Liew Kit Fah v Koh Keng Chew

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J,Quentin Loh J,Steven Chong JA
• Judgment Date: 27 November 2019
• Neutral Citation: [2019] SGCA 78
• Published date: 03 December 2019
• Date: 27 November 2019
• Year: 2019
• Hearing Date: 05 July 2019
• Plaintiff Counsel: Patrick Ang, Jared Kok, Derek On and Torsten Cheong (Rajah & Tann Singapore LLP)
• Citation: [2019] SGCA 78
• Defendant Counsel: Nish Shetty, Jordan Tan, Elan Krishna and Sarah Hew (Cavenagh Law LLP)
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 115 of 2018

Steven Chong JA (delivering the judgment of the majority consisting of Quentin Loh J and himself): Introduction

Section 216 of the Companies Act (Cap 50, 2006 Rev Ed) (“Companies Act”) provides a statutory remedy for an oppressed minority shareholder to exit from the company in question. One of the most common remedies ordered by the court pursuant to its powers under s 216(2), where a case of minority oppression has been established, is for the delinquent majority shareholder to buy out the oppressed minority shareholder.

Less common, although not unheard of, is where parties agree to dispense with the issue of liability for oppression on condition that the majority shareholder makes no admission of liability, and proceed instead on the question of valuation of the subject shares. When this happens, there has been some suggestion in the authorities that the court’s powers under s 216(2) of the Companies Act are not engaged. However, for such cases, it is typically agreed between the parties that the majority will buy out the minority leaving only the question of valuation to be contested. This appeal concerns an atypical situation. While the minority agreed to dispense with the oppression suit and to part company with the majority, both parties wanted to buy out the other. Under these circumstances, the parties agreed to contest the buy-out issue both as regards the valuation of the shares as well as to decide on the party to buy out the other.

This appeal thus gives us occasion to consider the principles that apply in valuing the subject shares in the event when the court’s powers under s 216(2) are not engaged. In particular, in the absence of a finding or admission of liability for minority oppression, if the parties agree that there has been a breakdown of the relationship of mutual trust and confidence between the shareholders, and that a parting of ways is inevitable, will a minority shareholder, irrespective whether he agrees to sell out or is ordered to sell out, be treated nonetheless as an unwilling seller of his shares such that the value of those shares should ordinarily not be discounted for lack of control and lack of marketability?

In the decision from which this appeal arises, the High Court Judge (“the Judge”) directed an independent valuer appointed by the parties not to apply a discount for the lack of control and lack of marketability in valuing the shares of the respondents in various companies. The Judge’s Grounds of Decision are set out in Koh Keng Chew and others v Liew Kit Fah and others [2018] SGHC 262 (“the GD”).¹

Facts The parties

The respondents hold 28.125% of the shares in the 7th to 16th defendants (the “Samwoh Group”) in Suit No 125 of 2014 (“Suit 125”); the appellants collectively hold the remaining 71.875%. Suit 125 is the respondents’ action, under s 216 of the Companies Act, against the appellants and the Samwoh Group for minority oppression.

Background to the dispute

Suit 125 was compromised shortly before the commencement of the trial. It was common ground that the relationship of mutual trust and confidence between the parties had broken down, and that a parting of ways was inevitable.² Although the parties agreed to part company, they were unable to agree as to who should buy out whom. Both the respondents and the appellants wanted to buy out the other party. Under these circumstances, on 17 February 2016, the parties recorded a consent order (the “Consent Order”) in which they agreed that the remaining issues to be determined by the court were as follows:³ Without admission of liability by the appellants in respect of any alleged acts of oppression committed against the respondents in relation to the affairs of the Samwoh Group, the court is to order either that: the appellants purchase the respondents’ shares in the Samwoh Group, or the respondents purchase the appellants’ shares in the Samwoh Group; (the “Buyout Issue”) at a price to be determined by an independent valuer who shall be appointed by parties’ mutual agreement, or failing such agreement, by the court; Failing an agreement between the parties, the reference date for such independent valuation shall be determined by the court; Failing an agreement between the parties, the costs arising from and in relation to the independent valuation shall be determined by the court; The court shall determine the appointment of the independent valuer, the reference date for the independent valuation and the costs arising from and in relation to the independent valuation in the event that the parties are unable to agree on these matters within 30 days of the date of the order of court in respect of the Buyout Issue; Parties be granted liberty to apply; and Costs of the action to be provided for.

Thus, by consent, the parties agreed that there was no need to explore the issue of liability for oppression at the trial. The court below only had to concern itself with the Buyout Issue. Significantly, this issue was to be determined without admission of liability by the appellants in respect of any of the alleged acts of oppression complained of.

On 29 July 2016, the learned Judicial Commissioner (as he then was) delivered his judgment ordering the appellants to buy out the respondents (the “Buyout Order”): see Koh Keng Chew and others v Liew Kit Fah and others [2016] SGHC 140 (“Koh Keng Chew (No 1)”).⁴ Subsequently, the parties agreed on and appointed the independent valuer to determine the price of the respondents’ shares. The parties could not agree, however, on various issues, including the reference date for the valuation of those shares. On 23 January 2017, the Judge gave certain directions as to the reference date for the valuation as well as its process, and decided against a reasoned valuation: see Koh Keng Chew and others v Liew Kit Fah and others [2018] 3 SLR 312 (“Koh Keng Chew (No 2)”).⁵

The genesis of this appeal lies in what transpired after Koh Keng Chew (No 1) and Koh Keng Chew (No 2). The appellants’ position is that for the purchase of the respondents’ shareholding pursuant to the Buyout Order, that shareholding ought to be discounted for two reasons: the shares lack control because they are minority shares; and/or the shares lack marketability because, being shares in privately held companies, they are subject to share transfer restrictions.

The respondents disagreed. The valuer thus requested the parties to obtain the court’s directions as to whether any of the discounts should be applied to his valuation of the respondents’ shares in the Samwoh Group.⁶ On 5 July 2018, the Judge, after considering the parties’ respective written submissions, directed that the value of the respondents’ shares was not to be discounted for either of the above reasons.⁷ Following this decision, the independent valuer, on 3 August 2018, issued its report valuing the respondents’ shareholding at about $66m, which was a pro-rated value of the Samwoh Group based on the respondents’ shareholding without the application of any discount. On 10 September 2018, the appellants bought out the respondents at that value.⁸ Civil Appeal No 115 of 2018 is the appellants’ appeal against the Judge’s direction to the independent valuer that the relevant discounts ought not to be applied in valuing the respondents’ shares.

The parties’ arguments The appellants’ submissions

The appellants make two principal submissions in this appeal:⁹ First, they submit that the Judge erred in holding that the Buyout Order was made under s 216(2) of the Companies Act. The power to grant relief for oppression under s 216(2) is enlivened only on a finding of oppression; the Judge made no such finding. Instead, the Buyout Order was based on an agreed sale between the parties under the Consent Order. Accordingly, the shares ought to have been valued based on their fair market value, as would be the case in a sale between a willing seller and a willing buyer. This means that the relevant discounts ought to have applied in the valuation of the respondents’ shares in the Samwoh Group. Second, even if the Judge is correct in holding that the Buyout Order was made under s 216(2), the appellants submit that a discount on the basis of both lack of control and lack of marketability ought, nonetheless, to apply. Beginning with a discount for lack of control, the appellants submit that there is no applicable presumption as to whether a discount ought to apply as a starting point. This is because the Judge did not find that the shareholders of the Samwoh Group were in a quasi-partnership.¹⁰ Further, the parties had agreed that Suit 125 was to proceed on the basis that the appellants would make no admission of liability for minority oppression. The Judge thus made no finding on liability. Consequently, although a discount for lack of control is often not applied where the majority’s oppressive conduct is directed at worsening the position of the minority as shareholders, there was no such finding by the Judge here to warrant such an approach.¹¹ In any event, by virtue of the Consent Order, the parties had fundamentally agreed that there should be a buyout order, even if they disagree as to who should buy out whom. This is sufficient to render the sale of the respondents’ shares akin to a transaction entered into on a willing buyer-willing seller basis, which accordingly justifies the application of the discount for lack of control.¹² As to the discount for lack of marketability, the Judge ought to have ordered that it applied because the respondents’ shares, being shares in a private company, are an illiquid asset subject to transfer restrictions.¹³ Additionally, since there was no finding on liability for oppression, it follows that there is no unfairness to the respondents that needs to be remedied. Accordingly, the discount should not have been disapplied.¹⁴

The respondents’...