” of US$2m made in 2014 by DyStar to one Mr Ruan Weixiang (“Mr Ruan”), a director of both Senda and DyStar at the material time, and which the SICC had found in the Main Judgment to be an act of oppression (at [71]‒[73] and [179]), had been accounted for in Ms Harfouche’s valuation (see First Valuation Judgment at [291]‒[292]). However, an adjustment to the applicable tax rate was required. That was to be DyStar’s historical rate in 2014 when the special incentive payment was made (see First Valuation Judgment at [293]). A US$4m insurance payout to DyStar in May and June 2019, to be incorporated into DyStar’s valuation (see First Valuation Judgment at [302]).
The SICC rejected Senda’s contentions that DyStar’s enterprise value should be adjusted downwards by reason of: The closure of DyStar’s plant in Nanjing, China (the “Nanjing Plant”) following an explosion in February 2018 (see First Valuation Judgment at [157]‒[163]). The closure of Dystar’s plant in Wuxi, China (the “Wuxi Plant”) following the acquisition by Chinese authorities of the land upon which it was built (see First Valuation Judgment at [164]‒[169]). The closure of DyStar’s plant in Ankleshwar, India which was a post-valuation event held not to be foreseeable at the date of valuation (see First Valuation Judgment at [170]‒[177]).
The SICC made the following directions (see First Valuation Judgment at [313]): The parties’ experts are to revise the notional licence fee of US$473,744 proposed by Mr Chan to take into account a starting point of 2010 and not 2013. This...
