Siva Kumar s/o Avadiar v Quek Leng Chuang and others

• Jurisdiction: Singapore
• Judge: Steven Chong JA
• Judgment Date: 05 November 2020
• Neutral Citation: [2020] SGCA 110
• Plaintiff Counsel: Christopher Anand s/o Daniel, Ganga d/o Avadiar and Yeo Yi Ling Eileen (Advocatus Law LLP)
• Docket Number: Civil Appeal No 59 of 2020
• Date: 05 November 2020
• Hearing Date: 21 September 2020
• Subject Matter: Civil Procedure,Inherent powers,Consent orders
• Year: 2020
• Defendant Counsel: Srinivasan s/o V Namasivayam and Janna Wong Qian Ern (Heng, Leong & Srinivasan LLC)
• Court: Court of Appeal (Singapore)
• Citation: [2020] SGCA 110
• Published date: 10 November 2020

Steven Chong JA (delivering the grounds of decision of the court): Introduction

When parties enter into a consent order for one shareholder to buy out the other on a valuation to be decided by an agreed independent valuer in settlement of a minority oppression action, either or both parties may not be entirely satisfied with the ensuing valuation. That is a risk which is inherent in any agreed independent valuation. After all, the valuer is required to be independent and by definition, such a valuer will not serve the interest of any particular party.

It is not unexpected for a shareholder who is dissatisfied with the valuation of the independent valuer to employ all available means with the benefit of hindsight to extricate himself from the consent order despite the fact that it was freely entered into with the benefit of legal advice.

This was precisely what happened in the dispute before us. CA/CA 59/2020 was the appellant’s appeal against the decision of Audrey Lim J (“the Judge”) on 6 March 2020 to dismiss HC/OS 83/2020 (“OS 83”). OS 83 was an application by the appellant to set aside a consent order (“the Consent Order”) which was made by the High Court (“the Court”) on 24 May 2019. The Consent Order provided for the 1st and 2nd respondents to purchase the appellant’s shares in the Company at a price to be determined by an independent valuer.

Having carefully considered the parties’ submissions, it was apparent to us that the appeal was wholly without basis and we dismissed the appeal. We observed that this was an entirely opportunistic attempt by the appellant to rely on a misreading of our decision in Liew Kit Fah and others v Koh Keng Chew and others [2020] 1 SLR 275 (“Liew Kit Fah”) to get out of a bad bargain as the independent valuation of his shares was unsatisfactory to him. We now provide our detailed grounds for dismissing the appeal.

Background facts The parties

The 3rd respondent, Environmental Solutions (Asia) Pte Ltd (“the Company”) was founded by the appellant, Mr Siva Kumar, the 1st respondent, Mr Quek Leng Chuang and Mr James Traazil. The Company was incorporated on 8 May 1999. Shortly after the first meeting in or around July 1999 where the business plans were discussed , Mr James Traazil passed away. As a result, the appellant and the 1st respondent started the business of the Company on their own.

The appellant presently holds 992,500 shares (49.625%) in the Company. The appellant was a director of the Company from 22 November 1999 to 27 May 2019. The 1st respondent holds 992,500 shares (49.625%) in the Company and is presently its sole director. The 2nd respondent, Mr Traazil Leon, who is the son of the late Mr James Traazil, holds the balance 15,000 shares (0.75%) in the Company, and became a shareholder of the Company on 18 January 2019, after the said shares were transferred to him from the estate of Mr James Traazil.

Breakdown in relations

Sometime in January 2018, the relationship between the appellant and the 1st respondent began to deteriorate over various business disagreements.

On 29 January 2019, the appellant was served a notice of an Extraordinary General Meeting (“EGM”) to be held on 18 February 2019 to remove him as director of the Company and to appoint the 2nd respondent as director in the appellant’s stead. As a result, the appellant commenced HC/S 168/2019 (“Suit 168”) on 7 February 2019 against the respondents for minority oppression, amongst others. In Suit 168, the appellant sought the following reliefs: a declaration to remain as a director of the Company for as long as he was a shareholder of the Company; an injunction to restrain the 1st respondent, the 2nd respondent and the Company from removing him as a director of the Company, affecting his right to equal representation on the board of directors, or interfering with his rights and performance of his duties as a director; an order for him or the Company to buy out the shares of the 1st and 2nd respondents at fair value, in cash or in kind, or as determined by the court; or alternatively, for the 1st and 2nd respondents or the Company to buy his shares at fair value, in cash or in kind, or as determined by the court; and damages to be assessed.

On 7 February 2019, the appellant also filed HC/SUM 621/2019 (“SUM 621”) to restrain the 1st respondent, 2nd respondent and the Company from proceeding with the EGM on 18 February 2019. On 26 April 2019, the appellant was served with a notice of an EGM to be held on 11 May 2019 for the proposed appointment of one Tay Eng Hean to be appointed as a director of the Company. On 7 May 2019, the appellant filed HC/SUM 2360/2019 (“SUM 2360”) to restrain the 1st respondent, 2nd respondent and the Company from proceeding with the proposed EGM on 11 May 2019.

On 9 May 2019, the appellant obtained various court orders including an interim injunction restraining any EGMs of the Company to appoint a new director of the Company, pending the resolution of SUM 2360 and SUM 621 which were both adjourned to be heard on 24 May 2019.

The Consent Order and the related events

On 24 May 2019, the parties reached a settlement in Suit 168 and by consent, applied to the High Court to record the Consent Order which was duly granted of which its essential terms are reproduced below: 1. The 1st and 2nd [respondents] shall, jointly and severally, purchase, or cause to be purchased, [the appellant’s] 992,500 shares in [the Company] on the following terms: (1) The price of [the appellant’s] Shares shall be determined by an independent valuer (“Valuer”) who is to be appointed by agreement between [the appellant, the 1st respondent and the 2nd respondent] within 21 days from the date of this Order of Court, failing which, the Valuer shall be appointed by this Honourable Court within 35 days from the date of this Order of Court, or as such other time as this Honourable Court determines. (2) The Valuer shall be at liberty to determine and adopt the appropriate standards, and methods of valuation.

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(4) The Valuer shall within 6 weeks from being appointed, or such other extended period as may be allowed by the Court (if not agreed by the parties), fix the value of the [appellant]’s Shares (“Value”), as at 7 February 2019.

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2. Within 8 weeks of the final determination of the Value: (1) [The 1st respondent and/or the 2nd respondent] and/or their nominee shall pay to [the appellant] the Value. (2) [The appellant] shall sign a share transfer form to transfer [the appellant]’s Shares to [the 1st respondent and/or the 2nd respondent] and/or their nominee, as the case may be, and deposit it with the solicitors for [the 1st respondent and/or the 2nd respondent]. ...

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4. Within 3 days of this Order of Court, [the appellant] shall: (1) File a Notice of Discontinuance as against [the Company]. (2) Resign from his appointment as a director of [the Company].

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6. Save as provided in this Order of Court, [the appellant] withdraws all of his allegations against [the 1st and 2nd respondents], as stated in his Statement of Claim and Reply and Defence to Counterclaim, and all affidavits that were filed by [the appellant] in this action … and all other claims in his Statement of Claim against [the 1st and 2nd respondents] … 7. Save as provided in this Order of Court above, [the 1st and 2nd respondents] withdraw all their allegations against [the appellant] as stated in their Defence and Counterclaim …

The appellant resigned as a director of the Company on 27 May 2019. Thereafter, the parties took steps to perform their obligations pursuant to the Consent Order: On 15 August 2019, they jointly appointed Nexia TS Pte Ltd (“Nexia”) as the Valuer and agreed to the terms of engagement of Nexia and its scope of work. They provided the documents as requested by Nexia. Thereafter, the parties made three sets of submissions to Nexia on 6 September 2019, 29 October 2019 and 25 November 2019 respectively in respect of the valuation. Both parties therefore had ample opportunities to address Nexia on the application of the lack of marketability discount before Nexia’s final valuation report (“Final Report”) was issued. Upon Nexia’s review of each set of submissions, Nexia provided the parties with two draft reports before issuing the Final Report. On 10 October 2019, Nexia issued its first draft valuation report, valuing the appellant’s shares at US$703,000. The appellant took issue with Nexia’s application of a 25% discount for lack of marketability to the valuation of the appellant’s shares. On 11 November 2019, Nexia issued the second draft report, valuing the appellant’s share of US$487,000 with the application of a 25% discount for lack of marketability to the valuation of the appellant’s shares. On 4 December 2019, Nexia issued the Final Report valuing the appellant’s shares at US$395,000 on the premise that the 25% discount for lack of marketability was applicable. This was derived from a gross valuation of approximately US$526,000. It is apparent that Nexia was consistently of the view that the discount for lack of marketability would apply in all of its valuation reports.

We note that there were some differences in the valuation of the appellant’s shares by Nexia in its three reports. The first and second draft valuation reports differed because the first draft valuation report adopted the Guideline Public Company Method, while the second draft valuation report adopted the Discounted Cash Flow Method. Nexia took the view in the second draft valuation report that the Discounted Cash Flow Method was the most appropriate because (a) the shares of the Company were valued on a going concern premise; (b) there was sufficient reliable historical and projected financial data made available for the evaluation of share value based on the Discounted Cash Flow...